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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 33-48022
PROSPECTUS
1,697,619 SHARES
GLOBALMEDIA.COM
COMMON STOCK
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GLOBALMEDIA.COM We have prepared this prospectus to allow
400 Robson Street the selling stockholders to sell from
Vancouver, British Columbia time to time up to 1,697,619 shares of
Canada V6B 2B4 our common stock which they currently
hold.
SELLING STOCKHOLDERS: We have registered the shares of common
See page 16 for the names of stock which may be sold by the selling
the selling stockholders stockholders pursuant to this prospectus
by filing a registration statement with
the Securities and Exchange Commission
TRADING MARKET AND SYMBOL: using a "shelf" registration process.
Nasdaq National Market - This process allows the selling
"GLMC" stockholders to sell their shares of
common stock over a period of time and in
varying amounts. We expect that the
selling stockholders will sell their
shares of common stock from time to time
as described under "Plan of Distribution."
RECENT PRICE:
On November 17, 2000, the
last reported sales price
of our common stock on the
Nasdaq National Market was
$0.28125 per share.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this prospectus is November 17, 2000
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TABLE OF CONTENTS.
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WHERE YOU CAN FIND MORE INFORMATION............................................. i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................... ii
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS............................ ii
PROSPECTUS SUMMARY.............................................................. 1
RISK FACTORS.................................................................... 3
USE OF PROCEEDS................................................................. 16
SELLING STOCKHOLDERS............................................................ 16
PLAN OF DISTRIBUTION............................................................ 16
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS............................. 17
LEGAL MATTERS................................................................... 17
EXPERTS......................................................................... 17
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"GlobalMedia," "globalmedia.com," "store.globalmedia.com," "GlobalMedia
Network," "GlobalMedia Broadcast Network," "indieaudio.com,"
"globalmediacorp.com" and "gmcorp.net" are trademarks and service marks of
GlobalMedia.com. All other trademarks, service marks or trade names referred
to in this prospectus are the property of their respective owners. Except as
otherwise required by the context, all references in this prospectus to (a)
"we," "us," "our," or "GlobalMedia" refer to the consolidated operations of
GlobalMedia.com (formerly known as Global Media Corp.), a Nevada corporation,
and its wholly-owned subsidiaries, Westcoast Wireless Cable Ltd. and Global
Media (Canada) Entertainment Corporation, (b) "you" refers to prospective
investors in our common stock, (c) the "Web" refers to the World Wide Web and
(d) "our site" refers to our Web site at www.globalmedia.com.
This prospectus includes statistical data regarding us and the Internet
industry. Such data are based on our records or are taken or derived from
information published by various sources, including International Data
Corporation.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's Public Reference facilities in Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the SEC located at 7 World Trade Center, Suite 1300, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the
public from the SEC's Web site at http://www.sec.gov.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them into this prospectus, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and later
information which we file with the SEC will update and supersede this
information. We incorporate by reference the documents listed below:
(1) Our Annual Report on Form 10-KSB for the year ended July 31, 2000.
(2) The description of our common stock contained in our registration
statement on Form 10-SB filed December 12, 1997, including any
amendments or reports filed for the purpose of updating such
description.
You may request a copy of these filings, at no cost, by calling us at (604)
688-9994 or writing to us at the following address:
GlobalMedia.com
Attn.: Secretary
400 Robson Street
Vancouver, British Columbia
V6B 2B4 Canada
All documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Securities Exchange Act of 1934, as amended, prior to the
filing of a post-effective amendment which indicates that all securities
registered have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference in this prospectus
and to be part hereof from the date of filing of such documents. You should
rely on the information incorporated by reference or provided in this
prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state
where the offer is not permitted. You should not assume that the information
in this prospectus is accurate as of any date other than the date on the
front of the document.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements deal with our
current plans, intentions, beliefs and expectations and statements of future
economic performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could,"
"expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms and other
comparable terminology. These forward-looking statements include, without
limitation, statements about our market opportunity, our strategies,
competition, expected activities and expenditures as we pursue our business
plan, and the adequacy of our available cash resources. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Forward-looking statements involve known and
unknown risks and uncertainties which may cause our actual results in future
periods to differ materially from what is currently anticipated. We make
cautionary statements in certain sections of this prospectus, including under
the heading "Risk Factors." You should read these cautionary statements as
being applicable to all related forward-looking statements wherever they
appear in this prospectus, in the materials referred to in this prospectus,
in the materials incorporated by reference into this prospectus, or in our
press releases. No forward-looking statement is a guarantee of future
performance, and you should not place undue reliance on any forward-looking
statement. Moreover, neither we nor anyone else assumes responsibility for
the accuracy and completeness of such statements. We undertake no obligation
to update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.
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PROSPECTUS SUMMARY
THIS SUMMARY CONTAINS BASIC INFORMATION ABOUT US AND THIS OFFERING. BECAUSE
IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING
THE SECTION ENTITLED "RISK FACTORS" AS WELL AS THE INFORMATION INCORPORATED
BY REFERENCE INTO THIS PROSPECTUS. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN
THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS
PROSPECTUS. SEE "CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS."
GLOBALMEDIA
OVERVIEW. GlobalMedia.com offers an award-winning streaming media
broadcasting solution to radio and television stations and Internet sites
through our GlobalMedia.com network associate program. The centerpiece of our
broadcasting network solution is the GlobalMedia.com media player, a streaming
media player developed for us by RealNetworks, Inc., that enables Internet users
to experience multimedia content streamed over the Internet. Our media player
enables Internet users to stream live and simulated live audio, video and other
multimedia content such as radio feeds from our thirteen proprietary simulated
live music stations and from the stations of each of our broadcasting
associates.
We also provide e-commerce solutions that can be integrated with our
broadcasting solution. We sell music CDs and cassettes, home videos and
digital video discs (DVDs), books and other entertainment products through
our own online store and through the private-label storefronts that we create
for network associates in our GlobalMedia.com network associate program.
Visitors to a network associate's Web site can place merchandise orders from
the storefront on that site, which we then process through our e-commerce
back-end solution and fulfill through our fulfillment partners.
MARKET OPPORTUNITY. International Data Corporation estimates that the
number of persons accessing the Web will reach 320 million by 2002 and that
worldwide business-to-consumer sales over the Internet will increase from
approximately $11 billion in 1998 to approximately $93 billion by 2002.
Advances in technology, such as streaming media technologies which enable the
continuous transmission and playback of multimedia content, and broadband
access are making the Internet an increasingly important new medium for
multimedia content delivery and distribution. We are positioning ourselves to
take advantage of the convergence of traditional audio and video media with
the Internet and electronic commerce.
NETWORK ASSOCIATE PROGRAM. We offer our network associates solutions to
provide their online customers with an integrated entertainment and online
shopping experience. Our solutions enable our network associates to deliver
simulated live and live Internet broadcast of audio, video and other
multimedia content from their Web sites. We have designed our broadcasting
network so that our streaming media solution can be combined with our private
label e-commerce solution. We provide participating network associates with a
customized, merchant-branded storefront on the network associate's own Web
site which we integrate with our own back-end e-commerce systems, order
fulfillment services and customer service support. For example, customers of
a network associate that uses our streaming and e-commerce solutions can
listen to live music programming through the GlobalMedia.com player and
purchase CDs of the featured artists at the same time. Network associates who
use our broadcasting pay us an up-front fee for design and implementation and
ongoing streaming fees based on usage. We pay our network associates a
percentage of advertising revenues and gross margin for products we sell
through their sites.
