As filed with the Securities and Exchange Commission on May 26, 2000
Registration No. 333-33416
__________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM SB-2/A1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
n-GEN SOLUTIONS.COM, INC.
(Exact name of registrant as specified in charter)
Delaware 84-1469564 7379
- ---------------------------- ------------- ----------------------------
(State or other jurisdiction (IRS Employer (Primary Standard Industrial
of Incorporation or Identification No.) Classification Code Number)
organization)
Robert D. Arnold, Chairman and Chief Executive Officer
n-Gen Solutions.Com, Inc.
410 17th Street, Suite 1940
Denver, Colorado 80202
(303) 628-0747
(Address including zip code, and telephone number, including
area code, of registrant's principal executive offices)
________________________________________________
Robert D. Arnold, Chairman and Chief Executive Officer
n-Gen Solutions.Com, Inc.
410 17th Street, Suite 1940
Denver, Colorado 80202
(303) 628-0747
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
________________________________________________
COPIES OF ALL COMMUNICATIONS TO:
--------------------------------
John B. Wills, Esq. David A Carter, P.A.
Diana L. Powell, Esq. 2300 Glades Road,
Berenbaum, Weinshienk & Eason, P.C. Suite 210 West Tower
370 Seventeenth Street, Suite 2600 Boca Raton, Florida 33431
Denver, Colorado 80202-5626 (561) 750-6999
(303) 825-0800 (561) 367-0960 FAX
(303) 629-7610 FAX Counsel to Underwriter
Counsel to Issuer
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. [X]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
__________________________________________________________________________________
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Offering Registration
to be Registered Registered Per Share Price Fee
- ---------------- ---------- --------- ----- ---
<S> <C> <C> <C> <C>
Common Stock, 1,840,000
$.0001 Par Value(1) Shares $5.00 $ 9,200,000 $2,428.80
Warrants(2) 1,840,000 $0.125 $ 230,000 $ 60.72
Common Stock,
Underlying Warrants(3) 1,840,000 $5.50 $10,120,000 $2,671.68
Underwriter's Common
Stock Option(4) 160,000 nil $ 0 $ 0.00
Common Stock Underlying
Underwriter's Common
Stock Option(5) 160,000 $8.25 $ 1,320,000 $ 348.48
Underwriter's Warrant
Option(6) 160,000 nil $ 0 $ 0.00
Warrants Underlying
Underwriter's Warrant
Option(7) 160,000 $0.20625 $ 33,000 $ 8.71
Common Stock Underlying
Underwriter's Warrant
Option(8) 160,000 $9.0755 $ 1,452,080 $ 383.35
---------
Total Registration and Fee(9) $22,355,080 $5,901.74
=========== =========
__________________________________________________________________________________
</TABLE>
(1) Includes 240,000 shares reserved for the option, exercisable within 45
days after the date on which the Securities and Exchange Commission
(the "Commission") declares this Registration Statement effective, to
cover over-allotments, if any (the "Over-Allotment Option"), granted
by n-Gen to Barron Chase Securities, Inc. (Underwriter"). See
"Underwriting."
(2) Includes 240,000 Redeemable Common Stock Purchase Warrants ("Purchase
Warrants" of the "Warrants") reserved for issuance upon exercise of
the Over-Allotment Option. The Warrants (a) may be purchased
separately from the Common Stock in the offering, (b) are exercisable
during a five-year period commencing on the effective date of this
Registration Statement, and (c) shall be redeemable, at the option of
n-Gen, at $.05 per Warrant upon 30 days' prior written notice, (i) if
the closing bid price, as reported on the Nasdaq SmallCap Market(SM),
or the closing sale price, as reported on a national or regional
securities exchange, as applicable, of the shares of the Registrant's
Common Stock for 30 consecutive trading days ending within ten days of
the notice of redemption of the Warrants averages in excess of $10.00
per share, subject to adjustment, and (ii) after a then current
registration statement has been declared effective by the Commission
with regard to the shares of Common Stock to be received by the holder
upon exercise, but (iii) during the one-year period after the
effective date of this Registration statement, only with the written
consent of the Underwriter.
(3) Reserved for issuance upon exercise of the Warrants. Pursuant to Rule
416 under the Securities Act, such additional number of shares of
Common Stock subject to the Warrants are also being registered to
cover any adjustment resulting from the operation of the anti-dilution
provisions relating to the Warrants. The indeterminate number of
additional shares shall be issuable pursuant to rule 416 to prevent
dilution resulting from stock splits, stock dividends or similar
transactions.
<PAGE>
(4) To be issued to the Underwriter or persons related to the Underwriter.
Pursuant to Rule 416 under the Securities Act, such additional number
of Underwriter stock options ("Common Stock Underwriter Warrants") are
also being registered to cover any adjustment resulting from the
operation of the anti-dilution provisions relating to the Common Stock
Underwriter Warrants. The indeterminate number of additional Common
Stock Underwriter Warrants shall be issuable pursuant to Rule 416 to
prevent dilution resulting from stock splits, stock dividends or
similar transactions.
(5) Reserved for issuance upon exercise of the Common Stock Underwriter
Warrants. Pursuant to Rule 416 under the Securities Act, such
additional number of shares of Common Stock subject to the Common
Stock Underwriter Warrants are also being registered to cover any
adjustment resulting from the operation of the anti-dilution
provisions relating to the Common Stock Underwriter Warrants. The
indeterminate number of additional shares shall be issuable pursuant
to Rule 416 to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
(6) To be issued to the Underwriter or persons related to the Underwriter.
Pursuant to Rule 416 under the Securities Act, such additional number
of Underwriter warrant options ("Underwriter Warrant Options") are
also being registered to cover any adjustment resulting from the
operation of the anti-dilution provisions relating to the Underwriter
Warrant Options. The indeterminate number of additional shares shall
be issuable pursuant to Rule 416 to prevent dilution resulting from
stock splits, stock dividends or similar transactions.
(7) Reserved for issuance upon exercise of the Underwriter Warrant
Options. Pursuant to Rule 416 under the Securities Act, such
additional number of warrants to purchase shares of Common Stock
subject to the Underwriter Warrant Options are also being registered
to cover any adjustment resulting from stock splits, stock dividends
or similar transactions.
(8) Reserved for issuance upon exercise of the Underwriter Underlying
Warrants. Pursuant to Rule 416 under the Securities Act, such
additional number of shares of Common Stock subject to the Underwriter
Underlying Warrants are also being registered to cover any adjustment
resulting stock splits, stock dividends or similar transactions. The
indeterminate number of additional shares shall be issuable pursuant
to Rule 416 to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
(9) The requisite fee has been paid in connection with this Registration
Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(a) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The Exhibit Index appears on page II-4 of the sequentially numbered
pages of this Registration Statement. This Registration Statement,
including exhibits contains 365 pages.
<PAGE>
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B)
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2
ITEM NO. SECTIONS IN PROSPECTUS
- --------- ----------------------
<S> <C> <C>
1 Front of Registration Statement and
Outside Front Cover of Prospectus . . . . . Facing Page; