AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 1999
Registration No.: 0-266932
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NUMBER 3 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUER
UNDER SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
____________________
PHOTOLOFT.COM
(Name of Small Business Issuer in its Charter)
NEVADA 87-0431036
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
300 ORCHARD CITY DRIVE, SUITE 142 CAMPBELL, CALIFORNIA 95008
(Address of Principal Executive Offices and Zip Code)
Issuer's Telephone Number: (408) 364-8777
Securities to be registered pursuant to Section 12(b) of the Act:
Securities to be registered pursuant to Section 12(g) of the Act:
Common stock, par value $.001 per share
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PHOTOLOFT.COM
FORM 10-SB
Table of Contents
<TABLE>
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<S> <C>
Item 1 Description of Business 3
Item 2 Management's Discussion and Analysis or Plan of Operations 20
Item 3 Description of Properties 35
Item 4 Security Ownership of Certain Beneficial Owners and Management 36
Item 5 Directors, Executive Officers, Promoters and Control Persons 38
Item 6 Executive Compensation 41
Item 7 Certain Relationships and Related Transactions 45
Item 8 Legal Proceedings 48
Item 9 Market For Common Equity and Related Stockholder Matters 48
Item 10 Recent Sales of Unregistered Securities 50
Item 11 Description of Registrant's Securities to be Registered 54
Item 12 Indemnification of Directors and Officers 58
Item 13 Financial Statements 59
Item 14 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 59
Item 15 Financial Statements and Exhibits F-1
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ITEM 1. DESCRIPTION OF BUSINESS
PhotoLoft.com is a photo-sharing and digital imaging e-commerce
"community", meaning that individuals with access to the Internet can store,
view and share their personal photographic images on pages located on the World
Wide web which we maintain and can be accessed from our web site at
www.photoloft.com. As a result, our web site is a "community" of pages on the
World Wide Web with images collected from around the world. We also maintain
pages on the World Wide Web for other companies that wish to utilize our digital
imaging capabilities.
Our viewing and printing technology allows users to access and print their
personal images quickly, easily and inexpensively. We organize the images on
our web site by areas of interest. For example, a visitor interested in forests
can access our web site and choose to view a selection of web pages that
includes images of forests. Visitors to the pages within our web site can
choose from over 90 categories in which to catalogue their images and view
others. This provides users with a quick reference point to access images of
interest to them. This also enhances our ability to attract advertisers to the
pages within our web site.
We generate advertising revenue when advertisers purchase space on the
pages within our web site to post their own images and messages advertising
their products or services. The organization of images on the pages within our
web site allows potential advertisers the opportunity to target their audience.
We are also developing an e-commerce program through which we will market and
sell a complete line of photo-personalized gifts and customized electronic
greeting cards, consumables such as ink, paper and other digital imaging items,
and photos offered by professional photographers.
BACKGROUND
Although our company was originally formed in November 1993, we adopted our
current business model, which is described in the previous paragraph, in June
1998. In that regard, we are very much like a start-up company and we have
received minimal revenues since the adoption of our new business model.
Under our previous business model, we operated under the corporate name,
AltaVista Technology, Inc. Alta Vista's business model was formed to take
advantage of the burgeoning need for fun and creative applications for the
Internet. The market place was rapidly leaving behind cumbersome computers that
required highly trained operators and was turning to PC-based computing that
allowed people with average computer skills to enter a new world. AltaVista
began developing imaging software that made computing even more fun, and the
various products that were designed and marketed brought images to life on the
computer. In 1995 AtlaVista introduced Howdy!, the world's first ever
multi-media e-mail tool. Still being shipped today, the software was an instant
success because it was engaging, fun and easy to use. As a component of this
product, AltaVista also established web pages via e-mail. Over the years,
AltaVista developed and marketed the following products:
Howdy! - an electronic postcard maker for Windows PCs
Howdios - additional postcards for Howdy! owners available on line
Webcannon! - a system allowing users to create web pages
Media Wrangler - a software tool allowing users to create emails which
Include graphics and animation.
SmartNet Singles - thematic Internet access kits
Internet Suite - a suite of products designed to get users up and running
quickly and easily on the Internet.
As a software developer, AltaVista followed the traditional revenue model
of bundling its software with original equipment manufacturers. As that market
evolved into a non-revenue source, we began exploring new ways to bring products
to market at a profit. This coincided with the phenomenal growth of the
Internet and the evolution of Internet users who were rapidly beginning to
utilize the medium as a source of entertainment as well as information. The
expertise of AltaVista was clearly in Internet imaging technology and the
decision was made to aggregate images into a photo-sharing community.
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We initiated our current business model in June 1998 and in that respect,
we are much like a start-up company. In August 1998 we sold our URL,
AltaVista.com, to Digital Equipment, now Compaq Computer, and changed our name
to PhotoLoft.com, Inc., a California corporation. The official launch of our
new web site was in February 1999, the same month that Photoloft.com, Inc.
entered into a reorganization with Data Growth, Inc., a non-operating public
company incorporated in Nevada. Under the terms of the reorganization,
Photoloft.com, Inc. shareholders received shares of Data Growth in exchange for
their shares of common stock, Photoloft.com, Inc. became a wholly-owned
subsidiary of Data Growth, all of the executive officers and directors of Data
Growth resigned, the executive officers and directors of Photoloft.com, Inc.
became the executive officers and directors of Data Growth, and Data Growth
changed its name to PhotoLoft.com. See "Item 7. Certain Relationships and
Related Transactions." All of our business is currently conducted through
Photoloft.com, Inc., and our principal executive offices are located at 300
Orchard City Drive, Suite 142, Campbell, California. Our telephone number at
this address is (408) 364-8777.
Photo Processing Technology
The continuing evolution of the Internet as an entertainment medium coupled
with rapid advances in technology are working together to create a very
different photo processing model that the traditional chemical film based model.
Typically, photographers drop their used film at a photo processor, return at a
later date to retrieve it, make decisions for additional copies of certain
photographs and then return several days later to get those as well. Digital
photography, the Internet and advances in printing technology are changing that
model.
Sales of digital cameras have increased dramatically. According to
NewMedia, digital camera prices dropped 40 percent to 50 percent during 1998,
making them more accessible to more people and the digital camera market is
currently enjoying a boom that is expected to reach $5.4 billion in sales by
2002. In Japan today, sales of digital cameras exceed those of film-based
cameras.
Developers of printers continue to focus on creating crisp, clear prints
delivered via the home printer at affordable prices. Companies like
Hewlett-Packard derive more revenue from ink sales than printer sales, and
printers that provide consumers with excellent images, using a lot of ink in the
process, help to drive the technology.
The pages within our web site allow visitors to place digital images
captured by their digital cameras onto the Internet so that others can
view the images by down-loading them from the pages within our web site.
Additionally, traditional film-based photos can easily be scanned onto the
Internet. A visitor can then choose to print the photos of choice from the
comfort of his or her own computer. This avoids getting unwanted photos,
provides an excellent storage place for the images, and ensures that photos can
be found and reprinted at any time. Using our software, the prints made will be
to the highest resolution of the printer, which typically provides photo-finish
quality prints. All printers shipped by Epson and Hewlett-Packard in the U.S.
in 1999 have this capability. The printer prices start at $250. In addition,
users can designate what standard photographic size they prefer, anything from
wallet to 8"x10".
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The Internet
The move from a chemical-based photo solution to a digital one coincides
with the explosive growth of the Internet into a significant global medium for
entertainment, communications, news, information and commerce.
Commercialization of the Internet began in the mid-1980s, with e-mail providing
the primary means of communication. However, it was the Internet's World Wide
Web, which provided a means to link text and pictures, that has led to the
blossoming of e-commerce and sparked the explosive growth of the Internet in the
1990s. Today, according to NewMedia, at least 100 million people in 135
countries send and receive information, and purchase products and services,
through the Internet.
While a number of factors have contributed to the continued growth of the
Internet, several specific trends have been particularly important. The first
has been the emergence of community web sites. Community sites provide a
platform for gathering the rapidly increasing volume of personalized content
created by Internet users. Online communities also provide a single online
destination where like-minded users can interact and quickly find pertinent
information, products and services related to their particular needs. Community
sites generally offer free services including access to e-mail accounts, chat
rooms, message boards, news and entertainment. Through these features,
community sites can provide Internet users with the same opportunities for
expression, interaction, sharing, support and recognition that they seek in the
everyday world. A successful community will accomplish these goals and create a
base of loyal members who will collaborate in the evolution of the site as their
needs and interests change and expand.
To date, advertisers on the Internet have typically used traditional
navigational sites and professionally created content sites to promote their
products and services online. However, online communities allow them to reach
highly targeted audiences within a more personalized context, thus providing the
opportunity to increase advertising efficiency and improve the likelihood of a
successful sale. Moreover, advertisers can track more accurately the
effectiveness of their advertising messages by receiving reports of the number
of end users exposed to their advertisements as well as the number of end users
who move directly to the web site being advertised.
OUR SOLUTION
For Internet consumers, PhotoLoft.com provides an online photo-sharing
community that continues to meet the evolving needs of the marketplace. It is
attractive to photographers of all types, from professional to neophyte, who
want to share their images, solicit comments on their photos, browse others'
pictures and participate in photo-personalized e-commerce or simply take
advantage of a convenient solution for purchasing digital imaging supplies. In
addition, our advanced viewing technology allows users to study photos from a
number of different angles and our printing technology allows them to print
photo-finish quality prints from their home or office printers. For business
partners, PhotoLoft.com brings a unique solution to the questions of how to make
their sites more interesting and ultimately more appealing to their users. No
other photo-sharing web site on the Internet currently offers this broad
combination of products and services to meet all of these needs.
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Consumers
Our solution is timed to take advantage of the growing popularity of online
communities. Our web site offers an entry point to the Internet for users
interested in digital imaging. In addition, our efforts to develop an
entertaining community site are positioning us well to capture a share of the
next generation of Internet users who will be looking to the Internet for
reasons other than information. Internal statistics show that as an
entertainment medium and web site, we are not only successful at attracting
users, but we also keep them on the site for long periods of time and keep
members once they upload their images. These statistics have been supported by
the findings of PCData Online, which indicate that users spend an average of
three minutes viewing the pages within our web site. Sharing photos with family
and friends; being able to browse other photos and comment on them; and being
able to correspond with other photography buffs, all combine to make our web
site a popular community with a promising future with new members.
We have also developed a multi-faceted e-commerce solution that will appeal
to users looking for photo-personalized gifts and greeting cards. The first
component of the e-commerce program is in place today and offers customers a
choice of over 150 photo-personalized gift items. For example, end users can
purchase shirts, coffee mugs or puzzles with their photographs printed on them.
The second component of the e-commerce program is photo-personalized cards,
which are greeting cards with particular photographs printed on them and include
personalized greetings drafted by the end user. The unique design of this
program allows PhotoLoft.com to generate advertising revenue by displaying
banner advertisements while customers create their product, as well as
e-commerce revenues once the end user purchases the product using their credit
card. The third component of the e-commerce solution includes on-line sales of
digital imaging products such as cameras, scanners and printers and will be
implemented in the first quarter of the year 2000. In addition, we will offer
printing paper and ink cartridges for sale at costs competitive with more
traditional retail outlets.
Advertisers
PhotoLoft.com offers a highly focused web site, which is particularly
attractive to advertisers. Advertisers purchase space on the pages within our
web site to post their own images and messages advertising their products or
services. The fee for the advertisements is based upon the number of times a
particular advertisement is displayed to a visitor accessing our site and the
aggregate number of visitors that are exposed to the advertisement. The
organization of images on the pages within our web site allows potential
advertisers the opportunity to target their audience. Through our 90 different
categories of photographs, advertisers can choose to target their audience as
much or little as possible. Combined with PhotoLoft.com's community, which
sponsors contests and provides information and news about digital imaging, the
web site is a very attractive option for advertisers, that can choose
traditional banner advertising on ultra-targeted pages or sponsorships of the
various activities available at the site. Sponsorships tend to be long-term
relationships between companies with increased opportunities for revenue than
simple banner advertisements which involve the placement of a banner on the web
page being viewed by an end user.
Business Partners
The PhotoLoft.com web site attracts users who are interested in photography
and would like to share that interest with others. As members join
PhotoLoft.com they upload images and return to our web site several times to
view the images as opposed to some online communities where it is easy to switch
to a competitive site. As discussed by PCData Online, statistics show that
PhotoLoft.com is a "sticky" site, in that it attracts users for an average of
three minutes per visit, a very important point for advertisers on the web site.
Examining photos takes more time than simply scanning most web sites. Also,
PhotoLoft.com users then zoom in on or pan the image they have chosen an average
of three times. This feature is very important because each time it is accessed
it increases the total amount of time a user is on the site. These two factors
combined have made PhotoLoft.com very attractive to other web sites that are
constantly looking for ways to increase the traffic on their web sites.
Utilizing PhotoLoft.com's unique co-branding and private label opportunities
which are discussed below.
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The final component of the e-commerce solution involves
PhotoLoft.com-enabled e-commerce. This product was developed on demand from
professional photographers, who will utilize PhotoLoft.com to display photos
taken for events. Potential customers can browse the photos in a PhotoLoft.com
album created by the photographer and then print directly from the web site.
The photographer will be reimbursed based upon the number of photos printed.
Technology
What makes our site truly useful to users is the technology. Our software
greatly simplifies the task of displaying images on the Internet. End users can
view small images of several photographs before deciding to enlarge a particular
photograph. End users can also compress the image and forward it to a friend.
We have also taken Internet digital imaging a step further with our advanced
viewing capabilities. Users can zoom in on or pan an image, allowing them to
observe even the tiniest details or enjoy the full panorama of a photo. This
technology, which is compatible with all on-line auction sites, makes us
particularly popular with bidders closely scrutinizing their potential
purchases. In addition, to take full advantage of the digital revolution, we
allow users to print their pictures at home. This home photo processing is
comparable to the current photo finish quality, and is cost competitive with the
traditional model of film processing with the added advantages of allowing users
the convenience of printing only the photos they want, at the sizes they
designate from the comfort of their homes.
STRATEGY
In order to achieve our goal of becoming the most complete photo-sharing
e-commerce community on the Internet, we have implemented a multi-faceted
strategy to enhance the content and features available on our web site, increase
the amount of traffic on our site, expand advertising sales and sponsorships,
and develop a variety of e-commerce solutions.
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Enhance Our Online Community
We continue to evolve our site to offer the latest in technology as well as
the latest trends in Internet communities. Recently, we began to aggressively
upgrade the look and feel of our site, creating new and popular contests and
encouraging users to comment on photos using a "guest books" feature which
allows an end user to write comments about a given photo and post those comments
for others to read. We have also brought new users to the site through an
e-invitation e-mail program which allows end users to send emails to other users
inviting them to view photos at Photoloft.com.
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New developments trend into two distinct arenas: technology and
entertainment. Technically, we are working to add new features that enhance our
web site, such as advanced image editing which will allow users to manipulate
photographs to crop the images or eliminate red-eye, for example, and simplified
image uploading. We realize that to be successful, we must have an extremely
easy, user-friendly site. We recently instituted a "feedback" page on the site
that allows users to communicate their ideas easily and quickly with us. Many
of our new enhancements will be derived from this user interface. We are also
working to cut the costs of technology. As our web site continues to grow we
can achieve many cost efficiencies. For example, our engineers are working to
lower our operating by developing new technologies for image hosting. Finally,
we are devoted to Internet image hosting, and as that develops, we plan to
remain on the forefront of the technology.
Perhaps even more important is the entertainment component of the site. We
are constantly on the lookout for new ideas that will enhance the community
experience for our users. In the very near term we anticipate adding additional
contests, an automated address book for emailing purposes and private
communication between members.
Traffic Generation
We have made a strategic decision to make traffic generation our top
priority. In order to accomplish this, we intend to enter into co-branding and
private label web site linking relationships with other companies. A co-branded
web site is composed of a collection of web pages within our web site that
include our Photoloft.com brand features as well as the brand features of the
company that contracts with us. This collection of pages is also linked to the
other company's web site. Thus, end users are exposed to the brand features of
two or more companies in equal amounts. On the other hand, a private label web
site is composed of a collection of web pages within our web site which includes
only the brand features of the company that contracts with us. As a result, end
users are not made aware of the fact that they are visiting a collection of web
pages within our web site. The only indication that we have any involvement
with a private label web site is the following statement, usually located
towards the bottom of a web page: "powered by PhotoLoft.com". Currently, we
have approximately 38 co-branding agreements and 4 private label agreements.
We intend to develop co-branding relationships with original equipment
manufacturers of digital imaging equipment. We currently enjoy successful
partnerships with original equipment manufacturers of digital cameras, scanners,
printers and other digital photography equipment, including UMAX, Epson, and
Hewlett-Packard. Our partners ship copies of our software with new equipment;
advertise PhotoLoft.com on their boxes; feature our site in box inserts and/or
user guides; and create links from their web sites.
Typically original equipment manufacturer relationships are manifested as
co-branded web pages, whereby users on the original equipment manufacturer
partner's home page can click through to a page featuring the original equipment
manufacturer's branding along with PhotoLoft.com branding. As users browse
through the page and take advantage of all our unique features, they constantly
see both the brands of the original equipment manufacturer and PhotoLoft.com.
This is very popular with original equipment manufacturer's that understandably
are reluctant to send potential customers to another web site. PhotoLoft.com,
the original equipment manufacturer and the user are all winners: we grow our
user base and image bank; the original equipment manufacturer is perceived as
offering a value-added service; both companies share in the revenue generated by
advertising sales and e-commerce; and the user has an opportunity to join our
community. See "Marketing and Promotion--Co-Branding Agreements."
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We are currently striving to increase the amount of private label
relationships we have. This concept was pioneered when we developed a private
label site for the Walt Disney Company in conjunction with Disney's launch of "A
Bug's Life." Under this concept, a partner company, such as Disney, can
commission us to create a collection of pages within our web site that is
branded exclusively for them, giving users the impression they have never left
the original site. As an added feature, the private label partner can specify
parameters for the pages, including content and advertising. The advantages of
a private label site are numerous for both the partner and us. The partner has
total control over the site, including tight security, the chance to communicate
with visitors and reinforce its brand. We add to our image bank, enjoy
additional traffic and participate in revenues generated via e-commerce and
advertising sales.
Our private label program allows partners to choose how to feature
PhotoLoft.com or offer its services. That way, we are not a competitor, but a
value-added supplier and partner. As we add private label agreements,
PhotoLoft.com will quickly become the digital imaging host for the Internet.
See "Marketing and Promotion--Private Labeling Agreements."
We are also maximizing relationships with other web sites to increase
traffic on our own web site by linking our web site to other web sites. We
already have agreements in place with Compaq Computer; Lycos; Hylas; Tribal
Voice and Netopia, and are actively pursuing additional agreements with other
web sites. See "Marketing and Promotion--web Site Partnering."
Advertising.
As advertising costs continue to spiral upward, savvy advertisers are
constantly on the lookout for innovative ways to deliver their message to
increasingly targeted audiences. The Internet is an excellent medium for this
targeted advertising and our web site is an ideal program, acting as an
electronic alternative to printed photo magazines. Advertisers purchase space on
the pages within our web site to post their own images and messages advertising
their products or services. The fee for the advertisements is based upon the
number of times a particular advertisement is displayed to a visitor accessing
our site and the aggregate number of visitors that are exposed to the
advertisement. The organization of images on the pages within our web site
allows potential advertisers the opportunity to target their audience. For
example, a maker of hiking boots may wish to expose its advertisements to users
with an interest in forests. On our web site, it can accomplish this by
including its advertisements on pages which include images within the "forests"
category of our site.
Our unique design allows users to generate numerous impressions based on
just one picture. Users publishing complete albums create an exponential number
of impressions. Each additional impression allows an advertiser to display a
new image to our visitors and increases our revenue.
E-Commerce
E-commerce is a growing phenomenon of the Internet and we intend to take
advantage of this opportunity by offering convenience and quality to buyers. We
currently offer a wide selection of photo-personalized gifts, and plans are in
place for phased introduction of additional products and services, including
photo-personalized greeting cards, consumables, and photos offered by
professional photographers. See "Products and Services--E-Commerce."
PRODUCTS AND SERVICES
Our web Site
Our web site at Photoloft.com was created to give our members a collection
of web pages on which to place to store their pictures; a way to categorize
their memories; and a mechanism for sharing their photos. Members can store
photos on pages within our web site; utilize the site's album metaphor to
organize the photos; and either view them on-line, through high quality output
devises such as television, or print them using our print technology.
Once users arrive at our site, navigating the different pages is quite
simple. Immediately, users can opt to sign up, upload their photos or search
for a specific album. Following this lead navigation bar, users can scroll
through the 90 photographic categories ranging from animals to news to travel.
Views of photos are only a click away. Users choosing to upload a photo must
first join PhotoLoft.com by completing a very brief registration form and
agreeing to the site's terms and conditions. Once that is handled, users can
load their images three ways, via the digital camera, scanning or emailing the
image. They are automatically stored in an "album" which can be edited and
manipulated very easily at any time.
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One of the unique and attractive features of our web site is the community
experience. The importance of community cannot be underestimated: Internet users
are looking for interaction and the "community" experience fulfills that need.
The longer users stay on the site, the more opportunity web sites have to raise
advertising and other revenue. Our site currently features 90 categories of
images that users can browse through. These categories represent the top
subjects that photographers typically photograph. In addition to giving users a
convenient way to view photos, the segmentation is attractive to potential
advertisers that can use the categories to target audiences. For example, pet
food ads can be featured on the "Pet" section of our site. The categories also
help draw viewers deeper into the site, increasing the number of impressions
received and the number of images served. This, in turn, makes our site
particularly attractive for advertisers, thereby increasing opportunities for
advertising revenues. See "Advertising."
Other features on our site that contribute to the community experience
include photo comments, photo sharing, and user participation via contests.
Using our Guest Books feature, users can comment on various images throughout
the site. Those comments can then be viewed by anyone accessing the photo.
This is a particularly popular feature for professional models, who use the site
to post their portfolios, and professional photographers. A unique component to
the Guest Books feature is an e-mail service that will alert users when comments
about their images have been received.
Our site provides an ideal vehicle for users to share images easily through
its e-invitation feature. Members simply e-mail their friends and family when
they post a photo or album they want to share. Rather than tie up the
recipient's computer with large e-mail files carrying photos, our system invites
the recipient to view the photo or album by using a link between the text of the
email and the web page continuing the image. This system is extremely easy and
popular; is very fast since it does not download actual photos to the
recipient's PC; and brings more users to our site.
Another important aspect of our community experience is the contents and
other forms of entertainment on our site. Currently, our users can participate
in two contests on our site: "image of the week" and "album of the week." Users
are invited to submit their work for these contests and all interested users are
allowed to vote.
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Technology
One of our competitive advantages is our unique advanced viewing and
printing technologies. They are both based on Hewlett-Packard's FlashPix
technology, but take the concept a step further, allowing for the simplicity of
viewing and ease of printing.
Our advanced viewing capability is unique to our site and allows users to
zoom in on or out of a photo and examine the details of an image. Conversely,
users can also pan an image to enjoy the full panorama of the photo. These
features are available directly from the user's browser, requiring no special
down loads or add-ons and are particularly popular with users of on-line auction
sites.
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Our proprietary printing technology allows users to print to the highest
quality of their printer, giving them crisp, clear photos. Most technology only
allows users to print 72 dots per inch using the "screen print" feature on their
personal computers. With our technology and the appropriate printer, users can
easily print photos that rival those printed at the top photo finishers. Prices
for these printers start at approximately $250 and every Hewlett-Packard printer
shipped after 1998 has this ability. In addition, the technology allows users to
grab and print the identified image, rather than printing the entire page, and
gives users a variety of size options ranging from 8"x10" to wallet sizes. This
technology directly rivals the traditional photo processing model. It is
changing photo printing, allowing photographers to bypass the local photo
finishers.
Advertising.
PhotoLoft.com offers a highly focused web site, which is particularly
attractive to advertisers. Advertisers purchase space on the pages within our
web site to post their own images and messages advertising their products or
services. The fee for the advertisements is based upon the number of times a
particular advertisement is displayed to a visitor accessing our site and the
aggregate number of visitors that are exposed to the advertisement. The
organization of images on the pages within our web site allows potential
advertisers the opportunity to target their audience. Through our 90 different
categories of photographs, advertisers can choose to target their audience as
much or little as possible. Combined with PhotoLoft.com's community, which
sponsors contests and provides information and news about digital imaging, the
web site is a very attractive option for advertisers, that can choose
traditional banner advertising on ultra-targeted pages or sponsorships of the
various activities available at the site. Sponsorships tend to be long-term
relationships between companies with increased opportunities for revenue than
simple banner advertisements which involve the placement of a banner on the web
page being viewed by an end user.
E-commerce
We have taken a multi-faceted approach to e-commerce and expect that it
will become an important revenue stream in the future. The first phase of our
e-commerce solution, photo-personalized gifts, is already in place. Users
currently have a choice of over 120 gift items, ranging from T-shirts to coffee
mugs, all emblazoned with the image of their choice. This service is currently
provided to us through an arrangement with Pix.com, a leader in web-based
e-commerce. Under terms of the agreement, we share the generated revenues with
Pix.com; however, we retain the right to utilize other services or implement
this program itself at any time.
The next phase of our e-commerce solution is photo-personalized greeting
cards. Other sites offering online greeting cards have generated a significant
amount of traffic, and printed photo-personalized greeting cards have also
become quite popular. Our greeting card solution will combine both of these
successful approaches into an easy Internet solution. Initially our members
will be able to choose from over 140 exclusive card designs, ranging from
birthdays to bar mitzvahs, that can not only be photo-personalized, but also
customized with the greeting of the members' choice. The cards can be e-mailed
or printed and mailed. Because of our proprietary printing technology, the home
printed greeting cards will be of the same quality as those purchased in stores
with the added bonus of being photo-personalized. In addition, the user can
provide us with the appropriate address and we will print and mail the card for
them. Users can order up to 500 copies of a greeting card to be printed and
either mailed to them or distributed to a mailing list provided to us. Adding
to the convenience is a value-added service that will trigger an e-mail reminder
when an important "card giving" occasion, such as a birthday or anniversary, is
approaching. Our greeting card products and services were rolled out in stages
and fully operational in October, 1999.
The next phase of our e-commerce solution will be a wide array of
consumables. By simply clicking a mouse button, users will be able to order
paper, ink, cameras, scanners and other digital imaging and photo sharing
equipment on our site. A helpful reminder service will prompt users to
periodically check their ink and paper volumes to ensure they have a continuous
supply. Once ordered, the item will be delivered to the address indicated
within a specified time frame. We expect to launch this service during the
first quarter of 2000 and anticipate entering into resale agreements with
wholesalers of digital imaging products.
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During the first quarter of 2000 we will expand our e-commerce
opportunities to professional photographers choosing to partner with us. Under
this scenario, professional photographers will upload photos from a specific
event to their album and utilize our e-invitation email system to notify
customers that the photos are available for viewing. Customers can then view
the photos, choose those they'd like to purchase, indicate the size and number
they want and place the order, all on-line. This option is particularly
attractive to wedding and special event photographers. This component of our
service will have a "lock out" provision on the printing technology to deter
users from simply printing their own images.
Product Development
Product development on our site continues at a rapid pace. We hired a site
producer in May 1999 and have identified and implemented 58 additional features
to our web site. hese include advanced image editing like cropping, "red eye,"
spinning and introduction of additional contests, such as a Treasure Hunt; an
audio feature for slide shows; introduction of a newsletter focusing on digital
imaging and photography; customized album designs; and much more.
