<PAGE>
Filed pursuant to Rule 424(B)(4)
File Number 333-84723
[iGo Logo]
SOLUTIONS FOR PEOPLE ON THE GO(TM)
5,000,000 SHARES
COMMON STOCK
iGo Corporation is offering 5,000,000 shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. The shares being sold in this offering have been approved for
quotation on the Nasdaq National Market under the symbol "IGOC." The initial
public offering price is $12.00 per share.
---------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price.................................... $12.00 $60,000,000
Underwriting Discounts and Commissions................... $ 0.84 $ 4,200,000
Proceeds to iGo.......................................... $11.16 $55,800,000
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
iGo has granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover over-allotments.
---------------------
ROBERTSON STEPHENS
HAMBRECHT & QUIST
THOMAS WEISEL PARTNERS LLC
The date of this prospectus is October 13, 1999.
<PAGE>
[Caption: A graphic depiction of four (4) products sold by iGo,
specifically a handheld radio, a personal digital assistant, a laptop
computer, and a cellular phone, shown in a backdrop which includes an
iGo trademark and several product category descriptions]
Solutions for People on the Go(TM)
PROVIDING INNOVATIVE SOLUTIONS THAT GIVE
PEOPLE FREEDOM AND FLEXIBILITY OVER THEIR LIVES.
iGo.com(TM)
<PAGE>
iGo.com(TM)
Solutions for People on the Go(TM)
Comprehensive Selection of
Mobile Products
Seven product categories
(Notebook, cellular,
PDA/Handheld, Internet, GPS,
software and the most innovative
new products) representing over
6,500 items.
[Caption: A screenprint of three
(3) pages from the iGo.com
website]
Powerful Search Technology
Customers can use our powerful
keyword search engine to search
by product type, brand name,
part or model number. A simple
click of the mouse provides
customers with all the hard-to-
find model-specific accessories
that go with each device. If
multiple solutions are offered,
customers can automatically
compare features, prices and
benefits.
[Caption: A screenprint of a
page from the iGo.com website]
<PAGE>
Authoritative
Source For Mobile
Product Information
iGo's archive of
mobile computing
tips is aimed at
helping customers
solve problems, save
time and make better
purchasing
decisions. At the
Solutions For You
page, our product
managers have
compiled a
comprehensive list
of products to meet
the needs of mobile
persons including
Globe-Trotters,
Frequent Flyers,
Road-Sters, Train-
Trekkers and
Telecommuters.
[Caption: A screenprint of
two (2) pages from the
iGo.com website]
Customized websites
for corporate
customers
We offer a secure online
purchasing solution
dedicated to the needs
of our corporate
customers. Site design,
pricing and product
solutions can be
tailored to meet the
needs of each corporate
customer.
[Caption: A screenprint
from the iGo.com
website]
www.iGo.com
<PAGE>
You should rely only on the information contained in 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 those 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 any sale of our common stock.
Until November 7, 1999 (25 days after commencement of the offering), all
dealers effecting transactions in our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 23
Dividend Policy.......................................................... 23
Capitalization........................................................... 24
Dilution................................................................. 25
Selected Financial Data.................................................. 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 34
Management............................................................... 47
Transactions with Directors, Officers and 5% Stockholders................ 53
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 60
Underwriting............................................................. 62
Legal Matters............................................................ 65
Change in Independent Accountants........................................ 65
Experts.................................................................. 66
Where You May Find Additional Information................................ 66
Index to Financial Statements............................................ F-1
</TABLE>
3
<PAGE>
SUMMARY
You should read this summary together with the more detailed information and
our consolidated financial statements and notes thereto appearing elsewhere in
this prospectus.
iGo Corporation
iGo is a leading provider of hard-to-find, model-specific accessories and
services for mobile electronic devices such as laptop computers, cellular
phones and handheld electronic organizers. Through our iGo.com website and
customer solutions representatives, we enable businesses and individual
consumers to efficiently identify, locate and purchase these products and
services. Our proprietary databases of over 6,500 products from more than 350
suppliers, combined with our comprehensive industry knowledge and service
expertise, create a valuable one-stop solution for our customers. We believe
that our business model offers significant benefits to mobile device
manufacturers, business enterprises, mobile professionals and other people on
the go.
We provide a compelling electronic commerce solution for the highly
fragmented portable computing and mobile communications marketplace by
combining the convenience and functionality of the Internet with the following
key elements of our business:
. our proprietary product, supplier and compatibility databases;
. our use of search technology to simplify the ordering process;
. our capability to rapidly ship business-critical orders;
. our focus on a high repeat purchase and replacement product market; and
. our ability to offer customized solutions for corporate customers.
As a result of these factors, we have rapidly grown our net revenues and our
customer database, maintained high gross margins and established a leading
online destination to serve our market. From 1995 to 1998, our net revenues
increased at an annual growth rate of more than 90%. Our gross margins grew
from 32% for the six months ended June 30, 1998 to 35% for the six months ended
June 30, 1999. Our customer database includes profiles of over 525,000 mobile
users and detailed transaction histories on over 150,000 buyers. Approximately
50% of the Fortune 500 have purchased products or services from us. In
addition, we have developed strategic relationships with key business partners
such as Ariba, Motorola and NEC.
Mobile Product Marketplace
The use of portable computers and mobile communications devices has grown
rapidly due to infrastructure and hardware improvements, which have simplified
use, increased portability and reduced equipment and cellular airtime cost.
Busy professionals and other time-constrained people are increasingly
incorporating these devices into their daily lives. As a result, businesses and
individuals are willing to spend more on mobile electronic devices, accessories
and services to increase productivity and add flexibility.
4
<PAGE>
The Internet has become an attractive channel to reach users of laptops,
cellular phones, personal digital assistants and other mobile electronic
devices. This is primarily due to the broad reach of the Internet, its useful
search functionality and the substantial demographic overlap between mobile
product users and Internet users. The marketplace for mobile devices,
accessories and batteries is not well served by traditional channels, which
include mobile device manufacturers, traditional retailers and large mail-order
companies, who are typically more focused on selling the newest "big ticket"
products such as desktop computers, laptops and printers. Most mobile
accessories and batteries are brand and model-specific and this lack of
standardization creates a complex customer service problem that cannot easily
be solved by traditional industry participants. Moreover, unlike the personal
computer, book and music markets, there is no major distributor that carries
even a fraction of the products needed to provide a comprehensive solution for
the mobile product marketplace.
Our Strategy
Our mission is to provide solutions that give people freedom and flexibility
over their lives and increase their business productivity. Our strategy is to
continue to offer a comprehensive Internet-based solution that provides
significant benefits to all participants in the mobile product marketplace,
including manufacturers, business enterprises, mobile professionals and other
people on the go. Our goal is to be the leading one-stop solution for the
mobile product marketplace, and to reach this goal, we plan to:
. aggressively build the iGo brand;
. improve the iGo.com shopping experience;
. enhance our proprietary databases;
. focus on the corporate market;
. pursue international opportunities; and
. pursue strategic acquisitions and alliances.
Risks Related to Our Business
We face many risks and challenges in our business. We recently launched the
iGo.com brand, the successful development of which will be critical to our
business. An investment in our common stock involves other risks and
uncertainties, including the fact that we have a limited operating history on
which to evaluate our potential for future success and we expect continuing
losses for the forseeable future. In addition, we rely on our proprietary
databases as a key competitive advantage and our failure to maintain and expand
these databases could harm our business.
Corporate Information
Our principal executive offices are located at 2301 Robb Drive, Reno, Nevada
89523, and our telephone number is (775) 746-6140. Information contained on our
website at www.iGo.com does not constitute part of this prospectus.
iGo, Solutions for People on the Go, and iGo's logo are our trademarks and
are pending registration in certain jurisdictions. This prospectus also
contains brand names, logos, servicemarks and trademarks of other companies.
Road Warrior is a registered trademark of Road Warrior International, Inc., and
is used by permission.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by iGo........................... 5,000,000 shares
Common stock to be outstanding after the offering..... 19,325,200 shares
Use of proceeds....................................... We intend to use the net
proceeds for investment
in marketing and
promotion, and general
corporate purposes,
including working
capital and capital
expenditures, as well as
possible strategic
acquisitions or
investments.
Nasdaq National Market symbol......................... IGOC
</TABLE>
Common stock to be outstanding after this offering is based on shares
outstanding as of August 31, 1999. It does not include:
. 1,418,202 shares issuable upon exercise of outstanding options as of
August 31, 1999;
. 1,614,552 shares available for future grant or issuance under our stock
option and stock purchase plans as of August 31, 1999; and
. 56,632 shares issuable upon exercise of warrants outstanding as of August
31, 1999.
Except as otherwise noted, all information in this prospectus:
. reflects a 6-for-1 share stock split that we effected on August 30, 1999;
. reflects the issuance of 124,982 shares of Series C preferred stock upon
conversion of a portion of our outstanding subordinated convertible debt
prior to this offering;
. reflects the conversion of all outstanding shares of preferred stock into
shares of common stock at the closing of this offering; and
. does not take into account the possible issuance of additional shares of
common stock to the underwriters pursuant to their right to purchase
additional shares to cover over-allotments.
6
<PAGE>
Summary Financial Data
The statements of operations data for the years ended December 31, 1996, 1997
and 1998 are derived from our audited financial statements appearing elsewhere
in this prospectus. The statements of operations data for the six-month periods
ended June 30, 1998 and 1999 and the balance sheet data as of June 30, 1999 are
derived from unaudited interim financial statements appearing elsewhere in this
prospectus. The statements of operations data for the year ended December 31,
1995 are derived from unaudited financial statements not included in this
prospectus. The summary financial data should be read in conjunction with our
financial statements and the related notes included elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
Six-Month
Periods Ended
Years Ended December 31, June 30,
---------------------------------- ----------------
1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- -------
(in thousands, except per share data)
Statement of Operations
Data:
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net product revenue.... $ 1,790 $ 4,508 $ 7,422 $12,318 $ 5,779 $ 7,718
Development revenue.... -- -- 665 502 502 --
------- ------- ------- ------- ------- -------
Total net revenues.... 1,790 4,508 8,087 12,820 6,281 7,718
Gross profit............ 575 1,531 2,767 4,218 2,006 2,705
Total operating
expenses............... 730 1,588 3,674 6,060 2,879 6,332
Loss from operations.... (155) (57) (907) (1,842) (873) (3,627)
Net loss attributable to
common stockholders.... $ (157) $ (116) $(1,026) $(2,133) $ (981) $(4,165)
Net loss per share--
basic and diluted...... $ (0.03) $ (0.02) $ (0.19) $ (0.36) $ (0.17) $ (0.66)
Weighted-average shares
outstanding............ 5,400 5,400 5,544 5,998 5,939 6,347
</TABLE>
The following table presents summary balance sheet data at June 30, 1999; pro
forma to reflect the sale of 850,572 shares of our Series C preferred stock in
July 1999 resulting in net proceeds of $5.7 million, the incurrence of $1.2
million of subordinated convertible debt in August 1999 and the issuance of
40,500 shares of common stock upon exercise of a warrant at an exercise price
of $0.445 per share in July 1999; and pro forma as adjusted for the conversion
of $980,000 of the subordinated debt into 124,982 shares of Series C preferred
stock prior to this offering, the conversion of all of our preferred stock
(including the shares issued upon conversion of the subordinated debt) into
7,643,054 shares of common stock upon the closing of this offering, and the
sale of 5,000,000 shares of our common stock in this offering at an initial
public offering price of $12.00 per share and the application of the net
proceeds after deducting underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
June 30, 1999
------------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ -- $ 6,935 $61,485
Working capital......... (43) 6,892 61,442
Total assets............ 5,138 12,073 66,623
Long-term portion of
capital lease
obligations............ 641 1,808 828
Mandatory redeemable
preferred stock........ 8,216 13,966 --
Total stockholders'
equity (deficit)....... (7,496) (7,478) 62,018
</TABLE>
7
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our
business, financial condition or results of operations could be harmed, the
value of our stock could decline and you may lose part or all of your
investment.
Risks Related To Our Business
We have a limited operating history on which to evaluate our potential for
future success
We were incorporated in 1993 and did not begin to generate meaningful
revenues until 1995. Accordingly, we have only a limited operating history upon
which you can evaluate our business and prospects. You must consider the risks
and uncertainties frequently encountered by growth stage companies in new and
rapidly evolving markets, such as electronic commerce. These risks include our
ability to continue to:
. sustain historical growth rates;
. implement our business model;
. attract new customers, retain existing customers and maintain customer
satisfaction;
. maintain our gross margins in the event of price competition or rising
wholesale prices;
. minimize technical difficulties and system downtime;
. manage distribution of our direct marketing materials; and
. attract, train and retain employees.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be harmed.
We have a history of losses and we expect losses for the foreseeable future
Since our inception in 1993, we have incurred significant net losses,
resulting primarily from costs related to developing our proprietary databases,
establishing our brand, building our customer contact center, developing
relationships with suppliers and attracting users to our website. At June 30,
1999, we had an accumulated deficit of approximately $7.7 million. Although we
have experienced an increase in net product revenue each period, this growth
may not be sustainable. Because of our plans to invest heavily in marketing and
promotion, hire additional employees and enhance our website and operating
infrastructure, we expect to incur increasing sales and marketing and general
and administrative expenses. As a result, we will need to generate
significantly higher revenues to achieve and maintain profitability, although
we may be unable to do so. If our revenue growth is slower than we anticipate
or our operating expenses exceed our expectations, our losses will be
significantly greater.
Our stock price may be adversely affected by significant fluctuations in our
quarterly operating results
Our revenues for the foreseeable future will remain primarily dependent on
sales of mobile electronic devices, accessories, batteries and services through
our website and our customer contact center. Although independent market
research firms forecast that shipments of portable personal
8
<PAGE>
computers, the number of wireless subscribers and the market for accessories
and batteries for mobile electronic devices will grow substantially over the
next few years, we cannot be certain that this growth will actually occur or
that our sales will grow at the same rate. We cannot forecast with any degree
of certainty the extent of our sales of these products or services. We expect
our operating results could fluctuate significantly from quarter to quarter as
a result of various factors including:
. our ability to attract visitors to our website and convert them into
customers;
. the level of merchandise returns we experience;
. changes and seasonal fluctuations in the buying patterns of our
customers;
. our inability to obtain adequate supplies of high-demand products;
. unanticipated cost increases or delays in shipping of our products,
transaction processing, or production and distribution of our direct
marketing materials;
. unanticipated delays with respect to product introductions; and
. the costs, timing and impact of our marketing and promotional
initiatives.
Because of these and other factors, we believe that quarter to quarter
comparisons of our results of operations are not good indicators of our future
performance. If our operating results fall below the expectations of securities
analysts and investors in some future periods, our stock price will likely
decline. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results of Operations" for more information on
our quarterly operating results.
Establishing the iGo brand is critical to our success
We recently launched our new iGo brand and with a portion of the proceeds of
this offering we plan to implement aggressive traditional and online marketing
programs to promote our brand in order to attract visitors to our website. We
believe that strengthening the iGo brand will be critical to the success of our
business. We cannot be certain that our brand will attract new customers or
retain existing customers. Additionally, our new iGo brand may cause confusion
to current and potential customers, which may harm our business, financial
condition and results of operations.
If we fail to manage expansion effectively, our business and prospects could be
seriously harmed
Our ability to execute our business model in a rapidly evolving market
requires an effective planning and management process. At December 31, 1998, we
had a total of 60 full-time employees and at June 30, 1999, we had a total of
88 full-time employees. We plan to continue to hire additional employees and to
expand our warehouse facilities. This growth has placed, and we expect our
anticipated growth to continue to place, a significant strain on our management
systems and resources. To manage our growth, we must implement operational and
financial systems and controls, and recruit, train and retain new employees.
Some key members of our management team have recently been hired. These
individuals have had little experience working in our organization. We cannot
be certain that we will be able to integrate new executives or other employees
into our organization effectively. In addition, there will be significant
administrative burdens placed on our management team as a result of our status
as a public company. If we do not manage growth effectively, our business,
financial condition and results of operations could be harmed.
9
<PAGE>
We depend on our key personnel to manage our business and we may not be able to
hire enough additional management and other personnel as our business grows
Our performance is substantially dependent on the continued services and on
the performance of our executive officers, particularly Ken Hawk, our Chief
Executive Officer. The loss of the services of any of our executive officers
could harm our business. Additionally, we will need to attract, retain and
motivate talented management and other highly skilled employees to be
successful. In particular, competition for employees that possess knowledge of
the Internet industry is intense. None of our employees is bound by an
employment agreement for any specific term. Any of our officers or employees
can terminate his or her employment relationship at any time. The loss of any
of our officers or our inability to attract or retain other qualified employees
could harm our results of operations and financial condition. We may be unable
to retain our key employees or attract, assimilate and retain other highly
qualified employees in the future, which could harm our business, financial
condition and results of operations.
Competition may decrease our market share, net revenues and gross margins and
may cause our stock price to decline
We believe the portable computing and mobile communications market is highly
fragmented. In addition, the electronic commerce market in which we operate is
new, rapidly evolving and highly competitive. We believe no single competitor
competes directly with us with respect to all of the products and services we
offer; however, we currently or potentially compete with a variety of companies
in the sale of products in specific categories, including:
. mobile products suppliers such as Targus;
. mass merchant retailers such as Circuit City and CompUSA;
. direct marketers such as Buy.com, Insight and Microwarehouse; and
. traditional mobile device manufacturers such as Fujitsu and Toshiba.
Many of these current and potential competitors may have the ability to
devote substantially more resources to marketing, and systems and website
development than we do. In addition, larger and more well-financed entities may
acquire, invest in or form joint ventures with our competitors. Some of our
competitors may be able to secure products from suppliers on more favorable
terms, fulfill customer orders more efficiently and adopt more aggressive
pricing or inventory availability policies then we can. Finally, new
technologies and the expansion of existing technologies, such as price
comparison programs that search for products from a variety of websites, may
direct customers to other online merchants. See "Business--Competition."
The loss of our proprietary databases would seriously harm our business
Our proprietary databases are a key competitive advantage. If we fail to keep
these databases current or if the proprietary customer, product, supplier and
compatibility information contained in these databases is damaged or destroyed,
our business would be seriously harmed and our stock price would decline.
The failure to successfully grow, manage and use our database of customers and
users would harm our business
We intend to continually expand our database of customers, potential
customers and website registrants to more effectively create targeted direct
marketing offers. We seek to expand our
10
<PAGE>
customer database by using information we collect through our website and our
customer contact center as well as from purchased or rented lists. We must also
continually develop and refine our techniques for segmenting this information
to maximize its usefulness. If we are unable to expand our customer database or
if we fail to utilize this information successfully, our business model may not
be successful. In addition, if federal or state governments enact privacy
legislation resulting in the increased regulation of mailing lists, we could
experience increased costs in complying with potentially burdensome regulations
concerning the solicitation of consents to keep or add customer names to our
mailing lists. See "Business--Government Regulation."
Failure of our strategic relationships to attract customers could harm our
business
We intend to continue to establish, leverage and grow key strategic
relationships with manufacturers, suppliers and electronic commerce partners to
enable us to collect crucial product-specific information, ensure access to
adequate product supply and acquire new customers. For example, we recently
entered into strategic relationships with the NEC Computer Systems Division, or
NEC, and Motorola, that provide us with priority access to new products and
gives us the ability to offer a more integrated electronic commerce solution
for enterprises. In addition, we plan to establish additional online
partnerships that create direct online links from other websites and from the
portable computing and mobile communications areas of major Internet portals.
For example, we recently entered into an agreement with Ariba, which enables
customers to order our products from the Ariba purchasing system, and we
recently launched our online affiliate program. We cannot be certain that any
of these strategic relationships or partnerships will be successful in
attracting new customers. In addition, the strategic relationship with Motorola
is not subject to a written agreement and the agreements with Ariba and NEC may
be terminated by any party at any time upon written notice. Furthermore, under
our agreement with NEC we are currently obligated to purchase at least
$4,000,000 of product per year, which requirement may be increased, decreased
or waived by NEC in its discretion. Because our agreement with NEC was only
recently established, it is uncertain whether we will meet or exceed the stated
purchase obligation. Consequently, we cannot be certain that we will be able to
maintain these strategic relationships in the future. If these programs fail to
attract additional customers or we are unable to maintain these relationships,
our business, financial condition and results of operations could be harmed.
We must effectively manage our vendors to minimize inventory risk and maintain
our gross margins
In order to fulfill our orders, we depend upon our vendors to produce
sufficient quantities of products according to schedule. We may maintain high
inventory levels in some categories of merchandise in an effort to ensure that
these products are available to our customers. This may expose us to risks of
excess inventory and outdated merchandise, which could harm our business. If we
underestimate customer demand, we may disappoint customers who may purchase
from our competitors. We also negotiate with our vendors to get the best
quality available at the best prices in order to maintain and increase our
gross margins. Our failure to be able to manage our vendors effectively would
harm our operating results.
Failure of third party suppliers to ship products directly to our customers
could harm our business
For the six months ended June 30, 1999, approximately 15% of our total net
revenues were from products shipped to our customers directly from our
suppliers. The failure of these suppliers to continue to ship products directly
to our customers or to ship products to our customers in a timely
11
<PAGE>
manner could result in lost revenues, customer dissatisfaction and damage to
our reputation. In addition, if we could not depend on these suppliers to ship
products to our customers directly, we would have to carry the products in our
inventory, which would expose us to risks of excess inventory, outdated
merchandise and increased warehouse costs, all of which could harm our
business.
Failure of third-party carriers to deliver our products timely and
consistently could harm our business
Our supply and distribution system is primarily dependent upon our
relationships with United Parcel Service, Federal Express and Airborne
Express. We ship substantially all of our orders with these carriers. Because
we do not have written agreements with these carriers that guarantee continued
service, we cannot be sure that our relationships with these carriers will
continue on terms favorable to us, or at all. If our relationship with one or
more of these carriers is terminated or impaired, or if one or more of these
carriers is unable to ship products for us, whether through labor shortage,
slow down or stoppage, deteriorating financial or business conditions or for
any other reason, we would be required to rely on the other carriers. These
carriers may not be able to accommodate the increased shipping volume, in
which case we may be required to use alternative carriers, with whom we may
have no prior business relationship, for the shipment of products to our
customers. We may be unable to engage an alternative carrier on a timely basis
or upon terms favorable to us. Changing carriers would likely harm our
business, financial condition and results of operations. Potential adverse
consequences include:
. reduced package tracking information;
. delays in order processing and product delivery;
. increased delivery costs, resulting in reduced gross margins; and
. reduced shipment quality, which may result in damaged products and
customer dissatisfaction.
We may not be able to protect and enforce our trademarks, Internet addresses
and intellectual property rights
We seek to protect our brand and our other intellectual property through a
combination of copyright, trade secret and trademark laws. Our iGo brand and
our Internet address, www.iGo.com, are important components of our business
strategy. We have recently filed federal trademark applications for "iGo,"
"iGo.com" and "Solutions for People on the Go." We cannot guarantee that any
of these trademark applications will be granted. In July 1999, the United
States Patent and Trademark Office, or PTO, preliminarily declined
registration of "iGo" and "iGo.com" when used in connection with our services
because, in the PTO examiner's opinion, there was a likelihood that if these
marks were to be registered, they would be confused with a prior trademark
registration for "IGO" that covers interactive teaching equipment (PTO
Registration No. 2,086,551). In addition, the examiner requested non-
substantive revisions to the identification and classification of services.
