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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1999
REGISTRATION NO. 333-78649
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
BRIGHT-TECHNOLOGIES.COM, INC.
(Name of small business issuer in its charter)
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DELAWARE 3661 16-1567610
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
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7325 OSWEGO ROAD LIVERPOOL, NEW YORK 13090
(315) 652-0006
(Address and telephone number of principal executive office and principal place
of business or intended principal place of business)
JOSEPH C. PASSALAQUA
CHIEF EXECUTIVE OFFICER
BRIGHT-TECHNOLOGIES.COM, INC.
7325 OSWEGO ROAD
LIVERPOOL, NEW YORK 13090
(315) 652-0006
(Name, address and telephone number of agent for service)
--------------------------
COPY TO:
LAWRENCE B. MANDALA, ESQ.
JOEL HELD, ESQ.
ARTER & HADDEN LLP
1717 MAIN STREET, SUITE 4100
DALLAS, TEXAS 75201
(214) 761-2100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
Registration Statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF DOLLAR AMOUNT OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED UNIT PRICE REGISTRATION FEE
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Common Stock, $.001 par value............... $9,450,000 $5.25 $9,450,000 $2,627
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED JULY 22, 1999
PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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BRIGHT-TECHNOLOGIES.COM, INC.
7325 OSWEGO ROAD
LIVERPOOL, NEW YORK 13090
(315) 652-0006
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MAXIMUM OFFERING: 1,800,000 Shares
of Common Stock
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$9,450,000 Total Proceeds
- - 945,000 Underwriting Commissions
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$8,505,000 Proceeds, before expenses, to
- ---------
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bright-technologies.com
MINIMUM OFFERING: 1,000,000 Shares
of Common Stock
$5,250,000 Total Proceeds
- - 525,000 Underwriting Commissions
- ---------
$4,725,000 Proceeds, before expenses, to
- ---------
- ---------
bright-technologies.com
PRICE PER SHARE: $5.25
UNDERWRITING COMMISSIONS: 10%
UNDERWRITER'S EXPENSE ALLOWANCE: 1%
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This is our initial public offering. There is currently no public market for our
shares. Our underwriter is offering 1,800,000 shares of our common stock on a
"best efforts minimum/ maximum" basis. The underwriter must sell a minimum of
1,000,000 shares in order for this offering to be completed. The underwriter is
required to use its best efforts to sell the shares. If we do not sell at least
1,000,000 shares within 180 days after commencement of this offering, the
offering will terminate and all money paid for shares will be promptly returned
to the purchasers, with interest and without deduction. Even if we sell the
minimum number of shares, we may not sell the maximum number of shares. All
shares sold will be held in escrow with Firstar Bank of Minnesota, N.A., St.
Paul, MN until at least 1,000,000 shares have been sold.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK AND OF IMMEDIATE SUBSTANTIAL
DILUTION. YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF
YOUR INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 3 AND "DILUTION" ON PAGE
10.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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ROCKCREST SECURITIES L.L.C.
, 1999
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 3
Forward-Looking Statements................................................................................. 8
Use of Proceeds............................................................................................ 9
Dilution................................................................................................... 10
Capitalization............................................................................................. 11
Selected Financial Data.................................................................................... 12
Dividend Policy............................................................................................ 13
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 13
Our Business............................................................................................... 19
Our Management............................................................................................. 26
Certain Transactions with Management....................................................................... 29
Principal Stockholders..................................................................................... 30
Description of Securities.................................................................................. 31
Shares Eligible For Future Sale............................................................................ 33
Underwriting............................................................................................... 34
Legal Matters.............................................................................................. 36
Experts.................................................................................................... 36
Additional Information..................................................................................... 36
Index to Financial Statements.............................................................................. F-1
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IMPORTANT INFORMATION
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THESE SHARES OF COMMON STOCK MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
"Bright Star," "Brightlink," "Chameleon," "Tech 3" and "Wireless Network
Manager" are trademarks of our subsidiary, Bright Technologies, Inc. This
prospectus also contains the trademarks and service marks of other companies
that are the property of their respective owners.
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PROSPECTUS SUMMARY
THE COMPANY
bright-technologies.com, inc. has designed and developed, and intends to
manufacture and market, advanced wireless telephones and products for use in
traditional wireline telephones. Our objective is to become a leading provider
of prepaid, wireless telephones. Our wireless products include:
- prepaid wireless telephones intended for residential and business use at
fixed locations, and
- wireless payphones intended for public use.
Our wireless telephones can accept a variety of prepayment methods,
including prepaid debit cards and credit cards. The telephones also can detect
and report their own malfunctions to the telecommunications service provider's
host computer. We are developing software that will enable the service provider
to monitor and manage its telephones from a remote location through the internet
or a direct connection.
We developed and intend to market these products for use principally in
areas of the world that lack the capital and infrastructure to fully support
traditional wireline telecommunications. We recently signed letters of intent to
form joint ventures to deploy 24,000 of our prepaid wireless payphones in the
Philippines, Ukraine and Slovakia. Our wireline products include the Bright Star
coinline board, a motherboard that we presently market in the United States.
We are a Delaware corporation formed in April 1999 to become a holding
company for Bright Technologies, Inc., a Georgia corporation formed in 1994 by
our principal stockholder. References to us in this prospectus concerning
matters prior to April 1999 refer to Bright Technologies, Inc., which is now our
wholly-owned subsidiary. Our principal address is 7325 Oswego Road, Liverpool,
New York 13090, and our telephone number is (315) 652-0006.
THE OFFERING
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Common Stock Offered................ 1,000,000 shares (minimum)
1,800,000 shares (maximum)
Offering Price...................... $5.25 per share
Common Stock Outstanding Prior to
the Offering...................... 6,000,000 shares
Common Stock to be Outstanding After
the Offering...................... 7,000,000 shares (minimum)
7,800,000 shares (maximum)
Use of Proceeds (see page 9)........ We intend to use the net proceeds from this offering
for repayment of certain outstanding obligations,
including (if the maximum number of shares offered by
this prospectus are sold) certain related party
obligations; manufacturing and deployment of
telephones; sales and marketing; research and
development; working capital and general corporate
purposes.
Risk Factors (see page 3)........... This investment involves a high degree of risk. You
should purchase shares only if you can afford a
complete loss of your investment.
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SUMMARY FINANCIAL DATA
You should read the following summary financial data together with the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements of
Bright Technologies, Inc. and notes thereto included elsewhere in this
prospectus.
Net loss per share in the following table is based upon weighted average
common shares outstanding of 6,000,000, and has been restated to reflect the
initial issuance of common stock of bright-technologies.com, inc. on April 23,
1999 in exchange for all outstanding shares of Bright Technologies, Inc.
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THREE MONTHS FOR THE PERIOD
YEAR ENDED ENDED FROM INCEPTION
DECEMBER 31, MARCH 31, (DECEMBER 29, 1994)
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1997 1998 1998 1999 MARCH 31, 1999
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(UNAUDITED) (UNAUDITED)
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Statement Of Operations Data:
Total revenue....................... $ 114,040 $ 87,304 $ -- $ 30,625 $ 1,023,323
Total expenses...................... 1,522,183 1,196,653 292,247 186,034 8,522,336
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Net loss............................ $ (1,408,143) $ (1,109,349) $ (292,247) $ (155,409) $ (7,499,013)
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Net loss per share.................. $ (0.23) $ (0.18) $ (0.05) $ (0.03)
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MARCH 31, 1999
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(UNAUDITED)
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Balance Sheet Data:
Total Assets...................................................................................... $ 495,458
Total Liabilities................................................................................. $ 3,100,506
Total Stockholders' (Deficiency) Equity........................................................... $ (2,605,048)
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2
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK. THIS
INVESTMENT INVOLVES A HIGH DEGREE OF RISK. ANY OF THE FOLLOWING RISKS COULD
MATERIALLY ADVERSELY EFFECT OUR BUSINESS, OPERATING RESULTS OR FINANCIAL
CONDITION AND COULD RESULT IN A COMPLETE LOSS OF YOUR INVESTMENT.
WE ARE A DEVELOPMENT STAGE COMPANY WITH A LIMITED OPERATING HISTORY.
bright-technologies.com, inc. is a newly formed company. It was formed in
April 1999 to acquire Bright Technologies, Inc., which commenced operations in
December 1994 and is currently in the development stage. Since December 1994, we
have been engaged principally in acquiring and completing the development of our
technology, testing our technology and developing a plan of operation. We have a
limited operating history that you can use to evaluate our prospects. Our
prospects must, therefore, be considered in light of the risks, uncertainties,
expenses, delays, and difficulties usually associated with a new business.
BECAUSE WE HAVE A HISTORY OF LOSSES SINCE OUR INCEPTION AND EXPECT TO INCUR
FURTHER LOSSES, WE MAY BE UNABLE TO CONTINUE AS A GOING CONCERN.
Since inception, we have incurred significant losses from operations, and
accumulated a deficit of $7,499,013 through March 31, 1999. We incurred losses
of $1,408,143 and $1,109,349 for the fiscal years ended December 31, 1997 and
1998, respectively. We expect to continue to incur substantial losses in future
periods. Our independent accountants have included an explanatory paragraph in
their report on our financial statements stating that our financial statements
have been prepared assuming that we will continue as a going concern, but that
substantial doubt exists as to our ability to do so because of these recurring
losses from operations and our working capital deficiency.
WE WILL NEED ADDITIONAL CAPITAL FINANCING IN THE FUTURE.
We have experienced negative cash flows from operations since our inception.
We anticipate, however, that the net proceeds of the minimum number of shares
offered in this offering, together with our projected cash flows from
operations, will be sufficient to fund our operations and capital requirements
for the twelve months immediately following this offering. Thereafter,
implementation of our business plan will require funds not currently available
to us and we may be required to seek additional financing. We also may be
required to seek additional financing sooner than currently anticipated to fund
more rapid expansion, respond to competitive pressures, develop new or enhanced
products, or take advantage of unanticipated acquisition opportunities. We
cannot be certain we will be able to find additional financing on reasonable
terms, or at all. If we are unable to obtain additional financing when needed,
we may not be able to expand, respond to competitive pressures, develop or
enhance our products or take advantage of unanticipated acquisition
opportunities. We may also be forced to curtail our existing activities or cease
operations.
WE NEED THE PROCEEDS OF THIS OFFERING TO SATISFY CERTAIN PREEXISTING
OBLIGATIONS, INCLUDING OBLIGATIONS CURRENTLY IN DEFAULT.
At December 31, 1998, we were in default on the payment of a note to
Tee-Comm Electronics, Inc. in the approximate amount of $1,346,000 in principal
and interest. The note is secured by a lien on substantially all of our assets.
On January 14, 1999, we entered into an agreement with Ernst & Young Inc. in its
capacity as court-appointed receiver and manager for Tee-Comm. We granted the
Tee-Comm receiver a first priority security interest in our technology and a
three year option to acquire 5% of our common stock on a fully diluted basis on
terms at least as favorable as the terms we make available to any other party,
including any insider, underwriter, agent or advisor. We intend to use
approximately $1,382,000 of the net proceeds of this offering to repay the note
to the Tee-Comm receiver, upon which the receiver will release its lien on our
technology and other assets. In addition, we are in default on a promissory note
in the amount of $63,937 in favor of Triangle Plastics, Inc. We intend to repay
this
3
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note from the proceeds of this offering. An aggregate of $1,446,086 in proceeds
from this offering will therefore not be available to us to apply to working
capital needs or future growth.
In addition, if the maximum offering amount is achieved, we intend to use
$500,000 of the proceeds to repay part of a $665,000 loan from Joseph C.
Passalaqua, our Chief Executive Officer, Chairman of the Board and principal
stockholder.
OUR SUCCESS DEPENDS ON MARKET ACCEPTANCE OF OUR PRODUCTS THAT WE HAVE NOT AS YET
OBTAINED.
To date we have made no sales of our wireless telephones and payphones.
During the last two fiscal years, we have derived substantially all of our
revenues from sales of our Bright Star coinline board and other wireline
telephone components. During the two years ended December 31, 1998,
approximately 94% of our net sales were derived from three customers, including
a company controlled by Joseph C. Passalaqua, our Chief Executive Officer,
Chairman of the Board and principal stockholder, which was responsible for
approximately 31% of our net sales during this two-year period and 100% of our
net sales during the three months ended March 31, 1999. Except for our letters
of intent regarding deployment of our wireless products in the Philippines,
Ukraine and Slovakia, which may or may not result in binding contracts for the
purchase, use or distribution of our wireless products, we have not obtained any
commitments from customers to purchase, use or distribute our wireless products.
We cannot be certain we will be successful in our targeted markets.
WE ARE SIGNIFICANTLY DEPENDENT ON OUR LICENSING AGREEMENT WITH MOTOROLA.
We have signed a one year, non-exclusive, non-transferable, renewable
licensing agreement with Motorola allowing us to make, have made, use and sell
technology that contains transceivers supplied by Motorola. The territory of the
licensing agreement is presently limited to the United States, Canada and Latin
America. We will be unable to sell our products in other markets unless Motorola
expands the territory of the licensing agreement. Our products work only with
Motorola transceivers and would require significant modifications if we were
unable to use Motorola's transceivers. If Motorola cannot or will not supply us
with transceivers or fails to renew or terminates the licensing agreement, we
would have to spend considerable time and resources to redesign our products.
These increased costs and diversion of resources would adversely affect our
business and could force us to curtail or cease operations.
WE WILL BE SUBJECT TO CERTAIN RISKS OF INTERNATIONAL OPERATIONS.
We intend to conduct a significant part of our business outside the United
States, where we believe there is an opportunity to market and sell our wireless
telephones and prepaid wireless payphones. An investment in our common stock
therefore will be subject to risks generally associated with conducting business
in foreign countries, such as:
- foreign laws and regulations that may be materially different from those
of the United States;
- changes in applicable laws and regulations;
- labor and political unrest;
- foreign currency fluctuation;
- changes in foreign economic and political conditions;
- export and import restrictions;
- tariffs, customs, duties and other trade barriers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles;
- difficulties in collecting accounts receivable and enforcing agreements;
- nationalization or expropriation; and
- repatriation of income or capital.
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In addition, in the event of a dispute, we may be subject to the exclusive
jurisdiction of foreign courts and agencies, or may not be successful in
obtaining jurisdiction over foreign persons in state or federal courts in the
United States. We also may be hindered or prevented from enforcing our rights
against foreign governments and their instrumentalities because of the doctrine
of sovereign immunity. In many international markets it may be difficult for us
to establish a strong customer base because of longstanding relationships
between our potential customers and their local providers.
WE WILL NEED NEW STAFF OR OUTSIDE HELP WITH SALES AND MARKETING.
We presently have six employees, three of whom are full-time. Our current
staff has limited sales and marketing experience. We will need to hire
additional staff and may also have to rely on outside sources to perform
marketing functions for us. We have limited experience in international sales,
yet our current business plan depends, in large part, on selling our products
abroad. Our senior management speaks only English. We will need to identify,
attract, hire, train and retain other sales and marketing personnel to be
successful. We cannot assure you that we will be able to successfully identify,
attract, hire and retain additional personnel in a timely and effective manner.
We may not be successful in either hiring employees with domestic or
international sales experience or in conducting international marketing with our
current staff.
WE MAY NOT BE ABLE TO OBTAIN NECESSARY FOREIGN GOVERNMENT APPROVALS.
The construction, operation, sale and interconnection arrangements of
wireless telecommunications systems and the grant, maintenance and renewal of
applicable licenses in each of the countries outside the United States where we
intend to do business are regulated by governmental authorities in such
countries. There is a risk that the government or regulatory body of any given
nation may not approve our products for use or distribution in that nation.
Further, even if such approvals are obtained, changes in the regulatory
environment in these countries could affect our alliances with local providers,
pricing and other material components of our operations.
OUR EXECUTIVE OFFICERS ARE ALSO OFFICERS OR EMPLOYEES OF OTHER COMPANIES.
Joseph C. Passalaqua, our Chief Executive Officer, Chairman of the Board and
principal stockholder, and Carl E.M. Worboys, our Vice President, Secretary and
a director, are officers or employees of other telecommunications companies
owned by Mr. Passalaqua. These companies are Datone Communications, Inc., a pay
phone company, and Metrotel, Inc., a national pre-paid calling card and vending
company. Lilly Beter, our Chief Financial Officer and Treasurer and a director,
is the President of Lilly Beter Capital Group, Ltd., a financial advisory firm.
Mr. Passalaqua, Mr. Worboys and Ms. Beter will continue to be active
participants in these other business operations and will not be devoting their
full business time to the company.
WE MAY FACE STRONG COMPETITION AND TECHNOLOGICAL OBSOLESCENCE.
Some of our competitors and potential competitors possess substantially
greater financial, marketing, personnel, and other resources than we have. We
compete with numerous companies with well-established reputations in the
cellular industry, such as Nokia Corporation, Motorola, Inc. and Qualcomm
Incorporated. Our products incorporate new concepts and may not be successful
even if they are superior to those of our competitors. In addition, certain new
companies may be developing products of which we may be unaware that are
functionally similar or superior to the products we have developed and may
render our products obsolete or less marketable. The market for our products is
marked by rapid technological change, frequent new product introductions and
technology enhancements, uncertain product life cycles, changes in client
demands and evolving industry standards. We cannot be certain that we will
successfully develop and market new products, new product enhancements or new
products compliant with present or emerging telecommunications standards. New
products based on new technologies or new industry standards can render existing
products obsolete and unmarketable. To succeed, we will need to enhance our
current products and develop new products on a timely basis to keep pace with
developments related to telecommunications technology. New
5
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products and product enhancements can require long development and testing
periods. Any delays in developing and releasing enhanced or new products could
have a material adverse effect on our business, operating results and financial
condition.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS OR MAY BE SUED BY
THIRD PARTIES FOR INFRINGEMENT OF THEIR PROPRIETARY RIGHTS.
Our success depends significantly on our ability to protect our proprietary
rights to the technologies used in our products. If we are not adequately
protected, our competitors could use the intellectual property that we have
developed to enhance their products and services, which could harm our business.
Currently, we have been granted two United States ornamental patents on our case
designs. We have patents pending on our core technology in the United States and
several foreign jurisdictions; however, these patents have not been granted and
we cannot assure you that they will be. We rely on patent protection, as well as
a combination of copyright and trademark laws, trade secrets, confidentiality
provisions and other contractual provisions, to protect our proprietary rights,
but these legal means afford only limited protection. Despite any measures taken
to protect our intellectual property, unauthorized parties may attempt to copy
aspects of our products or to obtain and use information that we regard as
proprietary. In addition, the laws of some foreign countries may not protect our
proprietary rights as fully as do the laws of the United States. If we litigated
to enforce our rights, it would be expensive, divert management resources and
may not be adequate to protect our intellectual property rights.
The telecommunications industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of trade secret,
copyright or patent infringement. We may inadvertently infringe a patent of
which we are unaware. In addition, because patent applications can take many
years to issue, there may be a patent application now pending of which we are
unaware that will cause us to be infringing when it is issued in the future.
Although we are not currently involved in any intellectual property litigation,
we may be a party to litigation in the future to protect our intellectual
property or as a result of our alleged infringement of another's intellectual
property, forcing us to do one or more of the following:
- Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms; or
- Redesign those products or services that incorporate such technology.
A successful claim of infringement against us, and our failure to license
the same or similar technology, would adversely effect our business.
Infringement claims, with or without merit, would be expensive to litigate or
settle, and would divert management resources.
EVEN AFTER THE OFFERING, MANAGEMENT WILL MAINTAIN THE MAJORITY OF VOTES.
Prior to this offering, 100% of the outstanding shares of our common stock
are beneficially owned by Joseph C. Passalaqua and his son, Joseph J.
Passalaqua. After the successful closing of this offering, Joseph C. Passalaqua
and Joseph J. Passalaqua will beneficially own, in the aggregate, no less than
approximately 85% of the outstanding shares of common stock if the minimum
number of shares are sold in the offering, or no less than approximately 78% of
the outstanding shares of common stock if the maximum number of shares are sold
in the offering. Accordingly, these people, acting together, will possess the
majority of the stockholder votes, and will be in a position to control our
affairs. If you purchase shares in this offering, you will be a minority
stockholder and, although entitled to vote on matters submitted for a vote of
the stockholders, you will not be able to control the outcome of such a vote.
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IF YOU PURCHASE OUR SHARES, YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
If you invest in this offering, you will incur immediate and substantial
dilution of $5.02 per share (96%) if the minimum number of shares offered by
this prospectus is sold, or $4.57 per share (87%), if the maximum number of
shares offered by this prospectus is sold. This dilution represents the
difference between our adjusted net tangible book value per share after this
offering and the initial public offering price of $5.25 per share.
THERE IS NO PRIOR PUBLIC MARKET FOR OUR STOCK.
Prior to this offering, there has been no public market for our securities.
Although we hope to file an application to list our stock on the NASDAQ SmallCap
Market, we will not satisfy the criteria for such listing unless substantially
all of the shares offered by this prospectus are sold. Even if the maximum
number of shares offered is sold, however, there can be no assurance that our
common stock will be approved for listing. Although we anticipate that upon
completion of this offering, our common stock will be eligible for inclusion on
the OTC Bulletin Board, we cannot be certain that the common stock will be
listed on the OTC Bulletin Board. Consequently, we cannot be certain that a
regular trading market for our common stock will develop after this offering is
completed. If a trading market does in fact develop for our common stock, we
cannot be certain that it will be sustained. Our underwriter has advised us that
it does not intend to make a market in our shares following this offering. If
for any reason our common stock is not listed on the NASDAQ SmallCap Market or
the OTC Bulletin Board, or a public trading market does not develop, you may
have difficulty in selling your securities should you desire to do so.
OUR DETERMINATION OF THE PUBLIC OFFERING PRICE WAS NOT BASED ON A MARKET PRICE.
Because there has been no prior public trading market for our common stock,
the initial public offering price of the common stock has been determined by
negotiations between ourselves and the underwriter and is not necessarily
related to our asset value, net worth or other criteria of value. The factors
considered in determining the offering price include an evaluation by management
of the history of and prospects for the industry in which we compete and our
earnings prospects. Factors such as our financial results, announcements of
developments related to our business, and the introduction of products and
product enhancements by ourselves or our competitors may have a significant
impact on the market price of our securities.
THE UNDERWRITER HAS LIMITED EXPERIENCE UNDERWRITING INITIAL PUBLIC OFFERINGS.
Our underwriter is a relatively small firm, and has only underwritten a few
initial public offerings of securities. The underwriter's small size and lack of
experience may have a negative impact on its ability to sell the minimum number
of shares required to close this offering. The underwriter's limited experience
may also have a negative effect on the liquidity and price of our securities
following the completion of this offering.
THIS OFFERING IS REGISTERED IN A LIMITED NUMBER OF STATES.
The underwriter will register this offering in a limited number of states,
which will make it difficult or impossible for you to resell our common stock in
certain states in which the offering is not registered.
WE MAY OFFER ADDITIONAL EQUITY SECURITIES OR INCUR SUBSTANTIAL INDEBTEDNESS TO
FINANCE FUTURE ACTIVITIES.
To the extent we finance our future operations through additional equity
securities, any such issuance may involve substantial dilution to our
then-existing stockholders. To the extent we incur indebtedness or issue debt
securities, we will be subject to all of the risks associated with incurring
substantial indebtedness, including the risk that interest rates may fluctuate
and cash flow may be insufficient to pay principal and interest on any such
indebtedness. We hope to raise up to $35 million in proceeds from a public
offering of debt securities, which we intend to initiate as soon as practicable
following the consummation of this offering.
7
<PAGE>
WE MUST DEPEND ON OUTSIDE MANUFACTURING SOURCES.
We will contract with others to manufacture our telephone units and other
products. This may lead to delayed or reduced product shipments and may
adversely effect our customer relationships. In particular, in instances where a
nation imposes high import tariffs, we intend to have the units manufactured
within the nation's borders, which could expose us to a high risk of quality
failures and untimely delivery resulting in a high cost of manufacture for us.
In addition, we do not yet have agreements for these outsourced manufacturing
arrangements, and there can be no assurance that we will be able to enter into
such agreements on reasonable terms, or at all. If we were unable to enter into
agreements to outsource the manufacturing of our products, we would be required
to delay or reduce product shipments or curtail our cease operations until we
could obtain agreements to manufacture our products or develop our own
manufacturing capability.
OUR OPERATING RESULTS MAY FLUCTUATE AS A RESULT OF OUR INDETERMINATE SALES
CYCLE.
Our sales cycle is expected to commence at the time a wireless provider
demonstrates an interest in purchasing wireless telephones and/or wireless
payphones from us and to end upon the installation of the equipment for the
provider. The time required will therefore vary by customer and could extend for
periods up to three to six months or more, depending upon, among other things,
the time required by the purchaser to complete a pilot test of our products, to
make a determination regarding an acquisition thereof and to negotiate payment
terms with us. As a result of this fluctuation in the length of our sales cycle,
our operating results could vary from period to period. This variation, coupled
with our limited operating history to date, could make it difficult for us to
budget and project our operating revenues.
IF WE BECOME SUBJECT TO SEC REGULATIONS RELATING TO LOW-PRICED STOCKS, THE
MARKET FOR OUR COMMON STOCK COULD BE ADVERSELY EFFECTED.
The Securities and Exchange Commission has adopted regulations concerning
low-priced (or "penny") stocks. The regulations generally define "penny stock"
to be any equity security that has a market price (as defined) less than $5.00
per share or an exercise price less than $5.00 per share, subject to certain
exceptions. If our shares become offered at a market price less than $5.00 per
share, and do not qualify for any exemption from the penny stock regulations,
our shares may become subject to these additional penny stock regulations. These
regulations impose additional sales practice requirements on broker-dealers who
sell penny stock to persons other than established customers and accredited
investors.
The additional burdens imposed upon broker-dealers by these penny stock
requirements may discourage broker-dealers from effecting transactions in the
common stock, which could severely limit the market liquidity of our common
stock and your ability as purchasers to sell our common stock in the secondary
market. In addition, it is unlikely that any bank or financial institution will
accept such penny stock as collateral, which could have an adverse effect in
developing or sustaining any market for our common stock.
