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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 33-45566
PROSPECTUS
18,805,189 SHARES
GLOBALMEDIA.COM
COMMON STOCK
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GLOBALMEDIA.COM We have prepared this prospectus to
400 Robson Street allow the selling stockholders to sell
Vancouver, British Columbia from time to time up to 18,805,189
Canada V6B 2B4 shares of our common stock which they
either currently hold or may acquire on
conversion or exercise of:
- shares of our outstanding Series
A convertible preferred stock,
related investment options, and
warrants issued in connection
with the Series A convertible
preferred stock; and
- shares of our outstanding Series
B convertible preferred stock,
related investment options, and
warrants issued in connection
with the Series B convertible
preferred stock.
Of the total number of shares covered by
this prospectus, 11,883,269 shares are
SELLING STOCKHOLDERS: being registered pursuant to the
See page 28 for the names of the registration statement containing this
selling stockholders prospectus, and 6,921,920 shares are
being consolidated from the Company's
previous registration statement on Form
SB-2, which are currently unsold.
We have registered the shares of common
TRADING MARKET AND SYMBOL: stock which may be sold by the selling
Nasdaq National Market - "GLMC" stockholders pursuant to this prospectus
by filing a registration statement with
the Securities and Exchange Commission
using a "shelf" registration process.
This process allows the selling
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 September 25, 2000, the last
reported sales price of our
common Stock on the Nasdaq
National Market was $1.593 per
share.
---------------
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 September 26, 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................................................................................ 17
BUSINESS....................................................................................... 18
SELLING STOCKHOLDERS........................................................................... 28
PLAN OF DISTRIBUTION........................................................................... 29
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS............................................ 30
LEGAL MATTERS.................................................................................. 30
EXPERTS........................................................................................ 30
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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, 1999.
(2) Our Quarterly Report on Form 10-QSB for the quarter ended October
31, 1999.
(3) Our Quarterly Report on Form 10-QSB for the quarter ended January
31, 2000, as amended by the Form 10-QSB/A filed with the SEC on
August 29, 2000.
(4) Our Quarterly Report on Form 10-QSB for the quarter ended April
30, 2000, as amended by the Form 10-QSB/A filed with the SEC on
August 29, 2000.
(5) Our Current Reports on Form 8-K filed February 1, 2000, May 12,
2000 and August 18, 2000.
(6) Our Current Report on Form 8-K/A filed February 10, 2000.
(7) 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
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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.
RECENT EVENTS
SERIES B PREFERRED OFFERING. On April 28, 2000, we sold to RGC
International Investors, LDC, for an aggregate purchase price of $5,000,000, (a)
5,000 shares of Series B convertible preferred stock, (b) investment options to
purchase
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the same number of common shares as issued on conversion of our Series B
convertible preferred stock, and (c) warrants to purchase an aggregate of
388,500 shares of common stock at a purchase price of $7.0785 per share. The
common stock issuable upon conversion or exercise of these securities is
registered for resale under the registration statement containing this
prospectus, which was declared effective on September 26, 2000.
OPTION TO PURCHASE SERIES C PREFERRED. In connection with the sale
of our Series B convertible preferred stock, RGC agreed to invest another
$5,000,000 in us upon the effective date of this prospectus, in exchange for
5,000 shares of our Series C convertible preferred stock, and related
investment options and warrants, subject to the satisfaction of certain other
conditions. None of these conditions were within our control and did not
occur by the effective date of this prospectus. We have therefore agreed to
amend the purchase agreement to grant RGC the option to purchase the Series C
convertible preferred stock and related investment options and warrants at
such time as the conditions are satisfied. RGC will continue to have
registration rights with respect to the common stock underlying those
securities.
ONRADIO TRANSACTION. On June 6, 2000, we entered into an agreement with
OnRadio.com to acquire assignable contracts relating to the provision of certain
Web-related services to 212 radio station customers of OnRadio.com. Of the
contracts we acquired, contracts with 144 stations relate to basic services like
Web-site hosting, content provision and ad placement. An initial closing
involving the acquisition of these contracts occurred on June 7, 2000. The
contracts with the remaining 68 stations relate to streaming media services. We
acquired these contracts in a subsequent closing on June 29, 2000.
We paid OnRadio.com total consideration of $9,000,000 for these
contracts, consisting of $500,000 in cash and the balance in 1,697,619 shares of
our common stock, 450,000 shares of which are held in escrow until June 6, 2001,
against any purchase price adjustment or indemnification obligations of
OnRadio.com. Those shares are subject to a registration rights agreement. We
also agreed to pay OnRadio.com additional stock consideration worth up to
$3,000,000 if we conclude customer contracts with certain identified sales
prospects of OnRadio.com, which OnRadio.com has agreed to transition over to
us. In addition, we entered into certain other agreements with OnRadio.com,
including agreements relating to transitional services.
