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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
STREAMEDIA COMMUNICATIONS, INC.
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(Name of small business issuer in its charter)
DELAWARE 22-3622272
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
STREAMEDIA COMMUNICATIONS, INC.,
244 West 54th Street
New York, New York 10019
(212) 445-1700
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(Address of principal executive offices)
COPIES OF ALL COMMUNICATIONS TO:
Louis E. Taubman, Esq.
Kogan Taubman & Neville, LLC
39 Broadway, Suite 2250
New York, New York 10006
(212)425-8200
(212)482-8104 Fax
Bruce A. Cheatham, Esq.
Winsead Sechrest & Minick, PC
5400 Ranaissance Tower
1201 Elm Street
Dallas, Texas 75270
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after the
effective date of the Registration Statement.
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<PAGE>
If this Form is filed to register 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 numberr of the earlier
effective 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 number of the earlier efective 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 SPECILIFCALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BE COME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8 (A),
MAY DETERMINE.
<TABLE>
<CAPTION>
Calculation of Registration Fee
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Title of Each Class of Amount to be Registered Offering Price Proposed Maximum Offering Amount of Registration Fee
Securities to be Registered Price
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<S> <C> <C> <C> <C>
Units 1,380,000 8.50 11,730,000 $3,459
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Common Stock, par value $0.001 1,380,000 (2) (2) (2)
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Redeemable Common Stock 1,380,000 (2) (2) (2)
Purchased Warrants (2)
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Common Stock, par Value 1,380,000 $12.75
$0.001 (3)(4)
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Underwriter's Warrants (5) 120,000 $17,595,000 $17,595,000
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Units Underlying the $10.20 $1,224,000 $340
Underwriter's Warrants 120,000
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Common Stock, par 120,000 (6) (6) (6)
Value $0.001 (4)(6)
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Redeemable Common Stock 120,000 (6) (6) (6)
Purchase Warrants (6)
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Common Stock, par 120,000 120,000 $1,530,000 424
Value $0.001 (4)(7)
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
Total $32,079,000 9,117
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</TABLE>
(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 20,000 Units, consisting of an
aggregate of 20,000 shares of Common Stock and 20,000 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.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary 3
Selected Financial Information 5
Risk Factors 7
Use of Proceeds 11
Dividend Policy 12
Management's Discussion and Analysis 12
Business 17
Management 27
Security Ownership of Certain Beneficial Owners and Management 33
Certain Relationships and Related Transactions 35
Recent Sales of Unregistered Securities 35
Description of Securities 36
Shares Eligible for Future Sale 38
Legal Proceedings 39
Where You Can Find More Information 39
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures 40
Experts 40
Financial Statements 41
1
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PROSPECTUS
STREAMEDIA COMMUNICATIONS, INC.
1,240,000 Shares of Common Stock
Issuable upon Exercises of Redeemable Warrants
Exercisable at 12.75 Per Share
-The shares of Common Stock offered by this prospectus may be purchased by
the holders of our publicly traded redeemable Common Stock purchase warrants at
a price of $12.75 per share. We will receive all of the proceeds from sales of
these shares.
- Our Common Stock is traded on the Nasdaq SmallCap Market under the symbol
SMIL and on the Boston Stock Exchange under the symbol STA. The redeemable
warrants are traded on the Nasdaq SmallCap Market under the symbol SMILW and on
the Boston Stock Exchange under the symbol STAW.
- We may redeem some or all of the redeemable warrants at a call price of
$0.5 per warrant after December 21, 2000, if the closing bid price of the Common
Stock on the Nasdaq SmallCap Market has equaled or exceeded $12.75 per share for
10 consecutive trading days.
- On September 19, 2000, the closing bid price of our Common Stock on the
Nasdaq SmallCap Market was $1.0625 and the closing price for our redeemable
warrants was $0.1875.
- You should obtain the current market price quotations before deciding
whether to exercise your redeemable warrants.
Our principal executive offices are located at 244 West 54th Street, New
York, New York 10019.
THE SECURITIES OFFERED BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING "RISK
FATORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE REGULATORY AUTHORITIES
HAVE NOT APPROVED OR DISAPPORVED THESE SECURITIES, OR DETERMINED IF THIS
PROPSECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is September 21, 2000
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
prospectus. Investment in our Common Stock involves a high degree of risk.
Investors should carefully consider the information set forth under "Risk
Factors" beginning on page 7.
THE COMPANY
We were incorporated in the State of Delaware and are positioning ourselves as a
provider of Internet consulting services and as a vertically-integrated New
Media content generator, enabler and aggregator. We are comprised of two
divisions, which are the Streamedia Networks and Business Services. In December
1999, we completed our initial public offering. The net proceeds from the
Offering were approximately $8,447,000.
Our Streamedia Networks consist of a suite of topical broadcast networks to
deliver or "stream" live and on-demand audio and video programming. Our
Streamedia Networks sites offer programming in areas as "Crime Broadcast",
"Sports Style", "Motion Arts", "Women on the Edge", and "Bijou Cafe".
Our Streamedia Business Services division markets 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 delivers multimedia and text through a variety of push, poll and
proprietary electronic mail mechanisms.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities offered.......................... 1,240,000 warrants, each warrant entitles the holder to
purchase one share of Common Stock at a price per share
of $12.75 until December 21, 2003.
Description of warrants.................... The warrants are exercisable commencing on December 21, 2000.
The Company may redeem some or all of the outstanding warrants
for $.05 per warrant starting December 21, 2000, 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.......................... Between 4,730,044 and 5,970,044 shares, depending on the
</TABLE>
3
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<TABLE>
<S> <C>
number of warrants exercised.
Nasdaq SmallCap Symbols
Common stock................................ "SMIL"
Warrants.................................... "SMILW"
Boston Stock Exchange Symbols
Common stock................................ "STA"
Warrants.................................... "STAW"
Use of Proceeds............................ The Company intends to use the net proceeds of the
Offering for capital equipment, sales,
marketing and promotion, working capital, strategic
acquisitions, and for general corporate purposes.
Risk Factors................................ The Common Stock is a speculative investment and involves
a high degree of risk and immediate substantial
dilution. Investors who cannot afford to
lose their entire investment should not purchase
Streamedia's Common Stock. See "Risk Factors" and "Dilution."
</TABLE>
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Does not include 160,000 shares of Common Stock and warrants to purchase another
160,000 shares of Common Stock issued to the underwriters of our initial public
offering.
Does not include 1,089,000 shares issuable upon the exercise of warrants to
purchase additional Common Stock which were sold on August 24, 1999, in a
private placement.
Does not include options to purchase 502,000 shares issued pursuant to our 1999
Incentive and Nonstatutory Stock Option Plan. We presently have 1,000,000 shares
reserved for issuance under our 1999 Incentive and Nonstatutory Option Plan.
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SELECTED FINANCIAL INFORMATION
The selected financial data as of June 30, 2000 and for the six months ended
June 30, 2000 and 1999 and cumulative from January 13, 1998 (date of inception)
to June 30, 2000 have been derived from our unaudited financial statements
included elsewhere in this document.
The selected financial data as of December 31, 1999 and 1998 for the year ended
December 31, 1999 and the period from January 13, 1998 (date of inception) to
December 31, 1998 have been audited by Grant Thornton, LLP, independent
certified public accountants. The information set forth below should be read in
conjunction with our financial statements and "Management's Discussion and
Analysis" beginning on page 12.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Period from Cumulative
January 13, From
1998 (date January 13,
Six months of 1998 (date of
Ended June 30, Year ended inception) inception) to
---------------------------- December 31, to December 31, June 30,
2000 1999(a) 1999(a) 1998 (a) 2000(a)
-------------- ------------ ------------ -------------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ 130,830 $ 52,109 $ 162,139 $ 18,286 $ 311,255
----------- ----------- ----------- ----------- -----------
Operating expenses
Payroll and related expenses 1,861,114 440,469 1,094,843 300,629 3,256,586
Product development 23,024 501,477 524,501
General and administrative 2,106,982 177,533 1,744,086 145,220 3,996,288
----------- ----------- ----------- ----------- -----------
Total operating expenses 3,991,120 618,002 3,340,406 445,849 7,777,375
----------- ----------- ----------- ----------- -----------
Operating loss (3,860,290) (565,893) (3,178,267) (427,563) (7,466,120)
----------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense (9,020) (4,359) (612,177) (657) (621,854)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Interest income 116,137 1,995 4,620 120,757
----------- ----------- ----------- --------- -----------
Total other income (expense) 107,117 (2,364) (607,557) (657) (501,097)
----------- ----------- ----------- --------- -----------
NET LOSS $(3,753,173) $ (568,257) $(3,785,824) $(428,220) $(7,967,217)
=========== =========== =========== ========= ===========
Basic and diluted loss per common
share $ (.80) $ (.17) $ (1.12) $ (.20) $ (2.50)
=========== =========== =========== ========= ===========
Weighted average shares outstanding,
basic and diluted 4,699,347 3,247,717 3,385,959 2,167,681 3,189,761
=========== =========== =========== ========= ===========
</TABLE>
(a) Retroactively restated to combine the results of operations of Streamedia
with those of Eons Ahead, Inc., as a tax-free reorganization by Streamedia
in March 2000 and accounted for as a pooling of interests.
Balance Sheet Data:
<TABLE>
<CAPTION>
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As of June 30, 2000 As of December 31, As of December 31,
unaudited(a) 1999(a) 1998(a)
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<S> <C> <C> <C>
Working capital (deficit) $ 1,402,216 $ 5,647,152 $ (128,239)
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Total assets 4,140,136 8,116,140 88,947
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Total liabilities 765,583 1,604,713 139,584
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Stockholder equity
(deficit) 3,374,553 6,511,427 (50,637)
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</TABLE>
(a) Retroactively restated to combine the results of operations of Streamedia
with those of Eons Ahead, Inc., as a tax-free reorganization by Streamedia
in March 2000 and accounted for as a pooling of interests.
6
<PAGE>
RISK FACTORS
You should be aware that there are various risks associated with our business,
and us including the ones discussed below. The following risk factors should be
carefully considered, together with other information contained in this
prospectus, in evaluating us.
Our Limited Operating History Makes It Difficult To Determine Our Future
Success. Streamedia is currently just becoming operational. To date, we have
generated limited revenues. We have experienced losses in each quarter since our
inception. Our accumulated deficit as of June 30, 2000, was $7,967,217. In May
2000, we launched four network sites, but have not yet begun to generate
significant revenues. 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.
We May Not Be Able to Obtain the Financing and Capital Required to Maintain and
Grow Our Business. For the six months ended June 30, 2000, we incurred a net
loss of $3,753,173. We expect to incur additional capital expenditures and
operating costs in connection with the operation and expansion of our network
sites, which will result in significant losses for the foreseeable future. There
can be no assurance that we will generate significant revenues or achieve
profitable operations. Our independent certified public accountants' report on
the financial statements for the year ending December 31, 1999, includes an
explanatory paragraph stating that our ability to continue our business is
dependant upon our ability to obtain additional capital, among other things,
which raises doubts about our ability to continue as a going concern.
Possible Delisting of Securities From the NASDAQ stock Market; Risks of Low
Priced Securities. While the Common Stock and warrants have met the current
initial listing requirements for inclusion in the Nasdaq SmallCap market, there
can be no assurance that we will continue to meet those listing requirements.
Under the current criteria for continued inclusion on the SmallCap Market:
1. We will have to maintain at least $2,000,000 in net tangible assets or
$35,000,000 in market capitalization, or achieve net income of
$500,000 for two of the last three years;
2. The minimum bid price of the Common Stock will have to be $1.00 per
share;
3. There must be at least 500,000 shares in the public float valued at
$1,000,000 or more;
4. The Common Stock must have at least two active market makers; and
5. The Common Stock must be held by at least 300 holders.
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If we are unable to satisfy the SmallCap Market's maintenance requirements, our
securities may be delisted. The Common Stock and warrants would then be traded
only in the over-the-counter market, in the so called "pink sheets", or the
NASD's OTC Bulletin Board. Consequently, the liquidity of our securities could
be impaired.
In addition, if the Common Stock is delisted from trading on the SmallCap market
and the trading price of the Common Stock falls below $5.00 per share, trading
in the Common Stock may be subject to the penny stock trading rules promulgated
under Section 15(g) of the Securities Exchange Act of 1934 and the relevant
rules thereunder. The "penny stock" rules impose additional sales practice
requirements on the broker-dealers who sell our securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together
with their spouse). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer must also
provide the customer with current bid and offer quotations for the penny stock,
the compensation received by the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
generally require that prior to a transaction in a penny stock, the
broker-dealer must make a special written determination the penny stock is a
suitable investment for the purchaser and the broker-dealer must obtain the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules and investors
may find it more difficult to sell their securities.
The Exercise Price of the Warrants was Arbitrarily Determined. Prior to the
initial public offering, there was no public trading market for our Common Stock
or the warrants. Consequently, the exercise price of the redeemable warrants was
determined by negotiation between the underwriters and us and is not necessarily
related to our asset value, net worth, or other criteria of value. Among the
factors considered in determining the offering price, and the exercise price of
the warrants were our financial condition and prospects, our management, market
price of similar Internet securities in comparable publicly traded companies,
certain financial and operating information in companies engaged in activities
of similar to ours and the general condition of the securities market. There can
be no assurance that a regular trading market will be sustained.
