As filed with the Securities and Exchange Commission on November 17, 2000
Registration No. 333-48466
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SMARTDISK CORPORATION
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C>
Delaware 65-0733580
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
Michael S. Battaglia
3506 Mercantile Avenue President and Chief Executive Officer
Naples, Florida 34104 3506 Mercantile Avenue
(941) 436-2500 Naples, Florida 34104
(941) 436-2500
(Address, Including Zip Code, and Telephone Number, Including (Name, Address, Including Zip Code, and Telephone Number,
Area Code, of Registrant's Principal Executive Offices) Including Area Code, of Agent for Service)
</TABLE>
-----------------
<TABLE>
<S> <C>
Copies of communications to:
Michael W. Hein, Esq. Timothy Tomlinson, Esq.
Greenberg Traurig, P.A. Tomlinson Zisko Morosoli & Maser LLP
1221 Brickell Avenue 200 Page Mill Road
Miami, Florida 33131 Palo Alto, California 94306
(305) 579-0500 (650) 325-8666
</TABLE>
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act"), other than securities offered
only in connection with dividend or interest reinvestment plans, check the
following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
___________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Maximum
Title of Each Class Amount to be Aggregate Offering
of Securities to be Registered Registered Price (1) Amount of Registration Fee(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, par value $0.001.................... 1,576,768 $8,672,224 $2,290
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act based on the average of the high
and low sales prices for the Common Stock reported by the Nasdaq National Market
on November 13, 2000.
(2) A registration fee of $4,972 was paid in connection with the original filing
on October 23, 2000.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
PROSPECTUS
1,576,768 Shares
SmartDisk Corporation
Common Stock
---------------
The selling stockholders are offering up to 1,576,768 shares of our
common stock under this prospectus. The selling stockholders obtained their
shares of our common stock by virtue of our acquisitions of VST Technologies,
Inc. or Impleo Limited or through other transactions.
Our common stock trades on the Nasdaq National Market under the symbol
"SMDK." On November 16, 2000, the closing price of one share of our common stock
on the Nasdaq National Market was $5.438.
The selling stockholders may offer the shares through public or private
transactions, on or off the Nasdaq National Market, at prevailing market prices
or at privately negotiated prices. They may make sales directly to purchasers or
to or through agents, dealers or underwriters.
---------------
You should carefully consider the Risk Factors beginning on
page 5 in this prospectus.
---------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these shares or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
---------------
The date of this prospectus is November 17, 2000.
<PAGE>
SMARTDISK
This summary highlights selected information and does not contain all
the information that is important to you. You should carefully read the
prospectus and the documents we have referred you to in "Where You Can Find More
Information" on page 20 for information about our company and our financial
statements.
Our Business
We design, develop, manufacture and market digital connectivity
products and personal storage systems that allow consumers to easily access,
exchange, organize and store digital data such as photographs, video, music,
voice and data among digital appliances, personal computers and the Internet.
With the growth of digital appliances, such as digital cameras, digital video
camcorders, voice recorders and music players, consumers are increasingly using
the PC as the "multimedia center" of the home or office. These digital
appliances capture digital data on high capacity, reusable flash memory cards
that appeal to consumers because of their small size, versatility and
portability. Our digital connectivity products enable the easy and convenient
sharing of the information on the cards between the digital appliance, PCs and
the Internet. Our personal storage systems and related software are designed to
provide an easy way to store, organize and retrieve this digital data on
portable, high-speed, high-capacity disk drives.
Our digital connectivity products are designed to work across all
popular PC platforms, support all leading flash memory media types and use high
performance PC interfaces, such as USB. Our patented digital connectivity
products, such as our FlashPath products for the Toshiba SmartMedia card,
SanDisk MultiMediaCard and Sony Memory Stick, as well as Smarty, allow consumers
to use the familiar 3.5-inch floppy drive -- found on most PCs worldwide -- to
simplify the exchange of images, music, voice and other digital data between PCs
and digital appliances. We recently launched our new high-speed USB-based Flash
Media Reader, a dual-slot flash memory reader, for both CompactFlash and
SmartMedia cards. In early 2000, we introduced a USB Tri-Media Reader, which
reads and writes to CompactFlash and SmartMedia cards, as well as rotational
media, such as a 1.44 Mega-byte floppy disk. Our Flash Media Reader and our
Tri-Media Reader are used to exchange digital data and address an expanding
installed base of PCs with USB cable interfaces. These two products are
compatible with both Windows and Macintosh systems.
Our FlashPath family of products is used primarily to transfer images
to PCs from digital cameras. We develop and market three FlashPath products, one
for each of three different flash memory cards: SanDisk's MultiMediaCard, Sony's
Memory Stick and Toshiba's SmartMedia card. These flash memory cards are used in
cameras and video camcorders made by a number of leading camera manufacturers,
including FujiFilm, JVC, Olympus, Panasonic, Sanyo, Sharp, Sony and Toshiba. To
date, we have sold over two million FlashPaths.
We believe that as consumers embrace the digital lifestyle, the number
of applications for flash memory cards will grow. These flash memory cards are
designed for applications in "smart" cellular phones, digital still cameras and
camcorders, digital audio players, digital voice recorders and video game
devices. In addition to our product development efforts with Sony and SanDisk,
we also have strategic relationships with a number of key electronics industry
participants, including Hitachi, NEC, and Toshiba.
Our USB- and FireWire-based personal storage systems include high
performance, portable hard disk drives and floppy disk drives for desktop and
notebook PCs, as well as expansion bay disk drives for notebooks. Substantially
all of our personal storage systems are compatible with Windows and Macintosh
operating systems. We believe that the substantial increase in data intensive
digital content, such as imaging, music and video has created the need and
awareness for increased personal storage. Our personal storage systems and
related software enhance the user's ability to store, organize and retrieve
digital content. These systems support very high transfer rates and offer up to
120 Gigabytes of capacity.
Since 1992, we have worked with Apple as an Apple preferred partner and
developer. Through this relationship, Apple has provided us access to product
road maps that have allowed us to focus on new opportunities in the development
and engineering of many FireWire and USB systems. Through our strategic
relationship with Iomega, we build Iomega Zip drive products for Apple, IBM and
Fujitsu. We were one of the first companies to ship FireWire personal storage
systems for both Macintosh and Windows operating systems, as well as FireWire
Zip drives. In the third quarter of 2000, we introduced our 120 Gigabyte
portable FireWire RAID (Redundant Array of Independent Disks) product.
Our strategic partners actively participate in the development of our
products, provide us with access to leading edge manufacturing capabilities, and
market and/or distribute our products globally.
2
<PAGE>
Our strategy is to use our proprietary technologies to:
o Establish our connectivity solutions as the industry standard
for the transfer of data among digital appliances, PCs and the
Internet by strengthening our position as a technological and
market leader; and
o Bring our personal storage systems quickly to market with
industry leading solutions that emphasize ease of use and
portability and therefore capitalize on the growth of the PC
as the "multimedia center" of the home or office.
Key elements of this business strategy are to:
o Capitalize on our technology expertise and technology
platforms to expand our product lines;
o Expand our customer and strategic industry relationships to
take advantage of the significant marketing strength of our
OEM customers and the new product designs that result from our
cooperative development activities;
o Maintain media, interface and platform neutrality by
supporting different flash memory card standards, such as
those from SanDisk, Sony and Toshiba, as well as all
rotational media, including hard disk drives, floppy disk
drives, Iomega Zip drives and Imation SuperDisk drives, in
order to address the data transfer and storage needs of
purchasers of emerging digital appliances;
o Promote market awareness of our products, as well as the
SmartDisk name;
o Continue our focus on easy-to-use digital connectivity
products and personal storage systems that offer seamless
integration with the PC's operating system to conveniently
transfer and store digital information; and
o Capitalize on the first-to-market advantages provided by our
technical expertise to provide various connectivity and
storage solutions that satisfy the needs created by the
proliferation of digital appliances.
