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FILING PURSUANT TO RULE 424(B)(2)
REGISTRATION STATEMENT NO. 333-41262
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 12, 2000)
665,652 SHARES
FATBRAIN.COM, INC.
COMMON STOCK
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You should read this prospectus supplement and the accompanying prospectus
carefully before you invest. Both documents contain information you should
consider when making your investment decision.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THE PROSPECTUS TO READ ABOUT
FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
PLAN OF DISTRIBUTION
We are offering 554,710 shares of our common stock to an institutional
investor pursuant to this prospectus supplement. The common stock will be
purchased at a negotiated purchase price of $3.6055 per share. The $3.6055
purchase price reflects the recent volume weighted average price of our common
stock on the Nasdaq National Market (subject to a previously negotiated
threshold price), net of an 4% discount. In connection with this transaction, we
are offering warrants to purchase 110,942 shares of our common stock to this
same institutional investor. The warrants have an exercise price of $4.3266,
which reflects 120% of the $3.6055 purchase price of the common stock. We will
not pay any other compensation in conjunction with this sale of our common
stock. We have agreed to indemnify this institutional investor against
liabilities, including liabilities under the Securities Act of 1933.
USE OF PROCEEDS
The net proceeds to us from this offering will be approximately $2,000,000.
We plan to use the net proceeds for general corporate purposes, including:
- repaying our obligations as they become due; and
- working capital.
Pending use of the net proceeds for any of these purposes, we may invest
the net proceeds in short-term investment grade instruments, interest-bearing
bank accounts, certificates
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of deposit, money market securities, U.S. government securities or
mortgage-backed securities guaranteed by federal agencies.
MARKET FOR OUR COMMON STOCK
On September 12, 2000, the last reported sales price of our common shares
on the Nasdaq National Market was $3.8125 per share. Our common stock is listed
on the Nasdaq National Market under the symbol "FATB". The common stock sold
under this prospectus supplement will be listed on the Nasdaq National Market
after we notify the Nasdaq National Market that the shares have been issued.
As of September 8, 2000 and before the issuance of shares pursuant to this
prospectus supplement, we have 13,648,457 shares of common stock outstanding.
GENERAL
You should rely only on the information provided or incorporated by
reference in this prospectus supplement and the prospectus. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus supplement is accurate as of any
date other than the date on the front of these documents.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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The date of this prospectus supplement is September 13, 2000.
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SUBJECT TO COMPLETION, DATED JULY 12, 2000
PRELIMINARY PROSPECTUS
[FATBRAIN.COM LOGO]
FATBRAIN.COM, INC.
Common Stock
Warrants to Purchase Common Stock
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We may from time to time sell up to $20,000,000 in the aggregate of:
- shares of our common stock, par value $0.001 per share; and
- warrants to purchase our common stock.
We will provide specific terms for the sale of the common stock in
supplements to this prospectus. You should read this prospectus and the
applicable prospectus supplement carefully before you invest.
Our common stock is traded on the Nasdaq National Market under the
symbol "FATB." On July 6, 2000, the closing price of one share of our common
stock was $6 7/8.
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INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
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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.
We will sell these securities directly to our shareholders or to
purchasers or through agents on our behalf or through underwriters or dealers as
designated from time to time. If any agents or underwriters are involved in the
sale of any of these securities, the applicable prospectus supplement will set
forth the names of the agents or underwriters and any applicable fees,
commissions or discounts.
This prospectus may not be used to consummate sales of securities unless
accompanied by the applicable prospectus supplement.
The date of this prospectus is July 12, 2000.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
About this Prospectus....................................................... 3
The Company................................................................. 3
Risk Factors................................................................ 3
Use of Proceeds............................................................. 13
Dividend Policy............................................................. 13
General Description of Securities........................................... 13
Description of Warrants..................................................... 13
Plan of Distribution........................................................ 14
Legal Matters............................................................... 15
Experts..................................................................... 15
Where You Can Find More Information......................................... 16
Statements Regarding Forward-Looking Information............................ 17
</TABLE>
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ABOUT THIS PROSPECTUS
Unless the context otherwise requires, the terms "we," "our," "us," "the
company" and "Fatbrain" refer to Fatbrain.com, Inc., a Delaware corporation.
Fatbrain and the Fatbrain logo are our registered trademarks. Other trademarks
and trade names appearing in this prospectus are the property of their holders.
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission utilizing a "shelf" registration process.
Under this shelf process, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a total dollar
amount of $20,000,000. This prospectus provides you with a general description
of the securities we may offer. Each time we sell securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement also may add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information described
under the heading "Where You Can Find More Information." We may only use this
prospectus to sell securities if it is accompanied by a prospectus supplement.
The registration statement that contains this prospectus, including the
exhibits to the registration statement, contains additional information about us
and the securities offered under this prospectus. That registration statement
can be read at the Commission's web site or at the Commission's offices
mentioned under the heading "Where You Can Find More Information."
