<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 1999
REGISTRATION NO. 333-74795
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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3DSHOPPING.COM
(Exact Name of Registrant in its Charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 45411 95-4594029
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification
Incorporation or Organization) No.)
</TABLE>
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517 BOCCACCIO AVENUE
VENICE, CA 90291
TELEPHONE (310) 301-6733
(Address and telephone number of principal executive offices and principal place
of business)
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ROBERT J. GRANT
517 BOCCACCIO AVENUE
VENICE, CA 90291
TELEPHONE (310) 301-6733
(Name, address and telephone number of agent for service)
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COPIES TO:
JOHN J. HALLE, ESQ. DEBRA K. WEINER, ESQ.
JASON M. BRAUSER, ESQ. GROVER T. WICKERSHAM, P.C.
STOEL RIVES LLP 430 CAMBRIDGE AVENUE, SUITE 100
900 SW FIFTH AVENUE PALO ALTO, CA 94306
PORTLAND, OR 97204
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If 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, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Units, (2) each consisting of...................... 2,300,000 $15.00 $34,500,000 9,591.00
(i) one share of Common Stock; and............... 2,300,000 -- -- --
(ii) one Warrant to purchase one share of Common
Stock.......................................... 2,300,000 -- -- --
Units issuable upon exercise of the
Representative's Warrants(3), each consisting
of............................................... 200,000 18.00 3,600,000 1,000.80
(i) one share of Common Stock; and............... 200,000 -- -- --
(ii) one Warrant to purchase one share of Common
Stock.......................................... 200,000 -- -- --
Shares of Common Stock issuable upon exercise of
Warrants, including Warrants underlying
Representative's Warrants(4)..................... 2,500,000 22.50 56,250,000 15,637.50
Totals............................................. $94,350,000 $26,229.30(5)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as
amended.
(2) Includes 300,000 Units that Paulson Investment Company, Inc., the
representative of the several underwriters (the "Representative") has the
option to purchase to cover over-allotments, if any (the "Over-allotment
Option")
(3) In connection with the sale of the Units, the Registrant is granting to the
Representative warrants to purchase 200,000 Units (the "Representative's
Warrants").
(4) Pursuant to Rule 416, there are also being registered such additional shares
of Common Stock as may be issuable pursuant to the anti-dilution provisions
of the Warrants and the Representative's Warrants.
(5) The Registrant previously paid $22,950.65 of this amount with its initial
filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
DATED MAY 25, 1999
2,000,000 UNITS
EACH CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK
[LOGO]
We are offering units consisting of a share of common stock and a warrant to
purchase an additional share of common stock. The common stock and warrants will
trade as separate securities immediately after this offering. Each warrant will
entitle its owner to purchase one share of common stock for $ per share.
You may exercise your warrants at any time for five years after the date of this
prospectus unless we have redeemed the outstanding warrants. We may redeem some
or all of the outstanding warrants by giving 30 days' prior written notice and
paying $0.25 per unexercised warrant. We may not redeem any warrants for at
least 180 days from the date of this prospectus. After that date, we may redeem
the outstanding warrants if the closing bid price of the common stock has been
at least 200% of the initial public offering price of the units for ten
consecutive trading days before the date we give notice of redemption.
Our common stock is listed on the NASD OTC Bulletin Board under the symbol
"PGRX". On May 20, 1999, the closing bid price of the common stock was $17.50
per share. We have applied to list our common stock and warrants under the
symbols "DDDS" and "DDDSW", respectively, on the Nasdaq National Market after
this offering. We expect that the Units will be priced at or near the market
price of the common stock at the time of pricing.
INVESTING IN THE UNITS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER UNIT TOTAL
--------------- -----
<S> <C> <C>
Initial public offering price....................................................................
Underwriting discounts and commissions...........................................................
Proceeds to 3Dshopping.com.......................................................................
</TABLE>
We expect total cash expenses to be approximately $1,010,000, which will
include a nonaccountable expense allowance of 2% of the gross proceeds of this
offering that will be paid to Paulson Investment Company, Inc., the managing
underwriter of this offering. We have granted to the underwriters a 45-day
option to purchase up to 300,000 additional units to cover over-allotments and
will grant to the underwriters a five-year warrant to purchase up to 200,000
additional units.
Paulson Investment Company, Inc. expects to deliver the units on or about
, 1999 if payment is received.
PAULSON INVESTMENT COMPANY, INC.
, 1999
<PAGE>
[ART]
Our home page (top) provides information about our company and is the starting
point for the 3Dshopping experience. Visitors to our Web site can choose between
a fast and slow Internet connection depending on the speed of modem they use
(bottom left). Shoppers can navigate to our customers' Web sites by clicking on
a product category that interests them (bottom right).
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 9
Use of Proceeds............................................................................................ 17
Price Range of the Common Stock............................................................................ 18
Dividend Policy............................................................................................ 18
Capitalization............................................................................................. 19
Dilution................................................................................................... 20
Selected Financial Data.................................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 23
Business................................................................................................... 27
Management................................................................................................. 34
Principal Shareholders..................................................................................... 38
Description of Securities.................................................................................. 39
Shares Eligible for Future Sale............................................................................ 43
Underwriting............................................................................................... 45
Legal Matters.............................................................................................. 47
Experts.................................................................................................... 47
Additional Information..................................................................................... 47
Index to Financial Statements.............................................................................. F-1
</TABLE>
Information contained at any of the Web sites maintained by 3Dshopping.com
does not constitute a part of this prospectus.
3Dshopping.com is a trademark we have applied to register with the United
States Patent and Trademark Office. This prospectus also contains trademarks and
tradenames of other companies.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY AND THE MORE DETAILED INFORMATION
ABOUT US AND THE UNITS AND OUR FINANCIAL STATEMENTS AND NOTES APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT WHERE WE HAVE SPECIFICALLY INCLUDED OTHER
INFORMATION, THE INFORMATION IN THIS PROSPECTUS ABOUT SHARES OF COMMON STOCK
OUTSTANDING, NET OFFERING PROCEEDS AND CAPITAL RESOURCES ASSUMES THAT NONE OF
THE WARRANTS OR OPTIONS DESCRIBED IN THIS PROSPECTUS HAS BEEN EXERCISED.
3DSHOPPING.COM
OUR COMPANY
We have developed and are beginning to implement and market to e-commerce
retailers a Web-based marketing and display system that incorporates
sophisticated graphics and other visual features. To implement our system, we
design, build and maintain Web sites for retailers of apparel, jewelry, flowers
and antiques. We generate revenue through fees charged for these services and
fees based on the value of the product orders we process for our customers or
the number of visitors to our customers' Web sites.
A limited range of products is currently being successfully sold via
e-commerce. These include items such as books, CD's and DVD's, where the
customer usually knows what he or she is looking for before searching for it on
a vendor's Web site, or items such as computers or automobiles, where the
customer can make a final decision by choosing from a list of objectively
definable options. E-commerce sales of products that require a more subjective
decision process, such as clothing, have so far presented a challenge to
retailers and have achieved percentages of total e-commerce sales that are
substantially less than their percentages of sales through more traditional
channels, such as in-store sales and mail order catalogs.
We believe that e-commerce sales of products such as apparel where the
decision process has a substantial subjective and/or emotional content cannot be
effectively supported by the kind of Web sites used to sell more objectively
definable products like books and CDs. We have therefore developed the
technological and other resources that support our system with a view to
presenting the e-commerce shopper with an experience closer to what he or she
would experience by visiting a store. Instead of presenting a text-based
presentation that might include still pictures of an article of clothing, we are
able to provide an animated, graphical presentation in which a model is seen
from a series of positions throughout a full 360 degree spectrum. We also
provide viewer interactivity that permits the viewer to stop the motion at any
view. A viewer can also select from a menu of available colors and change the
image to reflect the selected color, or zoom in on selected features. We have
acquired and are developing additional presentation materials that will allow us
to incorporate a "cyber-salesperson", an animated character preselected by the
retailer or selected by the viewer from a menu of choices, that will make an
audiovisual presentation of the key features of the selected garment. For
viewers with access to the Internet through high-volume data delivery services,
we are developing the technology to support a complete virtual shopping
experience, including audiovisual features that will permit the viewer to enter
a store in which the various items for sale will be presented. This "virtual
store" will not be limited to the shelves, racks and walls found in traditional
retail outlets, but instead will permit the retailer to display these items in
their most favorable marketing context. For example, beachwear could be
presented by models posing on a beach. The shopper will be able to view the
various items offered, make inquiries of virtual sales persons and select and
purchase merchandise all at a level of virtual reality equivalent to that used
in sophisticated computer games and other animated presentations. We believe
that these features will enable the viewer to make a more informed choice and
therefore will attract shoppers for products traditionally sold only through
stores or mail order catalogs. For this reason we believe that our system is
attractive to retailers of products that require a compelling visual
presentation to be effectively sold on the Internet.
3
<PAGE>
OUR SYSTEM
We offer our system to clothing and other retailers who want to engage in
e-commerce through a Web site that we design and maintain. We offer a complete
package of services in support of this activity, including
- Web site design;
- model selection and photography;
- preparation and maintenance of specific customer offerings on their or our
Web sites;
- data services with respect to Web site activity; and
- electronic order processing.
While we maintain all of the Web sites we design, these sites are accessible
either directly through our "home" page at www.3Dshopping.com, from electronic
"shopping malls" that we and others maintain to attract shoppers to our
customer-specific Web sites or from other Web sites maintained by the customer.
We charge fees for designing, setting up and maintaining our customers' Web
sites. Some of our customers, such as Nordstrom and K-Swiss, have chosen not to
use the electronic order processing portion of our system. For these customers,
we charge a fee for the number of visitors to those web sites. We also receive a
percentage of the total value of product orders we process for our customers.
We provide an Internet-based marketing and display system to retailers who
wish to engage in e-commerce and who believe that they require sophisticated
presentation technology to do so. We do not intend to sell retail products for
our own account, nor do we currently intend to offer "banner" advertising or
other promotional space to advertisers, other than our retailer customers, on
any of our Web sites.
OUR MARKETS AND CUSTOMERS
We believe that our principal market consists of retailers of apparel and
accessories. Our clients include Nordstrom, K-Swiss, Cobra, Perfetto Pro-Action
Sports, Mix Studio and Manx Beach and Resort Wear. In addition, we design and
operate Intranets used by companies like Boeing and Shell to allow their
employees to select products under award programs. We also have customers in
other markets, including flowers, antiques and jewelry and expect to examine
other market areas as opportunities arise.
OUR STRATEGY
Our goal is to be the leading provider of Web-based marketing and display
services to e-commerce retailers that require a high level of technical
sophistication and presentation quality to attract and serve the needs of their
customers. e-commerce is becoming more widely accepted as a retail channel by
both sellers and consumers. As the volume and range of products sold in
e-commerce increases, the channel will require ever increasing levels of
sophistication to support consumer demand over a variety of product categories.
Because our Internet-based marketing and display system allows retailers to use
a sophisticated presentation format for their products, we believe that we are
well positioned, from both a technological and a marketing point of view, to
offer state-of-the-art Web site design and maintenance services to customers
across a broad spectrum of product categories. We believe that, for the
foreseeable future, our core market will be in the area of apparel and
accessories, where we believe the market potential is great enough to support
substantial growth.
In order to compete as a relatively small participant in the emerging and
highly competitive market enabled by the Internet, we have positioned ourselves
as a service provider to larger and more recognized entities in their respective
market areas. We intend to enable our customers to capitalize on
4
<PAGE>
their own market presence and brand recognition in a new sales channel or to
support intracompany communication at a high level of sophistication. While our
goal is ultimately to become a recognized name in e-commerce, we expect for the
immediate future to depend on the name recognition of retailers that become our
customers to attract viewers to our Web sites.
In order to more fully integrate the range of services we offer, we have
acquired the assets of Design Bas, Incorporated, a designer and producer of
print advertising, direct mail catalogs, brochures and other printed advertising
and promotional materials, which we refer to in this document as DBLA. We expect
to complete the acquisition before the completion of this offering.
We were incorporated in California under the name Pi Graphix, Inc. and
commenced business in August 1996. We changed our name to 3Dshopping.com on
March 10, 1999. The mailing address and telephone number of our principal
executive offices are 517 Boccaccio Avenue, Venice, California 90291 and (310)
301-6733.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 2,000,000 units. Each unit consists of one share of
common stock and one warrant to purchase one additional
share of common stock. The common stock and warrants
will trade separately immediately after the offering.
For more information, see "Description of Securities"
beginning on page 39.
Warrants.......................... The warrants will be exercisable at an exercise price of
$ at any time until they expire on the fifth
anniversary of the date of this prospectus. We may not
redeem the warrants for at least 180 days after the date
of this prospectus. After that date, if the closing bid
price of our common stock on each of the 10 consecutive
trading days preceding our notice of redemption is
greater than or equal to $ , we may redeem some or all
of the outstanding warrants if we provide the holders
with 30 days' prior written notice. The redemption price
will be $0.25 per warrant. If we give notice of
redemption, holders of warrants will have 30 days during
which they may elect to exercise the warrants, sell the
warrants or allow the warrants to be redeemed for the
redemption price. Please refer to "Description of
Securities-- Unit Warrants" beginning on page 39 for
more information.
Common Stock Outstanding.......... 3,645,746 shares of common stock were outstanding on
March 31, 1999. After the offering, there will be
5,655,746 shares outstanding. Both of these numbers
exclude up to 695,666 shares of common stock issuable on
exercise of outstanding options and warrants including
133,333 shares issuable upon exercise of a warrant held
by Generation Capital Associates, assuming a market
price for our common stock of $15.00. The number of
shares outstanding after the offering includes 10,000
shares of common stock issued to the owners of DBLA in
connection with our acquisition of DBLA's assets and
liabilities. For more information on the number of
warrants and options outstanding please refer to
"Capitalization" beginning on page 18 and "Description
of Securities--Other Options and Warrants" beginning on
page 40.
Risk Factors...................... An investment in the units involves a high degree of
risk. You should not consider this offer if you cannot
afford to lose your entire investment. Please refer to
"Risk Factors" beginning on page 9 for factors you
should consider.
Use of Proceeds................... The net proceeds from the offering, estimated to be
approximately $26,815,000, will be used to repay debt,
fund expansion of sales and marketing activities,
continue research and development efforts, acquire
capital equipment and Internet infrastructure and
acquire content and technology and for working capital
and general corporate purposes. For more information,
please refer to "Use of Proceeds" beginning on page 17.
</TABLE>
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
3DSHOPPING.COM
Amounts for the eleven months ended June 30, 1997 reflect eleven months of
operations from August 13, 1996 (inception) to June 30, 1997.
The line item "Weighted average shares used in computing net loss per share"
is based on the weighted average shares of common stock outstanding for the
eleven months ended June 30, 1997, the year ended June 30, 1998 and the nine
months ended March 31, 1998 and 1999. It excludes 0, 32,609, 32,609 and 32,609
shares, respectively, of common stock issuable upon exercise of outstanding
options, warrants and convertible debt. Note 1 of Notes to Financial Statements
includes an explanation of the determination of the number of shares used in
computing net loss per share.
The amounts in the "As Adjusted" column of the Balance Sheet Data have been
adjusted to give effect to the sale of the 2,000,000 units offered by this
prospectus, assuming an initial public offering price of $15.00, after deducting
the underwriting discount and estimated offering expenses, and the receipt of
the net proceeds from the offering.
<TABLE>
<CAPTION>
ELEVEN MONTHS YEAR ENDED
ENDED JUNE 30, JUNE 30, NINE MONTHS ENDED MARCH 31,
-------------- -------------- ----------------------------
1997 1998 1998 1999
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues....................................... $ -- $ 18,404 $ 644 $ 50,311
Operating expenses:
Sales and marketing.............................. 973,283 473,665 312,757 652,049
Research and development......................... 294,360 170,259 162,214 346,131
General and administrative....................... 647,868 457,345 271,814 2,073,491
-------------- -------------- ------------ --------------
Total costs and expenses......................... 1,915,511 1,101,269 746,785 3,071,671
-------------- -------------- ------------ --------------
Loss from operations............................... (1,915,511) (1,082,865) (746,141) (3,021,360)
Interest expense................................... 3,089 10,373 5,708 61,269
Other income....................................... 10,000 13,500 13,500 3,250
-------------- -------------- ------------ --------------
Net loss........................................... $ (1,908,600) $ (1,079,738) $ (738,349) $ (3,079,379)
-------------- -------------- ------------ --------------
Net loss per share................................. $ (.59) $ (.28) $ (.20) $ (.77)
Weighted average shares used in computing net loss
per share........................................ 3,210,651 3,823,228 3,774,038 4,024,482
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 469,793 $ 27,284,793
Working capital (deficit)........................................................... (257,914) 26,557,086
Total assets........................................................................ 841,388 27,444,999
Accumulated deficit................................................................. (6,067,717) (6,067,717)
Shareholders' equity................................................................ 54,471 26,869,471
</TABLE>
7
<PAGE>
DBLA
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
STATEMENT OF OPERATIONS DATA: 1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues......................................... $1,342,500 $2,228,298 $ 459,331 $ 231,574
Cost of sales.................................... 816,437 1,638,251 397,530 123,260
--------- --------- --------- ---------
Gross profit..................................... 526,063 590,047 61,801 108,314
--------- --------- --------- ---------
Cost and expenses:
General and administrative..................... 450,347 567,200 148,441 137,096
--------- --------- --------- ---------
Total costs and expenses....................... 450,347 567,200 148,441 137,096
--------- --------- --------- ---------
Income (loss) from operations.................... 75,716 22,847 (86,640) (28,782)
Interest expense................................. 2,989 4,733 661 4,082
--------- --------- --------- ---------
Income (loss) before income taxes.............. 72,727 18,114 (87,301) (32,864)
Income taxes................................... 1,500 800 800 800
--------- --------- --------- ---------
Net income (loss).............................. $ 71,227 $ 17,314 $ (88,101) $ (33,664)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
BALANCE SHEET DATA: 1999
---------
<S> <C>
Cash.............................................................................. $ (1,795)
Working capital (deficit)......................................................... (93,221)
Total assets...................................................................... 208,075
Retained earnings (deficit)....................................................... (30,850)
Shareholders' equity (deficit).................................................... (850)
</TABLE>
8
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE UNITS INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER THE FOLLOWING DISCUSSION OF RISKS IN ADDITION TO THE OTHER INFORMATION
IN THIS PROSPECTUS BEFORE PURCHASING ANY OF THE UNITS. IN ADDITION TO HISTORICAL
INFORMATION, THE INFORMATION IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING"
STATEMENTS ABOUT OUR FUTURE BUSINESS AND PERFORMANCE. OUR ACTUAL OPERATING
RESULTS AND FINANCIAL PERFORMANCE MAY BE VERY DIFFERENT FROM WHAT WE EXPECT AS
OF THE DATE OF THIS PROSPECTUS. THE RISKS BELOW ADDRESS, INSOFAR AS WE ARE ABLE
TO FORESEE THEM, THE MATERIAL FACTORS THAT MAY AFFECT OUR FUTURE OPERATING
RESULTS AND FINANCIAL PERFORMANCE.
OUR SYSTEM DEPENDS ON RAPID DATA TRANSMISSION TO ACHIEVE ITS FULL POTENTIAL;
RAPID DATA TRANSMISSION IS NOT WIDELY AVAILABLE AND MAY NEVER BECOME WIDELY
AVAILABLE
Our system has the ability to display products in a moving format, to
incorporate audio tracks and to support substantial interactivity between the
shopper and the display. While we believe that these features distinguish us
from traditional creators of static Web site displays, the volume of electronic
data required to support this process is substantially greater than for a
traditional static display. Shoppers accessing our Web sites using a
conventional modem hooked up to a conventional telephone line will be limited to
viewing options that do not make full use of our display potential or will be
required to accept long download times. Even customers using a high-speed data
delivery system, such as ISDN, cable or DSL systems may be subject to delays
generated within the Internet itself. In order to make full use of our
technology without experiencing frustrating download times, shoppers will have
to access our Web sites through high speed connections, such as cable modems and
we will be required to feed data directly from broadband communications
providers, such as MediaOne, Inc., rather than through conventional Internet
channels. Cable modems are commercially available to an estimated 20 million
homes in North America but are currently used by only approximately 500,000
Internet users. Direct feeds from broadband communications providers are
currently under development but are not in current commercial use. We believe
high volume data delivery systems will be increasingly available both to
business and individual Internet users but we cannot predict with confidence the
speed with which such systems will become widely available nor can we guarantee
that these systems will be widely used by consumers. If the availability of high
speed data transmission does not increase as expected or is substantially
delayed, our business could be adversely affected.
MANY OF OUR POTENTIAL CUSTOMERS AND SHOPPERS ARE UNFAMILIAR WITH THE INTERNET
AND E-COMMERCE
Most potential retail customers have only limited experience with e-commerce
and have not spent a significant amount of their time or income purchasing
products offered through e-commerce. Similarly, most sellers of consumer
products do not, or have only recently begun to, sell their products through
e-commerce. We cannot guarantee that consumers will use e-commerce for a
significant portion of their shopping needs or that retailers will use this
method widely to reach consumers. Our ability to generate revenue will depend on
the following variables, among others:
- the continued development of the Internet as an e-commerce medium;
- our continuing ability to provide our customers with the highest quality
of service and support;
- the availability of comparable e-commerce products and services on other
Web sites;
- sales volume on Web sites that we maintain;
- our ability to achieve and demonstrate user demographic characteristics
that are attractive to our customers; and
- the establishment and maintenance of desirable relationships with our
customers.
9
<PAGE>
If e-commerce is not widely used by retailers and consumers, our ability to
sustain growth could be adversely affected.
SHOPPERS WHO ACCESS OUR WEB SITES USING OLDER TECHNOLOGY MAY EXPERIENCE
FRUSTRATING DELAYS AND OTHER PROBLEMS
Our system incorporates graphics that require the downloading of substantial
amounts of data and requires support from software that is on the user's
computer. The amount of data downloadable from our Web sites will increase as
new features are developed and implemented. Shoppers who access our Web sites
using older modems with slow download speeds, older telephone lines with poor
transmission quality or Internet connections that are slow or overloaded will
experience download times that they may find frustrating if they are trying to
access all of the features of our system, including moving images. We have
provided a limited-access option for shoppers who prefer faster download times
and are willing to do without some features of our system, but we believe that
our principal attractiveness will be to those who access our Web sites using
more current technology. Users of older technology may also experience
compatibility problems. For example, users of early versions of Java, a widely
available program that runs our graphics and is available free of charge on the
Internet, may experience compatibility problems with the more popular Web
browsers.
WE HAVE A NEW AND UNPROVEN BUSINESS MODEL
The manner in which we conduct our business and charge for our services is
new and unproven. The model depends on our ability to generate revenue from
multiple sources through our Web sites. These sources include:
- fees paid for designing and building Web sites showcasing apparel and
accessories;
- fees paid for maintenance of the Web sites;
- revenue sharing with retail customers who use the Web sites to sell
apparel and accessories through e-commerce;
- fees paid by retailers based on the number of shoppers who visit the Web
site when a customer does not use its site to directly sell product; and
- fees for updating the Web site, including product offerings.
For us to be successful, we must convince a large number of retailers to use
our system. Furthermore, we and our customers must convince shoppers to visit
our Web sites regularly. We must persuade retailers and their customers that the
shopping experience provided by our Web sites is compelling, innovative,
informative and easy to use. To date, apparel sales on the Internet have been
minimal compared to sales of other kinds of products such as books and CDs.
Accordingly, we cannot guarantee that we will be able to change the buying
habits of consumers or the perception of retailers as to the usefulness of our
system to them either for advertising or for sale distribution.
WE COMPETE FOR RETAILERS THAT CHOOSE TO SELL OR MARKET PRODUCTS BY USING OUR
INTERNET SYSTEM
We compete specifically with Web site designers and generally with suppliers
of other advertising media for business from retailers. Moreover, retailers may
employ people to design and maintain their own Web sites. Additionally, we
believe marketing companies could adopt our system, or one very similar to it,
as another means to promote the products and brands of their clients. We also
compete with other producers of print catalogs and advertising for retailers'
business. Many of these organizations have greater financial resources than we
have. As the Internet and e-commerce continue to expand, the number of people
and companies providing Web-based services will continue to increase and
competition will increase as well.
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<PAGE>
WE COMPETE FOR SHOPPERS INTERESTED IN PRODUCTS FEATURED BY OUR CUSTOMERS
We compete with other companies for shoppers who visit our Web sites.
E-commerce is experiencing explosive growth fueled by extremely rapid
technological development, rapid changes in consumer habits and preferences,
massive infusions of capital and a large number of new and established companies
with aspirations to control virtually every aspect of e-commerce. A relatively
small number of these companies, including Microsoft, Netscape, America Online
and Yahoo!, currently control primary or secondary access of a significant
percentage of all Internet users. As a result, these companies and the companies
they sponsor or assist have a competitive advantage in marketing to Internet
shoppers. Other large and established companies, such as local and long distance
telephone companies, cable companies, satellite programming providers and others
have established relationships with large customer bases and are rapidly
expanding into the provision of Internet services. Almost all of these companies
have financial, technological, promotional and other resources that are much
greater than those available to us. Many of these companies could use or adapt
their current technology, or could purchase technology, to provide a service
directly competitive with ours. We cannot guarantee that we will be able to
compete effectively in our chosen markets.
WE HAVE A SHORT OPERATING HISTORY
We began to do business in August 1996. For most of our history, we were
developing and testing our system. We first made our Web sites available to our
customers on a test basis in November 1997 and achieved revenue only in the last
three months of calendar 1998. Many of our customers have not yet had an
opportunity to fully evaluate the benefit of using our Web sites. Our ability to
retain our current customers and to attract others will depend on the
performance of our customers using our Web sites, especially over the next few
months.
WE HAVE NOT YET ACHIEVED PROFITABLE OPERATIONS AND EXPECT LOSSES TO INCREASE
We have operated at a loss since the start of our business and expect to
continue to operate at a loss for at least the next twelve months. As of June
30, 1997 and 1998, we had net losses of $1,908,600 and $1,079,738, and as of
March 31, 1999, we had a cumulative loss from inception and an accumulated
deficit of $6,067,717. We cannot guarantee that we will ever achieve profitable
operations. We expect to increase substantially our levels of expense in almost
all categories of our operations following this offering. As a result of these
increases, we expect our rate of loss will initially increase. In the long run,
these losses will be offset by increasing revenues only if we are successful in
achieving our sales goals by attracting an increasing number of customers and
shoppers to our Web sites. If we do not achieve profitable operations, we may be
forced out of business or be forced to declare bankruptcy, in which case you
could lose your entire investment in the units.
OUR FUTURE OPERATING RESULTS MAY BE DIFFICULT TO PREDICT
Because of our very limited operating history and early stage of
development, we do not have historical financial data on which we, you or market
analysts can plan or base forecasts of revenues, earnings or capital
requirements with any accuracy. Because e-commerce is new, both we and others
will find it difficult to make predictions about our financial performance based
on the performance of other companies. One result of this unpredictability may
be that we will experience unanticipated capital requirements at a time when the
required capital is not available to us or is only available on terms that will
dilute your investment. Another possible result is that our stock price may
experience rapid and significant fluctuations as our financial performance
exceeds or falls short of market expectations.
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<PAGE>
WE HAVE NO LONG-TERM CONTRACTS WITH OUR CUSTOMERS
Our arrangements with our customers are generally cancellable on short
notice or are entered into as work orders on a project-by-project basis. Many of
the projects that were transferred to us from DBLA are also cancellable on short
notice. While we have not experienced significant levels of customer
cancellations to date, DBLA has experienced such cancellations and we cannot
guarantee that any of our customers will continue to use our services in the
future. Cancellation by a significant number of customers or the failure of a
significant number of customers to continue to employ us for projects would have
an adverse effect both on immediate revenues and on the marketability of our
system to other customers.
OUR BUSINESS WILL DEPEND ON THE PERFORMANCE OF OUR CUSTOMERS AND OTHERS
Our ability to earn revenues from our customers will depend on the success
of these customers in increasing their business through the use of our service,
either by making e-commerce sales or by using our Web sites as an effective
advertising medium supporting sales in other channels. This in turn will depend
on our ability, and the ability of our customers, to present merchandise using
our system in a manner that is substantively informative, visually attractive,
responsive to consumer demand and user-friendly. Our ability to achieve these
goals depends in part on the availability of technology that we and our
customers do not own or control. In particular, we expect to depend on the
speed, quality and demographic coverage of data delivery systems offered by
various Internet service providers. Our success will also depend on the ability
of our customers to select and offer merchandise that is attractive to their
target markets. We cannot guarantee that we or our customers will succeed in
establishing a profitable, e-commerce-based sales channel. The failure of a
significant number of our customers to achieve satisfactory results using our
Web sites could adversely affect our business for those and other customers.
WE WILL REQUIRE SIGNIFICANT ADDITIONS TO OUR MANAGEMENT TEAM
Since we began our business, we have been a small company engaged in
developing a basic marketing concept for e-commerce. As a result, we have not
had to deal with many of the challenges facing a more mature business, such as
the management of a sophisticated sales organization, performing under a
substantial volume of service obligations to customers or the management of
significant financial resources. We expect to face all of these management
challenges in the near future. To do so, we expect to be required to add
additional members to our management team, particularly in the area of
operations and finance. We have retained Robert Vitamante to become President,
Chief Operating Officer and Chief Financial Officer upon completion of this
offering. In May 1999, we appointed Brian Smith, DBLA's president, as our
President, Creative Services. We may seek management level additions in other
areas. Competition for qualified management level personnel is intense and we
cannot guarantee that we will be successful in hiring qualified personnel or in
integrating them into our company. Our future performance will depend in part on
our ability to integrate our newly hired executive officers effectively into our
management team. Our ability to manage our business will be adversely affected
if we are unable to retain qualified management.
WE MAY BE UNABLE TO MANAGE OUR GROWTH
Our business plan requires significant expansion of our operations to
address potential market opportunities. For example, we have just completed an
acquisition of the business of DBLA. We expect we will need to increase
personnel, including key management personnel, and other resources significantly
in the near future. We expect this growth to place a significant strain on our
managerial, operational and financial resources and systems. To manage our
growth, we must implement, improve and effectively use our operational,
management, marketing and financial systems and train and manage our new and
existing employees. We cannot guarantee we will be able to manage effectively
12
<PAGE>
the expansion of our operations or that our personnel, systems, procedures and
controls will be adequate to meet our anticipated future operations. If we fail
to manage our growth, we could experience a wide variety of accounting,
administrative and other operational problems.
WE FACE A RISK OF FAILURE, DELAYS AND OVERLOADS ON OUR WEB SITES
The performance, reliability and availability of our Web sites and network
infrastructure are critical to our reputation and ability to attract and retain
retailers or shoppers. Our network and computer infrastructure is located at a
facility in Marina Del Rey, California. Our systems and operations are
vulnerable to damage or interruption from a variety of causes. We will not have
redundant facilities until June 1999 at the earliest and may be reliant on a
single facility for an indefinite period after that date. We carry only limited
business interruption insurance. Our computer systems are complex and under
rapid development. Undetected errors in new or existing programs or equipment
could cause a range of problems from temporary unavailability of data, to
slowdowns and overloads to complete system failures. A sudden and significant
increase in traffic on one of our Web sites could also strain the capacity of
our software, hardware and telecommunications systems, which could lead to
slower response times or system failures. Any system error or failure that
causes interruption in the availability of content or an increase in response
time could result in a loss of business for our customers and reduce the
popularity of our Web sites with shoppers. Since our ability to earn revenue
depends directly on our ability to attract customers and shoppers, any such
error or failure could have a material temporary or permanent effect on our
revenues.
