<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER , 1999
REGISTRATION NO. 333-76519
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WATTAGE MONITOR INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEVADA 8999 86-0882633
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
1100 KIETZKE LANE
RENO, NEVADA 89502
(775) 327-6000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
GERALD R. ALDERSON
PRESIDENT
745 CALIFORNIA AVENUE
RENO, NEVADA 89509
(775) 327-6000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
DANIEL I. DEWOLF, ESQ.
WILLIE E. DENNIS, ESQ.
CAMHY KARLINSKY & STEIN LLP
1740 BROADWAY, 16TH FLOOR
NEW YORK, NEW YORK 10019-4315
(212) 977-6600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER , 1999
WATTAGE MONITOR INC.
5,314,700 SHARES OF COMMON STOCK
------------------------
This prospectus covers an aggregate of 5,314,700 shares of our common
stock, which will be sold, from time to time, by some of our shareholders.
Our common stock is quoted on the OTC Electronic Bulletin Board under the
symbol "WMON." On October 1, 1999, the price of our common stock as quoted on
the OTC Electronic Bulletin Board was $3.50.
------------------------
The securities offered hereby are speculative and involve a high degree of
risk. See "Risk Factors" commencing on Page 5.
------------------------
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange Commission passed
upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
------------------------
OCTOBER 6, 1999
The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of the prospectus nor the sale of common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy these shares of common stock in any circumstances under which
the offer or solicitation is unlawful.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ----------------------------------------------------------------------------------------------------------- ----
<S> <C>
Prospectus Summary......................................................................................... 3
Summary Financial Information.............................................................................. 4
Risk Factors............................................................................................... 5
Use of Proceeds............................................................................................ 8
Price Range of Common Stock................................................................................ 8
Dividend Policy............................................................................................ 9
Capitalization............................................................................................. 10
Selected Financial Data.................................................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 11
Business................................................................................................... 14
Management................................................................................................. 25
Executive Compensation and Other Information............................................................... 26
Incentive Compensation Plan................................................................................ 28
Certain Transactions....................................................................................... 28
Principal Shareholders..................................................................................... 29
Selling Shareholders....................................................................................... 31
Plan of Distribution....................................................................................... 32
Description of the Capital Stock........................................................................... 33
Shares Eligible for Future Sale............................................................................ 35
Legal Matters.............................................................................................. 35
Experts.................................................................................................... 35
Disclosure of Company Position on Indemnification for Securities Act Liabilities........................... 35
Available Information...................................................................................... 36
Index to Financial Statements.............................................................................. F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
Our goal is to be recognized as the preeminent electric rate and service
information source in the evolving, competitive United States electric market.
To do so, our initial focus is to be seen as the industry standard for objective
information regarding an electric consumer's specific choices. We receive fees
from electric service providers for presenting consumers their electric service
choices. We also receive commissions for sales to such consumers. In addition,
we provide electric marketing research, industry news and information, and
statistical indices reflecting industry performance. Our principal offices are
located at 1100 Kietzke Lane, Reno, Nevada 89502. Our telephone number is (775)
327-6000.
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock Offered by Us...... None
Shares of Common Stock Which May Be Sold
by Our Shareholders..................... Up to 5,314,700 shares of our common stock.(1)
Use of Proceeds........................... We will not receive any money from any shareholders when they sell
their shares of common stock.
</TABLE>
- ------------------
(1) Includes:
<TABLE>
<C> <S>
3,479,150 shares of our common stock;
1,000,000 shares of our common stock that were acquired when 1,000,000 shares of Series A preferred stock were
converted into our common stock upon the exercise of our warrants to purchase Series B preferred
stock;
835,550 shares of our common stock that may be acquired when our stock options are issued and exercised. As
of October 1, 1999 there were 238,517 stock options that may be exercised and converted into 238,517
shares of our common stock.
</TABLE>
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information below is derived from and should be read
in conjunction with the financial statements, including the notes to the
financial statements, appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JULY 1, 1997
CUMULATIVE SIX MONTHS ENDED TO
FROM INCEPTION ----------------------------- YEAR ENDED DECEMBER 31,
TO JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1998 DECEMBER 31, 1998 1997
----------------- ------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Net sales.......................... $ -- $ -- $ -- $ -- $ --
Net loss........................... (5,826,415) (3,057,081) (610,646) (2,591,399) (177,935)
Net loss per common share.......... (0.76) (0.31) (0.09) (0.36) (0.03)
Weighted average number of common
shares outstanding............... 7,750,720 10,006,254 7,055,000 7,287,500 6,650,000
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital/(deficit).................................. $ 1,382,347 $ (687,005)
Total assets............................................... 2,638,811 878,455
Total liabilities.......................................... 778,267 1,753,079
Stockholders' equity/(deficit)............................. 1,860,544 (874,624)
</TABLE>
- ------------------
(1) On February 26, 1999, Wattage Monitor Inc. acquired all of the equity, in
the form of membership units, of WattMonitor LLC. For accounting purposes,
the acquisition has been treated as a recapitalization of WattMonitor LLC
with WattMonitor LLC as the acquirer; a reverse acquisition. Financial
statements prior to the acquisition date are those of WattMonitor LLC. Pro
forma information is not presented since the combination is not a business
combination. The financial statements give retroactive effect to the
conversion of WattMonitor LLC membership interests in Wattage Monitor common
stock to reflect the recapitalization.
4
<PAGE>
RISK FACTORS
Investment in the shares of our common stock involves a high degree of
risk. You should give careful consideration to the following factors, among
others, before making an investment decision.
In order to relate the risk factors set forth below to the broad categories
of risk to which they correspond, the risk factors are organized in three
groups:
o Risks in establishing Wattage Monitor as a going concern;
o Risks in growing Wattage Monitor; and
o Risks of Wattage Monitor's common stock by virtue of its
characteristics, such as liquidity and potential dilution.
RISKS IN ESTABLISHING WATTAGE MONITOR AS A GOING CONCERN
THE ACTIVE PARTICIPATION OF SUPPLIERS IN OUR INFORMATION SYSTEM IS
NECESSARY FOR OUR BUSINESS TO SUCCEED.
Before we can generate income, we must overcome suppliers' reluctance to
participate in our information system. Initially, we expected that creating a
national electricity information brand would require us to:
o Create the information system itself;
o Demonstrate that consumers found the system useful; and
o Convince competing electricity suppliers to participate in our
system.
We believe we have demonstrated our ability to successfully achieve the
first two of these requirements. However, to date suppliers have been reluctant
to participate. There are a number of factors we believe are affecting electric
suppliers' reluctance to participate in of our service. Four of the most
important are:
o Market Immaturity--When Pennsylvania and other states decided to
allow competition in their electricity industry it required
legislation to do so. In spite of that legislation, the specific
structure of the market and the requirements for participating
evolved through hearings to implementing regulations issued by the
various Public Utility Commissions. That process is not complete
even today. That process made it difficult for suppliers to compete
for customers beginning as soon as the market was first open, as the
exact rules of engagement were not yet established. The end result,
again using Pennsylvania as an example, was that nearly eighty
companies obtained licenses to complete but only about thirty have,
as yet sought customers. Many of those approximately thirty
competing suppliers are essentially test marketing a product or
approach while they wait for the market to come further into focus.
In such an environment, the need for our service only arises once
the supplier decides to proceed full speed ahead.
o Consumer Behavior--While a hundred million households and twenty
million business use electricity, virtually none have ever chosen
their electric supplier. There is no confidence about how such
customers will make those choices. Since we represent a novel
distribution channel in the mind of a supplier that adds risk to
enrolling with us before we demonstrate our effectiveness. Most
suppliers chose to begin their marketing efforts in Pennsylvania
using traditional marketing channels only.
o Organizational Immaturity--All competing suppliers, including those
(more than half) that are subsidiaries of very large enterprises,
are nevertheless newly created. This "start-up" nature of all
companies in this market mean virtually every one of them was
conceived by its' founders and/or its parent to succeed in this new
market by taking a certain approach. An organization was created to
implement this approach. Necessarily, we were not part of those
plans because we didn't exist. Most suppliers conclude they needed
to try the originally adopted approach before they either (a) change
directions, or (b) add a second approach, such as the service we
offer.
5
<PAGE>
o Our Credibility--Until we launched in Pennsylvania we could
demonstrate our system for suppliers but we had no track record and
no live consumer experience. Given the above noted market conditions
suppliers were reluctant to use our service until we demonstrated
our operational existence.
Although this reluctance seems to be disappearing, our marketing efforts to
suppliers continue to be more difficult than originally anticipated.
INSIGNIFICANT HISTORICAL REVENUES DO NOT ENABLE US TO EVALUATE WHETHER WE
WILL EVER OPERATE PROFITABLY.
Because we have not generated significant revenues since inception on
July 1, 1997, we cannot be sure that we will ever generate the revenue necessary
to be a successful business. Our financial statements reflect that we are a
development stage company. They show that we have incurred losses since
inception. We expect to continue to incur losses for the foreseeable future. Our
ability to achieve a profitable level of operating revenue will depend on the
market's acceptance of our products and services, the rate at which states adopt
electric competition, and the manner in which each state chooses to phase in
competition. For a detailed account of our historical losses, please see the
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections.
RISKS IN GROWING WATTAGE MONITOR
WE ARE UNCERTAIN THAT WE WILL GROW, OR THAT WE WILL BE ABLE TO EFFECTIVELY
MANAGE OUR GROWTH.
Any growth we may experience will result in increased responsibility for
existing and new management personnel. This is particularly significant in the
high growth, internet related industry where the demand for skilled personnel is
quite extreme and turn-over is high. Effective growth management will depend on
the following:
o Our ability to integrate new personnel into our corporate structure;
o Improving our operational, management and financial systems and
controls; and
o Our capacity to recruit, train, motivate and manage employees.
If we are unable to do so, our business, results of operations and
financial condition may be adversely affected.
WE DEPEND ON CERTAIN KEY PERSONNEL AND THE LOSS OF THEM MAY ADVERSELY
AFFECT US.
Our success will be greatly dependent upon the personal efforts of Gerald
R. Alderson, our President and Chief Executive Officer. The loss of his
services, or those of certain other key management or personnel, could have a
material adverse effect on us. Currently, we have an employment agreement with
Mr. Alderson. However, the employment agreement expires in 2000. For a detailed
account of Mr. Alderson's employment agreement, please see the "Executive
Compensation and Other Information" section. We have not obtained key man life
insurance for Mr. Alderson or any of our other key employees.
WE ARE UNCERTAIN WE CAN OBTAIN THE CAPITAL TO GROW THE BUSINESS.
To fully realize our business objectives and potential, we will require
significant additional financing. We cannot be sure that we will be able to
secure the financing we will require, or that it will be available on favorable
terms. We are actively seeking such financing. If we are unable to obtain it, we
will be required to substantially curtail our approach to implementing our
business objectives. Additional financing may be debt, equity or a combination
of debt and equity. If equity, it could result in significant dilution to the
net tangible book value per share of our common stock. We will not receive any
proceeds from the current offering.
The entire competitive electric market is new, so no one knows how the
market will evolve, or how the companies that operate in the market will behave.
All competitive electric suppliers, including those that are subsidiaries
of large enterprises, are new. The start-up nature of all companies in this
market and the formative nature of the market itself mean that the
6
<PAGE>
companies in the market were created by their founders or parent to implement a
specific business plan. Necessarily, we were not a part of that plan because we
did not exist at the time the plan was formulated. These new organizations
generally decide that they must first try to implement their original plan
before they either change direction or add a second approach to their efforts to
obtain customers, such as the one we offer. The time it takes for these newly
formed companies to mature will materially affect the timing of our growth.
There can be no assurance that this will occur in a timely enough manner to
allow us to profitably offer our service.
OUR COMPUTER-BASED INFORMATION SYSTEM MAY NOT BE SUFFICIENT TO SATISFY THE
REQUIREMENTS OF CONSUMERS AND SUPPLIERS.
With the initial release of our nationwide, zip code-based information
system and its subsequent use by tens of thousands of electric consumers, a
number of system problems were identified. Two matters, the structure of how we
access certain data tables and an error in the coding of zip codes served by
more than one regulated electric utility, required more effort to resolve than
the other identified problems.
WM 2.0, released September 1, 1999, represents the mature web site we
believe consumers want, and is critical to our ability to grow with the rapidly
deregulating electricity market. However, there can be no assurance that WM 2.0
will meet its performance standards or that additional system functionality will
not be necessary. Finally, the technology that enables delivery of the
information services we offer, such as computer Internet-based access systems,
are subject to rapid and significant technological change. Competitors may
develop more effective and efficient technology that may render ours obsolete.
If this occurs, we will need to make a substantial investment to upgrade to
remain competitive.
WE DEPEND UPON OUR PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY FOR
SUCCESS.
As an information service company, our success depends in particular on our
ability to protect our proprietary information and trademarks. To do so, we rely
on a combination of copyright, trademark and trade secret laws, nondisclosure
and other contractual agreements with employees and third parties, and technical
measures. We cannot be sure that the steps we have taken will be adequate to
protect us. In addition, third parties may develop equivalent or superior
information systems. We have filed for patents on our service, but no action has
yet been taken on our application. We may be subject to or may initiate
proceedings in the United States Patent and Trademark Office, which may demand
significant financial and management resources. Although we believe our products
and information system do not infringe upon the proprietary rights of others,
there can be no assurance that third parties will not assert infringement claims
against us. Litigation may be necessary to enforce our intellectual property
rights or to defend against claimed infringement by others. Any litigation may
result in substantial cost to us and a diversion of our efforts.
RISKS ATTRIBUTABLE TO OUR COMMON STOCK'S CHARACTERISTICS
WE CAN ISSUE PREFERRED STOCK AND DILUTE THE POSITION OF THE SHAREHOLDERS OF
OUR COMMON STOCK.
Our certificate of incorporation provides that we may issue up to 5,000,000
shares of preferred stock, from time to time, in one or more series. We issued
1,000,000 shares of Series A preferred stock, which were automatically converted
into 1,000,000 shares of our common stock between September 23, 1999 and
October , 1999 upon the exercise of our Series B warrants. We have also
issued 3,500,000 shares of our Series B preferred stock, convertible into
3,500,000 shares of our common stock. The board of directors is authorized to
determine the number of shares, rights, preferences, privileges and restrictions
of any new issuance of preferred stock, without any vote or action by the
holders of our common stock. The board of directors may issue preferred stock
with voting or conversion rights that could adversely affect the rights of the
holders of common stock. The potential issuance of preferred stock may have the
effect of delaying or preventing a change in control, discourage bids for the
common stock at a premium over its market price, or adversely affect the market
price of the common stock.
7
<PAGE>
WE ARE LISTED ON THE OTC ELECTRONIC BULLETIN BOARD, WHICH CAN BE A VOLATILE
MARKET.
Our common stock is quoted on the OTC Electronic Bulletin Board, a NASD
sponsored and operated quotation system for equity securities. The OTC
Electronic Bulletin Board was introduced as an alternative to the NQB Pink
sheets for trading over-the-counter securities. It is a more limited trading
market than the NASDAQ SmallCap, and timely, accurate quotations of the price of
our common stock may not always be available. You may expect trading volume to
be low in such a market. Consequently, the activity of only a few shares may
affect the market and may result in wide swings in price and in volume.
Our common stock may be subject to the requirements of Rule 15g-9,
promulgated under the Securities Exchange Act of 1934, as amended, if the price
of our common stock falls below $5.00 per share. Under such rule, broker-dealers
who recommend low-priced securities to persons other than established customers
and accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchaser and receive the purchaser's consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock. Generally, the Commission defines a penny
stock as any equity security not traded on an exchange or quoted on NASDAQ that
has a market price of less than $5.00 per share. The required penny stock
disclosures include the delivery, prior to any transaction, of a disclosure
schedule explaining the penny stock market and the risks associated with it.
Such requirements could severely limit the market liquidity of the securities
and the ability of purchasers to sell their securities in the secondary market.
Our common stock was initially quoted on the OTC Bulletin Board at $4.00 per
share, but as of October 1, 1999 the share price was $3.50.
WE BELIEVE WE ARE YEAR 2000 COMPLIANT, BUT THE Y2K PROBLEM CAN STILL
ADVERSELY AFFECT US.
Many existing computer programs use only two digits to identify a year in
the date field. Programmers designed and developed these programs without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by, at or
after the year 2000. Year 2000 issues affect virtually all companies and
organizations. All of our systems were designed subsequent to July 1, 1997, well
after the year 2000 compliance problem was identified. Accordingly, all of the
systems we have developed use four digits to identify the year rather than two
digits. Even while our products are Y2K compliant, other aspects of the
information system, such as the supplier's or consumer's computer and operating
system, must also be Y2K compliant in order to function properly. While we
expect that our precautionary measures have reduced or eliminated any
significant impact of year 2000 issues, there is no assurance this will be the
case. In addition, there is no assurance that any Y2K problems that may be
experienced by our customers would not temporarily keep some of them from
accessing the information we supply.
USE OF PROCEEDS
We will not receive any part of the proceeds from the sale by our
shareholders of our common stock. However, we received $3,500,000 from our
shareholders upon the exercise of their warrants between September 23, 1999 and
October , 1999, and we will receive monies from our shareholders upon the
exercise of their stock options and warrants. Based on the closing bid price of
our common stock on October 1, 1999, which was $3.50, the selling shareholders
would receive, before any expenses or commissions, approximately $18,601,450 if
all the shares in this offering are sold. The maximum amount of funds we will
receive from the exercise of the options and warrants is approximately
$1,650,000. Substantially all of the remaining options and warrants may be
exercised during the next ten years.
PRICE RANGE OF COMMON STOCK
Our common stock is currently quoted on the OTC Electronic Bulletin Board
under the symbol "WMON." There was no active market for Wattage Monitor's
securities until February 26, 1999(1). The following table sets forth for the
periods indicated the high and low bid price information for the common
8
<PAGE>
stock as quoted on the OTC Electronic Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-ups, mark-downs or commissions, and may
not represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
HIGH BID LOW BID
-------- -------
<S> <C> <C>
February 26, 1999 through March 31, 1999........................................... $ 7.25 $4.00
April 1, 1999 through June 30, 1999................................................ $16.00 $5.50
</TABLE>
On October 1, 1999, the closing bid price as quoted by the OTC Electronic
Bulletin Board for our common stock was $3.50. As of October 1, 1999, there were
66 holders of record of our common stock.
There is no public trading market for any of our preferred stock, warrants
or options.
- ------------------
(1) Prior to the reverse acquisition of WattMonitor LLC by Wattage Monitor,
Wattage Monitor was listed on the OTC Electronic Bulletin Board from
February 18, 1999 through February 25, 1999.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
presently intend to retain any earnings for use in the business and do not
anticipate paying cash dividends in the foreseeable future. Any future cash
dividends will be at the discretion of the board of directors and will depend on
our earnings, financial condition, cash flows, capital requirements and other
considerations that the board of directors may consider relevant.
Our Series B preferred stock does not pay a dividend.
9
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998
and June 30, 1999. This table should be reviewed in conjunction with our
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, 1999 DECEMBER 31, 1998(1)
------------- --------------------
<S> <C> <C>
Short-term notes payable(2)................................................... $ -- $ 304,000
Long-term notes payable....................................................... 425,000 925,000 (3)
Stockholders' equity..........................................................