WE WILL RETAIN THE PROCEEDS OF THIS OFFERING FOR 180 DAYS UNLESS THE MINIMUM IS
EARLIER REACHED.
We will place the proceeds of sales of shares in an escrow account to be
held until the earlier of the date on which the minimum offering is achieved or
180 days. During this time purchasers of shares will not be able to request a
return of their funds. Following the 180 day period, if the minimum offering has
not been reached, these funds will be promptly returned by the escrow agent
directly to the purchasers, together with interest earned thereon.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. You can identify these statements by the use of forward-looking
words such as "may," "will," "expect," "anticipate," "estimate," "continue," or
other similar words. You should read statements that contain these words
carefully because they discuss our future expectations, contain projections of
our future
8
<PAGE>
results of operations or financial condition or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The factors listed above in
the section captioned "Risk Factors," as well as any cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have a material adverse effect on our
business, operating results and financial condition.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the common stock will be
approximately $4,397,500 if the minimum number of shares offered (1,000,000)
(the "Minimum Offering") is sold and $8,135,500 if the maximum number of shares
offered (1,800,000) (the "Maximum Offering") is sold, after deducting estimated
offering expenses of $275,000, underwriting commissions equal to 10% of the
offering proceeds and the underwriter's non-accountable expense allowance equal
to 1% of the offering proceeds. The primary purposes of this offering are as
follows:
- to repay certain outstanding indebtedness, including, if the Maximum
Offering is sold, certain related party indebtedness;
- to increase our equity capital;
- to create a public market for our common stock; and
- to facilitate our future access to public capital markets.
We intend to use the net proceeds from this offering as follows:
<TABLE>
<CAPTION>
APPLICATION OF APPLICATION OF
NET PROCEEDS FROM NET PROCEEDS FROM
MINIMUM OFFERING MAXIMUM OFFERING
---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Repayment of certain indebtedness, including, if the
Maximum Offering is sold, certain related party
indebtedness........................................ $1,446,086 32.9% $1,946,086 23.9%
Manufacturing and deployment of telephones............ 1,500,000 34.1 3,000,000 36.9
Sales and marketing................................... 600,000 13.6 1,300,000 16.0
Research and development.............................. 400,000 9.1 700,000 8.6
Working capital and general corporate purposes........ 451,414 10.3 1,189,414 14.6
--------- ----- --------- -----
Total................................................. $4,397,500 100.0% $8,135,500 100.0%
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
If the Minimum Offering is sold, we intend to retire our indebtedness to
Ernst & Young Inc. in its capacity as court-appointed receiver and manager for
Tee-Comm Electronics, Inc. (the "Tee-Comm Receiver"). We also intend to repay a
promissory note issued to Triangle Plastics, Inc. Our current payments of
principal and interest on the Tee-Comm note went into arrears in April, 1997,
and we are incurring additional interest as well as late charges of 2% of the
balance due monthly. The Triangle Plastics promissory note matured on April 1,
1999. At March 31, 1999, the amount due to the Tee-Comm Receiver was $1,382,149
and the amount outstanding under the Triangle Plastics promissory note was
$63,937. Since April 1, 1999, the amount outstanding under the Triangle Plastics
note has accrued interest at the default rate of 18% per year.
If the Maximum Offering is sold, we will also repay $500,000 of principal on
a $664,987 promissory note issued to Joseph C. Passalaqua on February 1, 1999.
This note memorializes advances by Mr. Passalaqua to us used for working capital
during 1998, bears interest at 10% per year, and is due and payable on demand.
Mr. Passalaqua is our Chief Executive Officer, Chairman of the Board and
principal stockholder.
9
<PAGE>
The table above represents our best estimate of the allocation of the net
proceeds of the offering, based upon the current status of our operations, our
current plans and current economic conditions. The amount and timing of
expenditures will vary depending upon a number of factors, including progress of
our operations, technical advances, terms of collaborative arrangements and
changes in competitive conditions. We reserve the right to change the amount of
the net proceeds that will be used for any purpose to the extent that management
determines that a change is advisable. Accordingly, management will have broad
discretion regarding the application of the net proceeds of the offering.
Pending application of the net proceeds of the offering, we intend to invest
the net proceeds in short-term, interest bearing investments, such as bank
certificates of deposit, United States government obligations and money market
instruments.
DILUTION
Our deficit in net tangible book value at March 31, 1999 was approximately
$2,803,000, or $0.47 per share of common stock. Deficit in net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, divided by the total number of shares of common stock outstanding.
Dilution per share represents the difference between the offering price of $5.25
per share and the net tangible book value per share of common stock, as
adjusted, immediately after this offering.
After giving effect to the sale of the Minimum Offering and after deducting
estimated underwriting commissions, the underwriter's non-accountable expense
allowance and estimated offering expenses, our pro forma net tangible book value
at March 31, 1999 would have been $1,594,500, or $0.23 per share. This
represents an immediate increase in pro forma net tangible book value of $0.70
per share to existing stockholders and an immediate dilution of $5.02 per share,
or approximately 96% of the offering price, to investors purchasing shares of
common stock in the Minimum Offering.
After giving effect to the sale of the Maximum Offering and after deducting
estimated underwriting commissions, the underwriter's non-accountable expense
allowance and estimated offering expenses, our pro forma net tangible book value
at March 31, 1999 would have been $5,332,500, or $0.68 per share. This
represents an immediate increase in pro forma net tangible book value of $1.15
per share to existing stockholders and an immediate dilution of $4.57 per share,
or approximately 87% of the offering price, to investors purchasing shares of
common stock in the Maximum Offering.
The following tables illustrate this per share dilution at March 31, 1999:
MINIMUM OFFERING
<TABLE>
<S> <C> <C>
Initial public offering price................................................. $ 5.25
Net tangible book value (deficit) before the Minimum Offering............... $ (.47)
Increase attributable to new investors...................................... .70
---------
Adjusted pro forma net tangible book value after the Minimum Offering......... .23
---------
Dilution per share to new investors........................................... $ 5.02
---------
---------
</TABLE>
MAXIMUM OFFERING
<TABLE>
<S> <C> <C>
Initial public offering price................................................. $ 5.25
Net tangible book value (deficit) before the Maximum Offering............... $ (.47)
Increase attributable to new investors...................................... 1.15
---------
Adjusted pro forma net tangible book value per share after the Maximum
Offering.................................................................... .68
---------
Dilution per share to new investors........................................... $ 4.57
---------
---------
</TABLE>
10
<PAGE>
The following tables summarize on a pro forma basis at March 31, 1999, the
number of shares of common stock purchased from us, the total consideration paid
to us and the average price per share paid to us by existing stockholders and by
investors purchasing shares of common stock in the Minimum Offering and the
Maximum Offering, before deducting estimated underwriting commissions, the
underwriter's non-accountable expense allowance and estimated offering expenses:
MINIMUM OFFERING
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 6,000,000 85.7% $ 4,893,965 48.2% $ 0.82
New investors....................................... 1,000,000 14.3 5,250,000 51.8 5.25
---------- ----- ------------- -----
Total............................................... 7,000,000 100.0% $ 10,143,965 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
MAXIMUM OFFERING
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 6,000,000 76.9% $ 4,893,965 34.1% $ 0.82
New investors....................................... 1,800,000 23.1 9,450,000 65.9 5.25
---------- ----- ------------- -----
Total............................................... 7,800,000 100.0% $ 14,343,965 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
CAPITALIZATION
The following table sets forth our capitalization at March 31, 1999 and as
adjusted to give effect to the sale of the Minimum Offering and the Maximum
Offering, after deducting estimated underwriting commissions, the underwriter's
non-accountable expense allowance, and estimated offering expenses, and the
application of the estimated net proceeds of the offering to repay certain
outstanding indebtedness as described under "Use of Proceeds." Shares of common
stock outstanding have been restated to reflect the initial issuance of the
common stock of bright-technologies.com, inc. on April 23, 1999 in exchange for
all outstanding shares of Bright Technologies, Inc. Shares of common stock
outstanding exclude shares of common stock issuable upon the exercise of an
option held by the Tee-Comm Receiver to purchase up to five percent of the
common stock on a fully diluted basis on terms at least as favorable as the
terms we make available to any other party, including any insider, underwriter,
agent or advisor. This table should be read in conjunction with the financial
statements of Bright Technologies, Inc. and notes thereto appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS ADJUSTED
----------------------------
MINIMUM MAXIMUM
OFFERING OFFERING
ACTUAL ------------- -------------
MARCH 31, 1999
--------------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable and related unpaid interest.......................... $ 1,446,086 $ -- $ --
-------------- ------------- -------------
Stockholder loans payable.......................................... 690,151 690,151 190,151
-------------- ------------- -------------
Stockholders' Equity (Deficit)
Preferred stock, $.01 par value (no shares authorized, issued or
outstanding at March 31, 1999)................................. -- -- --
Common stock, $.01 par value (30,000,000 shares authorized,
6,000,000 shares issued and outstanding at March 31, 1999;
7,000,000 shares issued and outstanding as adjusted for the
Minimum Offering; 7,800,000 shares issued and outstanding as
adjusted for the Maximum Offering)............................. 6,000 7,000 7,800
Additional paid-in capital....................................... 4,887,965 9,284,465 13,296,665
Accumulated deficit during the development stage................. (7,499,013) (7,499,013) (7,499,013)
-------------- ------------- -------------
Total stockholders' equity (deficit)............................... (2,605,048) 1,792,452 5,805,452
-------------- ------------- -------------
Total capitalization............................................... $ (468,811) $ 2,482,603 $ 5,995,603
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
11
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected financial data for Bright
Technologies, Inc. The historical selected financial data at December 31, 1998
and March 31, 1999, for the years ended December 31, 1997 and 1998, for the
three months ended March 31, 1998 and 1999, and for the period from inception
(December 29, 1994) to March 31, 1999, are derived from and should be read in
conjunction with the financial statements of Bright Technologies, Inc. included
elsewhere in this prospectus. The selected financial data for the three months
ended March 31, 1998 and 1999, and for the period from inception (December 29,
1994) to March 31, 1999 are unaudited but, in the opinion of our management,
reflect all adjustments that are necessary for a fair presentation of the
results of operations for the interim period presented. Results of operations
for the three months ended March 31, 1998 and 1999 are not necessarily
indicative of the results for the entire year. Our independent accountants have
included an explanatory paragraph in their report on the audited financial
statements stating that our financial statements have been prepared assuming
that we will continue as a going concern and that we have suffered recurring
losses from operations and have a working capital deficiency which causes
substantial doubt about our ability to do so. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The information presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of Bright Technologies, Inc. and accompanying notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED THREE MONTHS ENDED FROM INCEPTION
DECEMBER 31, MARCH 31, (DECEMBER 29, 1994)
---------------------------- ------------------------ THROUGH
1997 1998 1998 1999 MARCH 31, 1999
------------- ------------- ----------- ----------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statement Of Operations Data:
Product Sales....................... $ 114,040 $ 87,304 $ -- $ 30,625 $ 1,023,323
------------- ------------- ----------- ----------- -------------------
Costs and Expenses:
Costs of product sales............ 340,382 103,812 -- 15,625 1,192,958
Research and development.......... 374,780 271,518 80,758 34,245 2,601,495
General and administrative........ 678,803 578,094 179,751 79,906 3,264,519
Provision for facility closing.... -- 81,928 -- -- 81,928
Loss on acquired technology and
assets.......................... -- -- -- -- 862,368
Interest expense.................. 128,218 161,301 31,738 56,258 519,068
------------- ------------- ----------- ----------- -------------------
Total costs and expenses............ 1,522,183 1,196,653 292,247 186,034 8,522,336
------------- ------------- ----------- ----------- -------------------
Net loss............................ $ (1,408,143) $ (1,109,349) $ (292,247) $ (155,409) $ (7,499,013)
------------- ------------- ----------- ----------- -------------------
------------- ------------- ----------- ----------- -------------------
Net loss per share(1)............... $ (0.23) $ (0.18) $ (0.05) $ (0.03)
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
DECEMBER 31, 1998 --------------
----------------- (UNAUDITED)
<S> <C> <C>
Balance Sheet Data:
Total Assets.................................................................. $ 460,409 $ 495,458
Total Liabilities............................................................. $ 2,910,048 $ 3,100,506
Total Stockholders' (Deficiency) Equity....................................... $ (2,449,639) $ (2,605,048)
</TABLE>
- ------------------------
(1) Based upon weighted average common shares outstanding of 6,000,000. Restated
to reflect the initial issuance of common stock of bright-technologies.com,
inc. on April 23, 1999 in exchange for all outstanding shares of Bright
Technologies, Inc.
12
<PAGE>
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends on our capital stock in the foreseeable
future. Payment of dividends on the common stock is within the discretion of our
Board of Directors. The Board currently intends to retain future earnings, if
any, to finance our business operations and fund the development and growth of
our business. The declaration of dividends in the future will depend upon our
earnings, capital requirements, financial condition, and other factors deemed
relevant by the Board. Further, we anticipate that we will attempt to raise
additional funds following the consummation of this offering by issuing debt
securities. It is highly probable that the terms of any indebtedness we incur
will limit our ability to pay cash dividends to stockholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with our financial statements and
the notes to the financial statements and the other financial information
included elsewhere in this registration statement. In addition to historical
information, this Management's Discussion and Analysis of Financial Condition
and Results of Operations and other parts of this prospectus contain
forward-looking information that involves risks and uncertainties. Our actual
results could differ materially from those anticipated by forward-looking
information as a result of certain factors, including but not limited to those
set forth under "Risk Factors" and elsewhere in this prospectus.
PLAN OF OPERATION
bright-technologies.com, inc. was organized in 1999 to become a holding
company for Bright Technologies, Inc., which was organized and commenced
operations in December 1994. References to us concerning matters prior to April
1999 refer to Bright Technologies, Inc., which is now our wholly-owned
subsidiary. Both of these companies are sometimes referred to as "the Company"
in the following discussion. We are a development-stage telecommunications
company formed to develop and commercialize fixed wireless and wireline
telephones and components, including related management software. Until
recently, our efforts have been principally devoted to research and development
activities and organizational efforts, including acquiring certain in-process
research and development, recruiting research and management personnel and
raising capital.
Our management believes that our wireless telephone products are presently
ready for commercialization and marketing. To that end, we have decided to
devote our business activities and resources principally to the marketing and
sale of our wireless telephone products. We have initiated a marketing and sales
program for our wireless products and have held discussions with a number of
potential users of our products, with a view towards execution of licensing
and/or joint venture marketing and sales agreements. Our initial marketing
efforts include countries in Latin America, Eastern Europe, Africa and the
Pacific Rim, which lack the wireline infrastructure to provide sufficient
telephone service to their populations.
On May 10, 1999, we signed a letter of intent regarding the formation of a
joint venture to deploy and operate 10,000 of our wireless pay telephones in the
Philippines over a five-year period. On May 12, 1999, we signed a letter of
intent regarding the formation of a joint venture to deploy and operate 4,000 of
our wireless pay telephones in Slovakia over a five-year period. On May 13,
1999, we signed a letter of intent regarding the formation of a joint venture to
deploy and operate 10,000 of our wireless pay telephones in Ukraine over a
five-year period. Each of these letters of intent requires the completion of a
definitive joint venture agreement, which will be subject to numerous
conditions, including the receipt of any governmental or third party approvals
that may be required in order for
13
<PAGE>
our products to be deployed in the target market. Such third party approvals
will include the approval of Motorola to expand the territory of its licensing
agreement with us. Although we have received preliminary assurances from
Motorola of its willingness to expand the scope of our licensing agreement in
connection with these joint ventures, we cannot guarantee that we will be able
to negotiate licensing agreements to use Motorola's transceivers in the markets
in which the joint ventures propose to operate. Such joint ventures, if
concluded, are not likely to commence until at least the first quarter of the
year 2000.
We have not been profitable since inception and expect to incur substantial
operating losses over the next twelve months. For the period from inception
(December 29, 1994) to March 31, 1999, we incurred a cumulative net loss of
approximately $7,499,000 and expect that we will generate losses in the future.
Our plan of operation for the twelve months following the completion of this
offering will consist of activities aimed at:
- Negotiating and signing definitive joint venture agreements for the
deployment over the next five years of 10,000 of our prepaid wireless pay
telephones in the Philippines, 4,000 of our prepaid wireless pay
telephones in Slovakia and 10,000 of our prepaid wireless pay telephones
in Ukraine.
- Establishing strategic partnerships for the marketing, sales,
manufacturing and operation of its prepaid wireless pay telephones in
Latin America and Eastern Europe. To date, we have initiated discussions
with various telecommunication providers in Guatemala, El Salvador,
Honduras, Bolivia, Colombia and Paraguay.
- Completing the development of our internet management software for our
wireless telephone products.
- Designing and tooling a case for our new prepaid wireless telephones for
use by residential and small business customers at fixed locations.
- Designing a case for the new Chameleon pay telephone, a lightweight
wireless multi-payment pay telephone for use in secured, high traffic
locations such as airports, bus terminals and train stations.
- Recruiting of management personnel to oversee and establish joint
ventures.
RESULTS OF OPERATIONS
GENERAL. In light of our limited operating history and insignificant total
net revenues to date, we believe that period-to-period comparisons of our
revenues and operating results, including our gross profit and operating
expenses as a percentage of total net revenues, are not necessarily meaningful
and should not be relied upon as indications of future performance.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
NET REVENUES. Our net revenues for the years ended December 31, 1998 and
1997 were $87,000 and $114,000, respectively. The net revenues were the result
of sales of our wireline telephone products. During 1998, $24,500 of such net
revenues were derived from a company controlled by our principal stockholder.
COST OF PRODUCT SALES. Cost of product sales consists primarily of the cost
of materials, purchased component parts, labor and an inventory valuation
allowance. Cost of product sales decreased from $340,000 for the year ended
December 31, 1997 to $104,000 for the year ended December 31, 1998.
14
<PAGE>
This decrease in cost of product sales was principally the result of an
inventory writedown of $110,000 in the 1997 cost of product sales.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of expenditures related to technology and software development
expenses, reduced by software development costs capitalized during the year.
Research and development expenses decreased to $272,000 for the year ended
December 31, 1998 from $375,000 for the year ended December 31, 1997. This
decrease was principally attributable to the capitalization of software
development costs totalling $122,000 during the year ended December 31, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries, taxes and benefits and related costs for general
corporate functions, including accounting, facilities, legal, depreciation,
amortization and an accrual for executive compensation. General and
administrative expenses decreased from $679,000 for the year ended December 31,
1997 to $578,000 for the year ended December 31, 1998. This decrease was
primarily attributable to the closing of a facility in Georgia during 1998. We
expect that we will incur additional general and administrative expenses as we
continue to hire personnel and incur expenses related to the growth of our
business and our operation as a public company.
INTEREST EXPENSE. Interest expense increased from $128,000 for the year
ended December 31, 1997 to $161,000 for the year ended December 31, 1998 as a
result of increased debt due to our principal stockholder and the conversion of
a vendor's trade debt to a promissory note of $64,000.
NET LOSS. For the year ended December 31, 1998, our net loss was
$1,109,000, or $0.18 per share of common stock, as compared to $1,408,000, or
$0.23 per share of common stock, for the year ended December 31, 1997. The
decrease in our net loss over these periods was attributable principally to
decreased operating expenses.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THREE MONTHS ENDED MARCH 31,
1998
NET REVENUES. Our net revenues for the three months ended March 31, 1999
and 1998 were $31,000 and $-0-, respectively. The net revenues for 1999 were the
result of sales of our wireline telephone products to a company controlled by
our principal stockholder.
COST OF PRODUCT SALES. Cost of product sales for the three months ended
March 31, 1999 and 1998 were $16,000 and $-0-, respectively.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $34,000 for the three months ended March 31, 1999 from $81,000 for
the three months ended March 31, 1998. This decrease was attributable to the
completion in mid-1998 of the research and development on certain hardware for
our existing products and the postponement of further costs until the completion
of this offering.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased to $80,000 for the three months ended March 31, 1999 from $180,000 for
the three months ended March 31, 1998. This decrease was primarily attributable
to the closing of a facility in Georgia during 1998. We expect that we will
incur additional general and administrative expenses as we continue to hire
personnel and incur expenses related to the growth of our business and our
operation as a public company.
INTEREST EXPENSE. Interest expense increased from $32,000 for the three
months ended March 31, 1998 to $56,000 for the three months ended March 31,
1999, primarily due to increased debt due to our principal stockholder.
15
<PAGE>
NET LOSS. For the three months ended March 31, 1999, our net loss was
$155,000, or $0.03 per share of common stock, as compared to $292,000, or $0.05
per share of common stock, for the three months ended March 31, 1998. The
decrease in our net loss over these periods was attributable principally to
decreased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through capital
contributions of $4,894,000 and loans from our principal stockholder of $690,000
through March 31, 1999.
At December 31, 1998, we had a stockholders' deficiency of $2,450,000, a
working capital deficiency of $2,786,000 and an accumulated deficit since
inception of $7,344,000. At March 31, 1999, we had a stockholders' deficiency of
$2,605,000, a working capital deficiency of $2,996,000 and an accumulated
deficit since inception of $7,499,000. The report of our independent certified
public accountants contains an explanatory paragraph that expresses substantial
doubt as to our ability to continue as a going concern absent additional
financing.
Net cash used in operating activities decreased to $468,000 for the year
ended December 31, 1998 from $976,000 for the year ended December 31, 1997. Net
cash used in operating activities decreased to $24,000 for the three months
ended March 31, 1999 from $199,000 for the three months ended March 31, 1998.
Net cash used in operating activities during the above periods was principally
attributable to operating losses in each of the periods reduced by non-cash
expenses, reduction in inventories and increases in accrued liabilities.
Cash flows used in investing activities increased from $87,000 for the year
ended December 31, 1997 to $127,000 for the year ended December 31, 1998. Cash
flows used in investing activities decreased to zero for the three months ended
March 31, 1999 from $48,000 for the three months ended March 31, 1998. Cash
flows used in investing activities during the above periods consisted of
expenditures for software development costs and patent costs.
Net cash provided by financing activities decreased to $595,000 for 1998
from $1,062,000 for 1997. Net cash provided by financing activities decreased to
$24,000 for the three months ended March 31, 1999 from $253,000 for the three
months ended March 31, 1998. Net cash provided by financing activities during
the above periods was principally attributable to loans and/or capital
contributions from Joseph C. Passalaqua, our Chief Executive Officer, Chairman
of the Board and principal stockholder.
Our capital requirements depend on numerous factors, including market
acceptance of our products, the amount of resources we devote to investments in
our products, the resources we devote to marketing and selling our products and
other factors. It is the intention of management to evaluate possible
investments in joint ventures, new products and technologies, and to expand our
sales and marketing programs. We currently anticipate that the net proceeds of
the Minimum Offering will be sufficient to meet our anticipated needs for
working capital and capital expenditures for the next 12 months. Cash
requirements may vary and are difficult to predict due to the nature of the
developing markets we target.
We are in default under a promissory note totalling approximately
$1,400,000, inclusive of unpaid interest, at March 31, 1999. The note was issued
in connection with the acquisition of certain assets from Tee-Comm Teleservices,
Inc. in February of 1995, and is secured by substantially all of our assets,
including all of our current intellectual property. We intend to use
approximately $1,400,000 of the net proceeds of this offering to repay such note
and related unpaid interest (see Notes 8 and 14 to the accompanying financial
statements). In addition, we are committed to pay an aggregate of $250,000 per
year pursuant to employment agreements with our chief executive officer and vice
president.
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If the net proceeds of the offering, together with our internally generated
cash flow, are not sufficient to satisfy our financing needs, we will be
required to seek additional funding through bank borrowings, additional public
or private sales of our securities, including equity securities, or through
other arrangements. We currently have no credit facility or other committed
sources of capital; however, we intend to seek a credit facility after the
completion of the offering. There can be no assurance that additional funds, if
required, will be available to us.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1998, we adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive income,
defined as all changes in equity from non-owner sources. Adoption of SFAS No.
130 did not have a material effect on our financial position or results of
operations.
Effective January 1, 1998, we adopted the provisions of SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way public enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to stockholders. Adoption of SFAS No. 131 did not have
a material effect on our financial position or results of operations.
Effective January 1, 1998, we adopted SFAS No. 132, "Employers' Disclosures
About Pensions and Postretirement Benefits," which standardizes the disclosure
requirements for pensions and other postretirement benefits. SFAS No. 132
addresses disclosure only. It does not address liability measurement or expense
recognition. There was no effect on our financial position or results of
operations as a result of adopting SFAS No. 132.
Effective January 1, 1998, we adopted American Institute of Certified Public
Accountants Statement of Position 97-2, "Software Revenue Recognition" ("SOP
97-2"). SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements, such as software products, upgrades, enhancements,
post-contract customer support, installation and training to be allocated to
each element based on the relative fair values of the elements. The adoption of
SOP 97-2 did not have a material effect on our financial position or results of
operations.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use," which revises the accounting for software development costs
and will require the capitalization of certain costs. The adoption of SOP 98-1
did not have an effect on our financial position or results of operations.
YEAR 2000 READINESS DISCLOSURE
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, software that is not Year 2000
compliant may not be able to distinguish whether "00" means 1900 or 2000. This
may result in software failures or the creation of erroneous results.
STATE OF READINESS
Our Year 2000 preparation is expected to be completed by November 30, 1999.
Our readiness program consists of two phases, Assessment and Remediation. In the
Assessment phase, which is approximately 50% complete, we are examining both our
information technology ("IT") systems (such as our operating and financial
systems) and our non-IT systems (such as telephone and building
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mechanical systems such as heating and air conditioning). The Assessment phase
consists of identifying our material hardware and software, reviewing our
wireless, wireline and software products, assessing the Year 2000 readiness of
third parties with which we do business, and identifying and assessing repair or
replacement requirements. The Remediation phase will consist of the repair or
replacement of any identified systems that are not Year 2000 compliant, or the
development of appropriate alternatives to such systems. The Remediation phase
also will consist of the development of alternatives to suppliers or other third
parties where management determines that such parties' failure to be Year 2000
compliant could have a material adverse effect on our business. The Remediation
phase will begin as soon as possible following the identification of any
systems, suppliers or other third parties for which remedial action is
warranted.
