UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ to _______
Commission File No. 0-22947
ADATOM.COM, INC.
----------------------------------
(Exact name of Small Business registrant in its charter)
Delaware 43-1771999
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
920 Hillview Court, Suite 190, Milpitas, CA 95035
- - ------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number,: (408) 935-7979
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
ninety (90) days. YES [X] NO [_]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 11, 2000 there were
16,146,499 shares outstanding of the Company's common stock.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheet as of March 31, 2000............................. 3
Statement of Operations for the three months ended
March 31, 2000 and 1999 ....................................... 4
Statement of Cash Flows for the three months ended
March 31, 2000 and 1999 ....................................... 5
Notes to the Financial Statements ............................. 6
Item 2. Management's Discussion and Analysis or Plan of Operations...7
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds ...................25
Item 4. Submission of Matters to a Vote of the Security Holders .....26
Item 6. Exhibits and Reports on Form 8-K .......................... 26
SIGNATURES ......................................................... 26
EXHIBITS............................................................E-1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADATOM.COM, INC.
BALANCE SHEET
(unaudited)
March 31
2000
------------
Current assets:
Cash $ 790,000
Notes receivable from franchisee 8,000
Inventory 260,000
Prepaid expenses and other 108,000
------------
Total current assets 1,166,000
Other assets:
Fixed assets net 432,000
Deposits and other assets 27,000
Investment joint venture 500,000
Web development costs, net 264,000
------------
Total other assets 1,223,000
------------
$ 2,389,000
============
Current Liabilities:
Accounts payable $ 686,000
Obligations under capital leases current 57,000
Accrued expenses 294,000
------------
Total current liabilities 1,037,000
Long-term liabilities
Obligations under capital leases 86,000
------------
Total liabilities 1,123,000
Equity
Preferred stock, $.01 par value; authorized
5,000,000 shares, issued and outstanding - none
Common stock $.01 par value; 50,000,000 authorized; 161,000
16,161,499 issued; 16,146,499 outstanding
Paid in capital 17,945,000
Accumulated deficit (16,825,000)
Treasury Stock - at cost (15,000 shares) (15,000)
------------
1,266,000
------------
$ 2,389,000
============
The accompanying notes are an integral part of these financial statements
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ADATOM.COM, INC.
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Thee Months Ended
March 31, 2000 March 31, 1999
----------------------------------------
<S> <C> <C>
Product revenue $ 443,000 $ 100,000
Cost of product revenue 433,000 88,000
------------------- -------------------
10,000 12,000
Operating expenses:
Research and development 364,000 132,000
Selling, general and administrative 1,824,000 188,000
------------------- -------------------
2,188,000 320,000
------------------- -------------------
Loss from operations (2,178,000) (308,000)
Other income (expense)
Internet support income 0 38,000
Miscellaneous income 1,000 0
Interest income (expense), net 4,000 (28,000)
------------------- -------------------
5,000 10,000
----------------------------------------
Net Loss $ (2,173,000) $ (298,000)
========================================
Basic and diluted loss per share ($0.15) ($0.06)
Weighted average shares outstanding 14,778,000 5,056,000
</TABLE>
The accompanying notes are an integral part of these financial statements
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ADATOM.COM, INC.
STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended March
2000 31, 1999
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,173,000) $ (298,000)
Adjustments to reconcile net (loss) to net
Cash used in operating activities:
Depreciation and amortization 29,000 8,000
Decrease (increase) in operating assets
Accounts receivable 101,000 (10,000)
Inventory (20,000) (5,000)
Prepaid expenses and other 172,000 (9,000)
Increase (decrease) in operating liabilities
Accounts payable (446,000) 52,000
Accrued expenses (140,000) 29,000
Customer deposits (232,000) (28,000)
--------------- -------------
Net cash used in operating activities (2,709,000) (261,000)
Cash flows from investing activities:
Investment Joint Venture (CPTNC) (500,000) 0
Payments received on franchisee notes receivable 1,000 1,000
Acquisition of fixed assets & Web site development (122,000) (1,000)
--------------- -------------
Net cash used in investing activities (621,000) 0
Cash flows from financing activities:
Proceeds from sales and issuance of stock 4,011,000 231,000
Repayments of notes and contracts payable 0 (7,000)
--------------- -------------
Net cash provided by financing activities 4,011,000 224,000
Net increase (decrease) in cash 681,000 (37,000)
Cash beginning of period 109,000 91,000
------------------------------
Cash end of period $ 790,000 $ 54,000
==============================
Supplemental disclosure of cash flow
Cash paid during year for:
Interest 0 1,000
</TABLE>
The accompanying notes are an integral part of these financial statements
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ADATOM.com, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
1. ACCOUNTING POLICIES
Unaudited Interim Financial Information
The accompanying unaudited condensed financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and the
applicable rules of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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.
Legal Proceedings
From time to time the Company is subject to legal proceedings and
claims in the ordinary course of business, including claims alleging
infringement of trademarks, copyrights and other intellectual property rights.
The Company currently is not aware of any such legal proceedings or claims that
it believes will have individually or in the aggregate a material adverse effect
on its business, prospects, financial condition or operating results.
Net Loss Per Share
Net loss per share basic and diluted is calculated using the weighted
average number of common shares outstanding during the period. Diluted net loss
per share excludes the impact of stock options and warrants, as the effect of
their inclusion is antidilutive as of the periods reported on.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Statements in this Form 10-QSB and the following "Management's
Discussion and Analysis or Plan of Operations" that are not statements or
descriptions of historical facts are forward-looking statements that are subject
to risks and uncertainties. Words such as "expect," "intends," "believes,"
"plans," "anticipates" and "likely" also identify forward-looking statements.
All forward-looking statements are based on current facts and analyses. Actual
results may differ materially from those currently anticipated due to a number
of factors including, but not limited to, history of operating losses,
anticipated future losses, competition, future capital needs, the need for
market acceptance, dependence upon third parties, disruption of vital
infrastructure and intellectual property rights, government regulation,
dependence on third parties, and other risks. See the section entitled
"MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -Risk Factors" for a
discussion of some of those risks. Additional information on factors that may
affect the business and financial results of the Company can be found in filings
of the Company with the Securities and Exchange Commission. All forward-looking
statements are made pursuant to the Private Securities Litigation Reform Act of
1995. Additional information on factors that may affect the business and
financial results of the Company can be found in filings of the Company with the
Securities and Exchange Commission.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
report.
GENERAL
The Company has created an Internet-based retail system, WWW.ADATOM.COM
superstore, where most goods flow directly from suppliers to the consumers. The
Company also outsources warehouse facilities for stocking certain products and
filling demand from this inventory where it is more practical to do so. The
system attempts to reduce costs and expenses by removing the need for middlemen.
In addition to its superstore site, Adatom provides ancillary services such as
website development, administrative support and e-commerce infrastructure to
other retailers who desire to sell their products on the Internet. The Company's
revenues are derived principally from the sale of goods to consumers and
businesses. All sales and their corresponding expenses are recognized as
revenues when the goods are shipped to the customer.
Adatom.com E-commerce Solution Program (ESP)
ESP is a business to business e-commerce program designed to work with
companies and individuals seeking to gain an instant presence in the e-commerce
marketplace by creating a branded store. The Company is an e-commerce enabler
and will provide all of the associated fulfillment services. The ESP affiliate
will receive a commission on sales which will allow companies to launch their
"own" stores without the start-up burdens and high development costs often
associated with such ventures. The responsibility and cost of customer
acquisition will be borne by the ESP affiliate while the costs incurred by the
Company will be relatively low. Products, order management systems, and customer
support representatives will be shared with other e-tailers, including
WWW.ADATOM.COM. ESP is anticipated to receive significant attention in the
marketplace, through its ability to quickly and
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efficiently launch new e-tailers. The ESP program was launched in January 2000,
with the first customer iEntertainment Network. To date the Company has signed
30 ESP contracts, but has not received any significant revenue from them.
Global Ecommerce Marketmaker Solutions (GEMS)
Adatom's role as a global ecommerce marketmaker is in its early
developmental stages. In March 2000, Adatom signed an exclusive joint venture
agreement with the CPTNC (China Product Trade Net Center) to form a US-China
marketplace. The CPTNC was formed by the Chinese government to enable the
systematic and efficient distribution of Chinese manufactured goods. A second
agreement was signed in April 2000 between Adatom and YAHIDZ (Yangling
Agricultural Hi-Tech Industrial Demonstration Zone) to develop and implement an
agricultural electronic marketplace to source and sell agricultural farm
machinery, seeds, fertilizer, pesticides and crops. Adatom has also signed a
third agreement with ShenZhen Bay Industrial, Education and Research Center
(SBIERC) to develop and facilitate an electronic marketplace with China Hi-Tech
Exchange Network and China IT Product Purchasing Net for international
e-commerce.
CHINA JOINT VENTURES
In March 2000, the Company signed an exclusive agreement with the China
Product Trade Net Center (CPTNC). The CPTNC is an organization officially
launched in 1998 with the support of several Chinese governmental and private
institutions to enable increased sales and ensure systematic and efficient
worldwide distribution of Chinese manufactured goods.
The CPTNC initiative covers both consumer and industrial goods and aims
to use Internet technology as its primary information and distribution medium.
The Company and the CPTNC will establish a joint venture company located in
Beijing, China, to work directly with the CPTNC. The joint venture company will
develop and implement the systems, Internet applications, services and support
to enable the marketing and sale of industrial and consumer goods produced in
China into the U.S. as well as goods produced in the U.S. into the Chinese
marketplace exclusively through Adatom.com.
The scope of this agreement includes the establishment of an electronic
business-to-business and business-to-consumer marketing, selling and
distribution system with back-end factory quality and level of service
standards. This electronic system will be accessible in both English and
Chinese. Additional support will be provided by subsidiary CPTNC organizations
including the centers for transportation, trade, Internet and method of
payments.
The implementation of this joint venture is expected to take
approximately 60 days based on receipt of various China business licenses and is
also subject to submission of a mutually acceptable business plan.
In March 2000, Adatom signed a cooperative agreement with Yangling
Agricultural Hi-Tech Industrial Demonstration Zone (YAHIDZ) to among other
things develop and implement a Hi-Tech agricultural electronic marketplace.
YAHIDZ is a Chinese agricultural organization established in 1997 by the China
National State council and 14 Chinese ministries, commissions and
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provincial governments. In this joint effort, Adatom.com, Inc. is the exclusive
overseas e-commerce partner of YAHIDZ. Adatom and YAHIDZ will source, provide,
market and sell industrial and consumer agricultural products between the United
States and China. The timetable for implementation of this joint venture has not
been finalized and will require various China business licenses.
