As filed with the Securities and Exchange Commission on March 10, 1999
Registration No. 333-70307
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 2
TO FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
LOG ON AMERICA, INC.
(Name of Small Business Issuer in its Charter)
Delaware 7375 05-0496586
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
--------------------
3 Regency Plaza
Providence, Rhode Island 02903
(401) 459-6298
(Address and telephone number of principal executive offices and principal place
of business)
--------------------
David R. Paolo, President
Log On America, Inc.
3 Regency Plaza
Providence, Rhode Island 02903
(401) 459-6298
(Name, address and telephone number of agent for service)
Copies to:
Michael H. Freedman, Esq. Lawrence B. Fisher, Esq.
Silverman, Collura, Chernis & Balzano, P.C. Orrick, Herrington & Sutcliffe LLP
381 Park Avenue South, Suite 1601 30 Rockefeller Plaza, 40th Floor
New York, New York 10016 New York, New York 10112
Telephone (212) 779-8600 Telephone (212) 506-3660
Facsimile (212) 779-8858 Facsimile (212) 506-3730
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Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________________________________
If this form is a post-effective registration statement filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
Proposed Maximum
Proposed Maximum Aggregate Offering
Title of Each Class of Securities to be Amount to be Offering Price Per Price (1) Amount of
Registered Registered Share(1) Registration Fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,300,000(2) $10.00 $23,000,000 $6,394
- -------------------------------------------------------------------------------------------------------------------------------
Representative's Warrants to purchase shares
of Common Stock 200,000 $.0001 $20 $0(4)
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Common stock Issuable Upon Exercise of
Representative's Warrants 200,000(3) $12.00 $2,400,000 $667.20
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock held by Selling Stockholders 1,896,116 $10.00 $18,961,160 $5,271.20
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying Warrants held by
Selling Stockholders 1,131,921(3) $10.00 $11,319,210 $3,146.74
- -------------------------------------------------------------------------------------------------------------------------------
Total 5,728,038 -- $55,280,390 $15,479.14(5)
===============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 of the Securities Act.
(2) Includes 300,000 shares of Common Stock issuable upon exercise of an
over-allotment option granted to the Underwriter.
(3) Pursuant to Rule 416 of the Securities Act, there are also being
registered hereby such additional indeterminate number of shares of Common
Stock as may become issuable pursuant to the anti-dilution provisions of
the Representative's Warrants.
(4) No registration fee is required pursuant to Rule 457 of the Securities
Act.
(5) The registrant has previously paid $13,831.14 in registration fees.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. The securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 10, 1999
LOG ON AMERICA, INC.
2,000,000 Shares of Common Stock
This is an initial public offering of 2,000,000 shares of common stock of
Log On America, Inc.
No public market currently exists for our shares. We anticipate that the
initial public offering price will be $10.00 per share. We have applied to list
the common stock on the Nasdaq National Market under the symbol "LOAX."
Please see the risk factors beginning on page 10 to read about certain
factors you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
- ---------------------
Per Share Total
--------- -----
Initial public offering price ..................... $ $
Underwriting discount ............................. $ $
Proceeds, before expenses, to us .................. $ $
This prospectus also relates to the registration for resale of 1,896,116
shares of common stock and 1,131,921 shares of common stock underlying warrants
for the purchase of common stock held by certain selling stockholders identified
in this prospectus. These shares may not be sold for a period of twelve months
from the effective date of this prospectus without the prior written consent of
Dirks & Company, Inc. We will not receive any proceeds from the sale of these
shares.
The underwriters may, under certain circumstances, purchase up to 300,000
additional shares from us at the initial public offering price less the
underwriting discount.
DIRKS & COMPANY, INC.
Prospectus dated _______, 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Summary.......................................................... 7
Risk Factors................................................................ 10
We have incurred net losses since our inception and we expect
future losses............................................................ 10
We have a short operating history upon which you can judge
our prospects........................................................... 10
We may need to raise additional capital in the future..................... 10
We depend on the increased use of the Internet............................ 11
We depend on the Internet infrastructure.................................. 11
We depend on our computer infrastructure.................................. 11
We are susceptible to disruptive problems................................. 11
We may be held liable for online content provided by third parties........ 12
We are susceptible to Internet security and e-commerce risks.............. 12
We need to manage growth effectively...................................... 12
We need to upgrade technology............................................. 12
We offer early stage products and technology.............................. 13
Limited sales force and channels of distribution.......................... 13
Government regulation and legal uncertainty............................... 13
Our management has broad discretion over the use of proceeds from
this offering........................................................... 13
Lack of experience of the representative.................................. 14
We face significant competition from Internet and telephone service
providers and others.................................................... 14
An economic downturn may have a negative effect on the demand
for our products and services........................................... 14
Continuing influence of representative.................................... 15
We are dependent on third party suppliers................................. 15
We are dependent on key personnel......................................... 15
We are controlled by our directors and executive officers................. 15
The price investors pay for their shares is higher than the per share
value of our net assets and is also higher than the price paid by our
founders and prior investors............................................ 15
No prior public market.................................................... 16
The price of our common stock may be highly volatile...................... 16
Arbitrary determination of offering price................................. 16
Potential inability to be listed on the Nasdaq National Market............ 17
A substantial number of our shares are eligible for future sale........... 17
We are susceptible to the Year 2000 risk.................................. 18
Use of Proceeds............................................................. 19
Capitalization.............................................................. 21
Dividend Policy............................................................. 22
Dilution.................................................................... 23
Selected Financial Data..................................................... 25
Management's Discussion and Analysis of Financial Condition................. 26
Business.................................................................... 31
Additional Information...................................................... 41
Management.................................................................. 43
Principal Shareholders...................................................... 48
Certain Transactions........................................................ 50
Description of Securities................................................... 51
Selling Stockholders........................................................ 52
5
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Shares Eligible for Future Sale............................................. 57
Underwriting................................................................ 58
Legal Matters............................................................... 60
Experts..................................................................... 61
Index to Financial Statements............................................... F-1
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock
offered in this prospectus. These actions include purchasing common stock to
cover some or all of a short position in the common stock maintained by the
representative, and the imposition of penalty bids. For a description of these
activities, see "Underwriting."
Picture of a man holding phone on the left; the words "Bridging the Gap
Between Voice, Data and the Internet" on the right, along with our logo.
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<PAGE>
PROSPECTUS SUMMARY
You should carefully read the entire prospectus, including the "Risk
Factors" section and the financial statements and the notes to the financial
statements. When we refer to "us" or "we," we are also referring to our
predecessor entities.
Log On America
Log On America, Inc. is a Northeast regional Information/Internet service
provider and a competitive local exchange carrier. We have been providing
on-line services, and related products, to individual and corporate clients
since November 1992.
As an Internet service provider, we provide business and home Internet
users with access to the Internet via a personal computer and a modem or
dedicated line. This service is called dial-up access. We currently maintain a
dial-up Internet service throughout the Northeast. A large part of our current
operations is providing dedicated access lines for commercial accounts.
Dedicated access lines are telecommunication lines used solely for a specific
use, such as facsimile or Internet communications. To expand our services, we
have been approved as a competitive local exchange carrier in the State of Rhode
Island. As a competitive local exchange carrier, or a company that provides
local access lines as opposed to long-distance or other services, we intend to
provide a full range of local telecommunications services to our customers, such
as Internet, voice, data and cable programming. Our clients include residential
users, Internet services providers, wireless carriers and business, government
and institutional end users. We intend to provide all of these services in
selected cities in the Northeast with populations of 200,000 to 2,000,000.
We incorporated in Rhode Island in 1992, and following several corporate
transactions, as discussed elsewhere in this prospectus, we are now a Delaware
corporation. Our principal offices are located at 3 Regency Plaza, Providence,
Rhode Island 02903, telephone (401) 459-6298, facsimile (401) 459-6222, email:
[email protected], and we maintain a web site at "www.loa.com." Nothing contained on
our web site should be construed as a part of this prospectus.
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The Offering
Shares of Common Stock
Offered by Us......................... 2,000,000 shares of common stock, or
2,300,000 if the underwriter's
over-allotment option is exercised in
full.
Securities Outstanding Upon
Completion of this Offering .......... 6,610,716 shares of common stock issued
and outstanding, or 6,910,716 if the
underwriter's over-allotment option is
exercised in full. This number excludes
1,131,921 shares of common stock
reserved for issuance upon the exercise
of currently outstanding warrants, and
200,000 shares of common stock reserved
for issuance upon the exercise of
warrants granted to the representative
of the several underwriters of this
offering.
Use of Proceeds ................... We intend to use the net proceeds from
the sale of the common stock to finance
network expansion and equipment
upgrades, strategic acquisitions,
marketing and sales activity, and
working capital and for general
corporate purposes.
Risk Factors ....................... Our shares of common stock are highly
speculative, involve a high degree of
risk and immediate and substantial
dilution. Our shares should not be
purchased by an investor who cannot
afford the loss of his or her entire
investment.
Proposed Nasdaq
National Market Symbol ............. LOAX
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<PAGE>
Summary Financial Data
You should read the following summary financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and the financial statements and the notes to the financial
statements included elsewhere in this prospectus. We derived the statement of
operations data for the years ended December 31, 1998 and 1997, and the balance
sheet data for the year ended December 31, 1998 from our audited financial
statements included elsewhere in this prospectus. The as adjusted balance sheet
data as of December 31, 1998 takes into account the 2,000,000 shares offered in
this prospectus at an assumed initial offering price of $10.00 per share and the
application of the net proceeds that we will receive, less the expenses of the
offering. It also gives effect to our reorganization.
Year Ended
December 31,
------------
1998 1997
---- ----
Statement of Operations Data:
Revenues ..................................... $ 759,878 $ 351,560
Total Operating Costs
and Expenses ................................ $ 1,179,897 629,584
Net loss ..................................... $ (422,063) $ (280,001)
=========== ===========
Basic and diluted net loss per share ......... $ (.11) $ (.12)
Shares used in computing basic and
diluted net loss per share .................. 3,853,265 2,434,600
December 31, 1998
-----------------
Actual As Adjusted
------ -----------
Balance Sheet Data (end of period):
Cash .................................. $ 630,131 $17,653,546
Working Capital ....................... $ 248,245 $17,288,201
Total Assets .......................... $1,137,000 $18,160,415
Total Debt ............................ $ 16,541 $ -0-
Total Liabilities ..................... $ 480,612 $ 464,071
Stockholders' Equity .................. $ 656,388 $17,696,344
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RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of our common stock. This
prospectus contains forward-looking statements which can be identified by the
use of words such as "intend," "anticipate," "believe," "estimate," "project,"
or "expect" or other similar statements. These statements discuss future
expectations, contain projections of results of operations or of financial
condition, or state other "forward-looking" information. When considering these
statements, you should keep in mind the risk factors described below and other
cautionary statements in this prospectus. The risk factors described below and
other factors noted throughout this prospectus, including certain risks and
uncertainties, could cause our actual results to differ from those contained in
any forward-looking statement.
We have incurred net losses since our inception and we expect future losses.
To date, we have had limited revenues and have not shown a profit in our
operations. As of December 31, 1998, our accumulated deficit was approximately
$422,063. Although we intend to expand our marketing of products and services,
we may not be able to achieve these objectives or, if these objectives are
achieved, we may never be profitable. If profitability is achieved, we may not
be able to sustain it. We cannot predict when, or if, profitability might be
achieved.
We have a short operating history upon which you can judge our prospects.
We commenced our business in 1992 but did not produce significant revenues
until 1996. Accordingly, we have a limited operating history upon which you can
evaluate our business and prospects. Our historical data is of limited value in
projecting future operating results. You must consider our business in light of
the risks, expenses and problems frequently encountered by companies with
limited operating histories.
We may need to raise additional capital in the future.
Based on our currently proposed plans and assumptions, we anticipate that
the net proceeds from the sale of the shares of our common stock offered hereby
will be sufficient to satisfy our contemplated cash requirements for the 12
month period following the consummation of this offering. We may then require
additional funding. We have no current arrangements with respect to sources of
additional financing. Other additional financing may not be available on
commercially reasonable terms, or at all. The inability to obtain additional
financing, when needed, would have a negative effect on us, including possibly
requiring us to curtail or cease operations. If any future financing involves
the sale of our equity securities, the shares of our common stock held by our
stockholders would be substantially diluted. If we incur indebtedness or
otherwise issue debt securities, we will be subject to risks associated with
indebtedness, including the risk that interest rates may fluctuate and the
possibility that we may not be able to pay principal and interest on the
indebtedness.
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We depend on the increased use of the Internet.
Our future operating results are highly dependent upon the increased use
of the Internet by consumers for information, publication, distribution and
commerce. Critical issues concerning the commercial use of the Internet,
including security, reliability, cost, ease of use, access, and quality of
service, remain unresolved and may impact the growth of Internet use. If
widespread commercial use of the Internet does not develop, our business,
results of operations and financial condition will be negatively affected.
We depend on the Internet infrastructure.
We depend on the reliability, speed, data capacity, ease of use,
accessibility and security of the Internet as well as its continued development
and acceptance for commercial use. The success of our services and products
depend, in large part, upon the further development of an infrastructure for
providing Internet access and services. The Internet has experienced, and it is
expected to continue to experience, significant growth in the number of users.
The Internet infrastructure may not be able to support the demands placed on it
by this continued growth in use. The Internet could also lose its viability due
to delays in the development or adoption of new standards and protocols to
handle increased levels of internet activity, or due to increased governmental
regulation. The infrastructure or complementary services necessary to make the
Internet a viable commercial marketplace may not develop, or the Internet may
not become a viable commercial marketplace for services and products such as the
services that we currently offer. If this happens, our business, results of
operations and financial condition will be negatively affected.
We depend on our computer infrastructure.
Substantially all of our communications and computer hardware are located
at our offices in Providence, Rhode Island. Our system is vulnerable to damage
from fire, flood, earthquakes, power loss, telecommunications failures,
break-ins and similar events. Moreover, we do not presently have a disaster
recovery plan, carry any business interruption insurance or have any secondary
"off-site" systems or a formal disaster recovery plan. A system failure at our
present location would have a major adverse affect on the performance of our
services.
We are susceptible to disruptive problems.
Despite our implementation of network security measures, our servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptive problems. Computer viruses, break-ins or other problems caused by
third parties could lead to interruptions, delays or cessation in service to
users of our services and products. Any of these risks could have a negative
effect on our business, results of operations and financial condition.
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We may be held liable for online content provided by third parties.
Materials may be downloaded and distributed to others by the on-line or
Internet services offered by us or the Internet service providers with which we
have a relationship. If this happens, claims may be made against us for
defamation, negligence, copyright or trademark infringement, or some other
reason. These claims or the imposition of liability may have a negative effect
on our business, results of operations and financial condition.
We are susceptible to Internet security and e-commerce risks.
A significant barrier to e-commerce and communications over the Internet
has been the need for the secure transmission of confidential information. We
may incur significant costs to protect against the threat of security breaches
or to alleviate problems caused by breaches. Internet usage and the demand for
our services could decline if any well-publicized compromise of security occurs.
Although we are not aware of any attempts by programmers or "hackers" to
penetrate our network security, these actions could occur in the future. A party
who is able to penetrate our network security could misuse our users' personal
information or credit card information and users might sue us or bring claims
against us. Concerns over the security of Internet transactions and the privacy
of users may also inhibit the growth of the Internet generally, particularly as
a means of conducting commercial transactions. Security breaches or the
inadvertent transmission of computer viruses could expose us to a risk of loss
or litigation and possible liability. Our business, results of operations, and
financial condition could be negatively effected if contractual provisions
attempting to limit our liability in these areas are not successful or
enforceable, or if other parties do not accept these contractual provisions as
part of our agreements with them.
We need to manage growth effectively.
Our growth has placed and will continue to place a significant strain on
our managerial, operational and financial resources. We need to:
o improve our financial and management controls, reporting systems and
procedures;
o expand, train and manage our work force for marketing, sales and
support, product development, site design, and network and equipment
repair and maintenance; and
o manage multiple relationships with various customers, strategic
partners and other third parties.
We need to upgrade technology.
We will need to continually expand and upgrade our infrastructure and
systems and ensure high levels of service, speedy operation, and reliability. In
addition, we will have to improve our methods for measuring the performance and
commercial success of our different products to better respond to customers'
demands for information on product effectiveness and to better determine which
products and services can be developed most profitably. Our current
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and planned personnel, financial and operating procedures and controls may not
be adequate to support our future operations. If we are unable to manage our
growth effectively, our business will be negatively affected.
We offer early stage products and technology.
The Internet market is characterized by rapidly changing technology,
evolving industry standards, frequently introduced new services, products and
enhancements and changing customer demands. Many of our products and service
applications are in the early stages of development and/or marketing. Many of
our competitors have already introduced products that include one or more of the
features incorporated in our products. We expect that our competitors may
attempt to replicate the technology of our products or employ competing
technologies, if our products are commercially successful. Our risks include
unforeseen design or engineering problems with our products and applications.
These or other risks associated with new product and service development or
introduction may occur. If they do occur, they could have an adverse effect on
our financial condition and operating results.
Limited sales force and channels of distribution.
Currently we have two sales and marketing employees and we have not
established distribution channels for our services and products. We may not be
able to develop a sufficient sales force and marketing group. Our inability to
develop a sufficient sales force and marketing group would have a negative
effect on our business, results of operations and financial condition.
Government regulation and legal uncertainty.
We are regulated by the Federal Communications Commission and related
state agencies based on our competitive local exchange carrier status and our
status as an Internet service provider. Additionally, we may be required to file
related applications with the FCC.
In so far as the Internet is a relatively new medium, the legal
obligations and First Amendment rights of service providers and participants in
the Internet, are not well defined and are evolving. The Internet has not been
subject to regulation by the FCC or other governmental agencies, and standards
applicable to print publishers and television in respect of the law of
defamation and obscenity are not clearly applicable to the Internet. To the
extent these issues have been considered by the courts, outcomes have not been
uniform.
Our management has broad discretion over the use of proceeds from this offering.
We intend to use approximately $5,550,000 or 32.6%, of the net proceeds of
the offering to expand our network capabilities and to upgrade our equipment,
and $4,950,000 or 29.1%, of the net proceeds to acquire other businesses.
Although we have estimated the amount of the net proceeds to be used for a
particular purpose under "Use of Proceeds," to the extent that our management
determines that a change is advisable, we may change the amount of the net
proceeds
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that will be used. Accordingly, our management will have broad discretion as to
how to spend the net proceeds of the offering.
Lack of experience of the representative.
Dirks & Company, Inc., the representative of the several underwriters,
commenced operations in July 1997. Dirks & Company has co-managed only three
previous public offerings of securities and participated as an underwriter in
only four previous public offerings of securities. We cannot give assurances
that the representative will be able to participate as a market maker of the
common stock or that any broker-dealer will become a market maker for our common
stock. If there are no market makers, our common stock may be delisted from
Nasdaq.