We believe that our broadcasting network will be a compelling solution
to radio and television stations that are interested in extending their
brands onto the Internet and developing new sources of revenues. By
establishing network associate relationships with radio and television
stations and other media businesses, our goal is to leverage off the existing
brand identities and marketing efforts - both online and offline - of our
network associates to drive Internet traffic and sales of entertainment
merchandise.
We launched our broadcasting network with the beta version of our media
player in October 1999, and incorporated the commercial version into our
broadcasting network in January 2000. We launched a beta version of our own
e-commerce site in May 1999 and commercially launched our own online store in
September 1999. We significantly revised our online store in November 1999 to
offer greater functionality and ease of use.
Our online store combines an extensive catalogue of music, books, videos
and other entertainment products, with easy-to-use navigation and search
capabilities and entertainment-focused content. Additionally, visitors can
download our media player for free. We are continuing the further development
of our online store and e-commerce back-end to provide additional features
and expect that these enhancements will improve the revenue generating
potential of our own store and the stores of our network associates.
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RECENT EVENTS
STANDARD RADIO/JEFF MANDELBAUM $1,000,000 INVESTMENT AND RELATED TRANSACTIONS
As of November 14, 2000, the Company entered into definitive share
purchase agreements for US $1 million in new investments from Standard Radio
Inc., Gary Slaight, David Coriat and Lama Jama Investments LLC (Jeffrey
Mandelbaum's investment entity) (the "Investors"). In connection with closing
of this new investment, effective as of November 15, 2000, the following other
agreements were entered into:
- The Company and the Investors entered into a Registration Rights
Agreement in which the Company agrees to register for resale the
newly-issued shares and all other shares of the Company stock held by
the Investors and Mr. Mandelbaum that are not otherwise registered.
- The Company and Standard Radio entered into an amendment of the
existing Private Placement Subscription Agreement between them, dated
September 6, 2000, which repriced the shares sold under that agreement
to $0.4375 per share, causing the issuance of an additional 4,235,398
to Standard Radio.
- The Company agreed to exchange the common stock purchase warrant,
dated September 6, 2000, held by Standard Radio for an Amended Common
Stock Purchase Warrant which reduces the exercise price from $1.80 to
$0.4375 per share.
- Mr. Metcalfe agreed to sell 1,000,000 shares of Common Stock held by
him, at $0.02 per share, as follows: 500,000 shares to Standard Radio,
250,000 shares to Gary Slaight, and 250,000 shares to David Coriat.
- The Company granted Mr. Mandelbaum options to purchase 300,000 shares
of common stock in exchange for his continued service as Chairman of
the Board.
- The Company, Mr. Mandelbaum and Mr. Metcalfe amended Mr. Mandelbaum's
Executive Agreement to accelerate Mr. Metcalfe's sale of an additional
500,000 shares of Common Stock held by Mr. Metcalfe to Mr. Mandelbaum,
at $0.02 per share. Mr. Mandelbaum and Mr. Metcalfe entered into a
Share Purchase Agreement effecting that sale.
- The Company, Standard Radio and Mr. Mandelbaum entered into a 180-day
lock-up agreement with regard to all shares held by Standard Radio and
Mr. Mandelbaum.
- Mr. Barta and Mr. Porter resigned from the board as of the closing
date and the board appointed Mr. Coriat to fill one of the vacancies.
ROSE GLEN MODIFICATION AGREEMENT
In connection with this current financing, Rose Glen Capital Management,
L.P. and RGC General Partner Corp. on behalf of RGC International Investors, LDC
("Rose Glen") have agreed in principal to certain concessions in regard to Rose
Glen's existing preferred share position in the Company, which will be effective
upon execution of a Modification Agreement between the Company and Rose Glen, as
follows:
- All of RGC's existing investment options and warrants to purchase
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Company common stock will be cancelled.
- RGC will convert a sufficient number of the Series A preferred shares
held by RGC so that RGC holds 4.99% of the Company's outstanding
common shares.
- RGC will agree to modify the conversion price of its remaining Series
A and Series B preferred shares such that 75% of its remaining
preferred shares will be convertible at a fixed price of $0.4375 per
share and only 25% will be convertible upon the original formula
price, but will be subject to a $0.4375 per share conversion floor
price.
BACKGROUND
We were incorporated in Nevada in April 1997 as Global Media Corp. In
May 1997, we acquired Westcoast Wireless Cable Ltd., which marketed
direct-to-home satellite broadcast hardware and programming services, from
our controlling stockholder. However, in late 1997, a Canadian federal court
prohibited the delivery of U.S.-based satellite programming in Canada, which
had been a significant part of our business. As a result, we wound down our
home satellite business and discontinued those operations completely in the
fourth quarter of fiscal 1998. In October 1997, we began operating a call
center, which provided investor relations services to U.S. and Canadian
public companies. We discontinued those operations in the third quarter of
fiscal 1999 after we adopted our e-commerce business plan. We changed our
name to GlobalMedia.com in April, 2000.
Our principal executive offices are located at 400 Robson Street,
Vancouver, British Columbia, Canada V6B 2B4 and our telephone number is (604)
688-9994. We maintain our principal Web site at www.globalmedia.com.
INFORMATION CONTAINED ON OUR WEB SITES SHOULD NOT BE CONSIDERED A PART OF
THIS PROSPECTUS.
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RISK FACTORS
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NOTE: In addition to reviewing other information in this prospectus and in
our Annual Report on Form 10-KSB and other documents incorporated herein by
reference, you should consider carefully the following risks before you
decide to buy our common stock. We have described these risks and
uncertainties under the following general categories: "Risks Related to Our
Business," "Risks Related to the Internet Industry" and "Risks Related to
this Offering and Our Common Stock." Our business, financial condition or
results of operations could be materially and adversely affected by any of
these or other risks. In that case, the trading price of our common stock
could decline, and you may lose all or part of the money you paid to buy our
common stock. You should also consider the risks and uncertainties associated
with forward-looking statements included in this prospectus with respect to
our plans, objectives, expectations, and intentions. SEE "Cautionary Note
Regarding Forward-Looking Statements."
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RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED HISTORY OF CURRENT OPERATIONS ON WHICH TO EVALUATE OUR
POTENTIAL FOR FUTURE SUCCESS.
We were incorporated in April 1997 and acquired Westcoast Wireless
Cable Ltd. in May 1997. We discontinued Westcoast's historical operations,
the sale and servicing of direct-to-home satellite broadcast hardware and
programming services, in the fourth quarter of fiscal 1998, and discontinued
our other historical operations, the operation of an investor relations call
center, in the third quarter of fiscal 1999. We commercially launched our
e-commerce solution in September 1999, and our streaming media solution in
January 2000. Accordingly, we have a very limited operating history on which
you can evaluate our business and prospects. You must consider the risks and
uncertainties frequently encountered by early stage companies in new and
rapidly evolving markets, such as Internet streaming and electronic commerce.
To address the risks and uncertainties we face, we must:
- gain broad market acceptance of our network associate program;
- improve reliability and performance of our streaming and e-commerce
solutions, front-end and back-end systems, and order fulfillment;
- successfully develop new features and functionality of our
GlobalMedia.com player and of our online store and those of our
network associates;
- successfully respond to competition in streaming media services from
Yahoo!Broadcast, BroadcastAmerica.com, and others, and in our
entertainment product e-commerce operations from Amazon.com, Inc.,
Ubrandit.com, CDNow, Inc., and others;
- recruit and retain key management, sales, technical and other
employees; and
- implement adequate internal processes and controls to manage our
growth.
Our business strategy may be unsuccessful and we may be unable to
address the risks we face in a cost-effective manner, if at all. Our inability
to successfully address these risks would cause significant harm to our
business, financial condition and results of operations.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT LOSSES FOR THE NEAR FUTURE.
Since our inception, we have incurred significant losses, including
losses from our discontinued operations. Since the third quarter of fiscal
1999, these losses have resulted primarily from costs related to developing
our broadcasting and e-commerce solutions, developing or acquiring
technologies to be used in our business, and general corporate overhead. We
have generated minimal revenues from our new operations. We expect to
continue incurring net losses through the first quarter of fiscal 2002, as
we plan to invest in:
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- enhancing our broadcasting and e-commerce solutions and improving
their reliability and functionality;
- developing infrastructure and applications; and
- marketing our network associate program.
We believe these expenditures are necessary to attract more customers
to our Web site and the Web sites of our network associates, and to generate
greater online revenues. As a result, we anticipate operating losses and
negative operating cash flow through fiscal 2001. If our revenue growth is
slower than we anticipate or our operating expenses exceed our expectations,
our losses will be significantly greater and it will take longer to achieve
positive operating cash flow and profitability. We may never achieve or
sustain profitability.
OUR CAPITAL RESOURCES ARE LIMITED AND WE NEED FURTHER CAPITAL.
We expect to incur net losses and negative cash flow at least until
the end of fiscal 2001. We currently anticipate that our available funds and
expected contract payments will be sufficient to meet our anticipated needs
for working capital, capital expenditures and business expansion through
December 31, 2000. We will therefore need to raise additional capital to meet
our current obligations and operating needs by that time. There is no
assurance that additional financing will be available on terms favorable to us
or at all. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, stockholders may experience additional dilution and such
securities may have rights, preferences and privileges senior to those of our
common stock.
OUR FUTURE REVENUES ARE UNPREDICTABLE AND OUR QUARTERLY OPERATING RESULTS MAY
FLUCTUATE SIGNIFICANTLY.
Our revenues for the foreseeable future will derive primarily from
advertising, streaming fees, design and implementation fees and product
sales. Our revenues will depend primarily on:
- the number of network associates to whom we provide solutions;
- the number of listeners on our simulated live stations and the
stations of our network associates;
- the number of other visitors to our Web sites;
- the number of visitors that our network associates are able to attract
to their stores; and
- how many visitors to our and our network associates' sites purchase
our products.
Because these factors are difficult to predict, we cannot forecast
with any degree of certainty the amount of our entertainment product sales
and streaming media services revenues.
We expect our operating results to fluctuate significantly from
period to period. Both seasonal fluctuations in Internet usage and
traditional retail seasonality may affect our business. Internet usage
generally declines during the summer. Sales in the traditional retail book
and music industries usually increase significantly in the fourth calendar
quarter of each year and are correspondingly lower in other quarters. If
similar seasonal patterns emerge in e-commerce business, our revenues may
vary significantly.
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Other factors which may cause our operating results to fluctuate
significantly from quarter to quarter include:
- technical difficulties with our system, downtime, system failures or
interruptions in Internet access;
- our ability to attract new and repeat users of the GlobalMedia.com
media player, visitors to our Web sites and the Web sites of our
network associates, and visitors to our online store and the online
stores of our network associates;
- our ability to attract and retain network associates;
- our network associates' ability to attract new and repeat visitors to
their Web sites and convert them into customers;
- our ability to keep current with the evolving tastes of our target
markets;
- the frequency of repeat purchases by customers, our average order
size, and the mix of products we sell on our own online store and
those of our network associates;
- the success of our existing competitors, the emergence of new
competitors, and the ability of our competitors to offer new or
enhanced Web site features, products or services;
- our ability, through our fulfillment partners, to ensure sufficient
product supply;
- changes in our pricing policies or the pricing policies of our
competitors;
- our ability to scale technology and upgrade processing capabilities;
- the demand for Internet advertising and sponsorships;
- varying operating costs and capital expenditures related to the
expansion of our business operations and infrastructure, including the
hiring of new employees, and the acquisition or development of new
technologies or businesses;
- unanticipated cost increases, delays or interruptions in transaction
processing and order fulfillment;
- unanticipated delays or cost increases with respect to the
introduction of new products or services; and
- the costs, timing and impact of our marketing and promotion
initiatives.
In addition, because the market for our services is relatively new
and changing rapidly, it is difficult to predict future financial results.
Our business expenditures are partially based on our predictions regarding
certain developments for media delivery, Internet advertising, and consumer
e-commerce. To the extent that these predictions prove inaccurate, our
operating results may be negatively affected and fluctuate significantly.
Because of these and other factors, we believe that period-to-period
comparisons of our results of operations are not good indicators of our
future performance. If our operating results fall below the expectations of
investors and other market participants in some future periods, then our
stock price may decline.
WE MAY BE OBLIGATED TO PAY A LARGE SALES TAX ASSESSMENT RELATING TO THE
PRE-ACQUISITION OPERATIONS OF WEST COAST.
In June 2000, West Coast received a sales tax assessment of
approximately $191,500 from the British Columbia Ministry of Finance and
Corporate Relations. The assessment relates to the operations of West Coast
prior to its purchase by us. We are considering an appeal of this assessment,
in addition to other available legal remedies, but may be required to pay it
before resolution of any appeal.
WE ARE GROWING RAPIDLY, AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT.
We are currently experiencing a period of significant expansion. In
order to execute our business plan, we must continue to grow. This growth
will strain our personnel, management, systems, policies and procedures and
other resources. To manage our growth, we must implement operational and
financial systems and controls and recruit, train and manage new employees.
We cannot be certain that we will be able to integrate new executives and
other employees into our organization
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effectively. If we do not implement adequate systems and controls, recruit,
integrate and retain necessary personnel or otherwise manage growth
effectively, our business, results of operations and financial condition will
be materially and adversely affected.
CONSUMERS OF ENTERTAINMENT MERCHANDISE MAY NOT ACCEPT OUR ONLINE SOLUTION.
If a high volume of first-time and repeat customers are not attracted
to the Web sites of our network associates and our online store at a
reasonable cost, our business and operating results will be negatively
affected. We may not be able to convert a large number of customers from
traditional shopping methods to online shopping for CDs, videos, DVDs, books
and other entertainment merchandise. Specific factors that could prevent
widespread customer acceptance of our solution, and our ability to grow
revenues, include:
- shipping charges, which do not apply to shopping at traditional
retailers of the merchandise we offer;
- delivery time associated with Internet orders, as compared to the
immediate receipt of products at a physical store;
- lack of consumer awareness of our online store and those of our
network associates;
- customer concerns about the security of online transactions and the
privacy of their personal information;
- product damage incurred during shipping or shipments of wrong products
from our fulfillment partners, resulting in a failure to establish
customers' trust in buying items online;
- delays in responses to customer inquiries or in deliveries to
customers; and
- difficulties in returning or exchanging orders.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
The markets in which we are engaged are new, rapidly evolving and
intensely competitive. Barriers to entry are relatively low but increasing.
We may not be able to compete successfully against current and future
competitors. Further, as a strategic response to changes in the competitive
environment, we may make certain pricing, service or marketing decisions or
acquisitions that could adversely affect our business, results of operations
and financial condition.
We currently or potentially compete with a number of other companies.