THE COMPANY
We were incorporated in November 1994. We are the leading online
retailer of information resources singularly focused on technical and business
professionals. In addition to our product offerings, our online store features
authoritative and compelling content, competitive pricing, an easy-to-use
navigational interface and a variety of value-added services. We also operate
two physical retail stores that complement our online business by generating
increased online traffic and creating cross-promotional opportunities. We
recently introduced eMatter, a secure digital publishing solution that allows
authors and publishers to publish and sell their works online, providing a
global distribution channel for works of all kinds, including books, magazines
and articles. Our principal executive offices are located at 2550 Walsh Avenue,
Santa Clara, California 95051, and our telephone number is (408) 845-0100.
RISK FACTORS
An investment in the securities involves a high degree of risk. You
should carefully consider the information contained under the heading "Risk
Factors" in the applicable supplement to this prospectus before investing in our
common stock or warrants to purchase our common stock. Our business and results
of operations could be seriously harmed by any of the risks described in the
applicable supplement to this prospectus. The trading price of our common stock
could decline due to any of these risks, and you may lose all or part of your
investment.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAY PREVENT US FROM ACHIEVING SUCCESS IN
OUR BUSINESS
We were incorporated in November 1994 to develop an online retail strategy, and
we began selling information resources, initially consisting of technical books,
through our online store on the World Wide Web, or the Web, in February 1996. We
expanded our product offerings to include training materials in January 1998,
corporate documentation in May 1998 and professional resources for the
engineering, science, mathematics and financial services industries in March
1999. We introduced eMatter, a secure digital publishing technology that allows
authors and publishers to publish and sell works online, in October 1999. More
recently, we have introduced
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our Information Exchange product suite, as well as information resources for the
medical and biotechnology industries. In March 2000, we launched MightyWords, a
subsidiary created to take advantage of the mass market opportunities presented
by the eMatter digital publishing initiative. As a result, we have a very
limited operating history from which to evaluate our business and prospects.
Our prospects must be considered in light of the risks, expenses and
uncertainties frequently encountered by companies in the early stages of
development, particularly companies in new and rapidly evolving markets,
including electronic commerce. These risks may include:
~ an evolving and unpredictable business model;
~ management of an expanding business;
~ fluctuations in sales and seasonality;
~ entry into new business areas;
~ competition;
~ need for additional personnel and dependence on key personnel;
~ limitations on our ability to establish and expand our brand;
and
~ capacity constraints and system failures.
To address these risks, we must, among other things:
~ implement and successfully execute our business and marketing
strategy;
~ maintain and increase our customer base;
~ continue to develop and upgrade our technology and
transaction-processing systems; ~ improve our online store;
~ provide superior customer service and order fulfillment;
~ respond to competitive developments; and
~ attract, retain and motivate qualified personnel.
We may not successfully address these challenges and the failure to do so could
seriously harm our business, financial condition, operating results and cash
flows.
WE HAVE INCURRED LOSSES AND WE EXPECT FUTURE LOSSES
Since inception, we have incurred significant net operating losses and
expect to incur additional net operating losses for the foreseeable future. We
may not achieve profitability and if achieved, profitability may not be
sustained. As of April 30, 2000, we had an accumulated deficit of $57.1 million.
We believe that our success will depend in large part on our ability to:
~ integrate our Information Exchange suite of products into our
business;
~ enhance our customers' online shopping experience;
~ expand corporate relationships and establish and utilize
supplier relationships;
~ build brand awareness;
~ capitalize on the market for information resources;
~ maintain our technology focus and expertise; and
~ expand our expertise in the engineering, science, mathematics,
financial services, medical and biotechnology industries.
As a result, we intend to invest heavily in our direct sales and
telesales organizations, systems and infrastructure development, and marketing
and promotion. These expenditures may not result in increased revenues or
customer growth. Additionally, while in recent periods we have experienced
significant growth in revenues, our customer base and repeat customer revenue,
these growth rates are not sustainable. These growth rates will decrease in the
future and are not indicative of actual growth rates that we may experience.
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Our quarterly operating results are volatile and future operating
results remain uncertain.
Our quarterly operating results have varied significantly in the past
and will likely vary significantly in the future. Our future quarterly operating
results may vary significantly due to a variety of factors, many of which are
outside our control. Factors that could affect our quarterly operating results
include:
~ our ability to establish and expand brand awareness;
~ our ability to retain existing customers, attract new customers
and continuously improve customer satisfaction;
~ our ability to manage inventory and fulfillment operations;
~ our ability to sustain or improve gross margin levels;
~ the announcement or introduction of new online stores, services
and products by us or our competitors;
~ price competition or higher wholesale prices in the industry;
~ the level of usage of and commerce on the Internet and online
services generally;
~ our ability to upgrade and develop our systems and
infrastructure in a timely and effective manner;
~ technical difficulties, system downtime or Internet brownouts;
~ the amount and timing of operating costs and capital
expenditures relating to expansion of our business, operations
and infrastructure;
~ the introduction of new product lines, including eMatter; and
~ governmental regulation.
We are unable to accurately forecast our future revenues because of our
limited operating history and the emerging nature of the markets in which we
compete. Revenues and operating results generally depend on the volume of,
timing of and ability to fulfill orders received. These factors have
historically been, and are likely to continue to be, difficult to forecast. Our
current and future expense levels are based largely on our operating plans and
estimates of future revenues and are, to a large extent, fixed. We may be unable
to adjust spending sufficiently quickly to compensate for any unexpected revenue
shortfall. As a result, any significant shortfall in revenues in relation to our
planned expenditures could seriously harm our business, financial condition,
operating results and cash flows. Further, we may, from time to time, make
selected pricing, product, service or marketing decisions as a strategic
response to changes in the competitive environment. These changes could also
seriously harm our business, financial condition, operating results and cash
flows.