Effective September 30, 1999, we acquired by assignment the rights to the
registered mark cited by the PTO examiner and will record this assignment
promptly with the PTO. We intend to respond to the PTO's preliminary action
prior to the January 15, 2000 deadline. We cannot guarantee that we will be
able to secure registration of these marks. If we are unable to secure
registration of these marks or otherwise obtain the right to use these marks
under contract or common law, we may be required to stop using these marks.
This could cause confusion to our customers and in the marketplace and harm
our business, financial condition and results of operations. In addition, this
12
<PAGE>
could cause confusion to potential investors, which could cause the price of
our common stock to decline. We are in the process of filing trademark
applications for "iGo," "iGo.com" and our logo in various jurisdictions outside
the United States. We cannot guarantee that we will be able to secure the
registration of these trademarks in foreign countries, and this may affect our
ability to do business in the countries where we currently conduct business or
into which we intend to expand.
In addition, we have received a letter from an individual who owns a federal
registration for an "i GO" mark for clothing alleging that our "iGo" mark
infringes on his mark, and demanding that we cease and desist the use of our
mark. We responded to the allegation disputing this claim. Subsequently, the
attorney for this individual has forwarded to us a draft complaint that he
claims will be filed unless the matter can be resolved. This draft complaint
alleges that the use of our "iGo" mark in connection with our products and
services constitutes trademark infringement, trademark dilution, unfair
competition and unfair trade practices with respect to his "i GO" mark and
seeks injunctive relief, monetary damages, costs and attorney's fees. We
anticipate that this complaint will be filed in the United States District
Court for the Central District of California on or shortly after the date of
this prospectus. We cannot assure you that other third parties will not claim
trademark or trade name infringement in the future. If we are unable to secure
registrations for these marks, or if a third party claim results in litigation,
we may be required to stop using these marks and our name which could harm our
business. With or without merit, these disputes can be time consuming and
result in costly litigation which may harm our financial results.
In addition, we currently hold various Internet domain names, including
iGo.com. The acquisition and maintenance of domain names generally is regulated
by Internet regulatory bodies. The regulation of domain names in the United
States and in foreign countries is subject to change. Governing bodies may
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
may be unable to acquire or maintain relevant domain names in all countries in
which we conduct business. Furthermore, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights continues to evolve. Therefore, we may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of our trademarks and other proprietary rights.
See "Business--Intellectual Property."
The loss of our current toll-free telephone number and associated rights could
harm our business
On July 19, 1999, the company from whom we purchased the rights to the
1-800-Batteries toll-free telephone number and name gave us notice that they
believe we have failed to cure a material breach of our agreement with them.
The notice also stated that they are terminating their agreement with us and
demanding a return of their rights as well as unspecified monetary damages. At
the same time, they made a demand for arbitration of the matter with the
American Arbitration Association in Richmond, Virginia. We have responded to
their demand by formally denying their claims as well as challenging the
location of the arbitration proceedings. Many of our customers may rely on the
1-800-Batteries phone number to reach our customer solutions representatives
and to the extent that the arbitrator disagrees with our position and allows
this agreement to terminate, we could be harmed, although it is difficult to
estimate the extent or materiality of such harm. See "Business--Legal
Proceedings."
The failure to successfully defend a lawsuit challenging our hiring practices
could harm our business
On October 11, 1999, in the Second Judicial District Court of the State of
Nevada in and for the County of Washoe, Microflex Corporation filed a lawsuit
against us and certain of our employees
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<PAGE>
based upon circumstances surrounding our hiring of several former Microflex
employees. The suit alleges that we have induced certain former Microflex
employees to breach the terms of their nondisclosure and nonsolicitation
agreements with Microflex, that we have interfered with Microflex's contractual
relations and prospective economic advantage, and that we have engaged in
unfair competition. Microflex seeks injunctive relief, monetary damages, costs
and attorney's fees. We are currently investigating the facts surrounding these
claims and consulting with legal counsel regarding this matter. We cannot be
certain that we will be successful in defending our actions. Furthermore, if we
are unsuccessful in our defense, any remedies awarded to Microflex could harm
our business. See "Business--Legal Proceedings."
We may be vulnerable to new tax obligations that could be imposed on electronic
commerce transactions
We do not expect to collect sales or other similar taxes or goods shipped
into most states. However, one or more states or the federal government may
seek to impose sales tax collection obligations on out-of-state companies, such
as ours, which engage in or facilitate electronic commerce. A number of
proposals have been made at the state and local levels that would impose
additional taxes on the sale of goods and services through the Internet. These
proposals, if adopted, could substantially impair the growth of electronic
commerce and cause purchasing through our website to be less attractive to
customers. In October 1998, the United States Congress passed legislation
limiting for three years the ability of the states to impose taxes on Internet-
based transactions. Failure to renew this legislation could result in the
imposition by various states of taxes on electronic commerce. Further, states
have attempted to impose sales tax collection obligations on direct marketing
sales from businesses such as ours. A successful assertion by one or more
states that we should have collected or be collecting sales taxes on the sale
of products could harm our business.
If we expand our business internationally, our business would become
increasingly susceptible to numerous international risks and challenges that
could affect our results of operations
Although we have not had meaningful international revenues to date, we intend
to increase our international sales efforts. International sales are subject to
inherent risks and challenges that could affect our results of operations,
including:
. the need to develop new supplier relationships;
. unexpected changes in international regulatory requirements and tariffs;
. difficulties in staffing and managing foreign operations;
. potential adverse tax consequences;
. price controls or other restrictions on, or fluctuations in, foreign
currency; and
. difficulties in obtaining export and import licenses.
To the extent we generate international sales in the future, any negative
effects on our international business could harm our business, financial
condition and results of operations as a whole. In particular, gains and losses
on the conversion of foreign payments into U.S. dollars may contribute to
fluctuations in our results of operations, and fluctuating exchange rates could
cause reduced revenues from dollar-denominated international sales.
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<PAGE>
Any acquisitions we make could disrupt our business and harm our financial
condition
While we have no current agreements or negotiations underway, we may invest
in or buy complementary businesses, products or technologies in the future. In
the event of any investments or purchases, we could:
. issue stock that would dilute the percentage ownership of our current
stockholders;
. incur debt;
. assume liabilities;
. incur amortization expenses related to goodwill and other intangible
assets; or
. incur large and immediate write-offs.
These acquisitions could also involve numerous operational risks, including:
. problems combining the purchased operations, products or technologies;
. unanticipated costs;
. diversion of management's attention away from our core business;
. adverse effects on existing business relationships with suppliers and
customers;
. risks associated with entering markets in which we have no or limited
prior experience; and
. potential loss of key employees, particularly those of the purchased
organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products or technologies that we might acquire in the future.
The loss of technologies licensed from third parties could harm our business
We rely to a material extent on technology developed and licensed from third
parties. The loss of existing technology licenses could harm the performance of
our existing services until equivalent technology can be identified, obtained
and integrated. Failure to obtain new technology licenses may result in delays
or reductions in the introduction of new features, functions or services, which
would harm our business.
We would lose revenues and incur significant costs if our systems or those of
material third-parties are not Year 2000 compliant
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the Year 1900 rather than the Year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
The failure of our internal systems, or any material third-party systems, to
be Year 2000 compliant could harm our business, financial condition and results
of operations. We have obtained assurances from a substantial number of our
suppliers that their systems or products are or will be Year 2000 compliant. We
have reviewed the Year 2000 readiness disclosures of our major suppliers and
service providers.
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<PAGE>
To date, we have not incurred any material costs in identifying or evaluating
Year 2000 compliance issues. However, we may fail to discover Year 2000
compliance problems in our systems that will require substantial revisions or
replacements. In the event that the fulfillment and operational facilities that
support our business, or our web-hosting facilities, are not Year 2000
compliant, portions of our website may become unavailable and we would be
unable to deliver services to our customers. In addition, there can be no
assurance that third-party software, hardware or services incorporated into our
internal systems will not need to be revised or replaced, which could be time-
consuming and expensive. Our inability to fix or replace third-party software,
hardware or services on a timely basis could result in lost revenues, increased
operating costs and other business interruptions, any of which could harm our
business, financial condition and results of operations. Moreover, the failure
to adequately address Year 2000 compliance issues in our software, hardware or
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000 compliant. The failure by these entities
to be Year 2000 compliant could result in a systemic failure beyond our
control, including, for example, a prolonged Internet, telecommunications or
electrical failure, which could also prevent us from delivering our services to
our customers, decrease the use of the Internet or prevent customers from
accessing our services, any of which would harm our business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000 Compliance."
Our business, financial condition and results of operations could be harmed if
we were to be liable for defects in the products we offer
We may be subject to product liability claims for the products we sell. While
we believe that our product liability coverage of $4,000,000 is currently
adequate, we can provide no assurance that the insurance can be maintained in
the future at a reasonable cost or in amounts sufficient to protect us against
losses due to liability. A successful liability claim brought against us in
excess of relevant insurance coverage could harm our business, financial
condition and results of operations.
Damage to or destruction of our warehouse could result in loss of our
inventory, which could harm our business, financial condition and results of
operations
If all or most of the inventory in our warehouse were damaged or destroyed,
we might be unable to replace the inventory in a timely manner and, as a
result, be unable to process orders in a timely manner or at all. Approximately
85% of the products we sell come from the inventory in our warehouse. We cannot
be certain that we would be able to replace the inventory as quickly as our
customer orders demand, which may result in the loss of revenue and customers,
which would harm our business, financial condition and results of operations.
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Risks Related To The Internet Industry
We are dependent on the continued development of the Internet infrastructure
Our industry is new and rapidly evolving. Our business would be harmed if
Internet usage does not continue to grow. Internet usage may be inhibited for a
number of reasons, including:
. inadequate Internet infrastructure;
. inconsistent quality of service; and
. unavailability of cost-effective, high-speed service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth, or its performance and
reliability may decline. In addition, websites, including ours, have
experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. We anticipate
that these outages or delays will occur from time to time in the future and, if
they occur frequently or for extended periods of time, Internet usage,
including usage of our website, could grow more slowly or decline.
Our long-term success depends on the development of the electronic commerce
market, which is uncertain
Our future revenues substantially depend upon the widespread acceptance and
use of the Internet as an effective medium of commerce by consumers. Demand for
recently introduced products and services over the Internet is subject to a
high level of uncertainty. Although independent market research firms forecast
that the number of Internet users worldwide will grow substantially in the next
few years, we cannot be certain that this growth will occur or that our sales
will grow at the same rate. The development of the Internet as a viable
commercial marketplace is subject to a number of risks including:
. potential customers may be unwilling to shift their purchasing from
traditional vendors to online vendors;
. insufficient availability of or changes in telecommunications services
could result in slower response times, which could delay the acceptance
of the Internet as an effective commerce medium;
. continued growth in the number of Internet users;
. concerns about transaction security;
. continued development of the necessary technological infrastructure;
. development of enabling technologies; and
. uncertain and increasing government regulations.
Rapid technological change could render our websites and systems obsolete and
require significant capital expenditures
The Internet and the electronic commerce industry are characterized by rapid
technological change, sudden changes in customer requirements and preferences,
frequent new product and service introductions incorporating new technologies
and the emergence of new industry standards and practices that could render our
existing websites and transaction processing systems obsolete. The
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<PAGE>
emerging nature of these products and services and their rapid evolution will
require that we continually improve the performance, features and reliability
of our online services, particularly in response to competitive offerings. Our
success will depend, in part, on our ability:
. to enhance our existing products and services; and
. to respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
The development of websites and other proprietary technology entails
significant technical and business risks and requires substantial expenditures
and lead time. We may be unable to use new technologies effectively or adapt
our website, proprietary technology and transaction-processing systems to
customer requirements or emerging industry standards which could harm our
business. Updating our technology internally and licensing new technology from
third parties may require significant additional capital expenditures and could
affect our results of operations.
We are exposed to risks associated with electronic commerce security and credit
card fraud, which may reduce collections and discourage online transactions
Consumer concerns about privacy or the security of transactions conducted on
the Internet may inhibit the growth of the Internet and electronic commerce. To
date, approximately 75% of our customer purchases have been made with credit
cards. To securely transmit confidential information, such as customer credit
card numbers, we rely on encryption and authentication technology that we
license from third parties. We cannot predict whether the algorithms we use to
protect customer transaction data will be compromised. Furthermore, our servers
may be vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions. We may need to expend significant additional capital and
other resources to protect against a security breach or to alleviate problems
caused by any security breaches. The measures we take to protect against
security breaches may not be successful. Our failure to prevent security
breaches could harm our business.
To date, we have suffered minor losses as a result of orders placed with
fraudulent credit card data even though the associated financial institution
approved payment of the orders in each case. Under current credit card
practices, a merchant is liable for fraudulent credit card transactions where,
as is the case with the transactions we process, that merchant does not obtain
a cardholder's signature. A failure to adequately control fraudulent credit
card transactions could reduce our revenues and harm our business.
We could face liability for information displayed on and communications through
our website
We may be subject to claims for defamation, negligence, copyright or
trademark infringement or other claims relating to the information we publish
on our website. These types of claims have been
brought, sometimes successfully, against Internet companies as well as print
publications in the past. We also utilize email as a marketing medium, which
may subject us to potential risks, such as:
. liabilities or claims resulting from unsolicited email;
. lost or misdirected messages; or
. illegal or fraudulent use of email.
These claims could result in substantial costs and a diversion of our
management's attention and resources, which could harm our business.
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<PAGE>
Efforts to regulate or eliminate the use of mechanisms that automatically
collect information on visitors to our website may interfere with our ability
to target our marketing efforts
Websites typically place a small tracking program on a user's hard drive
without the user's knowledge or consent. These programs automatically collect
data about any visits that a user makes to various websites. Website operators
use these mechanisms for a variety of purposes, including the collection of
data derived from users' Internet activity. Most currently available Internet
browsers allow users to elect to remove these tracking programs at any time or
to prevent this information from being stored on their hard drive. In addition,
some commentators, privacy advocates and governmental bodies have suggested
limiting or eliminating the use of these tracking mechanisms. Any reduction or
limitation in the use of this software could limit the effectiveness of our
sales and marketing efforts.
We could face additional burdens associated with government regulation of and
legal uncertainties surrounding the Internet
New Internet legislation or regulation or the application of existing laws
and regulations to the Internet and electronic commerce could harm our
business, financial condition and results of operations. We are subject to
regulations applicable to businesses generally and laws or regulations directly
applicable to communications over the Internet and access to electronic
commerce. Although there are currently few laws and regulations directly
applicable to electronic commerce, it is possible that a number of laws and
regulations may be adopted with respect to the Internet covering issues such as
user privacy, pricing, content, copyrights, distribution, antitrust, taxation
and characteristics and quality of products and services. For example, the
United States Congress recently enacted Internet laws regarding children's
privacy, copyrights and transmission of sexually explicit material. In
addition, the European Union recently enacted its own Internet privacy
regulations. 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 regarding the
Internet may decrease the growth of the Internet or electronic commerce, which
could, in turn, decrease the demand for our products and services and increase
our cost of doing business. In addition, if we were alleged to have violated
federal, state or foreign civil or criminal law, we could be subject to
liability, and even if we could successfully defend such claims, they may
involve significant legal compliance and litigation costs. See "Business--
Government Regulation."
Risks Related To This Offering
Management may apply the proceeds of this offering to uses that do not improve
our results of operations or increase our market value
Our management will have considerable discretion in the application of the
net proceeds of this offering, and you will not have the opportunity, as part
of your investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds of this offering may be used for corporate
purposes that do not increase our results of operations or our market value.
Pending application of the proceeds, they may be placed in investments that do
not produce income or that lose value. See "Use of Proceeds."
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<PAGE>
There has been no prior market for our common stock and a public market for our
securities may not develop or be sustained
Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after this offering, and the market price might fall below the initial public
offering price. The initial public offering price may bear no relationship to
the price at which the common stock will trade upon completion of this
offering. The initial public offering price will be determined based on
negotiations between us and the representatives of the underwriters, based on
factors that may not be indicative of future market performance. See
"Underwriting."
Substantial sales of our common stock could cause our stock price to decline
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market following this offering, then the market price of our common
stock could fall. Restrictions under the securities laws and lock-up agreements
limit the number of shares of common stock available for sale in the public
market. The holders of all shares of common stock, warrants and options
exercisable into shares of common stock have agreed not to sell any of these
securities for 180 days after the effective date of the offering without the
prior written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion, release all or any portion
of the securities subject to these lock-up agreements.
We will file a registration statement to register all shares of common stock
under our stock option plan shortly following this offering. After this
registration statement is effective and upon expiration or release of
applicable lock-up restrictions, shares issued upon exercise of stock options
will be eligible for resale in the public market without further restriction.
In addition, the holders of 13,844,172 shares of our common stock and a warrant
to purchase an additional 40,500 shares of our common stock hold registration
rights. After expiration or release of applicable lock-up restrictions, we will
be obligated, under certain limited circumstances and subject to specified
conditions and limitations, to use our best efforts to register these shares
for resale. See "Description of Capital Stock--Registration Rights."
Because our officers and directors will own approximately 45.2% of the
outstanding common stock after this offering, you and other investors will have
minimal influence on stockholder decisions
We anticipate that the executive officers, directors and entities affiliated
with them will, in the aggregate, beneficially own approximately 45.2% of our
outstanding common stock following the completion of this offering. These
stockholders, if acting together, would be able to influence significantly all
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions. As a result, these stockholders could approve or cause us to take
actions of which you disapprove or that are contrary to your interests and
those of other investors. See "Principal Stockholders."
Our growth and operating results would be impaired if we were unable to meet
our future capital requirements
We currently anticipate that the proceeds of this offering, together with our
existing cash balances and available credit will be sufficient to meet our
liquidity needs for at least the next
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12 months. We expect that we will continue to experience negative operating
cash flow in the near term. Accordingly, we may need to raise additional
amounts of capital if our estimates of revenues, working capital or capital
expenditure requirements change or prove inaccurate or in order for us to
respond to unforeseen technological or marketing hurdles or to take advantage
of unanticipated opportunities. Such funds may not be available at the time or
times needed, or available on terms acceptable to us. Raising funds by issuing
equity securities or convertible debt securities will dilute the percentage
ownership of our current stockholders, and any new securities we may issue may
have rights senior to the rights of our common stock. If adequate funds are not
available, or are not available on acceptable terms, our business could be
harmed.
Anti-takeover provisions and our right to issue preferred stock could make a
third-party acquisition of us difficult
Anti-takeover provisions of Delaware law could make it more difficult for a
third party to acquire control of us, even if the change in control would be
beneficial to our stockholders. Our certificate of incorporation provides that
our board of directors may issue preferred stock without stockholder approval.
The issuance of preferred stock could make it more difficult for a third party
to acquire us. See "Description of Capital Stock--Delaware Law and Certain
Provisions of our Certificate of Incorporation and Bylaws."
Our common stock price is likely to be highly volatile as is typical of
Internet-related companies
The market price of our common stock is likely to be highly volatile as is
the stock market in general, and the market for Internet-related companies in
particular. Investors may not be able to resell their shares of our common
stock at acceptable prices, if at all, following periods of volatility because
of the market's adverse reaction to volatility. The trading prices of the stock
of many Internet-related companies' stocks have reached historical highs during
1999 and have reflected valuations substantially above historical levels.
During the same period, the market price of the stock of these companies has
also been highly volatile. We cannot assure you that our stock will trade at
the same levels of other Internet stocks, that Internet stocks in general will
sustain their current market prices or that our stock will sustain its initial
public offering price.
Factors that could cause volatility may include, among other things:
. changes in financial estimates by securities analysts;
. any deviations in net revenues or in losses from levels expected by
securities analysts;
. conditions or trends in the Internet industry;
. changes in the market valuations of Internet-related companies;
. announcements by us or our competitors of new products or of significant
acquisitions, strategic partnerships or joint ventures;
. additions or departures of key personnel;
. future sales of common stock; and
. volume fluctuations, which are particularly common among highly volatile
securities of Internet-related companies.
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We may be subject to litigation if our common stock price is volatile
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 the company. The institution of class action litigation
against us could result in substantial costs to us and a diversion of our
management's attention and resources which would harm our business, financial
condition and results of operations. Any adverse determination in this
litigation could also subject us to significant liabilities.
The purchasers in this offering will immediately experience substantial
dilution in net tangible book value
Because our common stock has been sold previously at prices substantially
less than the initial public offering price that you will pay, you will suffer
immediate and substantial dilution in pro forma net tangible book value. The
exercise of outstanding options and warrants may result in further dilution.
This prospectus contains forward-looking statements that involve risks and
uncertainties
This prospectus contains forward-looking statements that relate to future
events or our future financial performance, which involve risks and
uncertainties. We use words such as "may," "will," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue" and similar expressions to identify forward-looking statements.
These statements are only predictions. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including the risk factors described above and
elsewhere in this prospectus.
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USE OF PROCEEDS
Our net proceeds from the sale of the 5,000,000 shares of common stock in the
offering are estimated to be approximately $54.6 million, at the initial public
offering price of $12.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses. If the underwriters' over-
allotment option is exercised in full, we estimate that our net proceeds will
be approximately $62.9 million. The primary purposes of this offering are to
obtain additional capital, create a public market for our common stock and
facilitate further access to public markets. We intend to use approximately
half of the net proceeds for investment in sales and marketing, and the
remainder for general corporate purposes, including working capital and capital
expenditures, as well as possible strategic acquisitions or investments.
Although we may use a portion of the net proceeds to acquire complementary
businesses, products or technologies, we currently have no commitments or
agreements for any acquisitions or investments and are not involved in
negotiations regarding any acquisitions or investments. Pending use of the net
proceeds for the above purposes, we intend to invest the net proceeds in short-
term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have not paid any cash dividends since inception and do not intend to pay
any cash dividends in the foreseeable future. In addition, the terms of our
credit agreement prohibit the payment of dividends on our capital stock.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
. on an actual basis;
. on a pro forma basis to reflect the sale of 850,572 shares of our Series
C preferred stock in July 1999 resulting in net proceeds of $5.7 million,
the incurrence of $1.2 million of subordinated convertible debt in August
1999 and the issuance of 40,500 shares of common stock upon exercise of a
warrant at an exercise price of $0.445 per share in July 1999; and
. on a pro forma basis as adjusted to reflect the conversion of $980,000 of
the subordinated debt into 124,982 shares of Series C preferred stock
prior to this offering, the conversion upon the closing of the offering
of all outstanding shares of preferred stock (including the shares issued
upon conversion of the subordinated debt) into 7,643,054 shares of common
stock, and the sale of the common stock offered hereby at the initial
public offering price of $12.00 per share and the receipt of the net
proceeds therefrom after deducting underwriting discounts and commissions
and estimated offering expenses payable by iGo.
The outstanding share information excludes 960,378 shares of common stock
issuable on exercise of outstanding options as of June 30, 1999, with a
weighted-average exercise price of $0.19 per share, 56,632 shares of common
stock issuable upon exercise of outstanding warrants at a weighted-average
exercise price of $2.26 per share, and 1,940,376 shares of common stock, net of
outstanding options, available for future grant under our stock option plan as
of June 30, 1999. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the notes to the financial statements. See "Use of
Proceeds" and "Management--Stock Plans."