Adatom.com has established a joint venture agreement with the ShenZhen Bay
Industrial, Education and Research Center (SBIERC) to develop and facilitate an
electronic marketplace with China Hi-Tech Exchange Network and China IT Product
Purchasing Net for international e-commerce. This electronic marketplace will
provide information on products and business opportunities related to hi-tech
products, electronics and information technology. In addition to the e-commerce
enablement, the cooperation will develop an online hi-tech education platform
and will establish a venture capital fund to invest in the activation of Chinese
hi-tech companies. Furthermore, a "Global Economic Network Forum" will be
instituted to educate and inform on economic strategy development, industry
orientation, new century network technology and human resources. Located in
South China, SBIERC is an elite high-tech industrial park that was founded by
city government officials of ShenZhen. SBIERC will work exclusively with Adatom
and will contribute financial resources to enable the Company to establish an
instant e-commerce presence for SBIERC. The timetable for implementation of this
joint venture has not been finalized, will require various China business
licenses and is also subject to a mutually acceptable business plan.
OPERATIONS
During the quarter ended March 31, 2000, the Company's primary
activities consisted of establishing and marketing its Adatom Ecommerce Solution
Program (ESP), building brand name recognition through its superstore with
affiliate programs and agreements with web shopping portals, and signing three
significant agreements with three different major Chinese organizations. During
January through May 2000 the major promotion offered by Adatom.com was free
shipping on orders.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
report. The following table indicates quarterly user sessions, orders received,
and revenue comparing the first quarter 1999 with the first quarter 2000.
- ------------------------------------------------------------------------------
No. of Orders
User Sessions Received Revenue
- ------------------------------------------------------------------------------
1st Quarter 1999 62,743 271 $100,000
- ------------------------------------------------------------------------------
1st Quarter 2000 1,485,000 3,496 $443,000
- ------------------------------------------------------------------------------
Change 2000 vs. 1999 1,422,000 3,225 $343,000
- ------------------------------------------------------------------------------
The Company has seen steady quarter over quarter growth in both the
user sessions and except for the quarter ended March 31, 2000 when there was a
decrease of approximately $36,000 from fourth quarter 1999 in the revenue since
it began its Internet sales during the fourth quarter 1998. Shown below is the
Adatom Revenue Growth chart from fourth quarter 1998 through to first quarter
2000. Adatom has experienced significant growth every quarter. The
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small fallback between fourth quarter 1999 and first quarter 2000 is explained
by the enormous growth that Adatom experienced last Christmas.
[OBJECT OMITTED]
[FIGURES BELOW REPRESENTS BAR CHART IN ITS PRINTED PIECE]
<TABLE>
<CAPTION>
Q4 1998 Q1 1999 Q2 1999 Q3 1999 Q4 1999 Q1 2000
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues ($) 40,264 100,000 161,210 216,055 478,562 443,000
User Sessions 53,490 62,743 366,607 517,548 1,078,633 1,485,476
</TABLE>
On January 31, 2000 3,973 shares of stock were awarded as bonuses to
non-managerial employees of the Company for their efforts during the 1999
holiday season. The average number of shares per person was 131.
RESULTS OF OPERATIONS:
QUARTERS ENDED MARCH 31, 2000 AND 1999. Revenues of approximately
$443,000 were generated during the quarter ended March 31, 2000, an increase of
approximately 343% compared to revenues of $100,000 during the quarter ended
March 31, 1999. This increase in revenue is attributable to the growth of sales
in the Company's superstore. During the same period the number of orders
increased 1,190%.
During the first quarter the Company offered free shipping on orders to
build the customer base and brand name recognition. We believe that this
promotion was successful in increasing order volume and building brand
awareness. The freight costs incurred during this promotion reduced gross
profit. Management anticipated this impact and believed that the expected
increase in customers, customer satisfaction, and brand name recognition
justified the cost incurred.
Operating expenses increased from the first quarter 1999 to the first
quarter 2000 by $1,868,000, or 584%. Selling, general, and administrative
expenses increased by approximately 873% from approximately $188,000 in 1999 to
approximately $1,824,000 in 2000. Web research and development increased
$232,000 or 176%. This increase in 2000 over 1999 is primarily the result of
putting into place the processes and personnel required support increased orders
and sales levels. The chart below highlights some of the more significant cost
areas. The increased salaries and related expenses are due to increased
headcount to handle anticipated business growth, increased requirements in the
Adatom Ecommerce Program Solution (ESP) and to position the Company to begin to
embark on its Global Electronic Market (GEM) program. There was also increased
advertising and promotions to grow business volume, increased rent to
accommodate more staff, more phone costs to serve the customers and additional
costs to ship the products to the customers. In the
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early stages of a company's development it may need to invest substantial
amounts in capital equipment and infrastructure, which may seem to be relatively
high compared to reoccurring operating costs. Adatom has hired a CTO, a
controller, and a Vice President of Operations since the first quarter of last
year, which has also caused an increase in compensation expense over the year
earlier period. Additionally the President started being compensated for his
services in the last half of 1999. The increased legal and accounting expense
reflects the effect of additional legal advisors and assistance needed in
connection with the Company's growing business, periodic financing transactions,
and regulatory filings.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Analysis of Selected S G & A Expenses: 3/31/00 3/31/99 VARIANCE %
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Payroll 803,500 85,000 718,500 945%
Advertising & I.R. 223,000 0 223,000
Rent 61,000 24,000 37,000 254%
Insurance 79,000 5,000 74,000 1580%
Delivery & Freight 74,000 2,000 72,000 3700%
Legal & Accounting Svc 122,000 19,000 103,000 642%
Telephone 49,000 15,000 34,000 327%
------------------------------------------------------------
1,411,500 150,000 1,261,500 941%
- -----------------------------------------------------------------------------------------------------
</TABLE>
The following table depicts staffing levels at month end during the first
quarter 2000 and for the same period in the first quarter 1999. Staffing
increased from an average of eleven each month in 1999 to a maximum of 58 on
March 31, 2000. This is an increase of over 427%.
---------------------------------------------------------------------
TOTAL EMPLOYEES
(BOTH FULL & PART TIME) Q1-1999 Q1-2000 VARIANCE
---------------------------------------------------------------------
JANUARY 11 51 40
---------------------------------------------------------------------
---------------------------------------------------------------------
FEBRUARY 11 49 38
---------------------------------------------------------------------
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MARCH 11 58 47
---------------------------------------------------------------------
During the next nine months the Company may hire approximately 28
additional employees. We anticipate that most SG&A expenses will continue to
increase.
Other income (expense) decreased approximately 50% to $5,000 in income
in 2000 from $10,000 in income in 1999.
Net loss increased by approximately 629% from $298,000 in the first
quarter 1999 to $2,173,000 in the first quarter 2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash of approximately $790,000.
Since its inception, our business has incurred significant losses, and
as of March 31, 2000, had an approximate accumulated deficit of $16,825,000.
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As a result, there is an uncertainty about the Company's ability to continue as
a going concern, which was stated in our auditor's report on the Company's
financial statements for the 1999 fiscal year. The Company is expected to incur
substantial operating losses for the foreseeable future due to a high level of
expenditures in the areas of operations, website development and other
investments designed to enhance the Company's products and services and maintain
Internet capabilities. The Company intends to increase marketing and promotional
spending in an effort to increase revenues from its superstore. However, we
cannot be sure that the Company will generate sufficient revenues to ever
achieve or sustain profitability.
The operations of the Company are still subject to all the risks
inherent in the establishment of a new business enterprise, including the
absence of a substantial operating history. The likelihood of the success of the
Company must be considered in light of the uncertainties, expenses, and delays
frequently encountered in connection with the development of any new business.
There was a net increase in cash during the first quarter of 2000 of
$681,000. Net cash used in operating activities primarily consisted of the
Company's net loss of approximately $2,173,000. Additionally, accounts payable
decreased by $446,000, and other uses of cash netted to a reduction of $90,000
resulting in net cash used in operations of approximately $2,709,000.
Net cash used in investing activities during the first quarter 2000 was
approximately $621,000, $500,000 of which was the Company's investment in the
CPTNC joint venture. The Company's uses of cash in investing activities also
related to acquisition of fixed assets (web development and computers) of
$122,000.
Net cash from financing activities was approximately $4,011,000 for
first quarter 2000. In December 1999, Mr. Barton, the President and CEO made
short-term non-interest bearing loans to the Company amounting to $500,000 for
working capital purposes. Mr. Barton also made an additional
non-interest-bearing loan on February 1, 2000 in the amount of $200,000, also
for working capital purposes. In February 2000, Adatom.com issued 172,057 shares
of common stock to Mr. Barton in settlement of $500,000 of these notes payable.
In March 2000 the remaining $200,000 was repaid. Mr. Barton does not intend to
make loans to the Company in the future. The net effect of these transactions
was neither net increase nor decrease in cash flows from this financing
activity.
On March 2, 2000, the Company executed documents for a private
placement of two million shares of common stock yielding proceeds of $4 million.
The sale was made to several accredited investors. Adatom.com used the proceeds
for working capital, including the payment of accrued liabilities of
approximately $1.5 million, and a sales and marketing campaign focusing on its
business-to-business system, Adatom's E-commerce Solution (ESP), as well as to
create further consumer awareness of its Web site, WWW.ADATOM.COM. The Company
further estimates that it will require an additional minimum of at least
$7,000,000 to adequately implement its business plan and sustain and expand its
sales and marketing activities through December 31, 2000. The Company cannot be
sure that it will be able to raise this money.
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Additional funds will be needed, particularly in light of the existence
of a number of well-financed competitors. Adequate funds for these and other
purposes on terms acceptable to the Company, whether through additional equity
financing or other sources, may not be available when needed or may result in
significant dilution to existing stockholders. Furthermore, the Company's lack
of tangible assets to pledge as security for debt financing could prevent the
Company from obtaining bank or similar debt financing. Failure to obtain
adequate financing would have a material adverse effect on the Company and could
result in cessation of the Company's business.
At this time the Company anticipates that an investment of $20.0
million will be needed to fund the CPTNC joint venture and an investment of $7.5
million will be need to fund the YAHIDZ joint venture and $12.5 Million will be
needed to fund the ShenZhen (SBIERC) joint venture. The Company cannot provide
any assurance that it will be able to raise these funds.
RISK FACTORS
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and stockholder
values of the company may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Stockholders
are cautioned not to put undue reliance on any forward-looking statements. In
addition, the Company does not have any intention or obligation to update
forward-looking statements, even if new information, future events or other
circumstances have made them incorrect or misleading. For those statements, the
Company is relying on the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
You should understand that the following important factors could affect the
future results of the company, and could cause results to differ materially from
those expressed in such forward-looking statements.