Recent Developments
Acquisition of VST Technologies, Inc. On March 6, 2000, we completed
our acquisition of VST Technologies, Inc. VST designs, develops, manufactures
and markets FireWire and USB-based flash memory readers and high performance
personal storage systems for Windows and Macintosh operating systems. Our
acquisition of VST has expanded our existing product lines to include advanced
FireWire and USB technologies and, additionally, has expanded our access to the
rapidly growing digital video and digital music markets. VST's product line
includes expansion bay storage devices, such as the Zip 100 drive for Apple, IBM
and Fujitsu notebooks, SuperDisk drives for select Apple and IBM notebooks, USB
floppy drives, portable FireWire hard drives and a dual flash memory card and
rotational media reader, as well as a recently introduced 120 Gigabyte portable
FireWire RAID (Redundant Array of Independent Disks) product.
We acquired VST for approximately $16.4 million in cash, approximately
1.1 million shares of our common stock and options to acquire approximately
443,000 shares of our common stock with exercise prices ranging from $0.90 to
$4.45.
VST, a Delaware corporation whose predecessor was incorporated in 1993,
is located near Boston, Massachusetts. For the year ended December 31, 1999, VST
had gross revenues of approximately $61.5 million, operating income of
approximately $6.5 million and net income of approximately $6.2 million.
Acquisition of El Gato Software LLC. On April 21, 2000, we completed
our acquisition of substantially all of the intellectual property of El Gato
Software LLC. El Gato, a California limited liability company, is located near
San Jose, California. El Gato develops and markets USB and FireWire drivers,
applications and firmware
3
<PAGE>
support for leading personal storage systems, including SmartMedia,
CompactFlash, hard drives, Zip drives, floppy drives and optical drives. We use
El Gato's drivers in our FireWire hard drives, FireWire Zip drives and USB-based
products, including our Flash Media and Tri-Media Readers. We acquired
substantially all of the intellectual property of El Gato for approximately
$755,000 in cash and approximately 37,000 shares of our common stock. We also
retained the services of El Gato's staff of five software developers under
two-year consulting agreements.
Acquisition of Impleo Limited. On April 28, 2000, we completed our
acquisition of Impleo Limited. Impleo, a corporation established under the laws
of the United Kingdom in November 1999, is based in England. Impleo manufactures
and markets digital connectivity products and personal storage systems under the
Datawise brand. We are using Impleo as our primary European distributor. We
acquired all of the capital stock of Impleo for approximately $200,000 in cash
and approximately 125,000 shares of our common stock.
* * * * *
Our executive offices are located at 3506 Mercantile Avenue, Naples,
Florida 34104, and our telephone number is (941) 436-2500.
4
<PAGE>
RISK FACTORS
In addition to the other information contained and incorporated by
reference in this prospectus, you should carefully consider the following
factors before purchasing any of the common stock offered under this prospectus.
This prospectus (including the information incorporated by reference)
contains forward-looking statements within the meaning of Federal securities
law. Terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue," "predict," or other similar words identify forward-looking
statements. These statements discuss future expectations, contain projections of
results of operations or of financial condition or state other forward-looking
information. Forward-looking statements appear in a number of places in this
prospectus and include statements regarding management's intent, belief or
current expectation about, among other things, the following: our anticipated
growth strategies, including trends in revenues, costs, gross margins and
profitability; our intention to develop, market and introduce new products;
anticipated growth of the personal computer and technology industries;
anticipated trends in our businesses, including trends in the demand for digital
appliances and, therefore, demand for our products; expectations of consumer
preferences and desires; future projections of our financial performance, future
expenditures for capital projects and research and development; the emergence of
certain competing technologies; potential uses for and applications of our
products; and our ability to continue to control costs and maintain quality.
Although management believes that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual results may differ materially from those predicted in the
forward-looking statements as a result of various factors, including those set
forth below.
We have incurred net losses and cannot guarantee that we will be profitable in
the future.
Except for the third and fourth quarters of 1999, we have incurred net
losses on a quarterly basis since inception. We had net income of approximately
$1.0 million during 1999 (a net loss of approximately $17.7 million on a pro
forma basis after giving effect to the VST acquisition). We had a net loss of
approximately $8.7 million in the first nine months of 2000, primarily as a
result of $13.3 million in amortization of goodwill and other intangible assets
from the VST and Impleo acquisitions, net of tax. In addition, as of September
30, 2000, we had an accumulated deficit of approximately $30.4 million. In light
of our loss history and the amortization of goodwill and other intangible assets
from the VST and Impleo acquisitions, we cannot assure you that we will be
profitable in the future.
We have a limited operating history on which to base an investment decision.
We were incorporated in March 1997, commenced operations in January
1998, and our predecessor corporation only conducted limited operations.
Further, commercial sales of FlashPath, one of our primary products, commenced
in mid-1998. As a result of our limited operating history, we have limited
financial data that can be used in evaluating our business and prospects and in
projecting future operating results.
We may not be able to sell sufficient quantities of our products to sustain a
viable business if the market for digital connectivity products does not
continue to develop or if a competing technology displaces these products.
Our current FlashPath products and other flash media readers are
designed to provide connectivity between personal computers and digital
appliances that use flash memory cards. The flash memory market is in the early
stage of development and is still evolving. Our current dependence on sales of
FlashPath exposes us to a substantial risk of loss in the event that the flash
memory market does not develop or if a competing technology replaces flash
memory cards. If a competing memory storage device replaces or takes significant
market share from the flash memory cards which our digital connectivity products
support, we will not be able to sell our products in quantities sufficient to
grow our business.
5
<PAGE>
We may not be able to sell sufficient quantities of our digital connectivity
products to sustain our current business if a single standard for flash memory
cards emerges.
We believe that demand for our flash memory connectivity products is
driven, to a large extent, by the absence of a single standard for flash memory
cards. There are currently five major flash memory cards, none of which has
emerged as the industry standard. Should one of these cards or a new technology
emerge as an industry standard, flash memory card readers could be built into
PCs, eliminating the need for our current flash memory connectivity products.
A reduction in the use of the 3.5-inch floppy disk drive by consumers and
manufacturers is contributing to the slow growth in sales of our FlashPath
products.
Our current FlashPath products only work in conjunction with the
standard 3.5-inch floppy disk drive. While the 3.5-inch floppy disk drive is
today found in most PCs, a number of newer PC models, such as the Apple iMac and
the Apple G4 desktop, do not have this device and new industry standards may
emerge that render the 3.5-inch floppy disk drive obsolete. Advances in input
devices such as CD-ROM and removable data storage disk drives, such as Zip
drives, are reducing the need for the 3.5-inch floppy diskette, which is
contributing to the slow growth in sales of our FlashPath products. In the
future, we will have to rely on our other products and develop new products that
use a different interface between personal computers and digital appliances. We
may not be able to redesign our FlashPath products to fit the new interface and
demonstrate technological feasibility of those products on a timely basis, if at
all, or in a cost effective manner.
Since our FlashPath products work only in conjunction with the 3.5-inch floppy
disk drive, advances in flash memory cards may make these products less
competitive because of the increased time needed to transfer data using the
3.5-inch floppy disk drive.
Consumer acceptance of our FlashPath products will depend upon their
ability to quickly transfer information from flash memory cards to PCs. However,
the time needed to transfer information using a 3.5-inch disk drive increases as
more data is transferred. As more memory is condensed on to flash memory cards,
the time necessary to transfer all of the data from a single card will increase.
As technological advances make it possible and feasible to produce higher
density cards, our ability to create products, which quickly transfer all of the
stored information on a single card will be constrained by the inherent
limitations of the 3.5-inch disk drive. In that case, our products would be less
attractive to consumers and our sales would decline.
We may not be able to sell sufficient quantities of our personal storage systems
to sustain our future growth if PC manufacturers do not adopt IEEE 1394 as a
high-speed peripheral interface or if a competing CPU interface displaces or
prevents the widespread adoption of IEEE 1394.
A substantial portion of our business depends on the adoption of
Institute of Electrical and Electronics Engineering, or IEEE, 1394 technology by
PC manufacturers. IEEE 1394 is a high speed PC interface that is replacing Small
Computer System Interface, or SCSI, and parallel interfaces. If these
manufacturers do not include a IEEE 1394 interface on their PCs or notebook
computers, then we may not be able to sell sufficient quantities of our FireWire
personal storage systems to support our future growth. FireWire is Apple's trade
name for IEEE 1394. For example, a new, competing high speed interface, such as
Universal Serial Bus, or USB, 2.0, could be developed and emerge as an industry
standard, thus limiting the demand for our FireWire technology and related
personal storage systems.