We have determined during our initial assessment that our existing wireless
local loop and wireline products are Year 2000 compliant. We are developing
management software for our products that will be Year 2000 compliant. We do not
have extensive internal hardware and software systems and our existing systems
are relatively young. We will obtain representations from our suppliers that any
new hardware and software systems we purchase from such suppliers are Year 2000
ready or will be made Year 2000 ready by the manufacturer via an upgrade or
patch prior to the Year 2000.
We are presently assessing the Year 2000 readiness of our significant
suppliers to determine the extent to which we would be vulnerable if those third
parties fail to successfully address Year 2000 compliance issues. We have not
yet made a full assessment of the extent to which our suppliers might be
vulnerable to Year 2000 risks. Where we determine that critical suppliers will
not be ready for the Year 2000, we will take appropriate actions, including
seeking alternative sources.
With respect to our customers, we currently have no material systems that
interface directly with customers and do not currently have any information
concerning the Year 2000 compliance status of our customers. Our customers
beyond December 31, 1999 will likely be new customers due to the developmental
stage of our business. In addition, because we intend to operate in many
different countries, some of which may not be addressing the Year 2000 issue as
aggressively as the United States, there can be no assurances that future
customers will be Year 2000 compliant.
The Year 2000 readiness of the general infrastructure necessary to support
our business is difficult to assess. For instance, we depend on the Year 2000
compliance of the computer systems and financial services used by consumers and
businesses, and on global telecommunications systems. The infrastructure
necessary to support our operations consists of computers and telecommunications
systems located throughout the world and operated by numerous unrelated entities
and individuals, none of which has the ability to control or manage the Year
2000 issues that may impact the entire infrastructure. Our present ability to
assess the Year 2000 readiness of this infrastructure is limited and relies
solely on generally available news reports.
COSTS TO ADDRESS YEAR 2000 ISSUES
Our Year 2000 assessment and remediation costs will be funded from available
working capital and will not be accounted for separately. We have not incurred
material costs to date relating to Year 2000 issues and do not believe that we
will incur material costs for these purposes in the foreseeable future.
CONTINGENCY PLAN; RISKS ASSOCIATED WITH YEAR 2000 ISSUES
We have not yet developed a contingency plan to address situations that may
result if we or our suppliers are unable to achieve Year 2000 readiness because
we currently do not believe such a plan is necessary. The cost of developing and
implementing such a plan, if management determines to do so, could be material.
Any failure of our material systems or those of our suppliers or other third
parties with which we do business to be Year 2000 compliant could have material
adverse consequences for us. These consequences could include difficulties in
managing our operational, financial and administrative
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systems, marketing, manufacturing or distributing our products, or performing
other fundamental aspects of our business.
We are not currently aware of any Year 2000 problems relating to our
operating, financial and administrative systems that would have a material
adverse effect on our business, results of operations or financial condition.
However, we may discover Year 2000 problems in the future or Year 2000 problems
may go undetected. Our failure to successfully address these problems on a
timely basis could result in lost revenues, increased operating costs and other
business interruptions.
In addition, there can be no assurance that governmental agencies, utility
companies, third-party service providers and others outside of our control will
be Year 2000 compliant. The failure by such entities to be Year 2000 compliant
could result in a systematic failure beyond our control such as a transportation
systems, telecommunications or electrical failure, which could also cause
disruptions or prevent us from marketing, manufacturing or distributing our
products and conducting other fundamental aspects of our business.
Worst-case scenarios for our business resulting from Year 2000 issues could
involve several areas of risk. If our internal systems were to fail, we would be
required to repair or replace those systems. We do not anticipate that the costs
associated with repairing or replacing those systems would cause a long-term
adverse effect on our results of operations or financial condition, although the
short-term effect could be material. If our material suppliers, such as
Motorola, were to experience problems from Year 2000 issues, we could experience
difficulties in obtaining transceivers and other necessary components of our
products, or could be required to secure substitutes for such components,
possibly at higher cost, in order to continue our business. If the
infrastructure necessary to support our operations, such as wireless
telecommunications networks operated by third parties around the world, were to
experience a widespread Year 2000 problem, our products might become unusable.
While our products might be functional, the failure of the wireless network
would render our products unusable in the field. Because our revenues may be
largely dependent on the use of our telephones around the world, any breakdown
in global telecommunications would have a material adverse effect on our results
of operations and financial condition.
OUR BUSINESS
OVERVIEW
bright-technologies.com, inc. was organized in 1999 to become a holding
company for Bright Technologies, Inc., a corporation formed in 1994 by our
principal stockholder. References to us in this prospectus concerning matters
prior to April 1999 refer to Bright Technologies, Inc., which is now our
wholly-owned subsidiary. We are a development stage company. We have designed
and, developed, and intend to manufacture and market, advanced wireless
telephones. We also design, develop, manufacture and market products for use in
traditional wireline telephones.
Our wireless products include prepaid "wireless local loop" telephones
intended for residential and business use, and wireless payphones intended for
public use. A "wireless local loop" system provides fixed (non-mobile) telephone
services to users by transmitting voice messages over radio waves from the
public switched network to the location of the fixed telephone. Our products are
intended to be compatible across the entire spectrum of current wireless
transmission standards. A key feature of our product is the wide variety of
pre-payment methods the phones can be configured to accept. We are currently
developing software to enable the service provider to monitor and manage its
telephones from a remote location through the internet or a direct connection.
We developed and intend to market these products for use principally in
areas that lack the capital and infrastructure to fully support typical wireline
telecommunications services. In emerging markets, wireless systems are often
preferable to traditional wireline systems because they may be deployed
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more rapidly and at lower cost. Prepaid telephone services are beneficial in
many of these markets, where credit evaluation mechanisms, banking systems and
postal systems are inadequate to provide reliable means for billing, payment and
extension of credit. We expect our key markets to include Mexico, Central and
South America, the Caribbean, Eastern Europe, Africa and Asia. We recently
signed letters of intent to form joint ventures to deploy 24,000 of our prepaid
wireless payphones in the Philippines, Ukraine and Slovakia. These letters of
intent are non-binding and may or may not result in binding contracts for the
purchase, use or distribution of our wireless payphones. We are currently
negotiating the terms of these proposed joint venture agreements.
Our wireline products include the Bright Star coinline board, a motherboard
that we presently market in the United States.
ACQUISITIONS
In February 1995, we purchased certain assets of Tee-Comm Teleservices,
Inc., a Delaware corporation and a wholly owned subsidiary of Tee-Comm
Electronics, Limited, a Canadian corporation based in Milton, Ontario. These
assets included two generations of wireline phone motherboards that we used in
the development of our Bright Star wireline payphone motherboard.
In February 1996, we purchased certain assets of Telenet Services
International, Inc., a Cayman Islands corporation. The purchased assets included
a line powered board that was under development and the technology that forms
the basis for our Wireless Network Manager software. We finished the development
of this board and named it the Bright Star coinline board.
OUR INDUSTRY
Telecommunications is an essential infrastructure for the economic
development of any country. As a result, the global demand for
telecommunications products is continuously expanding. While telecommunications
infrastructure is a critical element of economic growth, most developing nations
have telephone systems that are inadequate to sustain essential services. In
particular, developing countries lacking wireline infrastructure and capital to
support necessary growth are seeking basic communications solutions that are
cost effective and can be deployed rapidly to support aggressive economic
development programs. In less developed countries, fixed wireless services have
become an alternative to traditional wireline services.
Due to lower costs per access line and faster deployment speeds than
traditional wireline networks, we expect fixed wireless products to play an
increasingly significant role in the deployment of basic phone service. Where
wireline telephone networks are nonexistent or substandard, wireless telephone
networks can provide primary service for voice, data and facsimile
transmissions. Additionally, where wireline telephone networks already exist,
wireless networks can offer an adjunct, as well as alternative method of
communicating.
We expect the use of fixed wireless telecommunications systems for basic
phone service to expand because these systems are less expensive and can be
installed more easily and quickly. The increased adoption of such systems has
also been fueled by:
- increased acceptance of mobile wireless communication by service providers
and customers;
- accelerating trends toward privatization of telecommunications service in
areas where government sponsored wireline systems have proved costly and
inefficient;
- development, adoption and integration of digital wireless transmission
standards that enhance quality and system features, while lowering
subscriber costs; and
- PCS licensing and legislation in the U.S., which has raised domestic
awareness of the benefits and features of wireless communications.
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OUR PRODUCTS
DEVELOPED PRODUCTS--WIRELESS
We have developed a variety of fixed wireless telecommunication products,
all of which incorporate our Tech 3 digital motherboard. This motherboard makes
our phones compatible with a variety of wireless transmission formats and allows
them to accept multiple forms of payment. Using the Tech 3 board, we have
developed an array of fully integrated fixed wireless telecommunications
products for business, residential, and public use that offer most of the
features of traditional wireline phones, while permitting access to wireless
networks.
We have developed three general types of wireless phones: fixed wireless
public payphones, Chameleon wireless payphones, and wireless local loop
telephones.
- Fixed wireless public payphones are programmable stand alone phones in
metal cases intended for placement and use in public places such as
outdoors, airport terminals, shopping centers and train stations. These
phones accept prepaid debit cards.
- Chameleon wireless payphones are programmable, stand alone phones offering
the same features and services of our fixed wireless public payphones. In
addition to prepaid debit cards, Chameleon wireless payphones accept
credit cards as payment. Chameleon wireless payphones are available in
various high-impact plastic casings, provide flexible designs and are
intended for use indoors, in places such as airports and bus stations.
- Wireless local loop phones are programmable, stand alone phones that offer
the features and services of our fixed wireless public payphones and
Chameleon wireless payphones, but are smaller and more efficient. This
makes them suitable for use as the primary telephone service in residences
and businesses. We have reduced equipment costs and believe that our
product is more efficient than existing products because it integrates the
components into a single wireless local loop unit.
All three products can seamlessly send and receive voice and data signals
over mobile wireless networks, which are often more reliable than traditional
wireline networks. Our products use solar and battery power sources, which also
increases reliability. They are designed to support many payment devices,
allowing network operators to offer service to customers who would otherwise
have no means to pay for it. In addition, our elimination of the necessity for
coin payment reduces the maintenance costs associated with coin collection and
with tampering and theft-related vandalism.
Our Tech 3 motherboard integrates our phones directly with the wireless
transceiver to create a wireless payphone or wireless local loop phone. The Tech
3 motherboard employs a digitally sensitized voice and can be programmed to use
virtually any language. Unlike many competing products, the Tech 3 motherboard
is fully deployable across an entire spectrum of transmission standards. This
will allow us to develop phones that are compatible with most worldwide
standards of wireless communications, including analog, cellular, digital,
enhanced specialized mobile radio (ESMR) and satellite.
The Tech 3 board can support a variety of phone card readers. Currently, a
single board can support up to four types of readers. We have developed our own
multiple format card reader, which provides payment flexibility to the telephone
customer and provides the system operator with the assurance of full payment for
the use of our phones.
We have also developed two types of prepaid phone cards to work with the
Tech 3 motherboard-- a standard 30 mil chip card and a 9 mil magnetic card. For
the 30 mil chip card, the reader and the telephone are low-cost; however, the
card, even in large quantities, is more expensive. In the 9 mil magnetic card,
the encryption can be on a paper card and the cost of cards is inexpensive, but
the reader is more expensive. In either case, because of the higher cost to
refill a card, the consumer must purchase a new card when the old one has no
value remaining.
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We are currently developing our Wireless Network Management software, which
is intended to permit our phones to be remotely programmed, monitored and
repaired from a central location without relying on any network operating
center. The software is intended to allow a service provider's host computer to
manage our phones and enable the phones to self-diagnose and report their own
malfunctions to the service provider, either through direct wireless connections
or through the internet.
DEVELOPED PRODUCTS--WIRELINE
We have developed the Bright Star coinline board for use with wireline
payphones. It is designed to detect software configuration problems, memory
buffering problems or other malfunctions, and to attempt to repair them. For
instance, if a coin jam is detected in the hopper of the payphone, the Bright
Star coinline board will notify a central office to send a signal to the phone
as many as twenty times in an attempt to collect that coin. If the coin jam is
not remedied, the board will dial the host computer and inform the host of the
jam. In the event that the host cannot repair the malfunction, it will notify a
maintenance technician. The Bright Star coinline board also makes it unnecessary
for customers to download rates into a phone. The board signals the local
telephone company and receives the proper rates. Our Brightlink software allows
our customers to manage their Bright Star coinline board payphones. This
software allows the customer to see how much cash is in the coin boxes, prints
trouble reports, notifies them of malfunctions and provides other management
functions.
PRODUCTS UNDER DEVELOPMENT
We are developing Wireless Network Manager ("WNM") software for use with all
of our wireless phones. This software will allow the operator to program,
monitor, diagnose, and repair a phone from a host computer. This feature will
reduce the cost of operating the phones. The software will remotely diagnose and
repair memory or configuration problems with a phone, reducing downtime and
increasing revenue. This software will be available to our customers in three
different versions:
- Wireless Network Manager/ST (Standard);
- Wireless Network Manager/IP (Internet Protocol); or
- Wireless Network Manager/XP (Extended Internet Protocol).
The WNM Standard program is intended for the customer whose management
system is physically located within the same dialing area as its phones.
The WNM Internet Protocol program is intended for the customer whose
management system is physically located outside the local dialing area of its
phones, and even outside the country where the phones are in service. The
customer's remote subsystem will actively dial into a local internet service
provider to exchange data and software with the host computer via an internet
FTP server that is under the customer's control. The remote subsystem, housed in
a reasonably secure and air conditioned room in the country where the phones are
located, will require little, if any, intervention, and will be capable of being
contacted directly via modem if necessary. This program will significantly
reduce the customer's cost of maintaining its telephones, because no domestic or
international long distance calls will be necessary.
The WNM Extended Internet Protocol is intended for the customer with
numerous phones in various countries around the world. It will enable the actual
telephones to contact the host computer directly through the internet using a
proprietary UDP (User Datagram Protocol) transport dialog. The program will
contact the cellular switch in the country in which the customer's phones are
located to access these phones. This program gives the customer direct control
of its phones through the internet.
We understand that we must continually research and develop new products in
the quickly developing world of telecommunications. We expect to complete our
development of an interface for
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the new transceivers that use the latest TDMA (Time Division Multiple Access)
and CDMA (Code Division Multiple Access) PCS (Personal Communication Services)
protocols shortly. We also intend to begin developing an interface for GSM
(Global Satellite Mobility), a European standard, and for Motorola's new iridium
transceivers.
During fiscal 1998, we incurred approximately $271,518 in research and
development costs toward the design and development of our products, excluding
capitalized software development costs. Research and development costs were
$374,780 in fiscal 1997, excluding capitalized software development costs.
OUR MARKETS AND MARKETING PLAN
To date we have been dependent on three principal customers who have
purchased our wireline products. These customers are Datone Communications,
Inc., a company controlled by Joseph C. Passalaqua, our Chief Executive Officer,
Chairman of the Board and principal stockholder, AMG, Ltd. and New Day
International. These customers collectively contributed approximately 94% of our
net revenues for 1997 and 1998. Datone Communications, Inc. was responsible for
100% of our net sales during the first quarter of 1999. We have only just begun
marketing our wireless products, however, and our potential customers include
both wireless service providers and global wireless infrastructure
manufacturers. We plan to market our products on a direct and joint venture
basis to local wireless providers in developing countries. We will market our
products directly to infrastructure providers and to wireless operators. We plan
to advertise both in print media and at trade shows.
We are currently targeting specific countries where unique factors suggest
that telecommunications growth may be faster than expected. This could be due to
the elimination of monopolies and state-run wireless service providers via
privatization, due to political encouragement of telecommunications services via
a reduction in tariffs, or other factors.
In countries where the telecommunications infrastructure is privatizing, we
intend to own and operate public payphone systems, either directly or through
joint ventures. In countries where the telecommunications industry is government
controlled, we intend to enter into joint ventures with the wireless providers
and/or the postal, telephone and telegraph companies that control a country's
wireless industry, to provide public payphone systems. We may also sell or lease
our telephones to third parties.
We also plan to place our products, through leases, licensing agreements
and/or joint ventures, in resort areas where public telephones do not exist. One
of our strategies is to concentrate on those areas that would produce high
income in high traffic locations such as airports, resorts and bus stations.
In addition to the Philippines, Ukraine and Slovakia, our immediate target
areas include Madagascar, Guatemala, Belize, El Salvador, Honduras, Costa Rica
and Mexico. We hope to negotiate contracts and to deploy our wireless local loop
telephones and wireless payphones into these areas beginning in the first half
of the year 2000.
We intend to perform all of our product sales outside the United States
through a foreign sales corporation to be organized by us as a wholly-owned
subsidiary. A foreign sales corporation is a tax incentive for promoting the
export of U.S.-manufactured products. Under current law, a percentage of income
received by a foreign sales corporation is exempt from U.S. tax.
OUR COMPETITION
Our competitors in the telecommunications industry consist of major domestic
and international telecommunications equipment companies, many of which have
substantially greater financial, technical, marketing, sales, manufacturing,
distribution and other resources than our own, and include well regarded
companies such as Motorola, Ericsson, Nokia and Qualcomm. In addition, we face
competition from smaller companies, both foreign and domestic, which are
currently either manufacturing wireless payphones for deployment abroad or
providing fixed wireless telephone services
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through networks established by them in emerging markets outside the United
States, similar to our target markets. We believe we will be able to compete
with these companies because:
- Our products are configured to work with most major telecommunications
standards throughout the world while many of our competitors' products are
compatible with only a few such standards.
- Our products provide advantages not otherwise available, most notably the
opportunity to provide prepaid telephone services in developing areas
where the lack of creditworthiness may discourage the provision of billed
telephone services.
- Our larger competitors are engaged in broader lines of business, while
developing and marketing our products is our only focus, and thus all our
revenues can and will be used to establish ourselves and increase our
market share in our target countries.
In addition to equipment companies and wireless service providers, we may
compete in our target countries with established telephone companies, some of
which may have long-standing relationships with their customers and
significantly greater name recognition than we will have. We believe, however,
that because most such companies rely on their established hardwire networks,
which are costly to expand, difficult to maintain and have technological
limitations, and because we will compete with those entities on the basis of
quality, price and reliability, we believe we will have a competitive advantage
over those entities.
We also face competition from new technologies that are currently under
development that may result in new competitors entering the market with products
that may make ours obsolete. We cannot entirely predict the competitive impact
of these new technologies and competitors.
MANUFACTURING
We intend to retain ownership of the tooling and plastic moldings of the
telephone units; however, we intend to outsource the manufacture of the units.
We also plan to outsource the building and assembly of our circuit boards. We
project we may have to perform assembly and final testing on the payphones, but
we expect to outsource the assembly and final testing of the wireless local loop
phones. We do not yet have agreements for these outsourced manufacturing
arrangments, and there can be no assurance that we will be able to enter into
such agreements on reasonable terms, or at all. See "Risk Factors--We must
depend on outside manufacturing sources."
Our principal supplier of transceivers is Motorola. Our other principal
supplier is Advanced Manufacturing, Tampa, Florida, which manufactures our
wireline phone circuit boards.
INTELLECTUAL PROPERTY
We have applied for three patents. The patent application for our core
technology is pending issue in the United States, Europe, Mexico, Japan, China,
Brazil and Taiwan. We also have obtained design patents in the United States for
the Chameleon phone and the case for the wireless local loop phone.
Our success and ability to compete is dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secrets, and copyright law and contractual restrictions
to protect the proprietary aspects of our technology. These legal protections
afford only limited protection for our technology.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. However, the laws of many
countries do not protect our proprietary rights to as great an extent as do the
laws of the United States. Any such resulting litigation could result in
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substantial costs and diversion of resources and could have a material adverse
effect on our business, operating results and financial condition. There can be
no assurance that our means of protecting our proprietary rights will be
adequate or that our competitors will not independently develop similar
technology. Any failure by us to meaningfully protect our property could have a
material adverse effect on our business, operating results and financial
conditions.
To date, we have not been notified that our products infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement with respect to our current or future
products. Any such claims, with or without merit, could be time-consuming to
defend, result in costly litigation, divert management's attention and
resources, cause product shipment delays or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to us or at all. A successful claim of product
infringement against us and our failure or inability to license the infringed
technology or develop or license technology with comparable functionality could
have a material adverse effect on our business, financial condition and
operating results. See "Risk Factors--We may be unable to adequately protect our
proprietary rights or may be sued by third parties for infringement of their
proprietary rights."
GOVERNMENT REGULATION
Parts 15 and 68 of rules promulgated by the Federal Communications
Commission (the "FCC") govern the technical requirements that payphone and other
telephone products must meet to qualify for FCC registration and interconnection
to the telephone network in the United States. The Motorola transceivers used in
our products are FCC registered.
Our products may require testing and approval by various regulatory bodies
in the countries in which we will sell our products and in most instances, these
approvals will have to be obtained before the importation of the products by
customers.
The construction, operation, sale and interconnection arrangements of
wireless telecommunications systems and the grant, maintenance and renewal of
applicable licenses in countries outside the United States are generally
extensively regulated by governmental authorities in such countries. Depending
on our manner of doing business in each country, we may become directly subject
to such regulations or local service providers with whom we have relationships
may be so subject. In some cases, the regulatory authorities also operate or
control the operations of the telephone companies that may be our competitors.
The amount or type of such regulation will vary, from country to country and
could include price controls, service requirements and limitations on who may
hold wireless network rights.
OUR FACILITIES
We lease approximately 1,200 square feet of space in Liverpool, New York
where we have our principal executive office. We lease our Liverpool office from
the wife of our Chief Executive Officer, Chairman of the Board and principal
stockholder under a three-year lease which commenced on May 1, 1999. We also
lease approximately 2,500 square feet of space in Tampa, Florida that we use for
an engineering and sales office under a lease that expires in October 1999. Our
monthly rental payments under these leases are $900 and $1,620, respectively. We
believe our properties are generally in good condition and suitable to carry on
our business. We also believe that, if required, suitable alternative or
additional space will be available to us on commercially reasonable terms.
OUR EMPLOYEES
We currently have six full-time employees, three of whom are full-time. None
of our employees are represented by a labor union. We believe we have a good
relationship with our employees.
LEGAL PROCEEDINGS
Bright Technologies, Inc. was named as a defendant in an action filed by
Tidel Engineering, Inc. in February 1998 in the 191st Judicial District Court of
Dallas County, Texas. Tidel Engineering, Inc. has
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<PAGE>
claimed that Bright Technologies, Inc. and the other named defendants are liable
for debt of First Express Financial Group, Inc. ("First Express") incurred by
First Express in its purchase of automated teller machines and related products
and services from Tidel Engineering, Inc. The other named defendants include our
Chief Executive Officer, Chairman of the Board and principal stockholder, Joseph
C. Passalaqua, and companies controlled by him. Tidel Engineering, Inc. alleges
that it relied upon the financial stability of the defendants as a whole in its
decision to supply the automated teller machines and related products and
services to First Express and, therefore, the defendants, including Bright
Technologies, Inc., should be held liable for First Express' debt as if each of
them personally had incurred the debt. Tidel Engineering, Inc. alleged damages
in the amount of $1.29 million. Bright Technologies, Inc. denied liability and
vigorously contested this matter. In June 1999, an agreement was reached to
settle this litigation on terms that will not have any effect on our financial
condition or results of operations.
OUR MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains information regarding our directors and
executive officers at May 17, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ------------------------------ --- -----------------------------------------------------------------
<S> <C> <C>
Joseph C. Passalaqua.......... 50 Chief Executive Officer and Chairman of the Board
Carl E. M. Worboys............ 55 Vice President, Secretary and Director
Lilly Beter................... 64 Chief Financial Officer and Treasurer and Director
John J. Andre................. 47 Director
Terry L. Colbert.............. 45 Director
Lewis A. McGuinness........... 51 Director
William T. Muth............... 44 Director
Joseph J. Passalaqua.......... 25 Director
</TABLE>
Joseph C. Passalaqua has served as Chief Executive Officer and Chairman of
the Board of bright-technologies.com, inc. since its inception in April 1999.
Mr. Passalaqua has also served as Chief Executive Officer of Bright
Technologies, Inc. since its inception in 1994. Since 1996, Mr. Passalaqua has
served as the President of Metrotel, Inc., a prepaid calling card company
("Metrotel"). Since 1994, Mr. Passalaqua has also served as Chief Executive
Officer and President of American Telecommunications Enterprises, Inc., a
domestic long distance carrier ("American Telecom"). Since 1997, Mr. Passalaqua
has also served as President of Datone Communications, Inc., a pay phone company
("Datone"). In 1989, Mr. Passalaqua was one of the founding members of the North
East Dealers of Pay Phones Association. In 1995, the North East Dealers of Pay
Phones Association merged with the Empire State Pay Phone Association. From 1995
through 1997, Mr. Passalaqua served as a board member of the Empire State Pay
Phone Association. Mr. Passalaqua is the father of Joseph J. Passalaqua.
Carl E. M. Worboys has served as Vice President, Secretary and a director of
bright-technologies.com, inc. since its inception in April 1999. Mr. Worboys has
also served as in-house counsel of Bright Technologies, Inc. since its inception
in 1995. Since 1995, Mr. Worboys has also served as in-house counsel of American
Telecom. From 1983 to 1994, Mr. Worboys practiced law with Bogard & Associates,
P.C.
Lilly Beter has served as Chief Financial Officer and Treasurer and a
director of bright-technologies.com, inc. since its inception in April 1999. She
is President of Lilly Beter Capital Group, Ltd., a financial advisory firm, with
offices in Washington, D.C., Minneapolis, Minnesota, Century City, California
and Boca Raton, Florida. Since December 1997, Ms. Beter has served as Secretary
and a director of American Card Technology, Inc., a developer of smart card
systems and related software. She is also a director of Zeros USA, Inc., a
licensor and supplier of waste processing equipment. She is a member of the
American League of Lobbyists and the American Arbitration Association.