THE COMPANY HAS A HISTORY OF LOSSES AND EXPECTS CONTINUED LOSSES FOR THE
FORESEEABLE FUTURE. Adatom, Inc was incorporated in October in 1996 but did not
begin to generate any Internet revenues until October 1998. Accordingly, the
Company has only a limited operating history upon which to evaluate our business
and prospects. The Company will encounter risks and difficulties that are
frequently encountered by early stage companies in new and rapidly evolving
markets. Many of these risks are described in more detail in this section. If
the Company is unsuccessful in addressing these risks and uncertainties, its
business, results of operations and financial condition will be harmed. The
Company has incurred significant losses, and as of March 31, 2000, had an
approximate accumulated deficit of $16,821,000. There is an uncertainty about
its ability to continue as a going concern. The Company incurred net losses of
$2,169,000 for the quarter ended March 31, 2000 and $398,000 for the quarter
ended March 31, 1999. The Company anticipates its losses will increase from
current levels because we intend to substantially increase our costs and
expenses related to:
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- - brand development, marketing and other promotional activities to increase our
revenue;
- - the expansion of our inventory management and order fulfillment
infrastructure;
- - the continued development of our Web site, transaction-processing systems and
network infrastructure;
- - the expansion of our product offerings and Web site content; and
- - strategic relationship development. Our ability to become profitable depends
on our ability to generate and sustain substantially higher net sales while
maintaining reasonable expense levels. If the Company does achieve
profitability, it cannot be certain that it would be able to sustain or increase
profitability on a quarterly or annual basis in the future. The Company is an
early stage company and expects to incur substantial operating losses for the
foreseeable future as it incurs significant operating expenses and research and
development expenses and makes investments, to enhance its line of products and
services and establish Internet capabilities. The Company may never generate
sufficient revenues to achieve profitability. Even if the Company does achieve
profitability, it may not be able to sustain or increase profitability on a
quarterly or annual basis in the future.
THE COMPANY WILL NEED ADDITIONAL FINANCING TO FUND ITS BUSINESS AND THE
FAILURE TO OBTAIN FINANCING WOULD MOST LIKELY RESULT IN CESSATION OF ITS
BUSINESS. The Company is dependent upon raising additional capital for working
capital and to finance its future plans for expansion. Based on current market
conditions as of March 31, 2000 the Company had on hand working capital to
sustain its business for approximately two or three months. The Company further
estimates that it will require a minimum of $7,000,000 to adequately implement
its business plan and sustain and expand its sales and marketing activities
through December 31, 2000. Adatom.com, Inc. has experienced negative cash flow
from operations from its inception and expects to experience significant
negative cash flow from operations for the foreseeable future. The Company needs
additional funds to sustain and expand its sales and marketing activities and
its marketing arrangements, particularly if there is a shift in the type of
Internet services that are developed and ultimately receive customer acceptance.
Adequate funds for these and other purposes on terms acceptable to us, whether
through additional equity financing, debt financing or other sources, may not be
available when needed or may result in significant dilution to existing
stockholders. Failure to obtain financing would most likely result in cessation
of our business. Our lack of tangible assets to pledge has to date prevented us
from obtaining bank or similar debt financing, and will probably continue to do
so in the future. In their reports on the audits of our financial statements for
each of the years in the two-year period ended December 31, 1999, our
independent auditors included an explanatory paragraph in each of their reports
because of the uncertainty that Adatom.com could continue in business as a going
concern. As of March 31, 2000 the Company had $794,000 remaining from this
raise. Unless it raises additional funds, the Company expects it will exhaust
these funds within two months of March 31, 2000. Any raise of additional capital
will dilute all stockholders of the Company.
THE COMPANY DEPENDS HEAVILY UPON MARKETING ARRANGEMENTS. WITHOUT THEM,
ITS BUSINESS WILL BE ADVERSELY AFFECTED. The Company relies heavily on certain
marketing arrangements with other companies that have websites to attract
shoppers to purchase our products. Adatom.com has entered into marketing
arrangements with a number of existing organizations with a
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definable user base. Our ability to generate revenues from online commerce
depends, among other things, upon the increased traffic, purchases, advertising
and sponsorships that it generates through our marketing arrangements. The
Company cannot be sure that other companies will continue these relationships
with it, or, if continued that they will be on terms favorable to it. Our
inability to enter into new marketing arrangements or to maintain our existing
arrangements would have a material adverse effect on us.
THE COMPANY RELIES ON SUPPLIERS FOR ITS RETAIL MERCHANDISE AND
SHIPMENTS TO CUSTOMERS. LOSS OF THESE RELATIONSHIPS COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS. Our current suppliers may not continue to sell
merchandise to us on current terms. We may not be able to maintain our current
arrangements with suppliers or be able to establish new or extend current
supplier relationships to ensure acquisition of merchandise in a timely and
efficient manner and on acceptable commercial terms. Loss of these relationships
could have a material adverse effect on us. The Company also relies on most of
its suppliers to process and ship merchandise directly to customers and where
required to install merchandise on our customers premises. The Company has
limited control over the shipping procedures of its suppliers, and shipments by
these suppliers have at times been subject to delays. If the quality of service
provided by such suppliers falls below a satisfactory standard or if our level
of returns exceeds our expectations, our business will be materially adversely
affected.
OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE AND FLUCTUATIONS IN OUR
QUARTERLY RESULTS MAY CAUSE VOLATILITY IN OUR STOCK VALUATION. As a result of
our limited operating history, it is difficult to accurately forecast our net
sales and we have limited meaningful historical financial data upon which to
base planned operating expenses. We base our current and future expense levels
on our operating plans and estimates of future net sales, and our expenses are
to a large extent fixed. Sales and operating results are difficult to forecast
because they generally depend on the volume and timing of the orders we receive.
As a result, the Company may be unable to adjust our spending in a timely manner
to compensate for any unexpected revenue shortfall. The Company may also be
unable to increase its spending and expand its operations in a timely manner to
adequately meet customer demand to the extent it exceeds its expectations. The
Company expects to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which are outside of its
control which, include without limitation:
- - our ability to attract new customers at reasonable cost and at a steady rate,
retain existing customers, or encourage repeat purchases and maintain
customer satisfaction;
- - decreases in the number of visitors to our Web site or our inability to
convert visitors to our Web site into customers;
- - seasonality;
- - our ability to manage inventory levels and to manage fulfillment operations;
- - our inability to adequately maintain, upgrade and develop our Web site,
transaction-processing systems or network infrastructure;
- - the announcement or introduction of new sites, services and products by our
competitors;
- - price competition in the industry;
- - the level of merchandise returns experienced by us;
- - the level of traffic on our web site;
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- - fluctuations in the amount of consumer spending;
- - the termination of existing, or failure to develop new, strategic marketing
relationships pursuant to which we receive exposure to traffic on third-party
Web sites;
- - increases in the cost of online or offline advertising;
- - our ability to upgrade and develop our systems and infrastructure and attract
new personnel in a timely and effective manner or retain existing personnel;
- - the amount and timing of operating costs and capital expenditures relating to
expansion of our business, operations, and infrastructure;
- - unexpected increases in shipping costs or delivery times, particularly during
the holiday season;
- - the level of use of the Internet and online services and increasing consumer
acceptance of the Internet and other online services for the purchase of
consumer products such as those offered by us;
- - technical difficulties, system downtime or Internet brownouts;
- - changes in gross profit margins or product mix;
- - effects of acquisitions and other business combinations and related
integration issues;
- - failure to maintain good relationships with our business partners and
suppliers;
- - government regulations related to use of the Internet for commerce;
- - general economic conditions and economic conditions specific to the Internet,
online commerce.
A number of factors will cause our gross margins to fluctuate in future periods,
including the mix of product sold by us, inventory management, inbound and
outbound shipping and handling costs, the level of product returns and the level
of discount pricing and promotional activity. Any change in one or more of these
factors could materially and adversely affect our gross margins and operating
results in future periods. The Company expects that it will experience
seasonality in its business, reflecting a combination of seasonal fluctuations
in Internet usage and traditional retail seasonality patterns. Internet usage
and the rate of Internet growth may be expected to decline during the summer.
Further, sales in the traditional retail industry are significantly higher in
the fourth calendar quarter of each year than in the preceding three-quarters.
Due to the foregoing factors, The Company believes that quarter-to-quarter
comparisons of its operating results are not a good indication of its future
performance. Additionally it is likely that in one or more future quarters our
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of our Common Stock would likely be
materially adversely affected.
THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY MANAGE THE GROWTH OF ITS
BUSINESS. Our ability to successfully offer products and services and implement
our business plan in a rapidly evolving market requires an effective planning
and management process. The Company continues to increase the scope of its
operations and has grown the headcount substantially. At March 31, 1999, the
Company had a total of 11 employees full and part time combined and at March 31,
2000,it had a total of 58 employees full and part time combined. This growth has
placed, and our anticipated future operations will continue to place, a strain
on our management, information systems and resources. As a result, during 2000,
the Company intends to increase its headcount and to install new ERP systems
with new accounting and financial reporting systems. The Company anticipates
expanding its financial and management information systems to accommodate new
data. If the Company fails
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to successfully implement and integrate its new financial reporting and
management information systems with its existing systems or if we are not able
to expand these systems to accommodate our growth, we may not have adequate,
accurate or timely financial information. Our failure to have such information
would hinder our ability to manage our business and operating results. If we
grow rapidly, we will face additional challenges in upgrading and maintaining
our financial and reporting systems. A failure to successfully implement and
integrate these systems would adversely affect our business. The Company expects
that it will need to continue to improve its financial and managerial controls
and reporting systems and procedures. In addition, the Company will need to
continue to expand, train and manage its already growing employee base.
Furthermore, the Company expects that it will be required to manage multiple
relationships with various vendors and other third parties. To manage the
expected growth of our operations and personnel, the Company will be required to
improve existing and implement new transaction-processing, operational and
financial systems, procedures and controls. Further, the Company will be
required to maintain and expand its relationships with various merchandise
manufacturers, distributors, Internet and other online service providers and
other third parties necessary to its business. If the Company is unable to
manage growth effectively, its business will be materially adversely affected.
IF THE COMPANY EXPERIENCES PROBLEMS WITH OUR THIRD-PARTY SHIPPING
SERVICES, THE COMPANY COULD LOSE CUSTOMERS. The Company relies upon third-party
carriers, primarily UPS, for product shipments, including shipments to and from
its warehouse. The Company is therefore subject to the risks, including employee
strikes and inclement weather associated with these carriers' ability to provide
delivery services to meet its shipping needs. In addition, failure to deliver
products to our customers in a timely manner would damage our reputation and
brand identity.
THE LOSS OF KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our performance will be substantially dependent on the continued services and on
the performance of our senior management, particularly Richard Barton,
President, Chief Executive Officer, and Chairman of the Board, and Sridhar
Jagannathan, Chief Technology Officer and Executive Vice President. Two of our
senior management team joined us during the last half of 1999. They are the
Controller and the Vice President of Operations. Our future success depends on
these officers effectively working together with our original management team.
Other than the President none of our officers or key employees is bound by an
employment agreement for any specific term. Our relationships with these
officers and key employees are at will. The Company does not have any "key
person" life insurance policies covering any of its employees. Our performance
depends on our ability to retain and motivate our officers and key employees.
The loss of the services of any of our executive officers or other key employees
could have a material adverse effect on us. Our future success also depends on
our ability to identify, attract, hire, train, retain and motivate other highly
skilled officers and technical, managerial, editorial, merchandising, marketing
and customer service personnel. Competition for such personnel is intense, and
the Company may not be able to successfully attract, assimilate or retain
sufficiently qualified personnel. This inability could have a material adverse
effect on us.
WE MAY BE UNABLE TO PROTECT OUR TRADEMARKS AND PROPRIETARY RIGHTS WHICH
WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. Our performance and
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ability to compete are dependent to a significant degree on our proprietary
technology. We regard our copyrighted material, service marks, trademarks, trade
secrets, and similar intellectual property as critical to our success, and rely
on trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, customers, partners and others to
protect our proprietary rights. We have the registered trademarks "Adatom" and
"Discovering New Shopping Dimensions" in the United States and have a trademark
application pending for the mark "Adatom Home Dimensions." The Company cannot be
sure that it will be able to secure significant protection for these trademarks.
