As filed with the Securities and Exchange Commission on November 29, 1999
Registration No. 333-78591
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
Amendment No. 3
Streamedia Communications, Inc.
(Name of small business issuer in its character)
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Delaware 7375 22-3622272
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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James Douglas Rupp
Streamedia Communications, Inc.
244 West 54th Street
New York, NY 10019
(212) 445-1700
(Address and telephone number of principal
executive offices and principal place of business)
James Douglas Rupp
Streamedia Communications, Inc.
244 West 54th Street
New York, NY 10019
(212) 445-1700
(Name, address and telephone number of agent for service)
Copies of all communications to:
Louis E. Taubman, Esq. Bruce A. Cheatham, Esq.
Kogan & Taubman, LLC Winstead Sechrest & Minick, P.C.
39 Broadway, Suite 2704 5400 Renaissance Tower
New York, NY 10019 1201 Elm Street
(212) 425-8200 Dallas, Texas 75270
(212) 482-8104 FAX (214) 745-5400
(214) 745-5390 FAX
Approximate date of proposed sale to public: As soon as practicable after the
effective date of the Registration Statement.
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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
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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(Registration Statement cover page cont'd)
Calculation of Registration Fee
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Aggregate Registration Fee
per Unit Offering Price
(1) (1) (1)
Units 1,150,000 $8.50 $9,775,000 $2,883
Common Stock, par
value $0.001 (2) 1,150,000 (2) (2) (2)
Redeemable Common Stock
Purchased Warrants (2) 1,150,000 (2) (2) (2)
Common Stock, par
Value $0.001 (3)(4) 1,150,000 $12.75 $14,662,500 $4,076
Underwriter's Warrants (5) 100,000 $0.001 $100 $1
Units Underlying the
Underwriter's Warrants 100,000 $10.20 $1,020,000 $284
Common Stock, par
Value $0.001 (4)(6) 100,000 (6) (6) (6)
Redeemable Common Stock
Purchase Warrants (6) 100,000 (6) (6) (6)
Common Stock, par
Value $0.001 (4)(7) 100,000 $12.75 $1,275,000 $354
Total $26,732,600 $7,432
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Included in the Units. No additional registration fee is required.
(3) Issuable upon the exercise of the Redeemable Common Stock Purchase
Warrants.
(4) Pursuant to Rule 416 there are also registered an indeterminable number
of shares of Common Stock which may be issued pursuant to the
antidilution provisions applicable to the Redeemable Common Stock
Purchase Warrants, the Underwriters' Warrants and the Redeemable Common
Stock Purchase Warrants issuable under the Underwriters Warrants.
(5) Underwriters' Warrants to purchase up to 100,000 Units, consisting of an
aggregate of 100,000 shares of Common Stock and 100,000 Redeemable
Common Stock Purchase Warrants.
(6) Included in the Units underlying the Underwriters' Warrants. No
additional registration fees are required.
(7) Issuable upon exercise of Redeemable Common Stock Purchase Warrants
underlying the Underwriters' Units.
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SUBJECT TO COMPLETION DATED NOVEMBER 23, 1999
1,000,000 Units
Consisting of 1,000,000 Shares of Common Stock and
1,000,000 Redeemable Common Stock Purchase Warrants.
STREAMEDIA COMMUNICATIONS, INC.
This is an initial public offering of 1,000,000 units. Each unit consists of one
share of common stock and one warrant. Each warrant entitles the holder to
purchase one share of common stock at a price of $12.75 per share until
____________, 2004 (five years from the date of this prospectus). Currently,
there is no public market for our common stock.
The underwriters have an option to purchase an additional 150,000 units to cover
over-allotments if any.
Streamedia Communications, Inc.
244 West 54th Street
New York, NY 10019
The Offering:
Per unit Total
Public Offering Price $8.50 $8,500,000
Underwriting Discounts $0.85 $ 850,000
Proceeds to Streamedia $7.65 $7,650,000
This investment involves a high degree of risk.
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.
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.
------------------------------
REDSTONE SECURITIES, INC.
Prospectus dated _______ 1999
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TABLE OF CONTENTS
Page
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Prospectus Summary.............................................................................3
Selected Financial Information.................................................................6
Risk Factors...................................................................................7
Limited Operating History.................................................................7
Going Concern.............................................................................7
Unpredictability of Future Revenues.......................................................7
Reliance on Key Personnel.................................................................8
Competition...............................................................................8
Uncertain Acceptance of the Internet as an Advertising Medium.............................8
Dependence on Continued Growth in Use of the Internet.....................................9
Risk of Technological Change..............................................................9
Government Regulation and Legal Liability.................................................9
Immediate Substantial Dilution............................................................9
Influence on Voting by Principal Shareholders.............................................10
Absence of Prior Public Market............................................................10
Arbitrary Determination of Offering Price.................................................10
Payment of Dividends......................................................................10
Shares Eligible for Future Sale...........................................................10
Effect of Underwriters' Warrants..........................................................11
Underwriter's Influence on the Market.....................................................11
Ability to protect trademarks and technology..............................................11
Use of Proceeds................................................................................12
Dividend Policy................................................................................12
Dilution.......................................................................................13
Capitalization.................................................................................14
Plan of Operations.................................... ........................................14
Business.......................................................................................19
Additional Information.........................................................................24
Management.....................................................................................25
Certain Relationships and Related Transactions.................................................27
Principal Shareholders.........................................................................28
Certain Federal Income Tax Matters.............................................................29
Description of Securities......................................................................30
Shares Eligible For Future Sale................................................................31
Plan of Distribution...........................................................................32
Legal Matters..................................................................................33
Experts........................................................................................33
Glossary.......................................................................................34
Index to Financial Statements..................................................................36
</TABLE>
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the related notes appearing
elsewhere in this prospectus. Unless otherwise indicated, the information in
this prospectus assumes the underwriters' over-allotment option and the
underwriters' warrants are not exercised. The units offered involve a high
degree of risk. Investors should carefully consider the information set forth
under "Risk Factors."
Profile of Streamedia Communications.'
We will deliver audio and video programming over the internet and through other
media. Our business will be divided among four vertically-integrated divisions:
Streamedia Broadcast; Streamedia Networks; Streamedia Webcast Technologies; and
Streamedia Publishing. Each center of activity will be developed around multiple
sources of potential revenue. Text, as well as audio and video broadcasts that
we develop or distribute, will be made accessible via the internet. These
broadcasts will include a variety of topics such as parenting, romance, careers,
hobbies, gardening, food, cooking, and restaurants.We will not charge users to
access our sites. Our goal is to capture the maximum possible internet audience.
No special hardware or software will be required to experience our basic content
beyond that of the standard media players and browsers routinely supplied by
computer manufacturers.
Streamedia's Corporate Offices and Contacts.
Our principal executive offices are located at 244 W. 54th Street, 12th Floor,
New York, NY, 10019. Our general corporate contacts are at 212-445-1700, and
[email protected]. Our Investor Relations contacts are 1-800-511-4216, or by
email to [email protected].
3
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The Offering
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Securities to be offered.................... 1,000,000 units, each unit consists of one share of common
stock and one warrant, each warrant entitles the holder to
purchase one share of common stock at a price of $12.75 until
_____ 2004. The shares and the warrants included in the units will automatically
separate 30 days from the date of this prospectus, after which the common
stock and warrants in the units will trade separately.
Description of warrants..................... The warrants included in the units will be exercisable commencing 12 months
after the offering. The Company may redeem some or all of the outstanding
warrants for $.05 per warrant 12 months from the date of this
offering if the closing price of the common stock is at least $12.75 per share
for 10-consecutive trading days.
Common Stock to be outstanding
after the Offering........................ 4,295,490 shares
Warrants to be outstanding after
the Offering.............................. 1,000,121
Proposed Boston Stock Exchange Symbols
Units....................................... "STAU"
Common stock................................ "STA"
Warrants.................................... "STAW"
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- -----------------
The 4,295,490 shares of common stock to be outstanding after the Offering do not
include the 1,089,000 shares issuable upon the exercise of warrants included in
the units which were sold on August 24, 1999, in a private placement; the
1,000,000 shares issuable upon the exercise of the warrants included in the
units to be sold in this offering which will be outstanding upon completion of
the offering; the 300,000 shares to be issued upon exercise of the underwriters'
over-allotment option; and the exercise of the warrants thereunder; and the
options issued under the 1999 stock option plan.
The 1,000,121 warrants to be outstanding after the Offering do not include the
up to 150,000 warrants issuable upon the exercise of the over-allotment option,
and the 100,000 warrants underlying the underwriters' warrants.
4
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SELECTED FINANCIAL INFORMATION
The following table sets forth our selected financial information. This
table does not present all of our financial data. You should read this
information together with our financial statements and the notes to those
statements beginning on page F-1 of this prospectus and the information under
"Plan of Operation."
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Period from April 29, 1998 Nine Months Ended
(date of inception) to December 31, 1998 (1) June 30, 1999
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Operating Data:
Revenues $ - $ -
Cost of Revenues - -
Gross Profit - -
Operating Expenses 296,760 1,065,492
---------- -------
Net Loss (296,760) (1,065,492)
Basic and Diluted Loss Per Common Share
(0.10) (0.33)
December 31, 1998 September 30, 1999
----------------- -------------
Balance Sheet Data:
Working Capital (deficit) $ (137,460) $ 930,203
Current Assets 1,225 1,092,540
Total Assets 77,425 1,670,977
Total Liabilities 138,685 162,337
Current Liabilities 138,685 1,712,099
Notes Payable - 1,549,762
Stockholders' Equity (deficit) (61,260) (41,122)
Common Shares Outstanding 3,025,000 3,295,490
- -----------------
</TABLE>
(1) From April 29, 1998, to September 30, 1998, we did not incur any revenues or
operational costs.
5
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RISK FACTORS
Investing in our securities involves a high degree of risk. Prospective
investors should consider the following factors in addition to other information
set forth in the prospectus before purchasing the units.
We may not be able to continue our operations unless we can achieve several of
the mentioned criteria.
Streamedia is currently in the development stage. To date, we have not generated
any revenues. We have experienced losses of $1,362,252 through September 30,
1999, and our accumulated deficit as of such date was $1,362,252. We anticipate
that our upcoming launches of websites currently in the development stage will
transition Streamedia to operating status. However, you should consider
Streamedia and our prospects in light of the risks, difficulties and
uncertainties frequently encountered by companies in an early stage of
development. You should not invest in this offering unless you can afford to
lose your entire investment. To achieve and sustain profitability, we believe
that Streamedia must, among other things:
Provide compelling and unique content and technologies to internet users,
Successfully market and sell our business services,
Effectively develop new relationships, and maintain existing
relationships, with advertisers, content providers, business customers and
advertising agencies,
Continue to develop and upgrade our technology and network infrastructure
and respond to our competitors,
Successfully improve our existing products and services to address new
technologies and standards, and
Attract, retain and motivate qualified personnel.
We may not be able to obtain the financing and capital required to maintain and
grow our business.
As a result of Streamedia's current financial condition, our independent
certified public accountants have modified their report on our financial
statements as of and for the period from April 29, 1998 (date of inception) to
December 31, 1998. Our independent certified public accountants' report on the
financial statements includes an explanatory paragraph stating that
Streamedia's existence is dependent upon its ability to obtain additional
capital, among other things, which raises substantial doubt about our ability to
continue as a going concern.
Our limited operating history makes it difficult to determine our future
success.
Because of Streamedia's limited operating history and the emerging nature of the
markets in which we compete, we are unable to forecast our revenues with
certainty and precision. Streamedia's operating results are also dependent on
factors outside of the control of Streamedia, such as the availability of
compelling content and the development of broadband networks that support
multimedia streaming. There can be no assurance that we will succeed in
addressing these risks, and failure to do so could have a material adverse
effect on Streamedia's business, results of operations and financial condition.
The market for Streamedia's business services and the long-term acceptance of
Web-based advertising are uncertain. We currently intend to increase our
operating expenses in order to:
Expand our distribution network capacity,
Increase sales and marketing activities,
Acquire additional content,
Develop and upgrade technology and proprietary content,
Purchase equipment for our operations, and
Complete potential acquisitions.
6
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The loss of key personnel could adversely affect our business and decrease the
value of your investment. Streamedia does not have key man life insurance.
While we believe that these activities will increase our opportunity for
profitability, there can be no assurance that Streamedia will be profitable.
Streamedia's sucess depends on the efforts of certain members of senior
management, particularly James Rupp (President and Chief Executive Officer),
Gayle Essary (Vice President of Strategic Development), and Nicholas Malino
(Executive Vice President, Chief Operating Officer and Chief Financial Officer).
The loss of one or more of these individuals could adversely affect Streamedia's
business operations or prospects. These individuals have entered into employment
agreements, but Streamedia cannot guarantee that any of these individuals will
continue to serve in his current capacity or for what time period this service
might continue. Streamedia has not obtained key man life insurance policies with
respect to any of these individuals.
The intense competition in our markets may lead to reduced revenue and increased
losses.
Although we believe our approach to establish Streamedia as an emerging
leader in its fields reduces the threat of competition, the market for internet
broadcasting and news distribution services is highly competitive. Streamedia
expects that competition will continue to increase. We compete with:
OtherWeb sites, internet portals, dial-up software applications
and internet broadcasters to acquire and provide content and
act as a gateway to attract users,
Videoconferencing companies, audio conferencing companies and
internet business services broadcasters,
Online services, other Web site operators and advertising networks,
as well as traditional media such as television, radio and print, for
a share of advertising budgets,
Other news aggregators and content generators, and
Other press release distributors.
There can be no assurance that Streamedia will be able to compete successfully
or that the competitive pressures will not have a material adverse effect on our
business, results of operations and financial condition. Competition among
websites that provide compelling content, including streaming media content, is
intense, and we expect competition to increase significantly in the future.
Traditional media may expend resources to establish a more significant internet
presence in the future. These companies have significantly greater brand
recognition and greater financial, technical, marketing and other resources than
Streamedia. We also compete with other content providers for the time and
attention of users and for advertising revenues.
We may not be able to generate sufficient advertising revenues on the internet
to be profitable.
The market for internet advertising has only recently begun to develop. This
market is rapidly evolving and is characterized by an increasing number of
market entrants. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance of new products and services are
uncertain. Streamedia's ability to generate advertising revenue will depend on,
among other factors:
The development of the internet as an advertising medium,
Pricing of advertising on other websites,
The amount of traffic on Streamedia's websites,
Streamedia's ability to achieve and demonstrate user and member
demographic characteristics that are attractive to advertisers, and
Establishing and maintaining desirable advertising sales agency
relationships.
Streamedia's business, results of operations and financial
condition could be materially adversely affected if widespread commercial
use of the internet does not develop, or if the internet does not develop
as an effective and measurable medium for advertising.
7
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We are dependant on the continued growth of the internet to support our business
operations and our ability to be profitable.
Rapid growth in use of and interest in the internet is a recent phenomenon.
There can be no assurance that acceptance and use of the internet will continue
to develop or that a sufficient base of users will emerge to support
Streamedia's business. Our future revenues will depend largely on the widespread
acceptance and use of the internet as a source of multimedia information and
entertainment and as a vehicle for commerce in goods and services. Our business,
results of operations and financial condition could be materially adversely
affected if:
Use of the internet does not continue to grow or grows more slowly than
expected,
The internet infrastructure does not effectively support the growth that
may occur, and
The evolution of broadband connectivity is slower or less widespread
than anticipated.
We must adapt to technology trends, the frequent introduction of new products,
and evolving industry standards to remain competitive.
The market for internet broadcast services experiences rapid technological
developments, frequent new product introductions and evolving industry
standards. Therefore, Streamedia must:
Effectively use leading technologies,
Continue to develop technological expertise, and
Enhance our current services and continue to improve the performance,
features and reliability of our network infrastructure.
Also, the widespread adoption of new internet technologies or standards could
require us to make substantial expenditures to modify our websites and
services. If we fail to rapidly respond to technological developments, it could
have a material adverse effect on our business, results of operations and
financial condition.