Membership Plans
We currently offer two membership plans. Our free membership allows
members to access up to 20 megabytes of storage, enough for approximately 200
photos. We also offer members a premium account at a price of $29.95 annually
This service gives users an additional 30 megabytes of storage, password
protection if the user opts for privacy; and merchandise discounts. The true
benefit of the Premium Account to us is that it allows co-brand partners to
bundle the Premium Account with the other products creating a perception of
value for the consumer. See "Marketing and Promotion--Co-Branding Agreements."
ADVERTISING
As advertising costs continue to spiral upward, savvy advertisers are
constantly on the lookout for innovative ways to deliver their message to
increasingly targeted audiences. The Internet is an excellent medium for this
targeted advertising and our web site is an ideal program, acting as an
electronic alternative to printed photo magazines. Our unique design allows
users to generate numerous impressions based on just one picture. Users
publishing complete albums create an exponential number of impressions. Each
impression allows advertisers to reach an increasingly targeted audience, an
advantage not lost upon cost-conscious advertisers looking for value. Also, the
unique nature of our site brings a virtually unlimited number of viewers to the
site each day to view the photos.
In addition, the community nature of our web site creates opportunities to
further segment the audience, giving advertisers an even more targeted buy.
Similar to the already successful community sites, our community encompasses 90
categories of popular targets ranging from astrology to zoos. Enthusiasts
simply post their photo albums to these communities, where they can share images
while seeing the latest from advertisers in that field.
We have recently entered into an agreement with Adsmart, an advertising
representation firm, to ensure that we maximize the opportunities available via
advertising sales. Adsmart is the industry's largest site-focused online
advertising representation firm. It has more than 175 premier web brands
totaling 1.2 billion impressions per month. The contract guarantees that 100%
of our inventory will be sold each month. The cost per thousand impressions is
based on a sliding scale. This number will increase as we continue to increase
the volume of traffic to our site. In addition, we can receive more revenue per
cost per thousand by providing numerous ultra-targeted channels, such as the
categories. Working with Adsmart, we have begun to target key affinity networks
that will utilize our site as an advertising venue.
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Recognizing that the traditional banner advertising will, by definition,
eventually reach a cap, we are beginning to explore more creative advertising
sales opportunities. Our promotions are primarily taking the form of
sponsorship opportunities. Under this scenario, advertisers can "sponsor" a
contest or other form of entertainment on our web site. The advantages to the
sponsor are that it gets a more focused audience, since visitors want to
participate in the event the message can be more advertorial, usually carrying
more credibility with the target audience; and it is not competing with the
myriad of other messages typically found on web sites. The advantage to us is
that it allows us to work in conjunction with advertisers as business partners
to create venues that will enhance the community facet of our web site and,
ultimately, increase our membership. Sponsorships also have the potential to
generate more revenue than most banner ads.
Typical advertisers and sponsors on our site include Visa, Intel,
About.com, TravelNow, and Hewlett-Packard. Our contract with Adsmart will
increase the number of advertisers and allow us to target certain advertisers
that will benefit by the site's unique community set up.
MARKETING AND PROMOTION
We market our site through the following three primary channels:
1. links to other sites;
2. co-branding agreements; and
3. private labeling agreements.
Links to Other web sites
Web site partnering arrangements allow us to recruit members from the
broadest of populations. We already have agreements in place with Compaq
Computer, through the AltaVista search service, Hylas, Tribal Voice, and
Netopia, guaranteeing exposure to approximately 30 million potential users per
day, and we are actively pursuing additional agreements with high traffic web
sites. To that end, we are actively utilizing banner swaps in our advertising
program. Under this scenario, we gain advertising space on targeted web sites
in exchange for running that web site's banner ads for free. This barter
arrangement allows us to advertise without incurring the expense that is usually
associated with Internet advertising.
Co-Branding Agreements
Co-branding agreements are particularly popular with original equipment
manufacturers. Typically these agreements call for a co-branded web page,
featuring the look and feel of our site along with the brand features of the
partner company. Usually this brand is found in the upper right corner of the
home page. The partner companies also advertise PhotoLoft.com through their
packaging by including our logo on the box, inserts in the packaging, and
mentions in the users' manuals or newsletters. The co-branded page is linked to
both our web site and the partner company's web site. As an added inducement to
utilize our site, all purchasers are offered premium accounts at no extra
charge. We share with our partners any revenues generated via advertising sales
and e-commerce from the co-branded page.
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The original equipment manufacturer views adding our software to its
package of products as a value added benefit for the consumer. In addition,
depending upon the original equipment manufacturer partner, we can help to
increase sales. For example, Hewlett-Packard, can increase sales of ink as
consumers print high resolution photos--enabled by our proprietary printing
technology on their printers. Currently we have co-brand agreements in place
with UMAX, Epson, Casio, Hewlett-Packard and others. We are actively engaged in
discussions to develop additional co-branding agreements with other web sites
and Internet companies.
As our business development team grows, co-branding agreements are being
marketed to other sectors as well. A recently signed agreement is with PowWow,
a fully integrated instant messaging and online community with over four million
users, that was developed by Tribal Voice. Under terms of the arrangement,
PowWow users will be notified that they have received a free one-year premium
account with PhotoLoft.com. Announcements in the online newsletter will further
explain the program and a direct link from the PowWow web site will bring users
to our site. Tribal Voice was searching for a photo sharing solution for its
site, photos being a critical component in the success of a community site.
PhotoLoft.com was an excellent solution as our model of co-branded sites allowed
PowWow to keep its branding program intact while offering an additional value
added service to its users.
Private Label Agreements
Our unique web site architecture allows us to offer private label
agreements to partner companies. A private label web site is composed of a
collection of web pages within our web site which includes only the brand
features of the company that contracts with us. As a result, end users are not
made aware of the fact that they are visiting a collection of web pages within
our web site. The only indication that we have any involvement with a private
label web site is the following statement, usually located towards the bottom of
a web page: "powered by PhotoLoft.com". Typically, in these agreements, the
partner company pays an initial development fee and we share any advertising or
e-commerce revenue generated from the pages.
The most prominent example of a private label site was the one created by
PhotoLoft.com for the Walt Disney Company in conjunction with its launch of "A
Bug's Life." As our marketing efforts mature, we are finding more and more
opportunities to create private label sites. They are particularly appealing to
online portals that are reluctant to lose their branding but want a photo
sharing community as a component of their portfolio.
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OPERATIONS AND SYSTEMS
Administrative Operations
To provide our members with the most efficient, flexible, and innovative
services possible, our administrative operations combine in-house and outsourced
services and functions. Our strategy is to keep our in-house staff small, with
a focus on core competencies in technical and research and development areas,
and to outsource other functions and projects on an as-needed basis. Internal
functions currently include account management, traffic management, and
managerial projects focusing on the development and management of business
partnerships with appropriate parties. At this point, outsourced functions
include e-commerce business services and maintenance of network hardware and
Internet connections.
Systems
The equipment that supports our web site is located in a secured individual
cage space, meaning that the equipment is surrounded by a locked metal cage, at
the San Jose, California web site hosting facility operated by AboveNet
Communications, Inc. AboveNet is the architect of the global, one-hop Internet
Service Exchange(TM), a network delivering Internet connectivity and co-location
solutions for companies such as ours. We have a co-location agreement in place
with AboveNet. The agreement has a term of one year. AboveNet also provides our
web site with its connection to the Internet and also houses some of our
equipment.
Our web site is supported by on a series of Intel Pentium II Dual Processor
Servers. These servers share the obligation of supporting our web site in such
a manner that when one is overburdened, it shifts the excess obligation another
server. This provides substantial assurances that our web site will remain
accessible to users. Our site currently utilizes several Single Processor
Pentium 400's with one gigabyte of storage space to support the web site and
Dual Processor Pentium 400's with one gigabyte of storage space to support the
images posted on our web site. Currently, there is one dual Processor Pentium
400 with 512 megabytes of storage space to support our database engine that
catalogues photographs and maintains other data. The combination of a database
server, several image servers, and several web servers is called a "pod", and we
intend to add pods as our community grows.
PhotoLoft.com's secure data management is through SQL Server version 7.0.
SQL Server Logs are generated every 24 hours to facilitate database
reconstruction in the case of hardware or software failure. These files are
written to the hard disk and the CD-ROM that is generated nightly. All data is
backed up on a daily basis utilizing CD-ROM Burner and software developed in
house. Currently, the average Photoloft.com web site serves .8 page views/sec
and the average peak load is 1.13 page views/sec. With the above referenced
software and hardware configurations, it has been determined that the current
peak load served is 15 page views per second per image server. With 6 image
servers, the site is capable of 90 page views per second. To scale the system,
additional web servers and image servers are added as needed. To scale the
database, a mirror copy is made of the database server and dedicated to a
particular account.
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Since January 1998, our site has been available for use by end users
approximately 99.6% of the time. This service time excludes outages that were
due to "act of god" or catastrophic failure of the hosting service unrelated to
any specific PhotoLoft.com software or hardware issues.
COMPETITION
Competition in the Internet photo sharing and digital imaging arena is
intensifying. When we began development of our site in 1998 there were
virtually no competitors. By the time that our site was officially launched in
February 1999, several potential competitors had emerged and we are aware of new
companies planning to enter the market in the near future. As one of the first
photo sharing communities in the marketplace, we have laid the groundwork for
many competitors to follow. In doing internal competitive analysis, it is clear
that competitors have mimicked our technology and marketing strategies in a
number of ways. However, to date, none of the competitors have successfully
duplicated the unique combinations of features and advanced technology that we
offer.
PhotoNet, PhotoHighway, PhotoPoint.com, Zing.com, and ClubPhoto are among
the first wave of companies engaged in activities similar to ours. These
companies allow users to upload their images and share them via e-mail, and some
offer online greeting cards and photo-personalized gifts. Some of these sites
have followed the online community business model. These companies are also
forging valuable marketing relationships and some enjoy significant financial
backing. However, they have not introduced advanced viewing and high resolution
printing capabilities comparable to ours. Also, at present, PhotoNet, which is
50% owned by Kodak, is primarily designed to help Kodak protect the traditional
chemical film based photography industry. But, we anticipate that this will
change in the future as the popularity of digital imaging increases.
There are many other smaller photo-sharing web sites in various stages of
development. In a recent competitive analysis, we identified at least 15
additional companies beginning to get into the photo sharing/digital imaging
Internet business. The barriers to entry for a photo storing web site are few.
However, to develop an interactive site with a large database of images that
also offers advanced technology is more costly and time consuming. A more real
threat could be traditional media companies, a number of which, including
Disney, CBS and NBC, have recently made significant acquisitions or investments
in Internet companies.
We believe that the principal competitive factors in our market are
community development, technology, number of images in the database, rate of
adding members, and the ability to partner with companies that can bring large
groups of users who are already interested in digital imaging to our web site.
Certain of our current and many of our potential competitors have longer
operating histories, larger customer bases, greater brand recognition in other
business and Internet markets and significantly greater financial, marketing,
technical and other resources than us. In addition, other online services may
be acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Therefore, certain of our
competitors with other revenue sources may be able to devote greater resources
to marketing and promotional campaigns, adopt more aggressive pricing policies
and devote substantially more resources to web site and systems development than
us or may try to attract traffic by offering services for free. Increased
competition may result in reduced operating margins, loss of market share and
diminished value of our brand. See "Item 2. Management's Discussion and Analysis
or Plan of Operations--Risk Factors--Operating Results and Financial
Condition--We May Not Be Able To Compete Successfully."
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INTELLECTUAL PROPERTY
"Photoloft" and "HOWDY" are trademarks and service marks of PhotoLoft.com.
We have registered our trademark "Howdy" with, and our application for
registration of the mark "Photoloft" is currently pending before, the United
States Patent and Trademark Office.
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have entered into confidentiality and invention
assignment agreements with our employees and contractors, and nondisclosure
agreements with its suppliers and strategic partners in order to limit access to
and disclosure of its proprietary information. There can be no assurance that
these contractual arrangements or the other steps taken by us to protect our
intellectual property will prove sufficient to prevent misappropriation of our
technology or to deter independent third-party development of similar
technologies. While we intend to pursue registration of our trademarks and
service marks in the U.S. and internationally, effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our services are made available online.
We also rely on certain technologies that we license from third parties,
such as the suppliers of key database technology, the operating system and
specific hardware components for our products and services. There can be no
assurance that these third-party technology licenses will continue to be
available to us on commercially reasonable terms. The loss of such technology
could require us to obtain substitute technology of lower quality or performance
standards or at greater cost, which could materially adversely affect our
business, results of operations and financial condition.
Although we do not believe that we infringe the proprietary rights of third
parties, there can be no assurance that third parties will not claim
infringement by us with respect to past, current or future technologies. We
expect that participants in our markets will be increasingly subject to
infringement claims as the number of services and competitors in our industry
segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service upgrade delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any such claim could have a material adverse effect upon our
business, results of operations and financial condition.
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GOVERNMENTAL REGULATION
Our company, operations and products and services are all subject to
regulations set forth by various federal, state and local regulatory agencies.
We take measures to ensure our compliance with all such regulations as
promulgated by these agencies from time to time. The Federal Communications
Commission sets certain standards and regulations regarding communications and
related equipment.
There are currently few laws and regulations directly applicable to the
Internet. It is possible that a number of laws and regulations may be adopted
with respect to the Internet covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
products and services. The growth of the market for online commerce may prompt
calls for more stringent consumer protection laws that may impose additional
burdens on those companies conducting business online. Tax authorities in a
number of states are currently reviewing the appropriate tax treatment of
companies engaged in online commerce, and new state tax regulations may subject
us to additional state sales and income taxes.
Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues, including some recently proposed changes, could create uncertainty in
the marketplace that could reduce demand for our products and services or
increase the cost of doing business as a result of litigation costs or increased
service delivery costs, or could in some other manner have a material adverse
effect on our business, results of operations and financial condition. In
addition, because our services are accessible worldwide and we facilitate sales
of goods to users worldwide, other jurisdictions may claim that we are required
to qualify to do business as a foreign corporation in a particular state or
foreign country. Our failure to qualify as a foreign corporation in a
jurisdiction where it is required to do so could subject us to taxes and
penalties for the failure to qualify and could result in our inability to
enforce contracts in such jurisdictions. Any such new legislation or regulation,
or the application of laws or regulations from jurisdictions whose laws do not
currently apply to our business, could have a material adverse effect on our
business, results of operations and financial condition.
EMPLOYEES
As of January 24, 2000, we had 35 full time employees, including 4 in
marketing and advertising sales and customer support; 5 in business development;
5 in administration; and 21 in product development. We recently embarked on an
active search to hire up to six additional product development employees; three
additional advertising sales and customer support professionals; three
additional business development experts; and one administration employee.
Although talented and qualified employees are difficult to find in the current
tight job market, we have experienced relative success in attracting and
retaining highly motivated and talented employees. Digital imaging is a growing
field and many employees working in the Internet arena are attracted to a
start-up company with a record of success in such a dynamic field.
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We believe that our future success will depend in part on our continued
ability to attract, integrate, retain and motivate highly qualified technical
and managerial personnel, and upon the continued service of our senior
management and key technical personnel. The competition for qualified personnel
in our industry and graphical location is intense, and there can be no assurance
that we will be successful in attracting, integrating, retaining and motivating
a sufficient number of qualified personnel to conduct its business in the
future. From time to time, we also employ independent contractors to support
our research and development, marketing, sales and support and administrative
organizations. We have never had a work stoppage, and no employees are
represented under collective bargaining agreements. We consider our relations
with our employees to be good.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
SELECTED FINANCIAL DATA
The following table contains certain selected financial data of
Photoloft.com and is qualified by the more detailed financial statements and the
notes thereto provided in this registration statement. The financial data as of
and for the years ended December 31, 1998 and 1997, have been derived from
Photoloft.com's financial statements, which statements were audited by BDO
Seidman, LLP. The financial data as of September 30, 1999 and for the
nine-month periods ended September 30, 1999 and 1998, have been derived from
Photoloft.com's unaudited financial statements.
The comparisons made between the noted periods should be evaluated in light
of the following significant factors: First, during 1997 and 1998,
Photoloft.com's primary source of revenue was derived from selling software. As
the gross margin from selling software began to decline, Photoloft.com explored
other means of generating revenue. Beginning in early 1998, Photoloft.com
shifted focus and began selling advertising on the AltaVista web page. Second,
the sale of the AltaVista URL in July 1998 resulted in a significant increase to
net income but eliminated the advertising revenue generated by the web site,
which is calculated based on the number of impressions the web site receives.
With the sale of AltaVista, Photoloft.com began developing PhotoLoft.com as a
new source of generating advertising revenue. Third, during 1999, Photoloft.com
has begun to focus on building the PhotoLoft.com brand name and increasing the
number of daily impressions to the site. As a means of achieving this,
Photoloft.com has made a strategic decision to focus on increasing traffic to
the PhotoLoft.com web site instead of generating revenue. To accomplish this,
Photoloft.com has increased its marketing efforts by trading advertising space
with other Internet companies and attending trade shows. As a result, the
number of impressions to the pages within the PhotoLoft.com web site has
increased, which should ultimately increase revenues.
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<TABLE>
<CAPTION>
Statement of Operations Data
Nine Months Ended Fiscal Year Ended
September 30, December 31,
----------------- ------------------
<S> <C>
1999 1998 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
Revenues $124,800 $660,600 $674,300 $574,200
Net Income (loss) (1,465,600) 1,972,900 1,663,300 (165,500)
Net Income (loss) per share to
Common Shareholders:
Basic $(0.21) $0.31 $.26 $(0.03)
Diluted $(0.21) $0.21 $.18 $(0.03)
Balance Sheet Data
September 30, December 31,
----------------- ------------------
1999 1998 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
Current Assets $2,124,000 $1,201,100 $1,211,100 $93,900
Total Assets $2,376,800 $3,141,200 $2,939,000 $123,900
Current Liabilities $928,700 $439,600 $502,900 $151,000
Total Liabilities $928,700 $1,103,900 $1,169,600 $151,000
Shareholders Equity (Deficit) $1,448,100 $2,037,300 $1,769,400 $(27,100)
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and notes thereto appearing elsewhere in this registration statement.
The matters discussed in this registration statement contain forward-looking
statements that involve risks and uncertainties. Our actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below in "Risk Factors--Operating Results, and Financial Condition" as well as
those discussed in this section and elsewhere in this registration statement.
Overview
PhotoLoft.com is an Internet web site community that is changing data
imaging and photo processing. PhotoLoft.com is a growing photographic imaging
community on the Internet, and its unique software allows consumers to share and
print personal images quickly, easily and inexpensively. Users can create a
"virtual photo album," which is impossible to lose; instantly accessible and
easily reproducible; easily transported; easily displayed on high quality output
devices, such as television; and completely personalized. Members can
automatically invite others to view their albums via e-mail and give users the
opportunity to comment on other images. PhotoLoft.com is also taking advantage
of the rise in e-commerce, offering a wide array of gift items that have been
imprinted with a PhotoLoft.com image selected by the user. The pages within the
Photoloft.com web site have been carefully designed to be user friendly and the
community aspect of PhotoLoft.com makes for a highly entertaining experience for
visitors and members.
PhotoLoft.com was founded in 1993 as AltaVista Technology, Inc. In July
1998, the URL, AltaVista.com was sold to Digital Equipment, now Compaq Computer,
and we changed our name to Photoloft.com. Since then, we have continued to
upgrade the site, offering better and faster user components to PhotoLoft.com.
Through February 1999, revenues have been derived primarily through the sale of
advertising. With the latest release of PhotoLoft.com in February 1999, we
began focusing on increasing e-commerce sales and advertising sales.
Anticipated success in these areas will come from the increased membership base,
estimated to increase from 24,000 to 123,000 by the end of 1999, and increased
impressions per day, estimated to increase from 20,000 per day in 1998 to
500,000 per day by the end of 1999.
[/R]
In 1998, PhotoLoft.com began developing a new product, ID4Life. Designed
as a preventative service to aid in finding missing persons, ID4Life has
developed as a different product than the rest of PhotoLoft.com. We are seeking
to sell ID4Life.
Operating Results
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Revenues for the nine months ended September 30, 1999 were $124,800, a
decrease of $535,800, or approximately 81%, compared to $660,600 for the nine
months ended September 30, 1998. Revenues decreased primarily due to a change
in Photoloft.com's operations from selling software to selling advertising.
This change did not occur until the latter half of 1998, contemporaneously with
the sale of the URL to Compaq Computer. The new business plan is focused on
advertising sales and e-commerce revenues. The third quarter results reflect
less than one year of operations under the new model.
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The gross margin for the nine months ended September 30, 1999 was $36,300,
a decrease of $535,500 or approximately 94%, compared to the gross profit of
$571,800 for the nine months ended September 30, 1998. This decrease in gross
margin is due primarily to the transition of Photoloft.com's business from
software sales to advertising sales and the accompanying significant decrease in
revenues, resulting in an inability to cover the fixed cost component of the
cost of revenues during the nine months ended September 30, 1999.
Selling, general, and administrative expenses for the nine months ended
September 30, 1999 were $2,249,100, an increase of $1,448,300 or 181% compared
to $800,800 for the nine months ended September 30, 1998. This increase
reflects the planned aggressive growth phase of Photoloft.com's new business
model. Included in the costs are additional equipment to handle increased image
volume; necessary staffing increases, particularly in the engineering and sales
areas; and additional facilities. The growth plan calls for a ramp up of all
operations throughout 1999, leveling off in 2000.
Loss from operations for the nine months ended September 30, 1999 was
$2,212,800, a increase of $1,983,800 compared to a loss from operations of
$229,000 for the nine months ended September 30, 1998. This increase is
primarily due to the transition in Photoloft.com's business strategy and the
costs incurred to develop the PhotoLoft.com web site.
Interest income for the nine months ended September 30, 1999 was $110,000,
an increase of 236% compared to $32,700 for the nine months ended September 30,
1998. Interest income increased due to the note receivable related to the sale
of the AltaVista URL in July 1998.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997
Revenues for fiscal 1998 were $674,300, an increase of $100,200 or
approximately 17%, compared to $574,200 for fiscal 1997. Revenues increased due
to Photoloft.com generating advertising revenue in addition to software sales.
Gross profit for fiscal 1998 was $561,300, an increase of $47,900 or 9%,
compared to $513,400 for fiscal 1997. However, there was a decrease in the
gross profit as a percentage of sales to 8.3% for fiscal 1998 from 8.9% in
fiscal 1997, which was due primarily to a reduction in the sales price of
software bundled with original equipment manufacturer product.
Selling, general, and administrative expenses for fiscal 1998 were
$1,324,000, an increase of $649,600 or 96% compared to $674,400 for fiscal 1997.
As a percentage of revenue, selling, general and administrative expenses
increased to 196% in fiscal 1998 from 117% in fiscal 1997, primarily as a result
of investment in the technology required to generate web page advertising and
the increase in employee headcount.
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Loss from operations for fiscal 1998 was $762,700, an increase of $601,700
compared to a loss from operations of $161,000 for fiscal 1997. The increase is
due primarily to the higher selling, general and administrative expenses
resulting from the increased number of employees and Photoloft.com's investment
in technology.
Net income for fiscal 1998 was $1,663,300, an increase of $1,828,800
compared to the net loss of $165,500 for fiscal 1997. The increase is primarily
due to the sale of the AltaVista URL in July 1998.
Liquidity and Capital Resources
Net cash used in operating activities during the nine months ended
September 30, 1999 was $1,838,400, which reflected the net effect of the net
loss for the period, decreases in deferred income taxes and deferred revenues
and an increase in prepaid expenses and other current assets, which was
partially offset by an increase in accounts payable, accrued expenses and
depreciation and amortization. Net cash used in operating activities during
fiscal 1998 was $361,000, a decrease of $374,800 compared to net cash provided
by operating activities of $13,800 in fiscal 1997. The net cash used in
operating activities in fiscal 1998 reflects the gain on the sale of the
AltaVista URL that was partially offset by the net income for the year and an
increase in deferred income taxes. In October, we were paid $1,804,700 in full
settlement of the note, at which time we recorded a loss of $108,100.
Accordingly, the balance sheet as of September 30, 1999 classifies this note as
a current asset and a loss of $108,100 has been recorded as of September 30,
1999.
Net cash provided by investing activities was $225,300 for the nine months
ended September 30, 1999, and $731,000 for fiscal 1998, primarily reflecting
cash received from payments of principal on the AltaVista note. Net cash used in
investing activities in fiscal 1997 was $14,200, reflecting cash used for the
acquisition of property and equipment.
Net cash provided by financing activities was $1,486,600 for the nine
months ended September 30, 1999, primarily reflecting cash received from the
sale of stock and exercise of stock options and advances under our line of
credit. No cash was provided by financing activities in fiscal 1998.
Our capital requirements are dependent on several factors, including market
acceptance of our services, the amount of resources devoted to investments in
Photoloft.com's web site, the resources devoted to marketing and selling
Photoloft.com's services and brand promotions and other factors. Fueling
Photoloft.com's need for cash currently is the development of rival technology
and new Internet sites and portals offering similar products. See "Item 1.
Business-Competition." As we enjoy continued growth we must work to stay at the
forefront of technology and continue to grow in sales. This will necessitate a
substantial increase in capital expenditures. In addition, PhotoLoft.com will
continue to evaluate possible investments in businesses, products and
technologies and plans to expand its sales and marketing programs and conduct
more aggressive brand promotions. At September 30, 1999, Photoloft.com had
cash and cash equivalents totaling $243,500, resulting principally from the
sale of common stock in a private placement during March 1999, and working
capital of $1,195,300.
We anticipate that we will require approximately $10.5 million in 2000 to
grow as contemplated. To continue functioning at our current level, we will
need approximately $4 million. We anticipate that 20% of our requirements will
come from cash from operations. We will seek the remainder from debt and equity
financing sources. There can be no assurance that we will be successful in this
regard.
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We are actively seeking to raise additional capital through debt or
Equity financing. We cannot assure you that we will be able to obtain
this additional financing. If financing is not available when required or is
not available on acceptable terms, we may be unable to develop or enhance our
products or services or take advantage of business opportunities or respond to
competitive pressures. In addition, our ability to meet our obligations and
continue our obligations could be adversely affected. The sale of additional
equity or convertible debt securities could result in additional dilution to our
stockholders. The incurrence of indebtedness would result in an increase in our
fixed obligations and could result in operating covenants that would restrict
its operations. There can be no assurance that financing will be available in
amounts or on terms acceptable to us, if at all.
If we are unsuccessful in generating resources from one or more of the
anticipated sources and unable to replace any shortfall with resources from
another source, we may be able to extend the period for which available
resources would be adequate by deferring the creation or satisfaction of various
commitments, deferring the introduction of various services or features or entry
into various markets and otherwise cutting back operations. Such a scaling back
of operations would involve two phases. The first phase would involve reducing
our current burn rate by approximately 15% by cutting back on business
development expenses and infrastructure. The second phase would involve
substantially reducing our e-commerce research and development efforts and
restructuring our approach to new business partnering deals. If we were unable
to generate required resources, our ability to meet our obligations and to
continue our operations will be adversely affected.
In September 1999 we obtained a $750,000 line of credit with a financial
institution. Borrowings under the line bear interest at the rate of 28% per
annum. The line of credit expires in September 2000, but automatically renews
for a one year period unless either we or the financial institution notifies the
other party. At September 30, 1999 $409,700 was outstanding under this line of
credit.
Impact of the Year 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems may recognize a date using "00" as the year 1900 rather than the year
2000. As a result, computer systems and/or software used by many companies and
governmental agencies may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
State of Readiness. The third-party vendor upon which we materially rely
is AboveNet Communications, Inc. which co-locates our web equipment and provides
our connection to the Internet. We have sought confirmation from AboveNet
Communications, Inc. that its system is Year 2000 compliant and AboveNet
Communications, Inc. has informed us that its system is Year 2000 compliant.