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<PAGE>
John J. Andre has served as a director of bright-technologies.com, inc.
since its inception in April 1999. From 1974 to December 1998, Mr. Andre has
served as a credit analyst/supervisor of customer service, United States sales
manager, field administration manager, account executive and senior account
manager of Motorola, Inc. Since December 1998, he has been engaged as a
consultant in the cellular and wireless telecommunications industry. Mr. Andre
has 24 years of experience in the telecommunications industry.
Joseph J. Passalaqua has served as a director of bright-technologies.com,
inc. since its inception in April 1999. Since 1997, Mr. Passalaqua has served as
a technical support employee for Datone and has performed technical support
services as an independent contractor for Metrotel since 1996. In 1995, Mr.
Passalaqua was employed as technical support and clerical staff by American
Telecom. Datone, Metrotel and American Telecom are each controlled by Joseph C.
Passalaqua. Mr. Passalaqua was employed by Qual-Ex, a film developing company,
for several months during 1994. Mr. Passalaqua is the son of Joseph C.
Passalaqua.
Lewis A. McGuinness has served as a director of bright-technologies.com,
inc. since its inception in April 1999. Since 1995, Mr. McGuinness has served as
a director of Cointel Leasing, Inc., a pay telephone company.
Terry L. Colbert has served as a director of bright-technologies.com, inc.
since its inception in April 1999. Since 1998, Mr. Colbert has served as
Executive Vice President of ITM Group. From 1997 to 1998, he was Executive Vice
President of Paytel, a pay telephone company. From 1995 to 1997, Mr. Colbert
served as President of Consutel, Inc., a telecommunications consulting firm.
From 1986 to 1995, Mr. Colbert served as Chairman of the Board, Chief Executive
Officer and President of Communications Central, Inc., a public pay telephone
company. Mr. Colbert has 20 years of experience in the telecommunications
industry.
William T. Muth has served as a director of bright-technologies.com, inc.
since its inception in April 1999. Since April 1999, Mr. Muth has been engaged
in sales and marketing for Allied Riser Communication. From March 1997 to April
1999, Mr. Muth served as managing director of Summit Resources, a mergers and
acquisitions and management consulting firm. From 1994 to March 1997, Mr. Muth
was a financial services consultant.
BOARD OF DIRECTORS; ELECTION OF OFFICERS
We have a classified Board of Directors currently comprised of eight
members, with directors serving staggered three-year terms. Commencing with the
2000 Annual Meeting of Stockholders, one class of directors will be elected each
year for a three-year term. Messrs. Colbert, Muth and Joseph J. Passalaqua are
members of Class I, the term of which expires at the 2000 Annual Meeting of
Stockholders; Ms. Beter and Messrs. McGuinness and Worboys are members of Class
II, the term of which expires at the 2001 Annual Meeting of Stockholders; and
Messrs. Andre and Joseph C. Passalaqua are members of Class III, the term of
which expires at the 2002 Annual Meeting of Stockholders.
Ms. Beter was elected to our Board of Directors as the designee of Lilly
Beter Capital Group, Ltd. ("LBCG"), a financial advisory firm with which we have
a contract for financial advisory services. Under our contract with LBCG, LBCG
is entitled to designate one person to serve on the Board of Directors. See
"Certain Transactions with Management."
All directors hold office until their successors are duly elected and
qualified. Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum, except that any vacancy on the Board of Directors resulting from the
removal of a director by the stockholders may be filled only by the stockholders
entitled to vote at an annual or special meeting called for that purpose. A
director elected to fill a vacancy is elected for
27
<PAGE>
the unexpired term of his predecessor in office. Any directorship to be filled
by reason of an increase in the number of directors may be filled by election at
an annual meeting or at a special meeting of the stockholders entitled to vote
called for that purpose. Our Board of Directors will at all times contain at
least two members who are not employees or executive officers of us or of Bright
Technologies, Inc.
Executive officers of the Company are elected by the Board of Directors at
its annual meeting and hold office until the next annual meeting of the Board of
Directors or until their respective successors are duly elected and have
qualified.
DIRECTOR COMPENSATION
Directors currently do not receive compensation to serve as directors or
committee members, but will be reimbursed for their reasonable expenses in
connection with their attendance at meetings of the Board of Directors. In the
future, we may compensate our directors with cash, or by granting to them shares
of stock or stock options.
KEY MAN INSURANCE
Following the closing of this offering, we intend to purchase a key man life
insurance policy on Mr. Joseph C. Passalaqua in the amount of $2,000,000.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has three standing committees: the
Executive Committee, the Audit Committee and the Compensation Committee. The
Executive Committee exercises the powers of the Board of Directors during the
intervals between meetings of the Board of Directors, unless special directions
have been given by the Board of Directors. The Executive Committee is comprised
of Ms. Beter and Messrs. Worboys and Joseph C. Passalaqua. The Audit Committee
meets periodically with representatives of our independent public accountants to
review the general scope of audit coverage, our accounting practices and
procedures, and our system of internal accounting controls. The Audit Committee
is comprised of Ms. Beter and Messrs. Muth and Joseph C. Passalaqua. The
Compensation Committee recommends to the Board of Directors the annual salaries
for management and administers and grants awards under our 1999 Non-Employee
Director Stock Option Plan and 1999 Stock Option Plan. The Compensation
Committee is comprised of Messrs. McGuinness, Andre and Joseph J. Passalaqua.
STOCK OPTION PLANS
Effective April 23, 1999, we adopted a 1999 Stock Option Plan and a 1999
Non-Employee Director Stock Option Plan. Our 1999 Stock Option Plan permits us
to issue up to 450,000 options to purchase our common stock to employees,
officers, directors, consultants and advisors of us and our affiliates at an
exercise price equal to no less than the fair market value of our common stock
as of the date of grant. Our 1999 Non-Employee Director Stock Option Plan
permits us to issue up to 50,000 options to purchase shares of our common stock
to our directors who are not employed by us or by our subsidiaries, at an option
price per share equal to the fair market value of our common stock as of the
date of grant. Each of these plans will be administered by the Compensation
Committee.
EXECUTIVE COMPENSATION
We have not paid compensation to our executive officers to date. Wages for
Joseph C. Passalaqua, our Chief Executive Officer, have been accrued since
January 1, 1996, and will be paid at a time determined by agreement between Mr.
Passalaqua and the Board of Directors. The following table sets forth the total
compensation accrued during 1998, 1997 and 1996 for Mr. Passalaqua, our only
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<PAGE>
executive officer whose accrued compensation from us during any such period
exceeded $100,000 per year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------------------ --------- ---------- ----------- -----------------
<S> <C> <C> <C> <C>
Joseph C. Passalaqua, Chief Executive Officer
and President............................................. 1998 $ 150,000 $ -- $ --
1997 $ 150,000 -- --
1996 $ 150,000 -- --
</TABLE>
EMPLOYMENT AGREEMENTS
On May 1, 1999, we entered into an employment agreement with Joseph C.
Passalaqua to serve as our Chief Executive Officer. The term of the employment
agreement is five years and will commence upon completion of this offering.
Under the terms of his employment agreement, Mr. Passalaqua will receive an
annual base salary of $250,000. Mr. Passalaqua has elected to defer $100,000 of
his annual base salary until we complete a secondary financing of at least
$5,000,000. At the discretion of the Board of Directors, Mr. Passalaqua also is
eligible to receive bonuses, grants of stock, stock options, warrants and/or
stock appreciation rights under any bonus or benefit plan established by the
Board of Directors.
Either party may terminate the employment agreement upon 90 days written
notice to the other party. If we terminate Mr. Passalaqua's employment without
cause, however, he will be entitled to a payment equal to the sum of:
- the greater of one year of his current annual base salary or the total
base salary that would be payable for the balance of the term of the
employment agreement;
- a pro rata portion of any incentive bonus to which he would otherwise be
entitled for the year of his termination, if the calculation of such
incentive bonus for the year through his termination, if annualized, would
have resulted in an incentive bonus for the year;
- any accrued salary that has not previously been paid; and
- any expense reimbursement due and owing to him at the time of his
termination.
On April 23, 1999 we entered into an employment agreement with Carl Worboys
to serve as our Vice President. The term of Mr. Worboys' agreement is five years
and will commence upon the completion of this offering. Mr. Worboys will receive
$150,000 in annual base salary, of which he has elected to defer the payment of
$50,000 per year until we complete a secondary financing of at least $5,000,000.
At the discretion of the Board of Directors, Mr. Worboys also is eligible to
receive bonuses, grants of stock, stock options, warrants and/or stock
appreciation rights under any bonus or benefit plan established by the Board.
The termination provisions of Mr. Worboys' agreement are the same as those
described for Mr. Passalaqua above.
CERTAIN TRANSACTIONS WITH MANAGEMENT
Beginning in January 1996, Joseph C. Passalaqua agreed to defer payment of
his salary as our Chief Executive Officer. At June 30, 1999, we had accrued
$524,500 in salary for Mr. Passalaqua, which will be paid to him at a future
date to be determined by agreement between Mr. Passalaqua and the Board of
Directors. No interest will be paid on Mr. Passalaqua's deferred salary.
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<PAGE>
On February 1, 1999, we signed a Promissory Note in favor of Joseph C.
Passalaqua, our Chief Executive Officer, Chairman of the Board and principal
stockholder, in the amount of $664,987. This Promissory Note memorializes
advances by Mr. Passalaqua to us used for working capital in 1998, is payable on
demand, bears interest at 10% per year and is unsecured. If the Maximum Offering
is sold, we intend to repay $500,000 of the principal amount of this Promissory
Note to Mr. Passalaqua.
On May 1, 1999, we entered into a three year lease with Mary A. Passalaqua
for our corporate headquarters located at 7325 Oswego Road in Liverpool, New
York. Rental payments under the lease are $900 per month. Ms. Passalaqua is the
wife of our Chief Executive Officer, Chairman of the Board and principal
stockholder.
Effective May 14, 1999, we entered into a two year agreement with Lilly
Beter Capital Group, Ltd. ("LBCG"), a financial advisory firm owned and operated
by Lilly Beter, our Chief Financial Officer and Treasurer and a member of the
Board of Directors. Under this agreement, LBCG has provided us with financial
advisory services regarding this offering and agreed to provide financial
advisory services to us in connection with a possible future debt offering in
which we would attempt to raise up to an additional $35 million through the
issuance of either high-yield bonds or Eurodollar funding. LBCG will not receive
any compensation in connection with this offering. LBCG has agreed to advance us
up to $675,000 in connection with this offering and the proposed debt offering.
We will repay these advances with interest at a rate of 10% per year, but are
only required to do so out of the proceeds of the debt offering. The agreement
also provides that LBCG may designate one person to serve on our Board of
Directors. Lilly Beter, the President of LBCG, was elected to our Board as
LBCG's designee. Until May 14, 2004, LBCG has a right of first refusal to assist
us in connection with future efforts to raise capital in excess of $5 million.
On January 14, 1999, we entered into an agreement with Ernst & Young Inc.,
in its capacity as court-appointed receiver and manager for Tee-Comm
Electronics, pursuant to which we restructured the payment terms of our
indebtedness to Tee-Comm and Tee-Comm was granted, among other things, a lien on
the stock of American Telecommunications Enterprises, Inc. held by Joseph C.
Passalaqua, our Chief Executive Officer, Chairman of the Board and principal
stockholder. The proceeds of this offering will be used in part to repay the
Tee-Comm note. As a result of such repayment, the lien on Mr. Passalaqua's
shares will be discharged.
We believe that the terms of the transactions described above were no less
favorable to us than could have been obtained from unaffiliated third parties.
It is our intention that future transactions with management will be on such a
basis. All material transactions with our affiliates, including any forgiveness
of loans made by our affiliates, will be approved by a majority of our
independent directors who have no interest in such transactions and who have
access to counsel at our expense.
PRINCIPAL STOCKHOLDERS
The following table gives you information, at July 20, 1999, regarding the
beneficial ownership of our common stock by each of our directors and executive
officers, each executive officer named in the Summary Compensation Table, each
person who beneficially owns more than 5% of our common stock,
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<PAGE>
and all of our directors and executive officers as a group. Except as otherwise
noted, the stockholders listed possess sole voting and investment power, subject
to applicable community property laws.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES OWNED BENEFICIALLY
---------------------------------------------
NUMBER OF AFTER THE AFTER THE
SHARES OWNED PRIOR TO MINIMUM MAXIMUM
NAME AND ADDRESS(1) OF BENEFICIAL OWNER BENEFICIALLY THE OFFERING OFFERING(2) OFFERING(2)
- -------------------------------------------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
John J. Andre, Jr................................. -- -- -- --
Lilly Beter....................................... -- -- -- --
Terry L. Colbert.................................. -- -- -- --
Lewis A. McGuinness............................... -- -- -- --
William T. Muth................................... -- -- -- --
Joseph C. Passalaqua.............................. 5,760,000 96% 82.3% 73.8%
Joseph J. Passalaqua.............................. 240,000 4 3.4 3.1
Carl E. M. Worboys................................ -- -- -- --
All directors and executive officers as a
group (9 people)................................ 6,000,000 100% 85.7% 76.9%
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the address for each of the persons named is c/o
bright-technologies.com, inc., 7325 Oswego Road, Liverpool, New York 13090.
(2) Assumes none of the named individuals purchase shares in this offering.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 30,000,000 shares of common stock,
par value $.001 per share, and 5,000,000 shares of preferred stock, par value
$.01 per share. If the Minimum Offering is completed, we will have 7,000,000
shares of common stock, and no shares of preferred stock, issued and
outstanding. If the Maximum Offering is completed, we will have 7,800,000 shares
of common stock, and no shares of preferred stock, issued and outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters voted on by the stockholders, including the election of directors.
Except as otherwise required by law or provided in any resolution adopted by the
Board of Directors with respect to any series of preferred stock, the holders of
common stock exclusively possess all voting power. The holders of common stock
are entitled to such dividends as may be declared from time to time by the Board
of Directors from funds available for distribution to such holders. No holder of
common stock has any preemptive right to subscribe to any kind or class of our
securities or any cumulative voting rights. The shares of common stock to be
issued and sold in this offering will be duly authorized, validly issued, fully
paid and nonassessable.
PREFERRED STOCK
We are authorized to issue 5,000,000 shares of preferred stock. The Board of
Directors has the authority to issue the preferred stock in one or more series
and to determine the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
series of undesignated preferred stock and to fix the number of shares
constituting any series and the designation of such series, without any further
vote or action by the stockholders. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of the Company
without further action by the stockholders and may adversely affect the voting
and other rights of the holders of common stock. At present, we have no plans to
issue any shares of preferred stock.
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<PAGE>
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CERTAIN PROVISIONS OF OUR
CERTIFICATE OF INCORPORATION AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law ("DGCL"). In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless
- the business combination or the transaction by which such stockholder
became an "interested stockholder" was approved by the Board of Directors
prior to such time;
- upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) certain employee stock ownership
plans); or
- on or subsequent to such time the "business combination" is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested
stockholder."
A "business combination" includes mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years did own) 15% or more of a corporation's
outstanding voting stock. The statute could prohibit or delay mergers or other
takeover or change in control attempts involving the Company and, accordingly,
may discourage attempts to acquire the Company.
In addition, certain provisions of our Certificate of Incorporation and
Bylaws summarized in the following paragraphs may be deemed to have an
anti-takeover effect and may delay, defer or prevent an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger or
other transaction that a stockholder might consider in his or her best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS. Our Certificate of Incorporation provides
for the Board of Directors to be divided into three classes of directors serving
three year staggered terms. As a result, approximately one-third of the Board of
Directors will be elected each year. Moreover, under the DGCL, in the case of a
corporation having a classified board, stockholders may remove a director only
for cause. This provision, when coupled with the provision of the Bylaws
authorizing the Board of Directors to fill vacant directorships, may preclude a
stockholder from removing incumbent directors without cause and simultaneously
gaining control of the Board of Directors by filling such vacancies with his,
her or its own nominees.
STOCKHOLDER ACTION BY WRITTEN CONSENT. Our Certificate of Incorporation
provides that no action required or permitted to be taken at any annual or
special meeting of our stockholders may be taken without a meeting, and the
power of our stockholders to consent in writing, without a meeting, to the
taking of any action is specifically denied. This provision requires that all
stockholder action take place at a meeting of stockholders.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of the stockholders, or to nominate candidates for
election as directors at an annual or special meeting of the stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered or mailed and received at our principal executive offices no
later than 90 days prior to the meeting. In the event, however, that less than
100 days notice or prior public disclosure of the date of the meeting is
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<PAGE>
given and made to the stockholders, notice by the stockholder must be received
no later than the close of business on the tenth day following the earlier of
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made in order to be timely. The Bylaws specify certain
requirements for a stockholder's notice to be in proper form. These provisions
may preclude some stockholders from bringing matters before the stockholders at
an annual or special meeting or from making nominations for directors at an
annual or special meeting.
We believe the foregoing provisions are necessary to attract and retain
qualified persons as directors and officers.
TRANSFER AGENT AND REGISTRAR
We have appointed American Stock Transfer and Trust Company, New York, New
York, as the transfer agent and registrar for our common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot provide any assurances that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of our common stock in the public market, or the possibility
of such sales occurring, could adversely affect prevailing market prices for our
common stock or our future ability to raise capital through an offering of
equity securities.
Upon completion of the Minimum Offering and Maximum Offering, respectively,
we will have outstanding 7,000,000 and 7,800,000 shares of our common stock. Of
these shares, the shares to be sold in this offering (1,000,000 in the case of
the Minimum Offering and 1,800,000 in the case of the Maximum Offering) will be
freely tradable in the public market without restriction under the Securities
Act of 1933, as amended (the "Securities Act"), except for any of such shares
that are purchased by our "affiliates," as that term is defined in Rule 144
under the Securities Act.
The remaining 6,000,000 shares outstanding upon completion of this offering
are "restricted securities" as that term is defined under Rule 144. We issued
and sold these restricted securities in private transactions in reliance on
exemptions from registration under the Securities Act. Generally, restricted
securities may be sold in the public market only if they are registered or if
the requirements of Rule 144, as summarized below, are satisfied.
Pursuant to certain "lock-up" agreements with Rockcrest Securities L.L.C.
(the "Underwriter"), all our executive officers, directors and stockholders
owning more than 5% of our common stock, who collectively hold all of these
6,000,000 restricted securities, have agreed not to offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any such shares for a
period of 180 days from the date of this prospectus. We also have entered into
an agreement with the underwriter that we will not offer, sell or otherwise
dispose of common stock for a period of 180 days from the date of this
prospectus. However, the underwriter may in its sole discretion, at any time
without notice, release all or any portion of the shares subject to lock-up
agreements.
When the lock-up agreements expire, small numbers of the 6,000,000
restricted securities, all of which are held by our affiliates, will be eligible
for immediate sale, subject to the volume, manner of sale and other limitations
under Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares of common stock
are aggregated) who has beneficially owned restricted securities for at least
one year would be entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of
- 1% of the then-outstanding shares of common stock or
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<PAGE>
- the average weekly reported trading volume of the common stock during the
four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register approximately 500,000 shares of common stock
reserved for issuance under the 1999 Stock Option Plan and 1999 Non-employee
Director Stock Option Plan. This registration statement will become effective
automatically upon filing. Shares issued under the foregoing stock option plans,
after the filing of a registration statement on Form S-8, may be sold in the
open market, subject, in the case of certain holders, to the above-referenced
Rule 144 limitations applicable to affiliates.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (including
any amendments thereto) between us and the Underwriter, the form of which is
filed as an exhibit to the registration statement of which this prospectus forms
a part, the Underwriter has agreed to use its best efforts to sell, as our
agent, a minimum of 1,000,000 shares, and a maximum of 1,800,000 shares, of our
common stock. The Underwriter is not obligated to purchase any of the shares.
All funds received by the underwriter for purchase of the shares will be
promptly deposited with Firstar Bank of Minnesota, N.A., St. Paul, MN as escrow
agent. The shares will only be sold fully paid. If the minimum 1,000,000 shares
are not sold within one hundred eighty (180) days from the commencement of this
offering, this offering will automatically terminate and all of the funds in
escrow will be promptly refunded to the subscribers in full, with interest and
without deduction. Stock certificates will be issued to purchasers only if the
proceeds from the sale of at least 1,000,000 shares are released to us. Until
such time as the funds have been released from escrow and the certificates
delivered to the purchasers thereof, the purchasers will be deemed subscribers
only and not stockholders.
Following the sale of at least 1,000,000 shares, we may close on the sale of
such shares ("Initial Closing") and continue offering the balance of the shares
through the end of the offering period. We and the Underwriter will agree upon
the times and places to close on the sale of any additional shares at the end of
the offering period or earlier if all the shares are sold or if it is determined
by us and the Underwriter that no additional shares will be sold. Prior to the
Initial Closing, the escrow agent will confirm that 1,000,000 shares have been
sold, and cash or cleared funds have been received in full payment for the
purchase of the shares, before releasing the funds for such shares from escrow.
The Underwriter is to receive a cash commission of 10% of the price of the
shares sold ($0.525 per share) payable at the Initial Closing, and at each
subsequent closing, if any. The Underwriter may authorize selected securities
brokers to offer the shares for sale and allow a concession (out of its
underwriting compensation) to them. The sum of such concessions together with
the commission the Underwriter receives shall not exceed the 10% commission.
Upon the sale of the minimum number of shares offered hereby and the Initial
Closing of this offering, we have agreed to issue to the Underwriter warrants
("Underwriter's Warrants") to purchase 100,000 shares of common stock. The
Underwriter's Warrants are exercisable at a price of $6.00 per share commencing
twelve (12) months from the date of this prospectus and for a period of four
years thereafter. Each of the Underwriter's Warrants represents the right to
purchase one share of common
34
<PAGE>
stock. The Underwriter's Warrants may not be sold, assigned, transferred,
pledged, hypothecated or delivered except to officers or partners of the
Underwriter, or selected dealers and their officers and/or partners, for a
period of twelve (12) months from the date of this prospectus.
We have agreed to pay to the Underwriter a non-accountable expense allowance
equal to one percent (1%) of the total proceeds of the offering, $25,000 of
which has been paid to date.
In the Underwriting Agreement, we have agreed that we will not, for 180 days
from the date of this prospectus, directly or indirectly offer, sell, contract
to sell or otherwise dispose of any shares of our equity securities, any
securities convertible or exchangeable for our equity securities or any other
rights to acquire such equity securities without the Underwriter's prior written
consent, other than shares sold by the Underwriter or selected dealers pursuant
to the Underwriting Agreement, and grants by us of stock options to employees or
non-employee directors. Our executive officers, directors, and certain
beneficial owners of more than five percent of our common stock have agreed, for
180 days from the date of this prospectus, not to directly or indirectly offer,
sell, contract to sell or otherwise dispose of any shares of our equity
securities, any securities convertible or exchangeable for our equity securities
or any other rights to acquire such equity securities without the prior written
consent of the Underwriter.
Prior to the offering made hereby, there has been no public market for our
common stock. Accordingly, the initial public offering price has been determined
by negotiation between ourselves and the underwriter and is not necessarily
related to our asset value, net worth, or other criteria of value. The factors
considered in determining the offering price included an evaluation by
management of the history of and prospects for the industry in which we compete
and our prospects for earnings. Factors such as our financial results,
announcements of developments related to our business, and the introduction of
products and product enhancements by us or our competitors may have a
significant impact on the market price of our securities.
A regular trading market for our common stock may not develop after this
offering and, if developed, it may not be sustained. The market price for our
securities following this offering may be highly volatile, as has been the case
with the securities of other small capitalization companies.
The Underwriter has participated as an underwriter in only two public
offerings of securities prior to this offering. In addition, the Underwriter is
a relatively small firm and we have been advised that the Underwriter does not
intend to make a market in the shares following this offering.
The Underwriter expects to register this offering in a limited number of
states, which may make it difficult or impossible for you to resell your shares
of our common stock in certain states in which this offering is not registered.
The Company and the Underwriter have agreed to indemnify, or to contribute
to payments made by, each other against certain civil liabilities, including
certain civil liabilities under the Securities Act. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling us pursuant to the foregoing provisions, we have
been informed that in the opinion of the Securities and Exchange Commission (the
"Commission") such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
In connection with the offering, the Underwriter and its affiliates may
engage in transactions effected in accordance with Rule 104 of the Commission's
Regulation M that are intended to stabilize, maintain or otherwise affect the
market price of the common stock. Such transactions may include stabilizing
transactions in which it bids for, and purchases, common stock at a level above
that which might otherwise prevail in the open market for the purpose of
preventing or retarding a decline in the market price of the common stock. The
Underwriter also may reclaim any selling concessions allowed to a dealer if the
Underwriter repurchases common stock distributed by that dealer. Any of the
foregoing transactions may result in the maintenance of a price for the common
stock at a level above
35
<PAGE>
that which might otherwise prevail in the open market. Neither the Company nor
the Underwriter makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the common stock. The Underwriter is not required to engage in any of
the foregoing transactions and, if commenced, such transactions may be
discontinued at any time without notice.
The Underwriter does not intend to sell any of the shares to accounts for
which it exercises discretionary authority.
LEGAL MATTERS
The validity of the common stock offered hereby has been passed upon for us
by Arter & Hadden LLP, Dallas, Texas.
EXPERTS
The financial statements of Bright Technologies, Inc. at December 31, 1998,
for the years ended December 31, 1997 and 1998, and for the period from
inception (December 29, 1994) through December 31, 1998, have been audited by
Tabb, Conigliaro & McGann, P.C., independent public accountants, as indicated in
their report with respect thereto, and have been included herein in reliance
upon the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form SB-2
under the Securities Act with respect to the securities offered hereby.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information with respect to bright-technologies.com, inc.
and the common stock, you should read the registration statement and the
exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus concerning the contents of any
contract or other document are not necessarily complete. If a contract or
document has been filed as an exhibit to the registration statement, we refer
you to the copy of the contract or document that has been filed. Each statement
in this prospectus relating to a contract or document filed as an exhibit is
qualified in all respects by the filed exhibit.
You may inspect a copy of the registration statement and its exhibits and
schedules without charge at the Commission's principal office in Washington,
D.C. You may obtain copies of such materials at prescribed rates from the Public
Reference Section of the Commission at the Commission's principal office, 450
Fifth Street, N.W., Washington, D.C. 20549, or at the following regional offices
of the Commission:
<TABLE>
<S> <C>
7 World Trade Center, Suite 1300 Citicorp Center
500 West Madison Street, Suite 1400
Chicago, Illinois 60661
New York, New York 10048
</TABLE>
The Commission also maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the Commission.
We intend to provide our stockholders with annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports containing unaudited consolidated financial data for
the first three quarters of each year.
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
BRIGHT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PAGE NOS.
-------------
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS.................................................................. F-2
BALANCE SHEETS..................................................................................... F-3
At December 31, 1998 (Audited)
At March 31, 1999 (Unaudited)
STATEMENTS OF OPERATIONS........................................................................... F-4
For the Years Ended December 31, 1997 and 1998 (Audited)
For the Period from Inception (December 29, 1994)
through December 31, 1998 (Audited)
For the Three Months Ended March 31, 1998 and 1999 (Unaudited)
For the Period from Inception (December 29, 1994) through March 31, 1999 (Unaudited)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY............................................................. F-5
For the Years Ended December 31, 1997 and 1998 (Audited)
For the Period from Inception (December 29, 1994)
through December 31, 1998 (Audited)
For the Three Months Ended March 31, 1999 (Unaudited)
STATEMENTS OF CASH FLOWS........................................................................... F-6
For the Years Ended December 31, 1997 and 1998 (Audited)
For the Period from Inception (December 29, 1994)
through December 31, 1998 (Audited)
For the Three Months Ended March 31, 1998 and 1999 (Unaudited)
For the Period from Inception (December 29, 1994)
through March 31, 1999 (Unaudited)
NOTES TO FINANCIAL STATEMENTS...................................................................... F-7 to F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Bright Technologies, Inc.
We have audited the accompanying balance sheet of Bright Technologies, Inc.
(the "Company") (a development stage company) at December 31, 1998 and the
related statements of operations, stockholders' deficiency and cash flows for
the years ended December 31, 1997 and 1998 and for the period from inception
(December 29, 1994) through December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bright Technologies, Inc. at
December 31, 1998, and the results of its operations, stockholders' deficiency
and its cash flows for the years ended December 31, 1997 and 1998, and for the
period from inception (December 29, 1994) through December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained recurring losses and negative
cash flows from operations, has deficits in working capital and stockholders'
equity and expects to incur future losses. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
TABB, CONIGLIARO & McGANN, P.C.
New York, New York
March 12, 1999
(Except as to Note 14, which is as of April 30, 1999)
F-2
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
(NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------- -------------
<S> <C> <C>
(UNAUDITED)
Current Assets:
Inventories....................................................................... $ 81,205 $ 65,580
Prepaid expenses and other current assets......................................... 18,028 18,028
------------- -------------
Total Current Assets.......................................................... 99,233 83,608
Property and equipment, net......................................................... 93,306 85,590
Software development costs, net..................................................... 133,654 119,639
Covenant-not-to-compete, net........................................................ 19,909 18,378
Patent costs, net................................................................... 61,067 60,003
Deferred offering costs............................................................. 50,000 125,000
Security deposits................................................................... 3,240 3,240
------------- -------------
Total Assets.................................................................. $ 460,409 $ 495,458
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Bank overdraft.................................................................... $ 5,111 $ 8,169
Accounts payable.................................................................. 203,324 191,596
Accrued expenses.................................................................. 826,103 1,004,287
Notes payable..................................................................... 1,166,837 1,166,837
Shareholder loans payable......................................................... 664,987 690,151
Current portion--capitalized lease obligations.................................... 18,389 19,011
------------- -------------
Total Current Liabilities..................................................... 2,884,751 3,080,051
Capitalized lease obligations....................................................... 25,297 20,455
------------- -------------
Total Liabilities............................................................. 2,910,048 3,100,506
------------- -------------
Commitments, Contingencies and Other Matters
(Notes 1, 8, 9, 10, 11, 12, 13 and 14)
Stockholders' Deficiency:
Preferred stock--$.01 par value; 5,000,000 shares authorized; -0- shares issued
and outstanding................................................................. -- --
Common Stock--$.001 par value; 30,000,000 shares authorized; 6,000,000 shares
issued and outstanding.......................................................... 6,000 6,000
Additional paid-in capital........................................................ 4,887,965 4,887,965
Deficit accumulated during development stage...................................... (7,343,604) (7,499,013)
------------- -------------
Total Stockholders' Deficiency................................................ (2,449,639) (2,605,048)
------------- -------------
Total Liabilities and Stockholders' Deficiency...................................... $ 460,409 $ 495,458
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FOR THE YEARS FROM INCEPTION FOR THE THREE MONTHS FROM INCEPTION
ENDED DECEMBER 31, (DECEMBER 29, 1994) ENDED MARCH 31, (DECEMBER 29, 1994)
---------------------- THROUGH ---------------------- THROUGH
1997 1998 DECEMBER 31, 1998 1998 1999 MARCH 31, 1999
---------- ---------- ------------------- ---------- ---------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Product Sales................ $ 114,040 $ 87,304 $ 992,698 $ -- $ 30,625 $ 1,023,323
---------- ---------- ------------------- ---------- ---------- -------------------
Costs and Expenses:
Costs of product sales..... 340,382 103,812 1,177,333 -- 15,625 1,192,958
Research and development... 374,780 271,518 2,567,250 80,758 34,245 2,601,495
General and
administrative........... 678,803 578,094 3,184,613 179,751 79,906 3,264,519
Provision for facility
closing.................. -- 81,928 81,928 -- -- 81,928
Loss on acquired technology
and assets............... -- -- 862,368 -- -- 862,368
Interest expense........... 128,218 161,301 462,810 31,738 56,258 519,068
---------- ---------- ------------------- ---------- ---------- -------------------
Total Costs and
Expenses............... 1,522,183 1,196,653 8,336,302 292,247 186,034 8,522,336
---------- ---------- ------------------- ---------- ---------- -------------------
Net Loss..................... $(1,408,143) $(1,109,349) $(7,343,604) $ (292,247) $ (155,409) $(7,499,013)
---------- ---------- ------------------- ---------- ---------- -------------------
---------- ---------- ------------------- ---------- ---------- -------------------
Basic and Diluted Loss Per
Share (Note 2).............. $ (0.23) $ (0.18) $ (0.05) $ (.03)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted Average Common
Shares Used in Basic
and Diluted Loss Per Share
(Note 2).................... 6,000,000 6,000,000 6,000,000 6,000,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING
--------------------- PAID-IN DEVELOPMENT
SHARES(1) AMOUNT CAPITAL STAGE TOTAL
---------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Common stock issued, December 29, 1994, no
par.......................................... 6,000,000 $ 6,000 $ -- $ -- $ 6,000
---------- --------- ------------ ------------- -------------
Balance--December 31, 1994..................... 6,000,000 6,000 -- -- 6,000
Capital contributed............................ -- -- 910,098 -- 910,098
Net loss for 1995.............................. -- -- -- (1,789,198) (1,789,198)
---------- --------- ------------ ------------- -------------
Balance--December 31, 1995..................... 6,000,000 6,000 910,098 (1,789,198) (873,100)
Capital contributed............................ -- -- 2,763,855 -- 2,763,855
Net loss for 1996.............................. -- -- -- (3,036,914) (3,036,914)
---------- --------- ------------ ------------- -------------
Balance--December 31, 1996..................... 6,000,000 6,000 3,673,953 (4,826,112) (1,146,159)
Capital contributed............................ -- -- 1,214,012 -- 1,214,012
Net loss for 1997.............................. -- -- -- (1,408,143) (1,408,143)
---------- --------- ------------ ------------- -------------
Balance--December 31, 1997..................... 6,000,000 6,000 4,887,965 (6,234,255) (1,340,290)
Net loss for 1998.............................. -- -- -- (1,109,349) (1,109,349)
---------- --------- ------------ ------------- -------------
Balance--December 31, 1998..................... 6,000,000 $ 6,000 $ 4,887,965 $ (7,343,604) $ (2,449,639)
Net loss for three months ended March 31,
1999......................................... -- -- -- (155,409) (155,409)
---------- --------- ------------ ------------- -------------
Balance--March 31, 1999 (Unaudited)............ 6,000,000 $ 6,000 $ 4,887,965 $ (7,499,013) $ (2,605,048)
---------- --------- ------------ ------------- -------------
---------- --------- ------------ ------------- -------------
</TABLE>
- ------------------------
(1) Share amounts have been restated to reflect the exchange of common stock
pursuant to the reorganization completed in April of 1999.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE MONTHS
FOR THE YEARS FROM INCEPTION
ENDED DECEMBER 31, (DECEMBER 29, 1994) ENDED MARCH 31,
------------------------ THROUGH --------------------
1997 1998 DECEMBER 31, 1998 1998 1999
----------- ----------- -------------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $(1,408,143) $(1,109,349) $ (7,343,604) $(292,247) $(155,409)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................... 69,486 57,636 232,149 13,951 7,716
Amortization................................... 12,781 46,422 69,506 3,000 16,610
Provision for loss on facility closing......... -- 81,928 81,928 -- --
Provision for loss on acquired assets.......... -- -- 862,368 -- --
Acquired in-process research and development... -- -- 60,000 -- --
Amortization of capitalized consulting
agreement.................................... 57,778 -- 130,000 -- --
Cash provided by (used in) the change in assets
and liabilities:
Decrease (increase) in inventories............. 183,728 31,227 176,602 (14,315) 15,625
Increase in other current assets............... (8,486) (3,028) (18,028) -- --
Increase in security deposits.................. -- -- (3,240) -- --
(Decrease) increase in accounts payable........ (60,284) 79,266 267,261 3,734 (11,728)
Increase in accrued expenses................... 176,832 348,272 800,103 86,929 103,184
----------- ----------- -------------------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES.............. (976,308) (467,626) (4,684,955) (198,948) (24,002)
----------- ----------- -------------------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and equipment............... -- -- (154,424) -- --
Expenditures for software development costs...... (45,880) (122,295) (168,175) (48,098) --
Expenditures for patent costs.................... (41,346) (4,741) (64,120) -- --
Expenditures under Telenet agreements............ -- -- (250,000) -- --
----------- ----------- -------------------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.............. (87,226) (127,036) (636,719) (48,098) --
----------- ----------- -------------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Expenditures for offering costs.................. -- (50,000) (50,000) -- --
(Decrease) increase in bank overdraft............ (104,947) (5,274) 5,111 (10,395) 3,058
Payments on secured promissory note.............. (33,500) -- (163,500) -- --
Payments on capitalized lease obligation......... (13,838) (15,051) (28,889) (2,755) (4,220)
Proceeds from shareholder loans.................. -- 664,987 664,987 266,309 25,164
Proceeds from shareholder capital
contributions.................................. 1,214,012 -- 4,893,965 -- --
----------- ----------- -------------------- --------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES....................................... 1,061,727 594,662 5,321,674 253,169 24,002
----------- ----------- -------------------- --------- ---------
(DECREASE) INCREASE IN CASH........................ 1,807 -- -- -- --
----------- ----------- -------------------- --------- ---------
CASH--BEGINNING OF PERIOD.......................... 1,807 -- -- -- --
----------- ----------- -------------------- --------- ---------
CASH--END OF PERIOD................................ $ -- $ -- $ -- $ 6,123 $ --
----------- ----------- -------------------- --------- ---------
----------- ----------- -------------------- --------- ---------
SUPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest....................................... $ 29,364 $ 10,320 $ 213,887 $ 1,407 $ 4,466
----------- ----------- -------------------- --------- ---------
----------- ----------- -------------------- --------- ---------
SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of equipment through issuance of
capitalized lease obligations.................. $ 72,574 $ -- $ 72,574 $ -- $ --
----------- ----------- -------------------- --------- ---------
----------- ----------- -------------------- --------- ---------
Accounts payable converted into a promissory note
payable........................................ $ -- $ 63,937 $ 63,937 $ -- $ --
----------- ----------- -------------------- --------- ---------
----------- ----------- -------------------- --------- ---------
Acquisition of assets through issuance of secured
promissory note................................ $ -- $ -- $ 1,266,400 $ -- $ --
----------- ----------- -------------------- --------- ---------
----------- ----------- -------------------- --------- ---------
Offering costs accrued........................... $ -- $ -- $ -- $ -- $ 75,000
----------- ----------- -------------------- --------- ---------
----------- ----------- -------------------- --------- ---------
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(DECEMBER 29, 1994)
THROUGH
MARCH 31, 1999
--------------------
(UNAUDITED)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $ (7,499,013)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................... 239,865
Amortization................................... 86,116
Provision for loss on facility closing......... 81,928
Provision for loss on acquired assets.......... 862,368
Acquired in-process research and development... 60,000
Amortization of capitalized consulting
agreement.................................... 130,000
Cash provided by (used in) the change in assets
and liabilities:
Decrease (increase) in inventories............. 192,227
Increase in other current assets............... (18,028)
Increase in security deposits.................. (3,240)
(Decrease) increase in accounts payable........ 255,533
Increase in accrued expenses................... 903,287
--------------------
NET CASH USED IN OPERATING ACTIVITIES.............. (4,708,957)
--------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and equipment............... (154,424)
Expenditures for software development costs...... (168,175)
Expenditures for patent costs.................... (64,120)
Expenditures under Telenet agreements............ (250,000)
--------------------
NET CASH USED IN INVESTING ACTIVITIES.............. (636,719)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Expenditures for offering costs.................. (50,000)
(Decrease) increase in bank overdraft............ 8,169
Payments on secured promissory note.............. (163,500)
Payments on capitalized lease obligation......... (33,109)
Proceeds from shareholder loans.................. 690,151
Proceeds from shareholder capital
contributions.................................. 4,893,965
--------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES....................................... 5,345,676
--------------------
(DECREASE) INCREASE IN CASH........................ --
--------------------
CASH--BEGINNING OF PERIOD.......................... --
--------------------
CASH--END OF PERIOD................................ $ --
--------------------
--------------------
SUPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest....................................... $ 218,353
--------------------
--------------------
SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of equipment through issuance of
capitalized lease obligations.................. $ 72,574
--------------------
--------------------
Accounts payable converted into a promissory note
payable........................................ $ 63,937
--------------------
--------------------
Acquisition of assets through issuance of secured
promissory note................................ $ 1,266,400
--------------------
--------------------
Offering costs accrued........................... $ 75,000
--------------------
--------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 1--BUSINESS AND CONTINUED OPERATIONS
Bright Technologies, Inc. (the "Company") was incorporated under the laws of
the State of Georgia on December 29, 1994. The Company is a development stage
telecommunications company formed to develop and commercialize fixed wireless
telephones and wireline payphones and payphone components, including related
management software. Since inception, the Company has devoted substantially all
of its efforts towards research and development activities, acquisition of
certain in-process research and development, recruiting its research and
management personnel, securing agreements for various wireless transmission
standards and raising capital.
The Company has not yet generated any significant revenue from any of its
products and has not yet achieved profitable operations or positive cash flow
from operations. There is no assurance that profitable operations, if ever
achieved, could be sustained on a continuing basis. In addition, development
activities and the commercialization of the telephone products will require
significant additional financing. The Company's deficit accumulated during the
development stage aggregated $7,344,000 through December 31, 1998 and $7,499,000
through March 31, 1999, and the Company expects to incur substantial losses in
future periods. Further, the Company's future operations are dependent on the
success of the Company's development and commercialization efforts and market
acceptance of the Company's products.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, as shown in the accompanying financial
statements, the Company has incurred losses from operations from inception. As
of December 31, 1998, the Company had a stockholders' deficiency of $2,450,000,
a working capital deficiency of $2,786,000 and an accumulated deficit since
inception of $7,344,000. The Company is also in default on a significant loan
agreement, which totals approximately $1,346,000 in principal and interest as of
December 31, 1998, and is in arrears with substantially all of its other
payables and accrued liabilities. No assurances can be given that any of the
Company's telephone products can be manufactured on a large scale basis or at a
feasible cost. Further, no assurance can be given that any of the Company's
telephone products will receive market acceptance. These factors raise
substantial doubt about the Company's ability to continue as a ongoing concern.
Since inception, the Company has financed its operations from proceeds of
capital contributions totalling $4,894,000 from its principal shareholder and
from loans from its principal shareholder totalling $690,000 through March 31,
1999. The Company is exploring additional sources of working capital, including
private borrowings, an Initial Public Offering ("IPO") of its securities, joint
ventures and licensing of technologies. The Company's ability to continue as a
going-concern is dependent upon the financing efforts being successful. There
can be no assurance, however, that the Company will be successful in obtaining
financing at the level needed for the long-term development and
commercialization of its planned products or on terms acceptable to the Company.
These financial statements do not include any adjustments relating to the
recoverability of recorded asset amounts that might be necessary as a result of
the above uncertainty.
F-7
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM INFORMATION
The information presented as of March 31, 1999 and for the three-month
periods ended March 31, 1998 and 1999 and for the period from inception
(December 29, 1994) through March 31, 1999 has not been audited. In the opinion
of management, the unaudited interim financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the information set forth therein. The results of operations for
the three months ended March 31, 1999 are not necessarily indicative of the
results for the year ending December 31, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts and other receivables, bank overdraft,
accounts payable, accrued expenses and long-term debt, including the current
portion, are reflected in the accompanying balance sheet at amounts considered
by management to reasonably approximate fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risks, are principally trade accounts receivable. The
Company maintains an allowance for uncollectible accounts receivable and
generally does not require collateral. At December 31, 1998 and at March 31,
1999, no allowance for uncollectible accounts was deemed necessary by
management.
CASH AND CASH EQUIVALENTS
The Company considers all short-term highly liquid investments with a
maturity of three months or less when purchased to be cash or cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using
an accelerated method over the estimated useful lives (5-7 years) of the related
assets. Maintenance and repair expenses are charged to operations as incurred.
F-8
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain software development costs incurred subsequent to the establishment
of the software's technological feasibility and completion of the research and
development on the product hardware in which it is to be used, are required to
be capitalized. Capitalization ceases when the product is available for general
release to customers, at which time amortization of capitalized costs begins.
Amortization is calculated on the straight-line basis over 3 years.
The carrying value of a software and development asset is regularly reviewed
by the Company, and a loss is recognized when the net realizable value falls
below the unamortized cost.
COVENANT NOT-TO-COMPETE
The covenant not-to-compete consists of an agreed upon amount stated in the
purchase contract in connection with the purchase of certain technology from
Telenet (Note 3). The covenant not-to-compete is stated at cost, less
accumulated amortization of $40,091 at December 31, 1998 and $41,623 at March
31, 1999, and is being amortized using a double declining method over 6 1/2
years, the lesser of the contractual term or the economic life of the acquired
technology.
Amortization expense for the years ended December 31, 1997 and 1998 amounted
to $12,781 and $8,848, respectively, and for the three months ended March 31,
1998 and 1999 amounted to $3,000 and $1,532, respectively.
PATENT COSTS
Patent costs are stated at cost, less accumulated amortization of $3,053 at
December 31, 1998 and $4,117 at March 31, 1999. Patent costs are being amortized
on a straight-line basis over 14 years.
Amortization expense for the years ended December 31, 1997 and 1998 amounted
to $-0- and $3,053, respectively, and for the three months ended March 31, 1998
and 1999 amounted to $-0- and $1,064, respectively.
DEFERRED OFFERING COSTS
Deferred offering costs relate to costs incurred with respect to a proposed
IPO discussed in Notes 13 and 14 to the accompanying financial statements. In
the event the proposed IPO is not consummated, the deferred offering costs will
be expensed.
INCOME TAXES
The Company, with the consent of its principal shareholder, elected under
the Internal Revenue Code to be taxed as an "S" corporation. In lieu of
corporation income taxes, the shareholders of an "S" corporation are taxed on
their proportionate share of the Company's taxable income or loss. Accordingly,
no provision or liability for federal and state taxes is included in the
financial statements for the years ended December 31, 1997 and 1998 and for the
three months ended March 31, 1998 and 1999.
F-9
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
There are no proforma income taxes presented for any of the periods
presented in the accompanying financial statements, as the Company incurred
losses for both book and tax purposes.
Commencing with the effective date of an IPO of its securities, the
Company's "S" election would then be terminated. Accordingly, the Company would
then provide for federal and state income taxes and provide for deferred tax
assets and liabilities measured by using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates would be recognized in income in the period that includes
the enactment date. A valuation allowance would be provided if it is more likely
than not that some or all of the deferred tax asset will not be realized.
In accordance with SAB 4:B, undistributed losses must be reclassified to
paid-in capital effective with the termination of the S corporation tax status.
The pro forma effect of such termination on the balance sheet at December 31,
1998, assuming the termination of the S corporation tax status occurred on
December 31, 1998, would be as follows:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------- -------------
<S> <C> <C>
Additional paid-in capital...................................... $ 4,887,965 $ (2,455,639)
------------- -------------
------------- -------------
Deficit accumulated during the development stage................ $ (7,343,604) $ --
------------- -------------
------------- -------------
</TABLE>
REVENUE RECOGNITION
Revenue from product sales are recognized upon the shipment of the product.
Revenue from any company owned and operated telephones will be recognized upon
the completion of the service.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to expense as incurred,
unless they are reimbursed under specific contracts.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for its stock-based compensation arrangements pursuant to APB
Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with
the provisions of SFAS No. 123, the Company discloses the proforma effects of
accounting for these arrangements using the minimum value method to determine
fair value.
LOSS PER SHARE
Basic earnings per share ("Basic EPS") is computed by dividing net loss
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share ("Diluted EPS") gives
effect to all dilutive potential common shares outstanding
F-10
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
during a period. In computing Diluted EPS, the treasury stock method is used in
determining the number of shares assumed to be purchased from the conversion of
common stock equivalents. Securities that could potentially dilute Basic EPS in
the future, that were not included in the computation of Diluted EPS because to
do so would have been anti-dilutive for the periods presented, consist of
warrants discussed in Note 14, which are issuable upon the completion of an IPO
and options discussed in Note 14, which were granted in January of 1999.
IMPAIRMENT OF LONG-LIVED ASSETS
During 1995, the Company adopted the Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." Under the provisions of this
statement, the Company has evaluated its long-lived assets for financial
impairment, and will continue to evaluate them as events or changes in
circumstances indicate that the carrying amount of such assets may not be fully
recoverable.
The Company evaluates the recoverability of long-lived assets by measuring
the carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, the assets are adjusted to their
fair values. Based on these evaluations, there were no adjustments to the
carrying value of long-lived assets in 1997, 1998 and for the three months ended
March 31, 1999. In December 1995, the Company recorded a charge of $862,368
related to assets acquired from Tee-Comm (Note 3).
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income, defined as all changes in equity from non-owner
sources. Adoption of SFAS No. 130 did not have a material effect on the
Company's financial position or results of operations.
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way public enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to stockholders. Adoption of SFAS No. 131 did not have
a material effect on the Company's financial position or results of operations.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 132, "Employers' Disclosures About Pensions and
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other postretirement benefits. SFAS No. 132 addresses disclosure
only. It does not address liability measurement or expense recognition. There
was no effect on financial position or net income as a result of adopting SFAS
No. 132.
Effective January 1, 1998, the Company adopted American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"). SOP 97-2
F-11
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
generally requires revenue earned on software arrangements involving multiple
elements, such as software products, upgrades, enhancements, post-contract
customer support, installation and training to be allocated to each element
based on the relative fair values of the elements. The adoption of SOP 97-2 did
not have an effect on the Company's financial position or results of operations.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use," which revises the accounting for software development costs
and will require the capitalization of certain costs. The adoption of SOP 98-1
did not have an effect on the Company's financial position or results of
operations.
NOTE 3--ACQUIRED TECHNOLOGY
On February 13, 1995, the Company executed an agreement to purchase for
$1,266,400 certain assets of Tee-Comm, which was paid by the issuance of a
secured promissory note discussed in Note 8. The assets that were acquired
included general production equipment, inventory and technology for wireline
telephone computer boards. The acquisition agreement allocated the purchase
price of $1,266,400 to the assets as follows: (i) $466,400 to inventory; (ii)
$150,000 to equipment; (iii) $650,000 to technology or goodwill. Due to
circumstances regarding a potential infringement of a third party patent, which
had, as of December 1995, approximately three years remaining, the Company
ceased production of the Tee-Comm telephone computer boards and recorded an
$862,368 charge to operations during 1995 reflecting the writedown of such
assets.
On February 20, 1996, the Company purchased the technology product known as
the Suntel line powered smartboard from Telenet. The purchased technology
included in-process research and development of a wireline computer board for
payphones. The February 20, 1996 agreement provided for a $250,000 payment at
closing, which was allocated as follows: (i) $60,000 to a 6 1/2-year covenant-
not-to-compete; (ii) $130,000 to an eighteen-month consulting arrangement
between the Company and an individual, who controlled Telenet, to further
develop the technology and product line; and (iii) $60,000 to the acquired
in-process research and development, which was charged to research and
development expense during 1996.
NOTE 4--INVENTORIES
Inventories, net of writedowns, consist of the following components:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------- AT MARCH 31,
1997 1998 1999
---------- --------- ------------
<S> <C> <C> <C>
Raw materials........................................... $ 87,431 $ 53,578 $ 45,829
Work-in process......................................... 25,001 27,627 19,751
---------- --------- ------------
$ 112,432 $ 81,205 $ 65,580
---------- --------- ------------
---------- --------- ------------
</TABLE>
F-12
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 4--INVENTORIES (CONTINUED)
Inventories at December 31, 1998 and March 31, 1999 are net of a valuation
allowance of $583,000.