Series A preferred stock, $0.01 par value................................... 10,000 --
Common stock, $0.01 par value............................................... 112,080 75,000
Additional paid-in capital.................................................. 7,564,879 2,204,710
Unamortized discount on debt................................................ -- (385,000)
Deficit accumulated during the development stage............................ (5,826,415) (2,769,334)
----------- ----------
Total stockholders' equity.................................................... $ 1,860,544 $ (874,624)
----------- ----------
Total capitalization.......................................................... $ 2,285,544 $ 354,376
----------- ----------
----------- ----------
</TABLE>
- ------------------
(1) On February 26, 1999, Wattage Monitor Inc. acquired all of the equity, in
the form of membership units, of Watt Monitor LLC. For accounting purposes,
the acquisition has been treated as a recapitalization of WattMonitor LLC
with WattMonitor LLC as the acquirer, otherwise known as a reverse
acquisition. Financial statements prior to the acquisition date are those of
WattMonitor LLC. Pro forma information is not presented since the
combination is not a business combination. The financial statements give
retroactive effect to the conversion of WattMonitor LLC membership interests
into Wattage Monitor common stock to reflect the recapitalization.
(2) All outstanding short term notes payable are due directly or beneficially to
the founders of WattMonitor LLC: Gerald R. Alderson, Stephen D. Klein and
Robert H. Lessin through RHL Ventures LLC.
(3) Comprised of $425,000 due to RHL Ventures LLC which remains outstanding at
February 26, 1999, and $500,000 to Verus Capital Corp., which was exchanged
for equity in the February 26, 1999 reverse acquisition of WattMonitor LLC
by Wattage Monitor.
SELECTED FINANCIAL DATA
The selected financial data for the six months from our inception to
December 31, 1997, and for the year ended December 31, 1998, are derived from
the financial statements audited by Grant Thornton LLP, independent certified
public accountants. The selected financial data for the six months ended June
30, 1998 and 1999, and for the period from inception through June 30, 1999, are
unaudited. The results for the periods that ended June 30, 1999 and December 31,
1998 are not necessarily indicative of results that may be expected for any
other interim period or for a full year. The selected financial data should be
read in conjunction with, and are qualified by reference to, our financial
statements and notes to the financial statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in the prospectus.
On February 26, 1999, Wattage Monitor acquired all of the equity of
WattMonitor LLC. For accounting purposes, the acquisition has been treated as a
recapitalization of WattMonitor LLC, with WattMonitor LLC as the acquirer,
specifically, a reverse acquisition. Financial statements prior to the
acquisition date are those of WattMonitor LLC. Pro forma information is not
presented since the combination is not a business
10
<PAGE>
combination. The financial statements give retroactive effect to the conversion
of WattMonitor LLC membership interests in Wattage Monitor common stock to
reflect the recapitalization.
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION (JULY 1, 1997) SIX MONTHS ENDED YEAR ENDED JULY 1, 1997 TO
TO JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1998 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net Sales................ $ -- $ -- $ -- $ -- $ --
Expenses:
Telecommunications....... 777,604 428,358 47,916 349,246 --
System development....... 736,982 278,989 107,850 442,682 15,311
Marketing................ 817,009 354,545 156,386 462,464 --
General and
administrative......... 1,663,566 703,076 296,319 797,617 162,873
Depreciation and
amortization........... 72,564 43,012 7,760 28,493 1,059
Operating loss............. (4,067,725) (1,807,980) (616,231) (2,080,502) (179,243)
Interest, financing and
other income and
(expense)................ (1,758,690) (1,249,101) 5,585 (510,897) 1,308
Net loss................... (5,826,415) (3,057,081) (610,646) (2,591,399) (177,935)
Net loss per common
share.................... (0.76) (0.31) (0.09) (0.36) (0.03)
Weighted average number of
common shares
outstanding.............. 7,750,720 10,006,254 7,055,000 7,287,500 6,650,000
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Balance Sheet Data:
Working capital/(deficit)................................................... $1,382,347 $ (687,005)
Total assets................................................................ 2,638,811 878,455
Long term debt.............................................................. 425,000 925,000
Total liabilities........................................................... 778,267 1,753,079
Stockholders' equity/(deficit).............................................. 1,860,544 (874,624)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We were formed in July of 1997. In 1997, we focused on determining whether
or not our business could succeed. Accordingly, our expenditures in 1997 were
general and administrative expenses required to make such a determination. No
payments were made to the founders who contributed all or part of their time and
efforts in 1997. By the end of 1997, the determination was made that the
business could be successful and should be pursued. As a result, we raised
investment capital and began to implement our plan.
In 1998, we focused primarily on the following:
o Developing and refining the software and systems necessary to
support our information service;
o Testing the efficacy of that system and developing the necessary
related capabilities such as its toll free call center
(1-888-WATTAGE); and
o Introducing our service to consumers and electric suppliers.
Therefore, all categories of expenditure, except for general and administrative
expense, were new in all material respects in 1998.
1999 OPERATING PLAN
During 1999, we expect to operate largely as we did in the second half of
1998. Principally, this means:
o We expect to maintain current information about electric rates and
services in all states with active competition among suppliers.
o We expect to offer Internet access and telephone service through our
call center for the entire year, the cost of which is included in
the monthly expenditures discussed below. No increase in staffing is
required to do so.
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<PAGE>
o We expect to begin realizing revenue from offering our service in
the fourth quarter of 1999. However, after allowing for the gap
between earning revenues and receiving payment, we do not expect to
receive any significant cash in 1999 from operations.
o We expect to continue to actively market our information to
suppliers through our direct sales force. No addition of sales
personnel is anticipated.
o We expect to release the next version of our information system, WM
2.0, which was accomplished by September 1, 1999. Much of the work
developing and programming WM 1.0 was contracted to outside third
parties, primarily InterWorld corporation and Kirshenbaum Bond and
Partners. WM 2.0 was completed primarily with internal resources.
InterWorld primarily provided the software that allowed WM 1.0 to
search for offers by zip code, and Kirshenbaum Bond primarily
provided the software that created the look and feel of the system
that the user sees when visiting the site. This look and feel
software is used virtually intact in WM 2.0. Access to and
manipulation of data in tables, provided by the InterWorld software
in WM 1.0, is provided by the company itself through the use of
Oracle software in WM 2.0. Thus, while we continue to add full time
employees to our system development group, the concurrent reduction
in the use of third parties will leave monthly expenditures at about
current levels.
o We expect a modest increase in general and administrative personnel
over the course of the year, none of which are expected to be senior
level employees. They will be required to support our general
increase in activity. Part of their responsibilities will be to
replace the services of outside parties that we currently use.
Accordingly, the overall level of general and administrative expense
is not anticipated to increase materially.
o In sum, we expect monthly expenditures to remain at approximately
our current level of $300,000 to $350,000 per month for at least the
first nine months of the year. Monthly expenditures are
approximately $40,000 for system development, $50,000 for marketing
to suppliers, $100,000 to operate our toll free telephone service
and $100,000 for general administrative expenses. Of these amounts
approximately $35,000, $30,000, $0 (these services are contracted to
a third party) and $35,000, respectively, are for salaries of our
employees. Expenditures will continue at that level in the fourth
quarter as well, unless New Jersey proceeds with competition on its
currently announced schedule. All states that have adopted
competition to date have extended their respective effective dates.
If New Jersey stays on schedule, our incremental expenditures are
anticipated to be approximately $300,000 for 1999.
New Jersey's competition schedule and structure will largely influence how
competitive the market is initially. By way of example, California implemented
choice in a way in which there were no significant savings available to
consumers in the early years of the program. Generally suppliers chose not to
participate and we chose not to spend any significant resources trying to get
consumers to pay attention to a market which was technically open to competition
but not actively competitive. By contrast Pennsylvania chose a market approach
where consumers could realize immediate savings and the market was intially
quite active. If New Jersey follows this latter approach. Wattage Monitor may
choose to more aggressively make consumers aware of the availability of its
service which will require media expenditures (billboards, drive time radio and
the like) to inform consumers.
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1999 VS. SIX MONTHS ENDED
JUNE 30, 1998
Consistent with our plan, our operating expenditures in the first six
months of 1999 were $1,807,980 or $301,330 per month, at the low end of our
anticipated range of expenditures of $300,000 to $350,000 per month. In fact,
expenditure rates are $263,818 per month, or less than planned, when you delete
the approximately $225,000 of third party legal and accounting expenses incurred
during the six months to complete the merger and prepare this registration
statement. Further, our expenditure rate during June, the end of the six-month
period, was not significantly higher than January, so our spending levels remain
consistent with our plan as we enter the second half of the year.
12
<PAGE>
The details of our expenditures were also in line with those noted above in
the discussion of our 1999 Operating Plan. System development expense averaged
approximately $45,000 per month in the six-month period, which was skewed
slightly upward with somewhat higher activity in the second quarter of 1999.
This activity was associated with the final stages of programming and testing
for the release of our upgraded system, Wattage Monitor v2.0. Operation of our
call center averaged approximately $70,000 per month through the first six
months of 1999. These expenditures were somewhat less toward the end of the
period than in the first few months of the year as our initial activities in
Pennsylvania were completed and the next major state, New Jersey, had not yet
implemented its consumer choice program. Our marketing expense in the six months
ended June 30, 1999, averaged approximately $60,000 per month, consistent with
our plan. Expenditure rates at the end of the six-month period were
substantially identical to those at the beginning of the period. General and
administrative expenses were higher than our plan because of the costs
associated with our merger and this registration statement. These one-time
expenditures have totaled approximately $225,000 in the six-month period. When
these are deducted from the $703,076 otherwise incurred, adjusted general and
administrative expenses in the six-month period become $478,076. These represent
an expenditure rate of approximately $80,000 per month, or somewhat less than
anticipated.
Most of our current activities began in mid-1998, generally in the
May-August period. As a result, none of these activities had been pursued in
earnest for the full first six months of 1998, and there are consequently
neither meaningful comparable prior year period amounts, nor particularly useful
percentage comparisons. However, because there was some activity toward the end
of the six-month period in 1998, there are measurable expenditures. By way of
example, telecommunications expense in the six-months ended June 30, 1998 was
$47,916. These represent the initial expenditures to establish the call center
and were incurred in May and June of 1998. Ostensibly, telecommunications
expense increased to $428,358, or 9 times, between the six months ended June 30,
1998 compared to the six months ended June 30, 1999. Similarly, system
development expenses rose from $107,850 to $278,989, or 2.6 times; marketing
expenses rose from $156,386 to $354,545, or 2.3 times; and general and
administrative expenses increased from $296,319 to $703,076, an increase of 2.4
times. In all three instances, the comparative amounts reflect the same
shortcomings as was evidenced with telecommunications expenses, essentially that
the activities reflected for the six months ended June 30, 1998 were typically
undertaken only in the last two to three months of that period, while they were
pursued throughout the entirety of the six-month period ended June 30, 1999.
In addition, a non-cash interest expense of $1,265,000 was recorded. An
identical amount was added to capital surplus. A loan of $1,000,000 was
converted to 2,750,000 shares of our common stock in conjunction with the merger
on February 26, 1999. This was accounted for as if we had received $2,750,000,
not $1,000,000. The difference was recognized as a beneficial conversion of debt
creating, for accounting purposes, a debt discount which is reflected as
interest expense. Of this debt discount, $485,000 was recorded in the fourth
quarter of 1998 and $1,265,000 was recorded in the first quarter of 1999. The
overall effect was to increase capital surplus by $1,760,000 and reduce retained
earnings by $1,760,000. There was no net effect on cash or stockholders'
equity/(deficit). None of these amounts are recognized for tax purposes. There
was no effect of this transaction recorded in the second quarter of 1999 and,
accordingly, all amounts recorded in the first quarter represent the impact for
the six-month period ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, we had $1,674,759 of cash in our accounts. At today's
expenditure levels that would carry us into the first quarter of the year 2000,
assuming no revenue. Of course, we expect to begin to generate revenues during
that period. In addition, warrants to acquire the company's Series B Preferred
Stock for $1.00 per share, were exercised between September 23, 1999 and
October , 1999.
In 1997, all of our activities were financed through equity investments by
our founders. In 1998, we raised $1,000,000 to fund our initial development,
two-thirds of which was also provided by our founders. All such equity
investments were in the form of limited liability corporation membership
interests which converted to common stock upon the merger on February 26, 1999.
As we needed additional financing throughout the year, it was provided through
loans and advances in the aggregate amount of $1,175,000, of which four loans
provided an annual interest rate of 12% and included warrants to purchase shares
of
13
<PAGE>
common stock at $1.50 per share equal to the principle amounts of such loans,
and two advances provided at an annual interest rate of 6% and which did not
include warrants to purchase any of our shares. Short-term advances provided by
Mr. Alderson were without interest or warrants. Accordingly, a significant
portion of our liquidity and our use of working capital throughout 1997 and 1998
were dependent upon our founders' willingness to fund us. Subsequent to the
reverse acquisition on February 26, 1999, the founders will no longer provide
funding.
BUSINESS
WATTAGE MONITOR
Overview. WattMonitor LLC, the predecessor to Wattage Monitor, was formed
under the laws of the State of Delaware on July 1, 1997. In February 1999, in
anticipation of the acquisition of WattMonitor LLC, Knowledge Networks Inc., a
publicly held corporation, changed its name to "Wattage Monitor Inc." On
February 26, 1999, Wattage Monitor Inc. acquired WattMonitor LLC, a Delaware
company. The business of Wattage Monitor is identical to that of WattMonitor
LLC. For financial statement purposes, the transaction has been treated as a
recapitalization of WattMonitor LLC, with WattMonitor LLC as the acquirer, a
reverse merger. For tax purposes, the acquisition was a tax-free exchange of
equity securities. Subsequent to the acquisition, the sole activities of Wattage
Monitor have been, and will continue to be, those previously conducted by
WattMonitor LLC. The historical activities of the acquiring company's
predecessor, Knowledge Networks, were limited to certain immaterial software
consulting contracts, all of which were completed prior to the acquisition.
Accordingly, the following discussion of our business relates to the business
previously conducted by WattMonitor LLC.
OUR BUSINESS
Our goal is to be recognized as the preeminent electric rate and service
information source in the evolving, competitive United States electric market.
To do so, our initial focus is to be seen as the industry standard for objective
information regarding an electric consumer's specific choices. We expect to
derive our revenue from fees charged to electric suppliers for presenting
consumers with information about electric rates. In addition, while not an
electric supplier or broker itself, our information system allows consumers to
order electricity from their chosen electric supplier. We also expect to receive
commissions for sales to electric consumers, and provide electric marketing
research, industry news and information, and statistical indices reflecting
industry performance.
The electric utility industry in the United States is vast, fragmented and
just beginning the process of deregulation through the introduction of
competition to a market previously structured as a regulated monopoly. There are
several large electric utilities, but none currently serve more than about 5% of
the national market. Unlike previously deregulated industries, such as
telecommunications or airlines, the electric industry has historically operated
locally, not nationally. Accordingly, there are no national franchises.
There are approximately 100,000,000 households in the United States using
roughly $80,000,000,000 of electricity annually. Commercial consumers use
approximately the same amount of electricity every year. Once these customers
can choose a supplier, they are likely to want an accurate, objective source of
information. Serving that need is our primary focus. Industrial customers
comprise the third category of electric consumers. While they use about the same
volume of electricity as their residential and commercial counterparts, they pay
approximately half as much per unit consumed. Thus, industrial consumers
represent a $40,000,000,000 revenue industry segment. Industrial customers are
not expected to be an important market for our services.
Over 3,000 entities currently provide consumers with electricity. Each must
operate differently in a competitive business environment or disappear. We
intend to provide impartial information to electric consumers and to be a
communication channel to consumers for electric suppliers.
We expect to derive our revenues principally from suppliers seeking
customers. Such revenues are expected to result from fixed fees, transaction
fees and marketing fees, or a combination thereof. The
14
<PAGE>
marketing fee is designed to be less than the equivalent cost of the
advertising, direct mail, or other marketing programs required to reach
potential customers. In practice, it is structured to be 50-75% of the cost of a
direct mail campaign. The transaction fee results from a customer's decision to
choose a particular supplier when using our information system. The transaction
fees are due monthly.
The two market considerations that create the opportunity to build a
national organization offering customers information about their electricity
choices are:
o The electric utility industry is restructuring, which is likely to
result in consumers having the ability to choose their electric
supplier; and
o The competition that will result from a deregulated electricity
market will cause electric suppliers to seek an efficient and
cost-effective means to reach residential and commercial consumers.
To the extent customers choose a new supplier, they are likely to need
information about their electric options. This information may be available from
traditional sources, such as advertising programs, general media coverage,
political discussion, and word of mouth. However, consumers wanting to exercise
their right to choose an electric supplier may be hard-pressed to find an
established information source that can assist them in making an informed
decision. Our service intends to fill this void.
THE ELECTRIC INDUSTRY
Overview. There are approximately three trillion kilowatt hours used in
this country annually, divided almost equally between residential, commercial
and industrial consumers. Measured by revenue, the residential and commercial
users represent an approximate $160,000,000,000 annual industry. The difference
between commercial and industrial consumers is that industrial customers are
large-scale manufacturing concerns, while commercial users are primarily small
businesses, commercial real estate and retail enterprises. However, the
commercial sector acts like the residential sector and has been subjected to
regulated pricing policies similar to those of residential customers. In
contrast, industrial customers are treated differently. We anticipate that most
of our revenue will be derived from the residential and commercial sectors.
There are several secondary considerations that stand out as important to
the future demand for our services.
o Fragmentation. The electric industry is fragmented. No one company
enjoys name recognition by more than a small percentage of
customers. Even when a name is recognized, that recognition is
concentrated in a confined geographic area. No company accounts for
more than about 5% of total industry revenue. There are
approximately 300 investor-owned utilities, which account for about
three-quarters of the industry's revenue. However, even the largest
of these are generally geographically isolated and have less than 5%
of the national market. Unlike telephones, in the emerging
electricity industry there are few, if any, identifiable electricity
providers. Therefore, electric suppliers will seek to gain access to
a large number of new customers. Being able to provide or facilitate
such access will likely be a valuable resource to electric
suppliers.
o Information Vacuum. The electric consumer's working knowledge of
electricity is limited. Once customers have a choice, some are
likely to exercise it. In many cases they will want information
about more than just their specific choices. We plan to serve this
need as well.
o Predictable Electric Use. The deregulation of telecommunications,
principally telephones, has had a significant influence on consumer
views. This may affect electricity in two ways. First, consumers are
suspicious of a profusion of pricing schemes which, given the large
number of anticipated new entrants, is likely to occur. Second,
consumers perceive electric service as a network in which they may
conveniently and routinely switch suppliers. Yet, unlike telephone
usage, electricity use is consistent and predictable. This makes
quantifying a consumer's choice of electric suppliers
straightforward, enhancing comparison shopping while eliminating
complexity.
15
<PAGE>
WATTAGE MONITOR'S SERVICE.
Overview. Our efforts are centered around:
o An information service for individual residential consumers;
o A commercial service; and
o Market research and information.
All information is organized by zip code or sub-zip code. Sub-zip codes are
used if more than one regulated utility serves the area to ensure that the
information is directly relevant to each consumer. The schematic overview on the
inside front cover page summarizes our services.