Although, as of January 24, 2000, we have experienced no material technical
problems related to the year 2000, we shall continue to seek verification from
other key vendors, distributors and suppliers that they are Year 2000 compliant
or, if they are not presently compliant, to provide a description of their plans
to become so. To the extent that vendors failed to provide certification that
they were Year 2000 compliant, we have terminated and replace these
relationships.
We are conducting an internal assessment of all material information
technology and non-information technology systems at our headquarters. Until we
complete the assessment, we will not know whether these systems are or will
continue to be Year 2000 compliant.
Costs. To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. Most of our expenses have related to,
and are expected to continue to relate to, the upgrades or replacements, when
necessary, of software or hardware, as well as costs associated with time spent
by employees in the evaluation process and Year 2000 compliance matters
generally. These expenses are included in our capital expenditures budget and
are not expected to be material to our financial position or results of
operations. These expenses, however, if higher than anticipated, could have a
material and adverse effect on our business, results of operations and financial
condition.
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Risks. Although, as of January 24, 2000, we have experienced no material
technical problems related to the year 2000, there can be no assurance that we
will not discover Year 2000 compliance problems in our systems that will require
substantial revisions or replacements. In the event that the operational
facilities that support our business, or our web-hosting facilities, are not
Year 2000 compliant, we may be unable to deliver goods or services to our
customers and portions of our web site may become unavailable. In addition,
there can be no assurance that third-party software, hardware or services
incorporated into our material systems will not need to be revised or replaced,
which could be time-consuming and expensive. Our inability to fix or replace
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs and other business interruptions, any
of which could have a material and adverse effect on our business, results of
operations and financial condition. Moreover, the failure to adequately address
Year 2000 compliance issues in our software, hardware or systems could result in
claims of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies and others outside our control will be
Year2000-compliant. The failure by these entities to be Year 2000-compliant
could result in a systemic failure beyond our control, including, for example, a
prolonged Internet, telecommunications or electrical failure, which could also
prevent us from delivering our services to our users, decrease the use of the
Internet or prevent users from accessing our services, any of which would have a
material and adverse effect on our business, results of operations and financial
condition.
Contingency Plan. As discussed above, we are engaged in an ongoing Year
2000 assessment and do not currently have a contingency plan to deal with the
worst case scenario that might occur if technologies on which we depend are not
Year 2000-compliant and fail to operate effectively after the Year 2000. The
results of our Year 2000 compliance evaluation and the responses received from
distributors, suppliers and other third parties with which we conduct business
will be taken into account in determining the need for and nature and extent of
any contingency plans.
If our present efforts to address the Year 2000 compliance issues discussed
above are not successful, or if distributors, suppliers and other third parties
with which we conduct business do not successfully address such issues, our
users could seek alternate suppliers of our products and services. Any material
Year 2000 problem could require us to incur significant unanticipated expenses
to remedy and could divert our management's time and attention, either of which
could have a material and adverse effect on our business, operating results and
financial condition.
This is a Year 2000 readiness disclosure statement within the meaning of
the Year 2000 Information and Readiness Disclosure Act. P.L. 105-271.
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Seasonality
We believe that we may experience seasonality in our business, with use of
the Internet in general and our Photoloft.com web site traffic being somewhat
lower during periods of the year. In particular, we believe that advertising
sales in traditional media, such as television and radio, generally are lower
in the first and third calendar quarters of each year due to the summer vacation
period and post-Winter holiday season slowdown. If similar seasonal patterns
emerge in Internet advertising, our advertising revenues and operating results
also may vary significantly based upon these same patterns. In addition, as
traditional retail sales are generally higher in the fourth calendar quarter of
each year during the winter holiday season, and subsequently lower in the first
calendar quarter of each year, we anticipate that e-commerce revenues may follow
a similar seasonal pattern and that our e-commerce revenues and operating
results also may vary significantly based upon these patterns.
Effects of Inflation
Due to relatively low levels of inflation in 1997 and 1998, inflation has
not had a significant effect on our results of operations since inception.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. Historically, we have not used derivatives and
therefore this new pronouncement is not expected to have a significant impact on
results of operations and financial position.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This registration statement contains forward-looking statements. These
forward-looking statements are subject to significant risks and uncertainties,
including information included under Items 1 and 2 of this registration
statement, which may cause actual results to differ materially from those
discussed in such forward-looking statements. The forward-looking statements
within this registration statement are identified by words such as "believes,"
"anticipates," "expects," "intends," "may," "will" and other similar expressions
regarding our intent, belief and current expectations. However, these words are
not the exclusive means of identifying such statements. In addition, any
statements which refer to expectations, projections or other characterizations
of future events or circumstances and statements made in the future tense are
forward-looking statements. Readers are cautioned that actual results may
differ materially from those projected in the forward looking statements as a
result of various factors, many of which are beyond our control. We undertake
no obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
occurring subsequent to the filing of this registration statement with the
Securities and Exchange Commission. Readers are urged to carefully review and
consider the various disclosures made by us in this registration statement.
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RISK FACTORS
We have identified the following risk factors which could affect our actual
results and cause actual results to differ materially from those in the forward
looking statements.
WE ARE MUCH LIKE A START UP COMPANY AND HAVE A LIMITED OPERATING HISTORY ON
WHICH TO EVALUATE OUR POTENTIAL FOR FUTURE SUCCESS.
We launched our current business model in October, 1998 and therefore are
much like a start-up company. We have only a limited operating history upon
which you can evaluate our business and prospects. You must consider the risks
and uncertainties frequently encountered by early stage companies in new and
rapidly evolving markets, such as e-commerce. If we are unsuccessful in
addressing these risks and uncertainties, our business, results of operations
and financial condition will be materially and adversely affected.
WE EXPECT LOSSES FOR THE FORESEEABLE FUTURE, AND OUR OPERATING RESULTS MAY
FLUCTUATE FROM QUARTER TO QUARTER.
Since 1997, we have incurred losses from operations, resulting primarily
from costs related to developing our web site, attracting users to our web site,
and establishing our brand. Because of our plans to invest heavily in marketing
and promotion, to hire additional employees, and to enhance our web site and
operating infrastructure, we expect to incur net losses for the foreseeable
future. We believe these expenditures are necessary to build and maintain the
technical infrastructure necessary to host multiple images and to strengthen our
brand recognition, attract more users to our web site and ultimately, generate
greater online revenues. If our revenue growth is slower than we anticipate or
our operating expenses exceed our expectations, our losses will be significantly
greater. We may never achieve profitability.
OUR FUTURE REVENUES ARE UNPREDICTABLE AND OUR QUARTERLY OPERATING RESULTS MAY
FLUCTUATE SIGNIFICANTLY.
Our revenues for the foreseeable future will remain primarily dependent on
the number of users that we are able to attract to our web site, and on
sponsorship and advertising revenues. We cannot forecast with any degree of
certainty the number of visitors to our web site or the amount of sponsorship
and advertising revenues.
We expect our operating results to fluctuate from quarter to quarter. We
believe that sponsorship and advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. If similar seasonal and cyclical patterns emerge in
Internet sponsorship and advertising spending, these revenues may vary based on
these patterns. See "Management's Discussion and Analysis of Financial Condition
and Operations-Seasonality."
Other factors which may cause our operating results to fluctuate
significantly from quarter to quarter include:
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- our ability to attract new and repeat visitors to our web site and convert
them into users;
- our ability to keep current with the evolving tastes of our target
market;
- our ability to manage the number of items listed on our services;
- the ability of our competitors to offer new or enhanced web site features,
products or services;
- the demand for sponsorship and advertising on our web site;
- the level of use of the Internet and online services;
- consumer confidence in the security of transactions over the Internet;
- unanticipated delays or cost increases with respect to product and service
introductions; and
- the costs, timing and impact of our marketing and promotion initiatives.
Because of these and other factors, we believe that quarter-to-quarter
comparisons of our results of operations are not good indicators of our future
performance. If our operating results fall below the expectations of securities
analysts and investors in some future periods, then our stock price may decline.
YOUR HOLDINGS MAY BE DILUTED IN THE FUTURE.
We are authorized to issue up to 50,000,000 shares of common stock. See
"Item 11. Description of Registrant's Securities to be Registered." To the
extent of such authorization, our Board of Directors will have the ability,
without seeking stockholder approval, to issue additional shares of common stock
in the future for such consideration as our Board of Directors may consider
sufficient. The issuance of additional common stock in the future will reduce
the proportionate ownership and voting power of our common stock held by
existing stockholders. We are also authorized to issue up to 500,000 shares of
preferred stock, the rights and preferences of which may be designated in series
by our Board of Directors. To the extent of such authorization, such
designations may be made without stockholder approval. The designation and
issuance of series of preferred stock in the future would create additional
securities that would have dividend and liquidation preferences over our common
stock.
WE MAY FAIL TO ESTABLISH AN EFFECTIVE INTERNAL ADVERTISING SALES ORGANIZATION TO
ATTRACT SPONSORSHIP AND ADVERTISING REVENUES.
To date, we have relied principally on outside parties to develop
sponsorship and advertising opportunities. We believe that the growth of
sponsorship and advertising revenues will depend on our ability to establish an
aggressive and effective internal advertising sales organization. Our internal
sales team currently has only two members. We will need to increase this sales
force in the coming year in order to execute our business plan. Our ability to
increase our sales force involves a number of risks and uncertainties, including
competition and the length of time for new sales employees to become productive.
If we do not develop an effective internal sales force, our business will be
materially and adversely affected. See "Item 1. Business--Employees."
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WE ARE GROWING RAPIDLY, AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT.
We are currently experiencing a period of significant expansion. In order
to execute our business plan, we must continue to grow significantly. This
growth will strain our personnel, management systems and resources. To manage
our growth, we must implement operational and financial systems and controls and
recruit, train and manage new employees. We cannot be certain that we will be
able to integrate new executives and other employees into our organization
effectively. If we do not manage growth effectively, our business, results of
operations and financial condition will be materially and adversely affected.
See "Item 1. Business-Employees" and "Item 5. Directors and Executive
Officers."
WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS, AND WE MAY NOT BE ABLE
TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS GROWS.
Our performance is substantially dependent on the continued services and on
the performance of our executive officers and other key employees, particularly
Jack Marshall, our Chief Executive Officer, President and Treasurer. The loss of
the services of any of our executive officers could materially and adversely
affect our business. Additionally, we believe we will need to attract, retain
and motivate talented management and other highly skilled employees to be
successful. Competition for employees that possess knowledge of both the
Internet industry and our target market is intense. We may be unable to retain
our key employees or attract, assimilate and retain other highly qualified
employees in the future. See "Item 1. Business-Employees" and "Item 5. Directors
and Executive Officers."
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
The markets in which we are engaged are new, rapidly evolving and intensely
competitive, and we expect competition to intensify further in the future.
Barriers to entry are relatively low, and current and new competitors can launch
new sites at a relatively low cost. We currently or potentially compete with a
number of other companies, including a number of large online communities and
services that have expertise in developing online commerce, and a number of
other small services, including those that serve specialty markets. Competitive
pressures created by any one of these companies, or by our competitors
collectively, could have a material adverse effect on our business, results of
operations and financial condition. See "Item 1. Business--Competition."
WE MAY NEED FURTHER CAPITAL.
Based on current reserves, anticipated cash flow and oral commitments from
investors, we currently anticipate that our available funds will be sufficient
to meet our anticipated needs for working capital, capital expenditures and
business expansion through the end of February, 2000. Thereafter, we will
need to raise additional funds. If additional funds are raised through the
issuance of equity or convertible debt securities, the percentage ownership of
our stockholders will be reduced, stockholders may experience additional
dilution and such securities may have rights, preferences and privileges senior
to those of our common stock. We are currently negotiating with prospective
investors with respect to financing; however, to date, no definitive agreements
have been reached. There can be no assurance that additional financing will be
available on terms favorable to us or at all. If adequate funds are not
available or are not available on acceptable terms, we may not be able to fund
expansion, take advantage of unanticipated acquisition opportunities, develop or
enhance services or products or respond to competitive pressures. Such
inability could have a material adverse effect on our business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Operations-Liquidity and Capital Resources."
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WE MAY FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB
SITES TO INCREASE NUMBERS OF WEB SITE USERS AND INCREASE OUR REVENUES.
We intend to establish numerous strategic alliances with popular web sites
to increase the number of visitors to our web site. There is intense competition
for placement on these sites, and we may not be able to enter into these
relationships on commercially reasonable terms or at all. Even if we enter into
strategic alliances with other web sites, they themselves may not attract
significant numbers of users. Therefore, our site may not receive additional
users from these relationships. Moreover, we may have to pay significant fees to
establish these relationships. Our inability to enter into new distribution
relationships or strategic alliances and expand our existing ones could have a
material and adverse effect on our business.
WE WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL
THIRD-PARTY SYSTEMS ARE NOT YEAR 2000-COMPLIANT.
We have not devised a Year 2000 contingency plan. The failure of our
internal systems, or any material third-party systems, to be Year 2000-compliant
could have a material and adverse effect on our business, results of operations
and financial condition.
To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. However, we may fail to discover Year
2000 compliance problems in our systems that will require substantial revisions
or replacements. In the event that the operational facilities that support our
business, or our web-hosting facilities, are not Year 2000-compliant, portions
of our web site may become unavailable and we would be unable to deliver
services to our users. In addition, there can be no assurance that third-party
software, hardware or services incorporated into our material systems will not
need to be revised or replaced, which could be time-consuming and expensive. Our
inability to fix or replace third-party software, hardware or services on a
timely basis could result in lost revenues, increased operating costs and other
business interruptions, any of which could have a material and adverse effect on
our business, results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues in our software,
hardware or systems could result in claims of mismanagement, misrepresentation
or breach of contract and related litigation, which could be costly and
time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000 compliant. The failure by these entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
including, for example, a prolonged Internet, telecommunications or electrical
failure, which could also prevent us from delivering our services to our users,
decrease the use of the Internet or prevent users from accessing our services,
any of which would have a material and adverse effect on our business, results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Statements and Results of Operations- Impact of the Year 2000."
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ACQUISITIONS MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON OUR BUSINESS.
We may acquire or make investments in complementary businesses, products,
services or technologies on an opportunistic basis when we believe they will
assist us in carrying out our business strategy. Growth through acquisitions has
been a successful strategy used by other Internet companies. We do not have any
present understanding, nor are we having any discussions relating to any such
acquisition or investment. If we buy a company, then we could have difficulty in
assimilating that company's personnel and operations. In addition, the key
personnel of the acquired company may decide not to work for us. An acquisition
could distract our management and employees and increase our expenses.
Furthermore, we may have to incur debt or issue equity securities to pay for any
future acquisitions, the issuance of which could be dilutive to our existing
shareholders.
UNFORESEEN DEVELOPMENTS MAY OCCUR WITH RESPECT TO DIGITAL IMAGING TECHNOLOGY.
Digital imaging is a relatively new phenomenon and the slower than expected
acceptance of the new technology could affect our ability to grow as rapidly as
we need to in order to meet our financial targets. Digital camera manufacturers
have made great strides in the past two years improving the functionality of
their cameras and pricing them in a range that is attractive to many consumers.
The continued refinement of the technology and commoditization of the price will
help to move acceptance of the technology along. Full acceptance of digital
imaging technology will require a move on the part of the photographic
population away from traditional chemical-based photo processing to the new
paradigm of home printed photos. The costs remain competitive for digital
imaging, however, there is no guarantee the general population will make this
shift rapidly, if at all.
WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE.
Our industry is new and rapidly evolving. Our business would be adversely
affected if web usage and e-commerce does not continue to grow. web usage may be
inhibited for a number of reasons, including:
- inadequate Internet infrastructure;
- security concerns;
- inconsistent quality of service; or
- unavailability of cost-effective, high-speed service.
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If web usage grows, the Internet infrastructure may not be able to support
the demands placed on it by this growth, or its performance and reliability may
decline. In addition, web sites have experienced a variety of interruptions in
their service as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays frequently occur in
the future, web usage, including usage of our web site, could grow slowly or
decline.
OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE E-COMMERCE MARKET, WHICH
IS UNCERTAIN.
Our future revenues and profits substantially depend upon the widespread
acceptance and use of the web as an effective medium of commerce by consumers.
Rapid growth in the use of the web and commercial online services is a recent
phenomenon. Demand for recently introduced services and products over the web
and online services is subject to a high level of uncertainty. The development
of the web and online services as a viable commercial marketplace is subject to
a number of factors, including the following:
- e-commerce is at an early stage and buyers may be unwilling to shift their
purchasing from traditional vendors to online vendors;
- insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and
- adverse publicity and consumer concerns about the security of commerce
transactions on the Internet could discourage its acceptance and growth.
ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN.
The growth of Internet sponsorships and advertising requires validation of
the Internet as an effective advertising medium. This validation has yet to
fully occur. In order for us to generate sponsorship and advertising revenues,
marketers must direct a significant portion of their budgets to the Internet
and, specifically, to our web site. To date, sales of Internet sponsorships and
advertising represent only a small percentage of total advertising sales. Our
business, financial condition and operating results would be adversely affected
if the market for Internet advertising fails to develop or develops slower than
expected. See "Item 1. Business--Advertising."
WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION OF AND LEGAL UNCERTAINTIES
SURROUNDING THE INTERNET.
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could increase our cost of doing business or
otherwise have a material and adverse effect on our business, results of
operations and financial condition. Laws and regulations directly applicable to
Internet communications, commerce and advertising are becoming more prevalent.
The law governing the Internet, however, remains largely unsettled, even in
areas where there has been some legislative action. It may take years to
determine whether and how existing laws governing intellectual property,
copyright, privacy, obscenity, libel and taxation apply to the Internet. In
addition, the growth and development of e-commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad. See
"Item 1. Business - Government Regulation."
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SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE.
To date, we have had a very limited trading volume in our common stock.
See "Item 9. Market Price and Dividends on the Registrant's Common Equity and
Related Stockholder Matters." Sales of substantial amounts of common stock,
including shares issued upon the exercise of outstanding options and warrants,
under Securities and Exchange Commission Rule 144 or otherwise could adversely
affect the prevailing market price of our common stock and could impair our
ability to raise capital at that time through the sale of our securities.
ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD-PARTY ACQUISITION OF US DIFFICULT.
We are a Nevada corporation. Anti-takeover provisions of Nevada law could
make it more difficult for a third party to acquire control of us, even if such
change in control would be beneficial to stockholders. Our articles of
incorporation provide that our Board of Directors may issue preferred stock
without stockholder approval. The issuance of preferred stock could make it
more difficult for a third party to acquire us. All of the foregoing could
adversely affect prevailing market prices for our common stock. See "Item 11.
Description of Registrant's Securities to be Registered -- Nevada Anti-Takeover
Laws and Certain Charter Provisions."
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.
The market price of our common stock is likely to be, highly volatile as
the stock market in general, and the market for Internet-related and technology
companies in particular, has been highly volatile. See "Item 9. Market Price
and Dividends on the Registrant's Common Equity and Related Stockholder
Matters." Investors may not be able to resell their shares of our common stock
following periods of volatility because of the market's adverse reaction to
volatility. The trading prices of many technology and Internet-related
companies' stocks have reached historical highs within the last 52 weeks and
have reflected valuations substantially above historical levels. During the same
period, these companies' stocks have also been highly volatile and have recorded
lows well below historical highs. We cannot assure you that our stock will trade
at the same levels of other Internet stocks or that Internet stocks in general
will sustain their current market prices.
Factors that could cause such volatility may include, among other things:
- actual or anticipated fluctuations in our quarterly operating results;
- announcements of technological innovations;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet industry; and
- changes in the market valuations of other Internet companies.
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ITEM 3. DESCRIPTION OF PROPERTIES
Our executive offices, comprising approximately 2,628 square feet, are
located at 300 Orchard City Drive, Suite 142, Campbell, California 95008. These
facilities are leased pursuant to a lease expiring August 31, 2001. The monthly
rent is $5,519. We also sublease approximately 1,430 square feet of space in
another building located in Campbell, California under a sublease that expires
in September 2000.
We maintain substantially all of our computer systems at AboveNet
Communications, Inc. See "Item 1. Business--Operations and Systems." Our
operations are dependent in part on our ability to protect our operating systems
against physical damage from fire, floods, earthquakes, power loss,
telecommunications failures, break-ins or other similar events. Furthermore,
despite our implementation of network security measures, our servers are also
vulnerable to computer viruses, break-ins and similar disruptive problems. The
occurrence of any of these events could result in interruptions, delays or
cessations in service to our users which could have a material adverse effect on
our business, results of operations and financial condition.
35
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 24, 2000, the ownership of
our common stock by each of our directors and executive officers, all of our
executive officers and directors as a group, and all persons known by us to
beneficially own more than 5% of our common stock.
Unless otherwise indicated in the footnotes to the table, the following
individuals have sole vesting and sole investment control with respect to the
shares they beneficially own and the address of each beneficial owner listed
below is c/o 300 Orchard City Drive, Suite 142, Campbell, California 95008.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) CLASS (1)
EXECUTIVE OFFICERS AND DIRECTORS:
- ------------------------------------------ --------------------------- -----------
<S> <C> <C>
Jack Marshall (2)(3) 2,655,473 20.6%
--------------------------- -----------
Christopher McConn (4) 879,639 6.8%
- ------------------------------------------ --------------------------- -----------
Lisa Marshall (2)(5) 327,735 2.2%
- ------------------------------------------ --------------------------- -----------
Patrick Dane (6) 250,072 1.9
--------------------------- -----------
John Marshall(2)(7) 830,830 6.2%
- ------------------------------------------ --------------------------- -----------
All directors and executive officers as a 5,231,749 34.0%
group (5 Persons) (3)(4)(5)(6)(7)
- ------------------------------------------
OTHER 5% STOCKHOLDERS:
George Perlegos 2,270,063 17.6%
--------------------------- -----------
Keith Queeney 700,759 5.4%
- ------------------------------------------ --------------------------- -----------
<FN>
* Less than one percent.
</TABLE>
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Under Rule 13d-3(d), shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned by
such person, but are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed.
(2) John Marshall is the father of Jack and Lisa Marshall, who are brother
and sister.
(3) Includes 538,195 shares of common stock subject to options that
are exercisable within 60 days of the date hereof.
(4) Includes 179,713 shares of common stock subject to options that
are exercisable within 60 days of the date hereof.
36
<PAGE>
(5) Includes 14,675 shares of common stock subject to options that
are currently exercisable.
(6) Includes 147,661 shares of common stock subject to options that
are currently exercisable.
(7) Includes 147,661 shares of common stock subject to options that
are currently exercisable.
37
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and positions of our directors and
executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- -------------------------------------
<S> <C> <C>
Jack Marshall (1) (3) (4) 38 President, Treasurer, Chief Executive
Officer and Director
- -------------------------
Christopher McConn 40 Chief Technology Officer and Director
--- -------------------------------------
Lisa Marshall (1) 41 Secretary
--- -------------------------------------
Patrick Dane (2) (3) (4) 50 Director
--- -------------------------------------
John Marshall (1) (2) 69 Director
- ------------------------- --- -------------------------------------
<FN>
(1) John Marshall is the father of Jack and Lisa Marshall, who are brother
and sister.
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Member of the Finance Committee
</TABLE>
The following sets forth biographical information concerning our directors
and executive officers for at least the past five years:
JACK MARSHALL has been developing Internet applications since 1993. After
assignments at Texas Instruments and Honeywell, Mr. Marshall worked as a sales
manager for Teradyne, formerly MegaTest, a leading developer of high-end,
state-of-the-art semiconductor test equipment. Mr. Marshall founded Photoloft
in 1993 under the name AltaVista Technology. Inc. Mr. Marshall received his
bachelor's degree in electrical engineering and computer engineering from
Michigan State University and has taught electric circuit analysis at Highland
Community College in Illinois. He has also completed several masters level
courses in computer engineering at Santa Clara University.
CHRISTOPHER MCCONN has been the Chief Technology Officer of Photoloft.com
since February 1994. Prior to our adoption of the Photoloft.com business
strategy, he served as our webmaster and developed web-based multimedia and
imaging programs. He has extensive expertise in programming C++ and served as a
consultant to Borland International, a leading producer of C++ and software
development tools from July 1995 to July 1996. In this role, Mr. McConn helped
develop the Object Windows Library, a foundation for PhotoLoft.com. Mr. McConn
received his bachelor's degree in electrical engineering from UC Davis in 1982.
Mr. McConn has over 13 years of industry experience including stints at Ford
Aerospace and Teradyne, where he oversaw the company's software QA development.
LISA MARSHALL has over 20 years of strategic and tactical communications
experience, focused primarily on investor relations, media communications and
marketing and brand development. Working in a number of diverse industries, she
helped spearheaded nationwide efforts to deregulate the airline, natural gas
transportation, and most recently, electric generation industries, working to
establish strong, deregulated competitors in the various marketplaces. In
addition, she handled the communications efforts of the Vastar Resources Initial
Public Offering, which was the largest to date on the New York Stock Exchange
when implemented in 1994. From 1985 to 1988 she served in various managerial
positions at Continental Airlines. From 1988 to 1993 she served in various
managerial positions at Tenneco Inc. From February 1993 to June 1997 she served
as director of Communications for ARCO/Vastar Resources. From July 1997 to
October 1998 she served as director of Communications for Southern Company. Ms.
Marshall earned her bachelor's degree from the University of Wyoming in American
Studies in 1980 and her bachelors degree from the University of Houston in
journalism in 1984.
38
<PAGE>
PATRICK DANE has spent more than twenty years in the high technology
industry. He spent fifteen years in sales and marketing at Xerox where he was
responsible for bringing the "Alto" Computer Ethernet and File, Print &
Communication Servers out to the public from the Palo Alto Research Center in
1980. Additionally, he was the creator of the award winning slogan "Team Xerox"
and other pioneering efforts. As Vice President, Sales & Marketing at Dove
Computer Corp. he introduced the MacWorld World Class Award Winning Dove Fax
Modem. As a General Manager with Calera Recognition Systems from 1991 to 1992
Dane was responsible for bringing Fax Grabber to there tail and original
equipment manufacturer marketplace. While President and CEO of SoftNet in from
July 1992 to August 1993 he launched the category-leading Fax Works for Windows.
Dane co-founded and ran Pipeline Communications which introduced online warranty
registration to the computer industry. This service is used by over seventy five
of the top PC manufacturers and ISV's in the marketplace today. In the spring
of1996, Dane founded Tuneup.com an online PC service center, Quarterdeck
Corporation acquired his "Pioneer" among the Internet subscription-based
businesses in May of 1997. In September1996, Dane and Mike Walter began
broadcasting a weekly radio show devoted to the Internet called, "Pat & Mike's
World Wide Web Radio Show". The show, sponsored by CompuServe, Yahoo! IZift
Davis, Hewlett-packard, Office Depot.com, McAfee and USA Today, has a growing
worldwide audience on the Internet and in twenty seven real radio markets. The
show was picked up for national syndication by Premiere Radio Networks in mid
1997. Mr. Dane graduated from Broom Comm College in 1969.
JOHN C. MARSHALL began his career in 1952 with Shell Oil Company, where he
held various management positions until 1975, when he was named General Manager
of Land Operations, North America. He left the company in 1979 to join Patrick
Petroleum as senior vice president. A year later he was named executive vice
president responsible for all operations, and all merger and acquisition
activity. After negotiating the sale of all PPC assets to General Electric, he
founded Kleenburn Energy in 1984 a privately held independent oil and gas
concern. Mr. Marshall earned his bachelor's degree in business from the
University of Wyoming in 1952.
BOARD OF DIRECTORS
All directors hold office until the next annual meeting of shareholders
following their election or until their successors have been elected and
qualified. Executive officers are appointed by and serve at the pleasure of the
Board of Directors. We may adopt provisions in our By-laws and/or Articles of
Incorporation to divide the board of directors into more than one class and to
elect each class for a certain term. These provisions may have the effect of
discouraging takeover attempts or delaying or preventing a change of control of
Photoloft.