WE, OUR CUSTOMERS AND SHOPPERS USING OUR WEB SITES FACE SECURITY RISKS
Despite the implementation of security measures, our networks may be
vulnerable to unauthorized access, computer viruses and other problems. A person
who is able to circumvent security measures could misappropriate proprietary
information or cause interruptions in our operations. Various Web sites and
Internet service providers have experienced, and our Web sites may experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. We may be required to
spend significant amounts to protect against the threat of security breaches or
to alleviate problems caused by such breaches. Although we intend to implement
industry-standard security measures, these measures may be circumvented.
Eliminating computer viruses and alleviating other security problems may require
service interruptions or unanticipated expense.
THE FUTURE OF THE INTERNET AS A COMMERCIAL MEDIUM IS UNCERTAIN
Rapid growth in use of and interest in the Internet is a recent phenomenon.
Neither we nor others can predict with confidence whether acceptance and use of
the Internet will continue to develop or whether a sufficient base of users will
emerge to support our business. The Internet may not be accepted as a viable
commercial medium for any of a number of reasons, including:
- inadequate development of the necessary infrastructure;
- inadequate development of enabling technologies; and
- inadequate consumer support for e-commerce generally or in our targeted
market areas.
If the Internet continues to experience an increase in users, an increase in
frequency of use or an increase in the bandwidth requirements of users, the
Internet infrastructure may be unable to support the demands placed upon it,
specifically the demands of delivering the high volume of data necessary for the
optimum performance of our Web sites. The Internet could lose its viability as a
commercial medium due to delays in the development or adoption of new standards
and protocols required to handle increased levels of Internet activity, or due
to increased government regulation. Changes in or
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<PAGE>
insufficient availability of telecommunications services to support the Internet
also could result in unacceptable response times and could adversely affect use
of the Internet generally and of our Web sites in particular.
MANY INTERNET USERS DO NOT HAVE ACCESS TO HIGH SPEED INTERNET ACCESS AND CANNOT
CONVENIENTLY VIEW THE MOST NOVEL FEATURES OF OUR WEB SITES
To take advantage of the full-motion, 3D features of the Web sites we
design, Internet users need high speed access to the Internet. This access is
currently provided through cable modems, digital subscriber lines and satellite
transmissions. Most Internet users still use analog modems and cannot
conveniently view our Web sites' most novel and innovative features. If more
people do not obtain high-speed Internet access, users may not find our Web
sites compelling and the traffic to those sites may decrease. Failure to attract
Internet users to our Web sites could have a material adverse effect on our
business and results of operations.
WE MAY NEED, AND MAY BE UNABLE TO OBTAIN, ADDITIONAL FINANCING
We may require additional capital to take full advantage of future growth
opportunities, fund our ongoing research and development efforts and continue to
upgrade our technology and network systems. The amount and timing of our future
capital requirements will depend on many factors, including, among others:
- consumer acceptance of and demand for our Web sites;
- the acceptance by customers and potential customers of our business
concept;
- the need to establish and continually upgrade our technology and computer
systems; and
- the need to establish and maintain an effective sales and marketing
program.
We have not arranged for any funding beyond the proceeds from this offering.
We believe these proceeds will satisfy our capital requirements for at least the
12 months following this offering and for the foreseeable future after that but
we cannot guarantee that additional financing will not be required earlier than
we expect. We also cannot guarantee that additional financing, if required, will
be available on acceptable terms or at all. If additional funds are raised by
issuing equity securities, your investment may be substantially diluted. If we
raise capital by borrowing, the interest charge may substantially increase
operating expense.
WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS
Our success depends, to a significant extent, upon the continued involvement
of Mr. Weisdorn, our Chief Executive Officer, Mr. Vitamante, who has agreed to
serve as our President, Chief Operating Officer and Chief Financial Officer
after the completion of the offering, and Mr. Smith, our President, Creative
Design. The loss of the services of these officers, or the services of other key
employees, could have a material adverse effect on our business and prospects.
We do not currently maintain "key person" life insurance on the lives of any of
our officers or employees, nor do we have employment agreements with our key
personnel with the exception of Mr. Vitamante. Our future success also depends
on our continuing ability to attract and retain highly qualified technical
personnel and management. Competition for such personnel is intense and we
cannot guarantee that we will be able to retain our key management and technical
employees or that we will be able to attract or retain additional qualified
technical personnel and management in the future.
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<PAGE>
WE HAVE ONLY LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND TO AVOID
INFRINGING INTELLECTUAL PROPERTY RIGHTS OF OTHERS
We consider our proprietary technology, trademarks, trade secrets, domain
names and other intellectual property to be critical to our success. We rely on
a combination of copyright and trademark laws, trade secret protection,
confidentiality and non-disclosure agreements and contractual provisions with
our employees and with third parties to establish and protect our proprietary
rights. We cannot guarantee the procedures that we employ or may employ in the
future to protect our intellectual property will provide us with adequate
protection. The defense of intellectual property rights can be expensive and the
outcome of any defense may be uncertain. We use a variety of proprietary
technologies that we have developed ourselves or licensed from others. We cannot
guarantee that any particular aspect of our technology will not be found to
infringe the rights of other companies. Other companies may acquire proprietary
rights to technology useful or necessary to our business or may establish
trademarks, tradenames or domain names that limit our ability to market our
services or our customers' products. We cannot predict how any such intellectual
property, or the need to obtain rights to use it, will affect our business.
OTHERS MAY DEVELOP OR PURCHASE COMPARABLE OR SUPERIOR TECHNOLOGY
We believe our technology reflects the current state of the art for online
merchandise display. We developed our technology by purchasing products from
third parties and using those products to build applications developed in-house.
Others could purchase these third-party products and could build similar
applications. It would be relatively easy for a competitor to purchase
comparable software and to create a competing display technology. Moreover,
others could develop, and may have developed, comparable or superior technology.
We cannot guarantee that future innovations in Internet or computer technology,
generally, or in online merchandising technology, will not eliminate any
technological advantage we may currently enjoy or render our technology
obsolete. We expect we will be required to maintain a continuous program of
technological innovation in order to take advantage of general technological
advances and to remain competitive.
GOVERNMENT REGULATION OF THE INTERNET IS NEW AND ITS FUTURE IS UNCERTAIN
Although there are currently few laws and regulations directly applicable to
the Internet, new laws and regulations likely will be adopted in the United
States and elsewhere covering issues such as privacy, pricing, sales taxes and
characteristics and quality of Internet services. The adoption of restrictive
laws or regulations could slow Internet growth or expose us to significant
liabilities associated with the products available on our Web sites. The
application of existing laws and regulations governing Internet issues such as
property ownership, libel and personal privacy is also subject to substantial
uncertainty. We cannot guarantee that the application of new or existing laws
and regulations will not expose us to significant liabilities, significantly
slow Internet growth or otherwise have an adverse effect on our business.
The Communications Decency Act of 1996 was enacted in 1996. Although those
sections of the CDA that, among other things, proposed to impose criminal
penalties on anyone distributing "indecent" material to minors over the Internet
were held to be unconstitutional by the U.S. Supreme Court, we cannot guarantee
similar laws will not be proposed and adopted. Although we do not currently
distribute the types of materials that the CDA would have prohibited, similar
legislation in the future could limit our ability to market some products.
OUR STOCK HAS BEEN THINLY TRADED AND MAY EXPERIENCE PRICE VOLATILITY
Before this offering, our stock has been traded on the NASD OTC Bulletin
Board. We achieved a trading market for our stock through a series of small,
unregistered offerings and have not been
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<PAGE>
required to file reports with the SEC as do most companies whose securities are
publicly traded. Historical market prices for our stock may not be a reliable
indication of our value for several reasons, including the following:
- we have not regularly made available the kind of public information that
supports the markets for securities of more established companies;
- our company has not been covered by regular reports from financial
analysts of established standing;
- the limited amount and distribution of our stock has exacerbated the
effect of relatively small imbalances in supply and demand; and
- the number of stock brokerage firms through whom our stock could be traded
has been limited.
We cannot guarantee that the market for our securities after this offering
will fairly reflect our value or that it will be active enough to provide
liquidity to you. The trading price of our securities could be subject to wide
fluctuations in response to quarterly variations in operating results, changes
in financial estimates by securities analysts, announcements of technological
innovations or new products by us or our competitors or other factors. In
addition, the stock market has experienced extreme price and volume fluctuations
that have particularly affected the market prices for many technology and small
capitalization companies. These broad market fluctuations may affect the market
price of our securities. Market valuations for companies offering Internet
services have recently experienced substantial increases and extreme volatility.
Any significant decrease in the market valuation of such companies generally
could cause a substantial decrease in the price of our securities unrelated to
our operating results.
YOUR WARRANTS CAN BE REDEEMED ON SHORT NOTICE
At any time after 180 days following the date of this prospectus, we could
redeem your warrants for $0.25 per warrant on 30 days' written notice, provided
that the closing price of our common stock has been at least $ for the ten
consecutive trading days immediately preceding the date of notice of redemption.
If we give notice of redemption, a holder would be forced to sell or exercise
the warrants or accept the redemption price.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO ALLOCATE OFFERING PROCEEDS
We expect to use approximately $573,500 of the net proceeds of this offering
to repay debt and approximately $5,650,000 for the other purposes described
under "Use of Proceeds" later in this prospectus. The remaining net proceeds,
estimated to be approximately $20,591,500, will be used for working capital and
applied to general corporate purposes. Our management will have broad discretion
to allocate the proceeds of this offering, including proceeds currently
specifically allocated as described in this prospectus, and any other cash
resources to such uses as they determine to be in the best interest of
3Dshopping.com. The amounts actually allocated to each expense category, and the
source of the cash so allocated, may vary significantly, depending on a number
of factors, including the amount of future revenue growth, the amount of cash
generated or used by our operations and the progress of our marketing efforts.
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<PAGE>
USE OF PROCEEDS
The net proceeds that we will receive from the sale of the 2,000,000 units
are estimated to be approximately $26,815,000, assuming an initial public
offering price of $15.00 per unit, after deducting underwriting discounts and
commissions and estimated offering expenses, and assuming no exercise of the
warrants or the underwriters' over-allotment option. The public offering price
of the units will be based on the market price of the common stock on the day
immediately preceding the date of this prospectus.
Immediately following this offering, we expect to use approximately $64,500
of the net proceeds to repay indebtedness we owe to our Chief Executive Officer,
Lawrence Weisdorn, Jr. and his father, Lawrence Weisdorn, Sr. As of May 7, 1999,
we owed Lawrence Weisdorn, Jr. $20,308 and Lawrence Weisdorn, Sr. $46,151,
including interest. The principal is payable on demand and bears interest at a
rate of 7% per annum. We also intend to use approximately $515,000 to pay the
outstanding principal and interest on a promissory note issued in March 1999 to
Generation Capital Associates, an institutional investor. The note evidences
indebtedness in the principal amount of $500,000. Interest accrues at a rate of
9% per year. We are using the proceeds from this loan to fund our operations
until we receive the proceeds from this offering. We intend to use the remaining
net proceeds, along with any other financing sources that may become available
to us, to support our anticipated growth over the next two to three years. We
expect to experience negative cash flow from operations for at least the next 12
months. We expect that our cash requirements will exist principally in the
following areas:
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT BUDGETED
FOR USE IN THE 12 MONTHS
USE OF CAPITAL FOLLOWING THE OFFERING
- ------------------------------------------------------------------------------------ ----------------------------
<S> <C>
Developing and rapidly expanding sales, marketing and advertising activities,
including the hiring of additional employees and consultants...................... $ 3,000,000
Continuing and expanding our internal research and development program.............. 500,000
Purchasing capital equipment, including computer, video, photographic and other
equipment required to support expanded operations................................. 500,000
Funding an anticipated growth in levels of receivables.............................. 750,000
Expansion of our management team.................................................... 400,000
Other uses not now expressly contemplated, such as the purchase of complementary
technology or businesses, the purchase or lease of real and personal property and
equipment; funding unanticipated negative cash flow from operations; or
repurchases of stock or redemption of warrants.................................... 500,000
</TABLE>
The amount and timing of any of the above expenses will depend on various
factors, including rates of business growth, specific technology, capital
equipment and other requirements imposed by our customers and opportunities
presented to us. While we have prepared internal forecasts to assist management
in planning, we believe that these forecasts, as they apply to periods extending
beyond the next few months, are inherently unreliable and that our actual cash
requirements will differ materially from those we presently forecast.
Our current business plan has identified total capital requirements that are
substantially less than the anticipated offering proceeds. However, we expect
that unanticipated needs and opportunities may cause our capital requirements to
exceed our current estimates. We believe the net proceeds of this offering will
be sufficient to fund our operations for at least the next twelve months and for
the foreseeable future after that.
Pending the use of the proceeds of this offering for operational purposes,
we intend to invest the net proceeds of this offering not used for the immediate
repayment of debt in short-term, investment grade, interest-bearing securities.
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PRICE RANGE OF COMMON STOCK
Since June 25, 1997, 3Dshopping.com's common stock has been traded on the
NASD OTC Bulletin Board under the symbol "PGRX". The following table sets forth
the high and low bid prices for the common stock for the quarters indicated.
Prices reflect bids posted by market makers and may not necessarily reflect
actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDED JUNE 30, 1998
First Quarter............................................................................. $ 1.8750 $ 1.1875
Second Quarter............................................................................ 2.2500 1.3750
Third Quarter............................................................................. 1.7656 0.9219
Fourth Quarter............................................................................ 1.8750 0.9531
YEAR ENDING JUNE 30, 1999
First Quarter............................................................................. 5.5000 1.6250
Second Quarter............................................................................ 19.7500 4.0625
Third Quarter............................................................................. 19.2500 13.0000
Fourth Quarter (to May 20, 1999).......................................................... 17.6250 14.5000
</TABLE>
On May 20, 1999, the closing bid price of the common stock on the NASD OTC
Bulletin Board was $17.50 per share. As of May 19, 1999, there were 53 holders
of record of our common stock. This number does not reflect the number of
beneficial holders of the common stock, which we believe to be between 600 and
800 holders. The public offering price of the units will be based on the price
of the common stock on the day preceding the date of this prospectus.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. Payment
of any cash dividends will depend on the results of our operations, our
financial condition and our capital expenditure plans, as well as other factors
our board of directors may consider relevant. We presently intend to retain any
earnings for use in our business and, therefore, do not anticipate paying any
cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization at March 31, 1999 on an
actual basis, on a pro forma basis to reflect the acquisition of the assets of
DBLA and as further adjusted to give effect to the sale of the 2,000,000 units
at an assumed public offering price of $15.00 per unit and the receipt of the
net proceeds. This table should be read in conjunction with the Financial
Statements and related Notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------------------------
ACTUAL PRO FORMA PRO FORMA AS ADJUSTED
------------- ------------- ---------------------
<S> <C> <C> <C>
Short term debt............................................. $ 660,966 $ 733,859 733,859
Long term debt.............................................. 10,629 15,704 15,704
Shareholders' equity (deficit):
Common stock, no par value: 10,000,000 shares authorized;
3,645,746 shares issued and outstanding; 3,655,746 pro
forma; 5,405,746 pro forma as adjusted shares issued and
outstanding............................................. 6,124,688 6,277,813 33,092,813
Stock subscriptions receivable............................ (2,500) (2,500) (2,500)
Accumulated deficit....................................... (6,067,717) (6,067,717) (6,067,717)
------------- ------------- ---------------------
Total shareholders' equity (deficit)........................ 54,471 207,596 27,022,596
------------- ------------- ---------------------
Total capitalization........................................ $ 726,066 $ 957,159 27,772,159
------------- ------------- ---------------------
------------- ------------- ---------------------
</TABLE>
The shares issued and outstanding do not include 695,666 issuable upon the
exercise of outstanding options and warrants. This number includes warrants
issued to Generation Capital Associates in March 1999. Those warrants give
Generation Capital the right to purchase $2,000,000 of our common stock for
$1,500,000. Using a price of $15 per share at the time of exercise, Generation
Capital's warrants would be exercisable for 133,333 shares at an exercise price
of $11.25.
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DILUTION
The difference between the initial public offering price per share of common
stock and the pro forma net tangible book value per share of common stock after
this offering constitutes the dilution to you. Net tangible book value per share
is determined by dividing our net tangible book value (total tangible assets
minus total liabilities) by the number of shares of common stock outstanding.
At March 31, 1999, our net tangible book deficit was $(164,030), or $(.04)
per share of common stock and would have been $(168,728) or $(.05) per share
after giving effect to the DBLA acquisition. After giving effect to the DBLA
acquisition and the sale of the 2,000,000 units, and the receipt of the
estimated net proceeds, assuming an initial public offering price of $15.00
(after deducting the underwriting discount and the estimated offering expenses
and attributing no portion of the value of the unit to the warrant), our pro
forma net tangible book value as of March 31, 1999 would have been $26,646,272
or $4.71 per share of common stock. This represents an immediate increase in the
net tangible book value of $4.76 per share to existing shareholders, including
DBLA, and an immediate dilution in net tangible book value of $10.29 per share
to the purchasers of the units in the offering.
The following table illustrates the per share dilution to you:
<TABLE>
<S> <C>
Assumed initial public offering price............................................... $ 15.00
Net tangible book deficit per share, after DBLA acquisition....................... (.05)
Increase attributable to new investors............................................ 4.76
---------
Adjusted net tangible book value after offering..................................... 4.71
---------
Dilution per share to new investors................................................. $ 10.29
---------
---------
Dilution as a percentage of offering price.......................................... 68.6%
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1999
after giving effect to the DBLA acquisition, the number of shares of common
stock purchased from 3Dshopping.com, the total consideration paid to
3Dshopping.com and the average price per share (1) paid by the existing
shareholders and (2) paid by the purchasers of the units in this offering,
assuming the sale of 2,000,000 units at an assumed public offering price of
$15.00 per unit, before deduction of underwriting discounts and other estimated
offering expenses payable by us and ascribing no portion of the value of a unit
to the warrant.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- --------------------------
NUMBER PERCENT AMOUNT PERCENT AVERAGE PRICE PER SHARE
---------- ----------- ------------- ----------- -----------------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders...................... 3,655,746 65% $ 2,294,188 7% $ 0.63
New Investors.............................. 2,000,000 35 30,000,000 93 15.00
---------- --- ------------- ---
Total...................................... 5,655,746 100% $ 32,294,188 100%
---------- --- ------------- ---
---------- --- ------------- ---
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option, outstanding options or warrants, the warrants we are offering through
this prospectus or the representative's warrants. At March 31, 1999, options and
warrants were outstanding to purchase up to a total of 695,666 shares of common
stock at exercise prices ranging from $1.25 to $11.25. This number includes
warrants issued to Generation Capital Associates in March 1999. Those warrants
give Generation Capital the right to purchase $2,000,000 of our common stock for
$1,500,000. Using a price of $15 per share at the time of exercise, Generation
Capital's warrants would be exercisable for 133,333 shares at an exercise price
of $11.25. To the extent that any of these options and warrants are exercised,
there will be further dilution to new investors.
20
<PAGE>
SELECTED FINANCIAL DATA
3DSHOPPING.COM
We derived the following selected statement of operations data for the
eleven months ended June 30, 1997 and the year ended June 30, 1998 and the
selected balance sheet data at June 30, 1998 from financial statements included
elsewhere in this prospectus, which have been audited by Friedman, Minsk, Cole &
Fastovsky, independent auditors. We derived the selected statements of
operations data for the nine month periods ended March 31, 1998 and 1999 and the
selected balance sheet data at March 31, 1999 from our unaudited financial
statements included elsewhere in this prospectus. The financial statements
included elsewhere in this prospectus contain all material financial information
about us and we urge you to read them carefully. In the opinion of our
management, the unaudited financial statements have been prepared on a basis
consistent with the audited financial information and include all normal
recurring adjustments necessary for a fair presentation of the results for these
periods and as of such dates. The selected financial data provided below for the
nine months ended March 31, 1999 are not necessarily indicative of our future
results of operations or financial performance. The data shown below should be
read in conjunction with the financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information appearing elsewhere in this
prospectus.
Amounts for the eleven months ended June 30, 1997 reflect eleven months of
operations from August 13, 1996 (inception) to June 30, 1997.
The line item "Weighted average shares used in computing net loss per share"
is based on the weighted average shares of common stock outstanding for the
eleven months ended June 30, 1997, the year ended June 30, 1998 and the nine
months ended March 31, 1998 and 1999. It excludes 0, 32,609, 32,609 and 32,609
shares, respectively, of common stock issuable upon exercise of outstanding
options, warrants and convertible debt. Additional information about these
options is provided under "Shares Eligible for Future Sale." Note 1 of Notes to
Financial Statements includes an explanation of the determination of the number
of shares used in computing net loss per share.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
---------------------- ----------------------
STATEMENT OF OPERATIONS DATA: 1997 1998 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues............................... $ -- $ 18,404 $ 644 $ 50,311
Operating expenses:
Sales and marketing...................... 973,283 473,665 312,757 652,049
Research and development................. 294,360 170,259 162,214 346,131
General and administrative............... 647,868 457,345 271,814 2,073,491
---------- ---------- ---------- ----------
Total costs and expenses................. 1,915,511 1,101,269 746,785 3,071,671
---------- ---------- ---------- ----------
Loss from operations....................... (1,915,511) (1,082,865) (746,141) (3,021,360)
Interest expense........................... 3,089 10,373 5,708 61,269
Other income............................... 10,000 13,500 13,500 3,250
---------- ---------- ---------- ----------
Net loss................................... $(1,908,600) $(1,079,738) $ (738,349) $(3,079,379)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per share......................... $ (.59) $ (.28) $ (.20) $ (.77)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares used in computing
net loss per share....................... 3,210,651 3,823,228 3,774,038 4,024,482
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
BALANCE SHEET DATA: 1998 MARCH 31, 1999
---------- --------------
<S> <C> <C>
Cash and cash equivalents....................................... $ 144,564 $ 493,793
Working capital (deficit)....................................... (165,096) (257,914)
Total assets.................................................... 229,529 841,388
Accumulated deficit............................................. (2,988,338) (6,067,717)
Shareholders' equity (deficit).................................. (98,626) 54,471
</TABLE>
DBLA
We derived the following selected statement of operations data for the years
ended December 31, 1997 and December 31, 1998 and the selected balance sheet
data at December 31, 1998 from financial statements included elsewhere in this
prospectus, which have been audited by Friedman, Minsk, Cole & Fastovsky,
independent auditors. We derived the selected statements of operations data for
the three month periods ended March 31, 1998 and 1999 and the selected balance
sheet data at March 31, 1999 from unaudited financial statements included
elsewhere in this prospectus. The financial statements included elsewhere in
this prospectus contain all material financial information about DBLA and we
urge you to read them carefully. In the opinion of DBLA's, management, the
unaudited fiancial statements have been prepared on a basis consistent with the
audited financial information and include all normal recurring adjustments
necessary for a fair presentation of the results for these periods and as of
such dates. The selected financial data provided below for the three months
ended March 31, 1999 are not necessarily indicative of our future results of
operations or financial performance. The data shown below should be read in
conjunction with the financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
STATEMENT OF OPERATIONS DATA: 1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues......................................... $1,342,500 $2,228,298 $ 459,331 $ 231,574
Cost of sales.................................... 816,437 1,638,251 397,530 123,260
--------- --------- --------- ---------
Gross profit..................................... 526,063 590,047 61,801 108,314
--------- --------- --------- ---------
Cost and expenses:
General and administrative..................... 450,347 567,200 148,441 137,096
--------- --------- --------- ---------
Total costs and expenses....................... 450,347 567,200 148,441 137,096
--------- --------- --------- ---------
Income (loss) from operations.................... 75,716 22,847 (86,640) (28,782)
Interest expense................................. 2,989 4,733 661 4,082
--------- --------- --------- ---------
Income (loss) before income taxes.............. 72,727 18,114 (87,301) (32,864)
Income taxes................................... 1,500 800 800 800
--------- --------- --------- ---------
Net income (loss).............................. $ 71,227 $ 17,314 $ (88,101) $ (33,664)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER MARCH 31,
BALANCE SHEET DATA: 31, 1998 1998
----------- ---------
<S> <C> <C>
Cash.................................................................. $ 52,018 $ (1,795)
Working capital (deficit)............................................. (62,669) (93,221)
Total assets.......................................................... 217,341 208,075
Retained earnings (deficit)........................................... 2,814 (30,850)
Shareholders' equity (deficit......................................... 32,814 (850)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS PROVIDES INFORMATION THAT WE BELIEVE
IS RELEVANT TO AN ASSESSMENT AND UNDERSTANDING OF OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE ELEVEN MONTHS ENDED JUNE 30, 1997, THE FISCAL YEAR
ENDED JUNE 30, 1998 AND THE NINE MONTH PERIODS ENDED MARCH 31, 1998 AND 1999.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Since beginning operations in August 1996, we have devoted substantially all
of our resources to designing, implementing and introducing our marketing and
display system. From inception through March 31, 1999 we raised total equity
capital of $2,141,063 and had an accumulated deficit of $6,067,717 including
non-cash charges for our common stock issued as compensation. We began to
receive revenues from sales of services in April 1998 and are continuing to
operate at a deficit. We expect the operating deficit to continue and to
increase over at least the next twelve months as we incur increasing levels of
expense to support growth.
We believe that our historical operating results are not indicative of
future performance for the following reasons, among others:
- The receipt of the proceeds of this offering and their use to fund our
anticipated growth will materially change expense levels in all major
categories and are expected to support substantial increases in revenues
from operations;
- The acquisition of DBLA has changed substantially the character and scope
of our existing business (see "Business--Acquisition of DBLA"); and
- We have recently emerged from the development stage and anticipate
substantial increases in the number and size of customer orders and
revenues from operations.
Although we expect substantial growth in both revenues and expenses, we
anticipate that increases in expenses will occur more rapidly than corresponding
increases in revenues. Also, while we are committed, at least in the short term,
to substantial increases in expenses, we cannot guarantee that revenues will
increase correspondingly. Like many companies attempting to build an
Internet-based business, we expect over at least the next year and for an
indeterminate period of time thereafter to follow a strategy of establishing
market share by making expenditures for marketing and infrastructure development
that exceed current revenues.
The DBLA assets that we have acquired relate to a business that is more
traditional than the core 3Dshopping.com business and had been fully operational
for three years. As a result, DBLA recorded larger revenues than ours in 1997
and 1998 and was profitable in both years. While we expect to use DBLA's assets
to continue and possibly expand the business it operated, we do not intend to
focus substantial future business development activities on the catalog and
print advertising production business as a business separate from our Web site
business. If our business development plans are successful, we expect that
revenues from Web site services will increase more rapidly than catalog and
print advertising sales. Because DBLA's catalog customers may also be good
prospects for Web site services, we may also develop business involving both
aspects of our business for a single customer. As a result of operating
synergies and differences between the operation of a closely held corporation
and a public company, we expect that some general and administrative expenses
attributable to the operation of the DBLA assets may decrease in the future.
Because DBLA operated as a Subchapter S corporation prior to our acquisition of
its business, it did not record significant tax expense. Future income from the
assets acquired from DBLA will contribute to taxable earnings and profits at the
corporate level.
23
<PAGE>
3DSHOPPING.COM
RESULTS OF OPERATIONS. For the eleven months ended June 30, 1997, we had no
revenues and incurred total expenses of $1,918,600. Expenses consisted of
$294,360 of research and development expense, $973,283 of sales and marketing
expense and $647,868 of general and administrative expenses. $1,363,180 of the
total expense amount resulted from expense attributable to the issuance to
employees and independent service providers of stock options exercisable at
below fair market value. Other income of $10,000, consisting principally of
payments under an Internet co-marketing agreement, resulted in a net loss for
the period of $1,908,600, or $0.59 per share of common stock.
For the year ended June 30, 1998, expenses declined to $1,111,642 and
consisted of $170,259 of research and development expense, $473,665 of sales and
marketing expense and $457,345 of general and administrative expense. The
decline in expenses was due primarily to decreases in purchases of equipment and
reductions in research and development and the effects in 1997 of a charge for
stock issued at below fair market value. Revenues of $18,404 and other income of
$13,500 resulted in a net loss for the year of $1,079,738, or $0.28 per share of
common stock.
For the nine months ended March 31, 1999, expenses increased substantially
from $746,785 for the nine months ended March 31, 1998 to $3,071,671 and
consisted of $346,131 of research and development expense, $652,049 of sales and
marketing expense and $2,073,491 of general and administrative expense. The
increase in expenses was due primarily to increases in payroll and compensation
expenses and fees paid to consultants. $2,290,646 of the total expense resulted
from expense attributable to the issuance to employees and independent service
providers of stock and stock options at below fair market value and does not
represent cash expense. Revenues of $50,311 and other income of $3,250 resulted
in a net loss for the nine month period ended March 31, 1999 of $3,074,379 or
$0.77 per share of common stock. Revenues and other income in the nine month
period ended March 31, 1998 were $644 and $13,500 resulting in a net loss for
the period of $738,349 or $0.20 per share of common stock.
At December 31, 1998, we had net operating loss carryforwards of
approximately $1,376,000 and research and development tax credits of $34,000 for
federal income tax purposes. State net operating loss carryforwards of
$1,396,000 and research and development tax credits of $13,200 will expire
beginning in 2002 and federal net loss carry forwards will expire beginning in
2012 if not used. As a result of changes in ownership, including changes
resulting from this offering, as defined in Section 282 of the Internal Revenue
Code of 1986, as amended, the annual deductibility of net operating loss
carryforwards is limited. A valuation allowance has been recorded against total
deferred tax assets of $484,250 because realization is primarily dependent on
generating sufficient taxable income prior to expiration of the net operating
loss carryforwards. The research and development tax credits expire beginning in
2012.
LIQUIDITY AND CAPITAL RESOURCES. We have funded our operations primarily
through the sale of common stock and to a lesser extent, by issuing notes and
other borrowings. From inception through March 31, 1999, we raised net proceeds
of approximately $2,095,758 from sales of common stock for cash. In some cases,
we have issued common stock in return for goods or services. As of March 31,
1999, we had a total of $671,595 of outstanding notes and other obligations for
money borrowed, cash and cash equivalents of $493,793 and a working capital
deficit of $257,914.
Our liquidity and capital needs relate primarily to working capital and
other general corporate requirements. Since inception, we have not received any
significant cash flow from operations or investing activities. We expect,
however, that the net proceeds from this offering will provide us with
sufficient capital resources to fund our operations for the foreseeable future.
On March 18, 1999, we borrowed $500,000 from an institutional lender to fund
expenses associated with this offering and to cover interim operating expenses
pending receipt of the offering proceeds. We
24
<PAGE>
issued an unsecured promissory note, payable in a single payment on or before
August 31, 1999 and bearing interest at the rate of 9% per annum. If the note is
not fully paid when due, it is automatically exchanged for a new note that is
convertible and is not prepayable, provided that, as long as this offering is
being actively pursued, the new note shall remain prepayable and non-convertible
until October 31, 1999. The new note would become due and payable June 30, 2001
unless called earlier by the lender on 10 days notice at any time after March
31, 2000. We also issued to the lender common stock purchase warrants
exercisable during a three-year period beginning on the later of the first
anniversary of the effective date of this offering and March 31, 2000. The
warrants are exercisable to purchase common stock having a market value of
$2,000,000 at the time of exercise for an aggregate exercise price of $1,500,000
and are redeemable by us at any time after July 1, 1999. Based on an assumed
stock price of $15.00 at the time of exercise, the warrants would be exercisable
for 133,333 shares of our common stock at an exercise price of $11.25. The
redemption price increases between July 1, 1999 and July 1, 2000 from 80% to
100% of the difference between the exercise price and the market value of the
underlying common stock. The notes and the warrants are restricted from transfer
other than transfers to members of a group under common control or distributions
to fund investors, pursuant to a bona fide pledge or hypothecation or by will or
pursuant to the laws of descent and distribution. The common stock issuable on
exercise of the warrants or conversion of the new note will be "restricted
securities" under federal securities laws.