We may not be able to sell sufficient quantities of our personal storage systems
to support our business if suppliers of our drives develop native FireWire-based
personal storage systems that do not require our FireWire conversion technology.
We embed conversion ASICS and integrated software drivers in the hard
disk drives and Zip drives we obtain from our suppliers, which enables our
FireWire-based personal storage systems to be used
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<PAGE>
with FireWire-equipped CPUs. We license this technology and the firmware from
LSI Logic. If our suppliers were to develop a native FireWire solution that does
not require the conversion ASICS and drivers embedded in our products, then we
may not be able to sell sufficient quantities of our FireWire personal storage
systems to support our business.
Most of our revenues are derived from only a few major products and our business
will be seriously harmed if demand for those products declines.
To date, substantially all of our revenue has been derived from the
sale of only a few major products. While our long-term strategy is to derive
revenue from multiple products, we anticipate that the sale of our FlashPath
products and our USB and FireWire storage systems will continue to represent the
most substantial portion of our revenues through at least 2001. A decline in the
price of or demand for these products as a result of competition, technological
change, the introduction of new products by us or others, a failure to
adequately manage product transitions, or for other reasons, would seriously
harm our business. For the nine months ended September 30, 2000, we derived
approximately 41% of our product revenues from the sale of FlashPath, 16% from
the sale of our USB-based personal storage systems, and 14% from the sale of our
FireWire-based personal storage systems.
We must develop new products and introduce them in a timely manner in order to
remain competitive.
We operate in an industry that is subject to evolving industry
standards, rapid technological changes, rapid changes in consumer demands and
the rapid introduction of new, higher performance products that shorten product
life cycles. To be competitive in this demanding market, we must both continue
to refine current products so that they remain competitive, and continually
design, develop and introduce, in a timely manner, new products that meet the
performance and price demands of OEMs and consumers. These development
activities will require the investment of substantial resources before revenues
are derived from product sales. Any significant delay in releasing new products
would adversely affect our reputation, provide a competitor a first-to-market
opportunity or allow a competitor to achieve greater market share. Product
development is inherently risky because it is difficult to foresee developments
in technology, coordinate our technical personnel and strategic relationships,
and identify and eliminate design flaws. If we are unable to develop and sell
new products, we will not be able to continue our strategy of maintaining media
neutrality, and our target market will be limited. Further, we may not be able
to recoup research and development expenditures if new products are not widely
commercially accepted.
We may not be able to develop or maintain the strategic relationships necessary
to provide us with the insight we need to develop commercially viable products.
We may not be able to produce commercially viable products if we are
unable to anticipate market trends and the price, performance and functionality
requirements of flash memory card, PC and digital appliance manufacturers. We
must continue to collaborate closely with our customers, our OEM manufacturers
and our other contract manufacturers to ensure that critical development
projects proceed in a coordinated manner. This collaboration is also important
because our ability to anticipate trends and plan our product development
activities depends to a significant degree upon our continued access to
information derived from these strategic relationships. We currently rely on
strategic relationships with flash memory card manufacturers, such as Sony,
SanDisk and Toshiba, PC manufacturers, such as Apple, and consumer product OEMs,
such as Olympus and Fuji Film. For example, through our co-development efforts
with Sony, we developed our FlashPath for the Sony Memory Stick, which began
shipping in the fourth quarter of 1999, and introduced a follow-on FlashPath
product for new models of Sony's Mavica digital still camera a few months later.
If we cannot maintain our relationship with these manufacturers, like Sony, then
we may not be able to continue to develop products that are compatible with
their flash memory cards, PCs and digital appliances. However, collaboration is
more difficult because many of these companies are located overseas. If any of
our current relationships deteriorates or is terminated, or if we are unable to
enter into future alliances that provide us with comparable insight into market
trends, we will be hindered in our ability to produce commercially viable
products. For example, we depend on our
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<PAGE>
relationship with Iomega Corporation in order to produce our Zip drive products
for IBM and Apple notebook computers. If we cannot maintain our relationship
with Iomega, or if Iomega wishes to produce these products internally, then our
current market for these products will deteriorate.
We may not be able to sustain our relationship with Apple Computer, which would
greatly hinder our ability to timely develop products, which are compatible with
Macintosh operating systems.
Historically, Apple has provided us, as an Apple developer, access to
selected product road maps, which has allowed us to timely develop and engineer
many of our current products, including our current FireWire and USB storage
systems. As a result of this collaborative relationship, we have received a
substantial portion of our historical revenues from direct sales to Apple and
Apple users. Moreover, we anticipate that a significant portion of our product
revenues will continue to be derived from sales of our Apple compatible products
in the near future. If Apple were to terminate our status as an Apple developer
or if there were a material deterioration of our relationship, we would not be
able to timely develop new technologies that are compatible with Apple's product
road maps and this would have an adverse effect on our business. Moreover, we
currently sell a number of our Apple products through the Apple Web Store, where
our products may be sold separately or may be configured and ordered along with
a Macintosh CPU. While we do not anticipate any change in this arrangement,
Apple is not contractually obligated to offer our products on their website.
A continued decline in the demand for Apple products would further reduce the
market for many of our products.
Our continued growth depends to a large extent on both our strategic
relationship with Apple and demand for Apple products. This dependence is due
primarily to the fact that, to date, Apple has been the principal PC
manufacturer using the FireWire interface technology on which many of our
products are based. The recent decline in demand for Apple products has
contributed to the slow growth in sales of our personal storage products in the
third quarter. If the decline in the demand for Apple products continues or if
Apple suffers a material change in its business, the market for many of our
products would be further negatively impacted.
Our operating results have fluctuated significantly and may fluctuate
significantly in the future, which could lead to decreases in our stock price.
Our operating results have fluctuated significantly in the past and we
expect that they will continue to fluctuate in the future. If our future
operating results materially fluctuate or are below the expectations of stock
market analysts, our stock price would likely decline. Future fluctuations may
result from a variety of factors including the following:
o The timing and amount of orders we receive from our customers,
which may be tied to seasonal demand for the consumer products
manufactured and sold by OEMs;
o Cancellations or delays of customer product orders, or the
loss of a significant customer;
o Reductions in consumer demand for our customers' products
in general, such as Apple products, or for our products in
particular, such as FlashPath;
o The timing and amount of research and development
expenditures;
o The availability of manufacturing capacity necessary to make
our products;
o General business conditions in our markets, particularly Japan
and Europe, as well as global economic uncertainty;
o Any new product introductions, or delays in product
introductions, by us or our competitors;
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o Increased costs charged by our suppliers or changes in the
delivery of products to us;
o Increased competition or reductions in the average selling
prices that we are able to charge;
o Fluctuations in the value of foreign currencies, particularly
the Japanese yen and British Pound, against the U.S. dollar;
and
o Changes in our product mix as well as possible seasonal demand
for our products.
As a result of these and other factors, we believe that
period-to-period comparisons of our historical results of operations are not a
good predictor of our future performance.
The stock market has experienced significant price and volume
fluctuations that have particularly affected the market prices of the stocks of
technology companies. Recently, the market price of our common stock, like that
of many technology companies, has experienced significant fluctuations. For
instance, from October 6, 1999, the date of our initial public offering, to
October 31, 2000, the reported last sale price for our common stock ranged from
$5.13 to $65.13 per share. On October 31, 2000, the reported last sale price of
our common stock was $5.13 per share.
The market price of our common stock also has been and is likely to
continue to be significantly affected by expectations of analysts and investors.
Reports and statements of analysts do not necessarily reflect our views. The
fact that we have in the past met or exceeded analyst or investor expectations
does not necessarily mean that we will do so in the future.
We may fail to adequately protect our intellectual property and, therefore, lose
our competitive advantage.
Our proprietary technology with respect to 3.5-inch floppy disk drive
interfaces and USB and FireWire source codes is critical to our future growth.
We rely in part on patent, trade secret, trademark and copyright law to protect
our intellectual property. However, the patents issued to us may not be adequate
to protect our proprietary rights, to deter misappropriation or to prevent an
unauthorized third party from copying our technology, designing around the
patents we own or otherwise obtaining and using our products, designs or other
information. We have, in fact, filed a complaint against one of our former
patent attorneys for improperly copying one of our patent applications and
filing a patent application without our consent naming himself as a co-inventor.