We face significant competition from Internet and telephone service providers
and others.
The Internet connectivity business is highly competitive, and there are no
substantial barriers to entry. We believe that competition will intensify.
Currently, our primary competitors include such companies as:
o national Internet service providers: Netcom On Line Communication
Services, Inc., PSINet, Inc., UUNET Technologies, Inc. and BBN Corp.;
o regional telecommunications providers: Bell Atlantic, The Internet Access
Company or TIAC, and Winstar Communications, Inc.;
o on-line service providers: America Online, Inc. and Microsoft Corp.; and
o regional telephone companies and long distance companies: MCI Worldcom,
Inc. and AT&T Corp.
Many of our current and potential competitors have substantially greater
human and financial resources, experience, and brand name recognition than we
do, and may have significant competitive advantages through other lines of
business and existing business relationships. Furthermore, additional major
media and other companies with financial and other resources substantially
greater than ours may introduce new Internet products and services that compete
with the services and products we offer. Our future growth and profitability
will depend, in part, upon consumer and commercial acceptance of our voice, data
and Internet technology, and significant penetration of our related products and
services. Our competitors may develop products or services that are superior to
ours or achieve greater market acceptance than our products and services.
An economic downturn may have a negative effect on the demand for our products
and services.
Any substantial downturn in economic conditions or any significant
increase in the cost of operations in general could significantly depress
discretionary consumer spending and, therefore, have a material adverse effect
on our sales of products and services. In addition, the future unavailability of
attractive financing rates could adversely affect our business.
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Continuing influence of representative.
Dirks & Company has been given the right, for a period of five years from
the completion of this offering, to designate a person to our board of
directors. Upon completion of this offering, the representative will also
receive, for nominal consideration, warrants to purchase 200,000 shares of our
common stock. Accordingly, the representative will continue to have influence
over our operations following the completion of this offering.
We are dependent on third party suppliers.
We depend in large part on third-party suppliers for our access to the
Internet through leased telecommunications lines, such as Bell Atlantic Corp.
and MCI Worldcom, Inc. Although we believe this access is available from several
alternative suppliers, we may not be able to obtain substitute services from
other providers at reasonable or comparable prices or in a timely manner. We are
also dependent upon the regional telephone operating company, Bell Atlantic, to
provide installations of circuits and to maintain those circuits. Substantial
failure by any of these third parties to perform could negatively affect our
business, operations, and financial condition.
We are dependent on key personnel.
We are dependent on the continued employment and performance of our
executive officers and key employees, particularly of our CEO, David Paolo. The
loss of Mr. Paolo, or his incapacity to perform his duties, would have a
materially negative effect upon our activities and prospects. We do not have key
man life insurance coverage on the life of Mr. Paolo. The loss of the services
of any of our key employees or officers could adversely affect on our business.
We are controlled by our directors and executive officers.
Upon completion of this offering, our directors and executive officers
will own approximately 40% of the then outstanding shares of our common stock.
Accordingly, these shareholders will possess substantial control over our
operations. This control may allow to amend corporate filings, elect all of our
board of directors, other than the director to be designated by the
representative, and substantially control all matters requiring approval by our
shareholders, including approval of significant corporate transactions. If you
purchase our common stock, you may have no effective voice in our management.
The price investors pay for their shares is higher than the per share value of
our net assets and is also higher than the price paid by our founders and prior
investors.
The initial public offering price per share of our common stock is
substantially higher than the net tangible book value per share of our
outstanding common stock. Purchasers of our common stock will suffer immediate
and substantial dilution of $7.32 per share, or approximately 73.2% of the
assumed initial public offering price of $10.00 per share. Further, existing
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shareholders, including founders, purchased or were issued their shares at an
average price of $.23 per share as compared to the anticipated initial public
offering price of 10.00 per share. See "Dilution."
No prior public market.
Prior to this offering, there has been no public market for our common
stock. Although we intend to apply for listing of our common stock on the Nasdaq
National Market, there can be no assurance that an active trading market will
develop or be maintained. Failure to develop or maintain an active trading
market could negatively effect the price of our securities.
The price of our common stock may be highly volatile.
The market prices for securities of Internet companies have historically
been volatile. Factors that could cause the market price of the common stock to
fluctuate substantially include but are not limited to:
o future technological innovations;
o new commercial products;
o changes in regulation;
o period to period fluctuations in financial performance; and
o fluctuations in the securities markets.
Market price changes have often been unrelated to the operating
performance of the affected companies. These broad market fluctuations may
adversely affect the market price of our common stock.
Arbitrary determination of offering price.
We and Dirks & Company, Inc. will determine the initial public offering
price for our shares of common stock offered in this prospectus. The price may
bear no relationship to the price at which the common stock may trade after
completion of this offering. We and Dirks will consider the following factors,
although there may be other factors, when determining the initial public
offering price:
o the information set forth in this prospectus and otherwise available
to Dirks & Company;
o the history of and the prospects for the Internet and
telecommunications industry in which we operate;
o the abilities and makeup of our management;
o our past and present operations;
o our prospects for future earnings;
o the present state of our development;
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o the general condition of the securities markets at the time of this
offering; and
o the recent market prices of and the demand for publicly traded
common stock of generally comparable companies.
A decline in the trading price of the common stock could also impact
negatively upon our ability to raise additional equity capital in the future.
Potential inability to be listed on the Nasdaq National Market.
We intend to list our common stock on the Nasdaq National Market. However,
if Nasdaq declines to list our common stock we will attempt to have our common
stock listed on the Nasdaq SmallCap Market, or in the alternative, the American
Stock Exchange. If both Nasdaq and Amex refuse to list our common stock, we will
attempt to have our common stock trade in the over-the-counter market on the
so-called "pink sheets" or the NASD's OTC Bulletin Board. Consequently, the
liquidity of our common stock could be impaired.
A substantial number of our shares are eligible for future sale.
Sales of substantial amounts of our common stock in the public market
after this offering, or the perception that these sales may occur, could
materially and adversely affect the market price of the common stock or our
ability to raise capital through an offering of equity securities. Assuming no
exercise of outstanding warrants, 3,896,116 of the 6,610,716 shares of common
stock to be outstanding upon completion of this offering, 4,196,116 of 6,910,716
shares if the underwriter's over-allotment option is exercised in full, will be
immediately tradeable without restriction under the Securities Act.
"Affiliates," as defined in the Securities Act, must always sell their shares in
accordance with the terms, including volume limitations, of Rule 144 under the
Securities Act.
In addition, an aggregate of 1,131,921 shares, issuable upon the exercise
of outstanding warrants, will be immediately tradeable without restriction upon
the completion of this offering, subject to the lock-up agreements described
below.
2,714,600 of the 6,610,716 shares to be outstanding upon the completion of
the offering, or 6,910,716 shares if the underwriter's over-allotment option is
exercised in full, will be "restricted securities" as defined in Rule 144. All
of these restricted securities have been held for more than one year as of the
date of this prospectus. Therefore, all of these shares will be eligible for
public sale beginning 90 days after the date of this prospectus in accordance
with the requirements of Rule 144, subject to the lock-up agreements described
below.
Our stockholders and our warrant holders have agreed to not directly or
indirectly, offer, sell, pledge, grant any option to purchase, or otherwise sell
or dispose of any of our shares for a period of twelve months after the offering
without the prior written consent of Dirks & Company.
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<PAGE>
We are susceptible to the Year 2000 risk.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results. We believe that our products and
internal systems are year 2000 compliant. We have confirmed our year 2000
compliance by obtaining representations by third party vendors of their
products' year 2000 compliance, as well as specific testing of our products. The
failure of products or systems maintained by third parties or our products and
systems to be year 2000 compliant could cause us to incur significant expenses
to remedy any problems, or seriously damage our business. We have not incurred
significant costs for such purposes and we do not believe that we will incur
significant costs for these purposes in the foreseeable future.
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<PAGE>
USE OF PROCEEDS
We will receive net proceeds from the sale of the 2,000,000 shares of
common stock offered hereby in the approximate amount of $17,000,000, or
$19,600,000 if the underwriter's over-allotment option is exercised in full,
assuming an initial offering price of $10.00 per share. These numbers take into
account underwriting discounts and commissions, and other estimated expenses of
approximately $360,000 that we will pay.
We anticipate using the net proceeds from the offering to first expand our
network infrastructure and upgrade our current equipment to allow us to provide
bundled services of voice, Internet and cable programming. Second, we intend to
use a combination of capital stock and cash to acquire certain companies with
similar product offerings to accelerate revenue growth. Third, we intend to
employ several means of direct marketing, print advertising, broadcast media,
and web advertising, along with additional marketing and sales personnel to grow
revenues. Finally, we intend to utilize the remainder of these proceeds for
working capital and general corporate purposes. These uses of the net proceeds
are summarized as follows:
Amount($): Percent(%)(1)
---------- -------------
Network expansion and equipment upgrades(2) $5,550,000 32.6%
Strategic acquisitions(3) $4,950,000 29.1%
Marketing and sales(4) $2,000,000 13.1%
Working capital and general corporate purposes(5) $4,500,000 29.4%
- --------------------
(1) Assumes no exercise of the underwriter's over-allotment option.
(2) We intend to purchase routing and switching equipment to continue our
network buildup of specific products and services which we currently
offer.
(3) We do not currently have any plans or agreements regarding acquisitions.
(4) We intend to hire additional sales and marketing personnel and advertise
in various media sources.
(5) Working capital and general corporate purposes consist primarily of
selling general and administrative expenses. We intend to repay
indebtedness of approximately $16,000 from our working capital. Net
proceeds from the sale of the over-allotment option, if any, will be used
for working capital and general corporate purposes.
This represents our best estimate of the allocation of the net proceeds
from the sale of shares of common stock based upon the current state of our
business operations, current plans and current economic and industry conditions.
Our management has the right to reallocate the net proceeds among the categories
listed above or for additional purposes. Accordingly, we will have broad
discretion as to the application of the net proceeds.
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Pending these uses, we intend to invest the net proceeds from this
offering in interest bearing accounts, certificates of deposit, money market
funds or other short term investments.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998
and as adjusted to give effect to the following:
o sale of the 2,000,000 shares of our common stock offered by this
prospectus at an assumed initial public offering price of $10.00 per
share; and
o the application of the estimated net proceeds from the sale of the
2,000,000 shares of common stock offered by this prospectus which includes
the repayment of all outstanding debt.
The as adjusted table does not give effect to the following:
o 1,000,000 shares of our common stock reserved for issuance upon the
exercise of outstanding warrants exercisable during the five year period
commencing January 15, 1999 at an exercise price of $1.00 per share;
o 13,076 shares of our common stock reserved for issuance upon the exercise
of outstanding warrants granted on December 3, 1998, which warrants are
exercisable during the four year period commencing December 3, 1999 and
expiring December 3, 2003 at an average exercise price of $3.90 per share;
o 23,845 shares of our common stock reserved for issuance upon the exercise
of outstanding warrants, granted on December 23, 1998, which warrants are
exercisable during the four year period commencing December 23, 1999 and
expiring December 23, 2003 at an average exercise price of $3.90 per
share;
o 50,000 shares of our common stock reserved for issuance upon the exercise
of outstanding warrants exercisable during the five year period commencing
December 31, 1998 at an exercise price of $3.50 per share;
o 45,000 shares of our common stock reserved for issuance upon the exercise
of outstanding warrants exercisable during the four year period commencing
December 31, 1998 at an exercise price of $3.25 per share;
o 300,000 shares of our common stock issuable upon exercise of the
underwriter's over-allotment option; and
o 200,000 shares of our common stock reserved for issuance upon the exercise
of the warrants granted to the representative of the underwriters of this
offering exercisable during the four year period commencing one year from
the date of this prospectus at an exercise price of 120% of the public
offering price.
The table should be read in conjunction with our financial statements,
including the notes to our financial statements, which appear elsewhere in this
prospectus.
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December 31, 1998
-----------------
Actual As Adjusted
------ -----------
Long Term Note Payable: ......................... $ 16,541 --
Stockholders Equity (deficit):
common stock, $.01 par value; 20,000,000
shares authorized, 4,610,716 issued and
outstanding as of December 31, 1998, actual; and
6,610,716 issued and outstanding, as adjusted ... $ 21,763 $ 41,763
Additional paid-in capital(1) ................... $ 1,056,688 $ 18,076,644
----------- ------------
Accumulated deficit ............................. $ (422,063) $ (422,063)
----------- ------------
Total stockholders' equity ................. $ 656,388 $ 17,696,344
----------- ------------
Total capitalization ....................... $ 656,388 $ 17,696,344
=========== ============
- ----------
(1) In January, 1998 our board of directors approved a change in our
authorized common stock from 1,000 shares at no par value to 5,000,000
shares at $.01 par value. Simultaneously, David R. Paolo, our president
and then sole shareholder, exchanged his 1,000 shares for 1,958,620 shares
of the newly authorized $.01 par value stock. In addition, Mr. Paolo
received 475,980 shares of stock issued as a result of the settlement with
the Tekcom holders.
DIVIDEND POLICY
We have never paid any dividends on our common stock. We do not intend to
declare or pay dividends on our common stock, but to retain our earnings, if
any, for the operation and expansion of our business. Dividends will be subject
to the discretion of our board of directors and will be contingent on future
earnings, if any, our financial condition, capital requirements, general
business conditions and other factors as our board of directors deems relevant.
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<PAGE>
DILUTION
Purchasers of our shares of common stock will experience immediate and
substantial dilution in the net tangible book value of their investment. The
difference between the initial public offering price per share of common stock
and the net tangible book value per share of common stock after this offering
constitutes the dilution per share of common stock to investors in this
offering. Net tangible book value per share is determined by dividing the net
tangible book value or total tangible assets less total liabilities by the
number of outstanding shares of common stock. As of December 31, 1998, we had a
net tangible book value of $656,388, approximately $.14 per share of common
stock. If we give effect to the sale of 2,000,000 shares of common stock at an
assumed initial public offering price of $10.00 per share, the net tangible book
value on December 31, 1998 would have been $17,696,344, or $2.68 per share. This
represents an immediate increase in the net tangible book value of approximately
$2.54 or an increase of 1,814% per share to existing stockholders and an
immediate dilution of $7.32 per share or 73% to new investors. If we give effect
to the sale of 2,300,000 shares of our common stock, which assumes the
underwriter exercises its over-allotment option in full, at an assumed initial
public offering price of $10.00 per share, the net tangible book value on
December 31, 1998 would have been $20,306,344, or $2.94 per share. This
represents an immediate increase in the net tangible book value of approximately
$2.80, or an increase of 2,000% per share to existing stockholders and an
immediate dilution of $7.06 per share, or 71% to new investors. The following
table illustrates the per share dilution assuming the sale of 2,000,000 shares
of our common stock:
Assumed initial public offering
price per share ............................................. $10.00
Net tangible book value
per share as of December 31, 1998 ........................... $ .14
Increase per share attributable
to this offering ............................................ $ 2.54
Net tangible book value per share
after this offering ......................................... $ 2.68
Dilution per share to new investors .......................... $ 7.32
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<PAGE>
The following table summarizes, as of December 31, 1998, the number of
shares of common stock purchased from us, the total consideration paid to us and
the average price per share paid by existing stockholders and by new investors.
Shares Purchased(1) Total Consideration
------------------- -------------------
Average
Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing
Stockholders ........... 4,610,716 70% $ 1,078,451 5% $ .23
New Investors .......... 2,000,000 30% $20,000,000 95% $10.00
--------- --- ----------- --- ------
Total ......... 6,610,716 100% $21,078,451 100%
--------- --- ----------- ---
- ----------
(1) Does not include (a) 1,000,000 shares of our common stock reserved for
issuance upon the exercise of outstanding warrants exercisable during the
five year period commencing January 15, 1999 at an exercise price of $1.00
per share; (b) 13,076 shares of our common stock reserved for issuance
upon the exercise of outstanding warrants granted on December 3, 1998,
which warrants are exercisable during the four year period commencing
December 3, 1999 and expiring December 3, 2003 at an exercise price of
$3.90 per share; and 23,845 shares of our common stock reserved for
issuance upon the exercise of outstanding warrants, granted on December
23, 1998, which warrants are exercisable during the four year period
commencing December 23, 1999 and expiring December 23, 2003 at $3.90 per
share; (c) 50,000 shares of our common stock reserved for issuance upon
the exercise of outstanding warrants exercisable during the four year
period commencing December 31, 1998 at an exercise price of $3.50 per
share; (d) 45,000 shares of our common stock reserved for issuance upon
the exercise of outstanding warrants exercisable during the four year
period commencing December 31, 1998 at an exercise price of $3.25 per
share; (e) 300,000 shares of our common stock issuable upon the exercise
of the underwriter's over-allotment option; and (f) 200,000 shares of
common stock reserved for issuance upon there exercise of the
representative's warrants exercisable during a four year period commencing
one year from the date of this prospectus at an exercise price of 120% of
the initial public offering price.
Should the underwriter's over-allotment option be exercised in full, new
investors will hold 2,300,000 shares of our common stock representing 33.3% of
the outstanding shares of our common stock after the offering. The proceeds of
$3,000,000 would represent approximately 13% of the total consideration paid by
investors.
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SELECTED FINANCIAL DATA
The following table sets forth our selected financial information as of
and for the periods indicated. We derived the statement of operations data for
the years ended December 31, 1998 and 1997, and the balance sheet data for the
year ended December 31, 1998 from our audited financial statements included
elsewhere in this prospectus. The selected financial information should be read
in conjunction with our financial statements, the notes to our financial
statements, and the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. The as adjusted balance sheet data as of December 31, 1998 gives
effect to the 2,000,000 shares offered in this prospectus at an assumed initial
offering price of $10.00 per share and the application of the net proceeds and
the effect of our reorganization.
Year Ended
December 31,
------------
1998 1997
---- ----
Statement of Operations Data:
Revenues ..................................... $ 759,878 $ 351,560
Total Operating Costs
and Expenses ................................ $ 1,179,897 629,584
Net loss ..................................... $ (422,063) $ (280,001)
=========== ===========
Basic and diluted net loss per share ......... $ (.11) $ (.12)
Shares used in computing basic and
diluted net loss per share .................. 3,853,265 2,434,600
December 31, 1998
-----------------
Actual As Adjusted(1)
------ --------------
Balance Sheet Data (end of period):
Cash .............................. $ 630,131 $17,653,546
Working Capital ................... $ 248,245 $17,288,201
Total Assets ...................... $1,137,000 $18,160,415
Total Debt ........................ $ 16,541 $ -0-
Total Liabilities ................. $ 480,612 $ 464,071
Stockholders' Equity .............. $ 656,388 $17,696,344
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements, the notes to our financial statements and the other financial
information contained elsewhere in this prospectus. In addition to the
historical information, this Management Discussion and Analysis of Financial
Condition and Results of Operations and other parts of this prospectus contain
forward-looking information that involve risks and uncertainties. Our actual
results could differ materially from those anticipated by the forward-looking
information as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.
Overview
We are a Northeast regional Information/Internet service provider and
competitive local exchange carrier. We have been providing on-line services, and
related products, to individual and corporate clients since November 1992.
As an Internet service provider, we provide business and home Internet
users with access to the Internet via a personal computer and modem or dedicated
access line. This service is called dial-up access. We currently maintain a
national dial-up Internet service throughout the Northeast. We have developed a
base of corporate and institutional customers for our Internet services and have
built the necessary network infrastructure for an Internet service network. A
large part of our current operations is providing dedicated access lines for
commercial accounts. Dedicated access lines are telecommunication lines which
are used solely for a specific use, such as fax or Internet communication. In
October 1998, we were approved as a competitive local exchange company in the
State of Rhode Island. A competitive local exchange carrier is a company that
provides local access lines as opposed to long-distance or other services. This
allows us to send a telephone line into a home or business and enables us to
provide a full range of local telecommunications services to our customers, such
as Internet, voice, data and cable programming. Our clients include residential
users, Internet services providers, wireless carriers and business, government
and institutional end users. We intend to provide all of these services in
selected cities with populations of 200,000 to 2,000,000.
Results of Operations
Comparison of Fiscal Year Ended December 31, 1998
to Fiscal Year Ended December 31, 1997
Revenues
Our revenues are primarily comprised of dial-up, dedicated access service
and web services. Revenues grew 116% from $351,560 to $759,878 for the year
ended December 31,
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<PAGE>
1998 as compared to the comparable period in 1997. Revenue growth performance is
attributable to an increase in sales efforts, services offered and an aggressive
marketing campaign in our local market, Rhode Island.
Dial-up
During 1998, we focused our efforts to expand our dial-up base in Rhode
Island. This was accomplished through cost-effective billboard advertising,
radio media, and target marketing campaigns. As a result, dial-up revenue grew
from $123,680 to $238,154 for the year ended December 31, 1998 as compared to
the comparable period in 1997 for an increase of 93%.
Dedicated Access Service
During the fourth quarter of 1997, we increased our sales efforts for
dedicated Internet access service resulting in higher revenue growth during
1998. Dedicated access is when a phone line is used solely for a specific
purpose, such as the Internet or a facsimile. As a result, dedicated Internet
access service business grew, based principally on high speed Internet access
lines such as ISDN and T-1, and other high speed circuit growth. These access
lines have varying degrees of transmission speeds. Revenues grew from $172,734
to $437,083 for the year ended December 31, 1998 as compared to the comparable
period in 1997 for an increase of 153%.
Web Services
During 1998, web site hosting and consulting became more important to our
new and existing customers as the popularity of the web increased as a business
tool. Web site hosting and consulting involves the development, storage and
access of web sites on our web server. Web services revenue grew from $41,895 to
$67,601 for the year ended December 31, 1998 as compared to the comparable
period in 1997 for an increase of 29%.
Gross Profit
Gross profit consists of total revenue less the cost of delivering
services and equipment. Gross profit increased from $213,036 to $356,370 for an
increase of 67% for the years ended December 31, 1997 and 1998, respectively.
Selling General, and Administrative Expenses
Selling, general, and administrative expenses increased from $491,060 in
the year ended December 31, 1997 to $776,389 in the year ended December 31, 1998
for an increase of 51%. These increases were primarily attributed to increases
in personal cost of approximately $182,000 related to the addition of six
additional personnel, increases in amortization expense of approximately $18,000
related to additional goodwill established during the year related to Wan
Secure's purchase of our predecessor company, and increases of approximately
$34,000 related to additional
27
<PAGE>
telecommunication costs from building out our network backbone to accommodate
increased usage of our network.
Advertising
Advertising expenses were $64,820 for the year ended December 31, 1997,
and $36,515 for the year ended December 31, 1998, for a decrease of $28,305, or
44%.
Other Expenses
Other expenses represent interest on our small business loans. Other
expenses were $1,977 and $2,044 for the years ended December 31, 1997 and 1998,
respectively, for an increase of 3%.
Payroll Tax
We had penalties in connection with a payroll tax delinquency. We settled
with the IRS in the amount of $41,559 and received a release to that effect,
dated December 28, 1998.
Net Loss
As a result of the previously mentioned factors, net loss grew from
$280,001 to $422,063 for the years ended December 31, 1997 and 1998,
respectively, for an increase of 51%.
Employees
As of December 31, 1998, we had 13 employees as compared to 10 employees
as of December 31, 1997.
Liquidity and Capital Resources
We have historically financed our operations primarily through the sale of
equity and debt securities and through funds provided by Global Telemedia, our
predecessor's parent company.
During 1997, we received $179,260 from our parent company, Global
Telemedia. We utilized these funds for operations, to expand marketing efforts
and to expand our customer base. During the third quarter of 1998, we sold
275,000 shares of our common stock in a private placement, dated August 18,
1998, resulting in gross proceeds of $275,000 for use in operational activities.
During December 1998, we privately sold an additional 369,216 shares of our
common stock resulting in gross proceeds of approximately $1,200,000, and
received approximately $1,000,000 in net proceeds.
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<PAGE>
As of December 31, 1998, we had notes payable totaling $16,541, and
accrued but unpaid expenses totaling $18,307, current accounts payable totaling
$428,575, and current working capital of $248,245.
In August 1998, we issued 1,000,000 warrants to several consultants. The
warrants are exercisable during the five-year period commencing January 15,
1999, at the exercise price of $1.00. The shares of common stock underlying the
warrants contain piggyback registration rights.
In December 1998, we issued an aggregate of 131,921 warrants to our chief
financial officer and our legal counsel for services rendered, and to a
placement agent in connection with the December private placement. Of the
warrants, 50,000 and 45,000 are exercisable at $3.50 and $3.25 per share,
respectively. These warrants are exercisable during the five and four-year
period, respectively, commencing December 31, 1998. The remaining 36,921
warrants were issued to our placement agent in December 1998, and are
exercisable at $3.90 during the four-year period commencing December 15, 1999.
For the period ended December 31, 1998, our negative cash flow from
operations was ($422,063), up from ($280,001) for the same period in the prior
year due to an increase in selling, general and administrative costs and a
repayment of certain current obligations.
We anticipate, based upon our current plans and assumptions relating to
operations, that the cash available following completion of this offering will
be sufficient to satisfy our contemplated cash requirements for 12 months
following completion of this offering.
Year 2000 Compliance.
The inability of computers, software and other equipment utilizing
microprocessing to organize and properly address certain fields containing a
two-digit year is commonly referred to as the Year 2000 problem. As the year
2000 approaches, computer systems may be unable to accurately process certain
date-based information.
We have implemented a Year 2000 program to ensure that our computer
systems and applications will function properly beyond 1999. We have identified
vendor and business partner software with which we electronically interact, or
from which we purchase supplies, and have requested Year 2000 compliance
certifications. We have received verbal assurances from those vendors and
business partners that they and their respective suppliers are Year 2000
compliant. Although we believe all of our systems are and will be Year 2000
compliant, there can be no assurances that all of our vendors' and business
partners' systems will be Year 2000 compliant. Our cost to comply with the Year
2000 initiative is not expected to be material.
In June 1998, we began converting our computer system to be Year 2000
compliant. As of December 15, 1998, all of our non-IT systems were compliant. As
of March 5, 1999,
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<PAGE>
we spent approximately $1,500 on our Year 2000 compliance efforts. This figure
includes all labor and expenses
Recent Accounting Pronouncements.
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This statement provides guidance on
accounting for the costs of computer software developed or obtained for internal
use and identifies characteristics of internal use software as well as assists
in determining when computer software is for internal use. This statement is
effective for fiscal years beginning after December 15, 1998, with earlier
application permitted. We have not determined the impact of the adoption of this
statement as this is highly dependent upon the nature, timing and extent of
future internal use software development.
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
This statement provides guidance on the financial reporting of start-up costs
and organization costs. It requires that the cost of start-up activities and
organization costs be expensed as incurred. This statement of position is
effective for financial statements for fiscal years beginning after December 15,
1998. We do not expect adoption of this statement to have a material impact on
our financial statements.
We will be required to adopt Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
Statement No. 131 superseded statement No. 14, "Financial Reporting for Segments
of a Business Enterprise" and is effective for years beginning after December
31, 1997. Statement 131 establishes standards for the way that public business
enterprises report selected information about operating segments in financial
reports. Statement 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The addition of
statement 131 will not effect our results of operations or financial position,
but may effect the disclosure of the segment information in the future.
In June 1998, the Financial Accounting Standards Board or "FASB," issued
statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement changes the previous accounting definition of
derivative, which focused on freestanding contracts such as options and
forwards, including futures and swaps, expanding it to include embedded
derivatives and many commodity contracts. Under the statement, every derivative
is recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Statement No. 133 is effective for fiscal years beginning after June
15, 1999. Earlier application is allowed as of the beginning of any quarter
beginning after issuance. We do not anticipate that the adoption of statement
No. 133 will have a material impact on our financial position or results of
operations.
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<PAGE>
LOA
Overview
We were incorporated in Rhode Island in 1992 for the purpose of providing
online and Internet related services. We are a Rhode Island regional competitive
local exchange carrier and Information/Internet Service Provider. A competitive
local exchange carrier provides local telephone access lines as opposed to
long-distance or other services. An Internet service provider provides access to
the Internet. As an Internet service provider, we currently provide a variety of
Internet solutions to both commercial and residential customers. As a local
exchange carrier, we plan to offer a full range of local telecommunication
services, resulting in an ability to offer a complete menu of Internet, voice,
data, video, and cable programming solutions to our customers.
We believe that the Northeast region provides access to attractive tier 1,
tier 2 and tier 3 demographic markets within close proximity of planned network
expansions, resulting in efficient utilization of network capacity. Tier 1
cities have populations over 2,000,000, and tier 2 and tier 3 cities have
populations between 250,000 and 2,000,000. Our plan is to initiate an
acquisition campaign targeting Internet service providers, competitive local
exchange carriers and resellers of telecommunication services to gain market
share, name recognition and valuable industry talent. We currently do not have
any plans or agreements regarding any potential acquisitions. In parallel with
the acquisition program, we intend to pursue market share through an increased
direct sales force, offering an expanded product line to both commercial and
residential customers. Market penetration will require system upgrade and
expansion through the purchase of equipment and the hiring by management of
addition technical personnel.
Our goal is to be a leading provider of a wide range of Internet, voice,
data, video, and cable programming solutions to a diverse customer base in the
Northeast. We believe that a strategy comprised of acquisitions and direct sales
will allow us to achieve our desired market penetration and competitive
position.
Corporate History
Log On America, Inc., a Rhode Island corporation, was formed in 1992. This
company is our predecessor. In 1997, the Rhode Island corporation sold 100% of
its assets to Global Telemedia International, Inc. and agreed to change its name
to Tekcom, Inc. In consideration of the sale, Global Telemedia agreed to assume
all of the Rhode Island corporation's outstanding liabilities and to pay the
Rhode Island corporation's shareholders, on the third anniversary date of the
purchase, 20% of the value of all of the Rhode Island corporation's business as
of that date. To transfer the Rhode Island corporation's assets and liabilities,
Global Telemedia formed a wholly owned subsidiary in Delaware, System 4, Inc.
After the transfer of assets and liabilities to System 4, Inc., System 4 changed
its name to Log On America, Inc.
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Wan Secure, Inc. was organized in Delaware in January 1998 to purchase
100% of the successor to System 4's outstanding capital from Global Telemedia.
As a result, we became a wholly owned subsidiary of Wan Secure. In consideration
for the purchase, Wan Secure executed a promissory note in the amount of
$100,000 to Global Telemedia. David Paolo, our president and Wan Secure's
majority shareholder, personally guaranteed this promissory note. In September
1998, Wan Secure merged with LOA, the successor to System 4. As a result of this
merger, Wan Secure was the survivor. Simultaneously with the merger, Wan Secure,
a Delaware corporation, changed its name to Log On America, Inc.
In and around February 1998, 100% of the shareholders of Tekcom, Inc.,
formerly the Rhode Island corporation, agreed to surrender and release their
rights and claims to 20% of the value of the Delaware Log On America business as
of the third anniversary date of the Global Telemedia's purchase. As
consideration for this surrender and release, Tekcom shareholders received an
aggregate of 795,130 shares of the Deleware Log On America's common stock. In
July 1998, Global Telemedia accepted $25,000 in settlement of the $100,000 Wan
Secure note.
Business
We are an Internet service provider, which means we provide our customers
with access to the Internet. We have been providing on-line services, and
related products, to individual and corporate clients since November 1992. We
maintain a national dial-up Internet service throughout the Northeast. The
majority of our current operations is providing dedicated access lines for the
Internet to commercial accounts. In October 1998, we were approved as a
competitive local exchange company in Rhode Island. A competitive local exchange
carrier provides local telephone access lines as opposed to long-distance or
other services. We intend to begin this service in the second quarter of 1999.
As a local exchange carrier, our customers include residential users, Internet
service providers, wireless carriers and business, government and institutional
end users. We believe that our prices will be competitive with those charged by
independent local exchange carriers. We believe our commercial customers will
benefit from our local exchange status by our ability to resell local phone
services from the area's local provider, Bell Atlantic, at a discount to certain
of our competitors. Currently, we are a retail customer of Bell Atlantic.
We are also positioned to address network security issues and provide
secure private networks for secure commerce over the Internet using secure
server applications. A secure server application is a program used to protect
electronic commerce on the Internet. We can also provide encrypted digital
transmissions and design local and wide area networks for residential or
commercial use.
Marketing and Business Strategy
Our goal is to be a leading provider of a wide range of Internet, voice,
data, video, and cable programming solutions in the Northeast. To accomplish
this goal, we intend to develop, utilize and package our services for the
marketplace at competitive prices. We have focused our efforts on high revenue,
high margin commercial clients which enter into term contracts for
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service, generally 12 months in duration. We believe this approach
differentiates us from certain of our competitors who seek bulk quantities of
Internet dial-up customers for a monthly fee without contractual commitment. We
also market to customers on a monthly fee basis without contractual commitment.
We rely on service and performance to attract and to keep our clients. We also
provide equipment and security products to our clients that enhance customer
service and help us meet the demands of our customers.
We employ the following marketing strategies: targeted direct marketing,
development of brochures, trade show participation and print media although we
decreased advertising in 1998. Upon consummation of this offering, we plan to
expand our direct marketing sales team, and to employ more sales staff in the
Northeast.
We currently offer a comprehensive range of Internet access options, web
production services and web hosting services designed to meet the needs of
businesses and individual subscribers. Our strategy is to focus on cities with a
population base large enough to provide a sufficient return on our investments.
We will also focus on cities that have not become the primary target markets for
long distance carriers or national Internet service providers such as Netcom On
Line Communication Services, Inc. and America Online, Inc. It is our objective
to provide a "one-stop-shop" to our customers for their Internet and
telecommunication needs. The "one-stop-shop" will require reliable Internet
access, guidance and training regarding the use of the Internet and support on
how to take full advantage of Internet applications pertinent to the individual
customer. We will attempt to remain competitive in the individual Internet
market with reasonably priced services.
We believe our recent approval by the Rhode Island Public Utilities
Commission as a competitive local exchange carrier provides us with the ability
to become a full service provider of local telecommunications services to
Internet service providers, wireless carriers and business, government and
institutional end users. We believe this status will enable us to offer products
and customer service at prices competitive with those charged by the independent
local exchange carriers.
Internet Business
Our strategy is to continue to focus on the Internet market in the
Northeast, to expand to surrounding markets and to provide direct on-site sales
contact with the business communities in those areas. We intend to continue to
expand our subscriber base by providing high quality services coupled with the
expertise to assist our customers with solutions to their Internet and
telecommunication needs. We intend to achieve our strategy by focusing on the
following key elements:
1. Focus on business customers. We believe that use of the Internet by
businesses will grow substantially over the next several years. The Internet has
the potential to enhance productivity through improved communications, access to
data, and through new ways of organizing how businesses interact, both with
other commercial enterprises and with consumers. We believe that the Internet
provides the potential for businesses, large and small, to maintain a worldwide
presence for marketing their products and making information about their
products and
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services available to interested parties in ways not possible before. We believe
that many businesses are aware, in general, that the Internet provides a
potential new means of conducting commerce, and that businesses do not have the
knowledge or technical expertise required to access or use the Internet. We
believe that by offering our business customers a service-oriented relationship,
we can position ourselves as a value added supplier and thus gain a competitive
advantage over certain of our larger competitors. In order to implement this
strategy, we hired a technical personnel sales staff, currently comprised of 2
individuals.
2. Provide high-bandwidth, reliable infrastructure services. We have
contracted with Bell Atlantic to deploy our first 155Mbs OC/3 Sonnet ring around
the city of Providence, Rhode Island. Sonnet is an abbreviation for Synchronous
Optical Network, an international standard for high-speed networks. A Sonnet
ring will allow us to deliver high speed Internet access throughout all major
points of Providence, Rhode Island.
3. Provide value-added services. We offer a range of value-added services
designed to assist business customers in taking advantage of opportunities
offered by the Internet. Our current value-added services include web services
such as web hosting and consulting. Web hosting refers to the storage of a web
site or homepage on a web server so that others on the Internet can access and
interact with the site. Quality web hosting services are the foundation for a
successful Internet presence. Other value-added services include network
consulting, security consulting, data services, commercial transaction and
payment processing services, Intranet applications, and e-mail to fax services.
4. Pricing strategy. We believe that price competition will intensify as
the Internet market grows and matures. We intend to remain competitive by
pricing our services to reflect market conditions. Accordingly, we believe that
management of our costs will be critical to remaining competitive. We have made
and plan to continue to make investments in our hardware and network
infrastructure which is designed to increase efficiency and reduce the cost of
delivering our services. We intend to price all of our services in order to
remain competitive with demand, competition and market trends.
Internet Products and Services
We provide a variety of Internet access and other related services to our
clients. These services include, e-mail, web sites, the storage and construction
of web sites, and dedicated circuits with wide bandwidth to enhance data
transmission. Bandwidth is a measurement of the volume of information, usually
measured in bites per second, which can be transmitted over a network at a given
time. A larger bandwidth transmits more information and, therefore, enhances
data transmission. Clients also use our services to receive and/or send data or
to display products and services on the Internet using text, high-resolution
color photographs, video and/or audio.