39
<PAGE>
BOARD COMMITTEES
The Compensation Committee of the Board of Directors determines the
salaries and incentive compensation of our officers and provides recommendations
for the salaries and incentive compensation of our other employees. The
compensation committee also administers our stock option plan. The current
members of the Compensation Committee are Messrs. Dane, and John Marshall. Prior
to April 8, 1999, we did not have a Compensation Committee or any other
committee of the Board of Directors that performed any similar functions. See
"Compensation Committee Interlocks and Insider Participation."
The Audit Committee of the Board of Directors reviews, acts on and reports
to the Board of Directors with respect to various auditing and accounting
matters, including the selection of our independent auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices. The current members of the
audit committee are Messrs. Dane and Jack Marshall.
The Finance Committee of the Board of Directors reviews, acts on and
reports to the Board of Directors with respect to various financing matters. The
current members of the audit committee are Messrs. Dane and Jack Marshall.
The Board of Directors does not have a nominating committee.
DIRECTORS' COMPENSATION
Directors who are also employees of Photoloft.com receive no compensation
for serving on the Board of Directors. With respect to directors who are not
employees, we intend to reimburse such directors for all travel and other
expenses incurred in connection with attending meetings of the Board of
Directors and any committees of the Board. Non-employee directors are also
eligible to receive and have received grants of non-qualified stock options
under our stock option plan, and we intend to establish a non-employee director
stock option plan which will provide for initial option grants of a fixed number
of shares of our common stock to non-employee directors and successive annual
option grants to such non-employee directors covering an additional fixed number
of shares to provide us with an effective way to recruit and retain qualified
individuals to serve as members of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We did not have a Compensation Committee or other committee of the Board of
Directors performing similar functions during the fiscal years ending December
31, 1997 and 1998. Messrs. Jack Marshall and Chris McConn are each officers of
Photoloft.com and, as members of the Board of Directors, participated in
deliberations of the Board of Directors relating to the compensation of our
executive officers. The Board of Directors established a Compensation Committee
as of April 8, 1999. See "Board Committees."
40
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth the compensation awarded or paid to, or
earned by, our Chief Executive Officer and all our other executive officers who
earned in excess of $100,000 in salary and bonus (collectively the "Named
Executives") for services rendered to us during the years ended December 31,
1998 and December 31, 1999:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)(2)
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
NAME AND PRINCIPAL YEAR SALARY ($) NUMBER OF SECURITIES
POSITION UNDERLYING OPTIONS (#)
<S> <C> <C> <C>
Jack Marshall, CEO,
President and Treasurer 1998 156,864 1,135,032
1999 120,000 0
Christopher E. McConn,
Chief Technology Officer 1998 127,229 454,013
1999 115,000 0
<FN>
(1) Information set forth herein includes services rendered by the Named
Executives while employed by Photoloft.com, Inc. prior to the reorganization with
Data Growth, Inc. and by Photoloft.com following the reorganization with Data
Growth, Inc
(2) The columns for "Bonus", "Other Annual Compensation", "Restricted Stock
Awards", "LTP Payouts" and "All other Compensation" have been omitted because
there is no compensation required to be reported.
</TABLE>
The following table sets forth certain information concerning options
granted to the Named Executives during 1999.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
No option grants were made to either of the Named Executives during the
fiscal year 1999.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information with respect to the
Named Executives concerning exercisable and unexercisable stock options held by
them as of December 31, 1999. None of these executive officers exercised options
to purchase common stock in 1999.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN 1999 AND YEAR END OPTION VALUES
NAME Number of Unexercised Value of Unexercised In-the-
Options at Year End(#) Money Options at Year End (1)
--------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Jack Marshall
401,991 733,041 $ 510,529 $ 930,962
Christopher E. McConn
160,796 293,217 $ 204,211 $ 372,385
<FN>
(1) Based on a per share fair market value of our common stock equal to
$1.75 per share, the fair market value as determined by our Board of Directors
at December 31, 1999.
</TABLE>
41
<PAGE>
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
On February 26, 1999 we entered into an employment agreement with Jack
Marshall. Under the executive employment agreement, Jack Marshall is to serve
as our Chief Executive Officer, President and Treasurer and perform such duties
as may be reasonably assigned to him by the Board of Directors. The executive
employment agreement provides for an annual base salary of $120,000 which shall
be reviewed at least annually. Under the executive employment agreement, the
executive is also eligible for annual bonus compensation in the minimum amount
of $60,000 if Photoloft reaches certain specific milestones. The executive
employment agreement also provides that Mr. Marshall is to receive options to
purchase between 250,000 and 750,000 shares of our common stock if traffic to
our web Site reaches between 500,000 and 1,000,000 hits in any particular month.
These options will have an exercise price of $0.75 per share. He is eligible to
receive vacation in accordance with Photoloft.com's policies. He is also
eligible to participate in the health, life insurance, medical, retirement and
other benefit programs which we may offer from time to time. He also is to
receive a car allowance of $500 per month.
42
<PAGE>
The term of the executive employment agreement lasts until December 31,
2001 and continues thereafter on a year to year basis unless terminated pursuant
to the terms thereof. We may terminate him at any time with or without cause.
The term "cause" is defined in the executive employment agreement as: (i) the
willful neglect of duties reasonably assigned by the Board of Directors; (ii)
material breach of the agreement; or (iii) willful gross misconduct. If Mr.
Marshall is terminated without cause, he is to receive severance pay through
December 31, 2001 equal to: (i) the base salary; (ii) bonus compensation; (iii)
vested options to purchase common stock; (iv) health insurance; (v) car
allowance; and (vi) any unused vacation time. pre payment of all automobile
allowance for the remaining period of the term. If he resigns from his position
for good cause, including a substantial reduction in his position, duties or a
material breach of the agreement by us, he is to be deemed terminated without
cause and is eligible to receive severance.
EMPLOYEE BENEFIT PLANS
Stock Option Plan
Our stock option plan was adopted by the Board of Directors, and ratified
and approved by our stockholders, as of the closing of the reorganization with
Data Growth, Inc. The Board of Directors amended the Plan in June 1999. The
following description of our stock option plan is a summary and qualified in its
entirety by the text of the plan, which is filed as an exhibit to this
registration statement.
The purpose of the Plan is to enhance our profitability and stockholder
value by enabling us to offer stock based incentives to employees, directors and
consultants. The Plan authorizes the grant of options to purchase shares of
common stock to employees, directors and consultants of Photoloft and its
affiliates. Under the Plan, we may grant incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986 and non-qualified
stock options. Incentive stock options may only be granted our employees.
The number of shares available for options under the Plan is 3,800,000. The
Plan is administered by the Compensation Committee of the board. Subject to the
provisions of the Plan, the Compensation Committee has authority to determine
the employees, directors and consultants of Photoloft who are to be awarded
options and the terms of such awards, including the number of shares subject to
such option, the fair market value of the common stock subject to options, the
exercise price per share and other terms.
Incentive stock options must have an exercise price equal to at least 100%
of the fair market value of a share on the date of the award unless the grant is
to a stockholder holding more than 10% of our voting stock in which case it must
be 110% of the fair market value on the date of grant. Generally, they may not
have a duration of more than 10 years or five years if the grant is to a
stockholder holding more than 5% of our voting stock. Terms and conditions of
awards are set forth in written agreements between Photoloft.com and the
respective option holders. Awards under the Plan may not be made after the tenth
anniversary of the date of its adoption but awards granted before that date may
extend beyond that date.
43
<PAGE>
If the employment with Photoloft of the holder of an incentive stock option
is terminated for any reason other than as a result of the holder's death or
disability or for "cause" as defined in the Plan, the holder may exercise the
option, to the extent exercisable on the date of termination of employment,
until the earlier of the option's specified expiration date and 90 days after
the date of termination. If an option holder dies or becomes disabled, both
incentive and non-qualified stock options may generally be exercised, to the
extent exercisable on the date of death or disability, by the option holder or
the option holder's survivors until the earlier of the option's specified
termination date and one year after the date of death or disability.
As of January 24, 2000, 225,000 shares had been issued as the result of the
exercise of options previously granted under the Plan, 3,592,141 shares were
subject to outstanding options and 121,500 shares were available for future
grants. The exercise prices of the outstanding options ranged from $0.48 to
approximately $5.25. The options under the Plan vest over varying lengths of
time pursuant to various option agreements that we have entered into with the
grantees of such options.
We have not registered the Plan, or the shares subject to issuance
thereunder, pursuant to the Securities Act of 1933. Absent registration, such
shares, when issued upon exercise of options, would be "restricted securities"
as that term is defined in Rule 144 under the Securities Act of 1933.
Optionees have no rights as stockholders with respect to shares subject to
options prior to the issuance of shares pursuant to the exercise thereof.
Options issued to employees under the Plan shall expire no later than ten years
after the date of grant. An option becomes exercisable at such time and for
such amounts as determined at the discretion of the Board of Directors or the
Compensation Committee at the time of the grant of the option. An optionee may
exercise a part of the option from the date that part first becomes exercisable
until the option expires. The purchase price for shares to be issued to an
employee upon his exercise of an option is determined by the Board of Directors
or the Compensation Committee on the date the option is granted. The purchase
price is payable in full in cash, by promissory note, by net exercise or by
delivery of shares of our common stock when the option is exercised.
The Plan provides for adjustment as to the number and kinds of shares
covered by the outstanding options and the option price therefor to give effect
to any stock dividend, stock split, stock combination or other reorganization of
or by Photoloft.
44
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Unless otherwise indicated, information in this Item 7 regarding shares of
our common stock reflect the 1.5133753 for 1 conversion ratio applied to shares
of Photloft.com, Inc., a California corporation common stock at the time of the
reorganization.
ISSUANCES TO FOUNDER. Upon his founding of Photoloft.com, Inc. in November,
1993, we issued 756,688 shares of common stock to Jack Marshall in exchange for
$500.00. At that time, we also issued him options to purchase up to 1,152,493
shares of common stock which vested over a four year period and had an exercise
price of $0.001 per share. He exercised his options and elected to purchase
1,152,493 shares of common stock in February, 1999. During our offering of
preferred stock described below, he purchased 125,000 shares in exchange for
$25,000. He transferred 50,000 shares of common stock by gift in February 1999.
In March, 1999 his shares of Photoloft.com, Inc. common stock and his options to
purchase shares of Photoloft.com, Inc. common stock were converted into shares
of Photoloft.com common stock, and options to purchase Photoloft.com common
stock as a result of the reorganization with Data Growth, Inc
SERIES A PREFERRED OFFERING. From 1994 to 1998 we conducted a private
offering of Photoloft.com, Inc., a California corporation series A preferred
stock. As a result, we sold the aggregate amount of 2,275,625 shares of series
A preferred stock in exchange for $455,125. Under this offering, Messrs. John
Marshall, and Chris McConn, purchased 295,000 and 25,000 shares of stock,
respectively. As described above, Mr. Jack Marshall also participated in the
offering. Each outstanding share of series A preferred stock was converted into
1.5 shares of common stock of Photoloft.com, Inc. in February, 1999. Ms. Lisa
Marshall purchased 12,500 shares for $2,500.
SERIES B PREFERRED OFFERING. In August 1996, conducted a private offering
of Photoloft.com, Inc., a California corporation series B preferred stock. As a
result, we sold 150,000 shares of our series B preferred stock to Mr. Kris
Chellum for $45,000. Each outstanding share of series B preferred stock was
converted into 1.5 shares of common stock of in February, 1999.
1996 CONSULTING SERVICES. In 1996 we issued 53,472 shares of common stock
to Mr. Keith Queeney and Mr. Christopher McConn in exchange for services
provided to us.
SERIES C PREFERRED OFFERING. In October, 1997 we entered into an agreement
with Kremen, Father & Partners to provide us with financial consulting services
and assist us with obtaining financing. One of our former directors, Gary
Kremen, was a principal of Kremen, Father & Partners. In exchange for $59,500
worth of services, we issued, from 1997 to 1998, 63,384 shares of series C
preferred stock to Mr. Kremen. Each outstanding share of series C preferred
stock was converted into 1.5 shares of common stock in February, 1999.
Currently, we no longer contract with Kremen, Father & Partners for any
services.
1998 CONSULTING SERVICES. In 1998 we issued 176,006 shares of common stock
to consultants and employees who provided services to us. Under this offering,
Ms. Lisa Marshall received 15,739 shares of common stock.
45
<PAGE>
EXERCISED STOCK OPTIONS. In February, 1999 we issued the aggregate amount
of 2,844,112 shares of common stock upon the exercise of options to purchase
common stock which were granted to employees, directors and consultants of
Photoloft.com between 1993 and 1998. Under this issuance, Messrs. Jack Marshall
and Chris McConn exercised options to purchase 1,152,493 and 610,181 shares of
common stock, respectively.
STOCK OPTION PLAN. In 1998, we issued options to purchase the aggregate
amount of 2,690,706 shares of common stock to employees, directors and
consultants of Photoloft.com pursuant to Photoloft.com's stock option plan.
These options have an exercise price of $0.48 per share. Under this offering,
Mr. Jack Marshall and Mr. Chris McConn received options to purchase up to
1,135,032 and 454,013 shares of common stock, respectively, with exercise prices
of $0.48 per share. These options vest in 48 monthly installments.
Additionally, from January to October 1999, we have issued options to purchase
the aggregate amount of 699,936 shares of common stock to employees, directors
and consultants of Photoloft.com pursuant to Photoloft.com's stock option plan.
These options were issued at their fair market value on the date of grant and
have exercise prices ranging from $0.48 to $5.25.
In addition to the above, in March 1999, we issued the aggregate amount of
225,000 shares of common stock upon the exercise of options to purchase common
stock which were granted to certain employees, directors, and consultants of
Photoloft.com in March 1999 under Photoloft.com's stock option plan. These
options had an exercise price of $0.50 per share. Under this offering, Mr. John
Marshall exercised options to purchase 13,500 shares of common stock.
REORGANIZATION. On March 1, 1999, Photoloft.com, Inc., a California
corporation entered into the reorganization with a non-operating public company,
Data Growth, Inc., a Nevada corporation incorporated in January, 1996. Under the
Reorganization Agreement, the Photoloft.com, Inc. stockholders received
1.5133753 shares of Data Growth common stock in exchange for each of their
shares of common stock. Additionally, the holders of options to purchase
shares of common stock of Photoloft.com, Inc. terminated their options and
received options to purchase shares of common stock of Data Growth. As a result
of the reorganization with Data Growth, Photoloft.com, Inc. became a
wholly-owned subsidiary of Data Growth. Data Growth adopted the Photoloft.com,
Inc. stock option plan. An aggregate of 9,579,266 shares of common stock and
options to purchase an aggregate of 2,795,734 shares of common stock were issued
to the former Photoloft.com, Inc. stockholders and option holders, respectively,
in the reorganization and the Photoloft.com, Inc. stockholders owned
approximately 77% of Data Growth immediately after the reorganization. As part
of the reorganization, all of the executive officers and directors of Data
Growth resigned and the executive officers and directors of Photoloft.com, Inc.
became the executive officers and directors of Data Growth which changed its
name to Photoloft.com
BAYTREE CAPITAL ASSOCIATES, LLC. In February, 1999 Photoloft.com, Inc.
entered into an agreement with Baytree Capital Associates, LLC which we assumed
after the reorganization with Data Growth, Inc. Under the agreement, Baytree
provided financial consulting and assistance to Photoloft.com, Inc. which
including the structuring and negotiation of a loan, the identification of a
merger candidate and the assistance with the reorganization. For their
services, Baytree received 25,000 shares of our common stock and was paid
$10,000 in non-accountable expense reimbursements. In addition, Baytree has
been granted a 24 month right of first refusal with respect to any subsequent
financings. Baytree also has unlimited "piggyback" registration rights as to its
25,000 shares. Lynn Dixon, a shareholder of Data Growth was instrumental in
locating Data Growth as an entity to be used in the reorganization. Mr. Dixon
was also involved in the negotiation of the terms of the transaction.
In December 1999, we issued options to purchase up to 288,000 shares of
common stock to Lisa Marshall, our Secretary as compensation for services
rendered. The right to exercise these options vests in 16 equal quarterly
installments over 4 years. The exercise price for the options is $1.50 per
share, which was not less than the fair market value of the shares underlying
the options on the date of grant.
In December 1999, we issued options to purchase up to 58,750 shares of
common stock to each of Pat Dane and John Marshall, members of our board of
directors with exercise prices of $0.75 per share.
In December 1999, we issued 163,217 shares of common stock in exchange for
$250,000 and warrants to purchase up to 33,000 shares of common stock with
exercise prices of $1.5317 per share to Lisa Marshall, our Secretary. In
December 1999, we also issued 97,930 shares of common stock to John Marshall, a
member of our board of directors, in exchange for $150,000 and warrants to
purchase up to 20,000 shares of common stock with exercise prices of $1.5317 per
share.
46
<PAGE>
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.
47
<PAGE>
ITEM 8. LEGAL PROCEEDINGS
There are presently two pending legal proceedings to which we are a party.
On April 2, 1999 James Vierra filed an action against us in the United States
District Court for the Northern District of California alleging, among other
things, breaches of fiduciary duties, violation of securities laws, and
employment related claims arising out of the disputed ownership of the ID4Life
division and the termination of Mr. Vierra's employment with us. The case number
is C-99 202280. Mr. Vierra sought preliminary and permanent injunctive relief,
restitution, actual and punitive damages. On May 12, 1999 we answered the
complaint and asserted a counterclaim comprising of claims for declaratory
relief, breach of fiduciary duty and breach of contract against Mr. Vierra. Our
counterclaim sought declaratory relief with regard to the ownership of ID4Life
and damages for breach of contract and breach of fiduciary duty. We entered
into a binding settlement agreement with Mr. Vierra on January 20, 2000 under
which we admitted no wrongdoing. In exchange for the release of all claims, we
gave Mr. Vierra $20,000 and permitted him to exercise options to purchase 37,500
shares of our common stock, which were held by Mr. Vierra. We paid the exercise
price for these options.
On June 23, 1999 Hewlett-Packard, Co. filed an action against us in the
Santa Clara County Superior Court of California alleging trade secret
misappropriation, unfair competition, and breach of contract arising out of the
activities of one of our employees. Hewlett-Packard is seeking injunctive
relief and damages. The case number is CV 782769. Hewlett-Packard seeks a
preliminary and permanent injunction enjoining us from directly or indirectly
using trade secrets of Hewlett-Packard and for damages. We are presently in
settlement negotiations with Hewlett-Packard with regard to this matter.
Management believes that the outcome of this matter will be a non-monetary
settlement. We have a preexisting relationship with Hewlett-Packard with
respect to the development and use of certain aspects of our advanced viewing
and printing technologies. See "Item 1. Business -- Products and Services."
To the best of our knowledge, there are presently no other pending legal
proceedings to which we or any of our subsidiaries is a party or to which any of
our property is subject and, to the best of its knowledge, no such actions
against us are contemplated or threatened.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
No shares of our common stock have previously been registered with the
Securities and Exchange Commission or any state securities agency or authority.
Our common stock has been trading on the National Association of Security
Dealers Over-The-Counter Market Bulletin Board since March 1, 1999 under the
symbol "LOFT". The following table sets forth the range of high and low bid
prices of the common stock for each calendar quarterly period since trading
commenced as reported by the National Quotation Bureau, Inc. Prices reported by
the National Quotation Bureau represent prices between dealers, do not include
retail markups, markdowns or commissions and do not represent actual
transactions.
1999 High Low
---- ---- ---
First Quarter (March 1 to March 31) $7.375 $4.500
Second Quarter (April 1 to June 30) $5.500 $3.625
Third Quarter (July 1 to September 30) $5.375 $1.562
Fourth Quarter (October 1 to December 31) $2.937 $1.343
2000
----
First Quarter (January 1 to January 21) $2.375 $1.750
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As of January 24, 2000 there were approximately 324 holders of record of
our common stock, which figure does not take into account those stockholders
whose certificates are held in the name of broker-dealers or other nominees.
Dividend Policy
We have not declared or paid cash dividends or made distributions in
the past, and we do not anticipate that we will pay cash dividends or make
distributions in the foreseeable future. We currently intend to retain and
invest future earnings to finance our operations.
Transfer Agent
Our transfer agent for our common stock is Interwest Transfer Co., Inc.,
1981 East 4800 South, Salt Lake City, Utah 84117.
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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of common
stock issued and options and warrants and other convertible securities granted
by us during the past three years. Also included is the consideration, if any,
received by us for such shares and options and information relating to the
section of the Securities Act of 1933, or rule of the Securities and Exchange
Commission under which exemption from registration was claimed.
Transactions described in Items (1) through (10) below refer to the
securities of PhotoLoft.Com, Inc., a California corporation which was the
predecessor entity of the filer of this registration statement, and transactions
described in Items (11) through (15) below refer to the securities of
Photoloft.com, a Nevada corporation which is the filer of this registration
statement.
Unless otherwise indicated, information in this Item 10 regarding shares of
our common stock reflect the 1.5133753 for 1 conversion ratio applied to shares
of Photoloft.com, Inc. common stock at the time of the reorganization.
(1) From 1994 to 1998 we sold the aggregate amount of 2,275,625 shares
of series A preferred stock to 7 investors and 7 consultants in exchange for
$430,125 valued in cash and services provided to Photoloft.com pursuant to a
private offering of our series A preferred stock. The issuances were made in
reliance on Section 4(2) of the Securities Act of 1933 and/or Regulation D
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate these investments, and
who represented to Photoloft.com that the shares were being acquired for
investment.
(2) In August 1996, we sold the aggregate amount of 150,000 shares of
our series B preferred stock to 1 investor for $45,000 pursuant to a private
offering of our preferred stock. The issuance was made in reliance on Section
4(2) of the Securities Act of 1933 and/or Regulation D promulgated under the
Securities Act of 1933 and was made without general solicitation or advertising.
The purchaser was a sophisticated investor with access to all relevant
information necessary to evaluate the investment, and who represented to
Photoloft.com that the shares were being acquired for investment.
(3) In 1996 and 1997 we issued 67,244 shares of common stock to 3
consultants, 1 director and 1 employee of Photoloft.com in exchange for services
rendered to us valued at $8,667. The issuances were made in reliance on Section
4(2) of the Securities Act of 1933 and were made without general solicitation
or advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate these investments, and who
represented to Photoloft.com that the shares were being acquired for investment.
(4) From 1997 to 1998, Photoloft.com issued 63,384 shares of series C
preferred stock to 1 investor in exchange for services valued at $59,500
pursuant to a private offering of our preferred stock. The issuance was made in
reliance on Section 4(2) of the Securities Act of 1933 and was made without
general solicitation or advertising. The purchaser was a sophisticated investor
with access to all relevant information necessary to evaluate the investment,
and who represented to Photoloft.com that the shares were being acquired for
investment.
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(5) In 1998 we issued 176,006 shares of common stock to 3 consultants
and 1 employee of Photoloft.com in exchange for services rendered to
Photoloft.com. The issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate these investments, and who
represented to Photoloft.com that the shares were being acquired for investment.
(6) In 1998, we issued options to purchase up to 2,690,706 shares of
common stock to 7 employees, 4 directors and 2 consultants of Photoloft.com with
an exercise price of $0.48 per share pursuant to Photoloft.com's stock option
plan. These issuances were made in reliance on Section 4(2) of the Securities
Act of 1933 and/or Rule 701 promulgated under the Securities Act of 1933 and
were made without general solicitation or advertising. The purchasers were
sophisticated investors with access to all relevant information necessary to
evaluate these investments, and who represented to Photoloft.com that the shares
were being acquired for investment.
(7) From January 1999 to October 1999 Photoloft.com issued options to
purchase the aggregate amount of 924,936 shares of common stock to 13 employees
pursuant to Photoloft.com's stock option plan with exercise prices from $0.48
per share to $5.25 per share. These issuances were made in reliance on Section
4(2) of the Securities Act of 1933 and/or Rule 701 promulgated under the
Securities Act of 1933 and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate these investments, and who
represented to Photoloft.com that the shares were being acquired for investment.
(8) In February, 1999 we issued the aggregate amount of 2,844,112
shares of common stock upon the exercise of options to purchase common stock
which were granted to 3 employees, 3 directors and 2 consultants of
Photoloft.com between 1993 and 1998. The issuances were made in reliance on
Section 4(2) of the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate these investments, and
who represented to Photoloft.com that the shares were being acquired for
investment.
(9) In February 1999, we issued 5,650,207 shares of common stock in
exchange and upon the conversion of shares of issued and outstanding series A, B
and C preferred stock of Photoloft.com. The issuances were made in reliance on
Section 4(2) of the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate these investments, and
who represented to Photoloft.com that the shares were being acquired for
investment.
(10) In February 1999, Photoloft.com issued 85,011 shares of common
stock to 4 consultants of Photoloft.com in exchange for services valued at
$42,506. The issuances were made in reliance on Section 4(2) of the Securities
Act of 1933 and were made without general solicitation or advertising. The
purchasers were sophisticated investors with access to all relevant information
necessary to evaluate these investments, and who represented to Photoloft.com
that the shares were being acquired for investment.
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(11) In March 1999, under the terms of the reorganization with Data
Growth, Inc., Photoloft.com issued the aggregate amount of 9,579,266 shares of
common stock to the shareholders of Photoloft.com in exchange for their shares
of common stock of Photoloft.com, IncThe issuances were made in reliance on
Section 4(2) of the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate these investments, and
who represented to Photoloft.com that the shares were being acquired for
investment.
(12) In March 1999, under the terms of the reorganization with Data
Growth, Inc., the holders of options to purchase common stock of Photoloft.com,
Inc. exchanged their options for options to purchase the aggregate amount of
2,795,734 shares of common stock of Photoloft.com. These issuances were made in
reliance on Section 4(2) of the Securities Act of 1933 and/or Rule 701
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate these investments, and
who represented to Photoloft.com that the shares were being acquired for
investment.
(13) In March 1999, pursuant to the terms of the reorganization with
Data Growth, Inc. Photoloft.com conducted a private offering of its common
stock. Pursuant to that offering, a total of 2,000,000 shares of common stock
were sold for total cash consideration of $1,000,000. The issuances were made in
reliance on Section 4(2) of the Securities Act of 1933 under the Securities Act
of 1933 and were made without general solicitation or advertising. The
purchasers were sophisticated investors with access to all relevant information
necessary to evaluate these investments, and who represented to Photoloft.com
that the shares were being acquired for investment.
(14) In March 1999, Photoloft.com issued 225,000 shares of common stock
upon the exercise of options to purchase common stock held by employees,
directors and consultants of Photoloft.com. These options were issued in 1999
and had exercise prices of $0.50 per share. These issuances were made in
reliance on Section 4(2) of the Securities Act of 1933 and/or Rule 701
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate these investments, and
who represented to Photoloft.com that the shares were being acquired for
investment.
(15) In March 1999, Photoloft.com issued 25,000 shares of common stock
to Baytree Capital Associates pursuant to the terms of a Letter Agreement with
Baytree Capital Associates for financial business consulting services. The
issuance was made in reliance on Section 4(2) of the Securities Act of 1933
and/or Regulation D promulgated under the Securities Act of 1933 and was made
without general solicitation or advertising. The purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment, and who represented to Photoloft.com that the shares were being
acquired for investment.
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(16) In September 1999, Photoloft.com issued warrants to purchase up to
350,000 shares of common stock to Xoom.com in consideration for services
performed for Photoloft.com by Xoom.com pursuant to a services agreement. The
issuance was made in reliance on Section 4(2) of the Securities Act of 1933
and/or Regulation D promulgated under the Securities Act of 1933 and was made
without general solicitation or advertising. The purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment, and who represented to Photoloft.com that the shares were being
acquired for investment.