Competition is new to the electric industry. Most consumers and most
investors are unfamiliar with the industry and the factors that influence
competition. Accordingly, a detailed description of the electric industry and
the most common questions that arise when considering the topic for the first
time are included in this business description.
Residential Consumers. We provide residential consumers with objective,
straightforward comparisons of their electric choices. Our services are
available both through a toll-free telephone service and through the Internet at
www.wattagemonitor.com. Both services are free to consumers.
Commercial Consumers. Commercial electric consumers average approximately
5 times the electric consumption of the average residential consumer. Therefore,
they need more detailed information than is provided to residential consumers.
Through use of our information system, suppliers can convey information about
themselves, their products and services and their contractual requirements. Our
service is also free to commercial consumers.
Research and Information. We intend to become a leading provider of
analytical information regarding the electrical industry. We provide research on
a fee basis, publish industry indicia, and distribute a newsletter. The latter
activities are free and are designed to assist in building our name brand and
industry recognition. The focus of this information is on competition, pricing,
competitive trends and consumer behavior.
The Wattage Monitor System. Our information system is designed to
integrate a licensed data management and electronic commerce search engine with
a licensed text management search engine to create an efficient information
system. The system was designed to create a recognizable brand and convey
objectivity, simplicity and consumer orientation. The data management capability
of our information system maintains numeric data, including zip codes and
prices. The text management capability provides topical information and text.
Our information system required approximately 16 months and several million
dollars to develop. By the time it was first released commercially in
Pennsylvania in October 1998, all United States zip codes were in the system. If
a consumer is in a state that does not yet have competition, entering that zip
code will inform the consumer of his or her state's status, allow the consumer
to register to receive periodic updates, and permit the consumer to use our
information system to express opinions to governmental authorities regarding
electric competition. If the zip code entered is for a state currently allowing
competition, the specific choices available to each consumer are presented. In
both cases, information and answers to frequently asked questions are available.
Operational Experience. While not the first state to allow its citizens
the option of choosing an electric supplier, Pennsylvania was the first state to
do so and allow consumers significant savings. Accordingly, the first commercial
release of our information system occurred in Pennsylvania on October 19, 1998.
While there has been limited experience gained with our system elsewhere, over
90% of its use to date is by residents of Pennsylvania.
Upon the deregulation of the electric industry in Pennsylvania, about
375,000 households switched suppliers immediately. This implies that over 10% of
those who switched used our system to get their information. We consider this
consumer response to be positive. Due in part to regulatory delays, active
16
<PAGE>
marketing by suppliers to consumers did not develop until October 1998. In our
first week, 10,000 consumers used the service. For three months, the total
number of electric consumers who used our information system exceeded 50,000.
Usage subsequently declined as we expected, because the early market
participants had made their initial choices.
Today's System Status. With the release of WM 1.0 in October 1998, we
experienced occasional performance difficulties. Programming, system design and
hardware configuration problems became apparent once broad-based usage of the
system began. Any difficulties were exacerbated by greater-than-anticipated use
of the system by consumers. Two matters required more effort than the others to
resolve: the structure of how we access certain data tables, and an error in the
coding of zip codes with more than one regulated utility serving it. However,
when viewed from the perspective of launching a system as large and complicated
as this, the release of the system and its overall performance were acceptable.
Elimination of the constraints of WM 1.0 and an upgrade of our system are
to be achieved with WM 2.0, released September 1, 1999. Surveys of consumer
satisfaction with our system, surveys of consumers who did not use our system,
and the results of numerous focus groups are also incorporated in WM 2.0. The
new system currently supports 5 states, and we expect it will be able to fully
service all consumers in all states with competition on an ongoing basis.
However, there can be no assurance that certain operational problems or system
deficiencies will not be identified.
Proprietary Intellectual Property. We have applied to the Untied States
Patent and Trademark Office for registration of the trademarks "Wattage
Monitor," "WattMonitor," and "Kilowatt Monitor." They are currently pending.
We have also applied for a patent relating to our information system and
services. The law firm of Pennie & Edmonds, LLP acts as patent counsel. No
action has been taken, nor comments received, on the patent application, which
was filed on November 11, 1998. No assurances can be given when or if our patent
application will be approved.
IMPLEMENTATION
Consumer Awareness. We inform electric consumers of the existence of our
information system by using billboards, drive time radio, links to other
websites and public relations. The most cost-effective of these methods has been
print media, particularly newspapers. Through editorial board meetings with over
75% of the Pennsylvania newspapers whose circulation exceeds 20,000, we have
established our credibility. More than 50 major articles were written about us
during a one-month span. Billboards and radio, while somewhat effective, have
proven to be less useful than newspapers in informing consumers of our service.
It is clear that consumer awareness and use of our system is also dependent upon
the advertising programs of suppliers. The more frequently suppliers approach
consumers, the greater the demand for the comparative information available from
our system. Accordingly, use of our system is dependent upon the active,
independent marketing efforts of suppliers.
Finally, we actively solicit commercial customers to use our system.
Informing commercial customers of our service involves out-bound telephone calls
in addition to the awareness programs described above. No such calls are made to
residential consumers. We cannot be certain that making consumers aware of our
service will not be more costly or take longer than is currently anticipated.
Consumer Acceptance. As noted, early consumer acceptance of our services
in Pennsylvania was quite good. Our surveys of customer response have shown the
following:
o High levels of satisfaction with our service;
o Great confusion about the process and consequences of switching
suppliers;
o A lack of information about how electricity is supplied and how
competition is possible;
o Reluctance to tackle the complexities of choosing a supplier,
unfamiliar terms, unfamiliar suppliers, complicated rate structures
and offers; and
o Overwhelming support for competition as "a good thing."
17
<PAGE>
The rate at which consumers become familiar and comfortable with
competition in the electric market will determine when they are willing to
choose a supplier. This may determine when consumers decide to use our system.
At this point, there can be no assurance as to the rate of acceptance of our
service by consumers.
Our system has also found supportive audiences among trade associations,
community-based organizations, church groups and similar associations. It is
anticipated that such groups will help create demand for our service and
influence suppliers to participate.
Supplier Awareness. Supplier participation has been gained through direct
marketing efforts undertaken by us. These efforts are the responsibility of our
direct sales force. We have signed contracts with 3 suppliers, are engaged in
active negotiations with 8 suppliers and have active contracts with an
additional 40 suppliers. While these are significant, we have found suppliers
reluctant to contract with us for our services.
Supplier Acceptance. There are various factors that we believe affect
suppliers' reluctance to participate in our service. Four of the most important
are:
1. Market Immaturity--When Pennsylvania enacted legislation to create
competition, the details of the market structure and the operating
requirements to be met were left to the public utilities
commission. They held hearings and began issuing regulations. That
process is not complete, even today, making it difficult for
suppliers to compete for customers when the exact rules of
engagement are not yet established. The end result was that nearly
80 companies obtained licenses to compete, but only about 30 have
sought customers. Many of the 30 competing suppliers are test
marketing their product while waiting for the parameters of the
industry to be defined. In such an environment, the need for our
services arises only once the suppliers decide to proceed actively
to attract customers.
2. Consumer Behavior--While 100,000,000 households and 20,000,000
businesses use electricity, virtually none have ever chosen their
electric supplier. Accordingly, there is no confidence as to how
such customers will make those choices. Since our service
represents a novel distribution channel, we are uncertain whether
suppliers will use us before our system demonstrates its
effectiveness. Most suppliers decided to begin their marketing
efforts in Pennsylvania, using traditional marketing channels only.
3. Organizational Immaturity--Most competing suppliers are newly
created. This start-up nature of the companies in the electric
market indicates that most were created by their founders to
implement a particular approach to this market. Necessarily, we
were not part of those plans because we didn't exist at the time.
Most suppliers conclude they need to try the originally adopted
approach before they either change directions or add a second
approach, such as Wattage Monitor.
4. Wattage Monitor's Credibility--Until we introduced our services in
Pennsylvania, we could demonstrate our system for suppliers but had
no track record and no live consumer experience. Suppliers were
reluctant to contract for our services until we demonstrated our
operational existence. Though the reluctance of suppliers seems to
be slowly disappearing, the marketing of our service has become
more difficult than originally anticipated. There can be no
assurance that a sufficient number of suppliers can be enrolled to
generate sufficient revenue to allow us to implement our plan.
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<PAGE>
STATE-BY-STATE STATUS
Overview. The following tables summarize the status of state efforts to
allow consumers a choice of electric suppliers.
<TABLE>
<CAPTION>
NUMBER RESIDENTIAL COMMERCIAL
OF ELECTRIC ELECTRIC
CURRENT STATUS STATES CONSUMERS CONSUMERS
- ------------------------------------------------------------------------------ ------ --------- ----------
(MILLIONS) (MILLIONS)
<S> <C> <C> <C>
Enacted Legislation........................................................... 22 54 7
Pending Legislation........................................................... 4 9 1
Policy Development............................................................ 20 40 5
No Substantial Activity....................................................... 4 4 1
-- --- --
50 107 14
</TABLE>
<TABLE>
<CAPTION>
IMPLEMENTATION OF 1999 2000 2001 2002 2003
CONSUMER CHOICE ---------- ---------- ---------- ---------- ----------
(MILLIONS OF CONSUMERS)(1) RES COM RES COM RES COM RES COM RES COM
- ----------------------------------------------- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enacted Legislation............................ 23 3 27 4 34 5 53 7 54 7
Pending Legislation............................ -- -- 2 0 6 1 9 1 9 1
Policy Development............................. 6 1 7 1 9 1 36 5 40 5
No Substantial Activity(2)..................... 0 0 0 0 0 0 2 0 4 1
--- --- --- -- --- -- --- --- --- ---
29 4 36 5 49 7 100 13 107 14
</TABLE>
- ------------------
(1) The numbers reflected by this chart are estimates. There are no assurances
that competition will be implemented by the dates indicated.
(2) Includes states whose policy is to delay implementation until required to
implement it by the federal government
Other Considerations. Many states are actively in the process of adopting
competition for their electric industry. However, the timing of competition is
not the only factor in determining how, and to what degree, demand for our
information system will evolve. Demand for our service stems as much from how
competition is introduced as when it is introduced. States are enacting
legislation well in advance of implementing competition. While such legislation
typically sets a time table for competition, it may also establish specific
requirements of how competition is to be phased in. For instance, Pennsylvania
adopted regulations which meant consumers could realize immediate savings. By
contrast, California structured the phase-in of competition in a manner that did
not permit consumers such savings. By 2004, a California consumer may see
savings considerably greater than those available in Pennsylvania. Accordingly,
the demand for our service will be determined by the timing of competition that
individual states adopt as well as how it is phased in. There can be no
assurance that the state-by-state phase-in plans will be sufficiently timely or
competitive to allow demand for our service to develop.
DETAIL OF THE ELECTRIC UTILITY INDUSTRY AND COMPETITION
Industry Background. The electric utility industry in the United States
was structured as a regulated, local, geographically isolated, integrated
supplier of electricity, which it regulates. Government granted each utility an
exclusive license to serve all electric consumers in its territory. The 2
primary considerations leading to the adoption of the regulated monopoly
structure were the science of transmission at the time the industry was formed
and the critical role that electricity plays in a modern industrial economy.
This first issue, science transmission, is straightforward. At the time the
industry was forming, significant percentages of electricity were lost
transmitting electricity even short distances. Therefore, it was critical to
consume electricity near the location at which it was produced. As a result, the
industry assumed both the local and integrated characteristics it currently
possesses. However, just as science played an important role in how the electric
industry was structured, it plays an important role in making deregulation
possible. Over the course of the 20th century, the science of transmission has
evolved from being a critical structuring determinate to becoming virtually
irrelevant. Today's technology enables electricity to be transmitted 1,000 miles
with less than a 1% loss. Accordingly, the need to consume electricity near the
19
<PAGE>
location at which it is produced no longer exists. This makes a national
competitive industry technically feasible.
The second factor was the important role that electricity played in the
evolution of a modern industrial economy. The nexus between the growth of the
United States economy and the demand for electricity has been largely in
lockstep for the last 80 years. In some cases, electricity sales have continued
to grow even in periods of recession. A comparison with other modern industrial
economies indicates the same relationship between electric production/
consumption and economic growth. Therefore, government policy has long been to
foster a sound electric industry.
The industry came to be viewed as a natural monopoly. As such, it became
regulated, and since it was essentially a local business it came to be regulated
primarily at the local level. However, since huge capital investments were
required, the regulated monopoly structure adopted eliminated much of the risk
to investors of such investments, creating access to the large capital sums
required. The prevailing model became regulation by the individual states, based
on the cost of service plus a return on capital. As the electric industry
approaches deregulation, it is a combination of private, public, cooperative and
federal utilities. Private utilities, which are often investor-owned utilities,
account for approximately 75% of all electric sales. State and local utilities,
otherwise known as MUNI's, and cooperatives account for approximately the
remaining 25%.
Nearly 3,300 electric utilities currently exist, divided between 300
investor-owned companies, 2,000 MUNI's and 1,000 cooperatives. Of these, most do
not produce power. Typically, they purchase the electrical power they distribute
from either a nearby investor-owned utility or through a preferential purchase
right to inexpensive federally produced power.
The federal government's involvement in the electric industry is primarily
as a generator and wholesaler. It produces about 20% of the electricity in the
United States. Virtually all federal power is sold through one of the 4 federal
power marketing agencies. These agencies serve all states except for those in
the Northeast and the Upper Midwest.
Market Today. Approximately three trillion kilowatt hours of electricity
are produced and consumed annually by consumers typically classified as
residential, commercial, and industrial. Residential customers are
self-explanatory. Commercial customers represent small business, retail outlets
and the like. Industrial customers are typically manufacturers. Broadly, each of
these 3 customer classes represents about one-third of United States electricity
consumption, or about one trillion kilowatt hours.
The cost of electricity to residential, commercial and industrial customers
varies across the United States. While you might expect the cost of producing
electricity to be about the same everywhere, regulatory policies have created
enormous regional and inter-regional differences in electricity pricing. Part of
these differences arise because of differing fuel choices; for instance, coal in
the Midwest but not in New England. Coal is generally considerably less
expensive than natural gas as a fuel for electric power plants. Failed nuclear
programs also account for much of the regional variability. Finally, state and
local government policies contribute to price variability. Some states have
taxes included in their electricity rates, while others have almost none.
Nationwide residential per kilowatt hour rates range from a low of
approximately $0.05 to a high of nearly $0.15. While the range for industrial
customers is not as dramatic, it ranges from as low as approximately $0.03 a
kilowatt hour to as high as approximately $0.09. Commercial rates tend to mirror
residential rates, but at a slight discount. The national average for
residential rates is $0.08; commercial rates average about $0.075; while
industrial prices are typically below $0.05.
Electric consumption is the other relevant determinate of industry revenue.
As with rates, consumption tends to vary by region, based on weather conditions
and the historical economics of electricity in the area. For instance, virtually
the entire air conditioning load in the United States is electrical. Therefore,
the warmer regions of the country have significant summer residential peaks,
while the Pacific Northwest has little demand for electricity for air
conditioning. For home heating purposes, natural gas or fuel oil is the heating
preference in much of the Northeast and Midwest. Yet, because of historically
low electricity prices in the Pacific Northwest, homes there are often heated by
electricity. While the average residential use is
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approximately 10,000 kilowatt hours per year, it ranges from about 6,000 to
about 14,000 kilowatt hours per year.
Tomorrow's Structure. The electric utility industry has functioned as a
regulated monopoly. While a political consensus in the United States has
determined that this industry will be deregulated, the practical problems that
arise in implementing deregulation, along with the issue of states' rights, mean
the process will proceed more slowly than did deregulation in other industries.
State legislation is usually required to permit competition. However,
federal preemption is a possibility. Congress has bills pending in both the
Senate and the House of Representatives mandating that states adopt legislation
introducing competition.
Economic and technological considerations also contribute to the drive
toward competition. Improvements in generating technologies have made small
power plants efficient and cost-effective. Therefore, an industrial customer has
the option of making its own electricity with the same reliability achieved by
its host electric utility. If the cost of electricity to an industrial customer
exceeds the cost of making its own electricity by a wide enough margin, the
customer is likely to make its own. This has had the effect of shifting costs to
retail customers and lowering industrial rates. This shift occurs because of the
nature of the regulatory compact which allows the regulated utility to recover
all of its costs. When the price paid by an industrial customer is lowered, no
reduction in the utility's cost occurs, so the rate to retail customers is
raised by a like amount. Typically such shifts are politically unpopular.
With competition, at least at the industrial level, occurring as a result
of the technological changes, the shift of existing utility costs from
industrial customers, who have a choice, to retail customers, who do not,
becomes more widespread. Politicians believe that retail customers will be
protected only by allowing retail competition. Furthermore, the federal
government has proposed to preempt state regulation unless the states act
separately and soon. Thus, market forces are driving deregulation.
Electric industry competition traces its roots to 1978 with the passage of
the Public Utilities Regulatory Policy Act. Thus, considerable history exists
upon which to forecast the future. We believe that the future industry structure
is generally predictable. It is only the timing of its implementation that is
unknown. That transition also involves massive financial losses, because many
utilities have old, inefficient or over-valued generating facilities, the costs
of which have not yet been recovered from their customers. Such costs would be
unrecoverable if they were to complete with newer, efficient power plants.
In an open, competitive market for electricity, these plants would likely
be closed or written-down to their market value. In the current regulatory
environment, the costs associated with these over-valued plants are being
recovered from consumers through higher-than-competitive market electricity
prices. The impact of this over-valuation varies greatly by individual utility.
Some have over-valued assets that are several times their equity and some have
no over-valued assets. Moving immediately to open competition would likely
bankrupt a number of existing utilities. Accordingly, the timing of the
transition, which will also determine the rate at which demand for our service
grows, is governed by the management of these overvalued assets and/or the
allocation of those losses among customers, shareholders and taxpayers all of
which occurs through the political process.
In the end, we believe that the deregulated electric industry will be
dominated by 3 types of organizations.
o National generating companies that will own and operate power plants
in a number of states and regions of the country. These enterprises
will be much larger than today's utilities.
o A class of companies will exist that will remain regulated that will
own and operate transmission and distribution systems and act as the
supplier of last resort. These transmission system owners will be
common carriers accessible to all electric suppliers.
o Electric Suppliers that will provide a variety of differentiated
electricity services, some on a national basis. These suppliers or
companies will function much like those that exist in the telephone
industry today.
The status of the development of each:
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<PAGE>
1. National Generating Companies--Active competition to generate
electricity began approximately 15 years ago. It occurred as an
unintended consequence of legislation passed in reaction to the oil
embargoes of the 1970s. The competition permitted certain electric
power stations to be built and to operate free of regulation. Their
electrical output was sold to existing, regulated electric
utilities for distribution to their customers. These new companies
demonstrated that it was possible, even while creating new
technologies, to produce electricity less expensively than was
being accomplished by many regulated utilities. In response, a
consolidation among existing utilities has begun. Thus, competitive
forces are currently creating national generating companies.
Ultimately, these generating companies will compete based upon low
capital cost and operating efficiencies. They will generate and
sell kilowatt hours to the industrial wholesale market. They also
sell electricity under contract to suppliers.
2. Regulated Common Carriers--It seems certain that large regional or
national companies will operate the electric grid. The grid is in
place and has ample capacity. Open access, with transmission rates
regulated primarily by the Federal Energy Regulatory Commission,
are very likely. The capital requirements of such enterprises, and
the significant problems relative to the acquisition of
long-distance, high voltage transmission lines, mean that these
enterprises are likely to be created from the disaggregation of the
transmission assets of existing regulated electric utilities and
their subsequent consolidation into regional nor national firms.