DBLA
RESULTS OF OPERATIONS. DBLA achieved $1,367,500 of revenues in 1997 and
$2,222,512 of revenues in 1998. The difference was a result of increased revenue
from one new customer. Cost of sales of $816,000 in 1997 and $1,638,251 in 1998
resulted in gross profit of $551,063 in 1997 and $584,261 in 1998. Gross profit
declined as a percentage of sales from 40.3% in 1997 to 26.3% in 1999. The
decline was due principally to the lower margins on revenue to this new
customer.
General and administrative expenses increased from $450,347 in 1997 to
$561,414 in 1998 but declined as a percentage of revenues from 32.9% in 1997 to
23.3% in 1998. $52,906 of the increase resulted from our officers' compensation
while the percentage decline was a result of the increase in revenue without a
proportionate increase in administrative costs.
Interest expense of $2,989 in 1997 and $4,733 in 1998 resulted from
increased capital leases in 1998. Interest and taxes resulted in net income of
$96,227 in 1997 and $17,314 in 1998.
For the three months ended March 31, 1999, revenues of $231,574 decreased
from $459,331 for the three months ended March 31, 1998 because of the loss of
two major customers who accounted collectively for 69% of DBLA's revenues for
the year ended December 31, 1998. Gross profit increased from $61,801, or 13.5%
of revenue in the first quarter of 1998 to $108,314 or 46.8% of revenues in the
first quarter of 1999, because of higher profit margins on the 1999 revenues.
This higher profit margin is attributable in part to the loss of relatively low
margin business for one of the customers referred to above. General and
administrative expenses decreased from $148,441 in 1998 to $137,096 in 1999.
In the fourth quarter of 1998 and the first quarter of 1999, DBLA lost two
customers who accounted for $1,291,500 and $225,200 of its revenues in fiscal
1998. Because business for the larger of the two accounts was booked at margins
substantially lower than DBLA's customary margins, the impact of the loss of
this business on earnings was less severe. In general, DBLA's revenues have
undergone significant fluctuations over short periods of time as the result of
DBLA's dependence on a relatively small number of orders each of which can have
a substantial impact on revenue levels. We expect these fluctuations to continue
with respect to the catalog business unless and until a broader catalog business
base is developed. The business operated by DBLA has traditionally been slower
in the first quarter than during the rest of the year. This seasonality
explains, to some extent, DBLA's loss of customers during the first quarter of
1999.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. DBLA has funded its operations from cash
flow from operations, shareholder loans and commercial credit, including capital
lease and financed purchase agreements. At March 31, 1999, DBLA had an aggregate
of $77,968 of indebtedness for money borrowed and capital lease obligations,
$39,000 of which consisted of current indebtedness under its revolving credit
line. After this offering, we expect that the capital requirements of the DBLA
business will be funded from cash flow from operations and, if required, the net
proceeds of this offering.
PRO FORMA COMBINED
The value of the shares issued for the assets of DBLA exceeded the amounts
assigned to tangible assets, less liabilities assumed, by $153,975. This excess
is attributed to the intangible assets acquired, which are preliminarily
estimated to have a life of approximately three years. The annual amortization
on this asset will approximate $51,325. This amortization is included as an
adjustment to the pro forma statement of operations of the 3Dshopping and DBLA
for the year ended June 30, 1998 and the nine months ended March 31, 1999.
Actual amortization may differ, depending on the final allocation of the
purchase price and the evaluation of the lives of the assets acquired.
YEAR 2000 COMPLIANCE
OUR PLAN. Our Year 2000 Compliance Plan relies on our third-party vendors'
representation as to their products' Year 2000 compliance. The manufacturers of
the principal software and hardware products on which our system is based have
provided us with statements of Year 2000 Compliance. We have not modified any of
the source code for these products.
We have assumed that basic utilities such as electric and telephone services
will continue to be available for our operations on and after January 1, 2000.
If this assumption proves incorrect, our operations would be materially
adversely affected for the duration of the utility interruption. Based on
communications to date, we do not believe a material Year 2000 deficiencies by
any of our suppliers exist.
COSTS. We believe costs incurred in responding to other parties' Year 2000
computer system deficiencies, together with the cost of any required
modifications to our systems, will not have a material impact on our results of
operations or financial condition. In the ordinary course we have improved our
Year 2000 readiness through recent system upgrades as part of our usual capital
improvement efforts. We have devoted management and technical resources to
address Year 2000 matters and expect to continue to do so. To date, however, no
specific expenditures have been made as a result of the Year 2000 issue and we
have not identified any specific future costs associated with Year 2000
readiness.
OUR MOST REASONABLY LIKELY WORST CASE SCENARIOS. Although we will continue
to devote resources if and as required to address our Year 2000 issues, these
efforts may not be effective in reducing or eliminating risks associated with
Year 2000 deficiencies. Moreover, our Web-based display system could contain
undetected Year 2000 problems or third-party products could contain such
problems. In addition, our assessment of third-party suppliers and vendors might
not be accurate and we may not have made inquiry of the appropriate vendor. Year
2000 problems could result in system failures, data corruption, the generation
of erroneous information and other significant disruptions of business
activities. Beyond risks related to product and vendor non-compliance, it is
possible that disruptions to the Internet itself will occur due to the
widespread failure of the Internet's hardware and software infrastructure.
Changes in buying and shopping patterns caused by other parties' efforts to
address Year 2000 problems could also disrupt our business. Furthermore, it has
been widely reported that a significant amount of litigation surrounding
business interruptions may arise out of Year 2000 issues. It is uncertain
whether, or to what extent, we may be affected by any of this litigation.
OUR CONTINGENCY PLAN. We do not have a contingency plan. We are in the
process of evaluating the need for a contingency plan and expect to finish the
evaluation and address any findings by early fall of 1999.
26
<PAGE>
BUSINESS
MARKET OPPORTUNITY
The Internet and other media facilitating electronic commerce have offered a
unique opportunity to market and sell products of varying kinds directly to the
ultimate consumer. From a single, central source, a vendor can offer product on
a worldwide basis, providing the consumer the opportunity to acquire information
about the product on his or her home or office computer and, ultimately, to
purchase the product entirely by keystroke entry while sitting at the computer.
Traditional retailing methods require distribution of inventory to a large
number of retail outlets that are expensive to build, maintain, stock and staff.
Mail order sales require expensive and widespread distribution of catalogs that
rapidly become obsolete and that are not necessarily available at the time the
buyer wants or needs to make a purchase. In contrast, e-commerce can offer the
consumer the information required to make a purchase decision and the ability to
make the actual purchase through a medium that can be kept constantly current,
that is available to the customer when needed and that does not require the
retailer to maintain expensive and widely distributed sales outlets, each of
which must be separately stocked with inventory.
Despite these obvious advantages, e-commerce has so far achieved significant
growth in only a relatively limited number of areas, including books, CDs, DVDs
and computers, securities, and travel. This is in part a result of consumer lack
of familiarity with the Internet and e-commerce generally but also, in part, a
result of limitations inherent in traditional e-commerce technology to provide
the customer with an experience that the customer perceives as similar to
in-store selection of merchandise or even to high-quality catalog sales. The
areas in which e-commerce has been successful have the common characteristic
that the customer either knew what he or she wanted before visiting the Web
site, as is often the case with book sales, or needed only to make a selection
from a limited number of objectively definable options, as with computers.
Merchandise, such as clothing, whose selection is more dependent on subjective
factors, has not, so far, achieved a high level of penetration into e-commerce.
Online apparel sales for 1997 were $89 million compared with $169.2 billion in
the retail market. Total online shopping revenue for 1997 was $1.14 billion with
online apparel sales representing less than 8% of that amount. Mail order sales
of $169.5 billion in 1997 indicate that consumers do not need actually to touch
the product. They do need, however, to visually comprehend it in a way that does
not apply to the kind of products for which e-commerce has initially been the
most successful.
Many clothing and accessory retailers are eager to expand their sales and
marketing efforts to include e-commerce but believe the electronic sale of
clothing and similar items will require a second generation of e-commerce
technology that is capable of providing the consumer with an experience closer
to the in-store experience. An e-commerce program that is successful in
providing this information can function both as an advertising medium, providing
information to shoppers that will lead them to visit the seller's store or to
call the seller's 800 number to order a product, or as a complete sales outlet
in which the entire decision and purchase occurs electronically.
THE 3DSHOPPING EXPERIENCE
We have developed technology and support Web sites that are capable of
delivering a complete visual package over the Internet or otherwise via
e-commerce. We provide this technology by designing, setting up and maintaining
Web sites primarily for retailers of apparel. We also service a small number of
retailers of jewelry, flowers, antiques and other products. In contrast to
traditional static Web sites and retail catalogs, our Web sites support full
motion digital imaging and will support in the near future audio presentations
for viewers able to access the Web sites using a broadband connection or willing
to download data at a slower rate. This allows the shopper to view a model or
product through 360 degrees of rotation. It also allows a detailed examination
of the garment or accessory from several different angles. The technology is
also interactive, allowing the viewer to select a desired angle and freeze the
frame. We have developed and expect to begin marketing in the near future
technology that
27
<PAGE>
will allow a viewer to zoom in on selected details, such as buttons, stitching
or other key features or to select and change colors from a menu that includes
all of the colors in which the garment is offered. We have also acquired a
license for a technology that allows a 3D animation of a human head to be placed
on our Web sites. We are developing this technology to create a
"cyber-salesperson" that we can use in the future as a salesperson, explaining
the key features of the garment being viewed. This new technology will support a
menu of alternatives, allowing the shopper to choose from a list of computer
generated likenesses of customized and/or well-known product spokespersons. We
expect to make this technology available to our customers in the third quarter
of 1999.
Our typical Web site opens with a selection of 30 to 40 products displayed
on models that move slowly across the screen. It is possible to include up to 80
images on this Web page. The viewer can click on any model to go to a page that
features the displayed garment. This second page provides access to the various
visual features selected by the retailer and also provides data in traditional
format, such as price, size and other objective information about the garment.
At the retailer's option, the page may allow the shopper to add the item to a
"shopping cart" for later purchase. Once the shopper has completed his or her
selections, the Web site supports electronic product purchases by credit card,
can refer the shopper to a toll-free number from which the shopper can order the
product, or can provide the location of the nearest store.
OUR SYSTEM
We offer the following services to our customers as part of our marketing
and display system:
WEB SITE DESIGN AND SETUP. For a one-time fee, ranging from $3,000 to
$50,000 or more, depending on the size and complexity of the project, we will
design and build a complete Web site for our customer. The site can be accessed
through the customer's home page and/or directly through our home page. The
customer provides direction as to the size, features and other characteristics
of the desired site and furnishes the items of apparel that will be featured and
a detailed description of those items. We then create an inventory database,
provide the models, studio facilities and other requirements to create the
visual images and, using our proprietary technology, incorporate these images
into a Web presentation containing the visual features selected by the customer.
As a result of our acquisition of DBLA, we are able to use our own studio
facilities and to take advantage of DBLA's relationships with photographers,
models and other participants in production of photographs for use in our
display system, as well as catalogs and print advertising. Additional fees are
charged as changes are made in the customer's Web site, for example, to add new
items or to change presentation features.
WEB SITE MAINTENANCE. We charge a periodic fee for maintaining the
customer's Web site. In addition to making minor changes in Web site content, we
conduct general site maintenance functions, review the principal Internet search
engines to determine whether our Web sites are appropriately listed in response
to typical inquiries and perform other functions designed to make maximum use of
the Web sites' potential. Fees for this service currently range up to $300 per
month and we expect these fees to increase as Web site volume and traffic
increases.
WEB SITE TRAFFIC CREATION. As an additional service at no extra fee, we
maintain online "shopping malls" at 3Dshopping.com and other Web sites. From
these malls, shoppers have access to most of our customers' Web sites. The
purpose of the malls is to create shopping communities having shared interests.
We believe such online communities will draw more shoppers than individual Web
sites. Our malls have achieved steady growth, attracting 223,713 visitors in
March 1999. We plan to include brand name manufacturers, traditional brand
retailers and Web-only retailers with brand potential in our malls. We believe
shoppers eventually will be able to purchase apparel, jewelry, flowers,
housewares, gifts, antiques, ancient art, children's wear and toys at our malls.
In addition to our malls, we have agreements with malls operated by other
companies under which those malls include links to our Web sites. Links to our
sites are also included on search engines such as Lycos, Excite and HotBot.
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ORDER PROCESSING. We offer our customers a complete range of electronic
order processing services. Many order processing service providers simply take
order and credit card information and transmit this data to the retailer by fax
or telephone. These systems have high error rates with respect to the credit
card and other data transmitted, requiring the retailer to sort out the errors
by attempting to contact the shopper. We have developed a fully computerized
order processing service that automatically processes and verifies credit card
data with the issuing bank and runs a fraud detection scan while the shopper is
still online. If the data is not entered correctly or if there is some other
problem, we can ask the shopper to re-enter data. Orders and credit data are
transmitted directly to the customer's fulfillment system, resulting in minimal
loss of time and reduced processing errors. Orders can be forwarded to our
customers by fax or e-mail or through a direct link to the customer's computer
system, depending on the customer's preferences and system capabilities. When
the orders are filled, our processing software automatically instructs the
credit card company to release the purchase money into the merchant's account.
For customers electing this service, a fee is charged based on a percentage of
the total value of orders processed. Some customers prefer to manage order
processing themselves by referring their customer to a Web site managed by them
or a toll-free number. For these customers, we charge a fee based on the number
of site visits.
In contrast to many Internet companies, we do not currently offer space for
"banner" advertising. We believe such advertisements detract from the overall
appearance of our Web sites, are distracting to shoppers and are therefore
inconsistent with our primary goal of providing an enhanced electronic
experience to support our customers' product presentation needs.
OUR CUSTOMERS
We market our Web-based marketing and display system to customers with
established brand names and to non-brand name customers. Our customers include
Nordstrom, K-Swiss, Cobra, Perfetto, Pro-Action Sports, Mix Studio and Manx
Beach and Resort Wear. Our customer base consists primarily of apparel retailers
and manufacturers, but also includes sellers of antiques, flowers and
nutritional supplements. Many of our customers sell a substantial percentage of
their products through mail order catalogs and have shipping capability in
place. Based on past work with our customers, which has allowed us to test and
refine our Web-based marketing and display system, we expect to attract
additional customers with more recognizable brand names. We believe customers,
with national name recognition, may attract additional attention to our 3D
shopping system, benefiting our large and small customers.
Our customers have the option to use our Web sites for a variety of
purposes. Most of our customers use our system as a fully functional sales
channel, offering products directly to shoppers over the Internet. Some
customers use our Web sites as a marketing medium designed to attract shoppers
to other retail channels that they maintain. For example, Nordstrom has chosen
to use our system to display clothing offered in its stores but does not provide
electronic shopping cart e-commerce capability. Instead, Nordstrom uses its Web
site, which incorporates our 3D display technology, to provide information on
products with a toll-free number that customers can call to order products
directly from Nordstrom. The toll-free number is serviced and maintained by
Nordstrom. Our arrangement with Nordstrom is currently limited to designing a
portion of its Web site to take advantage of our 3D display services. This
arrangement is cancellable on short notice by Nordstrom. We are discussing other
projects with Nordstrom but cannot guarantee that any such projects will be
agreed to by Nordstrom.
We also provide Intranet design, implementation and maintenance services to
companies that participate in the Leavens Awards Program, a supplier and
administrator of employee awards programs. For example we have provided our
technology and services to Shell Oil Company and The Boeing Company for their
internal employee benefits programs. We believe our 3D technology is well suited
for displaying product awards under these programs for items which need to be
understood visually such as jewelry, pens and clothing.
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We expect that, for the foreseeable future, our target customer base will
consist of clothing and accessory retailers. We believe that this market segment
has sufficient potential to support significant growth in our business and that,
by concentrating in this area, we can position ourselves as the leading provider
of Web-based marketing and display systems in this market segment. We also serve
customers in other areas and expect to continue to do so as the opportunity
arises.
As a result of our acquisition of DBLA, we have added Gottschalk's
Department Stores, K-Swiss and House of Almonds as customers. Currently, we
produce catalogs and advertising for these customers. We expect to market our
Web-based display system to their customers. However, we cannot assure you that
we will persuade any of DBLA's customers to use our Web-based merchandizing and
display system.
MARKETING AND SALES
We have engaged a marketing firm to help us enhance our name recognition
both with potential clients and with consumers who visit our Web sites. We also
enter into cross-marketing relationships with other companies involved in
e-commerce, including MediaOne and work in cooperation with other Web site hosts
by putting click-through banners on each other's Web sites so that traffic
generated on one Web site has the ability to move easily to the cross-marketing
partner's Web site by simply clicking on the banner. Finally, we are gaining
recognition within the industry by participating in various tradeshows.
In addition to the sales efforts of Mr. Weisdorn and Mr. Smith, our in-house
sales force identifies and develops potential clients through cold calling and
other direct marketing techniques. As of April 15, 1999, we employed six people
to carry out our sales and marketing activities, three of whom came to us from
DBLA.
TECHNOLOGY
Wherever possible, our products are based on commercially available software
products which are linked in proprietary and innovative ways. Because there are
a number of alternative software programs that we can use to create our 3D
technology, we are not reliant on a single source of software. For example, the
rotation of our 3D images is created using Java. The 3D image itself is created
using a digital photography system that we developed. Compression for low speed
Internet connections is produced through industry standard programs. While we
have adapted industry standard technology to fit our own applications, and
expect to continue to do so, we do not anticipate that the service we provide
will require the development of substantial, independently developed computer
programs or other technology.
We believe that our use of Java provides an advantage over sites that
require multimedia plug-ins. Plug-ins are awkward and often difficult and
time-consuming to download and use. These difficulties may deter some users from
visiting the site or purchasing any merchandise once there. Java requires no
plug-ins and therefore does not require a shopper to download a plug-in file--a
process that can take several minutes. Although Java does have some
drawbacks--older browsers and text-based browsers may not be able to run Java
applets, there is no industry-standard version of Java and Java may cause a
computer to slow down or crash--we believe the benefits outweigh the drawbacks.
In addition, as faster computers become less expensive and more popular, the
limitations of Java may become less pronounced.
RELATIONSHIP WITH MEDIAONE
We have entered into a Web site linking and promotion agreement with
MediaOne, Inc., a cable company with a presence in 22 metropolitan markets
nationwide. MediaOne provides an entertainment, education, and information
service as part of its business broadband information service on its numerous
Web sites on the Internet. The agreement with MediaOne is non-exclusive and
provides for
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MediaOne to feature the 3Dshopping.com Web site prominently in the shopping
section of its home pages and to provide links to our Web site from MediaOne's
Web site.
The agreement also provides for MediaOne and us to
- use each other's tradenames, service names, servicemarks, and trademarks
for promotional and demonstration purposes and
- pursue the development of co-marketing programs that will allow each of us
to access the other's customers and clients
To view conveniently all of the features we offer and plan to offer,
including full motion digital imaging and virtual reality, a shopper must have
access to the Internet via a broadband connection. Broadband connections include
cable, satellite and a variety of digital subscriber lines, also known as DSL.
Broadband connections are much faster than typical modem connections over a
standard telephone line. For example, a 3.5 megabyte file takes approximately 16
minutes to download using a standard modem operating at 14.4 kbps. The same file
will download in a few seconds over a high-speed cable modem. Although we have
designed our Web sites to accommodate differing connection speeds, we believe
the success of 3D-style e-commerce in the future will be dependent on the
availability of high-speed Internet access.
While download speed depends primarily on the speed of the connection
between the user and the Internet, the practical rate at which data can be
received by a user also depends on a variety of factors within the Internet
itself, including capacity and usage of the host site and the capacity of the
various links in the Internet through which the data passes from the host site
to the user. To deal with the dramatic increase in the volume of data being
transmitted over the Internet, various companies including MediaOne are working
on the process of speeding up data delivery by developing "backbones" or
proprietary communication channels that ensure the rapid processing of data
within the Internet itself. Web sites that have direct access to these backbones
will transmit data at very high volumes, permitting the effective use of the
high-speed downloading capabilities offered by broadband connections.
We entered into the agreement with MediaOne in order to take full advantage
of high-speed cable Internet access.
ACQUISITION OF DBLA
In order to more fully integrate the range of services we offer, we have
acquired the business operations and operating assets of DBLA in exchange for
10,000 shares of our common stock and the assumption of substantially all of the
known liabilities of DBLA. The excess of the purchase price over the asset value
is $153,975 and will be accounted for as goodwill which will be amortized over a
three year period. The acquisition occurred on May 21, 1999 but was deemed
effective for accounting purposes as of April 1, 1999. Prior to the acquisition,
DBLA designed and produced print advertising, direct mail catalogs, brochures
and other printed advertising and promotional materials. It operated from a
studio located in North Hollywood, California and had a staff of two management
and five other full time employees. In coordinating the production of a catalog
or print advertising, DBLA often increased its staff by four times or more
depending on the particular project. Coordinating this process requires hiring
and overseeing art directors, photographers, modelling agencies, hair and makeup
artists, set designers, location managers and other personnel that may be
required for any given production. We believe that having the ability to
coordinate such a complex process in-house, rather than contracting with a third
party to provide these services, provides us with a competitive advantage, both
in terms of cost and efficiency, over other potential providers of 3D display
technology on the Internet. In January 1999, we began producing digital images
that support our Web sites using models selected by DBLA and DBLA's studio
facilities. The acquisition of DBLA gives us direct access to
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studio facilities and trained studio staff for which we believe our requirements
will increase substantially over the next year to three years.
In addition to continuing to operate DBLA's traditional hard copy
advertising production business, we believe that we can increase our customer
base by offering to DBLA's traditional customers the opportunity to produce the
digital images necessary to support a Web site at little additional cost.
Substantially all of the time, and therefore the cost, of producing an apparel
catalog is taken up by facilitating the logistics of a photoshoot, such as
overseeing art directors, photographers and set designers, as well as dressing,
making up and otherwise preparing the models for each picture. In a typical
8-hour day, a model can display between 12 and 15 different items of clothing.
Once the model is ready for a static photo session, it takes only a few more
minutes to capture the digital imaging content using our proprietary digital
imaging technology. Because the additional time involved is relatively minor,
the incremental cost of producing the additional images is substantially lower
than if the images are produced on a stand-alone basis. We plan to offer the
opportunity to DBLA's customers to order the additional images so that they will
be prepared, either immediately or in the future, to sell clothing through
e-commerce through one of our Web sites. In this way, we intend to position
ourselves as a "one-stop" source for fashion product marketing using the latest
technology to create compelling and visually unique Web sites, mail order and
electronic catalogs and other advertising materials for the fashion industry.
COMPETITION
We compete with a broad range of marketing alternatives available to our
customers. We also compete with a broad range of other shopping alternatives to
attract consumers to our Web sites.
Although many of our retail customers use our Web sites as their primary
sales channel, we believe our larger, name-brand customers and potential
customers see us primarily as a marketing solution, competing for a share of the
customer's marketing and advertising budget. In that capacity, we compete
against all of the traditional marketing resources, including print and other
media advertising, mail order catalogs, in-store displays, coupon and other
incentive programs and phone-in or computer-based services maintained by the
customer. In a narrower sense, we compete against a large number of providers of
Web site design and related Internet services.
At the consumer level, we and our customers compete for the attention and
budget of consumers for the products that our customers sell. This competition
includes traditional retail stores, mail order catalogs and a growing number of
Internet-based alternatives. While we believe that our system offers significant
marketing advantages over other existing Internet-based systems, many factors
affect competition for Internet consumers, including affiliations with companies
that control or direct access to the Internet or to individual Web sites.
We also compete with other producers of mail order catalogs for retail
customers. Some of these producers are much larger and have greater financial
resources than we do. Participants in this industry differentiate themselves
largely based on creative content and customer service. We cannot guarantee that
we will be able maintain our creative distinctiveness and desirability to
customers.
EMPLOYEES
As of May 19, 1999, we had 24 full-time employees and two part-time
employees, 13 of whom were involved in Web site design and development, one in
research and development, six in sales and marketing and six in finance,
administration and operations. Seven of these employees are former employees of
DBLA. Our future success depends, in part, on our continuing ability to attract,
train and retain highly qualified technical, sales and managerial personnel.
Competition for such personnel is intense, and we do not assure you that we will
be able to recruit and retain sufficient numbers of qualified personnel. None of
our employees is represented by a labor union. We have not experienced any work
stoppages and consider our relations with employees to be good.
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FACILITIES
We lease approximately 2,000 square feet of office space in two office
buildings located in Venice, California. One of our leases will expire on May
31, 2000, with an option to renew for an additional year. We believe our current
facilities will be adequate through calendar year 1999. We are in the process of
locating additional space to meet our expected requirements beyond 1999. We also
occupy on a month-to-month basis approximately 10,000 square feet of office and
photography studio space located in North Hollywood, California from a limited
liability company whose members are also the shareholders of DBLA. This facility
was formerly occupied by DBLA. We believe these facilities will be adequate
through calendar year 1999.
LITIGATION
We are not engaged in any litigation that, singly or in the aggregate, will
have a material adverse effect on our business, financial condition or results
of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information about our officers, directors,
executive officers and certain other key employees as of the date of this
prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Lawrence Weisdorn.......................... 41 Chairman of the Board and Chief Executive
Officer and Director
Robert J. Vitamante........................ 53 President, Chief Operating Officer and
Chief Financial Officer
Brian A. Smith............................. 53 President, Creative Services
Robert J. Grant............................ 49 Treasurer and Secretary and Director
Donald R. Westland......................... 40 Vice President of Technical Operations
Donald L. Hejmanowski(1)................... 39 Director
</TABLE>
- ------------------------
(1) Member of the Audit and Compensation Committees
LAWRENCE WEISDORN has been our Chairman of the Board and Chief Executive
Officer since May 1999. Prior to that time, he served as our President and a
director since our inception in August 1996. From January 1995 to August 1996,
Mr. Weisdorn was a founder and served as President and Chief Executive Officer
of Samuel Hamann Graphix, Inc. Samuel Hamann Graphix was formed in June 1996 to
develop technology for high-quality graphics usable in television commercials
and commercial operations. During the eight years before he joined Samuel Hamann
Graphix, Mr. Weisdorn worked as an independent marketing and sales consultant.
In December 1988, Mr. Weisdorn entered into an Agreement and Undertaking
with the British Columbia Securities Commission relating to various matters
concerning Mr. Weisdorn's management of two mining companies. Mr. Weisdorn and
one other member of management obtained salary advances and other benefits from
these companies without obtaining the prior approval of the disinterested
directors or of the Vancouver Stock Exchange. In obtaining the advances and
benefits, Mr. Weisdorn acted on advice of legal counsel which stated that such
advances and benefits were permitted but failed to add that the above-mentioned
approvals were required. The advances were made in the aftermath of the market
crash of October 1987, as a result of which Mr. Weisdorn incurred substantial
debts from losses in his margin accounts with four broker-dealers. Mr. Weisdorn
has fully complied with the Agreement and he has advised us that he has fully
repaid the companies in question and his margin debts.
ROBERT J. VITAMANTE has agreed to join us as our President, Chief Operating
Officer and acting Chief Financial Officer upon completion of this offering.
From September 1994 to May 1999, Mr. Vitamante was self-employed as a business
and financial consultant assisting clients with strategic planning and business
development, acquisitions and mergers, management and operating systems, and
general business and tax advice. From September 1992 to October 1994, Mr.
Vitamante served as Executive Vice President--Finance and Administration and
Chief Financial Officer of Pinkerton's, Inc., a publicly traded international
security services company. In this capacity, Mr. Vitamante oversaw all
financial, administrative and information systems and supported an international
acquisition program. Other experience includes Senior Vice President and Chief
Financial Officer of The Olsten Corporation, a publicly traded temporary
services company, and accounting positions with Columbia Pictures Industries,
Inc. and KPMG Peat Marwick. Mr. Vitamante has been a licensed certified public
accountant since 1971.
BRIAN A. SMITH has been our President, Creative Services since May 1999. Mr.
Smith has been President and Chief Executive Officer of DBLA since August 1993.
He managed DBLA as an
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independent business from January 1995 until the sale to us of its assets. From
1990 to 1993, Mr. Smith was Vice President of Nobart, Inc., a catalog design and
production company, where he was in charge of all West Coast operations. From
1987 to 1990, Mr. Smith served as Vice President, General Merchandise Manager
and Creative Director of Life Force Technologies, a direct mail catalog company.
From 1983 to 1987, Mr. Smith served as Vice President of Creative Services for
Harrison Service, a catalog design and production company.
ROBERT J. GRANT has been our Treasurer and Secretary and a director since
August 1996. During this period of time until May 1999, Mr. Grant has also
served as our acting Chief Financial Officer. From April 1996 to August 1996,
Mr. Grant served as Office Manager of Samuel Hamann Graphix, Inc. From March
1995 to April 1996, he was a salesperson for two car dealerships. From January
1994 to March 1995, Mr. Grant was a principal of Grant & Associates, an
industrial real estate company. From January 1993 to January 1994, he worked in
corporate sales at Investors Title, a title insurance company. Mr. Grant
declared personal bankruptcy under Chapter 7 of the federal Bankruptcy Code in
1995.
DONALD R. WESTLAND has been our Vice President of Technical Operations since
August 1997. Mr. Westland served as a consultant to us from August 1996 to
August 1997. During the seven years before joining us, Mr. Westland was a Senior
Project Engineer for Rubbermaid Inc. Mr. Westland declared personal bankruptcy
under Chapter 7 of the federal Bankruptcy Code in 1997.
DONALD L. HEJMANOWSKI has been a director of our company since August 1996.
Mr. Hejmanowski is President and a director of Genesis Oil & Gas. He has held
that position since April 1998. From 1990 to April 1998, Mr. Hejmanowski worked
as an independent corporate finance consultant, assisting companies with
financing, corporate strategy and financial public relations. From August 1996
to February 1997, Mr. Hejmanowski was employed by us as our investor relations
manager.
All members of the board of directors hold office until the next annual
meeting of shareholders and the election and qualification of their successors,
or until death, resignation, or removal. Officers serve at the discretion of the
board of directors. There are no family relationships among any of our directors
and executive officers. We are engaged in a search for additional independent
directors and expect to add at least one and possibly two independent directors
immediately following completion of this offering.
BOARD COMMITTEES
Immediately after completion of this offering, we will establish an Audit
Committee and a Compensation Committee. The Audit Committee must be composed
entirely of independent directors and the Compensation Committee must have at
least a majority of independent directors. The Audit and Compensation Committees
will consist of Mr. Hejmanowski and another independent director. The Audit
Committee will oversee actions taken by our independent auditors and review our
external audit. With respect to certain matters relating to accounting controls
and our external audit, our Chief Financial Officer will report directly to the
Audit Committee. The Compensation Committee will review the compensation levels
of our executive officers and make recommendations to the Board of Directors
regarding such compensation. The Compensation Committee also will administer our
1999 Stock Option Plan and recommend grants under the Plan to the Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In the last fiscal year, our Board of Directors did not have a compensation
committee. Compensation decisions with respect to executive officers were made
by Lawrence Weisdorn.
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EXECUTIVE COMPENSATION
DIRECTORS' COMPENSATION
Directors are not paid a fee for their service or attendance at board
meetings but are reimbursed for the expenses they actually incur in attending
board meetings.