It is possible that competitors of Adatom.com or others will adopt product or
service names similar to "Adatom" and our other trademarks, thereby impeding our
ability to build brand identity and possibly leading to customer confusion. We
generally have entered into agreements containing confidentiality and
non-disclosure provisions with our employees and consultants and limit access to
and distribution of our software, documentation and other proprietary
information. We cannot be sure that the steps taken by us will prevent
misappropriation of our technology or that agreements entered into for that
purpose would be enforceable. Notwithstanding the precautions taken by us, it
might be possible for a third party to copy or otherwise obtain and use our
software or other proprietary information without authorization or to develop
similar software independently. Policing unauthorized use of our technology is
difficult, particularly because the global nature of the Internet makes it
difficult to control the ultimate destination or security of software or other
data transmitted. The laws of other countries may afford us little or no
effective protection of our intellectual property. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our products and services are made available online. In the
future, we may also need to file lawsuits to enforce our intellectual property
rights, protect our trade secrets, and determine the validity and scope of the
proprietary rights of others. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversion of resources,
which could have a material adverse effect on us. We also rely on a variety of
technology that is licensed from third parties, including our database and
Internet server software, which is used in our web site to perform key
functions. These third party technology licenses may not continue to be
available to us on commercially reasonable terms. Our loss of or inability to
maintain or obtain upgrades to any of these technology licenses could result in
delays in completing our proprietary software enhancements and new developments
until equivalent technology could be identified, licensed or developed and
integrated. Any such delays would have a material adverse effect on us.
PROTECTION OF DOMAIN NAME IS UNCERTAIN. We currently hold various Web
domain names relating to our brand, including the "ADATOM.com" domain name.
Governmental agencies and their designees generally regulate the acquisition and
maintenance of domain names. For example, in the United States, the National
Science Foundation has appointed Network Solutions, Inc. as the current
exclusive registrar for the ".com", ".net" and ".org" generic top-level domains.
The regulation of domain names in the United States and in foreign countries is
subject to change. Such changes in the United States are presently expected to
include a transition from the current system to a system that is controlled by a
non-profit corporation and the creation of additional top-level domains.
Governing bodies may establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, we may be unable to
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acquire or maintain relevant domain names in all countries in which we conduct
business. Furthermore, the relationship between regulations governing domain
names and laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights.
WE MAY EXPERIENCE CAPACITY CONSTRAINTS DUE TO OUR RELIANCE ON
INTERNALLY DEVELOPED TRANSACTION-PROCESSING SYSTEMS. If we suffer any system
interruptions that result in the unavailability of our store on the Internet or
reduced order fulfillment capability, such interruptions would reduce the volume
of goods sold and the attractiveness of our product offerings. We have
experienced periodic system interruptions, which we believe will continue to
occur from time to time. The satisfactory performance, reliability and
availability of our store on the Internet, transaction-processing systems and
network infrastructure are critical to our reputation and our ability to attract
and retain customers and maintain adequate customer service levels. Our revenues
depend on the number of visitors who shop at our store on the Internet and the
volume of orders we fulfill. There will be a significant need to upgrade the
capacity of our store on the Internet in order to handle thousands of
simultaneous shoppers. Our inability to add additional software and hardware or
to develop and upgrade further our existing technology, transaction-processing
systems or network infrastructure to accommodate increased traffic on our store
on the Internet or increased sales volume through our transaction-processing
systems may cause unanticipated system disruptions, slower response times,
degradation in levels of customer service and impaired quality and speed of
order fulfillment, any of which could have a material adverse effect on us.
OUR BUSINESS MAY SUFFER IF OUR SYSTEMS FAIL OR IF THE SYSTEMS OF OUR
BUSINESS PARTNERS FAIL. We presently have limited redundant systems. We do not
have a complete disaster recovery plan and carry limited business interruption
insurance to compensate us for losses that may occur. Despite our implementation
of network security measures, our servers are vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to accept and fulfill
customer orders. Our ability to successfully receive and fulfill orders and
provide high-quality customer service, largely depends on the efficient and
uninterrupted operation of our computer and communications hardware systems. Our
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and similar
events. In addition, any disruptions of those web sites or at the web sites of
other companies where we market goods or have a website link could have a
material adverse effect on us and the volume of sales generated. The occurrence
of any of the foregoing risks could have a material adverse effect on us.
IF WE ARE NOT ABLE TO SUSTAIN RAPID TECHNOLOGICAL CHANGES, OUR BUSINESS
MAY SUFFER. We may not successfully use new technologies effectively or adapt
our proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards. Our failure to adapt in a timely
manner for technical, legal, financial or other reasons, to changing market
conditions or customer requirements, could have a material adverse effect on us.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online stores. The Internet
and the online commerce industry are characterized by rapid technological
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change, changes in user and customer requirements and preferences, frequent new
product and service introductions embodying new technologies and the emergence
of new industry standards and practices that could render our existing store on
the Internet and proprietary technology and systems obsolete. Our success will
depend, in part, on our ability to license leading technologies useful in our
business, enhance our existing services, develop new services and technology
that address the increasingly sophisticated and varied needs of our prospective
customers, and respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
YEAR 2000 UPDATE. Through the four months of the calendar year 2000, we
have not experienced any significant problems associated with the Year 2000
issue. Although it appears that the Year 2000 issue will not have a significant
adverse affect on us, we continue to monitor the Year 2000 compliance of our
internal systems. Undetected errors in our internal systems that may be
discovered in the future could have a material adverse affect on our business,
operating results or financial condition.
OUR BUSINESS STRATEGY REQUIRES CONTINUED GROWTH OF ONLINE COMMERCE. IF
ON-LINE COMMERCE DOES NOT CONTINUE TO GROW, OUR BUSINESS COULD BE MATERIALLY
ADVERSELY AFFECTED. Our future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet and online
services as a significant medium of commerce by consumers. Rapid growth in the
use of and interest in the Internet and online services is a recent phenomenon,
and we can not be sure that acceptance and use will continue to develop or that
a sufficiently broad base of consumers will adopt, and continue to use, the
Internet and online services as a medium of commerce. We rely on consumers who
have historically used traditional means of commerce to purchase merchandise.
For us to be successful, these consumers must accept and utilize novel ways of
conducting business and exchanging information. Moreover, critical issues
concerning the commercial use of the Internet, such as ease of access, security,
privacy, reliability, cost and quality of service, remain unresolved and may
affect the growth of Internet use or the attractiveness of conducting commerce
online. In addition, the Internet and online services may not be accepted as a
viable commercial marketplace for reasons relating to the adequacy of
technology. To the extent that the Internet and online services continue to
experience significant growth, we can not be sure that the infrastructure of the
Internet and online services will prove adequate to support increased user
demands. Difficulties with the telecommunications used to support the Internet
or online services also could result in slower response times and adversely
affect usage of the Internet.
OUR MARKETS ARE HIGHLY COMPETITIVE. The online commerce market is new,
rapidly evolving and intensely competitive. We expect competition to intensify
in the future. Barriers to entry are minimal, and current and new competitors
can launch new Web sites at a relatively low cost. We currently or potentially
compete with a variety of other companies, including:
- - major "brick and mortar" retailers such as Macys, J.C. Penney's, Nordstrom's,
and Target;
- - online efforts of these traditional retailers, including the online stores
operated by Macys, J. C. Penny, Toys R Us, and Wal-Mart:
- - catalog retailers;
- - vendors or manufacturers that currently sell certain of their products
directly online, such as Mattel;
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- - other online retailers such as Amazon.com, Taydo.com, Furniture.com, CDnow,
Beyond.com and Reel.com;
- - on line stores that have a presence on Internet portals and online service
providers that feature shopping services, such as AOL, Yahoo!, Excite and
Lycos;
- - various online retailers.
Many of our current and potential traditional store-based and online competitors
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than us. Many of these current and potential competitors can devote
substantially more resources to Web site and systems development than we can. In
addition, online retailers may be acquired by, receive investments from or enter
into other commercial relationships with larger, well-established and
well-financed companies as use of the Internet and other online services
increases. Many of our competitors may be able to secure merchandise from
manufacturers on more favorable terms, fulfill customer orders more efficiently
and adopt more aggressive pricing or inventory availability policies, and devote
greater resources to marketing than we can. Traditional store-based retailers
also enable customers to see and feel products in a manner that is not possible
over the Internet. Our online competitors are able to use the Internet as a
marketing medium to reach significant numbers of potential customers. Finally,
new technologies and the expansion of existing technologies, such as price
comparison programs that select specific titles from a variety of Web sites may
direct customers to other online retailers, and may increase competition.
Increased competition may result in reduced operating margins, loss of market
share and a diminished brand franchise. New technologies and the expansion of
existing technologies may increase the competitive pressures on us.
WE MAY ENTER NEW BUSINESS CATEGORIES. We may choose to expand our
operations by developing new departments or product categories, promoting new or
complementary products or sales formats, expanding the breadth and depth of
products and services offered or expanding our market presence through
relationships with third parties. In addition, we may pursue the acquisition of
new or complementary businesses, products or technologies. We may not be
successful in our efforts to expand our operations, and potential customers may
not react favorably to these efforts. Furthermore, any new department or product
category that is launched by us but not favorably received by consumers could
damage our brand or reputation. An expansion of our business in this manner
would also require significant additional expenses, expose us to additional
inventory risk and development, operations and editorial resources and would
strain our management, financial and operational resources and subject us to
increased inventory risk.
WE FACE FULFILLMENT OPERATIONS RISKS. Our success depends on our
ability to rapidly scale our fulfillment operations in order to accommodate a
significant increase in customer orders. Our current fulfillment operations are
not adequate to accommodate significant increases in customer demand that may
occur during the fourth calendar quarter of 2000. We must also be able to
rapidly scale our fulfillment operations and information systems to accommodate
significant increases in demand, which may require us to automate tasks that are
currently performed manually. If we do not successfully scale our fulfillment
operations to accommodate demand generally and, in particular, increased demand
during the fourth calendar quarter of each year, due to the seasonal nature of
our business, our business will be adversely affected.
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OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED IF THE SECURITY
MEASURES WE HAVE IMPLEMENTED TO PROTECT CONFIDENTIAL INFORMATION PROVE TO BE
INADEQUATE. Advances in computer capabilities, new discoveries in the field of
cryptography, or other developments may result in a compromise or breach of the
algorithms used by us to protect customer transaction data. Any compromise of
our security could have a material adverse effect on our reputation and us. We
rely on encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to effect secure transmission
of confidential information, such as customer credit card numbers. A party who
is able to circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. Furthermore, our servers
may be vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions. We may be required to expend significant additional capital
and other resources to protect against such security breaches or to alleviate
problems caused by such breaches. Our business may be adversely affected if our
security measures do not prevent security breaches and we cannot assure that we
can prevent all security breaches.