<TABLE>
<CAPTION>
June 30, 1999
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ------- -----------
(in thousands)
<S> <C> <C> <C>
Short-term debt and current portion of capital
lease obligations.............................. $ 676 $ 676 $ 676
======= ======= =======
Long-term portion of debt and capital lease
obligations.................................... $ 641 $ 1,808 $ 828
Mandatory redeemable preferred stock, no par
value, 6,722,700 shares authorized, 6,667,500
shares issued and outstanding, actual;
7,762,500 shares authorized, 7,518,072 shares
issued and outstanding pro forma; no shares
authorized, issued or outstanding, pro forma as
adjusted....................................... 8,216 13,966 --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value, no shares
authorized, issued or outstanding, actual or
pro forma; 5,000,000 shares authorized, no
shares issued or outstanding, pro forma as
adjusted...................................... -- -- --
Common stock, no par value, 17,332,500 shares
authorized, 6,641,646 shares issued and
outstanding, actual; 52,237,500 shares
authorized, 6,682,146 shares issued and
outstanding, pro forma; $0.001 par value,
50,000,000 shares authorized,
19,325,200 shares issued and outstanding, pro
forma as adjusted............................. 7 7 19
Additional paid-in capital..................... 1,202 1,220 70,704
Receivable from stockholder.................... (48) (48) (48)
Deferred compensation.......................... (995) (995) (995)
Accumulated deficit............................ (7,662) (7,662) (7,662)
------- ------- -------
Total stockholders' equity (deficit)............ (7,496) (7,478) 62,018
------- ------- -------
Total capitalization............................ $ 1,361 $ 8,296 $62,846
======= ======= =======
</TABLE>
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DILUTION
The pro forma net tangible book value of our common stock as of June 30,
1999, was approximately $7.3 million or $0.51 per share of common stock. Net
tangible book value per share represents the amount of stockholders' equity,
net of intangible assets of $174,000, divided by 14,325,200 shares of common
stock outstanding after giving effect to the sale of our Series C preferred
stock in July 1999, the issuance of $1.2 million of subordinated convertible
debt in August 1999 and conversion of $980,000 of this debt into Series C
preferred stock prior to this offering, the issuance of common stock upon
exercise of a warrant in July 1999 and the conversion of all outstanding shares
of preferred stock into shares of common stock upon completion of this
offering.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering made hereby and the net tangible book value per share of
common stock immediately after completion of this offering. After giving effect
to our sale of 5,000,000 shares of common stock in this offering at the initial
offering price of $12.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses, our net tangible book value as
of June 30, 1999, would have been approximately $61.8 million or $3.20 per
share. This represents an immediate increase in net tangible book value of
$2.69 per share to existing stockholders and an immediate dilution in net
tangible book value of $8.80 per share to purchasers of common stock in this
offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Initial public offering price per share....................... $12.00
Pro forma net tangible book value per share as of June 30,
1999........................................................ $0.51
Increase in pro forma net tangible book value per share
attributable to new investors............................... 2.69
-----
Pro forma net tangible book value per share after the
offering..................................................... 3.20
------
Dilution per share to new investors........................... $ 8.80
======
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1999,
after giving effect to the sale of our Series C preferred stock in July 1999,
the issuance of $1.2 million of subordinated convertible debt in August 1999
and conversion of $980,000 of this debt into Series C preferred stock prior to
this offering, the issuance of common stock upon exercise of a warrant in July
1999 and the conversion of all outstanding shares of preferred stock into
common stock upon completion of this offering, the differences between the
existing stockholders and the purchasers of shares in this offering, at the
initial offering price of $12.00 per share, with respect to the number of
shares purchased from us, the total consideration paid and the average price
paid per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 14,325,200 74.1% $14,498,928 19.5% $ 1.01
New stockholders............ 5,000,000 25.9 60,000,000 80.5 12.00
---------- ----- ----------- ----- ------
Total..................... 19,325,200 100.0% $74,498,928 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of the underwriters' over-allotment
option and, except as set forth above, no exercise of any stock options and
warrants outstanding as of June 30, 1999. As of June 30, 1999, there were
options outstanding to purchase a total of 960,378 shares of common stock at a
weighted average exercise price of $0.19 per share. In addition, as of June 30,
1999, there were warrants outstanding to purchase 56,632 shares of common stock
(assuming the conversion of all preferred stock into common stock) at a
weighted average exercise price of approximately $2.26 per share which are not
expected to be exercised prior to the offering. To the extent outstanding
options or warrants are exercised, there will be further dilution to new
investors. See "Management--Stock Plans" and note 9 of the notes to the
financial statements.
25
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and related notes to the financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The statements of operations data for the years ended December 31,
1996, 1997 and 1998 and the balance sheet data at December 31, 1997 and 1998
are derived from the financial statements included elsewhere in this prospectus
which have been audited by Deloitte & Touche LLP, independent auditors, as set
forth in their report appearing herein. The statements of operations data for
the six months ended June 30, 1998 and 1999 and the balance sheet data at June
30, 1999, actual, are derived from unaudited interim financial statements
included elsewhere in this prospectus. The statements of operations data for
the years ended December 31, 1994 and 1995 and the balance sheet data at
December 31, 1994, 1995 and 1996 are derived from unaudited financial
statements not included in this prospectus. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial condition, results of operations and cash flows
have been included. The pro forma balance sheet data at June 30, 1999 reflects
the sale of our Series C preferred stock in July 1999, the incurrence of $1.2
million of subordinated convertible debt in August 1999 and the issuance of
common stock upon exercise of a warrant in July 1999.
<TABLE>
<CAPTION>
Six-Month Periods
Years Ended December 31, Ended June 30,
---------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------- ------- ------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Net product revenue... $ 675 $1,790 $4,508 $ 7,422 $12,318 $ 5,779 $ 7,718
Development revenue... -- -- -- 665 502 502 --
------ ------ ------ ------- ------- ------- -------
Total net revenues.. 675 1,790 4,508 8,087 12,820 6,281 7,718
Cost of goods sold...... 448 1,215 2,977 5,320 8,602 4,275 5,013
------ ------ ------ ------- ------- ------- -------
Gross profit............ 227 575 1,531 2,767 4,218 2,006 2,705
Operating expenses:
Sales and marketing... 126 451 943 2,485 3,883 1,934 3,815
Product development... 48 33 87 113 511 160 712
General and
administrative....... 58 246 558 1,076 1,666 785 1,805
------ ------ ------ ------- ------- ------- -------
Total operating
expenses........... 232 730 1,588 3,674 6,060 2,879 6,332
------ ------ ------ ------- ------- ------- -------
Loss from operations.... (5) (155) (57) (907) (1,842) (873) (3,627)
Other income (expense),
net.................... (11) (2) 12 21 (44) (33) (211)
------ ------ ------ ------- ------- ------- -------
Net loss................ (16) (157) (45) (886) (1,886) (906) (3,838)
Preferred stock
dividends.............. -- -- (71) (140) (247) (75) (327)
------ ------ ------ ------- ------- ------- -------
Net loss attributable to
common stockholders.... $ (16) $ (157) $ (116) $(1,026) $(2,133) $ (981) $(4,165)
====== ====== ====== ======= ======= ======= =======
Net loss per share--
basic and diluted...... $(0.00) $(0.03) $(0.02) $ (0.19) $ (0.36) $ (0.17) $ (0.66)
====== ====== ====== ======= ======= ======= =======
Weighted-average shares
outstanding............ 5,400 5,400 5,400 5,544 5,998 5,939 6,347
====== ====== ====== ======= ======= ======= =======
<CAPTION>
December 31, June 30, 1999
---------------------------------------- ------------------
1994 1995 1996 1997 1998 Actual Pro Forma
------ ------ ------ ------- ------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 29 $ 50 $1,012 $ -- $ 2,504 $ -- $ 6,935
Working capital......... 51 (218) 1,125 157 3,447 (43) 6,892
Total assets............ 187 330 1,886 2,384 5,536 5,138 12,073
Long-term portion of
capital lease
obligations............ -- -- -- 20 23 641 1,808
Mandatory redeemable
preferred stock........ -- -- 1,539 1,680 7,890 8,216 13,966
Total stockholders'
equity (deficit)....... (29) (172) (288) (1,314) (3,425) (7,496) (7,478)
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the related notes included elsewhere in this prospectus.
Overview
iGo was incorporated in March 1993 and began offering products for sale later
that year, but did not generate meaningful revenues until 1995. For the period
from inception to 1995, our operating activities related primarily to the
development of our proprietary databases and to locating favorable sources of
supply. In 1995, we launched our first direct marketing campaign and focused on
building sales volume and fulfillment capabilities, and in 1996, we launched
our website. Since 1997, we have significantly increased the depth of our
management team to help implement our growth strategy. We have recently
expanded our senior management team to include a Vice President of Sales and
Marketing, Chief Information Officer, Vice President of Operations, Chief
Financial Officer and Vice President and General Manager, E-Commerce. In June
1997, we relocated from San Jose, California to Reno, Nevada to take advantage
of lower operating costs for our customer contact and fulfillment centers.
Revenues from sales of products and shipping fees are recognized at the time
the merchandise is shipped to customers, net of any discounts and reserves for
expected returns. The majority of orders are shipped the same day they are
received. To date, approximately 75% of customer purchases have been made with
credit cards. We generally receive payment from the credit card companies
within one to four business days after shipment of the product. We also extend
credit terms, typically net 30 days, to corporate accounts that we have
evaluated for creditworthiness. Inventory is carried at the lower of cost or
market. We use the first-in-first-out method to determine cost. Advertising and
promotional costs are expensed as incurred and are recorded net of any
cooperative advertising amounts due from our suppliers at that time. In the
case of direct mail campaigns, the expenses are recorded at the time the
promotional piece is mailed to potential customers because the projected future
revenue stream from these mailings, which can occur over a two month period,
cannot be ultimately determined at the time the mailing occurs.
We incurred net losses of $45,000 in 1996, $886,000 in 1997 and $1.9 million
in 1998. For the six months ended June 30, 1999, our net loss was $3.8 million.
At June 30, 1999, we had an accumulated deficit of approximately $7.7 million.
The net losses resulted from costs associated with marketing programs to
attract new customers, developing our website and proprietary databases and the
development of our operational infrastructure.
We plan to invest heavily in marketing and promotion, to hire additional
employees and to enhance our website and operating infrastructure. Therefore we
expect to incur increasing sales and marketing, general and administrative and
product development expenses. As a result, we will need to generate
significantly higher revenues to achieve and maintain profitability, although
we may never be able to do so. If our revenue growth is slower than we
anticipate or our operating expenses exceed our expectations, our losses will
be significantly greater.
Six Months Ended June 30, 1998 and 1999
Net Product Revenue. Net product revenue consists of product sales to
customers and outbound shipping charges, net of any discounts and reserves for
expected returns. Net product
27
<PAGE>
revenue increased from $5.8 million for the six months ended June 30, 1998 to
$7.7 million for the six months ended June 30, 1999. The increase in net
product revenue reflects expanded marketing efforts.
Development Revenue. Development revenue represents sales of proprietary
products developed and manufactured for a specific customer. No product
development revenue was generated for the six months ended June 30, 1999, as
compared to $502,000 for the six months ended June 30, 1998. This decrease
reflects our strategy of focusing on the sale of products with broad appeal to
individuals and businesses rather than on proprietary products for a specific
customer's application. We do not anticipate generating significant development
revenue in the future.
Cost of Goods Sold. Cost of goods sold consists primarily of the cost of
products sold to customers, inbound shipping expense and outbound shipping
charges. Cost of goods sold increased from $4.3 million for the six months
ended June 30, 1998 to $5.0 million for the six months ended June 30, 1999. The
improvement in gross margin from 32% to 35% reflects improved sourcing and
purchasing capabilities and a shift to higher margin products in the overall
sales mix.
Sales and Marketing. Sales and marketing expenses consist primarily of
advertising costs, fulfillment expenses, credit card costs and the salary and
benefits of our sales, marketing and customer contact center personnel.
Advertising and promotional expenses include online marketing efforts, print
advertising, trade shows and direct marketing costs. Sales and marketing
expenses increased from $1.9 million for the six months ended June 30, 1998 to
$3.8 million for the six months ended June 30, 1999. The increase primarily
reflected an increase in advertising and promotional costs, including direct
campaigns to promote our website. Advertising and promotional expenses
increased from $1.1 million for the six months ended June 30, 1998 to $2.3
million for the six months ended June 30, 1999. All other sales and marketing
expenses consisting primarily of payroll expenses increased from $866,000 for
the six months ended June 30, 1998 to $1.5 million for the six months ended
June 30, 1999. We intend to continue to pursue an aggressive marketing strategy
to attract new customers. Therefore, we expect sales and marketing expenses to
increase significantly in absolute dollar terms in future periods.
Product Development. Product development expenses consist primarily of
payroll and related expenses for merchandising and website personnel, site
hosting fees and web content and design expenses. Product development expenses
increased from $160,000 for the six months ended June 30, 1998 to $712,000 for
the six months ended June 30, 1999. This increase is the result of expenses
incurred to improve our website interface, the introduction of new Internet-
based technology and the overall expansion of our mobile product offerings. We
intend to continue to build the infrastructure necessary to provide a high
level of service. Therefore, we expect product development expenses to
increase.
General and Administrative. General and administrative expenses consist of
salaries and related costs for our executive, administrative and finance
personnel, support services and professional fees, as well as general corporate
expenses such as rent and depreciation. General and administrative expenses
increased from $785,000 for the six months ended June 30, 1998 to $1.8 million
for the six months ended June 30, 1999. This increase was primarily
attributable to increased personnel as well as costs associated with the
complete upgrade of our customer contact database and finance systems including
depreciation and service costs. We upgraded these systems in January 1999 to
increase functionality and to provide for expected growth. In addition, for the
six months ended June 30, 1999, we recorded $898,000 in deferred compensation
for new option grants
28
<PAGE>
to employees and directors and expensed $90,000, principally related to these
grants. This deferred compensation amount represents the difference between the
deemed fair value of the common stock and the exercise price at the time the
options were granted.
Other Income (Expense), Net. Other expense, net, consists primarily of net
interest income earned on cash and cash equivalents and loss resulting from
sale-leaseback transactions. Other expense, net, increased from $33,000 for the
six months ended June 30, 1998 to $211,000 for the six months ended June 30,
1999, primarily as a result of a $219,000 loss incurred on the sale and
leaseback of computer equipment and software, resulting from the system upgrade
in January 1999, partially offset by $32,000 in interest income for the period
ended June 30, 1999.
Fiscal Years Ended December 31, 1996, 1997 and 1998
Net Product Revenue. Net product revenue increased from $4.5 million in 1996
to $7.4 million in 1997 and to $12.3 million in 1998. The increase in net
product revenue reflects expanded marketing efforts.
Development Revenue. In 1997, we received a contract from a major retailing
chain to develop a customized battery power and charging solution for mobile
cash register carts. These products were shipped between December 1997 and
February 1998. We do not anticipate generating significant development revenue
in the future.
Cost of Goods Sold. Cost of goods sold increased from $3.0 million in 1996 to
$5.3 million in 1997 and to $8.6 million in 1998 primarily as a result of
increased sales volume between 1996 and 1997. Gross margins increased from
34.0% to 34.2% as a result of improved sourcing. In 1998, our gross margin
decreased to 33% as a result of a moderate shift in the sales mix to higher
volume corporate accounts with more aggressive multi-unit pricing and the
establishment of a reserve for inventory obsolescence in the amount of
$109,000, the equivalent of 1.3% of total cost of goods sold and 5.9% of loss
from operations. The reserve for obsolescence was established to account for
estimated writedowns on slower moving inventory items as a result of increased
inventory levels during 1998.
Sales and Marketing. Sales and marketing expenses increased from $943,000 in
1996 to $2.5 million in 1997 and to $3.9 million in 1998. The overall increase
in sales and marketing expenses reflects expanded marketing efforts to attract
new customers and an increase in personnel to support our growing business.
Expanded marketing efforts accounted for $1.1 million of the increase from 1996
to 1997 and $496,000 of the increase from 1997 to 1998. The increase in
personnel represents $354,000 of the increase from 1996 to 1997 and $626,000 of
the increase from 1997 to 1998. Overall, sales and marketing expenses
represented 21%, 31% and 30% of net revenues for each of the years in the
three-year period ended December 31, 1998.
Product Development. Product development expenses increased from $87,000 in
1996 to $113,000 in 1997 and to $511,000 in 1998. These increases were the
result of enhancements to our website to increase its functionality and ease of
use.
General and Administrative. General and administrative expenses increased
from $558,000 in 1996 to $1.1 million in 1997 and to $1.7 million in 1998. The
increase from 1996 to 1997 of $518,000 was attributable to increased facility
expenses and moving costs associated with our relocation from San Jose,
California to Reno, Nevada as well as an increase in personnel. Overall,
facilities expenses increased by $119,000, moving costs totalled $81,000 and
the addition of personnel increased expenses by $112,000 from 1996 to 1997. The
increase from 1997 to 1998 of
29
<PAGE>
$590,000 primarily reflects additional personnel. During 1998, we recorded
total deferred stock compensation of $203,000 in connection with option grants
to employees and directors during the year. Of this total amount, $15,000 was
expensed during 1998 and included in general and administrative expenses. The
remaining $188,000 will be expensed on a straight-line basis over the four-year
vesting period of the options.
Other Income (Expense), Net. Other income, net, increased from $12,000 in
1996 to $21,000 in 1997 as a result of interest earned on the proceeds from our
Series A preferred stock offering in June 1996. In 1998, we incurred other
expense, net, of $44,000 on working capital advances under a revolving credit
facility through October 1998 offset by interest earned on the proceeds from
our Series B preferred stock offering in October 1998.
Income Taxes. As of December 31, 1998, we had net operating loss
carryforwards for federal income tax purposes of $2.8 million, which expire
beginning in 2011. We have provided a full valuation allowance on the deferred
tax asset because of uncertainty regarding its utilization. Changes in the
ownership of our common stock, as defined in the Internal Revenue Code of 1986,
as amended, may restrict our ability to realize the benefit of the
carryforwards. To date, we have not been required to make any federal income
tax payments.
Quarterly Results of Operations
The following table sets forth unaudited quarterly statements of operations
data for each of the six quarters in the period ended June 30, 1999. In the
opinion of management, this unaudited information has been prepared on the same
basis as the annual financial statements and includes all adjustments
(consisting only of normal recurring adjustments) necessary for the fair
presentation of our results of operations for those periods. This information
should be read in conjunction with the financial statements and related notes
appearing elsewhere in this prospectus. The results of operations for any
quarter are not necessarily indicative of the results of operations for any
future period.
<TABLE>
<CAPTION>
Three-Month Periods Ended
----------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net product revenue... $ 2,825 $ 2,954 $ 3,140 $ 3,399 $ 3,478 $ 4,240
Development revenue... 502 -- -- -- -- --
------- ------- ------- ------- ------- -------
Total net revenues.. 3,327 2,954 3,140 3,399 3,478 4,240
Cost of goods sold...... 2,273 2,002 2,079 2,248 2,274 2,739
------- ------- ------- ------- ------- -------
Gross profit............ 1,054 952 1,061 1,151 1,204 1,501
Operating expenses:
Sales and marketing... 758 1,176 939 1,010 2,033 1,782
Product development... 78 82 95 256 371 341
General and
administrative....... 373 412 409 472 745 1,060
------- ------- ------- ------- ------- -------
Total operating
expenses........... 1,209 1,670 1,443 1,738 3,149 3,183
------- ------- ------- ------- ------- -------
Loss from operations.... (155) (718) (382) (587) (1,945) (1,682)
Other income (expense),
net.................... (18) (15) (33) 22 21 (232)
------- ------- ------- ------- ------- -------
Net loss............ $ (173) $ (733) $ (415) $ (565) $(1,924) $(1,914)
======= ======= ======= ======= ======= =======
</TABLE>
30
<PAGE>
Our net product revenue has increased successively each quarter as a result
of sales to new customers, repeat purchases by existing customers and overall
growth from the installed base of mobile electronic devices requiring
accessories and batteries. Gross margins have improved as we have found better
sources for products and leveraged our buying power. Our sales and marketing,
product development and general and administrative expenses have generally
increased as we have aggressively built our operational infrastructure and
marketed our solution to new customers. Our spending on marketing and
promotional activities to attract new customers has historically been
influenced by our access to capital. For example, in the third quarter of 1998
and the second quarter of 1999, the total amount spent on sales and marketing
declined compared to the preceding quarter. This also impacts the comparability
of our results of operations for the six quarters in the period ended June 30,
1999.
We believe that we may experience seasonality in our business. Traditionally,
business-related purchases decline in the summer months and consumer purchasing
peaks in the fourth quarter. We believe Internet usage also has the same
seasonal patterns. Any seasonality in our business may have been obscured due
to our net product revenue growth in each successive quarter and the number of
new customers added each period. See "Risk Factors" for a discussion of other
factors affecting our quarterly results of operations.
Liquidity and Capital Resources
We have financed our operations primarily through the sale of preferred
stock, capital lease obligations and revolving credit facilities. As of June
30, 1999, we have received $7.4 million from the sale of preferred stock, net
of issuance costs. Of this amount, $1.4 million was received in June 1996 and
$6.0 million in October 1998. Proceeds from equipment financed under a sale-
leaseback transaction, net of principal repayments, amounted to $694,000 during
the six months ended June 30, 1999.
Net cash used in operating activities was $3.0 million for the six months
ended June 30, 1999, $2.5 million for the year ended December 31, 1998,
$798,000 for the year ended December 31, 1997 and $397,000 and for the year
ended December 31, 1996. Net cash used in operating activities consisted
primarily of net losses, as well as increased inventory balances and
fluctuation in accounts receivable between periods, partially offset by
increased depreciation and reserve accounts. Between December 31, 1997 and
December 31, 1998, accounts receivable decreased by $497,000 as a result of a
decrease in development revenues. Between December 31, 1998 and June 30, 1999,
accounts receivable increased by $1.5 million as a result of increased sales to
corporate accounts. The provision for sales returns as a percentage of gross
revenues increased from 4% to 7% and to 13% for the years ended December 31,
1996, 1997 and 1998, respectively. This increase reflects a broadening of our
product offering from model-specific accessories to include other mobile
devices.
Net cash used in investing activities was $774,000 for the six months ended
June 30, 1999. The majority of this amount was financed through sale-leaseback
transactions. The terms of the lease line provide a total facility of $2.0
million, of which $1.3 million was available at June 30, 1999 and requires
repayment over 30 to 36 months. Net cash used in investing activities was
$848,000 for the year ended December 31, 1998, $133,000 for the year ended
December 31, 1997 and $109,000 for the year ended December 31, 1996, and
reflects purchases of equipment commensurate with the overall growth of our
business. Net cash used in investing activities consists primarily of capital
expenditures for computers, software and office furniture, as well as costs to
acquire Internet domain names.
31
<PAGE>
Net cash provided by financing activities was $1.3 million for the six months
ended June 30, 1999, $5.9 million for the year ended December 31, 1998 and $1.5
million for the year ended December 31, 1996. Cash provided by financing
activities reflected sales of preferred stock in 1996 and 1998 and equipment
leases and bank borrowings in 1999. Net cash used in financing activities was
$82,000 for the year ended December 31, 1997 and reflected the repayment of a
short-term note.