MAGNITUDE ACQUISITION. On August 3, 2000, we entered into an asset
purchase agreement with Magnitude Network, Inc., under which we (a) acquired
customer contracts, software, trademarks, domain names and Web sites, and other
tangible and intangible assets used in the online media and streaming solutions
business of Magnitude, and (b) assumed certain of Magnitude's liabilities. We
also licensed certain software and other intellectual property rights from
Magnitude. In addition, Magnitude's parent corporation signed a non-solicitation
agreement under which it agreed to refrain from soliciting customers we acquired
in connection with the transaction, or our employees.
Magnitude paid us $238,715 in cash to cover the transition costs and we
issued Magnitude 2,082,429 shares of our common stock valued at $6,000,000, and
a stock purchase warrant to acquire 2,000,000 shares of our common stock at an
exercise price of $3.60. Of these shares, 416,485 are being held in escrow for
twelve months to satisfy certain indemnity claims that may arise against
Magnitude. We also granted Magnitude registration rights with regard to these
shares.
STANDARD RADIO FINANCING. On September 7, 2000, we sold to Standard
Radio Inc., an existing investor, 1,388,888 shares of common stock and
warrants to purchase up to 277,778 shares of common stock, for $1.80 per
share, for an aggregate purchase price of approximately $2.5 million (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.
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 fourth quarter of fiscal 2001, 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;
- marketing our network associate program; and
- hiring additional employees.
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 will be
sufficient to meet our anticipated needs for working capital, capital
expenditures and business expansion through November 2000. If and when we close
the sale of the Series C convertible preferred stock and related investment
options and warrants (the "Series C offering"), we anticipate that our available
funds would be sufficient to meet our anticipated needs for working capital,
capital expenditures and business expansion through May 2001. However, we do not
expect to have satisfied the conditions for closing the Series C by the end
of November 2000. SEE "Risks Related to this Offering and Our Common Stock -
Your holdings may be diluted in the future - Series C Preferred." 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 our ability to establish an aggressive and effective
internal sales organization. As of September 25, 2000, our internal sales team
had 22 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
retain and 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 the
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 of the customers we acquired
from OnRadio.com and Magnitude will enter into new agreements with us, that
we will be able adequately provide the services
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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 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 Michael Metcalfe,
our Chairman, Jeffrey Mandelbaum, our President and Chief Executive Officer,
Robert Fuller, our Chief Operating Officer, L. James Porter, our Chief Financial
Officer, and Winston V. Barta, our Vice
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President of Business Development. The loss of the services of any of our
executive officers could materially and adversely affect our business. 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 distributors. In
addition, we could be exposed to liability with respect to the unauthorized
duplication or distribution of content.
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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 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.
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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 September 25, 2000, (a) 4,175 shares of
our Series A and 5,000 shares of our Series B convertible preferred stock,
having an aggregate stated value of $9,175,000, 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 initial filing of the
registration statement containing this prospectus, 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. 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.
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STOCK OPTIONS AND OTHER WARRANTS. As of September 25, 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 and
warrants to purchase up to 277,778 shares of common stock, for $1.80 per share,
for an aggregate purchase price of approximately $2.5 million (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.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE.
As of September 25, 2000, 28,786,522 shares of our common stock were
outstanding. Of these outstanding shares, 8,570,568 were freely tradable without
restriction. The remaining 20,215,954 shares are eligible for sale in the public
markets within the limits of Rule 144 under the Securities 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 August 25, 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, and we have filed a registration
statement of which this prospectus is a part to cover the resale of shares
issuable upon conversion of the Series B convertible preferred stock, related
investment options and warrants. 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 August 25, 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 13,009,242 shares. Once
this registration statement is declared effective, all such shares will be
eligible for resale in the public market without restriction.
ONRADIO 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 month period after the
initial closing of this transaction. We also agreed to issue OnRadio.com up to
an additional 500,000 shares in connection with our consummation of contractual
relationships with certain sales prospects that 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
covering the shares we issued and may issue to them in connection with this
transaction. Once that registration statement is effective, the shares issued
to OnRadio.com will be eligible for resale in the public market without
restriction, except that OnRadio.com agreed to limitations on the number of
shares it will sell determined by reference to the volume limitations under
Rule 144(e).
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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 12 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 OUR CHAIRMAN.
As of Septemeber 25, 2000, executive officers, directors and entities
affiliated with them, in the aggregate, beneficially owned approximately 59%,
and Michael Metcalfe, our Chairman beneficially owned approximately 42.73%,
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 alone
could have sufficient votes to prevent the approval or the tax-free treatment
of an acquisition.
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;
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- 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 upon conversion of the Series A or B
convertible preferred stock, nor will we receive any of the proceeds from the
sale by the selling stockholders of the shares issued upon such conversion, or
previously held by them.