3. Suppliers--We anticipate that there will be many end-use retail
marketing companies. While numerous at first, only a few are likely
to successfully develop a national presence. The economics of these
national companies will be driven by:
o The operating efficiencies of providing customers with service;
o The advertising requirements of attracting and retaining
customers, specifically including television advertising; and
o The creation of differentiated electricity products.
They are likely to be organized around market segments, not
geography. These suppliers are the source of our revenues and the
principal beneficiaries of our service.
THE TRANSMISSION OF ELECTRICITY
Overview. Two of the most important considerations in the evolution of a
competitive market for electricity are the legislative and regulatory
requirements for transmission. Concern for transmission is also the first
question generally asked by consumers and investors alike. The answer lies in an
understanding of the physical nature of electricity transmission. Transmitting
electricity is not like the transmission of the products of 2 other well known,
recently deregulated industries: natural gas and telephones. In the case of
natural gas, a physical commodity flows from one point to another along a
predetermined route, known as the pipeline. Competition in this industry treated
the pipeline itself as a regulated common carrier with open, non-discriminatory
access to all that chose to use it, levying transportation charges based on the
distance and other characteristics of the pipeline used. Conditions and fees for
use of these pipelines are set by the Federal Energy Regulatory Commission. In
the case of telephones, the telephone signal itself includes information on its
destination. Coded at the front end of the call, the signal directs itself to
its destination. Unlike natural gas, the telephone call is not a physical
substance that flows, but rather a network energized by light or an electrical
signal. The transmission characteristics of electricity are more like telephones
than natural gas. However, they also have important differences.
Understanding the nature of the transmission of electricity begins with a
recognition that electricity is not a substance like natural gas and it does not
flow from one point to another. Rather, the electric grid is energized and is in
equilibrium. When electricity is drawn out of the system by a user, the grid is
instantaneously re-equalized. Since the entire transmission system is
interconnected, the ongoing equalization of the system is a natural phenomenon
influenced constantly by various inputs to the system and consumer consumption.
Accordingly, it is not possible to transmit electricity from one point to a user
at another point.
Perhaps the best analogy about what occurs physically in the electric
transmission system is to imagine the grid in its energized state as the
equivalent of an ocean of electrons. Individual power plants produce
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electricity and dump it into that ocean. They are the equivalent of rivers
flowing into the sea. These rivers are numerous and individually large, but not
infinite. Consumers are quite small in relation to the system, but they are
everywhere. In a sense, their withdrawals from this sea of electricity is akin
to evaporation.
Water flowing into the ocean behaves as electricity does flowing into the
grid. Neither retains an individual identity nor flows in a determinable
direction. Consumers drawing electricity are extracting a homogenous,
untraceable commodity. Impedance works as the equivalent of gravity. Just as
gravity acts to keep the water level constant, impedance works to keep the
electrical grid at a constant energy level.
Thus, the physical nature of the transmission of electricity to serve
consumers has 2 important differences from natural gas or telephones. First, it
does not move from one point to another. Second, the distance from the producer
to the consumer is irrelevant. It is just as easy to scoop a cup of water out of
an ocean 200 miles at sea as it is to do near shore. The water level after the
withdrawal is instantly equalized by water from an unidentifiable source.
Future Regulations. Given these physical properties, the cost of
transmission and access to the grid can be effectively accomplished by:
o Making all suppliers responsible for inputs equal to their sales to
consumers; and
o Charging them a pro-rata fee for the volume, on a percentage basis,
of the cost of the grid.
Electric transmission is not currently regulated in this fashion. Current
regulations pretend that electricity has point-to-point flow. Whether regulators
can make the leap from the current framework to one consistent with the physics
of electricity transmission at once is unlikely. However, transmission access
and economic fairness are 2 overriding characteristics that may require federal
preemption for a truly competitive market to develop.
The experience in Pennsylvania has demonstrated the importance of
transmission to a competitive market. With relatively equal market economics,
consumers in Philadelphia, which is served by a well-developed,
non-discriminatory transmission service, have nearly 5 times as many choices as
those in Pittsburgh, where individually negotiated transmission agreements are
used. In the end, how regulators structure the transmission market will
significantly affect competing suppliers and, in turn, significantly influence
the timing and demand for Wattage Monitor's service.
ELECTRIC COMPETITION PRECEDENTS
European Experience. Two European countries have begun the process of
deregulating their electric utility industry. This takes the form of
privatization. The most common historical model for the organization of the
electric industry even among western democracies, has been state ownership. The
2 recent examples of the state exiting the electric business and simultaneously
creating a private, competitive industry are the United Kingdom and Holland.
United Kingdom. In the privatization of its electric industry, the United
Kingdom created 2 large power generators and aproximately 12 distribution
companies serving designated geographic areas. While these originally had the
characteristics of generators and distribution companies the law by which they
were privatized did not so restrict their activities. Accordingly, distributors
were afforded the opportunity to become generators in addition to their
distribution activities and the generators were similarly free to pursue
distribution. Cost went down, efficiencies up. Several mergers, both among
themselves and with non-United Kingdom companies, occurred. It is likely that as
more countries deregulate this industry, the creation of international electric
companies will evolve.
The Netherlands. Holland developed its electric industry with a profusion
of municipal utilities. Virtually every city in Holland owned its own electric
utility. When the law was changed to allow these local governments to sell such
assets, a widespread consolidation of the industry occurred. Competition for
customers among these newly created, privately owned utilities was significant.
It became common for these companies to offer water, cable and telecommunication
services, in addition to electricity, in an effort to be a single provider of
all the household utility necessities.
Summarizing the experience of both of these countries, several things are
apparent:
o Restructuring the utility industry leads to a period of active
financial restructuring;
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o Efficiencies go up and the cost of electricity comes down;
o The industry attracts new entrants;
o Consumers find themselves with a choice of electric suppliers for
the first time; and
o It takes a quite some time for consumers to adjust to the new
environment.
All of these conditions provide fertile ground for our services, but also
control the timing of when those services are required.
INSURANCE
We maintain property and liability coverage with various insurers. We
believe that such coverage is adequate for our needs and customary for
information service companies of comparable size and maturity.
EMPLOYEES
As of October 1, 1999, we employed 14 people and 20 contract employees to
staff our toll-free telephone service at 1-888-WATTAGE. We believe that our
relations with our employees are good.
PROPERTY
We maintain offices in several locations, including:
o San Rafael, California (1999 lease payments of $7,650)
1348 Fourth Street, Suite 210
San Rafael, CA 94901
o Reno, Nevada (1999, 2000, 2001 lease payments of $28,600, $29,350,
$9,850 respectively)
1100 Kietzke Lane
Reno, NV 89502
o Harrisburg, Pennsylvania (month-to-month rental)
2033 Linglestown Road, #378
Harrisburg, PA 17110
o Washington, D.C. (month-to-month rental)
601 Pennsylvania Avenue
Suite 900
Washington, D.C. 20004
Our offices cover an aggregate of approximately 3,500 square feet. Required
annual lease payments are: $36,250 for 1999, $29,350 for 2000, and $9,850 for
2001. In addition, we have offices provided by our employees in Boston,
Massachusetts; Helena, Montana; and Dallas, Texas. No additional lease expenses
are required under these arrangements with our employees.
LEGAL PROCEEDINGS
Wattage Monitor is not a party to any legal proceedings.
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MANAGEMENT
The following table sets forth certain information with respect to our
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE COMPANY POSITION AND OFFICES HELD
- ---------------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Stephen D. Klein.............................. 38 Chairman of the Board of Directors
Gerald R. Alderson............................ 52 President, Chief Executive Officer and Director
Joel Dumaresq................................. 34 Director
Alexander Ellis III........................... 48 Vice President--Marketing and Director
Ajmal Khan.................................... 38 Director
Daniel I. DeWolf.............................. 41 Secretary
Robert E. Forrest............................. 31 Vice President--Operations
John D. Westfield............................. 36 Vice President--Technology
</TABLE>
Stephen D. Klein, age 38, is the Chairman of the Board and a founder of
Wattage Monitor. He is not an employee. Since 1990, he has been a Managing
Partner and Director of Media and Interactive Services of Kirshenbaum Bond &
Partners, one of the country's most successful independent advertising agencies.
Mr. Klein is one of the advertising industry's pioneers in the integration of
Internet media into brand-building marketing efforts. Mr. Klein received a B.A.
in English from Columbia University.
Gerald R. Alderson, age 52, is a founder and President of Wattage Monitor.
Between 1982 and the founding of Wattage Monitor in mid-1997, Mr. Alderson held
a variety of positions with Kenetech Corporation, including as its President and
Chief Executive Officer. He received his B.A. from Occidental College and his
M.B.A. from Harvard University Graduate School of Business Administration.
Joel Dumaresq, age 34, is a director of Wattage Monitor. Mr. Dumaresq is an
experienced business executive and investment banking specialist. Since 1996,
Mr. Dumaresq has acted as an independent investor and currently sits on the
Boards of Directors of a number of public and private companies. Since 1996,
Mr. Dumaresq has also served as a Vice President of Verus Capital Corp. From
1994 to 1996, Mr. Dumaresq was President and Chief Executive Officer of Westair
Aviation Inc., a full service, regional airline, and has served in various roles
for a large investment banking firm. From 1987 to 1994, Mr. Dumaresq served as
an institutional equity account representative with RDC Dominion Securities.
Alexander Ellis III, age 48, has served as Vice President--Marketing for
Wattage Monitor since its founding. Since 1990, Mr. Ellis held a number of
management positions at Kenetech Corporation, including as its Vice
President--Marketing. Between 1989 and 1990, he was Vice President Corporate
Accounts at Knoll International, Inc. Mr. Ellis received his B.A. from Colorado
College and his Masters in Public and Private Management from Yale School of
Organization & Management.
Ajmal Khan, age 38, is a director of Wattage Monitor. In 1987 Mr. Khan
founded, and became the President of, Verus Capital Corp., a diversified
investment group. Verus is involved in the ownership of hotels; venture capital
financing; corporate acquisitions; and several joint ventures entailing name
brand franchising and licensing. Mr. Khan also has a joint venture interest in
Barakaat Holdings Ltd., a sports marketing company. Since October of 1998, he
has also served as a director of Advanced Bodymetrics, Inc., a publicly traded
high-tech company dedicated to developing sports wristwatches that are able to
monitor and display various functions of the human body. Since July of 1998,
Mr. Khan has served as a director of iParty Corp., a publicly-traded company
dedicated to providing information and services with respect to coordinating
events.
Daniel I. DeWolf, age 41, is Secretary of Wattage Monitor. Since 1998,
Mr. DeWolf has served as Of Counsel to the law firm of Camhy Karlinsky & Stein
LLP in New York, New York, and has led the Firm's New Media and E-Law Group.
Since 1998, Mr. DeWolf also has served as a Managing Director of Dawntreader
Fund I LP, a venture capital fund. From 1994 to 1998, Mr. DeWolf established and
headed the Corporate and Securities practice group at Camhy Karlinsky & Stein
LLP. His law practice specializes in venture capital, mergers and acquisitions,
and securities transactions. Mr. DeWolf is a graduate of the University of
Pennsylvania (cum laude) and the University of Pennsylvania School of Law.
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Robert E. Forrest, age 31, has served as Vice President--Operations for
Wattage Monitor since March of 1998. Between May 1993 and his joining Wattage
Monitor, Mr. Forrest held a variety of finance positions, including cost control
and system development, principally in the food products industry. Since October
1995, in his most recent position, Mr. Forrest was the finance lead for all
United States trade agreement negotiations for Burns Philp, Inc., a global food
company. Mr. Forrest received his B.A. from the University of California at Los
Angeles (magna cum laude).
John D. Westfield, age 36, has served as Vice President--Technology for
Wattage Monitor since April of 1998. Between December, 1996 and April, 1998,
Mr. Westfield was a Director of Special Programs for Computer Sciences
Corporation. Between April, 1989 and November, 1996, he held a variety of
management and information technology positions with American Airlines including
responsibility for the design of the SABRE reservation system's internet
interface. Mr. Westfield received a Bachelor's and Master's degree from The
University of Texas, at Austin.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the last 5 years, none of the directors, executive officers or
control persons of Wattage Monitor have been:
o A party to a bankruptcy proceeding;
o Convicted in a criminal proceeding;
o Subject to any order, judgment or decree permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in
any type of business, securities or banking activities; or
o Found to have violated a federal or state securities or commodities law.
DIRECTOR COMPENSATION
Compensation of directors consists solely of reimbursement of their
expenses for attending meetings. Additionally each director receives stock
options to purchase 10,000 shares of our common stock on the date of the annual
meeting of our shareholders except that in 1999 the grant will occur on
September 30, 1999.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to our Chief
Executive Officer and all of our executive officers who received compensation in
excess of $100,000 for the fiscal years ended December 31, 1997
and December 31, 1998:
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION AWARDS
NAME AND POSITION YEAR SALARY SECURITIES UNDERLYING OPTIONS
- -------------------------------------------------------------- ---- ------------ -----------------------------
<S> <C> <C> <C>
Gerald R. Alderson ........................................... 1998 $137,500 --
President and Chief Executive Officer
Alexander Ellis, III ......................................... 1998 $125,000 75,000
Vice President--Marketing 1997 $ 62,500 225,000
John D. Westfield ............................................ 1998 $136,215 125,000
Vice President--Technology
</TABLE>
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<PAGE>
OPTION GRANTS IN 1998
Set forth below is information on grants of stock options for our executive
officers for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------------------------------------------------------
% OF TOTAL
NUMBER OPTIONS GRANTED TO
OF OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED(2) FISCAL YEAR PRICE PER SHARE DATE
- ------------------------------------------------ ---------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Alexander Ellis, III(2)
Granted Dec. 1998............................. 75,000 11% $1.00 1/1/09
John D. Westfield(3)
Granted Mar. 1998............................. 75,000 11% $1.00 1/1/08
Granted Dec. 1998............................. 50,000 7% $1.00 1/1/09
</TABLE>
- ------------------
(1) Represents contingent membership interests held in WattMonitor LLC, which
were converted into stock options upon the completion of the reverse merger
on February 26, 1999.
(2) The option was granted on December 2,1998 and is exercisable commencing on
January 1, 2000.
(3) The options were granted on March 31,1998 and December 2, 1998 and are
exercisable commencing on January 1, 1999 and January 1, 2000 respectively.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES
Set forth below is information with respect to the stock options held by
our executive officers.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ----------------------------------- ----------- -------- ------------------------- --------------------------------
<S> <C> <C> <C> <C>
Alexander Ellis, III............... -- -- 75,000/225,000 0
John D. Westfield.................. -- -- 0/125,000 0
</TABLE>
- ------------------
(1) Calculated on a per share value of $1.00 per share at December 31, 1998
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On January 1, 1998, WattMonitor LLC, as our predecessor, entered into an
Employment Agreement with Mr. Alderson. On February 26, 1999, we assumed
Mr. Alderson's employment agreement. Mr. Alderson's initial employment term
expires on December 31, 2000, but will be automatically renewed for an unlimited
series of one-year periods unless either party notifies the other.
Mr. Alderson currently receives a base salary of $150,000 per year, which
is subject to an annual adjustment at the discretion of our board of directors.
Under the terms of the agreement, Mr. Alderson is eligible to receive a bonus
for services rendered, subject to the discretion of our board of directors. In
the event we terminate Mr. Alderson's employment for any reason other than "for
cause" after either achieving annual revenues of $10,000,000 or more, or
receiving capital contributions in the aggregate of $10,000,000 or more, then
Mr. Alderson will be entitled to receive a lump sum termination payment equal to
two years' base salary.
In the event we experience a change in control and Mr. Alderson resigns, or
is terminated, within six months of the change in control Mr. Alderson will be
entitled to receive two years base salary, payable in one lump sum. He will also
be entitled to receive a payment equal to the greater of his bonuses for the
three years prior to the termination or eighteen months base salary. In no event
will this termination payment exceed 2.99 times Mr. Alderson's average annual
cash compensation during the five years prior to his termination.
We have no other employment contracts.
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<PAGE>
INCENTIVE COMPENSATION PLAN
On April 19, 1999, our 1999 Incentive Compensation Plan was adopted by the
Board of Directors.
OUR 1999 INCENTIVE COMPENSATION PLAN
Under our 1999 Incentive Compensation Plan, key employees, officers,
consultants and directors are given an opportunity to acquire our shares
directly or through options or the right to receive cash awards from us.
Our 1999 Incentive Compensation Plan provides for discretionary option
grants, under which key employees, officers, and consultants may be granted
options to purchase our shares of common stock at an exercise price not less
than the fair market value of our shares on the grant date. The options granted
under our 1999 Incentive Compensation Plan may be either incentive stock options
designed to meet the requirements of Section 422 of the Internal Revenue Code of
1986, as amended, or non-statutory options not intended to satisfy such
requirements. Options may be granted to eligible individuals in our employ or
service or in the service of any subsequent corporation.
A total of 1,500,000 shares of common stock are reserved for issuance over
the ten-year term of our 1999 Incentive Compensation Plan. As of October 1,
1999, there are 627,950 reserved shares of our common stock which remain
available for issuance, and 872,050 shares of our common stock that are reserved
for the exercise of existing grants.
Options have maximum terms of ten years from the grant date. Options are
not assignable or transferable other than by will or by the laws of inheritance.
The option may be exercised only by the optionee. The optionee will not have any
rights with respect to our shares of common stock underlying the options until
the options are exercised and the option price is paid for the purchased shares.
Our Board of Directors has the authority to cancel outstanding options in return
for the grant of new options, stock or cash. Our 1999 Incentive Compensation
Plan terminates on the earlier of April 19, 2009 or the date on which all the
shares available for issuance have been issued or cancelled.
As of October 1, 1999 executive officers and all other employees were
eligible to participate. Three of the four executive officers and all other
employees held options.
If Wattage Monitor is acquired by merger, consolidation or asset sale, or
there is a hostile change in control, each option granted under our 1999
Incentive Compensation Plan may be accelerated, and all unvested shares issued
under the plan may be immediately vested.
CERTAIN TRANSACTIONS
On August 14, 1998, RHL Ventures LLC loaned us $425,000. The loan is
evidenced by a promissory note for $425,000, bearing interest at 12% per annum,
and matures September 1, 2000. Simultaneously, we issued a warrant to RHL
Ventures exercisable through August 1, 2005, to purchase 283,333 shares of our
common stock at an exercise price of $1.50 per share. The warrant is exercisable
immediately but has not yet been exercised. The note balance may be used to
exercise the warrant. RHL Ventures LLC is one of our shareholders. Mr. Lessin,
one of our shareholders, is the President and Chief Executive Officer of RHL
Ventures.
Between October 7, 1998 and January 18, 1999, Verus Capital Corp., on
behalf of investors, advanced us an aggregate of $1,000,000. The right to this
advance was subsequently assigned by the investors to Wattage Monitor Inc. prior
to our merger in exchange for 2,750,000 shares of common stock. Upon the merger
of Wattage Monitor Inc. and WattMonitor LLC, the advance became a payable to
ourselves and was canceled. Mr. Khan is the President of Verus and one of our
directors.