As of June 30, 1999, we had $583,000 outstanding under our line of credit
agreement which bore interest at 1.75% over prime (or 9.5% at June 30, 1999)
and was repaid prior to the expiration of this line of credit on August 31,
1999. On June 23, 1999, we entered into a lease to finance the acquisition of
equipment. The lease expires 42 months from the date of the lease. As of
June 30, 1999, the aggregate obligation under this capital lease was $734,000.
On July 30, 1999, we received gross proceeds of $5.8 million from the sale of
Series C preferred stock and entered into a loan agreement which provides for
borrowings of up to $3.5 million. Borrowings under this credit facility bear
interest at 11% per annum, are due in 36 months and are secured by
substantially all of our assets. The terms of the debt require interest-only
payments for the first 12 months and interest and principal repayments for the
next 24 months. This debt is secured but subordinate to future credit
arrangements with banks of similar lenders. As of August 31, 1999, we had an
outstanding balance of $1.2 million. However, the debt holder has elected to
convert, contingent upon the closing of this offering, $980,000 of the
outstanding principal to preferred stock at a 15% premium over the price per
share paid by the Series C investors, resulting in the issuance of 124,982
shares to the debt holder.
We currently anticipate that the net proceeds of this offering, together with
our available funds, will be sufficient to meet our anticipated working capital
and capital expenditure needs for at least the next 12 months. We may need to
raise additional funds before the expiration of the 12 month period in the
event that we pursue strategic acquisitions or experience operating losses that
exceed our expectations. If we raise additional funds through the issuance of
equity securities or convertible debt securities, our existing stockholders may
experience significant dilution. Furthermore, additional financing may not be
available when needed or, if it is available, the terms may not favorable to
our stockholders or us.
Year 2000 Compliance
Impact of the Year 2000 Computer Problem. The Year 2000 computer problem
refers to the potential for system and processing failures of date-related data
as a result of computer-controlled systems using two digits rather than four to
define the applicable year. For example, computer programs that have time-
sensitive software may recognize a date represented as "00" as the Year 1900
rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. To date, we have experienced no
Year 2000 issues with any of our material internal systems, and we do not
expect to experience any. As a result, we have not adopted a specific Year 2000
contingency program.
State of Readiness of Our Internal Systems. In 1999, we upgraded our
customer contact and financial systems as part of the expansion of our
business. We have obtained assurances from our third-party vendors for these
new systems and all other material systems in use by us that such systems are
Year 2000 compliant.
32
<PAGE>
State of Readiness of Our Operations. Our internal operations and business
are also dependent upon the computer-controlled systems of third parties such
as suppliers, customers and service providers. We have developed a
questionnaire to help us determine whether our suppliers are Year 2000
compliant and sent it to our largest suppliers. All of these vendors have
responded that they are Year 2000 compliant. Even if some of our vendors are
not Year 2000 compliant, we have alternative sources of supply. We believe that
absent a systemic failure outside our control, such as a prolonged loss of
electrical or telephone service, Year 2000 problems at such third-party
facilities will not have a material impact on our operations.
Cost of Year 2000 Compliance. We replaced all of our major internal systems
less than a year ago to increase functionality and to accommodate expected
growth. These new systems have been certified Year 2000 compliant. All of our
systems and operations are being reviewed by our own information technology
employees. To date, we have made no material expenditures for Year 2000
compliance. Based on our assessment to date, we do not anticipate that costs
associated with remediating our internal systems will exceed $50,000.
Additional Risks. Although we believe our internal systems are Year 2000
compliant, if our belief is incorrect, any failure of our internal systems to
be Year 2000 compliant could result in a decrease in sales of our products, an
increase in allocation of resources to address Year 2000 problems of our
customers without additional revenue commensurate with such dedication of
resources, or an increase in litigation costs relating to losses suffered by
our customers due to such Year 2000 problems. Failures of our internal systems
could temporarily prevent us from processing orders, issuing invoices, and
developing products, and could require us to devote significant resources to
correcting such problems. An example of our worse case scenario would be if one
or more of our computers were not Year 2000 compliant or if an employee were to
load a non-compliant software program onto his or her computer. Should this
happen, we would replace the computer with a computer we know is compliant or
remove the software from the computer. We keep spare computers in inventory
that we know are compliant.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for all fiscal quarters for all fiscal years beginning after June 15,
2000. Although the Company does not believe SFAS No. 133 will have a material
impact on its financial statements, because of the complexity of SFAS No. 133,
the ultimate impact has not yet been determined.
Market Risk
Our exposure to market risk for changes in interest rates is limited to the
exposure related to our debt instruments which are tied to market rates. We
plan to ensure the safety and preservation of our invested principal funds by
limiting default risks, market risk and reinvestment risk. We plan to invest in
high-quality, investment-grade securities. As a result, we do not believe that
we are subject to material market risk.
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BUSINESS
Overview
iGo is a leading provider of hard-to-find, model-specific accessories and
services for mobile electronic devices such as laptop computers, cellular
phones and handheld electronic organizers. We provide a compelling electronic
commerce solution for the highly fragmented portable computing and mobile
communications marketplace by utilizing the convenience and functionality of
the Internet. Our business combines the following key elements:
. our proprietary product, supplier and compatibility databases;
. our use of search technology to simplify the ordering process;
. our capability to rapidly ship business-critical orders;
. our focus on a high repeat purchase and replacement market; and
. our ability to offer customized solutions for corporate customers.
As a result of these factors, we have rapidly grown our net revenues and our
customer database, maintained high gross margins and established a leading
online destination to serve our market. From 1995 to 1998, our net revenues
increased at an annual growth rate of more than 90%. Our gross margins grew
from 32% for the six months ended June 30, 1998 to 35% for the six months ended
June 30, 1999. Our customer database includes profiles of over 525,000 mobile
users and detailed transaction histories on over 150,000 buyers. Approximately
50% of the Fortune 500 have purchased products or services from us. In
addition, we have developed strategic relationships with key business partners
such as Ariba, Motorola and NEC.
Industry Background
Portable Computing and Mobile Communications Marketplace
The use of portable computers and mobile communications devices has grown
rapidly due to infrastructure and hardware improvements which have simplified
use, increased portability and reduced equipment and cellular airtime cost.
International Data Corporation, or IDC, estimates that there were 15.5 million
portable personal computers, or PCs, shipped in 1998 and that 29.3 million
portable PCs will ship in 2003. Dataquest estimates that there were
approximately 187 million digital wireless subscribers worldwide at the end of
1998 and that the number of subscribers will grow to 590 million by the end of
2002. Sherwood Research Inc., an independent research firm focused on the
mobile products market, estimates that the market for accessories and batteries
for mobile electronic devices will grow from $5.4 billion in 1999 to
$8.1 billion in 2001.
Busy professionals and other time-constrained people are increasingly
incorporating mobile electronic devices into their daily lives. The more these
individuals utilize the functionality of their mobile electronic devices, the
more dependent they become on these devices to maintain their lifestyles and
work patterns. Individuals and businesses are increasingly willing to spend
more on mobile devices, accessories, batteries and services to increase
productivity and add flexibility. Emerging handheld devices which combine
computing and communications features, such as email-capable pagers, palmtop
computers and personal digital assistants are likely to continue to be
increasingly critical in the daily routines of their users, even more so than
single-function devices such as laptops and cellular phones. As the number and
utilization of these devices increases, the demand for consistent and reliable
accessories, batteries and other supporting products will increase.
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Growth of the Internet and Electronic Commerce
The Internet has emerged as a global communications medium, enabling millions
of users to obtain and share information, interact with each other and conduct
business electronically. IDC estimates that the number of Internet users
worldwide will increase from approximately 142 million at the end of 1998 to
approximately 502 million by the end of 2003. The increasing adoption of the
Internet as an important communications tool provides businesses with a new,
attractive vehicle to deliver product information, market and sell products and
services and provide ongoing customer support. IDC estimates that worldwide
electronic commerce revenue will increase from approximately $50 billion in
1998 to more than $1.3 trillion in 2003, representing a compound annual growth
rate of approximately 90%.
The widespread adoption of intranets and the acceptance of the Internet as a
business communications platform has also created a foundation for business-to-
business electronic commerce that offers the potential for organizations to
streamline complex processes, lower costs and improve productivity. Internet-
based, business-to-business electronic commerce is poised for rapid growth and
is expected to represent an even larger opportunity than business-to-consumer
electronic commerce. According to IDC, business-to-business electronic commerce
is expected to account for more than 80% of the dollar value of electronic
commerce in the United States by 2003. In addition, because business
transactions are typically recurring and nondiscretionary, the average order
size and lifetime value of a business-to-business customer is generally greater
than that of an individual consumer.
The Online Market Opportunity for Mobile Electronic Devices
The Internet represents an attractive medium to reach users of portable
computing and mobile communications products. In addition, these businesses and
individual consumers are not well served by traditional channels, which include
mobile device manufacturers, traditional retailers and mail-order companies.
There is a significant market opportunity for electronic commerce companies to
meet the needs of this large and underserved marketplace. This opportunity
stems from the capabilities created by the Internet medium and the nature of
the products and the limitations of the traditional buying process:
. The Nature of the Products. Most accessories and batteries for laptop
computers, cellular phones and handheld electronic devices are brand and
model-specific, creating a complex set of product/accessory combinations
that will continue to proliferate as new device models are introduced. In
addition, these products are peripheral and are often overlooked by
manufacturers and retailers in the industry, who typically focus on the
newest hardware models.
. No One-Stop Source. Laptop computers, cellular phones and other handheld
electronic devices are manufactured and distributed by many companies and
there is no one complete source for model-specific products and
accessories in this fragmented marketplace. Unlike the personal computer,
book and music markets, there is no major distributor that carries even a
fraction of the products needed to serve the mobile device and
accessories market. As the installed base of mobile electronic devices
continues to grow, it becomes increasingly difficult to maintain the
comprehensive selection of products and accessories essential to meet the
purchasing needs of individuals and businesses.
. Lack of Customer Service Capabilities. Consumers are interested in
obtaining the right accessories and batteries for their mobile electronic
devices quickly and easily. However, mobile device manufacturers and
traditional retailers are focused primarily on selling the
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newest "big ticket" products and are therefore typically unable to
adequately serve peripheral markets, which include model-specific
accessories and batteries. Generally, manufacturers and retailers are not
adequately staffed or trained to handle the wide array of product
availability and compatibility questions.
Because online retailers can leverage centralized inventories and the data-
intensive nature of the Internet, they can overcome these limitations to offer
a solution that combines a broad product selection, convenient access, rapid
delivery and excellent customer service for mobile devices, model-specific
accessories, batteries and services.
The iGo Solution
Through our iGo.com website and customer solutions representatives, we
enable businesses and individual consumers to efficiently identify, locate and
purchase model-specific accessories and services for mobile electronic
devices. Our proprietary relational databases of over 6,500 products from more
than 350 suppliers, combined with our comprehensive industry knowledge and
service expertise, create a valuable one-stop solution for our customers. We
believe that our business model offers a comprehensive Internet-based solution
with significant benefits to mobile device manufacturers, business
enterprises, mobile professionals and other people on the go.
Our mission is to provide solutions that give people freedom and flexibility
over their lives and increase their business productivity. As an online
merchant, we are not constrained by shelf space and can offer customers a vast
selection of mobile electronic devices and accessories. In addition, by
serving a large global market through centralized distribution and operations,
we can realize significant cost advantages relative to traditional retailers.
We also provide customized Internet stores to meet the complete product and
service needs of businesses that have large mobile professional staffs and
field personnel.
Key elements of the iGo solution include:
Comprehensive Selection of Mobile Products. We believe that we offer the
world's largest selection of portable computing and mobile communications
devices, batteries and accessories. We offer over 6,500 accessories and
batteries compatible with the majority of brands and models of mobile devices
sold over the past fifteen years. In addition, approximately 2,000 of our most
popular stock keeping units, or SKUs, are kept in inventory and can be
delivered overnight to customers throughout the United States.
Proprietary Relational Databases. We have developed a proprietary relational
database architecture that enables our customers to accurately match their
mobile accessories to compatible device brands and models. Our databases
contain over 29,000 unique combinations of SKUs, brands and models, with
unique original equipment manufacturer part numbers, high resolution images
and detailed product specifications. Our supplier database includes
information on over 350 suppliers around the world. Our databases were
assembled from primary research conducted over six years and would be
difficult for potential competitors to replicate, especially since mobile
device manufacturers often do not maintain information on older model devices,
accessories and batteries.
Authoritative Source for Mobile Product Information. We provide our
customers with solutions by answering important technical support questions
and making purchase recommendations for mobile devices and accessories. Our
industry knowledge enables us to better serve our customers. Our product
reference guide and our quality customer service encourage repeat purchases
and
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word-of-mouth referrals. By leveraging authoritative content such as our
proprietary "High-Tech Tips for Road Warriors(R)" book and our website
resources, we have been able to create commerce opportunities to attract and
retain customers. Our online support enables customers to efficiently find
solutions to their problems in the field.
Strong Direct Marketing Expertise. Our direct marketing experience has
allowed us to develop an effective customer acquisition and retention model.
Since our inception in 1993, we have assembled detailed profiles of over
525,000 mobile users. These profiles typically include the brands and models of
each user's portable devices along with the original advertising lead source
that prompted the user to contact us. In addition, this database contains
detailed transaction histories on over 150,000 of our customers. The knowledge
derived from these detailed transaction histories enables us to electronically
recommend model-specific and customer-specific accessories and devices.
Corporate and Manufacturer Benefits. Corporate purchasing managers use iGo to
simplify the process of purchasing mobile devices and accessories. We enable
enterprises to efficiently support their skilled mobile workforces and protect
their investment in expensive, productivity-enhancing computing and
communications devices by providing batteries and accessories that keep these
devices running. We also effectively solve the problem of how to support older
models of laptops. Manufacturers work closely with us to provide product
specification information and free customer referrals because we provide
quality service to their customers. We save manufacturers money on call center
and customer service costs by handling after-market battery and accessory sales
for their laptops and cell phones.
Strategy
Our strategy is to continue to offer a comprehensive, Internet-based solution
that provides significant benefits to all participants in the mobile product
marketplace, including manufacturers, business enterprises, mobile
professionals and other people on the go. Our goal is to be the leading one-
stop solution for the mobile product marketplace, and to reach this goal, we
plan to:
Aggressively Build the iGo Brand. We intend to capitalize on our early-market
entry advantage to become the leading electronic commerce solution for
individuals and businesses. We are pursuing an aggressive brand development
strategy through mass market advertising, targeted one-to-one marketing, online
promotions and iGo-branded products. In addition, we sticker many of our
products with our brand, our website address and our toll free telephone
number. As a result, we have a large and growing "sticker salesforce" in the
field working to drive direct sales when products wear out and need to be
replaced.
Improve the iGo.com Shopping Experience. We believe our comprehensive
selection of hard-to-find, model-specific accessories, batteries, mobile
electronic devices, and services, together with our advanced search
functionality and highly-trained customer solutions representatives, provides
consumers with a compelling online shopping experience. We recently upgraded
the user interface and functionality of our website, and we plan to
continuously improve our customers' online shopping experience. We use our
knowledge of the problems faced by people on the go to better target and serve
consumers. For example, we have published and distributed our "High-Tech Tips
for Road Warriors(R)" book, and we plan to add a fully searchable version of
this helpful content on our website to increase our customer support and
improve our customer loyalty.
Enhance Our Proprietary Databases. In order to offer the highest value to our
customers and extend our leadership position, we must continue to update our
proprietary product, supplier,
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compatibility and customer databases. New mobile devices are introduced almost
daily. We will continue to grow our relationships with customers, suppliers and
mobile product manufacturers in order to obtain the data necessary to expand
and update our compatability databases. For example, we have agreements with
suppliers that provide us detailed information on and access to large new
products as they are released.
Focus on the Corporate Market. We intend to leverage our brand, our
electronic commerce platform and our operating infrastructure to pursue
additional opportunities in the corporate market. We have implemented a
customized Internet store for Dell Computer and Lucent Technologies, and we
plan to increase our online corporate sales by expanding the number of
customized corporate Internet stores that we operate. We have also been
approved as a launch partner for Ariba's international enterprise purchasing
system which will enable us to sell our products to large enterprises
worldwide.
Pursue International Opportunities. We believe the global reach of the
Internet, the international scope of many of our corporate customers and the
worldwide demand for mobile devices present opportunities for us to expand
internationally. A majority of our current product offering is compatible with
products used internationally. We plan to leverage our relational databases,
our industry expertise and our existing supplier infrastructure to expand into
Europe and Asia within the next 12 months.
Pursue Strategic Acquisitions and Alliances. There are many businesses
serving certain elements of the mobile device market. We intend to pursue
opportunities to acquire companies to further enhance our one-stop solution. We
also plan to acquire customer lists or technologies that extend our reach and
service capabilities. For example, in 1997, we acquired the mobile database of
61,000 customers from Hello Direct, a direct marketer of telephone accessories.
In addition, we intend to pursue strategic alliances with electronic commerce
companies and mobile product manufacturers to create direct online links to
iGo.com.
The iGo.com Experience
We offer a comprehensive online shopping destination for customers in search
of solutions to their portable computing and mobile communications needs. We
offer products, services and content geared to the unique requirements of
mobile professionals and other people on the go. Our proprietary databases
enable shoppers to easily identify the exact products and services they need.
Our customized content contains recommendations for solutions to problems
typically faced by mobile professionals and others who use laptop computers,
cell phones and other portable electronic devices.
iGo.com provides customers with a compelling shopping experience. Customers
shopping at iGo.com are greeted by a home page that is designed for efficient
shopping. We enable people to shop for mobile devices, accessories, batteries
and services in a number of ways. Depending on their preferences, customers can
shop by keyword search, accessory category, device category, product guide item
number, brand or model. Daily specials and other promotions are also
prominently featured on the iGo.com home page and elsewhere on our website.
Corporate customers are directed to information about corporate discounts and
customized buying programs.
On our home page, we offer shoppers valuable advice tailored to their needs.
Our "Solutions for You" section answers frequently-asked questions and makes
purchase recommendations for
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"Frequent flyers," "Globe-trotters," "Road-sters," "Telecommuters" and "Train-
trekkers" and other people on the go. Our proprietary editorial section,
entitled "High-Tech Tips for Road Warriors(R)," answers frequently-asked
questions about mobile devices and accessories. We also offer real-time text
chat with our customer solutions representatives for our online customers who
need technical support or purchase advice. Customers can also contact our
highly-trained customer solutions representatives via a toll-free telephone
number. The overall customer experience is designed to provide expertise and
responsiveness to customers who are often frustrated by the traditional means
of inquiring about and purchasing mobile electronic devices and accessories.
Product Offerings
We focus on providing a comprehensive selection of quality products for
mobile professionals and other people on the go. Prices typically range from
$69 to $269, but can be as low as $3 and as high as $4,300. We offer an
extensive selection of product categories, including:
. Laptop Computer Accessories and Services. We offer a broad selection of
model-specific laptop accessories including batteries, chargers, power
adapters, car cords, external storage media, modems, port replicators,
peripherals, mobile software and carrying cases. We also offer wireless
data services for laptop users.
. Cellular Phones, Accessories and Services. We offer the most popular
models of cellular phones from Nokia and Ericsson, as well as AT&T
cellular phone service. We offer model-specific accessories including
batteries, hands-free devices, chargers, power adapters, car cords,
laptop modem adapters and protective cases.
. Handheld Electronic Devices and Accessories. We offer a large selection
of handheld devices, including Palm and Windows CE devices, from
companies such as 3Com, Casio, Compaq, Everex, Motorola and Philips. We
also carry a wide selection of model-specific accessories for these
products, including batteries, modems, stylus tools, software and
peripherals.
. Other Mobile Devices and Travel-Related Products. We offer a large
selection of often hard-to-find mobile and travel accessories, including
two-way radios, Global Positioning Systems or GPS devices, presentation
equipment, camcorder batteries, digital cameras, carrying cases, and
international power and phone adapters. We also offer mobile and travel-
related software.
Strategic Relationships
We intend to continue to establish and leverage key strategic relationships
with mobile device manufacturers, suppliers and electronic commerce partners.
We recently entered into a strategic sourcing and marketing relationship with
the NEC Computer Systems Division, or NEC, a leading global supplier of
computer products. This relationship provides us with direct Internet and phone
links from NEC to our customer solutions representatives. In addition, our
relationship with NEC allows us to purchase products directly from NEC pursuant
to our reseller agreement, which increases our gross margin on those products,
and gives us direct access to detailed mobile product cross-reference
information. We plan to replicate this program with several of the top laptop
manufacturers to continue to expand and update our product and compatibility
databases and to increase high gross margin sales.
We have been approved as a launch partner for the new Ariba enterprise
purchasing system. This electronic commerce-based system allows global
enterprises to automate the requisition,
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approval, purchasing and delivery of supplies and services. Our relationship
with Ariba enables their customers to quickly and easily order our entire range
of products from within the Ariba purchasing system. We plan to leverage this
relationship with Ariba to further penetrate enterprises worldwide with our
solution.
Our strategic relationship with Motorola allowed us early access to the
Motorola StarTAC(R) Clip-on Organizer for Motorola's StarTAC(R) telephone. Our
relationship with Motorola also includes product sourcing for our iGo-branded
products. Motorola is currently designing and manufacturing a number of
cellular phone batteries exclusively for iGo.
Our strategic relationship with Motorola is not subject to a formal written
agreement and our agreements with NEC and Ariba are terminable by either party
at any time upon written notice. In addition, under our agreement with NEC we
are currently obligated to purchase at least $4,000,000 of product per year,
which requirement may be increased, decreased or waived by NEC in its
discretion. Because our agreement with NEC was only recently established, it is
uncertain whether we will meet or exceed the stated purchase obligation.
Consequently, these relationships will continue to evolve over time. We can
provide no assurance that these relationships will continue on their current
terms or at all.
Marketing and Customer Acquisition
We employ a combination of traditional and online marketing programs to
acquire customers and build brand awareness. These programs are designed to
cost-effectively acquire high-value mobile users as customers and generate
online sales. We believe our marketing and advertising strategy efficiently
reaches mobile customers in the environments in which they use our products--at
home, at work and while traveling. In addition, because we sell devices,
accessories and batteries for leading national brands, we believe that we are
able to leverage the large advertising and promotional investments of mobile
device manufacturers to generate demand for the products we sell. Following the
completion of this offering, we expect to significantly increase our investment
in marketing, advertising and promotion to acquire and retain customers.
Offline Marketing and Promotion. Our offline advertising strategy is based on
multiple media, including print, radio, outdoor and direct mail. We advertise
in key business periodicals such as Business Week and Forbes; technology
magazines such as Mobile Computing and PC World; in-flight magazines such as
American Way and Sky; and national newspapers such as The Wall Street Journal
and USA Today. We also advertise in 30-second radio spots in metropolitan areas
with large numbers of mobile customers.
We use our product reference guide as a cost-effective vehicle to drive
customers to our website. We distribute approximately 13 million of these full-
color direct mail pieces annually. Mobile device manufacturers provide
cooperative advertising support to subsidize the cost of producing this guide.
Our product reference guide demonstrates our comprehensive mobile product
selection and creates strong brand awareness. We also use our direct mail
pieces to promote the benefits of shopping online in general, as well as the
specific benefits of shopping on our website, including special Internet
promotions.
Online Marketing and Promotion. Our online marketing and promotion strategy
is designed to build brand recognition, increase customer traffic to our
website, acquire new customers and encourage repeat purchasing behavior.
Through our advertising and promotions, we target mobile
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professionals and other people on the go who are themselves purchasers or who
influence the purchase of mobile products and accessories at work. Our
advertising campaigns are designed to identify with the unique needs of these
people, who typically require products and services to simplify their lives, as
well as complete solutions to their everyday portable computing and mobile
communications problems.
We have developed four primary means of reaching our potential customers
online: banner advertising, sponsorships, outbound email marketing and an
online affiliate program. We place banner advertisements on websites targeted
to the needs and interests of mobile professionals. We also buy banners through
keyword searches on major online portals such as Lycos and Yahoo! We
have entered into marketing and sponsorship arrangements with electronic
commerce companies such as MSN, Portera.com and Stamps.com. These arrangements
generally provide for us to be the preferred mobile electronics product
retailer on their websites. Our affiliate program is designed to create
incentives for others to create inbound links that connect directly to our
website. We pay our registered affiliates a referral fee of 7% to 15% of the
purchase price based upon annual sales generated through these referrals of any
sale generated via their link to our website. Finally, we attempt to maximize
the value of our 525,000 person mobile user database by delivering special
product offerings to customers and prospects via email. For example, we can
send special promotions to all owners of cell phones or only to owners of a
certain brand, or we can send email to customers at a specified time period
after initial purchase to remind them to replace their laptop batteries.
Corporate Sales
Our corporate sales team targets large corporations, medium-to-small
businesses and government agencies and educational institutions, in an effort
to generate large and recurring orders and to direct sales to our website. In
particular, our corporate sales representatives target enterprises with large
field salesforces or large installed bases of laptop computers or cell phones,
including pharmaceutical, insurance, financial, telecommunications and
consulting companies. To date, we have sold products to approximately 50% of
the Fortune 500.
Our corporate sales team generates leads from individual purchasers within
large organizations found in our user database, by conducting primary research
and outbound calls, by meeting corporate purchasing managers in the field and
by responding to corporate requests for proposals. In addition, we have begun
to enter into relationships with large companies, such as Dell Computer and
Lucent Technologies, in which we offer a secure online purchasing solution
dedicated to their authorized employees. In these customized Internet stores,
site design, product pricing and SKUs available for sale can all be tailored
and controlled to meet the needs of our corporate customers.
As of June 30, 1999, we employed 11 corporate account managers and a director
of corporate sales. Following completion of this offering, we plan to
significantly increase the number of corporate account managers.
Customer Service
Our goal is to provide our customers with the highest level of customer
support. Our customer solutions representatives are available in our customer
contact center 24 hours-per-day, 365 days-per-year. Representatives handle
contacts with customers, through telephone, fax, email and live text chat. We
will add voice over Internet protocol capabilities beginning in the fourth
quarter of 1999. Our support services include product inquiries, ordering,
technical support and customer service
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issues. We provide a high level of support by utilizing our sophisticated
product and compatibility databases and by training our representatives with
the in-depth knowledge required to meet the needs of mobile professionals and
other people on the go.
We have retained a third-party call center to handle overflow or possible
disaster conditions. Representatives in this third-party call center have been
trained in our customer service philosophy.
Technology and Operations
We have developed a scalable, secure and reliable technology infrastructure
to support our website and customer contact center, as well as to maintain and
integrate our proprietary databases, our supply chain, and our accounting,
finance and management reporting functions. Our website is designed to be
accessible from all standard browsers without the need for additional client
software. Our systems are designed to capture large amounts of customer-
specific data, which is important to our ability to provide superior post-sale
service and to target customers for future purchases. We also incorporate a
variety of encryption and fraud detection technologies designed to protect the
privacy of customer information and the integrity of customer transactions.
Our software system architecture uses industry standard technologies to
maximize reliability and scalability. We use Secure Socket Layer for secure
transactions. Our applications run on arrays of Intel-based server systems
running Microsoft Windows NT and SQL Server. To scale our service as traffic
increases, we believe that we need only to install additional servers or
increase the number of processors per server. Our production data and hosting
center is located at Internet Emporium in Phoenix, Arizona, which provides
routing and high bandwidth communication lines to a variety of major Internet
backbone providers, as well as 24 hour-per-day monitoring and support. Our
production data center also includes multiple redundant backup systems and
power generators. We maintain server and bandwidth overcapacity at our hosting
center so that if traffic spikes or a server fails we can maintain service for
our entire user base.
We believe that our technology platform provides state-of-the-art electronic
commerce functionality and integration, including the following key systems:
. DB2 and MS Access relational databases;
. sophisticated enterprise accounting and logistics software;
. Onyx total customer relationship management software;
. real-time Internet customer service from Facetime;
. automated email response technology from Kana;
. automated call distribution through a Nortel phone switch; and
. the IBM Net.Commerce electronic commerce platform.
In addition, we plan to implement a next-generation integrated communications
system in the fourth quarter of 1999. This system will allow us to manage all
customer contacts, including live text chat, customer emails, voice over
Internet Protocol, incoming calls and outgoing calls through single
workstations. It will also enable contacts to be routed to appropriate customer
support representatives based upon the inquiry and the appropriate skill level
of each representative. Further, this system will provide our customers, at
their option, Integrated Voice Response technology which will allow them to
place an order, check status of an existing order or determine their account
balance automatically.
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We manage our own fulfillment center where we receive, pick, pack and ship
our products. We believe controlling the fulfillment process is important to
providing a high standard of customer care. Control of our fulfillment center
allows us to expedite shipments, balance resource needs and maintain direct
contact with our customers. We currently stock approximately 2,000 of our most
popular inventory items in our fulfillment center. We frequently evaluate sales
volume, new product offerings and marketing forecasts to balance inventory
levels with the growth of our business.
Competition
The portable computing and mobile communications market is highly fragmented.
In addition, the electronic commerce market in which we operate is new, rapidly
evolving and highly competitive. Our competitors operate in a number of
different distribution channels, including electronic commerce, traditional
retailing, catalog retailing and direct selling. We believe no single
competitor competes directly with us with respect to all of the products and
services we offer; however, we currently or potentially compete with a variety
of other companies in the sale of products in specific categories, including:
. mobile products suppliers such as Targus;
. mass merchant retailers such as Circuit City and CompUSA;
. direct marketers such as Buy.com, Insight and Microwarehouse; and
. traditional mobile device manufacturers such as Fujitsu and Toshiba.
Many of these current and potential competitors may have the ability to
devote substantially more resources to marketing, and systems and website
development than we do. In addition, larger and more well-financed entities may
acquire, invest in or form joint ventures with our competitors. Some of our
competitors may be able to secure products from suppliers on more favorable
terms, fulfill customer orders more efficiently and adopt more aggressive
pricing or inventory availability policies then we can. Finally, new
technologies and the expansion of existing technologies, such as price
comparison programs that search for products from a variety of websites, may
direct customers to other online merchants.
We believe that the principal competitive factors in our marketplace are
product selection and customer service. While there can be no assurance that we
will be able to compete successfully against current and future competitors, we
believe our ability to compete favorably is enhanced by our proprietary product
database, our strategic supplier relationships, and our sophisticated logistics
and supply management capabilities. We believe that any competitor that seeks
to establish an electronic commerce presence within our marketplace will
confront significant challenges. Among these challenges are developing the
required software and technology infrastructure, establishing an efficient
supply and logistics system, and most importantly, establishing a comprehensive
database of industry products, suppliers and customers.
Intellectual Property
We regard our brand and substantial elements of our website and relational
databases as proprietary and seek their protection through trademark, service
mark, copyright and trade secret laws as critical to our success. We enter into
non-disclosure agreements with our employees and consultants, and generally
with strategic partners. Despite these precautions, it may be possible for
third parties to copy or otherwise obtain and use our intellectual property
without our authorization.
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Our iGo brand and our Internet address, www.iGo.com, are important components
of our business strategy. We have recently filed federal trademark applications
for "iGo," "iGo.com" and "Solutions for People on the Go." In July 1999, the
United States Patent and Trademark Office, or PTO, preliminarily declined
registration of "iGo" and "iGo.com" when used in connection with our services
because, in the PTO examiner's opinion, there was a likelihood that if these
marks were to be registered, they would be confused with a prior trademark
registration for "IGO" that covers interactive teaching equipment (PTO
Registration No. 2,086,551). In addition, the examiner requested non-
substantive revisions to the identification and classification of services.
Effective September 30, 1999, we acquired by assignment the rights to the
registered mark cited by the PTO examiner and will record this assignment
promptly with the PTO. We intend to respond to the PTO's preliminary action
prior to the January 15, 2000 deadline. We cannot guarantee that we will be
able to secure registration of these marks. See "Risk Factors--We may not be
able to protect and enforce our trademarks, Internet addresses and intellectual
property rights."
We also rely to a material extent on technology developed and licensed from
third parties. These licenses may not continue to be available to us on
commercially reasonable terms in the future. The loss of existing technology
licenses could harm the performance of our existing services until equivalent
technology can be identified, obtained and integrated. Failure to obtain new
technology licenses may result in delays or reductions in the introduction of
new features, functions or services, which would harm our business. We have not
been notified that our technologies infringe on the proprietary rights of
others. However, there can be no assurances that third parties will not claim
infringement in the future. We expect that the continued growth of the Internet
will result in an increasing number of infringement claims as legal standards
related to our market continue to evolve. Any such claim, with or without
merit, could be time consuming, result in costly litigation, and may have a
material adverse effect on our business and results of operations.
In addition, we have received a letter from an individual who owns a federal
registration for an "i GO" mark for clothing alleging that our "iGo" mark
infringes on his mark, and demanding that we cease and desist the use of our
mark. We responded to the allegation disputing this claim. Subsequently, the
attorney for this individual has forwarded to us a draft complaint that he
claims will be filed unless the matter can be resolved. This draft complaint
alleges that the use of our "iGo" mark in connection with our products and
services constitutes trademark infringement, trademark dilution, unfair
competition and unfair trade practices with respect to his "i GO" mark and
seeks injunctive relief, monetary damages, costs and attorney's fees. We
anticipate that this complaint will be filed in the United States District
Court for the Central District of California on or shortly after the date of
this prospectus. We intend to vigorously defend our position if and when this
action is actually filed. We cannot assure you that other third parties will
not claim trademark or trade name infringement in the future. If we are unable
to secure registrations for these marks, or if a third party claim results in
litigation, we may be required to stop using these marks and our name which
could harm our business. With or without merit, these disputes can be time
consuming and result in costly litigation which may harm our financial results.
Government Regulation
Due to the increasing popularity and use of the Internet, it is possible that
a number of laws and regulations may be adopted with respect to the Internet
covering issues such as user privacy, freedom of expression, pricing, content
and quality of products and services, taxation, advertising, intellectual
property rights and information security. The nature of this legislation and
the manner in which it
44
<PAGE>
may be interpreted and enforced cannot be fully determined and, therefore, this
legislation could subject us to potential liability, which in turn could harm
our business. The adoption of any such laws or regulations might also decrease
the rate of growth of Internet use, which in turn could decrease the demand for
our products and services, or increase the cost of doing business, or otherwise
harm our business, financial condition and results of operations. In addition,
applicability to the Internet of existing laws governing issues such as
property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. The vast majority
of these laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of electronic commerce.
Several states have also proposed legislation that would limit the use of
personal information gathered online or require websites to establish privacy
policies. The Federal Trade Commission has also initiated action against at
least one website regarding the manner in which information is collected from
users and provided to third parties. Changes to existing laws or the passage of
new laws intended to address these issues, including some recently proposed
changes, could create uncertainty in the marketplace that could reduce demand
for our products or services, increase the cost of doing business as a result
of litigation costs or increased service delivery costs. In addition, because
our products and services are accessible throughout the United States, other
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in a particular state. We are qualified to do business in
California and Nevada. Our failure to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties for the failure to qualify and could result in our inability to
enforce contracts in those jurisdictions. Any new legislation or regulation of
this kind, or the application of laws or regulations from jurisdictions whose
laws do not currently apply to our business, could harm our business, financial
condition or results of operations.
Employees
As of June 30, 1999, we had 88 full-time employees, including 34 in our
customer contact center, 22 in sales and marketing, 24 in technology and
operations, and 8 in executive management and administration. We devote, and
will continue to devote, substantial resources to attract high-quality
employees and build a strong corporate culture that encourages and rewards
success. We believe that our investments in recruiting and training help us
attract and retain key managers and productive employees. None of our employees
is represented by a labor union, we have never experienced a work stoppage and
we consider our employee relations to be good.
Facilities
Our corporate offices are located in Reno, Nevada. We rent approximately
18,120 square feet under a five-year lease that expires in September 2002. The
lease also contains an option to renew for an additional five-year term. We
anticipate that we will require additional space in the near future and we are
negotiating with our landlord to add an additional 40,000 feet to our current
facility by February 2000.
Legal Proceedings
From time to time we are involved in litigation incidental to the conduct of
our business. We are not party to any lawsuit or proceeding that, in our
opinion, is likely to seriously harm our business.
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<PAGE>
On July 19, 1999, the company from whom we purchased the rights to the 1-800-
Batteries telephone number and name gave us notice that they believe we have
failed to cure a material breach of our agreement with them. The notice also
stated that they are terminating their agreement with us and demanding a return
of their rights as well as unspecified monetary damages. At the same time, they
made a demand for arbitration of the matter with the American Arbitration
Association in Richmond, Virginia. We have responded to their demand by
formally denying their claims as well as challenging the location of the
arbitration proceedings. We intend to defend our position vigorously in any
applicable arbitration proceedings. Many of our customers may rely on the
1-800-Batteries phone number to reach our customer solutions representatives
and to the extent that the arbitrator disagrees with our position and allows
this agreement to terminate, we could be harmed, although it is difficult to
estimate the extent or materiality of such harm.
On October 11, 1999, in the Second Judicial District Court of the State of
Nevada in and for the County of Washoe, Microflex Corporation filed a lawsuit
against us and certain of our employees based upon circumstances surrounding
our hiring of several former Microflex employees. The suit alleges that we have
induced certain former Microflex employees to breach the terms of their
nondisclosure and nonsolicitation agreements with Microflex, that we have
interfered with Microflex's contractual relations and prospective economic
advantage, and that we have engaged in unfair competition. Microflex seeks
injunctive relief, monetary damages, costs and attorney's fees. We are
currently investigating the facts surrounding these claims and consulting with
legal counsel regarding this matter. While we intend to vigorously defend our
actions in this matter, we cannot be certain that we will be successful in our
defense. Furthermore, if we are unsuccessful in defending this action, any
remedies awarded to Microflex could harm our business.
We anticipate that an individual will soon file a lawsuit challenging our use
of our "iGo" mark as infringing against his "i GO" mark. For a discussion of
the circumstances surrounding this matter, see "--Intellectual Property" and
"Risk Factors--We may not be able to protect our trademarks, Internet adress
and intellectual property rights."
46
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding our executive
officers and directors as of August 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Ken Hawk.................... 36 Chairman of the Board, President, Chief
Executive Officer and Chief Energizing
Officer
Mick Delargy................ 35 Senior Vice President, Finance and Business
Development, Chief Financial Officer and
Secretary
Robert Bauer................ 48 Vice President, Sales and Marketing
Joe Bergeon................. 58 Chief Information Officer
Lou Borrego................. 33 Vice President, Operations
Ken Stockman................ 31 Vice President and General Manager, E-
Commerce
Darrell Boyle (1)........... 51 Director
David Callard (2)........... 61 Director
Peter Gotcher (1)(2)........ 39 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Ken Hawk is the founder of iGo and has served as Chairman of our board of
directors, President, Chief Executive Officer and Chief Energizing Officer
since our incorporation in March 1993. Mr. Hawk was the Multimedia Product
Manager for Windows at Microsoft Corporation from June 1992 until September
1992 and ran North American Operations for Venture Manufacturing Singapore from
November 1988 until September 1991. From June 1986 until November 1988, he
served as Silicon Valley District Sales Manager for Silicon Systems, Inc., a
subsidiary of TDK. Mr. Hawk holds a B.S. in electrical engineering from the
University of Michigan and an M.B.A. from Stanford University.
Mick Delargy has served as our Senior Vice President, Finance and Business
Development, Chief Financial Officer and Secretary since July 1999. He also
served as our Vice President, Finance and Operations from May 1996 to June
1997. From August 1997 to July 1999, Mr. Delargy served as Senior Vice
President of Finance and Business Development for Accolade, Inc. (now
Infogrames North America). From April 1992 to May 1996, he served as Chief
Financial Officer of Storybook Heirlooms. From January 1987 to April 1992, Mr.
Delargy served as an Audit Manager for KPMG Peat Marwick. Mr. Delargy holds a
B.S. in business administration and a B.S. in accounting from the University of
Kansas and is a certified public accountant.
Robert Bauer has served as our Vice President, Sales and Marketing since
January 1999. From December 1997 to December 1998, Mr. Bauer served as Vice
President of Marketing for Intelogis Corporation. From January 1995 to August
1997, Mr. Bauer served as Vice President of the Mobile Computing Division for
US Robotics/3Com. From March 1984 to November 1994, he held a number of sales
and marketing positions with Compaq Computer Corporation, most recently as
Director of North American Product Marketing. Mr. Bauer holds a B.A. in design
from the University of California at Davis.
Joe Bergeon has served as our Chief Information Officer since June 1999. From
February 1997 to June 1999, Mr. Bergeon served as Project Manager/Business
Consultant at Howard Consulting Group.
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<PAGE>
From September 1994 to January 1997, he was Publisher of the Electronic Source
Book, and from March 1983 to November 1993 served as President of Bertech
Industries. Mr. Bergeon holds a B.S. in engineering from the City University of
New York and an M.B.A. from Arizona State University.
Lou Borrego has served as our Vice President, Operations since July 1999 and
served as our Chief Financial Officer from October 1997 to June 1999. From June
1996 to October 1997, Mr. Borrego served as Vice President of Corporate Lending
at Sun State Bank. From February 1994 to June 1996, he served as Vice President
of Corporate Lending at First Interstate Bank, where he served as Commercial
Finance Team Leader from June 1993 to February 1994. From March 1990 to March
1993, Mr. Borrego served as Controller/Director of Operations of Moran Brothers
Inc. Mr. Borrego holds a B.S. in accounting from the University of Southern
California.
Ken Stockman has served as our Vice President and General Manager, E-Commerce
since August 1999. From June 1998 until August 1999, Mr. Stockman served as
Vice President, E-Commerce for SelfCare. From January 1998 until June 1998, he
served as Manager of the Strategic Ventures Group at NBC Enterprises. From May
1993 until January 1998, Mr. Stockman served in a variety of direct marketing
and on-line positions with The Walt Disney Company, most recently as Manager of
New Initiatives for Disney Direct Marketing. Mr. Stockman holds a B.S. in
Business Administration from the California Polytechnic State University, San
Luis Obispo, and an M.B.A from the University of California at Los Angeles.
Darrell Boyle has served as a member of our board of directors since January
1997. Mr. Boyle has served as President of Trailblazer Consultants since
October 1994. From March 1990 to September 1994, he served as the senior
marketing executive for the Graphics Business Unit of Microsoft Corporation.
Mr. Boyle holds a B.S. in business administration from the University of
Colorado and an M.B.A. from Capital University.
David Callard has served as a member of our board of directors since June
1996. Mr. Callard has served as the President of Wand Partners Inc. since
January 1991. From 1972 to 1989, he served in various capacities with Alex.
Brown & Sons Incorporated, including those of Director, Managing Director and
General Partner. Mr. Callard holds an A.B. from Princeton University and a J.D.
from New York University School of Law. He also serves on the boards of
directors of Panorama Trust, Information Management Associates, Inc. and
Chartwell Re Corporation.
Peter Gotcher has served as a member of our board of directors since October
1998. Mr. Gotcher has served as a Venture Partner with Institutional Venture
Partners since January 1997. Mr. Gotcher founded and served as President and
Chief Executive Officer of Digidesign Inc. from October 1983 until its merger
with Avid Technology, Inc. in January 1995, after which he served as the
General Manager of Digidesign and Executive Vice President of Avid until May
1996. Mr. Gotcher holds a B.A. in English literature from the University of
California at Berkeley. He also serves on the board of directors for Avid
Technology, Inc.
Board Composition
We currently have four directors. All directors hold office until the next
annual meeting of stockholders or until their successors are duly elected.
Board Committees
Our board of directors currently has an audit committee and a compensation
committee. The audit committee consists of Mr. Callard and Mr. Gotcher. The
audit committee makes
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<PAGE>
recommendations to the board of directors regarding the selection of
independent auditors, makes inquiries about the scope of audit and other
services by our independent auditors, makes inquiries about the accounting
principles and auditing practices and procedures to be used for our financial
statements and reviews the results of those audits. The compensation committee
consists of Mr. Boyle and Mr. Gotcher. The compensation committee makes
recommendations to the board of directors regarding our stock plans and the
compensation of officers.
Director Compensation
Our non-employee directors are reimbursed for expenses incurred in connection
with attending board and committee meetings but are not compensated for their
services as board or committee members. In the past, we have granted Mr. Boyle
and Mr. Gotcher, both non-employee directors, options to purchase our common
stock pursuant to the terms of our Amended and Restated 1996 Stock Option Plan.
Mr. Gotcher's option was granted during fiscal 1998 and represents the right to
purchase 143,628 shares of our common stock at an exercise price of $0.20 per
share. This option has a term of 10 years and may be exercised in whole or in
part at any time. However, any shares purchased upon exercise of the option
will be subject to a right of repurchase held by us in the event that Mr.
Gotcher's relationship with us terminates prior to the lapse of our repurchase
right. Our repurchase right on these shares will lapse ratably over a four-year
period from the date of grant. Both employee and non-employee directors are
eligible to receive options to purchase our common stock pursuant to the terms
of our Amended and Restated 1996 Stock Option Plan. See "--Stock Plans."
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee is currently, or has ever
been at any time since our formation, one of our officers or employees. No
member of the compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more officers
serving as a member of our board of directors or compensation committee.
Executive Compensation
The following table sets forth information concerning compensation for
services rendered to us in all capacities earned in the fiscal year ending
December 31, 1998 by our Chief Executive Officer. No other officers of iGo
earned $100,000 or more in combined salary and bonus in fiscal 1998. We have
never granted any stock options to Mr. Hawk.
<TABLE>
<CAPTION>
Annual Compensation
----------------------------
Other Annual
Name and Principal Position Salary Bonus Compensation
- --------------------------- -------- ------ ------------
<S> <C> <C> <C>
Ken Hawk, President, Chief Executive Officer and
Chief Energizing Officer........................ $150,000 $1,450 (1)
</TABLE>
- --------
(1) During 1998, we provided Mr. Hawk with additional employee benefits in an
amount not exceeding 10% of his combined salary and bonus. Through our
standard package of medical insurance, Mr. Hawk and all other iGo employees
have $15,000 in coverage amount of term life insurance. Our insurance
provider does not segregate amounts payable for this life insurance
coverage from our aggregate premiums for medical coverage and, accordingly,
we cannot attribute a specific dollar value to any premiums associated with
such life insurance coverage. As of December 31, 1998, Mr. Hawk held an
aggregate of 4,785,600 shares of restricted stock having an aggregate value
in excess of the amount paid for them of $6,123,827 based upon a deemed
fair value as of such date.
49
<PAGE>
Stock Plans
Amended and Restated 1996 Stock Option Plan. Our Amended and Restated 1996
Stock Option Plan, was adopted by our board of directors in July 1999 and
approved by our stockholders in August 1999. This plan provides for the grant
of incentive stock options to our employees and nonstatutory stock options to
our employees, directors and consultants. We have reserved an aggregate of
3,256,800 shares of common stock for issuance under this plan. The number of
shares reserved for issuance under this plan will be subject to an annual
increase on the first day of each fiscal year (beginning January 1, 2001) equal
to the lesser of (a) 900,000 shares, (b) 5% of the outstanding shares on that
date or (c) a lesser amount as determined by the board of directors. As of
August 31, 1999, options to purchase 1,418,202 shares of common stock were
outstanding, 356,046 shares had been issued upon exercise of options, net of
repurchases, and 1,482,552 shares were available for future grant.
After this offering, the compensation committee of our board of directors
will administer the stock option plan and determine the terms of options
granted, including the exercise price, the number of shares subject to
individual option awards and the vesting period of options or on shares
acquired upon exercise of options. The exercise price of nonstatutory options
must generally be at least 85% of the fair market value of our common stock on
the date of grant. The exercise price of incentive stock options cannot be
lower than 100% of the fair market value of our common stock on the date of
grant and, in the case of incentive stock options granted to holders of more
than 10% of our voting power, not less than 110% of the fair market value. The
term of an incentive stock option cannot exceed 10 years, and the term of an
incentive stock option granted to a holder of more than 10% of our voting power
cannot exceed five years.
Options granted under our stock option plan will accelerate and become fully
vested in the event we are acquired, unless the successor corporation assumes
or substitutes other options in their place. Our board of directors may not,
without the adversely affected optionee's prior written consent, amend, modify
or terminate the stock plan if the amendment, modification or termination would
impair the rights of optionees. Our stock option plan will terminate in 2006
unless terminated earlier by the board of directors.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan was
adopted by our board of directors in July 1999 and approved by our stockholders
in August 1999. This plan provides our employees with an opportunity to
purchase our common stock through accumulated payroll deductions. We initially
reserved 132,000 shares of common stock for issuance under this purchase plan.
We have not yet issued any shares under this plan. The number of shares
reserved for issuance under the purchase plan will be subject to an annual
increase on the first day of each fiscal year (beginning January 1, 2001) equal
to the lesser of (a) 120,000 shares, (b) 3/4% of the outstanding shares on
that date or (c) a lesser amount as determined by our board of directors.
Our purchase plan will be administered by our board of directors or by a
committee appointed by the board of directors. The purchase plan permits
eligible employees to purchase our common stock through payroll deductions of
up to 10% of his or her compensation or up to 1,200 shares of common stock for
each offering period, up to a maximum of $25,000 for all purchases within the
same calendar year. Employees are eligible to participate in this purchase plan
if they are customarily employed by us at least 20 hours per week and more than
five months in any calendar year and only to the extent that they do not own
more than 5% of our outstanding shares.
Unless our board of directors or its committee determines otherwise, this
purchase plan will be implemented in a series of consecutive, overlapping
offering periods, each approximately six months
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<PAGE>
in duration. Offering periods will begin on the first trading day on or after
May 1 and November 1 of every year and terminate on the last trading day in the
period six months later, provided that the first offering period will commence
on the effective date of this offering and will end on October 31, 2001, or the
last trading day prior thereto. If we are acquired and the successor
corporation does not assume all outstanding options under this purchase plan,
then the offering and purchase periods then in progress will be shortened so
that all options will be automatically exercised immediately prior to the date
of acquisition. The price at which common stock will be purchased under this
purchase plan is equal to at least 85% of the fair market value of the common
stock on the first day of the applicable offering period or the last day of the
applicable purchase period, whichever is lower. Employees may end their
participation in the offering period at any time, and participation
automatically ends on termination of employment or on the 91st day following an
extended leave of absence from which they have not returned. Our board of
directors may not, without the adversely affected optionee's prior written
consent, amend, modify or terminate this purchase plan at any time if the
amendment, modification or termination would impair the rights of plan
participants. This purchase plan will terminate in July 2009, unless terminated
earlier in accordance with its provisions.
401(k) Plan. In July 1998, we adopted a Retirement Savings and Investment
Plan covering our full-time employees located in the United States. This plan
is intended to qualify under Section 401(k) of the Internal Revenue Code of
1986, as amended, so that contributions to this plan by employees, and the
investment earnings thereon, are not taxable to employees until withdrawn.
Pursuant to this plan, employees may elect to reduce their current compensation
by up to the lesser of 15% of their annual compensation or the statutorily
prescribed annual limit ($10,000 in calendar 1998) and to have the amount of
such reduction contributed to this plan. This plan permits but does not require
additional matching contributions by us on behalf of plan participants. To
date, we have not made any such additional matching contributions.
Change of Control Agreements
We have entered into change of control agreements with our executive officers
and those non-employee directors who hold stock options. In the event of a
change of control (as defined in the agreements), the unvested portion of any
outstanding stock options issued to our non-employee directors and to Mick
Delargy, our Senior Vice President and Chief Financial Officer, will be
accelerated and our repurchase right, if any, applicable to any common stock
held by them will immediately lapse. With respect to all other executive
officers, in the event that their employment with us is terminated without
cause within twelve months following a change of control, one year of vesting
on the unvested portion of any outstanding stock options issued to such
officers will be accelerated, and a similar proportion of our repurchase right,
if any, applicable to any common stock held by them will immediately lapse.
The change of control agreements provide that if the acceleration of vesting
or lapse of any applicable repurchase option would cause the transaction
resulting in the change of control not to be eligible for accounting treatment
as a "pooling of interests," then any applicable vesting will not accelerate
and any applicable repurchase options will not lapse.
Pursuant to the terms of his employment offer letter, we have agreed to pay
Robert Bauer, our Vice President, Sales and Marketing, six months salary in the
event that he is terminated in connection with a change of control.
51
<PAGE>
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for the following:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors
and executive officers for certain expenses, including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in our rights, arising out of
such person's services as a director or executive officer to us, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
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<PAGE>
TRANSACTIONS WITH DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
Since our inception in March 1993, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000, and in which
any director, executive officer, holder of more than 5% of our common stock or
any member of the immediate family of any of these people had or will have a
direct or indirect material interest other than compensation agreements and
other arrangements, which are described where required in "Management," and the
transactions described below.
On June 14 and 21, 1996, we sold an aggregate of 3,667,500 shares of Series A
preferred stock at a price per share of $0.445 to a group of private investors
that included the following 5% stockholders:
<TABLE>
<CAPTION>
Shares of
Series A
Purchaser Stock
--------- ---------
<S> <C>
Wand/Power Express Investments I L.P. ............................. 3,147,000
John Mackall....................................................... 112,500
</TABLE>
David Callard, one of our directors, is the President of Wand (Power Express)
Inc., the general partner of Wand/Power Investments I L.P. Mr. Callard
disclaims any beneficial ownership of the securities held by Wand/Power Express
Investments I L.P., except for his proportional partnership interest therein.
Simultaneous with the first closing of our sale of Series A preferred stock, we
granted a warrant to purchase up to 40,500 shares of common stock at an
exercise price of $0.445 per share to Malcolm Appelbaum, a Vice President of
Wand (Power Express) Inc. This warrant was exercised on July 26, 1999.
On October 22 and 29, 1998, we sold an aggregate of 3,000,000 shares of
Series B preferred stock at a price per share of $2.00 to a group of private
investors that included the following directors and 5% stockholders:
<TABLE>
<CAPTION>
Shares of
Series B
Purchaser Stock
--------- ---------
<S> <C>
Institutional Venture Partners VIII, L.P. ......................... 2,655,732
IVM Investment Fund VIII, LLC...................................... 28,596
IVM Investment Fund VIII-A, LLC.................................... 12,258
IVP Founders Fund I, L.P. ......................................... 26,700
Peter Gotcher...................................................... 126,174
John Mackall....................................................... 36,240
</TABLE>
Institutional Venture Partners VIII, L.P., IVM Investment Fund VIII, LLC, IVM
Investment Fund VIII-A, LLC and IVP Founders Fund I, L.P. are affiliated
entities and together are considered a greater than 5% stockholder. Peter
Gotcher, one of our directors, is a venture partner of Institutional Venture
Partners but does not have voting or dispository control over the shares held
by the Institutional Venture Partners' entities. Effective upon Mr. Gotcher
joining our board of directors upon the closing of our sale of Series B
preferred stock, we granted to Mr. Gotcher an option to purchase 143,628 shares
of our common stock at an exercise price of $0.20 per share. This option has a
term of 10 years and may be exercised in whole or in part at any time. However,
any shares purchased upon exercise of the option will be subject to a right of
repurchase held by us in the event that Mr. Gotcher's relationship with us
terminates prior to the lapse of our repurchase right. Our repurchase right on
these shares will lapse ratably over a four-year period from the date of grant.
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<PAGE>
On November 24, 1998, pursuant to the terms of his employment offer letter,
we agreed to pay Robert Bauer, our Vice President, Sales and Marketing, six
months salary in the event that he is terminated in connection with a change of
control.
On July 30, 1999, we sold an aggregate of 850,572 shares of Series C
preferred stock at a price per share of $6.82 to a group of private investors
that included the following directors and 5% stockholders:
<TABLE>
<CAPTION>
Shares of
Series C
Purchaser Stock
--------- ---------
<S> <C>
Institutional Venture Partners VIII, L.P........................... 568,608
IVM Investment Fund VIII, LLC...................................... 10,716
Peter Gotcher...................................................... 7,332
Darrell Boyle...................................................... 14,670
John Mackall....................................................... 26,400
</TABLE>
As noted earlier, Institutional Venture Partners VIII, L.P., IVM Investment
Fund VIII, LLC, IVM Investment Fund VIII-A, LLC and IVP Founders Fund I, L.P.
are affiliated entities and together are considered a greater than 5%
stockholder and Peter Gotcher, one of our directors, is a venture partner of
Institutional Venture Partners.
On July 16, 1999, we granted an option to purchase up to 142,662 shares of
our common stock at an exercise price of $3.97 to Mick Delargy, our Senior Vice
President, Finance and Business Development and Chief Financial Officer. In
addition, on the same date we granted an option to purchase up to 60,000 shares
of our common stock at an exercise price of $3.97 per share to Darrell Boyle,
one of our non-employee directors. On August 30, 1999, we granted an option to
purchase up to 142,662 shares of our common stock at an exercise price of $5.49
per share to Ken Stockman, our Vice President and General Manager, E-Commerce.
These options have a term of 10 years and may be exercised in whole or in part
at any time. However, any shares purchased upon exercise of the options will be
subject to a right of repurchase held by us in the event that the individual's
relationship with us terminates prior to the lapse of our repurchase right. Our
repurchase right on these shares will lapse ratably over a four-year period
from the date of grant.
We have entered into indemnification agreements with each of our directors
and officers. Such indemnification agreements will require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law. See
"Management--Limitations on Liability and Indemnification."
We believe that all the transactions set forth above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including any loans from our company to our
officers, directors, principal stockholders or affiliates, will be approved by
a majority of the board of directors, including a majority of the independent
and disinterested members of the board of directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to our company than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the shares of our common stock as of August 31, 1999, after giving
effect to the conversion of all outstanding shares of preferred stock into
common stock and as adjusted to reflect the sale of the common stock offered by
us pursuant to this prospectus, by:
. each person who is known by us to own beneficially more than 5% of our
common stock on a fully-diluted basis;
. Ken Hawk, our President, Chief Executive Officer and Chief Energizing
Officer;
. each of our directors; and
. all current directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o iGo Corporation, 2301 Robb Drive, Reno, Nevada 89523. The table includes
all shares of common stock beneficially owned by the indicated stockholder as
of August 31, 1999. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage of ownership of that
person, shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of August 31, 1999 are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage of ownership of any other person. To our
knowledge, except as otherwise noted, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable.
The percent of beneficial ownership for each stockholder is based on
14,325,200 shares of common stock outstanding prior to this offering, on an as
converted basis and assuming the issuance of 124,982 shares upon conversion of
a portion of our outstanding subordinated indebtedness, and 19,325,200 shares
of common stock outstanding after this offering. An "*" indicates ownership of
less than 1%.
<TABLE>
<CAPTION>
Percentage of Shares
Number of Outstanding
Shares -----------------------
Beneficially Before After
Name and Address Owned Offering Offering
- ---------------- ------------ -------- ----------
<S> <C> <C> <C>
Ken Hawk....................................................... 4,785,600 33.4% 24.8%
Institutional Venture Partners (1)............................. 3,303,150 23.1% 17.1%
3000 Sand Hill Road, Bldg. 2, Ste. 290
Menlo Park, California 94025
Wand/Power Express Investments I L.P........................... 3,147,000 22.0% 16.3%
630 Fifth Avenue, Ste. 2435
New York, New York 10111
John Mackall (2)............................................... 1,300,140 9.1% 6.7%
1332 Anacapa Street, Ste. 200
Santa Barbara, California 93101
Darrell Boyle (3).............................................. 159,672 1.1% *
David Callard (4).............................................. 3,147,000 22.0% 16.3%
630 Fifth Avenue, Ste. 2435
New York, New York 10111
Peter Gotcher (5).............................................. 257,142 1.8% 1.3%
All directors and executive officers
as a group (9 persons) (6).................................... 9,137,538 60.0% 45.2%
</TABLE>
(See footnotes on following page.)
55
<PAGE>
- --------
(1) Represents 3,224,340 shares held by Institutional Venture Partners VIII,
L.P., 39,312 shares held by IVM Investment Fund VIII, LLC, 12,258 shares
held by IVM Investment Fund VIII-A, LLC and 27,240 shares held by IVP
Founders Fund I, L.P.
(2) Includes 62,640 shares held by Santa Barbara Bank & Trust as Trustee for
John R. Mackall SEPP-IRA over which Mr. Mackall exercises voting and
investment control.
(3) Includes 60,000 shares acquired upon exercise of a stock option, 21,250
shares of which as of August 31, 1999 remain subject to our right of
repurchase, which right lapses over time. Also includes 60,000 shares
issuable upon exercise of an option, all of which are exercisable but all
of which as of August 31, 1999 are subject to our right of repurchase,
which right lapses over time.
(4) Represents shares held by Wand/Power Express Investments I L.P. Mr. Callard
is a director of our company and the President of Wand (Power Express)
Inc., the general partner of Wand/Power Express Investments I L.P. Mr.
Callard disclaims beneficial ownership of shares held by this entity,
except for his proportional interest arising from his partnership interest
in such fund.
(5) Excludes all shares held by Institutional Venture Partners VIII, L.P., IVM
Investment Fund VIII, LLC, IVM Investment Fund VIII-A, LLC and IVP Founders
Fund I, L.P. Mr. Gotcher is a venture partner of Institutional Venture
Partners and a director of our company. Mr. Gotcher exercises no voting or
dispository control over the holdings of such funds. Includes
143,628 shares issuable upon exercise of an option, all of which are
exercisable but all of which as of August 31, 1999 are subject to our right
of repurchase, which right lapses over time.
(6) Includes shares described in footnotes 3, 4 and 5. Also includes an
aggregate of 697,824 shares issuable upon exercise of options held by
executive officers, all of which are exercisable, but 655,637 shares of
which were subject to our right of repurchase as of August 31, 1999, which
right lapses over time.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the completion of this offering, we will be authorized to issue
50,000,000 shares of common stock, $0.001 par value per share, and 5,000,000
shares of undesignated preferred stock, $0.001 par value per share. The
following description of our capital stock does not purport to be complete.
This description is subject to and qualified in its entirety by our certificate
of incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable Delaware law.
Common Stock
As of August 31, 1999, there were 14,325,200 shares of common stock
outstanding that were held of record by approximately 62 stockholders. There
will be 19,325,200 shares of common stock outstanding after giving effect to
the sale of common stock offered in this offering. There are outstanding
options to purchase a total of 1,418,202 shares of our common stock. The
foregoing discussion assumes:
. no exercise of outstanding options or warrants after August 31, 1999;
. the issuance of 124,982 shares of Series C preferred stock upon
conversion of a portion of our subordinated indebtedness prior to this
offering;
. the conversion of all shares of preferred stock outstanding into shares
of common stock upon the closing of this offering; and
. no exercise of the underwriters' over-allotment option.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Our stockholders
do not have cumulative voting rights in the election of directors. Accordingly,
holders of a majority of the shares voting are able to elect all of the
directors. Subject to preferences that may be granted to any then outstanding
preferred stock, holders of common stock are entitled to receive ratably only
those dividends as may be declared by the board of directors out of funds
legally available therefor, as well as any distributions to the stockholders.
See "Dividend Policy." In the event of a liquidation, dissolution or winding up
of iGo, holders of common stock are entitled to share ratably in all of our
assets remaining after we pay our liabilities and distribute the liquidation
preference of any then outstanding preferred stock. Holders of common stock
have no preemptive or other subscription or conversion rights.
Preferred Stock
Our certificate of incorporation filed in connection with this offering
provides that our board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series. The rights,
preferences and privileges of each series of preferred stock may be greater
than the rights of our common stock. It is not possible to state the actual
effect of the issuance of any shares of preferred stock upon the rights of
holders of our common stock until the board of directors determines the
specific rights of the holders of any preferred stock that may be issued.
However, the effects might include, among other things:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
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<PAGE>
. impairing the liquidation rights of the common stock; and
. delaying or preventing a change in our control without further action by
the stockholders.
Upon the closing of this offering, no shares of preferred stock will be
outstanding, and we have no present plans to issue any shares of preferred
stock.
Warrants
As of the closing of this offering, there will be warrants to purchase 16,132
shares of our common stock at an exercise price of $6.82, which will remain
exercisable until three years following this offering. In addition, as of the
closing of this offering, there will be warrants to purchase 40,500 shares of
our common stock at an exercise price of $0.445, which will remain exercisable
until June 14, 2003.
Registration Rights
Pursuant to a registration and information rights agreement entered into
between us and holders of 6,326,100 shares of common stock, holders of
7,518,072 shares of common stock issuable upon conversion of our Series A,
Series B and Series C preferred stock and the holder of a warrant to purchase
40,500 shares of common stock, we are obligated, under limited circumstances
and subject to specified conditions and limitations, to use our best efforts to
register these shares.
We must use our best efforts to register these shares:
. if we receive written notice from holders of 66 2/3% or more of these
shares requesting that we effect a registration with respect to not less
than 25% of these shares;
. if we decide to register our own securities after this offering except
with respect to any offering in which the managing underwriter determines
that the inclusion of person's shares other than our own would adversely
affect the marketing of the securities to be sold by us; or
. if (1) we receive written notice from a holder or holders of these shares
requesting that we effect a registration on Form S-3 with respect to
these shares, the reasonably anticipated price to the public of which
exceeds $560,000 and (2) we are then eligible to use Form S-3.
However, in addition to certain other conditions and limitations, if
requested to register shares of these shares, we can delay registration not
more than once in any 12-month period and for not more than 90 days. In
addition, unless the request is for a registration on Form S-3, we are
obligated to effect only two registrations requested by the holders of these
shares and no more than one registration in any 12-month period. In any case
where we decide to register our own securities pursuant to an underwritten
offering, the managing underwriter may limit the registrable shares to be
included in the registration to not less than 10% of the total value of
securities to be registered.
These registration rights terminate with respect to each of these shares when
the holder can transfer all of his or her registrable shares pursuant to Rule
144 within a 90-day period. In addition, the holders of these registration
rights have entered into lockup agreements and waived their registration rights
until 180 days following the date of this prospectus.
Delaware Law and Certain Provisions of Our Certificate of Incorporation and
Bylaws
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer, a
proxy contest or otherwise and the removal of incumbent officers and directors.
These provisions, summarized below, may discourage
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<PAGE>
certain types of coercive takeover practices and inadequate takeover bids and
encourage persons seeking to acquire control of our company to first negotiate
with our company. We believe that the benefits of increased protection of our
company's potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure our company outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 generally prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless the "business combination" or
the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder"
is a person who, together with affiliates and associates, owns 15% or more of a
corporation's voting stock. The existence of this provision would be expected
to have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held
by stockholders.
Our certificate of incorporation eliminates the right of stockholders to act
by written consent without a meeting. The certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors. The
authorization of undesignated preferred stock makes it possible for the board
of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
our company. These and other provisions may have the effect of deterring
hostile takeovers or delaying changes in control or management of our company.
The amendment of any of these provisions would require approval by holders of
at least 66 2/3% of our outstanding common stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is U.S. Stock Transfer
Corporation.
National Market Listing
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "IGOC."
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering there was no public market for our common
stock. Future sales of substantial amounts of common stock in the public market
could adversely affect the market price of the common stock. Furthermore, due
to contractual and legal restrictions on resale, only a limited number of
shares will be available for sale shortly after the offering. After these
restrictions lapse, sales of substantial amounts of our common stock in the
public market could adversely affect the prevailing market price and our
ability to raise capital equity.
Upon completion of this offering, based on shares outstanding as of August
31, 1999, we will have outstanding 19,325,200 shares of common stock, assuming:
. the issuance of 5,000,000 shares of common stock in this offering;
. the issuance of 124,982 shares of common stock upon conversion of a
portion of our subordinated indebtedness prior to this offering;
. the conversion of all shares of preferred stock into shares of common
stock at the closing of this offering;
. no exercise of the underwriters' over-allotment option; and
. no exercise of options or warrants after August 31, 1999.
Of these shares, the 5,000,000 shares sold in this offering, plus any shares
issued upon exercise of the underwriters' option to purchase additional shares,
will be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates," as that term is defined in Rule 144 of the
Securities Act.
The remaining 14,325,200 shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144. Restricted shares may be sold in
the public market only if registered with the Securities and Exchange
Commission or if they qualify for an exemption from registration under Rule
144. Rule 144(k), or Rule 701 of the Securities Act, all of which are
summarized below. Sales of the restricted shares in the public market, or the
availability of shares for sale, could adversely affect the market price of our
common stock.
Our stockholders have entered into agreements in which they have agreed that
they will not, without the prior written consent of BancBoston Robertson
Stephens Inc., offer, sell, contract to sell, or grant any option to purchase
or otherwise dispose of their shares of our common stock for a period of
180 days following the effective date of the registration statement filed
pursuant to this offering. These agreements, often referred to as lock-up
agreements, also apply to any securities owned by our stockholders that are
exercisable for or convertible into our common stock. As a result of these
contractual restrictions, shares subject to lock-up agreements may not be sold
until such lock-up agreements expire or are waived by BancBoston Robertson
Stephens Inc. In addition, at August 31, 1999, 54,938 restricted shares are
subject to our right of repurchase, which right lapses over time. Taking into
account the lock-up agreements, and assuming BancBoston Robertson Stephens Inc.
does not release stockholders from these agreements, the following shares will
be eligible for sale in the public market at the following times:
. beginning on the effective date, only the shares sold in the offering
will be immediately available for sale in the public market; and
. beginning 180 days after the effective date, approximately 13,273,520
shares will be eligible for sale pursuant to Rules 144, 144(k) and 701.
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<PAGE>
Under Rule 144, the number of shares that may be sold by affiliates of our
stockholders are subject to volume restrictions. In general, under Rule 144,
and beginning after the expiration of the lock-up agreements, a person who has
beneficially owned restricted shares, including shares that are aggregated to
such person or persons, for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately 193,252 shares immediately after the
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale. In order to sell shares under Rule
144, the selling stockholder must comply with manner of sale provisions
and notice requirements and current public information about us must be
available.
Under Rule l44(k), the following persons may sell their shares without
complying with the manner of sale, public information, number of shares
limitation or notice provisions of Rule 144:
. not our affiliate during the three months preceding a sale; and
. beneficially owned the shares proposed to be sold for at least two years.
As part of the lock-up agreements, all of our employees holding common stock
or stock options may not sell shares acquired upon exercise of their options
until 180 days after the effective date. Beginning 180 days after the effective
date, any of our employees, officers, directors, or consultants who purchased
his or her shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell their shares in reliance on Rule 144 without having to
comply with the holding period, public information, number of shares limitation
or notice provisions of Rule 144. In addition, we intend to file one or more
registration statements under the Securities Act as promptly as possible after
the effective date to register shares to be issued under our employee benefit
plans. As a result, any options exercised under our stock option plans or any
other benefit plan after the effectiveness of a registration statement will
also be freely tradable in the public market, unless the shares are held by
affiliates of ours. Shares held by our affiliates will still be subject to the
number of shares limitation, manner of sale, notice and public information
requirements of Rule 144 unless the shares may otherwise be sold under Rule
701. See "Management--Stock Plans" and "Description of Capital Stock--
Registration Rights."
As of August 31, 1999, there were a total of 1,418,202 shares of common stock
subject to outstanding options under our Amended and Restated 1996 Stock Option
Plan, all of which are exercisable, but 1,253,095 of which, as of August 31,
1999, remain subject to our right of repurchase, which right lapses over time,
and all of which are subject to lock-up agreements. Immediately after the
completion of the offering, we intend to file registration statements on Form
S-8 under the Securities Act to register all of the shares of common stock
issued or reserved for future issuance under our Amended and Restated 1996
Stock Option Plan and our 1999 Employee Stock Purchase Plan. On the date 180
days after the effective date of the offering, the date that the lock-up
agreements expire, a total of 395,349 shares of our common stock subject to
options outstanding as of August 31, 1999 will be free from our right of
repurchase. After the effective dates of the registration statements on Form S-
8, shares purchased upon exercise of options granted pursuant to our Amended
and Restated 1996 Stock Option Plan and our 1999 Employee Stock Purchase Plan
generally would be available for resale in the public market.
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<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and Thomas Weisel
Partners LLC, have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock indicated opposite their names below. The underwriters
are committed to purchase and pay for all of the shares if any are purchased.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on October 19, 1999.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
BancBoston Robertson Stephens Inc.................................. 2,200,000
Hambrecht & Quist LLC.............................................. 1,100,000
Thomas Weisel Partners LLC......................................... 1,100,000
Wit Capital Corporation............................................ 150,000
ABN AMRO Incorporated.............................................. 100,000
Needham & Company, Inc. ........................................... 100,000
U.S. Bancorp Piper Jaffray Inc. ................................... 100,000
E*TRADE Securities, Inc. .......................................... 75,000
Suretrade.......................................................... 75,000
---------
Total.......................................................... 5,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the initial public offering price located on the
cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $0.50 per share, of which $0.10 may be
reallocated to other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
representatives. No reduction in this price will change the amount of proceeds
to be received by us as indicated on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Internet Distribution. The underwriters, at the request of iGo, have
reserved for sale at the initial public offering price up to 250,000 shares of
common stock to members and visitors to Wit Capital's services or web site who
express an interest in purchasing these shares. Of these shares, we anticipate
that up to 125,000 shares will be reserved for sale to iGo registered users who
express an interest in purchasing shares in this offering. The sale of these
shares will be made by Wit Capital. Purchases of the reserved shares will be
made through an account at Wit Capital in accordance with Wit Capital's
procedures for opening an account and transacting in securities. Any of these
reserved shares not purchased by visitors to and users of Wit Capital's
services or web site or iGo registered users will be offered by the
underwriters to the public on the same terms as the other shares.
Internet Prospectus. A prospectus in electronic format is being made
available on a web site maintained by Wit Capital. In addition, pursuant to an
e-Dealer Agreement, all dealers purchasing shares from Wit Capital in the
offering, the e-Dealers, similarly have agreed to make a prospectus in
electronic format available on the web sites that they maintain.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional shares of common stock at the same price per
share as we will receive for the 5,000,000 shares that the
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<PAGE>
underwriters have agreed to purchase. To the extent that the underwriters
exercise this option, each of the underwriters will have a firm commitment to
purchase approximately the same percentage of additional shares that the number
of shares of common stock to be purchased by it shown in the above table
represents as a percentage of the 5,000,000 shares offered by this prospectus.
If purchased, the additional shares will be sold by the underwriters on the
same terms as those on which the 5,000,000 shares are being sold. We will be
obligated, under this option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover over-
allotments made in connection with the sale of the 5,000,000 shares of common
stock offered by this prospectus.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement.
Lock-Up Agreements. Each of our executive officers, directors and other
significant stockholders of record has agreed with the representatives, for a
period of 180 days after the date of this prospectus, not to offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock, any options or warrants to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or acquired directly from us by these holders or with respect to which they
have or may acquire the power of disposition, without the prior written consent
of BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens
Inc. may, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to lock-up agreements. There are no
agreements between the representatives and any of our stockholders providing
consent by the representatives to the sale of shares prior to the expiration of
the 180-day lock-up period.
Future Sales By Us. In addition, we have generally agreed that, during the
180-day lock-up period, we will not, without the prior written consent of
BancBoston Robertson Stephens Inc., (a) consent to the disposition of any
shares held by stockholders prior to the expiration of the 180-day lock-up
period or (b) issue, sell, contract to sell or otherwise dispose of, any shares
of common stock, any options or warrants to purchase any shares of common
stock, or any securities convertible into, exercisable for or exchangeable for
shares of common stock, other than our sale of shares in the offering, our
issuance of common stock upon the exercise of currently outstanding options and
warrants, and our issuance of incentive awards under our stock incentive plans.
See "Shares Eligible for Future Sale."
Directed Shares. In addition to the shares being reserved by Wit Capital for
sale to iGo registered users, we have requested that the underwriters reserve
up to seven percent of the shares of common stock for sale, at the initial
public offering price, to directors, officers, employees and other individuals
designated by iGo. As a result, the number of shares of common stock available
for sale to the general public in the offering will be reduced to the extent
these individuals and entities purchase the directed shares. Any directed
shares not so purchased will be offered by the underwriters to the general
public on the same terms as the other shares.
No Prior Public Market. Prior to this offering, there has been no public
market for the common stock. Consequently, the initial public offering price
for the common stock offered by this prospectus has been determined through
negotiations between us and the representatives. Among the factors considered
in these negotiations were prevailing market conditions, our financial
information,
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<PAGE>
market valuations of other companies that we and the representatives believe to
be comparable to us, estimates of our business potential and the present state
of our development.
Stabilization. The representatives have advised us that, under Regulation M
under the Securities Exchange Act, some participants in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by the underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by the underwriter or syndicate member. The
representatives have advised us that these transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
Share Purchases. Bayview 99 I, L.P. and Bayview 99 II, L.P., investment
partnerships affiliated with BancBoston Robertson Stephens Inc.; H&Q iGo
Investors, LLC, Hambrecht & Quist California and Hambrecht & Quist Employee
Venture Fund, LP II, investment partnerships affiliated with Hambrecht & Quist
LLC; and Tailwind Capital Partners L.P., an investment partnership affiliated
with Thomas Weisel Partners LLC, purchased 19,974, 16,692, 6,234, 3,666, 3,666
and 14,670 shares, respectively, of Series C preferred stock from us in July
1999, at a price of $6.82 per share and on the same terms and conditions as all
other purchasers in our Series C preferred stock financing. In addition, 3,672
shares of Series C preferred stock were purchased at a price of $6.82 per share
by an individual affiliated with BancBoston Robertson Stephens Inc. and an
aggregate of 1,464 shares of Series C preferred stock were purchased by two
individuals affiliated with Thomas Weisel Partners LLC. Furthermore, 25,500
shares of our common stock issuable upon conversion of other series of our
preferred stock are held by an individual affiliated with BancBoston Robertson
Stephens Inc. As previously noted, all shares of our outstanding preferred
stock will convert into an equivalent number of shares of our common stock upon
the consummation of this offering.
Additional Lock-Up Agreements of Representatives' Affiliates. Bayview 99 I,
L.P., Bayview 99 II, L.P., Tailwind Capital Partners L.P., Steven D. Abbott,
Access Technology Partners, L.P., Access Technology Partners Brokers Fund,
L.P., H&Q iGo Investors, LLC, Hambrecht & Quist California, Hambrecht & Quist
Employee Venture Fund, L.P. II, Katherine Dowling, and Ashley Cockrill, as
affiliates of the Representatives, have agreed not to sell, transfer, assign,
pledge or hypothecate any of their shares of Series C preferred stock, which
will convert into common stock upon the closing of this offering, for a period
of one (1) year following the effective date of the offering, except that
Access Technology Partners, L.P. has agreed to lock up only 1% of its shares of
Series C preferred stock. Each of A. Dwight Abbott and Janet M. Abbott, as
trustees of the Abbott Trust, and Steven D. Abbott has agreed not to sell,
transfer, assign, pledge or hypothecate its shares of Series A and Series C
preferred stock and his shares of Series A and Series B preferred stock,
respectively, which will convert into common stock upon the closing of this
offering, for a period of 90 days following the effective date of the offering.
Vrolyk/Power Express L.P. has agreed not to sell, transfer, assign, pledge or
hypothecate 5% of its shares of Series A preferred stock, which will convert
into common stock upon the closing of this offering, and 5% of the shares of
common stock
64
<PAGE>
underlying its warrants, for a period of 90 days following the effective date
of the offering. These entities and individuals have agreed that, without
exception, these shares will not be released from their respective lock-up
agreements.
Expenses of the Offering. The expenses of the offering are estimated at
$1,250,000 and are payable entirely by us.
New Underwriters. Thomas Weisel Partners LLC, one of the representatives of
the Underwriters, was organized and registered as a broker-dealer in December
1998. Since December 1998, Thomas Weisel Partners has been named as a lead or
co-manager on 65 filed public offerings of equity securities, of which 33 have
been completed, and has acted as a syndicate member in an additional 32 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us under the underwriting agreement entered into in connection with this
offering.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for iGo
by Hale Lane Peek Dennison Howard and Anderson, Professional Corporation, Reno,
Nevada. Certain additional legal matters set forth in the Underwriting
Agreement between iGo and the representatives of the underwriters will be
passed upon for iGo by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California and for the underwriters by Brobeck Phleger
& Harrison, LLP, San Francisco, California. As of the date of this prospectus,
WS Investment Company 99A, an investment partnership composed of certain
current and former members of and persons associated with Wilson Sonsini
Goodrich & Rosati, Professional Corporation, beneficially owns 7,338 shares of
our common stock. In addition, an individual member of Hale Lane Peek Dennison
Howard and Anderson, Professional Corporation, beneficially owns 3,672 shares
of our common stock.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective January 1, 1999, Deloitte & Touche LLP was engaged as our
independent accountants and replaced other auditors who were dismissed as our
independent accountants on the same date. The decision to change accountants
was approved by our board of directors. The report of Grant Thornton LLP on our
financial statements for the year ended December 31, 1997 and the report of
Frank, Rimerman & Co. LLP on our balance sheet as of December 31, 1996 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to any uncertainty, audit scope or accounting principles. During
the last two fiscal years through the date of their respective discharges,
there were no disagreements with our former auditors on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
our former auditors, would have caused them to make reference thereto in any of
their reports. Our former auditors have not audited or reported on any of the
financial statements included in this prospectus. Prior to January 1999, we had
not consulted with Deloitte & Touche LLP on items that involved our accounting
principles or the form of audit opinion to be issued on our financial
statements.
65
<PAGE>
EXPERTS
The financial statements as of December 31, 1997 and 1998, and for each of
the three years in the period ended December 31, 1998 included in this
prospectus and the related financial statement schedule included elsewhere in
the registration statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the registration statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU MAY FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1. This prospectus, which forms a part of the Registration
Statement, does not contain all the information included in the Registration
Statement. Certain information is omitted and you should refer to the
Registration Statement and its exhibits. With respect to references made in
this prospectus to any contract or other document of iGo, such references are
not necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract or document. You may
review a copy of the Registration Statement, including exhibits and schedule
filed therewith, at the Securities and Exchange Commission's public reference
room at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You
may also obtain copies of such materials from the Public References Section of
the Securities and Exchange Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. You may obtain
additional information on the operation of the public reference room by calling
the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission maintains a website (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as iGo, that file electronically with the Securities and
Exchange Commission.
66
<PAGE>
iGo CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Financial Statements:
Balance Sheets, December 31, 1997 and 1998; and June 30, 1999
(Unaudited).............................................................. F-3
Statements of Operations, Years Ended December 31, 1996, 1997, and 1998;
and Six-Month Periods Ended June 30, 1998 and 1999 (Unaudited)........... F-4
Statements of Stockholders' Deficit, Years Ended December 31, 1996, 1997,
and 1998; and Six-Month Period Ended June 30, 1999 (Unaudited)........... F-5
Statements of Cash Flows, Years Ended December 31, 1996, 1997, and 1998;
and Six-Month Periods Ended June 30, 1998 and 1999 (Unaudited)........... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of
Directors of iGo Corporation:
We have audited the accompanying balance sheets of iGo Corporation (the
"Company") as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' deficit, and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Reno, Nevada
July 16, 1999 (August 30,
1999 as to paragraphs 3, 4,
5, 7 and 8 of Note 10 and
September 10, 1999 as to
paragraph 6 of Note 10)
F-2
<PAGE>
iGo CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
------------------------ June 30, June 30, 1999
1997 1998 1999 (Note 8)
----------- ----------- ----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ -- $ 2,504,351 $ --
Accounts receivable,
net.................... 960,803 464,214 1,963,900
Inventory, net.......... 1,097,029 1,387,171 1,698,386
Prepaid expenses........ 61,949 102,651 34,595
----------- ----------- -----------
Total current assets.. 2,119,781 4,458,387 3,696,881
Property and equipment,
net...................... 230,711 997,156 1,243,866
Intangibles and other
assets................... 33,843 80,135 197,363
----------- ----------- -----------
Total............... $ 2,384,335 $ 5,535,678 $ 5,138,110
=========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable ....... $ 1,648,123 $ 780,565 $ 2,477,264
Accrued liabilities..... 304,797 194,012 586,806
Current portion of
capital lease
obligations............ 10,302 16,504 92,581
Line of credit.......... -- -- 583,413
Short-term note
payable................ -- 20,787 --
----------- ----------- -----------
Total current
liabilities.......... 1,963,222 1,011,868 3,740,064
Deferred rent............. 35,032 36,379 37,052
Long-term portion of
capital lease
obligations.............. 20,333 22,720 640,934
----------- ----------- -----------
Total liabilities..... 2,018,587 1,070,967 4,418,050
----------- ----------- -----------
Mandatory redeemable
preferred stock.......... 1,679,887 7,889,536 8,216,401 $ --
----------- ----------- -----------
Stockholders' equity
(deficit):
Common stock, $0.001 par
value; 17,332,500
shares authorized,
actual; 52,237,500
shares authorized, pro
forma; 6,381,516,
6,590,646, and
6,641,646 shares issued
and outstanding,
actual; 13,309,146
shares issued and
outstanding, pro forma
....................... 6,382 6,591 6,642 13,310
Additional paid-in
capital................ 87,786 300,002 1,202,581 9,412,314
Deferred compensation... -- (187,534) (995,496) (995,496)
Receivable from
stockholder............ (43,683) (46,364) (47,765) (47,765)
Accumulated deficit..... (1,364,624) (3,497,520) (7,662,303) (7,662,303)
----------- ----------- ----------- -----------
Total stockholders'
equity (deficit)..... (1,314,139) (3,424,825) (7,496,341) $ 720,060
----------- ----------- ----------- ===========
Total............... $ 2,384,335 $ 5,535,678 $ 5,138,110
=========== =========== ===========
</TABLE>
Commitments and
contingencies (notes 5
and 10)
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
iGo CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six-Month
Years Ended December 31, Periods Ended June 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Net product revenue... $ 4,508,364 $ 7,421,631 $12,318,092 $ 5,779,002 $ 7,717,742
Development revenue... -- 665,716 502,004 502,004 --
----------- ----------- ----------- ----------- -----------
Total net revenues.. 4,508,364 8,087,347 12,820,096 6,281,006 7,717,742
Cost of goods sold...... 2,976,722 5,320,218 8,602,057 4,274,685 5,013,078
----------- ----------- ----------- ----------- -----------
Gross profit............ 1,531,642 2,767,129 4,218,039 2,006,321 2,704,664
----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing... 943,027 2,485,031 3,883,265 1,933,786 3,814,412
Product development... 87,157 112,851 510,762 160,607 711,855
General and
administrative....... 558,029 1,076,350 1,666,329 784,726 1,805,497
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 1,588,213 3,674,232 6,060,356 2,879,119 6,331,764
----------- ----------- ----------- ----------- -----------
Loss from operations.... (56,571) (907,103) (1,842,317) (872,798) (3,627,100)
Other income (expense):
Interest income....... 27,792 21,852 35,953 1,328 31,972
Interest expense...... (10,845) (2,931) (90,144) (42,525) (28,683)
Loss on disposal of
assets............... (4,500) -- -- -- (219,137)
Miscellaneous
(expense) income..... (560) 2,131 10,290 7,577 5,030
----------- ----------- ----------- ----------- -----------
Loss before provision
for income taxes....... (44,684) (886,051) (1,886,218) (906,418) (3,837,918)
Provision for income
taxes.................. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net loss................ (44,684) (886,051) (1,886,218) (906,418) (3,837,918)
Preferred stock
dividends.............. (71,594) (140,434) (246,678) (74,502) (326,865)
----------- ----------- ----------- ----------- -----------
Net loss attributable to
common stockholders.... $ (116,278) $(1,026,485) $(2,132,896) $ (980,920) $(4,164,783)
=========== =========== =========== =========== ===========
Net loss per share:
Basic and diluted..... $ (0.02) $ (0.19) $ (0.36) $ (0.17) $ (0.66)
=========== =========== =========== =========== ===========
Supplemental
(unaudited).......... $ (0.19) $ (0.29)
=========== ===========
Weighted-average shares
outstanding:
Basic and diluted..... 5,400,000 5,543,562 5,997,546 5,938,716 6,346,500
=========== =========== =========== =========== ===========
Supplemental
(unaudited).......... 10,182,854 13,014,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
iGo CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional Receivable
---------------- Paid-in Deferred from Accumulated
Shares Amount Capital Compensation Stockholder Deficit Total
--------- ------ ---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... 5,400,000 $5,400 $ 44,600 $ -- $ -- $ (221,861) $ (171,861)
Net loss................ -- -- -- -- -- (44,684) (44,684)
Stock issued for note
receivable............. 885,600 886 38,966 -- (39,852) -- --
Mandatory redeemable
preferred stock
dividends.............. -- -- -- -- -- (71,594) (71,594)
--------- ------ ---------- --------- -------- ----------- -----------
Balance, December 31,
1996................... 6,285,600 6,286 83,566 -- (39,852) (338,139) (288,139)
Net loss................ -- -- -- -- -- (886,051) (886,051)
Stock options
exercised.............. 95,916 96 4,220 -- -- -- 4,316
Accrued interest........ -- -- -- -- (3,831) -- (3,831)
Mandatory redeemable
preferred stock
dividends.............. -- -- -- -- -- (140,434) (140,434)
--------- ------ ---------- --------- -------- ----------- -----------
Balance, December 31,
1997................... 6,381,516 6,382 87,786 -- (43,683) (1,364,624) (1,314,139)
Net loss................ -- -- -- -- -- (1,886,218) (1,886,218)
Deferred compensation on
stock options granted.. -- -- 203,013 (203,013) -- -- --
Compensation expense
related to stock
options................ -- -- -- 15,479 -- -- 15,479
Stock options
exercised.............. 209,130 209 9,203 -- -- -- 9,412
Accrued interest........ -- -- -- -- (2,681) -- (2,681)
Mandatory redeemable
preferred stock
dividends.............. -- -- -- -- -- (246,678) (246,678)
--------- ------ ---------- --------- -------- ----------- -----------
Balance, December 31,
1998................... 6,590,646 6,591 300,002 (187,534) (46,364) (3,497,520) (3,424,825)
Net loss (unaudited).... -- -- -- -- -- (3,837,918) (3,837,918)
Deferred compensation on
stock options granted
(unaudited)............ -- -- 898,392 (898,392) -- -- --
Compensation expense
related to stock
options (unaudited).... -- -- -- 90,430 -- -- 90,430
Stock options exercised
(unaudited)............ 51,000 51 4,187 -- -- -- 4,238
Accrued interest
(unaudited)............ -- -- -- -- (1,401) -- (1,401)
Mandatory redeemable
preferred stock
dividends (unaudited).. -- -- -- -- -- (326,865) (326,865)
--------- ------ ---------- --------- -------- ----------- -----------
Balance, June 30, 1999
(unaudited)............ 6,641,646 $6,642 $1,202,581 $(995,496) $(47,765) $(7,662,303) $(7,496,341)
========= ====== ========== ========= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
iGo CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six-Month
Years Ended December 31, Periods Ended June 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $ (44,684) $ (886,051) $(1,886,218) $ (906,418) $(3,837,918)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Compensation expense
related to stock
options.............. -- -- 15,479 6,966 90,430
Accrued interest on
stockholder note
receivable........... -- (3,831) (2,681) (1,321) (1,401)
Provisions for bad
debt and inventory... -- 226,823 465,908 182,561 418,201
Loss on sale
leaseback............ -- -- -- -- 219,576
Depreciation and
amortization......... 16,790 48,305 137,148 55,262 190,123
Changes in:
Accounts receivable.. (198,928) (856,850) 139,820 291,182 (1,812,132)
Inventory............ (256,229) (752,465) (399,281) (504,932) (416,970)
Prepaid expenses..... (39,807) (1,802) (40,699) (26,269) 68,056
Accounts payable,
accrued liabilities
and deferred rent... 125,374 1,428,136 (976,996) (210,574) 2,090,166
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (397,484) (797,735) (2,547,520) (1,113,543) (2,991,869)
----------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Acquisition of
property and
equipment............ (95,562) (108,698) (838,622) (64,708) (629,626)
Acquisition of
intangibles and other
assets............... (13,015) (23,970) (9,123) (3,749) (144,011)
----------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities......... (108,577) (132,668) (847,745) (68,457) (773,637)
----------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Principal payments on
short-term note and
capital leases....... -- (86,195) (72,765) (45,131) (28,873)
Proceeds from sale
leaseback............ -- -- -- -- 702,377
Proceeds from exercise
of stock options..... -- 4,316 9,412 -- 4,238
Net proceeds from
issuance of mandatory
redeemable preferred
stock................ 1,467,861 -- 5,962,969 -- --
Net proceeds from
borrowings under line
of credit............ -- -- -- 1,227,131 583,413
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities......... 1,467,861 (81,879) 5,899,616 1,182,000 1,261,155
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 961,800 (1,012,282) 2,504,351 -- (2,504,351)
Cash and cash
equivalents, beginning
of period............. 50,482 1,012,282 -- -- 2,504,351
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents, end of
period................ $ 1,012,282 $ -- $ 2,504,351 $ -- $ --
=========== =========== =========== =========== ===========
Supplemental disclosure
of cash flows
information:
Cash paid during the
period for interest.. $ -- $ 2,931 $ 90,144 $ 42,525 $ 28,683
=========== =========== =========== =========== ===========
Supplemental schedule
of noncash investing
and financing
activities:
Equipment acquired
through capital
leases............... $ -- $ 41,830 $ 18,993 $ 6,164 $ --
=========== =========== =========== =========== ===========
Mandatory redeemable
preferred stock
dividends accrued.... $ 71,594 $ 140,434 $ 246,678 $ 74,502 $ 326,865
=========== =========== =========== =========== ===========
Intangibles and other
assets acquired with
short-term notes..... $ -- $ -- $ 83,148 $ 83,148 $ --
=========== =========== =========== =========== ===========
Stock issued for note
receivables.......... $ 39,852 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
Deferred compensation
on stock options
issued............... $ -- $ -- $ 203,013 $ -- $ 898,392
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
iGo Corporation (formerly Battery Express, Inc.) (the "Company") was
incorporated in California in 1993 and is headquartered in Reno, Nevada. The
Company is a leading provider of hard-to-find, model-specific accessories and
services for mobile electronic devices. Through its iGo.com website and
customer solutions representatives, the Company enables businesses and
individual consumers to efficiently identify, locate and purchase these
products and services. The Company's proprietary relational databases of over
6,500 products from more than 350 suppliers combined with its comprehensive
industry knowledge and service expertise, create a valuable one-stop solution
for its customers.