We will receive the exercise price of any investment options and
warrants relating to the Series A and B convertible preferred stock that may be
exercised by the selling stockholders, but they are under no obligation to
exercise. Assuming exercise of all of the investment options and warrants, the
gross proceeds to us from the exercise of (a) the investment options in
connection with the Series A convertible preferred stock would be $4,447,805,
(b) the investment options in connection with the Series B convertible preferred
stock would be $5,076,027, (c) the warrants in connection with the Series A
convertible preferred stock would be $5,676,300, and (d) the warrants in
connection with the Series B convertible preferred stock would be $2,750,000. We
intend to use any proceeds from exercise of the investment options and warrants
for working capital and general corporate purposes.
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BUSINESS
OVERVIEW
We offer an award-winning streaming media broadcasting solution to
radio and television stations and Internet sites through our network associate
program. The centerpiece of our broadcasting network solution is the
GlobalMedia.com 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 13 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.
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 the GlobalMedia.com player for
free. We are continuing the further development of our online store and
e-commerce back-end to provide additional features and content, and expect that
these enhancements will improve the revenue generating potential of our own
store and the stores of our network associates.
INDUSTRY BACKGROUND
THE INTERNET
The impact of the Internet on, and its importance to, the global
economy is increasing significantly. International Data Corporation estimates
that the number of persons accessing the Web will reach 320 million by 2002 and
total Internet commerce - the purchase of goods and services over the Internet
by both businesses and consumers - will approach $250 billion by 2002. Advances
in technology, such as streaming media technologies, and broadband access are
making the Internet an increasingly important new medium for multimedia content
delivery and distribution. We believe that the increase in usage of the Web for
commerce and multimedia content delivery will be due to a number of factors,
including the following:
- a large and growing base of personal computers and other Web access
devices in the home and workplace;
- declines in the cost of personal computers and other Web access
devices;
- declines in the cost of Internet access;
- increases in the performance of personal computers;
- broadband access and increases in Internet bandwidth;
- advances in streaming media technologies that enable the continuous
transmission and playback of multimedia content, such as audio and
video, which will improve the type and quality of content available on
the Web;
- the availability of a broader range of online products and services;
and
- growing awareness by businesses and consumers of the benefits of online
shopping and the delivery or consumption of multimedia content.
The Internet is unique as a multipurpose medium for communicating,
delivering and finding information and other content and purchasing products and
services. The Internet offers powerful characteristics, such as instant access
to a wide variety of content and commerce destinations, vast selection,
interactivity and personalization, that differentiate it from
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traditional media and commerce distribution channels. We believe that, among
other things, these characteristics will facilitate use of the Internet as a
purchasing medium. International Data Corporation estimates that worldwide
business-to-consumer sales over the Internet will increase from approximately
$11 billion in 1998 to approximately $93 billion by 2002.
INTERNET BROADCASTING
The Internet is now recognized as a new mass medium for communication,
commerce and multimedia content. As an interactive and searchable medium, the
Internet offers a highly engaging experience and allows users unlimited access
to a wide variety and supply of content at their convenience. The Internet also
enables content providers and advertisers to establish personalized experiences
for and communications with consumers. We believe that these features, combined
with advances in media delivery and the increasing availability of broadband
access, are enabling the further development and broad acceptance of the
Internet as a powerful medium for online media delivery and distribution.
Streaming media technology enables the continuous transmission and
playback of multimedia content and represents a significant advancement over
earlier technologies, which required download delays before playback. As a
result, streaming media has enabled live broadcasts over the Internet and has
enhanced and simplified the consumer's online media experience. We believe that
the amount of live video and audio content available on the Internet has
increased dramatically in the last two years. As the demand for streaming media
has grown substantially, many new business models have emerged. Companies are
publishing and aggregating streaming media for consumers over the Internet and
employees over intranets, developing streaming media authoring tools, offering
turnkey services and advertising in a variety of new ways. We believe the demand
for streaming media and media content will grow with the increasing availability
of new broadband access technologies such as cable modems and digital subscriber
lines. Cost-effective broadband access will make it possible for consumers to
experience higher-quality streaming media and enable content providers to
deliver to large audiences more compelling and engaging media content. We
believe the emergence of television set-top boxes and other non-PC Internet
devices will further extend the reach of online media. As the Internet provides
the means to deliver content at quality levels comparable to those of
traditional media, we believe there will be a significant market opportunity for
media companies and advertisers to provide customized, interactive targeted
programming and advertising.