We compete with large, well-established Internet broadcasters such as
Yahoo!Broadcast and BroadcastAmerica.com. We also compete with traditional
physical retailers of entertainment merchandise, including large,
well-established book, music and video stores such as Barnes & Noble, Inc.,
Borders Group, Inc., and Wherehouse Entertainment, Inc., and mass market
retailers such as Wal-Mart Stores, Inc. In the market for online retailing of
books, CDs, video cassettes and DVDs, we compete with large, well-established
companies such as Amazon.com, Inc., Ubrandit.com, and CDNow, Inc.
Certain of our competitors currently offer, either alone or through
strategic relationships with other companies, a blend of multimedia content
delivery and e-commerce services to the principal target market for our
network associate program. Certain of our current competitors have longer
operating histories, larger customer bases, greater brand recognition in
other business and Internet markets, and significantly greater financial,
marketing, technical and other resources than us. In addition, other 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.
Therefore, certain of our competitors with other revenue sources may be able
to devote greater resources to marketing and promotional campaigns, adopt
more aggressive pricing policies, and devote substantially more resources to
Web site and systems development than us. Competitive pressures created by
any one of these companies, or by our competitors collectively, may result in
loss of market share and reduced operating margins, any of which could have a
material adverse effect on our business, results of operations and financial
condition.
WE FACE THE RISK OF SYSTEMS INTERRUPTIONS AND CAPACITY CONSTRAINTS.
The satisfactory performance, reliability and availability of our
media player, online store, 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. From time to
time, we have experienced temporary system interruptions for a variety of
reasons, including software bugs and lack of reliable integration between
various elements of our systems and those of our
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vendors. We may not be able to correct any problem in a timely manner.
Because we outsource certain aspects of our system and because some of the
reasons for a systems interruption may be outside of our control, we also may
not exercise sufficient control to remedy the problem quickly or at all. Any
future system interruption that results in the unavailability of our media
player or Web sites or reduced order fulfillment performance could result in
negative publicity which would negatively affect our business.
We commercially opened our online e-commerce solution in September
1999 and to the extent that customer traffic grows substantially, we may need
to expand the capacity of our systems to accommodate a larger number of
visitors. We may be required to add additional software and hardware and
further develop and upgrade our existing technology, transaction-processing
systems, network infrastructure and distribution capabilities to accommodate
increased traffic on our site and those of our network associates and
increased sales volume. Any inability to scale our systems may cause
unanticipated system disruptions, slower response times, degradation in
levels of customer service, impaired quality and speed of order fulfillment,
or delays in reporting accurate financial information.
WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR NETWORK ASSOCIATE PROGRAM OR OUR
NETWORK ASSOCIATES MAY FAIL TO ATTRACT SIGNIFICANT NUMBERS OF CUSTOMERS.
Our business and results of operations will depend in large part on
the success of our network associate program. We have entered into definitive
agreements with 113 network associates (representing 185 unique e-commerce
sites and 59 broadcasters) and have implemented more than 150 e-commerce
sites and 25 broadcasters. We have also recently acquired Web-services
contacts for an additional 144 radio stations and streaming contracts for 68
radio stations from OnRadio, and Web-services and streaming contracts for an
additional 112 stations from Magnitude Networks. However, there is no
guarantee that our network associates will renew these contracts upon their
expiration or that all of the contracts that we purchased from OnRadio.com
and Magnitude will be successfully transitioned to our service. In order to
attract and retain significant numbers of network associates, we must:
- build a larger sales force to promote our network associate program,
particularly to the radio and television industries;
- successfully promote the benefits of our end-to-end streaming and
e-commerce solutions to potential network associates; and
- successfully compete against other companies that offer, or in the
future may offer, similar e-commerce and content-delivery solutions,
either on their own or through strategic relationships with other
parties.
In addition, in order to retain our network associates:
- our media player must function reliably and provide users with a
compelling interactive experience;
- our e-commerce system must work reliably and effectively with our
network associates' own Web sites;
- we must reliably fulfill orders of customers who purchase products
through our network associates' storefronts;
- we must provide a high level of customer service; and
- our program must result in significant direct or indirect financial
benefit to our network associates.
We may face obstacles in signing up significantly larger numbers of
network associates in the media industry, despite the appeal to radio and
television stations of our private label e-commerce solution bundled with
streaming media services. For example, Yahoo!Broadcast, a leading Internet
broadcaster of radio, television and other multimedia content, has
established relationships with hundreds of radio stations across the country,
including stations in many of the top radio markets in the U.S., and can
offer its streaming media customers some e-commerce solutions that are
competitive to our own through strategic relationships with other companies.
Because Yahoo!Broadcast has exclusive relationships with many of its
streaming media customers, those customers may not be willing or able
contractually to become our network associates.
We intend to control our own marketing and promotion expenditures by
relying on the marketing efforts of our network associates. Our business and
results of operations may therefore suffer if our network associates are
unsuccessful in attracting significant numbers of visitors to their Web
sites. While we analyze our potential network associates' plans for
increasing traffic to their Web sites, we have no control of the steps they
actually take to attract visitors to their sites except to the extent that
the network associates are contractually bound.
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WE DEPEND SIGNIFICANTLY ON OUR STRATEGIC RELATIONSHIPS WITH REALNETWORKS AND
WE HAVE ONLY A NON-EXCLUSIVE LICENSE TO THE TECHNOLOGIES IT HAS DEVELOPED FOR
US.
We have entered into a number of transactions with RealNetworks which
are important to our business, including the following:
- a development agreement entered into in April 1999, under which
RealNetworks developed and licenses our media player to us, and a
related support and upgrade agreement entered into in January 2000;
- a streaming media services agreement entered into in January 2000 and
amended in June 2000, under which we have agreed, for a five year
term, to use RealNetworks for streaming media services over the Real
Broadcast Network; and
- various marketing related agreements we entered into in the first
quarter of fiscal 2000, including advertising and promotion agreements
and other agreements pursuant to which we are provided a "channel" and
a number of "presets" on the RealPlayer, which is RealNetworks' client
media player that enables end-users to experience multimedia content.
Our business depends to a significant extent on these relationships
with RealNetworks. Our relationships with RealNetworks involve numerous
risks, including the following:
- We do not own or have exclusive rights to the technology underlying
the GlobalMedia.com player and RealNetworks therefore could license
that technology to one or more of our existing or future competitors
or could use that technology itself to launch competitive solutions.
- Our streaming media services agreement with RealNetworks obligates us
to use RealNetworks' streaming media services and streaming media
technologies on an exclusive basis until at least June 2001, except to
the extent necessary to service customers we have or may acquire in
certain acquisitions who are using competitive streaming media
technologies or service providers at the time of acquisition. This
exclusivity limitation restricts our ability to develop and market
streaming solutions based on other streaming technologies such as the
Windows Media Player or to secure alternative streaming media services
at potentially more favorable costs.
- We have paid RealNetworks significant sums under our contracts with
them and we are not assured of receiving the expected benefits of
those contracts, particularly in the case of our marketing-related
agreements, which may fail to result in sufficient consumer traffic to
our network to pay for the costs we incurred with RealNetworks under
these agreements.
- Any early termination of our agreements with RealNetworks as a result
of our breach or otherwise could significantly disrupt our business
and potentially result in claims against us by customers of our
streaming media services.
WE MAY FAIL TO ESTABLISH AN EFFECTIVE INTERNAL SALES ORGANIZATION TO ATTRACT
NETWORK ASSOCIATES.
We believe that successful implementation of our network associate
program will depend on an aggressive and effective internal sales
organization. As of November 17, 2000, our internal sales team had 17 members.
We may need to substantially increase this sales force in the future in order
to execute our business plan. Our ability to increase our sales force involves
a number of risks and uncertainties, including competition for employees and
the length of time required for new sales employees to become productive.