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth certain information regarding compensation
paid during our fiscal years ended June 30, 1997 and 1998 to our President. No
executive officer received salary and bonus in excess of $100,000 in those
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
- ------------------------------------------------------------------------------------ --------- --------- -------------
<S> <C> <C> <C>
Lawrence Weisdorn, President........................................................ 1998 $ 48,000 $ 0
1997 $ 41,000 $ 0
</TABLE>
We expect to pay Mr. Weisdorn a salary of $120,000 in fiscal 1999. Brian
Smith, our President, Creative Services, will be paid a salary of $120,000 per
year.
EMPLOYMENT AGREEMENT
We entered into an employment agreement with Mr. Vitamante in May 1999. Mr.
Vitamante's agreement provides that he will join us at the completion of the
offering as our President, Chief Operating Officer and acting Chief Financial
Officer. The agreement also provides for us to pay Mr. Vitamante a salary of
$200,000 a year, and he will be eligible for bonus compensation as determined by
our board of directors. The initial term of Mr. Vitamante's employment agreement
is two years. If he is terminated during that time--other than for cause--he
will be entitled to severance payments equal to the lesser of
- one year's salary or
- his salary for the balance of his two-year term.
Until he joins our company, Mr. Vitamante has agreed to provide financial and
administrative services from time to time as requested by us and will be
compensated on an hourly basis.
STOCK OPTION GRANTS AND EXERCISES
We have adopted a 1999 Stock Option Plan, authorizing the grant of options
to purchase up to 1,000,000 shares of common stock. The plan was adopted to
promote and advance the interests of 3Dshopping.com and its shareholders by:
- enabling us to attract, retain and reward managerial and other key
employees, non-employees and directors; and
- strengthening the mutuality of interests between participants in the plan
and the shareholders in our long-term growth, profitability and financial
success by offering stock options.
We granted Mr. Smith incentive stock options to purchase 90,000 shares of
our common stock for $15.875 per share in April 1999. These options have a term
of ten years and become exercisable in equal installments over four years
beginning one year from the date of grant. In May 1999, we granted Mr. Vitamante
incentive stock options to purchase 142,940 shares for $16.875 per share. These
options
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have a term of ten years and vest over a two-year period beginning on the date
Mr. Vitamante commences employment with us. We have not granted options to Mr.
Weisdorn. In addition, we granted options to purchase 10,000 shares of our
common stock to the former employees of DBLA who have joined our operations.
These options have terms identical to the options granted to Mr. Smith.
CERTAIN TRANSACTIONS
We sublease approximately 425 square feet of office space from Donald
Westland, one of our executive officers. The rent on this sublease is $700 per
month. We believe this is a competitive lease rate for similar real estate in
the area where the office is located. Mr. Westland also maintains a Web site at
which he includes a link to our Web sites. We pay him a fee of $800 per month
for that link.
The studio which we have occupied since our acquisition of DBLA is owned by
a limited liability company of which Brian Smith is the principal member. We pay
this limited liability company approximately $3,600 per month for this
occupancy. We believe this is a competitive rate for similar real estate in the
area where the studio is located.
Our company was founded by Lawrence Weisdorn, Jr. in August 1996. At the
time of our inception, Mr. Weisdorn was the principal shareholder of Samuel
Hamann Graphix, Inc., a development stage company that had been in existence for
about one year at that time. We acquired property, equipment and other prepaid
assets from Samuel Hamann Graphix. In return for these assets, we assumed some
payroll and other liabilities of Samuel Hamann Graphix and liabilities of Mr.
Weisdorn in the amount of $18,500. The purchase price was allocated to the
tangible assets at their original cost. The balance of $5,306 was attributed to
research and development.
From August 1996 to June 30, 1998, Mr. Weisdorn and his father, Lawrence
Weisdorn, Sr. advanced a total of $178,683 to our company. These advances were
made in the form of loans on which we pay annual interest of 7%. In fiscal 1998,
the Weisdorns advanced $108,860. We have repaid $118,095 of this indebtedness
from inception to June 30, 1998 and on that date, we owed Lawrence Weisdorn, Sr.
$46,151, and our chief executive officer, Lawrence Weisdorn, Jr., a total of
$20,308. We expect to repay all remaining sums owing to Mr. Weisdorn and his
father with the proceeds of this offering. See "Use of Proceeds."
We have adopted a policy on future related party transactions. Under that
policy, any future transactions between us and any of our officers, directors or
affiliates will be approved or ratified by a majority of the independent outside
members of our board of directors who do not have an interest in the
transactions.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information, as of May 19, 1999, and as of
that date as adjusted to reflect the sale of the 2,000,000 units offered hereby,
with respect to the beneficial ownership of the common stock by (1) each
shareholder known by us to be the beneficial owner of more than 5% of our
outstanding common stock; (2) each of our directors; (3) the executive officer
named in the Summary Compensation Table; and (4) all current executive officers
and directors as a group. The address of each person listed below is: c/o
3Dshopping.com, 517 Boccaccio Avenue, Venice, California 90291. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of common stock issuable on exercise of currently
exercisable or convertible securities or securities exercisable or convertible
within 60 days of May 19, 1999 are deemed beneficially owned and outstanding for
computing the percentage owned by the person holding such securities, but are
not considered outstanding for computing the percentage of any other person.
Except as modified by applicable community property laws, each shareholder named
in the table has sole voting and investment power with respect to the shares set
forth opposite that shareholder's name.
<TABLE>
<CAPTION>
SHARES PERCENT OF SHARES OUTSTANDING
BENEFICIALLY ----------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Lawrence Weisdorn.............................................. 700,000 19.2% --
Donald L. Hejmanowski.......................................... 250,000 6.9% --
Robert J. Grant................................................ 117,000 3.2% --
All Executive Officers and Directors as a Group (5 persons).... 1,111,500 29.9% --
</TABLE>
- ------------------------
* Less than 1%
The shares beneficially owned by each of Mr. Grant and another executive
officer include 37,000 shares subject to immediately exercisable options as of
May 19, 1999. The number of shares beneficially owned by our executive officers
and directors as a group does not include options to purchase 25,000 shares
granted to Mr. Vitamante that become exercisable on the day he joins us as
President, Chief Operating Officer and Chief Financial Officer.
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DESCRIPTION OF SECURITIES
As of the date of this prospectus, our authorized capital stock consists of
10,000,000 shares of common stock and 5,000,000 shares of preferred stock.
UNITS
Each unit consists of one share of common stock and one warrant. The common
stock and warrants will be separately transferable following this offering.
COMMON STOCK
As of May 19, 1999, there were 3,655,746 shares of common stock outstanding.
The common stock was held of record by 53 shareholders. There will be 5,655,746
shares of common stock outstanding after the sale of the 2,000,000 units we are
offering.
Holders of common stock are entitled to one vote per share. On giving proper
notice, shareholders can cumulate their votes in the election of directors.
Subject to any rights of the holders of outstanding shares of preferred
stock, the holders of common stock are entitled to receive such lawful dividends
as the board of directors may declare from time to time. In the event we
liquidate, dissolve or wind up, and subject to the rights of the holders of
outstanding shares of preferred stock, the holders of shares of common stock
will be entitled to receive PRO RATA all of our remaining assets available for
distribution to our shareholders. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable, and shares of common stock to be issued
pursuant to this offering will be, upon issuance, fully paid and nonassessable.
UNIT WARRANTS
Each warrant will entitle the holder to purchase one share of common stock
at an exercise price of $ per share (150% of the initial public
offering price of the units). The warrants will generally be exercisable at any
time for five years after the date of this prospectus, unless earlier redeemed.
The warrants are redeemable by us, at a price of $0.25 per warrant
- upon 30 days' prior written notice,
- no earlier than 180 days from the date of this prospectus
and then
- only if the closing bid price defined in the Warrant Agreement, which we
describe below, equals or exceeds $ (200% of the initial public
offering price of the units)
per share of the common stock for the 10 consecutive trading days immediately
preceding the date of notice of redemption. If we give notice of our intention
to redeem, a holder will have the choice either to
- sell or exercise his or her warrants before the date specified in the
redemption notice or
- to accept the redemption price.
The warrants will be issued in registered form under a warrant agreement
between us and Interwest Transfer Company, as warrant agent. The shares of
common stock underlying the warrants, when issued upon exercise of a warrant,
will be fully paid and nonassessable. We will pay any transfer tax incurred as a
result of the issuance of common stock to the holder upon its exercise.
The warrants contain provisions that protect the holders against dilution by
adjustment of the exercise price. These adjustments will occur if there is a
merger, stock split or reverse stock split, stock
39
<PAGE>
dividend or recapitalization and they could occur in other situations. We are
not required to issue fractional shares upon the exercise of a warrant. The
holder of a warrant will not possess any rights as our shareholder until he or
she exercises the warrant.
A warrant may be exercised by surrendering the warrant certificate
- on or before the expiration or redemption date of the warrant at the
offices of the warrant agent
with
- the form of "Election to Purchase" on the reverse side of the warrant
certificate completed and executed as indicated, and
- payment of the exercise price by certified or bank check payable to the
order of 3Dshopping.com for the number of shares for to which the warrant
is being exercised.
In order for a holder to exercise the warrants, there must be
- a current registration statement in effect with the Securities and
Exchange Commission and
- qualification in effect under applicable state securities laws or
applicable exemptions from state qualification requirements
with respect to the issuance of common stock or other securities underlying the
warrants. We have agreed to use all commercially reasonable efforts to cause a
registration statement with respect to such securities under the Securities Act
to be filed and to become and remain effective in anticipation of and before the
exercise of the warrants and to take such other actions under the laws of
various states as may be required to cause the sale of common stock or other
securities upon exercise of warrants to be lawful. Under certain circumstances,
we may redeem the warrant by paying to the holder cash equal to the difference
between the market price of the common stock on the exercise date and the
exercise price of the warrant. We will not be required to honor the exercise of
warrants if, in the opinion of our board of directors with the advice of
counsel, the sale of securities upon exercise would be unlawful.
The foregoing discussion of material terms and provisions of the warrants is
qualified in its entirety by reference to the detailed provisions of the warrant
agreement, the form of which has been filed as an exhibit to the Registration
Statement of which this prospectus is a part.
For the life of the warrants, the holders have the opportunity to profit
from a rise in the market price of the common stock without assuming the risk of
ownership of the shares of common stock underlying the warrants. The warrant
holders may be expected to exercise their warrants at a time when we would, in
all likelihood, be able to obtain any needed capital by an offering of common
stock on terms more favorable than those provided for by the warrants.
Furthermore, the terms on which we could obtain additional capital during the
life of the warrants may be adversely affected.
OTHER OPTIONS AND WARRANTS
As of March 31, 1999, we have issued outstanding options to purchase a total
of 323,000 shares of our common stock at exercise prices ranging from $1.25 to
$1.75. These options are fully exercisable. Options to purchase 130,000 shares
of our common stock expire in December 2000 and are subject to proportionate
adjustment in the event of an increase or decrease in the number of shares of
our common stock outstanding due to a recapitalization, stock split or payment
of stock dividends. The remaining options to purchase 193,000 shares of our
common stock expire in November 2003.
As of March 31, 1999, we have issued outstanding warrants to purchase a
total of 372,666 shares of our common stock at exercise prices ranging from
$1.25 to $11.25. The warrants to purchase 133,333 shares of our common stock
issued to Generation Capital Associates in connection with our financing
40
<PAGE>
in March 1999 are described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--3Dshopping.com--Liquidity and
Capital Resources." For the remaining warrants to purchase 239,333 shares, the
exercise price and number of shares are subject to adjustment proportionately
for any increase or decrease in the number of shares of our common stock
outstanding due to a recapitalization, stock split or the payment of stock
dividends.
PREFERRED STOCK
No shares of preferred stock are outstanding. As of the date of this
prospectus, our board of directors has the authority, without further action by
the shareholders, to issue shares of preferred stock in one or more series and
to fix the rights, preferences, privileges and restrictions of the preferred
stock, including
- voting rights,
- terms of redemption,
- redemption prices,
- liquidation preferences,
- dividend preferences,
- conversion rights,
- number of shares constituting any series or
- the designation of such series.
Although it presently has no intention to do so, our board of directors, without
shareholder approval, could issue preferred stock with voting and conversion
rights that could adversely affect the voting power of the holders of common
stock. This provision may be deemed to have a potential anti-takeover effect and
the issuance of the preferred stock in accordance with such provision may delay
or prevent a change of control of 3Dshopping.com.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussions set forth material federal income tax consequences
under current law applicable generally to purchasers of units who are
individual, resident United States taxpayers. The discussion is a summary and
does not purport to deal with all aspects of federal taxation that may be
applicable to an investor, nor does it consider specific facts and circumstances
that may be relevant to a particular investor's tax position. Some holders, such
as dealers in securities, insurance companies, tax exempt organizations, foreign
persons and those holding common stock or warrants as part of a straddle or
hedge transaction, may be subject to special rules that are not addressed in
this discussion. This discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended, and on administrative and judicial
interpretations as of the date hereof, all of which are subject to change. YOU
SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU
OF THIS OFFERING, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
ALLOCATION OF PURCHASE PRICE
Each unit as a whole will have a tax basis equal to the cost of the unit.
The measure of income or loss from some of the transactions described below
depends on the tax basis in each of the warrant and the common stock comprising
the unit. The tax basis for each of the warrant and the common stock will be
determined by allocating the cost of the unit between the securities that
comprise the unit in proportion to the relative fair market values of these
elements at the time of acquisition.
41
<PAGE>
EXERCISE AND SALE OF WARRANTS
No gain or loss will be recognized by a holder of a warrant on the purchase
of shares of common stock for cash on an exercise of a warrant, except that gain
will be recognized to the extent cash is received in lieu of fractional shares.
The tax basis of common stock received upon exercise of a warrant will equal the
sum of the holder's tax basis for the exercised warrant and the exercise price.
The holding period of the common stock acquired will begin on the date the
warrant is exercised and the common stock is purchased. It does not include the
period during which the warrant was held.
Gain or loss from the sale or other disposition of a warrant, or loss in the
event the warrant expires unexercised, other than on a redemption by us, will be
capital gain or loss to its holder if the common stock to which the warrant
relates would have been a capital asset in the hands of such holder. This
capital gain or loss will be long-term capital gain or loss if the holder has
held the warrant for more than one year at the time of the sale, disposition or
lapse. On the redemption of a warrant by us, the holder generally will realize
capital gain or loss.
SALE OF COMMON STOCK
The sale of common stock should generally result in the recognition of gain
or loss to the holder in an amount equal to the difference between the amount
realized and such holder's tax basis in the common stock. If the common stock
constitutes a capital asset in the hands of the holder, gain or loss upon the
sale of the common stock will be characterized as long-term or short-term
capital gain or loss, depending on whether the common stock has been held for
more than one year.
EXPIRATION OF WARRANTS WITHOUT EXERCISE
If a holder of a warrant allows it to expire without exercise, the
expiration will be treated as a sale or exchange of the warrant on the
expiration date. The holder will have a loss equal to the amount of such
holder's tax basis in the lapsed warrant. If the warrant constitutes a capital
asset in the hands of the holder, the loss will be characterized as long-term or
short-term capital loss, depending on whether the warrant was held for more than
one year.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
Interwest Transfer Company will serve as the Transfer Agent and Registrar
for the common stock and warrant agent for the warrants.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, our common stock was thinly traded on the NASD OTC
Bulletin Board under the symbol "PGRX". Future sales of substantial amounts of
common stock in the public market or the prospect of such sales could adversely
effect prevailing market prices.
Upon completion of this offering, 5,655,746 shares of common stock will be
outstanding. Of these shares, the 2,000,000 shares issued as part of the units
will be freely tradable without restriction under the Securities Act, unless
purchased by an "affiliate" of the company, as that term is defined in Rule 144
under the Securities Act. In addition, 2,297,746 shares that were previously
issued under Rule 504 under the Securities Act will be freely tradable without
restriction. The remaining 1,355,500 shares outstanding after completion of this
offering are "restricted securities" or held by "affiliates" as defined in Rule
144. Restricted shares may be sold in the public market only if registered under
the Securities Act or if they qualify for an exemption from registration,
including an exemption under Rule 144.
Our company, our directors, officers and shareholders who beneficially own
more than five percent of our outstanding common stock all of whom held an
aggregate of 1,111,500 shares of common stock on May 1, 1999, have agreed that,
for one year following the date of this prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any shares of common stock without the
consent of Paulson Investment Company, Inc. Officers and directors may make
intra-family transfers or transfers to trusts for estate planning purposes. Upon
expiration of these agreements, all of these shares will be eligible for
immediate resale in the public market subject to the limitations of Rule 144.
In general under Rule 144, a person, including an "affiliate" of the
company, who has beneficially owned restricted shares for at least one year is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of common stock
(approximately 53,957 shares immediately following this offering) or the average
weekly trading volume of the common stock during the four calendar weeks
preceding the sale. Sales under Rule 144 are subject to manner of sale
restrictions, notice requirements and the availability of current public
information about us. Rule 144(k) provides that a person who is not an
"affiliate" of the issuer at any time during the three months preceding a sale
and who has beneficially owned shares for at least two years is entitled to sell
those shares at any time without compliance with the public information, volume
limitation, manner of sale and notice provisions of Rule 144.
As of May 19, 1999, immediately exercisable options to purchase 323,000
shares of common stock were outstanding. These options were granted before we
adopted our 1999 Stock Option Plan and under written compensation agreements
with some of our employees and consultants under the exemption provided by Rule
701. To the extent these options are exercised, the underlying common stock will
become freely tradable 90 days after the date of this prospectus subject to the
manner of sale requirements of Rule 144.
We have reserved 1,000,000 shares for issuance upon the exercise of options
under our 1999 Stock Option Plan. We intend to file as soon as practicable
following completion of this offering a registration statement on Form S-8 under
the Securities Act covering these shares of common stock. See "Management--Stock
Option Plan." The registration statement will become effective immediately upon
filing, whereupon, subject to the satisfaction of applicable exercisability
periods, Rule 144 volume limitations applicable to affiliates and, in some
cases, the agreements with the representative of the underwriters referred to
above, shares of common stock to be issued upon exercise of outstanding options
granted pursuant to the Stock Option Plan will be available for immediate resale
in the open market. As of the date of this prospectus, 242,940 options have been
granted under the 1999 Stock Option Plan.
43
<PAGE>
As of May 19, 1999, immediately exercisable warrants to purchase 239,333
shares of common stock were outstanding, not including the warrants issued to
Generation Capital discussed below. These warrants were issued under written
compensation agreements with consultants under the exemption provided by Rule
701. To the extent these warrants are exercised, the underlying common stock
will become freely tradable 90 days after the date of this prospectus subject to
the manner of sale requirements of Rule 144.
Based on an assumed trading price of $15 a share on the date of exercise,
Generation Capital could receive 133,333 shares of our common stock upon
exercise of its warrant. This stock will be considered "restricted" under Rule
144. As a result, resales of this stock will need to comply with Rule 144 manner
of sale restrictions and notice requirements.
Some holders of our common stock and warrants to purchase our common stock
have registration rights. These people hold 346,000 restricted shares of common
stock and immediately exercisable warrants to purchase 239,333 shares of
restricted common stock. Under some conditions, these people may request that we
register these shares with the Securities and Exchange Commission. Once these
shares are registered, they will be freely tradable.
44
<PAGE>
UNDERWRITING
The underwriters named below for whom Paulson Investment Company, Inc. is
acting as representative, have severally agreed, under the terms and conditions
of an underwriting agreement with us and the underwriters, to purchase from us,
and we have agreed to sell to them, the number of units set forth in the table
below at the price set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Paulson Investment Company, Inc......................................................................
----------
Total............................................................................................ 2,000,000
----------
----------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase the units are subject to conditions. If any units are purchased, the
underwriters are committed to purchase all of the 2,000,000 units offered by
this prospectus, but not the 300,000 units subject to their over-allotment
option.
The representative has advised us that the underwriters propose to offer the
units to the public at the initial public offering price set forth on the cover
page of this prospectus and to selected dealers at that price minus a concession
within the discretion of the representative, and that the underwriters and the
selected dealers may reallow a concession to other dealers, including the
underwriters, within the discretion of the representative. After the initial
public offering of the units, the public offering price, the concessions to
selected dealers and the reallowance to other dealers may be changed by the
representative.
We have granted the underwriters an option, expiring at the close of
business 45 days after the date of this prospectus, to purchase up to 300,000
additional units from us on the same terms as apply to the sale of the units set
forth above. The underwriters may exercise the option only to cover
over-allotments incurred in the sale of the units.
The representative has informed us that it does not expect the underwriters
to confirm sales of units on a discretionary basis.
Until the distribution of the units is completed, rules of the Securities
and Exchange Commission may limit the ability of the underwriters and some
selling group members to bid for and purchase the securities. As an exception to
these rules, the underwriters are permitted to engage in transactions that
stabilize the price of the common stock and/or warrants. These transactions
include bids or purchases for the purpose of pegging, fixing or maintaining the
price of the common stock and/or warrants. If the underwriters create a short
position in the units in connection with this offering, I.E., if they sell more
units than are set forth on the cover page of this prospectus, the
representative may reduce that short position by purchasing common stock and
warrants in the open market. The representative may also elect to reduce any
short position by exercising all or part of the over-allotment option.
45
<PAGE>
The representative may also impose a penalty bid on underwriters and selling
group members. This means that if the representative purchases units in the open
market to reduce the underwriters' short position or to stabilize the price of
the common stock and/or warrants, it may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
securities as part of this offering.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither we nor the underwriters make any
representation or predictions as to the direction or magnitude of any effect the
transactions described above may have on the price of the common stock and/or
warrants. In addition, neither we nor the underwriters make any representation
that the underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
The underwriting agreement provides for indemnification between us and the
underwriters against some liabilities, including liabilities under the
Securities Act of 1933 and for contribution by us and the underwriters to
payments that may be required to be made in respect of those liabilities.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to our directors, officers and controlling persons under the agreement
between us and the underwriters, or otherwise, we have been advised that in the
opinion of the SEC this indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
We have agreed to pay the representative a nonaccountable expense allowance
equal to two percent of the gross proceeds from the sale of units.
We have agreed to issue to the representative warrants that entitle the
holder to purchase up to 200,000 units at an exercise price of $ per unit.
The representative's warrants are not transferable for one year from the date of
issuance, except to individuals who are either a partner or an officer of an
underwriter, by will or by the laws of descent and distribution. The
representative's warrants are not redeemable by us. We have agreed to maintain
an effective registration statement with respect to the issuance of the
securities underlying the representative's warrants, if necessary, to allow
their public resale without restriction, at all times during the period in which
the representative's warrants are exercisable, beginning one year after the date
of this prospectus. Such securities are being registered on the registration
statement of which this prospectus is a part.
We have agreed that, for a period of one year following the completion of
this offering, we generally will not offer, sell, contract to sell, grant any
option for the sale or otherwise dispose of any of our common stock without the
consent of the representative. Our officers, directors and the holders of 5% or
more of our outstanding common stock (aggregating 1,111,500 shares) have agreed
that for a period of one year following this offering, they will not offer,
sell, contract to sell, grant any option for the sale or otherwise dispose of
any of our common stock, other than intra-family transfers or transfers to
trusts for estate planning purposes, without the consent of the representative,
which will not be unreasonably withheld. After the one year period, these
persons will give the representative prior notice of sales under Rule 144 for
five years from the date of this prospectus.
46
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Stoel Rives LLP, Portland, Oregon. Certain legal matters in connection with the
offering will be passed upon for the underwriters by Grover T. Wickersham, P.C.,
Palo Alto, California.
EXPERTS
The balance sheet as of June 30, 1997 and 1998, and the statements of
operations, stockholders' deficit, and cash flows for the eleven months ended
June 30, 1997 and the year ended June 30, 1998 for 3Dshopping.com, have been
audited by Friedman, Minsk, Cole & Fastovsky, independent certified public
accountants, as set forth in their report appearing elsewhere in this prospectus
and in the registration statement, and are included in reliance upon that report
given upon the authority of that firm as experts in accounting and auditing.
The balance sheets as of December 31, 1997 and 1998, and the statements of
operations, retained earnings and cash flows for the years then ended for Design
Bas, Incorporated have been audited by Friedman, Minsk, Cole & Fastovsky,
independent certified public accountants, as set forth in their report appearing
elsewhere in this prospectus and in the registration statement, and are included
in reliance upon that report given upon the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We are not a reporting company under the Securities Exchange Act of 1934. We
have filed with the Securities and Exchange Commission a registration statement
on Form S-1 under the Securities Act of 1933 with respect to the units, common
stock and warrants. This prospectus omits some information contained in the
registration statement and its exhibits, as permitted by the rules and
regulations of the SEC. For further information with respect to us and our
securities, you should review the registration statement and its exhibits, which
may be inspected, without charge, at the Public Reference Section of the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the SEC located at 7 World Trade Center, Suite 1300,
New York, NY 10048, and the Kluczynski Federal Building, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
SEC, upon payment of prescribed fees. The SEC maintains a World Wide Web site
that contains reports, proxy and information statements and other information
about registrants that file electronically with the SEC, including the
registration statement. The address of the SEC's World Wide Web site is
HTTP://WWW.SEC.GOV.
Statements contained in this prospectus as to the contents of any contract
or other document referred to in this prospectus are not necessarily complete
and, in each instance, reference is made to the copy of that contract or other
document filed as an exhibit to the registration statement, each statement being
qualified in all respects by that reference.
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
3DSHOPPING.COM
Report of Independent Certified Public Accountants..................................................... F-2
Financial Statements:
Balance Sheets as of June 30, 1997, and 1998 and March 31, 1999 (unaudited)............................ F-3
Statements of Operations for the period August 1, 1996 (Inception) through June 30, 1997, for the year
ended June 30, 1998, for the period August 1, 1996 (Inception) through June 30, 1998 and for the nine
months ended March 31, 1998 and 1999 (unaudited)..................................................... F-4
Statements of Shareholders' Equity (Deficit) for the period August 1, 1996 (Inception) through March
31, 1999 (unaudited)................................................................................. F-5
Statements of Cash Flows for the period August 1, 1996 (Inception) through June 30, 1997, for the year
ended June 30, 1998, for the period August 1, 1996 (Inception) through June 30, 1998 and for the nine
months ended March 31, 1998 and 1999 (unaudited)..................................................... F-6
Notes to Financial Statements.......................................................................... F-7-16
DESIGN BAS, INCORPORATED
Report of Independent Certified Public Accountants..................................................... F-17
Financial Statements:
Balance Sheets as of December 31, 1997, and 1998 and March 31, 1999 (unaudited)........................ F-18
Statements of Operations and Retained Earnings (Deficit)
For the years ended December 31, 1997 and December 31, 1998 and for the three months ended March 31,
1998 and 1999 (unaudited)............................................................................ F-19
Statements of Cash Flows
For the years ended December 31, 1997 and December 31, 1998 and for the three months ended March 31,
1998 and 1999 (unaudited)............................................................................ F-20
Notes to Financial Statements.......................................................................... F-21-25
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS...................................................... F-26-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS
3DSHOPPING.COM
We have audited the accompanying Balance Sheets of 3Dshopping.com (a
development stage enterprise) as of June 30, 1997 and 1998 and the related
Statements of Operations, Shareholders' Deficit, and Cash Flows for the period
from August 1, 1996 (Inception) to June 30, 1997, the year ended June 30, 1998
and for the period from August 1, 1996 (Inception) to June 30, 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 3Dshopping.com (a
development stage enterprise) as of June 30, 1997 and 1998 and the results of
its operations and its cash flows for the period from August 1, 1996 (Inception)
to June 30, 1997, the year ended June 30, 1998 and from August 1, 1996
(Inception) to June 30, 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered losses from operations that
raises substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
FRIEDMAN, MINSK, COLE & FASTOVSKY
Los Angeles, California
January 15, 1999, except for Note 9 as to
which the date is March 9, 1999 and Note 12
as to which the date is April 19, 1999
F-2
<PAGE>
3DSHOPPING.COM
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, MARCH 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ -- $ 144,564 $ 469,793
Accounts receivable (net of allowance for doubtful accounts of
$1,000 in 1999)................................................... 719 4,999 18,736
Other receivables................................................... -- -- 2,470
Contracts in progress............................................... -- -- 20,263
Prepaid expenses.................................................... 6,066 13,496 7,112
----------- ----------- -----------
Total current assets.............................................. 6,785 163,059 518,374
Property and equipment-net.......................................... 93,736 66,470 111,625
Prepaid offering costs.............................................. -- -- 211,389
Organization costs, net............................................. 1,282 -- --
----------- ----------- -----------
Total assets...................................................... $ 101,803 $ 229,529 $ 841,388
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft...................................................... $ 2,569 $ -- $ --
Current maturities of capital lease obligation...................... -- -- 5,450
Notes payable--current.............................................. 22,728 260,588 616,024
Accounts payable and accrued expenses............................... 88,162 64,567 132,481
Customer deposits................................................... -- 3,000 22,333
----------- ----------- -----------
Total current liabilities......................................... 113,459 328,155 776,288
Capital lease obligation............................................ -- -- 10,629
Shareholders' equity (deficit):
Common Stock, no par value:10,000,000 shares authorized: 2,527,333
(June 30, 1997), 3,191,400 (June 30, 1998), and 3,645,746 (March)
shares issued and outstanding..................................... 1,940,819 2,997,112 6,124,688
Stock subscriptions received in advance............................. 39,500 -- --
Stock subscriptions receivable...................................... (83,375) (107,400) (2,500)
Accumulated deficit................................................. (1,908,600) (2,988,338) (6,067,717)
----------- ----------- -----------
Total shareholders' equity (deficit).............................. (11,656) (98,626) 54,471
----------- ----------- -----------
Total liabilities and shareholders' equity (deficit).............. $ 101,803 $ 229,529 $ 841,388
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
3DSHOPPING.COM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
AUGUST 1,
1996 NINE MONTHS ENDED
YEAR ENDED JUNE 30, (INCEPTION) MARCH 31,
---------------------------- TO JUNE 30, ---------------------------
1997 1998 1998 1998 1999
------------- ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues........................... $ -- $ 18,404 $ 18,404 $ 644 $ 50,311
------------- ------------- ------------- ------------ -------------
Costs and expenses:
Sales and marketing.................. 973,283 473,665 1,446,948 312,757 652,049
Research and development............. 294,360 170,259 464,619 162,214 346,131
General and administrative........... 647,868 457,345 1,105,213 271,814 2,073,491
------------- ------------- ------------- ------------ -------------
Total costs and expenses............. 1,915,511 1,101,269 3,016,780 746,785 3,071,671
------------- ------------- ------------- ------------ -------------
Loss from operations................... (1,915,511) (1,082,865) (2,998,376) (746,141) (3,021,360)
Interest expense....................... 3,089 10,373 13,462 5,708 61,269
Other income........................... 10,000 13,500 23,500 13,500 3,250
------------- ------------- ------------- ------------ -------------
Net loss............................. $ (1,908,600) $ (1,079,738) $(2,988,338) $ (738,349) $ (3,079,379)
------------- ------------- ------------- ------------ -------------
Net loss per share..................... $ (0.59) $ (0.28) $ (0.85) $ (0.20) $ (0.77)
------------- ------------- ------------- ------------ -------------
Weighted average number of shares used
in computing net loss per share...... 3,210,651 3,823,228 3,530,256 3,774,038 4,024,482
------------- ------------- ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
3DSHOPPING.COM
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK STOCK STOCK
---------------------- SUBSCRIPTIONS SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT RECEIVABLE IN ADVANCE DEFICIT TOTAL
--------- ----------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Sales of Common Stock........................ 707,333 $ 591,750 $ (83,375) $ 508,375
Issuance of Common Stock for services........ 1,820,000 1,365,000 1,365,000
Costs of stock offering...................... (15,931) (15,931)
Stock subscriptions received in advance...... $ 39,500 39,500
Net loss..................................... -- -- -- -- $(1,908,600) (1,908,600)
--------- ----------- ------------ ------------ ------------ ----------
Balance at June 30, 1997..................... 2,527,333 1,940,819 (83,375) 39,500 (1,908,600) (11,656)
Prior stock subscriptions received........... 83,375 83,375
Issuance of Common Stock for services........ 53,700 174,972 174,972
Sales of Common Stock........................ 354,817 494,997 (132,750) (39,500) 322,747
Costs of stock offering...................... (7,500) (7,500)
Net loss..................................... -- -- -- -- (738,349) (738,349)
--------- ----------- ------------ ------------ ------------ ----------
Balance at March 31, 1998 (unaudited)........ 2,935,850 2,603,288 (132,750) -- (2,646,949) (176,411)
Issuance of Common Stock for services........ 15,000 20,630 20,630
Sales of Common Stock........................ 240,550 269,000 25,350 294,350
Costs of stock offering...................... (21,874) (21,874)
Fair market value of stock options........... 126,068 126,068
Net loss..................................... -- -- -- -- (341,389) (341,389)
--------- ----------- ------------ ------------ ------------ ----------
Balance at June 30, 1998..................... 3,191,400 2,997,112 (107,400) (2,988,338) (98,626)
Stock subscriptions received................. 107,400 107,400
Stock options exercised...................... 203,000 574,250 (2,500) 571,750
Issuance of Common Stock for services........ 25,000 306,250 306,250
Exercise of cashless warrants................ 30,346 --
Employee stock options....................... 1,629,921 1,629,921
Non-employee stock options................... 354,500 354,500
Conversion of notes payable.................. 196,000 217,200 217,200
Issuance of Common Stock for interest on
debt....................................... 45,455 45,455
Net loss..................................... -- -- -- -- (3,079,379) (3,079,379)
--------- ----------- ------------ ------------ ------------ ----------
Balance at March 31, 1999 (unaudited)........ 3,645,746 $ 6,124,688 $ (2,500) $ -- $(6,067,717) $ 54,471
--------- ----------- ------------ ------------ ------------ ----------
--------- ----------- ------------ ------------ ------------ ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
3DSHOPPING.COM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 1, 1996 NINE MONTHS ENDED
JUNE 30, (INCEPTION) MARCH 31,
------------------------ TO JUNE 30, -----------------------
1997 1998 1998 1998 1999
----------- ----------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss................................. $(1,908,600) $(1,079,738) $ (2,988,338) $ (738,349) $(3,079,379)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 20,822 40,333 61,155 30,281 37,049
Gain on sale of assets................. -- (1,049) (1,049) (1,049) --
Common Stock issued for services....... 1,365,808 103,213 1,469,021 82,585 --
Common Stock issued for financing...... -- -- -- -- 45,455
Options and warrants issued for
services and compensation............ -- 218,455 218,455 92,387 2,290,646
Changes in assets and liabilities:
Accounts receivable.................... (719) (4,280) (4,999) (3,846) (16,206)
Prepaid expenses....................... (6,066) (7,430) (13,496) (6,185) (205,005)
Contracts in progress.................. -- -- -- -- (20,263)
Customer deposits...................... 6,250 19,333
Accounts payable and other
liabilities.......................... 88,162 (20,595) 67,567 (9,439) 85,114
Organization costs..................... (1,570) -- (1,570) -- --
----------- ----------- --------------- ---------- -----------
Net cash used in operating
activities......................... (442,163) (751,091) (1,193,254) (547,365) (843,256)
----------- ----------- --------------- ---------- -----------
Cash flows from investing activities:
Acquisition of property and equipment.... (114,270) (13,250) (127,520) (9,827) (82,204)
Proceeds from sale of property........... -- 2,514 2,514 2,514 --
----------- ----------- --------------- ---------- -----------
Net cash used in investing
activities........................... (114,270) (10,736) (125,006) (7,313) (82,204)
----------- ----------- --------------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of Common Stock... 547,067 700,474 1,247,541 406,124 679,175
Costs of issuance of Common Stock........ (15,931) (29,374) (45,305) (7,500) --
Proceeds from issuance of debt........... 22,728 237,860 260,588 124,068 5,436
Proceeds from issuance of debt-bank...... -- -- -- -- 550,000
Capital lease............................ -- -- -- -- 17,758
Repayment of capital lease............... -- -- -- -- (1,680)
----------- ----------- --------------- ---------- -----------
Net cash provided by financing
activities........................... 553,864 908,960 1,462,824 522,692 1,250,689
----------- ----------- --------------- ---------- -----------
Net change in cash and cash
equivalents.......................... (2,569) 147,133 144,564 (31,986) 325,229
Cash and equivalents at beginning of
period................................... -- (2,569) -- (2,569) 144,564
----------- ----------- --------------- ---------- -----------
Cash and cash equivalents at end of
period................................... $ (2,569) $ 144,564 $ 144,564 $ (34,555) $ 469,793
----------- ----------- --------------- ---------- -----------
Cash paid during period for:
Interest................................. $ 2,980 $ 3,001 $ 5,981 $ 5,708 $ 15,814
Income taxes............................. -- 1,600 1,600 800 800
Noncash financing activities:
Stock and options issued for services.... $ 1,365,808 $ 321,668 $ 1,687,476 $ 174,972 $ 2,290,646
Common Stock issued for financing........ -- -- -- -- 45,455
Redemption of notes for stock............ -- -- -- -- 217,200
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
3Dshopping.com, formerly Pi Graphix, Inc., (the "Company") commenced
operations effective August 1, 1996. The Company was formed to design and
develop high end internet applications using 3D modeling software and
interactive databases. The company has developed and is beginning to implement
and market to e-commerce retailers a Web-based marketing and merchandising
system that incorporates sophisticated graphics and other audio-visual features.
The Company was in the development stage through June 30, 1998 and its
efforts through that time were principally devoted to organizational activities,
raising capital and research and development efforts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company depreciates its
property and equipment using the straight-line method. The principal useful
lives in computing depreciation are as follows:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
- ------------------------------------------------------------------------------ --------------
<S> <C>
Machinery and equipment....................................................... 3-5 Years
Furniture and fixtures........................................................ 5-10 Years
Software...................................................................... 1-3 Years
</TABLE>
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and tax basis of
assets and liabilities and operating losses available to offset future taxable
income, using enacted tax rates in effect in the years in which the differences
are expected to reverse.
DEVELOPMENT COSTS
Expenditures during the research and development stage are expensed as
incurred. Development costs, including direct labor, incurred subsequent to
establishing technological feasibility are capitalized. Development costs for
each product are carried on the balance sheet at the lower of unamortized cost
or net realizable value.
ORGANIZATION COSTS
In accordance with the provisions of Statement of Position 98-5, the Company
expensed organization costs in the year ended June 30, 1998. For the year ended
June 30, 1997, the Company amortized organization costs by the straight-line
method over a five year period. The effect of the change in accounting is not
material.
F-7
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LOSS PER SHARE OF COMMON STOCK
The loss per share of common stock is based on the weighted average number
of common shares outstanding during the period, in conformance with SFAS
Statement 128 issued by the Financial Accounting Standards Board and nominal
issuances of potential common shares as required by the Securities and Exchange
Commission. Loss per common share assuming dilution has not been presented as
the effect would be anti-dilutive.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenue for software products is recognized when an arrangement exists, the
fee is determinable, collectibility is probable, and delivery has occurred.
Revenue from maintenance services is recognized when the service has been
performed.
STOCK-BASED COMPENSATION
The Company has adopted SFAS Statement 123 for stock-based compensation
plans. This statement encourages companies to adopt a fair value approach to
valuing stock options that would require compensation cost to be recognized
based on the fair value of stock options granted.
This statement also establishes fair value as the measurement basis for
transactions in which an entity acquires goods or services from non-employees in
exchange for equity instruments.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 1999 and for the nine months ended
March 31, 1998 and 1999 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for
fair presentation of the financial position at such dates and the results of
operations and cash flows for the periods then ended. Operating results for the
nine months ended March 31, 1999 are not necessarily indicative of results that
may be expected for the entire year.
F-8
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 2 GOING CONCERN
The Company's continued existence is dependent upon its ability to obtain
additional debt financing and equity capital until the Company's operations
generate positive cash flow.
Through June 30, 1998 the Company has incurred a net loss of $2,988,338 and
has used net cash of $1,193,254 in its operating activities.
Management believes that the collection of stock subscriptions, additional
principal stockholder advances and deposits from customers will enable the
Company to meet its obligations until it generates sufficient cash flow from
sales.
NOTE 3 COMMON STOCK
The Company issued 1,820,000 shares of common stock at a price of $0.001 per
share on August 15, 1996 to its founders and certain key employees. The
difference between the price paid ($0.001) and the estimated value of this stock
($0.75) was reported as compensation expense.
The Company issued 462,333 shares of common stock at $0.75 per share between
August 30, 1996 and November 26, 1996, 245,000 shares of common stock at $1.00
per share between June 24, 1997 and June 27, 1997 for cash, and 36,000 shares at
$1.00 per share in exchange for financial and advisory business services. In
accordance with recommendation 96-18 of the FASB's Emerging Issues Task Force,
the shares issued were recorded over the period of the contract at the then
current fair value when the shares were earned.
The company issued 56,600 shares at $1.25 per share, 233,333 shares at $1.50
per share and 50,000 shares at $1.00 per share for cash, and 32,700 shares for
services at $1.19 to $1.88 per share in the year ended June 30, 1998.
The Company issued 255,434 shares for $1.15 per share from February through
June 30, 1998. These shareholders also received warrants to purchase 127,717
additional common shares at $1.50 per share. The warrants expire one year after
issue.
NOTE 4 STOCK OPTIONS
(a) EMPLOYEE OPTIONS
During the year ended June 30, 1998 the Company granted options to one
employee and recognized compensation expense of $15,378 as the options were
granted.
F-9
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 4 STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's stock options as of June 30, 1998,
and changes during the year then ended is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Outstanding at Beginning of Year.................................. -- --
Granted........................................................... 36,000 $ 1.75
Exercised......................................................... -- --
Forfeited......................................................... -- --
--------- -----
Outstanding at End of Year........................................ 36,000 $ 1.75
--------- -----
Options exercisable at year-end................................... --
Weighted-average fair value of options granted during the year.... $ .43
</TABLE>
The following summarizes information about stock options at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------- --------------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED-AVERAGE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- ----------- ----------- ---------------- ----------------- --------------- ---------------------
<C> <C> <S> <C> <C> <C>
$ 1.75 36,000 18.5 months $ 1.75 -- --
</TABLE>
The fair value of the option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for 1998:
Risk-free interest rate of 5.32 to 5.83%: Dividend yield of 0%: Expected life of
2.0 years: and Volatility of 61.4%.
In July 1997 the directors authorized the adoption of an employee stock
option plan a for total of 230,000 shares. 90,000 shares are designated for six
named officers/directors/employees. The plan was revised in November 1998 and
225,000 options were granted to employees at that time.
(b) NON-EMPLOYEE OPTIONS
During the year ended June 30, 1998 the Company granted options and warrants
to certain non-employees and recognized $203,077 of expense as the options were
granted.
F-10
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 4 STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's stock options and warrants as of
June 30, 1998, and changes during the year then ended is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Outstanding at Beginning of Year................................. -- --
Granted.......................................................... 497,717 $ 1.85
Exercised........................................................ -- --
Forfeited........................................................ -- --
--------- -----
Outstanding at End of Year....................................... 497,717 $ 1.85
--------- -----
Options and warrants excisable at year year-end.................. 497,717
Weighted-average fair value of options granted during the year... $ .41
</TABLE>
The following summarizes information about non-employee stock options and
warrants at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS AND WARRANTS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------- ------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED-AVERAGE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- ----------- ----------- ---------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$1.25-3.00 497,717 23.4 months $ 1.85 370,000 $ 1.45
</TABLE>
The fair value of the option or warrant grant was estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions for 1998: Risk-free interest rate of 5.32% to 5.45%: Dividend yield
of 0%: Expected life of .67 to 2.4 years: and Volatility of 61.4%.
Stock Options and Warrant activity during the nine months ended March 31,
1999 is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OUTSTANDING EXERCISE PRICE
----------- ---------------
<S> <C> <C>
Balance at June 30, 1998......................................... 533,717 $ 1.84
Granted........................................................ 270,000 2.33
Exercised...................................................... (97,384) 3.06
----------- -----
Balance at March 31,1999......................................... 706,333 1.86
</TABLE>
F-11
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 5 INCOME TAXES
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Federal net operating loss...................................... $ 116,500 $ 306,250
State net operating loss........................................ 47,000 123,500
R & D credit carryforward....................................... 21,000 47,250
Property and equipment.......................................... 1,000 2,500
Stock Compensation.............................................. -- 4,500
Other........................................................... -- 250
------------- -------------
185,500 484,250
Less valuation allowance........................................ (185,500) (484,250)
------------- -------------
Net deferred tax asset.......................................... $ 0 $ 0
------------- -------------
------------- -------------
</TABLE>
The valuation allowance increased by $185,500, $298,750 and $484,250 in the
period from August 1, 1996 to June 30, 1997,the year ended June 30, 1998, and
the period from August 1, 1996 to June 30, 1998, respectively.
At June 30, 1998 the Company has incurred loss carryforwards for income tax
purposes and earned research and development credits which expire as follows:
<TABLE>
<CAPTION>
FEDERAL STATE
---------- ----------
<S> <C> <C> <C>
NET OPERATING LOSSES
Expiring.................................................... 2002 $ 531,000
2003 865,000
2012 $ 518,000
2013 858,000
RESEARCH AND DEVELOPMENT CREDITS
2012 17,000 3,800
2013 17,000 9,400
</TABLE>
The principal difference between the loss for financial statement and tax
purposes is that approximately $182,000 and $1,363,000 compensation expense from
the issuance of shares in 1998 and 1997, respectively (see Note 3) is not
recognized as an expense for income tax purposes.
The Internal Revenue Code contains provisions which may limit the loss
carryforwards available if significant changes in stockholder ownership of the
Company occur.
F-12
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 6 NOTES PAYABLE
Notes payable at June 30, 1998 is comprised of:
<TABLE>
<S> <C>
Note dated June 8, 1998 due December 8, 1998 with interest at 10%
per annum. Convertible to common stock at $1.25 per share....... $ 100,000
Note dated November 27, 1997 due May 22, 1998 with interest at 10%
per annum. Convertible to common stock at $1.00 per share....... $ 100,000
---------
$ 200,000
---------
---------
</TABLE>
The notes were not paid when due and continue earning interest at 18% until
paid.
NOTE 7 RELATED PARTY TRANSACTIONS
The Company acquired the property and equipment and certain other prepaid
assets and assumed certain payroll and other liabilities of Samuel Hamann
Graphix, Inc. ("Hamann") from the Company's principal shareholder/president for
$18,500.
The purchase price was allocated to the tangible assets at their original
cost, with the balance ($5,306) attributed to research and development which has
been expensed.
Hamann, a Public Company, was a Development Stage Corporation which had been
in existence for approximately one year. A founder and principal shareholder of
the Company was the principal shareholder of Hamann.
The principal shareholder and a minor shareholder have advanced funds
(including the $18,500 above) to the Company, at 7% per annum interest, which
the Company has partially repaid. A director and minor shareholder has received
consulting fees from the Company.
<TABLE>
<CAPTION>
AUGUST 1, 1996
(INCEPTION)
TO JUNE 30,
YEAR ENDED ---------------------
JUNE 30, 1998 1997 1998
------------- --------- ----------
<S> <C> <C> <C>
Advances by Shareholders................................ $ 108,860 $ 69,823 $ 178,683
Repayment to Shareholders............................... 71,000 47,095 118,095
Interest on Advances.................................... 2,427 2,972 5,399
Consulting Fees Paid.................................... -- 60,540 60,540
</TABLE>
The balance due on the advances was $22,728 and $60,588 at June 30, 1997 and
1998, respectively.
F-13
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 8 PROPERTY AND EQUIPMENT
Property and Equipment is comprised of:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1998 MARCH 31, 1999
--------- ---------- --------------
<S> <C> <C> <C>
Machinery and Equipment............................... $ 62,527 $ 69,779 $ 103,313
Furniture and Fixtures................................ 14,280 17,057 35,007
Software.............................................. 12,463 38,173 51,135
Leased computers...................................... -- -- 17,758
--------- ---------- --------------
89,270 125,009 207,213
Accumulated Depreciation.............................. 20,534 58,539 95,588
--------- ---------- --------------
Net................................................... $ 68,736 $ 66,470 $ 111,625
--------- ---------- --------------
--------- ---------- --------------
</TABLE>
NOTE 9 COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company leases its office facilities under an operating lease, which
expires May 31, 1999. Future minimum annual lease payments, as of June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- ---------------------------------------------------------------
<S> <C>
June 30, 1999.................................................. $ 31,845
---------
Total.......................................................... $ 31,845
---------
---------
</TABLE>
The monthly rent includes a standard charge for utilities. Rent expense for
the period from August 1, 1996 through June 30, 1997 the year ended June 30,
1998, and the period from August 1, 1998 through June 30, 1998 amounted to
$28,870, $35,325 and $64,195, respectively.
Rent expense for the nine months ended March 31, 1998 and 1999 amounted to
$19,350 and $22,235, respectively.
INSURANCE
The Company did not have workers compensation insurance from April 9, 1998
to June 30, 1998 and was not covered for risks formerly covered by this policy.
The policy was renewed effective July 1, 1998.
F-14
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 10 LOSS PER SHARE
The loss per common share is determined by dividing the net loss for the
period by the weighted average number of common shares outstanding during the
period.
<TABLE>
<CAPTION>
AUGUST 1, AUGUST 1,
1996 1996
(INCEPTION) (INCEPTION)
TO YEAR ENDED TO
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Common Stock
Outstanding Beginning of Period(1).................................. 0 2,432,666 0
Issued during the period(1)....................................... 2,432,666 687,134 3,119,800
End of the Period(1).............................................. 2,432,666 3,119,800 3,119,800
Nominal Issuances................................................... 1,064,233 1,064,233 1,064,233
Weighted Average number of shares................................... 3,210,651 3,823,228 3,530,256
</TABLE>
- ------------------------
(1) net of stock subscriptions
The Securities and Exchange Commission requires nominal issuances of
potential common shares issued within one year prior to the Initial Public
Offering filing date to be included in earnings per share calculations as if
outstanding for all periods presented. These calculations include all such
shares.
Loss per common share assuming dilution has not been presented as the result
would have been anti-dilutive.
The following securities, which were not included because the result would
have been anti-dilutive, could potentially dilute earnings per share in the
future:
<TABLE>
<CAPTION>
SHARES
---------
<S> <C>
Stock warrants........................................................................................... 65,217
</TABLE>
NOTE 11 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments for which a fair value can be
determined are as follows. Fair value approximates carrying amount because of
the short term maturity of these instruments:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1998
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial Assets
Cash................................................. $ -- -- $ 144,564 $ 144,564
Other receivable..................................... 719 719 3,176 3,176
Accounts Receivable.................................. -- -- 1,823 1,823
Financial Liabilities
Bank overdraft....................................... 2,569 2,569 -- --
Accounts payable and accrued expenses................ 88,162 88,162 67,567 67,567
Shareholder loan..................................... 22,728 22,728 60,588 60,588
Notes payable........................................ -- -- 200,000 200,000
</TABLE>
F-15
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 12 SUBSEQUENT EVENTS
Effective March 10, 1999 the Company amended its Articles of Incorporation
to change the Company's name to 3Dshopping.com, authorize 5,000,000 shares of a
class of Preferred Stock, and to eliminate the par value of its Common Stock.
In addition, effective February 21, 1999, the Company approved the adoption
of a Stock Option Plan and reserved 1,000,000 shares of Common Stock for
issuance under the plan.
In February 1999 the noteholders converted notes payable of $200,000 and
accrued interest of $17,200 into 196,000 shares of Common Stock at $1 and $1.15
per share.
In March 1999 the Company received a bridge loan in the form of $500,000 of
unsecured promissory notes due August 31, 1999 with interest at 9%. If not paid
the notes become new notes convertible into the Company's Common Stock. The
noteholders also received warrants to acquire $2,000,000 of the Company's Common
Stock for $1,500,000.
F-16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Design Bas, Incorporated
We have audited the accompanying Balance Sheets of Design Bas, Incorporated
as of December 31, 1997 and December 31, 1998 and the related Statements of
Operations, Retained Earnings, and Cash Flows for the years then ended. 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.
As more fully described in Note 4 to the financial statements, property and
equipment acquired from shareholders has been valued at the price paid to the
shareholders. In our opinion, purchases of property and equipment from
controlling shareholders are required to be recorded at historical cost. The
effects on the financial statements of the preceding practice are not reasonably
determinable.
In our opinion, except for the effects of the matters discussed in the
preceding paragraph, the financial statements referred to above present fairly,
in all material respects, the financial position of Design Bas, Incorporated as
of December 31, 1997 and December 31, 1998 and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
FRIEDMAN, MINSK, COLE & FASTOVSKY
Los Angeles, California
April 20, 1999
F-17
<PAGE>
DESIGN BAS INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------ MARCH 31,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 44,661 $ 52,018 $ (1,795)
Accounts receivable................................................... 89,494 54,194 97,113
Bad debt reserve...................................................... -- (5,786) (5,786)
Accounts receivable-shareholder....................................... -- 5,875 --
Contracts in progress................................................. 11,801 2,300 17,249
Prepaid expenses...................................................... 2,366 6,236 3,848
------------ ------------ -----------
Total current assets................................................ 148,322 114,837 110,629
Advance-related party................................................. -- 66,783 66,783
Property and equipment-net............................................ 49,270 35,721 30,663
------------ ------------ -----------
Total assets........................................................ $ 197,592 $ 217,341 $ 208,075
------------ ------------ -----------
------------ ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank credit line...................................................... $ 27,500 $ 45,000 39,000
Current portion of capital lease obligation........................... 1,970 6,619 7,121
Current portion of long-term debt..................................... 3,968 2,829 1,772
Accounts payable...................................................... 44,040 86,987 93,473
Accrued expenses and other current liabilities........................ 27,221 34,571 35,984
Loan payable.......................................................... -- -- 25,000
Income taxes payable.................................................. 1,500 1,500 1,500
Customer deposits..................................................... 69,804 -- --
------------ ------------ -----------
Total current liabilities........................................... 176,003 177,506 203,850
Long-term liabilities:
Capital lease obligation (less current portion)....................... 3,260 7,021 5,075
Long-term debt (less current portion)................................. 2,829 -- --
------------ ------------ -----------
Total long-term liabilities......................................... 6,089 7,021 5,075
Shareholders' equity (deficit):
Common Stock, no par value:
1,000 shares authorized, issued and outstanding..................... 5,000 5,000 5,000
Additional paid in capital............................................ 25,000 25,000 25,000
Retained earnings (deficit)........................................... (14,500) 2,814 (30,850)
------------ ------------ -----------
Total shareholders' equity (deficit)................................ 15,500 32,814 (850)
------------ ------------ -----------
Total liabilities and shareholders' equity (deficit)................ $ 197,592 $ 217,341 $ 208,075
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
DESIGN BAS, INCORPORATED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- ------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
------------ ------------ ----------- -----------
(UNAUDITED)
Revenues................................................... $ 1,342,500 $ 2,228,298 $ 459,331 $ 231,574
Cost of sales.............................................. 816,437 1,638,251 397,530 123,260
------------ ------------ ----------- -----------
Gross profit............................................... 526,063 590,047 61,801 108,314
------------ ------------ ----------- -----------
Costs and expenses:
General and administrative............................... 450,347 567,200 149,241 137,896
------------ ------------ ----------- -----------
Total costs and expenses................................. 450,347 567,200 149,241 137,896
------------ ------------ ----------- -----------
Income (loss) from operations.............................. 75,716 22,847 (87,440) (29,582)
Interest expense........................................... 2,989 4,733 661 4,082
------------ ------------ ----------- -----------
Income before income taxes............................... 72,727 18,114 (88,101) (33,664)
Income taxes............................................. 1,500 800 -- --
------------ ------------ ----------- -----------
Net income (loss)........................................ $ 71,227 $ 17,314 $ (88,101) $ (33,664)
------------ ------------ ----------- -----------
Retained earnings (deficit), beginning..................... (85,727) (14,500) (14,500) 2,814
------------ ------------ ----------- -----------
Retained earnings (deficit), ending........................ $ (14,500) $ 2,814 $ (102,601) $ (30,850)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
DESIGN BAS, INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 71,227 $ 17,314 $ (88,101) $ (33,664)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 23,093 26,001 6,199 5,058
Bad debt reserve..................................... -- 5,786 -- --
Changes in assets and liabilities:
Accounts receivable.................................. (41,840) 35,300 31,050 (42,919)
Accounts receivable-shareholders..................... -- (5,875) -- 5,875
Prepaid expenses..................................... (2,366) (3,870) 861 2,388
Contracts in progress................................ 83,535 9,501 (74,087) (14,949)
Advances to related party............................ -- (66,783) (25,000) --
Accounts payable and other liabilities............... (41,414) 50,297 126,084 7,899
Customer deposits.................................... (63,194) (69,804) 30,314 --
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities....................................... 29,041 (2,133) 7,320 (70,312)
--------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment................ (6,354) (12,453) (6,498) --
--------- --------- --------- ---------
Net cash used in investing activities.............. (6,354) (12,453) (6,498) --
--------- --------- --------- ---------
Cash flows from financing activities:
Financing to acquire assets.......................... 6,354 12,453 6,498 --
Repayment of shareholder loans....................... (37,141) -- -- --
Advances from credit line-net........................ 27,500 17,500 (22,538) (6,000)
Loan received........................................ -- -- -- 25,000
Payments on financing to acquire assets.............. (4,694) (8,010) (1,412) (2,501)
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities....................................... (7,981) 21,943 (17,452) 16,499
--------- --------- --------- ---------
Net change in cash and cash equivalents............ 14,706 7,357 (16,630) (53,813)
Cash and equivalents at beginning of period............ 29,955 44,661 44,661 52,018
--------- --------- --------- ---------
Cash and cash equivalents at end of period............. $ 44,661 $ 52,018 $ 28,031 $ (1,795)
--------- --------- --------- ---------
--------- --------- --------- ---------
Cash paid during year for:
Interest............................................. $ 2,989 $ 4,733 $ 661 $ 4,082
Income taxes......................................... 1,948 800 1,500 --
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
Design Bas, Incorporated
NOTES TO FINANCIAL STATEMENTS
(Information relating to March 31, 1998 and 1999 is unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Design Bas, Incorporated, (the "Company") commenced operations effective
January 1, 1996. The Company's office and studio facilities are located in North
Hollywood, California. The Company designs and produces print advertising direct
mail catalogs, brochures and other printed advertising materials for department
stores and apparel retailers, principally on the West Coast.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. (See Note 4). The Company
depreciates its property and equipment using the straight-line method. The
principal useful lives in computing depreciation are as follows:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
- -------------------------------------------------------------------------------- ------------
<S> <C>
Machinery and equipment......................................................... 3-5 Years
Furniture and fixtures.......................................................... 5-10 Years
Software........................................................................ 1-3 Years
</TABLE>
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and tax basis of
assets and liabilities and operating losses available to offset future taxable
income, using enacted tax rates in effect in the years in which the differences
are expected to reverse. Deferred taxes are not material.
The shareholders have elected that the Company be taxed as an S corporation,
effective January 1, 1996.
The income taxes for the years ended December 31, 1997 and 1998 and the
three months ended March 31, 1998 and 1999 represent California franchise tax at
a rate of 1.5% for S corporations. No provision has been made for Federal income
taxes, as the income is taxable to the individual shareholders.
MAJOR CUSTOMERS / SUPPLIERS
The Company's customers are located primarily on the West Coast. For the
year ended December 31, 1997, sales to two customers amounted to 19% and 45% of
total sales. For the year ended December 31, 1998, sales to three customers
amounted to 19%, 11%, and 58% of total sales. During late 1998 the customer who
accounted for 58% of sales was acquired by the customer who accounted for 19% of
sales. The 11% customer has suspended operations. One supplier accounted for 13%
of cost of sales for 1998. Loss of this supplier or these customers could have
an adverse effect upon the Company's operations.
F-21
<PAGE>
DESIGN BAS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenue is recognized upon completion of the project. On certain projects
the Company receives progress payments. Payments received prior to completion
are reported as customer deposits. Costs incurred prior to completion are
reported as contracts in progress.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for fair presentation of the financial position at such dates and the
results of operations and cash flows for the periods then ended. Operating
results for the three months ended March 31, 1999 are not necessarily indicative
of results that may be expected for the entire year.
NOTE 2 CONCENTRATIONS OF RISK
Credit risk for trade accounts receivable is concentrated as substantially
all of the balances are receivable from customers in one industry located in one
geographic region. The Company, generally, requires no collateral from its
customers. 100% of trade accounts receivable at December 31, 1997 are due from
two customers; 100% of trade accounts receivable at December 31, 1998 are due
from two customers; 79% of accounts receivable at March 31, 1999 are due from
two customers.
NOTE 3 RELATED PARTY TRANSACTIONS
During 1996, the two principal shareholders made non-interest bearing
advances to the Company which the Company repaid by December 31, 1997 (See Note
4).
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Advances to Shareholders................................................. $ -- $ 5,875
Repayment to Shareholders................................................ 37,141 --
</TABLE>
Commencing on July 1, 1998 the Company began renting its premises on a month
to month basis from 10859 Burbank LLC, a company owned by the two shareholders
of Design Bas, Incorporated.
F-22
<PAGE>
DESIGN BAS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 3 RELATED PARTY TRANSACTIONS (CONTINUED)
Rent expense for the period July 1, 1998 to December 31, 1998 amounted to
$22,523. In addition the Company paid property taxes of $3,364 and repair
expenses of $7,436 related to this property. Rent expense for the three months
ended March 31, 1999 amounted to $10,899.
During 1998, the Company advanced $5,875 to a shareholder/officer. These
advances were repaid in 1999.
During 1998 the Company made non-interest bearing advances of $66,783 to
10859 Burbank LLC which was used principally as the downpayment on the building
the Company is currently leasing. There is no fixed repayment plan under the
terms of the agreement.
NOTE 4 PROPERTY AND EQUIPMENT
Property and Equipment is comprised of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998 MARCH 31, 1999
--------- ---------- --------------
<S> <C> <C> <C>
Machinery and equipment............................... $ 32,260 $ 32,260 $ 32,260
Furniture and fixtures................................ 33,884 33,884 33,884
Leased computers...................................... 6,354 18,806 18,806
Props and library..................................... 18,900 18,900 18,900
--------- ---------- --------------
91,398 103,850 103,850
Accumulated depreciation.............................. 42,128 68,129 73,187
--------- ---------- --------------
Net................................................... $ 49,270 $ 35,721 $ 30,663
--------- ---------- --------------
--------- ---------- --------------
</TABLE>
The Company purchased property and equipment for $54,632 and materials,
supplies, and props for $36,030 from the two shareholders at the inception of
the company for non-interest bearing advances. These assets were acquired at
values determined by the shareholders.
NOTE 5 CAPITAL LEASE OBLIGATIONS
The Company leases computers under long term capital leases. The leases bear
interest ranging from 20% to 29% per annum with current monthly payments of $911
expiring April 1999 through February 2001.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Capital lease obligations-current............................. $ 1,970 $ 6,619 $ 7,121
Capital lease obligations-non-current......................... 3,260 7,021 5,075
--------- --------- -----------
$ 5,230 $ 13,640 $ 12,196
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-23
<PAGE>
DESIGN BAS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 5 CAPITAL LEASE OBLIGATIONS (CONTINUED)
The future annual lease payments are as follows:
<TABLE>
<S> <C>
Year Ending:
December 31, 1999.................................................. $ 10,929
2000.................................................. 8,022
2001.................................................. 485
---------
Total lease payments............................................... 19,436
Less amount representing interest.................................. 5,796
---------
Total obligation under capital lease............................... $ 13,640
---------
---------
</TABLE>
Depreciation of these assets for the year ended December 31, 1997 and
December 31, 1998 and the three months ended March 31, 1998 and 1999 totaled
$5,337, $8,245, $1,760 and $2,527, respectively, and is included in depreciation
expense.
NOTE 6 SHORT-TERM BORROWINGS
The Company obtained a revolving line of credit in 1996 ($65,000 at December
31, 1998) with annual interest of 11% at December 31, 1997 and 10.25% at
December 31, 1998. Minimum monthly interest payments are calculated on the
average daily balance and are due currently. The outstanding principal balances
at December 31, 1997 and December 31, 1998 were $27,500 and $45,000,
respectively. The loan is guaranteed by each of the shareholders for $65,000 and
is collateralized by the assets of the Company to a maximum of $65,000.
NOTE 7 LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1998 and March 31, 1999 consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Computer Equipment Purchase Agreement with annual interest rate
of 10.75%, due September 29, 1999............................ $ 6,797 $ 2,829 $ 1,772
Less current maturities........................................ 3,968 2,829 1,772
--------- --------- -----------
Total.......................................................... $ 2,829 $ -- $ --
--------- --------- -----------
--------- --------- -----------
</TABLE>
Under terms of the agreement, the Company granted a security interest in the
computer equipment purchased as collateral.
NOTE 8 COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company leased its office and production facilities under an operating
lease which expired June 30, 1998. Commencing July 1, 1998, the Company began
renting its office and production facilities from a related party on a month to
month basis (see Note 3).
F-24
<PAGE>
DESIGN BAS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE 8 COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Rent expense for the years ended December 31, 1997 and 1998 and the three
months ended March 31, 1998 and 1999 amounted to $37,800 and $41,423, and $9,450
and $10,899, respectively.
INSURANCE
An insurance policy for workers' compensation insurance was acquired
effective June 13, 1997. The Company did not have workers' compensation
insurance from January 1, 1996 to June 12, 1997 and was not insured for risks
covered by this policy.
NOTE 9 SUBSEQUENT EVENTS
The Company has signed a letter of intent to sell principally all its assets
and liabilities to 3Dshopping.com effective April 1, 1999. The purchase price
will be 10,000 shares of 3Dshopping.com.
On March 1, 1999 a former employee loaned $25,000 to the Company, at 12% per
annum, with interest and principal due June 1, 1999. The loan is secured by
outstanding accounts receivable.
F-25
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined balance sheet data at March 31, 1999
presents adjustments for our acquisition of the assets and liabilities of Design
Bas, Incorporated for stock, as if we had acquired these assets and liabilities
at that date. The data presents the pro forma combined balance sheet of
3Dshopping.com and Design Bas, Incorporated.
The unaudited pro forma combined statements of operations data for the year
ended June 30, 1998 and the nine months ended March 31, 1999 presents
adjustments for our acquisition of the assets and liabilities of Design Bas,
Incorporated for stock, as if we had acquired these assets and liabilities at
the beginning of the respective periods. The data presents the pro forma
combined statements of operations of 3Dshopping.com and Design Bas,
Incorporated.
In the opinion of management, all adjustments have been made that are
necessary to present fairly the pro forma data.
F-26
<PAGE>
3DSHOPPING.COM AND DESIGN BAS, INCORPORATED
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
3DSHOPPING.COM
3DSHOPPING.COM DESIGN BAS, PRO FORMA PRO FORMA
AS REPORTED INCORPORATED ADJUSTMENTS COMBINED
--------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 469,793 $ (1,795) $ -- $ 467,998
Accounts receivable........................... 18,736 91,327 -- 110,063
Other receivables............................. 2,470 -- -- 2,470
Contracts in progress......................... 20,263 17,249 -- 37,512
Prepaid expenses.............................. 7,112 3,848 -- 10,960
--------------- ------------ ----------- ---------------
Total current assets........................ 518,374 110,629 -- 629,003
Advance-related party........................... -- 66,783 -- 66,783
Property and equipment-net...................... 111,625 30,663 -- 142,288
Prepaid offering costs.......................... 211,389 -- -- 211,389
Goodwill........................................ -- -- 153,975(1) 153,975
--------------- ------------ ----------- ---------------
Total assets................................ $ 841,388 $ 208,075 $ 153,975 $ 1,203,438
--------------- ------------ ----------- ---------------
--------------- ------------ ----------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank credit line.............................. $ -- $ 39,000 $ -- $ 39,000
Current portion of capital lease obligation... 5,450 7,121 -- 12,571
Current portion of long-term debt............. -- 1,772 -- 1,772
Loan payable.................................. -- 25,000 -- 25,000
Notes payable-current......................... 616,024 -- -- 616,024
Accounts payable and accrued expenses......... 132,481 129,457 -- 261,938
Income taxes payable.......................... -- 1,500 -- 1,500
Customer deposits............................. 22,333 -- -- 22,333
--------------- ------------ ----------- ---------------
Total current liabilities................... 776,288 203,850 -- 980,138
Long-term liabilities:
Capital lease obligation (less current portion
included above)............................. 10,629 5,075 -- 15,704
Shareholders' equity:
Common Stock: 3,645,746 (As Reported) and
3,655,746 (Pro Forma)....................... 6,124,688 5,000 153,125(1)
(5,000) 6,277,813
Additional paid in capital.................... -- 25,000 (25,000) --
Stock subscriptions receivable................ (2,500) -- -- (2,500)
Accumulated earnings (deficit)................ (6,067,717) (30,850) 30,850 (6,067,717)
--------------- ------------ ----------- ---------------
Total shareholders' equity (deficit)........ 54,471 (850) 153,975 207,596
--------------- ------------ ----------- ---------------
Total liabilities and shareholders'
equity.................................... $ 841,388 $ 208,075 $ 153,975 $ 1,203,438
--------------- ------------ ----------- ---------------
--------------- ------------ ----------- ---------------
</TABLE>
F-27
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
(1) Reflects the issuance of 10,000 shares of our common stock, valued as of
April 1, 1999, the effective acquisition date. Values assigned to the assets
and liabilities acquired are based upon a preliminary allocation of the
total consideration. The common stock issued as consideration is valued for
this presentation at the value of the stock at April 1, 1999, which was
$15.3125 per share.
3DSHOPPING.COM AND DESIGN BAS, INCORPORATED
YEAR ENDED JUNE 30, 1998(1)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
3DSHOPPING.COM
3DSHOPPING.COM DESIGN BAS, PRO FORMA PRO FORMA
AS REPORTED INCORPORATED ADJUSTMENTS(2) COMBINED
--------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Net revenues.................................. $ 18,404 $1,427,406 $ -- $ 1,445,810
--------------- ------------ -------------- ---------------
Cost of sales............................... -- 980,557 -- 980,557
--------------- ------------ -------------- ---------------
18,404 446,849 -- 465,253
--------------- ------------ -------------- ---------------
Costs and expenses:
Research and development.................... 170,259 -- -- 170,259
General and administrative.................. 931,010 475,190 51,325(3) 1,457,525
--------------- ------------ -------------- ---------------
Total costs and expenses.................... 1,101,269 475,190 51,325 1,627,784
--------------- ------------ -------------- ---------------
Loss from operations.......................... (1,082,865) (28,341) (51,325) (1,162,531)
Interest expense.............................. 10,373 2,658 -- 13,031
Other income.................................. 13,500 -- -- 13,500
--------------- ------------ -------------- ---------------
Net loss.................................... $ (1,079,738) $ (30,999) $ (51,325) $ (1,162,062)
--------------- ------------ -------------- ---------------
Net loss per share............................ $ (0.28) $ -- $ -- $ (0.30)
--------------- ------------ -------------- ---------------
Weighted average number of shares used in
computing net loss per share................ 3,823,228 -- 10,000 3,833,228
--------------- ------------ -------------- ---------------
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
(1) Includes the operations of 3Dshopping.com for the year ended June 30, 1998
and Design Bas, Incorporated for the twelve months ended March 31, 1998.
(2) Reflects adjustments for the acquisition of the assets and liabilities of
Design Bas, Incorporated, as if it had taken place at the beginning of the
period.
(3) Depreciation and amortization are based upon the preliminary allocation of
the consideration as follows: Intangible assets of approximately $153,975
over three years, and property and equipment of approximately $30,663 over
five years. Actual depreciation and amortization may differ, depending on
the final allocation of the total consideration.
F-28
<PAGE>
3DSHOPPING.COM AND DESIGN BAS, INCORPORATED
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1999(1)
<TABLE>
<CAPTION>
3DSHOPPING.COM
3DSHOPPING.COM DESIGN BAS PRO FORMA PRO FORMA
AS REPORTED INCORPORATED ADJUSTMENTS(2) COMBINED
--------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Net revenues.................................. $ 50,311 $1,346,344 $ -- $ 1,396,655
--------------- ------------ -------------- ---------------
Cost of sales............................... -- 973,840 -- 973,840
--------------- ------------ -------------- ---------------
50,311 372,504 422,815
--------------- ------------ ---------------
Costs and expenses:
Research and development.................... 346,131 -- -- 346,131
General and administrative.................. 2,725,540 426,714 38,494(3) 3,190,748
--------------- ------------ -------------- ---------------
Total costs and expenses.................... 3,071,671 426,714 38,494 3,536,879
--------------- ------------ -------------- ---------------
Loss from operations.......................... (3,021,360) (54,210) (38,494) (3,114,064)
Interest expense.............................. 61,269 7,143 -- 68,412
Other income.................................. 3,250 -- -- 3,250
--------------- ------------ -------------- ---------------
Net loss.................................... $ (3,079,379) $ (61,353) $ (38,494) $ (3,179,226)
--------------- ------------ -------------- ---------------
Net loss per share............................ $ (0.77) $ -- $ -- $ (0.79)
--------------- ------------ -------------- ---------------
Weighted average number of shares used in
computing net loss per share................ 4,024,482 -- 10,000 4,034,482
--------------- ------------ -------------- ---------------
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1999
(1) Includes the operations of 3Dshopping.com for the nine months ended March
31, 1999 and Design Bas, Incorporated for the nine months ended March 31,
1999.
(2) Reflects adjustments for the acquisition of the assets and liabilities of
Design Bas, Incorporated, as if it had taken place at the beginning of the
period.
(3) Depreciation and amortization are based upon the preliminary allocation of
the consideration as follows: Intangible assets of approximately $153,975
over three years, and property and equipment of approximately $30,663 over
five years. Actual depreciation and amortization may differ, depending on
the final allocation of the total consideration.
F-29
<PAGE>
[ART]
From our Web site, shoppers can access a directory of our customers, with direct
links to their Web sites.
<PAGE>
2,000,000 UNITS
[LOGO]
---------------------
PROSPECTUS
---------------------
PAULSON INVESTMENT COMPANY, INC.
, 1999
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, UNITS ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE UNITS OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities being registered, excluding the
representative's nonaccountable expense allowance, all of which expenses will be
paid by the Registrant::
<TABLE>
<S> <C>
SEC registration fee.............................................................. $ 26,229
NASD filing fees.................................................................. 9,935
Accounting fees and expenses...................................................... 80,000*
Legal fees and expenses........................................................... 175,000*
Printing and related expenses..................................................... 100,000*
Blue sky legal fees and expenses.................................................. 5,000*
Transfer agent and expenses....................................................... 2,000*
Miscellaneous expenses............................................................ 11,836*
---------
Total......................................................................... $ 410,000*
---------
---------
</TABLE>
- ------------------------
* Estimated expenses
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California Corporations Code provides for the indemnification of
directors, officers, employees and agents of the corporation under the
circumstances as set forth in section 317. Section 317 permits a corporation to
indemnify its agents, typically directors and officers, for expenses incurred or
settlements or judgments paid in connection with certain legal proceedings. Only
those legal proceedings arising out of such persons' actions as agents of the
corporation may be grounds for indemnification.
Whether or not indemnification may be paid in a particular case depends on
whether the agent wins, loses or settles the suit and upon whether a third party
or the corporation itself is the plaintiff. The section provides for mandatory
indemnification, no matter who the plaintiff is, when an agent is successful on
the merits of a suit. In all other cases, indemnification is permissive.
If the agent loses or settles a suit brought by a third party, he or she may
be indemnified for expenses incurred and settlements or judgments paid. Such
indemnification may be authorized upon a finding that the agent acted in good
faith and in a manner he or she reasonably believed to be in the best interests
of the corporation.
If the agent loses or settles a suit brought by or on behalf of the
corporation, his or her right to indemnification is more limited. If he or she
is adjudged liable to the corporation, the court in which such proceeding was
held must determine whether it would be fair and reasonable to indemnify him or
her for expenses which such court shall determine. If the agent settles such a
suit with court approval, he or she may be indemnified for expenses incurred
upon a finding that the agent acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the corporation and, in
addition, that he or she acted with the care, including reasonable inquiry, of
an ordinarily prudent person.
The indemnification discussed above may be authorized by a majority vote of
the disinterested directors or shareholders (the person to be indemnified is
excluded from voting his or her shares) or the court in which the proceeding was
brought. The Company's Board of Directors makes all decisions regarding the
indemnification of its officers and directors on a case-by-case basis.
Any provision in the corporation's Articles of Incorporation or Bylaws or
contained in a shareholder or director resolution that indemnifies its officers
or directors must be consistent with
II-1
<PAGE>
section 317. Moreover, such a provision may prohibit permissive, but not
mandatory, indemnification as described above. Last, a corporation has the power
to purchase indemnity insurance for its agents even if it would not have the
power to indemnify them.
The Company's articles authorize the board of directors to provide
indemnification of its agents through bylaw provisions or indemnification
agreements, or both, in excess of the indemnification otherwise permitted by
section 317, subject to the limits on such excess indemnification set forth in
section 204 of the California Corporations Code.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling the Registrant pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the last three years, the Registrant has issued and sold the
following unregistered securities on the dates and for the consideration
indicated:
In 1996, the Company issued 2,282,233 shares of common stock for cash at
prices ranging from $.01 to $.75 a share, in a total amount of $348,750. These
shares of common stock were issued in reliance on the exemption from
registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1997, the Company issued 570,933 shares of common stock for cash at
prices ranging from $1 to $1.50 a share, in a total amount of $701,750. These
shares of common stock were issued in reliance on the exemption from
registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1998, the Company issued 305,434 shares of common stock for cash at
prices ranging from $1 to $1.50 a share, in a total amount of $343,750. These
shares of common stock were issued in reliance on the exemption from
registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1999, the Company issued 196,000 shares of common stock upon conversion
of two convertible promissory notes of the Company, issued in November 1998 and
June 1998, respectively, each in the principal amount of $100,000. The shares
issued were valued at prices ranging from $1 to $1.50 a share, for a total
amount of $217,200. The notes were issued pursuant to Section 4(2) of the
Securities Act and the underlying shares of common stock were issued in reliance
on the exemption from registration provided by Section 3(a)(9) of the Securities
Act.
In 1997, the Company issued 17,700 shares of common stock at prices ranging
from $1.25 to $1.50 a share in exchange for services, in an aggregate amount of
$22,875. These shares of common stock were issued in reliance on the exemption
from registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1998, the Company issued 15,000 shares of common stock at a price of
$1.50 a share in exchange for services, in an aggregate amount of $21,000. These
shares of common stock were issued in reliance on the exemption from
registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1998, the Company issued 25,000 shares of common stock for cash and
services in an aggregate amount of $306,250. These shares of common stock were
issued in reliance on the exemption for registration provided by Rule 701.
In 1998, the Company issued 89,346 shares of common stock pursuant to the
exercise of options and warrants at an exercise price ranging from $1.25 to
$7.75 a share. The options and underlying shares of common stock were issued in
reliance on the exemption from registration provided by Rule 701.
II-2
<PAGE>
In 1999, the Company issued 144,000 shares of common stock pursuant to the
exercise of options at an exercise price ranging from $1.25 to $9.00 a share.
The options and underlying shares of common stock were issued in reliance on the
exemption from registration provided by Rule 701.
In 1999, the Copmany issued 10,000 shares of common stock to the two
shareholders of Design Bas, Incorporataed ("DBLA") in exchange for substantially
all the assets and liabilities of DBLA.
In 1999, the Company issued to one party a warrant to purchase a number of
shares of common equal to $2 million for a purchase price of $1.5 million. The
warrant was issued in reliance on the exception from registration provided by
Rule 506 under Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1(1) Form of Underwriting Agreement
3.1(1) Amended and Restated Articles of Incorporation of the Registrant
3.2(1) Amended and Restated Bylaws of the Registrant
4.1(3) Specimen Common Stock Certificate
Form of Warrant Agreement among the Registrant and Interwest Transfer Company, as
4.2(1) Warrant Agent, including the form of Warrant
4.3(1) Form of Representative's Warrants
Purchase Warrant dated March 18, 1999 between the Registrant and Generation
4.4(2) Capital Associates
Promissory Note dated March 18, 1999 from the Registrant in favor of Generation
4.5(2) Capital Associates
5.1(2) Opinion of Stoel Rives LLP
Website Design and Promotion Agreement dated April 22, 1998 between the
10.1(1)(4) Registrant and MediaOne, Inc.
Website Design, Build and Maintain Agreement dated September 24, 1998 between the
10.2(1) Registrant and Leavens Awards Co., Inc.
Contract for Internet Consulting Services dated February 10, 1999 between the
10.3(1) Registrant and Fish Interactive
Letter Agreement dated February 5, 1999 between the Registrant and Shandrick
10.4(1) International, Inc.
10.5(1) Lease Agreement dated April 16, 1996 between the Registrant and Perloff/Webster
Commercial Sub-Lease Agreement dated December 3, 1998 between the Registrant and
10.6(1) Westland Network
Agreement and Plan of Reorganization dated as of April 1, 1999 between the
10.7(2) Registrant, Design Base Los Angeles Inc, Brian Smith and Todd Hosaka
Lease Extension and Modification dated as of April 26, 1999 between the
10.8(2) Registrant and Perloff/Webster
Employment Letter Agreement dated May 21, 1999 between the Registrant and Robert
10.9(2) J. Vitamante
23.1(2) Consents of Friedman, Minsk, Cole & Fastovsky, independent auditors
23.2 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1(1) Power of Attorney (see page II-5 of the originally-filed Registration Statement)
27.1(2) Financial Data Schedule
</TABLE>
- ------------------------
(1) Filed as an Exhibit to the Registrant's original filing of the Registration
Statement on Form S-1, filed March 22, 1999.
(2) Filed herewith.
(3) To be filed by amendment.
(4) Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment; such portions have been filed separately with the
Commission.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes:
(1) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the dollar value of the
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in 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, and
(iii) Include additional or changed material information on the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement.
(2) That for purposes of determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) That for purposes of determining liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) To provide the underwriters, at the closing specified in the
underwriting agreement certificates representing the units in such denominations
and registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amended registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Venice,
California, on May 21, 1999.
3DSHOPPING.COM
BY: /S/ LAWRENCE WEISDORN
-----------------------------------------
LAWRENCE WEISDORN
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amended Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
/s/ LAWRENCE WEISDORN Chief Executive Officer and May 21, 1999
- ---------------------------------- Director
Lawrence Weisdorn (Principal Executive
Officer)
/s/ ROBERT J. GRANT* Treasurer and Secretary and May 21, 1999
- ---------------------------------- Director
Robert J. Grant
/s/ DONALD L. HEJMANOWSKI* Director May 21, 1999
- ----------------------------------
Donald L. Hejmanowski
</TABLE>
<TABLE>
<S> <C>
*By: /s/ LAWRENCE WEISDORN
----------------------------------
Lawrence Weisdorn
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1(1) Form of Underwriting Agreement
3.1(1) Amended and Restated Articles of Incorporation of the Registrant
3.2(1) Amended and Restated Bylaws of the Registrant
4.1(3) Specimen Common Stock Certificate
Form of Warrant Agreement among the Registrant and Interwest Transfer Company, as Warrant Agent,
4.2(1) including the form of Warrant
4.3(1) Form of Representative's Warrants
4.4(2) Purchase Warrant dated March 18, 1999 between the Registrant and Generation Capital Associates
4.5(2) Promissory Note dated March 18, 1999 from the Registrant in favor of Generation Capital Associates
5.1(2) Opinion of Stoel Rives LLP
10.1(1)(4) Website Design and Promotion Agreement dated April 22, 1998 between the Registrant and MediaOne, Inc.
Website Design, Build and Maintain Agreement dated September 24, 1998 between the Registrant and
10.2(1) Leavens Awards Co., Inc.
Contract for Internet Consulting Services dated February 10, 1999 between the Registrant and Fish
10.3(1) Interactive
10.4(1) Letter Agreement dated February 5, 1999 between the Registrant and Shandrick International, Inc.
10.5(1) Lease Agreement dated April 16, 1996 between the Registrant and Perloff/Webster
10.6(1) Commercial Sub-Lease Agreement dated December 3, 1998 between the Registrant and Westland Network
Agreement and Plan of Reorganization dated as of April 1, 1999 between the Registrant, Design Base
10.7(2) Los Angeles Inc, Brian Smith and Todd Hosaka
Lease Extension and Modification dated as of April 26, 1999 between the Registrant and
10.8(2) Perloff/Webster
10.9(2) Employment Letter Agreement dated May 21, 1999 between the Registrant and Robert J. Vitamante
23.1(2) Consent of Friedman, Minsk, Cole & Fastovsky, independent auditors
23.2 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1(1) Power of Attorney (see page II-5 of the originally-filed Registration Statement)
27.1(2) Financial Data Schedule
</TABLE>
- ------------------------
(1) Filed as an Exhibit to the Registrant's original filing of the Registration
Statement on Form S-1, filed March 22, 1999.
(2) Filed herewith.
(3) To be filed by amendment.
(4) Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment; such portions have been filed separately with the
Commission.
<PAGE>
Exhibit 4.4
THIS WARRANT HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
AND IS NOT TRANSFERABLE
EXCEPT AS PROVIDED HEREIN
3Dshopping.com
PURCHASE WARRANT
ISSUED TO:
GENERATION CAPITAL ASSOCIATES
EXERCISABLE TO PURCHASE
SHARES OF COMMON STOCK
of
3Dshopping.com
<PAGE>
This is to certify that, for value received and subject to the terms and
conditions set forth below, the Warrantholder (hereinafter defined) is
entitled to purchase, and the Company promises and agrees to sell and issue
to the Warrantholder, at any time during the Term(hereinafter defined), the
number of shares of Common Stock of the Company at the Exercise Price
provided below.
This Warrant Certificate is issued subject to the following terms and
conditions:
1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:
"ACT" means the Securities Act of 1933, as amended.
"CASHLESS EXERCISE" means an exercise of the Warrant in which, in lieu of
payment of the Exercise Price, the Holder elects to receive a lesser number
of Securities such that the value of the Securities that such Holder would
otherwise have been entitled to receive but has agreed not to receive, as
determined by the average high closing bid price for such Securities on the
20 trading days immediately preceding the date of exercise, is equal to the
Exercise Price with respect to such exercise. A Holder may only elect a
Cashless Exercise if the Securities issuable by the Company on such exercise
are publicly traded securities.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company.
"COMMON STOCK VALUE" shall be equal to the 133.3 percent of the Exercise
Price multiplied by the number of shares that would be issuable if the
portion of the Warrant being redeemed was exercised at such Exercise Price.
"COMPANY" means 3Dshopping.com, a California corporation.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which the Warrantholder may purchase one
share of Common Stock upon exercise of Warrants as determined from time to
time pursuant to the provisions hereof. The Exercise Price shall be equal to
75% of the average high closing bid price for the Common Stock on the 20
trading days immediately preceding the date of exercise.
"EXERCISE NUMBER" means the number of shares of Common Stock for which the
Warrant is exercisable. The Exercise Number shall be equal to 1,500,000
divided by the Exercise Price.
<PAGE>
"PUBLIC OFFERING" means a registered public offering of equity securities of
the Company following which the Company will be obligated to file reports
under Section 12 of the Exchange Act.
"RULES AND REGULATIONS" means the rules and regulations of the Commission
adopted under the Act.
"SECURITIES" means the securities obtained or obtainable upon exercise of the
Warrant or securities obtained or obtainable upon exercise, exchange, or
conversion of such securities.
"TERM" means a period of three years commencing on the later to occur of the
first anniversary of the effective date of a Public Offering that is
effective prior to October 31, 1999 and March 31, 2000.
"WARRANTHOLDER" means the record holder of the Warrant or Securities
"WARRANT" means the warrant evidenced by this certificate.
2. EXERCISE OF WARRANTS. All or any part of the Warrant may be exercised
at any time during the Term by surrendering this Warrant Certificate,
together with appropriate instructions, duly executed by the Warrantholder or
by its duly authorized attorney, at the office of the Company, 517 Boccaccio
Avenue, Venice, California 90291, or at such other office or agency as the
Company may designate. The date on which such instructions are received by
the Company shall be the date of exercise. If the Holder has elected a
Cashless Exercise, such instructions shall so state. Upon receipt of notice
of exercise, the Company shall immediately instruct its transfer agent to
prepare certificates for the Securities to be received by the Warrantholder
upon completion of the Warrant exercise. When such certificates are prepared,
the Company shall notify the Warrantholder and deliver such certificates to
the Warrantholder or as per the Warrantholder's instructions immediately upon
payment in full by the Warrantholder, in lawful money of the United States,
of the Exercise Price (if any) payable with respect to the Securities being
purchased, if any. Certificates representing the Securities received upon
exercise of the Warrant shall bear such legends as may be required by the
Act, the Rules and Regulations and any comparable provisions of State law.
If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver
to the Warrantholder a new Warrant Certificate (dated the date hereof), in
form and tenor similar to this Warrant Certificate, evidencing that portion
of the Warrant not exercised. The Securities to be obtained on exercise of
the Warrant will be deemed to have been issued, and any person exercising the
Warrants will be deemed to have become a
<PAGE>
holder of record of those Securities, as of the date of the payment of the
Exercise Price or notice of Cashless Exercise.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of the
securities for which the Warrant is exercisable are subject to adjustment
from time to time upon the happening of certain events as follows:
(a) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or
other change in the capital structure of the Company, then, as a condition of
such change, lawful and adequate provision will be made so that the holder of
this Warrant Certificate will have the right thereafter to receive upon the
exercise of the Warrant the kind and amount of shares of stock or other
securities or property to which it would have been entitled if, immediately
prior to such event, it had held the number of shares of Common Stock
obtainable upon the exercise of the Warrant. In any such case, appropriate
adjustment will be made in the application of the provisions set forth herein
with respect to the rights and interest thereafter of the Warrantholder, to
the end that the provisions set forth herein will thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the exercise of the Warrant. The Company
will not permit any change in its capital structure to occur unless the
issuer of the shares of stock or other securities to be received by the
holder of this Warrant Certificate, if not the Company, agrees to be bound by
and comply with the provisions of this Warrant Certificate.
(b) When any adjustment is required to be made in the number of shares
of Common Stock, other securities, or the property purchasable upon exercise
of the Warrant, the Company will promptly determine the new number of such
shares or other securities or property purchasable upon exercise of the
Warrant and (i) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the new number of such
shares or other securities or property purchasable upon exercise of the
Warrant and (ii) cause a copy of such statement to be mailed to the
Warrantholder within thirty (30) days after the date of the event giving rise
to the adjustment.
(c) No fractional shares of Common Stock or other securities will be
issued in connection with the exercise of the Warrant, but the Company will
pay, in lieu of fractional shares, a cash payment therefor on the basis of
the mean between the bid and asked prices of the Common Stock in the
over-the-counter market or the closing price on a national securities
exchange on the day immediately prior to exercise.
(d) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the sale of the Common Stock or other
Securities purchasable upon exercise of the Warrant.
<PAGE>
4. RESERVATION OF SECURITIES. The Company agrees that the number of
shares of Common Stock or other Securities reasonably sufficient to provide
for the exercise of the Warrant upon the basis set forth above will at all
times during the term of the Warrant be reserved for exercise.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of
the Warrant will be duly and validly issued in accordance with their terms,
and the Company will pay all documentary and transfer taxes, if any, in
respect of the original issuance thereof upon exercise of the Warrant.
6. RESTRICTIONS ON TRANSFER. This Warrant Certificate and the Warrant
may not be sold, transferred, assigned or hypothecated except as specifically
provided in this Section 6. This Warrant Certificate and the Warrant are
transferable:
(a) in whole, but not in part, to an entity that controls, is
controlled by or is under common control with the transferor;
(b) in a prorata distribution to the owners of the transferor;
(c) by will or pursuant to the laws of descent and distribution; or
(d) in connection with a bona fida pledge or hypothecation of the
Warrant as security for indebtedness of the Warrantholder, or any
foreclosure pursuant to the terms of such pledge or hypothecation.
7. REDEMPTION OF THE WARRANT. The Company may redeem all or any part of
the Warrant upon 15 days prior notice to the holders at any time on or after
July 1, 1999. The redemption price of any Warrants shall be a percentage of
the Common Stock Value indicated below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DATE OF REDEMPTION NOTICE COMMON STOCK VALUE PERCENT
<S> <C>
July 1, 1999 - September 30, 1999 21%
October 1, 1999 - December 31, 1999 22%
January 1, 2000 - March 31, 2000 23%
April 1, 2000 - June 30, 2000 24%
On or after July 1, 2000 25%
- --------------------------------------------------------------------------------
</TABLE>
8. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to
the Company, be
<PAGE>
entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.
9. OBLIGATION TO REGISTER UNDER THE EXCHANGE ACT. If a Public Offering
is not consummated on or before June 30, 1999 and if, at that time or at any
time thereafter, the Company is not actively pursuing an underwritten Public
Offering that the Company reasonably expects to be completed within 60 days,
the Company will, not later than August 31, 1999, file with the SEC a
registration statement under Section 12 of the Exchange Act which will become
effective by operation of law on or before October 31, 1999 and will use its
best efforts to clear all comments of the SEC staff with regard to such
registration statement on or before November 30, 1999.
10. LIMITATION ON EXERCISE. Notwithstanding anything to the contrary
herein, the Warrantholder shall not be permitted to exercise the Warrant to
the extent that such exercise would cause the Warrantholder to be the
beneficial owner of more than 5% of the then outstanding Common Stock
immediately following such exercise. This limitation shall not be deemed to
prevent the Warrantholder from acquiring more than an aggregate of 5% of the
Common Stock, so long as the Warrantholder does not beneficially own more
than 5% of Common Stock immediately following such exercise.
11. NOTICE. Any notice permitted or required hereby shall be deemed
validly given if (i) sent by registered mail, return receipt requested, or by
a recognized package delivery company that maintains a record of deliveries,
or (ii) received at the address of the person to whom such notice is directed
by any physical or electronic means. Any notice to the Company shall be
addressed to the Company at
517 Boccaccio Avenue
Venice, CA 90291
Telephone (310) 301-6733
or at any fax or email address maintained by the Company for general
corporate purposes. Any notice to the Warrantholder shall be addressed to the
Warrantholder at
Suite 4990
20 Exchange Place, 49th Floor
New York, NY 10005
Tel: (212) 514-7650
Fax: (212) 514-76789
with a copy to:
David A. Rapaport
333 Sandy Springs Circle, Suite 230
Atlanta, GA 30328
Tel: (404) 257-9150
<PAGE>
Fax (404) 257-9125
or at any fax or email address maintained by Lender for general corporate
purposes.