(17) In December 1999, we issued options to purchase up to 288,000
shares of common stock to 1 officer with an exercise price of $1.50 per share.
The issuance was made in reliance on Section 4(2) of the Securities Act of 1933
and/or Rule 701 promulgated under the Securities Act of 1933 and was made
without general solicitation or advertising. The purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment, and who represented that the shares were being acquired for
investment.
(18) In December 1999, we issued options to purchase up to 201,500
shares of common stock to 10 employees and 2 directors with exercise prices
ranging from $0.75 to $2.38 per share pursuant to our stock option plan. These
issuances were made in reliance on Section 4(2) of the Securities Act of 1933
and/or Rule 701 promulgated under the Securities Act of 1933 and were made
without general solicitation or advertising. The purchasers were sophisticated
investors with access to all relevant information necessary to evaluate these
investments, and who represented that the shares were being acquired for
investment.
(19) In December 1999, we issued 326,434 shares of common stock in
exchange for $500,000 and warrants to purchase up to 66,000 shares of common
stock with exercise prices of $1.5317 per share to 3 investors. The issuances
were made in reliance on Section 4(2) of the Securities Act of 1933 and/or
Regulation D promulgated under the Securities Act of 1933 and was made without
general solicitation or advertising. The purchasers were sophisticated investors
with access to all relevant information necessary to evaluate the investments,
and who represented that the shares were being acquired for investment.
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ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The descriptions in this Item and in other sections of this registration
statement of our securities and various provisions of our Articles of
Incorporation and our Bylaws are summaries. Statements contained in this
registration statement relating to such provisions are not necessarily complete,
and reference is made to the Articles of Incorporation and Bylaws, copies of
which have been filed with the Securities and Exchange Commission as exhibits to
this registration statement, and provisions of applicable law.
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $.001 per share, and 500,000 shares of preferred stock, par value
$.001. As of January 24, 2000, 12,871,375 shares of our common stock were
issued and outstanding and 3,800,000 shares of common stock were reserved for
issuance upon exercise of outstanding options. Only our common stock is being
registered under the Securities Exchange Act of 1934 pursuant to this
registration statement. As of January 24, 2000, no shares of our preferred
stock were issued and outstanding. See "Item 2. Financial Information--Risk
Factors, Operating Results and Financial Condition--Anti-Takeover Provisions And
Our Right To Issue preferred stock Could Make A Third-Party Acquisition Of Us
Difficult."
Description of common stock
The holders of our common stock are entitled to equal dividends and
distributions per share with respect to the common stock when, as and if
declared by the Board of Directors from funds legally available therefor. No
holder of any shares of our common stock has a pre-emptive right to subscribe
for any of our securities, nor are any common shares subject to redemption or
convertible into other of our securities. Upon liquidation, dissolution or
winding up of Photoloft, and after payment of creditors and preferred
stockholders, if any, the assets will be divided pro-rata on a share-for-share
basis among the holders of the shares of common stock. All shares of common
stock now outstanding are fully paid, validly issued and non-assessable.
Each share of common stock is entitled to one vote with respect to the
election of any director or any other matter upon which shareholders are
required or permitted to vote. Holders of the common stock do not have
cumulative voting rights, so the holders of more than 50% of the combined shares
voting for the election of directors may elect all of the directors if they
choose to do so, and, in that event, the holders of the remaining shares will
not be able to elect any members to the Board of Directors.
Anti-Takeover Effects of Various Provisions of Nevada Law and Our Articles of
Incorporation and Bylaws
We are incorporated under the laws of the State of Nevada and are therefore
subject to various provisions of the Nevada corporation laws which may have the
effect of delaying or deterring a change in the control or management of
Photoloft.
Nevada's "Combination with Interested Stockholders Statute," Nevada Revised
Statutes 78.411-78.444, which applies to Nevada corporations like us having at
least 200 stockholders, prohibits an "interested stockholder" from entering into
a "combination" with the corporation, unless certain conditions are met. A
"combination" includes
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- -- any merger with an "interested stockholder," or any other corporation
which is or after the merger would be, an affiliate or associate of the
interested stockholder;
- -- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets, in one transaction or a series of transactions,
to an "interested stockholder," having:
-- an aggregate market value equal to 5% or more of the aggregate
market value of the corporation's assets,
-- an aggregate market value equal to 5% or more of the aggregate
market value of all outstanding shares of the corporation, or
-- representing 10% or more of the earning power or net income of the
corporation,
- -- any issuance or transfer of shares of the corporation or its
subsidiaries, to the "interested stockholder," having an aggregate
market value equal to 5% or more of the aggregate market value of all
the outstanding shares of the corporation;
- -- the adoption of any plan or proposal for the liquidation or dissolution
of the corporation proposed by the "interested stockholder,"
- -- certain transactions which would have the effect of increasing the
proportionate share of outstanding shares of the corporation owned
by the "interested stockholder,"
- -- the receipt of benefits, except proportionately as a stockholder, of any
loans, advances or other financial benefits by an "interested
stockholder."
An "interested stockholder" is a person who:
- -- directly or indirectly owns 10% or more of the voting power of the
outstanding voting shares of the corporation or
- -- an affiliate or associate of the corporation which at any time within
three years before the date in question was the beneficial owner,
directly or indirectly, of 10% or more of the voting power of the then
outstanding shares of the corporation.
A corporation to which the statute applies may not engage in a
"combination" within three years after the interested stockholder acquired its
shares, unless the combination or the interested stockholder's acquisition of
shares was approved by the Board of Directors before the interested stockholder
acquired the shares. If this approval was not obtained, then after the
three-year period expires, the combination may be consummated if all the
requirements in the Articles of Incorporation are met and either:
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- -- the Board of Directors of the corporation approves, prior to such person
becoming an "interested stockholder," the combination or the purchase of
shares by the "interested stockholder" or the combination is approved
by the affirmative vote of holders of a majority of voting power not
beneficially owned by the "interested stockholder" at a meeting called
no earlier than three years after the date the "interested stockholder"
became such or
- -- the aggregate amount of cash and the market value of consideration other
than cash to be received by holders of common shares and holders of any
other class or series of shares meets the minimum requirements set forth
in Sections 78.411 through 78.443, inclusive, and prior to the
consummation of the combination, except in limited circumstances, the
"interested stockholder" will not have become the beneficial owner of
additional voting shares of the corporation.
Nevada's "Control Share Acquisition Statute," Nevada Revised Statute
Section 78.378-78.379, prohibits an acquiror, under certain circumstances, from
voting shares of a target corporation's stock after crossing certain threshold
ownership percentages, unless the acquiror obtains the approval of the target
corporation's stockholders. The Control Share Acquisition Statute only applies
to Nevada corporations with at least 200 stockholders, including at least 100
record stockholders who are Nevada residents, and which do business directly or
indirectly in Nevada. While we do not currently exceed these thresholds, we may
well do so in the near future. In addition, although we do not presently "do
business" in Nevada within the meaning of the Control Share Acquisition Statute,
we may do so in the future. Therefore, it is likely that the Control Share
Acquisition Statute will apply to us in the future. The statute specifies three
thresholds: at least one-fifth but less than one-third, at least one-third but
less than a majority, and a majority or more, of all the outstanding voting
power. Once an acquiror crosses one of the above thresholds, shares which it
acquired in the transaction taking it over the threshold or within ninety days
become "Control Shares" which are deprived of the right to vote until a majority
of the disinterested stockholders restore that right. A special stockholders'
meeting may be called at the request of the acquiror to consider the voting
rights of the acquiror's shares no more than 50 days, unless the acquiror agrees
to a later date, after the delivery by the acquiror to the corporation of an
information statement which sets forth the range of voting power that the
acquiror has acquired or proposes to acquire and certain other information
concerning the acquiror and the proposed control share acquisition. If no such
request for a stockholders' meeting is made, consideration of the voting rights
of the acquiror's shares must be taken at the next special or annual
stockholders' meeting. If the stockholders fail to restore voting rights to the
acquiror or if the acquiror fails to timely deliver an information statement to
the corporation, then the corporation may, if so provided in its articles of
incorporation or bylaws, call certain of the acquiror's shares for redemption.
Our Articles of Incorporation and Bylaws do not currently permit us to call an
acquiror's shares for redemption under these circumstances. The Control Share
Acquisition Statute also provides that the stockholders who do not vote in favor
of restoring voting rights to the Control Shares may demand payment for the
"fair value" of their shares, which is generally equal to the highest price paid
in the transaction subjecting the stockholder to the statute.
Certain provisions of our Bylaws which are summarized below may affect
potential changes in control of Photoloft. The Board of Directors believes that
these provisions are in the best interests of stockholders because they will
encourage a potential acquiror to negotiate with the Board of Directors, which
will be able to consider the interests of all stockholders in a change in
control situation. However, the cumulative effect of these terms maybe to make
it more difficult to acquire and exercise control of Photoloft and to make
changes in management more difficult.
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The Bylaws provide the number of directors of Photoloft shall be
established by the Board of Directors, but shall be no less than one. Between
stockholder meetings, the Board may appoint new directors to fill vacancies or
newly created directorships. A director may be removed from office by the
affirmative vote of 66-2/3% of the combined voting power of the then outstanding
shares of stock entitled to vote generally in the election of directors.
The Bylaws further provide that stockholder action may be taken at a
meeting of stockholders and may be effected by a consent in writing if such
consent is signed all of the holders of common stock.
We are not aware of any proposed takeover attempt or any proposed attempt
to acquire a large block of our common stock.
The provisions described above may have the effect of delaying or deterring
a change in the control or management of Photoloft.
Application of California General Corporation Law
Although we are incorporated in Nevada, our headquarters is in the State of
California. Section 2115 of the California General Corporation Law provides
that certain provisions of the California General Corporation Law shall be
applicable to a corporation organized under the laws of another state to the
exclusion of the law of the state in which it is incorporated, if the
corporation meets certain tests regarding the business done in California and
the number of its California stockholders.
An entity such as us can be subject to Section 2115 if the average of the
property factor, payroll factor and sales factor deemed to be in California
during its latest full income year is more than 50 percent and more than
one-half of its outstanding voting securities are held of record by persons
having addresses in California. Section 2115 does not apply to corporations
with outstanding securities listed on the New York or American stock Exchange,
or with outstanding securities designated as qualified for trading as a national
market security on NASDAQ, if such corporation has at least 800 beneficial
holders of its equity securities. Since the average of our property factor,
payroll factor and sales factor deemed to be in California during our latest
fiscal year was almost 100%, and over 60% of our outstanding voting securities
are held of record by persons having addresses in California, and our securities
do not currently qualify as a national market security on NASDAQ, we are subject
to Section 2115.
During the period that we are subject to Section 2115, the provisions of
the California General Corporation Law regarding the following matters are made
applicable to the exclusion of the law of the State of Nevada:
- -- general provisions and definitions;
- -- annual election of directors;
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- -- removal of directors without cause;
- -- removal of directors by court proceedings;
- -- filling of director vacancies where less than a majority in office were
elected by the stockholders;
- -- directors' standard of care;
- -- liability of directors for unlawful distributions;
- -- indemnification of directors, officers and others;
- -- limitations on corporate distributions of cash or property;
- -- liability of a stockholder who receives an unlawful distribution;
- -- requirements for annual stockholders meetings;
- -- stockholders' right to cumulate votes at any election of directors;
- -- supermajority vote requirements;
- -- limitations on sales of assets;
- -- limitations on mergers;
- -- reorganizations;
- -- dissenters' rights in connection with reorganizations;
- -- required records and papers;
- -- actions by the California Attorney General; and
- -- rights of inspection.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Nevada limits the liability of officers and
directors for breach of fiduciary duty except in certain specified
circumstances, and also empowers corporations organized under Nevada Law to
indemnify officers, directors, employees and others from liability in certain
circumstances such as where the person successfully defended himself on the
merits or acted in good faith in a manner reasonably believed to be in the best
interests of the corporation.
Our Articles of Incorporation, with certain exceptions, eliminate any
personal liability of a directors or officers to us or our stockholders for
monetary damages for the breach of such person's fiduciary duty, and, therefore,
an officer or director cannot be held liable for damages to us or our
stockholders for gross negligence or lack of due care in carrying out his or her
fiduciary duties as a director or officer except in certain specified instances.
We may also adopt by-laws which provide for indemnification to the full extent
permitted under law which includes all liability, damages and costs or expenses
arising from or in connection with service for, employment by, or other
affiliation with us to the maximum extent and under all circumstances permitted
by law.
There is presently one material pending legal proceeding to which a
director, officer and employee of ours is a party. See "Item 8 Legal
Proceedings". There is no other pending litigation or proceeding involving one
of our directors, officers, employees or other agents as to which
indemnification is being sought, and we are not aware of any pending or
threatened litigation that may result in claims for indemnification by any
director, officer, employee or other agent.
We have purchased directors and officers liability insurance to defend and
indemnify directors and officers who are subject to claims made against them for
their actions and omissions as directors and officers of Photoloft. The
insurance policy provides standard directors and officers liability insurance in
the amount of $5,000,000.
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We intend to enter into indemnification agreements with our directors and
officers. These agreements will provide, in general, that we shall indemnify and
hold harmless such directors and officers to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement, and expenses,
including attorneys' fees and disbursements, incurred in connection with, or in
any way arising out of, any claim, action or proceeding, whether civil or
criminal, against, or affecting, such directors and officers resulting from,
relating to or in any way arising out of, the service of such persons as our
directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons
pursuant to the foregoing provisions or otherwise, we have has been advised that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
ITEM 13. FINANCIAL STATEMENTS
Reference is made to the Financial Statements together with the notes
thereto and the report thereon from BDO Seidman, LLP appearing on pages F-1
through F-21 of this Form 10-SB.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. F - 2
FINANCIAL STATEMENTS
Balance sheets. . . . . . . . . . . . . . . . . . . F - 3
Statements of operations. . . . . . . . . . . . . . F - 4
Statements of shareholders' equity. . . . . . . . . F - 5
Statements of cash flows. . . . . . . . . . . . . . F - 6
Notes to financial statements . . . . . . . . . . . F - 7 - F - 21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
PhotoLoft.com, Inc.
We have audited the accompanying balance sheet of PhotoLoft.com, Inc. (the
Company) as of December 31, 1998, and the related statements of operations,
shareholders' equity, and cash flows for the years ended December 31, 1998 and
1997. 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
principles. Those standards require that we plan and perform our 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 PhotoLoft.com, Inc. as of
December 31, 1998, and the results of its operations and cash flows for the
years ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
/S/ BDO Seidman, LLP
San Jose, California
April 2, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
PHOTOLOFT.COM
BALANCE SHEETS
=========================================================================================================
SEPTEMBER 30, December 31,
1999 1998
========================================================================= =============== =============
<S> <C> <C>
(Unaudited)
ASSETS (Note 7)
CURRENT ASSETS:
Cash and cash equivalents (Note 11) . . . . . . . . . . . . . . . . . . $ 243,500 $ 370,000
Note receivable, current portion (Note 2) . . . . . . . . . . . . . . . 1,804,700 658,000
Prepaid expenses and other current assets . . . . . . . . . . . . . . . 75,800 -
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . - 183,100
- ------------------------------------------------------------------------- --------------- -------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,124,000 1,211,100
PROPERTY AND EQUIPMENT, net (Note 3). . . . . . . . . . . . . . . . . . . 242,300 65,700
NOTE RECEIVABLE, less current portion (Note 2). . . . . . . . . . . . . . - 1,656,700
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,500 5,500
- ------------------------------------------------------------------------- --------------- -------------
$ 2,376,800 $ 2,939,000
========================================================================= =============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank (Note 7). . . . . . . . . . . . . . . . . . . . . $ 409,700 $ -
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 398,900 129,500
Accrued expenses (Note 4) . . . . . . . . . . . . . . . . . . . . . . . 119,300 73,500
Deferred revenue (Note 5) . . . . . . . . . . . . . . . . . . . . . . . 800 36,300
Deferred income Taxes (Note 10) . . . . . . . . . . . . . . . . . . . . - 263,600
- ------------------------------------------------------------------------- --------------- -------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 928,700 502,900
- ------------------------------------------------------------------------- --------------- -------------
DEFERRED INCOME TAXES (Note 10) . . . . . . . . . . . . . . . . . . . . . - 666,700
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 928,700 1,169,600
- ------------------------------------------------------------------------- --------------- -------------
COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS (Notes 1, 6, 11 and 13)
SHAREHOLDERS' EQUITY: (Notes 1, 9 and 13)
Preferred stock, $0.001 par value; 500,000 shares authorized; no
shares issued and outstanding . . . . . . . . . . . . . . . . . . . . - -
Common stock, $0.001 par value; 50,000,000 shares authorized;
12,454,268 and 6,650,145 shares issued and outstanding, respectively. 12,500 6,700
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 3,267,300 648,200
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . (546,600) -
(Accumulated deficit) Retained earnings . . . . . . . . . . . . . . . . (1,285,100) 1,114,500
- ------------------------------------------------------------------------- --------------- -------------
TOTAL SHAREHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . . . . . . 1,448,100 1,769,400
- ------------------------------------------------------------------------- --------------- -------------
$ 2,376,800 $ 2,939,000
========================================================================= =============== =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
PHOTOLOFT.COM
STATEMENTS OF OPERATIONS
============================================================================================================
Nine Months Ended Years Ended
September 30, December 31,
1999 1998 1998 1997
===================================================== ============ ============ =========== ===========
(UNAUDITED) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES (Note 11) . . . . . . . . . . . . . . . . . . $ 124,800 $ 660,600 $ 674,300 $ 574,200
COST OF REVENUES . . . . . . . . . . . . . . . . . . . 88,500 88,800 113,000 60,800
- ----------------------------------------------------- ------------ ------------ ----------- -----------
GROSS PROFIT (LOSS). . . . . . . . . . . . . . . . . . 36,300 571,800 561,300 513,400
- ----------------------------------------------------- ------------ ------------ ----------- -----------
OPERATING EXPENSES:
Sales and marketing. . . . . . . . . . . . . . . . . 516,600 216,900 325,000 32,200
General and administrative (Note 8). . . . . . . . . 1,732,500 583,900 999,000 642,200
- ----------------------------------------------------- ------------ ------------ ----------- -----------
TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . . 2,249,100 800,800 1,324,000 674,400
- ----------------------------------------------------- ------------ ------------ ----------- -----------
LOSS FROM OPERATIONS . . . . . . . . . . . . . . . . . (2,212,800) (229,000) (762,700) (161,000)
- ----------------------------------------------------- ------------ ------------ ----------- -----------
OTHER INCOME (EXPENSE):
Sale of trade name (Note 2). . . . . . . . . . . . . - 3,100,000 3,100,000 -
Loss on settlement of note receivable (Note 2) . . . (108,100) - - -
Interest income. . . . . . . . . . . . . . . . . . . 110,200 32,700 76,900 -
Interest expense . . . . . . . . . . . . . . . . . . - (2,600) (500) -
Other. . . . . . . . . . . . . . . . . . . . . . . . (200) - (2,400) (3,700)
- ----------------------------------------------------- ------------ ------------ ----------- -----------
TOTAL OTHER INCOME (EXPENSE) . . . . . . . . . . . . . 1,900 3,130,100 3,174,000 (3,700)
- ----------------------------------------------------- ------------ ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES. . . . . . . . . . . (2,210,900) 2,901,100 2,411,300 (164,700)
INCOME TAX (BENEFIT) EXPENSE (Note 10) . . . . . . . . (745,300) 928,200 748,000 800
- ----------------------------------------------------- ------------ ------------ ----------- -----------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . (1,465,600) 1,972,900 1,663,300 (165,500)
Deemed dividend on conversion of preferred stock into
common stock. . . . . . . . . . . . . . . . . . . . 934,000 - - -
- ----------------------------------------------------- ------------ ------------ ----------- -----------
Net income (loss) available to common shareholders . . $(2,399,600) $ 1,972,900 $1,663,300 $ (165,500)
===================================================== ============ ============ =========== ===========
Basic earnings (loss) per share. . . . . . . . . . . . $ (0.21) $ 0.31 $ 0.26 $ (0.03)
===================================================== ============ ============ =========== ===========
Diluted earnings (loss) per share. . . . . . . . . . . $ (0.21) $ 0.21 $ 0.18 $ (0.03)
===================================================== ============ ============ =========== ===========
Basic weighted-average common shares
outstanding . . . . . . . . . . . . . . . . . . . . . 11,327,200 6,427,300 6,488,300 6,297,000
Stock options. . . . . . . . . . . . . . . . . . . . . - 2,799,400 2,799,400 -
- ----------------------------------------------------- ------------ ------------ ----------- -----------
Diluted weighted-average common shares outstanding . . 11,327,200 9,226,700 9,287,700 6,297,000
===================================================== ============ ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PHOTOLOFT.COM
STATEMENTS OF SHAREHOLDERS' EQUITY
(NOTES 9 AND 13)
==================================================================================================================================
(Accumulated
Additional Deferred Deficit)
Common Stock Paid-in Stock Retained
Shares Amount Capital Compensation Earnings Total
================================================== ========== ======= =========== ============== ============== ============
<S> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1997. . . . . . . . . . . . . 6,267,448 $ 6,300 $ 497,200 $ - $ (383,300) $ 120,200
Issuance of stock for services . . . . . . . . . . 59,025 100 18,200 - - 18,300
Net loss . . . . . . . . . . . . . . . . . . . . . - - - - (165,500) (165,500)
- -------------------------------------------------- ---------- ------- ----------- -------------- -------------- ------------
BALANCES, December 31, 1997. . . . . . . . . . . . 6,326,473 6,400 515,400 - (548,800) (27,000)
Issuance of stock for services . . . . . . . . . . 323,672 300 132,800 - - 133,100
Net income . . . . . . . . . . . . . . . . . . . . - - - - 1,663,300 1,663,300
- -------------------------------------------------- ---------- ------- ----------- -------------- -------------- ------------
BALANCES, December 31, 1998. . . . . . . . . . . . 6,650,145 6,700 648,200 - 1,114,500 1,769,400
Exercise of stock options (unaudited). . . . . . . 3,069,112 3,100 112,200 - - 115,300
Issuance of common stock for services (unaudited). 85,011 100 42,400 - - 42,500
Deemed dividend on beneficial conversion of
preferred stock into common stock (unaudited). . - - 934,000 - (934,000) -
Issuance of common stock in connection with
reverse merger (unaudited) . . . . . . . . . . . 625,000 600 4,900 - - 5,500
Sale of common stock, net of stock issuance costs
of approximately $56,500 (unaudited) . . . . . . 2,025,000 2,000 954,100 - - 956,100
Deferred stock compensation (unaudited). . . . . . - - 571,500 (571,500) - -
Amortization of deferred stock compensation
(unaudited). . . . . . . . . . . . . . . . . . . - - - 24,900 - 24,900
Net loss (unaudited) . . . . . . . . . . . . . . . - - - - (1,465,600) (1,465,600)
- -------------------------------------------------- ---------- ------- ----------- -------------- -------------- ------------
BALANCES, September 30, 1999 (unaudited) . . . . . 12,454,268 $12,500 $ 3,267,300 $ (546,600) $ (1,285,100) $ 1,448,100
================================================== ========== ======= =========== ============== ============== ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
PHOTOLOFT.COM
STATEMENTS OF CASH FLOWS
(Note 12)
===========================================================================================================
Nine Months Ended Years Ended
September 30, December 31,
-------------------------- ------------------------
1999 1998 1998 1997
===================================================== ============ ============ ============ ==========
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . $(1,465,600) $ 1,972,900 $ 1,663,300 $(165,500)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization . . . . . . . . . 27,900 7,800 13,200 8,600
Allowance for doubtful accounts . . . . . . . . - - (75,100) 82,800
Compensation relating to stock options issued . 24,900 - - -
Gain on sale of trade name. . . . . . . . . . . - (3,100,000) (3,100,000) -
Loss of settlement of note receivable . . . . . 108,100 - - -
Accrued interest on note receivable . . . . . . (32,900) - - -
Issuance of stock for services. . . . . . . . . 42,500 91,500 133,100 18,300
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . - - 170,700 (130,600)
Prepaid expenses and other current assets . . (75,800) 78,900 6,600 47,300
Deferred income taxes . . . . . . . . . . . . (747,200) 928,200 747,200 -
Accounts payable. . . . . . . . . . . . . . . 269,400 24,300 65,000 58,100
Accrued expenses. . . . . . . . . . . . . . . 45,800 300 (21,300) 94,800
Deferred revenue. . . . . . . . . . . . . . . (35,500) - 36,300 -
- ----------------------------------------------------- ------------ ------------ ------------ ----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES . (1,838,400) 3,900 (361,000) 13,800
- ----------------------------------------------------- ------------ ------------ ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal received under note receivable. . . . . . 434,800 573,400 785,300 -
Purchase of property and equipment. . . . . . . . . (204,500) (35,700) (51,100) (12,200)
Other assets. . . . . . . . . . . . . . . . . . . . (5,000) (2,300) (3,200) (2,000)
- ----------------------------------------------------- ------------ ------------ ------------ ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . 225,300 535,400 731,000 (14,200)
- ----------------------------------------------------- ------------ ------------ ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on line of credit. . . . . . . . . . . . . 409,700 - - -
Proceeds from issuances of stock. . . . . . . . . . 1,120,900 - - -
Payment of stock issuance costs . . . . . . . . . . (44,000) - - -
- ----------------------------------------------------- ------------ ------------ ------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . 1,486,600 - - -
- ----------------------------------------------------- ------------ ------------ ------------ ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. (126,500) 539,300 370,000 (400)
- ----------------------------------------------------- ------------ ------------ ------------ ----------
CASH AND CASH EQUIVALENTS, beginning of period. . . . 370,000 - - 400
- ----------------------------------------------------- ------------ ------------ ------------ ----------
CASH AND CASH EQUIVALENTS, end of period. . . . . . . $ 243,500 $ 539,300 $ 370,000 $ -
===================================================== ============ ============ ============ ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
1. SUMMARY OF ACCOUNTING POLICIES
The Company
PhotoLoft.com, Inc. (formerly AltaVista Technology, Inc.) (the Company) a
California corporation, was incorporated on November 17, 1993. The Company
provides users with advanced, easy-to-use technology to instantly create, share
and print Internet photo albums.
On March 1, 1999, 100% of the Company's outstanding common stock was
acquired by PhotoLoft.com (formerly Data Growth, Inc., a publicly traded shell
corporation) (PhotoLoft), a Nevada Corporation, in exchange for 9,579,268 shares
of PhotoLoft's $.001 par value common stock. For accounting purposes, the
acquisition has been treated as the acquisition of PhotoLoft, with the Company
as the acquiror (reverse acquisition).
The shares held by the shareholders of PhotoLoft prior to the acquisition
(625,000 shares after reflecting a 2.46 to 1 reverse stock split effected by
PhotoLoft immediately prior to the acquisition) have been recognized as if they
were issued in connection with the acquisition of PhotoLoft by the Company.
Since PhotoLoft prior to the reverse acquisition was a public shell corporation
with no significant operations, pro forma information giving effect to the
acquisition is not presented. All shares and per share data prior to the
acquisition have been restated to reflect the stock issuance as a
recapitalization of the Company. The historical information prior to March 1,
1999 is that of the Company.
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.
F-7
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid investments having original
maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated economic useful lives of the assets,
generally ranging from five to seven years.
Long-Lived Assets
The Company periodically reviews its long-lived assets and certain
identifiable intangibles for impairment. When events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable, the
Company writes the asset down to its estimated fair value.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents:
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates fair value.
Note receivable:
The fair value for the note receivable is estimated based on current
interest rates available to the Company for investments with similar terms and
remaining maturities.
F-8
<PAGE>
Short-term debt:
The fair value of short-term debt approximates cost because of the short
period of time to maturity.