CREDIT CARD FRAUD. During the first quarter of 2000 the Company has
suffered less than $3,700 as a result of orders placed with fraudulent credit
card data even though the associated financial institution approved payment of
the orders. Under current credit card practices, a merchant is liable for
fraudulent credit card transactions where, as is the case with the transactions
we process, that merchant does not obtain a cardholder's signature. A failure to
adequately control fraudulent credit card transactions would adversely affect
our business.
GROWING CONCERNS ABOUT THE USE OF "COOKIES" AND DATA COLLECTION MAY
LIMIT OUR ABILITY TO DEVELOP USER PROFILES. Our current technology uses small
files of information, commonly known as "cookies", on a users hard drive to
collect information about our customers' movements through our Website. Most
Internet browsers allow users to modify their browsers settings to prevent
cookies from being stored on their hard drive, and small minorities of users are
currently choosing to do so. Users can also delete cookies from their hard drive
at any time. Some Internet commentators and privacy advocates have suggested
limiting or eliminating the use of cookies. The reduction or limitation in the
use of cookies could:
- - reduce the effectiveness of our technology to gather data on our customers;
- - require us to switch to other potentially less effective technology in order
to gather demographic or behavioral information; and
- - require us to expend financial and technological resources, originally
allocated to other purposes, to create alternatives that might be
unsuccessful.
THE COMPANY MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION. Due
to the increasing popularity and use of the Internet and other online services,
it is possible that a number of laws and regulations may be adopted with respect
to the Internet covering issues such as user privacy, pricing, content,
copyrights, distribution and quality of products and services. We are not
currently subject to regulation by any domestic or foreign governmental agency,
other than regulations applicable to businesses generally, and laws or
regulations directly applicable to access to online commerce. The adoption of
any additional laws or regulations may decrease the
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growth of the Internet or other online services, which could, in turn, decrease
the demand for our products and services and increase our cost of doing
business, or otherwise have a material adverse effect on us. Moreover, the
applicability to the Internet and other online services of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes and personal privacy is uncertain and may take years to resolve. In
addition, as our service is available over the Internet in multiple states and
foreign countries, and as we sell to numerous consumers residing in such states
and foreign countries, such jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each such state and foreign
country. We could be subject to taxes and penalties for failure to qualify as a
foreign corporation in a jurisdiction where we are required to do so. Any such
new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services could have a material adverse effect on us.
THE COMPANY MAY BE SUBJECT TO SALES AND OTHER TAXES. We do not
currently collect sales or other similar taxes for physical shipments of goods
into states other than California. However, one or more local, state or foreign
jurisdictions may seek to impose sales tax collection obligations on us. In
addition, any new operation in states outside California could subject our
shipments in such states to state sales taxes under current or future laws. If
one or more states or any foreign country successfully asserts that we should
collect sales or other taxes on the sale of our products, it could adversely
affect our business.
THE COMPANY MAY BE LIABLE FOR INFORMATION RETRIEVED FROM THE INTERNET.
Due to the fact that material may be downloaded from web sites and subsequently
distributed to others, there is a potential that claims will be made against us
for negligence, copyright or trademark infringement or other theories based on
the nature and content of such material. Although we carry general liability
insurance, our insurance may not cover potential claims of this type or may not
be adequate to cover all costs incurred in defense of potential claims or to
indemnify us for all liability that may be imposed. Any costs or imposition of
liability that is not covered by insurance or in excess of insurance coverage
could have a material adverse effect on us.
INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND RESULT IN THE
LOSS OF SIGNIFICANT RIGHTS Other parties may assert infringement or unfair
competition claims against us. We cannot predict whether third parties will
assert claims of infringement against us, or whether any future assertions or
prosecutions will adversely affect our business. If we are forced to defend
against any such claims, whether they are with or without merit or are
determined in our favor, then we may face costly litigation, diversion of
technical and management personnel, or product shipment delays. As a result of
such a dispute, we may have to develop non-infringing technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may be unavailable on terms acceptable to us, or at all. If there is a
successful claim of product infringement against us and we are unable to develop
non-infringing technology or license the infringed or similar technology on a
timely basis, it could adversely affect our business.
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OUR COMMON STOCK PRICE MAY BE VOLATILE The market price for our Common
Stock is likely to be highly volatile and subject to wide fluctuations in
response to factors including the following:
- - actual or anticipated variations in our quarterly operating results;
- - announcements of technological innovations or new products or services by us
or our competitors;
- - changes in financial estimates by securities analysts;
- - conditions or trends in the Internet and/or online commerce industries;
- - changes in the economic performance and/or market valuations of other
Internet, online commerce or retail companies;
- - announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
- - additions or departures of key personnel;
- - release of lock-up on April 12, 2000 or other transfer restrictions on our
outstanding shares of Common Stock or sales of additional shares of Common
Stock;
- - potential litigation.
The market prices of the securities of Internet-related and online commerce
companies have been especially volatile. Broad market and industry factors may
adversely affect the market price of our Common Stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of their stock, many companies have been the subject of securities
class action litigation. If we were sued in a securities class action, it could
result in substantial costs and a diversion of management's attention and
resources and would adversely affect our stock price.
OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS COULD
CONTROL STOCKHOLDER VOTES AND OUR MANAGEMENT AND AFFAIRS. Our executive
officers, directors and 5% or greater stockholders, and their respective
affiliates, in the aggregate, own approximately 52.3% of our outstanding common
stock. As a result, they could act together to control all matters submitted to
stockholders for approval (including the election and removal of directors and
any merger, consolidation or sale of all or substantially all of our assets).
Accordingly, such concentration of ownership may delay, defer or prevent a
change in control, impede a merger, consolidation, takeover or other business
combination involving us or discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us. This could, in turn, have
an adverse effect on the market price of our common stock.
THE COMPANY MAY NOT HAVE AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK.
THE ABSENCE OF AN ACTIVE TRADING MARKET WOULD LIKELY MAKE THE COMMON STOCK AN
ILLIQUID INVESTMENT. If the Company does not continue to meet the listing
requirements of the NASDAQ Small Cap Market its common stock risks being
delisted. If this occurs, trading in the common stock would be conducted in the
over-the-counter market in the so-called "pink sheets" or, if available, the
"OTC Bulletin Board Service." As a result, an investor would likely find it
significantly more difficult to dispose of, or to obtain accurate quotations as
to the value of the securities.
RISK OF INTERNATIONAL EXPANSION. We plan to expand our presence in
foreign markets especially China. We have relatively little experience in
purchasing, marketing and distributing products or services for these markets
and may not benefit from any first to market advantages. It will be costly to
establish international facilities and operations, promote our brand
internationally, and develop localized Web sites and stores and other
24
<PAGE>
systems. We may not succeed in our efforts in these countries. If revenues from
international activities do not offset the expense of establishing and
maintaining foreign operations, our business prospects, financial condition and
operating results will suffer. As the international online commerce market
continues to grow, competition in this market will likely intensify. In
addition, governments in foreign jurisdictions may regulate Internet or other
online services in such areas as content, privacy, network security, encryption
or distribution. This may affect our ability to conduct business
internationally.
CHILDREN'S ONLINE PRIVACY PROTECTION ACT. On October 20, 1999, The
Federal Trade Commission ("FTC") issued the final rule to implement the
Children's Online Privacy Protection Act of 1998 (COPPA). The main goal of the
COPPA and the rule is to protect the privacy of children using the Internet.
Publication of the rule means that, as of April 21, 2000, certain commercial Web
sites must obtain parental consent before collecting, using, or disclosing
personal information from children under 13. The statute and rule apply to
commercial websites and online services directed to, or that knowingly collect
information from, children under 13. To inform parents of their information
practices, these sites will be required to provide notice on the site and a
separate notification to parents about their policies with respect to the
collection, use and disclosure of children's personal information. With certain
statutory exceptions, sites will also have to obtain "verifiable parental
consent" before collecting, using or disclosing personal information from
children. The rule will become effective on April 21,2000, giving websites six
months to come into compliance with the rule's requirements. A websites operator
must post a clear and prominent link to a notice of its information practices on
its home page and at each area where personal information is collected from
children. The notice must state the name and contact information of all
operators, the types of personal information collected from children, how such
personal information is used, and whether personal information is disclosed to
third parties. The notice also must state that the operator is prohibited from
conditioning a child's participation in activity on the child's disclosing more
personal information than is reasonably necessary. In addition, the notice must
state that the parent can review and have deleted the child's personal
information, and refuse to permit further collection or use of the child's
information. The COPPA regulations could reduce our ability to engage in direct
marketing. The cost to the Company of complying with the new requirements is not
known but is not expected to have a material effect upon operating results or
financial condition.
Form 10-QSB
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The foregoing transactions were done under Section 4(2) of the
Securities Act of 1933 based, INTER ALIA, on representations and warranties made
by the investors, the small numbers of investors solicited and the
25
<PAGE>
absence of any advertising or general solicitation in the process of raising
funds.
(i) In March 2000, the Company issued warrants to purchase up to
600,000 shares of common stock to Richard Seifert at $2.25 per
share, for consulting services. Mr. Seifert will receive
warrants for an additional 600,000 shares of common stock at
the same price if the trading price of the Company's stock
exceeds $9.10 for 30 days.
(ii) In March 2000, the Company agreed to issue warrants to
purchase up to 25,000 shares of common stock to David Cannon
at $3.00 per share related to his employment with Adatom.
Item 4. Submission of matters to a vote of the security holders
Pursuant to the terms of the Amended and Restated Escrow Agreement
dated as of July 31, 1997 (the "Escrow Agreement") between the Company, American
Stock Transfer & Trust Company, and certain stockholders of the Company (the
"Escrow Stockholders"), an aggregate of 900,000 shares of common stock of the
Company were held under the Escrow Agreement. The Escrow Agreement was entered
into in connection with the Company's initial public offering in 1997. In
connection with the merger of Adatom, Inc. into the Company, the Company and the
Escrow Stockholders entered into a Termination Agreement (the "Termination
Agreement") pursuant to which, subject to approval of the stockholders, the
Escrow Agreement would be terminated and 80 percent of the shares of stock
subject to the Escrow Agreement would be canceled and the remaining 20 percent
of the shares held in escrow, or 180,000 shares, were released from the escrow
without any further restriction. On January 6, 2000, the holders of
approximately 70% of the outstanding shares of common stock, other than shares
held by the Escrow Stockholders, consented in writing to the termination of the
Escrow Agreement pursuant to the terms of the Termination Agreement.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits. An Exhibit Index has been filed starting on page E-1 of
this Report and is incorporated herein by reference.
(b) Reports On Form 8-K. None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Adatom.com, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADATOM.COM, INC.
Date: May 12, 2000
/s/ Richard S. Barton
---------------------
By: Richard S. Barton
President and Chief Executive Officer
26
<PAGE>
EXHIBIT INDEX
Exhibit Description
4.16 Form of warrant to be issued to Dr. Victor W. Nee(1)
4.17 Warrant to purchase shares of Common Stock issued to Richard Seifert dated
as of April 4, 2000
4.18 Warrant to purchase shares of Common Stock issued to David Cannon dated as
of April 1, 2000
10.21 Description of Adatom.com, Inc. 1999 Officer Bonus Stock Grants
10.22 YangLing Agriculture Hi-Tech Industrial Demonstration Zone Cooperative
Memorandum
10.23 Shenzhen Bay Industrial, Educational & Research Center Cooperative
Memorandum
27 Financial Data Schedule
- ---------------------------------------
(1) Incorporated by reference to Appendix A of the Registrant's Proxy Statement
dated April 27, 2000
E-1
Exhibit 4.17
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") NOR UNDER ANY
STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR
(2) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE COMPANY
AND LEGAL COUNSEL FOR THE COMPANY.