On December 29, 1998, RHL Ventures loaned us $150,000, with interest at 12%
per annum. The note was repaid in February of 1999. Simultaneously, we issued a
warrant to RHL Ventures exercisable through December 29, 2005, to purchase
100,000 shares of our common stock at an exercise price of $1.50 per share. The
28
<PAGE>
warrant was exercisable immediately. Mr. Lessin, one of our shareholders, is the
President and Chief Executive Officer of RHL Ventures.
On December 29, 1998, Gerald R. Alderson loaned us $50,000, with interest
at 12% per annum. The note was repaid in March of 1999. Simultaneously, we
issued a warrant to Mr. Alderson exercisable through December 29, 2005, to
purchase 33,333 shares of our common stock at an exercise price of $1.50 per
share. The warrant was exercisable immediately. Mr. Alderson is our President
and Chief Executive Officer, as well as one of our directors.
On December 29, 1998, Stephen D. Klein loaned us $50,000, with interest at
12% per annum. The note was repaid in February of 1999. Simultaneously, we
issued a warrant to Mr. Klein exercisable through December 29, 2005, to purchase
33,333 shares of our common stock at an exercise price of $1.50 per share. The
warrant was exercisable immediately. Mr. Klein is the Chairman of our Board of
Directors and a shareholder.
For the period ended December 31, 1998, we paid approximately $132,000 for
software development to Kirshenbaum Bond & Partners. During the same period, we
also purchased approximately $112,000 of equipment from Kirshenbaum. Stephen D.
Klein, a partner of Kirshenbaum, is one of our directors.
On July 12, 1999, we issued a warrant to Camhy Karlinsky & Stein LLP
exercisable through July 11, 2009, to purchase 7,000 shares of our common stock
at an exercise price of $6.00 per share. The warrant was exercisable
immediately. Camhy Karlinsky & Stein LLP has acted as our legal [illigible] with
the preparation of this registration statement. A partner of Camhy Karlinsky &
Stein LLP holds, as a joint tenant, 17,648 shares of our common stock.
Another partner and two other attorneys of Camhy Karlinsky & Stein LLP may be
deemed to have beneficial ownership of an aggregate of 17,648 shares of our
common stock, although such beneficial ownership is disclaimed by each of the
three attorneys.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of October 1, 1999 as follows:
o By each person who is known by Wattage Monitor to beneficially own more
than 5% of Wattage Monitor's common stock, fully diluted;
o By each of Wattage Monitor's directors;
o By each officer named under the "Management--Executive
Compensation--Summary Compensation Table"; and
o By all officers and directors as a group.
Beneficial ownership is determined in accordance with the rules promulgated
by the SEC and the information is not necessarily indicative of beneficial
ownership for any other purpose. This table is based upon information supplied
to us by officers, directors and principal stockholders. Except as otherwise
indicated, we believe that the persons or entities named in the table have sole
voting power with respect to all shares of our common stock shown as
beneficially owned by them, subject to community property laws where applicable.
The table should be read in conjunction with the information that follows
it. The percentages set forth in the table assume 12,212,466 shares of common
stock outstanding as of October , 1999.
Mr. Lessin, Mr. Alderson and Mr. Klein have entered into agreements with us
under which they have agreed not to sell any of their shares prior to
August 26, 1999 and not to sell more than 20% of their shares between
August 27, 1999 and February 26, 2000.
Mr. Lessin's beneficial ownership column includes 564,706 shares of common
stock beneficially owned through RHL Ventures LLC, warrants to purchase an
aggregate of 383,333 shares of common stock beneficially owned through RHL
Ventures LLC, and 2,216,909 shares of common stock owned directly.
Mr. Alderson's and Mr. Klein's beneficial ownership columns include
warrants to purchase an aggregate of 66,666 shares of common stock beneficially
owned.
The aggregate amount for Mr. Dumaresq and Mr. Khan includes shares
beneficially owned by Verus Capital Corp. which includes warrants to purchase
100,000 shares of common stock from Valiant Growth Fund, options to purchase
50,000 shares of Series A Preferred Stock or 50,000 shares of common stock
29
<PAGE>
underlying the Series A Preferred Stock and options to purchase 250,000 shares
of Series B Preferred Stock or 250,000 shares of common stock underlying the
Series B Preferred Stock. Mr. Dumaresq and Mr. Khan have the right to acquire
30% and 70% respectively, of the options or the underlying shares. Mr. Dumaresq
and Mr. Khan each disclaim beneficial ownership of such shares.
The numbers in Mr. Ellis' and Mr. Westfield's beneficial ownership columns
represent options to purchase an aggregate of 175,000 shares of common stock,
which are immediately exercisable. Does not include options to purchase an
additional 250,000 shares of common stock, which are not currently exercisable.
Mr. DeWolf is married to Pamela Ehrenkranz DeWolf, who owns 12,500 shares
of common stock. Mr. DeWolf disclaims beneficial ownership of his wife's shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNERSHIP(1)
- ------------------------------------------------------------------------ ------------------ ----------------------
<S> <C> <C>
Robert H. Lessin ....................................................... 3,164,948 25.1%
c/o Wit Capital
826 Broadway, 6th Floor
New York, NY 10003
Gerald R. Alderson ..................................................... 1,935,243 15.8%
c/o Wattage Monitor
1100 Kietzke Lane
Reno, NV 89502
Stephen D. Klein ....................................................... 1,303,920 10.6%
c/o Kirshenbaum Bond & Partners
145 6th Avenue
New York, NY 10013
Ajmal Khan.............................................................. 280,000 2.2%
Alexander Ellis, III ................................................... 150,000 1.2%
Joel Dumaresq........................................................... 120,000 1.0%
John D. Westfield....................................................... 25,000 *
Daniel I. DeWolf........................................................ 12,500 *
All Officers and Directors (7 persons).................................. 3,826,663 30.3%
</TABLE>
* Less than one percent (1%)
30
<PAGE>
SELLING SHAREHOLDERS
The following table shows for our shareholders the following information:
o The number of shares of our common stock beneficially owned by them
as of October 1, 1999 and covered by this prospectus; and
o The number of shares of common stock to be retained after this
offering, if any.
We assume no purchase in this offering by any shareholder listed below of
any shares of our common stock.
Mr. Lessin, Mr. Alderson and Mr. Klein have entered into agreements with
us, under which they have agreed not to sell any of their shares prior to
August 26, 1999 and not to sell more than 20% of their shares between
August 27, 1999 and February 26, 2000.
The number in Mr. Lessin's ownership columns include 564,706 shares of
common stock beneficially owned through RHL Ventures and 2,216,909 shares of
common stock owned directly.
The numbers in the column representing the number of shares beneficially
owned after the offering by Mr. Lessin, Mr. Alderson, Mr. Klein and Valiant
Growth Fund include warrants to purchase an aggregate of 549,999 shares of our
common stock.
Mr. Bond and Mr. Kirshenbaum have entered into agreements with us, under
which they have agreed not to sell more than 35% of their shares between
September 19, 1999 and January 31, 2000.
The numbers in the columns representing the number of shares owned prior to
and registered in the offering by Alexander Ellis, Vicki Center, Robert Forrest,
John Westfield, Alison Elliott, Dwight Patrick, John Vergoz, Benjamin Marshall,
Jamey Gessaman, Robert Fitzgerald, Christopher Balthasar, and Frederick Powell,
are an aggregate of 835,550 shares of our common stock underlying an aggregate
of 835,550 options.
Ajmal Khan and Joel Dumaresq, two of our directors, beneficially own 70%
and 30%, respectively, of Valiant Growth Fund.
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------
NUMBER OF SHARES
OWNED PRIOR TO
AND REGISTERED NUMBER OF SHARES
IN BENEFICIALLY OWNED
NAME OF SELLING SHAREHOLDER THE OFFERING AFTER THE OFFERING
- ------------------------------------------------------------------------- ---------------- ----------------------
<S> <C> <C>
Robert H. Lessin......................................................... 506,932 2,658,016
Gerald R. Alderson....................................................... 406,932 1,528,311
Stephen D. Klein......................................................... 306,932 996,988
Jonathan Bond............................................................ 397,059 0
Richard Kirshenbaum...................................................... 397,059 0
Alexander Ellis.......................................................... 300,000 0
Valiant Growth Fund...................................................... 250,000 100,000
Orion Projects Limited................................................... 250,000 0
Delta Realty Limited..................................................... 250,000 0
A.E.L.P.................................................................. 220,588 0
Gail Alderson............................................................ 132,354 0
Vicki L. Center.......................................................... 125,000 0
Robert E. Forrest........................................................ 125,000 0
John D. Westfield........................................................ 125,000 0
Alan J. Hirschfield GST Exemption Trust.................................. 110,294 0
Westin Machineries Pension S.A........................................... 108,350 0
Liegemen, S.A............................................................ 108,350 0
Kenneth Hattich.......................................................... 105,884 0
Alison Elliott........................................................... 99,274 0
Marcy Shockey............................................................ 97,060 0
Nigel Carr............................................................... 79,412 0
William Oberlander....................................................... 78,706 0
Anne Alderson............................................................ 68,974 0
Katherine Alderson....................................................... 68,824 0
Kory Alderson............................................................ 68,824 0
John Merrill............................................................. 52,942 0
Johnathen Cohen.......................................................... 50,000 0
Michael J. Marocc........................................................ 44,118 0
Rosemarie Ryan........................................................... 39,706 0
Dorothy Piekarz.......................................................... 37,030 0
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C>
Laura Y. Hirschfield..................................................... 33,334 0
Marc E. Hirschfield...................................................... 33,333 0
Scott E. Hirschfield..................................................... 33,333 0
Bennet Finance Ltd....................................................... 33,300 0
Dwight Patrick........................................................... 30,000 0
John Vergoz.............................................................. 30,000 0
Benjamin Marshall........................................................ 27,000 0
Christine M. Ruppert / Martin E. Karlinsky, as joint tenants............. 17,648 0
Jamey Gessaman........................................................... 15,450 0
Robert Fitzgerald........................................................ 15,000 0
Pamela Ehrenkranz DeWolf................................................. 12,500 0
Christopher Balthasar.................................................... 7,650 0
Frederick S. Powell...................................................... 5,000 0
Michael R. Benzian....................................................... 4,500 0
Caryn Bailey............................................................. 4,000 0
Deborah Annex............................................................ 1,148 0
Elaine Connolly.......................................................... 900 0
</TABLE>
PLAN OF DISTRIBUTION
We are registering the shares of our common stock covered by this
prospectus.
We will pay the costs, expenses, and fees of registering the common stock,
but our shareholders will pay any underwriting or brokerage commissions and
similar selling expenses relating to the sale of shares of their common stock.
Our shareholders may sell our common stock at market prices prevailing at
the time of the sale, at prices related to the prevailing market prices, at
negotiated prices or at fixed prices, which may change. Our shareholders may
sell some or all of their common stock through:
o Ordinary brokers' transactions, which may include long or short
sales;
o Purchases by brokers, dealers or underwriters as principal and
resale by those purchasers for their own accounts under this
prospectus;
o Market makers or into an existing market for the common stock;
o Transactions in options, swaps or other derivatives; or
o Any combination of the selling options described in this prospectus,
or by any other legally available means.
In addition, our shareholders may enter into hedging transactions with
broker-dealers, who may engage in short sales of our common stock in the course
of hedging the positions they assume. Finally, our shareholders may enter into
options or other transactions with broker-dealers that require the delivery of
our common stock to those broker-dealers. Subsequently, the shares may be resold
under this prospectus.
In their selling activities, our shareholders will be subject to applicable
provisions of the Securities Exchange Act of 1934 and its rules and regulations,
including Regulation M, which may limit the timing of purchases and sales of our
common stock by our shareholders.
Those of our shareholders and any broker-dealers involved in the sale or
resale of our common stock may qualify as "underwriters" within the meaning of
Section 2 (11) of the Securities Act of 1933. In addition, the broker-dealers'
commissions, discounts, or concessions may qualify as underwriters' compensation
under the Securities Act of 1933. If any broker-dealer or any of our
shareholders qualify as an "underwriter," they will be subject to the prospectus
delivery requirements of Section 153 of the Securities Act of 1933.
In conjunction with sales to or through brokers, dealers or agents, our
shareholders may agree to indemnify such brokers, dealers or agents against
liabilities arising under the Securities Act of 1933. We do not know of any
existing arrangements between our shareholders and any other shareholder,
broker, dealer, underwriter or agent relating to the sale or distribution of our
common stock.
32
<PAGE>
In addition to selling their common stock under this prospectus, our
shareholders may:
o Transfer their common stock in other ways not involving market
makers or established trading markets, including by gift,
distribution or other transfer; or
o Sell their common stock under Rule 144 of the Securities Act, if the
transaction meets the requirements of Rule 144.
We have advised our shareholders that, during the time each is engaged in
distribution of their common stock, each must comply with Rule 10b-5 and
Regulation M under the Securities Exchange Act of 1934. They must do all of the
following under those rules:
o Not engage in any stabilization activity in connection with our
common stock;
o Furnish each broker who may be offering our common stock on behalf
of our shareholders the number of copies of this prospectus required
by each broker; and
o Not bid for or purchase any of our common stock or attempt to induce
any person to purchase any of our common stock, other than as
permitted under the Securities Exchange Act of 1934.
Any of our shareholders who may be "affiliated purchasers," as defined in
Regulation M, have been further advised that they must coordinate their sales
under this prospectus with each other and us for the purposes of Regulation M.
To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing:
o The name of any such broker-dealers;
o The number of securities involved;
o The price at which such securities are to be sold;
o The commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
o That such broker-dealers did not conduct any investigation to verify
the information set out in this Prospectus, as supplemented; and
o Other facts material to the transaction.
There is no assurance that any of our shareholders will sell any of our
common stock.
We have agreed to keep the registration statement relating to the offering
and sale by our shareholders continuously effective until the earlier of the
sale of all our common stock or 12 months from the date of this prospectus.
DESCRIPTION OF THE CAPITAL STOCK
The authorized capital stock of Wattage Monitor consists of common stock,
preferred stock and warrants to acquire common stock as set forth below:
Our authorized capital stock consists of 25,000,000 shares of our common
stock, par value $.01 per share, and 5,000,000 shares of our preferred stock,
par value $.01 per share.
COMMON STOCK
Our authorized common stock consists of 25,000,000 shares of common stock.
As of October 1, 1999, we had issued and outstanding 12,212,466 shares of
common stock. As of October , 1999, there were approximately 66 holders of
record of our common stock. In addition, we have reserved the following shares
of common stock:
o 1,500,000 shares of our common stock under our 1999 Incentive
Compensation Plan;
o 557,000 shares of our common stock for existing warrants; and
o 3,500,000 shares of our common stock for conversion of our Series B
preferred stock.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of our shareholders. Subject to
preferences that may be applicable to any outstanding shares of our preferred
stock, the holders of our common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available for such dividends. In the event of our liquidation, dissolution or
winding up, holders of our common stock will be entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preferences of
any outstanding shares of preferred stock. Holders of common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common
33
<PAGE>
stock. All outstanding shares of common stock are fully paid and non-assessable.
The rights, preferences and privileges of holders of common stock are subject to
the rights of holders of shares of any series of preferred stock that we may
designate and issue in the future.
PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of preferred stock, par
value $.01 per share. Between September 23, 1999 and October , 1999,
1,000,000 shares of our Series A 6% preferred stock automatically converted into
1,000,000 shares of our common stock, held by 6 registered holders. Between
September 23, 1999 and October F, 1999, 3,500,000 shares of our Series B
preferred stock were issued upon the exercise of pre-existing warrants. The
holders of our Series B preferred stock have no voting power except as expressly
provided by Nevada law. Upon issuance, each share of Series B preferred stock is
convertible into 1.0 shares of our common stock.
Pursuant to our articles of incorporation, our board of directors has the
authority, without further action by the shareholders, to issue our preferred
stock in one or more series of preferred stock and to fix the designation,
powers, preferences, privileges and relative participating, optional or special
rights of such stock, and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. Our board of directors, without shareholder
approval, may issue preferred stock with voting, conversion of other rights that
could adversely affect the voting power and other rights of the holder of common
stock. Therefore, our preferred stock may be issued quickly, with terms that may
delay or prevent a change in control or make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the common stock and may adversely affect the
voting and other rights of the holders of common stock.
WARRANTS
We have issued a warrant to purchase 7,000 shares of our common stock at an
exercise price of $6.00 per share. This warrant expires on July 11, 2009, and is
exercisable at any time. We have also issued four warrants to purchase an
aggregate of 450,000 shares of our common stock at an exercise price of $1.50
per share. The warrants expire on December 29, 2005, and are exercisable at any
time. We have also issued one warrant to purchase 100,000 shares of our common
stock at an exercise price of $1.00 per share. This warrant expires on February
26, 2005, and is exercisable at any time. The warrants do not confer upon the
holders any voting or other rights of our shareholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Wattage Monitor's Common Stock is
American Securities Transfer & Trust, Inc. As neither the convertible preferred
stock, the warrants nor the options is registered, Wattage Monitor acts as its
own Transfer Agent and Registrar as to such securities.
34
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We currently have 12,212,466 shares of common stock outstanding. All of
them are freely tradeable without restriction or further registration under the
Securities Act of 1933. Also, 835,550 shares of our common stock underlying the
options will, upon exercise of the options, be freely tradeable without
restriction or further registration. However, any shares purchased by an
affiliate of ours will be subject to the resale limitations of Rule 144 under
the Securities Act of 1933. An affiliate is a person who has a control
relationship with us. The remaining shares of common stock are with us.
Rule 144 provides that a person who has satisfied a one-year holding period for
any restricted shares may sell within any three-month period an amount of
restricted shares that does not exceed the greater of:
o One percent of that class of outstanding shares; or
o The average weekly trading volume of our common stock.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about us.
In addition, under Rule 144, persons who are not affiliated with us and who have
held their restricted shares for at least 2 years are not subject to the
quantity limitations or the manner of sale restrictions.
Gerald R. Alderson, Stephen D. Klein, Robert H. Lessin and RHL Ventures LLC
have agreed not to sell or otherwise dispose of any of their shares of common
stock until August 26, 1999. From August 27, 1999 through February 26, 2000,
they have agreed to sell no more than 20% of their individual holdings.
LEGAL MATTERS
The validity of the common stock offered under this prospectus will be
passed upon for us by our counsel, Camhy Karlinsky & Stein LLP, New York, New
York. Camhy Karlinsky & Stein LLP holds a warrant to purchase 7,000 shares of
our common stock at an exercise price of $6.00 per share. This warrant expires
on July 11, 2009 and is exercisable at any time.
EXPERTS
The financial statements of WattMonitor LLC as of December 31, 1998, and
for the period from inception through December 31, 1997 and year ended
December 31, 1998, included in this registration statement, have been included
herein in reliance upon the report of Grant Thornton LLP, independent certified
public accountants, appearing elsewhere in this prospectus, and upon the
authority of Grant Thornton LLP as experts in accounting and auditing.
DISCLOSURE OF COMPANY POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Wattage Monitor's certificate of incorporation and by-laws provide that
Wattage Monitor shall indemnify all directors and officers of Wattage Monitor to
the fullest extent permitted by Nevada law. Under such provisions, any director
or officer, who in his capacity as such is made or threatened to be made, party
to any suit or proceeding, shall be indemnified if it is determined that such
director or officer acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of Wattage Monitor. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and persons controlling Wattage Monitor
pursuant to the foregoing provision, or otherwise, Wattage Monitor 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 of
1933 and is, therefore, unenforceable.
Wattage Monitor maintains directors' and officers' liability insurance
providing aggregate coverage of $5,000,000.
35
<PAGE>
AVAILABLE INFORMATION
We will file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied, at the Public Reference Room of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
Northeast Regional Office of the Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and at the Midwest Regional Office of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our Commission filings will
also be available to the public from the Commission's website at
http://www.sec.gov.
We have filed a registration statement with the Commission on Form SB-2,
under the Securities Act of 1933, with respect to the securities described in
this prospectus. This prospectus, filed as part of the registration statement,
does not contain all of the information set forth in the registration statement
and the exhibits and schedules filed with the registration statement. For
further information about us and the common stock described by this prospectus,
reference is made to the registration statement and to the exhibits and
schedules filed with it, copies of which can be inspected at, or obtained from,
the Public Reference Room.
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants..................................... F-2
Balance Sheets......................................................................... F-3
Statements of Operations............................................................... F-4
Statements of Stockholders' Equity (Deficit)........................................... F-5
Statements of Cash Flows............................................................... F-7
Notes to Financial Statements.......................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Wattage Monitor Inc.
We have audited the accompanying balance sheet of Wattage Monitor Inc. (a
development stage company) as of December 31, 1998, and the related statements
of operations, stockholders' equity (deficit), and cash flows for the period
from inception (July 1, 1997) through December 31, 1997 and for the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Wattage Monitor Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from inception (July 1, 1997) through December 31, 1997 and for year
ended December 31, 1998 in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
RENO, NEVADA
APRIL 15, 1999
F-2
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, 1998 JUNE 30, 1999
------------- -----------
(UNAUDITED)
Current assets
<S> <C> <C>
Cash and cash equivalents..................................................... $ 137,688 $ 1,674,759
Prepaid expenses.............................................................. 3,386 60,855
------------- -----------
Total current assets....................................................... 141,074 1,735,614
------------- -----------
Property and Equipment, net..................................................... 620,728 837,629
------------- -----------
Other Assets
Software licenses............................................................. 45,000 33,750
Deferred offering costs....................................................... 48,670 --
Patents and Trademarks........................................................ 19,650 28,285
Deposits...................................................................... 3,333 3,533
------------- -----------
Total other assets......................................................... 116,653 65,568
------------- -----------
$ 878,455 $ 2,638,811
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable.............................................................. $ 486,190 $ 270,341
Accrued liabilities........................................................... 12,500 38,563
Accrued interest.............................................................. 25,389 44,363
Notes payable--related parties................................................ 304,000 --
------------- -----------
Total current liabilities.................................................. 828,079 353,267
------------- -----------
Notes Payable--related parties--long-term....................................... 925,000 425,000
------------- -----------
Commitments..................................................................... -- --
------------- -----------
Stockholders' Equity (Deficit)
Preferred stock, Series A, 6% cumulative, convertible; $0.01 par value,
5,000,000 shares authorized, 1,000,000 shares issued and outstanding
as of June 30, 1999........................................................ -- 10,000
Common stock, $0.01 par value, 25,000,000 shares authorized,
7,500,000 and 11,207,966 shares issued and outstanding as of
December 31, 1998 and June 30, 1999........................................ 75,000 112,080
Additional paid-in capital.................................................... 2,204,710 7,564,879
Deficit accumulated during the development stages............................. (2,769,334) (5,826,415)
Unamortized discount on debt.................................................. (385,000) --
------------- -----------
Total stockholders' equity (deficit).......................................... (874,624) 1,860,544
------------- -----------
$ 878,455 $ 2,638,811
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
INCEPTION SIX MONTHS ENDED (JULY 1, 1997)
(JULY 1, 1997) TO YEAR ENDED JUNE 30, TO
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999 JUNE 30, 1999
----------------- ----------------- ----------- ------------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating expenses
Telecommunications............ $ -- $ 349,246 $ 47,916 $ 428,358 $ 777,604
System development............ 15,311 442,682 107,850 278,989 736,982
Marketing..................... -- 462,464 156,386 354,545 817,009
General and administrative.... 162,873 797,617 296,319 703,076 1,663,566
Depreciation and
amortization................ 1,059 28,493 7,760 43,012 72,564
----------- ----------- ----------- ----------- ------------
Net loss from operations.... (179,243) (2,080,502) (616,231) (1,807,980) (4,067,725)
----------- ----------- ----------- ----------- ------------
Other income (expense)
Interest expense.............. -- (520,389) -- (1,285,486) (1,805,875)
Interest and dividend income.. 1,308 9,492 5,585 36,385 47,185
----------- ----------- ----------- ----------- ------------
1,308 (510,897) 5,585 (1,249,101) (1,758,690)
----------- ----------- ----------- ----------- ------------
Net Loss.................... (177,935) (2,591,399) (610,646) (3,057,081) (5,826,415)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Preferred stock dividend........ -- -- -- (62,500) (62,500)
----------- ----------- ----------- ----------- ------------
Net loss on common shares... $ (177,935) $(2,591,399) $ (610,646) $(3,119,581) $ (5,888,915)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Loss per common share........... $ (0.03) $ (0.36) $ (0.09) $ (0.31) $ (0.76)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Weighted average number of
common shares outstanding..... 6,650,000 7,287,500 7,055,000 10,006,254 7,750,720
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS I CLASS II
MEMBERSHIP UNITS MEMBERSHIP UNITS COMMON STOCK
------------------------ ---------------------- ----------------------
UNITS AMOUNT UNITS AMOUNT SHARES AMOUNT
---------- --------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Inception, July 1, 1997....... -- $ -- -- $ -- -- $ --
Issuance of membership
units.................... 5,000,000 450,000 -- -- -- --
Net loss.................... -- -- -- -- -- --
---------- --------- -------- --------- ---------- -------
Balances, December 31,
1997........................ 5,000,000 450,000 -- -- -- --
Issuance of membership
units--net of offering
costs.................... -- -- 666,667 949,710 -- --
Beneficial conversion
feature on debt.......... -- -- -- -- -- --
Amortization of discount on
debt..................... -- -- -- -- -- --
Net loss.................... -- -- -- -- -- --
Recapitalization............ (5,000,000) (450,000) (666,667) (949,710) 7,500,000 75,000
---------- --------- -------- --------- ---------- -------
Balances, December 31,
1998........................ -- $ -- -- $ -- 7,500,000 $75,000
---------- --------- -------- --------- ---------- -------
---------- --------- -------- --------- ---------- -------
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK ADDITIONAL UNAMORTIZED DURING THE
--------------------- PAID-IN DISCOUNT DEVELOPMENT
SHARES AMOUNT CAPITAL ON DEBT STAGE TOTAL
-------- -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Inception, July 1, 1997....... -- $ -- $ -- $ -- $ -- $ --
Issuance of membership
units.................... -- -- -- -- -- 450,000
Net loss.................... -- -- -- -- (177,935) (177,935)
-------- -------- ---------- --------- ----------- -----------
Balances, December 31,
1997........................ -- -- -- -- (177,935) 272,065
Issuance of membership
units--net of offering
costs.................... -- -- -- -- -- 949,710
Beneficial conversion
feature on debt.......... -- -- 880,000 (880,000) -- --
Amortization of discount on
debt..................... -- -- -- 495,000 -- 495,000
Net loss.................... -- -- -- -- (2,591,399) (2,591,399)
Recapitalization............ -- -- 1,324,710 -- -- --
-------- -------- ---------- --------- ----------- -----------
Balances, December 31,
1998........................ -- $ -- $2,204,710 $(385,000) $(2,769,334) $ (874,624)
-------- -------- ---------- --------- ----------- -----------
-------- -------- ---------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
<TABLE>
<CAPTION>
CLASS I CLASS II
MEMBERSHIP UNITS MEMBERSHIP UNITS COMMON STOCK
------------------------ ---------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT SHARES AMOUNT
---------- --------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock.......... -- $ -- -- $ -- 707,366 $ 7,074
Exercise of stock options..... -- -- -- -- 600 6
Conversion of convertible
debt........................ -- -- -- -- 2,750,000 27,500
Acquisition of Wattage
Monitor, Inc.--net of
offering costs.............. -- -- -- -- 250,000 2,500
Beneficial conversion feature
on debt..................... -- -- -- -- -- --
Amortization of discount
on debt..................... -- -- -- -- -- --
Net loss...................... -- -- -- -- -- --
---------- --------- -------- --------- ---------- --------
Balances, June 30, 1999
(Unaudited)................. -- $ -- -- $ -- 11,207,966 $112,080
---------- --------- -------- --------- ---------- --------
---------- --------- -------- --------- ---------- --------
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK ADDITIONAL UNAMORTIZED DURING THE
---------------------- PAID-IN DISCOUNT DEVELOPMENT
SHARES AMOUNT CAPITAL ON DEBT STAGE TOTAL
---------- ------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock.......... -- $ -- $ 700,292 $ -- $ -- $ 707,366
Exercise of stock options..... -- -- 593 -- -- 599
Conversion of convertible
debt........................ -- -- 972,500 -- -- 1,000,000
Acquisition of Wattage
Monitor, Inc.--net of
offering costs.............. 1,000,000 10,000 2,806,784 -- -- 2,819,284
Beneficial conversion feature
on debt..................... -- -- 880,000 (880,000) -- --
Amortization of discount
on debt..................... -- -- -- 1,265,000 -- 1,265,000
Net loss...................... -- -- -- -- (3,057,081) (3,057,081)
---------- ------- ---------- --------- ----------- -----------
Balances, June 30, 1999
(Unaudited)................. 1,000,000 $10,000 $7,564,879 $ -- $(5,826,415) $ 1,860,544
---------- ------- ---------- --------- ----------- -----------
---------- ------- ---------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
INCEPTION SIX MONTHS ENDED JUNE 30, FROM INCEPTION
(JULY 1, 1997) TO YEAR ENDED -------------------------- (JULY 1, 1997) TO
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999 JUNE 30, 1999
----------------- ----------------- ----------- ------------ ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $ (177,935) $ (2,591,399) $ (610,646) $ (3,057,081) $ (5,826,415)
----------- ------------- ----------- ------------ ------------
Adjustments to reconcile net
loss to net cash used in
operating activities:
Write off of software
license.................... -- 184,875 -- -- 184,875
Amortization of discount on
debt....................... -- 495,000 -- 1,265,000 1,760,000
Depreciation and
amortization............... 1,059 28,493 7,760 43,012 72,564
Changes in:
Prepaid expenses........... (65,250) 61,865 58,650 (57,469) (60,854)
Other assets............... (2,725) (20,258) (10,253) (8,835) (31,818)
Accounts payable........... -- 113,059 53,284 (109,350) 3,709
Accrued liabilities........ -- 12,500 15,768 26,063 38,563
Accrued interest........... -- 25,389 -- 18,974 44,363
----------- ------------- ----------- ------------ ------------
Total adjustments........ (66,916) 900,923 125,209 1,177,395 2,011,402
----------- ------------- ----------- ------------ ------------
Net cash used in
operating activities... (244,851) (1,690,476) (485,437) (1,879,686) (3,815,013)
----------- ------------- ----------- ------------ ------------
Cash flows from investing
activities:
Acquisitions of property and
equipment....................... (109,355) (397,670) (354,959) (355,163) (862,188)
----------- ------------- ----------- ------------ ------------
Cash flows from financing
activities:
Deferred offering costs........... -- (48,670) -- 48,670 --
Issuance of membership units...... 450,000 949,710 949,710 -- 1,399,710
Issuance of notes payable to
related parties................. -- 1,229,000 -- 500,000 1,729,000
Payments on notes payable to
related parties................. -- -- -- (304,000) (304,000)
Acquisition of Wattage Monitor
Inc. ........................... -- -- -- 2,819,284 2,819,284
Common stock issued............... -- -- -- 707,366 707,366
Stock options exercised........... -- -- -- 600 600
----------- ------------- ----------- ------------ ------------
Net cash provided by financing
activities................. 450,000 2,130,040 949,710 3,771,920 6,351,960
----------- ------------- ----------- ------------ ------------
Net Increase in Cash and Cash
Equivalents................... 95,794 41,894 109,314 1,537,071 1,674,759
Cash and cash equivalents--beginning
of period......................... -- 95,794 95,794 137,688 --
----------- ------------- ----------- ------------ ------------
Cash and cash equivalents--end of
period............................ $ 95,794 $ 137,688 $ 205,108 $ 1,674,759 $ 1,674,759
----------- ------------- ----------- ------------ ------------
----------- ------------- ----------- ------------ ------------
Supplemental disclosure of non-cash
investing and financing
activities:
Software license agreement and
development costs included in
accounts payable................ $ 174,968 $ 198,161 $ 106,945 $ 25,309 $ 398,438
----------- ------------- ----------- ------------ ------------
----------- ------------- ----------- ------------ ------------
Notes payable converted to
equity.......................... $ -- $ -- $ -- $ 1,000,000 $ 1,000,000
----------- ------------- ----------- ------------ ------------
----------- ------------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(DATA RELATED TO JUNE 30, 1998 AND 1999 ARE UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES AND NATURE OF BUSINESS
1. ORGANIZATION AND NATURE OF BUSINESS
The Company was organized by its members on July 1, 1997 in Delaware. The
Company is a development stage enterprise and provides electrical rate
information to commercial and residential consumers nationwide. Revenue is
anticipated to come primarily from referral fees and commissions charged to
electricity suppliers who offer their products and service through the Company.
On February 26, 1999, Wattage Monitor Inc. (a Nevada corporation) acquired all
of the membership units of the Company. For accounting purposes, the acquisition
is treated as a recapitalization with the Company as the acquirer (a reverse
acquisition). Pro forma information is not presented since the acquisition is
not a business combination. The financial statements give retroactive effect to
the conversion of members' equity into common stock to reflect the
recapitalization.
2. INTERIM FINANCIAL STATEMENTS
The financial statements for the six months ended June 30, 1999 and 1998
are unaudited; however, in the opinion of management, all adjustments,
consisting of normal recurring adjustments necessary for a fair presentation of
the Company's financial position and results of operations for such periods have
been included. The results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
3. CASH EQUIVALENTS
The Company considers all short-term investments with original maturities
of ninety days or less to be cash equivalents.
4. DEPRECIATION AND AMORTIZATION
Depreciation and amortization sufficient to relate the cost of depreciable
assets to operations over their estimated service lives is provided using the
straight-line method of depreciation.
5. SOFTWARE LICENSE AND DEVELOPMENT COSTS
The Company has entered into several software license agreements to enable
customers to access information and order services provided via the internet.
Some of these agreements require the Company to pay an annual maintenance fee.
Additionally, the Company incurs software development costs to tailor such
software to its specific requirements. Such customization costs when internally
incurred are expensed and when purchased from third parties are capitalized.
License and development costs are amortized straight-line over three years while
maintenance fees are charged to expense ratably over the contract period.
Periodically, management evaluates the estimated useful life of intangible
assets based on projected future undiscounted cash flows.
The Company intends to provide its information services principally over
the internet through both licensed and custom software. Licensee fees paid were
$184,475 and $45,000 for the years ended December 31, 1997 and 1998,
respectively. License fees paid were $45,000 and $0 for the six months ended
June 30, 1998 and 1999, respectively. In addition, the Company capitalized third
party payments for software customization of $71,000 and $458,000 for the years
ended December 31, 1997 and 1998. Capitalized third-party payments for software
customization were $336,000 and $341,000 for the six months ended June 30, 1998
and 1999, respectively.
F-8
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DATA RELATED TO JUNE 30, 1998 AND 1999 ARE UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES AND NATURE OF BUSINESS--(CONTINUED)
A major portion of the Company's payables at year end 1998 ($183,000) is to
a licensor of software used to operate one portion of the Company's system. This
licensor has also provided significant customization services. A dispute existed
as to whether or not the services provided by this licensor met the agreed-upon
specifications and the terms and conditions of the agreement between the
parties. The Company does not believe the capitalized software license
($184,475) has any future value and, accordingly, has expensed the unamortized
portion of the licensee fee at December 31, 1998.
The dispute was settled during the six months ended June 30, 1999. The
settlement resulted in the licensor of the software relieving approximately
$132,000 due from the Company. The Company reduced its capitalized software
development costs by the $132,000. This settlement had no effect on income for
the six months ended June 30, 1999.
6. PATENTS AND TRADEMARKS
The Company has filed for a patent relating to its computer-based system
and methods for collecting and providing information regarding the electric
power industry and available electric supply options. The Company has also
applied for trademarks to limit the use by others of WM, Wattage Monitor,
Kilowatt Monitor and Watt Monitor. Patent and trademark expenses will be
amortized on the straight-line method over ten years.
7. ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense was
$-0- and $67,051 for the years ended December 31, 1997 and 1998, respectively.
Advertising expense was $4,198 and $105,076 for the six months ended June 30,
1998 and 1999, respectively.
8. USE OF ESTIMATES
In preparing these financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions. These affect the carrying value of the Company's assets and
liabilities, revenues and expenses during the reporting period and disclosures
relating to contingent assets and liabilities. Actual results may differ from
these estimates.
9. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist primarily of cash and cash equivalents. The Company maintains its cash
in bank deposit accounts which, at times, may exceed federally insured limits.
The Company believes it is not exposed to any significant credit risk related
thereto.
10. INCOME TAXES
The Company, through February 26, 1999, is not subject to income tax.
Income is taxed directly to its members. Accordingly, no provision has been made
for federal income tax. Further, because losses incurred have been reported by
the members, no operating losses are available to offset future income.
After February 26, 1999, the Company will provide for income taxes based
upon income reported for financial reporting purposes. Certain charges to
earnings will differ as to timing from those deducted for tax purposes. The tax
effect of those differences will be recorded as deferred income taxes. At
June 30, 1999, the Company has a deferred tax asset of $430,000 resulting from a
net operating loss for the period February 27,
F-9
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DATA RELATED TO JUNE 30, 1998 AND 1999 ARE UNAUDITED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES AND NATURE OF BUSINESS--(CONTINUED)
1999 through June 30, 1999. The Company has provided for a valuation allowance
of $430,000 at June 30, 1999.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes the fair value of financial instruments other than
notes payable approximates their carrying amounts. Management believes the fair
values of notes payable can not be determined due to the related party nature of
the transactions.
12. DEFERRED OFFERING COSTS
Costs associated with the recapitalization are deferred to the period in
which the recapitalization occurs.
13. DISCOUNT ON DEBT
Costs incurred in connection with the issuance of debt are amortized over
the expected life of the debt. The beneficial conversion feature has been
accounted for as additional paid-in capital and associated unamortized discount
on debt recorded as a component of stockholders' equity.
14. LOSS PER SHARE
Loss per common share is computed based upon the weighted average shares
outstanding giving retroactive effect of common shares issued to members of Watt
Monitor LLC upon completion of the recapitalization. Convertible equity
instruments are not considered in the calculation of net loss per share as their
inclusion would be antidilutive at December 31, 1998 and June 30, 1999.
NOTE B--RELATED PARTY TRANSACTIONS
The Company leased its office space in San Francisco through October 1998
from a company in which the President is a director and has a financial
interest. The total rent expense was $8,724 and $19,750 for the years ended
December 31, 1997 and 1998. Total rent expense was $11,850 and $-0- for the six
months ended June 30, 1998 and 1999, respectively.