NOTE 5--PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
1998 1999
--------------- ------------
<S> <C> <C>
Machinery and equipment....................................... $ 161,267 $ 161,267
Furniture and fixtures........................................ 72,505 72,505
--------------- ------------
233,772 233,772
Less: Accumulated depreciation................................ 140,466 148,182
--------------- ------------
$ 93,306 $ 85,590
--------------- ------------
--------------- ------------
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1998 and the
three months ended March 31, 1998 and 1999 amounted to $69,486 and $57,636 and
$13,951 and $7,716, respectively.
NOTE 6--CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET
Activity for the year ended December 31, 1998 and the three months ended
March 31, 1999 consists of the following:
<TABLE>
<CAPTION>
FOR YEAR ENDED FOR THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1998 1999
-------------- -----------------
<S> <C> <C>
Balance--Beginning of Year................................. $ 45,880 $ 133,654
Capitalized costs for period............................... 122,295 --
Amortization charged for period............................ (34,521) (14,015)
-------------- --------
Balance--End of period..................................... $ 133,654 $ 119,639
-------------- --------
-------------- --------
</TABLE>
NOTE 7--ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1998 AT MARCH 31, 1999
--------------- -----------------
<S> <C> <C>
Officer's salary.......................................... $ 450,000 $ 487,500
Interest.................................................. 248,923 300,716
Professional fees......................................... 100,000 112,500
Offering costs............................................ -- 75,000
Other..................................................... 27,180 28,571
--------------- -----------------
$ 826,103 $ 1,004,287
--------------- -----------------
--------------- -----------------
</TABLE>
F-13
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 8--NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
1998 1999
--------------- ------------
<S> <C> <C>
Secured promissory note issued in connection with Tee-Comm
acquisition................................................. $ 1,102,900 $1,102,900
Vendor promissory note........................................ 63,937 63,937
--------------- ------------
$ 1,166,837 $1,166,837
--------------- ------------
--------------- ------------
</TABLE>
SECURED PROMISSORY NOTE PAYABLE
As discussed in Note 2, on February 13, 1995, the Company issued a secured
promissory note for $1,266,400 to purchase certain assets of Tee-Comm. Under the
secured promissory note agreement, the Company is required to make monthly
payments of interest only from March 1, 1995 through December 1, 1995;
thereafter, the Company is required to make monthly payments of principal and
interest. Interest is calculated at prime and is adjusted every 18 months. The
agreement provided for payments of principal to commence on December 1, 1995
through February 1, 1997 at $10,000 per month; thereafter, principal monthly
payments are to be adjusted every 18 months with the first two adjustments
amounting to $13,500 and $22,950, respectively, and the remaining five payments
through June 30, 2002 at $92,060 per month. The note is collateralized by the
Company's assets and is personally guaranteed by the Company's principal
shareholder.
Commencing in April of 1997, the Company failed to make the required
payments under this note agreement and remained in default as of December 31,
1998. Accordingly, the Company has classified the note as current liability at
December 31, 1998.
In January of 1999, the Company and the secured party signed an agreement to
restructure the debt (see Note 14).
For the years ending December 31, 1997 and 1998 and the three months ended
March 31, 1998 and 1999, the Company recorded interest expense related to this
secured promissory note of $122,174 and $144,069, and $30,324 and $36,326,
respectively. As of December 31, 1998 and March 31, 1999, accrued interest
payable amounted to $242,923 and $279,249, respectively. Interest expense for
1997, 1998 and for the three months ended March 31, 1999 was calculated using
the default rate of interest of prime, plus 3%.
VENDOR PROMISSORY NOTE PAYABLE
During September 1998, the Company agreed to convert a vendor's outstanding
balance of $63,937 into an unsecured promissory note, which bears an interest
rate of prime, plus 2%. Interest accruals on said note are retroactive to
January 1, 1998. The Company is required to make level installment payments of
principal and interest of $500 on the first and fifteenth of each month,
commencing October 1, 1998. The note and accrued interest are payable at the
earlier of: (i) a successful IPO, or
F-14
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 8--NOTES PAYABLE (CONTINUED)
(ii) change of control of the Company, or change of control, or sale of the
principal shareholder's affiliated companies.
Interest expense for the year ended December 31, 1998 and the three months
ended March 31, 1999 amounted to $6,500 and $1,085, respectively.
NOTE 9--CAPITALIZED LEASE OBLIGATIONS
During January and May 1997, the Company entered into two agreements to
lease equipment. The transactions have been accounted for as capitalized leases
in accordance with the provisions of the Financial Accounting Standards Board,
Statement No. 13. The lease obligations have an effective per annum interest
rate ranging between 13.3% and 14.9% and require 46 and 48 monthly payments,
respectively, of interest and principal amounting to $1,882. Each lease contains
an option to purchase the equipment at the end of the lease term for $1.
Principal payments required to be made on the above obligations are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------
<S> <C>
1999............................................................................... $ 18,389
2000............................................................................... 17,531
2001............................................................................... 7,766
---------
$ 43,686
---------
---------
</TABLE>
Interest expense related to the capitalized lease obligations for the years
ended December 31, 1997 and 1998 and the three months ended March 31, 1998 and
1999 amounted to $6,044 and $6,820 and $1,407 and $1,610, respectively.
NOTE 10--SHAREHOLDER CAPITAL CONTRIBUTIONS AND LOANS
For the period from inception (December 29, 1994) through December 31, 1998,
the Company's principal shareholder contributed capital to the Company of
approximately $4,893,965. In addition, during 1998 and for the three months
ended March 31, 1999, the principal shareholder loaned the Company approximately
$664,987 and $25,164, respectively. The shareholder loans are payable on demand,
bear interest at 10% per annum and are unsecured. Interest expense accrued on
such debt during 1998 and for the three months ended March 31, 1999 amounted to
$3,000 and $16,382, respectively.
NOTE 11--COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
OPERATING LEASES
At December 31, 1998, the Company had obligations under various long-term
operating leases for office space and equipment. The leases provide for minimum
monthly payments aggregating approximately $2,176 and expire at various dates
through 1999.
F-15
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 11--COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
Rent expenses for all operating leases for the years ended December 31, 1997
and 1998 and the three months ended March 31, 1998 and 1999 amounted to $90,524
and $72,326 and $20,399 and $6,018, respectively.
EMPLOYMENT AGREEMENT
The Company has accrued salary payable to the Company's principal
shareholder in the amount of $150,000 per year for 1996, 1997 and 1998 and
$37,500 for the three months ended March 31, 1999. As of December 31, 1998 and
March 31, 1999, the accrued salary payable to the principal shareholder totaled
$450,000 and $487,500, respectively.
LOSS ON FACILITY CLOSING
During December 1998, the Company consolidated its manufacturing and
warehousing operations, which resulted in the Company closing a facility in
Atlanta, Georgia. Facility closing costs recorded during 1998 amounted to
$81,928, inclusive of a provision of $26,000 for estimated future costs.
LITIGATION
The Company was named as a defendant in an action filed by Tidel
Engineering, Inc. in February 1998 in the 191st Judicial District Court of
Dallas County, Texas. Tidel Engineering, Inc. has claimed that the Company and
the other named defendants are liable for debt of First Express Financial Group,
Inc. ("First Express") incurred by First Express in its purchase of automated
teller machines and related products and services from Tidel Engineering, Inc.
The other named defendants include the Company's principal stockholder and
companies controlled by him. Tidel Engineering, Inc. alleges that it relied upon
the financial stability of the defendants as a whole in its decision to supply
the automated teller machines and related products and services to First Express
and, therefore, the defendants, including the Company, should be held liable for
First Express' debt as if each of them personally had incurred the debt. Tidel
Engineering, Inc. alledged damages in the amount of $1.29 million. The Company
denied liability and vigorously contested this matter. In June 1999, an
agreement was reached to settle this litigation on terms that will not have any
effect on the Company's financial condition or results of operations.
PROPOSED INTERNATIONAL OPERATIONS
The Company's strategic business plan includes marketing its wireless
telephone products initially to developing countries in Latin America, Eastern
Europe and the Pacific Rim, which lack the wireline infrastructure to provide
sufficient telephone service to their populations. These countries have
experienced volatile and frequent unfavorable economic, political and social
conditions.
In view of the foregoing, the Company's intended business, earnings, asset
values and prospects may be materially and adversely affected by developments
with respect to inflation, interest rates, currency fluctuations, government
policies, price and wage controls, exchange control regulations, taxation,
expropriation, social instability, and other political, economic or diplomatic
developments in or
F-16
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 11--COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
effecting such developing countries. The Company has no control over such
conditions and developments, and can provide no assurance that such conditions
and developments will not adversely affect the Company's operations.
CONCENTRATION OF CREDIT RISK
For the years ended December 31, 1997 and 1998, approximately 63% and 31%,
respectively, of net sales were derived from two unrelated customers, and one
company controlled by the principal shareholder, respectively. At December 31,
1998, no receivables were due from the above customers.
For the three months ended March 31, 1998 and 1999, approximately -0-% and
100% respectively, of net sales were derived from one company controlled by the
principal shareholder. At March 31, 1999, no receivables were due from the above
customer.
NOTE 12--RELATED PARTY TRANSACTIONS
For the years ended December 31, 1997 and 1998 and the three months ended
March 31, 1998 and 1999, the Company sold approximately $-0- and $24,500 and
$-0- and $30,625, respectively, of pay telephone products to a company
controlled by the Company's principal shareholder.
NOTE 13--PROPOSED PUBLIC OFFERING
In September of 1998, the Company decided to raise capital through the sale
of its securities pursuant to an IPO. Through December 31, 1998, costs related
to this proposed offering aggregated $50,000, which have been deferred (see Note
14).
NOTE 14--SUBSEQUENT EVENTS
SECURED PROMISSORY NOTE PAYABLE
As discussed in Note 8, the Company is indebted to Tee-Comm under a secured
promissory note with principal of $1,102,900 outstanding as of December 31,
1998.
On January 14, 1999, the Company and the principal shareholder entered into
an agreement with the Tee-Comm Bankruptcy Receiver, the representative of the
secured party (the "Receiver"), which restructured the debt under the following
terms:
(a) Company granted the Receiver: (i) a first priority security interest
in the technology developed by the Company on or before January 27, 1999;
and (ii) stock options to acquire 5% on a fully diluted basis of the equity
of the Company at a price at least as favorable as that made available to
any party, including insiders, underwriters, agents or advisors. The stock
options are exercisable commencing with the completion of the IPO and
terminate 3 years thereafter. The stock options are deemed to be fully
vested and, accordingly, the stock options will not terminate upon
satisfaction of the Tee-Comm note payable. The Company has assigned no value
to these stock options.
F-17
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 14--SUBSEQUENT EVENTS (CONTINUED)
(b) The principal shareholder of the Company is required to deliver to
the Receiver: (i) a recordable mortgage of $300,000 on commercial property
owned by the principal stockholder; (ii) 50% of the shares of American
Telecommunications Enterprises, Inc., a company controlled by the
shareholder; and (iii) a $300,000 payment sixty days from the date of the
agreement.
(c) Upon payment of the $300,000 by the shareholder, the Receiver will
release: (i) the mortgage on the commercial property; and (ii) the personal
guarantee made by the shareholder on the Tee-Comm secured promissory note
dated February 13, 1995.
(d) Upon full payment of the remaining balance, the Receiver will
release the shareholder's stock in American Telecommunications Enterprises,
Inc. and the lien on the Company's technology.
LICENSE AGREEMENT
In March of 1999, the Company entered into a license agreement with
Motorola, Inc. ("Motorola"). The license agreement grants the Company a
non-exclusive, non-assignable, non-transferable, royalty-free license to
incorporate a Motorola Patent and Proprietary Information in the Company's
wireless telephones, which include cellular transceivers sourced from Motorola.
The licensed territories consist of the United States, Canada and Latin America.
The term of the agreement is for one year and automatically renews for one-year
terms, unless terminated by either party.
REORGANIZATION
On April 23, 1999, the shareholders of Bright Technologies, Inc. ("Bright
Georgia") formed a new corporation in the state of Delaware named
bright-technologies.com, inc. ("Bright Delaware"). On April 23, 1999, the
shareholders of Bright Georgia exchanged all of their common shares of Bright
Georgia for 6,000,000 shares of Bright Delaware's common stock. As a result of
this reorganization, Bright Delaware became the parent corporation with its only
asset as of such date consisting of 100% of the common stock of Bright Georgia.
All common shares, stock options, warrants and related per-share data reflected
in the accompanying financial statement and notes thereto have been adjusted to
give effect to this reorganization.
PROPOSED PUBLIC OFFERING
In April of 1999, bright-technologies.com, inc. entered into an agreement
with an underwriter (the "Underwriter"), whereby the Underwriter has agreed, on
a best-efforts basis, to sell shares of bright-technologies.com, inc.'s common
stock in an IPO. Through December 31, 1998, costs related to this proposed
offering aggregate $50,000, which have been deferred.
bright-technologies.com, inc. agreed to issue to the Underwriter on the
closing date of the IPO warrants to purchase 100,000 shares of
bright-technologies.com, inc.'s common stock at a price per share of $6.00. The
warrants shall be exercisable for a four-year period commencing one year after
the effective date of the IPO.
F-18
<PAGE>
BRIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999)
NOTE 14--SUBSEQUENT EVENTS (CONTINUED)
In May 1999, the Company entered into a two-year agreement with a financial
advisory firm owned and operated by an individual who, in April of 1999, became
the Company's Chief Financial Officer and Treasurer and a member of the Board of
Directors (the "Advisor"). Under this Agreement, the Advisor is to provide
financial advisory services in connection with the IPO and a proposed future
debt offering following the completion of an IPO. The Advisor has agreed to
advance the Company up to $675,000 in connection with the proposed IPO and the
proposed debt offering. Any advances under this agreement, together with
interest at the rate of 10% per annum, are repayable out of the proceeds of the
debt offering. The Advisor has a right of first refusal to assist the Company in
connection with future efforts to raise capital in excess of $5 million.
STOCK OPTIONS
During April of 1999, the Board of Directors and stockholders of the Company
approved the 1999 Stock Option Plan (the "Plan"), which provides for the
granting of up to 450,000 shares of common stock, pursuant to which officers,
employees, directors and consultants are eligible to receive incentive and/or
nonqualified stock options. Options granted under the Plan are exercisable for a
period of up to 10 years from date of grant at an exercise price which is not
less than the fair value on date of grant, except that the exercise period of
incentive stock options granted to a stockholder owning more than 10% of the
outstanding capital stock may not exceed five years and their exercise price may
not be less than 110% of the fair value of the common stock at date of grant.
The Plan provides for the options to include vesting provisions. The Company
also adopted the 1999 Non-employee Director Stock Option Plan for the
non-employee directors pursuant to which 50,000 shares of common stock may be
granted. Through April 30, 1999, no options under either of these plans have
been granted.
LEASE AGREEMENT
On May 1, 1999, bright-technologies.com, inc. entered into a three-year
lease for the office space for its executive headquarters in Liverpool, New
York. The property is owned by the wife of the principal shareholder of the
Company. The lease provides for monthly payments of $900 commencing May 1, 1999.
EMPLOYMENT AGREEMENTS
In April of 1999, bright-technologies.com, inc. entered into an employment
agreement with its principal shareholder, which commences upon the closing of an
IPO and continues for 5 years thereafter. The employment agreement provides for,
among other things, a base salary of $250,000 per year, of which $100,000 is
deferred until the Company completes a secondary financing of at least
$5,000,000.
In April of 1999, bright-technologies.com, inc. entered into an employment
agreement with an individual who will serve as bright-technologies.com, inc.'s
Vice President, which commences upon the closing of an IPO and continues for 5
years thereafter. The employment agreement provides for, among other things, a
base salary of $150,000 per year, of which $50,000 is deferred until the Company
completes a secondary financing of at least $5,000,000.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BRIGHT-TECHNOLOGIES.COM, INC.
MINIMUM OFFERING:
1,000,000 SHARES OF COMMON STOCK
MAXIMUM OFFERING:
1,800,000 SHARES OF COMMON STOCK
--------------------------------------------
PROSPECTUS
------------------------------------
ROCKCREST SECURITIES L.L.C.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Registrant's Certificate of Incorporation provides that
the Company shall indemnify its directors and officers to the fullest extent
permitted by the Delaware General Corporation Law ("DGCL").
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner that they reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. In a
derivative action (I.E. one by or in right of the corporation), indemnification
may be made only for expenses actually and reasonably incurred by directors,
officers, employees or agents in connection with the defense or settlement of an
action or suit, and only with respect to a matter as to which they shall have
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
shall be made if such persons shall have been adjudged liable to the
corporation, unless and only to the extent that the court in which the action or
suit was brought shall determine upon application that the defendant directors,
officers, employees or agents are fairly and reasonably entitled to indemnify
for such expenses, despite such adjudication or liability.
Section 102(b)(7) of the DGCL permits a corporation organized under Delaware
law to eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director subject to certain limitations. Article IX of the
Registrant's Certificate of Incorporation includes the following provision:
A director of this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived any improper personal
benefit. If the DGCL is hereafter amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then
the liability of a director of the corporation shall be eliminated or
limited to the fullest extent permitted by the DGCL, as so amended.
The Registrant may purchase and maintain insurance on behalf of any person
who is or was a director, officer, fiduciary or agent of the Registrant against
any liability asserted against and incurred by such person in any such capacity
or arising out of such person's position, whether or not the Registrant would
have the power to indemnify against such liability under the provisions of the
Certificate of Incorporation or the Bylaws of the Registrant.
The Underwriting Agreement, which is filed herewith, contains provisions by
which the Underwriter agrees to indemnify the Registrant, each person who
controls the Registrant within the meaning of Section 15 of the Securities Act
of 1933, each director of the Registrant, and each officer of the Registrant
with respect to certain civil liabilities, including liabilities under the
Securities Act, liabilities arising from breaches of representations and
warranties contained in the Underwriting Agreement, and liabilities arising from
violations of law, rule or regulation in the offer or sale of the shares offered
in the Registration Statement.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered, other than
underwriting commissions and the underwriter's non-accountable expense
allowance:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 2,627
NASD filing fee................................................... 1,400
Transfer agent fee................................................ 5,000*
Escrow agent fee.................................................. 5,000*
Printing and engraving............................................ 75,000*
Accounting fees and expenses...................................... 50,000*
Legal fees and expenses........................................... 100,000*
Blue sky fees and expenses........................................ 20,000*
Miscellaneous..................................................... 15,973*
---------
Total............................................................. $ 275,000*
---------
---------
</TABLE>
- ------------------------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On April 23, 1999, upon formation of the Registrant, 5,760,000 shares of
common stock were issued to Joseph C. Passalaqua in exchange for 96 shares of
common stock of Bright Technologies, Inc., a Georgia corporation, and 240,000
shares of common stock were issued to Joseph J. Passalaqua in exchange for four
shares of common stock of Bright Technologies, Inc., a Georgia corporation.
These transactions were deemed to be exempt from registration under Section 4(2)
of the Securities Act of 1933 as transactions by an issuer not involving a
public offering.
ITEM 27. EXHIBITS.
The exhibits listed below are filed as part of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement
1.2 First Amendment to Underwriting Agreement
1.3 Letter Agreement, dated July 19, 1999, between the registrant and Rockcrest Securities, L.L.C.*
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Specimen Certificate for Common Stock of the registrant*
5.1 Opinion of Arter & Hadden LLP*
10.1 Agreement among Joseph C. Passalaqua, Bright Technologies, Inc. and Ernst & Young Inc., in its
capacity as Court-Appointed Receiver and Manager for Tee-Comm Electronics, Inc., dated January 14,
1999
10.2 Letter Agreement among Joseph C. Passalaqua, Bright Technologies, Inc. and Ernst & Young Inc., in its
capacity as Court-Appointed Receiver and Manager for Tee-Comm Electronics, Inc., dated March 9,
1999
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.3 Secured Promissory Note between Bright Technologies, Inc. and Tee-Comm Teleservices, Inc., dated
February 1995
10.4 Security Agreement between Bright Technologies, Inc. and Tee-Comm Teleservices, Inc., dated February
13, 1995
10.5 Licensing Agreement between Motorola, Inc. and Bright Technologies, Inc., dated March 12, 1999*
10.6 Employment Agreement between Joseph C. Passalaqua and the registrant, dated April 23, 1999
10.7 Employment Agreement between Carl E. M. Worboys and the registrant, dated April 23, 1999
10.8 Lease Agreement between Mary Passalaqua and the registrant, dated May 1, 1999
10.9 Lease Agreement among Bright Technologies, Inc. and Raymond J. and Jean A. Prossen, dated August 30,
1996
10.10 Promissory Note between Bright Technologies, Inc. and Triangle Plastics, Inc., dated October 6, 1998*
10.11.1 Escrow Agreement among the registrant, Firstar Bank of Minnesota, N.A. and Rockcrest Securities,
L.L.C., dated May 26, 1999*
10.11.2 Letter Agreement among the registrant, Firstar Bank of Minnesota, N.A. and Rockcrest Securities,
L.L.C., dated July 19, 1999*
10.12 1999 Stock Option Plan
10.13 1999 Non-Employee Director Stock Option Plan
10.14 Form of Non-Qualified Stock Option Agreement under the registrant's 1999 Stock Option Plan
10.15 Form of Incentive Stock Option Agreement under the registrant's 1999 Stock Option Plan
10.16 Form of Non-Qualified Stock Option Agreement under the registrant's 1999 Non-Employee Director Stock
Option Plan
10.17 Financial Advisory Services Agreement between the registrant and Lilly Beter Capital Group, Ltd.,
dated May 14, 1999*
21.1 Subsidiaries of the registrant
23.1 Consent of Arter & Hadden LLP (included in Exhibit 5.1)*
23.2 Consent of Tabb, Conigliaro & McGann, P.C.*
24.1 Powers of Attorney (contained on page S-1)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Filed or refiled by this amendment. All other exhibits have been previously
filed.
ITEM 28. UNDERTAKINGS.
1. The undersigned registrant hereby undertakes to:
(a) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect
in the prospectus any facts or events which, individually or together,
II-3
<PAGE>
represent a fundamental change in the information in the registration
statement; and (iii) include any additional or changed material information
on the plan of distribution.
(b) file a post-effective amendment to remove from registration any
securities that remain unsold at the end of the offering.
2. The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
3. Insofar as indemnification for liabilities arising out of the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the registrant's Certificate of
Incorporation or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
4. The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Liverpool, State of New York, on July 20, 1999.
<TABLE>
<S> <C> <C>
BRIGHT-TECHNOLOGIES.COM, INC.
By: /s/ JOSEPH C. PASSALAQUA
-----------------------------------------
Joseph C. Passalaqua
CHIEF EXECUTIVE OFFICER
</TABLE>
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer,
/s/ JOSEPH C. PASSALAQUA Chairman of the Board
- ------------------------------ and Director (Principal July 20, 1999
Joseph C. Passalaqua Executive Officer)
Chief Financial Officer
LILLY BETER* and Treasurer (Principal
- ------------------------------ Financial Officer and July 20, 1999
Lilly Beter Accounting Officer) and
Director
JOHN J. ANDRE, JR.*
- ------------------------------ Director July 20, 1999
John J. Andre, Jr.
TERRY L. COLBERT*
- ------------------------------ Director July 20, 1999
Terry L. Colbert
LEWIS A. MCGUINNESS*
- ------------------------------ Director July 20, 1999
Lewis A. McGuinness
- ------------------------------ Director
William T. Muth
JOSEPH J. PASSALAQUA*
- ------------------------------ Director July 20, 1999
Joseph J. Passalaqua
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
CARL E. M. WORBOYS*
- ------------------------------ Director July 20, 1999
Carl E. M. Worboys
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JOSEPH C.
PASSALAQUA
------------------------- July 20, 1999
Joseph C. Passalaqua
ATTORNEY-IN-FACT
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBER
- ----------- ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
1.1 Underwriting Agreement
1.2 First Amendment to Underwriting Agreement
1.3 Letter Agreement, dated July 19, 1999, between the registrant and Rockcrest Securities,
L.L.C.*
3.1 Certificate of Incorporation
3.2 Bylaws
4.1 Specimen Certificate for Common Stock of the registrant*
5.1 Opinion of Arter & Hadden LLP*
10.1 Agreement among Joseph C. Passalaqua, Bright Technologies, Inc. and Ernst & Young Inc., in
its capacity as Court-Appointed Receiver and Manager for Tee-Comm Electronics, Inc.,
dated January 14, 1999
10.2 Letter Agreement among Joseph C. Passalaqua, Bright Technologies, Inc. and Ernst & Young
Inc., in its capacity as Court-Appointed Receiver and Manager for Tee-Comm Electronics,
Inc., dated March 9, 1999
10.3 Secured Promissory Note between Bright Technologies, Inc. and Tee-Comm Teleservices, Inc.,
dated February 1995
10.4 Security Agreement between Bright Technologies, Inc. and Tee-Comm Teleservices, Inc., dated
February 13, 1995
10.5 Licensing Agreement between Motorola, Inc. and Bright Technologies, Inc., dated March 12,
1999*
10.6 Employment Agreement between Joseph C. Passalaqua and the registrant, dated April 23, 1999
10.7 Employment Agreement between Carl E. M. Worboys and the registrant, dated April 23, 1999
10.8 Lease Agreement between Mary Passalaqua and the registrant, dated May 1, 1999
10.9 Lease Agreement among Bright Technologies, Inc. and Raymond J. and Jean A. Prossen, dated
August 30, 1996
10.10 Promissory Note between Bright Technologies, Inc. and Triangle Plastics, Inc., dated
October 6, 1998*
10.11.1 Escrow Agreement among the registrant, Firstar Bank of Minnesota, N.A. and Rockcrest
Securities, L.L.C., dated May 26, 1999*
10.11.2 Letter Agreement among the registrant, Firstar Bank of Minnesota, N.A. and Rockcrest
Securities, L.L.C., dated July 19, 1999*
10.12 1999 Stock Option Plan
10.13 1999 Non-Employee Director Stock Option Plan
10.14 Form of Non-Qualified Stock Option Agreement under the registrant's 1999 Stock Option Plan
10.15 Form of Incentive Stock Option Agreement under the registrant's 1999 Stock Option Plan
10.16 Form of Non-Qualified Stock Option Agreement under the registrant's 1999 Non-Employee
Director Stock Option Plan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBER
- ----------- ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.17 Financial Advisory Services Agreement between the registrant and Lilly Beter Capital Group,
Ltd., dated May 14, 1999*
21.1 Subsidiaries of the registrant
23.1 Consent of Arter & Hadden LLP (included in Exhibit 5.1)*
23.2 Consent of Tabb, Conigliaro & McGann, P.C.*
24.1 Powers of Attorney (contained on page S-1)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Filed or refiled by this amendment. All other exhibits have been previously
filed.