Void after 5:00 p.m. New York City Time, on April 4, 2003
Warrant to Purchase 600,000 Shares of Common Stock
WARRANT TO PURCHASE COMMON STOCK, PAR VALUE $0.01,
OF
ADATOM.COM, INC.
This is to Certify That, FOR VALUE RECEIVED, Richard Seifert or his
permitted assigns ("Holder") is entitled to purchase, subject to the provisions
of this Warrant, from Adatom.com, Inc., a Delaware corporation (the "Company"),
up to 600,000 fully paid, validly issued and nonassessable shares of Common
Stock, par value $.01 per share, of the Company ("Common Stock") at a price of
$2.25 per share at any time or from time to time during the period from April 5,
2000 to April 4, 2003, as set forth under (a) below, but not later than 5:00
p.m. New York City Time, on April 4, 2003. The number of shares of Common Stock
to be received upon the exercise of this Warrant and the price to be paid for
each share of Common Stock may be adjusted from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price."
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole, or in
part in increments of not less than 20,000 shares, at any time or from time to
time, until April 4, 2003. This Warrant may be exercised by presentation and
surrender hereof to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Purchase Form annexed hereto as Exhibit A
duly executed and accompanied by payment of the Exercise Price for the number of
Warrant Shares specified in such form and any and all transfer taxes applicable
to such exercise. As soon as practicable after each such exercise, but not later
than 30 days from the date of such exercise, the Company shall issue and deliver
to the Holder a certificate or certificate for the Warrant Shares issuable upon
such exercise, registered in the name of the Holder or its designee. If this
Warrant should be exercised in part only, the Company shall, upon surrender of
this Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable thereunder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrant.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof,
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the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market, the Current Market Value shall
be the last reported sale price of the Common Stock on such exchange or
market on the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average closing bid
and asked prices for such day on such exchange or market; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq Small Cap Market, the
Current Market Value shall be the average of the closing bid and asked
prices for such day on such market and if the Common Stock is not so
traded, the Current Market Value shall be the mean of the last reported
bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of this Warrant
if such prices are so reported; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
Current Market Value shall be an amount, not less than book value
thereof as at the end of the most recent fiscal year of the Company
ending prior to the date of the exercise of the Warrant, determined in
such reasonable manner as may be prescribed by the Board of Directors
of the Company.
(d) TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
(1) This Warrant may not be transferred except in minimum denominations
of 100,000 shares and in compliance with applicable federal and state
securities laws. Upon surrender of this Warrant to the Company at its
principal office or at the office of its stock transfer agent, if any,
with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax, the Company shall, without charge,
execute and deliver a new Warrant in the name of the assignee named in
such instrument of assignment and this Warrant shall promptly be
cancelled.
(2) Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant and (in the case
of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant,
if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the
Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall
(i) declare a dividend or make a distribution on its outstanding
shares of Common Stock in shares of Common Stock,
(ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or
(iii) combine or reclassify its outstanding shares of Common
Stock into a smaller number of shares,
the number of shares subject to the Warrant shall be proportionately
increased, and the Exercise Price of the Warrant shall be
proportionately decreased, in the case of actions specified in (l)(i)
or (ii) above; and
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<PAGE>
the number of shares shall be proportionately decreased, and the
Exercise Price proportionately increased, in the case of actions
specified in (l)(iii) above. Such adjustment shall be made successively
whenever any event listed above shall occur.
(2) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents
($0.05) in such price; provided, however, that any adjustments which by
reason of this Subsection (2) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment
required to be made hereunder. All calculations under this Section (e)
shall be made to the nearest cent or to the nearest whole share, as the
case may be.
(3) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 30 days after any request for
such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Warrant Shares issuable
upon exercise of each Warrant, and, if requested, information
describing the transactions giving rise to such adjustments, to be
mailed to the Holder at his last address appearing in the records of
the Company, and shall cause a copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of independent
certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by the Company) to make any
computation required by this Section (e), and a certificate signed by
such firm shall be conclusive evidence of the correctness of such
adjustment.
(4) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant thereafter
shall become entitled to receive any shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable
upon exercise of this Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Common Stock contained in Subsection
(1) above.
(5) Irrespective of any adjustments in the Exercise Price or the number
or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the Warrants previously
issued.
(f) REGISTRATION RIGHTS. The Company hereby grants the Holder the right
to "piggy back" the Warrant Shares on each Registration Statement for the sale
of Common Stock filed by the Company (or any securities of a successor company
of the Company) at the Company's cost and expense (except those incurred by the
Holder for legal fees and commissions). The obligations of the Company under
this Section (f) expire upon the earlier of (i) after the Company has afforded
the opportunity for the Holder to exercise registration rights under this
Section (f) for three registrations, (ii) when all of the Warrant Shares held by
the Holder may be sold by the Holder under Rule 144 without being subject to any
volume restrictions, or (iii) the fourth anniversary of the date of this
Warrant. The Company shall give the Holder at least 30 days' prior notice of its
intent to file a Registration Statement. The Company shall use its best efforts
to keep any Registration Statement onto which Holder has "piggy backed" his
Warrant Shares effective for a period of not less than 270 days from the date
whereby the Holder is first entitled to sell thereunder, or such shorter period
terminating when the Holder has sold all of his shares. Such "piggy back" rights
are subject to standard underwriters' approval and holdback, whereby the
Holder's rights to sell in a public offering may be limited pro rata with the
other stockholders, and shall not apply to any Warrant Shares that can be sold
under SEC Rule 144 without volume restrictions. For purposes of this Section
(f), the term Registration Statement shall mean any registration statement for
the sale of common stock or other securities filed by the Company or filed by
any successor entity (in the case of merger, reclassification, change,
consolidation, sale or conveyance of the Company) under the Act (except for a
Registration Statement on Form S-4, Form S-8 or any successor form thereto).
(g) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
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<PAGE>
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least 15 days prior the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(h) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger in which the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock issuable upon exercise of this Warrant) or in case of any sale,
lease or conveyance to another corporation of the property of the Company as an
entirety, the Company shall, as a condition precedent to such transaction, cause
effective provisions to be made so that the Holder shall have the right
thereafter by exercising this Warrant at any time prior to the expiration of the
Warrant, to purchase the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, capital reorganization and
other change, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock which might have been purchased upon exercise
of this Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant.
(i) COMPLIANCE WITH SECURITIES ACT. The Holder, by acceptance hereof,
(1) represents (i) that this Warrant and the Common Stock to be issued
upon exercise of this Warrant are being acquired for investment only
and not with a view toward distribution or resale, and (ii) that he
will not offer, sell or otherwise dispose of this Warrant or any Common
Stock purchasable upon exercise of this Warrant except under
circumstances which will not result in a violation of the Securities
Act; and
(2) agrees that upon exercise of this Warrant, the Holder shall (i)
submit to the Company a signed copy of Exhibits A and C attached
hereto, (ii) provide such additional information regarding such
holder's financial and investment background as the Company may
reasonably request, and (iii) all shares of Common Stock issued upon
exercise of this Warrant (unless registered under the Securities Act)
shall be stamped or imprinted with a restrictive legend substantially
in the form of the following:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "SECURITIES ACT") NOR UNDER ANY STATE SECURITIES
LAWS AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS HAS
BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE
COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH THE
PROPOSED TRANSFER.
(j) NO AVOIDANCE. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
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<PAGE>
(k) CERTAIN LIMITATIONS OF HOLDER. The Holder, by acceptance hereof,
agrees that:
(1) STOP-TRANSFER NOTICES. In order to ensure compliance with the
restrictions referred to herein, the Company may issue appropriate
"stop transfer" instructions to its transfer agent, if any, and, if the
Company transfers its own securities, it may make appropriate notations
to the same effect in its own records;
(2) REFUSAL TO TRANSFER. The Company shall not be required to (i)
transfer the Warrant on its books or transfer any securities that have
been sold or otherwise transferred in violation of any of the
provisions of this Warrant; or (ii) treat as the owner of the Warrant
or any such securities, or accord the right to vote or pay dividends
to, any purchaser or other transferee to whom such securities shall
have been so transferred; and
(3) RIGHTS OF STOCKHOLDERS. No holder of the Warrant shall be entitled
to vote or receive dividends or be deemed a stockholder, nor shall
anything contained herein be construed to confer upon the Holder, 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 to give or withhold consent to
any corporate action (whether upon any recapitalization, issuance of
stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise)
or to receive notice of meetings, or to receive dividends, until the
Warrant shall have been exercised and the Common Stock shall have
become deliverable, as provided herein.
(l) GOVERNING LAW. The terms and conditions of this Warrant shall be
governed by and construed in accordance with the laws of the State of Delaware.
(m) MISCELLANEOUS. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated in any manner except by an instrument in writing signed
by the Company and the Holder.
All notices and other communications from the Company to the holder of
this Warrant shall be mailed by first-class registered or certified mail or
recognized commercial courier service, postage or delivery charges prepaid, to
the address furnished to the Company in writing by the last holder of this
Warrant who shall have furnished an address to the Company in writing.
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase
Common Stock to be duly executed by one of its duly authorized officers.
ADATOM.COM, INC.
By: _____________________________
Richard S. Barton
Chairman of the Board
and Chief Executive Officer
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<PAGE>
Exhibit A
PURCHASE FORM
Dated ____________, 20_______
1. The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing _______ shares of Common Stock and hereby makes payment
of _____________ in payment of the actual exercise price thereof, together with
all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below:
(Please typewrite or print in block letters)
---------------------------------
(Name)
---------------------------------
---------------------------------
(Address)
3. The undersigned has reviewed, signed and enclosed an Investment
Representation Statement in the form attached as Exhibit C to the Warrant.
---------------------------------
Signature of Warrant holder
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<PAGE>
Exhibit B
ASSIGNMENT FORM
FOR VALUE RECEIVED, ______________ hereby sells, assigns and transfers unto
Name _______________________________________
(Please typewrite or print in block letters)
Address ____________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint ___________ as attorney, to transfer the same on the
books of the Company with full power of substitution in the premises.
Date ____________, 20_______
Signature _____________________________
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<PAGE>
Exhibit C
ADATOM.COM, INC.
WARRANT
INVESTMENT REPRESENTATION STATEMENT
AMOUNT: ________________________
DATE: __________________, 2000
In connection with the purchase of the above-listed securities (the
"Securities") from ADATOM.COM, INC. ("the Company"), I the undersigned Purchaser
represent to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended ("Securities
Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted with
a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
(d) I am aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a transaction or series of
transactions not involving a non-public offering, subject to the satisfaction of
certain conditions.
(e) I further understand that at the time I wish to sell the Securities
there may be no public market upon which to make such a sale.