As of December 31, 1998, the fair values of the Company's financial
instruments approximate their historical carrying amounts.
Revenue Recognition
The Company's revenues are derived principally from the sale of banner
advertisements and subscriptions for web hosting services. Advertising revenues
are recognized in the period in which the advertisement is delivered, provided
that collection of the resulting receivable is probable. Advertisers are charged
on a per impression or delivery basis up to a maximum as specified in the
contract. To date, the duration of the Company's advertising commitments has not
exceeded one year. When the Company guarantees a minimum number of impressions
or deliveries, revenue is recognized at the lesser of the ratio of impressions
or the straight line basis over the term of the contract. Product revenue is
recognized upon shipment, provided no significant obligations remain and
collectibility is possible.
Advertising
The cost of advertising is expensed as incurred. Advertising costs for the
nine month periods ended September 30, 1999 and 1998 aggregated, $118,900 and
$6,500 respectively (unaudited). Advertising costs for the years ended December
31, 1998 and 1997 aggregated $26,000 and $4,100, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes,
which requires an asset and liability approach. This approach results in the
recognition of deferred tax assets (future tax benefits) and liabilities for the
F-9
<PAGE>
expected future tax consequences of temporary differences between the book
carrying amounts and the tax basis of assets and liabilities. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be deductible or taxable when the assets and
liabilities are recovered or settled. Future tax benefits are subject to a
valuation allowance when management believes it is more likely than not that the
deferred tax assets will not be realized.
New Accounting Pronouncement
In September 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged assets or liabilities, that are attributable to the hedged
risk, or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to affect its financial statements.
Earnings Per Common Share
During 1998, the Company adopted the provisions of SFAS No. 128, Earnings
Per Share. SFAS No. 128 provides for the calculation of basic and diluted
earnings per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
F-10
<PAGE>
PHOTOLOFT.COM
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity. For the nine months ended September 30, 1999
and the year ended December 31, 1997, options to purchase 3,265,230 and
2,844,112 shares of common stock, respectively, were excluded from computation
of diluted earnings per share since their effect would be antidilutive. For the
nine months ended September 30, 1998 and the year ended December 31, 1998,
options to purchase 2,355,062 and 2,728,539 shares of common stock,
respectively, were excluded from the computation of diluted earnings per share
because the options' exercise price was greater than the estimated average fair
market value of the common shares.
Basis of Presentation
The accompanying balance sheet and statement of shareholders' equity as of
September 30, 1999 and for the nine months then ended, respectively, and the
statements of operations and cash flows for each of the nine month periods ended
September 30, 1999 and 1998 have not been audited. However, in the opinion of
management, they include all normal recurring adjustments necessary for a fair
presentation of the financial position and the results of operations for the
periods presented. The results of operations for the nine months ended September
30, 1999 are not necessarily indicative of results to be expected for any future
period.
2. SALE OF TRADE NAME
On July 31, 1998, the Company sold all its rights in and to the AltaVista
mark and the internet domain name "altavista.com" to Digital Equipment
Corporation for a total of $3,100,000, payable $350,000 in cash and $2,750,000
in a promissory note. The note, payable in 12 quarterly installments commencing
October 1, 1998, bears interest at 7% annually.
In September 1999, Digital Equipment Corporation agreed to pay the Company
$1,804,700 in full settlement of the note, at which time the Company recorded a
loss of $108,100. Accordingly, the balance sheet as of September 30, 1999
classifies this note as a current asset (unaudited).
F-11
<PAGE>
3. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
September December 31,
30,1999 1998
============================= ============ =============
(UNAUDITED)
<S> <C> <C>
Office equipment. . . . . . . $ 291,300 $ 90,500
Furniture and fixtures. . . . 13,000 9,300
- ----------------------------- ------------ -------------
304,300 99,800
Less accumulated depreciation 62,000 34,100
- ----------------------------- ------------ -------------
$ 242,300 $ 65,700
============================= ============ =============
</TABLE>
4. ACCRUED EXPENSES A summary of accrued expenses follows:
<TABLE>
<CAPTION>
SEPTEMBER December
30, 1999 31, 1998
================== ============ =============
<S> <C> <C>
(UNAUDITED)
Vacation . . . . . $ 52,300 $ 24,900
Consulting fees. . 25,000 20,000
Salaries and wages 41,900 19,900
Other. . . . . . . 100 8,700
- ------------------ ------------ -------------
$ 119,300 $ 73,500
================== ============ =============
</TABLE>
5. DEFERRED REVENUE
Deferred revenue consists of quarterly and annual subscriptions for web
hosting services. Revenue from the subscriptions is recognized ratably over the
term of the subscriptions.
F-12
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities and certain equipment under operating
leases. The facility leases require the Company to pay certain maintenance and
operating expenses, such as utilities, property taxes and insurance costs. Rent
expense for the nine month periods ended September 30, 1999 and 1998 was $79,200
and $20,000, respectively (unaudited). Rent expense related to these operating
leases for the years ended December 31, 1998 and 1997 was $39,900 and $18,700,
respectively.
A summary of the future minimum lease payments required under
non-cancelable operating leases with terms in excess of one year, follows:
<TABLE>
<CAPTION>
Years ending December 31, Amount
============================= ========
<S> <C>
1999. . . . . . . . . . . . . $ 95,700
2000. . . . . . . . . . . . . 91,300
2001. . . . . . . . . . . . . 51,600
2002. . . . . . . . . . . . . 3,600
- ----------------------------- --------
Future minimum lease payments $242,200
============================= ========
</TABLE>
In September 1998, the Company entered into an agreement whereby the
Company acts as guarantor of a third party in a sub-lease agreement. The
sub-lease agreement expires in September 2000.
7. DEBT AGREEMENTS
The Company maintains a $200,000 revolving line of credit with a bank that
is secured by all corporate assets, including accounts receivable, inventory and
intangible assets. The loan is limited to $100,000 until the Company fulfills
certain milestone covenants and pays an additional loan fee. The line of credit
accrues interest at 2% over the Lender's Prime Rate. Advances against the line
of credit are limited to 70% of eligible accounts receivable. As of September
30, 1999 and December 31, 1998, this line of credit had no outstanding balance.
F-13
<PAGE>
In September 1999, the Company entered into a line of credit agreement with
a financial institution, which provides for borrowing of $750,000, bearing
interest at 28%. The line of credit expires September 2000, and is automatically
renewable unless written notice is given by either party. In September 1999, the
Company borrowed $409,700 under this line of credit, and repaid the entire
balance in October 1999 (unaudited).
8. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1998, the Company paid approximately
$20,000 for consulting services from a shareholder.
9. SHAREHOLDERS' EQUITY
Preferred Stock
The Company had authorized 5,000,000 shares of Preferred Stock that may be
issued in one or more series. As of December 31, 1998, the Company had 2,489,009
Preferred shares issued and outstanding, which are Series A, B and C. Each
series of Preferred Stock was identical in respect to rights and preferences, as
follows:
Each share of Preferred Stock was entitled to receive cash dividends equal
to $.20 per share per annum, payable prior and in preference to any distribution
to the holders of Common Stock. The rights to such dividends were not
cumulative.
Each share of Preferred Stock was convertible into such number of Common
Stock as determined by dividing $.20 by the then applicable conversion price in
effect at the time of the conversion. Due to the conversion of the Company's
preferred stock into common stock and a 1.513 stock split in February 1999, as
well as the recapitalization of the Company in connection with the reverse
acquisition in March 1999, the statements of shareholders' equity and per share
data have been restated (Note 13).
F-14
<PAGE>
Stock Options
Options are exercisable as determined by the Board of Directors on the date
of grant and expire not more than ten years after the date of grant. The Company
applies Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to
Employees, and Related Interpretations in Accounting for Stock Options Issued to
Employees. Under APB Opinion No. 25, employee compensation cost is recognized
when the estimated fair value of the underlying stock on date of grant exceeds
the exercise price of the stock option. For stock options issued to
non-employees, the Company applies SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the recognition of compensation cost based upon the
fair value of stock options at the grant date using the Black-Scholes option
pricing model.
A summary of the status of the Company's stock option plan as of December
31, 1998 and 1997 and changes during the years then ended (restated to reflect
the 1.513 stock split in February 1999), is presented in the following table:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------
December 31, 1998 December 31, 1997
----------------------- -----------------------
Wtd.-Avg. Wtd.-Avg.
Shares Exer. Price Shares Exer. Price
========= ============ ========= ============
<S> <C> <C> <C> <C>
Beginning . . . . . . . . . . . 2,844,112 $ 0.007 2,806,278 $ 0.001
Granted . . . . . . . . . . . . 2,690,705 $ 0.480 37,834 $ 0.480
Exercised/forfeited . . . . . . - - - -
--------- ---------
Ending. . . . . . . . . . . . . 5,534,817 $ 0.237 2,844,112 $ 0.007
========= ============ ========= ============
Exercisable at year-end . . . . 3,194,588 2,795,400
--------- ---------
Wtd.-avg. fair value of options
granted during the year $ 0.480 $ 0.480
============ ============
</TABLE>
F-15
<PAGE>
The following table summarizes information about stock options outstanding
as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Wtd.-Avg.
Range of Number Remaining Wtd.-Avg. Number Wtd.-Avg.
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/98 Life Price at 12/31/98 Price
========= =========== =========== ========== =========== =========
<S> <C> <C> <C> <C> <C>
0.001. . 2,806,278 5.26 years $ 0.001 2,806,278 $ 0.001
0.480. . 2,728,539 9.54 years $ 0.480 388,310 $ 0.480
----------- -----------
5,534,817 $ 0.237 3,194,588 $ 0.059
=========== ========== =========== =========
</TABLE>
While the Company continues to apply APB Opinion No. 25, SFAS No. 123,
Accounting for Stock-Based Compensation, requires the Company to provide pro
forma information regarding net income (loss) as if compensation cost for the
Company's stock option plans had been determined in accordance with the fair
value based method prescribed by SFAS No. 123. The Company estimates the fair
value of stock options at the grant date by using the minimum value method with
the following assumptions used for the grants in 1998 and 1997, respectively:
dividend yield of 0; risk-free interest rate of 6.0% and 6.6%; and an expected
life of five years for all plan options.
Under the accounting provisions of SFAS No. 123, the Company's net income
(loss) would have been reduced (increased) to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1998 1997
- ----------- ---------- ----------
<S> <C> <C>
As reported $1,663,300 $(165,500)
=========== ========== ==========
Pro forma $1,317,800 $(171,300)
=========== ========== ==========
</TABLE>
F-16
<PAGE>
10. INCOME TAXES
For the years ended December 31, 1998 and 1997, income tax expense
comprises:
<TABLE>
<CAPTION>
1998 Current Deferred Total
======= ======== ========= ========
<S> <C> <C> <C>
FEDERAL $ - $ 628,600 $628,600
STATE . 800 118,600 119,400
- ------- -------- --------- --------
$ 800 $ 747,200 $748,000
======= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
1997 Current Deferred Total
======= ======= ======== =====
<S> <C> <C> <C>
Federal $ - $ - $ -
State . 800 - 800
- ------- ------- -------- -----
$ 800 $ - $ 800
======= ======= ======== =====
</TABLE>
The following summarizes the differences between the income tax expense
(benefit) and the amount computed by applying the Federal income tax rate of 34%
in 1998 and 1997 to income (loss) before income taxes:
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997
========================================== ========== =========
<S> <C> <C>
Federal income tax at statutory rate . . . $ 819,800 $(56,000)
State income taxes, net of federal benefit 138,200 (9,400)
(Decrease) increase in valuation allowance (211,200) 65,700
Other, net . . . . . . . . . . . . . . . . 1,200 500
- ------------------------------------------ ---------- ---------
$ 748,000 $ 800
========================================== ========== =========
</TABLE>
F-17
<PAGE>
Deferred tax assets (liabilities) comprise the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
================================= ============= ============
<S> <C> <C>
(UNAUDITED)
Loss carryforwards. . . . . . . . $ 837,000 $ 166,600
Reserves not currently deductible 16,500 16,500
Installment sale of trade name. . $ (745,700) $ (919,700)
Depreciation. . . . . . . . . . . (10,600) (10,600)
Valuation allowance . . . . . . . (97,200) -
- --------------------------------- ------------- ------------
Total deferred tax liabilities. . $ - $ (747,200)
================================= ============= ============
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards
available to reduce future taxable income, if any, of approximately $453,700 and
$194,100 for Federal and California state tax purposes, respectively. The
benefits from these carryforwards expire in various years through 2018.
Pursuant to the "change in ownership" provisions of the Tax Reform Act of
1986, utilization of the Company's net operating loss carryover may be limited,
if a cumulative change of ownership of more than 50% occurs within any
three-year period. The Company has not determined if such a change in ownership
has occurred.
11. CONCENTRATIONS
Major Customers
During the nine month periods ended September 30, 1999 and 1998 and the
years ended December 31, 1998 and 1997, the Company had no customers that
comprised more than 10% of net revenues.
F-18
<PAGE>
PHOTOLOFT.COM
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
================================================================================
Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents. The Company
places its cash and cash equivalents with high quality financial institutions.
As of December 31, 1998, the Company had deposits at one financial institution
that aggregated $350,000, of which $100,000 is insured by the Federal Deposit
Insurance Corporation. As of September 30, 1999, the Company had deposits at one
financial institution that aggregated $243,300, of which $100,000 is insured
(unaudited).
12. STATEMENT OF CASH FLOWS
During the nine month periods ended September 30, 1999 and 1998, non-cash
financing activities included the issuance of 85,011 and 222,549 shares of
common stock for services aggregating approximately $42,500 and $91,500,
respectively (unaudited). During the nine month period ended September 30, 1999,
additional non-cash financing activities included the issuance of 25,000 shares
of common stock for the payment of stock issuance costs totaling $12,500 and a
deemed dividend of $934,000 relating to the beneficial conversion of its
preferred stock into common stock (unaudited). During the years ended December
31, 1998 and 1997, non-cash financing activities included the issuance of
323,672 and 59,025 shares of common stock for services aggregating approximately
$133,100 and $18,300, respectively.
During the nine month periods ended September 30, 1999 and 1998, the
Company paid $0 and $2,600 for interest, respectively, and $1,800 and $0 for
income taxes, respectively (unaudited). During 1998 and 1997, the Company paid
$2,800 and $3,700 for interest, respectively, and $800 for income taxes in both
years.
13. SUBSEQUENT EVENTS
In February 1999, the Company entered into an employment agreement with one
of its officers which provides for a severance payment of base salary and bonus
compensation through December 31, 2001, as well as immediate vesting of all
outstanding stock options if the officer is terminated without cause.
F-19
<PAGE>
In February 1999, 2,844,112 stock options were exercised for common stock,
and 85,011 shares of common stock were issued for services. Also in February
1999, the Company converted its preferred stock into common stock on a 1 to 1.5
basis.
Immediately following these issuances of common stock and the conversion of
preferred stock into common stock, the Company did a 1 to 1.513 stock split in
anticipation of the Company entering into an acquisition agreement with a
publicly traded shell corporation. On a retroactive basis, the conversion and
stock split resulted in the Company having 6,650,145 shares of common stock
issued and outstanding as of December 31, 1998.
Due to the conversion of the preferred stock into common stock and the
1.513 stock split, the effective exercise price of the stock options originally
granted at $0.75 was now $0.33; therefore, on March 1, 1999, the Company
adjusted the exercise price to $0.48.
As more fully described in Note 1, the Company completed a reverse
acquisition with PhotoLoft.com on March 1, 1999.
Immediately following the closing of the acquisition, the Company completed
a Private Placement of 2,000,000 shares of common stock aggregating $1,000,000.
Additionally, the Company issued 25,000 shares of restricted common stock as
payment for a portion of the underwriter's commission and adopted the 1999 Stock
Option Plan (the Plan). The Company then granted 225,000 options under the Plan,
which vested immediately and were exercised in March 1999.
Also in March 1999, the Company entered into an agreement to obtain public
relations services valued at a minimum of $6,000 per month through March 2000.
The Company expects to amend the agreement to include an additional $4,000 per
month in services. The services provided will aggregate approximately $100,000
over the life of the agreement.
F-20
<PAGE>
In April 1999, a former employee and co-founder of ID 4 Life, a product of
the Company, filed an action against the Company arising out of the disputed
ownership of the ID4Life division of the Company and the termination of that
person's employment. It is the opinion of management that the outcome of this
matter will not materially affect the consolidated operations or the
consolidated financial position of the Company.
In June 1999, a third party corporation filed an action against the Company
alleging trade secret misappropriations, unfair competition, and breach of
contract arising out of the activities of one of the Company's employees. The
Company is presently in settlement negotiations with the plaintiff, and it is
the opinion of management that the outcome of this matter will be a non-monetary
settlement and will not materially affect the consolidated operations or the
consolidated financial position of the Company (unaudited).
In June 1999, the Company amended its stock option plan to make an
additional 3,800,000 shares of common stock available for options which may be
granted to employees, directors, and consultants. As of September 30, 1999,
there were 534,770 shares of common stock available for grant of additional
options (unaudited).
During the nine months ended September 30, 1999, the Company granted
options for an additional 572,359 shares. Of these options, 71,700 were granted
to non-employees, resulting in compensation costs of $134,000, which is being
amortized over the life of the options (unaudited).
In September 1999, the Company issued warrants to purchase 350,000 shares
of common stock at an exercise price of $2.31 in connection with a services
agreement. The issuance of these warrants resulted in compensation costs of
$437,500, which is being amortized over the one year term of the agreement
(unaudited).
In November 1999, a former board member exercised options to purchase
88,991 shares of common stock for proceeds of $44,100 (unaudited).
In December 1999, the Company granted options to purchase an aggregate of
201,500 shares of common stock to employees and directors. The Company also
granted options to purchase 288,000 shares of common stock to a consultant
(unaudited).
In December 1999, the Company issued 326,434 shares of common stock in
exchange for $500,000. The Company also issued warrants to purchase 66,000
shares of common stock. The warrants, which have exercise prices of $1.53,
expire in December 2004 (unaudited).
F-21
<PAGE>
(A) EXHIBITS
The following exhibits are filed with this registration statement:
Exhibit No. Exhibit Name
- ------------ -------------
*2.1 Agreement and Plan of Reorganization dated as of February 16, 1999 by
and among Data Growth, Inc. Gary B. Peterson and the Registrant.
*3.1 Articles of Incorporation of the Registrant.
*3.2 Certificate of Amendment to the Articles of Incorporation of the
Registrant.
*3.3 By-Laws of Registrant.
*4.1 Sample Stock Certificate of the Registrant.
*4.2 See Exhibit Nos. 3.1, 3.2 and 3.3.
*10.1 Form of Series A preferred stock Purchase Agreement
*10.2 Series B preferred stock Purchase Agreement dated August 1, 1996 by
and among Kris Chellam and the Registrant.
*10.3 OEM/ Re-Marketing Agreement, dated November 15, 1996, by and between
ArcSoft, Inc. and the Registrant.
*10.4 Software License Agreement, dated January 22, 1997 by and between
Seattle Filmworks, Inc, and the Registrant.
*10.5 Online Distribution Agreement, dated April 24, 1997 by and between KC
Audio and the Registrant.
*10.6 OEM License Agreement, dated May 22, 1998, by and between AITech
International and the Registrant.
*10.7 Series C Preferred Stock Purchase Agreement dated June 5, 1997 by and
among Gary Kremen and the Registrant.
*10.8 Distribution and Re-Publishing Agreement dated October 17, 1997 by and
between Softpool, a division of infoMedia GmbH and the Registrant.
*10.9 Engagement letter dated October 24, 1997 between Gary Kremen and the
Registrant.
<PAGE>
*10.10 Letter Agreement dated February 12, 1998 by and between Venture
Banking Group and the Registrant.
*10.11 Distribution Agreement dated March, 1998 by and between Kuni Research
International Corporation and the Registrant.
*10.12 Lease Agreement dated July 8, 1998 by and between The Manufacturer's
Life Insurance Company, (U.S.A.) Company, Ltd., and the Registrant.
10.13 [Intentionally Blank/Updated Form of Agreement Filed as Exhibit 10.32]
*10.14 Sublease Agreement dated September 1, 1998 by and between Surefire
Verification, Inc. and the Registrant.
10.15 [Intentionally Blank/Updated Form of Agreement Filed as Exhibit 10.33]
*10.16 Amendment to an Agreement with Infomedia, dated January 15, 1999.
*10.17 Sublease Agreement dated February 1, 1999 by and between Summit
Microelectronics and the Registrant.
*10.18 Amendment No. 1 to Consulting Services Agreement (Exhibit 10.15
above), dated February 9, 1999 by and between Hewlett-Packard Company
and the Registrant
*10.19 Letter Agreement, dated February 10, 1999 by and between Bay Tree
Capital Associates, LLC and the Registrant.
*10.20 Employment Agreement dated February 26, 1999 by and between Mr. Jack
Marshall and the Registrant.
*10.21 Stock Option Plan of the Registrant.
*10.22 Form of Stock Option Agreement issued under the Stock Option Plan of
the Registrant.
*10.23 Stock Option Agreement dated July 1, 1999 by and between Chris McConn
and the Registrant
*10.24 Stock Option Agreement dated July 1, 1999 by and between Jack
Marshall and the Registrant
*10.25 Co-Branded Marketing Agreement, dated March 8, 1999, by and between
Picture Works and the Registrant.
*10.26 Co-Branded Marketing Agreement, dated March 11, 1999 between Umax
Technologies, Inc. and the Registrant.
<PAGE>
*10.27 Internet Services and Co-Location Agreement, dated March 15, 1999 by
and between AboveNet Communications, Inc. and the Registrant.
*10.28 Cowabunga Reciprocal web site Linking Agreement, dated April,1999 by
and between Cowabunga Enterprises, Inc., a wholly owned subsidiary of
Gateway 2000, Inc. and the Registrant.
*10.29 Representation Agreement, dated April 26, 1999, by and between
ADSmart Network and the Registrant.
*10.30 Co-Branded Marketing Agreement, dated May 3, 1999, by and between
Tribal Voice and the Registrant.
*10.31 Co-Branded Marketing Agreement, dated May 12, 1999, by and between,
Netopia, Inc. and the Registrant.
*10.32 Agreement, dated July 31, 1998, by and between Digital Equipment
Corporation and the Registrant.
*10.33 Consulting Services Agreement, dated October 22, 1998 by and between
Hewlett-Packard Company and the Registrant.
*10.34 Loan and Security Agreement, dated September 27, 1999 by an between
Aerofund Financial, Inc. and the Registrant.
10.35 Subscription Agreement, dated December 1999, by and between John C.
Marshall, Martha Ann Marshall and the Registrant.
10.36 Warrant Agreement dated December 1999, by and between John C.
Marshall, Martha Ann Marshall and the Registrant.
10.37 Subscription Agreement, dated December 1999, by and between Barbara
Marshall and the Registrant.
10.38 Warrant Agreement dated December 1999, by and between Barbara Marshall
and the Registrant.
10.39 Subscription Agreement, dated December 1999, by and between Lisa
Marshall, Don Welsh and the Registrant.
10.40 Warrant Agreement dated December 1999, by and between Lisa Marshall,
Don Welsh and the Registrant.
10.41 Stock Option Agreement dated December 1999, by and between Lisa
Marshall, Don Welsh and the Registrant.
*21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
*Previously filed with the SEC.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHOTOLOFT.COM
(Registrant)
Date: February 2, 2000 By: /s/ Jack Marshall
--------------------------------------
Jack Marshall, Chief Executive
Officer, President and Treasurer
<PAGE>
EXHIBIT 10.35
SUBSCRIPTION AGREEMENT
BY PHOTOLOFT.COM, INC.
1. SUBSCRIPTION. The undersigned, John C. Marshall & Martha A. Marshall
(the "Subscriber") hereby irrevocably subscribes for NINETY SEVEN THOUSAND NINE
HUNDRED THIRTY and 00/100 (97,930) shares of Common Stock ("Sh-ares") of
PhotoLoft.com, Inc., a California cor-pora-tion (the "Com-pany"), at a price per
Share of $1.5317 and for a total price of ONE HUNDRED FITY THOUSAND DOLLARS and
00/100 ($150,000.00). This sub-scri-p-tion may be rejected in whole or in part
by the Company.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY THE SUBSCRIBER. The
Subscriber represents, warrants and agrees that:
(a) The Subscriber has received and carefully reviewed from the Company
all material documents necessary to make an informed investment decision
including but not limited to the Company's Form 10-SB and understands the risks
associated with this investment;
(b) All of the information provided by the Sub-scriber in the Investor
--------
Questionnaire for Individual Investors, attached hereto as Exhibit A, given to
- ---------------------------------------- ---------
the Company or its agents prior to the date hereof regarding the Subscriber's
ability to bear the risks of this investment and the Subscriber's sophistication
and experience as an investor, is true and correct as of the date this Agreement
is tendered to the Company. The Subscriber shall promptly notify the Company in
writing if any change in such information occurs after such tender and prior to
acceptance hereof by the Company;
(c) Subscriber is advised that no federal or state agency has made any
recommendation or endorsement of the Shares;
(d) The Subscriber has a preexisting personal or business relationship
with the Company or with any of its offi-cers, directors, or controlling
persons, or by reason of the Subscriber's business or financial experience (or
the business or financial experience of his/her authorized investment
representative who is unaffiliated with and who is not compensated by the
Com-pany or any affiliate or selling agent of the Company, directly or
indirectly) has the capacity to protect his/her own interests in connection with
this investment;
(e) The Subscriber has not seen or received any advertisement or
general solicitation with respect to the Shares;
(f) The Subscriber recognizes that the Company has limited net assets
and a limited operating history, and that any investment in the Shares involves
a high degree of risk;
(g) The Subscriber understands that there are substantial restrictions
on sale, assignment, transfer or any other disposition of the Shares, and that
the Subscriber may not be able to liquidate the Subscriber's investment;
<PAGE>
(h) The Subscriber is a resident of the state of Texas and, if an
individual, is twenty-one (21) years of age or over. For purposes of this
section, the Subscrib-er is deemed to reside in the state where he/she has
his/her principal resi-dence at the time of both the offer and the sale of the
Shares;
(i) Either the Subscriber, or the Subscriber's authorized investment
representative, if any, has had the oppor-tunity for direct negotiations with
the Company with regard to this sub-scription and to ask questions of, and
receive answers from the representatives of the Company concerning the terms and
conditions of the offering and the Company, and has received all information
requested by the Sub-scriber regarding the offering, the Company and its
existing and planned opera-tions and manage-ment;
(j) The Shares are being purchased by the Sub-scriber and not by any
other person, with the Subscriber's own funds and not with the funds of any
other person and for the Subscriber's own account, and not as a nominee, agent
or other-wise for the account of any other person (except for its princi-pal, in
the case of an au-thorized investment representative). On acceptance of this
Agre-ement, no other person will have any interest, beneficial or otherwise, in
the Shares. The Subscriber is not obligated to transfer all or any portion of
the Shares to any other person nor does the Subscriber have any agreement or
understanding to do so. The Subscriber is purchas-ing the Shares for investment
for an indefinite period and not with a view to the sale or distribution of any
part or all there-of by public or private sale or other disposition. The
Subscrib-er has no inten-tion of selling, grant-ing any participa-tion in, or
otherwise distributing or disposing of the Shares. The Subscriber does not
intend to subdi-vide the Subscriber's purchase of the Shares with any person;
(k) The Subscriber has been advised that the Shares issued in
connec-tion with this offering have not been regis-tered with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act);
(l) Subscriber acknowledges that, either directly or with the
assistance of his/her Purchaser Representative, if any, Subscriber has such
knowledge and experience in financial and business matters to make an informed
investment decision based upon the information furnished to Subscriber and such
addi-tional information as Subscriber may have requested and received from the
Company and the independent inquiries and investigations undertaken by
Subscriber;
(m) The Company reserves the right to reject this subscription in whole
or in part.
3. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants that it has full legal and equitable title to the Shares, and has
not in whole or in part assigned, pledged, sold, conveyed or other-wise
transferred to any third party any rights in such Shares.
2
<PAGE>
4. PAYMENT OF SUBSCRIPTION. The amount of the Sub-scriber's subscription is
set forth above and the undersigned encloses payment of such amount herewith in
United States dollars by cash, check or money order payable to the Company. The
Sub-scriber recognizes that if the Subscriber's sub-scription is re-jected in
whole or in part, the funds delivered to the Com-pany for the rejected portion
of the subscription will be returned to the Subscriber by the Company as soon as
practica-ble without interest.
5. APPLICATION TO FIDUCIARIES. If the Subscriber is purchasing the Shares
in a fiduciary capacity, the representa-tions, warranties and agreements of the
Subscriber herein shall be deemed to have been made on behalf of the person(s)
for whom the Subscriber is so purchasing, except that such person(s) need not be
over twenty-one (21) years of age.
6. CHANGES. The Subscriber agrees to notify the Company immediately if any
of the representations and warranties made by the Subscriber herein become
untrue.
7. REGISTRATION ON COMPANY'S RECORDS. The Sub-scriber's Shares will be
owned and should be shown on the Com-pany's records as set forth on the
signature line below.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties hereto with re-spect to the mat-ters set forth herein, and supersedes
all prior agreements, nego-tiations, or discussions with respect to such
matters. No prior or concurrent representations or promises of any party hereto
or any of their respective agents or representa-tives shall consti-tute a part
of this Agreement, unless expressly so stated herein. This Agreement may not be
altered, modified, amended, changed, rescinded, or discharged, in whole or in
part, except by a writ-ing executed by the parties.
9. COVENANTS AND CONDITIONS. Should any covenant or other provision of this
Agreement be held by a court of competent jurisdiction to be invalid, illegal,
or unenforceable by reason of a rule of law or public policy, all other
conditions and pro-visions of this Agreement shall nevertheless remain in full
force and effect. No covenant or provision hereof shall be deemed dependent
upon any other covenant or provision unless so expressly stated herein.
10. CALIFORNIA LAW TO GOVERN. This Agreement shall be deemed entered into
in the State of California, and shall be governed and construed in accordance
with the internal laws of the State of California applicable to contracts made
and to be performed in the State of California.
11. NOTICES. All notices and demands of every kind shall be personally
delivered or sent by first class mail to the parties at their addresses stated
below. Any such notice or demand shall be effective and deemed received
immediately upon personal service or three (3) days after deposit in the United
States mail, as the case may be. Any party hereto may re-desig-nate an address
for notices or demands in writing, delivered or mailed in accordance with the
terms hereof.
3
<PAGE>
12. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and shall not in any way limit or amplify the
terms and provisions hereof, or enter into the interpretation of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and, in making proof
hereof, it shall not be necessary to produce or account for more than one such
counter-part.
14. INTERPRETATION. As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall each be deemed to
include the others whenever the context so indicates.
15. MISCELLANEOUS. This Agreement shall inure to the benefit of and be
binding upon the heir and personal representa-tives of the Subscriber and the
successors and assigns of the Company, subject to the restrictions upon
assignment set forth herein. Time is agreed to be of the essence.
IN WITNESS WHEREOF, the Subscriber has duly executed this Agreement as of
the ___ day of ______________, 1999, and rendered this Agreement to the Company
this day of, 1999.
/s/ John C. Marshall /s/ Martha A. Marshall
----------------------- -------------------------
Authorized Signature of Subscriber
John C. Marshall Martha A. Marshall
4
<PAGE>
/_/ Individual Ownership ________________________________
Subscriber's Social Security
or Federal Tax Identification
Number(s)
/_/ Joint Tenants with
Right of Survivorship ________________________________
Subscriber's Home Telephone
Number and Area Code
/_/ Tenants in Common
(both parties must
sign)
/_/ Community Property
(both signatures
required)
/_/ General Partnership
(Managing Partner must
sign; if no Managing
Partner, all partners
must sign)
/_/ Corporation
(authorized officer
must sign)
/_/ Trust
(Authorized trustee(s) must sign)
Cash, check or money order enclosed: $______________
ACCEPTED: PHOTOLOFT, INC.:
Dated:_____________, 1999 By: /s/ Jack Marshall
-------------------
Jack Marshall, President
Address for Notices: Its:_____________________________
__________________________
__________________________
5
<PAGE>
EXHIBIT 10.36
WARRANT AGREEMENT
TO PURCHASE COMMON STOCK OF
PHOTOLOFT.COM, INC.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE
AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
This Warrant Agreement (the "Agreement") is entered into this ____ day of
December, 1999, by and between PhotoLoft.com ("PhotoLoft") and John C. Marshall
and Martha A. Marshall ("BUYER"). For good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. Issuance of Warrants. PhotoLoft, subject to the terms and conditions
----------------------
hereinafter set forth, hereby issues to BUYER warrants (the "Warrants") to
purchase TWENTY THOUSAND (20,000) shares of PhotoLoft common stock (the
"Shares"). The exercise price of the Shares shall be $1.5317 per share (the
"Exercise Price") subject to adjustment in accordance with Paragraph 5 of this
Agreement.
2. Term. The Warrants may be exercised at any time after the Effective Date
----
set forth on the signature page hereof and before the expiration o sixty (60)
months from the Effective Date.
3. Exercise.
--------
(a) BUYER shall exercise the Warrants granted hereunder, in whole or in
part, by delivering to PhotoLoft at the office of PhotoLoft, or at such other
address as PhotoLoft may designate by notice in writing to the holder hereof,
the Notice of Exercise attached hereto as Exhibit A and incorporated herein by
---------
reference and a certified check or wire transfer in lawful money of the United
States for the Exercise Price for the entire amount of the number of Warrants
being exercised
(b) Upon delivery of all of the items set forth in (a) above, BUYER
shall be entitled to receive a certificate or certificates representing the
Shares. Such Shares shall be validly issued, fully paid and non-assessable.
1
<PAGE>
(c) Warrants shall be deemed to have been exercised immediately prior
to the close of business on the day of such delivery, and BUYER shall be deemed
the holder of record of the Shares issuable upon such exercise at such time.
(d) Upon any partial exercise of the Warrants, at the request of
PhotoLoft, this Agreement shall be surrendered and a new Agreement evidencing
the right to purchase the number of Shares not purchased upon such exercise
shall be issued to BUYER.
4. Representations and Warranties of BUYER. BUYER hereby represents and
-------------------------------------------
warrants to PhotoLoft as follows:
(a) Sophistication. BUYER has (i) a preexisting personal or business
relationship with PhotoLoft or one or more of its officers, directors, or
control persons; or (ii) by reason of BUYER's business or financial experience,
or by reason of the business or financial experience or of BUYER's financial
advisor who is unaffiliated with and who is not compensated, directly or
indirectly, by PhotoLoft or any affiliate or selling agent of PhotoLoft, BUYER
is capable of evaluating the risks and merits of this investment and of
protecting BUYER's own interests in connection with this investment.
(b) Accredited Investor. BUYER is an "accredited investor" as such
term is defined under Regulation D of the Securities Act of 1933, as amended
(the "Securities Act").
(c) Investment Intent. BUYER is purchasing the Warrants, and will
purchase the Shares solely for her own account for investment. BUYER has no
present intention to resell or distribute the Warrants or the Shares or any
portion thereof. The entire legal and beneficial interest of the Warrants is
being purchased, and will be held, for BUYER's account only, and neither in
whole or in part for any other person.
(d) Information Concerning Company. BUYER is aware of the business
affairs and financial condition of PhotoLoft and has acquired sufficient
information about PhotoLoft to make an informed and knowledgeable decision to
purchase the Warrants and the Shares.
(e) Economic Risk. BUYER realizes that the purchase of the Warrants
and the Shares will be a highly speculative investment and involves a high
degree of risk. BUYER is able, without impairing its financial condition, to
hold the Warrants and/or the Shares for an indefinite period of time and to
suffer a complete loss of its investment.
5. Anti-dilution Adjustments. The Warrants granted hereunder and the
--------------------------
Exercise Price thereof shall be subject to adjustment from time to time upon the
happening of certain events as set forth below.
2
<PAGE>
(a) Stock Splits and Dividends. If outstanding shares of PhotoLoft
Common Stock shall be subdivided into a greater number of shares or a dividend
in Common Stock shall be paid in respect of Common Stock, the Exercise Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Exercise Price, the number of Shares purchasable upon the exercise of the
Warrants shall be changed to the number determined by dividing (i) an amount
equal to the number of Shares issuable upon the exercise of the Warrants
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately prior to such adjustment, by (ii) the Exercise Price in effect
immediately after such adjustment.
(b) Reclassification, Etc. In case there occurs any reclassification
or change of the outstanding securities of PhotoLoft or any reorganization of
PhotoLoft (or any other corporation the stock or securities of which are at the
time receivable upon the exercise of the Warrants) or any similar corporate
reorganization on or after the date hereof, then and in each such case BUYER,
upon the exercise hereof at any time after the consummation of such
reclassification, change, or reorganization shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which BUYER would have been entitled upon such consummation if BUYER had
exercised the Warrants immediately prior thereto, all subject to further
adjustment pursuant to the provisions of this Section.
(c) Adjustment Certificate. When any adjustment is required to be made
in the Shares or the Exercise Price pursuant to this Section, PhotoLoft shall
promptly mail to BUYER a certificate setting forth (i) a brief statement of the
facts requiring such adjustment, (ii) the Exercise Price after such adjustment
and (iii) the kind and amount of stock or other securities or property into
which the Warrants shall be exercisable after such adjustment.
6. Reservation of Shares. PhotoLoft shall at all times keep reserved a
-----------------------
sufficient number of authorized shares of Common Stock to provide for the
exercise of the Warrants in full.
7. Transferability. The Warrants issued hereunder and any and all Shares
---------------
issued upon exercise of the Warrants shall be transferable on the books of
PhotoLoft by the holder hereof in person or by duly authorized attorney subject
to any restrictions imposed by applicable federal or state securities laws. It
shall be a further condition to any transfer of the Warrants that the transferor
(if any portion of the Warrants are retained) and the transferee shall receive
and accept new Warrants, of like tenor and date, executed by PhotoLoft, for the
portion so transferred and for any portion retained, and shall surrender this
Agreement executed.
8. Voting. Nothing contained in this Agreement shall be construed as
------
conferring upon BUYER the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect to any meeting of shareholders for
the election of directors of PhotoLoft or for any other purpose not specified
herein.
3
<PAGE>
9. Miscellaneous.
-------------
(a) Amendment. This Agreement may be amended by written agreement
between PhotoLoft and BUYER.
(b) Notice. Any notice, demand or request required or permitted to be
given under this Agreement will be in writing and will be deemed sufficient when
delivered personally or sent by telegram or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, or with a
commercial courier service, with postage prepaid, and addressed, if to
PhotoLoft, at its principal place of business, attention the President, and if
to BUYER, at BUYER's address as shown on the stock records of PhotoLoft.
(c) Further Assurances. Both parties agree to execute any
additional documents and take any further actions necessary to carry out the
purposes of this Agreement.
(d) Severability. If any provision of this Agreement is held by any
court of competent jurisdiction to be illegal, unenforceable or void, such
provision will be enforced to the greatest extent possible and all other
provisions of this Agreement will continue in full force and effect.
(e) Governing Law. This Agreement will be interpreted and enforced in
accordance with California law as applied to agreements made and performed in
California.
(f) Survival. The representations and warranties of the parties hereto
set forth in this Agreement shall survive the closing and consummation of the
transactions contemplated hereby for a period of three (3) years from the date
hereof.
(g) Entire Agreement; Successors and Assigns. This Agreement and the
documents and instruments attached hereto constitute the entire agreement
between BUYER and PhotoLoft relative to the subject matter hereof. Any previous
agreements between the parties are superseded by this Agreement. Subject to any
exceptions specifically set forth in this Agreement, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and assigns of the parties.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(i) Headings. The headings of the Sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
(j) Attorney Fees. If any action is brought to interpret or enforce
the terms of this Agreement, the prevailing party in such action shall be
entitled to recover its attorneys fees and costs incurred in connection with
such action.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and delivered by their duly authorized officers as of December ___, 1999
(the "Effective Date").
PHOTOLOFT: PHOTOLOFT.COM, INC.
By:_______________________
Its:______________________
BUYER: /s/ John C. Marshall
-----------------------
John C. Marshall
/s/ Martha A. Marshall
-------------------------
Martha A. Marshall
5
<PAGE>
WARRANT
NOTICE OF EXERCISE
------------------
To: PhotoLoft.com, Inc.
(1) _______________ ("BUYER") hereby elects to purchase ______________
shares of Common Stock of PhotoLoft.com, Inc. ("PhotoLoft") pursuant to the
terms of the Warrant Agreement dated December ___, 1999, and executed by BUYER
and PhotoLoft, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
in the name of BUYER.
BUYER: _______________________________
<PAGE>
EXHIBIT 10.37
SUBSCRIPTION AGREEMENT
BY PHOTOLOFT.COM, INC.
1. SUBSCRIPTION. The undersigned, Barbara Marshall (the "Subscriber")
hereby irrevocably subscribes for SIXTY FIVE THOUSAND TWO HUNDRED EIGHTY SEVEN
and 00/100 (65,287) shares of Common Stock ("Sh-ares") of PhotoLoft.com, Inc., a
California cor-pora-tion (the "Com-pany"), at a price per Share of $1.5317 and
for a total price of ONE HUNDRED THOUSAND DOLLARS and 00/100 ($100,000.00).
This sub-scri-p-tion may be rejected in whole or in part by the Company.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY THE SUBSCRIBER. The
Subscriber represents, warrants and agrees that:
(a) The Subscriber has received and carefully reviewed from the Company
all material documents necessary to make an informed investment decision
including but not limited to the Company's Form 10-SB and understands the risks
associated with this investment;
(b) All of the information provided by the Sub-scriber in the Investor
--------
Questionnaire for Individual Investors, attached hereto as Exhibit A, given to
- ---------------------------------------- ---------
the Company or its agents prior to the date hereof regarding the Subscriber's
ability to bear the risks of this investment and the Subscriber's sophistication
and experience as an investor, is true and correct as of the date this Agreement
is tendered to the Company. The Subscriber shall promptly notify the Company in
writing if any change in such information occurs after such tender and prior to
acceptance hereof by the Company;
(c) Subscriber is advised that no federal or state agency has made any
recommendation or endorsement of the Shares;
(d) The Subscriber has a preexisting personal or business relationship
with the Company or with any of its offi-cers, directors, or controlling
persons, or by reason of the Subscriber's business or financial experience (or
the business or financial experience of his/her authorized investment
representative who is unaffiliated with and who is not compensated by the
Com-pany or any affiliate or selling agent of the Company, directly or
indirectly) has the capacity to protect his/her own interests in connection with
this investment;
(e) The Subscriber has not seen or received any advertisement or
general solicitation with respect to the Shares;
(f) The Subscriber recognizes that the Company has limited net assets
and a limited operating history, and that any investment in the Shares involves
a high degree of risk;
(g) The Subscriber understands that there are substantial restrictions
on sale, assignment, transfer or any other disposition of the Shares, and that
the Subscriber may not be able to liquidate the Subscriber's investment;
<PAGE>
(h) The Subscriber is a resident of the state of Texas and, if an
individual, is twenty-one (21) years of age or over. For purposes of this
section, the Subscrib-er is deemed to reside in the state where he/she has
his/her principal resi-dence at the time of both the offer and the sale of the
Shares;
(i) Either the Subscriber, or the Subscriber's authorized investment
representative, if any, has had the oppor-tunity for direct negotiations with
the Company with regard to this sub-scription and to ask questions of, and
receive answers from the representatives of the Company concerning the terms and
conditions of the offering and the Company, and has received all information
requested by the Sub-scriber regarding the offering, the Company and its
existing and planned opera-tions and manage-ment;
(j) The Shares are being purchased by the Sub-scriber and not by any
other person, with the Subscriber's own funds and not with the funds of any
other person and for the Subscriber's own account, and not as a nominee, agent
or other-wise for the account of any other person (except for its princi-pal, in
the case of an au-thorized investment representative). On acceptance of this
Agre-ement, no other person will have any interest, beneficial or otherwise, in
the Shares. The Subscriber is not obligated to transfer all or any portion of
the Shares to any other person nor does the Subscriber have any agreement or
understanding to do so. The Subscriber is purchas-ing the Shares for investment
for an indefinite period and not with a view to the sale or distribution of any
part or all there-of by public or private sale or other disposition. The
Subscrib-er has no inten-tion of selling, grant-ing any participa-tion in, or
otherwise distributing or disposing of the Shares. The Subscriber does not
intend to subdi-vide the Subscriber's purchase of the Shares with any person;
(k) The Subscriber has been advised that the Shares issued in
connec-tion with this offering have not been regis-tered with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act);
(l) Subscriber acknowledges that, either directly or with the
assistance of his/her Purchaser Representative, if any, Subscriber has such
knowledge and experience in financial and business matters to make an informed
investment decision based upon the information furnished to Subscriber and such
addi-tional information as Subscriber may have requested and received from the
Company and the independent inquiries and investigations undertaken by
Subscriber;
(m) The Company reserves the right to reject this subscription in whole
or in part.
3. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants that it has full legal and equitable title to the Shares, and has
not in whole or in part assigned, pledged, sold, conveyed or other-wise
transferred to any third party any rights in such Shares.
2
<PAGE>
4. PAYMENT OF SUBSCRIPTION. The amount of the Sub-scriber's subscription is
set forth above and the undersigned encloses payment of such amount herewith in
United States dollars by cash, check or money order payable to the Company. The
Sub-scriber recognizes that if the Subscriber's sub-scription is re-jected in
whole or in part, the funds delivered to the Com-pany for the rejected portion
of the subscription will be returned to the Subscriber by the Company as soon as
practica-ble without interest.
5. APPLICATION TO FIDUCIARIES. If the Subscriber is purchasing the Shares
in a fiduciary capacity, the representa-tions, warranties and agreements of the
Subscriber herein shall be deemed to have been made on behalf of the person(s)
for whom the Subscriber is so purchasing, except that such person(s) need not be
over twenty-one (21) years of age.
6. CHANGES. The Subscriber agrees to notify the Company immediately if any
of the representations and warranties made by the Subscriber herein become
untrue.
7. REGISTRATION ON COMPANY'S RECORDS. The Sub-scriber's Shares will be
owned and should be shown on the Com-pany's records as set forth on the
signature line below.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties hereto with re-spect to the mat-ters set forth herein, and supersedes
all prior agreements, nego-tiations, or discussions with respect to such
matters. No prior or concurrent representations or promises of any party hereto
or any of their respective agents or representa-tives shall consti-tute a part
of this Agreement, unless expressly so stated herein. This Agreement may not be
altered, modified, amended, changed, rescinded, or discharged, in whole or in
part, except by a writ-ing executed by the parties.
9. COVENANTS AND CONDITIONS. Should any covenant or other provision of this
Agreement be held by a court of competent jurisdiction to be invalid, illegal,
or unenforceable by reason of a rule of law or public policy, all other
conditions and pro-visions of this Agreement shall nevertheless remain in full
force and effect. No covenant or provision hereof shall be deemed dependent
upon any other covenant or provision unless so expressly stated herein.
10. CALIFORNIA LAW TO GOVERN. This Agreement shall be deemed entered into
in the State of California, and shall be governed and construed in accordance
with the internal laws of the State of California applicable to contracts made
and to be performed in the State of California.
11. NOTICES. All notices and demands of every kind shall be personally
delivered or sent by first class mail to the parties at their addresses stated
below. Any such notice or demand shall be effective and deemed received
immediately upon personal service or three (3) days after deposit in the United
States mail, as the case may be. Any party hereto may re-desig-nate an address
for notices or demands in writing, delivered or mailed in accordance with the
terms hereof.
3
<PAGE>
12. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and shall not in any way limit or amplify the
terms and provisions hereof, or enter into the interpretation of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and, in making proof
hereof, it shall not be necessary to produce or account for more than one such
counter-part.
14. INTERPRETATION. As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall each be deemed to
include the others whenever the context so indicates.
15. MISCELLANEOUS. This Agreement shall inure to the benefit of and be
binding upon the heir and personal representa-tives of the Subscriber and the
successors and assigns of the Company, subject to the restrictions upon
assignment set forth herein. Time is agreed to be of the essence.
IN WITNESS WHEREOF, the Subscriber has duly executed this Agreement as of
the ___ day of ______________, 1999, and rendered this Agreement to the Company
this day of, 1999.
/s/Barbara Marshall
--------------------
Authorized Signature of Subscriber
Barbara Marshall
4
<PAGE>
/_/ Individual Ownership ________________________________
Subscriber's Social Security
or Federal Tax Identification
Number(s)
/_/ Joint Tenants with
Right of Survivorship ________________________________
Subscriber's Home Telephone
Number and Area Code
/_/ Tenants in Common
(both parties must
sign)
/_/ Community Property
(both signatures
required)
/_/ General Partnership
(Managing Partner must
sign; if no Managing
Partner, all partners
must sign)
/_/ Corporation
(authorized officer
must sign)
/_/ Trust
(Authorized trustee(s) must sign)
Cash, check or money order enclosed: $______________
ACCEPTED: PHOTOLOFT, INC.:
Dated:_____________, 1999 By: /s/ Jack Marshall
-------------------
Jack Marshall, President
Address for Notices: Its:_____________________________
____________________________
____________________________
5
<PAGE>
EXHIBIT 10.38
WARRANT AGREEMENT
TO PURCHASE COMMON STOCK OF
PHOTOLOFT.COM, INC.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE
AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
This Warrant Agreement (the "Agreement") is entered into this ____ day of
December, 1999, by and between PhotoLoft.com ("PhotoLoft") and Barbara Marshall
("BUYER"). For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Issuance of Warrants. PhotoLoft, subject to the terms and conditions
----------------------
hereinafter set forth, hereby issues to BUYER warrants (the "Warrants") to
purchase THIRTEEN THOUSAND (13,000) shares of PhotoLoft common stock (the
"Shares"). The exercise price of the Shares shall be $1.5317 per share (the
"Exercise Price") subject to adjustment in accordance with Paragraph 5 of this
Agreement.
2. Term. The Warrants may be exercised at any time after the Effective Date
----
set forth on the signature page hereof and before the expiration of sixty (60)
months from the Effective Date.
3. Exercise.
--------
(a) BUYER shall exercise the Warrants granted hereunder, in whole or in
part, by delivering to PhotoLoft at the office of PhotoLoft, or at such other
address as PhotoLoft may designate by notice in writing to the holder hereof,
the Notice of Exercise attached hereto as Exhibit A and incorporated herein by
---------
reference and a certified check or wire transfer in lawful money of the United
States for the Exercise Price for the entire amount of the number of Warrants
being exercised
(b) Upon delivery of all of the items set forth in (a) above, BUYER
shall be entitled to receive a certificate or certificates representing the
Shares. Such Shares shall be validly issued, fully paid and non-assessable.
1
<PAGE>
(c) Warrants shall be deemed to have been exercised immediately prior
to the close of business on the day of such delivery, and BUYER shall be deemed
the holder of record of the Shares issuable upon such exercise at such time.
(d) Upon any partial exercise of the Warrants, at the request of
PhotoLoft, this Agreement shall be surrendered and a new Agreement evidencing
the right to purchase the number of Shares not purchased upon such exercise
shall be issued to BUYER.
4. Representations and Warranties of BUYER. BUYER hereby represents and
-------------------------------------------
warrants to PhotoLoft as follows:
(a) Sophistication. BUYER has (i) a preexisting personal or business
relationship with PhotoLoft or one or more of its officers, directors, or
control persons; or (ii) by reason of BUYER's business or financial experience,
or by reason of the business or financial experience or of BUYER's financial
advisor who is unaffiliated with and who is not compensated, directly or
indirectly, by PhotoLoft or any affiliate or selling agent of PhotoLoft, BUYER
is capable of evaluating the risks and merits of this investment and of
protecting BUYER's own interests in connection with this investment.
(b) Accredited Investor. BUYER is an "accredited investor" as such
term is defined under Regulation D of the Securities Act of 1933, as amended
(the "Securities Act").
(c) Investment Intent. BUYER is purchasing the Warrants, and will
purchase the Shares solely for her own account for investment. BUYER has no
present intention to resell or distribute the Warrants or the Shares or any
portion thereof. The entire legal and beneficial interest of the Warrants is
being purchased, and will be held, for BUYER's account only, and neither in
whole or in part for any other person.
(d) Information Concerning Company. BUYER is aware of the business
affairs and financial condition of PhotoLoft and has acquired sufficient
information about PhotoLoft to make an informed and knowledgeable decision to
purchase the Warrants and the Shares.
(e) Economic Risk. BUYER realizes that the purchase of the Warrants
and the Shares will be a highly speculative investment and involves a high
degree of risk. BUYER is able, without impairing its financial condition, to
hold the Warrants and/or the Shares for an indefinite period of time and to
suffer a complete loss of its investment.
5. Anti-dilution Adjustments. The Warrants granted hereunder and the
--------------------------
Exercise Price thereof shall be subject to adjustment from time to time upon the
happening of certain events as set forth below.
(a) Stock Splits and Dividends. If outstanding shares of PhotoLoft
Common Stock shall be subdivided into a greater number of shares or a dividend
in Common Stock shall be paid in respect of Common Stock, the Exercise Price in
2
<PAGE>
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Exercise Price, the number of Shares purchasable upon the exercise of the
Warrants shall be changed to the number determined by dividing (i) an amount
equal to the number of Shares issuable upon the exercise of the Warrants
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately prior to such adjustment, by (ii) the Exercise Price in effect
immediately after such adjustment.
(b) Reclassification, Etc. In case there occurs any reclassification
or change of the outstanding securities of PhotoLoft or any reorganization of
PhotoLoft (or any other corporation the stock or securities of which are at the
time receivable upon the exercise of the Warrants) or any similar corporate
reorganization on or after the date hereof, then and in each such case BUYER,
upon the exercise hereof at any time after the consummation of such
reclassification, change, or reorganization shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which BUYER would have been entitled upon such consummation if BUYER had
exercised the Warrants immediately prior thereto, all subject to further
adjustment pursuant to the provisions of this Section.
(c) Adjustment Certificate. When any adjustment is required to be made
in the Shares or the Exercise Price pursuant to this Section, PhotoLoft shall
promptly mail to BUYER a certificate setting forth (i) a brief statement of the
facts requiring such adjustment, (ii) the Exercise Price after such adjustment
and (iii) the kind and amount of stock or other securities or property into
which the Warrants shall be exercisable after such adjustment.
6. Reservation of Shares. PhotoLoft shall at all times keep reserved a
-----------------------
sufficient number of authorized shares of Common Stock to provide for the
exercise of the Warrants in full.
7. Transferability. The Warrants issued hereunder and any and all Shares
---------------
issued upon exercise of the Warrants shall be transferable on the books of
PhotoLoft by the holder hereof in person or by duly authorized attorney subject
to any restrictions imposed by applicable federal or state securities laws. It
shall be a further condition to any transfer of the Warrants that the transferor
(if any portion of the Warrants are retained) and the transferee shall receive
and accept new Warrants, of like tenor and date, executed by PhotoLoft, for the
portion so transferred and for any portion retained, and shall surrender this
Agreement executed.
8. Voting. Nothing contained in this Agreement shall be construed as
------
conferring upon BUYER the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect to any meeting of shareholders for
the election of directors of PhotoLoft or for any other purpose not specified
herein.
3
<PAGE>
9. Miscellaneous.
-------------
(a) Amendment. This Agreement may be amended by written agreement
between PhotoLoft and BUYER.