Future Non-Public Sales of Our Securities May be on Terms More Favorable than
the Terms of This Offering. 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 exempt from registration under the securities laws.
These purchasers may acquire securities on terms more favorable than offered to
you. In addition, 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 warrants. In addition, any offering of additional
unregistered shares would cause dilution in the interests of other shareholders.
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The Outstanding Warrants May Adversely Affect us in the Future. The holders of
the underwriters' warrants from our initial public offering will have until
December 21, 2004, to profit from a rise in the market price of the Common Stock
and warrants. Investors from our August 24, 1999 private placement, also have
until July 31, 2004, to exercise warrants to purchase 1,089,000 shares of our
Common Stock. The exercise of such warrants will cause dilution in the interests
of other shareholders. Further, the terms on which we may 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 that we might be able to obtain additional capital
through a new offering of shares on terms more favorable than those in this
offering. We have agreed that, under certain circumstances, we will register
under the securities laws the shares to be issued upon the exercise of the
underwriters' warrants. Exercise of these registration rights could involve
expense at a time when we could not afford the expense and may adversely affect
the terms upon which we may obtain financing.
We Are Dependent On Key Existing And Future Personnel For Our Success.
Streamedia's success depends on the efforts of certain members of senior
management, particularly James Rupp (President and Chief Executive Officer) and
Nicholas Malino (Executive Vice President, Chief Operating Officer and Chief
Financial Officer). The loss of one or both of these individuals could adversely
affect our business operations or prospects. These individuals have entered into
employment agreements, but we cannot guarantee that either of these individuals
will continue to serve in his current capacity or for what time period this
service might continue. We have not obtained key man life insurance policies
with respect to these individuals.
Our Principle Shareholders Own a Majority of the Shares Outstanding and May
Control Us. Our officers and directors own a majority of the outstanding shares
of Common Stock. 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.
We Are Dependant On Continued Growth and Acceptance of the Internet. Our
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.
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, Internet infrastructure does not
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<PAGE>
effectively support the growth that may occur, or the evolution of broadband
connectivity is slower or less widespread than anticipated.
In the event that the Internet does not continue to grow or grows more slowly
than expected, we may not have the ability to generate sufficient revenues. We
anticipate that advertising revenues will depend on, among other factors,
pricing of advertising on other websites; the amount of traffic that our
websites receive; and our ability to achieve and demonstrate user and member
demographic characteristics that are attractive to advertisers. All of these
factors are dependant on the growth and acceptance of the Internet.
To Remain Competitive We Must Adapt to Internet Technology Trends. The market
for Internet broadcast services experiences rapid technological developments,
frequent new product introductions and evolving industry standards. Many of our
existing competitors, as well as potential direct competitors, have longer
operating histories, greater name recognition, larger consumer bases and greater
financial, technical, research, and marketing resources than ours. This may
allow them to devote greater resources than we can to develop and promote their
products. These competitors may also engage in more research and development,
undertake more far reaching marketing campaigns, and make more attractive offers
to existing and potential clients and employees, outside contributors, and
advertisers. These competitors may develop content that is equal or superior to
ours or that gains greater market acceptance than our content. It is also
possible that new competitors may emerge and rapidly acquire a significant
market share. We accordingly may not be able to compete successfully for
advertisers, viewers, and technical employees, which could materially adversely
affect our business, results of operations, and financial condition.
Furthermore, to remain competitive we 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. In addition, 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.
Government Regulations. Certain existing laws or regulations specifically
regulate communications or commerce on the Web. Moreover, laws and regulations
that address issues such as user privacy, pricing, online content regulations,
taxation and the characteristics and quality of online products and services are
under consideration by federal, state, local and foreign governments and
agencies. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
services providers in a manner similar to the regulation of long distance
telephone carriers and to impose access fees on such companies. Such regulation,
if imposed, could increase the cost of transmitting data over the web. Moreover,
it could take years to determine the extent to which existing laws relating to
issues such as intellectual property ownership and infringement, libel,
obscenity, and personal privacy are applicable to the web. The Federal Trade
Commission and government agencies in certain states have been investigating
certain Internet companies
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regarding their use of personal information. Any new laws regulating and/or
relating to the web, or certain application or interpretation of existing laws,
could decrease the growth in the use of the web, decrease the demand for our web
site or otherwise materially adversely affect our business.
USE OF PROCEEDS
The net proceeds of this Offering to us are $15,810,000. We intend to use the
net proceeds as follows:
Use of Funds Offering
------------ ---------
Capital Equipment $ 700,000
Sales, Marketing and Promotion $ 500,000
Acquisitions $ 4,000,000
General Corporate Purposes $ 10,560,000
Offering Expenses $ 50,000
------------
Total $ 15,810,000
Prospective investors should be aware that because the amount of net proceeds
under this Offering are not determinable, the precise uses of those funds cannot
be determined at this point. However, in the event that we do not receive the
full offering, our priorities will in the following order: (1) pay the expenses
associated with this offering; (2) general corporate purposes; (3) capital
equipment; (4) sales, marketing, and promotion; and (5) acquisitions.
Investors should also be aware that although currently, the intended uses of
those funds are in the general areas discussed above, if circumstances require
the application of those funds for other matters relating to our business not
contemplated here, those uses could be made.
The funds listed under the caption general corporate purposes will be used for,
without limitation, general and administrative expenses, salaries and product
development.
The Offering expenses include our estimate for the total accounting and legal
fees.
Pending application of the net proceeds of this Offering, we may invest the net
proceeds from this Offering in interest-bearing saving accounts, United States
Government obligations, certificates of deposit of short-term interest bearing
securities.
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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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with our Financial
Statements and Notes thereto which appear elsewhere in this document. The
results shown herein are not necessarily indicative of the results to be
expected in any future periods. This discussion contains forward-looking
statements based on current expectations, which involve risks and uncertainties.
Actual results and the timing of events could differ materially from the
forward-looking statements as a result of a number of factors. For a discussion
of the risk factors that could cause actual results to differ materially from
the forward-looking statements, you should read the "Risk Factors" section of
this document.
OVERVIEW
We were organized in the State of Delaware in 1998. From the date of our
inception through the present, we have considered ourselves a development stage
company. Our primary activities to date have consisted of the following:
Securing financing to begin the operating phase
We completed our Initial Public Offering on December 27, 1999. Prior to this
date we completed only limited build-out and development of our technological
infrastructure and recruited only a select few technical and managerial
employees. Subsequent to the completion of the offering we began an extensive
effort to develop a state-of-the-art infrastructure for video and audio
streaming and to recruit and hire technical personnel to design, implement, and
maintain these systems. The initial phase of this build-out was substantially
completed in the second quarter of 2000.
Building of streaming infrastructure and the web sites
The streaming infrastructure consists of various local and wide area networks
capable of streaming and storing large amounts of audio and video files. We have
implemented networked environments for development, staging, and actual
broadcast to the public over the Internet. The system combines a sophisticated
network architecture to develop and deliver our content as well as a system to
store files to be streamed.
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Recruiting technical and broadcast production talent
The area of streaming video and audio over the Internet is new and complex.
There is an extremely limited pool of talent available with expertise in this
field. We have spent a great deal of time recruiting and interviewing talent for
these positions. We have had success in attracting and retaining individuals
with the necessary talents and experience. We have approximately 36 employees
the majority of which are Network Producers, Video Editing Technicians, Digital
Asset Technicians, Web Designers, Web Developers, Programmers, and LAN and
Database Administrators.
Developing and refining our business model
We have devoted time to refining our business model prior to commencing actual
operations. Our business model has been built around multiple lines of product
and services with multiple revenue sources. We originally contemplated four
business lines, which have since been consolidated into two main revenue
divisions built around the types of clients that each division services. The
Streamedia Networks target the Internet users and our Business Services division
is aimed at corporate clients.
Establishing a network of industry partners
The Internet industry has been built around establishing partnering arrangements
with competitors and collaborators alike. In furtherance of our plan and
objectives, we have established partnering arrangements with Real Networks,
Inc., Real Media, Inc., Virage, Inc., Vignette, Inc., Screaming Media, Inc.,
Accrue Software, Inc., COMTEX Scientific Corp., Intraware, Inc., and Video
Corporation of America, Inc.
Planning and developing of the Streamedia Networks
The Streamedia Networks are the showcase of our abilities in webcasting,
streaming audio and video, and web site design and development. We have
evaluated, acquired, and installed hardware and software associated with the
development of the Networks including ad servers, syndication servers, database
servers, multimedia delivery, Internet broadcasting, online content syndication,
media asset management, online advertising and customer management.
During the quarter ended June 30, 2000, we officially launched the Streamedia
Networks, which are our showcase for web design and broadcast programming. Each
Network is devoted to a specific category of programming, such as women's issues
or sports. Visitors to the Streamedia Networks are able to view live and
on-demand video and audio programming in an environment similar to that of cable
broadcasts, offering a wide scope of programming choices, interactive elements,
convenient access to retail opportunities, and numerous sources of news and
information in topics of interest. Much like cable and network television, we
produce, aggregate and distribute content in various categories. Currently, we
offer programming news and
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information on five Networks: Crimebroadcast, Motion Arts, Women on the Edge,
Sports Style and the Bijou Cafe.
Planning and developing our Business Services
Our business services are designed to provide technology and consulting
expertise and services to traditional media companies, traditional businesses
with media assets, and online businesses and web sites. Our Streamedia Digital
Solutions includes encoding services, digital security, video indexing,
broadcasting production, and web design. In developing our business services
area, we have acquired and installed hardware and software that allows us to
perform these services for other companies.
During the quarter ended June 30, 2000, we also launched our Internet
professional services business and began producing revenues. The Internet
professional services business provides consulting and design services relating
to the construction of websites or Internet applications on the World Wide Web.
The launch of our professional services was subsequent to the launch of the
Streamedia Networks in May and was only operational for a portion of the
quarter.
RESULTS OF OPERATIONS
On March 31, 2000, we closed a tax-free reorganization with Eons Ahead, Inc., a
New York web design firm. The financial statements presented with this
discussion reflect this transaction as a "pooling of interests" of Eons Ahead
with our interests as the surviving company. The discussion that follows, and
all future discussions, will exclusively address the financial statements of the
"pooled" Company and retroactively combine the financial positions of Streamedia
with Eons Ahead, Inc.
Six Months Ended June 30, 2000, Compared to Six Months Ended June 30, 1999.
REVENUES. Revenues increased by $78,721 or 151% to $130,830 for the six months
ended June 30, 2000, as compared to $52,109 for the comparable period of 1999.
For the three months ended June 30, 2000, revenues increased by $92,218 or 295%
to $123,486, as compared to $31,268 for the comparable period in 1999. Revenues
for the three and six month periods ended June 30, 2000, were primarily
generated from our performance of Internet professional services, launched in
May 2000.
The revenues for the three and six month periods ended June 30, 1999, are due to
the tax-free reorganization of Eons Ahead, Inc., in March 2000, which was
accounted for as a pooling of interests.
OPERATING EXPENSES. Total operating expenses increased by $3,373,118 or 546% to
$3,991,120 for the six months ended June 30, 2000, as compared to $618,002 for
the comparable period of 1999. For the three months ended June 30, 2000, total
operating expenses increased by $1,932,252 or 517% to $2,306,192, as compared to
$373,940, for the comparable period in 1999.
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The increases in operating expenses for the three and six month periods ended
June 30, 2000, were due to recruiting, hiring, and training of additional
technical and administrative employees, product development costs, implementing
of systems including our video storage systems, Internet service provider costs
and other general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES. We incurred net losses every quarter since our
inception. For the six months ended June 30, 2000, we incurred a net loss of
$3,753,173, an increase of 560% as compared to a net loss of $568,257, for the
six months ended June 30, 1999.
For the six months ended June 30, 2000, we expended approximately $1,269,000 for
property and equipment assets. This represents a substantial portion of our
technical capital infrastructure. We estimate we will spend an additional
$600,000 completing our infrastructure. We expect to complete this build-out in
the third and fourth quarters of fiscal 2000, at which time we anticipate that
the monthly rate of capital expenditures will significantly decrease.
Period from January 13, 1998 (date of inception) to December 31, 1998 Compared
to Year Ended December 31, 1999.
REVENUES. Revenues increased by $143,853 or 787% to $162,139 for the for the
fiscal year ended December 31, 1999, as compared to $18,286 for the period from
January 13, 1998 (date of inception) to December 31, 1998.
OPERATING EXPENSES. Total operating expenses increased by $2,894,557 or 649% to
$3,340,406 for the fiscal year ended December 31, 1999, as compared to $445,849
for the period from January 13, 1998 (date of inception) to December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES. We incurred net losses every quarter since our
inception. For the fiscal year ended December 31, 1999, we incurred a net loss
of $3,785,824, an increase of 784% as compared to a net loss of $428,220, for
the period from January 13, 1998 (date of inception) to December 31, 1998.