RETAIL ENTERTAINMENT MERCHANDISING
Traditional channels of retail entertainment merchandise distribution,
such as music stores, home video stores, bookstores and mass market retailers,
have many limitations, including:
- INCONVENIENCE. Shopping at a physical store can be inconvenient. It
involves time-consuming activities such as making a trip to the store,
finding a parking space, searching for desired merchandise and waiting
in line to make a purchase. Searching for merchandise can be especially
time-consuming if the consumer is simply browsing (i.e., is not looking
for a particular title or artist), since searching generally for
entertainment merchandise that may interest the consumer can involve
significant time combing through aisles of CDs or rows and rows of
books or videos.
- NARROW SELECTION. Consumers of entertainment products value the
opportunity to select items from a broad range of products that best
fit their interests. Often, consumers must choose from a narrow
selection at traditional store-based retailers. In the entertainment
merchandising industry, stores often specialize in particular types of
products, such as books or music only, forcing the consumer to make a
trip to more than one store. Even mass market retailers that offer
selections from a wide variety of entertainment product categories
often have a narrow selection of titles or genres within those
categories because of limitations on the amount of shelf-space and the
resulting need to offer only the fastest selling titles, genres or
products.
- LACK OF INFORMATION AND PERSONALIZATION. Physical retailers are
space-constrained and invest heavily in inventory, real estate,
building improvements and hiring and training of store personnel.
Although some large entertainment merchandisers have made strides to
include customized information and better opportunities for consumers
to sample the products they carry (such as kiosks at music retailers
that allow customers to preview CDs), physical retailers generally lack
the display space and resources to provide consumers with in-depth
information, such as book or music reviews and interviews with authors
and artists, that could greatly enhance the shopping experience.
Physical retailers also have no way of instantaneously gauging and
responding to an individual consumer's personal tastes.
Because online retailers of entertainment products incur a fraction of
the costs for physical space and personnel and have almost unlimited "virtual"
shelf space, they can offer consumers a broader range of product categories, and
selections within those categories, than can physical retailers. In addition,
online retailers can provide consumers with a wide range of useful and
entertaining information as part of the online shopping experience, such as
interviews with authors or artists, book,
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music or video reviews, discographies and other lists of artists' works,
historical perspectives and feedback from other consumers. The online shopping
experience can be interactive, such as giving consumers the opportunity to
provide their own personal reviews of products that they have bought. Online
retailing also offers the opportunity to create communities of like-minded
consumers. Finally, online retailers can also use technology to instantaneously
gauge and respond to a particular consumer's interests, such as offering online
recommendations or suggestions by e-mail regarding other products the consumer
may be interested in based on the buying patterns of customers who bought the
same product or information provided by the consumer about his or her own
interests.
Many online retailers of entertainment merchandise provide a shopping
experience that, while convenient, informative and offering a wide selection of
products, fails to deliver fully on entertainment value. Certain strategic
relationships between online retailers and multimedia content delivery companies
have attempted to create a blended online commerce and entertainment experience,
but these initiatives are often limited in the product selection offered on the
content deliverer's Web site and give a "piecemeal" impression to consumers, who
are exposed to multiple companies' brands and Web site "look-and-feel" as part
of the shopping/entertainment experience.
OUR STRATEGY
Our objective is to become a leading online entertainment company. Our
strategy to achieve this objective is to build a network of private label
entertainment product storefronts on the Web and to offer an online broadcast
solution for the delivery of streaming media over the Internet to a growing
network of our broadcast associates. To implement our strategy, we are striving
to attract a growing base of consumers to our network associates' Web sites and
to our own online store, and to provide them with a superior entertainment and
shopping experience. Key elements of our strategy include:
FOCUS ON CORE STRENGTHS AND ENHANCE STRATEGIC RELATIONSHIPS. We intend
to leverage off our management team's extensive experience and understanding of
the entertainment industry and the convergence of entertainment and the Internet
to deliver an integrated entertainment broadcast and merchandise retailing
solution. We will rely extensively on third parties for cutting edge
technologies to enable us to provide multimedia streaming and e-commerce
services, and for order fulfillment and shipment. By aggregating what we believe
is the best in technology, content, entertainment products and distribution
services through strategic relationships with third parties, we intend to
maintain our focus on continuously enhancing the shopping and entertainment
experiences of our customers.
EXTEND REACH THROUGH NETWORK ASSOCIATE PROGRAM. We intend to
aggressively promote our network associate program. By offering our network
associates reasonably priced solutions for multimedia streaming capabilities and
selling entertainment products online, we believe that we will extend our
customer reach on the Web more effectively and on a more cost-effective basis
than if we were to try to obtain that reach solely through our own
store.globalmedia.com online store. We will also consider strategic
opportunities to acquire customers from other companies of streaming media and
other web-related services in our industry as a way to more rapidly build
critical mass in our network.
MAINTAIN TECHNOLOGY FOCUS. We intend to use technology that we develop
or that we acquire or license through strategic relationships with third parties
to enhance our streaming media solutions, improve our site's navigation and
search capabilities, and develop features to further personalize consumers'
multimedia and shopping experiences and their ability to find products and
content. We will also use technology to increase the efficiency of order
processing and fulfillment services.