(b) Notice. Any notice, demand or request required or permitted to be
given under this Agreement will be in writing and will be deemed sufficient when
delivered personally or sent by telegram or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, or with a
commercial courier service, with postage prepaid, and addressed, if to
PhotoLoft, at its principal place of business, attention the President, and if
to BUYER, at BUYER's address as shown on the stock records of PhotoLoft.
(c) Further Assurances. Both parties agree to execute any
additional documents and take any further actions necessary to carry out the
purposes of this Agreement.
(d) Severability. If any provision of this Agreement is held by any
court of competent jurisdiction to be illegal, unenforceable or void, such
provision will be enforced to the greatest extent possible and all other
provisions of this Agreement will continue in full force and effect.
(e) Governing Law. This Agreement will be interpreted and enforced in
accordance with California law as applied to agreements made and performed in
California.
(f) Survival. The representations and warranties of the parties hereto
set forth in this Agreement shall survive the closing and consummation of the
transactions contemplated hereby for a period of three (3) years from the date
hereof.
(g) Entire Agreement; Successors and Assigns. This Agreement and the
documents and instruments attached hereto constitute the entire agreement
between BUYER and PhotoLoft relative to the subject matter hereof. Any previous
agreements between the parties are superseded by this Agreement. Subject to any
exceptions specifically set forth in this Agreement, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and assigns of the parties.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(i) Headings. The headings of the Sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
(j) Attorney Fees. If any action is brought to interpret or enforce
the terms of this Agreement, the prevailing party in such action shall be
entitled to recover its attorneys fees and costs incurred in connection with
such action.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and delivered by their duly authorized officers as of December ___, 1999
(the "Effective Date").
PHOTOLOFT: PHOTOLOFT.COM, INC.
By:_______________________
Its:______________________
BUYER: /s/ Barbara Marshall
----------------------
Barbara Marshall
5
<PAGE>
WARRANT
NOTICE OF EXERCISE
------------------
To: PhotoLoft.com, Inc.
(1) _______________ ("BUYER") hereby elects to purchase ______________
shares of Common Stock of PhotoLoft.com, Inc. ("PhotoLoft") pursuant to the
terms of the Warrant Agreement dated December ___, 1999, and executed by BUYER
and PhotoLoft, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
in the name of BUYER.
BUYER: _______________________________
<PAGE>
EXHIBIT 10.39
SUBSCRIPTION AGREEMENT
BY PHOTOLOFT.COM, INC.
1. SUBSCRIPTION. The undersigned, Lisa Marshall and Don J Welsh (the
"Subscriber") hereby irrevocably subscribes for ONE HUNDRED SIXTY THREE THOUSAND
TWO HUNDRED SEVENTEEN and 00/100 (163,217) shares of Common Stock ("Sh-ares") of
PhotoLoft.com, Inc., a California cor-pora-tion (the "Com-pany"), at a price per
Share of $1.5317 and for a total price of TWO HUNDRED FITY THOUSAND DOLLARS and
00/100 ($250,000.00). This sub-scri-p-tion may be rejected in whole or in part
by the Company.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY THE SUBSCRIBER. The
Subscriber represents, warrants and agrees that:
(a) The Subscriber has received and carefully reviewed from the Company
all material documents necessary to make an informed investment decision
including but not limited to the Company's Form 10-SB and understands the risks
associated with this investment;
(b) All of the information provided by the Sub-scriber in the Investor
--------
Questionnaire for Individual Investors, attached hereto as Exhibit A, given to
- ---------------------------------------- ---------
the Company or its agents prior to the date hereof regarding the Subscriber's
ability to bear the risks of this investment and the Subscriber's sophistication
and experience as an investor, is true and correct as of the date this Agreement
is tendered to the Company. The Subscriber shall promptly notify the Company in
writing if any change in such information occurs after such tender and prior to
acceptance hereof by the Company;
(c) Subscriber is advised that no federal or state agency has made any
recommendation or endorsement of the Shares;
(d) The Subscriber has a preexisting personal or business relationship
with the Company or with any of its offi-cers, directors, or controlling
persons, or by reason of the Subscriber's business or financial experience (or
the business or financial experience of his/her authorized investment
representative who is unaffiliated with and who is not compensated by the
Com-pany or any affiliate or selling agent of the Company, directly or
indirectly) has the capacity to protect his/her own interests in connection with
this investment;
(e) The Subscriber has not seen or received any advertisement or
general solicitation with respect to the Shares;
(f) The Subscriber recognizes that the Company has limited net assets
and a limited operating history, and that any investment in the Shares involves
a high degree of risk;
(g) The Subscriber understands that there are substantial restrictions
on sale, assignment, transfer or any other disposition of the Shares, and that
the Subscriber may not be able to liquidate the Subscriber's investment;
<PAGE>
(h) The Subscriber is a resident of the state of Texas and, if an
individual, is twenty-one (21) years of age or over. For purposes of this
section, the Subscrib-er is deemed to reside in the state where he/she has
his/her principal resi-dence at the time of both the offer and the sale of the
Shares;
(i) Either the Subscriber, or the Subscriber's authorized investment
representative, if any, has had the oppor-tunity for direct negotiations with
the Company with regard to this sub-scription and to ask questions of, and
receive answers from the representatives of the Company concerning the terms and
conditions of the offering and the Company, and has received all information
requested by the Sub-scriber regarding the offering, the Company and its
existing and planned opera-tions and manage-ment;
(j) The Shares are being purchased by the Sub-scriber and not by any
other person, with the Subscriber's own funds and not with the funds of any
other person and for the Subscriber's own account, and not as a nominee, agent
or other-wise for the account of any other person (except for its princi-pal, in
the case of an au-thorized investment representative). On acceptance of this
Agre-ement, no other person will have any interest, beneficial or otherwise, in
the Shares. The Subscriber is not obligated to transfer all or any portion of
the Shares to any other person nor does the Subscriber have any agreement or
understanding to do so. The Subscriber is purchas-ing the Shares for investment
for an indefinite period and not with a view to the sale or distribution of any
part or all there-of by public or private sale or other disposition. The
Subscrib-er has no inten-tion of selling, grant-ing any participa-tion in, or
otherwise distributing or disposing of the Shares. The Subscriber does not
intend to subdi-vide the Subscriber's purchase of the Shares with any person;
(k) The Subscriber has been advised that the Shares issued in
connec-tion with this offering have not been regis-tered with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act);
(l) Subscriber acknowledges that, either directly or with the
assistance of his/her Purchaser Representative, if any, Subscriber has such
knowledge and experience in financial and business matters to make an informed
investment decision based upon the information furnished to Subscriber and such
addi-tional information as Subscriber may have requested and received from the
Company and the independent inquiries and investigations undertaken by
Subscriber;
(m) The Company reserves the right to reject this subscription in whole
or in part.
3. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants that it has full legal and equitable title to the Shares, and has
not in whole or in part assigned, pledged, sold, conveyed or other-wise
transferred to any third party any rights in such Shares.
2
<PAGE>
4. PAYMENT OF SUBSCRIPTION. The amount of the Sub-scriber's subscription is
set forth above and the undersigned encloses payment of such amount herewith in
United States dollars by cash, check or money order payable to the Company. The
Sub-scriber recognizes that if the Subscriber's sub-scription is re-jected in
whole or in part, the funds delivered to the Com-pany for the rejected portion
of the subscription will be returned to the Subscriber by the Company as soon as
practica-ble without interest.
5. APPLICATION TO FIDUCIARIES. If the Subscriber is purchasing the Shares
in a fiduciary capacity, the representa-tions, warranties and agreements of the
Subscriber herein shall be deemed to have been made on behalf of the person(s)
for whom the Subscriber is so purchasing, except that such person(s) need not be
over twenty-one (21) years of age.
6. CHANGES. The Subscriber agrees to notify the Company immediately if any
of the representations and warranties made by the Subscriber herein become
untrue.
7. REGISTRATION ON COMPANY'S RECORDS. The Sub-scriber's Shares will be
owned and should be shown on the Com-pany's records as set forth on the
signature line below.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties hereto with re-spect to the mat-ters set forth herein, and supersedes
all prior agreements, nego-tiations, or discussions with respect to such
matters. No prior or concurrent representations or promises of any party hereto
or any of their respective agents or representa-tives shall consti-tute a part
of this Agreement, unless expressly so stated herein. This Agreement may not be
altered, modified, amended, changed, rescinded, or discharged, in whole or in
part, except by a writ-ing executed by the parties.
9. COVENANTS AND CONDITIONS. Should any covenant or other provision of this
Agreement be held by a court of competent jurisdiction to be invalid, illegal,
or unenforceable by reason of a rule of law or public policy, all other
conditions and pro-visions of this Agreement shall nevertheless remain in full
force and effect. No covenant or provision hereof shall be deemed dependent
upon any other covenant or provision unless so expressly stated herein.
10. CALIFORNIA LAW TO GOVERN. This Agreement shall be deemed entered into
in the State of California, and shall be governed and construed in accordance
with the internal laws of the State of California applicable to contracts made
and to be performed in the State of California.
11. NOTICES. All notices and demands of every kind shall be personally
delivered or sent by first class mail to the parties at their addresses stated
below. Any such notice or demand shall be effective and deemed received
immediately upon personal service or three (3) days after deposit in the United
States mail, as the case may be. Any party hereto may re-desig-nate an address
for notices or demands in writing, delivered or mailed in accordance with the
terms hereof.
3
<PAGE>
12. SECTION HEADINGS. The section headings in this Agreement are for
convenience of reference only, and shall not in any way limit or amplify the
terms and provisions hereof, or enter into the interpretation of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and, in making proof
hereof, it shall not be necessary to produce or account for more than one such
counter-part.
14. INTERPRETATION. As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall each be deemed to
include the others whenever the context so indicates.
15. MISCELLANEOUS. This Agreement shall inure to the benefit of and be
binding upon the heir and personal representa-tives of the Subscriber and the
successors and assigns of the Company, subject to the restrictions upon
assignment set forth herein. Time is agreed to be of the essence.
IN WITNESS WHEREOF, the Subscriber has duly executed this Agreement as of
the ___ day of ______________, 1999, and rendered this Agreement to the Company
this day of, 1999.
/s/ Lisa Marshall
-------------------
/s/ Don J. Welsh
-------------------
Authorized Signature of Subscriber
4
<PAGE>
/_/ Individual Ownership ________________________________
Subscriber's Social Security
or Federal Tax Identification
Number(s)
/_/ Joint Tenants with
Right of Survivorship ________________________________
Subscriber's Home Telephone
Number and Area Code
/_/ Tenants in Common
(both parties must
sign)
/_/ Community Property
(both signatures
required)
/_/ General Partnership
(Managing Partner must
sign; if no Managing
Partner, all partners
must sign)
/_/ Corporation
(authorized officer
must sign)
/_/ Trust
(Authorized trustee(s) must sign)
Cash, check or money order enclosed: $______________
ACCEPTED: PHOTOLOFT, INC.:
Dated:_____________, 1999 By: /s/ Jack Marshall
Address for Notices: Its: Jack Marshall, President
____________________________
5
<PAGE>
EXHIBIT 10.40
WARRANT AGREEMENT
TO PURCHASE COMMON STOCK OF
PHOTOLOFT.COM, INC.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE
AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
This Warrant Agreement (the "Agreement") is entered into this ____ day of
December, 1999, by and between PhotoLoft.com, Inc. ("PhotoLoft") and Lisa
Marshall and Donald J Welsh ("BUYER"). For good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. Issuance of Warrants. PhotoLoft, subject to the terms and conditions
----------------------
hereinafter set forth, hereby issues to BUYER warrants (the "Warrants") to
purchase THIRTY THREE THOUSAND (33,000) shares of PhotoLoft common stock (the
"Shares"). The exercise price of the Shares shall be $1.5317 per share (the
"Exercise Price") subject to adjustment in accordance with Paragraph 5 of this
Agreement.
2. Term. The Warrants may be exercised at any time after the Effective Date
----
set forth on the signature page hereof and before the expiration of sixty (60)
months from the Effective Date.
3. Exercise.
--------
(a) BUYER shall exercise the Warrants granted hereunder, in whole or in
part, by delivering to PhotoLoft at the office of PhotoLoft, or at such other
address as PhotoLoft may designate by notice in writing to the holder hereof,
the Notice of Exercise attached hereto as Exhibit A and incorporated herein by
---------
reference and a certified check or wire transfer in lawful money of the United
States for the Exercise Price for the entire amount of the number of Warrants
being exercised
(b) Upon delivery of all of the items set forth in (a) above, BUYER
shall be entitled to receive a certificate or certificates representing the
Shares. Such Shares shall be validly issued, fully paid and non-assessable.
1
<PAGE>
(c) Warrants shall be deemed to have been exercised immediately prior
to the close of business on the day of such delivery, and BUYER shall be deemed
the holder of record of the Shares issuable upon such exercise at such time.
(d) Upon any partial exercise of the Warrants, at the request of
PhotoLoft, this Agreement shall be surrendered and a new Agreement evidencing
the right to purchase the number of Shares not purchased upon such exercise
shall be issued to BUYER.
4. Representations and Warranties of BUYER. BUYER hereby represents and
-------------------------------------------
warrants to PhotoLoft as follows:
(a) Sophistication. BUYER has (i) a preexisting personal or business
relationship with PhotoLoft or one or more of its officers, directors, or
control persons; or (ii) by reason of BUYER's business or financial experience,
or by reason of the business or financial experience or of BUYER's financial
advisor who is unaffiliated with and who is not compensated, directly or
indirectly, by PhotoLoft or any affiliate or selling agent of PhotoLoft, BUYER
is capable of evaluating the risks and merits of this investment and of
protecting BUYER's own interests in connection with this investment.
(b) Accredited Investor. BUYER is an "accredited investor" as such
term is defined under Regulation D of the Securities Act of 1933, as amended
(the "Securities Act").
(c) Investment Intent. BUYER is purchasing the Warrants, and will
purchase the Shares solely for her own account for investment. BUYER has no
present intention to resell or distribute the Warrants or the Shares or any
portion thereof. The entire legal and beneficial interest of the Warrants is
being purchased, and will be held, for BUYER's account only, and neither in
whole or in part for any other person.
(d) Information Concerning Company. BUYER is aware of the business
affairs and financial condition of PhotoLoft and has acquired sufficient
information about PhotoLoft to make an informed and knowledgeable decision to
purchase the Warrants and the Shares.
(e) Economic Risk. BUYER realizes that the purchase of the Warrants
and the Shares will be a highly speculative investment and involves a high
degree of risk. BUYER is able, without impairing its financial condition, to
hold the Warrants and/or the Shares for an indefinite period of time and to
suffer a complete loss of its investment.
5. Anti-dilution Adjustments. The Warrants granted hereunder and the
--------------------------
Exercise Price thereof shall be subject to adjustment from time to time upon the
happening of certain events as set forth below.
2
<PAGE>
(a) Stock Splits and Dividends. If outstanding shares of PhotoLoft
Common Stock shall be subdivided into a greater number of shares or a dividend
in Common Stock shall be paid in respect of Common Stock, the Exercise Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Exercise Price, the number of Shares purchasable upon the exercise of the
Warrants shall be changed to the number determined by dividing (i) an amount
equal to the number of Shares issuable upon the exercise of the Warrants
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately prior to such adjustment, by (ii) the Exercise Price in effect
immediately after such adjustment.
(b) Reclassification, Etc. In case there occurs any reclassification
or change of the outstanding securities of PhotoLoft or any reorganization of
PhotoLoft (or any other corporation the stock or securities of which are at the
time receivable upon the exercise of the Warrants) or any similar corporate
reorganization on or after the date hereof, then and in each such case BUYER,
upon the exercise hereof at any time after the consummation of such
reclassification, change, or reorganization shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which BUYER would have been entitled upon such consummation if BUYER had
exercised the Warrants immediately prior thereto, all subject to further
adjustment pursuant to the provisions of this Section.
(c) Adjustment Certificate. When any adjustment is required to be made
in the Shares or the Exercise Price pursuant to this Section, PhotoLoft shall
promptly mail to BUYER a certificate setting forth (i) a brief statement of the
facts requiring such adjustment, (ii) the Exercise Price after such adjustment
and (iii) the kind and amount of stock or other securities or property into
which the Warrants shall be exercisable after such adjustment.
6. Reservation of Shares. PhotoLoft shall at all times keep reserved a
-----------------------
sufficient number of authorized shares of Common Stock to provide for the
exercise of the Warrants in full.
7. Transferability. The Warrants issued hereunder and any and all Shares
---------------
issued upon exercise of the Warrants shall be transferable on the books of
PhotoLoft by the holder hereof in person or by duly authorized attorney subject
to any restrictions imposed by applicable federal or state securities laws. It
shall be a further condition to any transfer of the Warrants that the transferor
(if any portion of the Warrants are retained) and the transferee shall receive
and accept new Warrants, of like tenor and date, executed by PhotoLoft, for the
portion so transferred and for any portion retained, and shall surrender this
Agreement executed.
8. Voting. Nothing contained in this Agreement shall be construed as
------
conferring upon BUYER the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect to any meeting of shareholders for
the election of directors of PhotoLoft or for any other purpose not specified
herein.
3
<PAGE>
9. Miscellaneous.
-------------
(a) Amendment. This Agreement may be amended by written agreement
between PhotoLoft and BUYER.
(b) Notice. Any notice, demand or request required or permitted to be
given under this Agreement will be in writing and will be deemed sufficient when
delivered personally or sent by telegram or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, or with a
commercial courier service, with postage prepaid, and addressed, if to
PhotoLoft, at its principal place of business, attention the President, and if
to BUYER, at BUYER's address as shown on the stock records of PhotoLoft.
(c) Further Assurances. Both parties agree to execute any
additional documents and take any further actions necessary to carry out the
purposes of this Agreement.
(d) Severability. If any provision of this Agreement is held by any
court of competent jurisdiction to be illegal, unenforceable or void, such
provision will be enforced to the greatest extent possible and all other
provisions of this Agreement will continue in full force and effect.
(e) Governing Law. This Agreement will be interpreted and enforced in
accordance with California law as applied to agreements made and performed in
California.
(f) Survival. The representations and warranties of the parties hereto
set forth in this Agreement shall survive the closing and consummation of the
transactions contemplated hereby for a period of three (3) years from the date
hereof.
(g) Entire Agreement; Successors and Assigns. This Agreement and the
documents and instruments attached hereto constitute the entire agreement
between BUYER and PhotoLoft relative to the subject matter hereof. Any previous
agreements between the parties are superseded by this Agreement. Subject to any
exceptions specifically set forth in this Agreement, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and assigns of the parties.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(i) Headings. The headings of the Sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
(j) Attorney Fees. If any action is brought to interpret or enforce
the terms of this Agreement, the prevailing party in such action shall be
entitled to recover its attorneys fees and costs incurred in connection with
such action.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and delivered by their duly authorized officers as of December ___, 1999
(the "Effective Date").
PHOTOLOFT: PHOTOLOFT.COM, INC.
By: /s/ Jack Marshall
-------------------
Its: Jack Marshall, President
BUYER: /s/ Donald J Welsh
---------------------
Donald J Welsh
/s/ Lisa Marshall
-------------------
Lisa Marshall
5
<PAGE>
WARRANT
NOTICE OF EXERCISE
------------------
To: PhotoLoft.com, Inc.
(1) Lisa Marshall and Donald J Welsh ("BUYER") hereby elects to
purchase ______________ shares of Common Stock of PhotoLoft.com, Inc.
("PhotoLoft") pursuant to the terms of the Warrant Agreement dated December ___,
1999, and executed by BUYER and PhotoLoft, and tenders herewith payment of the
purchase price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
in the name of BUYER.
BUYER: ________________________
Lisa Marshall
________________________
Donald J Welsh
<PAGE>
EXHIBIT 10.41
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement"), by and between
Photoloft.com, a Nevada corporation (the "Company"), and Lisa Marshall
("Optionee"), is made effective as of this 6th day of December, 1999.
RECITALS
WHEREAS, the Company desires to issue stock options to Optionee and
Optionee desires to accept such stock options on the terms and conditions set
forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Grant of Options. The Company hereby grants to the Optionee, as a
------------------
separate incentive and not in lieu of any fees or other compensation for her
services, options ("the Options") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of TWO HUNDRED EIGHTY
EIGHT THOUSAND (288,000) shares of common stock (the "Shares"). The right to
exercise the Options shall vest in sixteen (16) equal quarterly installments
from the date hereof.
2. Exercise Price. The exercise price shall be $1.50 per share of
---------------
common stock (the "Exercise Price"), which is not less than the fair market
value of the Shares on the date of grant. The Exercise Price will be payable in
legal tender of the United States, in cash.
3. Time of Exercise. Upon execution of this Agreement, Optionee shall
-----------------
receive the right to exercise the Options.
4. Notice of Exercise. Optionee may exercise the Options by giving
--------------------
written notice of exercise of the Options sent by certified or registered mail,
return receipt requested, to the Company and sending a check for the Exercise
Price of the Options exercised.
5. Transferability. The Options will be exercisable for a period of
---------------
ten (10) years from the date hereof only by Optionee. The Options shall be
non-transferable.
6. Adjustment. The number and class of shares specified in paragraph 1
----------
above, and the Option Price, are subject to appropriate adjustment in the event
of certain changes in the capital structure of the Corporation which alter the
per share value of Common Stock or the rights of holders thereof. A dissolution
or liquidation of the Corporation, or a merger or consolidation in which the
Corporation is not the surviving corporation, will cause the option granted
hereunder to terminate unless the agreement of merger, consolidation or other
acquisition otherwise provides. In the event of such dissolution, liquidation,
merger, or consolidation, Optionee will have the right for a period of not less
than sixty (60) days prior to the effective date of such event, to exercise the
option granted hereunder as to all of the shares specified in paragraph 1 above.
Such right of exercise will accrue, notwithstanding any limitations in this
option agreement as to the time Optionee may exercise such option, including
"vesting" schedules.
7. Securities Laws. The issuance of shares of Common Stock upon the
----------------
exercise of the Options will be subject to compliance by the Company and the
person exercising the Options with all applicable requirements of federal and
state securities and other laws relating thereto. No person may exercise the
Options at any time when, in the opinion of counsel to the Company, such
exercise is not permitted under applicable federal or state securities laws.
Nothing herein will be construed to require the Company to register or qualify
any securities under applicable federal or state securities laws, or take any
action to secure an exemption from such registration and qualification for the
issuance of any securities upon the exercise of the Options.
<PAGE>
8. Investment Representations. In connection with the receipt of the
---------------------------
Options and potential purchase of shares of common stock Optionee represents
and warrants to the Company as follows:
a. Investment Intent. Optionee is receiving the Options and
may purchase the shares represented thereby solely for her own account for
investment. Optionee has no present intention to resell or distribute the
Options of underlying shares or any portion thereof. The entire legal and
beneficial interest of the Options and any underlying shares purchased, will be
held, for Optionee's account only, and neither in whole or in part for any other
person.
b. Information Concerning Company. Optionee has significant
prior experience and knowledge of the affairs of the Company. Optionee is aware
of the Company's business and financial condition and has acquired sufficient
information about the Company to make an informed and acknowledgeable decision
regarding the Options and the potential purchase of the Shares.
c. Economic Risk. Optionee realizes that the exercise of the
Options and purchase of the underlying shares will be a highly speculative
investment and involve a high degree of risk. Optionee is able, without
impairing his financial condition, to hold any shares purchased for an
indefinite period of time and to suffer a complete loss of his investment.
d. Restriction on Transfer. Optionee understands that the Options
and/or underlying Shares must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Optionee understands that the certificate evidencing any shares
purchased will be imprinted with a legend that prohibits the transfer of the
shares unless they are registered or unless the Company receives an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required.
e. Sales Under Rule 144. Optionee is aware of the adoption of
rule 144 by the Securities and Exchange Commission (the "Commission")
promulgated under the Securities Act, which permits limited public resale of
securities acquired in a non-public offering subject to the satisfaction of
certain conditions, including among other things: (i) the availability of
certain current public information about the Company, (ii) the resale occurring
not less than two years after the party has purchased and paid for the
securities to be sold, (iii) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a "market
maker," and (iv) the amount of securities sold during any three-month period not
exceeding specified limitations (generally 1% of the total shares outstanding).
f. Limitation on Rule 144 Sales. Optionee further acknowledges
and understands that the Company is not now and at the time she wishes to sell
the any purchased shares may not be satisfying the current public information
requirement of Rule 144, and, in such case, Optionee could be precluded from
selling any shares purchased as a result of the exercise of the Options under
Rule 144 even if the one-year minimum holding period has been satisfied.
g. Sales Not Under Rule 144. Optionee further acknowledges that,
if all of the requirements of Rule 144 are not met, then registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, although Rule 144 is not exclusive, the
staff of the Commission has expressed its opinion (i) that persons proposing to
sell private placement securities other than in a registered offering and other
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and (ii) that such persons and the brokers who participate in the
transactions do so at their own risk.
<PAGE>
10. Legends, California Securities Law.
-------------------------------------
a. The certificate or certificates representing any shares
purchased as a result of the exercise of the Options will bear the following
legends (as well as any legends required by applicable California and other
state corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE OR DISPOSITION MAY BY EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
b. The Options and underlying shares which are the subject of this
Agreement have not been qualified with the Commissioner of Corporations of the
State of California, and the issuance of such securities or the payment or
receipt of any part of the consideration therefor prior to such qualification is
unlawful, unless the sale of securities is exempt from the qualification by an
applicable section of the California Corporations Code, including Section 25100,
25102 or 25105. The rights of all parties to this Agreement are expressly
conditioned upon such qualification being obtained, unless the sale is so
exempt.
11 No Rights as Shareholder. Neither Optionee nor any person claiming
-------------------------
under or through Optionee will be, or have any of the rights or privileges of, a
shareholder of the Company in respect of any of the Shares issuable upon the
exercise of the Options, unless and until any of the Options are properly and
lawfully exercised.
12. Notices. Any notice to be given to the Company under the terms of
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this Agreement will be addressed to the Company, in care of its Secretary, at
its executive offices, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Optionee will be in writing and
delivered or mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed to Optionee at the address set forth beneath
Optionee's signature in writing. Any such notice will be deemed to have been
duly given where deposited in a United States post office in compliance with the
foregoing.
13. Successor. Subject to the limitation on the transferability of the
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Options contained herein, this Agreement will be binding upon and inure to the
benefit of the heirs, legal representatives, successors and assigns of the
parties hereto.
14. Attorney's Fees. In the event that any legal action is brought to
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enforce or interpret any part of this Agreement, the prevailing party shall be
entitled to recover reasonable attorney's fees and other costs incurred in that
action, in addition to any other relief to which that party may be entitled.
15. Governing Law. This Agreement shall in all respects be construed,
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interpreted, and enforced in accordance with, and governed by the laws of the
State of California.
16. Severability. If any term or provision of this Agreement shall be
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held invalid or unenforceable to any extent, the remainder of this Agreement
shall not be affected and each other term and provision of this Agreement shall
be valid to the fullest extent permitted by law.
17. Counterparts. This Agreement may be executed in counterparts, each
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of which shall constitute an original and all of which shall be one and the same
instrument.
18. Modification. Any amendment, change or modification of this
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Agreement shall be effective only if it is in writing and signed by the parties
hereto.
19. Waiver. The failure of either party to insist upon strict
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compliance with any of the terms, covenants or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant or
condition, nor shall any waiver or relinquishment of any right or power at any
one time be deemed a waiver or relinquishment of that right or power for all or
any other time.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
COMPANY: PHOTOLOFT.COM
By: /s/ Jack Marshall
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Jack Marshall, President
OPTIONEE: /s/Lisa Marshall
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Lisa Marshall
Address: ___________________________
___________________________
<PAGE>