We have financed our operations primarily through sales of equity securities and
the private placement of debt instruments. For the six months ended June 30,
2000, we raised $299,200 from the sale of common stock pursuant to the exercise
of the underwriters' overallotment option in connection with our initial public
offering. From January 13, 1998 (the date of our inception), to June 30, 2000,
we have raised approximately $12.8 million from the sale of common stock and the
placement of debt (before underwriting discounts and offering costs). We
completed our initial public offering on December 27, 1999, and repaid
$1,878,125 in debt and interest. On December 31, 1999 our principal source of
liquidity is $6,693,061 of cash and cash equivalents.
During this fiscal year, we plan to implement several business strategies. These
include substantially adding to our library of broadcast content and to develop
our Internet professional services offerings. We intend to focus our efforts on
the expansion of our professional services since we believe that it represents
our best short-term path to profitability. The Network or
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Content portion of the business will be built out more gradually, as our
resources will be expended on the areas representing the potential for greatest
return.
To accomplish these objectives, we need to:
o Make substantial investments in capital equipment, such as web servers,
storage devices, and other specialized computer and communications
equipment, and
o Hire or otherwise contract with highly specialized personnel to develop,
configure, administer, and operate Web sites, broadcast equipment and
infrastructure for our company and our corporate clients.
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. In addition to encoding out own material for
broadcast, we will also provide encoding services to outside parties for fees
based on the number of minutes encoded.
We plan to acquire additional content. Current industry conditions render it
difficult to secure "exclusive" rights to numerous classes of content suitable
for broadcasting over the Internet. To the extent to which we cannot capture
exclusive broadcast rights, we will be in competition with other web sites
attempting to attract audiences by offering some of the same programming.
We anticipate 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 professional 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, profits, or working
capital.
Nevertheless, we believe that to accomplish our business objectives we will have
to continue to expand our operations. However, our limited operating history
makes predictions of our future results of operations difficult to access. We
have incurred net losses in each fiscal period since our inception and, as of
June 30, 2000, we had an accumulated deficit of $7,967,217. To date, although we
are beginning to generate revenues, we may never achieve profitable operations.
Our history of net losses raises doubt about our ability to continue operations.
Based upon our projected costs for the year 2000 and our past operating losses,
we will need to obtain sufficient additional financing or other working capital
to fund our operations.
If we do not obtain additional financing or working capital, we believe that
limiting our planned expansion and by reducing sales, marketing, and advertising
budgets, our cash and cash equivalents will be sufficient to meet our working
capital and capital expenditure requirements
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through at least the end of 2000. Thereafter, if cash generated from operations
is insufficient to satisfy our liquidity requirements, we may need to sell
additional equity or debt securities to continue as a going concern.
BUSINESS
A. BUSINESS DEVELOPMENT
Streamedia Communications, Inc. ("Streamedia" or "the Company") is a Delaware
Corporation. Our principal business address is 244 West 54th Street, 7th Floor,
New York, New York, 10019. Our telephone number is (212) 445-1700.
We started in January 1998 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 have never been a party to any bankruptcy, receivership, or similar
proceeding.
B. BUSINESS OF THE REGISTRANT
GENERAL
We provide website owners and content publishers with cost-effective services
and tools for streaming, or broadcasting, live and on-demand video and audio
content over the Internet. We have also created and operate a series of websites
we call the "Streamedia Networks." Our business, therefore, has two primary
components: we act as an Internet content publisher and broadcaster, and as a
business-to-business service bureau, for hire, to assist other businesses to
publish and broadcast their content on the Web. Each area of activity is
expected to generate multiple sources of revenue.
Our content websites and the broadcast programming that they feature provide
examples of the services we are able to provide on a business-to-business basis.
Our streaming media services enable web users to enjoy activities such as:
o Listening to radio broadcasts on the Internet
o Watching news, sports, and cultural events from around the world
o Experiencing interactive presentations
o Accessing unique work by artists who do not sell their work to
traditional broadcasters in television or radio
o Hearing public company financial presentations as they happen, or on a
replay basis
o Watching classic and independent films not easily available from other
sources
o Watching music videos or listening to songs on demand
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o Participating in live interactive webcasts or Internet conferences o
Gathering important health information on a confidential basis
o Joining an Internet "community"
o Researching products for which they are shopping
THE STREAMEDIA NETWORKS
The Streamedia Networks are our showcase for web design and broadcast
programming. Each Network is devoted to a specific category of programming, such
as women's issues, or sports. Visitors to the Streamedia Networks are able to
view live and on-demand video and audio programming in an environment similar to
that of cable broadcasts. Much like cable and network television, we produce,
aggregate and distribute content in various categories. Currently, we offer
programming news and information regarding motion art, crime, sports, women, and
entertainment. Each Network and any channel associated with it is capable of
carry advertising.
Much of the programming available on the Streamedia Networks represents
proprietary productions by our staff. Other aspects of our programming are
materials to which we have acquired the rights, or obtained a distribution
license from the owner. We anticipate that most of our content will continue to
be offered at no charge to end-users: our goal is to capture the maximum
possible consumer audience. To see and hear our programming, the public does not
require special hardware or 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.
ACTIVE NETWORKS AT WWW.STREAMBROADCAST.COM:
STREAMEDIA MOTION ARTS - a network focused on the visual arts, particularly
animation, experimental cinema, and digital multimedia work of artists,
directors, and producers. Employing high-end graphics, Motion Arts is primarily
intended for broadband users and provides a forum for artists to display their
works.
STREAMEDIA CRIME BROADCAST - a network focused on promoting public awareness and
community action in the fight against crime. This network's focus is on crimes
against people and has segments on serial killers, kidnapping, and assault. It
also covers the latest technology available in the fight against crime and
information of public interest on topics of current interest related to crime
and law enforcement.
STREAMEDIA SPORTS STYLE - a network focused on the pursuit of personal athletic
participation and enjoyment of Extreme Sports. This network's programming is
designed to inform the aficionado and enthusiast and to facilitate learning
about various sports and participation in them. The balance sport brings to
one's lifestyle is a central theme of Sports Style.
WOMEN ON THE EDGE - a network focused on profiles of heroines of our time. The
network is segmented into user groups along the lines of "Women on the Edge:
Maturity," "Women on the Edge: Adrenaline," "Women on the
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Edge: Arts," etc. By providing a venue for profiles of heroines, the network
provides positive role models for women in any stage of life.
STREAMEDIA ENTERTAINMENT (BIJOU CAFE) - a network focused on the short film
genre works such as comedies, horror movies, and westerns, and campy B movies.
This sire allows visitors to view and discuss short films, film making, and to
submit their own films.
We intend to offer the following types of programming, some of which is already
available at our sites. The list is representative, not exhaustive:
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Concerts Children's shows
Comedy Routines & movies Workout & Training films
Cartoons US & International News
High-end Graphic arts Talk and call-in shows
Video and Audio Press Releases Extreme Sports
"How-to" shows Interviews
Investor Conferences Corporate Video Profiles
Fashion Advice Infomercials
Medical Symposia Trade Shows Celebrity interviews
Analyst and Broker Presentations Awards Ceremonies
Documentaries Educational Videos
Women's Interests Political Programming
True crime studies Independent Films and Shorts
Sales Training Seminars Travel Footage
Distance Learning Sessions Biographies
Full-length movies Religious Programs
FM radio stations Genre and independent films
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THE BUSINESS SERVICES
BUSINESS-TO-BUSINESS CORE COMPETENCIES
Business Services mission is to provide technology and consulting expertise and
services to conventional media companies, traditional businesses with media
assets, and online businesses and websites needing to coordinate and control
their media assets to increase profits, enhance branding, increase their
distribution, and raise their industry stature. We will emphasize the role of
Media Resource Planning, the digital counterpart to ERP, Enterprise Resource
Planning-in any company's future.
Streamedia Business Services has the following capacities:
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o Capture and convert traditional non-digital media such as film and
videotape assets to digital format
o Store these converted media assets in a digital environment which may
be indexed so that the digital files can be searched for content.
o Provide a commerce-enabled web interface to that digital environment
o Furnish scalable and reliable distribution means to delivery for all
products including professional quality video
o Track the use of media assets throughout the broadcast, cable and
Internet marketplace
o Provide consulting expertise and technology to help companies build
similar, but non-competitive systems at the "company-wide" level.
THE STREAMEDIA DIGITAL SOLUTIONS(TM)
The centerpiece of Streamedia's Business-to-Business Strategy is the Streamedia
Digital Solutions(TM). Streamedia's Digital Solutions(TM) allow owners of
traditional types of media, such as film, photographic, and video and audio
libraries, to display their content over the Internet. The digitization of
traditional media assets is recognized as a method to preserve and protect
fragile media assets such as film. Moreover, Streamedia Digital Solutions(TM)
process also allows media owners to:
o Enhance their video or audio asset through Streamedia's ability to
optimize the video or audio and in some cases to restore faded or
damaged media
o Index a video library, using third party software, rendering the
digitized content searchable by spoken words, by the recognition of
the names and faces of the speakers, or by identification of the
topics discussed during each segment of the video
o Transform the old-media asset into a compelling web experience and a
completely new broadcast platform capable of featuring personalized,
targeted advertising, community-building and e-commerce
o Distribute their assets to new markets
We can capture media from all popular formats, whether digital or analog. We
process the captured media using several hardware and software based audio and
video optimization technologies. These upgraded versions of the media are
encoded for digital storage in one or more streaming formats, ready for
broadcast.
As part of the full process, we use software that divides video into segments by
indexing visual scene changes, spoken words, names and faces of recognized
speakers, and topics discussed within each segment. The software we use creates
a graphic and textual summary of the video. This index is synchronized during a
concurrent encoding process while preparing streaming video files. These
capabilities make it easier for both content owners and Internet users to search
for and use video content. Whether the users are looking for a particular
character or person, or topic, the ability to
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search by keyword allows them to generate search results lists, and then, in
some cases, go directly to the section in the video that is of interest to them.
We store the media files and descriptive metadata generated as part of our
encoding process in a proprietary Oracle database. Our web development team
designs and builds a sophisticated graphic user interface to provide a web front
end to the data. This Graphic User Interface, or GUI can feature intuitive
navigation schema, and advanced personalization techniques, which enable
targeted advertising and other commerce opportunities. Lastly, we publish all of
the data and graphics to the web. We host our sites, and can host sites or
partial sites, and media, for our clients. The value added situation deriving
from our hosting services is that the Streamedia Networks can actually become a
third party's additional broadcast venue, thereby increasing a client's
distribution footprint, opening them into new markets, and generating additional
branding and sales pathways.
The Streamedia Digital Solutions provide a comprehensive set of applications,
capacities, and services to third parties who need to deploy their media assets
to the web rapidly, powerfully, and in an aesthetically appealing manner. The
solutions provide improved access to video content, the opportunity to achieve
greater distribution, greater user interaction and community building tools,
improved capacity for personalization and targeted content delivery, and
increased commerce opportunities.
BUSINESS STRATEGY
Increasingly, the media we work with in the printing, publishing, and graphic
arts industry are digital, and for good reason. Digitization often enhances
quality; improves control; speeds and widens distribution; and reduces costs.
However, the migration into a digital world also poses several major challenges.
The media themselves are increasing in complexity: resolutions are increasing,
file structures are becoming more sophisticated and flat media is giving way to
multimedia, including video and audio. There may be many versions of a media
created during development, any one of which may have to be accessed and, due to
the range of media in which they appear, they may have to be saved in any of
multiple formats. The number of publications--paper and electronic--is
exploding, which increases the digital data requirements. This demand is
increasing the value of these digital resources, both to those who produce them
and to those who use them.
Business Services' mission is to provide technology and consulting expertise and
services to conventional media companies, traditional businesses with media
assets, and online businesses - with a desire to coordinate and control their
media assets to increase profits, enhance branding, increase their distribution,
and raise their industry stature. We will emphasize the role of Media Resource
Planning-the digital counterpart to ERP, Enterprise Resource Planning-in any
company's future.
The Internet marketplace is poised for a revolution in methodology, not just
technology. Known currently as a tool for finding news and entertainment
information, we believe that the next step in the evolution of the web will
focus in wide-spread adoption of the narrative in an interactive environment-the
telling of multiform stories with an active audience so engrossed in the tale
that
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the procedural participatory nature of their involvement does into interfere.
This symbiotic bond between the best in interactive Internet technology and
television production will lead the next transformation of the web and media
marketplace.
Our Internet technology experts are working to develop methodologies for
deriving optimum benefits from these new tools. Our Business Services unit will
market these capacities and technologies to third parties.
MARKETING AND SALES
We rely on a variety of marketing methods, including direct marketing, trade
show and conference participation, our corporate site, the Streamedia Networks,
and collateral sales materials. We will continue to raise our stature in the
Internet community and position the Streamedia brand as we develop our sales and
marketing activities.
We segment our target markets into a broad range of categories. Each of these
categories has qualities which allows our personnel to approach a potential
client with opportunities relating to both business to business services, as
well as for content arrangements taking one of many possible forms.
Professional Services Retail (including e-commerce)
Telecommunications Non-profit
Media and Entertainment
DESCRIPTION OF SERVICES
THE BUSINESS SERVICES
We are providing Internet media infrastructure services and applications.