For the years ended December 31, 1997 and 1998, the Company paid
approximately $31,000 and $132,000 for software development to Kirschenbaum,
Bond & Partners, the principals of which have a financial interest in the
Company, and one partner is a director of the Company. The Company paid
Kirschenbaum, Bond & Partners approximately $94,000 and $0 for software
development for the six months ended June 30, 1998 and 1999, respectively.
The Company also purchased approximately $112,000 of equipment from
Kirschenbaum, Bond & Partners during the year ended December 31, 1998. The
Company purchased approximately $107,000 and $7,800 of equipment from
Kirschenbaum, Bond & Partners during the six months ended June 30, 1998 and
1999, respectively. The Company paid Kirschenbaum, Bond & Partners $-0- and
$5,600 for advertising for the years ended December 31, 1997 and 1998,
respectively. The Company paid Kirschenbaum, Bond & Partners $0 and $105,000 for
advertising for the six months ended June 30, 1998 and 1999, respectively.
The Company purchased office equipment for approximately $12,500 and
$13,000 from a company in which the President is a director and has a financial
interest during the periods ended December 31, 1997 and 1998. The Company did
not purchase any office equipment from this company during the six months ended
June 30, 1998 and 1999.
F-10
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DATA RELATED TO JUNE 30, 1998 AND 1999 ARE UNAUDITED)
NOTE C--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999 LIVES
------------ -------- ---------
<S> <C> <C> <C>
Furniture and equipment.......................................... $120,801 $158,471 5-7 years
Software......................................................... 529,479 740,471 3 years
-------- --------
650,280 898,942
Less accumulated depreciation and amortization................... (29,552) (61,313)
-------- --------
$620,728 $837,629
-------- --------
-------- --------
</TABLE>
NOTE D--NOTES PAYABLE--RELATED PARTIES
Notes payable to related parties are as follows at:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Note payable, due September 1, 2000, with interest at 12% due semiannually.
Interest may be paid in common stock at $1.00 per share at the option of
the lender. As part of the loan, the related party was issued one warrant
for the purchase of 283,333 shares of common stock at $1.50 per share.
The warrant expires August 2005.......................................... $ 425,000 $ 425,000
Notes payable, principal and interest at 12%, due upon recapitalization.
The notes were paid February 1999. As part of the loans, the related
parties were issued three warrants which allow for the purchase of
166,666 shares of common stock at $1.50 a share. The warrants expire
December 2005............................................................ 250,000 --
Advances from related parties, due on demand............................... 54,000 --
Note payable, without interest which converts into 1,375,000 shares of
common stock upon completion of the recapitalization. Conversion into
common stock took place in 1999, and therefore, the note is classified as
a long-term liability.................................................... 500,000 --
---------- ----------
1,229,000 425,000
Less: Current maturities................................................... (304,000) --
---------- ----------
Notes payable long-term.................................................... $ 925,000 $ 425,000
---------- ----------
---------- ----------
</TABLE>
Aggregate maturities of long-term notes payable for the five years
following December 31, 1998, are $304,000 for 1999 and $425,000 for 2000.
NOTE E--STOCKHOLDERS' EQUITY (DEFICIT)
The Company had two classes of membership interests. There were 10,000,000
authorized units of Class I membership interests, of which 5,000,000 units were
outstanding as of both December 31, 1997 and 1998. There were 10,000,000
authorized units of Class II membership units. No units were outstanding as of
December 31, 1997, and 666,667 were outstanding at December 31, 1998.
In January 1999, Watt Monitor LLC sold 37,777 membership units.
F-11
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DATA RELATED TO JUNE 30, 1998 AND 1999 ARE UNAUDITED)
NOTE E--STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
On February 26, 1999, Wattage Monitor Inc. (a Nevada corporation) acquired
all of the equity (membership units) of the Company. For accounting purposes,
the acquisition is treated as a recapitalization with the Company as the
acquirer (a reverse acquisition). Pro forma information is not presented since
the acquisition is not a business combination. The members exchanged their
membership units for 7,550,450 shares of common stock (approximately 72% of the
outstanding common stock) of Wattage Monitor Inc. In addition, each member,
other than the controlling members, was entitled to acquire such number of
shares of common stock at $1.00 per share as necessary to maintain the same
ownership percentage in Wattage Monitor Inc. as such member held in the Company.
In connection with this right, 657,366 shares were issued. Also, in connection
with the recapitalization, all employees exchanged their contingent membership
interests for stock options to purchase 918,000 shares of Wattage Monitor Inc.
exercisable at $1.00 per share.
Certain stockholders of Wattage Monitor Inc. advanced approximately
$500,000 in January 1999, which, along with $500,000 advanced in 1998, were
converted into 2,750,000 shares of common stock in 1999.
In connection with its recapitalization, Wattage Monitor Inc. issued
1,000,000 shares of Series A 6% Convertible Preferred Stock for $3,000,000. The
Series A 6% Preferred Stock accrues dividends at 6% per annum, payable annually,
commencing on February 26, 2000. The dividend at the option of the Company may
be paid in common stock. Each share of Series A 6% Preferred Stock is
convertible into one share of common stock. Such shares convert: (1) upon the
exercise of the warrant to purchase Series B Preferred Stock; (2) upon Wattage
Monitor Inc. raising $5,000,000 in an offering of common stock at $1.00 per
share or greater; or (3) at the option of the holder. In connection with the
issuance of the Series A 6% Preferred Stock, each purchaser received one Series
B warrant to purchase 3.5 shares of Series B Preferred Stock at $1.00 per share
exercisable 181 days after closing through December 15, 1999 or within 30 days
of a notice of a sale of at least $7,000,000 in equity securities of Wattage
Monitor Inc. for each share of Series A 6% Preferred Stock purchase.
In the event of liquidation, the Series A Preferred stock ranks senior to
all of the common stock. The preferred stockholders shall be entitled to receive
an amount equal to the sum of the original issue price and any accrued but
unpaid dividends.
In connection with the merger, a warrant was issued to the holder of
250,000 shares of preferred stock which represents the right to purchase 100,000
shares of common stock at $1.00 per share.
NOTE F--CONTINGENT MEMBERSHIP INTERESTS/STOCK OPTIONS
Contingent membership interests in an LLC are similar to stock options in a
corporation. Pursuant to a formal plan, the Board granted various employees and
other individuals contributing to the success of the organization, contingent
membership interests. In conjunction with the reverse acquisition of Wattage
Monitor Inc., all such contingent membership interests were exchanged for stock
options under Wattage Monitor Inc.'s incentive stock option plan. The plan
allows for 1,500,000 shares of common stock to be granted. In the three months
prior to the reverse acquisition, Wattage Monitor issued employee stock options
totaling 370,000 exercisable at $1.00 per share. Compensation expense related
thereto is immaterial.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, but applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for stock options.
The fair value of the Company's stock options was estimated as of the grant
date using the Black-Scholes option pricing model with the following weighted
average assumptions for the years ended December 31, 1997 and 1998 and for the
six months ended June 30, 1998 and 1999: dividend yield of 0.0%, expected
volatility of 0.0%, risk free interest rate of 5.80%, 4.91%, 6% and 6%,
respectively, and an expected holding period from three to four years. Based on
these assumptions, compensation expense was immaterial for the periods ended
December 31, 1997 and 1998. Compensation expense was also immaterial for the six
months ended June 30, 1998 and 1999.
F-12
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DATA RELATED TO JUNE 30, 1998 AND 1999 ARE UNAUDITED)
NOTE F--CONTINGENT MEMBERSHIP INTERESTS/STOCK OPTIONS--(CONTINUED)
Presented below is a summary of the status of the stock options after
giving retroactive effect to the recapitalization.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
--------
<S> <C> <C>
Balance at inception (July 1, 1997)..................................... -- --
Granted............................................................... 225,000 1.00
Balance at December 31, 1997............................................ 225,000 1.00
Granted............................................................... 139,800 1.00
Balance at June 30, 1998................................................ 364,800 1.00
Forfeited/expired..................................................... (450) 1.00
Granted............................................................... 481,500 1.00
Balance at December 31, 1998............................................ 845,850 1.00
Granted............................................................... 93,000 2.88
Forfeited/expired..................................................... (65,200) 1.00
Exercised............................................................. (600) 1.00
-------
Balance at June 30, 1999................................................ 873,050
-------
-------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE OPTIONS CONTRACTUAL OPTIONS
PRICES OUTSTANDING LIFE EXERCISABLE
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1998........................... $ 1.00 845,850 9.89 75,000
------ ------- ----- -------
------ ------- ----- -------
June 30, 1999............................... $ 1.00 840,050 9.35 243,017
------ ------- ----- -------
------ ------- ----- -------
$ 6.13 30,000 9.71 -0-
------ ------- ----- -------
------ ------- ----- -------
$ 7.87 3,000 9.97 -0-
------ ------- ----- -------
------ ------- ----- -------
</TABLE>
NOTE G--EMPLOYEE BENEFIT PLANS
The Company adopted a 401(k) retirement plan (the "plan") effective January
1, 1998, which provides for employee salary deferrals limited to 25% of a
participant's compensation and discretionary Company contributions. The plan
year ends on December 31st. The plan covers employees who have completed one
month of service and have attained the minimum age requirement, as defined in
the plan. The Company made no contributions in the year ended December 31, 1998.
The Company contributed $2,105 for the six months ended June 30, 1999.
NOTE H--LEASE COMMITMENTS
The Company leases its office space under operating leases, which expire
through 2001. The Company has options to extend the leases for additional lease
periods. The leases require monthly rental payments totaling approximately
$3,100.
F-13
<PAGE>
WATTAGE MONITOR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DATA RELATED TO JUNE 30, 1998 AND 1999 ARE UNAUDITED)
NOTE H--LEASE COMMITMENTS--(CONTINUED)
The following is a schedule of the future minimum lease payments under the
operating leases, as of December 31, 1998:
<TABLE>
<S> <C>
Year ending December 31,
1999......................................................... $36,250
2000......................................................... 29,350
2001......................................................... 9,850
-------
Net minimum lease payments..................................... $75,450
-------
-------
</TABLE>
The Company entered into an operating lease for computer equipment in March
1999 and June 1999 that require monthly payments of $6,331 expiring on various
dates through March 2002.
F-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's articles of incorporation eliminate the personal liability
of directors to the registrant or its stockholders for monetary damages for
breach of fiduciary duty to the extent permitted by Nevada law. The registrant's
articles of incorporation and by-laws provide that the registrant shall
indemnify its officers and directors to the extent permitted by Nevada law,
which authorizes a corporation to indemnify directors, officers, employees or
agents of the corporation in non-derivative suits if such party acted in good
faith and in a manner such party reasonably believed to be in or not opposed to
the best interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The Nevada General Corporation Act further provides that indemnification shall
be provided if the party in question is successful on the merits or otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable in
connection with the sale of the common stock being registered hereby. Except for
the Securities and Exchange Commission's registration fee, all expenses are
estimated.
<TABLE>
<CAPTION>
ITEM AMOUNT
- --------------------------------------------------------------------------------------------- -------
<S> <C>
SEC registration fee......................................................................... $30,131
Printing and engraving expenses.............................................................. 14,000
Legal fees and expenses...................................................................... 30,000
Auditors' accounting fees and expenses....................................................... 20,000
-------
Total........................................................................................ $94,131
-------
-------
</TABLE>
In addition, holders of the shares being registered under this registration
statement will be responsible for all selling commissions, transfer taxes and
related charges in connection with the offer and sale of the shares offered.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On July 1, 1997, our predecessor, WattMonitor LLC, issued an aggregate of
5,000,000 membership interests to our founders and certain accredited investors
in exchange for $450,000. In connection with this transaction, we relied on the
statutory exemption provided by Section 4(2) of the Securities Act of 1933,
because the issuances did not involve public offerings.
On March 17, 1998, WattMonitor LLC, issued an aggregate of 666,667
membership interests to RHL Ventures LLC, an accredited investor. WattMonitor
LLC received $1,000,000 as a result of the issuance.
On August 14, 1998, RHL Ventures LLC, an accredited investor, loaned us
$425,000. In consideration for the loan, we issued a promissory note in the
aggregate principal amount of a warrant to purchase 283,333 membership interests
at an exercise price of $1.50 per share. In connection with the reverse
acquisition of WattMonitor LLC, the warrant was converted into a warrant to
purchase 283,333 shares of our common stock at an exercise price of $1.50 per
share. The warrant is exercisable at any time and expires on August 14, 2005. In
connection with these transactions, we relied on the statutory exemption
provided by Section 4(2) of the Securities Act of 1933, because the issuance did
not involve a public offering.
On December 29, 1998, Gerald R. Alderson, a founder and our Chief Executive
Officer, loaned us $50,000. In consideration for the loan, we issued a
promissory note in the aggregate principal amount of a warrant to purchase
33,333 membership interests at an exercise price of $1.50 per share. The warrant
is exercisable at any time and expires on December 29, 2005. In connection with
the reverse acquisition of WattMonitor LLC, the warrant was converted into a
warrant to purchase 33,333 shares of our common stock at an exercise price of
$1.50 per share. In connection with these transactions, we relied on the
statutory
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES--(CONTINUED)
exemption provided by Section 4(2) of the Securities Act of 1933, because the
issuance did not involve a public offering.
On December 29, 1998, RHL Ventures LLC, an accredited investor, loaned us
$150,000. In consideration for the loan, we issued a promissory note in the
aggregate principal amount of a warrant to purchase 100,000 membership interests
at an exercise price of $1.50 per share. In connection with the reverse
acquisition of WattMonitor LLC, the warrant was converted into a warrant to
purchase 100,000 shares of our common stock at an exercise price of $1.50 per
share. The warrant is exercisable at any time and expires on December 29, 2005.
In connection with these transactions, we relied on the statutory exemption
provided by Section 4(2) of the Securities Act of 1933, because the issuance did
not involve a public offering.
On December 29, 1998, Stephen D. Klein, an accredited investor, loaned us
$50,000. In consideration for the loan, we issued a note in the aggregate
principal amount of a warrant to purchase 33,333 membership interests at an
exercise price of $1.50 per share. In connection with the reverse acquisition of
WattMonitor LLC, the warrant was converted into a warrant to purchase 33,333
shares of our common stock at an exercise price of $1.50 per share. The warrant
is exercisable at any time and expires on December 29, 2005. In connection with
these transactions, we relied on the statutory exemption provided by Section
4(2) of the Securities Act of 1933, because the issuance did not involve a
public offering.
On January 18, 1999, Wattage Monitor issued 980,000 shares of our common
stock. We raised $9,800 from that offering, which was made under Rule 506 of
Regulation D, promulgated under the Securities Act of 1933 as a non-public
offering solely to accredited investors.
On February 5, 1999, Wattage Monitor entered into a Stock Purchase
Agreement in connection with the purchase of 2,750,000 shares of our common
stock. We raised $1,000,000 under the agreement, which was made under Rule 504
of Regulation D, promulgated under the Securities Act of 1933 as a non-public
offering solely to accredited investors.
On February 24, 1999, Wattage Monitor completed an offering of 1,000,000
units, consisting of one share of our Series A preferred stock and one warrant
to purchase our Series B preferred stock at a price of $1.00 per share. We
raised $3,000,000 from that offering, which was made pursuant to Rule 506 of
Regulation D, promulgated under the Securities Act of 1933 a non-public offering
solely to accredited investors. In addition, upon the full exercise of the
warrants Wattage Monitor will receive an additional $3,500,000 for a total of
$6,500,000. In exchange it will issue Preferred Stock convertible into 3,500,000
shares of common stock for a total of 4,500,000 shares issued. The weighted
average price of the underlying common stock issued is $1.44 ($6,500,000
divided by 4,500,000). As of the date hereof Wattage Monitor has received
$2,625,000 of the $3,500,000 from the exercise of the warrants included in the
units originally issued.
On February 26, 1999, we completed a reverse acquisition of WattMonitor
LLC. In connection with the merger, we converted all of the outstanding
membership interests in WattMonitor LLC into an aggregate of 7,550,450 shares of
our common stock. On February 26, 1999, we issued an additional 50,000 shares of
our common stock to Jonathan Cohen, an accredited investor. We received $50,000
as a result of the issuance. In connection with these transactions, we relied on
the statutory exemption provided by Section 4(2) of the Securities Act of 1933,
because the issuances did not involve public offerings. In addition, each
member, other than the controlling members, was entitled to acquire such number
of shares of our common stock at $1.00 per share as necessary to maintain the
same ownership percentage in Wattage Monitor as such members held in WattMonitor
LLC. In connection with this right, between February 26, 1999 and March 31,
1999, 657,366 shares of our common stock were issued to our existing
shareholders. In connection with these transactions, we relied on the statutory
exemption provided by Section 4(2) of the Securities Act of 1933, because these
issuances did not involve public offerings.
In connection with the reverse acquisition, all of our employees exchanged
their contingent membership interests for stock options, exercisable at $1.00
per share, totaling 918,000 shares of our common stock. In connection with these
transactions, we relied on the statutory exemption provided by Section 4(2) of
the Securities Act of 1933, because these issuances did not involve public
offerings.
On May 29, 1999, Anne Alderson, an employee, exercised 150 options issued
pursuant to our 1999 Incentive Compensation Plan at $1.00 per share. In
connection with this transaction, we relied upon the statutory exemption
provided by Section 4(2) of the Securities Act of 1933, because this issuance
did not involve a public offering.
II-2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES--(CONTINUED)
On July 12, 1999, we issued a warrant to Camhy Karlinsky & Stein LLP
exercisable through July 11, 2009, to purchase 7,000 shares of our common stock
at an exercise price of $6.00 per share. The warrant was exercisable
immediately. Camhy Karlinsky & Stein LLP has acted as our legal [illigible] with
the preparation of this registration statement. A partner of Camhy Karlinsky &
Stein LLP owns, as a joint tenant, 17,648 shares of our common stock.
Another partner and two other attorneys of Camhy Karlinsky & Stein LLP may be
deemed to have beneficial ownership of an aggregate of 17,648 shares of our
common stock, although such beneficial ownership is disclaimed by each of the
three attorneys.
On September 14, 1999, we issued 4,500 shares of our common stock to
Michael Berizian, one of our employees, as a result of the exercise of an option
to purchase such shares for an aggregate amount of $4,500. In connection with
this transaction we relied on the statutory exemption provided by Section 4(2)
of the Securities Act of 1933, because this issuance did not involve a public
offering.
Between September 23, 1999 and October , 1999, Valiant Growth Fund,
Orion Projects Limited, Delta Realty Limited, Bennet Finance Limited, Westin
Machineries Pension S.A. and Liegemen, S.A. exercised their warrants to purchase
an aggregate of 3,500,000 shares of Series B preferred stock for an aggregate
purchase price of $3,500,000. In connection with these transactions, we relied
upon the statutory exemption provided by Section 4(2) of the Securities Act of
1933, because these issuances did not involve public offerings.