Either party may change addresses at which it wishes to receive notice
by valid notice to the other setting forth the new address.
12. Applicable Law. This Warrant Certificate shall be governed by and
interpreted under the laws of the State of New York, excluding provisions
thereof relating to conflict of laws.
Dated as of March 18, 1999
3Dshopping.com
By: LAWRENCE WEISDORN
------------------------------
Title: President
---------------------------
<PAGE>
Exhibit 4.5
PROMISSORY NOTE
March 18, 1999
For value received, 3Dshopping.com, a California corporation,
("Borrower") promises to pay to Generation Capital Associates (such person or
its permitted transferee or transferees being herein referred to as the
"Lender") the sum of five hundred thousand dollars ($500,000.00) plus
interest thereon at the rate of 9% per annum from the date written above
until paid or converted, all in accordance with the following terms and
conditions:
1. TERM. The term of this Note shall expire at the close of business,
Eastern Time, on August 31, 1999 (the "Due Date"), at which time, except
as otherwise provided herein, the principal amount written above and all
interest accrued thereon shall become due and payable.
2. EXCHANGE FOR CONVERTIBLE NOTE. If all of the principal of and accrued
interest on this Note is not paid on or before the Due Date, this Note
shall be exchanged, in full satisfaction of Borrower's obligations
hereunder, for a new note, substantially in the form set forth as
Exhibit A, in a principal amount equal to all unpaid principal and
interest on this Note as of August 31, 1999.
3. PREPAYMENT. This Note may be prepaid, in whole or in part, at any time
at the option of the Borrower. Any partial prepayment shall be applied
first to interest and the balance, if any, shall be applied to a
reduction of principal.
4. PERMITTED TRANSFEREES. The rights of Lender under this Note are not
transferable except as specifically provided in this Section 4. This
Note is transferable:
(a) in whole, but not in part, to an entity that controls, is
controlled by or is under common control with the transferor;
(b) in a prorata distribution to the owners of the transferor;
(c) by will or pursuant to the laws of descent and distribution; or
(d) in connection with a bona fida pledge or hypothecation of this Note
as security for indebtedness of the Lender, or any foreclosure
pursuant to the terms of such pledge or hypothecation.
5. NOTICE. Any notice permitted or required hereby shall be deemed validly
given if (i) sent by registered mail, return receipt requested, or by a
recognized package delivery company that maintains a record of
deliveries, or (ii) received at the address of the person to whom such
notice is directed by any physical or electronic means. Any notice to
Borrower shall be addressed to Borrower at
<PAGE>
517 Boccaccio Avenue
Venice, CA 90291
Telephone (310) 301-6733
or at any fax or email address maintained by Borrower for general
corporate purposes. Any notice to Lender shall be addressed to Lender at
Suite 4990
20 Exchange Place, 49th Floor
New York, NY 10005
Tel: (212) 514-7650
Fax: (212) 514-76789
or at any fax or email address maintained by Lender for general corporate
purposes.
Any notice to Escrow Agent shall be addressed to Escrow Agent at
333 Sandy Springs Circle, Suite 230
Atlanta, GA 30328
Tel: (404) 257-9150
Fax (404) 257-9125
Any party may change addresses at which it wishes to receive notice by
valid notice to the other parties setting forth the new address.
6. GOVERNING LAW. This Note shall be governed by and interpreted under the
laws of the State of New York, excluding provisions thereof relating to
conflict of laws.
7. COLLECTION COSTS. If any due and unpaid principal of or interest on this
Note is referred for collection, or if legal action is instituted to
collect any such amount, the costs reasonably incurred by Lender in
connection with any such collection process shall be paid by Borrower.
3Dshopping.com
By: LAWRENCE WEISDORN
-------------------------------------
Title: President
----------------------------------
2
<PAGE>
Convertible Promissory Note
EXHIBIT A
CONVERTIBLE PROMISSORY NOTE
August 31, 1999
For value received, 3Dshopping.com, a California corporation,
("Borrower") promises to pay to Generation Capital Associates (such person or
its permitted transferee or transferees being herein referred to as the
"Lender") an amount equal to the Principal Amount (hereinafter defined) plus
interest thereon at the rate of 9% per annum from the date written above
until paid or converted, all in accordance with the terms and conditions set
forth below. This note is made in exchange for that certain Promissory Note
of Borrower in favor of Lender, dated as of March 18, 1999 (the "First
Note"). Notwithstanding any prior execution hereof, this note is not valid
and has no legal effect unless and until it is automatically exchanged in
accordance with the terms of the First Note (the "Exchange"). The Principal
Amount is equal to the unpaid principal and interest on the First Note as of
the date of the Exchange.
1. Term. The term of this Note shall expire at the close of business,
Eastern Time, on June 30, 2001 (the "Due Date"), at which time the
principal amount written above and all interest accrued thereon shall
become due and payable.
2. Conversion. Except as otherwise provided herein, all unpaid principal
and accrued interest shall thereafter be convertible, at the option of
the Lender, into common stock of the Borrower ("Common Stock") at a
rate per share equal to 75% of the average high closing bid price of
the Common Stock for the twenty trading days immediately preceding the
effective date ("Effective Date") of the conversion notice ("Conversion
Notice") in the form attached hereto as Exhibit A. The Effective Date
of each conversion shall be the date set forth on the Conversion Notice,
provided that (i) notice is provided to David A. Rapaport, Esq. as
escrow agent ("Escrow Agent") and the Borrower no later than the
business day after such date, and (ii) such Conversion Notice is
received by the Escrow Agent and the Borrower, via facsimile, no
later than five business days after such date. Notwithstanding the
foregoing paragraph:
(a) this Note shall not be convertible at any time at which it is
prepayable as provided in Section 3; and
(b) Lender shall not be permitted to convert this Note to the extent
that such conversion would cause any Lender to be the beneficial
owner of more than 5% of the then outstanding Common Stock
immediately following such conversion. This limitation shall not
be deemed to prevent Lender from acquiring more than an aggregate
of 5% of the Common Stock, so long as Lender does not beneficially
own more than 5% of Common Stock immediately following such
conversion.
1
<PAGE>
The number, class, and price of the securities into which this Note may
be convertible are subject to adjustment from time to time upon the
happening of certain events as follows:
(a) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of Borrower,
or other change in the capital structure of Borrower, then, as a
condition of such change, lawful and adequate provision will be made
so that Lender will have the right thereafter to receive upon the
conversion of this Note the kind and amount of shares of stock or
other securities or property to which it would have been entitled
if, immediately prior to such event, it had held the number of
shares of Common Stock obtainable upon such conversion. In any such
case, appropriate adjustment will be made in the application of the
provisions set forth herein with respect to the rights and interest
thereafter of Lender, to the end that the provisions set forth
herein will thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter
deliverable upon the conversion of this Note. Borrower will not
permit any change in its capital structure to occur unless the
issuer of the shares of stock or other securities to be received by
Lender, if not Borrower, agrees to be bound by and comply with the
provisions of this Note.
(b) When any adjustment is required to be made in the number of shares
of Common Stock, other securities, or the property purchasable upon
conversion of this Note, Borrower will promptly determine the new
number of such shares or other securities or property issuable upon
conversion of this Note and (i) prepare and retain on file a
statement describing in reasonable detail the method used in
arriving at the new number of such shares or other securities or
property issuable upon conversion of this Note and (ii) cause a
copy of such statement to be mailed to Lender within thirty (30)
days after the date of the event giving rise to the adjustment.
(c) No fractional shares of Common Stock or other securities will be
issued in connection with the conversion of this Note, Borrower
will pay, in lieu of fractional shares, a cash payment therefor on
the basis of the mean between the bid and asked prices of the
Common Stock in the over-the-counter market or the closing price on
a national securities exchange on the day immediately prior to
exercise.
2
<PAGE>
(d) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the issuance of the Common
Stock or other securities issuable conversion of this Note.
3. Prepayment. This Note may be prepaid, in whole or in part, at any time
on or before the earlier of October 31, 1999 or the close of business,
Eastern Time, on the second business day following the closing of an
underwritten public offering of equity securities of Borrower managed by
Paulson Investment Company, Inc. (a "Public Offering") if, but only if,
at all times between September 1, 1999 and the date of such prepayment
or the closing of such Public Offering, Borrower shall have been
actively pursuing such Public Offering.
4. Permitted Transferees. The rights of Lender under this Note are not
transferable except as specifically provided in this Section 4. This
Note is transferable:
(a) in whole, but not in part, to an entity that controls, is
controlled by or is under common control with the transferor;
(b) in a prorata distribution to the owners of the transferor;
(c) by will or pursuant to the laws of descent and distribution; or
(d) in connection with a bona fida pledge or hypothecation of this Note
as security for indebtedness of the Lender, or any foreclosure
pursuant to the terms of such pledge or hypothecation.
5. Escrow of Common Stock. The Borrower has placed _______ shares of Common
Stock into escrow with the Escrow Agent to be delivered to the Lender
upon conversion of this Note in accordance with the terms of an Escrow
Agreement by and among Borrower, Lender and Escrow Agent dated as of
March 19, 1999 the terms and provisions of which are incorporated and
made a part of this Note and a copy of which is attached hereto as
Exhibit B.
6. Notice. Any notice permitted or required hereby shall be deemed validly
given if (i) sent by registered mail, return receipt requested, or by a
recognized package delivery company that maintains a record of
deliveries, or (ii) received at the address of the person to whom such
notice is directed by any physical or electronic means. Any notice to
Borrower shall be addressed to Borrower at
517 Boccaccio Avenue
Venice, CA 90291
Telephone (310) 301-6733
or at any fax or email address maintained by Borrower for general
corporate purposes.
3
<PAGE>
Any notice to Lender shall be addressed to Lender at
Suite 4990
20 Exchange Place, 49th Floor
New York, NY 10005
Tel: (212) 514-7650
Fax: (212) 514-76789
or at any fax or email address maintained by Lender for general
corporate purposes.
Any notice to Escrow Agent shall be address to Escrow Agent at
333 Sandy Springs Circle, Suite 230
Atlanta, GA 30328
Tel: (404) 257-9150
Fax (404) 257-9125
Any party may change addresses at which it wishes to receive notice by
valid notice to the other parties setting forth the new address.
7. Governing Law. This Note shall be governed by and interpreted under the
laws of the State of New York, excluding provisions thereof relating to
conflict of laws.
8. Collection Costs. If any due and unpaid principal of or interest on this
Note is referred for collection, or if legal action is instituted to
collect any such amount, the costs reasonably incurred by Lender in
connection with any such collection process shall be paid by Borrower.
3Dshopping.com
By:
--------------------------------
Title:
-----------------------------
4
<PAGE>
STOEL RIVES LLP
---------------
ATTORNEYS
Standard Insurance Center
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204-1268
Telephone (503) 224-3380
Fax (503) 220-2480
TDD (503) 221-1045
EXHIBIT 5.1
May 24, 1999
Board of Directors
3Dshopping.com
517 Boccaccio Avenue
Venice, CA 90291
Re: Registration Statement of Form S-1 (File No. 333-74795)
We have acted as counsel for 3Dshopping.com, a California corporation (the
"Company"), in connection with the preparation and filing of a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Act"), covering 2,000,000 Units, each unit consisting of
one share of Common Stock and one Warrant to purchase one share of Common Stock
of the Company, plus up to 300,000 Units that are subject to an option granted
to the underwriters solely to cover overallotments, if any, (the "Units"), and a
Warrant to purchase up to 200,000 Units and any additional Units that may be
registered in accordance with Rule 462(b) under the Act. We have reviewed the
corporate action of the Company in connection with this matter and have examined
the documents, corporate records and other instruments we deemed necessary for
the purpose of this opinion.
Based on the foregoing, it is our opinion that:
(1) The Company is a corporation existing under the laws of the state of
California; and
(2) The shares of Common Stock and Warrants included in the Units have been
duly authorized and, when issued and sold in the manner described in the
Registration Statement and in accordance with resolutions adopted by the Board
of Directors of the Company, and when payment therefor shall have been received
by the Company, will be legally issued, fully paid and nonassessable.
<PAGE>
Board of Directors
May 24, 1999
Page 2
We consent to the use of our name in the Registration Statement and in the
Prospectus filed as a part thereof and to the filing of this opinion as an
exhibit to the Registration Statement. We further consent to the incorporation
by reference of this opinion and consent as exhibits to any registration
statement filed in accordance with Rule 462(b) under the Act relating to the
offering.
Very truly yours,
STOEL RIVES, LLP
<PAGE>
Exhibit 10.7
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
A. This Agreement and Plan of Reorganization (this "Agreement") is made and
entered into as of April 1, 1999, at Los Angeles, California, by and between
3Dshopping.com, a California corporation ("3D"), Design Base Los Angeles Inc., a
California corporation ("Design"), and Brian Smith and Todd Hosaka, who
cumulatively own one hundred percent of all the issued and outstanding common
stock of Design (the "Design Shareholders"). From time to time, Design and the
Design Shareholders shall be referred to cumulatively as the "Transferring
Parties."
B. 3D desires to acquire from Design and Design desires to transfer to 3D,
on the terms and subject to the conditions of this Agreement, the assets and
properties of Design as set forth in this Agreement in exchange for the
consideration described in paragraph 2. It is the intention of the parties that
this transaction qualify as a tax-free reorganization under Section 368(a)(1)(C)
of the Internal Revenue Code of 1986, as amended (the "Code"). In exchange for
and in consideration of the mutual covenants, agreements, representations and
warranties contained in this Agreement, the parties agree as follows:
ARTICLE I.
TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES; CONSIDERATION.
------------------------------------------------------------
1.1 Transfer of the Assets. Subject to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined herein), Design will
sell, convey, transfer, assign, and deliver to 3D, and 3D will acquire from
Design, all of the assets, properties, and business of Design listed in
Exhibit "A" attached hereto and incorporated herein by this reference (all of
which are collectively referred to as the "Assets").
1.2 3D's Stock; Restrictions on the Transferring Parties. In consideration
for the Transferred Assets, 3D shall issue to Design at the Closing, in
accordance with the provisions of Article X, one or more certificates
cumulatively evidencing ownership of ten thousand shares of the common stock of
3D (the "3D Shares"). The Transferring Parties shall take the 3D Shares subject
to the following:
(a) The 3D Shares have not been registered under the Securities Act of
1933, as amended (the "Act"), and are not freely tradeable. The 3D Shares must
be held indefinitely unless either a registration statement with respect to the
3D Shares is filed and declared effective under the Act or an exemption from the
registration requirement of the Act is available. 3D has no obligation to the
Transferring Parties to register any or all of the 3D Shares under the Act for
<PAGE>
distribution. 3D has not agreed with the Transferring Parties to comply with
Regulation A or any other exemption under the Act respecting the resale or other
transfer of the 3D Shares, or any part thereof. Upon written request, 3D shall
supply to the Transferring Parties all available information reasonably required
to enable the Transferring Parties to make sales of any or all of the 3D Shares
pursuant to Rule 144 under the Act.
(b) 3D will affix a legend in substantially the following form to the
certificates evidencing the 3D Shares:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may
not be sold, pledged, hypothecated, donated, or otherwise
transferred, unless either the shares have been registered under
said Act or an exemption from such registration requirement is
available. If the shares are to be sold or transferred pursuant
to an exemption from the registration requirement, the company
may require a written opinion of counsel, satisfactory to counsel
for the company, to the effect that registration is not required
and that such transfer will not violate said Act or applicable
state securities law."
(c) Prior to any proposed sale, pledge, hypothecation, gift, or other
transfer, for value or otherwise, of any or all the 3D Shares or any interest
therein (a "Transfer"), the Transferring Parties shall give written notice to 3D
describing the Transfer. The Transferring Parties shall not effect any Transfer
unless and until 3D receives an opinion of the Transferring Parties' counsel, in
form and substance acceptable to counsel for 3D, that the transfer may be
effected without registration under the Act and without registration or
qualification under applicable state securities laws, and satisfaction of such
other conditions as may be reasonably required by counsel to 3D in order to
assure compliance with the Act and with applicable state securities laws. 3D
shall provide to counsel for the Transferring Parties all information reasonably
requested by such counsel for the preparation of the opinion of counsel.
1.3 Assumption of Liabilities. On the Closing Date, and subject to the
completion of the acquisition of assets described in Article I, Section 1.2, 3D
will assume those contracts, obligations and liabilities (the "Assumed
Liabilities") which are reflected on Design's financial statements as of March
31, 1999. It is expressly understood and agreed that 3D will not be liable for
any of the obligations or liabilities of Design other than the Assumed
Liabilities.
1.4 Sales and Use Taxes. Design will pay all sales and use taxes arising
from the transfer of the Assets and will pay its portion, prorated as of the
Closing Date, of state and local real and personal property taxes applicable for
the ownership or operation of the Assets. 3D will not be responsible for any
business, occupation, withholding, or similar tax, or any taxes of any kind
related to any period before the Closing Date.
2
<PAGE>
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF TRANSFERRING PARTIES.
------------------------------------------------------
Except as set forth in the accompanying Transferring Parties' Schedule of
Exceptions, bearing the date of this Agreement and delivered herewith, the
Transferring Parties represent and warrant that as of the date of this
Agreement:
2.1 Corporate Standing. Design is a corporation duly organized, validly
existing, and in good standing under the laws of the state of California, has
all necessary corporate powers to own and convey its properties and to carry on
its business as now owned and operated by it including, without limitation, all
properties and business operations constituting business conducted by Design
with the Assets (the "Design Business"), is duly qualified and in good standing
in every jurisdiction where the failure to be so qualified or in good standing
would have a material adverse effect on the Business.
2.2 No Liens, Encumbrances. Except as reflected in Schedule 2.2 hereto,
there are no liens, encumbrances or other charges on any of the Assets.
2.3 Taxes. Within the times and in the manner prescribed by law, Design has
filed all federal, state, and local tax returns and has paid all taxes,
assessments, and penalties due and payable. There are no present disputes about
taxes payable by Design. Within the times and in the manner prescribed by law,
Design will file all federal, state, and local tax returns required by law and
will pay all taxes, assessments, and penalties due and payable by Design on or
after the Closing Date.
2.4 Personal Property. Schedule 2.4 to this Agreement is a complete and
accurate schedule describing and specifying the location of all equipment,
furniture, supplies, and all other tangible personal property owned by, in the
possession of, or used by Design, in connection with the Design Business. The
property listed in Schedule 2.4 is all such tangible personal property that
Design has found to be necessary for the conduct by Design of the Design
Business. Except as stated in Schedule 2.4, no personal property used by Design
in connection with the Design Business is held under any lease, security
agreement, conditional sales contract, or other title retention or security
arrangement, or is located other than in the possession of Design.
2.5 Accounts Receivables. Except as set forth in Schedule 2.5, all account
receivables reflected in Design's financial statements as of March 31, 1999
arose from valid sales in the ordinary course of business and are collectible at
their full amounts to the best of our knowledge.
2.6 Intellectual Property. Design has no knowledge of any infringement or
alleged infringement by others of any trade name, trademark, service mark, or
copyright which is part of the Design Business. To the best of its knowledge,
Design has not infringed, and is not now infringing, on any trade name,
trademark, service mark, or copyright belonging to any other
3
<PAGE>
person, firm, or Design. Design owns, or holds adequate licenses or other rights
to use, all trademarks, service marks, trade names, and copyrights necessary for
the Design Business as it is now conducted, and Design's use thereof does not
and will not violate any rights of others. Design has the right to sell or
assign to 3D all such owned trademarks, trade names, service marks, and
copyrights, and all such licenses or other rights.
2.7 Trade Secrets. Schedule 2.7 to this Agreement is a complete and
accurate list, without extensive or revealing descriptions, of Design's trade
secrets (as the phrase "trade secrets" is defined in the California Civil Code),
including all customer lists, processes, know-how, computer programs and
routines, technical documentation, and other technical data, which are part of
the Design Business other than Design's customer list and other proprietary
customer information. Schedule 2.7 also contains the specific location of each
trade secret's documentation, including its complete description,
specifications, charts, procedures, and other material relating to it. Each
trade secret's documentation is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use by 3D
without reliance on the special knowledge or memory of others. To the best of
Design's knowledge, Design is the owner of each of these trade secrets, free and
clear of any liens, encumbrances, restrictions, or legal or equitable claims of
others. Design has taken reasonable security measures to protect the secrecy,
confidentiality and value of these trade secrets; any of its employees and any
other persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed, or designed these secrets, or who have
knowledge of or access to them, have been put on notice and, if Design deemed it
appropriate, have entered into agreements that these secrets are proprietary to
Design and not to be divulged or misused. To the best of Design's knowledge, its
trade secrets are not part of the public knowledge or literature; to Design's
knowledge they have not been used, divulged, or appropriated for the benefit of
any past or present employees or other persons, or to the detriment of Design.
2.8 Other Intangible Assets. Schedule 2.8 to this Agreement is a complete
and accurate list of all intangible assets used in the Design Business, other
than those specifically referred to elsewhere in this Agreement. It includes the
location of certificates or other evidences of title to these assets.
2.9 Good and Marketable Title. Design has good and marketable title to all
the Assets and interests in the Assets, whether real, personal, mixed, tangible,
or intangible, which constitute all the assets and interests in assets that are
used in the Design Business. Except as set forth in this Agreement and its
Exhibits and Schedules, all these assets are free and clear of restrictions on
or conditions to transfer or assignment, and of mortgages, liens, pledges,
charges, encumbrances, equities, claims, easements, rights of way, covenants,
conditions, or restrictions, except for the lien of current taxes not yet due
and payable or possible minor matters that, in the aggregate, are not
substantial in amount and do not materially detract from or interfere with the
use of any of these assets or materially impair the business operations of the
Design Business. Design is not in default or in arrears in any material respect
under any lease which is part of the Design Business. All real property and
tangible personal property of Design used in the Design
4
<PAGE>
Business are in good operating condition and repair, ordinary wear and tear
excepted. Design is in possession of all premises leased to it from others which
are used in the Design Business. Except for interests in 10859 Burbank Blvd.
LLC, no shareholder of Design, nor any officer, director, or employee of Design,
owns, or has any interest, directly or indirectly, in any of the real or
personal property owned by or leased to Design which is used in the Design
Business, or any copyrights, patents, trademarks, trade names, or trade secrets
licensed by Design which are used by the Design Business. At 3-D's request, any
lease held by Design on any real or personal property which is used in the
Design Business is, or will be, assignable to 3D on terms at least as favorable
as now enjoyed by Design including the lease of 10865 Burbank Blvd.
2.10 Customers. Schedule 2.10 to this Agreement is a correct and current
list of all customers of the Design Business within the 12-month period
preceding the date hereof. Except as indicated in Schedule 2.10, Design has no
knowledge that any of the customers listed in Schedule 2.10 intend to cease
doing business with Design's successor or materially alter the amount of the
business they are presently doing with Design upon the transfer of the assets,
liabilities and business as contemplated herein.
2.11 Employees. Schedule 2.11 to this Agreement is a list of all employment
contracts and collective bargaining agreements, and all pension, bonus,
profit-sharing, stock option, or other agreements or arrangements providing for
employee remuneration or benefits to which Design is a party or by which Design
is bound. All these contracts and arrangements are in full force and effect, and
neither Design nor any other party is in default under them. There have been no
claims of defaults and, to the best knowledge of Design, there are no facts or
conditions that, if continued, or on notice, will result in a default under
these contracts or arrangements. Design has complied with all applicable laws
for its respective employee benefit plans, if any, including the provisions of
the Employee Retirement Income Security Act (ERISA) if and to the extent
applicable. There are no threatened or pending claims by or on behalf of any
such benefit plan, or any employee covered under any such plan, that allege a
breach of fiduciary duties or violation of other applicable state or federal
law, nor is there, to Design's knowledge, any basis for such a claim. Except as
set forth in Schedule 2.11, Design has not entered into any severance or similar
arrangement in respect of any present or former employee that will result in any
absolute or contingent obligation of 3D or Design to make any payment to any
present or former employee following termination of employment.
2.12 Insurance. Schedule 2.12 to this Agreement is a description of all
insurance policies held by Design on the Design Business or the Assets. All
these policies are in the respective principal amounts set forth in Schedule
2.12. Design is not in default with respect to payment of premiums on any such
policies. No claim is pending against any policy listed in Schedule 2.12, and
Design has no knowledge of any facts upon which to base any claim against said
insurance policies. None of the insurance carriers of the policies listed have
given Design notice of termination, and Design has no knowledge of any such
carrier's intent to terminate such policies.
5
<PAGE>
2.13 Other Contracts. Except as set forth in the Assumed Liabilities on
Exhibit "B", Design is not a party to, nor is its property bound by, any
distributor's or manufacturer's representative or agency agreement; any output
or requirements agreement; any agreement not entered into in the ordinary course
of business; any indenture, mortgage, deed of trust, or lease; or any agreement
that is unusual in nature, duration, or amount (including any agreement
requiring the performance by Design of any obligation for a period of time
extending beyond one year from the Closing Date or calling for consideration of
more than $10,000.00). There is no default or event that, with notice or lapse
of time or both, would constitute a default by any party to any of these
agreements which default would be material to the business of Design. Design has
not received notice that any party to any of these agreements intends to cancel
or terminate any of these agreements or to exercise or not exercise any options
under any of these agreements.
2.14 No Adverse Laws. Design has not received notice of any violation of
any applicable federal, state, or local statute, law, or regulation (including
any applicable building, zoning, environmental protection, or other law,
ordinance, or regulation) affecting the operation of the Design Business or the
real estate in which it conducts its business. To the best of its knowledge,
there are no such violations.
2.15 No Adverse Litigation. Except as set forth in Schedule 2.15, there is
no pending, or, to the best of Design's knowledge, threatened, suit, action,
arbitration, or legal, administrative, or other proceeding, or governmental
investigation against or affecting Design. The matters set forth in Schedule
2.15, if decided adversely to Design, will not result in a material adverse
change in the business, assets, or financial condition of Design. Design has
furnished or made available to 3D copies of all relevant court papers and other
documents relating to the matters set forth in Schedule 2.15. Design is not in
default with respect to any order, writ, injunction, or decree of any federal,
state, local, or foreign court, department, agency, or instrumentality. Except
as set forth in Schedule 2.15, Design is not presently engaged in any legal
action to recover moneys due to, or damages sustained by, it.
2.16 All Necessary Powers. Design has the right, power, legal capacity, and
authority to enter into and perform its obligations under this Agreement, and no
approvals or consents of any persons other than Design are necessary in
connection with it. The execution and delivery of this Agreement by Design have
been duly authorized by all necessary corporate action on the part of Design.
2.17 Agreement Will Not Cause Breach. The consummation of the transactions
contemplated by this Agreement will not result in or constitute any of the
following: (1) a breach of any term or provision of this Agreement; (2) a
default or an event that, with notice, lapse of time, or both, would be a
default, breach, or violation of the articles of incorporation or bylaws of
Design, or any material contract to which Design is a party; (3) an event that
would permit any party to terminate any agreement or to accelerate the maturity
of any indebtedness or other obligation of Design; or (4) the creation or
imposition of any lien, charge, or encumbrance on any of the properties of
Design.
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2.18 Authority. Design has the right, power, legal capacity, and authority
to enter into and perform its obligations under this Agreement, and no approvals
or consents of any person other than Design (or its officers and board of
directors) are necessary in connection with it. The execution and delivery of
this Agreement by Design have been duly authorized by all necessary corporate
action on the part of Design. Design has received, reviewed, and had an adequate
opportunity to reflect upon and ask questions about, all information required to
be given to Design under Regulation D promulgated under Section 4(2) of the Act.
2.19 Investment Warranties. The 3D Shares are being acquired for investment
in the Transferring Parties' own accounts, and, except as permitted by
applicable law, not with a view to sale or resale, distribution (as that term is
defined in the Act), or transfer, or to offers in connection therewith. When the
3D Shares have been issued to Design, no persons other than the Transferring
Parties will have a beneficial interest therein. The Transferring Parties have
received, reviewed, and had an adequate opportunity to reflect upon, ask
questions about and meaningfully evaluate, all information which is required to
be given to the Transferring Parties under Regulation D promulgated under the
Act.
2.20 No Shareholders Other than the Design Shareholders. Design has no
shareholders other than the Design Shareholders.
2.21 Certain Representations and Warranties Regarding Code Section
368(a)(1)(C).
(a) 3D will acquire at least 90 percent of the fair market value of the net
assets and at least 70 percent of the fair market value of the gross assets held
by Design immediately prior to the transaction. For purposes of this
representation, amounts paid by Design to dissenters, amounts paid by Design to
shareholders who receive cash or other property, Design assets used to pay its
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by Design prior to and in connection with the
transfer, will be included as assets of Design held immediately prior to the
transaction.
(b) Design will distribute the 3D Shares and other property, if any,
received in the transaction, and its other properties, in pursuance of the plan
of reorganization as soon as practicable and in any event not later than 12
months after the Closing Date.
(c) The liabilities of Design assumed by 3D and the liabilities to which
the transferred assets of Design are subject were incurred by Design in the
ordinary course of its business.
(d) During the five-year period ending on the Closing Date, neither Design
nor any person related to Design (as defined in Temporary Treasury Regulation
ss.1.368-1T(e)(2)(ii)) has directly or through any transaction, agreement, or
arrangement with any other person, (1) acquired stock of Design with
consideration other than stock of 3D or Design, or (2) redeemed or made
distributions with respect to Design stock.
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(e) Design and the shareholders of Design will pay their respective
expenses, if any, incurred in connection with the transaction.
(f) There is no intercorporate indebtedness existing between 3D and Design
that was issued, acquired, or will be settled at a discount.
(g) Design is not an investment company as defined in Code Section
368(a)(2)(F)(iii) and (iv).
(h) 3D does not own, directly or indirectly, nor has it owned during the
past five years, directly or indirectly, any stock of Design.
(i) The fair market value of the assets of Design transferred to 3D will
equal or exceed the sum of the liabilities assumed by 3D, plus the amount of
liabilities, if any, to which the transferred assets are subject.
(j) Design is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
(k) None of the compensation received by any shareholder-employee of Design
will be separate consideration for, or allocable to, any of his shares of Design
stock; none of the shares of 3D stock received by any shareholder-employee of
Design will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any shareholder-employee will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(l) No Design shareholder has guaranteed any debt of Design, with the
exception of a credit line at Union Bank, North Hollywood, CA.
(m) Design has not paid dividends financed, directly or indirectly, with
borrowed funds.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF 3D.
------------------------------------
Except as set forth in the accompanying 3D's Schedule of Exceptions,
bearing the date of this Agreement and delivered herewith, 3D represents and
warrants that as of the date of this Agreement: There is no Schedule of
Exceptions.
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3.1 3D's Shares. The 3D Shares are, and at the time of the Closing will be,
free and clear of all liens, interests and/or encumbrances. 3D has all power and
authority necessary to convey the 3D Shares to Design as provided in this
Agreement, and the conveyance thereof as set forth in this Agreement shall not
breach any agreement or understanding of 3D with any third person.
3.2 Information. The information provided to the Transferring Parties by 3D
regarding 3D's business and financial condition including, without limitation,
the statements, information and facts contained in the Registration Statement on
Form S-1, as amended, as filed with the Securities and Exchange Commission, is,
to the best of 3D's knowledge, materially accurate and not misleading.