The Company's board of directors has authorized the filing of a registration
statement with the Securities and Exchange Commission that would permit the
Company to sell shares of the Company's common stock in connection with a
proposed initial public offering.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents, and such items are
recorded at cost, which approximates fair market value.
Inventory
Inventory is stated at the lower of first-in, first-out cost or market, and
consists primarily of batteries and electronic accessories held for sale.
Property and Equipment
Property and equipment are stated at cost. Depreciation is recorded under the
straight-line method over the following estimated useful lives: leasehold
improvements, the shorter of the useful life or the remaining life of the
lease; furniture and fixtures, four to seven years; and purchased software,
four years. Costs of normal repairs and maintenance are charged to expense as
incurred.
Intangibles and Other Assets
The costs of trademarks, and copyrights acquired are being amortized on the
straight-line method over their remaining lives ranging from one to 15 years.
Amortization expense charged to operations in 1996, 1997, and 1998 was $3,636,
$24,463, and $45,978, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred income taxes reflect the net tax
effects of
F-7
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes and (b) operating loss and tax credit carry forwards.
Concentrations of Credit Risk
As of December 31, 1996, 1997, and 1998, there were no customers that
represented a significant percentage of sales or accounts receivable.
Concentrations with respect to trade receivables are limited due to the
Company's large number of customers and their geographic and economic
dispersion. Financial instruments that potentially subject the Company to
credit risks consist primarily of cash accounts on deposit with banks, which,
at times, may exceed federally insured limits. The Company believes it is not
exposed to any significant credit risk related to cash or accounts receivable.
Revenue Recognition
Sales of products, shipping fees and development revenues are recognized at
the time merchandise is shipped to customers, net of any discounts and
reserves for expected returns.
Advertising and Promotional Expenses
The Company expenses advertising and promotional costs as they are incurred.
Advertising and promotional expenses for the years ended December 31, 1996,
1997 and 1998 were $413,880, $1,507,735 and $2,055,436, respectively.
Retirement Plans
The Company provides a tax-qualified 401(k) retirement plan for the benefit
of eligible employees. The plan is designed to provide employees with
retirement funds on a tax-deferred basis and allows for discretionary matching
by the employer. Currently, the Company does not match employee contributions.
Stock-Based Compensation
The Company accounts for its employee stock-based compensation in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25 and
provides pro forma disclosures of material amounts, if any, in the notes to
the financial statements, as if the measurement provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" had been adopted. The Company has
adopted SFAS No. 123 for stock-based compensation related to nonemployees.
Net Loss Per Share
Net loss per share--basic and diluted, is computed using the weighted-
average number of common shares outstanding during the period. Stock options
and warrants were not included in the computations because they would have
been antidilutive. Supplemental loss per share (unaudited) reflects the
assumed conversion of mandatory redeemable preferred stock (see Note 8).
F-8
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The Company's financial instruments include: accounts receivable, accounts
payable, notes payable and capital leases. The Company has estimated that the
carrying amount of accounts receivable, accounts payable and notes payable
approximates fair value due to the short-term maturities of these instruments.
Business Segment
The Company operates in one industry segment because the chief operating
decision maker allocates resources to the business as a whole. The enterprise-
wide disclosures required by SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" have not been included because it is
impracticable to do so.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the financial statements. Actual amounts could
differ from those estimates.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for all fiscal quarters for all fiscal years beginning after June 15,
2000. Although the Company does not believe SFAS No. 133 will have a material
impact on its financial statements, because of the complexity of SFAS No. 133,
the ultimate impact of its adoption has not yet been determined.
Interim Financial Statements
The accompanying financial statements for the six-month periods ended June
30, 1998 and 1999 have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain interim information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial condition, results of operations, and cash flows
have been included. The results of operations for the interim periods should
not be considered indicative of results for a full calendar year. These
financial statements should be read in conjunction with the financial
statements, and notes thereto, in the Company's audited financial statements
for the year ended December 31, 1998.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Trade receivables................................... $1,088,416 $ 633,808
Allowance for bad debt.............................. (127,613) (169,594)
---------- ---------
Total accounts receivable, net.................... $ 960,803 $ 464,214
========== =========
</TABLE>
F-9
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. INVENTORY
Inventory consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Products on hand................................... $1,097,029 $1,496,310
Inventory reserve.................................. -- (109,139)
---------- ----------
Total inventory, net............................. $1,097,029 $1,387,171
========== ==========
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Leasehold improvements............................. $ 41,061 $ 37,418
Furniture and equipment............................ 236,844 498,956
Software........................................... 16,452 615,598
Accumulated depreciation........................... (63,646) (154,816)
---------- ----------
Total property and equipment, net................ $ 230,711 $ 997,156
========== ==========
</TABLE>
5. LEASE COMMITMENTS
Operating Leases
The Company leases certain equipment under non-cancelable operating leases.
Lease expense for all equipment operating leases was $859 for the years ended
December 31, 1996, 1997, and 1998.
The Company leases its facility under a non-cancelable operating lease
through September 2002. This lease requires monthly rental payments, which
increase over the lease term. The Company records rent expense on a straight-
line basis, resulting in deferred rent, which is reflected as a liability on
the accompanying balance sheet. The Company may extend the lease term for an
additional five years. The Company recorded rent expense for the years ended
December 31, 1996, 1997, and 1998 of $41,644, $92,112, and $138,615,
respectively.
The following is a schedule of the future minimum lease payments under the
equipment and facility operating leases as of December 31, 1998:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999.............................................................. $141,552
2000.............................................................. 148,718
2001.............................................................. 151,546
2002.............................................................. 104,372
--------
$546,188
========
</TABLE>
F-10
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Capital Leases
The Company conducts a portion of its operations with equipment under leases,
which have been capitalized. The leases are non-cancelable and expire on
various dates through October 2003. The capitalized value of the equipment is
approximately $64,937, and the related accumulated amortization is $3,004,
$3,600, and $13,547 as of December 31, 1996, 1997, and 1998, respectively. The
following is a schedule of the future minimum lease payments under capital
leases as of December 31, 1998 (see Note 10):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999............................................................. $ 19,900
2000............................................................. 15,625
2001............................................................. 3,084
2002............................................................. 3,084
2003............................................................. 2,569
--------
44,262
Amount representing interest..................................... (5,038)
--------
Net present value of future minimum lease payments............... 39,224
Current portion of capital lease obligation...................... (16,504)
--------
Noncurrent portion of capital lease obligations.................. $ 22,720
========
</TABLE>
6. LINE OF CREDIT
In January 1998, the Company entered into a $900,000 line of credit with
Wells Fargo Bank, funds from which are to be used for general working capital
expenditures. The agreement was amended in June 1998, to increase the line of
credit to $1.5 million, expiring on August 31, 1999. This line of credit is
secured by receivables, inventory, and intangibles. Interest is payable monthly
at a rate of 1.75% above the prime rate (9.50% as of December 31, 1998), and
all outstanding principal is due upon expiration of the line of credit. As of
December 31, 1998, no amounts were outstanding on this line of credit.
7. INCOME TAXES
The provision for income taxes recognized for the years ended December 31
consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- --------- ---------
<S> <C> <C> <C>
Tax benefit at U.S. statutory rates........ $10,993 $ 301,259 $ 734,529
Other items................................ (1,352) (4,117) (5,708)
Earnings while the Company was taxed as
an S corporation.......................... 2,060 -- --
Deferred tax liability recorded upon the
change to a taxable status from an S-
corporation status........................ (5,084) -- --
Stock options.............................. -- -- (5,263)
Increase in valuation allowance............ (6,617) (297,142) (723,558)
------- --------- ---------
Tax benefit................................ $ -- $ -- $ --
======= ========= =========
</TABLE>
F-11
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following summarizes the effect of deferred income tax items and the
impact of temporary differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws. The tax
items composing the Company's net deferred tax asset as of December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Current deferred tax asset:
Accrued liabilities............................... $ 71,946 $ 183,863
Other............................................. (272) --
Valuation allowance................................ (71,674) (183,863)
--------- ---------
Net current deferred tax asset..................... -- --
Non-current deferred tax asset:
Net operating loss................................ 277,162 943,067
Other............................................. 12,107 13,037
Non-current deferred tax liability:
Difference between book and tax basis of fixed
asset and intangibles............................ (10,278) (65,744)
Valuation allowance................................ (278,991) (890,360)
--------- ---------
Net non-current deferred tax asset................. -- --
--------- ---------
Net deferred tax asset............................. $ -- $ --
========= =========
</TABLE>
Due to the uncertainty of the realization of certain tax carryforward items,
a valuation allowance has been established in the aggregate amount of $350,665
and $1,074,223, at December 31, 1997 and 1998, respectively. Realization of a
significant portion of the assets offset by the valuation allowance is
dependent on the Company generating sufficient taxable income prior to the
expiration of the loss and credit carryforwards. As of December 31, 1997 and
1998, the Company had net operating loss carryforwards of approximately
$815,000 and $2,758,000, respectively, available to offset future taxable
income and credit carryforwards of approximately $2,000 available to offset
future taxes, which are available through 2018. The availability of the loss
and credit carryforwards may be subject to further limitation under Section 382
and 383 of the Internal Revenue Code in the event of a significant change of
ownership.
On June 14, 1996, the Company converted from an S corporation, which is taxed
at the stockholder level, to a C corporation. As the Company has generated
losses since inception, a pro forma tax benefit was not recorded for the period
prior to June 14, 1996.
8. EQUITY SECURITIES
Mandatory Redeemable Preferred Stock
The Company issued 3,667,500 shares of Series A mandatory redeemable
preferred stock ("Series A") during 1996 and 3,000,000 shares of Series B
mandatory redeemable preferred stock ("Series B") during 1998. Holders of
Series A and Series B are entitled to receive dividends at 8% per annum and may
convert their shares into common stock at a ratio of 1:1 excluding accrued
dividends. The conversion ratio for Series A is adjusted upon issuance of
common stock at less than
F-12
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
$0.45 per share. The conversion ratio for Series B is adjusted upon issuance of
common stock at less than $2.00 per share. Conversion is automatic upon an
initial public offering at a share price of not less than $1.25, with aggregate
proceeds of not less than $15.0 million.
If elected by the holders of 66 2/3% of the preferred stock then outstanding,
unconverted preferred stock is to be redeemed, on a quarterly basis, over eight
consecutive quarters beginning in June 2003 at the original issuance price plus
any declared but unpaid dividends, or upon a sale or merger of the Company
meeting certain criteria. Holders of Series A and Series B are also entitled to
a liquidation preference over common stock equal to the original price plus any
accrued but unpaid dividends.
No dividends have been declared or paid as of December 31, 1998. The Company
has recorded accrued dividends on Series A of $140,434 during the year ended
December 31, 1997 and $152,011 and $94,667 on Series A and Series B,
respectively, during the year ended December 31, 1998.
Warrants
In connection with the issuance of Series A, the Company issued warrants for
the purchase of 81,000 shares of common stock at $0.445 per share. The warrants
expire on June 14, 2003. The Company has reserved 81,000 shares of common stock
for issuance under outstanding warrants.
Issuance of Unvested Common Stock and Stockholder Loan
Also in connection with the issuance of Series A to an investor group, the
Company issued 885,600 shares of common stock to its president at $0.05 per
share in exchange for a note receivable of $39,852. These shares vest to the
president only upon the successful achievement of certain sales and
profitability performance goals or upon a sale of the Company at a price
sufficient to meet a specified internal rate of return criteria. At the
conclusion of the performance period, any unvested shares may be repurchased by
the Company, at the Company's discretion, at the original issuance price of the
stock. At December 31, 1998, the president had vested in 75% of the shares
issued under this arrangement.
The stockholder loan calls for interest to be accrued at 6% and is due upon
the sale of the Company or, if no sale occurs, on June 13, 2003. The
stockholder loan is secured by the stock issued under this arrangement and the
Company has recourse against the stockholder.
9. STOCK OPTION PLAN
The Company has a stock option plan under which the board of directors has
reserved an aggregate of 1,628,400 shares of common stock for issuance. Under
the plan, the Company may grant incentive stock options to employees and non-
qualified stock options to employees, directors, and consultants.
Incentive stock options may be granted at a price not less than the estimated
fair market value of the common stock (110% of estimated fair value for options
granted to stockholders of 10% or more of the voting stock) at the date of
grant. Options are exercisable over periods not to exceed ten years
F-13
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
from the date of grant (five years for stockholders owning 10% or more of
common stock). Non-qualified options may be granted at a price not less than
85% of the estimated fair market value of the common stock at the date of grant
and are exercisable over periods not to exceed ten years. Estimated fair market
value of the Company's stock is determined annually by the Board of Directors.
Options can be exercised at any time following grant. The Company has the right
to repurchase at the option exercise price shares that have not vested. Options
granted to date vest over a four-year term, with 25% of the options vesting
after the first year and the remaining options vesting on a monthly basis
thereafter.
Stock option activity under the plan is as follows:
<TABLE>
<CAPTION>
Number Weighted-Average
of Options Exercise Price
---------- ----------------
<S> <C> <C>
Balance, January 1, 1996....................... -- $ --
Granted...................................... 887,118 0.05
Forfeited.................................... (90,000) 0.05
-------- -----
Balance, December 31, 1996..................... 797,118 0.05
Granted...................................... 309,000 0.05
Exercised.................................... (95,916) 0.05
Forfeited.................................... (347,202) 0.05
-------- -----
Balance, December 31, 1997..................... 663,000 0.05
Granted...................................... 409,878 0.16
Exercised.................................... (209,130) 0.05
Forfeited.................................... (228,870) 0.05
-------- -----
Balance, December 31, 1998..................... 634,878 0.12
Granted (unaudited).......................... 382,500 0.29
Exercised (unaudited)........................ (51,000) 0.05
Forfeited (unaudited)........................ (6,000) 0.20
-------- -----
Balance, June 30, 1999 (unaudited)............. 960,378 $0.19
======== =====
</TABLE>
The following table summarizes information about stock options outstanding
at:
<TABLE>
<CAPTION>
Stock Options Outstanding Stock Options Exercisable
------------------------------- --------------------------
Weighted-Average Weighted- Number Weighted-
Exercise Options Remaining Average of Options Average
Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
-------- ----------- ---------------- -------------- ----------- --------------
December 31, 1997:
<S> <C> <C> <C> <C> <C>
$0.05 663,000 9.1 years $0.05 90,000 $0.05
December 31, 1998:
$0.05 341,250 8.7 years $0.05 93,306 $0.05
$0.20 293,628 9.5 years $0.20 -- --
June 30, 1999 (unaudited):
$0.05 302,250 8.3 years $0.05 133,734 $0.05
$0.20 605,628 9.5 years $0.20 21,732 $0.20
$0.83 52,500 9.9 years $0.83 -- --
</TABLE>
F-14
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company applies the provisions of APB No. 25 and related interpretations
in accounting for its stock options. Because the compensation cost for the
Company's stock options determined based on the fair value at the grant dates
for awards consistent with the method prescribed by SFAS No. 123 does not
differ significantly from the compensation cost recorded pursuant to the
provisions of APB No. 25, pro forma loss per share is not presented.
The weighted average fair value of options granted during 1996, 1997 and 1998
was estimated at $0.09, $0.32 and $3.05 per share, respectively. The fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
the grants: risk-free interest rates of 6.1%, 5.7% and 4.6% in 1996, 1997 and
1998, respectively; dividend yield of 0%; expected lives of four years in 1996,
1997 and 1998; and no expected volatility (because the Company's stock has not
been publicly traded).
The Company recorded deferred compensation during 1998 aggregating $203,013
related to stock options. Compensation expense for 1998 totaled $15,479. The
remaining balance at December 31, 1998 will be recognized as expense over the
remaining vesting periods of the options as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 50,751
2000.............................................................. 50,778
2001.............................................................. 49,076
2002.............................................................. 36,929
--------
$187,534
========
</TABLE>
Deferred compensation was computed as the difference between the deemed fair
value of the common stock and the option exercise price at the date of grant of
the options. Deemed fair value was derived from prices paid by independent
investors in the Series A and Series B financings.
On July 16, 1999, the Board of Directors increased the aggregate number of
shares reserved for issuance under the stock option plan to 3,256,800, subject
to stockholder approval.
10. SUBSEQUENT EVENTS
Lease Line of Credit
On June 28, 1999, the Company signed a $2.0 million equipment lease line of
credit with a leasing company. The line may be used to finance equipment
purchases. A portion of the line was used in a sale leaseback transaction of
certain computer hardware and software owned by the Company. The lease was
recorded as a capital lease, and resulted in a loss of $219,137 recorded in the
Company's statement of operations for the six-month period ended June 30, 1999.
In connection with this line, the Company issued a warrant to the leasing
company to purchase 16,132 shares of Series C mandatory redeemable preferred
stock ("Series C") at an exercise price of $6.82 (see below). The warrant
expires at the earlier of seven years from the date of the agreement or three
years following an initial public offering.
F-15
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Legal Proceedings
On July 19, 1999, the company from whom the Company purchased the rights to
the 1-800-Batteries toll free telephone number and name gave the Company notice
that they believe the Company has failed to cure a material breach of the
Company's agreement with them. The notice also stated that they are terminating
their agreement with the Company and demanding a return of their rights as well
as unspecified monetary damages. At the same time, they made a demand for
arbitration of the matter with the American Arbitration Association in
Richmond, Virginia. The Company has responded to their demand by formally
denying their claims as well as challenging the location of the arbitration
proceeding. Many of the Company's customers may rely on the 1-800-Batteries
phone number to reach the Company's customer solutions representative and to
the extent that the arbitrator disagrees with the Company's position and allows
this agreement to terminate, the Company could be harmed, although it is
difficult to estimate the extent or magnitude of such harm.
Series C Mandatory Redeemable Preferred Stock
On July 30, 1999, the Company received gross proceeds of approximately $5.8
million on the sale of 850,572 shares of Series C at $6.82 per share. The
Series C shareholders have the same rights, preferences, and privileges as the
Series A and Series B shareholders (see Note 8).
Subordinated Convertible Debt
On July 30, 1999, the Company entered into a $3.5 million subordinated
convertible debt agreement with a leasing company. Amounts borrowed under such
agreement bear interest at an annual rate of 11%. Interest only is payable for
the first 12 months, then principal and interest for the final 24 months.
$980,000 of such debt is convertible (at the leasing company's option) into
Series C at a conversion price of approximately $7.84 per share (115% of the
Series C financing price). Conversion must occur no later than 30 days
following delivery of notice of the Company's intention to conduct an initial
public offering of its common stock or an acquisition, or if no such notice
occurs, conversion may occur at any time during the term of the agreement at
the option of the leasing company. On August 6, 1999, the Company drew down
$1,167,000 under this agreement.
On September 10, 1999 the leasing company converted $980,000 of the
$1,167,000 outstanding subordinated convertible debt, into 124,982 shares of
the Series C preferred stock.
Stock Split and Delaware Reincorporation
On August 30, 1999, the Company reincorporated in Delaware and effected a 6-
for-1 share stock split. The number of shares issued and outstanding, the
conversion factors for all series of preferred stock, stock option information,
and per share information for all periods presented have been adjusted to
reflect the stock split.
F-16
<PAGE>
iGo CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock Option Grants
Between January 1, 1999 and August 30, 1999 the Company issued options to
purchase 840,324 shares of its common stock. The options vest over four years.
Compensation expense related to such options will be recorded as follows:
<TABLE>
<S> <C>
1999............................................................ $ 241,469
2000............................................................ 499,821
2001............................................................ 498,455
2002............................................................ 498,455
2003............................................................ 313,435
----------
$2,051,635
==========
</TABLE>
Marketing and Strategic Relationships
During June 1999, the Company entered into a strategic sourcing and marketing
relationship with the NEC Computer Systems Division ("NEC"). Under such
agreement with NEC, the Company is obligated to purchase at least $4,000,000 of
product per year, which requirement may be increased, decreased or waived by
NEC in its discretion. This agreement may be terminated by either party at any
time upon written notice. Because the agreement with NEC was only recently
established, it is uncertain whether the Company will meet or exceed the stated
purchase obligation.
During June 1999, the Company also initiated an affiliate program that
provides for the payment of a seven percent to 15 percent commission to other
web sites that register to participate in the program and refer customers. The
commission is calculated based on the annual revenue derived from these
customers and will be recorded as sales and marketing expenses at the time the
merchandise is shipped.
Litigation (Unaudited)
On October 11, 1999, the Company and certain employees were named as
defendants in a lawsuit alleging that the Company has induced certain of the
plaintiff's former employees to breach the terms of their nondisclosure and
nonsolicitation agreements with the plaintiff, that the Company has interfered
with the plaintiff's contractual relations and prospective economic advantage,
and that the Company has engaged in unfair competition. The plaintiff seeks
injunctive relief, monetary damages, costs and attorney's fees. The Company is
currently investigating the facts surrounding these claims and consulting with
legal counsel regarding this matter. While the Company intends to vigorously
defend its actions in this matter, it cannot be certain that it will be
successful in its defense. Furthermore, if the Company is unsuccessful in
defending this action, any remedies awarded to the plaintiff could have an
adverse effect on the Company's financial position or results of future
operations.
F-17
<PAGE>
iGo.com(TM)
Solutions for People on the Go(TM)
iGo is a provider
of high value
accessories and
services for mobile
electronic devices
such as laptop
computers and
cellular phones.
Our products give
people more freedom
and flexibility
over their busy
lives.
[Caption: A screenprint of
a page from the iGo.com
website]
The iGo Service Solution
. 24-hours-a-day, 7 days per week live
online and toll-free customer support
. Authoritative source for latest
product offerings and information
. Overnight shipping, even to hotel
rooms
. Use of advanced search technology to
simplify a complex ordering process
. Personalized e-newsletters
. One-stop convenience
. Customized solutions for corporate
customers
www.iGo.com
<PAGE>
SOLUTIONS
[Caption: A photograph of an
for PEOPLE individual using a cellular
phone amidst other people in a
ON THE GO crowded location]
iGo.com(TM)