Further, we have, in the past, experienced seasonality in our business,
and we expect that we will continue to experience seasonality in the future.
Internet usage and the amount of purchases from individual and corporate
consumers tend to decline during August, November and December. During these
times professionals are either absent from the workplace, on vacation or
experience a holiday closure at their company. Our results in future quarters
may be negatively affected by seasonal trends.
Due to the foregoing factors, we cannot predict with any significant
degree of certainty our quarterly revenue and operating results. Further, we
believe that period-to-period comparisons of our operating results are not
necessarily a meaningful indication of future performance. It is likely that in
one or more future quarters our results may fall below the expectations of
securities analysts and investors. In this event, the trading price of our
common stock could be seriously harmed.
THE RISKS AND EXPENSES ASSOCIATED WITH NEW PRODUCT OFFERINGS MAY HARM OUR
BUSINESS
For the three months ended April 30, 2000 approximately 90% of our
online revenues were derived from sales of books. We recently expanded our
product offerings to include our Information Exchange suite of products and
resource materials for professionals in the medical and biotechnology
industries, and future revenues from these new product offerings are difficult
to forecast. The lack of market acceptance for these efforts or our inability to
generate satisfactory revenues from such expanded services or products to offset
related increased costs could seriously harm our business, financial condition,
operating results and cash flows.
In addition, we may choose to further expand our operations by promoting
new or complementary products and expanding the breadth and depth of products
and services offered. We may decide to utilize third-party
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relationships to extend our brand or establish additional co-branded
online stores. We may pursue the acquisition of new or complementary businesses,
products or technologies. However, we have no present commitments or agreements
for any material acquisitions or investments. We may not be able to expand our
product offerings and related operations in a cost-effective or timely manner.
These efforts may fail to increase online traffic and purchases from our online
or physical retail stores or to increase our overall market acceptance.
Furthermore, any new business or online store launched by us that is not
favorably received by individuals, corporate customers or their employees or
constituents could damage our reputation or the Fatbrain.com brand. Expansion of
our operations in this manner would also require significant additional expenses
and development, operations and editorial resources. These efforts may strain
our management, financial and operational resources.
We recently introduced eMatter, a secure digital publishing technology
which allows authors and publishers to publish and sell works online. Future
revenues from this new product are difficult to forecast. Further, the
development and expansion of eMatter requires additional expenses and the
diversion of resources. The lack of market acceptance for eMatter or our
inability to generate satisfactory revenues from eMatter to offset related
increased costs could seriously harm our business, financial condition,
operating results and cash flows.
OUR MARKETS ARE HIGHLY COMPETITIVE
The electronic commerce market is new, rapidly evolving and intensely
competitive. The market for information resources is more mature but also
intensely competitive. The electronic publishing market is also new and rapidly
evolving. We expect competition to continue to intensify in the future. We
currently or potentially compete with a variety of companies. These competitors
include:
~ a significant number of traditional retail and online
bookstores, including Amazon.com, Barnesandnoble.com, Borders
Group, Inc. and other vendors of books, training products and
product manuals;
~ various computer super-stores that carry related technical
information resources at retail locations, in catalogs and over
the Internet;
~ a number of indirect competitors that specialize in electronic
commerce or derive a substantial portion of their revenue from
electronic commerce and other companies with substantial
customer bases in the computer and other technical and
professional fields; and
~ with respect to MightyWords, 1stBooks, Books24x7,
iUniverse.com, netLibrary, PublishOne and a variety of
self-publishing and e-publishing sites.
We believe that the principal competitive factors on which we compete in our
markets include:
~ brand recognition;
~ selection, personalized services and overall customer service;
~ convenience and accessibility;
~ price;
~ quality of search tools;
~ quality of editorial and other site content; and
~ reliability and speed of fulfillment.
We may not be able to maintain a competitive position against current or future
competitors as they enter the markets in which we compete. This is true
particularly with respect to competitors with longer operating
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histories, larger customer bases and greater financial, marketing,
service, support, technical and other resources than us. In addition, online
retailers may be acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and well-financed
companies as use of the Internet and other online services increases. Some of
our competitors may be able to secure merchandise from vendors on more favorable
terms, devote greater resources to marketing and promotional campaigns, adopt
more aggressive pricing or inventory availability policies and devote
substantially more resources to Web site and systems development than we can.
Our failure to maintain a competitive position within our markets could
seriously harm our business, financial condition, operating results and cash
flows.
In addition, increased competition may result in reduced operating
margins, loss of market share and a diminished brand franchise. We may from time
to time make selected pricing, service or marketing decisions or acquisitions as
a strategic response to changes in the competitive environment. These actions
could result in reduced margins or otherwise seriously harm our business,
financial condition, operating results and cash flows.
Further, new technologies and the expansion of existing technologies may
increase the competitive pressure we experience. For example, applications that
select specific titles from a variety of Web sites may channel customers to
online booksellers that are our competitors. Companies that control access to
transactions through a network or Web browsers could also promote our
competitors or charge us a substantial fee for inclusion. In addition, vendors
of information resources such as technology based training materials could
provide direct access to training programs online.