3.3 Certain Representations and Warranties Regarding Code Section
368(a)(1)(C).
(a) Neither 3D nor any person related to 3D (within the meaning of Treasury
Regulation Section 1.368-1(e)(3)) has any plan or intention to acquire or redeem
any of the stock of 3D issued in the transaction either directly or through any
transaction, agreement, or arrangement with any other person.
(b) 3D has no plan or intention to sell or otherwise dispose of any of the
assets of Design acquired in the transaction, except for dispositions made in
the ordinary course of business.
(c) Following the transaction, 3D will continue the historic business of
Design or use a significant portion of Design's historic business assets in a
business (within the meaning of Treasury Regulation Section 1.368-1(d)).
(d) 3D will pay all its expenses, if any, incurred in connection with the
transaction.
(e) There is no intercorporate indebtedness existing between 3D and Design
that was issued, acquired, or will be settled at a discount.
(f) 3D is not an investment company as defined in Code Section
368(a)(2)(F)(iii) and (iv).
(g) 3D does not own, directly or indirectly, nor has it owned during the
past five years, directly or indirectly, any stock of Design.
(h) Prior to or in the transaction, neither 3D nor any person related to 3D
(as defined in Treasury Regulation ss. 1.368(e)(3)) will have acquired directly
or through any transaction, agreement or arrangement with any other person,
stock of Design with consideration other than common stock of 3D.
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3.4 Corporate Standing. 3D is a corporation duly organized, validly
existing, and in good standing under the laws of the state of California, has
all necessary corporate powers to own and convey its properties and to carry on
its business as now owned and operated by it including, without limitation, all
properties and business operations constituting business conducted by 3D with
the Assets (the "3D Business"), is duly qualified and in good standing in every
jurisdiction where the failure to be so qualified or in good standing would have
a material adverse effect on the 3D Business.
3.5 No Adverse Laws. 3D has not received notice of any violation of any
applicable federal, state, or local statute, law, or regulation (including any
applicable building, zoning, environmental protection, or other law, ordinance,
or regulation) affecting the operation of the 3D Business or the real estate in
which it conducts its business. To the best of its knowledge, there are no such
violations.
3.6 All Necessary Powers. 3D has the right, power, legal capacity, and
authority to enter into and perform its obligations under this Agreement, and no
approvals or consents of any persons other than 3D are necessary in connection
with it. The execution and delivery of this Agreement by 3D has been duly
authorized by all necessary corporate action on the part of 3D.
3.7 Agreement Will Not Cause Breach. The consummation of the transactions
contemplated by this Agreement will not result in or constitute any of the
following: (1) a breach of any term or provision of this Agreement; (2) a
default or an event that, with notice, lapse of time, or both, would be a
default, breach, or violation of the articles of incorporation or bylaws of 3D,
or any material contract to which 3D is a party; (3) an event that would permit
any party to terminate any agreement or to accelerate the maturity of any
indebtedness or other obligation of 3D; or (4) the creation or imposition of any
lien, charge, or encumbrance on any of the properties of 3D.
3.8 Authority. 3D has the right, power, legal capacity, and authority to
enter into and perform its obligations under this Agreement, and no approvals or
consents of any person other than 3D (or its officers and board of directors)
are necessary in connection with it. The execution and delivery of this
Agreement by 3D have been duly authorized by all necessary corporate action on
the part of 3D. 3D has received, reviewed, and had an adequate opportunity to
reflect upon and ask questions about, all information required to be given to 3D
under Regulation D promulgated under Section 4(2) of the Act.
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ARTICLE IV.
DESIGN'S PRE-CLOSING OBLIGATIONS.
--------------------------------
From the date of this Agreement until the Closing:
4.1 3D's Access. 3D and its counsel, accountants, and other representatives
will have full access during normal business hours to all properties, books,
accounts, records, contracts, and documents of or relating to the Design
Business. Design will furnish or cause to be furnished to 3D and its
representatives all data and information concerning the Design Business that may
reasonably be requested.
4.2 Continue Insurance. Design will continue to carry its existing
insurance, subject to variations in amounts required by the ordinary operations
of its business. At the request of 3D and at 3D's sole expense, the amount of
insurance against fire and other casualties that, at the date of this Agreement,
Design carries in respect of the operations of the Design Business will be
increased by the amount or amounts 3D will specify.
4.3 Compensation Plans. Except as may be agreed to by 3D in writing, Design
will not do, or agree to do, any of the following acts: (1) make any change in
compensation payable, or to become payable, to any employee, sales agent, or
representative of the Design Business; (2) make any change in benefits payable
to any employee, sales agent, or representative of the Design Business under any
bonus or pension plan or other contract or commitment; or (3) make any change in
any leasing arrangement it has with any of its officers, directors or
shareholders, or any affiliates thereof.
4.4 Extraordinary Contracts. In connection with the Design Business, Design
shall not, without 3D's written consent, do or agree to do any of the following
acts: (1) enter into any contract, commitment, or transaction not in the usual
course of its business; (2) enter into any contract, commitment, or transaction
in the usual course of business involving an amount exceeding $20,000,
individually, or $50,000 in the aggregate; (3) make any capital expenditures in
excess of $25,000 for any single item or $50,000 in the aggregate, or enter into
any leases of capital equipment or property under which the annual lease charge
is in excess of $25,000; or (4) sell or dispose of any capital assets with a net
book value exceeding $10,000, individually, or $25,000 in the aggregate.
4.5 Change in Contracts. In connection with the Design Business, Design
will not modify, amend, cancel, or terminate any of its existing contracts or
agreements, or agree to do any of those acts.
4.6 Corporate Authorization. Design will deliver to 3D, on or before the
Closing Date, a written consent of the Design Shareholders (1) authorizing and
approving the sale of the Assets to 3D on the terms and conditions provided in
this Agreement, and (2) authorizing and
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approving the change of the name of Design to a name to be decided upon which
will not be misleadingly similar to "Design Base", or any variant thereof.
4.7 Warranties Remain True. All warranties of the parties set forth in this
Agreement and in any written statements delivered to 3D by Design under this
Agreement will be as true and correct on the Closing Date as if made on that
date.
ARTICLE V.
3D'S PRE-CLOSING OBLIGATIONS.
----------------------------
5.1 Obtaining Consent. 3D will use its best efforts to assist Design in
obtaining the consent of all necessary persons and agencies to the assignment
and transfer to 3D of the Assets and the assumed liabilities.
5.2 Warranties Remain True. All warranties of the parties set forth in this
Agreement and in any written statements delivered to Design by 3D under this
Agreement will be as true and correct on the Closing Date as if made on that
date, except for the Registration Statement on 3D's Form S-1, as amended, which
only speaks as of its effective date.
5.3 Compliance with Law. 3D will comply with the reporting obligations
required to effect sales of its securities under Rule 144 under the Securities
Act of 1933.
ARTICLE VI.
CONDITIONS TO 3D'S PERFORMANCE.
------------------------------
6.1 Conditions Precedent Must be Met. The obligations of 3D to acquire the
Assets under this Agreement are subject to the satisfaction, at or before the
Closing, of all the conditions set out below in this Article VI. 3D may waive
any or all of these conditions in whole or in part without prior notice;
provided, however, that no such waiver of a condition constitutes a waiver by 3D
of any of its other rights or remedies, at law or in equity, if Design is in
default of any of its representations, warranties, or covenants under this
Agreement.
6.2 Warranties Still True. Except as otherwise permitted by this Agreement,
all representations and warranties by Design in this Agreement, or in any
written statement that will be delivered to 3D by Design under this Agreement,
must be true in all material respects on the Closing Date as though made at that
time.
6.3 All Conditions Met. On or before the Closing Date, Design will have
performed, satisfied, and complied in all material respects with all covenants,
agreements, and conditions required of it this Agreement.
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6.4 No Adverse Changes. During the period from the date of this Agreement
to the Closing Date, there will not have been any material adverse change in the
financial condition or the results of operations of the Design Business, and the
Design Business will not have sustained any material loss or damage to its
insured or uninsured assets that materially affects its ability to conduct the
Design Business.
6.5 No Litigation. Design will not have received notice of any action,
suit, or proceeding, instituted or threatened, before any court or any
governmental body or authority, pertaining to the transaction contemplated by
this Agreement or to its consummation.
6.6 All Needed Authorization. The execution and delivery of this Agreement
by Design and the performance of its covenants and obligations under it, will
have been duly authorized by all necessary corporate action, and 3D will have
received copies of all resolutions pertaining to that authorization, certified
respectively by the secretary of Design.
6.7 Officers' Certificate. 3D will have received a certificate, dated the
Closing Date, signed and verified by Design's president or vice president and
its treasurer or assistant treasurer, stating, in such detail as 3D and its
counsel may reasonably request, that to the best of their knowledge the
conditions specified in paragraphs 6.1, 6.2, 6.3, 6.4, 6.5 and 6.6 have been
met.
ARTICLE VII.
CONDITIONS TO DESIGN'S PERFORMANCE.
----------------------------------
7.1 Conditions Precedent Must Be Met. The obligations of Design to transfer
the Assets under this Agreement are subject to the satisfaction, at or before
the Closing, of all the conditions set out below in this Article VII. Design may
waive any or all of these conditions in whole or in part without prior notice;
provided, however, that no such waiver of a condition constitutes a waiver by
Design of any of its other rights or remedies, at law or in equity, if 3D is in
default of any of its representations, warranties, or covenants under this
Agreement.
7.2 All Warranties Still True. All representations and warranties by 3D
contained in this Agreement or in any written statement delivered by 3D under
this Agreement must be true on and as of the Closing Date as though such
warranties were made on and as of that date.
7.3 All Conditions Met. 3D will have performed and complied with all
covenants and agreements and satisfied all conditions that it is required by
this Agreement to perform, comply with, or satisfy, before or at the Closing
Date.
7.4 No Litigation. 3D will not have received notice of any action, suit, or
proceeding, instituted or threatened, before any court or any governmental body
or authority, pertaining to the transaction contemplated in this Agreement or to
its consummation.
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7.5 No Adverse Changes. During the period from the date of this Agreement
to the Closing Date, there will not have been any material adverse change in the
financial condition or the results of operations of the 3D Business, and the 3D
Business will not have sustained any material loss or damage to its insured or
uninsured assets that materially affects its ability to conduct the 3D Business.
7.6 All Needed Authorization. The execution and delivery of this Agreement
by 3D and the performance of its covenants and obligations under it, will have
been duly authorized by all necessary corporate action, and Design will have
received copies of all resolutions pertaining to that authorization, certified
respectively by the secretary of 3D.
7.7 Officers' Certificate. Design will have received a certificate, dated
the Closing Date, signed and verified by 3D's president or vice president and
its treasurer or assistant treasurer, stating, in such detail as Design and its
counsel may reasonably request, that to the best of their knowledge the
conditions specified in paragraphs 7.1, 7.2, 7.3, 7.4, 7.5, and 7.6 have been
met.
ARTICLE VIII.
CLOSING.
-------
Time and Place. The transfer of the 3D Shares and the conveyance of the
Assets between Design and 3D (the "Closing") will take place at the offices of
3D at 1:00 p.m. local time, on April 1, 1999 (the "Closing Date"), or at such
other time and place as the parties may agree to in writing.
ARTICLE IX.
THE TRANSFERRING PARTIES' OBLIGATIONS AT CLOSING.
------------------------------------------------
9.1 Assignment and Transfer. At the Closing, if and to the extent required
by 3D, Design shall use its best efforts to deliver or cause to be delivered to
3D: (a) assignments of all leaseholds, properly executed and acknowledged by
Design, and accompanied by all consents of lessors required by this Agreement
and the leases being assigned; and (b) instruments of assignment and transfer of
all other property of Design of every kind and description and wherever
situated, which constitute the Assets.
9.2 Transfer of Property. Simultaneously with the consummation of the
transfer, Design, through its officers, agents, and employees, will use its best
efforts to put 3D in full possession and enjoyment of all properties and assets
to be conveyed and transferred by this Agreement.
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9.3 Other Acts and Assurances. Design, either before or after the Closing
Date, will execute, acknowledge, and deliver any further deeds, assignments,
conveyances, and other assurances, documents, and instruments of transfer,
reasonably requested by 3D, and will take any other action consistent with the
terms of this Agreement that may reasonably be requested by 3D for the purpose
of assigning, transferring, granting, conveying, and confirming to 3D, or
reducing to possession, any or all property to be conveyed and transferred under
this Agreement. If requested by 3D, Design will prosecute or otherwise enforce
in its own name for the benefit of 3D any claims, rights, or benefits that are
transferred to 3D under this Agreement and that require prosecution or
enforcement in Design's name. Any prosecution or enforcement of claims, rights,
or benefits under this paragraph will be solely at 3D's expense, unless the
prosecution or enforcement is made necessary by a breach of this Agreement by
Design.
9.4 Dissolution. From and after the Closing Date, Design will not engage in
any business, will promptly liquidate and dissolve as a corporation, and will
distribute the 3D Shares received pursuant to this Agreement, together with any
remaining assets, to the Design Shareholders in complete cancellation and
redemption of their shares of Design.
ARTICLE X.
3D'S OBLIGATIONS AT CLOSING.
---------------------------
Delivering 3D's Shares. At the Closing, 3D will deliver to Design the 3D
Shares, endorsed in a form reasonably satisfactory to Design to and in favor of
Design.
ARTICLE XI.
THE TRANSFERRING PARTIES' INDEMNITY.
-----------------------------------
11.1 Indemnification. The Transferring Parties will indemnify, defend, and
hold harmless 3D against and in respect of claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties, and reasonable attorneys' fees, that 3D incurs or
suffers, that arise from any breach of, or failure by the Transferring Parties
to perform, any of its representations, warranties, covenants, or agreements in
this Agreement or in any schedule, certificate, exhibit, or other instrument
furnished (or later furnished under Paragraph 9.2 hereof) by the Transferring
Parties under this Agreement. Despite any other provision of this Agreement, the
Transferring Parties will not be liable to 3D on any warranty, representation,
or covenant made by the Transferring Parties in this Agreement, or under any of
its indemnities in this Agreement, regarding any single claim, loss, expense,
obligation, or other liability that does not exceed $2,500; provided, however,
that when the aggregate amount of all such claims, losses, expenses,
obligations, and liabilities not exceeding $2,500 each reaches $10,000, the
Transferring Parties will, subject to the within limitation on their maximum
aggregate liability, thereafter be liable in full for all those breaches and
indemnities and regarding all those claims, losses, expenses, obligations, and
liabilities. The
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maximum aggregate liability for which the Transferring Parties shall be
liable under this provision shall be $250,000. In addition to the above, the
Transferring Parties will execute and deliver to 3D a separate guarantee of
$40,000 of the monies owed to Design by Biobottoms and/or its parent company,
Genesis Direct, Inc./Proteam.com, together with security by way of a personal
guarantee reasonably acceptable to 3D.
11.2 Tax Benefits. In computing the amount to be paid by the Transferring
Parties under its indemnity obligations, there will be deducted an amount equal
to any tax benefits actually received by 3D, taking into account the income tax
treatment of the receipt of these payments.
11.3 Prompt Notification. 3D will promptly notify the Transferring Parties
of the existence of any claim, demand, or other matter to which the Transferring
Parties' indemnification obligations would apply, and will give them a
reasonable opportunity to defend the same at their own expense and with counsel
of their own selection; provided that 3D will at all times also have the right
to participate fully in the defense at 3D's own expense. If, within a reasonable
time after this notice, the Transferring Parties fail to defend, 3D will have
the right, but not the obligation, to undertake the defense of, and to
compromise or settle (exercising reasonable business judgment), the claim or
other matter on behalf and at the risk of the Transferring Parties. If the claim
is one that cannot by its nature be defended solely by the Transferring Parties
(including any federal or state tax proceeding), 3D will make available all
information and assistance that the Transferring Parties may reasonably request.
ARTICLE XII.
USE OF NAME.
-----------
No Use of Name. After the Closing Date, Design will not use, directly or
indirectly, the name "Design Base Los Angeles", or any version thereof, without
3D's permission.
ARTICLE XIII.
3D'S INDEMNITY.
--------------
13.1 Indemnification. 3D will indemnify, defend, and hold harmless the
Transferring Parties against and in respect of claims, demands, losses, costs,
expenses, obligations, liabilities (including Assumed Liabilities), damages,
recoveries, and deficiencies, including interest, penalties, and reasonable
attorney fees, that Design will incur or suffer, that arise from any breach of,
or failure by 3D to perform, any of its representations, warranties, covenants,
or agreements in this Agreement or in any schedule, certificate, exhibit, or
other instrument furnished or to be furnished by 3D under this Agreement.
Despite any other provision of this
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Agreement, 3D will not be liable to the Transferring Parties on any warranty,
representation, or covenant made by 3D in this Agreement, or under any of its
indemnities in this Agreement, regarding any single claim, loss, expense,
obligation, or other liability that does not exceed $2,500; provided, however,
that when the aggregate amount of all such claims, losses, expenses,
obligations, and liabilities not exceeding $2,500 each reaches $10,000, 3D will,
subject to the within limitation on its maximum aggregate liability, thereafter
be liable in full for all those breaches and indemnities and regarding all those
claims, losses, expenses, obligations, and liabilities. The maximum aggregate
liability for which 3D shall be liable under this provision shall be $250,000.
13.2 Tax Benefits. In computing the amount to be paid by 3D under its
indemnity obligations, there will be deducted an amount equal to any tax
benefits actually received by the Transferring Parties taking into account the
income tax treatment of the receipt of these payments.
13.3 Prompt Notification. The Transferring Parties will promptly notify 3D
of the existence of any claim, demand, or other matter to which 3D's
indemnification obligations would apply, and will give 3D a reasonable
opportunity to defend the same at 3D's own expense and with counsel of 3D's own
selection; provided that the Transferring Parties will at all times also have
the right to participate fully in the defense at their own expense. If, within a
reasonable time after this notice, 3D fails to defend, the Transferring Parties
will have the right, but not the obligation, to undertake the defense of, and to
compromise or settle (exercising reasonable business judgment), the claim or
other matter on behalf and at the risk of 3D. If the claim is one that cannot by
its nature be defended solely by 3D (including any federal or state tax
proceeding), the Transferring Parties will make available all information and
assistance that 3D may reasonably request.
ARTICLE XIV.
MISCELLANEOUS.
-------------
14.1 Joint Announcements. All notices to third parties and all other
publicity concerning the transactions contemplated in this Agreement will be
jointly planned and coordinated by and between 3D and Design. No party will act
unilaterally in this regard without the prior written approval of the other;
however, this approval will not be unreasonably withheld.
14.2 No Brokers, Finders. Each party warrants that it has dealt with no
broker or finder in connection with any transaction contemplated by this
Agreement, and no broker or other person is entitled to any commission or
finder's fee in connection with any of these transactions.
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14.3 Expenses. Each of the parties shall pay their respective expenses
incurred or to be incurred in negotiating and preparing this Agreement and in
closing and carrying out the transactions contemplated in this Agreement.
14.4 Subject Headings. The subject headings of the paragraphs and
subparagraphs of this Agreement are included for convenience only and will not
affect the construction or interpretation of any of its provisions.
14.5 Entire Agreement; Writing Required to Amend; Limitations on Waiver.
This Agreement constitutes the entire agreement between the parties pertaining
to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties.
No supplement, modification, or amendment of this Agreement will be binding
unless executed in writing by all the parties. No waiver of any of the
provisions of this Agreement will be considered, or will constitute, a waiver of
any other provision, and no waiver will constitute a continuing waiver. No
waiver will be binding unless executed in writing by the party making the
waiver. The parties acknowledge that under certain provisions of the California
Civil Code, the California Commercial Code and other applicable case and/or
statutory authority, the parties may modify this Agreement by partial
performance or orally. The parties hereby waive their right to modify this
Agreement orally or by partial performance.
14.6 Execution. This Agreement may be executed simultaneously in one or
more counterparts, each of which will be considered an original, but all of
which together will constitute one and the same instrument.
14.7 No Third-Party Beneficiaries. Except as third parties are relieved of
or indemnified from liabilities hereunder, nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it and their
respective successors and assigns; nothing in this Agreement is intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement; and no provision will give any third persons any right
of subrogation or action against any party to this Agreement.
14.8 Successors and Assigns. This Agreement will be binding on, and will
inure to the benefit of, the parties to it and their respective heirs, legal
representatives, successors and assigns.
14.9 Arbitration. Any controversy or claim arising from or relating to this
Agreement, or its making, performance, or interpretation, will be settled by
arbitration in Los Angeles, California under the commercial arbitration rules of
the American Arbitration Association then existing. Judgment on the arbitration
award may be entered in any court having jurisdiction over the subject matter of
the controversy.
18
<PAGE>
14.10 Attorneys' Fees. If any legal action, arbitration, or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
will be entitled to recover reasonable attorney fees and other costs (including
arbitrator's or referee's fees, and other reasonable costs of such litigation or
proceeding that may not be taxable as court costs) incurred in that action or
proceeding, in addition to any other relief to which they may be entitled.
14.11 Survival of Representations, Warranties. Except for the
representations and warranties set forth in paragraph 2.5 hereof, all
representations, warranties, covenants, and agreements of the parties contained
in this Agreement, or in any instrument, certificate, opinion, or other writing
provided for in it, will survive the Closing for a period of eighteen months,
and any action or other proceeding based upon such representations, warranties,
covenants and agreements must be brought, if at all, within twenty one months of
the Closing. The representations and warranties set forth in paragraph 2.5
hereof shall survive the Closing for a period of six months, and any action or
other proceeding based thereon must be brought, if at all, within twelve months
of the Closing.
14.12 Notices. All notices, requests, demands, and other communications
under this Agreement must be in writing and will be considered to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
If to 3D: Lawrence Weisdorn, c/o 3D
517 Boccaccio Avenue
Venice, California 90291
If to Design or Brian Smith or Todd Hosaka, c/o Design
the Shareholders: 10859 Burbank Blvd.
North Hollywood, California
Any party may change its address for purposes of this paragraph by giving the
other parties written notice of the new address in the manner set forth above.
14.13 Governing Laws. This Agreement will be construed in accordance with,
and governed by, the laws of the State of California as applied to contracts
that are executed and performed entirely in California.
19
<PAGE>
14.14 Consistent Reporting. Each party will file its federal income tax
returns consistent with the treatment of the transactions contemplated by this
Agreement as a reorganization within the meaning of Code Section 368(a)(1)(C)
unless otherwise required by judicial or Internal Revenue Service determination
or unless advised by its tax advisors that there is no reasonable basis for such
a position. Each party will furnish information reasonably requested by the
other party to assist the requesting party in connection with such reporting.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it to
be effective as of the day and year first above written.
"Design" DESIGN BASE LOS ANGELES, INC.
/s/ Brian Smith
-----------------------------------
Name: Brian Smith
-----------------------------------
Title: President
-----------------------------------
"3D" 3DSHOPPING.COM
/s/ Lawrence Wiesdorn
-----------------------------------
Name: Lawrence Wiesdorn
-----------------------------------
Title: President and CEO
-----------------------------------
"Design Shareholders" /s/ Brian Smith
-----------------------------------
Brian Smith
/s/ Todd Hosaka
-----------------------------------
Todd Hosaka
20
<PAGE>
Exhibit 10.8
LEASE EXTENSION
& MODIFICATION
Date: April 26, 1999
By & Between: Perloff/Webster, Lessor,
and
P.I. Graphics, Inc., Lessee.
For the Premises
Located At: 517 Boccaccio Ave.
Venice, CA 90291
For the Lease
Dated: April 15, 1996
- --------------------------------------------------------------------------------
1. This lease shall be extended for One (1) year commencing June 1, 1999
and ending May 31, 2000. The base rent shall be $2,550.00 per month.
2. Lessee shall have the option to renew this lease for One (1) year.
Lessee must give, and Lessor must actually receive, written notice of the
exercise of the option to extend this lease at least Ninety (90) days prior to
the expiration of this lease, time being of the essence. The Base rent for
option period beginning June 1, 2000 shall be $2,725.00 per month.
3. P.I. Graphics, Inc. has become 3DShopping.Com, a California Corporation.
The Lease shall hereby be in the name of 3DShopping.Com, a California
Corporation. All officers and directors shall remain the same.
4. The lease requires that Lessee bring the security deposit and last
month's rent to the amount current to this extension. Lessee has $1,900.00 on
deposit as security and $2,480.00 on deposit as last month's rent. Lessee shall
bring the total security deposit to $2,550.00, and the total last month's rent
to $2,725.00, by paying Lessor $895.00 upon signing.
5. All other terms and conditions shall remain in full force and effect.
- --------------------------------------------------------------------------------
Signed:
BERNARD PERLOFF
- --------------------------------------------------------------------------------
Perloff/Webster Date
<PAGE>
By: ROBERT J. GRANT, its CFO 5/12/99
- --------------------------------------------------------------------------------
P.I. Graphics Date
By: ROBERT J. GRANT, its CFO 5/12/99
- --------------------------------------------------------------------------------
3DShopping.com Date
<PAGE>
Exhibit 10.9
3Dshopping.com
517 Bocaccio Avenue
Venice, California 90291
May 20, 1999
Robert J. Vitamante
1 Hitching Post Lane
Bell Canyon, CA 91307
RE: EMPLOYMENT
Dear Bob:
I confirm with pleasure our recent discussions with respect to your
employment as President, Chief Operating Officer and Chief Financial Officer
of 3Dshopping.com ("3D"). As we discussed, you have a commitment to a current
client that you expect to occupy the majority of your time between now and
June 15, 1998. During that period, you are available on an hourly basis to
advise management of 3D with respect to various matters relating to its
public offering of units, currently underway. Starting on or about June 15,
you expect to be available on a full-time basis. Based on our discussions, I
propose the following arrangements:
1. Subject to confirmation by our Board of Directors and following the
successful offering of 3D common stock presently contemplated , you agree
to be employed and to serve as 3D's President, Chief Operating Officer and,
until a successor is appointed, as Chief Financial Officer, and 3D agrees
to employ you in those capacities beginning as soon as practicable after
completion of your current commitment but, in any event, not later than
July 1, 1999. In that capacity, you will report to me as Chairman, provided
that, with respect to matters relating to financial accounting and
accounting controls, you will report directly to the Audit Committee of the
Board of Directors. Your initial employment term will be for a period of 2
years. In the event that you are terminated, other than for cause, prior to
expiration of such period, you will be entitled to severance payments upon
early termination equal to your base compensation for the lesser of 12
months or the balance of the two year term referred to above, but in no
event less than six months; such severance payments to be made at such
times as they would have been made had you remained employed by 3D and to
be subject to your execution of a release of claims in a form satisfactory
to 3D.
2. You will receive cash compensation at the rate of $200,000 per annum from
the date of your full time employment and will be eligible for such bonuses
and other forms of supplemental compensation as may from time to time be
approved by the Board of Directors. Your rate of compensation will be
subject to review by
<PAGE>
the Board of Directors not less than annually in connection with the annual
review of officer compensation generally.
3. Upon your acceptance of this letter you will be granted options to purchase
up to 142,940 shares of 3D common stock. The options would be issued under
3D's Stock Incentive Plan and would have a ten year term (subject to the
limitations described below); the options would vest as follows: 25,000
shares upon commencement of full time employment; 50,000 shares on January
1, 2000; 50,000 shares on January 1, 2001; and 17,940 shares on July 1,
2001. The options would be intended to qualify as Incentive Stock Options
under the Internal Revenue Code of 1986, as amended. Upon termination of
employment, vested options would remain exercisable for one year and
unvested options would expire; provided that, in the case of termination at
the initiative of 3D, the vested options would expire upon the later of
termination or 60 days following notice to you of termination. Vesting of
options would accelerate in the event of the consummation of any merger,
sale of stock or sale of all or substantially all of the business of 3D
involving a change in control of the 3D business. The option exercise price
would be equal to the fair market value of the common stock on the date of
the grant, as determined by the Board of Directors in good faith.
3Dshopping.com expects to file a registration statement on Form S-8 with
respect to the stock issuable on exercise of incentive stock options.
Notwithstanding any other provision of this Section 3, if you do not become
employed on a full-time basis with 3D as provided herein, the options
issued to you shall lapse and shall not be exercisable.
4. In addition to the foregoing items of compensation, you would be eligible
for such benefits as are from time to time made available to other members
of senior management.
5. Commencing as of the date of your acceptance of this letter and until the
commencement of your full-time employment, as described above, you agree to
be employed on a part-time basis as follows: you will perform at the
direction of current management such functions related to financial and
administrative matters as you and such management shall agree. The extent
of your duties will be determined by agreement between you and management
from time to time but you shall not be required to provide more than ten
hours of service in any week. You shall be compensated for such services at
the rate of $150/hr. and shall be reimbursed for out of pocket expenses
reasonably incurred by you in connection with assigned work. You agree
that, in performing such services, you will act as an employee of 3D,
subject to the direction of management of 3D, and that your compensation
will be subject to withholding for tax purposes.
6. In connection with your employment with 3D, you agree to execute and be
bound by 3D's customary agreements relating to nondisclosure,
nonsolicitation and inventions.
<PAGE>
I am delighted to be able to offer you the position described above and
look forward to an exciting and productive relationship. If you are in
agreement with the foregoing, please execute a copy of this letter in the
space provided and return it to me. This offer of employment is void if not
accepted by you on or before the close of business on May 21, 1999.
Very truly yours,
/s/ Lawrence Weisdorn
---------------------
Lawrence Weisdorn
Accepted this ___ day of May, 1999.
/s/ Robert J. Vitamante
- ----------------------------------
Robert J. Vitamante
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have included our report dated January 15, 1999, except for Note 9 as to
which the date is March 9, 1999, and Note 12 as to which the date is April 19,
1999, accompanying the financial statements of 3Dshopping.com contained in this
Registration Statement, and we consent to the use of the aforementioned report
in this Registration Statement and Prospectus, and to the use of our name as it
appears under the captions "Selected Financial Data" and "Experts".
/s/ FRIEDMAN, MINSK, COLE & FASTOVSKY
Friedman, Minsk, Cole & Fastovsky
Los Angeles, California
May 21, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have included our report dated April 20, 1999 accompanying the financial
statements of Design Bas, Incorporated contained in this Registration Statement,
and we consent to the use of the aforementioned report in this Registration
Statement and Prospectus, and to the use of our name as it appears under the
captions "Selected Financial Data" and "Experts".
/s/ FRIEDMAN, MINSK, COLE & FASTOVSKY
Friedman, Minsk, Cole & Fastovsky
Los Angeles, California
May 21, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 469,793 144,564
<SECURITIES> 0 0
<RECEIVABLES> 19,736 1,823
<ALLOWANCES> 1,000 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 518,374 163,059
<PP&E> 207,213 125,009
<DEPRECIATION> 95,588 58,539
<TOTAL-ASSETS> 841,388 229,529
<CURRENT-LIABILITIES> 776,288 328,155
<BONDS> 10,629 0
0 0
0 0
<COMMON> 6,124,688 2,997,112
<OTHER-SE> (6,070,217) (3,095,738)
<TOTAL-LIABILITY-AND-EQUITY> 841,388 229,529
<SALES> 0 0
<TOTAL-REVENUES> 50,311 18,404
<CGS> 0 0
<TOTAL-COSTS> 652,049 473,665
<OTHER-EXPENSES> 2,419,622 627,604
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 61,269 10,373
<INCOME-PRETAX> (3,079,379) (1,079,738)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,079,379) (1,079,738)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,079,379) (1,079,738)
<EPS-BASIC> (0.77) (0.28)
<EPS-DILUTED> 0 0
</TABLE>