Evolving government regulation of the internet may increase our cost and slow
our internet growth.
Although there are currently few laws and regulations directly applicable to the
internet, new laws and regulations will likely be adopted in the United States
and elsewhere. These laws and regulations could cover issues such as broadcast
license fees, copyrights, 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 content available on our websites. The application of existing laws and
regulations governing internet issues such as property ownership, libel and
personal privacy is also subject to substantial uncertainty. There can be no
assurance that current or new government laws and regulations, or the
application of existing laws and regulations will not expose us to significant
liabilities, significantly slow internet growth or otherwise cause a material
adverse effect on our business, results of operations or financial condition.
You will incur an immediate and substantial dilution of $6.89 per share, or
81.06%, by purchasing securities in this offering.
Our current shareholders acquired their shares at a cost per share substantially
below the price in this offering. After the offering, the current shareholders
will experience a substantial increase in the value of their holdings. Also, the
public offering price of the units will be substantially higher than the current
book value per share. Therefore, you will incur an immediate and substantial
dilution of $6.89 per share, or 81.06%, on your investment as it relates to the
book value of the shares after completion of this offering.
Principal shareholders will own 72.3% of the shares outstanding, and you will
have minimal influence on shareholder decisions.
Our officers and directors will own approximately 72.3% of the outstanding
shares after this offering. These shareholders will be able to control the vote
on election of directors and to substantially impact the vote on other matters
submitted to shareholders. If these shareholders act together they will be able
to substantially impact any vote of the stockholders and exert considerable
influence over our affairs. You and the other investors will have minimal
influence on shareholder actions.
You may be unable to sell your shares due to an inactive trading market.
Prior to this offering, there was no public market for the units, common stock
or warrants. We have applied for listing of the units, common stock, and
warrants on The Nasdaq SmallCap Market and the Boston Stock Exchange. We have
been approved for listing b the Boston Stock Exchange. We cannot assure you that
our listing application for the Nasdaq SmallCap Market will be approved. Even if
such listing is approved, there may not be a meaningful, sustained market for
the units, common stock or warrants. We cannot assure that an active trading
market for the units will develop or continue. Therefore, you may be unable to
sell your units, common stock or warrants at a favorable price.
Future non-public sales of our securities may be on terms more favorable than
the terms of this offering causing dilution of share value.
In order to raise additional working capital, we could make a limited number of
offers and sales of our common stock or other securities to investors in
transactions exempt from registration under the securities laws. These
purchasers may acquire our securities on terms more favorable than offered to
you. The price may not relate to any accepted measure of value, including the
prevailing market price. We may make sales of our securities at a lower price
than that of the units.
8
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The market prices for our securities, like those of other technology issues, may
be volatile making it difficult to assess the value of our shares.
The value of your investment in Streamedia could decline from the impact of any
of the following factors:
Changes in market valuations of internet companies,
Variations in our actual and anticipated operating results,
Changes in our earnings estimates by analysts,
Our failure to meet analysts' performance expectations, and Lack of
liquidity.
The stock markets have, in general, and with respect to internet companies in
particular, recently experienced stock price and volume volatility that has
affected several of those companies' stock prices. The stock markets may
continue to experience volatility that may adversely affect the market price of
our securities.
Stock prices for many companies in the technology and emerging growth sector
have experienced wide fluctuations that have often been unrelated to the
operating performance of those companies. Fluctuations such as these may affect
the market prices of our securities.
The warrants to be issued to the underwriters may adversely affect Streamedia in
the future.
The holders of the underwriters' warrants will have four years starting one year
from the effective date of this offering to profit from a rise in the market
price of the units, common stock and warrants. The exercise of the underwriters'
warrants will cause dilution in the interests of the other shareholders.
Further, the terms on which Streamedia might obtain additional financing during
that period may be adversely affected by the existence of the underwriters'
warrants. The holders of the underwriters' warrants may exercise their warrants
at a time when Streamedia might be able to obtain additional capital through a
new offering of shares on terms more favorable than those in this offering.
Streamedia has agreed that, under certain circumstances, we will register under
the securities laws the shares to be issued upon exercise of the underwriters'
warrants. Exercise of these registration rights could involve expense at a time
when we could not afford the expenditures and may adversely affect the terms
upon which we may obtain financing.
The underwriters will have a dominating influence on any market for the units
which may adversely affect the price of the units and/or your ability to sell
your shares .
A significant amount of the units offered may be sold to customers of the
underwriters. Subsequently, these customers may purchase or sell these units
through or with the underwriters. If they participate in the market, the
underwriters may exert a dominating influence on the market, if one develops,
for the units. The price and the liquidity of the units may be significantly
affected by the degree of the underwriters' participation in the market.
9
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Our management will have broad discretion in allocating a substantial portion of
the proceeds of this offering. You will not be able to vote on the allocation of
the proceeds. $1,000,000, or 13.84%, of the net proceeds of this offering has
been allocated for our working capital needs. Our management will have broad
discretion as to the application of these proceeds.
We plan to use a substantial portion of the proceeds of this offering to make
acquisitions of other businesses. You may not be able to vote on such
acquisitions.
$1,857,200, or 25.7%, of the net proceeds of this offering has been allocated
for unspecified acquisitions of other businesses. Our management will determine
the advisability of such acquisitions and application of such proceeds. You may
not be able to review the financial statements of such businesses prior to any
acquisition, and you may not have the right to vote on any acquisitions.
We may incur substantial costs protecting our trademarks and our right to
utilize certain technology which may increase our cost.
We have undertaken to protect our right to use the names "Streamedia,"
"Streamwire," and "Streamedia Webcasting" and other names and logos unique to
Streadmedia by filing for trademark protection with the United States Patent and
Trademark Office. However, there can be no guarantee that our trademarks will be
accepted. If we cannot protect our products and services from duplication, we
may be subject to other companies selling the same or similar products and
service under similar names and logos.
Additionally, numerous lawsuits have been filed by entities that claim to hold
patents for various technologies used by companies whose businesses involve the
internet. Although we do not believe that we are currently infringing on patents
held by any entity, there can be no guarantee that we will not be subject to
claims of infringement in the future. The costs of investigating and/or
defending such claims or the cost of licensing fees for covered technologies
could have a material impact on our business.
You should note that this prospectus contains certain "forward-looking
statements," including without limitation, statements containing the words
"believes," "anticipates," "expects," "intends," "plans," "should," "seeks to,"
and similar words. You are cautioned that such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements as a
result of various factors, including but not limited to, the risk factors set
forth in this prospectus. The accompanying information contained in this
prospectus identifies important factors that could cause such differences.
10
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USE OF PROCEEDS
We expect to receive approximately $7,225,000 from the proceeds of this
offering, or $8,372,500 if the over-allotment option is exercised in full. This
assumes an initial public offering price of $8.50 per unit after deducting the
underwriters' discount and $425,000 of expenses relating to the offering. The
anticipated use of the net proceeds is as follows:
<TABLE>
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Amount %
-------------------- ------------
Strategic Acquisitions (1) $ 1,857,200 25.7%
Repayment of Debt (2) 1,815,000 25.12
Content License & Acquisition (3) 1,151,400 15.94
Working Capital (4) 1,000,000 13.84
Sales, Marketing, and Promotion 700,700 9.7
Capital Equipment (5) 700,700 9.7
==================== ============
$ 7,225,000 100.0%
==================== ============
---------
</TABLE>
(1) We have no present plans or commitments and are not currently engaged
in any negotiations with respect to strategic acquisitions. However, we
may, when and if the opportunity arises, use a portion of the net
proceeds to acquire an investment in complementary businesses, products
and technologies. Executive management and the Board of Directors will
review acquisition candidates, if any, based on a number of factors,
including asset values, targets, service or product lines, strategic
alliances, price and profitability.
(2) Will be used to pay back the holders of the promissory notes from the
Rule 506 Offering which closed on August 24, 1999.
(3) Fees to be paid to the owners of audio or video programming for the
rights to broadcast such programming over the internet.
(4) Working Capital will be used to pay for the ongoing costs of
operations, including items such as salaries, bonuses, supplies, rent,
utilities, insurance, advertising and promotion and professional
services.
(5) Capital Equipment is goods used in the business costing over $500 and
having a useful life of more than one year, such as computers, routers,
certain software, telephone systems and vehicles.
DIVIDEND POLICY
We have never paid cash or other dividends on the common stock and we do not
anticipate that we will pay cash dividends in the foreseeable future. The Board
of Directors plans to retain future earnings for the development and expansion
of business. Any future determination as to the payment of dividends will be at
the discretion of the Board of Directors and will depend on a number of factors,
including future earnings, capital requirements, financial condition, and any
other factors that the Board of Directors may deem relevant.
11
<PAGE>
DILUTION
As of June 30, 1999, Streamedia's net tangible book value was a negative
$(295,127) or $(0.09) per share based on 3,295,490 shares outstanding. The net
tangible book value is the aggregate amount of its tangible assets less its
total liabilities. The net tangible book value per share represents the total
tangible assets, less total liabilities, divided by the number of shares
outstanding. After giving effect to (i) the sale of 1,000,000 units at an
assumed offering price of $8.50 per unit, and (ii) the application of the
estimated net proceeds, the pro forma net tangible book value would increase to
$6,929,873 or $1.61 per share. This represents an immediate increase in net
tangible book value of $1.70 per share to current shareholders and an immediate
dilution of $6.89 per share to new investors or 81.06% as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Public offering price per Share $8.50
Net tangible book value per Share before this offering $(0.09)
Increase per Share attributable to new investors
$1.70
-------------
Adjusted net tangible book value per Share after this $1.61
offering
---------------
Dilution per Share to new investors $6.89
---------------
Percentage dilution 81.06%
</TABLE>
The following table sets forth as of September 30, 1999, (i) the number of
shares of common stock purchased by the current shareholders, the total
consideration paid before deducting associated expenses, and the average price
per share paid by the current shareholders, and (ii) the number of shares of
common stock included in the units to be purchased in this offering and total
consideration to be paid by new investors, before deducting underwriting
discounts and other estimated expenses at an assumed offering price of $8.50 per
unit.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
-------------------------------- ---------------------------------- -----------------
--------------- ----- ---------- -- -------------------- ---------- -----------------
Number Percent Amount Percent Per Share
--------------- -- ----------
--------------- ---------- ---------------- ---------- ----------- ----
<S> <C> <C> <C> <C> <C>
Current Shareholders 3,295,490 76.7% $ 534,480 5.9% $0.16
New investors 1,000,000 (1) 23.3% 8,500,000 94.1% $8.50
- -----
--------------- ---------- ---------------- ----------
=============== ========== ================ ==========
Total 4,295,490 (2) 100.0% $9,034,480 (1) 100.0%
=============== ========== ================ ==========
</TABLE>
(1) Upon exercise of the over-allotment option, the number of shares held by
new investors would increase to 1,150,000 or 25.9% of the total number of
shares to be outstanding after the offering and the total
consideration paid by new investors will increase to $9,775,000.
(2) Does not include
(i) the 1,089,000 shares issuable upon the exercise of the warrants
included in the units which were sold on August 24, 1999 in a private
placement,
(ii) up to 1,000,000 shares issuable upon the exercise of the warrants
included in the units to be sold in this offering which will be outstanding
upon completion of the offering,
(iii) up to 300,000 shares to be issued upon exercise of the
underwriters' over-allotment option, and the warrants thereunder,
(iv) up to 200,000 shares to be issued upon exercise of the
underwriters' warrants, and the warrants thereunder, and
(v) the options issued under the 1999 stock option plan. To the extent that
the over allotment option and warrants are exercised, there will be
further share dilution to new investors.
12
<PAGE>
CAPITALIZATION
The following table sets forth Streamedia's capitalization (i) as of September
30, 1999, and (ii) on a pro forma as adjusted basis to give effect to the sale
of 1,000,000 units and the application of the estimated net proceeds.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------------------
------------------ ---- --------------------
(Actual) (As Adjusted)
------------------ --------------------
------------------ --------------------
<S> <C> <C>
Liabilities:
Current Liabilities $162,337 $162,337
Notes Payable $1,549,762 -
Total Liabilities $1,712,099 $162,337
Stockholders' Equity
Preferred stock, $.001 par value, 100,000 shares authorized; - -
no shares issued actual or adjusted
Common stock, $.001 par value 3,296 4,296
20,000,000 shares authorized, 3,295,490 shares
issued and outstanding, actual
4,295,490 as adjusted (1)
Additional paid in capital $ 1,317,834 8,541,834
Deficit accumulated during developmental stage $(1,362,252) $(1,852,560)
------------------ --------------------
------------------ --------------------
Total stockholders' equity $ (41,122) $6,693,570
------------------ --------------------
------------------ --------------------
Total capitalization $ (1,670,977) $6,855,907
------------------ --------------------
</TABLE>
The as adjusted column reflects the repayment of the notes payable with proceeds
from the offering and the resultant charge to operations of $490,308 for the
writeoff of associated deferred financing cost.
The common stock referenced on this chart does not include:
The 1,089,000 shares issuable upon the exercise of the warrants
included in the units which were sold during on August 24,
1999, in a private placement,
Up to 1,000,000 shares issuable upon the exercise of the warrants
included in the units to be sold in this offering which will be
outstanding upon completion of the offering,
Up to 300,000 shares to be issued upon exercise of the
underwriters' over-allotment option, and the warrants
thereunder,
Up to 200,000 shares to be issued upon exercise of the
underwriters' warrants, and the warrants thereunder, and
The options issued under the 1999 stock option plan.
.
13
<PAGE>
PLAN OF OPERATIONS
You should read Streamedia's Financial Statements, related notes and other
financial information included in this prospectus in conjunction with this
discussion of our operations. The following discussion contains forward-looking
statements. Streamedia's actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause future
results to differ materially from those projected in the forward looking
statements include, but are not limited to, those discussed in "Risk Factors"
and elsewhere in this prospectus.
OVERVIEW
Streamedia will aggregate and broadcast audio and video programming via the
World Wide Web. We expect to deliver high volumes of simultaneous live and
on-demand audio and video programs. Our websites, in particular the Streamedia
Networks(TM) and Channels we may develop, have been conceived to offer a broad
range of multimedia programming, including, but not limited to, such categories
as news, music, history, talk, sports, women's issues, business activities,
movies, education, television, and children's interests. At first, most of our
content will be available at no charge to all audiences. We are, however,
considering pay-per-view and subscription based services for some of our
programming at a future date.
We believe our approach to streaming media delivery is differentiated by our
focus on "bundled" delivery of multimedia and text (both audio/video and print
information sources will be available at the same site), and a plan for a suite
of focused, searchable, aggregated broadcast content sites. Each Network will
have its own categorical focus, such as sports or music; each site will offer
users the power to search by keywords to rapidly find the programming which
interests them the most; and each site will not only contain programming we
either create ourselves or obtain rights to distribute, but also serve as a
directory or guide to other sites on the Web that contain programs that may also
be of interest to our site visitors. Our idea is to provide our audience with a
convenient way to select a diverse range of broadcasts and supplementary
information from our own network of broadcast portals as well as use our sites
to help users locate programming of interest elsewhere on the Web.
Our revenues will primarily stem from:
business to business webcast services and sales;
the sale of banners, site and channel sponsorships;
and streaming media advertisements; and
fees for carrying content for third parties on our Networks.
We anticipate that additional revenue will be derived from:
pay-per-view charges for premium content;
supplying corporate intranets with broadcast content, news feeds,
and directories tailored to their needs; and
multiple e-Commerce initiatives, such as commissions generated by
sales of merchandise from retailers with whom we will establish
'affiliate' relationships, and, when launched, from our own online
store.
14
<PAGE>
We make no assurance that we will in fact generate revenues from all or
any of these potential sources at any time in the future. Suppliers of
business to business webcasting services are increasing in number, which
may hamper our ability to capture market share in this field. The general
trend, measured against common metrics, of market rates one can charge for
internet advertising is falling, which may handicap our gross sales in
this area. Pay-per-view models may not prove as popular on the Web as they
are in other broadcast mediums.