WE MUST MANAGE OUR GROWTH AND EXPANSION
We have rapidly expanded our operations and we anticipate that further
expansion will be required to address potential growth in our customer base and
market opportunities. Specifically, we expect to significantly increase our
direct corporate and telesales organization and marketing initiatives. This
expansion has placed, and future expansion is expected to place, a significant
strain on our management, operational and financial resources. In addition, the
introduction and development of eMatter is anticipated to divert management
attention and resources. Our management will be required to maintain and expand
our relationships with:
~ various suppliers and freight companies;
~ other Web sites and other Web service providers;
~ internet and other online service providers; and
~ other third parties necessary to our business.
Our new employees include a number of key managerial, technical and
operations personnel who have not yet been fully integrated and we expect to add
additional key personnel in the near future. To manage the expected growth of
our operations and personnel, we will need to improve existing and implement new
transaction-processing, operational and financial systems, procedures and
controls. In addition, we will need to expand, train and manage an increasing
employee base. We will also need to expand our finance, administrative and
operations staff.
Our current and planned personnel, systems, procedures and controls may
be inadequate to support our future operations. Further, management may be
unable to attract, retain, motivate and manage required personnel or to
successfully identify, manage and exploit existing and potential market
opportunities. If we are unable to manage growth effectively, our business,
financial condition, operating results and cash flows could be seriously harmed.
CAPACITY CONSTRAINTS AND OUR RELIANCE ON INTERNALLY DEVELOPED SYSTEMS
COULD AFFECT OUR BUSINESS
A key element of our strategy is to generate a high volume of traffic
on, and use of, our online store. As a result, the satisfactory performance,
reliability and availability of the online store, transaction-processing systems
and network infrastructure are critical to our reputation. These factors are
similarly critical to our ability to attract and retain customers and maintain
adequate service and customer support levels. Our revenues depend on the number
of visitors who shop at our online store and the volume of orders we fulfill.
Any system interruptions that cause our online store to be unavailable or impair
order fulfillment performance would reduce the volume of goods
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sold and the attractiveness of our product and service offerings. We
have experienced periodic system interruptions, which we believe will continue
to occur from time to time. If there is a substantial increase in the volume of
traffic on our online store or the number of orders placed by customers, we will
need to expand and further upgrade our technology, transaction-processing
systems and network infrastructure. We may be unable to accurately project the
rate or timing of increases, if any, in the use of our online store or timely
expand and upgrade our systems and infrastructure to accommodate such increases.
We use an internally developed system, which is supplemented by
commercially available licensed technology, for:
~ our online store;
~ our search engine;
~ our secure digital publishing channel for eMatter; and
~ substantially all aspects of our transaction processing systems,
including order management, cash and credit card processing,
purchasing, inventory management and shipping.
We intend to upgrade and expand our transaction-processing systems and
to integrate newly developed and purchased modules with our existing systems in
order to improve our accounting, control and reporting methods and support
increased transaction volume. We may be unable to add additional software and
hardware or to develop and further upgrade our existing technology,
transaction-processing systems or network infrastructure to accommodate
increased traffic through our online store or increased sales volume. Any
inability to do so may result in:
~ unanticipated system disruptions;
~ slower response times;
~ degradation in levels of customer service;
~ impaired quality and speed of order fulfillment; and
~ delays in reporting accurate financial information.
We may be unable in a timely manner to effectively upgrade and expand
our transaction-processing system or to smoothly integrate any newly developed
or purchased modules with our existing systems. Any inability to do so could
seriously harm our business, financial condition, operating results and cash
flows.
WE MUST ATTRACT ADDITIONAL PERSONNEL
Our future success depends on our ability to attract, retain and
motivate highly skilled technical, managerial, editorial, merchandising,
marketing and customer service personnel. Competition for such personnel is
intense, particularly in the San Francisco Bay area, where our headquarters are
located. As a result, we may be unable to successfully attract, assimilate or
retain qualified personnel. We have encountered difficulties in attracting a
sufficient number of qualified software developers for our online store and
transaction-processing systems. Further, we may be unable to retain those
developers we currently employ or attract additional developers. The failure to
retain and attract the necessary personnel could seriously harm our business,
financial condition, operating results and cash flows.
CHANGES IN STATE SALES AND OTHER TAX COLLECTION REGULATIONS COULD HARM OUR
BUSINESS
We do not currently collect sales or other similar taxes for shipments
of goods into states other than California and Kentucky. However, one or more
states or foreign countries may seek to impose sales tax collection obligations
on out-of-state or foreign companies which engage in electronic commerce. In
addition, any new operations we establish in states outside California and
Kentucky could subject shipments into these states to state sales taxes. A
successful assertion by one or more states or any foreign country that we should
collect sales or other similar taxes on the sale of merchandise could seriously
harm our business, financial condition, operating results and cash flows.