CONTINUOUSLY IMPROVE OUR ONLINE STORE AND SERVICES. We seek to combine
a wide product selection and eye-catching multimedia content and information
with the unique aspects of the Internet to deliver a convenient, entertaining
and personalized shopping experience. To improve our e-commerce solution and our
own site, we intend to:
- expand our product offerings, both within our existing categories and
by extending into other categories of entertainment-oriented products
and services;
- improve the depth and variety of content, including streamed audio,
video and other multimedia content; and
- offer more personalized services, such as recommendations based on
purchases by consumers of similar product selections or preferences
provided by the customer.
ENSURE QUICK AND EFFICIENT DISTRIBUTION. We intend to continuously
increase the automation and efficiency of our fulfillment and distribution
capabilities. Because we outsource our order fulfillment operations, we intend
to work with our fulfillment partners to find more ways to ensure prompt order
processing and delivery to our customers.
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OUR SOLUTIONS
OUR BROADCASTING SOLUTION
We have developed our broadcasting solution to take advantage of
significant improvements in multimedia streaming or other technologies, the
resulting convergence of radio, television and other multimedia content with the
Internet and e-commerce. Our business will depend significantly on the
successful implementation of our broadcasting network, the successful marketing
of that solution to potential broadcast associates in the radio and television
industries, and our ability to maintain those relationships.
Using the GlobalMedia.com player and the Real Broadcast Network
multimedia streaming infrastructure, our broadcasting network enables broadcast
associates to deliver live and simulated live multimedia content such as radio
feeds. Our broadcasting network provides cutting-edge multimedia content
delivery capabilities and can be combined with the private label entertainment
product merchandising solution offered under our network associate program. We
will derive revenues from (a) product sales on each network associate's Web
site, (b) resale of streaming media bandwidth on the Real Broadcast Network to
our network associates, (c) design and implementation fees, and (d) advertising
revenues from advertisements in the GlobalMedia.com player.
OUR E-COMMERCE SOLUTION
Our e-commerce solution leverages the Internet's capabilities for
delivering multimedia content, including live video and audio programming, to
create a unique, integrated shopping and entertainment experience for the
customers of our network associates and our own online store. The key features
of our solution consist of the following:
CONVENIENCE. Our online store and those of our network associates may
be reached from wherever the customer has access to the Web, such as the home or
office. Customers may shop 24 hours a day, seven days a week. We deliver
directly to the customer's home or office, eliminating the need for a trip to a
physical store. Customers can quickly search an extensive catalogue of products
using a variety of search parameters.
SELECTION. Without the inventory or shelf-space limitations of physical
retailers, we offer a large selection of CDs, videos, DVDs and books and will
expand that selection as we add more fulfillment partners. We also have become
involved in new forms of distribution of entertainment products, such as direct
download of audio files, and intend to offer complementary products and
services, such as magazine subscriptions and concert and event ticket sales.
CONTENT. Through our online store and those of our network associates,
we offer entertainment-focused content ranging from music and entertainment news
to interviews with artists and authors, biographies and lists of artists' and
authors' works. We also offer content in formats designed to enhance the
customer's shopping experience, such as music clips that customers may sample
before ordering CDs. We have integrated the GlobalMedia.com player into our
e-commerce solution because we believe that online consumers of entertainment
merchandise expect a more entertaining and informative shopping experience than
they can find at traditional retail stores and in most online stores.
COMMUNITY. To create an online experience that will encourage customers
to return to our main store, we sponsor competitions and plan to build community
by hosting entertainment-oriented chat sessions.
OUR NETWORK ASSOCIATE PROGRAM
Under our network associate program, we offer a complete, tightly
integrated entertainment and online shopping experience. Our solution enables
our network associates to deliver simulated live and live Internet broadcast of
audio, video and other multimedia content from their Web sites. Our broadcasting
network is designed so that its streaming media capabilities can be combined
with our private label e-commerce solution consisting of 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. We believe our network associate program is
attractive for a variety of reasons because it:
- enables companies that lack the financial and technical resources to
develop and maintain their own proprietary streaming and e-commerce
solutions to enter into the business for lower up-front fees and
minimal continuing direct cost (other than what they spend to market
their online stores);
- helps companies expand their Web sites to provide additional revenue
streams and enhance the appeal to their online audiences;
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- allows companies to extend their brands onto the Web or maintain their
existing online brands and avoid the "brand dilution" and disjointed
customer experience engendered by industry-prevalent e-commerce
affiliate programs, which are offered under the merchant partner's own
brand - sometimes with an entirely different "look and feel" from the
affiliate's own Web site; and
- allows companies to focus on core businesses and strengths by
outsourcing their streaming and e-commerce business to us.