Our revenues will be directly related to a number of factors, including:
the volume of advertisers;
the rates we can charge for the various types of advertising;
our ability to sell our advertising inventory;
the quantity of traffic to our websites;
the costs of bandwidth and other services required to deliver content;
and
number of clients we can attract for business services offered by our
WebCast Technologies division.
We believe that, ultimately, by increasing the number and frequency of visitors
to our sites, and to those sites to which we distribute content, we will
experience greater revenue growth across all our product and service offerings.
For this reason, we may need to devote a significant portion of the net proceeds
of this offering to marketing and promotional efforts as well as to acquire and
license internet broadcast rights to a wide range of appealing, unique,
high-quality broadcast content.
Plan of Operations.
We have developed numerous business strategies which, pursuant to the proceeds
of this offering, we believe we will be able to implement during the coming 12
months. Some of the most important uses of the net proceeds of this offering
will be to:
Add substantially to our library of broadcast content and data feeds,
Develop our ability to deliver audio and video to large numbers of
concurrent listeners and viewers, who may be attuned to dozens or
even hundreds of different programming clips,
Add staffing to our engineering, production, editorial, sales and
marketing departments,
Develop and incrementally launch our series of multimedia portals
(the Streamedia Networks and StreamWire), and
Implement a 'syndication,' or content distribution, program.
To accomplish these objectives, we need to:
Make substantial investments in capital equipment, such as web
servers, storage devices, and other specialized computer and
communications equipment,
Contract for sufficient bandwidth,
Devise a powerful internet infrastructure, and
Hire or otherwise contract with highly specialized personnel to
develop, configure, administer, and operate our sites, broadcast
equipment and infrastructure.
We plan to launch, over time, websites at as many as possible of the over 300
registered internet addresses we currently own, and additional domains we may
purchase. We expect to launch StreamWire as a component of the Streamedia
Networks, and subsequently develop these print resources more fully, until they
can become standalone sites. We expect to launch the initial Streamedia Networks
as early as the 4th Quarter of 1999. Should we fail to launch additional sites,
or to develop or acquire sufficient content for those we do launch, we might not
be successful in attracting viewers and listeners, without which our business
would be impaired. Should we encounter difficulty in hiring appropriately
skilled personnel, our site launches may be delayed, further impairing our
business.
While we are building and subsequently launching Network and Channel sites, we
will be purchasing, or otherwise producing or acquiring, audio and video
content. Such content needs to be prepared for delivery via a process known as
encoding. The encoding process is required to prepare the content for streaming,
or broadcasting, over the internet.
We have engaged Kaleidoscope Media Group to research and evaluate appropriate
content on our behalf and anticipate closing rights acquisitions with some media
owners during the 4th Quarters of 1999, and to continue such
acquisitions thereafter. Current industry conditions render it difficult to
secure 'exclusive' rights to numerous classes of content suitable for
broadcasting over the internt. To the extent to which we cannot capture
exclusive broadcast rights, we will be in competition with other websites
attempting to attract audiences by offering some of the same programming.
We also expect to initiate a broadcast enabling, or "StreamStation(TM)"
affiliate program. Like network television broadcasters, we plan to distribute
both proprietary and licensed programming from numerous sources. We plan to
supply other websites with programming we have the rights to distribute. We
expect to begin such syndication during the first half of 2000. We believe such
syndication could provide us with a substantial number of extra distribution
outlets, which may generate increased advertising revenues, and raise our
stature in the industry. Should we encounter difficulties in attracting further
distribution outlets for our programming, our business may be impaired.
We expect that any rise in our industry stature, such as by launching a series
of successful sites, selling business to business services, and supplying third
party sites with programming, will assist us to further market business to
business webcast services, and thereby proportionately increase our revenue. We
expect expenditures to rise in proportion to each phase of our build out. While
we anticipate increased revenues concurrent with the build out, delays in
product development or the institution of marketing programs could result in the
risk of prolonged absence of revenues or profits.
15
<PAGE>
Recent Developments.
We are in the early stages of our transition to an operating Company. During
1999, we have been developing the plans for our Network and Channel design and
structure; identifying staffing requirements and interviewing prospective
employees in sales, marketing, traditional broadcasting, editorial, design, and
technology; devising a media strategy and evaluating media relations firms;
reviewing potential acquisitions in such areas as multimedia production, web
hosting services, and original content generation; and establishing
relationships for studios, bandwidth and broadcast content, as well as
information, news and
data feeds.
We have leased office space in midtown Manhattan. During the 2nd quarter of
1999, we installed fiber optic cable linking us to the largest broadcast signal
switching hub in Manhattan. This hub serves all of the major cable and
television networks in the New York area as well as special venues such as local
sports arenas, convention centers, and the Stock Exchanges. Our facilities have
low-mileage, diverse digital fiber connectivity to multiple broadcast switching
hubs and major metropolitan New York broadcast teleports, connections we believe
will present us with unique broadcast marketing opportunities. This is due, in
part, to our proximity to these key infrastructure elements, as it simplifies
our ability to utilize them, and reduces the costs of doing so.
To assist us as we position to become a leader in the streaming content delivery
industry, and syndication via the internet as well as traditional broadcast
outlets, we recruited two key players in the advancement of the cable industry
to our Board of Directors. Both were elected during 1999. We believe these
Directors, their expertise, and industry contacts will give us an advantage over
our competitors in the acquisition of quality content, as well as in our ability
to distribute live broadcast signals from a variety of sources worldwide.
16
<PAGE>
RESULTS OF OPERATIONS
Our inception date was April 29, 1998, and as such there are no prior
operations. During the period from April 29, 1998 to September 30, 1999, we were
engaged in organizational activities, developing the conceptual framework of the
enterprise, and establishing networking and partnering relationships that needed
to be developed prior to the commencement of operations.
<TABLE>
<CAPTION>
Period from April 29, 1998 April 29, 1998
(date of inception) Nine Months Ended ( date of Inception)
to December 31, 1998(1) June 30, 1999 to September 30 1999
----------------------- ------------- ---------------
<S> <C> <C> <C>
(unaudited) (unaudited)
Operating Data:
Revenues $ - $ - -
-
Cost of Revenues - - -
Gross Profit - - -
Operating Expenses 296,760 1,065,492 1,362,252
---------- -------
Net Loss (296,760) (1,065,492) (1,362,252)
Basic and Diluted Loss
Per Common share (0.10) (0.33) (0.43)
Weighted Average Common
Shares Outstanding 2,922,409 3,256,856 3,097,597
(1) From April 29, 1998 to September 30, 1998 we did not incur any revenues or generated cost.
</TABLE>
We are a development stage enterprise engaged in providing internet-based media
programming and content on the Web. During the period of April 29, 1998 (date of
inception) to September 30, 1999, we were engaged in organizational and
pre-operating activities. These activities included:
Market research efforts,
Initial planning and development of our websites and operations,
Refinement of our broadcast strategy,
Building market awareness,
Planning our network infrastructure,
Developing a network of partners to help carry out our
income-producing activities, and
Securing funding to finance these activities.
Streamedia was originally organized as a limited liability company. In December
1998, the limited liability company was merged into the Streamedia corporate
entity, with the corporate entity continuing as the surviving entity.
Liquidity and Capital Resources.
We have financed capital requirements through the issuance of common stock in
two private placements. As of May 16, 1999, we sold 264,490 shares of common
stock, pursuant to Rule 506 of Regulation D under the Securities Act of 1933, as
amended, and raised aggregate net proceeds of $523,980 from this private
placement. The proceeds of the private placement were used for costs of this
offering, purchase of capital assets such as equipment and domain names.
Additionally, on August 24, 1999, we raised $1,815,000, by issuing, in a Rule
506 private placement, units consisting of Promissory Notes which bear interest
at a rate of 10% per annum and warrants. We do not currently believe that,
during this period, we will be required to raise additional funds to execute our
basic plans for operations. There can be no assurance, however, that we will not
determine that additional financing would be required to further develop and
execute our plans for operation or acquisitions, or that such future additional
financing will be available on terms attractive to us. The proceeds of this
offering, together with the remaining proceeds of our private placements, are
the only sources of capital currently available to us. We expect to make
significant expenditures in sales, marketing, and content acquisition in order
to attract customers to our numerous planned websites. There is no assurance
that our analysis of our capital requirements will be accurate, as we are
positioning in a new business in the midst of a rapidly evolving, yet
burgeoning, market, the potential attractiveness of which will, in our opinion,
draw intense competition. Our future expenditures and capital requirements
will depend on a number of factors including the development and implementation
of next-generation technologies, technological developments on the internet,
potential acquisitions, and the regulatory and competitive environment for
internet based products and services.
Year 2000 Compliance.
As the Year 2000 approaches, industry experts expect issues to arise related to
the programming code in legacy computer systems. The "Year 2000 problem" is
regarded by many as an omnipresent problem, as most if not all computer
operations will be impacted to some extent by the rollover of the two digit year
value to 00. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail. We have evaluated our current
systems, and we believe that our current hardware and software is Year 2000
compliant. Since we have only purchased hardware and software dating from 1998
forward, and the overwhelming majority of our software and capital expenditures
will occur from 1999 forward, and involve newly-manufactured equipment, which is
routinely designated as Year 2000 compliant, and since we intend to outsource
projects only to high-quality, third party media delivery systems which attest
that they are Year 2000 compliant, we do not anticipate that the Year 2000
problem will have a material impact on our business or operations. However, any
Year 2000 compliance problem of either Streamedia or our users, suppliers,
customers or advertisers could have a material adverse effect on our business,
results of operations, and financial condition.
17
<PAGE>
BUSINESS
In April, 1998, James D. Rupp and Gayle Essary entered into a partnership,
Streamedia Communications, to develop broadcast oriented websites. The
partnership evolved into Streamedia Communications, L.L.C., a New Jersey limited
liability company, in September, 1998, to continue the business plan initiated
by the partnership. Streamedia Communications, L.L.C., was subsequently
reorganized into a Delaware Corporation in December 1998.
We are positioning ourselves as a multimedia content generator, enabler, and
aggregator: we will produce our own content, help others to broadcast theirs,
and provide access to as many sources of internet broadcast programming as we
can. We will divide our business activity among four vertically-integrated
divisions: Streamedia Broadcast, Streamedia Networks, Streamedia Webcast
Technologies, and Streamedia Publishing. We intend to develop each center of
activity around multiple sources of potential revenue.
Each of our sites will feature text, as well as audio and video broadcasts. We
will produce some elements of the programming featured at our sites, and
acquire, license, and/or distribute other elements. Most of our content will be
globally accessible via the internet, and most will be offered at no charge to
end users: our goal is to capture the maximum possible internet audience. To see
and hear our programming, the public will require neither special hardware nor
software beyond that of standard media players, such as those produced by
Microsoft, Inc. and RealNetworks, Inc., and browsers routinely supplied by
computer manufacturers and internet Service Providers.
We will devote considerable efforts and resources to establishing ourselves as a
broadcaster. We will distribute our programming at numerous websites; in
particular, across a suite of proprietary multimedia networks (the "Streamedia
Networks"). The Streamedia Networks(TM) will be a series of websites, each
devoted to a specific category of programming, such as music or news. Visitors
to the Streamedia Networks will experience live and on-demand video and audio
programming in an environment similar to that of cable broadcasts, but offering
greater scope of programming choices, enhanced interactive elements, convenient
access to retail opportunities, and numerous sources of pertinent, supplementary
news and information. Much like cable and network television, we will aggregate
and distribute content in various categories, including finance, lifestyles,
entertainment, comedy, movies, history, music, education, shopping, sports,
news, and children's programming. We believe that by co-venturing with a wide
variety of content partners, including recognized industry leaders, the overall
quality and quantity of streaming content may eventually surpass what any single
internet broadcaster, and even traditional broadcasters, could offer. Our
networks will generate revenues through content syndication, or by sales to
other websites or traditional media such as radio and cable; e-Commerce
relationships; advertising; and Channel licensing fees.
Streamedia Webcast Technologies will provide or arrange for media delivery and
broadcast-enabling solutions to the Streamedia Networks, their Channels, and
other potential clients. This division will be our service bureau. It will
market internet broadcast services, such as hosting and encoding; sell and lease
broadcast equipment; and design studios and broadcast facilities. This division
is responsible for the transmission of broadcast signals from live
events, such as concerts, and for the preparation required to make the broadcast
signals available to an audience on the Web. It will provide interactive
elements and e-commerce solutions to our Networks, and to third parties who hire
us to conceive, develop, and produce their broadcast channels.
Streamedia Publishing will focus on the development of StreamWire(TM), which
will aggregate and deliver leading sources of news and information appropriate
to each Streamedia Network. A music site would, for example, feature music
industry news alongside music broadcasts. StreamWire will also publish news
written by our own editorial staff, as well as distribute press releases and
product announcements, on a fee basis, for other companies. StreamWire will also
develop searchable databases of news and information, covering materials
previously published as well as current materials. StreamWire, when fully
developed, will supplement our broadcast content, and provide complimentary
promotional support for our multimedia networks. We expect the Publishing
Division to provide us with numerous revenue sources, such as advertising,
sponsorships, design services, and fees for information distribution.
We expect to launch StreamWire as a component of the Streamedia Networks, and
subsequently develop these print resources more fully, until they can become
standalone sites. We expect to launch the initial Streamedia Networks in
the 4th Quarter of 1999.
18
<PAGE>
Industry Background
The rise in the raw number of households and users online has been dramatic, and
the trend is expected to continue. The Computer Industry Almanac reports that by
the year 2000, 327 million people will have internet access. Surveys conducted
by Arbitron and Edison Media Research show that audiences listening to radio
broadcasts via the internet doubled during a recent 6-month period. Rapid and
dramatic improvements continue to be made on the hardware, software, and
infrastructure required to support and transmit streaming media. Industry
experts believe that technological advances projected for the future of the
internet, such as widespread multicast capacity and markedly faster connect
rates, will improve the quality of streaming broadcasts.
The media players for the internet that have been developed by Microsoft and
RealNetworks allow for enjoyable experience of streaming video at connect speeds
as low as 28.8 kilobits per second; users, however, are connecting at
significantly faster speeds on an increasingly frequent basis, and enjoying
correspondingly higher quality broadcast reception. The latest versions of the
software can take advantage of higher speed access that is expected to be
provided by xDSL, cable modems and other emerging broadband and multicast
technologies. These players have combined installed bases estimated to be
approaching 100 million users. We have chosen to support both technologies in
order to capture the widest possible audience, since the greater our audience,
the more attractive the Streamedia Networks will be to potential content
partners, advertisers, distribution clients, business services clients, and
station licensees, all of which will promote revenue generating business for all
four primary Corporate divisions.
Traditional broadcasters have limited capacity to measure or identify in real
time their listeners or viewers. Internet broadcasters, however, can provide
highly specific information about a program's audience to content providers and
advertisers. Internet broadcasters have an ability to precisely target
advertising that television and cable broadcasters do not. The internet has
become increasingly accepted as a business tool. This has created economic
opportunities in Web-based advertising and business service offerings, including
audio conferencing, e-Commerce, and video transmission.
We recognize that streaming media on the World Wide Web provides business
opportunities that traditional broadcast media does not. Television, radio, and
cable broadcasters have relative, if not severe, geographic restrictions of
their reach. The internet, by contrast, is a both a local and global medium. It
can penetrate the workplace on a more consistent basis than television or
radios, as the use of radios and televisions is often discouraged or disallowed
at work. Targeted streaming media content can be economically broadcast to a
geographically dispersed audience. Internet users can interact with the
broadcast content by responding to online surveys and voting in polls. They can
easily obtain additional information on subjects related to the programming, and
even click through directly to retailers to purchase merchandise. Among the more
striking advantages of internet versus traditional broadcasting is the power to
shift the schedule of the programming, to experience favorite choices "on
demand," and replay segments or whole programs at will.