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SYSTEM FAILURES COULD HARM OUR BUSINESS
Our success, in particular our ability to successfully receive and
fulfill online orders and provide high quality customer service, largely depends
on the efficient and uninterrupted operation of our computer and communications
hardware systems. Substantially all of our computer and communications hardware
is currently located at a single leased facility in Santa Clara, California. We
have experienced minor and infrequent system interruptions in the past. We do
not presently have a formal disaster recovery plan and do not carry sufficient
business interruption insurance to compensate us for losses that may occur.
Despite our implementation of network security measures, our servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. These disruptions could lead to interruptions, delays, loss of data
or the inability to accept and fulfill customer orders. The occurrence of any of
the foregoing risks could seriously harm our business, financial condition,
operating results and cash flows.
OUR SYSTEMS AND OPERATIONS ARE VULNERABLE TO DAMAGE OR INTERRUPTION FROM A
NUMBER OF SOURCES, INCLUDING:
~ fire;
~ flood;
~ power loss or telecommunications failure;
~ break-ins; and
~ earthquake and similar events.
WE RELY ON SELECTED SUPPLIERS
For the three months ended April 30, 2000, we purchased approximately
34% of our products from Ingram Book Company and 20% of our products from
Pearson Education Division. We rely to a large extent on rapid fulfillment from
Ingram, Pearson and other vendors. We generally have no commitments or
arrangements with any of our vendors that guarantee the availability of
merchandise, the continuation of particular payment terms or the extension of
credit limits. Our current vendors may not continue to sell merchandise to us on
current terms. In addition, we may be unable to establish new or extend current
vendor relationships to ensure acquisition of merchandise in a timely and
efficient manner and on acceptable commercial terms. If we were unable to
develop and maintain relationships with vendors that would allow us to obtain
sufficient quantities of merchandise on acceptable commercial terms, our
business, financial condition, operating results and cash flows could be
seriously harmed.
WE DEPEND ON KEY PERSONNEL
Our performance is substantially dependent on the continued services and
on the performance of our senior management and other key personnel. The loss of
the services of any of our executive officers or other key employees could
seriously harm our business, financial condition, operating results and cash
flows.
We have entered into employment agreements with several members of our
senior management, including:
~ Mr. Capovilla, our President and Chief Executive Officer; and
~ Mr. Orumchian, our Executive Vice President of Product
Development.
Each employment agreement specifies the officer's base salary and
general employee benefits, including acceleration of a portion of the employee's
common stock option vesting.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL SALES
For the three months ended April 30, 2000, international sales
accounted for approximately 12% of our online revenue. We expect that our
percentage of online revenue from international markets will continue to
represent a significant portion of our total revenue. Our international business
activities are subject to a variety of potential risks, including the adoption
of laws, political and economic conditions and actions by third parties that
would restrict or eliminate our ability to do business in some jurisdictions.
Although we currently transact business
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in U.S. dollars, to the extent that we determine to transact business in
foreign currencies, we will become subject to the risks attendant to transacting
in foreign currencies, including potential adverse effects of exchange rate
fluctuations.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success. Further,
we rely on trademark and copyright law, trade secret protection and
confidentiality and license agreements with our employees, customers, partners
and others to protect our proprietary rights. We pursue the registration of our
trademarks and service marks in the U.S. and internationally, and have applied
for the registration of selected trademarks and service marks. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our products and services are made available
online. While we attempt to ensure that the quality of our brand is maintained
by our licensees, our licensees may take actions that could seriously harm the
value of our proprietary rights or reputation and in turn our business,
financial condition, operating results and cash flows. The steps we have taken
to protect our proprietary rights may not be adequate and third parties may
infringe or misappropriate our copyrights, trademarks, trade dress and similar
proprietary rights.
WE MAY BE FOUND TO INFRINGE PROPRIETARY RIGHTS OF OTHERS
Other parties may assert infringement claims against us. These claims,
even if not meritorious, could result in the expenditure of significant
financial and managerial resources. We are not currently aware of any legal
proceedings pending or threatened against us. In addition, we display reviews
and articles on technical subjects in our online store. Some reviews and
articles may be copyrighted and we may not have explicit permission from the
author for use of such intellectual property. The authors may assert
infringement claims against us. If a claim is asserted alleging that we have
infringed the proprietary rights of a third party, we may be required to seek
licenses to continue to use this intellectual property. The failure to obtain
the necessary licenses or other rights at a reasonable cost could seriously harm
our business, financial condition, operating results and cash flows.
RISKS RELATED TO OUR INDUSTRY
WE DEPEND ON THE CONTINUED GROWTH OF ELECTRONIC COMMERCE
Our future revenues and profits, if any, substantially depend upon the
acceptance and use of the Internet and other online services as an effective
medium of commerce by our target customers. Rapid growth in the use of and
interest in the Internet, the Web and online services is a recent phenomenon. As
a result, acceptance and use may not continue to develop at historical rates and
a sufficiently broad base of consumers may not adopt, and continue to use, the
Internet and other online services as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty and there exist few proven services and
products. Our target customer has historically used traditional means of
commerce to purchase information resources. For us to be successful, these
customers must accept and utilize our online store to satisfy their information
resource needs.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. To the extent that the
Internet continues to experience significant expansion in the number of users,
frequency of use or bandwidth requirements, the infrastructure for the Internet
may be unable to support the demands placed upon it. In addition, the Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in or
insufficient availability of telecommunications services to support the Internet
also could result in slower response times and adversely affect usage of the
Internet generally and of us in particular. If any of the foregoing events occur
our business, financial condition, operating results and cash flows could be
seriously harmed.