This matter was settled with no materially adverse consequences to SmartDisk. In
addition, we may not receive trademark protection for our "SmartDisk" name. We
have filed for trademark registration of the name "SmartDisk," but this has not
yet been granted. We are aware of a trademark application for the name
"SmartDisk" that was filed by another company. Our application could be denied
and we could be prohibited from using the "SmartDisk" name. In that event, we
would be required to incur substantial costs to establish new name recognition.
We also claim copyright protection for some proprietary software and
documentation. We attempt to protect our trade secrets and other proprietary
information through agreements with our customers, employees and consultants,
and through other security measures. However, despite our efforts to protect our
intellectual property, unauthorized parties may attempt to copy aspects of our
products or obtain and use information and software that we regard as
proprietary. Those parties may have substantially greater financial resources
than we have, and we may not have the resources available to challenge their use
of our proprietary technology. If we fail to adequately protect our intellectual
property, it will be easier for our competitors to sell competing products.
We may face competition from Intel if it decides to utilize its competing
patent.
Intel Corporation was issued a patent in 1997 disclosing and claiming
technology substantially similar to that disclosed in one of our key patents.
The Intel patent was filed four years after our effective filing date, and we do
not believe that the Intel patent can be validly applied to any of the
technology
9
<PAGE>
disclosed in our patent. However, given the substantial resources available to
Intel, our financial condition could suffer if we engage in a dispute with
Intel. Our business could also be harmed if Intel's patent is determined to be
valid and Intel or any licensee of Intel decides to sue our customers or develop
and commercialize products based on its patent.
Infringement claims by third parties could result in costly litigation and
otherwise adversely impact our business.
From time to time we may receive communications from third parties
asserting that our products infringe, or may infringe, the proprietary rights of
these third parties. These claims of infringement may result in protracted and
costly litigation that could require us to pay substantial damages or have sales
of our products stopped by an injunction. Infringement claims could also cause
product shipment delays, require us to redesign our products or require us to
enter into royalty or licensing agreements, any of which could harm our
business. For example, we received communications alleging that our FlashPath
products infringed a third party's patent rights. We have met with this third
party, a non-public limited liability company, to gain a better understanding of
its claim and attempted to resolve the dispute through mediation. Such mediation
did not yield a resolution to the dispute and such party subsequently filed a
complaint in the Central District Federal Court of the State of California (See
Part II, Item 1. "Legal Proceedings"). While we believe that we do not infringe
upon this third party's patent and that such claim is wholly without merit, we
cannot guarantee that the effects or outcome of this litigation will be
favorable to SmartDisk. We also received correspondence alleging that our
SafeBoot product violated another third party's intellectual property rights. We
discussed this correspondence with counsel and concluded that our product does
not infringe upon the third party's rights. In addition, we license a portion of
the intellectual property included in our products from third parties, which may
increase our exposure to infringement actions because we rely upon those third
parties for information about the origin and ownership of the licensed
intellectual property. We may also lose our license rights with respect to the
intellectual property for which infringement is claimed. Further, if our
customers are required to obtain a license on other than commercially reasonable
terms, our business could be jeopardized.
We have indemnification obligations related to our intellectual property, which
may require us to pay damages.
Our arrangements with Fuji Photo USA, Iomega, SanDisk, Sony, Toshiba
and others require us to indemnify them for any damages they may suffer if a
third party claims that we are violating their intellectual property rights.
While, to date, we have not received indemnification claims, there may be future
claims. For example, Fuji Photo USA has been named as a co-defendant in the
above referenced complaint filed in the Central District Federal Court of the
State of California. SmartDisk has agreed to indemnify Fuji Photo USA with
respect to expenses or damages incurred by Fuji Photo USA in connection with
this matter. Any indemnification claim may require us to pay substantial
damages, which could negatively impact our financial condition.
We may have particular difficulty protecting our intellectual property rights
overseas.
The laws of some foreign countries do not protect proprietary rights to
as great an extent as do the laws of the United States, and many U.S. companies
have encountered substantial infringement problems in some foreign countries.
Because many of our products are sold and a portion of our business is conducted
overseas, primarily Japan and Europe, our exposure to intellectual property
risks may be higher.
Because most of our sales are to a relatively small number of customers the loss
of any of our key customers would seriously harm our business.
Our business will be seriously harmed if we lose any of our significant
customers, particularly Apple, FujiFilm, Ingram Micro, Olympus, or Sony, or
suffer a substantial reduction in or cancellation of orders from these
customers. Our current distribution strategy results, and will continue to
result, in sales to only a limited number of customers. Some of our products are
sold as stand-alone products by OEMs and,
10
<PAGE>
to a lesser extent, are bundled together and sold with systems manufactured by
third party OEMs. For the first nine months of 2000, our top five customers
collectively accounted for approximately 54% of our revenues. Furthermore, we
expect to continue to depend on sales of our products to relatively few
customers, which will continue to account for a significant portion of our net
revenues, for the foreseeable future.
Since we sell our products to a limited number of large customers, we expect
that those customers may pressure us to make price concessions, which would
reduce our future gross margins.
Our reliance on sales to a limited number of large customers may expose
us to pressure for price concessions. Because of this reliance and because of
our dependence on OEMs as our primary distribution channel, we expect that our
OEM customers may seek price concessions from us, which would reduce our average
selling prices and our gross margins. Since we do not manufacture our own
products, we may be unable to reduce our manufacturing costs in response to
declining average per unit selling prices.
Our customers could stop purchasing our products at any time because we do not
have long-term purchase contracts with them.
No OEM or other customer is contractually obligated to purchase
products from us. As a result, our customers are free to cancel their orders or
stop ordering our products at any time. In addition, even if we are able to
demonstrate that our products are superior, OEMs may still choose not to bundle
our products with theirs or market and distribute our products on a stand-alone
basis. OEMs may also change their business strategies and manufacturing
practices, which could cause them to purchase fewer of our products, find other
sources for products we currently manufacture or manufacture these products
internally.
Our ability to sell our products will be limited if the OEMs' products do not
achieve market acceptance or if the OEMs do not adequately promote our products.
We depend upon our OEM customers to market our products and we do not
have significant experience and resources devoted to independent marketing
efforts. Failure of the OEMs' products to achieve market acceptance, the failure
of the OEMs to bundle our products with theirs, or any other event causing a
decline in our sales to the OEMs could seriously harm our business. Even if
consumers buy OEMs' products, their ultimate decision to buy our products
depends on OEM packaging, distribution and sales efforts, which may not be
sufficient to maintain or increase sales of our products. If we cannot achieve
or maintain a sufficient consumer acceptance rate of our products concurrent
with their purchases of OEM products, our future sales to OEM customers will be
adversely affected.
A new or competing data transfer solution that achieves significant market share
or receives significant support from flash memory card or digital appliance
manufacturers would jeopardize our business.
Our products currently compete with a number of cable and non-cable
interfaces between personal computers and digital appliances, including ports,
PCMCIA slots and infrared interfaces, all of which are PC peripheral interfaces.
It is possible that one of these competing data transfer solutions, or another
existing or new technology, could achieve a significant market presence or
become supported by a number of significant flash memory card or digital
appliance manufacturers. Regardless of the relative benefits of our products, if
a competing product gains significant market share or significant support of
flash card manufacturers, this product would likely emerge as the industry
standard and thereby achieve a dominant market position that would jeopardize
our survival.
We expect to continue outsourcing key operational functions and our ability to
do so will be impaired if we are unable to maintain our strategic relationships.
We have formed strategic relationships with a number of significant
industry participants, including Apple, FujiFilm, Hitachi, Iomega, Olympus,
Rohm, SanDisk, Sony, Toshiba, Visa and Yamaichi.
11
<PAGE>
We depend upon these corporations to provide technical assistance and perform
key manufacturing, marketing, distribution and other functions. For example,
Yamaichi is currently one of two manufacturers of our FlashPath products,
Toshiba and Apple provide technological assistance in the development of our
products, and Olympus and FujiFilm market our products. We expect that these and
similar types of relationships will be critical to our growth because our
business model calls for the continued outsourcing of many key operational
functions and we do not currently have the resources to perform these functions
ourselves.
We must overcome geographic and cultural differences in order to maintain our
strategic relationships.