The Market
While current industry leaders such as Broadcast.com have been very successful
in attracting large audiences, we believe that current leaders in the industry
have barely scratched the surface of content capable of appealing to niche and
mass audiences alike. Broadcast.com already attracts over 1 million unique users
per day, proving that despite lower levels of quality than traditional broadcast
mediums, internet broadcasters can attract large audiences. Although the number
of radio webcasters on the Internet continues to rise, recent figures published
by the National Association of Broadcasters show that only 2200 of the 12,512
stations broadcast via the internet. Broadcast.com hosts less than one-sixth of
these stations. The Radio Advertising Bureau (RAB) reports that in 1997, radio's
revenue grew to a record $13.6 billion. There were 1587 television stations
licensed as of March 31, 1999. The Television Advertising Bureau (TVB) reported
TV revenue at $44.5 billion in 1997. Only a handful of television stations have
committed to internet broadcasts of their content. Current trends and statistics
indicate audience interest in Web-based programming is growing in such areas as
movies, club shows, tradeshows, concerts, documentaries, education, cartoons,
independent films, reruns, true crime, interactive instructional programming,
literature, auctions, awards shows, fashion shows, political events, health
concerns, scientific advancements, local programming, travel programming, and
hobby videos. However, current industry leaders have made only small inroads to
the development of a catalog of readily available program material. The market,
therefore, remains almost completely open at this time, even as the overall
medium of the internet persists in a rapid escalation in terms of users.
19
<PAGE>
Streamedia's Strategy
We believe that our strategy can vault our networks into a leadership position
in the rapidly developing internet broadcast industry. We will address what we
see as deficiencies in current internet offerings and have devised our products
accordingly. We believe that we can aggregate content; generate comprehensive,
yet focused networks; integrate each network so that all other topical networks
are accessible from any given network; and syndicate the content of the
networks, via licensing agreements, to other sites interested in offering their
users multimedia programming. As a result, we will be able to increase the
number of 'entry' paths to any given network or Channel. We project that traffic
will increase accordingly, and not be tied to visits to any single proprietary
site. We have secured over 300 subject-oriented internet domains for use by our
network and Channel partners, and intend to build out well over 100
Company-owned sites.
Our strategy is to become as pervasive as possible by offering our content at
multiple locations, both company-owned and, like Network Television
broadcasters, to affiliated 'stations.' We expect the tactic to multiply our
points of distribution. At the same time, this will generate opportunities for
greater advertising revenues. We will pursue the sale of programs we produce for
broadcast over the web to traditional media outlets; we will also market
services to help traditional media, such as cable and network television
broadcasters, to distribute their content on the Web.
We hope to benefit from our direct connections to broadcast-quality facilities
in midtown Manhattan. Our facilities are connected to professional television
'live shot' broadcast studios and a video-switching hub, as well as leading
metropolitan area teleports. Unlike other internet broadcasters, we are
connected to the same 'loop' that connects the major network television
broadcasters, cable channels, and prominent metropolitan venues such as the
stock exchanges and sports arenas. By using this loop, these broadcasters are
able to exchange content instantly. We have positioned as a pathway for those
broadcasters and venues to transport their programming for delivery over the
Web. Content generators who partner with us will obtain a new distribution
outlet within a unique, leading-edge multimedia venue. Studies by The Yankee
Group suggest that internet broadcasts are already drawing viewers away from
cable and broadcast networks.
Between the Streamedia Networks, Streamedia Broadcast, Streamedia Webcast
Technologies, and Streamedia Publishing, featuring StreamWire, we believe that
we can earn a reputation as a 'one-stop' enabling shop for media and information
distribution. We intend to develop our own quality programming in numerous
subject areas, as well as partner with recognized industry leaders to
co-develop, feature, or carry their content across and throughout the Streamedia
Networks and authorized remote StreamStations(TM) --third-party websites we
license to distribute our programming. In addition, we intend to aggressively
pursue strategic acquisitions to drive revenue growth and product development,
as well as leverage cross-marketing opportunities.
Streamedia Broadcast and the Streamedia Networks
Through the Streamedia Broadcast and Networks divisions, we intend to create a
unique suite of topical broadcast networks to deliver live and on-demand audio
and video programming over the internet. Additionally, we intend to acquire and
produce content of sufficient interest and quality to market to traditional
broadcasters in the radio, network television and cable industries. Our Network
sites will offer programming in categories such as business, sports, women's
issues, parenting, travel, education, religion, politics, health, teen and
children's interests, shopping, real estate, music, technology, personal
fitness, movies, entertainment, and lifestyles. We have chosen to launch a
financial network as one of our initial offerings, to capitalize on the,
significant revenue-generating opportunities of financial- and
investment-related programming. According to an industry source, the market for
all online business information services was $24.8 billion in 1997 and is
projected to grow to $39.8 billion in 2002. NFO Interactive has found that 5
million Americans invest their money online. Further network launches are
planned for the remainder of 1999 and 2000. We may aggregate content from that
which is developed in house; licensed from other Internet as well as traditional
radio, television, and multimedia content developers; and generated by Channel
and "StreamStation" licensees. The Broadcast and Networks divisions are,
together, expected to generate revenue through sales and syndication of
programming to other websites, as well as to traditional broadcast media, such
as radio and cable, and also develop significant lines of advertising,
e-Commerce, premium distribution, and program sponsorship revenues.
20
<PAGE>
Streamedia Networks
We intend to create our own network sites, as well as numerous Channels, but
license other Channels for development by third parties. We expect the
relationships to be reciprocal on numerous levels. The Networks division could
thereby multiply opportunities for Streamedia Webcast Technologies(TM) to
generate revenue by marketing broadcast services to parties lacking the ability
to create their own broadcasts. We expect to soon uniquely produce continuous,
'live' Channels, which will, in some situations, include actual anchored program
segments, much like television news shows. We intend to offer the following
types of programming. The list is representative, not exhaustive:
New Product Launches Children's shows
Concerts Workout & Training films
Comedy Routines US & International News
Video and Audio Press Releases Talk and call-in shows
"How-to" shows College and Pro Sports
Investor Conferences Interviews
Medical Symposia Quarterly Conference Calls
Auctions Corporate Video Profiles
Analyst and Broker Presentations Infomercials
Documentaries Trade Shows
Women's Interests Celebrity interviews
Sales Training Seminars Awards Ceremonies
Distance Learning Sessions Educational Videos
Full length movies Political Programming
FM radio stations Religious programming
21
<PAGE>
Streamedia Webcast Technologies(TM)
Through Streamedia Webcast Technologies(TM) we will market internet and intranet
broadcasting and interactive technology services and solutions to a wide
spectrum of enterprises, such as, businesses, associations, electronic
publishers, web sites lacking in streaming content, and publishers such as
newspapers, who wish to obtain an internet broadcast presence. Through this
division we will attempt to deliver multimedia and text through a variety of
push, poll, and proprietary subscription mechanisms. We intend to establish
alert and notification systems for end users regarding news and information
items published on our sites as well as on behalf of other distribution clients,
and about upcoming events to be broadcast on our Networks. This division will
provide detailed statistics regarding site audiences to content contributors and
advertisers; integrate 'e-Commerce' or merchandizing programs into Streamedia
Networks and Channels; and construct chatrooms, bulletin boards, and other
interactive elements.
Streamedia Webcast Technologies can provide or arrange for the following
representative types of business services and equipment:
Live Event Webcasting Home Page Integration
On Demand Broadcasts New York or Remote Studios
File Hosting and Serving Event Production and Consultation
Push Technologies Event Transcripts
Synchronized Multimedia Programming Reminders
Event 'Ticketing' & Reservations Media Conversions and Encoding
Film and Sound Crews Mailing List Distributions
Satellite Up and Downlinks Live Chats
Restricted Intranet Broadcasts Broadcast Archival
Feeds To Broadcast Video Hubs Searchable Databases
A/V Equipment On Air Talent
Bulletin Boards and Forums
Web Page Creation
Streamedia Publishing
The focus of the Streamedia Publishing division will be upon our StreamWire(TM)
content. StreamWire shall consist of a series of edited news and information
products, such as wires devoted to Nasdaq or Amex-listed companies, or space
exploration, or medical issues. We intend that each newswire developed by the
Streamedia Publishing division will have its broadcast network correlative.
Print information sources will be featured at the same sites as broadcast media.
In addition, we will produce a series of "webcast guides" and schedules for each
of the Streamedia Networks. These will be similar to the popular "tv guides" in
newspapers and elsewhere. In addition, through StreamWire, we will endeavor to
ramp up our fee-based press release distribution and product announcement wire
services to serve the interests of public companies, government agencies, trade
associations, the entertainment industry, and numerous other areas. StreamWire
may thus aggregate and integrate news and information resources at each network
site to support our network broadcast content and, in so doing, synergize each
network's content offerings. Each site will become more "sticky," and retain
greater numbers of users for longer periods of time-- traits valued by
advertisers.
22
<PAGE>
Emerging and Developing Revenue Opportunities
We believe that the proliferation of broadband, or high speed, and multicast
connectivity technologies and infrastructure will greatly increase end user
demand for streaming multimedia content. It will also improve the quality of
delivery, so that it begins to resemble the familiar television picture. We
expect that, as demand increases, the same revenue sources available to
traditional broadcast media will become increasingly realistic profit centers
for internet broadcasters, aggregators, and syndicators. We are positioning
Streamedia to benefit from any possible growth in traditional sources of
broadcast revenues, such as various forms of advertising, but also from the
unique opportunities presented to it as a member of the internet community, such
as e-commerce relationships with internet retailers of items such as books,
videos, movies, tickets, CD's, gifts, memorabilia, and apparel. We intend to
resell or provide production, encoding, and other broadcast-enabling services to
content generators seeking representation at one or more of the Streamedia
Networks or Channels, as well as to intranets requiring multimedia service
bureaus.
Advertising
In addition to licensing and syndication fees, technology and production
services, premium distribution services, and e-Commerce opportunities, we expect
to derive a significant portion of our revenues from the emerging business of
multimedia advertising. The Web has proven an attractive medium for advertising
because it is interactive, flexible, and precisely quantifiable. Advertisers can
mine user profile data to help them either reach broad audiences with a
'branding' approach or choose to 'target' data to people displaying similar
demographic characteristics or interests. The interactive nature of the Web
enables advertisers to determine customer preferences and profiles, and use this
data to develop commercial relationships with potential customers. Advertisers
can easily change their advertising messages frequently and at relatively low
cost. We intend to engage in the emerging business of creating and marketing
'rich' or multimedia advertising; banner and interstitial advertising; and
network and Channel sponsorships across our suite of networks. We will insert
advertisements at the beginning of audio or video segments, as well as during
shows, much like commercials in traditional broadcast media. Jupiter
Communications projects that online ad spending will rise from $3 billion
in 1999 to almost $8 billion in 2002.
We intend to make increasing use of the Synchronized Multimedia Integration
Language, or SMIL. SMIL offers developers the ability to synchronize text,
images, audio and video over the Web. Each element of a multimedia presentation
can be sewn together using simple HTML-like coding. The results have many
possible applications, such as the creation of streaming graphic 'commercials'
played during streaming audio broadcasts, streaming text advertisements running
in subtitles below a video presentation, or slim banners that can stream below a
video presentation. StreamWire may add the extra dimension of email sponsorships
and text-banners to the Streamedia arsenal of placement offerings.
As traffic to network sites increases, we believe that we may be able to charge
a premium for multimedia ads versus basic banner ads, due to their richer
content, flexible placements, and our ability to charge for focused advertising
related to a specific content Channel. We expect to derive a significant
percentage of our revenue from advertising on our network sites, and by revenue
splits with operators of sites to which we syndicate our content. We will target
traditional advertisers, such as consumer product and service companies,
manufacturers and automobile companies, as well as other internet sites and
products as advertisers on our websites. We expect to derive advertising
revenue principally from short-term advertising contracts on a per impression
basis or for a fixed fee based on a minimum number of impressions. Rich media
ads price higher than graphic and text banners per impression. We will supply
our advertiser clients with statistics detailing impressions, click-through
rates, and other factors, which should allow them to monitor the totals of their
ad playbacks or visual impressions, and thus track their effectiveness.
ADDITIONAL INFORMATION
Streamedia has not previously been subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended. Streamedia has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form SB-2 under the Securities Act with respect to the units offered. This
prospectus does not contain all of the information, exhibits, and schedules
contained in the Registration Statement. For further information about
Streamedia and the units, you should read the Registration Statement. Statements
made in this prospectus regarding the contents of any contract or document filed
as an exhibit to the Registration Statement are not necessarily complete.
Therefore, you should read the Registration Statement. Each such statement is
qualified in its entirety by such reference. The Registration Statement, the
exhibits, and the schedules filed with the Commission may be inspected, without
charge, at the Commission's public reference facilities. These facilities are
located at:
Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C.
20549: Northwestern Atrium Center, 500 West Madison Street, Room 1400,
Chicago, Illinois 60661;
and Suite 1300, Seven World Trade Center, New York, New York 10048.
Copies of the materials may also be obtained at prescribed rates by writing to
the Commission, Public Reference Section, 450 Fifth Street, NW, Washington, D.C.
20549. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission at http://www.sec.gov.
As a result of this offering, Streamedia will become subject to the reporting
requirements of the Exchange Act. Therefore, we will file periodic reports,
proxy statements, and other information with the Commission. Following the end
of each calendar year, we will furnish our shareholders with annual reports
containing audited financial statements certified by independent public
accountants and proxy statements. For the first three-quarters of each calendar
year, we will provide quarterly reports containing unaudited consolidated
financial information.
Streamedia has applied for listing of the units on The Nasdaq SmallCap Market
and the Boston Stock Exchange. We cannot assure that our shares will be accepted
for listing on The Nasdaq SmallCap Market.
23
<PAGE>
MANAGEMENT
Directors and Executive Officers.
Our directors and executive officers as of September 22, 1999 are identified
below:
Name Age Position
<TABLE>
<S> <C> <C>
James D. Rupp 38 President, Chief Executive Officer & Director
Gayle Essary 59 Vice President & Director
Nicholas Malino 49 Executive Vice President, Chief Operating
Officer, Chief Financial Officer & Director
Walter Hollenberg 54 Vice President of Technology
Henry Siegel 56 Director
Robert Wussler 60 Director
David Simonetti 30 Director
</TABLE>
Our directors are elected at each annual meeting of shareholders. The officers
are elected annually by the Board of Directors. Officers and directors hold
office until their respective successors are elected and qualified or until
their earlier resignation or removal.
James D. Rupp is one of the founders of Streamedia and has served as Chief
Executive Officer, President and Director since Streamedia's inception. From
July 1997 to September 1998, Mr. Rupp served as President, Chairman and Chief
Executive Officer of Capital Markets Communications Corporation, an editor and
publisher of a series of electronic newsletters, including StreetSignals(TM),
TradeSignals(TM), PowerSignals(TM), AmexWire(TM), and the Waaco Kid's Forum(TM).
Mr. Rupp continues as Capital Markets' Chairman. Mr. Rupp organized
Web2Ventures, L.L.C., a company formed in February, 1998 to incubate,
capitalize, and invest in emerging internet firms. Since its inception, Mr. Rupp
has served as the Manager of Web2Ventures. From 1990 to 1996, Mr. Rupp served as
General Manager of a restaurant management concern in New York City. Mr. Rupp
holds a Bachelor of Arts degree from the State University of New York at
Binghamton and has pursued graduate studies in information sciences and
literature at the Universities of Delaware and Maryland.
Gayle Essary is one of the founders of Streamedia and has served as Chairman of
the Board of Directors and Vice President-Strategic Development since its
inception. From September 1996 to the present, Mr. Essary has served as Chairman
of the Board of Directors of IRI, Inc. a publicly-held company in the investment
data and information industry. He has also served as IRI's Chief Executive
Officer from July 1997 to the present. From 1995 to 1997, Mr. Essary was founder
and publisher of StreetLevel, the Waaco Kid's Forum newsletters, and other
electronic products which have since merged into Capital Markets Communications
Corporation. From 1988 to 1997, Mr. Essary was a Principal of New York
Management Group, which provided consulting and support services to various
firms and organizations, including The Thomson Corporation. From 1981 to 1988,
Mr. Essary was Managing Director of the Media Financial Group and The Media
Center, both companies engaged in consulting for media properties. From 1973 to
1980, Mr. Essary was President of ESCO Publishing Co., Inc., and Huthig-ESCO
Publishing, Inc., which published two international dental business magazines,
one of which led its field in distribution and advertising revenues. Mr. Essary
studied journalism at The University of Texas.
Nicholas Malino has served as Streamedia's Chief Financial Officer since
November of 1998 and as Executive Vice President and Chief Operating Officer
since August of 1999. Previously, he served as President and Chief Executive
Officer of ATC Group Services, Inc., a $160 million national business services
firm, providing specialized technical and project management services to Fortune
500 companies and federal, state, and local government agencies. During his
tenure, he completed 16 acquisitions, ranging in size from $1 million to $85
million in gross revenues, during which time the company achieved the second
highest price/earnings ratio in its sector. ATC Group Services also led its
sector in profitability for 12 consecutive quarters. Mr. Malino has both a
Masters of Business Administration degree in Finance, and Master and Bachelor of
Science degree in Biology from the University of Bridgeport.
Walter C. Hollenberg has served as Streamedia's Vice President of Technology
since July 1999. From 1987-97, Dr. Hollenberg, as Senior Manager for New
Business Development at AT&T, built one of the very first experimental
interactive TV networks. From 1997-98, Dr. Hollenberg was Director of New
Business Development at Sarnoff Corporation where he focused on high definition
television, multimedia, and compression technologies. Prior to 1987, Dr.
Hollenberg was an independent consultant in the relational database area, a
technology and product planning manager for On-Line Systems, Inc., and a Series
7 NASD registered investment banking associate with Parker/Hunter, Inc.Dr.
Hollenberg holds a Ph.D. in Physics from Cornell University, an M.B.A. from
Carnegie Mellon University, a B.S. in Physics from the University of Minnesota,
and also spent two years as a Post Doctoral Associate at the Lehrstuhl fur
Experiental Physik, Universitat Dormund, Germany.
Henry Siegel has served as a Director of Streamedia since February of 1999. From
1995 to the present, Mr. Siegel has been the Chairman and Chief Executive
Officer of Kaleidoscope Media Group, a publicly-held company. Kaleidescope is a
worldwide distributor of television and home video programming including the
ESPY Awards Show. Mr. Siegel began his career at Grey Advertising and in 1974 he
was placed in charge of its media operation, managing all areas of media
planning, research and execution. In 1976, Mr. Siegel founded Lexington
Broadcasting Services (LBS), where he pioneered the concept of barter
syndication (advertiser-supported television). As Chairman and Chief Executive
Officer of LBS, Mr. Siegel developed numerous successful television series,
including Fame and Baywatch. Mr. Siegel has been named by Advertising Age
Magazine as one of the pioneers of the first 50 years of television.
Robert J. Wussler has served as a Director of Streamedia since February of 1999.
Mr. Wussler is the Chairman of the Board of Directors of US Digital
Communications, Inc., a publicly-held company. From 1992, to the present he has
served as the President and Chief Executive Officer of the Wussler Group, a
media consulting firm. From 1994 to the present, Mr. Wussler has served as the
President and Chief Executive Officer of Affiliate Enterprises, Inc., a company
formed by ABC Television affiliates to pursue new business opportunities,
including emerging technology applications. From 1989 to 1992, Mr. Wussler was
the President and CEO of COMSAT Video Enterprises, a major supplier of satellite
entertainment to the nation's lodging industry. Between 1980 and 1989, Mr.
Wussler served as Senior Vice President, Corporate Executive Vice President, and
President of Turner Broadcasting's Superstation, WTBS. During his 10 years at
Turner, Mr. Wussler co-founded and organized CNN, Headline News, and became a
key player in the development of WTBS and the formation of TNT. Prior to joining
Turner, Mr. Wussler served as President of CBS Sports and the CBS Television
Network. Mr. Wussler is a past Chairman of the National Academy of Television
Arts and Sciences, and recipient of five Emmy Awards. Mr. Wussler also serves on
the Board of Directors of Ednet, Inc., a publicly held company which develops
and markets integrated digital communications systems for the entertainment
industry, and the Board of Directors of The Cousteau Society.
24
<PAGE>
David J. Simonetti has served as a Director of Streamedia since September of
1998. Since October of 1998, Mr. Simonett has served as Co-Chairman and Chief
Executive Officer of VentureNow, Inc., a private venture capital concern. From
August 1997 to December 1998, Mr. Simonetti was Chief Executive Officer of
Invoke Distribution, L.L.C., a marketing and advertising company. From February
1997 to October 1998, Mr. Simonetti was Chief Executive Officer of Projix
Corporation, an Internet software company. From October 1994 through February
1997, Mr. Simonetti served as Vice President and Chief Operating Officer of
Edmar, Inc., a construction management company. Mr. Simonetti also serves on the
Board of Directors of NuOncology Labs, Inc., a publicly-held company. Mr.
Simonetti holds a Bachelor of Arts degree from Marlboro College, in Marlboro
Vermont.
Board Committees.
We currently have two committees appointed by the Board of Directors: a
compensation committee and an audit committee. The audit committee is currently
comprised of Mr. Siegel, Mr. Simonetti and Mr. Malino. The Compensation
committee is currently comprised of Mr. Wussler, Mr. Simonetti and Mr. Essary.
Outside Directors.
We will nominate for election one director who is not an officer, employee, or
5% shareholder upon conclusion of the offering as designated by the
representative of the underwriters. We may also appoint advisors to the Board of
Directors from time to time.
Compensation of Directors.
Directors who are also employees will not receive any remuneration in their
capacity as directors. Outside directors will be paid $1,000 monthly plus travel
expense reimbursements and $500 per meeting attended.
Executive Compensation.
The following table sets forth the current compensation paid to each of our
executive officers for the period April 29, 1998 (date of inception), to
December 31, 1998.
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C>
Name and Annual Compensation All Other
-----------------------------------
Principal Fiscal Salary Bonus Compensation
Position Year
- ----------------------- ----------- --------------------
------ ----------- - --------------
James D. Rupp - 1998 -- -- --
President & CEO
- ----------------------- ------ ----------- -------------- --------------------
Gayle Essary - Vice 1998 -- -- --
President
- ----------------------- ------ ----------- -------------- --------------------
Nicholas Malino - 1998 -- -- --
Executive V.P., CFO,
COO
- ----------------------- ------ ----------- -------------- --------------------
Walter Hollenberg- 1998 -- -- --
Vice President
- ----------------------- ------ ----------- -------------- --------------------
</TABLE>
Employment Agreements.
On September 9, 1999, we entered into employment agreements with James Rupp,
Nicholas Malino, and Gayle Essary. Mr. Rupp, Mr. Malino, and Mr. Essary were
first compensated for their work at Streamedia in January of 1999. Mr. Rupp's
current salary under his employment agreement is $180,000 per annum. Mr. Malino
currently receives $180,000 per annum plus a $40,000 per annum housing allowance
to cover the costs associated with his having to maintain a residence in New
York City. On June 23, 1999, we entered into an employment agreement with Walter
Hollenberg. Dr. Hollenberg was first compensated for his work with us on July 6,
1999, and his current salary is $90,000. In addition, each executive officer
receives a non accountable expense account of $250 per month, and receives
reimbursement from the Company for the costs associated with retention of
outside financial consultants. Each executive is eligible to participate in
executive bonus programs and incentive stock option plans when they are
developed. Each executive is also eligible for health care and other benefits in
the same manner in which they are available to all employees.
Stock Compensation Plan.
In June of 1999, the Board of Directors adopted the "Streamedia Communications,
Inc., 1999 Qualified and Nonstatutory Stock Option Plan." The Board of Directors
reserved 500,000 shares of the Company's common stock to be issued in the form
of incentive and/or non-qualified stock options for employees, directors and
consultants to the Company. As of September 30, 1999, Streamedia has issued
328,000 of the options in the plan. This includes 25,000 non-qualified options
issued to an advisor of the Board of Directors. The remaining options have been
issued to officers and directors of Streamedia.
25
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 and 1999, and since the inception of Streamedia, certain e-mail
distribution systems owned and/or administered by one or both of two of our
major shareholders, IRI, Inc., and Capital Markets Communications
Corporation, were provided to us for our StreamWire division and its
predecessor. We currently does not anticipate using these e-mail
distribution systems.
During 1998, we issued 25,000 shares of common stock to our legal counsel, Kogan
& Taubman, L.L.C., as partial consideration for services to be rendered in
connection with this offering. We have no current commitments to issue
additional securities to Kogan & Taubman, L.L.C. at this time.
We have engaged Kaleidoscope Media Group to help us acquire programming content
for our sites and to develop a syndication strategy. Kaleidoscope Media Group's,
CEO, Henry Siegel, is currently a member of our Board of Directors. In
consideration of Kaleidoscope Media Group's providing of these services, on
August 2, 1999, we paid Kaleidoscope Media Group $10,000. Starting in October of
1999 and through July of 2000 we will pay them $2,000 per month for their
services.
As an inducement to join us after our initial development phase, and in
consideration of his considerable expertise in financing and public offerings,
we agreed to pay Nicholas Malino a $100,000 bonus upon the completion of our
initial public offering.
Each of the above transactions were on terms as favorable to Streamedia as those
generally available from unaffiliated third parties. Each of the above
transactions was ratified by a majority of our independent directors who did not
have an interest in the transaction and who had access, at our expense, to our
legal counsel or independent legal counsel. The issuance of the 25,000 shares to
Kogan & Taubman, LLC and the transactions between Capital Markets Communications
Corporation, IRI, Inc. and Streamedia were entered into when there were less
than two disinterested independent directors; therefore, we lacked sufficient
disinterested independent directors to ratify these transaction at the time the
transactions were initiated.
All future transactions between us and our officers, directors or 5%
shareholders, and their respective affiliates, will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of our independent, disinterested directors.
26
<PAGE>
PRIOR OFFERINGS
On May 16, 1999, we sold 264,490 shares of common stock at $2.00 per share
pursuant to Rule 506 of Regulation D promulgated under the Securities Act of
1933, as amended. The common stock was offered to a discreet group of accredited
investors without the benefit of general solicitation or advertising. We raised
$523,980 from this private placement in order to provide bridge financing for
this offering.
On August 24, 1999, we issued $1,815,000 of debt securities in the form of
promissory notes which bear interest at a rate of 10% per annum. The notes were
offered pursuant to Rule 506 of Regulation D only to accredited investors, with
no general solicitation or advertising. The notes were offered as a unit, each
unit consisting of a promissory note in the principal amount of $15,000 and a
warrant entitling the holder to purchase 9,000 shares of our common stock at a
price per share equal to the price per share of common stock offered to the
public pursuant to our initial public offering. The warrants will be exercisable
during the period beginning on the first anniversary of the closing of the IPO
and ending on the date five years following the date that the warrants were
issued. The holders of the warrants will have certain "piggyback" registration
rights with respect to the shares underlying the warrants. Specifically, the
holders will be entitled to include their shares if the Company files a
registration statement with Commission during the period beginning one year from
the closing of the IPO and ending two years after the closing of the IPO.
In addition, we have issued securities to officers, directors, and consultants
as compensation for services rendered to us.
27
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table identifies the beneficial ownership of the common stock as
of September 30, 1999 by:
Each of our directors,
Each of our executive officers,
and all directors and executive officers as a group.
Unless discussed below, each beneficial owner has sole investment and voting
power for the shares beneficially owned.
<TABLE>
<CAPTION>
Shares Owned
------------------------------------------------------------------------
Prior to Offering After Offering
--------------------------------- --- ----------------------------------
Name and Address of Owner Number Percent Number Percent
- ------------------------------------ --------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
James D. Rupp 1,155,000 35.05% 1,155,000 26.89%
200 Walter Avenue
Hasbrouck Heights, NJ 07604
Gayle Essary 1,427,500 43.32% 1,427,500 33.23%
5605 Woodview
Austin, Texas 78756
Capital Markets Communications, 300,000 9.10 % 300,000 6.98%
Corporation
287-101 Kinderkamack Road #190
Oradell, NJ 07649
Nicholas Malino 150,000 4.55% 150,000 3.49%
250 W. 90th Street, # PH2A
New York, NY 10024
Walter C. Hollenberg 0 - 0 -
32 Parkview Drive
Milburn, NJ 07041
David Simonetti 75,000 2.28% 75,000 1.75%
1845 Mintwood Place, # 104
Washington, DC 20009
Henry Siegel 0 - 0 0
205 West 57th Street
New York, NY 10019
Robert Wussler 0 - 0 -
7904 Sandalfoot Drive
Potomac, MD 20854
--------------- -------------- ---------------- -------------
--------------- -------------- ---------------- -------------
All Executive Officers and 3,107,500 94.3% 3,107,500 72.34%
Directors as a group (6 persons)
--------------- -------------- ---------------- -------------
</TABLE>
The shares set forth on this chart do not include (i) the 1,089,000 shares
issuable upon the exercise of the warrants included in the units which were sold
on August 24, 1999, private placement; (ii) the 1,000,000 shares issuable upon
the exercise of the warrants included in the units to be sold in this offering
which will be outstanding upon completion of the offering, (iii) the 300,000
shares to be issued upon exercise of the underwriters' over-allotment option,
and the warrants thereunder, (iv) the 200,000 shares to be issued upon exercise
of the underwriters' warrants, and the warrants thereunder, and (v) the options
issued under the 1999 stock option plan.
Certain of the shares listed above are owned indirectly by entities
substantially controlled by principal shareholders of Streamedia. Of the total
shares owned by Mr. Rupp, 1,050,000 shares are owned through his 100% ownership
in Web2Ventures, L.L.C., and 105,000 shares are owned through his 35% ownership
interest of Web2Ventures, L.L.C., in Capital Markets Communications Corporation.
Of the total shares owned by Mr. Essary, he owns 590,000 shares directly, and
has been given voting power over 360,000 shares owned by IRI, Inc., by the Board
of Directors of IRI, Inc. The remaining shares are held in family trusts or by
members of Mr. Essary's immediate family. Mr. Essary does not exercise direct
control over such shares. Capital Markets Communications Corporation is
controlled by Mr. Rupp and Mr. Essary. Mr. Simonetti's shares are owned through
Projix Corporation, a company of which Mr. Simonetti is the 90% owner.
In addition, certain officers and directors have been granted the right to
acquire additional shares and have been issued options pursuant to the 1999
stock option plan. Mr. Malino has the right to earn an additional 45,000 shares
upon the achievement of certain business objectives to be determined by the
compensation committee of the Board of Directors. In August 1999 Mr. Malino was
issued 63,000 stock options. Dr. Hollenberg was issued 150,000 stock options of
which 37,500 shares have vested. Mr. Simonetti was issued 10,000 options, all of
which have vested. Mr. Siegel has the right to acquire 40,000 stock options and
Mr. Wussler has the right to acquire 40,000 stock options. None of these options
are represented on the previous principal shareholder chart.
28
<PAGE>
DESCRIPTION OF SECURITIES
Units.
Each unit consisting of one share of common stock and one warrant, each warrant
entitles the holder to purchase one share of common stock at a price of $12.75
until _____ 2004. The shares and the warrants included in the units will
automatically separate 30 days from the date of this prospectus, after which the
common stock and warrants in the units will trade separately.
Common Stock.
We are authorized to issue 20,000,000 shares of common stock, $0.001 par value.
As of September 30, 1999, there were 3,295,490 shares of common stock issued and
held by forty-nine holders of record. Shareholders are entitled to share ratably
in any dividends paid on the common stock when, as and if declared by the Board
of Directors. Each share of common stock is entitled to one vote. Cumulative
voting is denied. There are no preemptive or redemption rights available to
holders of common stock. Upon liquidation, dissolution or winding up of
Streamedia, the holders of common stock are entitled to share ratably in the net
assets legally available for distribution. All outstanding shares of common
stock and the units (and shares underlying these units) to be issued in this
offering will be fully paid and non-assessable.
Warrants to be issued pursuant to this offering.