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WE MUST RESPOND TO RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online operations. The
Internet and the electronic commerce industry are characterized by:
~ rapid technological change;
~ changes in user and customer requirements and preferences;
~ frequent new product and service introductions embodying new
technologies; and
~ the emergence of new industry standards and practices.
The evolving nature of the Internet could render our existing online
store and proprietary technology and systems obsolete. Our success will depend,
in part, on our ability to:
~ license leading technologies useful in our business;
~ enhance our existing services;
~ develop new services and technology that address the
increasingly sophisticated and varied needs of our current and
prospective customers; and
~ respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis.
The development of our Web site and other proprietary technology entails
significant technical and business risks. We may not successfully use new
technologies effectively or adapt our online store, proprietary technology and
transaction-processing systems to customer requirements or emerging industry
standards. If we are unable, for technical, legal, financial or other reasons,
to adapt in a timely manner, in response to changing market conditions or
customer requirements, our business, financial condition, operating results and
cash flows could be seriously harmed.
SECURITY BREACHES OF THIRD-PARTY TECHNOLOGY COULD AFFECT OUR BUSINESS
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. We rely on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary for secure transmission of
confidential information, including customer credit card numbers. If any
compromise of our security were to occur, it could expose us to a risk of loss
or litigation and possible liability, as well as seriously harm our reputation,
business, financial condition, operating results and cash flows. Advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments may result in a compromise or breach of the algorithms
used by us to protect customer transaction data. A party who is able to
circumvent our security measures could misappropriate proprietary information or
cause interruptions in our operations. We may be required to expend significant
capital and other resources to protect against security breaches or to alleviate
problems caused by breaches.
Concerns over the security of the Internet and other online transactions
and the privacy of users may also inhibit the growth of the Internet and other
online services generally, and the Web in particular, especially as a means of
conducting commercial transactions. If these concerns limit or reduce the use of
the Internet as a means of conducting commercial transactions, our business,
financial condition, operating results and cash flows could be seriously harmed.
WE MAY FACE INCREASED GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access to electronic
commerce. However, due to the increasing popularity and use of the Internet, it
is possible that a number of laws and regulations may be adopted in connection
with the Internet, relating to:
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~ user privacy;
~ pricing;
~ content;
~ copyrights;
~ distribution; and
~ characteristics and quality of products and services.
Furthermore, the growth and development of the market for electronic
commerce may prompt calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting business online. The
adoption of any additional laws or regulations may decrease the expansion of the
Internet. A decline in the growth of the Internet could decrease demand for our
products and services and increase our cost of doing business, or otherwise
seriously harm our business. Moreover, the applicability to the Internet of
existing laws in various jurisdictions governing issues like property ownership,
sales tax, libel and personal privacy is uncertain and may take years to
resolve. If any of these changes were to occur our business, financial
condition, operating results and cash flows could be seriously harmed.
As our service is offered over the Internet in multiple states and
foreign countries, these jurisdictions may claim that we are required to qualify
to do business as a foreign corporation in each of these states and foreign
countries. The failure by us 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. It is possible that the governments of
other states and foreign countries also might attempt to regulate the content of
our online store or prosecute us for violations of their laws. Violations of
local laws may be alleged or charged by state or foreign governments. Further,
we might unintentionally violate these laws and these laws may be modified and
new laws may be enacted in the future.
In addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission in the same manner as other telecommunications services. The growing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure and many areas with high Internet use have begun to experience
interruptions in phone service. As a result, local exchange carriers have
petitioned the Federal Communications Commission to regulate Internet Service
Providers in a manner similar to long distance telephone carriers and to impose
access fees on Internet Service Providers. If any effort to increase regulation
of Internet Service Providers is successful, the expense of communicating on the
Internet could increase substantially, potentially slowing the growth in the use
of the Internet. Any new legislation or regulation or application or
interpretation of existing laws could seriously harm our business, financial
condition, operating results and cash flows.
OUR STOCK PRICE MAY BE VOLATILE
The trading prices of our common stock may be subject to wide
fluctuations in response to a number of factors, some of which are beyond our
control, including:
~ actual or anticipated variations in quarterly operating results;
~ announcements of technological innovations or new products or
services by us or our competitors;
~ changes in financial estimates by securities analysts;
~ conditions or trends in the Internet and electronic commerce
industries;
~ announcements of significant acquisitions, strategic
partnerships, joint ventures or capital commitments; and
~ additions or departures of key personnel.