Together, these form end-to-end solutions for the delivery of rich media over
the Internet. The Streamedia Digital Solutions include encoding, or processing
audio and video into a format that enables it to be broadcast as streaming
media. The Solutions also include media hosting and serving. Our services,
systems and applications can now scale to encompass jobs requiring high
performance and large quantities. We can assist customers to get their media to
market rapidly and effectively. Examples of the types of services we provide
that are included in the Streamedia Digital Solutions:
Encoding Services
To be distributed over the Web, all audio and video content must be encoded. We
are able to convert content from all major input formats, whether analog or
digital, and convert them to the common streaming media formats for distribution
at a full range of bit rates. We can capture source content via tapes, satellite
transfer, compact disks, FTP, and other methods.
We offer encoding services to our customers through our internal staff. In
addition, we have understandings with major vendors to process any high volume
work we may need to complete.
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We offer encoding in a number of digital formats, including MPEG, QuickTime,
AVI, Microsoft's Windows Media Player and RealNetworks' RealServer 7.0.
Digital Security
After we have encoded, we can also generate watermarking, encryption, or other
digital rights and security technologies to protect and manage content.
Information can be embedded within digital audio or video to provide copyright
and intellectual property protection. Such processes have become particularly
important to rights holders wishing to protect their economic interest in
properties they have bought or created.
Metadata Collection and Analysis
Our encoding processes generate substantial metadata to augment the media file
proper. Such information includes fields indicating an artist, director, title,
style, keywords, or any other field appropriate to a given project. Metadata
files allow content owners and users to search, track, protect, and manage their
digital media content in a more effective manner. We increase the value of video
to content owners by enabling them to use their video in targeted applications
such as advertising and electronic commerce.
Broadcast Production
Our staff includes numerous broadcast industry professionals with cable and
network television broadcast production experience. Their skills have adapted to
working within the unique parameters of producing for a web experience. We
provide a full range of services, spanning from pre- to post production, live
events, the construction of studios and edit bays, treatments and scriptwriting.
Web Design
Our web design team can develop channels through which our customers can
distribute their programming. They can conceptualize and execute an entire
corporate presence. Our web developers have core competencies in such areas as:
o Conceptual development
o Graphic interface design
o 3-D design and animation
o Multimedia applications
o Interactive components
o Intranets/Extranets
o Database design
o CD-ROM development
o Network applications
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o Connectivity tools
o E-Commerce applications
o Interactive kiosks
Web and Media Distribution
We provide complete solutions for hosting and serving web pages and multimedia.
Our customers can store video and audio clips at our hosting facility or at
distributed networks, such as the Real Broadcast Network, for which we have a
reseller relationship. We have built and continue to build out an in-house data
center, and our technicians integrate servers and connectivity to other Networks
and service providers.
ADVERTISING, SPONSORSHIP, SUBSCRIPTION & E-COMMERCE
Streamedia's Networks provide narrowcast models for advertisers. Our programming
will help focus like-minded users/viewers on specific categories of
entertainment, education and information programming.
Traditional broadcasters have limited capacity to measure or identify in real
time their listeners or viewers. In contrast, Internet broadcasters can target
advertising with a precision that television and cable broadcasters cannot. Use
of the latest personalization technologies will allow us to gather specific data
on users/viewers for advertisers.
In order to build enduring visitor relationships we plan to build our visitor
acquisition and support practices based on one-to-one marketing strategies. To
maintain a competitive edge, we plan to continuously learn from interactions
with individual visitors. Our strategy is to aggressively respond to the
information those interactions elicit, and engage our customers to ensure they
never want to leave.
We can make our visitors more loyal and more profitable to Streamedia by
establishing a "Learning Relationship" with each of them, starting with the most
valuable visitors. A Learning Relationship is a relationship that gets smarter
and smarter with every user interaction. The user tells us of some need, and we
customize our product and services to meet that need. Then with each interaction
our products get better and better at fitting themselves to that particular
visitor. Now, even if a competitor offers similar type of customization and
interaction, the visitor won't be able to get the same level of convenience from
the competitor until the visitor re-teaches the competitor what he or she has
already spent time and energy teaching us. In effect, our product becomes more
and more valuable to a visitor with each successful interaction and transaction.
Raw Materials
The use of raw materials is not now a material factor in our operations.
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Competition
We believe our approach to establishing Streamedia as an emerging leader in its
fields reduces the threat of competition. Nevertheless, the market for Internet
broadcasting and news distribution services is highly competitive. We expect
that competition will continue to increase. We compete with:
o Other websites, Internet portals, dial-up software applications and
Internet broadcasters to acquire and provide content and act as a
gateway to attract users,
o Other providers of Internet professional services;
o Other providers of website design and development consulting services;
and
o Other providers of application service providers and hosting, storage,
serving, streaming, encoding, and media management services.
There can be no assurance that we 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
us. We also compete with other Internet technical service providers.
Dependence on a Few Major Customers
Streamedia is not dependent on any one customer for any material percentage of
our revenues.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements, or
Labor Contracts, Including Duration
We regard some components of technology still in development stage as
proprietary and will attempt to protect those components with patents,
copyrights, trade secret laws, restrictions on disclosure and other methods.
We pursue registration of our trademarks and service marks. We have, for
example, undertaken to protect our right to use the names "Stream,"
"Streamedia," "Stream Wire," "Streamedia Webcasting," "StreamGuide,"
"StreamPlayer," "StreamTuner," and other names and logos unique to Streamedia by
filing for trademark registration with the United States Patent and Trademark
Office. Our applications are still open pending potential opposition from third
parties. If there is no opposition filed in the Office of Patent and Trademark,
we will be granted these marks. There has been no opposition filed to date.
Need for Government Approval
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The Company does not require approval of any government agency to produce or
market its services.
Effect of Existing or Probable Government Regulations on the Business
Certain existing laws or regulations specifically regulate communications or
commerce on the web. Moreover, laws and regulations that address issues such as
user privacy, pricing, online content regulations, taxation and the
characteristics and quality of online products and services are under
consideration by federal, state, local and foreign governments and agencies.
Several telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online services providers
in a manner similar to the regulation of long distance telephone carriers and to
impose access fees on such companies. Such regulation, if imposed, could
increase the cost of transmitting data over the web. Moreover, it could take
years to determine the extent to which existing laws relating to issues such as
intellectual property ownership and infringement, libel, obscenity, and personal
privacy are applicable to the web. The Federal Trade Commission and government
agencies in certain states have been investigating certain Internet companies
regarding their use of personal information. Any new laws regulating and/or
relating to the web, or certain application or interpretation of existing laws,
could decrease the growth in the use of the web, decrease the demand for our
website or otherwise materially adversely affect our business.
Research and Development
Our research and development requirements primarily consist of keeping current
on developments relating to technology to support the objectives of our business
plan and other aspects of operating an Internet-based broadcasting venture. In
addition, we have developed several proprietary applications created
specifically for our Networks. As of the date of this report we have hired 15
employees who are responsible for developing and implementing our websites.
Since inception, we have spent $524,501 on the development and upgrading of our
software and application maintenance.
Environmental Compliance
We do not face any environmental compliance issues or costs.
Employees
We employ 34 full time employees and have 2 part-time employees working for us.
Of the 34 full time employees, 6 are in administration, 23 in operations, and 5
are in sales and marketing. None of our employees are represented by a labor
union and we consider our relationship with our employees to be good.
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PROPERTY
Our principle administrative, sales, marketing and research development
facilities are located at 244 West 54th Street, 7th and 12th floors, New York,
New York. The current rent for the space is $19,600 per month and our lease
expires in July 2002. We believe that our current facilities will be adequate to
meet our needs for the foreseeable future.
MANAGEMENT
Our current directors and executive officers, who will serve until the next
annual meeting, or until their successors are elected or appointed and
qualified.
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NAME AGE DIRECTOR SINCE POSITION
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Gayle Essary 59 1998 Chairman of the Board, Vice President
--------------------------------------------------------------------------------
James Rupp 38 1998 Director, President, Chief Executive
Officer
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Nicholas Malino 49 1998 Director, Executive Vice President,
Chief Operating Officer, Chief
Financial Officer
--------------------------------------------------------------------------------
Henry Siegel 56 1999 Director
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Robert Wussler 60 1999 Director
--------------------------------------------------------------------------------
David Simonetti 30 1999 Director
--------------------------------------------------------------------------------
Robert A. Shuey, III 45 2000 Director
--------------------------------------------------------------------------------
James Schroeder 49 2000 Director
--------------------------------------------------------------------------------
Gayle Essary is one of the founders of Strend 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
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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.
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.
Nicholas Malino has served on the Board of Directors since 1998 and 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 twelve 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.
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. Kaleidoscope 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.
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<PAGE>
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.
David J. Simonetti has served as a Director of Streamedia since September of
1998. Since October of 1998, Mr. Simonetti 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.
Robert A. Shuey, III has served as a director of Streamedia since January 2000.
Mr. Shuey is the Chief Executive Officer and a Managing Director of Investment
Banking for Institutional Equity. In September 1997, he founded Tejas Securities
Group, a securities broker/dealer headquartered in Dallas, Texas, and served as
a managing director and CEO until August 1998. From June 1996 to September 1997,
Mr. Shuey was a vice president of investment banking at National Securities (a
broker/dealer), and prior to that he was associated with various securities
broker/dealers. He is a member of the Board of Director of Institutional Equity
Corporation, Autobond Acceptance Corporation, Westower Corporation, and
Transnational Finance Corporation. Mr. Shuey is a graduate of Babson College
with a Degree in Economics and Finance.
James W. Schroeder has served as Advisor to the Board of Directors of Streamedia
since March 1999. Since 1984, Mr. Schroeder has been Vice President-Tax, Thomson
U.S. Holdings Inc. -
29
<PAGE>
the U.S. subsidiary of the Thomson Corporation, an E-commerce and solutions
company. Prior to joining The Thomson Corporation, he was Vice President-Tax for
BBDO, Inc., now Omnicom, Inc., where he started the company's worldwide tax
department and was Tax Supervisor for the Celanese Corp., now Hoescht-Celanese,
and Tax Analyst for Chase Manhattan Bank, NA. Mr. Schroeder is a member of the
Board of Directors of Westchester-Fairfield Chapter of the Tax Executives
Institute, Chair of the Electronic Publishing subcommittee of the Media Tax
Group, Chair of its delegation to the NTA Electronic Commerce and
Telecommunications Project and a member of the International Tax Foundation,
International Fiscal Association, Foreign Owned Group, Stamford Tax Association
and the Newspaper Association of America. Mr. Schroeder obtained his MBA from
Pace University and his Bachelor's Degree from the State University of New York
at Albany.
COMPENSATION OF DIRECTORS
The directors of the Company who are employees do not receive any compensation
from the Company for services rendered as directors. Outside directors receive
$1,000 a month pay plus travel expenses, reimbursements, and $500 per meeting
attended. Under the 1999 Incentive and Nonstatutory Stock Option Plan, Mr.
Simonetti was issued 10,000 options, Mr. Siegel and Mr. Wussler were issued
40,000 stock options, and Mr. Schroeder was issued 25,000 options.
EXECUTIVE COMPENSATION
Employment Agreements. We have entered into employment agreements with Mr. Rupp,
Mr. Essary, and Mr. Malino
The following table sets forth the compensation earned by the Company's
executive officers for services rendered in all capacities to the Company for
the fiscal year ended 1999 and from January 13, 1998 (date of inception) to
December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------- ---------
ANNUAL COMPENSATION AWARDS Payouts
---------------------------------------------------------------------- --------------------------- ---------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Name Annual Restricted Under- Other
And Compen- Stock lying LTIP Compen-
Principal sation Award(s) Options/ Payouts Sation
Position Year Salary($) Bonus($) ($) ($) SARs (#) ($) ($)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
James Rupp, CEO and 1999 $180,000 ____ ____ ____ ____
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
President 1998 ---
Gayle Essary, VP 1999 $140,000
1998 --- ____ ____
Nicholas Malino 1999 $220,000 $100,000 ___ ____ ____ ____
CFO, COO and EVP 1998 ---
</TABLE>
In accordance with the rules of the SEC, the compensation described in this
table does not include medical, group life insurance or other benefits received
by executive officers that are available to salaried employees of the Company,
and certain perquisites and other personal benefits received by executive
officers that do not exceed the lesser of $50,000 or 10% of any such officer's
salary and bonus disclosed on this table.
This table does not include a $250.00 a month non-accountable expense allowance
the named executive officers receive.
Mr. Malino's salary includes a $40,000 per annum housing allowance to cover the
costs associated with having to maintain a residence in New York, New York. This
number is reflected in the above-table.
STOCK OPTION PLAN
In June 1999, the board of directors adopted the 1999 Incentive and Nonstatutory
Stock Option Plan (the "1999 Plan"). An amendment to increase the share reserve
was retroactively adopted by the Board in December 1999. In May 2000, the
shareholders approved an increase to the share reserve to 1,000,000 from
500,000.
TERMS OF THE 1999 PLAN
The following is a summary of the principle features of the 1999 Plan, as
amended. The summary, however, does not purport to be a complete description of
all of the provisions of the 1999 Plan.
Options granted under the 1999 Plan may be either incentive stock options
designed to meet the requirements of Section 422 of the Internal Revenue Code or
non-statutory options not intended to satisfy such requirements.
Administration
The Board of Directors has the exclusive authority to administer the 1999 Plan.
However, the Board may delegate this authority to a compensation committee which
must be comprised of at least two non-employee directors.