(f) I further understand that in the event all of the requirements of
Rule 144 are not satisfied, registration under the Securities Act, compliance
with Regulation A, or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
-------------------------------
Name of Purchaser
-------------------------------
Date
E-9
Exhibit 4.18
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") NOR UNDER ANY
STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR
(2) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE COMPANY
AND LEGAL COUNSEL FOR THE COMPANY.
Void after 5:00 p.m. New York City Time, on April 1, 2005
Warrant to Purchase 25,000 Shares of Common Stock
WARRANT TO PURCHASE COMMON STOCK, PAR VALUE $0.01,
OF
ADATOM.COM, INC.
This is to Certify That, FOR VALUE RECEIVED, David Cannon or his
permitted assigns ("Holder"), is entitled to purchase, subject to the provisions
of this Warrant, from Adatom.com, Inc., a Delaware corporation (the "Company"),
25,000 fully paid, validly issued and nonassessable shares of Common Stock, par
value $.01 per share, of the Company ("Common Stock") at a price of $3.00 per
share at any time or from time to time during the period from April 1, 2000 to
April 1, 2005, as set forth under (a) below, but not later than 5:00 p.m. New
York City Time, on April 1, 2005. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price."
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole or in part at any time or
from time to time, until April 1, 2005. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto as Exhibit A duly executed and accompanied by payment of the Exercise
Price for the number of Warrant Shares specified in such form and any and all
transfer taxes applicable to such exercise. As soon as practicable after each
such exercise, but not later than thirty (30) days from the date of such
exercise, the Company shall issue and deliver to the Holder a certificate or
certificate for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder.
(2) At any time during the term of this Warrant, the Holder may, at its
option, exchange this Warrant, in whole or in part (a "Warrant Exchange"), into
the number of Warrant Shares determined in accordance with this Section (a)(2),
by surrendering this Warrant at the principal office of the Company or at the
office of its stock
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transfer agent, accompanied by a notice stating Holder's intent to exchange, the
number of Warrant Shares to be exchanged and the date on which the Holder
requests that such Warrant Exchange occur (the "Notice of Exchange"). The
Warrant Exchange shall take place on the date specified in the Notice of
Exchange or, if later, the date the Notice of Exchange is received by the
Company (the "Exchange Date"). Certificates for the Common Stock issuable upon
such Warrant Exchange and, if applicable, a new warrant of like tenor evidencing
the balance of the Common Stock remaining subject to this Warrant, shall be
issued as of the Exchange Date and delivered to the Holder within thirty (30)
days following the Exchange Date.
In connection with any Warrant Exchange, this Warrant shall represent
the right to subscribe for and acquire the number of Warrant Shares (rounded to
the next highest integer) equal to (i) the number of Warrant Shares specified by
the Holder in its Notice of Exchange (the "Total Number") less (ii) the number
of Warrant Shares equal to the quotient obtained by dividing (A) the product of
the Total Number and the existing Exercise Price plus any and all transfer taxes
applicable to such exercise, by (B) the Current Market Value of a share of
Common Stock. Current Market Value shall have the meaning set forth Section (c)
below, except that for purposes hereof, the date of exercise, as used in such
Section (c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrant.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market, the Current Market Value shall
be the last reported sale price of the Common Stock on such exchange or
market on the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average closing bid
and asked prices for such day on such exchange or market; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq Small Cap Market, the
Current Market Value shall be the average of the closing bid and asked
prices for such day on such market and if the Common Stock is not so
traded, the Current Market Value shall be the mean of the last reported
bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of this Warrant
if such prices are so reported; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
Current Market Value shall be an amount, not less than book value
thereof as at the end of the most recent fiscal year of the Company
ending prior to the date of the exercise of the Warrant, determined in
such reasonable manner as may be prescribed by the Board of Directors
of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
(i) This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company or at the
office of its stock transfer agent, if any, for other warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable
hereunder;
(ii) Neither this Warrant, nor the shares of Common Stock issued upon
the exercise of all or a portion of this Warrant, may be transferred
(other than by will or pursuant to the laws of descent and
distribution) except with the Company's prior written consent. Any
transfer of the Warrant, or the shares of Common
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<PAGE>
Stock issued upon the exercise of the Warrant, must be done so in
compliance with applicable federal and state securities laws;
(iii) By acceptance of this Warrant, the Holder agrees to be bound by
the terms of a standard market standoff agreement requested by
underwriters with respect to a public offering of Common Stock acquired
pursuant to this Warrant;
(iv) Upon surrender of this Warrant to the Company at its principal
office or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to
pay any transfer tax, and with the consent of the Company, the Company
shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant
shall promptly be cancelled. This Warrant may be divided or combined
with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its
stock transfer agent, if any, together with a written notice specifying
the names and denominations in which new Warrants are to be issued and
signed by the Holder hereof. The term "Warrant" as used herein includes
any Warrants into which this Warrant may be divided or exchanged.
(v) Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant,
if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the
Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall
(i) declare a dividend or make a distribution on its outstanding
shares of Common Stock in shares of Common Stock,
(ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, or
(iii) combine or reclassify its outstanding shares of Common
Stock into a smaller number of shares,
the number of shares subject to the Warrant shall be proportionately
increased, and the exercise price of the Warrant shall be
proportionately decreased, in the case of actions specified in (l)(i)
or (ii) above; and the number of shares shall be proportionately
decreased, and the exercise price proportionately increased, in the
case of actions specified in (l)(iii) above. Such adjustment shall be
made successively whenever any event listed above shall occur.
(2) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsection (f)(1) above, the number of Shares
purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date
hereof and dividing the product so obtained by the Exercise Price, as
adjusted.
(3) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents
($0.05) in such price; provided, however, that any adjustments which by
reason of this Subsection (3) are not required to be made shall be
carried forward and taken into
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<PAGE>
account in any subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest cent
or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to make such
changes in the Exercise Price, in addition to those required by this
Section (f), as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of
Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any
Federal Income tax liability to the Holder.
(4) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 20 days after any request for
such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Shares issuable upon
exercise of each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to the
Holder at his last addresses appearing in the records of the Company,
and shall cause a copy thereof to be mailed to its transfer agent, if
any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required
by this Section (f), and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(5) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant thereafter
shall become entitled to receive any shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable
upon exercise of this Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Common Stock contained in Subsection
(1) above.
(6) Irrespective of any adjustments in the Exercise Price or the number
or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the Warrants previously
issued.
(f) OFFICER'S CERTIFICATE. Whenever the Exercise Price and number of
Common Shares shall be adjusted as required by the provisions of the foregoing
Section, the Company shall forthwith file in the custody of its Secretary or an
Assistant Secretary at its principal office and with its stock transfer agent,
if any, an officer's certificate showing the adjusted Exercise Price determined
as herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder and
the Company shall, forthwith after each such adjustment, mail a copy by
certified mail of such certificate to the Holder.
(g) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
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<PAGE>
(h) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which the Company is the continuing corporation and which does not result in
any reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the class issuable upon exercise of this Warrant) or
in case of any sale, lease or conveyance to another corporation of the property
of the Company as an entirety, the Company shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the Holder shall
have the right thereafter by exercising this Warrant at any time prior to the
expiration of the Warrant, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been purchased
upon exercise of this Warrant immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant.
The foregoing provisions of this Section (h) shall similarly apply to
successive reclassification, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof. A distribution in
securities, rights to acquire securities, or other property (except for cash
dividends) made with respect to Common Stock or other securities of the Company
or a successor corporation, to the extent that such distribution shall not be
covered by the provisions of Subsection (1) of Section (e) hereof, shall be
deemed to be a capital reorganization within the meaning of this Section (h).
(i) COMPLIANCE WITH SECURITIES ACT. The Holder, by acceptance hereof,
(a) represents (i) that this Warrant and the Common Stock to be issued
upon exercise of this Warrant are being acquired for investment only
and not with a view toward distribution or resale, and (ii) that he
will not offer, sell or otherwise dispose of this Warrant or any Common
Stock purchasable upon exercise of this Warrant except with the
permission of the Company and under circumstances which will not result
in a violation of the Securities Act;
(b) agrees that upon exercise of this Warrant, the Holder shall (i)
submit to the Company a signed copy of Exhibit B, (ii) provide such
additional information regarding such holder's financial and investment
background as the Company may reasonably request, and (iii) all Common
Stock Shares issued upon exercise of this Warrant (unless registered
under the Securities Act) shall be stamped or imprinted with a
restrictive legend substantially in the form of the following:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "SECURITIES ACT") NOR UNDER ANY STATE SECURITIES
LAWS AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS HAS
BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE
COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH THE
PROPOSED TRANSFER.
(j) The Company will not, by amendment of its charter or through
reorganization, consolidation, merger, dissolution, sale of assets or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all
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<PAGE>
such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Warrant against impairment.
(k) The Holder, by acceptance hereof, agrees that:
(1) STOP-TRANSFER NOTICES. In order to ensure compliance with the
restrictions referred to herein, the Company may issue appropriate
"stop transfer" instructions to its transfer agent, if any, and, if the
Company transfers its own securities, it may make appropriate notations
to the same effect in its own records;
(2) REFUSAL TO TRANSFER. The Company shall not be required to (i)
transfer the Warrant on its books or transfer any securities that have
been sold or otherwise transferred in violation of any of the
provisions of this Warrant; or (ii) treat as the owner of the Warrant
or any such securities, or accord the right to vote or pay dividends
to, any purchaser or other transferee to whom such securities shall
have been so transferred;
(3) RIGHTS OF STOCKHOLDERS. No holder of the Warrant shall be entitled
to vote or receive dividends or be deemed the Holder, nor shall
anything contained herein be construed to confer upon the Holder, 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
shareholders at any meeting thereof, or to give or withhold consent to
any corporate action (whether upon any recapitalization, issuance of
stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise)
or to receive notice of meetings, or to receive dividends, until the
Warrant shall have been exercised and the Common Stock shall have
become deliverable, as provided herein.
(l) GOVERNING LAW. The terms and conditions of this Warrant shall be
governed by and construed in accordance with the laws of the State of Delaware.
(m) MISCELLANEOUS. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated in any manner except by an instrument in writing signed
by the Company and the Holder.
All notices and other communications from the Company to the holder of
this Warrant shall be mailed by first-class registered or certified mail or
recognized commercial courier service, postage or delivery charges prepaid, to
the address furnished to the Company in writing by the last holder of this
Warrant who shall have furnished an address to the Company in writing.
ADATOM.COM, INC.
By: _____________________________
Richard S. Barton
Chairman of the Board
and Chief Executive Officer
[SEAL]
Dated: April _____, 2000
Attest:
- -----------------------------
Michael M. Wheeler
Secretary
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<PAGE>
Exhibit A
PURCHASE FORM
Dated ____________, 20_______
1. The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing _______ shares of Common Stock and hereby makes payment
of _____________ in payment of the actual exercise price thereof, together with
all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below:
(Please typewrite or print in block letters)
---------------------------------
(Name)
---------------------------------
---------------------------------
(Address)
3. The undersigned has reviewed, signed and enclosed an Investment
Representation Statement in the form attached as Exhibit C to the Warrant.