The warrants to be issued in this offering will be issued under, governed by,
and subject to the terms of a Warrant Agreement between Streamedia and the
American Securities Transfer & Trust, Inc., as warrant agent. The following
statements are brief summaries of certain provisions of the Warrant Agreement.
Copies of the Warrant Agreement may be obtained from Streamedia or the warrant
agent and have been filed with the Commission as an exhibit to the Registration
Statement of which this prospectus is a part.
The warrants included in the units will be exercisable commencing 12 months
after the offering. The warrants contain provisions that protect the warrant
holders against dilution by adjustment of the exercise price in certain events,
including but not limited to stock dividends, stock splits, reclassification or
mergers. A warrant holder will not possess any rights as a shareholder of
Streamedia. Shares of common stock, when issued upon the exercise of the
warrants, will be fully paid and non-assessable.
Commencing 12 months after the date of this prospectus, we may redeem some or
all of the warrants at a call price of $0.05 per warrant, upon thirty (30) days
prior written notice if the closing sale price of the common stock on The Nasdaq
SmallCap Market has equaled or exceeded (150% of the offering price)
per share for ten (10)consecutive days.
The warrants may be exercised only if a current prospectus relating to the
underlying common stock is then in effect and only if the shares are qualified
for sale or exempt from registration under the securities laws of the state or
states in which the purchaser resides. So long as the warrants are outstanding,
we have undertaken to file all post-effective amendments to the Registration
Statement required to be filed under the Securities Act, and to take appropriate
action under federal law and the securities laws of those states were the
warrants were initially offered to permit us to issue, and you to resell the
common stock issuable upon exercise of the warrants. However, there can be no
assurance that we will be in a position to effect such action, and our failure
to do so may cause the exercise of the warrants and the resale or other
disposition of the common stock issued upon such exercise to become unlawful. We
may amend the terms of the warrants, but only by extending the termination date
or lowering the exercise price of the warrants. We have no present intention of
amending such terms. However, there can be no assurance we will not have an
intention in the future to amend the warrant terms.
Preferred Stock.
The Board of Directors, without further action by the shareholders, is
authorized to issue up to 100,000 shares of preferred stock, $0.001 par value.
The preferred shares may be issued in one or more series. The terms as to any
series, as relates to any and all of the relative rights and preferences of
shares, including without limitation, preferences, limitations or relative
rights with respect to redemption rights, conversion rights, voting rights,
dividend rights and preferences on liquidation will be determined by the Board
of Directors. The issuance of preferred stock with voting and conversion rights
could have an adverse affect on the voting power of the holders of the common
stock. The issuance of preferred stock could also decrease the amount of
earnings and assets available for distribution to holders of the common stock.
In addition, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control. We have no plans or commitments to
issue any shares of preferred stock. We will issue preferred stock only upon
approval by a majority of our independent directors who do not have an interest
in the transaction and who have access, at our expense, to our legal counsel or
independent legal counsel.
Transfer Agent and Registrar.
The Transfer Agent and Registrar for the common stock will be American
Securities Transfer & Trust, Inc., 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202.
29
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 4,295,490 shares of common stock
outstanding. If the underwriters' over allotment option is exercised in full,
5,445,490 shares of common stock will be outstanding. Of these shares, the
1,000,000 shares sold in this offering or 1,150,000 shares if the over-allotment
option is exercised in full, will be freely tradeable in the market without
restriction under the Securities Act, by persons other than "affiliates" of
Streamedia (as that term is defined in the Securities Act of 1933). The
remaining 3,295,490 shares will be "restricted securities" within the meaning of
the Securities Act. Restricted securities cannot be publicly sold unless
registered under the Securities Act or sold in accordance with an exemption from
registration, such as that provided by Rule 144 under the Securities Act. In
general, under Rule 144, as currently in effect, a person (or persons whose
shares are aggregated) is entitled to sell restricted securities if at least one
year has passed since the later of the date such shares were acquired from
Streamedia or any affiliate of Streamedia. Rule 144 provides, however, that
within any three-month period such person may only sell up to the greater of 1%
of the then outstanding shares of common stock or the average weekly trading
volume during the four calendar weeks immediately preceding the date on which
the notice of the sale is filed with the Commission. Sales pursuant to Rule 144
also are subject to certain other requirements relating to manner of sale,
notice of sale and availability of current public information. Anyone who has
not been an affiliate for a period of at least 90 days is entitled to sell
restricted securities under Rule 144 without regard to the limitations if at
least two years have passed since the date such shares were acquired from us or
any of our affiliates. Any affiliate is subject to such volume limitations
regardless of how long the shares have been owned or how they were acquired.
After this offering, the executive officers and directors will own 3,107,500
shares of the common stock, which will represent 72.34% of the total shares
outstanding. Our officers, directors and certain shareholders directors will
enter into an agreement with the underwriters agreeing not to sell or otherwise
dispose of any shares for one year after the date of this prospectus without the
prior written consent of the underwriters.
We cannot predict the effect, if any, that offer or
sale of these shares would have on the market price. Nevertheless, sales of
significant amounts of restricted securities in the public markets could
adversely affect the fair market price of the shares, as well as impair our
ability to raise capital through the issuance of additional equity shares.
30
<PAGE>
PLAN OF DISTRIBUTION
Underwriters.
Under the terms and conditions of the Underwriting Agreement, we have agreed to
sell to the underwriters named below, and each of the underwriters, for whom
Redstone Securities, Inc. is acting as the "representative", have agreed to
purchase the number of units set forth opposite its name in the following table.
Underwriters Number of Units
Redstone Securities, Inc. 1,000,000
================================
Total 1,000,000
================================
The underwriters have advised us that they propose to offer the units to the
public at the initial public offering price per unit set forth on the cover page
of this prospectus and to certain dealers at such price less a concession of not
more than $___ per unit. These dealers may re-allow $____ to other dealers. The
representative will not reduce the public offering price, concession and
re-allowance to dealers until after the offering is completed. Regardless of any
reduction, Streamedia will receive the amount of proceeds set forth on the cover
page of this prospectus.
Streamedia and certain selling shareholders have granted to underwriters an
option, exercisable during the 45-day period after the date of this prospectus,
to purchase up to 150,000 additional units to cover over-allotments, if any. The
option purchase price is the same price per unit we will receive for the
1,000,000 units that the underwriters have agreed to purchase. If the
underwriters exercise the over-allotment option in full, the selling
shareholders will sell 30,000 shares of common stock to the underwriters. None
of the selling shareholders are officers, directors or affiliates of Streamedia.
If the underwriters exercise such option, each of the underwriters will purchase
its pro-rata portion of such additional units. The underwriters will sell the
additional units on the same terms as those on which the 1,000,000 units are
being sold.
The underwriters can only offer the units through licensed securities dealers in
the United States who are members of the National Association of Securities
Dealers, Inc., and may allow the dealers any portion of its ten (10%) percent
commission.
The underwriters will not confirm sales to any discretionary accounts without
the prior written consent of their customers.
Under the terms of the Underwriting Agreement, the holders of the 3,107,500
shares of common stock, (the officers and directors of Streamedia), have
agreed that, for one year after the date of this prospectus and subject to
certain limited exceptions, without the prior written consent of the
representative, they will not sell, contract to sell, or otherwise dispose of
any shares, any options to purchase shares, or any securities convertible into,
exercisable for, or exchangeable for shares.
Substantially all of such shares would be eligible for immediate public sale
following expiration of the lock-up periods, and subject to the provisions of
Rule 144.
We have agreed to pay the representative a non-accountable expense allowance of
2% of the gross amount of the units sold at the closing of the offering. This
expense allowance will total $170,000 based on the sale of the units offered.
The representative will pay the underwriters' expenses in excess of the 2%
allowance. If the expenses of underwriting are less than the 2% allowance, the
excess shall be additional compensation to the underwriters. If this offering is
terminated before its successful completion, we will be obligated to pay the
Representative for the accountable out-of-pocket expenses incurred by the
underwriters in connection with this offering. In addition to the
non-accountable expense allowance, management estimates that we will incur other
costs of approximately $200,000 for legal, accounting, listing, printing and
filing fees.
We have agreed that, for a period of five years from the closing of the sale of
the units, we will nominate for election as a director a person designated by
the representative. If the representative has not exercised that right, the
representative shall have the right to designate an observer, who shall be
entitled to attend all meetings of the Board and receive all correspondence and
communications sent by us to the members of the Board. The representative has
not yet identified the person who is to be nominated for election as a director
or designated as an observer.
31
<PAGE>
The Underwriting Agreement provides for indemnification among
Streamedia and the underwriters against certain civil liabilities, including
liabilities under the Securities Act. In addition, the underwriters' warrants
provide for indemnification among Streamedia and the holders of the
underwriters' warrants and underlying shares against certain civil liabilities,
including liabilities under the Securities Act and the Exchange Act.
We have been advised that it is the position of the Securities and Exchange
Commission that insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Streamedia pursuant to the foregoing provisions, or otherwise, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Underwriters' Warrants.
Upon the closing of this offering, we have agreed to sell to the underwriters
for nominal consideration, underwriters' warrants to purchase up to 100,000
units. The underwriters' warrants are exercisable at 120% of the public offering
price for a four-year period starting one year from the effective date of this
offering. The underwriters' warrants may not be sold, transferred, assigned or
hypothecated for a period of one year from the date of this offering except to
the officers of the underwriters and their successors and dealers participating
in the offering and/or their partners or officers. The underwriters' warrants
will contain anti-dilution provisions providing for appropriate adjustment of
the number of shares subject to the warrants under certain circumstances. The
holders of the underwriters' warrants have no voting, dividend or other rights
as shareholders of Streamedia with respect to shares underlying the
underwriters' warrants until the underwriters' warrants have been exercised.
For four years from the one year anniversary of this offering, we have agreed to
give advance notice to the holders of the underwriters' warrants or underlying
shares of our intention to file a registration statement, other than in
connection with employee stock options, mergers, or acquisitions. The holders of
the underwriters' warrants and underlying shares shall have the right to require
us, subject to certain conditions to include their shares in such registration
statement at our expense.
For the term of the underwriters' warrants, the holders of the warrants will be
given the opportunity to profit from a rise in the market value of the shares,
with a resulting dilution in the interest of other shareholders. The holders of
the underwriters' warrants can be expected to exercise the underwriters'
warrants at a time when we would, in all likelihood, be able to obtain needed
capital by an offering of its unissued shares on terms more favorable than those
provided by the underwriters' warrants. This could adversely affect the terms on
which we could obtain additional financing. Any profit realized by the
underwriters on the sale of the underwriters' warrants or shares issuable upon
exercise of the underwriters' warrants will be additional underwriting
compensation.
Determination of Offering Price.
The initial public offering price was determined by negotiations between the
representative and Streamedia. The factors considered in determining the public
offering price include:
The industry in which we operate,
Our business potential and earning prospects,
and The general condition of the securities markets at the time of
the offering.
The offering price does not bear any relationship to our assets, book value, net
worth or other recognized objective criteria of value.
Prior to this offering, there was no public market for the units, and we cannot
assure that an active market will develop.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE UNITS, INCLUDING
OVER-ALLOTMENT, ENTERING STABILIZATION BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE UNITS ON THE NASDAQ SMALLCAP MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M.
Nasdaq SmallCap Market.
We have applied for listing of the units, common stock, and warrants on The
Nasdaq SmallCap Market under the trading symbol "SMILU," "SMIL" and "SMILW,"
respectively. The listing is contingent, among other things, upon our obtaining
400 shareholders.
LEGAL MATTERS
Kogan & Taubman, L.L.C., New York, New York, will pass on the validity of the
issuance of the shares. Winstead Sechrest & Minick P.C., Dallas, Texas, will
pass on certain legal matters for the underwriters in connection with the sale
of the shares.
EXPERTS
Our financial statements as of December 31, 1998 and for the period from April
29, 1998 (date of inception) to December 31, 1998, included in this prospectus
have been included in reliance on the report of Grant Thornton LLP, independent
certified public accountants, given on the authority of Grant Thornton LLP as
experts in auditing and accounting.
32
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
Bandwidth The measure of transmission capacity through wires and
cables, over fiber optic lines, or via satellite. The
general rule of thumb is that as bandwidth is increased,
data can be transferred quicker. Streaming media is
bandwidth-intensive; its quality improves when users
connect at higher speeds - that is, via higher bandwidth
connections.
Broadband A type of data transmission in which a single medium
(such as a wire) can carry several Channels at once.
Cable TV is a broadband transmission.
Broadcast A method of transmission of audio, video, or other
formats of information. Specifically, "broadcast" refers
to a mode within which one source sends the same data or
programming to all users at the same time. Contrast:
"narrowcast."
Browser The software application that enables a user to see pages
on the World Wide Web.
Channel On television and cable systems, the term usually refers to,
the numerical location, as on a dial or LED
readout, of a broadcast station's varied content.
Example: in New York City, NBC can be seen on Channel 4.
On the internet, the term 'Channel' also refers to a
location for a given set of programming, but often refers
to a generic category of content, such as a "Basketball
Channel" or to a highly specific source of programming,
such as the "New York Knicks" Channel, or even the
"Patrick Ewing" Channel.
Convergence A blur of the distinctions between entertainment,
information, telecommunications, computers, television,
print, and cable.
Downlink The transmission of radio frequency signals from a
satellite to an earth station.
Download Transferring a file from a server to a client, such as
your computer. Downloading files enables you to see and
hear content on the web. See: "streaming."
Enabling Providing the tools, talent, and equipment, and resources
to assist an individual or organization to become a
broadcaster. Prior to the advent of streaming media
technologies and applications, becoming a global
broadcaster was difficult and costly.
Intranet A set of computers linked to one another outside the
public internet. Often, large corporations build
intranets to facilitate internal communications.
Multimedia content can be streamed across an intranet to,
for example, enable geographically dispersed divisions of
a company to attend an address by its CEO, or demonstrate
the proper use of on a new product prior to its
commercial launch.
Mini-portal A focused, subject-oriented portal. See "portal."
Multicast A means by which several users can connect to one data
stream simultaneously. Thus, multicasting can accommodate
larger audiences with greater efficiency than unicasting
(see: "unicast"). Multiple users could, for example,
watch the same streaming video file at once, rather than
requiring the server to send one stream per user.
Multimedia The use of computers to present integrated text,
graphics, video, animation, and audio.
Narrowcast To send data to a specific list of recipients. Cable
television is the ultimate example of narrowcasting.
Cable signals are sent only to homes that have subscribed
to the cable service. Network TV, by contrast, is a true
broadcast model. It sends out data. Everyone close enough
with an antenna can receive the signals. On the internet,
narrowcasting has also come to refer to programming
developed for "niche" interest groups.
On demand The power to "time-shift," or access programming
when you want it, as distinct from the time a broadcaster
wants to send it.
Player A software application, such as those developed by
RealNetworks and Microsoft, among others, that "plays"
the video and audio clips on your computer.
Portal Originally, a site or online service, such as AOL, that
offered a range of information, entertainment, and
services such as email, forums, chatrooms, and search
engines. Increasingly, however, sites are launched to
become "portals" to a specific category of content, as in
a "financial portal."
33
<PAGE>
Push The mechanisms which deliver data to one's desktop,
usually on a subscription basis. Email is a simple push
service; PointCast is an elaborate push service. The data
is delivered to you automatically.
Rich Commonly used in reference to "rich media" and,
specifically, to "rich media advertising." Rich media
advertising is distinguished from commonplace banner ads
with static graphics; rich media ads are animated, and
often streamed, so that they appear more like television
commercials. Indeed, some are repurposed television
commercials. They can be embedded in web pages as well as
inserted into or between video clips, or, using SMIL,
they can be streamed concurrent to audio programming.
Seamless Streaming a pre-programmed series of multimedia content
segments in succession, without requiring the audience to
select a new program to see or hear. The effect is
similar to watching one television Channel for an
extended period of time. One content segment flows into
the next.
SMIL See Synchronized Multimedia Integration Language.