There are inherent difficulties in developing and maintaining
relationships with foreign entities. Language and cultural differences often
impair relationships, and geographical distance, at times, is also an
impediment. If any of our current relationships is impaired, or if we are unable
to develop additional strategic relationships in the future, our product
development costs would significantly increase and our business would be
materially and adversely affected.
A portion of our sales and expenses are geographically concentrated in Japan,
and, therefore, we could suffer from exchange rate fluctuations and economic and
political difficulties.
Approximately 34% of our revenues for the first nine months of 2000
were attributable to sales to Japanese customers, and we expect that sales to
Japanese customers will continue to account for a significant portion of our
total revenues for the foreseeable future. All of our Japanese sales, as well as
the related expenses, are denominated in Japanese yen. Fluctuations in exchange
rates between the yen and the U.S. dollar, particularly with respect to Japanese
transactions denominated in a currency other than the yen, could adversely
impact our financial results. Some transactions and accounts of our Japanese and
European subsidiary are U.S. dollar denominated. Since the foreign subsidiaries'
accounting records are kept in local currency, those U.S. dollar denominated
transactions are accounted for using the local currency at the time of the
transaction. U.S. dollar denominated accounts are remeasured at the end of the
accounting period. This remeasurement results in adjustments to income. In
addition, the balance sheet accounts of our foreign subsidiaries are translated
to the U.S. dollar for financial reporting purposes and resulting adjustments
are made to stockholders equity. The value of the Japanese yen and the British
pound may deteriorate against the dollar, which would impair the value of
stockholders' investment in us. Fluctuations in the value of the Japanese yen
and the British pound against the dollar have occurred in 2000, resulting in a
foreign currency gain of approximately $101,000 and a foreign currency
translation adjustment to reduce equity for approximately $139,000. Further, we
do not currently hedge against foreign currency exposure. In the future, we
could be required to denominate our product sales in other currencies, which
would make the management of currency fluctuations more difficult and expose us
to greater currency risks.
Our foreign OEM customers may choose to work with a local competitor, which
would adversely impact our sales.
Our OEM customers, most of which are based in Japan and to whom a
significant portion of our sales are made, may choose to work with, and purchase
products from, a local competitor if one were able to provide a substitute
product. This may occur because of geographic distance, time differences, or for
other reasons. In that event, we may not be able to find other OEM customers and
our sales could decline.
We depend on a limited number of contract and offshore manufacturers, and it may
be difficult to find replacement manufacturers if our existing relationships are
impaired.
We contract with offshore manufacturers to produce some of our products
and our dependence on a limited number of contract manufacturers exposes us to a
variety of risks, including shortages of manufacturing capacity, reduced control
over delivery schedules, quality assurance, production yield and costs. For
example, Yamaichi and Mitsumi are the sole manufacturers of our FlashPath
products. We do not have contracts with Yamaichi or Mitsumi. If Yamaichi or
Mitsumi terminates production, or cannot meet
12
<PAGE>
our production requirements, we may have to rely on other contract manufacturing
sources or identify and qualify new contract manufacturers. The lead-time
required to qualify a new manufacturer could range from approximately three to
six months. Despite efforts to do so, we may not be able to identify or qualify
new contract manufacturers in a timely manner and these new manufacturers may
not allocate sufficient capacity to us in order to meet our requirements. Any
significant delay in our ability to obtain adequate quantities of our products
from our current or alternative contract manufacturers would cause our sales to
decline.
Toshiba introduced us to one of our manufacturers and we may not be able to
retain the services of the manufacturer if our relationship with Toshiba is
impaired.
Yamaichi, one of the manufacturers of our FlashPath products, was
introduced to us by Toshiba, which is one of our major stockholders. If our
relationship with Toshiba is impaired, we may not be able to retain the services
of Yamaichi in manufacturing our products.
Our dependence on foreign manufacturing and international sales exposes us to
difficulties often not encountered by exclusively domestic companies.
Many of our products are manufactured overseas and a significant
portion of our revenues is derived from overseas sales. Approximately 36% of our
revenues for the first nine months of 2000 were derived from customers located
outside the United States, primarily in Japan. Our dependence on foreign
manufacturers and international sales poses a number of risks, including:
o Difficulties in monitoring production;
o Transportation delays and interruptions;
o Unexpected changes in regulatory requirements;
o Currency exchange risks;
o Tariffs and other trade barriers, including import and export
restrictions;
o Difficulties in staffing and managing disparate branch
operations;
o Political or economic instability;
o Compliance with foreign laws;
o Difficulties in protecting intellectual property rights in
foreign countries;
o Exchange controls; and
o Potential adverse tax consequences, including with respect to
repatriation of earnings.
We intend to continue manufacturing our products overseas and we
anticipate that international sales will continue to account for a significant
portion of our revenues. Therefore, we expect to be subject to the risks
outlined above for the foreseeable future.
We have a limited number of suppliers of key components and our ability to
produce finished products will be impaired if we are unable to obtain sufficient
quantities of some components.
Rohm is our sole provider of application specific integrated circuits,
or ASICs, for our FlashPath products and we purchase ASICs for Smarty from Rohm
and Atmel. In our products, the specific function of these integrated circuits
is the conversion of digital and analog data. In addition, Iomega is a sole
source supplier of Zip drives, and LSI Logic is our primary supplier of ASICs
for our FireWire products. Our dependence on a limited number of suppliers and
our lack of long-term supply contracts exposes us to
13
<PAGE>
several risks, including a potential inability to obtain an adequate supply of
components, price increases, late deliveries and poor component quality.
Disruption or termination of the supply of components could delay shipments of
our products. The lead-time required for orders of some of our components is as
much as six months. In addition, the lead-time required to qualify new suppliers
for our components is as much as 12 months. If we are unable to accurately
predict our component needs, or if our component supply is disrupted, we may
miss market opportunities by not being able to meet the demand for our products.
This may damage our relationships with current and prospective customers.
Our current and potential competitors have significantly greater resources than
we do, and increased competition could harm sales of our products.
Increased competition is likely to result in price reductions, reduced
operating margins and loss of market share. Many of our current and potential
competitors have significantly greater financial, technical, marketing,
purchasing and other resources than we do. As a result, our competitors may be
able to respond more quickly to new or emerging technologies or standards and to
changes in customer requirements. Our competitors may also be able to devote
greater resources to the development, promotion and sale of products, and may be
able to deliver competitive products at a lower end-user price. Current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of our prospective customers. Therefore, it
is possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.
Our business may suffer if we are unable to manage our growth.
Failure to effectively manage our growth could impair our ability to
execute our business strategy. Our business has grown substantially in recent
periods, with revenues increasing from approximately $15.3 million in 1998 to
approximately $81 million for the first nine months of 2000. The growth of our
business has placed a strain on our management, operations and financial
systems. In addition, the number of employees has increased from 16 at January
1, 1998 to 133 as of September 30, 2000. We expect to continue to increase the
number of employees as our business grows, and may expand operations to
locations other than those in which we currently operate.
Continued growth is likely to place a greater burden on our operating
and financial systems as well as our senior management and other personnel.
Existing and new members of management may not be able to improve existing
systems and controls or implement new systems and controls in response to
anticipated growth. Management of our operations in diverse locations may also
complicate the task of managing our growth.
We may not be able to integrate the business of companies we acquire and
therefore these acquisitions may not provide additional value to our
stockholders.
We continually evaluate potential acquisitions of complementary
businesses, products and technologies. We acquired VST Technologies, Inc., based
in Acton, Massachusetts, in March 2000. We may not realize the desired benefits
of this transaction or of future transactions. In order to successfully
integrate acquired companies we must, among other things:
o Continue to attract and retain key management and other
personnel;
o Integrate the acquired products from both an engineering and
sales and marketing prospective;
o Establish a common corporate culture; and
o Integrate geographically distant facilities, systems and
employees.
14
<PAGE>
If our management's attention to day-to-day operations is diverted to
integrating acquired companies or if problems in the integration process arise,
our business could be adversely affected and we could be required to use a
significant portion of our available cash. If an acquisition is made utilizing
our securities, a significant dilution to our stockholders and significant
acquisition related charges to earnings could occur.