Our business and results of operations will depend in large part on the
success of our network associate program. As of September 25, 2000, we had 113
network associate agreements in place representing 185 unique e-commerce stores
and 59 broadcasters. We have also recently acquired Web services contracts for
an additional 144 radio stations and streaming contracts for 68 radio stations
from OnRadio.com and streaming and Web services 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, and successfully
promote the benefits of our end-to-end broadcasting and e-commerce
solution to potential network associates;
- be able to offer customized, merchant-branded players and storefronts
with content and merchandise selection that can be specifically
tailored to different types of potential network associates with
different target markets or customers, that work reliably and
effectively with our network associates' own Web sites, and that
reliably fulfill orders of customers who purchase products through our
network associates' storefronts;
- 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; and
- successfully integrate customers acquired from OnRadio.com and
Magnitude, as well as any we may acquire in the future in connection
with strategic acquisitions or other transactions, into our own
network.
Our business and results of operations may 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 obligated.
OUR WEB SITES
OUR MAIN STORE.
Visitors to our online store at "store.globalmedia.com" see a home page
that highlights our three product departments: "Music", "Books" and "Videos", as
well as entertainment focused news and interviews with artists and authors. We
periodically rotate specific title promotions in each of the departments on our
store's home page. Shoppers can launch the GlobalMedia.com player and enjoy
music in various genres while browsing the store. Shoppers browse the store by
clicking on the permanently displayed department names to move directly to the
department home page and to view selected title promotions within that
department, current top-selling titles and additional content oriented to the
products offered in that department. Shoppers can also search the store by
entering text, such as a title, an artist's or author's name, or a keyword, in
the search box at the top of any page. Search results return a list of one or
more products that relate to the search term, and customers can click on a link
to the desired item to obtain more information such as:
- CDs: artist name, genre, label, release date, song titles and price;
- Books: author name, genre, format (hardcover or paperback), number of
pages, publication date, publisher and prices;
- Videos: director name, names of actors, studio name, format (video
cassette or DVD), available releases and prices.
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A shopper can order a product by clicking on the "buy" button next to
the desired product and the product is then added to the shopper's "shopping
cart." The shopper can add or delete items from his or her shopping cart at any
time prior to final purchase. When the shopper finishes selecting the desired
products, he or she goes to checkout. The checkout page presents the shopper
with the various items he or she has selected, the subtotal, tax (if applicable)
and shipping charges. The shopper may add or delete products at this stage or
change the method of shipping. When satisfied with the order, the shopper clicks
on the "purchase" button and the final order is entered into our system. A
shopper will be notified by e-mail of the receipt of the order, if the credit
card information was declined, and when the products ordered have been shipped.
We strive to use content effectively to encourage purchases by
customers who may be browsing our site without a specific title, author or
artist in mind. All of the textual content we provide on our main home page and
department home pages have direct links to related products. For example, an
interview with a member of a particular rock band might include a "buy" button
that links the customer to the product listing for the band's latest release. We
also seek to use content to enhance the information and entertainment value of
our customers' shopping experience. For example, for many of the CDs we carry,
customers can sample audio tracks before purchasing the CD. We also include
useful and entertaining textual information about many of our products, such as
a summary review of the CD, video or book, information about the artists, and
short excerpts from third party reviews.
CUSTOMER SERVICE
We believe that our ability to establish and maintain long-term
relationships with our customers (and those of our network associates) and to
encourage repeat visits and purchases will depend in part on the strength of our
customer support and service operations. We employ eight customer support and
service staff and automate certain of the tools used by them to enhance the
efficiency and quality of our customer support and service efforts. In addition,
we will seek to achieve frequent communication with and feedback from our
customers to continually improve our broadcasting and e-commerce solutions,
product offerings and related services.
MARKETING AND PROMOTION
We believe that successful implementation of our network associate
program will depend on our ability to establish an aggressive and effective
internal sales organization. As of August 25, 2000, our internal sales team had
22 members. We will need to 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 for new sales employees to become productive.
While we view our network associate program as the critical component
of our plan to increase sales of our entertainment products, our marketing
strategy will also focus on:
- increasing listeners of our GlobalMedia.com player and traffic to our
main online store and the online stores of our network associates;
- building customer loyalty;
- maximizing repeat purchases; and
- developing incremental revenue opportunities.
We intend to pursue a variety of media, business development and
promotional methods to achieve these goals, including online and traditional
advertising and public relations activities (such as sponsoring concerts and
other events). We may also offer our own affiliate program, which will embed one
or more general or product-specific links to our site on our affiliates' Web
sites. Affiliates would be paid a commission on orders placed by customers who
are directed to our site from the affiliates' Web sites.