Streaming A stream is a continuous digital signal, which delivers
audio and/or video to an end user. Streaming refers to
the manner by which a stream is sent. Streaming does not
require that a user download an entire large file to his
computer before he can watch or listen to it. Rather, the
streaming process sends out the digital signal in
continuous, tiny packets of data, and buffering enough of
the data so that user can experience the programming
seamlessly, while downloading the next segment in the
background.
StreamStation(TM) Streamedia's trademarked term for the non-proprietary
sites it will license to carry its programming and
information feeds. In concept, it is similar to the
relationship between network television broadcasters and
their local affiliate stations. StreamStations will be a
means by which Streamedia syndicates its content across
websites it does not own, thereby enhancing its market
penetration.
Switching hub A broadcast signal pool feed that enables port to
port redirection of data. Any system connected to a port
on the network can be "switched" to receive or transmit
to another port on that network. Rather than rebroadcast
all data to every port, switching hubs forward data only
to the required recipient.
Synchronized A markup language that enables a programmer to combine
Multimedia formats in one production, such as an audio
Integration stream with images and text. In this way, an internet
Language broadcaster can stream a radio station
signal, while showing advertising imagery, and scrolling
information in print, all in the same media
player.
Teleport A teleport or "telecommunications port" is a hub that
provides its users with fast, convenient, cost-effective
access to advanced and high-bandwidth services. Teleports
are high-bandwidth communication gateways for satellite,
optical fiber and microwave transmission. Teleports feed
video, data and voice to the world's constellation of
satellites and network of optical fiber. They deliver
television and radio programming to audiences around the
globe.
Traffic A total of users to a site or file. Traffic is measured
in various ways, such as hits, impressions, page views,
and unique users.
Unicast Each user connects to a separate stream of an audio or
video file. Contrast: "multicast."
Uplink The transmission of radio frequency signals to a
satellite from an earth station.
URL Uniform Resource Locator. An internet URL is like an
electronic street address. Example:
http://www.streamedia.net
Video-conferencing Conducting a conference between two or more participants
in different locations by using computer networks to
transmit audio and video data. Multipoint
video-conferencing allows three or more participants to
sit in a "virtual" conference room and communicate as if
they were sitting right next to each other.
Webcast A broadcast or narrowcast of audio or video over on the
World Wide Web. Using a streaming protocol, servers
deliver audio and/or video, in real time (live), or on a
delayed basis (on demand.)
</TABLE>
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
STREAMEDIA COMMUNICATIONS, INC.
<TABLE>
<S> <C>
Page
Report of Independent Certified Public Accountants F-1
Financial Statements
Balance Sheets F-2
Statements of Operations F-3
Statement of Stockholders' Equity (Deficit) F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-14
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
STREAMEDIA COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Certified Public Accountants F-1
Financial Statements
Balance Sheets F-2
Statements of Operations F-3
Statement of Stockholders' Equity (Deficit) F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-15
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Streamedia Communications, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Streamedia Communications,
Inc. (the "Company") (a development stage company) as of December 31, 1998, and
the related statements of operations, stockholders' equity (deficit) and cash
flows for the period from April 29, 1998 (date of inception) to December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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 Streamedia Communications, Inc.
(a development stage company) as of December 31, 1998, and the results of its
operations and its cash flows for the period from April 29, 1998 (date of
inception) to December 31, 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. The Company is a development stage
enterprise engaged in providing internet-based media programming and content on
the Web. To date, the Company has engaged in organizational and pre-operating
activities and needs to secure additional capital and customers to continue
operations. As discussed in Note A to the financial statements, the Company's
existence is dependent upon its ability to obtain additional capital, among
other things, which raises substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note A. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
GRANT THORNTON LLP
Melville, New York
March 9, 1999
<PAGE>
<TABLE>
<CAPTION>
Streamedia Communications, Inc.
(A Development Stage Company)
BALANCE SHEETS
December 31, September 30,
ASSETS 1998 1999
-------------- --------
<S> <C> <C>
(unaudited)
CURRENT ASSETS
Cash $ 1,225 $ 1,092,540
---------- ----------
Total current assets 1,225 1,092,540
COMPUTER EQUIPMENT 1,802 103,331
Less accumulated depreciation 602 10,969
----------- ------------
1,200 92,362
DEFERRED OFFERING COSTS 75,000 254,005
DEFERRED FINANCING COSTS 225,070
OTHER ASSETS 7,000
Total assets $ 77,425 $ 1,670,977
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accrued payroll $ 59,000 $ 100,778
Accrued offering costs 25,000
Accrued professional fees 12,000 15,851
Accrued consulting fees 38,500
Accounts payable and other accrued liabilities 4,185 30,583
Accrued interest expense 15,125
-------------- ------------
Total current liabilities 138,685 162,337
NOTES PAYABLE 1,549,762
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; authorized - 100,000
shares; none issued and outstanding -
Common stock, $.001 par value; authorized - 20,000,000 shares;
issued and outstanding - 3,025,000 and 3,295,490 shares at
December 31, 1998 and September 30, 1999, respectively 3,025 3,296
Additional paid-in capital 232,475 1,317,834
Deficit accumulated during development stage (296,760) (1,362,252)
-------- ----------
Total stockholders' equity (deficit) (61,260) (41,122)
--------- ------------
Total liabilities and stockholders' equity (deficit) $ 77,425 $ 1,670,977
========= ==========
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period Cumulative
April 29, 1998 Nine months from April 29, from April 29,
(date of inception) ended 1998 (date of 1998 (date of
to December 31, September 30, inception) to inception) to
1998 1999 September 30, 1998 September 30, 1999
------------------ ---------------- ------------------ -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue $ - $ - $ - $ -
-------------- ---------------- ------------- ----------
Operating expenses
Payroll and related expenses 239,000 350,194 589,194
General and administrative expenses 57,760 686,731 - 744,491
Interest expense - 28,567 - 28,567
-------------- ------------ ------------- ------------
NET LOSS $(296,760) $(1,065,492) $ - $(1,362,252)
======== ========== ============= ==========
Basic and diluted loss per common share $(.10) $(.33) $. - $(.43)
==== ==== ====== ====
Shares used in computing basic and diluted loss
per share 2,922,409 3,256,856 - 3,097,597
========= ========= ================ ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during
Preferred stock Common stock paid-in development
Shares Amount Shares Amount capital stage Total
---------- ---------- -------- ------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock $ - 2,910,000 $2,910 $ 2,590 $ 5,500
Issuance of common stock for
services 115,000 115 229,885 230,000
Net loss for the period $ (296,760) (296,760)
----------- ------- -------------- --------- ------------------ -----
Balance at December 31, 1998 - - 3,025,000 3,025 232,475 (296,760) (61,260)
Issuance of common stock
net of associated costs 264,490 265 523,715 523,980
Issuance of common stock
for services 6,000 6 11,994 12,000
Grant of common stock
options for services 71,150 71,150
Compensatory stock option
expense 206,250 206,250
Issuance of common stock
warrants 272,250 272,250
Net loss for the period (1,065,492) (1,065,492)
----------- ----------------------- -------- -------------- -------------- ----
Balance at September 30, 1999
(unaudited) - $ - 3,295,490 $3,296 $1,317,834 $(1,362,252) $ (41,122)
======== =========== ========= ===== ========= ===== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period Cumulative
April 29, 1998 Nine months from April 29, from April 29,
(date of inception) ended 1998 (date of 1998 (date of
to December 31, September 30, inception) to inception) to
1998 1999 Sept 30, 1998 Sept 30, 1999
------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(296,760) $(1,065,492) $ - $(1,362,252)
Adjustments to reconcile net loss to net cash used in
operating activities
Common stock issued for services 180,000 12,000 192,000
Stock option granted for services 71,150 71,150
Compensatory stock option expense 206,250 206,250
Amortization of debt discount 7,012 7,012
Depreciation and amortization 602 16,797 17,399
Changes in operating assets and liabilities
Other assets (7,000) (7,000)
Accrued payroll 59,000 41,778 100,778
Accrued professional fees 12,000 3,851 15,851
Accrued consulting fee 38,500 (38,500) -
Accounts payable and other accrued liabilities 4,185 26,398 30,583
Accrued interest expense 15,125 15,125
------- ------------ ------- --------
Net cash used in operating activities (2,473) (710,631) - (713,104)
-------- ----------- --------- ----------
Cash flows from investing activities
Purchase of fixed assets (1,802) (101,529) (103,331)
-------- ----------- --------
Cash flows from financing activities
Issuance of common stock, net of associated costs 5,500 523,980 5,500 529,480
Proceeds of notes payable and common stock warrants,
net of associated costs 1,583,500 1,583,500
Deferred offering costs (204,005) (204,005)
--------- ---------- --------- --------
Net cash provided by financing activities 5,500 1,903,475 5,500 1,908,975
-------- ---------- ----- ----------
Net increase in cash 1,225 1,091,315 5,500 1,092,540
Cash at beginning of period - 1,225 - -
-------- ------------- --------- ------
Cash at end of period $ 1,225 $ 1,092,540 $5,500 $ 1,092,540
======== ========== ==== =========
The accompanying notes are an integral part of this statement.
</TABLE>
F-7
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
Streamedia Communications, Inc. (the "Company") was incorporated in the
State of Delaware and is positioning itself as a vertically-integrated New
Media content generator, enabler and aggregator. The Company's three
divisions are Streamedia Broadcast(TM), Streamedia Webcast
Technologies(TM), and Streamedia Publishing.
Streamedia Broadcast(TM) intends to create a suite of topical broadcast
networks to deliver or "stream" live and on-demand audio and video
programming. Network sites intend to offer programming in areas such as,
but not limited to, business, sports, women's issues, parenting, travel,
education, religion, politics, health, teen and children's interests,
shopping, real estate, music, technology, personal fitness, movies,
entertainment and lifestyles. The Company has chosen
EducationBroadcast.com, TalkBroadcast.com, WomenBroadcast.com and
FinanceBroadcast.com as its initial network launches.
Streamedia Webcast Technologies(TM) will market internet and intranet
broadcasting services to a wide spectrum of enterprises, such as, but not
limited to, businesses, associations, electronic publishers and "off-line"
media generators, who are attempting to obtain an internet broadcast
presence. The division will attempt to deliver multimedia and text through
a variety of push, poll and proprietary electronic mail mechanisms.
The Streamedia Publishing division will focus upon its StreamWire(TM)
content. StreamWire(TM) will consist of a series of focused,
subject-oriented, edited news and information products, such as wires
devoted to NASDAQ or Amex-listed companies. It is intended that each
newswire developed by the Streamedia Publishing division will have its
broadcast network correlative. The Broadcast and Publishing divisions have
been devised to integrate vertically to create bundled, multimedia Internet
networks.
The Company's operations are subject to certain risks and uncertainties,
including actual and potential competition by entities with greater
financial resources, experience and market presence, risks associated with
the development of the Internet market, risks associated with consolidation
in the industry, the need to manage growth and expansion, certain
technology and regulatory risks and dependence upon sole and limited
suppliers.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE A (continued)
Basis of Presentation
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern which assumes the realization
of assets and settlement of liabilities in the normal course of business.
Since its inception, the Company has been engaged in organizational and
pre-operating activities. Further, the Company has generated no revenues
and incurred losses. Continuation of the Company's existence is dependent
upon its ability to obtain additional capital, secure and execute strategic
alliances to develop news and information content and sustain profitable
operations. The uncertainty related to these conditions raises substantial
doubt about the Company's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Management's plans include the completion of a private placement offering
(the "Private Placement") and an initial public offering ("IPO") of shares
of common stock should market conditions permit (see Note F).
The Private Placement includes the sale of up to 500,000 shares of the
Company's common stock at a price of $2.00 per share for gross proceeds of
$1,000,000. The proceeds will be used to provide working capital to the
Company. Subsequent to December 31, 1998, the Company sold 264,490 shares
of its common stock through the Private Placement for net aggregate
proceeds of $523,980 through September 30, 1999 (see Note F).
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Company's significant accounting
policies:
Unaudited Interim Financial Statements
The unaudited interim financial statements as of September 30, 1999 and for
the nine months ended September 30, 1999 and the period from April 29, 1998
(date of inception) to September 30, 1998 have been prepared on the same
basis as the audited financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial information set
forth therein, in accordance with generally accepted accounting principles.
The results of operations for the nine months ended September 30, 1999 are
not necessarily indicative of the results to be expected for any period.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE B (continued)
Depreciation
Computer equipment is depreciated on a straight-line basis over its
estimated useful life of three years.
Fair Value of Financial Instruments
The fair values of the Company's accounts payable and accrued liabilities
approximate the related carrying values due to the short maturities of
these instruments.
Income Taxes
The Company records income taxes using the asset and liability method,
which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the
financial reporting basis and tax basis of assets and liabilities. A
valuation allowance is recognized to the extent a portion or all of a
deferred tax asset may not be realizable.
Deferred Offering Costs
Costs incurred in connection with an equity offering are deferred until the
transaction is consummated or, in the event the offering is unsuccessful,
against operations in the period in which the offering is aborted.
Loss Per Share
Basic loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted loss per
share is computed using the weighted average number of shares of common
stock, adjusted for the dilutive effect of potential common shares issued
or issuable pursuant to stock options and stock appreciation rights. The
Company has no potential common shares outstanding at December 31, 1998.
Investment in Joint Venture
The Company accounts for its 50% investment in its joint venture,
Businessbroadcast.com, under the equity method, that is, at cost increased
or decreased by the Company's share of earnings or losses, less dividends
and distributions.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE B (continued)
In accordance with the joint venture agreement, each party shares equally
in the distribution of profits and operational costs. Each party may
increase their ownership percentage through capital contributions. The
formation of the joint venture did not require any initial capital
contribution by the Company. The joint venture did not generate any
revenues or incur any operational costs through December 31, 1998.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required 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 revenues and expenses during the reporting
period. Actual results may differ from those estimates.
NOTE C - STOCKHOLDERS' EQUITY (DEFICIT)
The Company was originally organized as a New Jersey limited liability
company ("LLC"). On December 21, 1998, pursuant to a Plan and Agreement of
Merger, the LLC was merged into the Company, with the Company continuing as
the surviving entity. Each membership unit of the LLC was converted into
30,000 shares of common stock of the Company.
In connection with an employment agreement, the Company granted 135,000
shares of the Company's common stock to an officer, of which 90,000 shares
had been issued in December 1998 and the remaining 45,000 shares will be
earned upon the achievement of certain business objectives to be
determined. The Company recorded compensation expense of $180,000
representing the fair value of the 90,000 shares issued at such date.
Compensation expense will be recorded for the fair value of the 45,000
shares on the date the specified objectives are met.
In December 1998, the Company issued 25,000 shares of common stock for
legal services to be provided in connection with the Company's IPO (Note
A). The Company recorded $50,000 of deferred offering costs representing
the fair value of the common stock at the date of issuance.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE D - INCOME TAXES
The Company generated a taxable loss of approximately $58,000 for the
period April 29, 1998 (date of inception) to December 31, 1998, which
carryforward expires in 2018.
A deferred tax asset of approximately $20,000 arises from the Company's net
operating loss carryforward at December 31, 1998. The Company has provided
a deferred tax asset valuation allowance since realization of these
benefits cannot be reasonably assured.
NOTE E - COMMITMENTS AND CONTINGENCIES
Office Lease
In January and February 1999, the Company entered into one year
noncancelable operating lease agreements (one of which is with its joint
venture partner) for office space. An aggregate security deposit of $4,200
was required as a condition of such leases. The minimum lease payments
under the noncancelable leases are summarized as follows:
1999 $29,025
2000 2,175
-------
$31,200
Employment Agreements
The Company maintains employment agreements with certain executive
officers. These agreements provide for monthly base salaries and benefits
(when annualized, aggregating $272,000 in executive compensation) and are
cancelable by either party upon written notice. In addition, the Company's
employment contracts contemplate the issuance of common stock and common
stock options to the executives based upon achievements to be established.
In connection with the successful completion of an IPO, the Company is
required to compensate its chief financial officer with a $100,000 bonus.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE F - UNAUDITED INTERIM FINANCIAL INFORMATION
Private Placement
In connection with the Company's Private Placement described in Note A, the
Company sold during the nine months ended September 30, 1999, 264,490
shares of its common stock for net proceeds of $523,980.