Our acquisition of VST was dilutive and we expect that our earnings per
share will remain negative for the foreseeable future as a result of the VST
acquisition. We may incur additional charges in the future resulting from
redundancies in product lines, customer lists and sales channels associated with
these acquisitions. Acquisitions may also cause us to incur or assume additional
liabilities or indebtedness, including liabilities that are unknown or not fully
known to us at the time of the acquisition, which could have an adverse effect
on us. Furthermore, we cannot assure that any products we acquire in connection
with any acquisition will gain acceptance in our markets.
Some of our products may be returned to us by our OEM customers if projected
consumer demand does not materialize, which would lead to a reduction in our
revenues.
Lack of consumer demand for our products may result in efforts by OEMs
to return products to us. While we are contractually obligated to accept
returned products from our OEMs only on a limited basis, we may determine that
it is in our best interest to accept returns in order to maintain good relations
with them. Product returns would reduce our revenues. While we have experienced
very limited product returns to date, returns may increase in the future.
We could be held liable for product defects, which could require us to pay
substantial damages and harm our reputation with our customers.
Complex products such as ours can contain errors, defects and bugs when
first introduced or as new versions are released. Delivery of products with
production defects or reliability, quality or compatibility problems could
hinder market acceptance of our products, which could damage our reputation and
harm our ability to attract and retain customers. Errors, defects or bugs could
also cause interruption, delays or a cessation of sales to our customers, and
could subject us to warranty claims from our customers. We would have to expend
significant capital and resources to remedy these problems. Errors, defects or
bugs could be discovered in our new products after we begin commercial
production of them, despite testing by us and our suppliers and customers. This
could result in additional development costs, loss of, or delays in, market
acceptance, diversion of technical and other resources from our other
development efforts, claims by our customers or others against us or the loss of
credibility with our current and prospective customers.
Our management team has only recently been assembled and may not be able to work
together as a cohesive unit.
Our Chief Financial Officer, Senior Vice President, Japanese
Operations, Vice President, Corporate Development and Legal Affairs, and Vice
President, Audio/Video Products, all joined us during 1999 and our Chief
Technology Officer and Senior Vice President and General Manager, Personal
Storage Systems, joined us in March 2000. There is the possibility that our
management team may not be able to work together as a cohesive unit.
Our executive officers and key personnel are critical to our business, and these
officers and personnel may not remain with us in the future.
We depend upon the continuing contributions of our key management, sales and
product development personnel. The loss of any of those personnel could
seriously harm us. Although some of our officers are subject to employment
agreements, we cannot be sure that we will retain their services. In addition,
we have not obtained key-person life insurance on any of our executive officers
or key employees.
15
<PAGE>
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of
common stock by the selling stockholders hereunder. We estimate that our
expenses in connection with this offering will be approximately
$41,000.
SELLING STOCKHOLDERS
The following table provides information regarding the ownership of our
common stock by the selling stockholders as of the date of this prospectus and
as adjusted to reflect the sale of all of their shares. Our registration of
these shares does NOT necessarily mean that the selling stockholders will sell
any or all of the shares. Many of the selling stockholders are former
stockholders of VST Technologies, Inc. and Impleo Limited and acquired their
shares of our common stock in connection with our acquisitions of VST and
Impleo.
Except as described in this paragraph, none of the selling stockholders
have had any position, office or other material relationship with us (other than
in connection with the acquisition of VST or Impleo) within the past three
years. Mr. Fedele currently serves as our Chief Technology Officer and Mr.
Giarrusso currently serves as Senior Vice President and General Manager,
Personal Storage Systems. The selling stockholders who are former stockholders
of VST or Impleo are participating in this offering pursuant to contractual
registration rights granted to them in connection with the acquisitions of VST
and Impleo. In connection with the VST and Impleo acquisitions, we agreed to
file and maintain the effectiveness of the registration statement of which this
prospectus forms a part and to pay all fees and expenses incident to the
registration of this offering, including all registration and filing fees, all
fees and expenses of complying with state blue sky or securities laws, all costs
of preparation of the registration statement and fees and disbursements of our
counsel and independent public accountants. In addition, Fischer International
Systems Corporation and SCM Microsystems, Inc. are participating in this
offering pursuant to contractual registration rights under which we have agreed
to register the shares they are offering hereunder and to pay all fees and
expenses incident to the registration of this offering, including all
registration and filing fees, all fees and expenses of complying with state blue
sky or securities laws, all costs of preparation of the registration statement
and fees and disbursements of our counsel and independent public accountants.
<TABLE>
<CAPTION>
Number of
Ownership Prior Shares Ownership After
to the Offering Offered(1) the Offering
------------------------ ---------- ---------------------
Name Shares Percentage Shares Percentage
---- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Add Venture Associates(2)............... 12,397 * 12,397 -- --
Mark S. Ain(2).......................... 5,913 * 5,913 -- --
Alson Partners III(2)................... 44,958 * 44,958 -- --
Henry Appelbaum(2)...................... 13,863 * 13,863 -- --
Ascent Venture Partners, L.P.(2)........ 14,733 * 14,733 -- --
Ascent Venture Partners II, L.P.(2)..... 147,360 * 147,360 -- --
David Atkinson(3)....................... 8,624 * 8,624 -- --
Michael G. Balog(2)..................... 1,252 * 1,252 -- --
Gordon G. Bell(2)....................... 2,042 * 2,042 -- --
Martin Boorstein(2)..................... 680 * 680 -- --
John Boyne(3)........................... 6,468 * 6,468 -- --
Lawrence Owen Brown Family Trust(2)..... 3,763 * 3,763 -- --
CIBC Oppenheimer........................ 33,900 * 33,900 -- --
John Constantino(2)..................... 680 * 680 -- --
Derek Cook(3)........................... 1,078 * 1,078 -- --
Anne Cowen(3)........................... 4,312 * 4,312 -- --
Henry Crouse(2)......................... 7,645 * 7,645 -- --
Stephen Darragh(3)...................... 3,234 * 3,234 -- --
Richard Dumler(2)....................... 2,826 * 2,826 -- --
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Number of
Ownership Prior Shares Ownership After
to the Offering Offered(1) the Offering
------------------------ ---------- ---------------------
Name Shares Percentage Shares Percentage
---- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
George Dundon(3)........................ 1,078 * 1,078 -- --
Vincent Fedele (2)(4)(5)................ 228,501 1.3 32,554 195,957 1.1
Fischer International Systems
Corporation(6)........................ 66,250 * 66,250 -- --
Esther Flawn(3)......................... 10,780 * 10,780 -- --
Germanium Power Devices Corp.(2)........ 7,859 * 7,859 -- --
Germanium Power Devices Corp. Profit
Sharing Trust Group F(2).............. 10,998 * 10,998 -- --
James M. Giarrusso(2)(5)(7)............. 91,166 * 10,510 80,656 *
Deidre Giese(3)......................... 2,156 * 2,156 -- --
Green Mountain Capital, L.P.(2)......... 28,597 * 28,597 -- --
Allen Greenberg(2)...................... 680 * 680 -- --
H & D Investments II, LP(2)............. 6,647 * 6,647 -- --
Carl Hayesmore(3)....................... 2,156 * 2,156 -- --
Christopher Higginson(3)................ 2,156 * 2,156 -- --
Tiel Holdstock(3)....................... 8,624 * 8,624 -- --
Margaret Houlahan(2).................... 5,927 * 5,927 -- --
Shawna Hunter(2)........................ 1,251 * 1,251 -- --
Margaret Johns(2)....................... 975 * 975 -- --
Eric T. Johnson(2)...................... 13,955 * 13,955 -- --
Justine E. Johnson(2)................... 13,955 * 13,955 -- --
Alan Jones(3)........................... 9,918 * 9,918 -- --
Deborah Norford Jones(3)................ 21,561 * 21,561 -- --
Keystone Venture V, L..P.(2)............ 277,142 1.6 277,142 -- --
Donna Kirby(3).......................... 2,156 * 2,156 -- --
Le Serre(2)............................. 1,711 * 1,711 -- --
Michael Mark(2)......................... 7,461 * 7,461 -- --
Massachusetts Technology Development
Corporation(2)........................ 55,809 * 55,809 -- --
Grant Morgan(3)......................... 16,170 * 16,170 -- --
Anthony P. Morris(2).................... 4,867 * 4,867 -- --
Leonard & Dena Oppenheim Revocable
Trust(2).............................. 3,906 * 3,906 -- --
Rhovin Engineering Pension Plan(2)...... 4,702 * 4,702 -- --
Jack C. Rich(2)......................... 561 * 561 -- --
Rufus R. Ward(2)........................ 1,568 * 1,568 -- --
Scobie D. Ward(2)....................... 3,923 * 3,923 -- --
Richard Scherr(2)....................... 1,949 * 1,949 -- --
SCM Microsystems, Inc................... 312,500 1.8 312,500 -- --
SCM Microsystems Limited(3)............. 24,579 * 24,579 -- --
T & B Investors, LLC(2)................. 76,770 * 76,770 -- --
William Thalheimer(2)................... 16,089 * 16,089 -- --
Zero Stage Capital V, L.P.(2)........... 190,590 1.1 190,590 -- --
</TABLE>
-------------------------
* Represents ownership of less than 1%.