STRATEGIC ALLIANCES
In order to maintain and improve our online store and related services
and increase traffic to our site, we seek to enter into strategic relationships
with business partners who can offer technology, content and distribution
capabilities, as well as marketing and cross-promotional opportunities.
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FULFILLMENT PARTNERS
We have outsourced all of our order fulfillment and shipping operations
in order to allow us to focus on our core strengths of developing and enhancing
compelling online entertainment product merchandising and content delivery
initiatives, and to avoid the need to invest in warehouse and other distribution
infrastructure or carry inventory. 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 pursue relationships with
other fulfillment partners to expand our product offerings.
REALNETWORKS
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 GlobalMedia.com 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, and 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; and
- 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.
STANDARD RADIO, INC.
On December 7, 1999, we entered into a strategic relationship with
Standard Radio, Inc. In this transaction (a) Standard invested $2,000,000 in
exchange for 338,983 shares of our common stock at a purchase price of $5.90 per
share, (b) Standard's president and chief executive officer, Gary Slaight, was
appointed to a seat on our Board of Directors and was granted options to
purchase 125,000 shares of common stock, (c) we entered into agreements with
eight members of Standard's management team under which they will serve on our
marketing advisory committee and will promote our solutions to other radio
stations in North America, for which each management team member will receive
unvested options to purchase up to 20,000 shares of our common stock, (d)
Standard agreed to cause of the radio stations owned and controlled by it now
and for the next three years to become our e-commerce and broadcast associates,
and (e) Standard received the right to approve agreements between us and radio
stations which compete in the same genre and locale as each of Standard's
stations in Canada. In July 2000, nine radio stations owned by Standard Radio
went live with our streaming and e-commerce solution.
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On September 7, 2000, we sold an additional 1,388,888 shares of common
stock and warrants to purchase up to 277,778 shares of common stock for $1.80
per share and an aggregate purchase price of approximately $2.5 million to
Standard Radio. (the "Standard Offering"). These 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 at a price per common share less than the price in the
Standard Offering, the Company shall promptly issue to Standard additional
shares based on a specified antidilution formula adjust the exercise price of
the warrants issued to Standard. If we close the follow-on offering, Standard
has agreed to invest another $2,500,000. As part of the consideration to
Standard for investing additional funds in us, we agreed to waive all of
Standard's fees and expenses under the existing co-marketing agreement with
respect to Standard's current radio stations for a period of 3 years, or so
long as Standard continues to hold 2% or more of our issued and outstanding
shares.
We expect our relationship with Standard to provide significant
opportunities for future growth in revenues, in addition to the initial cash
investment.
CONTENT PROVIDERS
We currently license content from a variety of sources, including
online publishers of entertainment and music news, artist interviews, games,
animation and multimedia content. In one case we issued unregistered stock to a
content provider in connection with a streaming media content contract.
TECHNOLOGY OPERATIONS
We employ a broad range of technologies for both our e-commerce and
streaming media operations. Our e-commerce systems are being developed using
open source technologies to ensure scalability, reliability and innovation.
Highlights of our e-commerce systems include the following:
NETWORK:
- Partnership with a key tier-one Internet provider to deliver high
bandwidth scalable connectivity
- Several peering arrangements to ensure redundancy, speed, and minimal
network bottlenecks
SYSTEMS AND SOFTWARE:
- Standards-based architecture on open source software
- High portability avoiding "vendor specific lock-in"
- High performance platform
- Modular design for rapid application development
Our streaming media solution was developed through several strategic
technological partnerships and through the implementation of our own proprietary
advancements. In addition, we established a strategic relationship with
RealNetworks to develop the GlobalMedia.com player, which has been combined with
our e-commerce, ad-serving and other systems to create our broadcasting network.
COMPETITION
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, from time to time, 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,
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Inc. In the market for online retailing of books, CDs, video cassettes and
DVDs, we ocmpete 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 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.
INTELLECTUAL PROPERTY
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.
GOVERNMENT REGULATION
Our company, operations and products and services are all subject to
regulations set forth by various United States and Canadian federal, state,
provincial and local regulatory agencies. We take measures to ensure our
compliance with all such regulations as promulgated by these agencies from time
to time. Historically, there have been few laws and regulations
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directly applicable to the Internet. While laws and regulations directly
applicable to Internet communications, commerce and advertising are becoming
more prevalent, the law governing the Internet remains largely unsettled, even
in areas where there has been some legislative action. Several states in the
United States, however, have proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies, and the Federal Trade Commission has initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties. It
is possible that a number of other laws and regulations may be adopted with
respect to the Internet covering issues such as consumer protection, pricing,
content, copyrights and other intellectual property, distribution, antitrust,
obscenity, libel, and characteristics and quality of products and services.