In addition, stock markets in general and the market for
Internet-related and technology companies in particular, have experienced
extreme price and volume trading volatility in recent years. This volatility has
had a substantial effect on the market prices of the securities of many high
technology companies for reasons frequently unrelated to the operating
performance of specific companies. These broad market fluctuations could
aversely affect the market price of our common stock. In addition, in the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against that
company. If this type of
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litigation were instituted against us, it could result in substantial
costs and a diversion of management's attention and resources, which could
seriously harm our business, financial condition, operating results and cash
flows.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS
Our Board of Directors has the authority to issue up to 5,000,000 shares
of preferred stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by the stockholders. The rights of the holders of common stock
will be subject to, and may be seriously harmed by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of preferred
stock may have the effect of delaying, deferring or preventing a third party
from acquiring us without further action by our stockholders. We have no present
plans to issue shares of preferred stock. Further, selected provisions of our
Second Amended and Restated Certificate of Incorporation and Delaware law could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement, we
anticipate that any net proceeds from the sale of the Securities offered under
this prospectus will be used for general corporate purposes, which may include,
but are not limited to, working capital, capital expenditures, acquisitions and
the repayment or refinancing or our indebtedness. When a particular series of
Securities is offered, the prospectus supplement relating thereto will set forth
our intended use for the net proceeds we receive from the sale of the
Securities. Pending the application of the net proceeds, we expect to invest the
proceeds in short-term, interest-bearing instruments or other investment-grade
securities.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock. We anticipate
that we will continue to retain any earnings for use in the operation of our
business and we do not currently intend to pay dividends.
GENERAL DESCRIPTION OF SECURITIES
We may, directly or through agents, dealers, or underwriters designated
from time to time, offer, issue and sell, together or separately, up to
$20,000,000 in the aggregate of:
~ shares of our common stock, par value $0.001 per share; and
~ warrants to purchase our common stock, or any combination of the
foregoing, either individually or as units consisting of one or
more of the foregoing, each on terms to be determined at the
time of sale.
The common stock and the warrants are collectively referred to herein as
the "securities."
DESCRIPTION OF WARRANTS
The warrants may be issued independently or together with any common
stock and may be attached to or separate from such securities. The warrants are
to be issued under warrant agreements to be entered into between us and a bank
or trust company, as warrant agent, all as shall be set forth in the prospectus
supplement relating to warrants begin offered pursuant thereto. As of the date
hereof, we have not issued any warrants pursuant to this prospectus.
TERMS OF THE WARRANTS
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The applicable prospectus supplement will describe the terms of the
warrants offered thereby, the warrant agreement relating to such warrants and
the warrant certificates representing such warrants, including the following:
~ the title of such warrants;
~ the common stock for which such warrants are exercisable;
~ the price or prices at which such warrants will be issued;
~ if applicable, the number of such warrants issued with each such
share of common stock;
~ if applicable, the date on and after which such warrants and the
related common stock will be separately transferable;
~ if applicable, a discussion of any material federal income tax
considerations; and
~ any other terms of such warrants, including terms, procedures
and limitations relating to the exchange and exercise of such
warrants.
Warrant certificates will be exchangeable for new warrant certificates
of different denominations, and warrants may be exercised at the corporate trust
office of the warrant agent or any other office indicated in the prospectus
supplement. Holders of warrants will not be entitled, by virtue of being such
holders, to vote, to consent, to receive dividends, to receive notice as
stockholders with respect to any meeting of our stockholders for the election of
our directors or any other matter, or to exercise any rights whatsoever as our
stockholders.
EXERCISE OF WARRANTS
Each warrant will entitle the holder to purchase for cash such number of
shares of common stock at such exercise price as shall in each case be set forth
in, or be determinable as set forth in, the prospectus supplement relating to
the warrants offered thereby. Warrants may be exercised at any time up to the
close of business on the expiration date set forth in the prospectus supplement
relating to the warrants offered thereby. After the close of business on the
expiration date, unexercised warrants will become void.
Warrants may be exercised as set forth in the prospectus supplement
relating to the warrants offered thereby. Upon receipt of payment and the
warrant certificate properly completed and duly executed at the corporate trust
office of the warrant agent or any other office indicated in the prospectus
supplement, we will, as soon as practicable, forward the securities purchasable
upon such exercise. If less than all of the warrants represented by such warrant
certificate are exercised, a new warrant certificate will be issued for the
remaining warrants.
PLAN OF DISTRIBUTION
General. We may sell the securities through underwriters or dealers,
through agents or directly to one or more purchasers. We may distribute the
securities from time to time in one or more transactions at a fixed price or
prices (which may be changed from time to time), at market prices prevailing at
the times of sale, at prices related to these prevailing market prices or at
negotiated prices.
The applicable prospectus supplement will describe the terms of the
offering of the securities, including:
~ the name or names of any underwriters, if any;
~ the purchase price of the securities and the proceeds we will
receive from the sale;
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~ any underwriting discounts and other items constituting
underwriters' compensation;
~ any discounts or concessions allowed or reallowed or paid to
dealers; and
~ any securities exchange or market on which the securities may be
listed.
Only underwriters named in the prospectus supplement, if any, are underwriters
of the securities offered with the prospectus supplement.
Use of Underwriters and Agents. If underwriters are used in the sale,
they will acquire the securities for their own account and may resell them from
time to time in one or more transactions at a fixed public offering price or at
varying prices determined at the time of sale. we may offer the securities to
the public through underwriting syndicates represented by managing underwriters
or by underwriters without a syndicate. Subject to certain conditions, the
underwriters will be obligated to purchase all the securities of the series
offered by the prospectus supplement. Any public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may change from
time to time.
We may sell securities directly or through agents we designate from time
to time. We will name any agent involved in the offering and sale of securities
and we will describe any commissions we will pay the agent in the prospectus
supplement. Unless the prospectus supplement states otherwise, our agent will
act on a best-efforts basis for the period of its appointment.