Some of our current clients include educational facilities including
Providence College; international corporations including Cookson America, Inc.
and Toray Plastics, Inc.;
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organizations including Butler Hospital and the Bell Atlantic Telecommunications
Center; and governmental agencies including the Rhode Island Supreme Court, the
Office of the Rhode Island Attorney General and the Rhode Island Public
Utilities Commission.
We are also a domain name registration provider for Wenzhou Emy Network
Information Company, a Chinese entity that markets access to the World Wide Web
to institutions and corporations within the Zhejiang Province of the People's
Republic of China. This means that we register domain names and host web pages
on behalf of Wenzhou Emy Network, which is located in the People's Republic of
China.
The following list summarizes and defines the specific products and
services which we currently offer:
dial-up access: this is how a home user with a personal computer connects to the
Internet.
point to point: point-to-point is a communications link that directly connects
two facilities and is frequently used to access the World Wide Web.
xDSL: abbreviation for digital service lines; an emerging technology that uses
existing copper wire to carry voice and data traffic over the same telephone
line at high speeds.
domain names: the name used to identify a user on the Internet.
web page design and hosting: building, designing and construction of web sites,
including corporate web sites that reside and are served from the Internet
service provider's web server. A web server stores web sites.
equipment sales: the sale of hardware associated with the deployment of Internet
services.
banner advertisements: display ads and links listed on our web site.
secure virtual private networks: provides secure transmissions between remote
sites, such as a between a laptop computer and a network.
encrypted DS0 to DS3 transit: a process that transforms digital information into
a form that is unintelligible without a proper code.
secure network design: Our technical team can design local area or wide area
networks for small to large corporations seeking security protection and
flexibility in communications. A local area network is a network of computers
confined within a small area, such as an office building. A wide area network is
a system of connected computers spanning a large geographical area.
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Intranet, Extranet, Secure Commerce: Our technical personnel can design custom
Intranet, and Extranet networks, which allow companies to communicate over an
existing Internet network, and secure commerce servers, which process financial
transaction over the Internet.
security breach investigations: We investigate compromised networks and attempt
to identify perpetrators of security breaches.
data loss insurance: We offer to our customers a "Data Loss Insurance Policy"
that insures a network from the threat of security breaches.
During 1996, we achieved our goal of having dial-up services in a total of
230 area codes. We plan to have our own network systems in operation or under
construction in a total of 20 cities by the middle of 1999, and a total of 50
cities by the end of 2000. There can be no assurance that we will meet this
goal. Our expansion into additional cities is expected to be accomplished by the
acquisition of existing networks as well as the development of new networks. By
adding networks, we believe we can increase revenues and obtain economies of
scale in our operating costs.
Planned Competitive Local Exchange Carrier Business.
On October 6, 1998, we received approval from the Rhode Island Public
Utilities Commission to operate as a competitive local exchange carrier. A
competitive local exchange carrier can offer local telephone access as opposed
to long-distance or other services. We intend to use this local exchange status
to provide our Rhode Island customers, through one standard copper cable into
the user's home or office, with typical phone service such as dial tone, toll
calls/in-state long distance, long distance, as well as high-speed Internet
access. We intend to become a full service provider of local telecommunications
services to Internet service providers, wireless carriers and business,
government and institutional end users in selected cities in the Northeast. We
intend to offer our products at competitive prices to those charged by the
independent local exchange carriers beginning in the second quarter of 1999. We
plan on preparing local exchange carrier applications for other states in the
Northeast.
The principal elements of our competitive local exchange carrier strategy
includes:
o targeting tier 2 and tier 3 markets in the Northeast, or markets in cities
with populations between 250,000 and 2,000,000 by securing franchises and
rights-of-way in those markets, installing local exchange carrier networks
and facilities, and establishing customer relationships with Internet
service providers, wireless carriers and business, government and
institutional end users in those markets. We believe this will enable us
to take advantage of the potential growth rates for local exchange service
revenues in those markets. Currently, we have not secured, and have no
agreements to secure, any franchises, rights-of-way, installed local
exchange carrier networks, facilities, established customer relationships
with Internet service providers, wireless carriers, business, or
government and institutional end users; and
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o pursuing opportunities in selected Northeast first tier markets, defined
as cities with over two million people. We intend to utilize our existing
operational capabilities in conjunction with proposed operating agreements
with Internet service provider customers.
We intend to design our networks to access at least 70% to 80% of the
business, government and institutional end user revenue base and the Internet
service provider facilities and substantially all of the central offices of the
independent local exchange carriers within our target markets.
Planned Competitive Local Exchange Carrier Products And Services.
We plan to provide several types of switched access and private line
services to Internet service providers and end-user customers in the second
quarter of 1999. Historically, competitive access providers were able to offer
only non-switched special access and private line services, which involve the
installation of dedicated lines to provide the following types of communications
links. Switched access means that the provider can route Internet traffic
through its own network. Non-switched access means that the provider must route
traffic through another provider's network:
Internet special access. telecommunication lines linking one Internet
service provider or several different Internet service providers in a market.
end-user/independent exchange carrier special access. telecommunication
lines between an end user, such as a business, and the local Internet service
provider.
private line. telecommunication lines connecting various locations of one
or more customers' operations, suitable for transmitting voice and data traffic
internally.
collocated special access: A dedicated line carrying switched
transmissions from the Internet service provider through the independent local
exchange carrier's central office to the end users. Switched transmission means
that the provider can route Internet traffic through its own network.
Non-switched access means that the provider must route traffic through another
provider's network
collocated independent local exchange carrier switched access: A dedicated
line carrying switched transmissions from the independent local exchange
carrier's central office to an Internet service provider.
In order to provide these services, we intend to offer various types of
dedicated fiber optic lines, maintained and operated by Bell Atlantic and MCI
Worldcom. We do not maintain or operate any fiber optic lines. These dedicated
fiber optic lines operate at different speeds and handle varying amounts of
traffic to provide tailor-made solutions to our customers' needs, including:
DS-0: A dedicated line service with transmission capacity of up to 64
kilobits of bandwidth per second. This service offers a basic low capacity
dedicated digital channel for
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connecting telephones, fax machines, personal computers and other
telecommunications equipment.
DS-1: A high-speed channel typically linking high volume customer
locations to Internet service providers or other customer locations. Used for
voice transmissions as well as the interconnection of local area networks, DS-1
service accommodates transmission speeds of up to 1.544 megabits per second. We
offer this high-capacity service for customers who need a larger communications
pipeline.
DS-3: This service provides a very high capacity digital channel with
transmission capacity of 45 megabits per second. This is a digital service
typically used by Internet service providers for central office connections and
by some large commercial users to link multiple sites.
We intend to add capabilities to provide local dial tone and switched
access termination and origination services to its networks.
We expect our business customers to acquire enhanced local services and
long-distance services from us as a reseller. In order to provide these
services, we intend to purchase these services in bulk from an independent local
exchange carrier and the Internet service provider. We will then offer our
retail customers with a single source of integrated local and long distance
telecommunications services and facilities management at a discount from the
published retail independent local exchange carrier tariff rates. By using
enhanced local service from us instead of an in-house phone system, or private
branch exchange, to direct their telecommunications traffic, customers can avoid
a large investment in equipment required and the fixed costs associated with
maintaining a private branch exchange network infrastructure. Our enhanced local
service, as envisioned, will allow medium to small business customers who lack
the size or resources to support their own private branch exchange to benefit
from a telecommunications system.
We intend to provide a full range of consulting, management, engineering
and information system solutions for telephone, cable television and wireless
providers and other telecommunications infrastructure owners and operators in
our target markets.
Competition
The Internet connectivity and telecommunications business is highly
competitive, and there are no substantial barriers to entry. We believe that
competition will intensify. Our ability to successfully compete will depend on a
number of factors including market presence, capacity, reliability, the security
of our network infrastructure, our pricing of services compared to our
competitors, the timing of new products and services by us and our competitors,
our ability to react to changes in the market, and industry and economic trends.
Our competitors consist of (1) regional Internet service providers, (2) national
Internet service providers, (3) on-line service companies, (4) regional
telephone companies and national long distance carriers, (5) hardware/software
companies and cable operators, and (6) other competitive local exchange
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carriers, as discussed below. Most of these competitors have substantially
greater resources, experience, and brand name recognition than we do.
1. Regional Internet Service Providers. Our competitors include
numerous regional Internet access providers, including Bell
Atlantic, The Internet Access Company or TIAC, and Windstar
Communications, Inc.
2. National Internet Service Providers. National Internet service
providers include companies such as Netcom On Line Communication
Services, Inc., a division of ICG Telecom Group, Inc., PSINet, Inc.,
UUNET Technologies, Inc. and BBN Corp., a division of GTE Corp.
These national competitors have established national and
international networks, providing extensive coverage throughout the
United States and select international locations. Netcom, PSI and
UUNET have established communications and network infrastructure,
adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other
opportunities more readily, and devote more resources to the
marketing and sale of services, than we do. We believe Netcom, PSI
and BBN have targeted the individual dial-up market, while UUNET has
specifically targeted the business markets.
3. On-line Service Companies. Other competitors include the national
on-line service providers such as America On-line, Inc., Microsoft
Corporation, Delphi Information Services, Inc., a division of News
Corp., and Genie, a division of General Electric Information
Services. Most of the established on-line services are rapidly
expanding their Internet access services in order to offer more
direct access to the Internet at more competitive prices. On-line
service companies are focused on the individual dial-up market and
are becoming direct competitors with the national Internet providers
and the long distance telecommunication carriers.
4. Regional Telephone Companies and National Long Distance Companies.
Regional telephone companies such as Bell Atlantic Corp., Southern
New England Telephone Co., and national long distance carriers such
as AT&T Corp., MCI Worldcom, Inc., and Sprint Corp. all operate
Internet access services.
5. Hardware / Software Companies and Cable Operators. In 1995,
Microsoft Corporation entered into the on-line service business with
"Microsoft Network," a consumer on-line service that was released as
a standard integrated feature of the Windows 95 operating system.
Cable operators such as Cox Communications, Inc., and
Tele-Communications, Inc., have also announced their intention to
utilize their cable networks to offer Internet services. Cable
modems have the capacity to transmit at speeds up to 10 megabits per
second, versus the normal telephone dial-up speed of 56.6 kilobits
per second. Several cable companies are in the process of upgrading
their systems to provide access to the Internet. Each of our primary
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markets is highly competitive. Many of our competitors are much
larger than us and have substantially greater resources.
6. Competitive local exchange carriers - Regional local exchange
carriers include Teleport, Inc., MCI Worldcom, Inc., and TCG, Inc.
Government Regulation.
We are currently subject to regulation by the Federal Communications
Commission and related state agencies. In so far as the Internet is a relatively
new medium, the legal obligations and First Amendment rights of service
providers and participants in the Internet, are not well defined and are
evolving. The Internet has not been subject to regulation by the FCC or other
governmental agencies, and standards applicable to print publishers and
television in respect of the law of defamation and obscenity are not clearly
applicable to the Internet. To the extent these issues have been considered by
the courts, outcomes have not been uniform.
In 1996, Congress passed a telecommunications act which, among other
things, includes protection from liability for Internet providers who take steps
to prevent defamatory material from being published on the Internet and also
includes provisions to protect children from indecent material on the Internet.
Certain provisions of that legislation regarding the imposition of criminal
penalties for publication of indecent materials on the Internet were recently
held to be unconstitutional by the United States Supreme Court.
The Internet could lose its viability due to delays in the development or
adoption of new standards and protocols to handle increased levels of Internet
activity, or due to increased governmental regulation. There can be no assurance
that the infrastructure or complementary services necessary to make the Internet
a viable commercial marketplace will be developed, or if developed, that the
Internet will become a viable commercial marketplace for services and products
like those offered by us. If the necessary infrastructure or complementary
services or facilities are not developed, or if the Internet does not become a
liable commercial marketplace, our business, results of operations and financial
condition will be materially adversely affected. In addition, the adoption of
additional laws in the United States and in foreign countries could adversely
affect our business.
Proprietary Technology.
We have filed trademark applications with the U.S. Patent and Trademark
Office for "LOA", "Log On America" and our logo. These applications are
currently pending. We have also registered the Internet domain name www.loa.com.
There can be no assurance that potential users and advertisers will not confuse
our trademarks and/or domain name with other similar trademarks and/or domain
names. If this confusion occurs, we may lose business to a competitor, and have
to adjust our advertising rates and service fees accordingly, or some users of
our services may have negative experiences with other companies on their web
sites that these users erroneously associate with us.
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Employees.
As of March 10, 1999, we had 9 full-time and 4 part-time employees. Of
these 13 employees, 4 were engaged in technical support, 2 in information
processing services, 2 in customer support functions, 2 were engaged in sales
and marketing, and 3 in administration and finance functions. We have no
collective bargaining agreement in place and believe that our relationship with
our employees is good. We are currently negotiating to expand our existing
facility from approximately 3000 square feet to approximately 5000 square feet
to allow for an increase in anticipated personnel subsequent to this offering
Facilities.
We entered into a lease agreement between us and Regency Plaza Associates
dated May 1, 1996, for the premises located at 3 Regency Plaza, Providence,
Rhode Island 02903. This lease was amended on August 6, 1997 to provide for
rental increase, additional space, and extension of its term. The lease
currently provides for a term expiring on May 31, 1999. Monthly rent is
currently $2,568. The facilities currently comprise approximately 3,000 square
feet.
We also maintain office space comprising less than 500 square feet in
Cambridge, Massachusetts through a verbal arrangement with Snap Dragon
Technologies, Inc., a customer of ours. We discount services to the customer in
consideration for the space. We provide $500 per month in services to Snap
Dragon in consideration for the lease. We use this space to service our
Massachusetts clients and customers. Upon completion of this offering, we intend
to enter into a lease arrangement for an office in Massachusetts.
Legal Proceedings.
There is currently no pending or threatened litigation against us.
Available Information
We have filed with the commission a registration statement on Form SB-2
under the Securities Act, with respect to the common stock offered by this
prospectus. In this prospectus we refer to that registration statement, together
with all amendments, exhibits and schedules to that registration statement, as
"the registration statement." This prospectus, which is part of the registration
statement, omits certain information, exhibits, schedules and undertakings set
forth in the registration statement. For further information with respect to us
and the securities offered by this prospectus, reference is made to the
registration statement. Statements contained in this prospectus concerning a
document filed as an exhibit to the registration statement is not necessarily
complete and, in each instance, reference is made to the document filed as an
exhibit to the registration statement, each statement being qualified in all
respects by this reference.
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The registration statement and other information may be read and copied at
the commission's Public Reference Room at, 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the commission at 1-800-SEC-0330. The
commission maintains a web site at http://www.sec.gov that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the commission. http://www.loa.com
We are not currently a reporting company under the Securities and Exchange
Act of 1934, and therefore have not filed any reports with the commission.
Simultaneously with the commission's declaration that this prospectus is
effective, we will be registered under the Exchange Act. Under the Exchange Act,
we will furnish our stockholders with annual reports containing audited
financial statements reported on by independent auditors and make available
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
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MANAGEMENT
Directors and Officers
The following table sets forth certain information concerning each of our
directors and officers as of March 10, 1999:
Name Age Position
- ---- --- --------
David R. Paolo 30 President, CEO and Chairman
Donald J. Schattle II 33 VP of Operations and Technology
and Director
Kenneth M. Cornell 30 CFO
Raymond Paolo 53 VP of Administration, Secretary
Treasurer and Director
Shastri Divakaruni 50 Director
David M. Robert 37 Director
David R. Paolo is our President, Chief Executive Officer, Chairman and founder.
He has served in this position since the formation of our predecessor. In 1994,
Mr. Paolo was appointed as Ambassador for the Greater Providence Chamber of
Commerce, a position he still retains. From 1996 to 1998, he was chairman of the
NYNEX Advisory Board. Mr. Paolo attended Roger Williams University from 1986 to
1990.
Donald J. Schattle II has served as our Vice President of Operations and
Technology since 1998. From 1997 to 1998, he served as Senior Systems
Administrator, Director of Operations for our predecessor. Prior to this, Mr.
Schattle owned a computer consulting and technical support firm, Cybersultants,
Inc., from 1995 to 1996, and was a systems administrator, and service and
support engineer for AAA of South Central New England from 1992 to 1996. Mr.
Schattle graduated from the University of Rhode Island in 1994 with a BA degree.
Kenneth M. Cornell has served as our Chief Financial Officer since December
1998. Mr. Cornell is President of Cornell & Associates, Inc. a company providing
financial advisory services. From July 1996 to May 1997, he served as Controller
of Global Telemedia International, Inc. From 1991 to 1996 he worked at Ernst &
Young LLP in the audit department. Mr. Cornell graduated with a BS from the
University of Florida's Fisher School of Accounting in May 1990. In 1991, he
graduated from said university with a Masters in Accounting.
Raymond Paolo has served as our VP of Administration, Secretary, Treasurer and
director since October 1998. Prior to this, he was Chief Financial Officer of
our predecessor from its inception in 1992 until October 1998. Mr. Paolo worked
as an independent sales representative for R.E.P. Enterprises from 1991 to 1992
and as President of Horizon Distributors, Inc., a consumer electronics and
computer mass merchandiser from 1985 to 1990. Mr. Paolo graduated from the
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University of Rhode Island in 1968 with a BS in Business Administration. In
1980, he graduated from the Williams School of Banking with a MA in Business
Administration.
Shastri Divakaruni has served as a director of ours since February 1998. From
March 1996 to the present, Mr. Divakaruni has worked at Cisco Systems under
various job titles, including Director of Service Provider Marketing and
Director of Broadband Fixed Wireless Engineering. From 1987 to March 1996, Mr.
Divakaruni worked with Southern New England Telecommunications Corp. where he
served as Senior Director of Product Development and Integrated Marketing. Mr.
Divakaruni received his BS in Electronics and Telecommunications from the
University of India in 1969. He received an MS in Electrical Engineering from
the University of Iowa in 1972 and received an MBA from New York University in
1993.
David M. Robert has served as a director of ours since February 1998. Since
1985, Mr. Robert has worked for Northern Telecom, Inc. in various capacities,
including Software Systems Engineer, Product Marketing Specialist, Sales Manager
and, currently, VP of Sales for Nortel Major Accounts. Mr. Robert received a BS
in Mathematics/Computer Science from State University of New York, College at
Cortland in 1984.
Directors are elected to serve until the next annual meeting of the
stockholders and until their successors have been duly elected and qualified.
Raymond Paolo is the father of David R. Paolo.
Compensation of Directors
Directors do not receive compensation for attendance at meetings of the
Board of Directors, but will be reimbursed for certain expenses in connection
with attendance at board meetings.