17
<PAGE>
(1) The actual number of shares of common stock offered hereby and included in
the registration statement of which this prospectus forms a part includes,
pursuant to Rule 416 under the Securities Act, such additional number of
shares of common stock as may be issuable in connection with the shares
registered for sale hereby resulting from stock splits, stock dividends,
recapitalizations or similar transactions.
(2) A portion of the shares listed as beneficially owned by each selling
stockholder has been deposited in an escrow account in connection with the
VST acquisition to secure the respective indemnification obligations of the
selling stockholders thereunder. These escrow shares are to be released
from escrow and delivered to the selling stockholders not later than March
6, 2001 to the extent that no claims have been made against the escrow.
This registration statement and the sums indicated in the column entitled
"Number of Shares Offered" include all of the escrow shares.
(3) The shares listed were issued in connection with the Impleo acquisition.
Includes an aggregate of up to 32,340 shares the we have agreed to issue as
deferred consideration to certain of these selling stockholders, subject to
satisfaction of specified conditions. Of that amount, we will issue to the
following individual selling stockholders up to the following amounts:
David Atkinson 4,311; John Boyne 3,234; Anne Cowen 2,159; Stephen Darragh
1,617; Esther Flawn 5,393; Donna Kirby 1,077; Grant Morgan 8,085; Tiel
Holdstock 4,311; Carl Hayesmore 1,077; and Christopher Higginson 1,077. The
shares issuable to each of these selling stockholders will, subject to
satisfaction of specified conditions, be issued in three equal installments
on each of April 6, 2001, October 6, 2001 and April 6, 2002.
(4) Includes 175,048 shares subject to options either currently exercisable
or exercisable by Mr. Fedele within 60 days of the date of this
prospectus, 5,955 shares owned by Mr. Fedele's wife Cheryl Fedele and 3,522
shares owned by each of Allysa Fedele, Brent Fedele and Rebecca Fedele,
Mr. Fedele's minor children. Mr. Fedele disclaims beneficial ownership
of the shares owned by his wife and minor children. Of the shares listed as
offered by Mr. Fedele, 16,521 are offered by his wife and minor
children.
(5) A portion of the selling stockholder's shares are subject to repurchase in
the event he ceases to serve as an employee, consultant and/or director to
us or any of our subsidiaries and may not be sold until this repurchase
right lapses. The repurchase right lapses as to one-third of the shares
subject to repurchase on each of March 6, 2001, September 6, 2001 and March
6, 2002, or earlier in certain circumstances.
(6) Fischer International Systems Corporation is controlled by Addison Fischer,
the Chairman of our Board of Directors. Mr. Fischer beneficially owns
6,509,701 shares, including 5,952,144 shares held of record by Phoenix
House Investments, L.P., which he also controls.
(7) Includes 40,242 shares subject to options either currently exercisable
or exercisable by Mr. Giarrusso within 60 days of the date of this
prospectus, 5,255 shares owned by Mr. Giarrusso's daughter Catherine
Giarrusso and 5,255 shares held by Mr. Giarrusso as custodian for his
minor son Mathew Giarrusso. Mr. Giarrusso disclaims beneficial
ownership of the shares owned by his daughter and minor son. The 10,510
shares listed as offered by Mr. Giarrusso are offered by his daughter
or on behalf of his minor son.
18
<PAGE>
PLAN OF DISTRIBUTION
General
As used in this prospectus, the term "selling stockholders" includes
the pledgees, donees, transferees and their successors in interest that receive
the shares as a gift, partnership distribution or other non-sale related
transfer.
Transactions. The selling stockholders may offer and sell their shares
of common stock in one or more of the following transactions:
o on the Nasdaq National Market,
o in the over-the-counter market,
o in privately negotiated transactions,
o for settlement of short sales, or through long sales, options
or transactions involving cross or block trades,
o by pledge to secure debts and other obligations, or
o in a combination of any of these transactions.
Prices. The selling stockholders may sell their shares of common stock
at any of the following prices:
o fixed prices which may be changed,
o market prices prevailing at the time of sale,
o prices related to prevailing market prices, or
o privately negotiated prices.
Direct Sales; Agents, Dealers and Underwriters. The selling
stockholders may effect transactions by selling their shares of common stock in
any of the following ways:
o directly to purchasers, or
o to or through agents, brokers, dealers or underwriters
designated from time to time.
Agents, dealers or underwriters may receive compensation in the form of
underwriting discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom they act as agent or to whom they sell
as principals, or both. The selling stockholders and any agents, dealers or
underwriters that act in connection with the sale of shares might be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any discount or commission received by them and any profit on the resale of
shares as principal might be deemed to be underwriting discounts or commissions
under the Securities Act. Because the selling stockholders might be deemed to be
underwriters, the selling stockholders will be subject to the prospectus
delivery requirements of the Securities Act.
Each selling stockholder will be subject to applicable provisions of
the Exchange Act and the associated rules and regulations under the Exchange
Act, including Regulation M, which provisions may limit the timing of purchases
and sales of shares of our common stock by the selling stockholders.
In addition, any shares that qualify for sale pursuant to Rule 144
under the Securities Act may be sold under Rule 144 rather than pursuant to this
prospectus.
Supplements. To the extent required, we will set forth in a supplement
to this prospectus filed with the SEC the number of shares to be sold, the
purchase price and public offering price, the name or names of any agent, dealer
or underwriter, and any applicable commissions or discounts with respect to a
particular offering. In
19
<PAGE>
particular, upon being notified by a selling stockholder that a donee or pledgee
intends to sell more than 500 shares, we will file a supplement to this
prospectus.
State Securities Law. Under the securities laws of some states, the
selling stockholders may only sell the shares in those states through registered
or licensed brokers or dealers. In addition, in some states the selling
stockholders may not sell the shares unless they have been registered or
qualified for sale in that state or an exemption from registration or
qualification is available and is satisfied.
Expenses; Indemnification. We will not receive any of the proceeds from
the sale of the common stock sold by the selling stockholders and will bear all
expenses related to the registration of this offering but will not pay for any
underwriting commissions, fees or discounts, if any. We will indemnify the
selling stockholders who are former stockholders of VST or Impleo and acquired
their shares in connection with our acquisition of VST or Impleo, as well as
Fischer International System Corporation and SCM Microsystems, Inc., against
some civil liabilities, including some liabilities which may arise under the
Securities Act.
LEGAL MATTERS
Some legal matters with respect to the common stock offered under this
prospectus will be passed upon for SmartDisk Corporation by Greenberg Traurig,
P.A., Miami, Florida.
EXPERTS
Ernst & Young LLP, independent certified public accountants, have
audited our consolidated financial statements and schedule included in our
Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended
December 31, 1999, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements and schedule are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
The financial statements of VST Technologies, Inc. as of December 31,
1998 and 1999 and for the three years then ended incorporated by reference in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
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 rooms located at 450 5th Street, N.W., Washington,
D.C. 20549, at Seven World Trade Center, 13th Floor, New York, New York 10048
and at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. 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. You can also inspect
reports and other information we file at the offices of the Nasdaq Stock Market,
Inc., 1735 K Street, Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" some of the documents
we file with it into this prospectus, which means:
o we can disclose important information to you by referring you
to those documents.
o the information incorporated by reference is considered to be
part of this prospectus, and
o later information that we file with the SEC will automatically
update and supersede this information.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Exchange Act.