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<PAGE>
The Board of Directors and/or the Committee have authority to (a) grant, in its
discretion, Incentive Stock Options in accordance with Code section 422 or
Nonstatutory Options; (b) determine in good faith the fair market value of the
stock covered by an Option; (c) determine which eligible persons shall be
granted Options, the number of shares to be covered by the Options and the
restrictions, terms and conditions thereof; (d) construe and interpret the Plan;
(e) promulgate, amend and rescind rules and regulations relating to its
administration, and correct defects, omissions and inconsistencies in the Plan
or any Option; (f) consistent with the Plan and with the consent of the
Optionee, as appropriate, amend any outstanding Option or amend the exercise
date or dates; (g) determine the duration and purpose of leaves of absence which
may be granted to Optionees without constituting termination of their employment
for the purpose of the Plan; and (h) make all other determinations necessary or
advisable for the Plan's administration.
Share Reserve
Currently, a total of 1,000,000 shares of Common Stock have been authorized for
issuance under the 1999 Plan.
Eligibility
Employees, officers, directors and consultants in the service of the Company
will be eligible to participate in the 1999 Incentive and Nonstutory Stock
Option Plan. As of June 30, 2000, three Executive Officers, four non-associate
Board members, and 28 other employees were eligible to participate in the 1999
Plan.
Valuation
Fair market value per share of Common Stock on any relevant date under the 1999
Plan will be the average of the bid and asked prices (or the closing price if
the stock is listed on the NASDAQ National Market System) on the date of grant
of the option, or if listed on a stock exchange, the closing price on such
exchange on the date of grant.
Price and Exercisability
Any Optionee who at the time of the grants owns stock possessing more than ten
percent (10%) of the total combined voting power or value of all classes of
stock of the Corporation, ("Ten Percent Holder") shall have an exercise price of
no less than one hundred ten percent (110%) of the fair market value of the
Common Stock as of the date of grant.
Incentive stock options granted to an optionee who at the time of the grant is
not a Ten Percent Holder shall have an exercise price of no less than one
hundred percent (100%) of the fair market value of the Common Stock as of the
date of grant.
Nonstatutory Options granted to optionee who at the time the grant is not a Ten
Percent Holder shall have an exercise price of no less than eighty-five percent
(85%) of the fair market value of the Common Stock as of the date of grant.
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<PAGE>
No optionee will have any Stockholder rights with respect to the option shares
until such optionee has exercised the option and paid the exercise price for the
purchased shares. Options are generally not assignable or transferable other
than by will or the laws of inheritance and, during the optionee's lifetime, the
option may be exercised only by such optionee.
Termination of Service
Upon the Optionee's cessation of service, the optionee will have a limited
period of time in which to exercise any outstanding option to the extent
exercisable for vested shares. With respect to nonstatutory options, the Board
of Directors will have the authority to extend or accelerate the period after
the optionee's cessation of service during which optionee's outstanding options
may be exercised.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth information regarding the beneficial ownership of the
Company's Common Stock as of June 30, 2000 by (i) each person who, as of the
date hereof, was known by us to own beneficially more than five percent (5%) of
our issued and outstanding Common Stock; (ii) each of the named Executive
Officers; (iii) the individual Directors; and (iv) the Officers and Directors as
a group. As of the date hereof, there were 4,730,044 common shares issued and
outstanding.
--------------------------------------------------------------------------------
Amount of
Name and Address of Beneficial Percent of
Beneficial Owner Ownership(1) Class(1)
--------------------------------------------------------------------------------
James D. Rupp 1,155,000 24.42%
200 Walter Avenue
Hasbrouck Heights, NJ 07604
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Gayle Essary 1,427,500 30.18%
5605 Woodview
Austin, TX 78756
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Capital Markets Communications, Corp. 300,000 6.34%
287-101 Kinderkamack Road #190
Oradell, NJ 07649
--------------------------------------------------------------------------------
33
<PAGE>
--------------------------------------------------------------------------------
Nicholas Malino 150,000 3.17%
250 W. 90th Street, # PH2A
New York, NY 10024
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
David Simonetti 67,500 1.43%
2455 East Sunrise Blvd
Ft. Lauderdale, FL 33304
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Henry Siegel 0 0
205 West 57th Street
New York, NY 10019
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Robert Wussler 0 0
7904 Sandalfoot Drive
Potomac, MD 20854
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
0 0
Robert Shuey, III
5910 North Central Expressway
Suite 1480
Dallas, Texas, 75206
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
James Schroeder 0 0
143 Cambridge Avenue
Garden City, NY 11530
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Officers and Directors as a Group 3,100,000 65.54%
--------------------------------------------------------------------------------
(1) 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 1,240,000 shares issuable and
outstanding upon the exercise of the warrants included in the units sold in the
Company's initial public offering on December 21, 1999; 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 Stockholders 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
34
<PAGE>
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, so long as they remain in their positions as
directors, 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. Mr. Malino was issued 63,000 stock options.
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. Mr. Schroeder was issued 25,000 options for his
services as a consultant to the Company. None of these options are represented
on the previous principal Stockholder chart.
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 the
Company's major Stockholders, IRI, Inc., and Capital Markets Communications
Corporation, were provided to the Company for its StreamWire division and its
predecessor. The Company currently does not anticipate using these e-mail
distribution systems. During 1998, the Company issued 25,000 shares of Common
Stock to its legal counsel, Kogan & Taubman, L.L.C., as partial consideration
for services rendered in connection with our initial public offering.
The Company engaged Kaleidoscope Media Group to help it acquire programming
content for its sites and to develop a syndication strategy. Henry Siegel, a
member of the Company's Board of Directors, served as the CEO of Kaleidoscope
Media Group until recently and during the time of this contract. In
consideration of Kaleidoscope Media Group's providing of these services, on
August 2, 1999, Kaleidoscope Media Group was paid $10,000. In September 1999, we
paid $10,000 to Kaleidoscope Media Group for consulting services and starting in
October of 1999 the Company has paid $2,000 per month to Kaleidoscope Media
Group for their services. This relationship terminated at the end of July 2000.
As an inducement to join the Company after our initial development phase, and in
consideration of his considerable expertise in financing and public offerings,
the Company paid Nicholas Malino a $100,000 bonus upon the completion of its
initial public offering.
RECENT SALES OF UNREGISTED 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
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<PAGE>
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 our initial public
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
$8.50 per share. The warrants are exercisable beginning December 21, 2000, and
ending on the date five years following the date that the warrants were issued.
The holders of the warrants have certain "piggyback" registration rights with
respect to the shares underlying the warrants. Specifically, the holders are
entitled to include their shares if the Company files a registration statement
with Commission during the period beginning December 21, 2000, and ending on
December 21, 2001.
We issued securities to officers, directors, and consultants as compensation for
services rendered to us. Also, in 1998, we issued 25,000 shares of Common Stock
to our legal counsel, Kogan & Taubman, L.L.C., as partial consideration for
legal services in connection with our initial public offering.
On January 12, 2000, we issued 700 shares of our restricted Common Stock to a
consultant in exchange for services. On March 9, 2000, we issued 7,000 shares of
our restricted Common Stock to Atlantic Pacific Music as a consulting fee. These
shares, when issued, are exempt from registration under Section 4(2) of the
Securities Act of 1933, as these sales do not involve public offerings of our
stock.
On March 10, 2000, we sold 37,500 shares of unregistered Common Stock to a
former employee, pursuant to the exercise of stock options issued in 1999 in
accordance with our stock option plan. These shares were exempt from
registration pursuant to Rule 701 of the Securities Act of 1933, as the options
were issued prior to the effective date of our registration statement.
On March 31, 2000, we closed on a tax-free reorganization with Eons Ahead, Inc.,
a New York boutique web design firm. In that acquisition, we issued 129,354
shares of our restricted Common Stock to the three shareholders of Eons Ahead,
Inc. This issuance of these shares was exempt from registration under Section
4(2) of the Securities Act of 1933 because the sale did not involve any public
offering of our stock.
On March 31, 2000, we acquired the certain web site domains and production
assets from Kudzu NewMedia and Bijou Cafe.com for 20,000 shares of our
restricted Common Stock at a value on the effective date of $76,886. These
shares, when issued, are exempt from registration under Section 4(2) of the
Securities Act of 1933, as this sale does not involve a public offering of our
stock.
36
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 20,000,000 shares of Common Stock, $0.001 par value.
As of June 30, 2000, there were 4,730,044 shares of Common Stock issued and
outstanding. 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 our initial public offering will be
fully paid and non-assessable.
The Warrants
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 December 21,
2000. 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 on December 21, 2000, 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
37
<PAGE>
amending such terms. However, there can be no assurance we will not have an
intention in the future to amend the warrant terms.
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 issuance of preferred stock could 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.
38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of June 30, 2000, we had 4,730,044 shares of Common Stock outstanding. Of
these shares, the 1,240,000 shares sold in the initial public offering are
freely tradable in the public market without restriction under the Securities
Act, except shares purchased by an "affiliate" (as defined in the Securities
Act) of ours. The remaining 3,326,504 shares are "restricted shares" within the
meaning of the Securities Act and may be publicly sold only if registered under
the Securities Act or sold in accordance with an applicable exemption from
registration, such as those 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 shares if at least one
year has passed since the later of the date such shares were acquired from the
company or any affiliate of the company. 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 the company's Common Stock (approximately
47,300 shares as of June 30, 2000) or the average weekly trading volume in the
company's Common Stock 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.
Any person who has not been an affiliate of the company for a period of ninety
(90) days preceding a sale of restricted shares is entitled to sell such shares
under Rule 144 without regard to such limitations if at least two years have
passed since the later of the date such shares were acquired from the company or
any affiliate of the company. Shares held by persons who are deemed to be
affiliated with the company are subject to such volume limitations regardless of
how long they have been owned or how they were acquired.
Without consideration of contractual restrictions described below, an aggregate
of 3,326,504 shares of Common Stock, representing 70.4% of the outstanding
shares of the Common Stock, are eligible for sale in the public market pursuant
to Rule 144. We are unable to estimate the number of shares that may be sold
from time to time under Rule 144, since such number will depend upon the market
price and trading volume for the Common Stock, the personal circumstances of the
sellers and other factors.
Executive officers, directors and senior management own 65.54% of the shares of
the Common Stock. Our shareholders and directors entered into an agreement with
the Underwriters providing that they will not sell or otherwise dispose of any
shares of Common Stock held by them, which were issued prior to the initial
public offering, until December 21, 2000, without the prior written consent of
the Underwriters. The 1999 warrants are subject to an unconditional one-year
lock-up until December 21, 2000, which prevents a holder of the 1999 warrants
from exercising such warrants or otherwise transferring, conveying, or assigning
such warrants for such one-year period.
39
<PAGE>
We cannot make any predictions as to the effect, if any, that offers or sales of
these shares would have on the market price of the Common Stock. Nevertheless,
sales of significant amounts of restricted shares in the public markets could
adversely affect the fair market price of Common Stock, as well as impair our
ability to raise capital through the issuance of additional equity securities.
LEGAL PROCEEDINGS
We were not a party to any material legal proceedings as of June 30, 2000, or as
of the date of this filing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the Securities and Exchange Commission's public
reference rooms in Washington, DC, New York, New York, and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Our Securities and Exchange
Commission filings are also available to the public from the Securities and
Exchange Commission's website at "http://www.sec.gov."
We have filed a registration statement on Form SB-2 with the Securities and
Exchange Commission to register the offering of the shares of Common Stock
offered pursuant to this prospectus. This prospectus is part of that
registration statement and, as permitted by the Securities and Exchange
Commission's rules, does not contain all of the information included in the
registration statement. For further information about us, this offering and our
securities, you may refer to the registration statement and its exhibits and
schedules as well as the documents described below. You can review and copy
these documents at the public reference facilities maintained by the Securities
and Exchange Commission or on the Securities and Exchange Commission's website
as described above.
This prospectus may contain summaries of contracts or other documents. Because
they are summaries, they will not contain all of the information that may be
important to you. If you would like complete information about a contract or
other document, you should read the copy filed as an exhibit to the registration
statement or incorporated in the registration statement by reference.
You may request a copy of these filings, at no cost, by writing to or calling
Nicholas Malino, Streamedia Communications, Inc., 244 West 54th Street, 7th
Floor, New York, New York 10019, (212) 445-1700.
40
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We have not had any disagreements on accounting and financial disclosures with
our accounting firm since the time we first became a reporting company.
EXPERTS
Our financial statements as of December 31, 1999 and 1998 and for the year ended
December 31, 1999, the period from January 13, 1998 (date of inception) through
December 31, 1998 and cumulative from January 13, 1998 (date of inception)
through December 31, 1999 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.
41
<PAGE>
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Number Description
Exhibit 1.1 Form of Underwriting Agreement (2)
Exhibit 1.2 Form of Underwriters' Warrant (2)
Exhibit 3.1 Articles of Incorporation of the Company (2)
Exhibit 3.2 Amended and Restated Bylaws of the Company (2)
Exhibit 5.1 Opinion of Kogan Taubman & Neville, LLC (2)
Exhibit 10.1 Employment Agreement between James Rupp and the Company (2)
Exhibit 10.2 Employment Agreement between Nicholas Malino and the Company (2)
Exhibit 10.3 Employment Agreement between Gayle Essary and the Company (2)
Exhibit 23.1 Form of Consent by Grant Thornton, LLP (1)
Exhibit 23.2 Consent Kogan Taubman & Neville, LLC (included in Exhibit 5.1)
Exhibit 27.1 Financial Data Schedule(1)
(1) filed herewith
(2) Previously filed
* Incorporated by reference to our Registration Statement on Form SB-2,
Registration No. 333-78591, as amended, on file with the Commission on December
20, 1999.