ACQUISITIONS OF TECHNOLOGIES OR BUSINESSES INVOLVE RISKS WE MAY NOT ADEQUATELY
ADDRESS.
We recently concluded an acquisition of certain customer contracts
for Web-related services, including streaming media services, from
OnRadio.com and an acquisition of the online media and streaming solutions
business of Magnitude Networks. The success of these transactions in
increasing our revenues and providing other expected benefits to our business
depends on our ability to integrate customers acquired in connection with
these transactions into our business and on our ability to market and sell
our own solutions and services to these customers. Until we do so, we will
continue to provide certain services OnRadio.com and Magnitude had contracted
to provide, partly through ongoing transitional relationships with
OnRadio.com and Magnitude. We cannot provide any assurance that substantial
numbers or any of the customers we acquired from OnRadio.com and Magnitude
will enter into new agreements with us, that we will be able adequately
provide
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the services under the contracts we acquired from OnRadio.com and Magnitude
until the customers transition over to our solutions and enter into new
agreements with us, or that even if substantial numbers or any of these
acquired customers do enter into new contracts with us for our own solutions
and services that the transaction will ultimately result in the benefits we
expect it to provide. We also may consider other acquisitions from time to
time. The OnRadio.com transaction and Magnitude acquisition, as well as any
future acquisitions of technologies, businesses or other assets we consummate
in the future, may involve various risks, including the following:
- potentially dilutive issuances of equity securities to pay for
acquisitions;
- use of cash resources;
- incurrence of contingent liabilities or assumption of known or unknown
liabilities;
- difficulties in assimilating operations, products, technologies,
services and personnel of acquired companies;
- diversion of management's attention from other business concerns;
- impairment of relationships with our employees, advertisers, customers
and content providers or those of companies we may acquire; and
- inability to maintain uniform standards, controls, procedures and
policies.
The failure to address financial and operational risks involved in
acquisitions of technology, businesses or other assets could cause material
harm to our business and negatively affect our financial condition and
results of operations.
WE DEPEND ON OUR FULFILLMENT PARTNERS; IF THEY DO NOT PERFORM OR OUR
RELATIONSHIP WITH THEM IS TERMINATED, OUR BUSINESS MAY SUFFER.
To generate the significant customer traffic, volume of purchases and
repeat purchases that we believe are crucial to obtaining sufficient
revenues, we must develop and maintain customer trust in the timing and
accuracy of our product deliveries. We currently carry no inventory of our
own and depend on fulfillment partners for rapid order fulfillment. We
currently purchase all of the merchandise we offer online from two
fulfillment partners, Baker & Taylor, Inc. and the iFill division of Valley
Media, Inc. We intend to enter into other fulfillment agreements to have
alternative sources of supply and expand our product offerings. We may not be
able to secure alternative fulfillment partners on acceptable terms in a
timely manner, or at all. Negotiating and implementing relationships with
additional fulfillment partners would take substantial time and resources.
Our agreements with Baker & Taylor and Valley Media have one-year terms and
renew on an annual basis for up to five succeeding years. However, each
agreement can be terminated prior to the annual renewal date. We cannot be
certain that our contracts with Baker & Taylor and Valley Media will be
renewed or that either fulfillment partner will not terminate its agreement
earlier for breach.
Our ability to fulfill our customers' orders may be significantly
hampered and our business will suffer major disruptions if Baker & Taylor,
Valley Media, or any alternative fulfillment partners with whom we may
establish relationships in the future:
- fail to comply with federal, state and local regulations that apply to
their performance of services for us;
- breach or terminate their agreements with us;
- suffer adverse developments that affect their ability to supply
products to us, such as employee strikes, system crashes and inclement
weather;
- are unable or unwilling to supply products to us in sufficient
quantities or in a timely manner; or
- are unable or unwilling to ship products to any markets in which we
have customers.
Because we rely on third parties to fulfill orders, we depend on
their systems for tracking inventory and financial data. In addition, our
order fulfillment and distribution process requires us to cooperate
extensively with our fulfillment partners with respect to the coordination of
separate information technology systems. From time to time we have
experienced problems relating to the integration of our systems with those of
Baker & Taylor and Valley Media, which has affected our ability to timely
fill customers' orders. While we have corrected these problems, we cannot
ensure that any
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future problems will be resolved on a timely basis or at all. In addition, if
we establish new fulfillment partner relationships, we cannot be sure that we
will be able to integrate our respective information systems on a timely
basis. If our fulfillment partners' systems fail or are unable to scale or
adapt to changing needs, our ability to timely fill customers' orders may be
hindered and we may not have adequate, accurate or timely inventory or
financial information. Our failure to have adequate, accurate or timely
inventory and financial information would harm our ability to manage our
business effectively.
WE RELY HEAVILY ON THIRD PARTIES FOR ESSENTIAL BUSINESS OPERATIONS AND MAY BE
ADVERSELY AFFECTED BY DISRUPTIONS OR FAILURES IN SERVICE.
We depend on third parties for important aspects of our business,
including Internet access and Web hosting services, and new Web site features
and content. We have limited control over these third parties, and we are not
their only client. We may not be able to maintain satisfactory relationships
with any of them on acceptable commercial terms. Further, we cannot be
certain that the quality of products and services that they provide will
remain at levels needed to enable us to conduct our business effectively. We
may not be able to renew agreements with third party vendors on current terms.
Our dependence on third party vendors entails various risks, including:
- our current vendors may not continue to provide services to us on
current terms;
- we may not be able to establish new or extend current vendor terms on
a timely basis or at all; and
- our vendors may not comply with federal, state and local regulations
that apply to their performance of services for us.
If we cannot develop and maintain relationships with vendors that allow
us to obtain sufficient quantities of merchandise or necessary services on
acceptable commercial terms or if our vendors fail to comply with applicable
law, our business may be harmed.
We also rely on third-party carriers for product shipments, including
shipments to and from our fulfillment partners' distribution facilities. We
are therefore subject to the risks, including employee strikes and inclement
weather, associated with third-party carriers' ability to provide delivery
services to meet our shipping needs. Failure to deliver products to our
customers in a timely and accurate manner would harm our reputation, and our
business and results of operations.
OUR SYSTEMS AND OPERATIONS, AND THOSE OF OUR VENDORS AND DISTRIBUTORS, ARE
VULNERABLE TO NATURAL DISASTERS, SYSTEMS INTERRUPTIONS AND OTHER UNEXPECTED
PROBLEMS.
Substantially all of our computer and communications hardware is
located at our leased facilities in Vancouver, British Columbia, Canada, and
our systems infrastructure is hosted at third-party hosting providers'
facilities in Vancouver, British Columbia and Seattle, Washington. The
continuing and uninterrupted performance of those systems is critical to our
success. Our systems and operations and those of our hosting providers are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, earthquakes and similar events. In addition, 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. Sustained or
repeated system failures or interruptions of our site connection services
would reduce the attractiveness of our site to customers, and could therefore
have a material adverse effect on our business. Our fulfillment partners,
including Baker & Taylor and Valley Media, may also face these risks.
We depend on the efficient operation of Internet connections from
customers to our systems. These connections, in turn, depend on the efficient
operation of Web browsers, Internet service providers and Internet backbone
service providers, all of which have had periodic operational problems or
experienced outages. Any system delays, failures or loss of data, whatever the
cause, could reduce customer satisfaction with our applications and services and
harm our business.
We retain confidential customer information in our processing centers.
Therefore, it is critical that our facilities and infrastructure remain secure
and that our facilities and infrastructure are perceived by the marketplace to
be secure. A material security breach could damage our reputation or result in
liability to us.
WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS, AND WE MAY NOT BE ABLE
TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS GROWS.
Our performance is substantially dependent on the continued services
of our executive officers and other key employees, particularly Jeffrey
Mandelbaum, our President and Chief Executive Officer.
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The loss of the services of any of our executive officers could materially and
adversely affect our business unless a suitable replacement is available. We
do not maintain key man insurance on any of our employees. Additionally, we
believe that we will need to attract, retain and motivate talented management
and other highly skilled employees, particularly those with technical
backgrounds, to be successful. Competition for employees that possess
knowledge of both the Internet industry and our target market is intense. We
may be unable to retain our key employees or attract, assimilate and retain
other highly qualified employees in the future.
WE MAY NOT BE ABLE TO ADAPT AS INTERNET TECHNOLOGIES AND CUSTOMER DEMANDS
CONTINUE TO EVOLVE.
To be successful, we must adapt to rapidly changing Internet
technologies and continually enhance the features and services provided on
our GlobalMedia.com player and Web sites, and to our network associates. We
could incur substantial, unanticipated costs if we need to modify our media
player, Web sites, software or infrastructure to incorporate new technologies
demanded by our customers or our network associates. We may use new
technologies ineffectively or we may fail to adapt our media player, Web
sites, transaction-processing systems and network infrastructure to user
requirements or emerging industry standards.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR TRADEMARKS, WEB ADDRESSES AND
PROPRIETARY RIGHTS.
We rely or may in the future rely on a combination of patent,
trademark, trade secret and copyright law and contractual restrictions to
protect the proprietary aspects of our technology and proprietary content.
These legal protections afford only limited protection for our intellectual
property and trade secrets. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our proprietary
technology or otherwise obtain and use information that we regard as
proprietary.
We are in the process of filing Canadian and U.S. applications for
trademark registration of "GlobalMedia.com," "GlobalMedia.com Network." We
may be unable to secure such trademark registrations. It is also possible
that our competitors or others will adopt service names similar to ours,
thereby possibly leading to customer confusion. Any claims or customer
confusion related to our trademarks, or our failure to obtain trademark
registrations, could negatively affect our business.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets and domain names, and to
determine the validity and scope of the proprietary rights of others. If
third parties prepare and file applications in the United States, Canada or
other countries that claim trademarks used or registered by us, we may oppose
those applications and be required to participate in proceedings before the
regulatory agencies involved determine priority of rights to the trademarks.
Any litigation or adverse priority proceeding could result in substantial
costs and diversion of resources and could seriously harm our business and
operating results.
Finally, to the extent that we operate internationally, the laws of
many countries do not protect our proprietary rights to as great an extent as
do the laws of the United States and Canada. Many countries have a
"first-to-file" trademark registration system. As a result, we may be
prevented from registering or using our trademarks in certain countries if
third parties have previously filed applications to register or have
registered the same or similar trademark. Our means of protecting our
proprietary rights may not be adequate, and our competitors could
independently develop similar technology.
We hold rights to various Web domain names, including
"globalmedia.com." Governmental agencies typically regulate domain names.
These regulations are subject to change. We may not be able to acquire or
maintain appropriate domain names in all countries in which we do business.
Furthermore, regulations governing domain names may not protect our
trademarks and similar proprietary rights. We may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon or
diminish the value of our trademarks and other proprietary rights.
WE MAY BE FOUND TO INFRINGE UPON THE PROPRIETARY RIGHTS OF OTHERS OR FACE
LIABILITY FOR CONTENT ON OUR WEB SITES.
Third parties may claim infringement by us with respect to past,
current or future technologies and other proprietary rights. Any such claim,
whether meritorious or not, could be time-consuming, result in costly
litigation, or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements might not be available on terms acceptable to
us or at all.
Because we post our own content and content licensed from third
parties on our sites, we face potential liability for negligence, copyright,
patent, trademark, defamation, indecency and other claims based on the nature
and content of the materials that we post. Such claims have been brought, and
sometimes successfully pressed, against Internet content
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distributors. In addition, we could be exposed to liability with respect to
the unauthorized duplication or distribution of content.
Although we maintain general liability insurance, our insurance may
not cover potential claims of the types described above or may not be
adequate to indemnify us for all liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in excess of
insurance coverage could harm our business.
RISKS RELATED TO THE INTERNET INDUSTRY
WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE.
Our industry is rapidly evolving. Our business would be adversely
affected if Web usage, media delivery over the Internet, and e-commerce does
not continue to grow. Growth in these areas may be inhibited for a number of
reasons, including:
- inadequate Internet infrastructure;
- security concerns;
- inconsistent quality of service;
- unavailability of cost-effective, high-speed service; or
- imposition of transactional or other taxes.
OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF E-COMMERCE AND THE MARKET
FOR STREAMING MEDIA SERVICES, WHICH IS UNCERTAIN.
Our future revenues and profits depend substantially on the widespread
acceptance and use of the Web as an effective medium of commerce by consumers,
as well as the widespread acceptance of the Internet as a medium of broadcast by
consumers and producers of audio, video and other multimedia content. Commercial
use of the Internet as a broadcast medium is in its early stages. Demand for
recently introduced services and products over the Web is subject to a high
level of uncertainty. The development of the Web as a viable commercial
marketplace or as a broadcast medium is subject to a number of factors,
including the following:
- buyers may be unwilling to shift their purchasing from traditional
vendors to online vendors;
- broadcasts of multimedia content on the Internet are generally of
lower quality than broadcasts in traditional mediums and are subject
to more frequent interruptions and packet loss;
- radio listeners, television viewers and consumers of other multimedia
content may be unwilling to shift their consumption of such content to
the Internet or it may be more difficult to establish viable revenue
streams from Internet broadcasts;
- telecommunication services may not be sufficiently available or may
change in ways that adversely affect e-commerce or streaming media
services; and
- adverse publicity and consumer concerns about the security of commerce
transactions on the Internet could discourage its acceptance and
growth.
BREACHES OF SECURITY ON THE INTERNET MAY SLOW THE GROWTH OF E-COMMERCE AND
SUBJECT US TO LIABILITY.
The need to securely transmit confidential information such as credit
card and other personal information over the Internet has been a significant
barrier to e-commerce and communications over the Web. Any well-publicized
compromise of security could deter more people from using the Web or from
using it to conduct transactions that involve transmitting confidential
information, such as purchases of goods or services. To the extent that our
activities or the activities of third-party contractors involve the storage
and transmission of proprietary information, such as credit card numbers,
security breaches could disrupt our business, damage our reputation and
expose us to a risk of loss or litigation and possible liability. We could be
liable for claims based on unauthorized purchases with credit card
information, impersonation or other similar fraud claims. Claims could also
be based on other misuses of personal information, such as for unauthorized
marketing
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purposes. We may need to spend a great deal of money and use other resources
to protect against the threat of security breaches or to alleviate problems
caused by security breaches.
WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION OF AND LEGAL
UNCERTAINTIES SURROUNDING THE INTERNET.
Any new law or regulation pertaining to, or the application or
interpretation of existing laws to, the Internet could increase our cost of
doing business or otherwise adversely affect our business. Laws and
regulations directly applicable to Internet communications, commerce and
advertising are becoming more prevalent. The law governing the Internet,
however, remains largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing
laws governing intellectual property, copyright, privacy, obscenity, libel
and taxation apply to the Internet. In addition, the growth and development
of e-commerce may prompt calls for more stringent consumer protection laws,
both in the United States and abroad. Governments in foreign jurisdictions
may regulate Internet or other online services in such areas as content,
privacy, network security, encryption or distribution more stringently than
in the United States. This may affect our ability to conduct business
internationally. We also may be subject to future regulation not specifically
related to the Internet, including laws affecting direct marketers.
RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK
YOUR HOLDINGS MAY BE DILUTED IN THE FUTURE.
SERIES A AND B PREFERRED. As of November 17, 2000, (a) 3,590 shares of
our Series A and 5,000 shares of our Series B convertible preferred stock,
having an aggregate stated value of $8,590,000, were outstanding, and (b)
warrants to purchase 1,068,500 shares of common stock issued to the holders of
the Series A and Series B convertible preferred stock were outstanding. Based
on the conversion price in effect immediately prior to our filing of the
registration statement declared effective on September 26, 2000, the total
number of shares that we would have issued to the holders of the outstanding
shares of Series A and Series B convertible preferred stock at that time had
they converted the total number of such shares and exercised the related
investment options in full would have been 11,940,742 shares. BUT SEE
Prospectus Summary--Recent Events--Rose Glen Modification Agreement. However,
the actual number of shares that may be issued on conversion of the Series A
and Series B convertible preferred stock and exercise of the related
investment options may prove to be significantly greater in the event of a
decrease in the trading price of our common stock. The warrants have a term of
five years from the date of issuance at a price of $8.3475 for the 680,000
warrants issued with the Series A convertible preferred stock, and $7.0785 for
the 388,500 warrants issued with the Series B convertible preferred stock.
Purchasers of common stock could experience substantial dilution from the
conversion of shares of Series A and B convertible preferred stock and
exercise of related investment options and warrants, and such dilution could
increase with decreases in the trading price of our common stock.
STOCK OPTIONS AND OTHER WARRANTS. As of November 17, 2000, 7,653,475
shares of common stock were reserved for issuance upon exercise of
outstanding stock options granted under our stock option plans at exercise
prices ranging from $0.50 to $8.00 per share, of which 3,352,907 are
currently exercisable. In addition, at such date we had other warrants to
purchase a total of 62,769 shares at an exercise price of $8.125 per share
outstanding which are currently exercisable. Under agreements with a certain
party that has acted as our financial advisor, we may be required to issue
that party additional warrants as compensation under those agreements.
Purchasers of common stock could experience substantial dilution of their
investment upon exercise of stock options and warrants.
FUTURE INVESTMENT BY STANDARD RADIO. On September 7, 2000, we sold to
Standard Radio Inc., an existing investor, 1,388,888 shares of common stock
for $1.80 per share and warrants to purchase up to 277,778 shares of common
stock, for an aggregate purchase price of approximately $2,500,000 (the
"Standard Offering"). The warrants have a per share exercise price of $2.25,
which is 125% of the per share offering price in Standard Offering. If we
raise a minimum of $7,500,000 on or before December 31, 2000, Standard has
agreed to invest another $2,500,000 in us. However if that offering is made
at a per share price that is less than the price in the Standard Offering,
then the Company shall promptly issue to Standard additional shares based on
a specified antidilution formula and shall adjust the exercise price of the
warrants issued to Standard. As part of the transaction, we agreed to waive
all of Standard's fees and expenses under our existing co-marketing agreement
with Standard's current radio stations for three years, or so long as
Standard continues to hold 2% or more of our issued and outstanding shares.
ALSO SEE Prospectus Summary--Recent Events--Standard Radio/Mandelbaum Investment
and Related Transactions.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY
AFFECT OUR STOCK PRICE.
As of November 17, 2000, 29,157,090 shares of our common stock were
outstanding. Of these outstanding shares, 8,105,671 shares were freely
tradable without restriction. The remaining 21,051,419 shares are
eligible for sale in the public markets within the limits of Rule 144 under
the Securities
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Act. If our stockholders sell substantial amounts of our common stock in the
public market in the future, then the market price of our common stock could
fall. To date, we have had limited trading volume in our common stock. Sales
of substantial amounts of common stock under Rule 144, the registration
statement of which this prospectus is a part, our other registration
statements or otherwise could adversely affect the prevailing market price of
our common stock and could impair our ability to raise capital at that time
through the sale of our securities.
STOCK OPTIONS. We have filed registration statements to register all
shares of common stock issuable under our 1998 and 1999 stock option plans
and intend to file a registration statement to register all shares of common
stock issuable under our 2000 stock option plan. Consequently, shares issued
upon exercise of stock options granted under those plans will be eligible for
resale in the public market without restriction (except to the extent they
are issued to our executive officers and directors). As of November 17, 2000,
options covering a total of 5,046,770 shares, of which 3,352,907 were vested,
were outstanding under these plans.
PREFERRED STOCK. We filed a registration statement covering the
resale of shares of common stock issuable upon conversion of the Series A
convertible preferred stock, related investment options and warrants in 1999
and such registration statement is currently effective. We also filed a
registration statement folding in the Series A transaction and covering the
resale of shares issuable upon conversion of the Series B convertible
preferred stock, related investment options and warrants, which was declared
effective on September 26, 2000. Consequently, all such shares when issued
are eligible for resale in the public market without restriction. Based on
the conversion price in effect as of November 17, 2000, the total number of
shares of common stock issuable upon conversion of the outstanding shares of
Series A and Series B convertible preferred stock and exercise of the related
investment options, and upon exercise of the related warrants, was
32,040,958 shares.
ONRADIO.COM SHARES. In connection with our acquisition of certain
assignable customer contracts from OnRadio.com in June 2000, we issued to
OnRadio.com a total of 1,697,619 shares, of which 450,000 shares are being
held in escrow to cover a purchase price adjustment which may be required if
certain levels of customer attrition are exceeded during the 12 months period
after the initial closing of this transaction. We also agreed to issue
OnRadio.com up to an additional 600,000 shares in connection with our
consummation of contractual relationships with certain sales prospects
OnRadio.com agreed to transition over to us in connection with this
transaction. Under our agreements with OnRadio.com, we are required to file a
registration statement, of which this prospectus is a part, covering the
shares we issued and may issue to them in connection with this transaction.
Upon the effectiveness of the registration statement, the shares issued to
OnRadio.com became be eligible for resale in the public market without
restriction, except that OnRadio.com has agreed to limitations on the number
of shares it will sell determined by reference to the volume limitations
under Rule 144(e).
MAGNITUDE SHARES. In connection with our acquisition of the online
media and streaming solutions business of Magnitude Network, in August 2000,
we issued a total of 2,082,429 shares (416,485 of which are being held in an
escrow for twelve months to satisfy certain indemnity claims that may arise
against Magnitude), and a stock purchase warrant to acquire 2,000,000 shares
of our common stock at an exercise price of $3.60. Under our agreements with
Magnitude and its corporate affiliates, we are required to file a
registration statement covering the shares we issued and may issue to them in
connection with this transaction. Once that registration statement is
effective, the shares issued in connection with the Magnitude transaction
will be eligible for resale in the public market without restriction.
WE ARE CONTROLLED BY OFFICERS, DIRECTORS AND EXISTING STOCKHOLDERS, IN
PARTICULAR, MR. METCALFE.
As of November 17, 2000, executive officers, directors and entities
affiliated with them, in the aggregate, beneficially owned approximately
72.20%, and Michael Metcalfe, our former Chairman, beneficially owned
approximately 42.12%, of our outstanding shares of common stock. Mr. Metcalfe
is able to control substantially all matters requiring approval by our
stockholders, including the election of directors, amendments to our articles
of incorporation, and mergers or other business combination transactions. Mr.