20
<PAGE>
(1) our Annual Report on Form 10-K, as amended by Form 10-K/A, for the
fiscal year ended December 31, 1999;
(2) our Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 2000, June 30, 2000 and September 30, 2000;
(3) our Current Reports on Form 8-K filed on March 21, 2000, Form 8-K filed
on May 5, 2000, Form 8-K/A filed on May 8, 2000 and Form 8-K/A filed on
May 11, 2000;
(4) all other reports filed by us pursuant to Section 13(a) or 15 (d) of
the Exchange Act since December 31, 1999;
(5) our definitive Proxy Statement, dated April 19, 2000, filed in
connection with our 2000 Annual Meeting of Stockholders; and
(6) the description of our common stock filed as part of our Registration
Statement on Form 8-A dated September 7, 1999 (Registration No. 000-27257).
We will provide without charge to each person, including any beneficial
owner, to whom a prospectus is delivered, upon written or oral request of that
person, a copy of any and all of the information that has been incorporated by
reference in this prospectus (excluding exhibits unless specifically
incorporated by reference into those documents). Please direct requests to us at
the following address:
SmartDisk Corporation
3506 Mercantile Avenue
Naples, Florida 34104
(941) 436-2500
Attn: Daniel E. Reed
This prospectus is part of a registration statement we filed with the
SEC. You should only rely on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The selling stockholders are not
offering the common stock in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any supplement is
accurate as of any date other than the date on the front of those documents.
---------------
As used in this prospectus, unless the context requires otherwise, (i)
"Securities Act" means the Securities Act of 1933, as amended, and (ii)
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the offering are as follows:
Securities and Exchange Commission Registration Fee........ $ 2,290
Legal Fees and Expenses.................................... $ 13,000
Accounting Fees and Expenses............................... $ 15,000
Printing and Engraving Expenses............................ $ 10,000
Registrar and Transfer Agents Fees and Expenses............ $ 500
Miscellaneous.............................................. $ 210
-----------
Total.................................................. $ 41,000
===========
All amounts except the Securities and Exchange Commission registration
fee are estimated.
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court
to award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Our
bylaws provide for mandatory indemnification of our directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. Our certificate of
incorporation provides that, pursuant to Delaware law, our directors shall not
be liable for monetary damages for breach of the directors' fiduciary duty as
directors to us and our stockholders. This provision in the certificate of
incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to us for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. In addition, we have entered into
Indemnification Agreements with our officers and directors, the form of which is
attached as Exhibit 10.22 hereto and incorporated herein by reference. The
Indemnification Agreements provide our officers and directors with further
indemnification to the maximum extent permitted by the Delaware General
Corporation Law.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger among SmartDisk, VST Acquisition Corp., Inc., VST Technologies, Inc.
and certain stockholders of VST Technologies, Inc. (2.0)(2)
3.1 Certificate of Incorporation (3.1)(1)
3.2 Bylaws (3.2)(1)
5.1 Opinion of Greenberg Traurig, P.A.**
10.1 1998 Employee Stock Option Plan (10.1)(1)
10.2 1998 Directors and Consultants Stock Option Plan (10.2)(1)
10.3 1999 Incentive Compensation Plan (10.3)(5)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.4 1999 Employee Stock Option Plan (10.4)(1)
10.5 Employment Agreement with Michael S. Battaglia (10.5)(4)
10.6 Employment Agreement with Robert Protheroe (10.6)(1)
10.7 Employment Agreement with Quresh Sachee (10.7)(4)
10.8 Employment Agreement with Vincent Fedele*
10.9 Employment Agreement with James M. Giarrusso*
10.10 License Agreement dated May 26, 1998 between Toshiba Corporation
and SmartDisk, as amended (10.8)(1)
10.11 Operating Agreement dated May 28, 1998 between Fischer
International System Corporation and SmartDisk, as
amended (10.9)(1)
10.12 License and Distribution Agreement dated May 28, 1998 between
SmartDisk and Fischer International Systems
Corporation (10.10)(1)
10.13 Distribution Agreement dated May 28, 1998 between Fischer
International Systems Corporation (10.11)(1)
10.14 Investors' Rights Agreement dated May 22, 1998 among
SmartDisk and each of the investors a party thereto (10.12)(1)
10.15 Amendment Number One to Investors' Rights Agreement dated July
1999 among SmartDisk and each of the investors a party
thereto (10.13)(3)
10.16 Management Registration Rights Agreement dated March 6, 2000 among
SmartDisk and certain former stockholders of VST Technologies,
Inc.*
10.17 Non-Management Registration Rights Agreement dated March 6, 2000
among SmartDisk and certain former stockholders of VST
Technologies, Inc.*
10.18 Lease Agreement dated October 4, 1993 between Arnold Industrial
Park and SmartDisk, by assignment (10.13)(1)
10.19 Development and License Agreement dated June 30, 1999 between
SmartDisk and SanDisk Corporation (10.14)(1)+
10.20 Development and License Agreement dated December 1, 1999 between
SmartDisk and Sony Corporation (10.16)(3)
10.21 Cooperative Development Agreement dated June 30, 1999 between
SmartDisk and SanDisk Corporation (10.15)(1)+
10.22 Form of Indemnification between the Registrant and each of its
directors and executive officers (10.16)(1)
10.23 Joint Venture Agreement dated as of February 24, 1998 by and among
Phoenix House Investments, L.L.C., Toshiba Corporation and
SmartDisk (10.17)(1)
10.24 Amendment No. 2 to License Agreement dated April 1, 1999 between
Toshiba Corporation and SmartDisk (10.20)(4)
10.25 Agreement for the exchange of the whole of the issued share
capital of Impleo Limited dated April 28, 2000 among SmartDisk and
the stockholders of Impleo Limited (10.25)(5)
21.1 Subsidiaries of SmartDisk*
23.1 Consent of Greenberg Traurig, P.A. (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP**
23.3 Consent of Arthur Andersen LLP**
24.1 Power of Attorney (set forth on the signature page of this
Registration Statement)*
</TABLE>
II-2
<PAGE>
-------------------------
(1) Incorporated by reference to the exhibit in the preceding parentheses
as filed with SmartDisk's registration statement on Form S-1
(Registration No. 333-82793).
(2) Incorporated by reference to the exhibit in the preceding parentheses
as filed with SmartDisk's Current Report on Form 8-K (filed March 21,
2000).
(3) Incorporated by reference to the exhibit in the preceding parentheses
as filed with SmartDisk's Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 000-27257).
(4) Incorporated by reference to the exhibit in the preceding parentheses
as filed with Amendment No. 1 to SmartDisk's Annual Report on Form
10-K/A for the year ended December 31, 1999 (File No. 000-27257).
(5) Incorporated by reference to the exhibit in the preceding parentheses
as filed with SmartDisk's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 (File No. 000-27257).
* Previously filed
** Filed herewith
+ Certain information in these exhibits has been omitted pursuant to a
request for confidential treatment filed with the SEC.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) to reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement; and
(iii) to include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement;
(2) that, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona
fide offering thereof, and
(3) to remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Exchange Act
of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 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
II-3
<PAGE>
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 whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Naples, State of Florida, on November 17, 2000.
SMARTDISK CORPORATION.
By:/s/ Michael S. Battaglia
------------------------------------------
Michael S. Battaglia
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
amendment has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Addison M. Fischer* Chairman and Director November 17, 2000
----------------------------------------
Addison M. Fischer
President, Chief Executive Officer and
/s/ Michael S. Battaglia Director November 17, 2000
---------------------------------------- (Principal Executive Officer)
Michael S. Battaglia
/s/ Michael R. Mattingly* Chief Financial Officer November 17, 2000
---------------------------------------- (Principal Financial and Accounting
Michael R. Mattingly Officer)
Director
----------------------------------------
D. James Bidzos
/s/ Anthony A. Ibarguen* Director November 17, 2000
----------------------------------------
Anthony A. Ibarguen
Director
----------------------------------------
Hirotsugu Nakaiwa
/s/ Timothy Tomlinson* Director November 17, 2000
----------------------------------------
Timothy Tomlinson
Director
----------------------------------------
Joseph M. Tucci
/s/ Hatim Tyabji* Director November 17, 2000
----------------------------------------
Hatim Tyabji
* By: /s/ Michael S. Battaglia
-------------------------------------
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
------- -----------
5.1 Opinion of Greenberg Traurig, P.A.
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Andersen LLP