(b) Reports of Form 8-K
No reports on Form 8-K were filed during the last quarter of 1999, the
first quarter of 2000, or the second quarter of 2000.
(c) Index to Financial Statements
Page
----
Report of Independent Certified Public Accountants F-1
Financial Statements
Balance Sheet as of December 31, 1999 and 1998 F-2
Statements of Operations For year ended December 31, 1999,
the period from Inception (January 13, 1998) through
December 31, 1998 and Cumulative from Inception (January
13, 1998) through December 31, 1999 F-3
Statement of Stockholder's Equity (Deficit) For the
Period from Inception (January 13, 1998) through
42
<PAGE>
December 31, 1998 and the Year ended December 31, 1999 F-4
Statements of Cash Flows for the Year ended December 31, 1999,
the period from Inception (January 13, 1998) through
December 31, 1998 and Cumulative from Inception (January
13, 1998) through December 31, 1999 F-5
Notes to Financial Statements F-6-F-19
43
<PAGE>
Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 F-20
Statements of Operations for the six months ended June 30, 2000
and 1999, and Cumulative from Inception (January 13, 1998)
through June 30, 2000 (unaudited) F-21
Statement of Stockholders' Equity for the six months ended
June 30, 2000 (unaudited) F-22
Statements of Cash Flows for the six months ended June 30, 2000
and 1999, and Cumulative from Inception (January 13, 1998)
through June 30, 2000 (unaudited) F-23
Notes to Financial Statements F-24-F-28
44
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has caused this Report to be signed on behalf
by the undersigned, thereunto duly authorized.
Streamedia Communications, Inc.
Date: September 21, 2000 By:/s/James D. Rupp
-----------------------------
James D. Rupp
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
is signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
MUST BE SIGNED BY EACH MEMBER OF THE BOARD AND ITS PRINCIPAL EXECUTIVE OFFICER,
ITS CONTROLLER OR PRINCIPAL ACCOUNTING OFFICER IF ANY AND ITS PRINCIPAL
FINANCIAL OFFICER.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GAYLE ESSARY President and CEO, Director September 21, 2000
---------------- (Principal Operating Officer)
Gayle Essary
/s/ JAMES DOUGLAS RUPP Chairman of the Board September 21, 2000
-----------------------
James Douglas Rupp
/s/ NICHOLAS J. MALINO Chief Financial Officer and September 21, 2000
----------------------- Operating Officer, Director
Nicholas J. Malino (Principal Financial Officer)
September 21, 2000
/s/ JAMES SCHROEDER Director
-----------------------
James Schroeder
45
<PAGE>
/s/ ROBERT A. SHUEY, III_ September 21, 2000
-------------------------
Robert A. Shuey, III Director
/s/ HENRY SIEGEL
-------------------------
Henry Siegel Director September 21, 2000
/s/ DAVID J. SIMONETTI Director September 21, 2000
------------------------
David J. Simonetti
/s/ ROBERT WUSSLER Director September 21, 2000
------------------------
Robert Wussler
46
<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 sheets of Streamedia Communications,
Inc. (the "Company") (a development stage company) as of December 31, 1999 and
1998, and the related statements of operations, stockholders' equity (deficit)
and cash flows for the year ended December 31, 1999, the period from inception
(January 13, 1998) through December 31, 1998 and the cumulative period from
inception (January 13, 1998) through December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note A, the financial statements referred to above have been
retroactively restated.
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, 1999 and 1998, and the results
of its operations and its cash flows for the year ended December 31, 1999, the
period from inception (January 13, 1998) through December 31, 1998 and the
cumulative period from inception (January 13, 1998) through December 31, 1999,
in conformity with accounting principles generally accepted in the United States
of America.
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 Notes A and B 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
September 15, 2000
F-1
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
BALANCE SHEETS
December 31,
<CAPTION>
ASSETS 1999 1998
------------ ------------
<S> <C> <C
CURRENT ASSETS
Cash and cash equivalents $ 6,693,061 $ 9,691
Licenses, net of accumulated amortization of $79,000 392,363
Prepaid expenses and other current assets 142,207 1,654
------------ ------------
Total current assets 7,227,631 11,345
PROPERTY AND EQUIPMENT
Computer equipment and software 751,297 3,384
Software development costs 150,513
Leasehold improvements 127,352
Furniture and fixtures 19,841
------------ ------------
1,049,003 3,384
Less accumulated depreciation and amortization (167,494) (782)
------------ ------------
881,509 2,602
DEFERRED OFFERING COSTS 75,000
OTHER ASSETS 7,000
------------ ------------
$ 8,116,140 $ 88,947
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of capital lease obligations $ 31,740
Accounts payable and accrued expenses 429,265 $ 5,084
Accrued license fees 436,941
Accrued software costs 304,519
Accrued payroll 137,747 59,000
Accrued offering costs 64,500 25,000
Accrued professional fees 43,623 12,000
Accrued consulting fees 132,144 38,500
------------ ------------
Total current liabilities 1,580,479 139,584
CAPITALIZED LEASE OBLIGATIONS, less current maturities 24,234
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 - 4,624,844 and 3,154,354 shares at
December 31, 1999 and 1998, respectively 4,625 3,154
Additional paid-in capital 10,720,846 374,429
Deficit accumulated during development stage (4,214,044) (428,220)
------------ ------------
Total stockholders' equity (deficit) 6,511,427 (50,637)
------------ ------------
$ 8,116,140 $ 88,947
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<CAPTION>
Period from Cumulative
January 13, 1998 from January 13,
YEAR ENDED (date of inception) 1998 (date of
DECEMBER 31, to December 31, inception) to
1999 1998 December 31, 1999
------------------ ------------------ -----------------
<S> <C> <C> <C>
Revenue $ 162,139 $ 18,286 $ 180,425
----------- ----------- -----------
Operating expenses
Payroll and related expenses 1,094,843 300,629 1,395,472
Product development 501,477 -- 501,477
General and administrative 1,744,086 145,220 1,889,306
----------- ----------- -----------
Total operating expenses 3,340,406 445,849 3,786,255
----------- ----------- -----------
Operating loss (3,178,267) (427,563) (3,605,830)
Other income (expense)
Interest expense (612,177) (657) (612,834)
Interest income 4,620 -- 4,620
----------- ----------- -----------
Total other expense (607,557) (657) (608,214)
----------- ----------- -----------
Net loss $(3,785,824) $ (428,220) $(4,214,044)
=========== =========== ===========
Basic and diluted loss per common share $ (1.12) $ (.20) $ (1.52)
=========== =========== ===========
Weighted average shares outstanding, basic and
diluted 3,385,959 2,167,681 2,772,748
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Preferred stock Common stock Additional
------------------------- ------------------------ paid-in
Shares Amount Shares Amount capital
------------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock -- $ -- 3,039,354 $ 3,039 $ 144,544
Issuance of common stock for services 115,000 115 229,885
Net loss for the period
----------- ----------- --------- ----------- -----------
Balance at December 31, 1998 -- -- 3,154,354 3,154 374,429
Issuance of common stock, net of
associated costs 264,490 265 523,715
Issuance of common stock for services 6,000 6 11,994
Grant of common stock options for
services 834,650
Compensatory stock option expense 206,250
Issuance of common stock warrants 272,250
Issuance of common stock in initial public offering,
net of underwriting discount and offering
expenses of $1,753,500 1,200,000 1,200 8,445,577
Conversion of stockholder loan into capital 51,981
Net loss for the year
----------- ----------- --------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 -- $ -- 4,624,844 $ 4,625 $10,720,846
=========== =========== ========= =========== ===========
<CAPTION>
Deficit
accumulated
during
development
stage Total
------------ -----------
<S> <C> <C>
Issuance of common stock $ 147,583
Issuance of common stock for services 230,000
Net loss for the period $ (428,220) (428,220)
----------- -----------
Balance at December 31, 1998 (428,220) (50,637)
Issuance of common stock, net of
associated costs 523,980
Issuance of common stock for services 12,000
Grant of common stock options for
services 834,650
Compensatory stock option expense 206,250
Issuance of common stock warrants 272,250
Issuance of common stock in initial public offering,
net of underwriting discount and offering
expenses of $1,753,500 8,446,777
Conversion of stockholder loan into capital 51,981
Net loss for the year (3,785,824) (3,785,824)
----------- -----------
BALANCE AT DECEMBER 31, 1999 $(4,214,044) $(6,511,427)
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<CAPTION>
Period from Cumulative
January 13, 1998 from January 13,
YEAR ENDED (date of inception) 1998 (date of
DECEMBER 31, to December 31, inception) to
1999 1998 December 31, 1999
------------ ------------------ -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(3,785,824) $ (428,220) $(4,214,044)
Adjustments to reconcile net loss to net cash used in
operating activities
Common stock issued for services 12,000 180,000 192,000
Stock option granted for services 834,650 834,650
Compensatory stock option expense 206,250 206,250
Amortization of debt discount 272,250 272,250
Amortization and write-off of deferred financing costs 231,500 231,500
Depreciation and amortization 245,774 782 246,556
Changes in operating assets and liabilities
Other current assets (618,978) (1,654) (620,632)
Accounts payable and accrued expenses 424,181 5,084 429,265
Accrued license fees 436,941 436,941
Accrued software costs 304,519 304,519
Accrued payroll and bonus 78,747 59,000 137,747
Accrued offering costs 39,500 39,500
Accrued professional fees 31,623 12,000 43,623
Accrued consulting fees 93,644 38,500 132,144
----------- ----------- -----------
Net cash used in operating activities (1,193,223) (134,508) (1,327,731)
----------- ----------- -----------
Cash flows from investing activities
Purchase of property and equipment (989,645) (3,384) (993,029)
----------- ----------- -----------
Net cash used in investing activities (989,645) (3,384) (993,029)
----------- ----------- -----------
Cash flows from financing activities
Issuance of common stock, net of associated costs 523,980 147,583 671,563
Issuance of common stock in Offering, net of associated
costs 8,446,777 8,446,777
Proceeds of notes payable and common stock warrants, net of
associated costs 1,583,500 1,583,500
Repayments of notes payable (1,815,000) (1,815,000)
Deferred offering costs 75,000 75,000
Conversion of stockholder loan into capital 51,981 51,981
----------- ----------- -----------
Net cash provided by financing activities 8,866,238 147,583 9,013,821
----------- ----------- -----------
Net increase in cash 6,683,370 9,691 6,693,061
Cash at beginning of period 9,691 -- 9,691
----------- ----------- -----------
Cash at end of period $ 6,693,061 $ 9,691 $ 6,702,752
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 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 two
divisions are The Streamedia Networks and Business Services. In December
1999, the Company completed its initial public offering (the "Offering").
The net proceeds from the Offering were approximately $8,447,000.
The Company is in the development stage. The Streamedia Networks consist of
a suite of topical broadcast networks to deliver or "stream" live and
on-demand audio and video programming. The Streamedia Networks 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 "Crime Broadcast", "Sports Style", "Motion Arts" and
"Women on the Edge" as its initial network launches. The Streamedia
Networks will include StreamWire(TM), which will consist of a series of
focused, subject-oriented, edited news and information products, such as
wires devoted to NASDAQ or Amex-listed companies.
The Streamedia Business Services division 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 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.
F-6
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 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.
During March 2000, the Company completed the acquisition of Eons Ahead,
Inc. ("Eons") through a stock-for-stock tax-free reorganization. Under the
terms of the acquisition, accounted for as a pooling of interests, the
Company exchanged 129,354 shares of Company common stock for all of Eons
common stock. Eons is a technology-based company, incorporated on August
13, 1998, which designs, markets and develops strategies for other
entities. The accompanying financial statements have been retroactively
restated to reflect the combined financial position and combined results of
operations and cash flows of the Company and Eons, as if the pooling had
occurred on January 13, 1998.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Company's significant accounting
policies:
Revenue Recognition
Revenue generated from video encoding services will be recognized as the
service is provided and revenue from video distribution services will be
recognized at the time of delivery. Revenue generated from broadcast
hosting services and the sale of customer support services will be
recognized as the services are provided. Revenues collected in advance will
be deferred and recognized as earned. To date, the Company has not
generated any revenues.
F-7
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE B (CONTINUED)
Licenses
Costs associated with software licensed from vendors are capitalized and
amortized over the term of the licenses, generally one to two years.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of their estimated
useful lives or the term of the underlying lease. Estimated useful lives by
class of assets are as follows:
Computer equipment and software 3 years
Software development costs 3 years
Furniture and fixtures 7 years
Leasehold improvements Lesser of useful life or lease term
The Company assesses the recoverability of long-lived assets periodically.
If there is an indication of impairment of such assets, the amount of
impairment, if any, is charged to operations in the period in which
impairment is determined.