Between September 23, 1999 and October , 1999, we issued 1,000,000
shares of our common stock upon the automatic conversion of 1,000,000 shares of
our Series A preferred stock, which occurred as a result of the exercise of our
warrants. In connection with this transaction, we relied upon the statutory
exemption provided by Section 4(2) of the Securities Act of 1933, because these
issuances did not involve public offerings.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger by and between WattMonitor LLC and Wattage Monitor, dated as of
February 26, 1999 (filed without exhibits or schedules).*
3.1 -- Amended and Restated Articles of Incorporation of Wattage Monitor as filed with the Secretary of
State of the State of Nevada on February 24, 1999.*
3.2 -- Amended and Restated By-Laws of Wattage Monitor, adopted as of February 19, 1999.*
4.1 -- Specimen Common Stock certificate.*
4.2 -- Certificate of Designation of Series A Preferred Stock, as filed with the Secretary of State of
the State of Nevada on February 24, 1999.*
4.3 -- Certificate of Amendment of Certificate of Designation of Series A Preferred Stock, as filed with
the Secretary of State of the State of Nevada on February 26, 1999.*
4.4 -- Certificate of Designation of Series B Preferred Stock, as filed with the Secretary of State of
the State of Nevada on September 9, 1999.**
5.1 -- Opinion of Camhy Karlinsky & Stein LLP.*
10.1 -- Stock Purchase Agreement by and among Knowledge Networks Acquisitions, Inc., Intrepid
International S.A. and Certain Purchasers, dated February 5, 1999.*
10.2 -- Form of Series B Warrant.*
10.3 -- Registration Rights Agreement by and among Wattage Monitor and Certain Shareholders, dated as of
February 26, 1999.*
10.4 -- Employment Agreement by and between WattMonitor LLC and Gerald R. Alderson, dated January 1, 1998,
as assumed by Wattage Monitor on February 26, 1999.*
10.5 -- Warrant to Stephen D. Klein to purchase 33,333 Class II Membership Units of WattMonitor LLC, dated
December 29, 1998.*
10.6 -- Warrant to RHL Ventures LLC to purchase 100,000 Class II Membership Units of WattMonitor LLC,
dated December 29, 1998.*
10.7 -- Warrant to Gerald R. Alderson to purchase 33,333 Class II Membership Units of WattMonitor LLC,
dated December 29, 1998.*
</TABLE>
II-3
<PAGE>
ITEM 27. EXHIBITS--(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.8 -- Warrant to RHL Ventures LLC to purchase 283,333 Class II Membership Units of WattMonitor LLC,
dated August 14, 1998.*
10.9 -- Form of Lock-Up Agreement, executed by Gerald R. Alderson, Stephen D. Klein, Robert H. Lessin and
RHL Ventures LLC.*
10.10 -- Wattage Monitor 1999 Incentive Compensation Plan.*
23.1 -- Consent of Camhy Karlinsky & Stein LLP, included in Exhibit 5.1.*
23.2 -- Consent of Grant Thornton LLP.**
24 -- Power of Attorney.*
</TABLE>
- ------------------
* Previously filed.
** Filed herewith.
ITEM 28. UNDERTAKINGS
1. To file, during any period in which offers or sales of the securities
are being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered may be reflected in the form of
prospectus filed with the Commission under Rule 424(b) if, in aggregate,
the changes in the volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any additional or changed material information on the
plan of distribution.
2. That, for the purpose of determining liability under the Securities Act
or 1933, it shall treat each post-effective amendment as a new registration
statement of the securities offered, and treat the offering of the securities at
that time as an initial bona fide offering.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remains unsold at the termination of
the offering.
To the extent that indemnification for liabilities arising under the
Securities Act or 1933 may be permitted to directors, officers and controlling
persons of the company pursuant to the provisions described in Item 15, or
otherwise, the company 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 of 1933 and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities, other
than the payment by the company of expenses incurred or paid by a director,
officer of controlling person of the company in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or controlling
person in connection with the shares being registered hereby, the company 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 as to
whether such indemnification by the company against public policy as expressed
in the Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-4
<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 FOR FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED IN THE CITY OF RENO,
STATE OF NEVADA, ON THE DAY OF OCTOBER, 1999.
WATTAGE MONITOR INC.
By: /s/ GERALD R. ALDERSON
---------------------------------
Gerald R. Alderson
President and Chief Executive
Officer
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger by and between WattMonitor LLC and Wattage Monitor, dated
as of February 26, 1999 (filed without exhibits or schedules).*
3.1 -- Amended and Restated Articles of Incorporation of Wattage Monitor as filed with the
Secretary of State of the State of Nevada on February 24, 1999.*
3.2 -- Amended and Restated By-Laws of Wattage Monitor, adopted as of February 19, 1999.*
4.1 -- Specimen Common Stock certificate.*
4.2 -- Certificate of Designation of Series A Preferred Stock, as filed with the Secretary of
State of the State of Nevada on February 24, 1999.*
4.3 -- Certificate of Amendment of Certificate of Designation of Series A Preferred Stock, as
filed with the Secretary of State of the State of Nevada on February 26, 1999.*
4.4 -- Certificate of Designation of Series B Preferred Stock, as filed with the Secretary of
State of the State of Nevada on September 9, 1999.**
5.1 -- Opinion of Camhy Karlinsky & Stein LLP.*
10.1 -- Stock Purchase Agreement by and among Knowledge Networks Acquisitions, Inc., Intrepid
International S.A. and Certain Purchasers, dated February 5, 1999.*
10.2 -- Form of Series B Warrant.*
10.3 -- Registration Rights Agreement by and among Wattage Monitor and Certain Shareholders,
dated as of February 26, 1999.*
10.4 -- Employment Agreement by and between WattMonitor LLC and Gerald R. Alderson, dated
January 1, 1998, as assumed by Wattage Monitor on February 26, 1999.*
10.5 -- Warrant to Stephen D. Klein to purchase 33,333 Class II Membership Units of
WattMonitor LLC, dated December 29, 1998.*
10.6 -- Warrant to RHL Ventures LLC to purchase 100,000 Class II Membership Units of
WattMonitor LLC, dated December 29, 1998.*
10.7 -- Warrant to Gerald R. Alderson to purchase 33,333 Class II Membership Units of
WattMonitor LLC, dated December 29, 1998.*
10.8 -- Warrant to RHL Ventures LLC to purchase 283,333 Class II Membership Units of
WattMonitor LLC, dated August 14, 1998.*
10.9 -- Form of Lock-Up Agreement, executed by Gerald R. Alderson, Stephen D. Klein, Robert H.
Lessin and RHL Ventures LLC.*
10.10 -- Wattage Monitor 1999 Incentive Compensation Plan.*
23.1 -- Consent of Camhy Karlinsky & Stein LLP, included in Exhibit 5.1.*
23.2 -- Consent of Grant Thornton LLP.**
24 -- Power of Attorney.*
</TABLE>
- ------------------
* Previously filed.
** Filed herewith.
<PAGE>
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
SEP 09 1999
No. C16312-97
- -------------------------------
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF DESIGNATION,
POWERS, PREFERENCES AND RIGHTS OF
SERIES B PREFERRED STOCK
PAR VALUE $.01 PER SHARE
OF
WATTAGE MONITOR INC.
-------------------
Pursuant to Section 78.1955 of the General
Corporation Law of the State of Nevada
-------------------
IT IS HEREBY CERTIFIED that:
1. The name of the company (hereinafter called the "Company") is
Wattage Monitor Inc., a corporation organized and existing under the General
Corporation Law of the State of Nevada.
2. The articles of incorporation of the Company (the "Articles of
Incorporation") authorizes the issuance of Five Million (5,000,000) shares of
preferred stock, $.01 par value per share (the "Preferred Stock"), and expressly
vests in the Board of Directors of the Company the authority provided therein to
issue any or all of said shares in one (1) or more series and by resolution or
resolutions to establish the designation and number and to fix the relative
rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, and pursuant to the provisions of Section
78.1955 of the General Corporation Law of the State of Nevada, has adopted the
resolutions set forth below creating a Series B issue of Preferred Stock:
RESOLVED, that Three Million Five-Hundred Thousand (3,500,000) shares
of the Five Million (5,000,000) authorized shares of Preferred Stock of the
Company shall be designated Series B Preferred Stock, $.01 par value per share,
and shall possess the rights and preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have
a par value of $.01 per share, and shall be designated as Series B Preferred
Stock (the "Series B Preferred Stock"). The number of shares constituting the
Series B Preferred Stock shall be Three Million Five-Hundred Thousand
(3,500,000). The Series B Preferred Stock shall be issued or offered at a
purchase price of One Dollar ($1.00) per share (the "Original Issue Price").
<PAGE>
Section 2. Rank. The Series B Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series B Preferred Stock (the
"Senior Securities"); (ii) prior to all of the Common Stock; (iii) prior to any
class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series B
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
the "Junior Securities"); and (iv) on parity with the Series A Preferred Stock
of the Company and any class or series of capital stock of the Company hereafter
created specifically ranking by its terms on parity with the Series B Preferred
Stock ("Parity Securities") in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
Section 3. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Company, either voluntary or involuntary, the Holders of shares of Series
B Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Company's Articles of
Incorporation or any certificate of designation, and prior in preference to any
distribution to Junior Securities but in parity with any distribution to Parity
Securities, an amount per share equal to the sum of the Original Issue Price. If
upon the occurrence of such event, and after payment in full of the preferential
amounts with respect to the Senior Securities, the assets and funds available to
be distributed among the Holders of the Series B Preferred Stock and Parity
Securities shall be insufficient to permit the payment to such Holders of the
full preferential amounts due to the Holders of the Series B Preferred Stock and
the Parity Securities, respectively, then the entire assets and funds of the
Company legally available for distribution shall be distributed among the
Holders of the Series B Preferred Stock and the Parity Securities, pro rata,
based on the respective liquidation amounts to which each such series of stock
is entitled by the Company's Articles of Incorporation and any certificate(s) of
designation relating thereto.
(b) Upon the completion of the distribution required by
Section 3(a), if assets remain in the Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Articles of
Incorporation, including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all the assets of the Company to a private entity, the
common stock of which is not publicly traded, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section 3;
provided, however, that an event described in the prior clause that the Holder
does not elect to treat as a liquidation and a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
company or companies shall not be treated as a liquidation, dissolution or
winding up within the meaning of this Section 3, but instead shall be treated
pursuant to Section 4(c) hereof (a Holder who elects to have the transaction
treated as a liquidation is herein referred to as a "Liquidating Holder").
2
<PAGE>
(d) Prior to the closing of a transaction described in Section
3(c) which would constitute a liquidation event, the Company shall either (i)
make all cash distributions it is required to make to the Liquidating Holders
pursuant to the first sentence of Section 3(a), (ii) set aside sufficient funds
from which the cash distributions required to be made to the Liquidating Holders
can be made, or (iii) establish an escrow or other similar arrangement with a
third party pursuant to which the proceeds payable to the Company from a sale of
all or substantially all the assets of the Company will be used to make the
liquidating payments to the Liquidating Holders immediately after the
consummation of such sale. In the event that the Company has not fully complied
with any of the foregoing alternatives, the Company shall either: (x) cause such
closing to be postponed until such cash distributions have been made, or (y)
cancel such transaction, in which event the rights of the Holders or other
arrangements shall be the same as existing immediately prior to such proposed
transaction.
Section 4. Conversion of Series B Preferred Stock. The record
Holders of the Series B Preferred Stock shall have conversion rights as follows:
(a) Right to Convert. Each record Holder of Series B Preferred
Stock shall be entitled to convert whole shares of Series B Preferred Stock for
the Common Stock issuable upon conversion of the Series B Preferred Stock, as
follows: each outstanding share of Series B Preferred Stock is convertible into
one fully-paid and non-assessable share of Common Stock, subject to adjustment
as provided in Section 4(c) hereof. The number of shares of Common Stock
issuable upon conversion of one share of Series B Preferred Stock is hereafter
referred to as the "Conversion Rate."
(b) Mechanics of Conversion. In order to convert Series B
Preferred Stock into full shares of Common Stock, the Holder shall (i) fax a
copy of a fully executed notice of conversion ("Notice of Conversion") to the
Company at the office of the Company or to the Company's designated transfer
agent (the "Transfer Agent") for the Series B Preferred Stock, stating that the
Holder elects to convert, which notice shall specify the date of conversion, the
number of shares of Series B Preferred Stock to be converted, the Conversion
Rate and a calculation of the number of shares of Common Stock issuable upon
such conversion (together with a copy of the front page of each certificate to
be converted) and (ii) surrender to a common courier for either overnight or two
(2) day delivery to the office of the Company or the Transfer Agent, the
original certificates representing the Series B Preferred Stock being converted
(the "Preferred Stock Certificates"), duly endorsed for transfer; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion, unless
either the Preferred Stock Certificates are delivered to the Company or the
Transfer Agent as provided above, or the Holder notifies the Company or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subsection 4(b)(i) below).
(i) Lost or Stolen Certificates. Upon receipt
by the Company of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares
3
<PAGE>
of Series B Preferred Stock, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of the Preferred Stock Certificates, if mutilated, the Company
shall execute and deliver new Preferred Stock Certificates of like tenor and
date. However, the Company shall not be obligated to re-issue such lost or
stolen Preferred Stock Certificates if Holder contemporaneously requests the
Company to convert such Series B Preferred Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion.
The Company no later than 6:00 p.m. (New York City time) on the third (3rd)
business day after receipt by the Company or its Transfer Agent of all necessary
documentation duly executed and in proper form required for conversion,
including the original Preferred Stock Certificates to be converted (or after
provision for security or indemnification in the case of lost, stolen or
destroyed certificates, if required), shall issue and surrender to a common
courier for either overnight or (if delivery is outside the United States) two
(2) day delivery to the Holder as shown on the stock records of the Company a
certificate for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid.
(iii) Date of Conversion. The date on which
conversion occurs (the "Date of Conversion") shall be deemed to be the date such
Notice of Conversion is faxed to the Company or the Transfer Agent, as the case
may be, provided that the advance copy of the Notice of Conversion is faxed to
the Company on or prior to 6:00 p.m., New York City time, on the Date of
Conversion. The original Preferred Stock Certificates representing the shares of
Series B Preferred Stock to be converted shall be surrendered by depositing such
certificates with a common courier for either overnight or two (2) day delivery,
as soon as practicable following the Date of Conversion. The person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record Holder or Holders of such shares
of Common Stock on the Date of Conversion.
(c) Adjustment to Conversion Rate.
(i) Adjustment to the Conversion Rate due to
Stock Split, Stock Dividend or Other Similar Event. If, prior to the conversion
of all the Series B Preferred Stock, the number of outstanding shares of Common
Stock is increased by a stock split, stock dividend or other similar event, the
Conversion Rate shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Conversion Rate shall be
proportionately increased.
(ii) Adjustment Due to Consolidation, Merger,
Exchange of Shares, Recapitalization, Reorganization or Other Similar Event. If,
prior to the conversion of all the Series B Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization or
other similar event, as a result of which shares of Common Stock of the Company
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another entity
or there is a sale of all or substantially all of
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the Company's assets that is not deemed to be a liquidation pursuant to Section
3(c), then the Holders of Series B Preferred Stock thereafter shall have the
right to receive upon conversion of Series B Preferred Stock, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had the Series B Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
of the Series B Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Conversion
Rate and of the number of shares issuable upon conversion of the Series B
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities thereafter deliverable upon the exercise hereof.
The Company shall not effect any transaction described in this subsection
4(c)(ii) unless (a) it first gives thirty (30) calendar days prior notice of
such merger, consolidation, exchange of shares, recapitalization, reorganization
or other similar event (during which time the Holder shall be entitled to
convert its shares of Series B Preferred Stock into Common Stock to the extent
permitted hereby) and (b) the resulting successor or acquiring entity (if not
the Company) assumes by written instrument the obligation of the Company under
this Certificate of Designation, including the obligation of this subsection
4(c)(ii).
(iii) No Fractional Shares. If any adjustment
under this Section 4(c) would create a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon conversion
shall be the next higher number of shares of Series B Preferred Stock.
Section 5. Voting Rights. The Holders of the Series B Preferred Stock
shall have no voting power whatsoever except to the extent otherwise expressly
provided by the General Corporation Law of Nevada, and no Holder of Series B
Preferred Stock shall vote or otherwise participate in any proceeding in which
actions shall be taken by the Company or the stockholders thereof or be entitled
to notification as to any meeting of the stockholders.
Section 6. Protective Provision. So long as shares of Series B
Preferred Stock are outstanding, the Company shall not without first obtaining
the approval (by vote or written consent, as provided by the General Corporation
Law of Nevada) of the Holders of at least a majority of the then-outstanding
shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series B Preferred Stock so as to affect adversely the Series
B Preferred Stock, including, but not limited to, the creation or authorization
of any Senior Securities;
(b) increase the size of the authorized number
of Series B Preferred Stock; or
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(c) do any act or thing not authorized or
contemplated by this Certificate of Designation which would result in taxation
of the Holders of shares of the Series B Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
In the event Holders of a majority of the then-outstanding shares of
Series B Preferred Stock agree to allow the Company to alter or change the
rights, preferences or privileges of the shares of Series B Preferred Stock,
pursuant to subsection (a) above, so as to affect adversely the Series B
Preferred Stock, then the Company will deliver notice of such approved
alteration or change to the Holders of the Series B Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and the Dissenting
Holders shall have the right for a period of thirty (30) days to convert
pursuant to the terms of this Certificate of Designation as they exist prior to
such alteration or change or continue to hold their shares of Series B Preferred
Stock subject to the approved alteration or change of the rights, preferences or
privileges of the Series B Preferred Stock.
Section 7. Status of Converted Stock. In the event any shares of Series
B Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be canceled, shall return to the status of authorized but
unissued preferred stock of no designated series, and shall not be issuable by
the Company as Series B Preferred Stock.
Section 8. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of preferred stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series B Preferred
Stock.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be duly executed on its behalf by its Vice President this 7
day of September, 1999.
WATTAGE MONITOR INC.
By: /s/ Robert E. Forrest
-------------------------------------
Name: Robert E. Forrest
Title: Vice President of Operations
By: /s/ Daniel I. DeWolf
-------------------------------------
Name: Daniel I. DeWolf
Title: Secretary
[ATTESTATIONS FOLLOW]
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STATE OF CALIFORNIA )
) ss.
COUNTY OF MARIN )
I certify that I know or have satisfactory evidence that Robert E.
Forrest is the person who signed this instrument and acknowledged it to be his
free and voluntary act for the uses and purposes mentioned in this instrument.
Dated: September 7, 1999
-------------------------
/s/ Peter E. Mitchell
--------------------------------
Notary Public
[SEAL] PETER E. MITCHELL Peter E. Mitchell
--------------------------------
________ [Seal or stamp] Printed name
My Appointment expires: 5-25-2000
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
I certify that I know or have satisfactory evidence that Daniel I.
DeWolf is the person who signed this instrument and acknowledged it to be his
free and voluntary act for the uses and purposes mentioned in this instrument.
Dated: September 7, 1999
-------------------------
/s/ Douglas N. Bernstein
--------------------------------
Notary Public
[SEAL] DOUGLAS N. BERNSTEIN Douglas N. Bernstein
NOTARY PUBLIC, State of New York --------------------------------
No. 02BES0B2970 Printed name
Qualified in Nassau County
Commission Expires August 4, 2001
My Appointment expires: 8-4-2001
________ [Seal or stamp]
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EXHIBIT 23.2
We have issued our report dated April 15, 1999, accompanying the financial
statements of Wattage Monitor Inc. contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned reports in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the capiton "Experts."
GRANT THORNTON LLP
Reno, Nevada
October 6, 1999