We may authorize agents or underwriters to solicit offers by certain
types of institutional investors to purchase securities from us at the public
offering price set forth in the prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. We will describe the conditions to these contracts and the commissions
we must pay for solicitation of these contracts in the prospectus supplement.
Sales Directly to Purchasers. We may enter into agreements directly with
one or more purchasers. Such agreements may provide for the sale of our common
stock at a fixed price, based on the market price of the common stock or
otherwise. Alternatively, such agreements may provide for the sale of common
stock over a period of time by means of draw downs at our election which the
purchaser would be obligated to accept under specified conditions. Under this
form of agreement, we may sell common stock at a per share price which is
discounted from the market price. Such agreements may also provide for sales of
common stock based on combinations of or variations from these methods.
Deemed Underwriters. In connection with the sale of the securities
offered with this prospectus, underwriters, dealers or agents may receive
compensation from us or from purchasers of the securities for whom they may act
as agents, in the form of discounts, concessions or commissions. The
underwriters, dealers or agents which participate in the distribution of the
securities may be deemed to be underwriters under the Securities Act and any
discounts or commissions received by them and any profit on the resale of the
securities received by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Anyone deemed to be an underwriter under
the Securities Act may be subject to statutory liabilities, including Sections
11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act.
Indemnification and Other Relationships. We may provide agents and
underwriters with indemnification against certain civil liabilities, including
liabilities under the Securities Act, or contribution with respect to payments
that the agents or underwriters may make with respect to such liabilities.
Agents and underwriters may engage in transactions with, or perform services
for, us in the ordinary course of business.
LEGAL MATTERS
Certain legal matters with respect to the securities offered by this
prospectus will be passed upon for us by Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Menlo Park, California.
EXPERTS
The financial statements incorporated in this prospectus by reference
from the Company's Annual Report on Form 10-KSB for the year ended January 31,
2000 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual and quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You can inspect
and copy these reports, proxy statements and other information at:
~ the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549; and
~ the regional offices of the SEC:
Midwest Regional Office, Citicorp Center, Suite 1400,
14th Floor 500 West Madison Street, Chicago, Illinois
60661-2511; and
Northeast Regional Office, Suite 1300, 13th Floor, 7
World Trade Center, New York, New York 10048.
You can also obtain copies of these materials from the public reference
section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, at prescribed rates. You can obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a web site (http://www.sec.gov) that makes available reports, proxy
statements and other information regarding registrants that file electronically
with it. You can inspect reports and other information we file at the office of
the New York Stock Exchange, Inc. 20 Broad Street, New York, New York 10005.
The Commission allows us to "incorporate by reference" information from
other documents that we file with them, which means that we can disclose
important information by referring to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information that we file later with the Commission will automatically update and
supersede this information. We incorporate by reference into this prospectus the
documents listed below, and any future filings we make with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 prior
to the termination of this offering:
~ our annual report on Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended January 31, 2000.
~ our quarterly report on Form 10-Q filed with the Securities and
Exchange Commission for the quarter ended April 30, 2000.
~ our current report on Form 8-K filed with the Securities and
Exchange Commission on June 9, 2000.
~ the description of our common stock contained in our
registration statement on Form SB-2 filed with the Securities
and Exchange Commission on November 17, 1998.
~ all other documents we file with the Securities and Exchange
Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of
the Exchange Act on or after the date of this prospectus and
before the termination of this offering.
To the extent that any statement in this prospectus or a prospectus
supplement is inconsistent with any statement that is incorporated by reference
and that was made on or before the date of this prospectus or the applicable
prospectus supplement, the statement in this prospectus or the applicable
prospectus supplement shall control. The incorporated statement shall not be
deemed, except as modified or superceded, to constitute a part of this
prospectus, the applicable prospectus supplement or the registration statement.
Statements contained in this prospectus or the applicable prospectus supplement
as to the contents of any contract or other document are not necessarily
complete and, in each instance, we refer you to the copy of each contract or
document filed as an exhibit to the registration statement.
We will furnish without charge to each person to whom a copy of this
prospectus is delivered, upon written or oral request, a copy of the information
that has been incorporated into this prospectus by reference (except exhibits,
unless they are specifically incorporated into this prospectus by reference).
You should direct any requests for copies to:
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Fatbrain.com, Inc.
2550 Walsh Avenue
Santa Clara, California 95051
Attention: Investor Relations, (408) 845-0100
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This document and the documents incorporated in this document by
reference contain forward-looking statements within the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 with respect to our
financial condition, results of operations and business. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. The section entitled "Risk Factors" that appears in our annual
report on Form 10-KSB for the year ended January 31, 2000 and in this prospectus
describe some, but not all, of the factors that could cause these differences.
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[Fatbrain.com Logo]
FATBRAIN.COM, INC.
Common Stock
Warrants to Purchase Common Stock
----------------
PRELIMINARY PROSPECTUS
JULY 12, 2000
-----------------
You should rely only on the information contained in or specifically
incorporated by reference into this prospectus. We have not authorized anyone to
provide you with information different from that contained in this prospectus.
We are offering to sell, and seeking offers to buy, shares of common stock only
in the jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of common
stock.
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