Software Development Costs
Software developed for internal use is capitalized or expensed in
accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". This standard
requires companies to capitalize qualifying computer software costs
incurred during the application development stage and amortize them over
the software's useful life (three years). Costs incurred in the preliminary
project stage and for application maintenance are expensed. As of December
31, 1999, the Company capitalized $150,513 of development costs related to
internal use software. Accumulated amortization aggregates approximately
$12,500 at December 31, 1999.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including cash,
accounts payable and accrued expenses, approximate their fair value due to
their relatively short maturities.
F-8
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE B (CONTINUED)
Stock Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provision of APB No. 25 "Accounting for Stock Issued to
Employees," and its related Interpretations and complies with disclosure
provision of SFAS No. 123, "Accounting for Stock-Based Compensation". The
Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123.
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 considered realizable.
Deferred Offering Costs
Costs incurred in connection with the Offering were deferred until the
transaction was consummated in December 1999.
Loss Per Share
Basic and diluted net loss per share are presented in conformity with SFAS
No. 128, "Earnings Per Share" and SEC Staff Accounting Bulletin No. 98
("SAB 98"). Under SFAS No. 128 and SAB 98, basic net loss per share is
computed by dividing net income (loss) by the weighted-average number of
common shares outstanding for the period. It also requires a reconciliation
of the numerator and denominator of the basic net loss per share to the
numerator and denominator of the diluted net loss per share. As of December
31, 1999, the calculation of diluted net loss per share excludes an
aggregate of 2,889,000 shares of common stock issuable upon exercise of
warrants and employee stock options, as the effect of such shares would be
anti-dilutive for all periods presented.
F-9
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE B (CONTINUED)
Statements of Cash Flows
The Company considers all investment instruments with an original maturity
of three months or less to be the equivalent of cash for purposes of
balance sheet presentation and for the statements of cash flows. The
Company paid interest and income taxes of $82,872 and $680 respectively
during the year ended December 31, 1999. During 1999, the Company acquired
approximately $56,000 of computer equipment under a capital lease.
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.
Risks and Uncertainties
The Company is in the development stage. Since its inception, the Company
has been engaged in organizational and pre-operating activities. Further,
the Company has generated no revenues and incurred losses. The Company
continues to be subject to various risks, including the need for additional
financing, dependence on key personnel and the establishment of its
operations as a viable business model. Furthermore, the Company is subject
to the risks and uncertainties associated with Internet commerce.
If the Company does not receive additional funding during the year ending
December 31, 2000, it believes that scaling back on planned expansion and
reducing costs will be sufficient to meet working capital and capital
expenditure requirements through such date. Thereafter, if cash generated
by operations is insufficient to satisfy the Company's liquidity
requirements, it may need to sell additional equity or debt securities to
continue as a going concern.
F-10
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE C - STOCKHOLDERS' EQUITY (DEFICIT)
Initial Public Offering
On December 27, 1999, the Company completed its Offering, which consisted
of 1,200,000 units, each unit consisting of one share of common stock and
one redeemable warrant, at an offering price of $8.50 per unit. Each
redeemable warrant entitles the holder to purchase one share of common
stock at $12.75 per share, at any time from issuance until December 21,
2004. Such warrants are redeemable by the Company, with the prior written
consent of the underwriter, at a redemption price of $.05 commencing May
17, 2000 provided that the closing price of the common stock is at least
$12.75 per share for 10 (ten) consecutive trading days. In addition, there
was an overallotment option for 180,000 units, of which 40,000 units were
exercised by the underwriter in January 2000, for net aggregate proceeds of
approximately $306,000.
Private Placement
In connection with the Company's Private Placement, the Company sold during
the year ended December 31, 1999, 264,490 shares of its common stock for
net proceeds of $523,980.
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. In January 2000,
the Company's Board of Directors increased the aggregate number of common
shares available under the 1999 Plan to 1,000,000 shares which increase was
retroactive to December 22, 1999, and approved by the shareholders of the
Company in May 2000. 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.
F-11
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE C (CONTINUED)
In November 1999, the Company's Board of Directors granted stock options to
an employee to purchase 75,000 shares of common stock at an exercise price
of $7.50 per share. Such options vest ratably over two years from September
15, 1999.
In October 1999, the Company granted a consultant options to acquire
150,000 shares of common stock at an exercise price equal to the Offering
price. 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
reissuance of an equal number of options to be granted on December 22,
1999, the effective date of the Offering (which 130,000 options vested
immediately and the balance vested ratably over the next thirty days
following the effective date of the Offering), at an exercise price equal
to the Offering price. These options were valued at $763,500, based on the
Offering price of $8.50, which was recognized as a charge to operations
during the year ended December 31, 1999.
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, which vest
immediately. For the year ended December 31, 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.
Further, the Company's Board of Directors granted stock options in August
1999 to an employee to purchase 110,000 shares of common stock at an
exercise price of $2.00 per share (a price below the estimated fair market
value of the Company's common stock of $7.50 on the date of issuance). Of
the 110,000 options, 75% vest ratably over three years from the date of
grant for which compensation expense of $453,750 is recognizable over such
period. The remaining 25% of such options vest upon achieving certain
performance-based criteria, which occurred during May 2000. Compensation
expense for these options will be recognized based on the intrinsic value
of such options at the time the performance-based criteria are achieved.
Compensation expense relating to these options of $126,100 was recognized
for the six months ended June 30, 2000.
F-12
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE C (CONTINUED)
In June 1999, the Company entered into an employment agreement with an
employee, 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 employee an option to purchase
150,000 shares of common stock at an exercise price of $2.00 per share,
which vested ratably over four years. The option was granted at an exercise
price below the fair market value of the Company's common stock, resulting
in aggregate total compensation of $825,000, of which non-cash compensation
of $206,250 was recorded for the year ended December 31, 1999. In December
1999, this employment agreement was terminated and no further compensation
charge pertaining to his unvested options will be recognized from the
contract as the unvested options were forfeited.
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 year ended
December 31, 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.
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).
F-13
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE C (CONTINUED)
Activity under the 1999 plan is summarized as follows:
<TABLE>
<CAPTION>
Outstanding options
-----------------------------------------------
Exercise Weighted-
Number price average
of per exercise
shares share price
--------- -------------- --------
<S> <C> <C> <C>
Balance at January 1, 1999 -- -- --
Options granted 537,500 $2.00 - 7.50 $5.25
Options forfeited (112,500) $2.00 $2.00
--------
Balance at December 31, 1999 425,000 $2.00 - 7.50 $5.25
========
</TABLE>
The following table summarizes information about employee stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------------------- -------------------------
Number Weighted- Number
outstanding average Weighted- exercisable Weighted-
at remaining average at average
December 31, contractual exercise December 31, exercise
Exercise prices 1999 life (years) price 1999 price
--------------- ------------ ------------ ---------- ------------- --------
<S> <C> <C> <C> <C> <C>
$2.00 230,500 8.95 $2.00 112,500 $2.00
7.50 194,500 9.92 7.50 103,000 7.50
------- -------
425,000 9.39 $4.52 215,500 $4.63
======= =======
</TABLE>
The Company accounts for its stock-based awards in accordance with
Accounting Principles Board Opinion 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
F-14
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE C (CONTINUED)
No. 123, "Accounting for Stock-Based Compensation," the Company's net loss
and net loss per share for the year ended December 31, 1999 would have been
increased to the pro forma amounts indicated below:
Net loss
As reported (3,785,824)
Pro forma (4,582,594)
Basic and diluted loss per share
As reported (1.12)
Pro forma (1.35)
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 year ended December 31,
1999: expected life of five years, expected volatility of 80% and a
risk-free interest rates ranging from 4.70% to 6.26%. The weighted average
fair value of options granted for the year ended December 31, 1999 was
$5.12.
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 was part of a unit
which consisted of (i) a $15,000 promissory note and (ii) a warrant to
purchase up to 9,000 shares of the Company's common stock. 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 Offering price of $8.50. Each warrant may be exercised
twelve months after the closing date of the Offering or before July 31,
2004. Each note was payable in full the earlier of (i) July 31, 2002 or
(ii) on the effective date of the Offering. On December 27, 1999, the
Company repaid the aggregate principal of these notes plus accrued interest
from the net proceeds of the Offering. Financing costs incurred amounted to
$231,500 and was being amortized on a straight-line basis over the
three-year term of the notes. However, as a result of the Offering and
repayment of the notes, the Company recognized an interest charge in 1999
of approximately $206,000 for the write-off of the remaining unamortized
deferred costs.
F-15
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE C (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 was being accreted to the face value of $1,815,000 using the
interest method over the three-year term of the notes. However, as a result
of the Offering and repayment of the notes, the Company recognized an
interest charge in 1999 of approximately $225,000 for the write-off of the
remaining unamortized deferred discount.
NOTE D - INCOME TAXES
No income tax benefit has been recognized for the periods ended December
31, 1999 and 1998 for pretax losses due to the uncertainty of realization
in future periods. A full valuation allowance has been provided as
management believes that it is more likely than not that the deferred tax
assets will not be realized. The provision for income taxes differed from
the amount computed using the Federal statutory rate as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- --------------------------
AMOUNT PERCENT Amount Percent
------------ -------- --------- -------
<S> <C> <C> <C> <C>
Federal statutory rate $(1,287,180) (34.0)% $(145,595) (34.0)%
State income tax benefit, net of
Federal expense (380,076) (10.0) (39,238) (9.0)
Permanent differences 15,391 0.4 -- --
Current year loss, for which no tax
benefit is available 1,651,865 43.6 184,833 43.0
---------- ----- --------- -----
$ -- -- % $ -- -- %
=========== ===== ========= =====
</TABLE>
F-16
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE D (CONTINUED)
Significant components of the Company's deferred tax assets are as follows:
1999 1998
--------- --------
Deferred tax assets
Net operating loss $ 732,462 $ 56,624
Start-up and organizational costs 770,438 127,956
Stock-based compensation 478,814
Other - fixed assets (145,016) 253
---------- --------
1,836,698 184,833
Valuation allowance (1,836,698) (184,833)
---------- --------
Net deferred tax assets $ -- $ --
========== ========
At December 31, 1999, the Company has a net operating loss ("NOL")
carryforward of approximately $1,442,000, which expires from 2018 through
2019. Through its acquisition of Eons Ahead, Inc., the Company acquired an
additional $150,000 of NOL which also expires from 2018 through 2019.
Utilization of these additional NOL's may be limited due to the Separate
Return Limitation Year ("SRLY") rules.
NOTE E - 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 officer is a
director of the Company.
F-17
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE F - COMMITMENTS AND CONTINGENCIES
Office Lease
In 1999, the Company entered into noncancelable office lease agreements
which expire in 2002. The minimum lease payments under the noncancelable
leases are summarized as follows:
2000 $176,000
2001 187,000
2002 150,000
-------
$513,000
========
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 the Offering on December
27, 1999, the Company compensated its chief financial officer with a
$100,000 bonus which was charged to operations in 1999.
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.
NOTE G - SUBSEQUENT EVENTS
On March 31, 2000, the Company purchased certain web site domains and
production assets from Kudzu NewMedia and Bijou Cafe.com (collectively,
"Bijou") for 20,000 shares of the Company's stock, valued on the effective
date of agreement at approximately $76,000, representing the fair market
value of the assets acquired. The acquisition was accounted for as a
purchase.
F-18
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
NOTE G (CONTINUED)
In March 2000, the Company issued 7,700 shares of common stock at their
fair market value on the date of issuance, amounting to approximately
$39,000, to consultants for services rendered.
Through June 30, 2000, the Company's Board of Directors granted stock
options under the 1999 plan to certain employees to purchase an aggregate
of 261,408 shares of common stock at exercise prices representing the fair
market value of the underlying common stock at the time of the respective
grants. Additionally, in March 2000, options to purchase 37,500 shares of
common stock were exercised, aggregating $75,000 in proceeds to the
Company.
F-19
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
BALANCE SHEETS
(unaudited)
<CAPTION>
JUNE 30, December 31,
ASSETS 2000 1999 (a)
------------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,776,392 $ 6,693,061
Accounts receivable 106,020
Licenses, net of accumulated amortization of $264,000 and $79,000
at June 30, 2000 and December 31, 1999, respectively 184,403 392,363
Prepaid expenses 87,878 142,207
------------ ------------
Total current assets 2,154,693 7,227,631
PROPERTY AND EQUIPMENT
Computer equipment and software 1,537,793 751,297
Software development costs 507,800 150,513
Leasehold improvements 327,480 127,352
Furniture and fixtures 21,977 19,841
------------ ------------
2,395,050 1,049,003
Less accumulated depreciation and amortization (442,457) (167,494)
------------ ------------
1,952,593 881,509
OTHER ASSETS 32,850 7,000
------------ ------------
$ 4,140,136 $ 8,116,140
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of capital lease obligations $ 31,740 $ 31,740
Accounts payable and accrued expenses 402,726 429,265
Accrued license fees 436,941
Accrued software costs 304,519
Accrued payroll 137,747
Accrued offering costs 64,500
Accrued professional fees 130,737 43,623
Accrued consulting fees 187,274 132,144
------------ ------------
Total current liabilities 752,477 1,580,479
CAPITALIZED LEASE OBLIGATIONS, less current maturities 13,106 24,234
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
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 - 4,730,044 and 4,624,844 shares at
June 30, 2000 and December 31, 1999, respectively 4,730 4,625
Additional paid-in capital 11,337,040 10,720,846
Deficit accumulated during development stage (7,967,217) (4,214,044)
------------ ------------
Total stockholders' equity 3,374,553 6,511,427
------------ ------------
$ 4,140,136 $ 8,116,140
============ ============
</TABLE>
(a) Retroactively restated to combine the financial position of Streamedia
Communications, Inc. ("Streamedia") with that of Eons Ahead, Inc., which
was acquired by Streamedia in March 2000 and accounted for as a pooling of
interests.