Audit Committee
Our board of directors intends to implement a standing audit committee as
of the closing of the offering. The audit committee will be comprised of the
following officers and directors: Shastri Divakaruni, David M. Robert, Kenneth
Cornell and David Paolo. The audit committee will assist our board of directors
in exercising its fiduciary responsibilities for oversight of audit and related
matters, including corporate accounting, reporting and control practices. It
will be responsible for recommending to the Board of Directors the independent
auditors for the following year. Our board of directors intends to have the
audit committee meet periodically with management, financial personnel and the
independent auditors to review internal accounting controls and auditing and
financial reporting matters.
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Executive Compensation
For the years ended December 31, 1996, 1997 and 1998, David R. Paolo, our
president, was compensated and/or received advances in the amount of $60,000,
$77,617 and $125,104, respectively. On May 15, 1998, Mr. Paolo executed a
promissory note to us in the amount of $77,617. Pursuant to the terms of this
note, we agree to forgive 25% of the principal amount each year. No other
officer or director received compensation in excess of $100,000 for each of
fiscal 1996, 1997 and 1998. Mr. Paolo also earned $25,427 in 1998, which is
included in the table below under "All Other Compensation." This figure includes
(a) $12,227 which represents the pro rated amount of the $77,617 note that we
forgave as of December 31, 1998; (b) $7,800 for a car allowance; and (c) $5,400
for a club membership.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Restricted Securities
Name and Other Annual Stock Underlying All Other
Principal Position Year Salary Bonus Compensation Awards Options Compensation
- ------------------ ---- ------ ----- ------------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
David R. Paolo 1998 $90,000 $2,500 -0- -0- -0- $25,427
1997 $77,617 -0- -0- -0- -0- -0-
1996 $60,000 -0- -0- -0- -0- -0-
</TABLE>
Employment Agreements
On January 12, 1998, we amended an employment agreement with David R.
Paolo dated January 3, 1997, to serve as our president and chief executive
officer. The term of the agreement is for six years commencing on January 12,
1998. We increased Mr. Paolo's base compensation of $91,500 per year to $124,500
upon the consummation of a previous private offering, dated August 28, 1998.
Under the terms of the agreement, Mr. Paolo will receive an annual increase in
base compensation of 10% for the term of the agreement. We further increased Mr.
Paolo's base compensation to $136,950, effective January 1, 1999. The agreement
contains a provision for performance based bonuses, including non-qualified
stock options, car allowance, and club membership. The employment agreement
contains a non-compete clause for a period of two years following the
termination of Mr. Paolo's employment. A state court might not enforce or only
partially enforce this non-compete provision. The employment agreement may be
terminated upon 90 days written notice by either party. In addition, if we
terminate the agreement without cause, Mr. Paolo may be entitled to receive the
balance of any unpaid salary which would otherwise be payable to him during the
remainder of the term of the agreement.
On January 12, 1998, we entered into an employment agreement with Raymond
Paolo to serve as our chief financial officer. On January 1, 1999 we amended
this agreement to reflect his current position as our vice president of
administration, secretary and treasurer. The agreement's
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term is for six years. We increased Mr. Paolo's base compensation of $51,500 per
year to $69,500 upon the consummation of a previous private offering, dated
August 8, 1998. Under the terms and conditions of the agreement, Mr. Paolo will
receive an annual increase in base compensation of 10% for the term of the
agreement. We further increased Mr. Paolo's base compensation to $76,450,
effective January 1, 1999. The agreement contains a provision for performance
based bonuses, including non-qualified stock options and car allowance. The
agreement contains a non-compete clause for a period of two years following the
termination of Mr. Paolo's employment. A state court might not enforce or only
partially enforce this non-compete provision. The employment agreement may be
terminated upon 90 days written notice by either party. In addition, if we
terminate the agreement without cause, Mr. Paolo may be entitled to receive the
balance of any unpaid salary which would otherwise be payable to him during the
remainder of the term of the agreement.
Stock Option Plan.
In January 1999, we adopted the 1999 Stock Option Plan. The purpose of the
plan is to enable us to attract, retain and motivate key employees, directors,
and consultants, by providing them with stock options. Options granted under the
plan may be either incentive stock options, as defined in Section 422A of the
Internal Revenue Code of 1986, or non-qualified stock options. We have reserved
1,000,000 shares of common stock for issuance under the plan. As of the date of
this prospectus, no options have been granted pursuant to the plan.
Our board of directors will administer the plan. Our board has the power
to determine the terms of any options granted under the plan, including the
exercise price, the number of shares subject to the option, and conditions of
exercise. Options granted under the plan are generally not transferable, and
each option is generally exercisable during the lifetime of the holder only by
the holder. The exercise price of all incentive stock options granted under the
plan must be at least equal to the fair market value of the shares of common
stock on the date of the grant. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of our stock, the
exercise price of any incentive stock option granted must be equal to at least
110% of the fair market value on the grant date. The term of all incentive stock
options under the plan may not exceed ten years, or five years in the case of
10% owners. Our board of directors approves the terms of each option. These
terms are reflected in a written stock option agreement.
Right to Designate Director.
Dirks and Company, Inc. has the right, for a period of five years from the
closing of this offering, to designate a person for election to our board of
directors. Dirks and Company has not indicated who they intend to designate to
our board.
Limitations of Liability and Indemnification of Directors and Officers.
Our certificate of incorporation, as amended, and bylaws, as amended,
limit the liability of directors and officers to the maximum extent permitted by
Delaware law. We will indemnify
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any person who was or is a party, or is threatened to be made a party to, an
action, suit or proceeding, whether civil, criminal, administrative or
investigative, if that person is or was a director, officer, employee or agent
of us or serves or served any other enterprise at our request.
In addition, our certificate of incorporation provides that a director
shall not be personally liable to us or our stockholders for monetary damages
for breach of the director's fiduciary duty. However, the certificate does not
eliminate or limit the liability of a director for any of the following reasons:
o breach of the directors' duty of loyalty to us or our stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
o the unlawful payment of a dividend or unlawful stock purchase or
redemption; and
o any transaction from which the director derives an improper personal
benefit.
We intend to purchase and maintain directors' and officers' insurance in
the amount of $3,000,000. This insurance will insure directors against any
liability arising out of the director's status as our director, regardless of
whether we have the power to indemnify the director against the liability under
applicable law.
We have been advised that it is the position of the commission that
insofar as the indemnification provisions referenced above may be invoked to
disclaim liability for damages arising under the Securities Act, these
provisions are against public policy as expressed in the Securities Act and are,
therefore, unenforceable.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of March 8, 1999, and as adjusted for
the 2,000,000 shares of our common stock offered by this prospectus, the number
and percentage of outstanding shares of common stock beneficially owned by each
person who beneficially owns:
o more than 5% of the outstanding shares of our common stock;
o each of our officers and directors; and
o all of our officers and directors as a group.
Except as otherwise noted, the persons named in this table, based upon
information provided by these persons, have sole voting and investment power
with respect to all shares of common stock owned by them. Unless otherwise
indicated, the address of each beneficial owner is c/o Log On America, Inc., 3
Regency Plaza, Providence, Rhode Island 02903. The percentages shown after the
completion of this offering assumes the sale of the 2,000,000 shares of our
common stock offered in this prospectus and the exercise of the underwriter's
over-allotment option, but does not reflect the exercise of the representative's
warrants.
Number of
Shares % Beneficially % Beneficially
Name and Address of Beneficially Owned Before Owned After
Beneficial Owner(1) Owned Offering Offering
- ------------------- ----- -------- --------
David R. Paolo ................... 2,434,600 52.8% 35.2%
Raymond Paolo .................... 200,000 4.3% 2.9%
Donald Schattle II ............... 80,000 1.7% 1.2%
Kenneth Cornell .................. 45,000(1) ** **
Marilyn Henderson ................ 375,000 8.1% 5.4%
ICC Consulting, Inc. ............. 250,000(2) 5.4% 3.6%
25A Sintsink Dr. West
Port Washington, NY
Scofield Dennison Corp. .......... 250,000(2) 5.4% 3.6%
130 Shore Rd ....................
Port Washington, NY
Northeastern Fibercom ............ 250,000(2) 5.4% 3.6%
8 West 38th St ..................
New York, NY
Horizon Fiber, Inc. .............. 250,000(2) 5.4% 3.6%
22 Cherry Lane
Putnam Valley, NY
All Officers and Directors as a
Group (6 persons)................ 2,759,600 59.3% 40.5%
** Less than 1%
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<PAGE>
(1) Represents warrants for the purchase of 45,000 shares of common stock
issuable to the stockholder in consideration of accounting and other
related services rendered. Such warrants are exercisable during a
four-year period commencing December 31, 1998 at an exercise price of
$3.25 per share.
(2) Represents warrants for the purchase of 250,000 shares of common stock
during the four year period commencing January 15, 1999 at an exercise
price of $1.00 per share in consideration of business sales and promotion
services rendered.
Wayne Robbins is the sole owner of ICC Consulting, Inc. Jon A. Piazza, Jr.
is the sole owner of Northeastern Fibercom. Robert Dinollo is the sole owner of
Horizon Fiber. Jacquelyn Richardson is the sole owner of Scofield Dennison Corp.
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<PAGE>
CERTAIN TRANSACTIONS
In 1997, Log On America, Inc., a Rhode Island corporation, sold 100% of
its assets to Global Telemedia International, Inc. and agreed to change its name
to Tekcom, Inc. In consideration of the sale, Global Telemedia agreed to assume
all of the Rhode Island corporation's outstanding liabilities and to pay the
Rhode Island corporation's shareholders, on the third anniversary date of the
purchase, 20% of the value of all of the Rhode Island corporation's business as
of that date. To transfer the Rhode Island corporation's assets and liabilities,
Global Telemedia formed a wholly owned subsidiary in Delaware, System 4, Inc.
After the transfer of assets and liabilities to System 4, Inc., System 4 changed
its name to Log On America, Inc.
Wan Secure, Inc. was organized in Delaware in January 1998 to purchase
100% of the successor to System 4's outstanding capital from Global Telemedia.
As a result, we became a wholly owned subsidiary of Wan Secure. In consideration
for the purchase, Wan Secure executed a promissory note in the amount of
$100,000 to Global Telemedia. David Paolo, our president and Wan Secure's
majority shareholder, personally guaranteed this promissory note. In September
1998, Wan Secure effected a merger with and into LOA whereby Wan Secure was the
survivor. Simultaneously with the merger, Wan Secure, a Delaware corporation,
changed its name to Log On America, Inc.
In and around February 1998, 100% of the shareholders of Tekcom, Inc.,
formerly the Rhode Island corporation, agreed to surrender and release their
rights and claims to 20% of the value of the Delaware Log On America's business
as of the third anniversary date of Global Telemedia's purchase. As
consideration for this surrender and release, Tekcom shareholders received an
aggregate of 795,130 shares of the Delaware Log On America's common stock. In
July 1998, Global Telemedia accepted $25,000 in settlement of the $100,000 Wan
Secure note.
In May 1998, David R. Paolo, our president and CEO, and Raymond Paolo, one
of our officers and directors, executed promissory notes to us in the amounts of
$77,617.80 and $47,859.41, respectively. Under the terms of the notes, we agree
to forgive 25% of the principal amount for each note per year. Accordingly, the
notes will be completely forgiven in 2002. The notes do not bear any interest.
We currently have office space in Cambridge, Massachusetts of less than
500 square feet under a verbal arrangement with Snap Dragon Technologies, Inc.,
a customer of ours. In consideration of the use of our customer's office, we
provide discounted services of up to $500 per month to the customer. We use the
office to service our clients located in Massachusetts.
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<PAGE>
DESCRIPTION OF SECURITIES
The following section does not purport to be complete and is qualified in
all respects by reference to the detailed provisions of our Certificate of
Incorporation and By-laws, copies of which have been filed with our registration
statement of which this prospectus forms a part.
Our authorized capital stock consists of 20,000,000 shares of common
stock, $.01 par value. As of December 31, 1998, 4,610,716 shares of common stock
were issued and outstanding. As of this date, there were 64 record holders of
our common stock. We are not authorized to issue preferred stock.
Common Stock
Shares of our common stock are entitled to one vote per share, either in
person or by proxy, on all matters that may be voted upon by the owners of our
shares at meetings of our shareholders. There is no provision for cumulative
voting with respect to the election of directors by the holders of common stock.
Therefore, the holders of more than 50% of our shares of outstanding common
stock can, if they choose to do so, elect all of our directors. In this event,
the holders of the remaining shares of common stock will not be able to elect
any directors.
The holders of common stock:
o have equal rights to dividends from funds legally available
therefore, when and if declared by our board of directors;
o are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon liquidation,
dissolution or winding up of our affairs; and
o do not have preemptive rights, conversion rights, or redemption of
sinking fund provisions.
The outstanding shares of our common stock are duly authorized, validly
issued, fully paid and nonassessable.
Warrants
We currently have 1,095,000 common stock purchase warrants outstanding. Of
these 1,095,000 warrants (a) 1,000,000 are held in the aggregate by four
beneficial owners and are exercisable during the five- year period commencing
January 15, 1999 at an exercise price of $1.00; (b) 50,000 are held by one
beneficial owner and are exercisable during the five-year period commencing
December 31, 1998 at an exercise price of $3.50 per share; and (c) 45,000 are
held by one beneficial owner and are exercisable during the four-year period
commencing December 31, 1998 at an exercise price of $3.25 per share. The shares
of common stock underlying the warrants contain piggyback registration rights,
which the holders have waived with respect to this offering and the twelve-month
period following completion of this offering.
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<PAGE>
Placement Agent Warrants
We issued warrants to our placement agent, Security Capital Trading, Inc.,
in connection with a private placement of our securities between November and
December 1998. These warrants provide for the purchase of:
o 13,076 shares of our common stock upon the exercise of warrants
granted on December 3, 1998, which warrants are exercisable during
the four-year period commencing December 3, 1999 and expiring
December 3, 2003 at an exercise price of $3.90 per share; and
o 23,845 shares of our common stock upon the exercise of warrants
granted on December 23, 1998, which warrants are exercisable during
the four-year period commencing December 23, 1999 and expiring
December 23, 2003 at an exercise price of $3.90 per share.
The warrants provide for piggyback and demand registration rights and
contain anti-dilution provisions.
Representative's Warrants
We have agreed to sell to the representative, upon closing of this
offering, warrants for the purchase of 200,000 shares of our common stock. The
representative's warrants may be purchased for an aggregate of $20. The
representative's warrants are exercisable at a price equal to 120% of the common
stock initial public offering price. The representative's warrants are
exercisable during the four-year period commencing one year from the date of
issuance. The representative's warrants contain provisions to protect the
holders against dilution. The exercise price and number of shares of common
stock and representative's warrants purchasable will be subject to adjustment
under certain circumstances, including, but not limited to, stock dividends,
stock splits, mergers, acquisitions and recapitalization.
In accordance with the terms of the representative's warrants, we have
agreed that for a period of five years commencing on the date of this
prospectus, we will on one occasion, upon written demand of the holders of a
majority of the representative's warrants, register for sale in a public
offering under the Securities Act all or any portion of the securities issuable
upon exercise of the representative's warrants. Any registration of this type
would be at our expense. We have also agreed to include the underlying
securities in any appropriate registration statement that we file during the
five years following the date of this prospectus.
Transfer Agent
We intend to appoint Continental Stock Transfer & Trust Company as the
transfer agent and registrar for our shares of our common stock.
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<PAGE>
SELLING STOCKHOLDERS
The registration statement, of which this prospectus forms a part, also
relates to our registration, for the account of the selling stockholders, of an
aggregate of 1,896,116 shares of common stock and 1,131,921 shares of common
stock underlying warrants. The representative is not underwriting the selling
stockholders' shares The selling stockholders agreed not to directly or
indirectly offer, sell, transfer or otherwise encumber or dispose of any of
their common stock for a period of twelve months after the date of this
prospectus. See "Shares Eligible for Future Sale" and "Underwriting."
The sale of the selling stockholders' shares by the selling stockholders
may be effected from time to time in transactions, which may include block
transactions by or for the account of the selling stockholders, in the
over-the-counter market or in negotiated transactions, or through the writing of
options on the selling stockholders' shares, a combination of these methods of
sale, or otherwise. Sales may be made at fixed prices which may be changed, at a
market prices prevailing at the time of sale, or at negotiated prices.
The selling stockholders may effect the transactions by selling the
selling stockholders' shares directly to purchasers, through broker\dealers
acting as agents for the selling stockholders, or to broker\dealers who may
purchase shares as principals and thereafter sell the selling stockholders'
shares from time to time in the over-the-counter market, in negotiated
transactions, or otherwise. These broker\dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders and/or the purchaser for whom which broker-dealers may act
as agents or to whom they may sell as principals or both, which compensation as
to a particular broker-dealer may be in excess of customary commissions.
The selling stockholders and broker-dealers, if any, acting in connection
with these sales might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any commission they receive and any profit
upon the resale of the securities might be deemed to be underwriting discounts
and commissions under the Securities Act.
Sales of any shares of common stock by the selling stockholders may
depress the price of the common stock in any market that may develop for the
common stock.
The following table sets forth information known to us regarding ownership
of our common stock by each of the selling stockholders as of March 4, 1999 and
as adjusted to reflect the sale of shares offered by this prospectus. Other than
the following persons, none of the selling stockholders has had any position
with, held any office of, or had any other material relationship with us during
the past three years. Selling stockholders who have, or have had, material
relationships with us during the past three years include:
o Paul Phillips and Deborah Stevenson - both of whom were prior
directors of us;
o Shastri Divakaruni - our director;
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<PAGE>
o Security Capital Trading, Inc., our placement agent for our December
1998 private placement;
o Kenneth M. Cornell, our chief financial officer;
o Michael Freedman, an associate with our counsel, Silverman, Collura,
Chernis & Balzano, P.C.; and
o Dalia Silverman, the wife of Peter R. Silverman who is a partner
with Silverman, Collura, Chernis & Balzano.