Metcalfe's substantial equity stake could also make us a much less attractive
acquisition candidate to potential acquirers, because Mr. Metcalfe could have
sufficient votes to prevent the approval or the tax-free treatment of an
acquisition.
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ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD-PARTY ACQUISITION OF US DIFFICULT.
We are a Nevada corporation. The anti-takeover provisions of Nevada
law could make it more difficult for a third party to acquire or gain control
of us, even if such a transaction would be beneficial to stockholders. Our
articles of incorporation provide that our board of directors may issue
preferred stock without stockholder approval. The issuance of preferred stock
could make it more difficult for a third party to acquire us. Each of these
factors could adversely affect the prevailing market price for our common
stock.
OUR COMMON STOCK PRICE IS HIGHLY VOLATILE.
The market price of our common stock has been, and is likely to
continue to be, highly volatile. In addition, the market for technology
stocks has been extremely volatile. Purchasers of our common stock may not be
able to resell their shares following periods of volatility because of the
market's adverse reaction to volatility. The trading prices of many
technology and Internet-related companies' stocks reached historical highs
during 1999 and the first quarter of 2000, reflecting valuations
substantially above historical levels. During the same period, these
companies' stocks have also been highly volatile, and since the first quarter
of 2000 have recorded lows well below the historical highs. We cannot assure
you that our stock will trade at the same levels of other Internet stocks or
that Internet stocks in general will sustain their current market prices.
Factors that could cause volatility in our stock price may include, among
other things:
- actual or anticipated fluctuations in our quarterly operating results;
- announcements by us or our competitors of technological innovations,
significant contracts, new products or services offerings or
enhancements;
- changes in financial estimates or recommendations by securities
analysts;
- conditions or trends in the Internet industry;
- changes in the market valuations of other Internet, streaming media,
online services and software companies;
- the addition or loss of strategic relationships or key vendors;
- conditions or trends in the Internet, online commerce and media
streaming markets;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of our common stock or other securities in the future;
- fluctuations in stock market prices and volumes; and
- general stock market conditions and conditions in the technology and
Internet sectors in particular.
Volatility in the market price of our common stock may prevent investors
from being able to sell their common stock at or above the price at which
investors bought our common stock. In the past, class action litigation has
often been brought against companies following periods of volatility in the
market price of those companies' common stock. We may become involved in this
type of litigation in the future. Litigation is often expensive and diverts
management's attention and resources, which could materially and adversely
affect our business and results of operations.
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USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling
stockholders of common stock held by them and registered pursuant to the
registration statement of which this prospectus is a part.
SELLING STOCKHOLDERS
This prospectus relates to the offering of shares of our common stock
for resale by (1) OnRadio.com, and (2) its pledgees, donees, transferees or
other successors in interest (collectively, the "selling stockholders"). All
of the shares of common stock offered by this prospectus are being offered by
the selling stockholders for their own accounts.
The following table sets forth certain information with respect to
the common stock beneficially owned by the selling stockholders as of the
date of this prospectus and after the offering, assuming that all of the
shares held by the selling shareholder are sold. The selling stockholders
provided us the information included in the table below. To our knowledge,
OnRadio.com has sole voting and investment power over the shares of common
stock offered for resale by it. No selling stockholder, to our knowledge, has
had a material relationship with us during the last three years, except (a)
for our transaction with OnRadio.com described elsewhere in this prospectus,
or (b) as an owner of our common stock or other securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
BENEFICIAL OWNERSHIP OF COMMON COMMON STOCK AFTER THE
STOCK PRIOR TO THE OFFERING OFFERING
----------------------------------- -------------------------------
NUMBER OF SHARES TO
NUMBER OF BE SOLD UNDER THIS NUMBER OF PERCENT OF
SELLING STOCKHOLDER SHARES PROSPECTUS SHARES CLASS
------------------- --------- ------------------- --------- ----------
<S> <C> <C> <C> <C>
OnRadio.com 1,697,619 1,697,619 0 0
</TABLE>
PLAN OF DISTRIBUTION
The shares being offered by the selling stockholders will be sold
from time to time in one or more transactions, which may involve block
transactions:
- on the Nasdaq National Market or on such other market on which
the common stock may from time to time be trading;
- in privately-negotiated transactions;
- through the writing of options on the shares;
- short sales; or
- any combination thereof.
The sale price to the public may be:
- the market price prevailing at the time of sale;
- a price related to such prevailing market price;
- at negotiated prices; or
- such other price as the selling stockholders determine
from time to time.
The shares may also be sold pursuant to Rule 144. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to
be unsatisfactory at any particular time.
The selling stockholders may also sell the shares directly to market
makers acting as principals or broker-dealers acting as agents for themselves
or their customers. Such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the selling stockholders and/or
the purchasers of shares for whom such broker-dealers may act as agents or to
whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and
at their own risk. It is possible that a selling stockholder will attempt to
sell shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in
this prospectus will be issued to, or sold by, the selling stockholders. The
selling stockholders and any brokers, dealers or agents, upon effecting the
sale of any of the shares offered
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in this prospectus, may be deemed "underwriters" as that term is defined
under the Securities Act or the Exchange Act, or the rules and regulations
under such acts.
The selling stockholders, alternatively, may sell all or any part of
the shares offered in this prospectus through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
there is no assurance that any such agreement will be entered into. If a
selling stockholder enters into such an agreement or agreements, the relevant
details will be set forth in a supplement or revisions to this prospectus.
The selling stockholders and any other persons participating in the
sale or distribution of the shares will be subject to applicable provisions
of the Exchange Act and the rules and regulations under such act, including,
without limitation, Regulation M. These provisions may restrict certain
activities of, and limit the timing of purchases and sales of any of the
shares by, the selling stockholders or any other such person. Furthermore,
under Regulation M, persons engaged in a distribution of securities are
prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time
prior to the commencement of such distributions, subject to specified
exceptions or exemptions. All of these limitations may affect the
marketability of the shares.
We have agreed to indemnify the selling stockholders, or their
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such
liabilities.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We believe that certain provisions of our articles of incorporation
and bylaws will be useful to attract and retain qualified persons as
directors and officers. Our articles of incorporation limit the liability of
directors and officers to the fullest extent permitted by Nevada law. This is
intended to allow our directors and officers the benefit of Nevada's
corporation law which provides that directors and officers of Nevada
corporations may be relieved of monetary liabilities for breach of their
fiduciary duties as directors, except under certain circumstances, including
(a) acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or (b) the payment of unlawful distributions.
There is no pending litigation or proceeding involving any of our
directors, officers, associates or other agents to which indemnification is
being sought, nor are we aware of any threatened litigation that may result
in claims for indemnification by any director, officer, associate or other
agent.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 15, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
LEGAL MATTERS
The validity of the issuance of common stock offered by this
prospectus has been passed upon for us by Dennis Brovarone, Esq., of
Westminster, Colorado.
EXPERTS
Arthur Anderson, independent auditors, audited our consolidated
financial statements for the year ended July 31, 2000, and Ernst & Young LLP,
independent auditors, audited our consolidated financial statements or the year
ended July 31, 1999, as set forth in their respective reports included in our
annual report on Form 10-KSB for the year ended July 31, 2000, which are
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial
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statements are incorporated by reference in reliance on Arthur Anderson's and
Ernst & Young LLP's reports, given on their authority as experts in
accounting and auditing.
On February 1, 2000, we filed a Current Report on Form 8-K reporting
the substitution of Arthur Andersen LLP for Ernst & Young, as our auditors.
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