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Cumulative
from
January 13,
Six months ended Three months ended 1998 (date of
June 30 June 30 inception) to
------------------------------- ------------------------------ June 30,
2000 1999 (a) 2000 1999 (a) 2000 (a)
---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 130,830 $ 52,109 $ 123,486 $ 31,268 $ 311,255
----------- ----------- ----------- ----------- -----------
Operating expenses
Payroll and related expenses 1,861,114 440,469 1,093,651 284,245 3,256,586
Product development 23,024 524,501
General and administrative 2,106,982 177,533 1,212,541 89,695 3,996,288
----------- ----------- ----------- ----------- -----------
Total operating expenses 3,991,120 618,002 2,306,192 373,940 7,777,375
----------- ----------- ----------- ----------- -----------
Operating loss (3,860,290) (565,893) (2,182,706) (342,672) (7,466,120)
----------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense (9,020) (4,359) (2,444) (4,359) (621,854)
Interest income 116,137 1,995 44,324 1,995 120,757
----------- ----------- ----------- ----------- -----------
Total other income
(expense) 107,117 (2,364) 41,880 (2,364) (501,097)
----------- ----------- ----------- ----------- -----------
NET LOSS $(3,753,173) $ (568,257) $(2,140,826) $ (345,036) $(7,967,217)
=========== =========== =========== =========== ===========
Basic and diluted loss per
common share $ (.80) $ (.17) $ (.45) $ (.11) $ (2.50)
=========== =========== =========== =========== ===========
Weighted average shares
outstanding, basic and
diluted 4,699,347 3,247,717 4,730,044 3,282,678 3,189,761
=========== =========== =========== =========== ===========
</TABLE>
(a) Retroactively restated to combine the results of operations of Streamedia
with those of Eons Ahead, Inc., which was acquired by Streamedia in March
2000 and accounted for as a pooling of interests.
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<CAPTION>
Preferred stock Common stock
-------------------- -----------------------
Shares Amount Shares Amount
----------- ------ --------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 2000 (a) -- $ -- 4,624,844 $4,625
Issuance of common stock for services 7,700 8
Issuance of common stock pursuant to the exercise
of stock options 37,500 37
Issuance of common stock in connection with the overallotment option of the
initial public offering, net of underwriting discounts of
$40,800 40,000 40
Compensatory stock option expense
Issuance of common stock for business
acquisition 20,000 20
Net loss for the period
----------- ------ --------- ------
Balance at June 30, 2000 $ 4,730,044 $4,730
=========== ====== ========= ======
<CAPTION>
Deficit
Additional accumulated
paid-in development
capital stage Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 2000 (a) $10,720,846 $(4,214,044) $ 6,511,427
Issuance of common stock for services 39,105 39,113
Issuance of common stock pursuant to the exercise
of stock options 74,963 75,000
Issuance of common stock in connection with the overallotment option of the
initial public offering, net of underwriting discounts of
$40,800 299,160 299,200
Compensatory stock option expense 126,100 126,100
Issuance of common stock for business
acquisition 76,866 76,886
Net loss for the period (3,753,173) (3,753,173)
----------- ----------- -----------
Balance at June 30, 2000 $11,337,040 $(7,967,217) $ 3,374,553
=========== =========== ===========
</TABLE>
(a) Retroactively restated to combine the financial position of Streamedia with
that of Eons Ahead, Inc., which was acquired by Streamedia in March 2000
and accounted for as a pooling of interests.
The accompanying notes are an integral part of this statement.
F-22
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Cumulative
from
January 13,
Six months 1998 (date of
June 30, inception) to
------------------------------ June 30,
2000 1999(a) 2000 (a)
----------- ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(3,753,173) $ (568,257) $(7,967,217)
Adjustments to reconcile net loss to net cash used in operating
activities
Common stock issued for services 39,113 12,000 231,113
Stock option granted for services 20,250 834,650
Compensatory stock option expense 126,100 206,250 332,350
Amortization of debt discount 272,250
Amortization and write-off of deferred financing costs 231,500
Depreciation and amortization 459,423 1,757 706,687
Changes in operating assets and liabilities
Accounts receivable (106,020) (106,020)
Prepaid expenses and other current assets 77,829 (536,511)
Other assets (25,850) (4,668) (32,850)
Accounts payable and accrued expenses (26,539) 6,583 402,726
Accrued license fees (436,941)
Accrued software costs (304,519)
Accrued payroll (137,747) 23,954
Accrued offering costs (64,500)
Accrued professional fees 87,114 (8,635) 130,737
Accrued consulting fees 55,130 (38,500) 187,274
----------- ----------- -----------
Net cash used in operating activities (4,010,580) (349,266) (5,313,311)
----------- ----------- -----------
Cash flows from investing activities
Purchase of property and equipment (1,269,161) (18,805) (2,262,191)
----------- ----------- -----------
Net cash used in investing activities (1,269,161) (18,805) (2,262,191)
----------- ----------- -----------
Cash flows from financing activities
Issuance of common stock, net of associated costs 299,200 523,980 828,809
Issuance of common stock in Offering, net of associated costs 8,446,777
Proceeds from the exercise of stock options 75,000 75,000
Proceeds of notes payable and common stock warrants, net of
associated costs 1,583,500
Repayments of notes payable (1,815,000)
Deferred offering costs (187,432) 50,000
Conversion of stockholder loan into Capital 31,320 193,936
Principal payments on capital lease obligations (11,128) (11,128)
----------- ----------- -----------
Net cash provided by financing activities 363,072 367,868 9,351,894
----------- ----------- -----------
Net (decrease) increase in cash (4,916,669) (203) 1,776,392
Cash at beginning of period 6,693,061 9,691 --
----------- ----------- -----------
Cash at end of period $ 1,776,392 $ 9,488 $ 1,776,392
=========== =========== ===========
</TABLE>
(a) Retroactively restated to combine the financial position of Streamedia with
that of Eons Ahead, Inc., which was acquired by Streamedia in March 2000
and accounted for as a pooling of interests.
The accompanying notes are an integral part of these statements.
F-23
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(unaudited)
NOTE A - BASIS OF PRESENTATION
The interim unaudited financial statements include the accounts of
Streamedia Communications, Inc. ("Streamedia" or the "Company") and the
accounts of companies acquired in business combinations accounted for under
(1) the purchase method from their respective acquisition date and (2) the
pooling of interests method, giving retroactive effect for all periods
presented. See Note C for the effects of the pooling on previously reported
revenues, net loss and loss per share resulting from the business
combination with Eons Ahead, Inc., which was acquired by the Company during
March 2000 and accounted for as a pooling of interests.
The balance sheet as of June 30, 2000 and the related statements of
operations for the six and three month periods ended June 30, 2000 and
1999, and cumulative from January 13, 1998 (date of inception) to June 30,
2000, stockholders' equity for the six-month period ended June 30, 2000 and
cash flows for the six-month periods ended June 30, 2000 and 1999 have been
prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal, recurring accrual adjustments)
necessary to present fairly the financial position as of June 30, 2000 and
for all periods presented have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Annual Report on Form 10-KSB for the year
ended December 31, 1999. Results of operations for the period ended June
30, 2000 are not necessarily indicative of the operating results expected
for the full year.
NOTE B - NATURE OF OPERATIONS
Streamedia 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 two divisions are Streamedia Networks and
Business Services. In December 1999, the Company completed its initial
public offering (the "Offering"). The net proceeds from the Offering were
approximately $8,447,000.
F-24
<PAGE>
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000
(unaudited)
NOTE B (CONTINUED)
The Company is in the development stage. Streamedia Networks consist of a
suite of topical broadcast networks to deliver or "stream" live and
on-demand audio and video programming. The Streamedia Networks sites intend
to offer programming in Streamedia Communications, Inc. 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 "Crime Broadcast,"
"Sports Style," "Motion Arts" and "Women on the Edge" as its initial
network launches. The Streamedia Networks will include StreamWire which
will consist of a series of focused, subject-oriented, edited news and
information products, such as wires devoted to NASDAQ or Amex-listed
companies.
Streamedia Business Services division 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 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 markets, risks associated with consolidation in the industry,
the need to manage growth and expansions, certain technology and regulatory
risks and dependence upon sole and limited suppliers.
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 nominal
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.
F-25
<PAGE>
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000
(unaudited)
NOTE C - BUSINESS COMBINATIONS
During March 2000, the Company completed the acquisition of Eons Ahead,
Inc. ("Eons") through a stock-for-stock merger. Under the terms of the
acquisition, accounted for as a pooling of interests, the Company exchanged
129,354 shares of Company common stock for all of Eons common stock. Eons
is a technology-based company, incorporated on January 13, 1998, which
designs, markets and develops strategies for other entities.
The reconciliation below details the effects of the pooling on previously
reported revenues, net loss and loss per share of the separate companies
for the period from January 13, 1998 (date of inception) to December 31,
1998, year ended December 31, 1999 and cumulative from January 13, 1998
(date of inception) to December 31, 1999.
Period Cumulative
from from
January 13, January 13,
1998 (date of Year 1998 (date of
inception) to ended inception) to
December 31, December 31, December 31,
1998 1999 1999
------------- ------------ ------------
Revenues
Streamedia $ -- $ -- $ --
Eons 18,286 162,139 180,425
----------- ----------- -----------
Combined $ 18,286 $ 162,139 $ 180,425
=========== =========== ===========
Net loss
Streamedia $ (296,760) $(3,784,911) $(4,081,671)
Eons (131,460) (913) (132,373)
----------- ----------- -----------
Combined $ (428,220) $(3,785,824) $(4,214,044)
=========== =========== ===========
Loss per share
Streamedia $ (.14) $ (1.12) $ (1.47)
Eons (.06) -- (.05)
----------- ----------- -----------
Combined $ (.20) $ (1.12) $ (1.52)
=========== =========== ===========
F-26
<PAGE>
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000
(unaudited)
NOTE C (CONTINUED)
On March 31, 2000, the Company purchased certain web site domains and
production assets from Kudzu NewMedia and Bijou Cafe.com (collectively,
"Bijou") for 20,000 shares of the Company's stock, valued on the effective
date of agreement at approximately $76,000, representing the fair market
value of the assets acquired. The acquisition was accounted for as a
purchase, and accordingly, the statements of operations include the results
of operations of Bijou since acquistion. The operations of Bijou are not
significant to the Company's operations.
NOTE D - LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity with
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under SFAS No. 128 and SAB 98, basic net loss per share is computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding for the period. It also requires a reconciliation of the
numerator and denominator of the basic net loss per share to the numerator
and denominator of the diluted net loss per share. As of June 30, 2000, the
calculation of diluted net loss per share excludes an aggregate of
3,152,908 shares of common stock issuable upon exercise of warrants and
employee stock options, as the effect of such shares would be antidilutive
for all periods presented.
NOTE E - STOCKHOLDERS' EQUITY
Initial Public Offering
On December 27, 1999, the Company completed its Offering, which consisted
of 1,200,000 units, each unit consisting of one share of common stock and
one redeemable warrant, at an offering price of $8.50 per unit. Each
redeemable warrant entitles the holder to purchase one share of common
stock at $12.75 per share, at any time from issuance until December 21,
2004. Such warrants are redeemable by the Company, with the prior written
consent of the underwriter, at a redemption price of $.05 commencing May
17, 2000 provided that the closing price of the common stock is at least
$12.75 per share for 10 (ten) consecutive trading days. In addition, there
was an overallotment option for 180,000 units, of which 40,000 units were
exercised by the underwriter in January 2000, for net aggregate proceeds of
$299,200.
F-27
<PAGE>
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000
(unaudited)
NOTE E (CONTINUED)
In August 1999, the Company's Board of Directors granted stock options
pursuant to the Company's 1999 Incentive and Nonstatutory Option Plan (the
"1999 Plan") to an employee to purchase 110,000 shares of common stock at
an exercise price of $2.00 per share (a price below the estimated fair
market value of the Company's common stock of $7.50 on the date of
issuance). Of the 110,000 options, 75% vest ratably over three years from
the date of grant for which compensation expense of $453,750 is
recognizable over such period. The remaining 25% of such options vest upon
achieving certain performance-based criteria, which are expected to occur
during the year ending December 31, 2000. Compensation expense for these
options will be recognized based on the intrinsic value of such options at
the time the performance-based criteria are achieved. Compensation expense
relating to these options of approximately $126,100 was recognized for the
six months ending June 30, 2000.
In May 2000, the shareholders of the Company approved a 500,000 share
increase in the maximum number of common shares reserved for issuance under
the 1999 Plan.
For the six months ended June 30, 2000, the Company's Board of Directors
granted stock options under the 1999 plan to certain employees to purchase
an aggregate of 261,408 shares of common stock at exercise prices
representing the fair market value of the underlying common stock at the
time of the respective grants.
F-28