Governments in foreign jurisdictions may regulate Internet or other
online services in such areas as content, privacy, network security, encryption,
distribution or taxation more stringently than in the United States. This may
affect our ability to conduct business internationally. In addition, because our
sites are accessible worldwide and we facilitate sales of goods to users
worldwide, other jurisdictions may claim that we are required to qualify to do
business as a foreign corporation in a particular state or foreign country. Our
failure to qualify as a foreign corporation in a jurisdiction where it is
required to do so could subject us to taxes and penalties for the failure to
qualify and could result in our inability to enforce contracts in such
jurisdictions.
Any such new United States or foreign legislation or regulation, or the
application or interpretation of existing laws to, the Internet could have a
material adverse effect on our business, results of operations and financial
condition by (a) increasing our cost of doing business, (b) creating uncertainty
in the marketplace that could reduce demand for our products and services or
increase the cost of doing business as a result of litigation costs or increased
service delivery costs, or (c) otherwise adversely affect our business results
of operations and financial condition.
EMPLOYEES
As of September 25, 2000, we employed approximately 108 full-time
employees. We also engage independent contractors from time to time for Web site
development and to provide content such as editorials. None of our employees is
represented by a labor union, and we consider our employee relations to be good.
DESCRIPTION OF PROPERTY
Our principal executive office is located in Vancouver, British
Columbia, Canada in approximately 13,000 square feet of leased office space. The
lease expires in August 2004. We continue to lease approximately 5,700 square
feet of office space in Nanaimo, British Columbia. This lease expires in July
2002. We also lease approximately 1,100 square feet of office space in New York,
New York. That lease expires in September 2000. We believe our leased
facilities, when combined with an additional U.S. office, will be adequate for
our current operations, and that additional leased space can be obtained if
needed.
LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims
which may have a material adverse effect on our business. We are not aware of
any current legal proceedings or claims that will have, individually or in the
aggregate, a material adverse effect on our business, prospects, financial
condition or results of operations.
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SELLING STOCKHOLDERS
This prospectus relates to the offering of shares of our common stock
for resale by (1) RGC International Investors, LDC, 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, including shares obtainable upon conversion or exercise of
shares of Series A and B convertible preferred stock, related investment options
and warrants, which are convertible or exercisable within sixty days of such
date. The selling stockholders provided us the information included in the table
below. To our knowledge, RGC will have sole voting and investment power over
the shares of common stock offered for resale by it if it converts the Series
A and Series B convertible preferred stock, and exercises the related
warrants and investment options, into common stock. No selling stockholder,
to our knowledge, has had a material relationship with us during the last
three years, except as an owner of our common stock or other securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON STOCK BENEFICIAL OWNERSHIP OF COMMON STOCK
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------------------------------------------------------------------
NUMBER OF SHARES TO BE
NUMBER OF SOLD UNDER THIS
SELLING STOCKHOLDER SHARES PROSPECTUS NUMBER OF SHARES PERCENT OF CLASS
------------------- ------ ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
RGC International Investors, LDC 18,805,189 18,805,189 0 0
</TABLE>
CERTAIN INFORMATION ABOUT RGC INTERNATIONAL INVESTORS, LDC
In order to assure that adequate shares are registered in the event of
a decreases in the respective conversion prices of the Series A and Series B
convertible preferred stock and in the exercise price of the related investment
options and warrants, the number of shares set forth in the table for RGC
represent:
- 200% of the estimated number of shares of common stock to be
offered by it upon conversion of the Series A and Series B
convertible preferred stock and exercise of the related investment
options, and
- 125% of the estimated number of shares of common stock to be
offered by RGC upon exercise of the related warrants.
The actual number of common shares to be offered by RGC is
indeterminate, is subject to adjustment and could be materially less or more
than such estimated number depending on factors which cannot be predicted by us
at this time, including, among other factors, the future market price of our
common stock. The actual number of common shares offered in this prospectus, and
included in the registration statement which contains this prospectus, includes
such additional number of common shares as may be issued or issuable by reason
of any stock split, stock dividend or similar transaction involving our common
stock, in accordance with Rule 416 under the Securities Act.
The shares of Series A and B convertible preferred stock are
convertible, and the related investment options and warrants are exercisable,
only to the extent that the number of our common shares held by the converting
or exercising holder does not exceed 4.9% of our then-outstanding common stock,
as determined in accordance with Section 13(d) of the Exchange Act. However, the
number of common shares offered for resale by RGC in this prospectus exceeds the
number of common shares that RGC could own beneficially at any given time under
this restriction. In that regard, RGC's beneficial ownership of our common stock
set forth in the table is not determined in accordance with Rule 13d-3 under the
Exchange Act.
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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 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.
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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
Ernst & Young LLP, independent auditors, audited our consolidated
financial statements included in our annual report on Form 10-KSB for the years
ended July 31, 1999 and 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, 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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