We believe, based on information supplied by the following persons, that
the persons named in this table have sole voting and investment power with
respect to all shares of common stock which they beneficially own. The last
column in this table assumes the sale of all of our shares offered in this
prospectus.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to Offering Common Stock After Offering
Names of Selling ----------------- Offered By --------------
Stockholders Number Beneficial Owner Number Percent
- ------------ ------ ---------------- ------ -------
<S> <C> <C> <C> <C>
Robert A. Schattle 52,500 52,500 0 0
Brian C. Schattle 50,000 50,000 0 0
Donald J. Schattle 207,500 207,500 0 0
Vivian A. Tamburini 7,500 7,500 0 0
Arthur G. Schattle 10,000 10,000 0 0
and Sheila M. Schattle JT
Marilyn Henderson 375,000 375,000 0 0
Fred Stolle 200,000 200,000 0 0
Anthony Cattani 27,000 27,000 0 0
John K. Greim, Sr 64,000 64,000 0 0
Victor Calderone 32,400 32,400 0 0
Robert and Shirley Henebury 20,250 20,250 0 0
Paul Phillips 13,500 13,500 0 0
Equity Mortgage 13,500 13,500 0 0
Ernest Hoffer 13,500 13,500 0 0
John Greim, Jr 13,500 13,500 0 0
Joseph DiGianfilippo 13,500 13,500 0 0
Betty and Anthony Fiorillo 13,500 13,500 0 0
Shannon Love Eldridge 13,500 13,500 0 0
Peter Florio 20,250 20,250 0 0
Steven Marino 27,000 27,000 0 0
Mark and Deborah Stevenson 27,000 27,000 0 0
Vincent Cipriano 27,000 27,000 0 0
Karen S. Kelly 10,000 10,000 0 0
Deborah L. Peacock 100,000 100,000 0 0
Robert M. Kessler 50,000 50,000 0 0
Michael Lombardi 4,500 4,500 0 0
James and Cindy Dugan 4,500 4,500 0 0
Mitchell Cheek 4,500 4,500 0 0
David Forsley 4,500 4,500 0 0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to Offering Common Stock After Offering
Names of Selling ----------------- Offered By --------------
Stockholders Number Beneficial Owner Number Percent
- ------------ ------ ---------------- ------ -------
<S> <C> <C> <C> <C>
Thomas O'Donnell 2,500 2,500 0 0
Mail Processing Concepts 4,500 4,500 0 0
Raymond T. Mancini 50,000 50,000 0 0
Donald St. Angelo 25,000 25,000 0 0
Richard St. Angelo 25,000 25,000 0 0
Charles E. Casale 30,768 30,768 0 0
Deborah Lee 15,384 15,384 0 0
Eugene I. Meyers 23,076 23,076 0 0
Clyde D. Adams TTEE 15,384 15,384 0 0
Adams Revocable Trust
Wayne B. Peacock 15,384 15,384 0 0
Larry H. Pallini 15,384 15,384 0 0
Joseph D. DiMase TTEE 15,384 15,384 0 0
Money Purchase Pension Plan
Louis J. Petrillo and
Anna Marie Mariniello JT 7,692 7,692 0 0
Shirley Lynn Gasbarro Trust 15,384 15,384 0 0
Faustin M. Kabwe 15,384 15,384 0 0
Michel Van Lierde 15,384 15,384 0 0
Dr. Christoph Ludz 15,384 15,384 0 0
Robert Standaert 7,692 7,692 0 0
Paul J. Gardella and 30,768 30,768 0 0
Mark Edelsberg as Tenants
In Common
Shaji Ravindranathan and 7,692 7,692 0 0
Paul K. Chang as Tenants
In Common
Robert F. Tierney and
Corinne M. Tierney JT 15,384 15,384 0 0
Kleopatra Georgiades 15,384 15,384 0 0
Dalia Silverman 15,384 63,384(1) 0 0
Edward Miller and
Diane Miller JT 7,692 7,692 0 0
Stuart Cohen and
Paul Waltzer as Tenants in
Common 15,384 15,384 0 0
Robert Manheimer 15,384 15,384 0 0
Dr. Kenneth Barton 7,692 7,692 0 0
Girolamo Sorbara 15,384 15,384 0 0
Amar C. Amar 3,846 3,846 0 0
R. Shastri Divakaruni 3,846 3,846 0 0
LOA Investment LLC 7,692 7,692 0 0
Security Capital Trading, Inc. 36,921 36,921(2) 0 0
ICC Consulting, Inc. 250,000 250,000(3) 0 0
Scofield Dennison Corp. 250,000 250,000(3) 0 0
Northeastern Fibercom 250,000 250,000(3) 0 0
Horizon Fiber, Inc. 250,000 250,000(3) 0 0
Michael H. Freedman 2,000 2,000(4) 0 0
Kenneth M. Cornell 45,000 45,000(5) 0 0
</TABLE>
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<PAGE>
(1) Includes 48,000 shares of common stock underlying a warrant exercisable
during the five year period commencing December 31, 1998 at an exercise
price of $3.50 per share.
(2) Represents shares of common stock underlying warrants for the purchase of
36,921 shares of common stock exercisable during the four-year period
commencing December 1999 at an exercise price of $3.90 per share.
(3) Represents shares of common stock underlying warrants for the purchase of
250,000 shares of common stock during the five-year period commencing
January 15, 1999 at an exercise price of $1.00 per share.
(4) Represents shares of common stock underlying a warrant for the purchase of
2,000 shares of common stock exercisable during the five-year period
commencing December 31, 1998 at an exercise price of $3.50 per share.
(5) Represents shares of common stock underlying a warrant for the purchase of
45,000 shares of common stock during the four-year period commencing
December 31, 1998 at an exercise price of $3.25 per share.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market,
or the availability of shares for sale, could adversely affect the prevailing
market price of our common stock and our ability to raise capital through an
offering of equity securities. As of the date of this prospectus, we have
approximately 70 holders of our common stock.
Upon completion of this offering, we will have 6,610,716 shares of common
stock outstanding, assuming no exercise of outstanding warrants or the
underwriter's over-allotment option. After the offering, 3,896,116 of the
6,610,716 shares of common will be immediately tradeable without restriction
under the Securities Act, except for any shares purchased by an "affiliate" of
ours, as that term is defined in the Securities Act. Affiliates will be subject
to the resale limitations of Rule 144 under the Securities Act. In addition, an
aggregate of 1,131,921 shares, issuable upon the exercise of outstanding
warrants will be immediately tradeable without restriction upon the completion
of this offering, subject to the lock-up agreements described below.
We issued the remaining 2,714,600 shares of common stock in private
transactions in reliance upon one or more exemptions contained in the Securities
Act. These shares will be deemed "restricted securities" as defined in Rule 144.
All of these restricted securities have been held for more than one year as of
the date of this prospectus. Therefore, all of these shares will be eligible for
public sale beginning 90 days after the date of this prospectus in accordance
with the requirements of Rule 144, subject to the lock-up agreements described
below.
In general, under Rule 144, a stockholder, or stockholder whose shares are
aggregated, who has beneficially owned "restricted securities" for at least one
year will be entitled to sell an amount of shares within any three month period
equal to the greater of:
o 1% of the then outstanding shares of common stock, or
o the average weekly trading volume in the common stock during the
four calendar weeks immediately preceding the date on which notice
of the sale is filed with the commission, provided certain
requirements are satisfied.
In addition, our affiliates must comply with additional requirements of
Rule 144 in order to sell shares of common stock, including shares acquired by
affiliates in this offering. Under Rule 144, a stockholder who had not been our
affiliate at any time during the 90 days preceding a sale by him, would be
entitled to sell those shares without regard to the Rule 144 requirements if he
owned the restricted shares of common stock for a period of at least two years.
All of our stockholders and our warrant holders have entered into lock-up
agreements whereby they agreed to not directly or indirectly, offer, sell,
pledge, grant any option to purchase, or otherwise sell or dispose of any of our
shares for a period of twelve months after the offering without the prior
written consent of Dirks & Company.
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UNDERWRITING
The underwriters named below, for whom Dirks & Company, Inc. is acting as
representative, have severally agreed, subject to the terms and conditions
contained in the underwriting agreement, to purchase from us, and we have agreed
to sell to the underwriters on a firm commitment basis, the respective number of
shares of common stock set forth opposite their names:
Number of
Underwriters Shares
- ------------ ------
Dirks & Company, Inc......................................
Total............................................ 2,000,000
The underwriters are committed to purchase all the securities offered by
this prospectus, if any of the securities are purchased. The underwriting
agreement provides that the obligations of the several underwriters are subject
to the conditions specified in the underwriting agreement.
The representative is not underwriting the selling stockholders' shares in
connection with this offering. The selling stockholders may sell their shares
from time to time in transactions, which may include block transactions by or
for the account of the selling stockholders, in the over-the-counter market or
in negotiated transactions or through the writing of options on the selling
stockholders shares, a combination of these methods of sale, or otherwise. Sales
may be made at fixed prices which may be changed at market prices prevailing at
the time of sale, or at negotiated prices.
The representative has advised us that it initially proposes to offer the
common stock to the public at the public offering price set forth on the cover
page of this prospectus, and to certain dealers concessions not in excess of
$______ per share of common stock. The dealers may reallow a concession not in
excess of $______ per share of common stock to certain other dealers. After
completion of the offering, the public offering price, concessions and
reallowances may be changed by the representative. The representative has
informed us that it does not expect sales to discretionary accounts by the
representative to exceed five percent of the shares of common stock offered by
us in this prospectus.
We have granted to the underwriters an over-allotment option, exercisable
during the 45-day period from the date of this prospectus, to purchase from us
up to an additional 300,000 shares of common stock at the initial public
offering prices, less underwriting discounts and the non-accountable expense
allowance. This option may be exercised only for the purpose of covering
over-allotments, if any, incurred in the sale of the shares of common
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stock. To the extent this option is exercised in whole or in part, each
underwriter will have a firm commitment, subject to certain conditions, to
purchase the number of the additional shares of common stock proportionate to
its initial commitment.
We have agreed to pay to the representative a non-accountable expense
allowance equal to three percent of the gross proceeds derived from the sale of
the shares of common stock underwritten, of which $50,000 has been paid to date.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act. The commission has advised us
that this indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Our directors and executive officers, all other holders of shares of
common stock, and all holders of warrants to acquire shares of common stock,
have agreed not to, directly or indirectly, offer, sell or otherwise dispose of
any shares of common stock for a period of twelve months following the date of
this prospectus, without the prior written consent of the representative. An
appropriate legend shall be placed on the certificates representing the
securities. The representative has no general policy with respect to the release
of shares prior to the expiration of the lock-up period and has no present
intention to waive or modify any of these restrictions on the sale of our
securities.
In connection with this offering, we have agreed to sell to the
representative, and/or its designees, for nominal consideration,
representative's warrants to purchase up to 200,000 shares of our common stock.
The representative's warrants are initially exercisable at any time during a
period of four years beginning one year from the date of the prospectus at a
price of 120% of the initial public offering price per share of common stock.
The representative's warrants provide for adjustment in the number of securities
issuable upon the exercise thereof as a result of certain subdivisions and
combinations of the common stock. The representative's warrants grant to the
holders certain rights of registration for the securities issuable upon exercise
thereof. In addition, the representative's warrants may not be sold,
transferred, assigned, hypothecated or otherwise disposed of, in whole or in
part, for a period of one year from the date of the prospectus, except to
officers of the representative.
We have has also granted to the representative, the right, for a period of
five years from the closing of the offering, to nominate a designee of the
representatives for election to our board of directors. Our officers, directors
and principal shareholders have agreed to vote their shares in favor of this
designee.
In connection with this offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the securities. The
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which the persons may bid for or purchase
our common stock for the purpose of stabilizing their respective market prices.
The underwriters also may create a short position for the account of the
underwriters by selling more shares of common stock in connection with the
offering than they are committed to
59
<PAGE>
purchase from us. In that case they may purchase shares of common stock in the
open market following completion of the offering to cover all or a portion of
the short position. The underwriters may also cover all or a portion of the
short position, up to 300,000 shares of common stock, by exercising the
over-allotment option referred to above.
In addition, the representative may impose "penalty bids" under
contractual arrangements with the underwriters whereby it may reclaim from an
underwriter, or dealer participating in the offering, for the account of other
underwriters, the selling concession with respect to the shares of common stock
that are distributed in the offering but was subsequently purchased for the
account of the underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the prices of the shares of common stock at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if they are undertaken, they may
be discontinued at any time.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price of the common stock has
been determined by negotiation between the us and our representative and does
not necessarily bear any relationship to our asset value, net worth or other
established criteria of value. The factors considered in these negotiations, in
addition to prevailing market conditions, included the history of and prospects
for the industry in which we compete, an assessment of our management, our
prospects, our capital structure and other factors as were deemed relevant.
Dirks & Company commenced operations in July 1997. Dirks & Company has
co-managed only three public offerings of securities. Accordingly, the
representative has only limited experience as an underwriter of the public
offering of securities.
We undertake to disclose in this prospectus, by filing "sticker"
supplements to this prospectus, if the underwriter, enters into any transactions
with any of the selling stockholders, or waives the lock-ups applicable to the
selling stockholders, if those transactions include from 5% to 10% of the
registered selling stockholders' securities. We will file a post-effective
amendment to this registration statement if these transactions involve over 10%
of the registered selling stockholders' securities.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each agreement that is filed as an exhibit to the registration statement of
which this prospectus is a part.
LEGAL MATTERS
The validity of the common stock being offered in this prospectus will be
passed upon for us by Silverman, Collura, Chernis & Balzano, P.C. Orrick,
Herrington & Sutcliffe LLP is acting as counsel for the representatives in
connection with this offering. We have granted warrants for the purchase of an
aggregate of 50,000 shares of our common stock to certain designees of our
counsel. These warrants are exercisable during the five year period commencing
December 31, 1998 at an exercise price of $3.50 per share.
60
<PAGE>
EXPERTS
Tauber & Balser, P.C., independent certified accountants, have audited our
financial statements included in this registration statement for the years ended
December 31, 1998 and 1997. Its report appears elsewhere in this prospectus. The
financial statements have been included in reliance upon that report and upon
the authority of the firm as experts in accounting and auditing.
61
<PAGE>
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
prospectus is current only as of the date of this prospectus.
Log On America, Inc.
2,000,000 Shares of Common Stock
DIRKS & COMPANY, INC.
, 1999
Until _____________, 1999 (25 days after the date of this prospectus) all
dealers that buy, sell or trade these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
<PAGE>
LOG ON AMERICA, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998 and 1997
<PAGE>
LOG ON AMERICA, INC.
TABLE OF CONTENTS
Pages
-----
INDEPENDENT AUDITORS' REPORT 1
BALANCE SHEET 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) 4
STATEMENTS OF CASH FLOWS 5-6
NOTES TO FINANCIAL STATEMENTS 7-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Log On America, Inc.
Providence, Rhode Island
We have audited the accompanying balance sheet of Log On America, Inc. as of
December 31, 1998 and the related statements of operations, stockholders' equity
(deficiency) and cash flows for the years ended December 31, 1998 and 1997.
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 audit 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Log On America, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
years ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
/s/ Tauber & Balser, P.C.
Atlanta, Georgia
February 12, 1999
<PAGE>
LOG ON AMERICA, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 630,131
Accounts receivable, net of allowance for doubtful
accounts of $16,239 93,160
Other current assets 5,566
----------
TOTAL CURRENT ASSETS 728,857
----------
PROPERTY & EQUIPMENT, net of accumulated depreciation
of $163,867 71,845
OTHER ASSETS
Goodwill, net of accumulated amortization of $69,67 237,060
Notes receivable - officer 98,533
Deposits 705
----------
336,298
----------
TOTAL ASSETS $1,137,000
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 16,541
Accounts payable 428,575
Accrued expenses 35,496
----------
TOTAL CURRENT LIABILITIES 480,612
----------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value; authorized 20,000,000 shares,
4,610,716 issued and outstanding 21,763
Additional paid-in capital 1,056,688
Accumulated deficit (422,063)
----------
TOTAL STOCKHOLDERS' EQUITY 656,388
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,137,000
==========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
LOG ON AMERICA, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
------------ ------------
REVENUES
Dial up $ 238,154 $ 123,680
Dedicated access service 437,083 172,734
Web services 67,601 41,895
Other 17,040 13,251
----------- -----------
Total Revenues 759,878 351,560
----------- -----------
OPERATING EXPENSES
Communication and internet services 403,508 138,524
General and administrative 776,389 491,060
----------- -----------
Total Operating Expenses 1,179,897 629,584
----------- -----------
OPERATING LOSS (420,019) (278,024)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (2,165) (1,977)
Interest income 121 --
----------- -----------
(2,044) (1,977)
----------- -----------
NET LOSS $ (422,063) $ (280,001)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES USED IN
COMPUTING BASIC AND DILUTED LOSS PER SHARE 3,853,265 2,434,600
----------- -----------
BASIC AND DILUTED LOSS PER COMMON SHARE $ (.11) $ (.12)
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
LOG ON AMERICA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
THE YEARS ENDED DECEMBER 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Issued Additional Total
------------------- Paid-In Accumulated Stockholders'
Shares Par Value Capital Deficit Equity (Deficiency)
------ --------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 102 $ 154,200 $ -- $(335,198) $ (180,998)
Acquisition of assets and assumptions of
liabilities by Global Telemedia, Inc. (102) (154,200) -- 335,198 180,998
Capital infusion by parent company 100 179,260 -- -- 179,260
Net loss -- -- -- (280,001) (280,001)
---------- --------- ---------- --------- -----------
BALANCE DECEMBER 31, 1997 100 179,260 -- (280,001) (100,741)
Acquisition of assets and assumption of
liabilities by WAN Secure, Inc. (100) (179,260) -- 280,001 100,741
Issuance of common stock to President 2,434,600 -- -- -- --
Issuance of common stocks for services 62,750 628 3,764 -- 4,392
Issuance of common stock for notes 1,150,000 11,500 24,610 -- 36,110
Issuance of common stock, net of issuing costs 644,216 6,443 1,021,484 -- 1,027,927
Issuance of common stock for settlement of
prior obligations 319,150 3,192 6,830 -- 10,022
Net loss -- -- -- (422,063) (422,063)
---------- --------- ---------- --------- -----------
BALANCE DECEMBER 31, 1998 4,610,716 $ 21,763 $1,056,688 $(422,063) $ 656,388
========== ========= ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LOG ON AMERICA, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
------------ --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (422,063) $(280,001)
----------- ---------
Adjustments:
Stock issued for services 4,392 --
Stock issued for settlements of prior
obligations 10,022 --
Notes receivable forgiven related to stock
issuance 36,110 --
Notes receivable officer forgiven 31,378 --
Deprecation and amortization 79,522 71,296
Bad debt provision 3,516 903
Changes in:
Accounts receivable (37,074) (46,808)
Prepaid advertising -- 20,000
Other current assets (3,618) (1,948)
Accounts payable 112,951 105,820
Accrued expenses (65,138) 13,568
Deferred revenue (21,073) 38,262
----------- ---------
Total Adjustments 150,988 201,093
----------- ---------
NET CASH USED IN OPERATING ACTIVITIES (271,075) (78,908)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (40,821) (12,257)
Payments on note receivable officer (51,378) (78,533)
----------- ---------
NET CASH USED BY INVESTING ACTIVITIES (92,199) (90,970)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of capital infusion by parent company -- 179,260
Issuance costs (447,073) --
Proceeds from sale of common stock 1,475,000 --
Payments on note payable (31,255) (6,362)
Payments on notes payable - related party (3,267) (3,200)
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 993,405 169,698
----------- ---------
NET INCREASE IN CASH 630,131 --
CASH BEGINNING OF YEAR -- --
----------- ---------
CASH END OF YEAR $ 630,131 $ --
=========== =========
(continued)
5
<PAGE>
LOG ON AMERICA, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
(Continued)
1998 1997
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH INFORMATION:
Cash paid for interest $ 1,496 $ 3,148
======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Details of acquisition
Fair value of assets acquired $362,665 $134,311
======== ========
Goodwill established $125,739 $180,998
======== ========
Liabilities assumed $488,404 $315,309
======== ========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED DECEMBER 31, 1998 and 1997
1. Summary of Significant Accounting Policies
Nature of Business and Operating History
Log On America, Inc. was incorporated in Rhode Island ("LOARI") in 1992 for the
purposes of providing online and Internet related services. In 1997, LOARI sold
100% of its assets to Global Telemedia International, Inc. ("GTMI"), a Delaware
corporation, and agreed to change its name to Tekcom, Inc. Tekcom remained a
Rhode Island corporation with no operations. At the time of acquisition, GTMI
was engaged in the marketing of telecommunication services. In consideration for
the sale, GTMI agreed to (i) assume all outstanding liabilities of LOARI; and
(ii) pay LOARI shareholders 20% of the value of all LOARI business on the third
anniversary of the purchase ("Contingent Sum"). Subsequently, GTMI formed System
4, Inc., a wholly owned Delaware subsidiary, in which to transfer the LOARI
assets and liabilities. System 4, Inc. was incorporated for the purpose of
providing online internet and related services. In July 1997, System 4, Inc.
changed its name to Log On America, Inc. ("LOA").