---------------------------------
Signature of Warrant holder
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<PAGE>
Exhibit B
ASSIGNMENT FORM
FOR VALUE RECEIVED, ______________ hereby sells, assigns and transfers unto
Name _______________________________________
(Please typewrite or print in block letters)
Address ____________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint ___________ as attorney, to transfer the same on the
books of the Company with full power of substitution in the premises.
Date ____________, 20_______
Signature _____________________________
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<PAGE>
Exhibit C
ADATOM.COM, INC.
WARRANT
INVESTMENT REPRESENTATION STATEMENT
AMOUNT: ______________________________________________________________
DATE: _______________, 2000
In connection with the purchase of the above-listed securities (the
"Securities") from ADATOM.COM ("the Company"), I the undersigned Purchaser
represent to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended ("Securities
Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission ("SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted with
a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
(d) I am aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a transaction or series of
transactions not involving a non-public offering, subject to the satisfaction of
certain conditions.
(e) I further understand that at the time I wish to sell the Securities
there may be no public market upon which to make such a sale.
(f) I further understand that in the event all of the requirements of
Rule 144 are not satisfied, registration under the Securities Act, compliance
with Regulation A, or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
-----------------------------------
Name of Purchaser
-----------------------------------
Date
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Exhibit 10.21
DESCRIPTION OF ADATOM.COM, INC. 1999 OFFICER BONUS STOCK GRANTS
---------------------------------------------------------------
On April 28, 2000, the Company's Board of Directors approved the
recommendation of its Compensation Committee's that bonuses for 1999 performance
be granted to the following executive officers of the Company in the following
amounts, all of which are payable solely in the Company's common stock:
Dollar Amount Bonus Amount
Executive Officer of Bonus in Shares
----------------- -------- ---------
Richard S. Barton $22,200 5,968
Chairman of the Board of
Directors, President, Chief
Executive Officer and Chief
Financial Officer
Sridhar Jagannathan $16,650 4,476
Executive Vice President,
Chief Technology Officer
Michael M. Wheeler $11,100 2,984
Controller and Secretary
The number of shares to be issued was determined by dividing the dollar amount
of each bonus by the closing stock price on April 28, 2000, which was $3.7188 or
$3.72. The bonus shares are not subject to any vesting schedule or restrictions
on transfer, other than restrictions imposed by federal and state securities
laws.
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<PAGE>
Exhibit 10.22
COOPERATIVE MEMORANDUM
Party A: YangLing Demonstration Zone of Agricultural Hi-Tech Industrial
Administrative Committee
Party B: Adatom, Inc. USA
On March 7th , 2000, hosted by Mr. YuanHao Li, Chairman of Shen Zheng TianTong
Enterprises and Mr. Luo Fei., Genera Manager of SZ Alliance PKU Financial
Consulting Ltd., Dr. Victor W. Nee , Director of Adatom, Inc USA revisited
YangLing Agriculture Hi-Tech Industrial Demonstration Zone. Dr. Nee complimented
the tremendous growth of the Demonstration Zone in the last several months.
Prof. Jun Chen, Deputy Director of the Administrative Committee, and Mr. Jun
Yang, president of demonstration zone economic development bureau met with Dr.
Nee and invited him and his guests to join the Mainland China-TaiWan Agriculture
Hi-Tech Cooperation International Forum in May and Yangling Agriculture Hi-Tech
Exhibition in November. They had in-depth discussion on how to utilize the
resources to develop YangLing Demonstration Zone and the intention of
cooperation has been reached as the following:
1, To set up Sino-American Joint Yangling Agriculture Hi-Tech Venture Capital
Fund.
The initial investment is USD50M. YangLing Industrial Zone will join with land,
offices or part of capital. Adatom is responsible for the capital financing and
will be the majority shareholder. The investment will be focused on the projects
in the area of seeds, water-saving engine, agriculture biochemistry engineering,
botany engineering and environmental protection. For the purpose of expediting
processing approval and implementing of the projects it is recommended to set up
the investment company first before running the venture capital fund. In order
to assist the company going public on overseas market, YangLing Industrial Zone
will provide preferential policies and priorities.
Both parties agree on appointing SZ Allliance PKU Financial Consulting Ltd. To
lay out detailed business plan.
2, To establish Sino-American Agriculture Hi-Tech Innovation Center
The center will be the initiation project of the Agriculture Hi-Tech Venture
Capital Fund. The fund will provide the initiation capital to facilitate the
center.
YangLing Industrial Zone will be responsible for getting government approval.
Adatom is responsible for hiring foreign experts, entrepreneurs, organizing
international experts committee
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<PAGE>
of the center, and assisting in training the demonstration zone technology
specialists and entrepreneurs.
3, To develop China Hi-Tech Agriculture Net (Temporary name). Information
infrastructure is the key in the development of the demonstration zone. As the
on-line market trading company (Public traded on NASDAQ) , Adatom has top-level
expertise and enormous experience in B-B and B-C electronic commerce. To elevate
the development of Yangling demonstration zone information infrastructure, an
USA networking company will be set up as well. Adatom provides financing
capital, technology platform, overseas market and expertise. YangLing Industrial
Zone agreed to have Adatom as its overseas exclusive e-commerce partner. Equity
position will be determined on mutual agreement. Adatom as the exclusive
international partner in this effort with YangLing will source, provide, market
and sell industrial and consumer products, including farm machinery and
equipment, seeds, fertilizer and crops. Information and consulting services will
also be provided electronically for both business to business and business to
consumers markets between the United States and China. This network company will
found Sino-Ameican Information Networking Joint Venture with associated
businesses of Administrative Committee. The joint venture focuses on developing,
implementing and maintaining China Hi-Tech Agriculture Net and participates in
the demonstration zone information system planning.
China Hi-Tech Agriculture Net is a comprehensive community networking with
integration of news release, on-line education and economic commerce. The
content includes:
o On-line Yangling
o China Agriculture Hi-Tech project release and trading
o Filing center of agriculture hi-tech enterprises
o On-line consulting
o On-line Agriculture university
o Agriculture B-B, B-C e-commerce
Both parties agree on presenting project feasibility reports , signing final
agreement and starting the third project above mentioned first.
Party A YangLing Demonstration Zone of Agriculture Hi-Tech Administrative
Committee
Signature
Title
Party B Adatom , Inc
Signature
Title
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Exhibit 10.23
COOPERATIVE MEMORANDUM
March 6, 2000
Intended Cooperators:
ADATOM.COM., INC., USA
SHENZHEN BAY INDUSTRIAL, EDUCATIONAL & RESEARCH CENTER
On March 5th, 2000, the former vice president of State University of
Massachusetts, chairman of Neeonix Inc., USA, representative for the mayor of
Milpitas and director of Adatom.com.Inc, Dr. Victor W. Nee paid a visit to the
cooperative institution initiated by Shenzhen Government Peking University (PKU)
and Hong Kong University of Science and Technology (HKUST) - Shenzhen Bay
Industrial, Educational & Research Center (SBIERC), Shenzhen Hi-tech Industrial
Park (SHIP), Shenzhen Virtual University Park and PKU Jade Bird Co. Ltd. Mr. Liu
Yingli, vice general secretary of Shenzhen Municipal government, general
director of Shenzhen High-tech Industrial Park, met with Dr. Nee in his office.
Dr. Nee had a friendly talk with vice director of Domestic Cooperation committee
of Peking University, Executive director of SBIERC Mr. Luo Fei, etc. Both
parties proceeded a constructive discussion about the possibility of further
cooperation. Dr. Nee outlined his 20 years experiences in dealing with various
sectors from the United States federal government, Education, Industrial &
Commercial field, as well as having established close relationships for the
counterparts in China. Professor Shi introduced major functions of SBIERC, as a
"Combo of Official, Industrial, Educational, Research & Capital Base." She
particularly mentioned of fascinating investment environment in Shenzhen, rich
resources of PKU and HKUST. Dr. Nee was deeply impressed with the operation
pattern of SBIERC, especially with the prospective of SHIP and the
accomplishment of Shenzhen urban constructions. He brought the message from the
mayor of Milpitas, hoping to set up a positively cooperative relationship
between US Silicon Valley and SBIERC. Both parties agreed upon to realize that
this kind of cooperation has got clear objectives and practical foundation,
therefore, the plan could be worked out step by step according to short-term or
mid-term planning strategies. Mr. Luo Fei has been designated to be responsible
for the promotion of this project. Therefore, the intention of cooperation has
been reached be Adatom.com.Inc (Party A) and SBIERC (Party B) as the following:
1. TO COOPERATE IN DEVELOPING AND FACILITATING NETWORK RESOURCES.
One network company shall be co-sponsored and established in Shenzhen. A
business plan will be developed by Adatom.Com.Co. of USA and SBIERC. After both
parties agreed on the budget in the plan, investment capital will be provided by
both parties according to agreed destination. As estimation, the initial
investment shall be of USD2 million, subsequent financing shall be of USD5
million to 10 million. The company will focus on developing China technology and
product exchange network station ( e.g., a bilingual internet system ), and
China's IT Product Procurement Network. The business varieties shall be explored
by both parties. Party B shall be responsible for the procedures of
incorporation in Shenzhen, whereas Party A shall be bonded in bringing the joint
venture into public in the US within 12 months.
2. TO COOPERATE IN DEVELOPING AND FACILITATING ONLINE EDUCATION PLATFORM
Party A shall be responsible for searching successful Online Education Platform
in America, whereas Party B ought to make a quality combination between the
ongoing education courses in China and the Online Education Platform in the US.
In respect of education market demand in China, using of resources in both
parties' places both parties shall be, on one hand, carrying out specialized
talent training, on the other hand, adventuring the effective connection between
online education and capital market.
E-22
<PAGE>
3. TO SET UP VENTURE CAPITAL FUND:
The fund shall be registered as a limited partnership firm in Hong Kong. The
main purpose is to invest upon hi-tech project inland and relevant hi-tech
enterprises for both America and China/
4. TO JOINTLY SPONSOR "GLOBAL NETWORK ECONOMIC FORUM"
The proposition shall be as network economic development strategy and industrial
orientations, network talent in the new century and technical resources. The
forum shall be anticipated at high level and be authoritative, which look
forward to the future international development trends. Party A shall be
responsible for promotion of the idea and inviting relevant participants in the
US. Party B shall undertake the actual preparation in China. The first time of
the forum shall be held in the year of 2000 or 2001 and in the subsequent years.
E-23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED March 31, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 794,000
<SECURITIES> 0
<RECEIVABLES> 24,000
<ALLOWANCES> (24,000)
<INVENTORY> 260,000
<CURRENT-ASSETS> 1,670,000
<PP&E> 408,000
<DEPRECIATION> 99,000
<TOTAL-ASSETS> 2,389,000
<CURRENT-LIABILITIES> 1,037,000
<BONDS> 0
0
0
<COMMON> 161,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,389,000
<SALES> 443,000
<TOTAL-REVENUES> 443,000
<CGS> 433,000
<TOTAL-COSTS> 433,000
<OTHER-EXPENSES> 2,188,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> (2,173,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,173,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,173,000)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