<PAGE>
Rockcrest Securities L.L.C. July 19, 1999
3811 Turtle Creek Boulevard
Suite 520
Dallas, Texas
Attention: James S. Harris
Re: Amendment to Underwriting Agreement
for bright-technologies.com, inc.
Ladies and Gentlemen:
Reference is made to that certain Underwriting Agreement (the "Underwriting
Agreement"), dated as of April 30, 1999 by and between bright-technologies.com,
inc. (the "Company", "Us" or "We") and Rockcrest Securities L.L.C. (the
"Underwriter" or "you"), as amended by that certain First Amendment to
Underwriting Agreement, dated as of May 4, 1999 (together with the Underwriting
Agreement, the "Underwriting Agreements").
As you are aware, we have decided to increase the per share offering price
for the Company's common stock being sold in the offering from $5.00 to $5.25
and thereby increase the minimum offering from $5,000,000 to $5,250,000 and the
maximum offering from $9,000,000 to $9,450,000.
By your execution of the acknowledgement below, you hereby agree to amend
the Underwriting Agreement to effect the foregoing increases by: (i) changing
the per share offering price in the recitals, Section 2 and anywhere else it may
occur in the Underwriting Agreements (including, without limitation, in the
Exhibits thereto) from $5.00 to $5.25; (ii) changing the minimum offering from
$5,000,000 to $5,250,000 wherever it may occur in the Underwriting Agreements
(including, without limitation in the Exhibits thereto) and (iii) changing the
maximum offering from $9,000,000 to $9,450,000 wherever it may occur in the
Underwriting Agreements (including, without limitation, in the Exhibits
thereto).
In all other respects, the Underwriting Agreements shall remain unchanged
and in full force and effect.
Very truly yours,
bright-technologies.com, inc.
By: _____/S/ JOSEPH C. PASSALAQUA_____
Joseph C. Passalaqua
Chief Executive Officer
Acknowledged:
Rockcrest Securities L.L.C.
By: __________________________________
James S. Harris
President
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NUMBER SHARES
BR
BRIGHT-TECHNOLOGIES.COM, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SEE REVERSE FOR CERTAIN
TRANSFERABLE AT THE OFFICES OF DEFINITIONS AND LEGENDS
AMERICAN STOCK TRANSFER & TRUST COMPANY
IN NEW YORK, NEW YORK
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001 PER SHARE OF THE COMMON STOCK OF
BRIGHT-TECHNOLOGIES.COM, INC.
transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and shall be held subject to the provisions of the laws
of the State of Delaware and to all of the provisions of the Certificate of Incorporation and the Bylaws of the Corporation, as
amended from time to time (copies of which are on file at the office of the Corporation), to all of which the holder of this
certificate by acceptance hereof assents. This certificate is not valid until countersigned by the Transfer Agent and registered
by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its duly authorized officers and its
corporate seal to be hereto affixed.
Dated:
CHAIRMAN OF THE BOARD AND [SEAL]
CHIEF EXECUTIVE OFFICER SECRETARY
COUNTERSIGNED AND REGISTERED;
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
BRIGHT-TECHNOLOGIES.COM, INC.
The Corporation is authorized to issue Common Stock, par value $.001 per share, and Preferred Stock, par value $.01 per
share. The Board of Directors of the Corporation has authority to fix the number of shares and the designation of any series of
Preferred Stock and to determine the powers, designations, preferences and relative, participating, optional or other special
rights between classes of stock or series thereof of the Corporation, and the qualifications, limitations or restrictions of
such preferences and/or rights. The Corporation will furnish without charge to each stockholder who so requests a full statement
of the foregoing as established from time to time by the Certificate of Incorporation of the Corporation and by any certificate
of designations. Any such request should be made to the Secretary of the Corporation at the offices of the Corporation.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ___________ Custodian __________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right Under Uniform Gifts to Minors
of survivorship and not as Act.: __________________________
tenants in common (State)
UNIF TRF MIN ACT -- _______ Custodian (until age ___)
(Cust)
________ Under Uniform Transfers
(Minor)
to Minors Act ___________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
___________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
____________________________________________________________________________________________________ SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
___________________________________________________________________________________________________ ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN
THE PREMISES.
DATED ___________________
X ______________________________
NOTICE: (SIGNATURE)
THE SIGNATURE(S) TO
THIS ASSIGNMENT MUST
CORRESPOND WITH THE
NAME(S) AS WRITTEN
UPON THE FACE OF THE --->
CERTIFICATE IN EVERY
PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER. X ______________________________
(SIGNATURE)
---------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 1/Ad 15
---------------------------------------
SIGNATURE(S) GUARANTEED BY:
</TABLE>
<PAGE>
ARTER & HADDEN LLP
1717 Main Street, Suite 4100
Dallas, Texas 75201
Tel: (214) 761-2100
Fax: (214) 741-7139
July 22, 1999
bright-technologies.com, inc.
7325 Oswego Road
Liverpool, New York 13090
Re: Offering of up to 1,800,000 Shares of Common Stock of
bright-technologies.com, inc.
Ladies and Gentlemen:
On May 17, 1999, bright-technologies.com, inc., a Delaware corporation (the
"Company"), filed with the Securities and Exchange Commission a Registration
Statement (Registration Statement No. 333-78649) on Form SB-2 under the
Securities Act of 1933, as amended (the "Act"). Such Registration Statement
(the "Registration Statement") relates to the offering (the "Offering") by the
Company of up to 1,800,000 shares (the "Shares") of the Company's common stock,
par value $.001 per share (the "Common Stock"). This firm has acted as counsel
to you in connection with the preparation and filing of the Registration
Statement, and you have requested our opinion with respect to certain legal
aspects of the Offering.
In rendering our opinion, we have examined and relied upon the original or
copies, certified to our satisfaction, of (i) the Certificate of Incorporation,
as amended, and the Bylaws, as amended, of the Company; (ii) copies of
resolutions of the Board of Directors of the Company authorizing the Offering,
the issuance of the Shares and related matters; (iii) the Registration Statement
and exhibits thereto; and (iv) such other documents and instruments as we have
deemed necessary. In our examination, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals,
and the conformity to original documents of all documents submitted to us as
certified or reproduction copies. As to various questions of fact material to
this opinion, we have relied, to the extent we deemed reasonably appropriate,
upon representations or certificates of officers or directors of the Company and
upon documents, records and instruments furnished to us by the Company, without
independent check or verification of their accuracy.
Based on the foregoing examination and subject to the comments and
assumptions noted below, we are of the opinion that the Shares have been duly
authorized for issuance and, when issued by the Company against payment
therefor, will be validly issued, fully paid and nonassessable.
<PAGE>
bright-technologies.com, inc.
July 22, 1999
Page 2
This opinion is limited in all respects to the General Corporation Law of
the State of Delaware as in effect on the date hereof.
We bring to your attention the fact that our legal opinions are an
expression of professional judgment and not a guarantee of result. This opinion
is given as of the date hereof, and we assume no obligation to update or
supplement such opinion to reflect any facts or circumstances that may hereafter
come to our attention or any changes in laws or judicial decisions that may
hereafter occur.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required by Section 7 of the Act or the rules and regulations
of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Arter & Hadden LLP
ARTER & HADDEN LLP
<PAGE>
LICENSING AGREEMENT
BETWEEN
MOTOROLA, INC.
AND
BRIGHT TECHNOLOGIES
Bright Technologies -1- January 13, 1999
<PAGE>
LICENSING AGREEMENT
This Agreement is made as of the Effective Date defined in Section 1.1 below,
between MOTOROLA, INC., a corporation organized and existing under the laws
of the State of Delaware, United States of America, by and through its
Subscriber Sector having its principal place of business at 600 N. U.S.
Highway 45, Libertyville, Illinois 60048, U.S.A. (hereinafter "Motorola"),
and Bright Technologies, Inc., a corporation organized and existing under the
laws of Georgia and having its principal place of business 7325 Oswego Road,
Liverpool, NY 13088 (hereinafter "COMPANY").
RECITALS
1. Motorola owns a United States Patent entitled "A Self-Clocking Data
Transmission System"; and
2. COMPANY desires to obtain a limited non-exclusive license under said
patent on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and undertakings set
out herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Motorola and COMPANY agree as
follows:
1. DEFINITIONS
1.1 EFFECTIVE DATE
The term "Effective Date" shall mean the date upon which the last
party below executes the present Agreement.
1.2 LICENSED EQUIPMENT
The term "Licensed Equipment" shall mean a controller identified in
Attachment "A" having a Motorola cellular transceiver identified in
Attachment "B" which is sourced from Motorola, Inc., and such other equipment
which shall be identified in writing by Motorola and COMPANY.
1.3 LICENSED TERRITORY
The term "Licensed Territory" shall mean the United States, Canada and
Latin America.
Bright Technologies -2- January 13, 1999
<PAGE>
1.4 MOTOROLA PATENT
The term "Motorola Patent" shall mean U.S. Patent No. 4,369,516 issued
on January 18, 1983 to Byrns and any foreign counterparts in the Licensed
Territory.
1.5 PROPRIETARY INFORMATION
The term "Proprietary Information" shall mean proprietary business and
technical information, know-how, and data of Motorola, identified by a
"Confidential" or "Proprietary" legend and provided to COMPANY during the
term of this Agreement or any renewal thereof.
1.6 SUBSIDIARY
The team "Subsidiary" shall mean, with respect to a party, any business
enterprise which more than fifty percent (50%) of its outstanding shares of
stock which are entitled to designate managerial personnel or vote for the
election of directors (other than any shares the voting rights of which are
subject to restriction), are owned or controlled, directly or indirectly, by
that party or by the same shareholders or substantially the same shareholders
who own or control, directly or indirectly, more than fifty percent (50%) of
such shares of stock of that party, as of the Effective Date of this
Agreement and thereafter for so long as such ownership or control exists.
2. LICENSE
2.1 Motorola hereby grants to COMPANY a non-exclusive, non-assignable,
non-transferable, royalty-free license under the Motorola Patent and Motorola
Proprietary Information, commencing on the Effective Date and thereafter for
the Term of this Agreement, to make, have made by Creative Engineering
Concepts, Incorporated or a third party approved in writing by Motorola, use,
and sell, in the Licensed Territory, Licensed Equipment that include cellular
radiotelephones sourced from Motorola, Inc. to COMPANY.
2.2 Company shall not have the right to grant any sub-licenses under any
of the foregoing licenses and rights in this paragraph 2.1, other than
sublicenses normally made to end users incident to the sale or lease of
product, unless otherwise agreed to in writing by Motorola.
Bright Technologies -3- January 13, 1999
<PAGE>
3. INFORMATION AND CONFIDENTIALITY
3.1 COMPANY agrees that it will keep confidential and not disclose,
publish, provide or other wise transmit Motorola's Proprietary Information to
a third party without Motorola's prior written consent. COMPANY further
agrees to use Motorola's Proprietary Information only for the purposes of
operating and maintaining and using Licensed Equipment, as contemplated in
this Agreement. COMPANY may make additional copies of Motorola' Proprietary
Information for internal use by its employees, provided that Motorola's
copyright notice and confidentiality legend are included on all such copies.
Motorola's Proprietary Information, all copies thereof, and all intellectual
property rights therein are and shall remain the exclusive property of
Motorola. Notwithstanding the foregoing, COMPANY shall have no obligation to
keep confidential any portion of Motorola's Proprietary Information which:
(A) was known to COMPANY prior to receipt thereof from Motorola;
(B) comes into the public domain without breach of the provisions
of this Section;
(C) can be shown to have been rightfully received from a third
party free of any restrictions as to its disclosure; or
(D) can be shown to have been independently developed without
breach of provisions of this Section.
3.2 Motorola's Proprietary Information, including without limitation
specifications for Motorola products, is subject to change without notice.
Motorola accepts no responsibility for any expenses, losses, or action
incurred or undertaken by COMPANY as a result of the receipt of Motorola's
Proprietary Information. It is further understood by COMPANY that Motorola
does not warrant or represent that it will continue production of COMPANY
product or introduce any product to which such Motorola Proprietary
Information is related.
3.3 COMPANY accepts any Proprietary Information provided hereunder "AS
IS". MOTOROLA EXTENDS NO INDEMNITIES OR WARRANTIES FOR THE PROPRIETARY
INFORMATION OR THE ACCURACY THEREOF, EXPRESSED, IMPLIED OR OTHERWISE,
INCLUDING, BUT NOT LIMITED TO, PATENT INDEMNIFICATION OR IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
3.4 COMPANY agrees to treat and safeguard Motorola's Proprietary
Information in the same manner as it treats and safeguards its own
Bright Technologies -4- January 13, 1999
<PAGE>
confidential information, (but at least with reasonable care) and further
agrees to implement any reasonable extra security measures with respect to
such Proprietary Information as may from time to time be requested in writing
by Motorola.
3.5 Except as required by applicable law and patent marking under
Paragraph 4 of this Agreement, neither party shall disclose to third party
the existence and contents of this Agreement without the prior written
consent to the other party.
3.6 COMPANY agrees that it will not, without the prior written consent of
the Office of Export Control, United States Department of Commerce,
Washington, D.C. 20230, U.S.A. knowingly export, re-export or cause to be
exported or re-exported, either directly or indirectly, Licensed Equipment,
Motorola Proprietary Information, or any direct or indirect product thereof,
to any destination prohibited or restricted under United States law.
3.7 The obligations of the parties under this Section 3 shall survive
termination or expiration of this Agreement or any renewal thereof for a
period of five (5) years.
3.8 COMPANY agrees to be bound by the terms of the Non-Disclosure
Agreement effective on January 16, 1996 by Motorola and Bright Technologies,
Incorporated, attached hereto as Attachment C from the effective date of
January 16, 1996 until the execution of this Agreement, and the obligations
to maintain the confidentiality of Confidential Proprietary Information
received by COMPANY during that period shall also survive termination or
expiration of this Agreement or any renewal thereof for a period of five (5)
years.
4. RIGHTS AND OBLIGATIONS
4.1 COMPANY shall apply a patent marking of the Motorola Patents to
Licensed Equipment manufactured, tested, used and/or sold within the Licensed
Territory under the License herein granted stating that the Licensed
Equipment is licensed under US Patent 4,369,516 and foreign counterparts.
Bright Technologies -5- January 13, 1999
<PAGE>
4.2 COMPANY shall provide a quarterly report of units of Licensed
Equipment shipped, date of shipment, and country of destination, as shown in
Attachment D.
5. OTHER PATENTS AND PRODUCTS
5.1 Except as specifically provided in this Agreement, no license or right
is granted, by implication, estoppel, or otherwise, by Motorola to COMPANY to
manufacture, assemble and/or sell under any patents of Motorola, nor any
license to make, use or sell any products of Motorola.
5.2 Except as specifically provided in this Agreement, no license under
copyrights of Motorola is granted by Motorola to COMPANY.
5.3 Except as specifically provided in this Agreement, no license under
trademarks or tradenames of Motorola is granted by Motorola to COMPANY.
COMPANY shall only have the right to use Motorola's trademarks or tradenames
according to the guidelines set forth in Attachment E.
6. COMPLIANCE WITH LEGAL PROVISIONS
6.1 This Licensing Agreement shall be governed by and interpreted under
the laws of the State of Illinois, U.S.A., and any federal laws of the United
States of America applicable to the transactions contemplated hereunder.
6.2 With respect to the transactions arising under this Agreement, it is
agreed that neither party shall give or shall receive, either directly or
indirectly, any unlawful payment to or for the benefit of any individual
for the purpose of obtaining any order for a Licensed Equipment.
7. TERM AND TERMINATION
7.1 The Term of this Agreement shall begin upon the Effective Date and
shall continue in full force and effect for a period of one (1) year unless
sooner terminated as provided herein. This Agreement shall automatically
renew for one (1) year terms unless expressly terminated in writing. Either
party shall have the right to terminate this Agreement at any time for any
reason.
7.2 If either Motorola or COMPANY shall default in the performance of any
of the terms and provisions of this Agreement and such default shall
Bright Technologies -6- January 13, 1999
<PAGE>
not be cured within thirty (30) days after written notice of the default is
given by the other party to the defaulting party, then at any time after the
expiration of such thirty (30) days, the nondefaulting party may give written
notice to the defaulting party of its election to terminate this Agreement.
Thereupon, this Agreement shall terminate on the date specified in such
notice, which shall not be less than thirty (30) days following the filing of
such notice. Such right of termination shall not be exclusive of any other
remedies or means for redress to which the non-defaulting party may be
lawfully entitled, it being intended that all such remedies shall be
cumulative.
7.3 If either party should be dissolved, or should file a voluntary
petition in bankruptcy, or any order should be entered pursuant to any law
relating to bankruptcy or insolvency or appointing a receiver or trustee for
that party, then the other party may, within ten (10) days thereafter, given
written notice of its desire to terminate this Agreement. Thereupon, this
Agreement shall terminate on the date specified in such notice, which shall
not be less than thirty (30) days after the date of such notice.
7.4 In the event that a majority of the ownership, equity, outstanding
shares, securities, or the right to control COMPANY or Motorola becomes owned
or controlled directly or indirectly by another party other than the owning
or controlling party, if any, on the Effective Date, COMPANY or Motorola
shall promptly give written notice of such change of control, acquisition, or
merger to COMPANY or Motorola, and the Agreement may be terminated
immediately at the option of COMPANY or Motorola but no later than thirty
(30) days following such notification.
7.5 Termination, expiration, cancellation, or abandonment of this
Agreement through any means or for any reason, shall be without prejudice to
the rights and remedies of both parties in respect to any antecedent breach
of any of the provisions of this Agreement and thereafter:
(A) COMPANY shall forthwith cease to use any of the rights obtained
by it from Motorola under this Agreement, except as expressly provided in
this Agreement.
(B) COMPANY shall return to Motorola, or at Motorola's option,
destroy and certify in writing the destruction of all copies of Motorola's
Proprietary Information, regardless of form, in COMPANY's possession.
Bright Technologies -7- January 13, 1999
<PAGE>
(C) COMPANY shall not use any Proprietary Information received from
Motorola, or the residual thereof, in the use of any Licensed Equipment.
8. INJUNCTIVE RELIEF
Since unauthorized utilization or transfer of Motorola's Proprietary
Information will diminish the value of Motorola of the trade secrets and
intellectual property rights which are the subject matter of this Agreement,
if COMPANY commits a material breach of any of its obligations hereunder,
COMPANY agrees that Motorola shall be entitled to equitable relief to protect
its interests, including, but not limited to, temporary and permanent
injunctive relief, without the proving of damage by Motorola.
9. LIMITATION OF LIABILITY
To the full extent of any disclaimer permitted under applicable law, neither
party under this Agreement, whether as a result of breach of contract,
warranty, tort (including negligence), patent infringement, copyright
infringement or otherwise, shall have any liability to the other party nor
shall either party indemnify the other party for incidental or consequential
damages, including, but not limited to, loss of profit or revenues, loss of
business opportunity, loss of use of the products or any associated
equipment, cost of capital, cost of substitute products, facilities or
services, or downtime costs.
10. NOTICES
All notices, consents, approvals, or other notifications required or
permitted hereunder shall be sent in writing either by mail, postage prepaid,
or by FAX, telex or cable, and addressed to each party as follows:
To COMPANY: To Motorola:
7325 Oswego Road 600 North Highway 45
Liverpool, NY 13088 Libertyville, IL 60048
Attn: Attn:
Joseph Passalaqua Manager, OEM Products
CEO/Pres Cellular Subscriber Sector
Bright Technologies -8- January 13, 1999
<PAGE>
FAX NO.: FAX NO.: (847) 523-8803
or to such other address or person as such party may, from time to time,
designate to the other party by written notice. All such notices and
communications shall be deemed to have been duly given (i) if by mail, ten
(10) days after deposit in the mail, and (ii) if by FAX, telex, or cable, on
the date so sent, and the appropriate answer back received. In the event
notice is given by FAX, cable or telex, a copy of such FAX, cable or telex
shall be mailed to the notified party on the same day sent.
11. GENERAL
11.1 This Agreement does not create any joint venture or agency agreement
between the parties hereto and does not give rise to any fiduciary obligation
between them and does not create any obligations between them other than
those defined herein. Neither party has authority to bind the other party.
11.2 Neither party shall assign this Agreement or any of the rights
accorded hereunder without the prior written consent of the other party. This
Agreement and each and every covenant, term and condition herein are binding
upon and inure to the benefit of the parties and their respective successors
and permitted assigns.
11.3 The headings to the Sections in this Agreement are inserted for
reference only and shall not affect the interpretation of this Agreement.
11.4 This Agreement may be amended or modified only by an instrument in
writing duly executed by the authorized representatives of the parties.
11.5 No relaxation, forbearance, delay, or indulgence by either party in
enforcing its rights hereunder or the granting of time by such party shall
prejudice or affect its rights hereunder, and no waiver by either party shall
operate as a waiver of any subsequent or continuing breach.
12. ENTIRE AGREEMENT
This Agreement, consisting of Sections 1 through 12 and Attachments "A", "B",
"C", "D" and "E" hereto, constitutes the entire understanding between the
parties concerning the subject matter hereof and supersedes all prior
discussions, agreements and representations, whether oral or written and
whether or not executed by Motorola and COMPANY. The obligations of
Bright Technologies -9- January 13, 1999
<PAGE>
the parties hereto are corporate obligations alone and not the obligations
of, nor are they implied or otherwise guaranteed by individuals signatory to
this Agreement or otherwise associated with the parties hereto.
MOTOROLA, INC. COMPANY BRIGHT TECHNOLOGIES INC
/s/Ray T. Sokola /s/Joseph Passalaqua
- -------------------------------- ---------------------------------
By: Ray Sokola By: Joseph Passalaqua
---------------------------- -----------------------------
Title: V.P. and Director Title: CEO/Pres
------------------------- --------------------------
Date: 3/12/99 Date: 1-14-99
-------------------------- ---------------------------
- ---------------------------------
By: Jonathan P. Meyer
----------------------------
Title: Corporate Vice President
----------------------------
Patents, Trademarks and Licensing
Date:
----------------------------
Bright Technologies -10- January 13, 1999
<PAGE>
ATTACHMENT "A"
Licensed Equipment
1. Bright Technologies Wireless Local Loop Credit/Debit card controller
2. Bright Technologies Celular Pay Telephone Credit/Debit card controller
3. Bright Technologies Credit Card verification terminal
Bright Technologies -11- January 13, 1999
<PAGE>
ATTACHMENT "B"
Transceivers for Licensed Equipment
1. Model S5689 OEM AMPS 3 watt transceiver
2. Model S6317 OEM NAMPS 3 watt transceiver
Bright Technologies -12- January 13, 1999
<PAGE>
ATTACHMENT "C"
Non-Disclosure Agreement
Bright Technologies -13- January 13, 1999
<PAGE>
ATTACHMENT "D"
Reporting Letter
Motorola, Inc
600 N. US Highway 45
Libertyville, IL 60048
Attn:
Re: Motorola License Agreement
Pursuant to the License Agreement, we are reporting the Net Sales of Licensed
Equipment:
Quarterly Reporting Period Quarter 19
--- ---
Countries of Destination
Units Dates Shipped:
--------------- ------
Units Dates Shipped:
--------------- ------
Units Dates Shipped:
--------------- ------
Units Dates Shipped:
--------------- ------
Net Sales Units
------
Certified by,
Bright Technologies -14- January 13, 1999
<PAGE>
ATTACHMENT "E"
POLICY FOR THE USE OF
MOTOROLA NAME/TRADEMARKS
AND PRODUCT DESCRIPTIONS
1. USE OF THE MOTOROLA NAME/TRADEMARKS
a. COMPANY shall not use or reproduce the circled "M", the name
"Motorola" in Helvetica Bold italic typeface, or any other
stylized version of the Motorola name.
b. COMPANY shall not use or reproduce any Motorola trademarks or
tradenames, except as expressly agreed to in writing by Motorola.
c. Other than outlined below, COMPANY shall make no use of the
Motorola name, Motorola model names, or Motorola model numbers,
or disclose the existence of this Agreement except for purposes
of providing a patent marking as set forth in Paragraph 4.1 of
this Agreement.
II. PRODUCT PROMOTIONAL LITERATURE
In any promotional literature for COMPANY's Finished Product, COMPANY may
include any of the following statements:
a. "The cellular transceiver in this product is manufactured by
Motorola, Inc."
b. "Motorola cellular transceiver".
c. "Motorola quality and performance."
d. "Cellular transceiver made by Motorola, Inc."
III. WRITTEN RESPONSE TO BIDS, PROPOSALS, TENDERS
When COMPANY is required by bid specifications or written indication
from end-user and/or equipment purchasers to divulge the name of the
manufacturer of components within COMPANY's Finished Product, COMPANY
may state that Motorola, Inc. is the manufacturer of the transceiver
and provide the Motorola model number and specifications. COMPANY may
also identify Motorola, Inc. as the manufacturer of the transceiver in
customer presentations provided that such reference to Motorola, Inc.
is limited to the statements outlined in Paragraph II
Bright Technologies -15- January 13, 1999
<PAGE>
(above). COMPANY shall not otherwise mention Motorola generically as
the cellular product supplier.
IV. ADVERTISING, PRESS RELEASES
a. As part of advertising in trade publications of COMPANY's
Finished Product, COMPANY may include the statements in Paragraph
II (above).
b. Neither party shall make a press releases without the express
written consent of the other party.