Wan Secure, Inc. ("WS") was organized in Delaware in January 1998 by the former
president of LOARI to purchase 100% of the outstanding capital stock of LOA from
GTMI. Pursuant to such acquisition, LOA became a wholly owned subsidiary of WS.
In September 1998, WS effected a merger with and into LOA whereby WS was the
survivor. Simultaneously with the merger, WS changed its name to Log On America,
Inc, and it continues to provide online and internet related services. The
results of operations for the entire year of WS are included in the 1998
financial statements as the acquisition occurred at the beginning of the year.
Fair Value of Financial Instruments
All financial instruments reported as current assets and liabilities are carried
at cost, which approximates fair value because of the short maturity of those
instruments.
Credit Risk
The Company's accounts receivable potentially subject the Company to credit
risks as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services, the use of
pre-approved charges to customer credit cards, and the ability to terminate
access on delinquent accounts.
Property and Equipment
Property and equipment are recorded at cost, and depreciated using an
accelerated method over the estimated useful lives of the assets, commencing
when the assets are installed or placed in service.
7
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED DECEMBER 31, 1998 and 1997
1. Summary of Significant Accounting Policies, continued
Goodwill
Goodwill is the excess of the fair value of liabilities assumed over the fair
value of identifiable net assets acquired in business combinations accounted for
as purchases. Goodwill is amortized on a straight-line basis over 7 years.
Amortization expense for the years ended December 31, 1998 and 1997 was $43,819
and $25,857, respectively.
Revenue Recognition
The Company recognizes revenue when services are provided. Services are
generally billed one month in advance. Advance billings and collections relating
to future access services are recorded as deferred revenue and recognized when
revenue is earned.
Advertising Expense
Advertising expense includes the cost of sales brochures, print advertising in
trade publications and trade shows. The cost of advertising is expensed as
incurred. Advertising expense for the years ended December 31, 1998 and 1997 was
$36,515 and $64,820, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from these estimates.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
(SFAS No. 128), Earnings Per Share, which established new standards for
computing and presenting earnings per share. SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earning per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of stock options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.
All loss per share amounts have been presented to conform to the SFAS No. 128
presentation. Stock options and warrants have not been included in the
computation of diluted loss per share as the computation would not be dilutive.
For additional disclosure regarding stock options and warrants see Note 8.
8
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED DECEMBER 31, 1998 and 1997
2. Notes Receivable - Officers
Notes receivable - officers consisted of unsecured amounts loaned to officers of
the Company in the amount of $98,533 at December 31, 1998. In May 1998, David R.
Paolo, the Company's President and CEO, and Raymond Paolo, an officer and
director, executed promissory notes to the Company in the amounts of $77,617 and
$47,859, respectively ("Paolo Notes"). Pursuant to the terms of the Paolo Notes,
the Company agrees to forgive 25% of the principal amount for each note per year
if the officers remain employed by the Company. If employment is terminated, the
notes become immediately due and payable. In 1998, $31,378 was released and
reported as salaries to the Paolos.
3. Property and Equipment
Property and equipment at December 31, 1998 consist of the following:
Computer, telecommunications and office equipment $223,758
Leasehold improvements 11,954
--------
235,712
Less accumulated depreciation 163,867
--------
$ 71,845
========
Depreciation expense for the years ended December 31, 1998 and 1997 was $35,703
and $45,439, respectively.
4. Accrued Expenses
Accrued expenses at December 31, 1998 consist of the following:
Accrued expenses $18,307
Deferred revenue 17,189
--------
$ 35,496
========
9
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED DECEMBER 31, 1998 and 1997
5. Notes Payable
Notes payable at December 31, 1998 consist of the following:
Note payable to Small Business Loan Fund
Corporation at 6.98%, due October 1999,
interest and principal payable monthly
in the amount of $594, with balance due
at maturity $16,541
=======
6. Income Taxes
Deferred income taxes and the related valuation allowances result from the
potential tax benefits of tax carryforwards. The Company has recorded a
valuation allowance to reflect the uncertainty of the ultimate utilization of
the deferred tax asset as follows:
Deferred tax asset $180,220
Less valuation allowance 180,220
--------
Net deferred tax assets $ --
========
Net operating loss carryforwards of approximately $422,000 arising in 1998
expire in 2018.
7. Lease Commitments
The Company leases office space and equipment under operating leases expiring in
1999. Rental expense was $74,553 and $50,700 for the years ended December 31,
1998 and 1997, respectively. The minimum rental payments due in 1999 are
$23,961.
The Company leases office space in Massachusetts of less than 500 square feet
under a verbal arrangement with a customer. In consideration of the use of its
customer's office, the Company provides discounted services to the customer. The
office is used to service clients located in Massachusetts.
10
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED DECEMBER 31, 1998 and 1997
8. Stock Options and Warrants
The Company applies the intrinsic-value-based method in accounting for stock
options for employees as prescribed by Accounting Principals Board No. 25,
"Accounting for Stock Issued to Employees." It also applies the fair value
method for stock options issued to consultants. Accordingly, compensation
expense is recognized for employees only when options are granted with a
discounted exercise price. For 1998, the exercise price for all of the Company's
stock options issued equaled or exceeded the market price of the underlying
stock on the grant date. In addition, for options issued to consulants, other
consideration was paid or received by the recipient for each of the instances
when options were granted. Accordingly, the Company has determined that the fair
value of the options granted was nominal and no compensation expense was
recognized.
The following table summarizes option activity during 1998:
Weighted-Average
Shares Exercise Price
------ --------------
Outstanding at beginning of the year -- $ --
Granted 1,131,922 1.32
--------- ---------
Outstanding at end of the year 1,131,922 $ 1.32
========= ========
The following table summarizes information about the options outstanding at
December 31, 1998:
Range of exercise price $1.00-$3.90
Weighted-average remaining contract life 5 years
Weighted-average exercise price $1.32
All options outstanding at December 31, 1998 are exercisable.
On January 4, 1999, the Board of Directors authorized the granting of options
for up to an additional 1,000,000 shares of Common Stock to officers, directors,
and employees and certain consultants at a strike price at 85% to 90% of market
value.
11
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED DECEMBER 31, 1998 and 1997
9. Common Stock Transactions
During the first quarter of 1998, the Company issued 795,130 shares of common
stock in settlement of an agreement with the shareholders of a predecessor
company, LOARI, which changed its name to Tekcom. Charges to expense related to
the transaction were $10,022, which was calculated based on the value of the
stock at the date the obligation was settled.
In January, 1998 the board of directors of Wan Secure, Inc. approved a change in
authorized common stock from 1,000 shares at no par value to 5,000,000 shares,
subsequently increased to 20,000,000 shares, at $.01 par value. Simultaneously,
the President of the Company and then sole shareholder exchanged his 1,000
shares for 1,958,620 shares of the newly authorized $.01 par value stock. In
addition, the President received 475,980 shares of stock issued as a result of
the settlement with the Tekcom Contingent Sum holders.
10. Employment Agreements
The Company has employment agreements through 2003 with David R. Paolo,
President and CEO and Raymond Paolo, an officer and director. The agreements
call for an annual increase of base compensation of 10%, and include provisions
for performance based bonuses. The Company's commitment for base compensation
under the agreements was $1,302,833 at December 31, 1998.
11. Acquisitions
In January 1998, the Company acquired from GTMI, all of the assets and
liabilities of LOA. The transaction was recorded using the purchase method of
accounting. In accordance with the provisions of APB No. 16, all identifiable
assets acquired, including identifiable intangible assets, were assigned a
portion of the purchase price on the basis of their fair values. In connection
with the acquisition, the Company issued a note payable to GTMI in the amount of
$100,000, which was personally guaranteed by David Paolo, President and CEO. In
July 1998, GTMI accepted $25,000 for full satisfaction of the note. Based on the
settlement amount of the note, the Company has recorded $25,000 as consideration
paid for the purchase. The purchase price was allocated as follows:
Assets purchased $ 362,665
Liabilities assumed $ (488,404)
Goodwill $ 125,739
During 1997, the Company acquired all of the assets and liabilities of Log On
America, Inc. (a Rhode Island corporation.) The transaction was recorded using
the purchase method of accounting. In accordance with the provisions of APB No.
16, all identifiable assets acquired, including identifiable intangible assets,
were assigned a portion of the purchase price on the basis of their fair values.
No consideration was paid. The details of the purchase are as follows:
Assets purchased $ 134,311
Liabilities assumed $ (315,309)
Goodwill $ 180,998
12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee $ 15,479
Nasdaq National Market System Listing Fee $ 35,000
NASD Filing Fee $ 4,676
Printing and Engraving Expenses $ 75,000*
Legal Fees and Expenses $125,000*
Accounting Fees and Expenses $ 50,000*
Transfer Agent's Fees and Expenses $ 10,000*
Blue Sky Fees and Expenses $ 35,000*
Miscellaneous Expenses $ 10,000*
--------
TOTAL $360,155*
*Estimated
The Selling Stockholders will not pay any portion of the foregoing
expenses of issuance and distribution.
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
LOA's Certificate of Incorporation, as amended and Amended Bylaws limit
the liability of directors and officers 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, including gross negligence, except liability for (i) breach of the
directors' duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption, and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not permit a corporation to eliminate a director's
duty of care, and this provision of LOA's Certificate of Incorporation has no
effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
LOA is planning to enter into indemnification agreements with each of its
current and future directors and officers which provide for indemnification of,
and advancing of expenses to, such persons to the greatest extent permitted by
Delaware law, including by reason of action or inaction occurring in the past
and circumstances in which indemnification and the advancing of expenses are
discretionary under Delaware law.
II-1
<PAGE>
LOA's Certificate of Incorporation authorizes LOA to purchase and maintain
insurance for the purposes of indemnification. LOA intends to apply for
directors' and officers' insurance, although there can be no assurance that LOA
will be able to obtain such insurance on reasonable terms, or at all.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of LOA
pursuant to the foregoing provisions, or otherwise, LOA has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Corporation Takeover Provisions
Section 203 of the Delaware General Corporation Law
LOA is subject to the provisions of Section 203 of the Delaware General
Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (LOA did not make such an election) (ii) the business combination
was approved by the Board of Directors of the corporation before the other party
to the business combination became an interested stockholder (iii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to render or vote stock held by
the plan) or, (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during t he previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change in control of LOA and
therefore could discourage attempts to acquire LOA.
II-2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
December 1998 Private Placement (December Placement)
In December 1998 LOA closed a private placement of 24 units ("Units"),
each unit consisting of 15,384 shares of Common Stock, at a price of $50,000 per
Unit. LOA sold 369,216 shares of its Common Stock to "accredited investors," as
that term is defined in the Securities Act, and raised gross proceeds of
$1,200,000. The placement agent for the December Placement was Security Capital
Trading, Inc., which received a commission of 10% of the $1,200,000 raised and a
non-accountable expense allowance of 3% per Unit sold. Security Capital Trading,
Inc. was granted warrants to purchase (a) 13,076 shares of Common Stock reserved
for issuance upon the exercise of outstanding warrants granted on December 3,
1998, exercisable during the four year period commencing December 1999 and
expiring December 2003 at $3.90 per share; and (b) 23,845 shares of Common Stock
reserved for issuance upon the exercise of outstanding warrants, granted on
December 23, 1998, exercisable during the four year period commencing December,
1999 and expiring December 2003 at $3.90 per share. The December Placement was
exempt from state and federal registration pursuant to Rule 506 of Regulation D,
and Section 4(2) of the Securities Act.
July 1998 Private Placement
In July 1998 LOA closed a private placement of shares of Common Stock at a
price of $1.00 per share. LOA sold 275,000 shares of Common Stock to accredited
investors and received gross proceeds of $275,000. The private placement was
offered by LOA's officers and directors, none of whom received commissions for
the sales. The private placement was exempt from state and federal registration
pursuant to Rule 506 of Regulation D, and Section 4(2) of the Securities Act.
Warrants
In August 1998, LOA granted warrants for the purchase of 1,000,000 shares
of Common Stock at an exercise price of $1.00 per share to four entities, ICC
Consulting, Inc., Scofield Dennison Corp., Northeastern Fibercom and Horizon
Fiber, Inc. in consideration of certain business promotion and sales. The
warrants provide for piggyback registration rights and are exercisable during
the four year period commencing January 15, 1999.
In December 1998, LOA granted warrants for the purchase of 50,000 shares
of Common Stock to Silverman, Collura, Chernis & Balzano, P.C., LOA's legal
counsel, for services rendered. The warrants provide for cashless exercise and
piggy-back registration rights. The warrants are exercisable during the five
year period commencing December 31, 1998 at an exercise price of $3.50 per
share.
In December 1998, LOA granted warrants for the purchase of 45,000 shares
of Common Stock to Kenneth M. Cornell, LOA's interim CFO, for services rendered.
The warrants provide for piggy-back registration rights and are exercisable
during the four year
II-3
<PAGE>
period commencing December 31, 1998 at an exercise price of $3.25 per share.
In November and December 1998, LOA granted warrants to Security Trading
Capital,Inc. for the purchase of 36,921 shares of Common Stock at an exercise
price of $3.90 per share in connection with the December Placement.
All of the above warrants were issued pursuant to an exemption under
Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS
Exhibit No. Description
----------- -----------
1.1* Form of Underwriting Agreement
1.2* Form of Underwriter's Warrant Agreement
3.1* Certificate of Incorporation of Registrant, as amended
3.2** By-laws of Registrant, as amended
4.1** Specimen certificate representing Registrant's Common
Stock
5.1** Opinion of Silverman, Collura, Chernis & Balzano, P.C.
with respect to legality of the securities of the
Registrant being registered
10.1* David R. Paolo Employment Agreement
10.2* Raymond Paolo Employment Agreement
10.3 Form of Lock-up Agreement
10.4 Lease Agreement for premises located at 3 Regency Plaza,
Providence, Rhode Island.
23.1** Consent of Silverman, Collura, Chernis & Balzano, P.C.
(included in Exhibit 5.1)
23.2 Consent of Tauber & Balser, P.C.
24.1* Power of Attorney (set forth on signature page of the
Registration Statement)
27.1 Financial Data Schedule
II-4
<PAGE>
* previously filed.
** to be filed by amendment
b. Financial Statement Schedules.
None
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offerings.
The undersigned issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement; and
(iii) Includes any additional or changed material information
on the plan of distribution.
provided, however, the paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
in a post-effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Request for acceleration of effective date.
(1) Insofar as indemnification for liabilities arising under the
Securities Act, may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
II-5
<PAGE>
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the issuer of expenses incurred or paid by a director, officer or controlling
person of the issuer in the successful defense of any action, suit or
proceedings) is asserted by such director, officer or controlling person in
connection with the securities being registered, the issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such court.
(2) For determining liability under the Securities Act, treat the
information in the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in the form of prospectus
file by the small business issuer under rule 424(b)(1), or (4) or 457(h) under
the Securities Act as part of this registration statement as at the time the
Commission declares it effective.
(3) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing this Amendment No. 2 to Form SB-2 and authorized
this registration statement to be signed on its behalf by the undersigned, in
the City of Providence, State of Rhode Island, on March 9, 1999.
LOG ON AMERICA, INC.
By:/s/ David R. Paolo
------------------------------------
David R. Paolo, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
respective capacities with LOA and on the dates indicated.
Signature Title Date
--------- ----- ----
Principal Executive Officer
/s/ David R. Paolo and Chairman of the Board March 9, 1999
- ----------------------------
David R. Paolo
* Principal Financial Officer and March 9, 1999
- ---------------------------- Principal Accounting Officer
Kenneth M. Cornell
* Vice President of Administration,
- ---------------------------- Secretary, Treasurer and Director March 9, 1999
Raymond E. Paolo
- ---------------------------- Director March , 1999
Donald J. Schattle III
/s/ Shastri Divakaruni Director March 9, 1999
- ----------------------------
Shastri Divakaruni
/s/ David M. Robert Director March 9, 1999
- --------------------------
David M. Robert
* David Paolo as attorney-in-fact
II-7
Exhibit 10.3
Dirks & Company, Inc.
520 Madison Avenue, 10th Floor
New York, New York 10022
Ladies and Gentlemen:
In order to induce Dirks & Company, Inc. (the "Representative") and Log On
America, Inc. (together with its predecessors, successors and assigns, the
"Company") to enter into an underwriting agreement with respect to the public
offering of securities issued by the Company, the undersigned hereby agrees that
for a period of twelve (12) months following the effective date of the Company's
Registration Statement relating to the underwritten public offering of
securities by the Company (the "Lock-up Period"), he, she or it will not,
without the prior written consent of the Representative and the Company,
directly or indirectly, issue, offer, agree or offer to sell, sell, grant an
option for the purchase or sale of, transfer, pledge, assign, hypothecate,
distribute or otherwise encumber or dispose of (whether pursuant to Rule 144 of
the General Rules and Regulations under the Securities Act of 1933, as amended,
or otherwise) any securities of the Company, including common stock or options,
rights, warrants or other securities underlying, convertible into, exchangeable
or exercisable for or evidencing any right to purchase or subscribe for any
common stock (whether or not beneficially owned by the undersigned), or any
beneficial interest therein (collectively, the "Securities").