Pending Initial Public Offering
On May 17, 1999, the Company filed an initial public offering registration
statement with the Securities and Exchange Commission to register 1,000,000
units with an estimated offering price of $8.50, consisting of one share of
the Company's common stock and one warrant. Each warrant entitles the
holder to purchase one share of common stock at $12.75.
Stock Option Plan
In June 1999, the Board of Directors approved the 1999 Incentive and
Nonstatutory Option Plan (the "1999 Plan") for officers, directors,
employees and consultants of the Company, for which the Company has
reserved an aggregate of 500,000 shares of common stock. Options granted
under the 1999 Plan (which includes option grants prior to the Plan's
adoption) may be either incentive stock options or non-qualified stock
options. The term of any option may be fixed by the Board of Directors but
in no event shall exceed ten years from the date of grant. Options granted
to an employee of the Company shall become exercisable over a period of no
longer than five years. The term for which options may be granted under the
1999 Plan expires June 29, 2009.
In February 1999, the Company issued options to directors to purchase
60,000 shares of common stock, which vest immediately, at an exercise price
of $2.00 (the estimated fair market value of the Company's common stock on
the date of grant determined by reference to cash sales of common stock to
third parties through the Private Placement).
In March 1999, the Company issued an option to a consultant to purchase
15,000 shares of common stock, which vests immediately, at an exercise
price of $2.00 (the estimated fair market value of the Company's common
stock on the date of grant determined by reference to cash sales of common
stock to third parties through the Private Placement). For the nine months
ended September 30, 1999, the Company recorded a charge to operations of
$20,250 representing the estimated fair market value of the option granted
to the consultant using the Black-Scholes option pricing model.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE F (continued)
In June 1999, the Company entered into an employment agreement with an
executive officer which provides for an annual base salary of approximately
$90,000 and is cancelable by either party upon written notice. In
connection with this agreement, the Company granted such officer an option
to purchase 150,000 shares of common stock at an exercise price of $2.00
per share. The option was granted at an exercise price below the fair
market value of the Company's common stock determined by reference to the
estimated offering price applicable to the common stock through the pending
IPO, resulting in aggregate total compensation of $825,000, of which
non-cash compensation of $206,250 was recorded for the nine months ended
September 30, 1999, with the remaining charge of $618,750 to be recognized
over the remaining vesting period of approximately two years.
In August 1999, the Company's Board of Directors granted stock options to
an executive officer, directors and a consultant to purchase an aggregate
of 63,000 shares, 30,000 shares and 10,000 shares of common stock,
respectively, at an exercise price of $7.50 per share (the estimated fair
market value of the Company's common stock on the date of grant determined
by reference to the estimated offering price applicable to the common stock
through the pending IPO). For the nine months ended September 30, 1999, the
Company recorded a charge to operations of $50,900, representing the
estimated fair market value of the option granted to the consultant using
the Black-Scholes option pricing model.
Activity under the 1999 plan is summarized as follows:
<TABLE>
<CAPTION>
Outstanding options
Weighted
Shares Exercise Weighted average
available Number price average remaining
for of per exercise contractual
grant shares share price life (years)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 - - - - -
Shares authorized 500,000 - - - -
Options granted (328,000) 328,000 $2.00 - 7.50 $3.73 7.44
-------- ------- ----------- ---- ----
Balance at September 30, 1999 172,000 328,000 $2.00 - 7.50 $3.73 7.44
======== ======= =========== ==== ====
</TABLE>
Of the 328,000 outstanding options, 215,500 options were exercisable with a
weighted average exercise price of $4.63 per share and a weighted average
remaining contractual life of 8.85 years at September 30, 1999.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE F (continued)
The Company accounts for its stock-based awards in accordance with
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees," and its related Interpretations. Accordingly,
no compensation expense has been recognized in the financial statements for
employee stock arrangements granted at fair value. Had the Company
determined compensation cost based on the fair value at the grant date for
its stock options under Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation," the Company's
net loss and net loss per share for the nine months ended September 30,
1999 would have been increased to the pro forma amounts indicated below:
Net loss
As reported $(1,065,492)
Pro forma (1,862,262)
Basic and diluted loss per share
As reported $(.33)
Pro forma (.57)
The fair value of the Company's stock-based awards was estimated using the
Black-Scholes option pricing model assuming no expected dividends and the
following weighted average assumptions for the nine months ended September
30, 1999: expected life of five years, expected volatility of 80% and a
risk-free interest rate of 5.67%. The weighted average fair value of
options granted for the nine months ending September 30, 1999 was $5.04.
Notes Payable
In August 1999, the Company issued a series of promissory notes to
investors bearing interest at the stated rate of 10% per annum for an
aggregate principal amount of $1,815,000. Each note is part of a unit which
consists of (i) a $15,000 promissory note and (ii) a warrant to purchase up
to 9,000 shares of the Company's common stock. Each promissory note is
payable in full the earlier of: (i) July 31, 2002 or (ii) on the effective
date of the initial public offering. The Company issued an aggregate of 121
warrants to these investors to purchase 1,089,000 shares in total of the
Company's common stock at an exercise price equal to the IPO price. Each
warrant may be exercised any time after twelve months from the closing of
the IPO or before July 31, 2004. Financing costs incurred amounted to
$231,500 and are being amortized on a straight-line basis over the
three-year term of the notes. However, in the event the notes become
payable sooner upon the effective date of the initial public offering, the
Company will incur a charge for the unamortized deferred costs remaining in
such period.
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE F (continued)
In determining the fair value of the notes and warrants, the Company used
an effective interest rate of 15% based on the Company's estimated
borrowing rate. The resulting fair values of the notes and warrants at
issuance were $1,542,750 and $272,250, respectively. The carrying value of
the notes is being accreted to the face value of $1,815,000 using the
interest method over the three-year term of the notes. However, in the
event the notes become payable sooner upon the effective date of the
initial public offering, the Company will recognize a charge for the
unamortized discount remaining in such period. The accretion for the nine
months ended September 30, 1999 amounted to $7,012.
Employment Agreements
In June 1999, the Company's Board of Directors approved the amendment of
certain executive officer employment agreements. The amendments principally
increased aggregate annual compensation to $500,000.
Office Lease
In August 1999, the Company entered into a three-year, noncancelable office
lease agreement with monthly minimum payments of $7,000 and terminated its
then existing office lease agreement without any financial consequences to
the Company. A security deposit of $7,000 was required as a condition of
such lease.
Related Party Transaction
In August 1999, the Company entered into a $40,000 one-year consulting
agreement with an entity in which the entity's chief executive office is a
director of the Company.
Consulting Agreement
In October 1999, the Company granted a consultant options to acquire
150,000 shares of common stock at an exercise price equal to the IPO price
or $2.00 per share in the event the Company's common shares are not
underwritten through an IPO. Pursuant to the consulting agreement, 132,500
options vest immediately and the remaining 18,500 options vest ratably over
one year commencing November 14, 1999. On November 23, 1999, the Company
modified the consulting agreement to provide for (i) the cancellation of
the options to acquire 150,000 shares of the Company's common stock and
(ii) the
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE F (continued)
reissuance of an equal number of options to be granted on the effective
date of the IPO, which vest immediately, at an exercise price equal to the
IPO price or $2.00 per share in the event the Company's common shares are
not underwritten through an IPO. Compensation expense relating to these
options, assuming an IPO offering price of $8.50, amounting to $763,500
will be recognized in the period in which the Company consummates its IPO.
<PAGE>
No dealer, sales person, or other person has been authorized to give any
information or to make any representation not contained in this prospectus in
connection with the offer contained herein, and if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriters. The Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy the shares of common stock offered
hereby by anyone in any jurisdiction in which such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such
solicitation or offer. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
1,000,000 Units
Consisting of 1,000,000 Shares of Common Stock and
1,000,000 Redeemable Common Stock Purchase Warrants.
Offering Price
$
Per Unit
Streamedia Communications, Inc.
Prospectus
, 1999
Redstone Securities, Inc.
(800) 426-7346
(214) 692-3544
Until ______, 1999 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of the dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotment or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Delaware General Corporation Law
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a present
or former director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of Section 145, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 145(d) of the DGCL provides that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in subsections (a) and (b) of Section 145. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by
majority vote of such directors, even though less than a quorum, or (3) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (4) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Item 25. Other Expenses of Issuance and Distribution
Estimated expenses in connection with the public offering by the Company of the
securities offered hereunder are as follows:
Securities and Exchange Commission Filing Fee $7,432
NASD Filing Fee* 7,000
NASDAQ Small Cap Market Application and Listing Fee* 20,000
Accounting Fees and Expenses* 40,000
Legal Fees and Expenses* 120,000
Printing* 40,000
Fees of Transfer Agent and Registrar* 5,000
Underwriters' Non-Accountable Expense Allowance 170,000
Miscellaneous* 15,568
------
Total* $425,000
========
- ----------------
* Estimated.
Item 26. Recent Sales of Unregistered Securities
On May 16, 1999, we sold 264,490 shares of common stock at $2.00 per
share pursuant to Rule 506 of Regulation D promulgated under the Securities Act
of 1933, as amended. The common stock was offered to a discreet group of
accredited investors without the benefit of general solicitation or advertising.
We raised $523,980 from this private placement in order to provide bridge
financing for this offering.
On August 24, 1999, we issued $1,815,000 of debt securities in the form
of promissory notes which bear interest at a rate of 10% per annum. The notes
were offered pursuant to Rule 506 of Regulation D only to accredited investors,
with no general solicitation or advertising. The notes were offered as a unit,
each unit consisting of a promissory note in the principal amount of $15,000 and
a warrant entitling the holder to purchase 9,000 shares of our common stock at a
price per share equal to the price per share of common stock offered to the
public pursuant to our initial public offering. The warrants will be exercisable
during the period beginning on the first anniversary of the closing of the IPO
and ending on the date five years following the date that the warrants were
issued. The holders of the warrants will have certain "piggyback" registration
rights with respect to the shares underlying the warrants. Specifically, the
holders will be entitled to include their shares if the Company files a
registration statement with Commission during the period beginning one year from
the closing of the IPO and ending two years after the closing of the IPO.
In October 1999, we granted 150,000 options to a consultant to provide
investor relations services to Streamedia. The options allowed the consultant to
acquire shares of our common stock at an exercise price equal to the IPO price
or $2.00 per share in the event that our common shares are not underwritten
through an IPO. In November 1999 we rescinded these options but have
contractually agreed with the consultant to reissue the options following the
completion of the offering. The consultant is not a 5% or greater shareholder,
officer or director of the Company.
<PAGE>
<TABLE>
<CAPTION>
Item 27. Exhibits
<S> <C>
Exhibit No Item
Exhibit 1.1 Form of Underwriting Agreement.(2)
Exhibit 1.2 Form of Underwriters' Warrant Agreement.(2)
Exhibit 3.1 Certificate of Incorporation of the Registrant. (2)
Exhibit 3.2 Bylaws of the Registrant (2)
Exhibit 3.3 Amended to Bylaws of the Registrant (2)
Exhibit 5.1 Opinion of Kogan & Taubman, L.L.C..(1)(2)
Exhibit 10.1 Employment Agreement between Streamedia and James D. Rupp (2)
Exhibit 10.2 Employment Agreement between Streamedia and Gayle Essary (2)
Exhibit 10.3 Employment Agreement between Streamedia and Nicholas J. Malino (2)
Exhibit 10.4 Indemnification Agreement between Streamedia and Directors (2)
Exhibit 10.5 Consulting Agreement between Streamedia and IC Enterprises (2).
Exhibit 10.6 Minutes amending Employment Agreements between Streamedia and Messrs. Rupp, Essary and
Malino.(2)
Exhibit 10.7 Employment Agreement between Streamedia and Walter C. Hollenberg(2)
Exhibit 10.8 Kaleidoscope Media Group, Inc.Agreement
Exhibit 23.1 Consent of Grant Thornton LLP, Independent Certified Public Accountants.(1)(2)
Exhibit 23.2 Consent of Kogan & Taubman, L.L.P. is contained in the opinion filed as Exhibit 5.1 to
this registration statement.(1)(2)
Exhibit 27 Financial Data Schedule (1)(2)
--------------
(1) Filed herewith
(2) Previously filed
</TABLE>
<PAGE>
Item 28. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(2) For the purpose of determining any liability under the
Securities Act, treat each post-effective amendment that
contains a form of prospectus as a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering of those securities.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling 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 Act and is, therefore, unenforceable.
(4) 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
shares of 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 Act and will be governed by the final adjudication of such
issue.
(5) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant 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.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on November 29, 1999.
Streamedia Communications, Inc.
By: /s/ Gayle Essary
Gayle Essary, Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Gayle Essary and James Douglas
Rupp, and each for them, his true and lawful attorney-in-fact and agent, with
full power of substitution and re-substitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing), to sign any and
all further amendments to this Registration Statement (including post-effective
amendments), and to file same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person thereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or their substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Gayle Essary Chairman of the Board November 29, 1999
- --------------------
Gayle Essary (Principal Executive Officer)
/s/ James Douglas Rupp President and CEO, Director November 29, 1999
- -----------------------
James Douglas Rupp (Principal Operating Officer)
/s/ Nicholas J. Malino Chief Financial Officer and Director November 29, 1999
- ----------------------
Nicholas J. Malino (Principal Financial Officer)
/s/ David J. Simonetti Director November 29, 1999
- ----------------------
David J. Simonetti
</TABLE>
KOGAN & TAUBMAN, LLC
39 Broadway, Suite 2704
New York, New York 10006
(212) 425-8200
November 29, 1999
Streamedia Communications, Inc.
244 West 54th Street
New York, New York 10019
Re: Registration Statement on Form SB-2
Offering of 1,000,000 Units
Gentlemen:
I have acted as counsel to Streamedia Communications, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, (the "Securities Act"), of 1,000,000 units
(the "Units"), each consisting of one share of common stock $.001 par value (the
"Common Stock") and one warrant entitling the holder to purchase one share of
common stock at $12.75 per share (the "Warrants"), to be offered to the public
by the Company in a firm commitment underwriting by Redstone Securities, Inc.
The Registration Statement (defined below) also includes 150,000 additional
Units to cover over-allotments, if any.
Amendment Number Three to a registration statement on Form SB-2 that
was previously filed on May 17, 1999, is being filed herewith (the "Registration
Statement"). In connection with rendering this opinion, I have examined executed
copies of the Registration Statement and all exhibits thereto. I have also
examined and relied upon the original, or copies certified to my satisfaction,
of (i) the Articles of Incorporation and By-laws of the Company, (ii) minutes
and records of the corporate proceedings of the Company with respect to the
issuance of the Units to be offered and related matters, and (iii) such other
agreements and instruments relating to the Company as I deemed necessary or
appropriate for purposes of the opinion expressed herein. In rendering such
opinion, I have made such further investigation and inquiries relevant to the
transaction contemplated by the Registration Statement as I have deemed
necessary for the opinion expressed herein, and I have relied, to the extent I
deemed reasonable, on certificates and certain other information provided to me
by officers of the Company and public officials as to matters of fact of which
the maker of such certificate or the person providing such other information had
knowledge.
Furthermore, in rendering my opinion, I have assumed that the
signatures on all documents examined by me are genuine, that all documents and
corporate record books submitted to me as originals are accurate and complete,
and that all documents submitted to me are true, correct and complete copies of
the originals thereof.
Based upon the foregoing, I am of the opinion that the Units, and the
Common Stock and Warrants of which they are comprised, to be issued and sold by
the Company as described in the Registration Statement have been duly authorized
for issuance and sale and when issued by the Company against payment of the
consideration therefor pursuant to the terms of the Underwriting Agreement, will
be legally issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Kogan & Taubman, L.L.C.
By:__/s/__________________
Louis E. Taubman
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUTANTS
We have issued our report dated March 9, 1999, accompanying the financial
statements of Streamedia Communications, Inc. contained in Amendment No. 3 to
the Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Melville, New York
November 29, 1999
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> Sep-30-1999
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