Bright Technologies -16- January 13, 1999
<PAGE>
PROMISSORY NOTE
US $ 63,936.83 OCTOBER 6TH, 1998
FOR VALUE RECEIVED, the undersigned promise(s) to pay to the order of
Triangle Plastics, Inc. at 2349 Jamestown Avenue, Independence, Iowa 50644
the sum of SIXTY-THREE THOUSAND NINE HUNDRED THIRTY-SIX AND 83/100 DOLLARS
($63,936.83) with interest thereon from January 1, 1998, payable monthly at a
per annum rate of interest equal to the prime interest rate plus 2 points as
published in the Wall Street Journal each month until paid hereof as follows:
$500.00 due on the first (1st) and fifteenth (15th) of each month beginning
October 1, 1998 with the entire remaining balance (including the accrued
interest) due at the earlier of the happening of the following three events:
1) The Initial Public Offering of Bright Technologies, Inc. becoming final;
2) The sale of the majority ownership in any company owned or controlled by
Joseph Passalaqua, or 3) The arrival of April 1, 1999.
Interest shall first be deducted from the payment and any balance shall be
applied to the principal. Principal and interest not paid when due shall
draw interest at the rate of 18% per annum. Upon default in payment of any
interest or any installment of principal, the whole amount then unpaid shall
become due and payable at the option of the holder without notice. The
undersigned, in case of suit on this note agrees to pay attorney's fees.
Marker, endorsers and sureties waive demand of payment, notice of
non-payment, protest and notice. Sureties, endorsers and guarantors agree to
all of the provisions of this note, and consent that the time or times of
payment of all or any part hereof may be extended after maturity, from time
to time, without notice.
Address: Bright Technologies, Inc.
1856 Corporate Drive, Suite 150
Norcross, Georgia 30093
Phone: (770) 931-9826
(315) 453-2323
Bright Technologies, Inc.
By: /s/ Joseph Passalaqua, Pres.
-----------------------------------
Joseph Passalaqua, President
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into as of the 26th day of May,
1999, by and among bright-technologies.com, inc., a Delaware corporation (the
"Company"), Rockcrest Securities L.L.C. (the "Underwriter"), and Firstar Bank of
Minnesota, N.A. (the "Escrow Agent").
WHEREAS, the Underwriter intends to publicly offer not less than $5,000,000
nor more than $9,000,000 of common stock of bright-technologies.com, inc. (the
"Securities"), at a price per share of $5.00, pursuant to that certain
Underwriting Agreement between the Company and the Underwriter (the
"Underwriting Agreement"); and
WHEREAS, it has been determined that the proceeds to be received from the
offering should be placed in escrow until such time as subscriptions for
$5,000,000 of shares of the Securities (the "Minimum Amount"), have been
deposited into escrow, at which time such Minimum Amount shall be disbursed and
the remaining proceeds shall continue to be placed in escrow to be disbursed
from time to time until the Termination Date (as defined below);
WHEREAS, the Escrow Agent is willing to accept appointment as Escrow Agent
for the expressed duties outlined herein.
NOW, THEREFORE; in consideration of the premises and agreements set forth
herein, the parties hereto agree as follows:
1. PROCEEDS TO BE ESCROWED. All funds received prior to the Termination
Date (as defined below) in payment for Securities will be delivered to the
Escrow Agent by noon next business day following the day upon which such
proceeds are received by the Underwriter (or any co-underwriter, selected-dealer
or other agent of the Underwriter) and shall be retained in escrow by the Escrow
Agent and invested as stated below. During the term of this Agreement, the
Underwriter shall cause all checks received by and made payable to it in payment
for such Securities to be endorsed as follows: bright-technologies.com, inc.
Escrow Account.
2. IDENTITY OF SUBSCRIBERS. The Underwriter shall furnish to the Escrow
Agent with each delivery of funds, as provided in paragraph 1 hereof, a list of
the persons who have paid money for the purchase of Securities showing the name,
address, tax ID number and amount of Securities subscribed for the amount of
money paid. All proceeds so deposited shall remain the property of the
subscriber until the Initial Closing Date (as defined below) and not be subject
to any liens or charges by the Company, or the Escrow Agent, or judgments or
creditor's claims against the Company until released to the Company as
hereinafter provided.
3. DISBURSEMENT OF FUNDS. From time to time, and at the end of the third
business day following the Termination Date (as defined in paragraph 4 hereof),
the Escrow Agent shall notify the Company and the Underwriter of the amount of
the funds received hereunder. If the Minimum Amount has been raised
($5,000,000), prior to the Termination Date then the Escrow Account funds will
be released upon joint instruction from the Company and the Underwriter into the
custody of the Company and the Underwriter on or before the fifth business day
<PAGE>
following notification from the Escrow Agent to the Company and the Underwriter
of the receipt of such Minimum Amount. The date of such release of funds shall
be referred to as the Initial Closing Date and shall occur within the five day
period referred to above unless the Company and the Underwriter shall agree upon
a later date and so notify the Escrow Agent. On the Initial Closing Date, the
Escrow Agent shall release $4,475,000 of the funds to the Company and $525,000
of the funds to the Underwriter. Any interest earned on such funds through such
date shall be remitted to the Company.
During the period of time, if any, following the Initial Closing Date and
preceding the Termination Date, the Company and the Underwriter may at any time
or from time to time instruct the Escrow Agent of their intention to have
additional closings. Upon receipt of notice of such a closing signed by both
the Underwriter and the Company, the Escrow Agent shall disburse at such closing
any proceeds received in respect of the Securities during the period of time
from the Initial Closing to such closing (i) 89% to the Company and (ii) 11% to
the Underwriters. The final additional closing, if any, shall occur on a date
specified by the Company and the Underwriter to the Escrow Agent which shall be
as soon as practicable following the Termination Date. At such final additional
closing the Escrow Agent shall disburse any remaining proceeds, together with
interest earned thereon, 89% to the Company and 11% to the Underwriter. Any
interest earned on such funds through such date shall be remitted to the
Company.
If the Minimum Amount of proceeds has not been delivered prior to the
Termination Date, the Escrow Agent shall, within a reasonable time following the
Termination Date, but in no event more than thirty (30) days after the
Termination Date, refund to each subscriber at the address appearing on the list
of subscribers, or at such other address as furnished to the Escrow Agent by the
subscriber in writing, all sums paid by the subscriber for Securities, together
with the interest earned on such funds in the escrow account, and shall then
notify the Company in writing of such refunds.
4. TERMS OF ESCROW. The "Termination Date" shall be the earlier of (i)
180 days from the effective date of the registration statement filed by the
Company with the Securities and Exchange Commission in connection with the
offering of the Securities; or (ii) the date the Escrow Agent has received
written notice from the Company that it is abandoning the sale of the
Securities.
5. DUTY AND LIABILITY OF THE ESCROW AGENT. The sole duty of the Escrow
Agent, other than as herein specified, shall be to receive said funds and hold
them subject to release, in accordance herewith, and the Escrow Agent shall be
under no duty to determine whether the Underwriter is complying with
requirements of this Agreement in tendering to the Escrow Agent said proceeds of
the sale of said Securities. The Escrow Agent may conclusively rely upon and be
protected in acting upon any statement, certificate, notice, request, consent,
order or other documents believed by it to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall have no duty
or liability to verify any such statement, certificate, notice, request,
consent, order or other document, and its sole responsibility shall be to act
only as expressly set forth in this Agreement. The Escrow Agent shall be under
no obligation to institute or defend any action, suit or proceeding in
connection with this agreement unless first indemnified to its satisfaction.
<PAGE>
6. ESCROW AGENT FEE. The Escrow Agent shall be entitled to compensation
for its services as stated in the fee schedule attached hereto as Exhibit A,
which compensation shall be paid by the Company in advance. The fee agreed upon
for the services rendered hereunder is intended as full compensation for the
Escrow Agent's services as contemplated by this Agreement; provided however,
that in the event that the conditions for the disbursement of funds under this
Agreement are not fulfilled, or the Escrow Agent renders any material service
not contemplated in this Agreement, or there is any assignment of interest in
the subject matter of this Agreement, or any material modification hereof, or if
any material controversy arises hereunder, or the Escrow Agent is made a party
to any litigation pertaining to this agreement, or the subject matter hereof,
then the Escrow Agent shall be reasonably compensated for such extraordinary
services and reimbursed for all cost and expenses, including reasonable
attorney's fees, occasioned by any delay, controversy, litigation or event, and
the same shall be recoverable from the Company.
7. INVESTMENT OF PROCEEDS. All funds held by the Escrow Agent pursuant
to this Agreement shall constitute trust property for the purposes for which
they are held. The Escrow Agent shall invest all funds received from
subscribers in the Dreyfus Prime Treasury Money Market Fund and/or Firstar
Funds.
8. ISSUANCE OF CERTIFICATES. Until the funds hereunder received from
subscriptions for Securities have been released to the Company, the Company may
not issue any stock certificates or other evidence of Securities.
9. NOTICES. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given (a) on the date of service if served personally on the party to whom
notice is to be given, (b) on the day of transmission if sent by facsimile
transmission to the facsimile number given below, along with a hard copy to
follow through the mail, and telephonic confirmation of receipt promptly after
completion of transmission, (c) on the day after delivery to Federal Express or
similar overnight courier or the Express Mail service maintained by the United
States Postal Service, or (d) on the fifth day after mailing, if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed, return receipt requested, to
the party as follows:
If to Company: bright-technologies.com, inc.
7325 Oswego Road
Liverpool, New York 13090
Phone: 315-652-0006
Fax: 315-451-3964
Attn: Joseph Passalaqua, Chief Executive Officer
If to Underwriter: Rockcrest Securities L.L.C.
3811 Turtle Creek Blvd., Suite 520
Dallas, Texas 75219
Phone: 214-599-0007
Fax: 214-599-0075
Attention: James S. Harris
<PAGE>
If to Escrow Agent: Firstar Bank of Minnesota, N.A.
101 East 5th Street
Corporate Trust, 12th Floor
St. Paul, MN 55101-1860
Phone: 651-298-6077
Fax: 651-229-6415
Attn: Angela M. Weidell-LaBathe
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
10. INDEMNIFICATION OF ESCROW AGENT. Each of the Company and the
Underwriter hereby indemnifies and holds harmless the Escrow Agent from and
against any and all loss, liability, cost, damage and expense, including,
without limitation, reasonable counsel fees, which the Escrow Agent may suffer
or incur by reason of any action, claim or proceeding brought against the Escrow
Agent arising out of or relating in any way to this Agreement or any transaction
to which this Agreement relates unless such action, claim or proceeding is the
result of the willful misconduct of the Escrow Agent. The Escrow Agent may
consult counsel in respect of any question arising under the Escrow Agreement
and the Escrow Agent shall not be liable for any action taken or omitted in good
faith upon advice of such counsel.
11. SUCCESSOR AND ASSIGNS. Except as otherwise provided in this
Agreement, no party hereto shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other parties
hereto and any such attempted assignment without such prior written consent
shall be void and of no force and effect. This Agreement shall inure to the
benefit of and shall be binding upon the successors and permitted assigns of the
parties hereto.
12. GOVERNING LAW; JURISDICTION. This Agreement shall be construed,
performed, and enforced in accordance with, and governed by, the internal laws
of the State of Minnesota, without giving effect to the principles of conflicts
of laws thereof. Each party consents to the personal jurisdiction and venue of
any United States District Court for the District of Minnesota located in
Hennepin County, Minnesota.
13. SEVERABILITY. In the event that any part of this Agreement is
declared by any court or other judicial or administrative body to be null, void
or unenforceable, said provision shall survive to the extent it is not so
declared, and all of the other provisions of this Agreement shall remain in full
force and effect.
14. AMENDMENTS; WAIVERS. This Agreement may be amended or modified, and
any of the terms, covenants, representations, warranties, or conditions hereof
may be waived, only by a written instrument executed by the parties hereto, or
in the case of a waiver, by the party waiving compliance. Any waiver by any
party of any condition, or of the breach of any provision, term, covenant,
representation, or warranty contained in this Agreement, in any one or more
instances, shall not be deemed to be nor construed as a further or continuing
waiver of any such condition, or of the breach of any other provision, term,
covenant, representation, or warranty of this Agreement.
<PAGE>
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding
among the parties hereto with respect to the escrow contemplated hereby and
supersedes and replaces all prior and contemporaneous agreements and
understandings, oral or written, with regard to such escrow.
16. SECTION HEADINGS. The section headings in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
17. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first set forth above.
COMPANY:
bright-technologies.com, inc.
By: /s/ Joseph Passalaqua
---------------------------------------
Name: Joseph Passalaqua
Title: Chief Executive Officer
UNDERWRITER:
ROCKCREST SECURITIES L.L.C.
By: /s/ James S. Harris
---------------------------------------
Name: James S. Harris
Title: President
ESCROW AGENT:
FIRSTAR BANK OF MINNESOTA, NA
Corporate Trust Division
By: /s/ Angela M. Weidell-LaBathe
---------------------------------------
Angela M. Weidell-LaBathe
Assistant Vice President
<PAGE>
SCHEDULE "A"
ESCROW FEE SCHEDULE
Initial Escrow Fee $ 750
Administration Fee $ 1,100
Activity Fees (if needed) $ 15 per subscriber
(This includes check issuance and 1099 reporting.)
Outside Counsel Fees At cost
(We do not anticipate using outside counsel.)
<PAGE>
July 19, 1999
Firstar Bank of Minnesota, N.A.
101 East 5th Street
Corporate Trust, 12th Floor
St. Paul, Minnesota 55101-1860
Attention: Angela M. Weidell-LaBathe
Rockcrest Securities L.L.C.
3811 Turtle Creek Boulevard
Suite 520
Dallas, Texas 75219
Attention: Mr. James S. Harris
Re: Amendment to Escrow Agreement
Ladies and Gentlemen:
Reference is made to that certain Escrow Agreement (the "Escrow Agreement"),
dated as of May 26, 1999 by and among bright-technologies.com, inc. (the
"Company", "us", or "we"), Rockcrest Securities L.L.C. (the "Underwriter") and
Firstar Bank of Minnesota (the "Escrow Agent"), pursuant to which the Escrow
Agent agreed to hold and disburse on the terms and conditions set forth therein,
the proceeds of the Company's offering of Securities. Capitalized terms used
herein and not defined are defined as set forth in the Escrow Agreement.
Please be advised that the Company and the Underwriters have amended the
Underwriting Agreement, and that the Company intends to file an amendment to its
Registration Statement pertaining to the Offering, in order to increase: (i) the
price per share from $5.00 to $5.25; (ii) the Minimum Amount from $5,000,000 to
$5,250,000; and (iii) the maximum offering proceeds from $9,000,000 to
$9,450,000. We are requesting, by your execution of the acknowledgement below,
that you agree to amend the Escrow Agreement consistent with these increased
amounts.
By your execution of the acknowledgement to this letter you hereby agree
that:
1) Each reference in the recitals to the Escrow Agreement and in Section 3
of the Escrow Agreement to $5,000,000 shall be amended to be $5,250,000 and the
"Minimum Amount" wherever referred to in the Escrow Agreement shall mean
$5,250,000;
2) The price per share referred to in the recitals to the Escrow Agreement
as $5.00 shall be amended to read $5.25;
3) The reference to $9,000,000 in the recitals to the Escrow Agreement
shall be amended to read $9,450,000; and
4) The sentence preceding the final sentence of the first paragraph of
Section 3 of the Escrow Agreement shall be amended to read in its entirety: "On
the Initial Closing Date, the Escrow Agent shall release $4,697,500 of the funds
to the Company and $577,500 of the funds to the Underwriter."
<PAGE>
In all other respects the Escrow Agreement shall remain unchanged and in
full force and effect. If you agree to the foregoing amendments, please execute
your acknowledgement below.
Very truly yours,
bright-technologies.com, inc.
By: _____/S/ JOSEPH C. PASSALAQUA_____
Joseph C. Passalaqua
Chief Executive Officer
Acknowledged:
Firstar Bank of Minnesota, N.A.
By: ___/S/ ANGELA M. WEIDELL-LABATHE__
Angela M. Weidell-LaBathe
Assistant Vice President
Rockcrest Securities L.L.C.
By: __________________________________
James S. Harris
President
<PAGE>
FINANCIAL ADVISORY SERVICES AGREEMENT
May 14, 1999
Mr. Joseph C. Passalaqua
Chief Executive Officer
bright-technologies.com, inc.
7325 Oswego Road
Liverpool, NY 13090
Dear Joe:
This letter confirms the terms of the agreement between
bright-technologies.com, inc. (the "Company") and Lilly Beter Capital Group,
Ltd. ("LBCG") regarding certain financial advisory services to be provided to
the Company by LBCG in connection with a proposed initial public offering of
the Company's common stock (the "IPO"), and a subsequent debt financing (the
"Debt Funding"). Collectively, the IPO and the Debt Funding are referred to
below as the "Offerings."
A. THE INITIAL PUBLIC OFFERING
1. LBCG will provide services to assist the Company in raising between
Five Million ($5,000,000) and Nine Million ($9,000,000) Dollars (U.S.) in the
IPO. It is our understanding that the Company intends to sell to the public
approximately 16% to 23% of the Company's common stock in the IPO. The IPO will
be a best efforts commitment from an underwriter. This Agreement is subject to
LBCG's reasonable satisfaction with its due diligence investigation throughout
the entire period before the effective date of the IPO. LBCG will provide
financial advisory services to the Company throughout the entire process of the
IPO and if necessary, recommend to the Company underwriters, accountants and
attorneys. LBCG will also coordinate the preparation of the registration
statement (including writing, printing, interfacing with all parties to agree on
language, etc.), due diligence, the registration of the offering and necessary
blue sky filings.
2. LBCG agrees to pay, when incurred, all reasonable costs and expenses
of the IPO and the Debt Funding (the "Offering Costs"), UP TO A MAXIMUM PAYMENT
OF $675,000. Such Offering Costs will include, without limitation, premiums for
errors and omissions insurance, legal and accounting fees, filing fees for the
registration of the offering with the SEC, the NASD and state regulatory bodies,
printing, due diligence expenses, road show expenses, advances to the
underwriter against expenses, and any other miscellaneous expenses of the
Company related to the IPO and the Debt Funding. Under no circumstances will
LBCG be obligated to pay more than $675,000 for the Company's Offering Costs
relating to the IPO and the Debt Funding.
JCP
-----------
Initial
<PAGE>
bright-technologies.com, inc.
May 14, 1999
Page 2
3. LBCG will receive no proceeds of the IPO and no commissions or other
compensation in connection with the IPO. Except as provided in section 4 below,
the Company will have no obligation to reimburse LBCG for Offering Costs paid by
LBCG, UNLESS AND UNTIL the Debt Funding is completed, in which case the Company
will repay LBCG from the proceeds of the Debt Funding for Offering Costs
advanced by LBCG, along with interest on such advances at 10% per annum.
4. LBCG will pay Offering Costs as promptly as practicable after
notification from the Company or the purveyor of services that such Offering
Costs have been, or are required to be, expended in connection with the
Offerings. The Company agrees, where possible, to provide LBCG at least five
business days notice that funds are required to be paid by LBCG for Offering
Costs. Upon closing of the Offerings, the Company and its service providers
will submit to LBCG receipts for all Offering Costs advanced by LBCG. All
advances by LBCG for Offering Costs are non-refundable. Should the Company
default under this Agreement, LBCG agrees to pay all unpaid Offering Costs;
provided, however, that the Company will be obligated to reimburse LBCG, on
demand, for any Offering Costs advanced by LBCG.
5. The Company acknowledges that no work on the IPO will commence until
the premium for errors and omissions insurance has been paid. The Company also
agrees to pay an initial retainer for legal counsel, not to exceed $50,000.
Both the premium for errors and omissions insurance and the initial retainer for
the Company's legal counsel shall be advanced by LBCG as Offering Costs and are
included in the $675,000 aggregate amount of Offering Costs that LBCG has agreed
to advance.
6. In the IPO, it is anticipated that the underwriter will charge a 10%
commission and a non-accountable expense allowance of up to one percent of the
offering proceeds. Such compensation generally would be paid to the underwriter
from the proceeds of the IPO at closing, and would be all-inclusive and cover
any commissions due the underwriters or other brokers involved in the IPO. No
commissions or compensation will be paid to LBCG from the proceeds of the IPO.
7. The Company acknowledges that the effective date of the IPO may be
subject to market conditions and that the effective date of the registration
statement will be subject to the SEC, NASD and state regulatory bodies with
which the registration statement is filed.
B. THE DEBT FUNDING
1. LBCG will provide services to assist the Company in raising Thirty
Five Million ($35,000,000) Dollars (U.S.) in the Debt Funding. The Debt Funding
will be a firm commitment from LBCG or an underwriter for the purchase from the
Company of a tradable debt instrument. This firm commitment is subject to
LBCG's reasonable satisfaction with its due diligence investigation throughout
the entire period before the effective date of the Debt Funding. LBCG will
provide financial advisory services to the Company throughout the entire process
of the Debt Funding and if necessary, recommend to the Company underwriters,
accountants and attorneys.
JCP
-----------
Initial
<PAGE>
bright-technologies.com, inc.
May 14, 1999
Page 3
LBCG will also coordinate the preparation of the offering circular or
registration statement (including writing, printing, interfacing with all
parties to agree on language, etc.), due diligence, the registration of the
offering and necessary blue sky filings. The Debt Funding is contingent on
the Company being a reporting company under the Securities Exchange Act of
1934.
2. In the Debt Funding, it is anticipated that commissions will be
between 7 1/2% and 10%. Such compensation generally would be paid from the
proceeds of the Debt Funding at closing, and would be all-inclusive and cover
any commissions due the underwriters, other brokers involved in the Debt Funding
and, if applicable, LBCG.
3. In today's market, the Debt Funding may carry an 11% to 12 1/2%
interest rate. LBCG cannot provide assurance as to the interest rate which may
be necessary for the successful completion of Debt Funding due to fluctuations
in the marketplace. LBCG would anticipate that the rating issued by a rating
service would be in the C range, possibly C3---. Ratings range from AAA+++ to
D3---. Any rating below B- is considered to be a high-risk category.
4. In consideration of the services to be provided by LBCG hereunder, the
Company agrees that, during the term of this Agreement, LBCG may designate one
person to serve on the Board of Directors of the Company.
5. LBCG contemplates most of the Debt Funding being structured in a bond
type structure. However, it may be possible to utilize Euro Dollar funding at
rates up to 1% lower than those available in a conventional bond offering.
Although there is no guarantee on the amount, if any, that may be raised using
the Euro Dollar method, LBCG will do everything in its power to place as much
debt in this type of security as possible. This security also may hold another
advantage: up to a one- (1) year moratorium of payment of interest on the debt.
C. MISCELLANEOUS
1. LBCG will provide advice to the Company in connection with the
preparation of pro forma financial information for the different scenarios that
the Company may pursue. The Company will be required to confirm that all pro
formas are true and correct to the best of the Company's knowledge. LBCG may
require the Company's accountants to deliver an opinion concerning the
compilation of such pro formas.
2. LBCG feels the time frame necessary to complete all aspects of the
Offerings except the IPO is up to fifteen (15) months.
3. LBCG requires a right of first refusal on arranging for all raising of
future capital in excess of Five Million ($5,000,000) Dollars (U.S.). LBCG will
be required to respond to the Company within 30 days or LBCG will forfeit its
right of first refusal. If the Company raises any capital over Five Million
($5,000,000) Dollars without giving LBCG a right of first refusal to participate
in such financing, LBCG will receive a payment equal to 1% of any funds raised;
JCP
-----------
Initial
<PAGE>
bright-technologies.com, inc.
May 14, 1999
Page 4
provided, however, that if LBCG's funding sources are used, LBCG will receive a
payment equal to 2% of any funds raised. This right of first refusal is valid
for a period of five years from the date of this Agreement.
4. The Company agrees to timely deliver all documents required to
complete the process of the Offerings.
5. The Company will notify LBCG if there are any material changes,
financial or otherwise, in the condition of any of the involved companies and/or
personnel. At that time, LBCG will make a determination if the changes are
substantial enough to have a material adverse effect on the Offerings. If LBCG
believes the changes are substantial enough to have a material adverse effect on
the Offerings, LBCG has the right to withdraw from all participation in the
Offerings.
6. Instructions regarding the Offerings to the Company from LBCG or its
affiliates will be followed to expedite matters and comply with the conditions
set up by other concerned parties (i.e. lawyers, accountants, underwriters,
etc).
7. Except as provided herein, this Agreement contains the entire
agreement between LBCG and the Company or any of their affiliates with respect
to the subject matter hereof and supersedes any previous agreements or contracts
between them regarding such subject matter.
8. The Company is required to have computer software that is fully
compatible (same programs, same versions, etc.) with LBCG or its affiliates
throughout the entire offering period. This will allow for the expeditious
transfer of documents. The Company must also have an e-mail address that is
available for use.
9. The Company will be required to indemnify LBCG and/or any affiliates
of LBCG for any claims or liability arising from pro forma financial statements
prepared by the Company.
10. All officers and directors of the Company will be required to certify
that all information in any offering circular or registration statement used in
the Offerings is true and correct (to the best of their knowledge) as of its
date.
11. Circumstances may dictate that decisions must be made expeditiously
and all parties must be accessible. As a result all involved parties will be
required to be available to LBCG or its affiliates by cellular telephone.
12. This Agreement shall be governed by the laws of the State of Delaware.
JCP
-----------
Initial
<PAGE>
bright-technologies.com, inc.
May 14, 1999
Page 5
13. This Agreement is valid for a period of twenty-four months from the
date hereof, unless extended by the written consent of both LBCG and the
Company.
ACCEPTED AND APPROVED:
/s/ Joseph C. Passalaqua /s/ Lilly Beter
- ------------------------------------ ---------------------------------
bright-technologies.com, inc. Lilly Beter Capital Group, Ltd.
Joseph C. Passalaqua Lilly Beter
Chief Executive Officer President
JCP
-----------
Initial
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of bright-technologies.com,
inc. on Form SB-2 of our report dated March 12, 1999 appearing in the
Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Registration Statement.
TABB, CONIGLIARO & McGANN, P.C.
New York, New York
July 22, 1999