In addition, the undersigned hereby waives, from the date hereof until the
expiration of the Lock-up Period, any and all rights to request or demand the
registration pursuant to the Securities Act of 1933, as amended, of any
Securities of the Company which are registered in the name of or beneficially
owned by the undersigned.
In order to enable the aforesaid convenants to be enforced, the
undersigned hereby consents to the placing of legends and/or stop-transfer
orders with the transfer agent of the Company's securities with respect to any
of the Securities registered in the name of the undersigned or beneficially
owned by the undersigned.
Dated: ___________________, 1999
____________________________
Signature
____________________________
Print Name
____________________________
Print Address
____________________________
Print Social Security Number
or Taxpayer I.D. Number
Exhibit 10.4
STANDARD FORM COMMERCIAL LEASE
1. PARTIES Regency Plaza Associates, Providence, Rhode Island
02903, LESSOR, which expression shall include its
successors and assigns where the context so admits, does
hereby lease to LOG ON AMERICA, LESSEE, which expression
shall include their successors, executors,
administrators, and assigns where the context so admits.
The LESSEE hereby leases the following described
premises.
2. PREMISES That certain Suite #5 located on the lobby level of
Three Regency Plaza, Providence, Rhode Island,
consisting of approximately 1,218 square feet and Suite
#12 located on the lower lobby of Three Regency Plaza,
Providence, Rhode Island, consisting of approximately
733 square feet, (the "Premises"). Plans showing Suite 5
and Suite 12 are attached hereto as Exhibit I and
Exhibit II.
Together with the right to use in common, with others
entitled thereto, the hallways and stairways, necessary
for access to said Leased Premises, and lavatories
nearest thereto. Such rights shall always be subject to
reasonable rules and regulations, from time to time
established by LESSOR and to the right of LESSOR to
designate and change from time to time areas and
facilities so to be used.
3. TERM The term of this Lease shall be for three (3) years
commencing on June 1, 1996. This Lease shall terminate
on May 31, 1999. At the commencement of this Lease, the
Lease previously entered into between the LESSEE and the
LESSOR dated July 26, 1994, will be terminated.
4. RENT The LESSEE shall pay to the LESSOR rent at the rate of
Twenty One Thousand Six Hundred Dollars ($21,600.00) per
year, payable in advance monthly installments of
Eighteen Hundred Dollars ($1,800.00), for each of the
first twelve (12) months of the Lease Term; Twenty Two
Thousand Eight Hundred Dollars ($22,800.00) per year,
payable in advance monthly installments of One Thousand
Nine
<PAGE>
- -2-
Hundred ($1,900.00) Dollars, for each of the second
twelve (12) months of the Lease Term; and Twenty Five
Thousand Two Hundred ($25,200.00) per year, payable in
advance monthly installments of Two Thousand One Hundred
($2,100.00) Dollars, for each of the last twelve (12)
months of the Lease Term.
5. LATE FEE Any payment which becomes due under this Lease and which
is not paid when due, shall be assessed a Late Fee. Such
late fee shall be the greater of twenty-five dollars
($25.00) or the amount of interest from the applicable
due date until received by the LESSOR at the lesser of
(i) four percent (4%) per annum above the prime rate
announced from time to time by Citizens Bank; or (ii)
the highest lawful rate of interest permitted at the
time in the State of Rhode Island. In addition, the
LESSEE will be liable for any expenses (legal or
otherwise) incurred by the LESSOR.
6. SECURITY DEPOSIT Upon execution of this Lease, the LESSEE shall pay to
the LESSOR the amount of One Thousand Eight Hundred
Dollars ($1,800.00), which shall be held as security for
the LESSEE's performance as herein provided. The
security deposit shall be refunded to the LESSEE at the
end of this LEASE subject to the LESSEE satisfactory
compliance with the conditions hereof.
7. UTILITIES LESSOR agrees to furnish reasonable heat, air
conditioning and power to the Premises and heat to the
hallways, stairways and lavatories and to light
passageways and stairways all subject to interruption
due to any accident, to the making of repairs,
alterations or improvements, to labor difficulties, to
trouble in obtaining fuel, electricity service or
supplies from the sources from which they are usually
obtained for said building, or to any cause beyond the
LESSOR's control.
8. USE OF PREMISES The LESSEE shall only use the Premises for the purpose
of general office use.
<PAGE>
- -3-
9. COMPLIANCE The LESSEE acknowledges that no trade or occupations
WITH LAWS shall be conducted in the Premises or use made thereof
which will be unlawful, improper, noisy or offensive or
contrary to any law or any municipal by-law or ordinance
in force in the city or town in which the premises are
situated.
10. FIRE INSURANCE The LESSEE shall not permit any use of the Premises
which will make voidable any insurance on the property
of which the Premises are a part, or on the contents of
said property or which shall be contrary to any law or
regulation from time to time established by the New
England Fire Insurance Rating Association, or any
similar body succeeding to its powers. The LESSEE shall
on demand reimburse the LESSOR, and all other tenants,
all extra insurance premiums caused by the LESSEE's use
of the premises.
11. MAINTENANCE The LESSEE agrees to maintain the Premises in the same
OF PREMISES condition as they are in all the commencement of the
term or as they may be put in during the term of this
Lease, reasonable wear and tear, damage by fire and
other casualty only excepted.
12. ALTERATIONS- The LESSEE shall not make structural alterations or any
ADDITIONS other additions to the Premises, but may make
non-structural alterations provided the LESSOR consents
thereto in writing, which consent shall not be
unreasonably withheld or delayed. All such allowed
alterations shall be at LESSEE's expense and shall be in
quality at least equal to the present construction.
LESSEE shall not permit any mechanics' liens, or similar
liens, to remain upon the Premises for labor and
material furnished to LESSEE in connection with work of
any character performed at the direction of LESSEE and
shall cause any such lien to be released of record
forthwith without cost to LESSOR. Any additions or
improvements made by LESSEE shall become the property of
the LESSOR at the termination of occupancy as provided
herein.
<PAGE>
- -4-
13. ASSIGNMENT- The LESSEE shall not assign or sublet the whole or any
SUBLEASING part of the Leased Premises without LESSOR's prior
written consent. Notwithstanding such consent, LESSEE
shall remain liable to LESSOR for the payment of all
rent and for the full performance of the covenants
conditions of the Lease.
14. SUBORDINATION This Lease shall be subject and subordinate to any and
all mortgages, deeds of trust and other instruments in
the nature of a mortgage, now or at any time hereafter,
any lien or liens on the property of which the Premises
are a part and the LESSEE shall, when requested,
promptly execute and deliver such written instruments as
shall be necessary to show the subordination of this
lease to said mortgages, deeds of trust or other such
instruments in the nature of a mortgage. LESSEE hereby
appoints LESSOR as LESSEE's attorney-in-fact to execute
such subordination agreement upon default of LESSEE in
complying with any such request.
15. LESSOR'S ACCESS The LESSOR or agents of the LESSOR may enter the
Premises at all reasonable hours for the purpose of
inspecting or making repairs to the same or for the
purpose of showing the Premises to prospective or
existing mortgages, purchasers or tenants. Landlord
shall have the right to enter the Premises at any hour
for the purpose of making emergency repairs. To
effectuate the LESSOR's foregoing rights to access,
LESSOR shall maintain a set of keys to the Premises.
16. INDEMNIFICATION- The LESSEE shall save the LESSOR harmless from all loss,
& LIABILITY damage occasioned by the use or escape of water or by
the bursting of pipes, or by any nuisance made or
suffered on the Premises, unless such loss is caused by
the neglect of the LESSOR. See Section 22 "other
Provisions, Subsection A Common Areas".
<PAGE>
- -5-
17. LESSEE'S The LESSEE shall maintain with respect to the Premises
LIABILITY and the property of which the Premises are a part,
INSURANCE comprehensive public liability insurance in the amount
of $1,000,000 (One Million Dollars) with property damage
insurance in limits of $500,000 (Five Hundred Thousand
Dollars) in responsible companies qualified to do
business in the State of Rhode Island and in good
standing therein insuring the LESSOR as well as the
LESSEE against injury to persons or damage to property
as provided. The LESSEE shall deposit with the LESSOR
certificates for such insurance on or before the
commencement of the Lease Term, and thereafter, within
thirty (30) days prior to the expiration of such
policies. Such policies will stipulate that they may not
be cancelled without at least ten (10) days prior
written notice to each insured named therein.
18. FIRE CASUALTY- Should a substantial portion of the Premises, or of the
EMINENT DOMAIN property of which they are a part, be substantially
damaged by fire or other casualty, or be taken by
eminent domain, the LESSOR may elect to terminate this
Lease. When such fire, casualty or taking renders the
Premises substantially unsuitable for their intended
use, a just and proportionate abatement of rent shall be
made, and the LESSEE may elect to terminate this Lease
if:
(a) The LESSOR fails to give written notice within 30
days of its intention to restore Premise, or
(b) The LESSOR fails to restore the Premises to a
condition substantially suitable for their
intended use within one hundred-twenty (120) days
of said fire or casualty.
The LESSOR reserves and the LESSEE grants the LESSOR all
rights which the LESSEE may have for damages or injury
to the Premises or for any taking by eminent domain,
except for damage to the LESSEE'S fixtures, property or
equipment.
<PAGE>
- -6-
19. DEFAULT AND In the event that:
BANKRUPTCY
(a) LESSEE shall default in the payment of any
installment of rent or other sum herein specified
and such default shall continue for ten (10) days;
or
(b) The LESSEE shall default in the observance or
performance of any other of the LESSEE'S
covenants, agreements, or other obligations
hereunder and such default shall not be corrected
within thirty (30) days after written notice
thereof, or
(c) The LESSEE shall be declared bankrupt or insolvent
according to the law or if any assignment shall be
made of LESSEE'S property for the benefit of
creditors,
then the LESSOR shall have the right thereafter, while
such default continues, to re-enter and take complete
possession of the Premises, to declare the term of this
lease ended and remove the LESSEE'S effects without
prejudice to any remedies which might be otherwise used
for arrears of rent or other default. The LESSEE shall
indemnify the LESSOR against all loss of rent and other
payments which the LESSOR may incur by reason of such
termination during the remainder of the term. If the
LESSEE shall default, after reasonable notice thereof,
in the observance or performance of any conditions or
covenants on LESSEE'S part to be observed or performed
under or by virtue of any of the provisions in any
article of this lease, the LESSOR, without being under
any obligation to do so and without thereby waving such
default, may remedy such default for the account and at
the expense of the LESSEE. If the LESSOR makes any
expenditures or incurs any obligations for the payment
of money in connection therewith, including but not
limited to, reasonable attorney fees in instituting,
prosecuting, or defending any action or proceeding, such
sums paid or obligations insured, with interest at the
rate of eighteen (18) percent per annum and costs, shall
be paid to the LESSOR by the LESSEE as additional rent.
<PAGE>
- -7-
20. NOTICE Any notice from the LESSOR to the LESSEE relating to the
premises or to the occupancy thereof, shall be deemed
duly served if left at the Premises addressed to the
LESSEE or, if mailed to the Premises, registered or
certified mail, return receipt requested, postage
prepaid, addressed to the LESSEE. Any notice from the
LESSEE to the LESSOR relating to the Premises or to the
occupancy thereof, shall be deemed duly served, if
mailed to the LESSOR at the address first set forth
above by registered or certified mail, return receipt
request, postage prepaid.
21. SURRENDER The LESSEE shall at the expiration or other termination
of this lease remove all LESSEE'S goods and effects from
the Premises. LESSEE shall deliver to the LESSOR the
Premises and all keys, locks thereto, and other fixtures
concerned therewith and all alterations and additions
made to or upon the Premises, in the same condition as
they were at the commencement of the term, or as they
were put in during the term hereof, reasonable wear and
tear and damage by fire or other casualty only excepted.
In the event of the LESSEE'S failure to remove any of
the LESSEE'S failure to remove any of the LESSEE'S
property from the premises, LESSOR is hereby authorized,
without liability to LESSEE for loss and damage thereto,
and at the sole risk of LESSEE, to remove and store any
of the property at LESSEE'S expense, or to retain same
under LESSOR'S control or to sell at public or private
sale, without notice, any or all of the property not so
removed and to apply the net proceeds of such sale to
the payment of any sum due hereunder, or to destroy such
property.
<PAGE>
- -8-
22. OTHER PROVISIONS See Attached ("Other Provisions")
IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunto set their hands
and common seals this 1st day of May, 1996.
REGENCY PLAZA ASSOCIATES:
LESSOR
/s/ Richard Lappin
----------------------------------
By: Richard Lappin
Its: Regional Property Manager
LOG ON AMERICA: LESSEE
/s/ [ILLEGIBLE]
----------------------------------
By: [ILLEGIBLE]
Its: President
<PAGE>
OTHER PROVISIONS
OF THE STANDARD FORM COMMERCIAL LEASE
DATED:
A. Common Areas
LESSOR may from time to time establish reasonable rules and regulations
for and make reasonable changes in any of the common facilities. LESSOR
may designate specific parking facilities for employee parking and LESSEE
will enforce the same. THE LESSEE at no additional charge shall be
entitled to the use of four parking space at a location designated by
LESSOR to be used during regular business hours only. Visitors will be
able to park in designated areas subject to availability.
LESSOR shall not be liable for any inconvenience or interruption of
business or other consequence resulting from the making of necessary
repairs, replacements, improvements, alterations or additions or the doing
of any other work by or at the direction of the LESSOR to or upon any of
such common facilities which are for the benefit of the entire complex.
LESSOR agrees in connection with any such work to use his best efforts to
cause the LESSEE the least amount of interference with its business.
B. LESSEE'S Covenants
LESSEE covenants and agrees that during the term of the Lease:
1. it will not conduct an auction, fire, bankruptcy, going out of
business or similar sale, in the Premises without first
obtaining the written approval of the LESSOR or his
representative;
2. it will cause all freight to be delivered or removed and
garbage and refuse to be removed only from an area designated
by the LESSOR;
3. it will not burn any trash on or near the Premises or cause
any offensive odors to be emitted from the Premises. LESSEE
will store all rubbish on the inside of the Premises;
4. it shall not permit or cause to be used on the Premises any
device such as excessively bright lights--changing, flashing
or flickering, or any similar devices, the effect of which
shall be visible or audible from the exterior of the Premises;
5. it agrees not to perform any acts or carry on any practices
that may be a nuisance;
<PAGE>
- -2-
6. it will not overload, damage or deface the Premise;
7. it will conform to all uniform reasonable rules which LESSOR
may make from time to time relative to the operation and use
of the total complex;
8. it will at all times fully and promptly comply with all
conditions, requirements, laws, ordinances, orders and
regulations of any lawful authority having jurisdiction of the
Premises, including, but not limited to, such as relate to the
cleanliness, safety, occupation and use of the said Premises
and the nature, character and manner of operation of the
business conducted in or at the Premises--including the
obtaining of any permits required for the conduct of its
business;
9. it will comply with insurance inspection and rating bureaus --
including any conditions or requirements established by the
insurance companies.
C. Waiver
Failure of either party to complain of any act of omission on the part of
the other, no matter how long the same may continue, shall not be deemed
to be a waiver by either party at any time, express or implied, of any
other provision.
D. Holding Over
If LESSEE, or anyone claiming under it, shall remain in possession of the
Premises after the expiration of the term of this lease without agreement
in writing between LESSOR AND LESSEE, such tenancy shall be a tenancy at
sufferance from month-to-month only, upon all the terms and conditions of
this Lease which are not inconsistent with such tenancy, and the rent
shall be an amount established by the LESSOR.
E. Applicable Law
This lease shall be governed by, and construed in accordance with the laws
of Rhode Island. If any provision of this lease or the application thereof
to any person or circumstances shall, to any extent, is invalid or
unenforceable, the remainder of this Lease shall be valid and enforceable
to the fullest extent permitted by law.
<PAGE>
- -3-
F. Personal Property
In no event shall LESSOR be liable for the personal property of the
LESSEE, all of which shall be at LESSEE's sole risk.
G. Entire Agreement
This Lease sets forth the entire agreement between the parties hereto and
cannot be modified or amended except in writing duly executed by the
LESSOR and LESSEE.
H. Partial Invalidity
The invalidity of one or more phrases, sentences, clauses or articles
contained in this lease shall not affect the remaining portions of this
Lease or any part thereof, and in the event that anyone or more of the
phrases, sentences, clauses or articles contained in this Lease should be
declared invalid by the final order, decree or judgement of a court of
competent jurisdiction, this Lease shall be construed as if such invalid
phrases, sentences, clauses or Articles had not been inserted in this
Lease.
I. Signs
LESSEE will not without first obtaining LESSOR's written approval thereof
place or suffer to be placed or maintained on the exterior of the leased
property any sign, advertising matter or other thing of any kind, and will
not place or maintain any decoration, lettering or advertising matter on
the glass of any window, wall or floor of the leased property; and LESSEE
further agrees to maintain such sign, decoration, lettering, advertising
matter or other thing as may be approved in good condition and repair at
all times.
<PAGE>
- -4-
K. Conference Facility
LESSEE shall have the right to use, based upon availability, the
conference facility in the main Regency building on a prior reserved basis
at a fee to be determined. LESSEE shall be responsible for leaving the
space in the condition they found it in.
/s/ Richard Lappin
- ---------------------------
Lessor
/s/ David Paolo
- ---------------------------
Lessee
DATE: 5/1/96
Exhibit 23.2
TAUBER & BALSER,P.C.
Certified Public Accountants
3340 Peachtree Road, N.E.
Suite 250
Atlanta, GA 30326
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the amended Registration Statement on Form S-B2
of our report dated February 12, 1999, relating to the financial statements of
Log On America, Inc. We also consent to the reference to our firm under the
caption "Experts" in the Prospectus.
/s/ Tauber & Balser, P.C.
- --------------------------------
Tauber & Balser, P.C.
Atlanta, Georgia
March 10,1999
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 630,131
<SECURITIES> 0
<RECEIVABLES> 109,399
<ALLOWANCES> (16,239)
<INVENTORY> 0
<CURRENT-ASSETS> 728,857
<PP&E> 235,712
<DEPRECIATION> (163,867)
<TOTAL-ASSETS> 1,137,000
<CURRENT-LIABILITIES> 480,612
<BONDS> 0
0
0
<COMMON> 21,763
<OTHER-SE> 634,625
<TOTAL-LIABILITY-AND-EQUITY> 1,137,000
<SALES> 759,878
<TOTAL-REVENUES> 759,878
<CGS> 403,508
<TOTAL-COSTS> 403,508
<OTHER-EXPENSES> 736,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,165
<INCOME-PRETAX> (422,063)
<INCOME-TAX> 0
<INCOME-CONTINUING> (422,063)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (422,063)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
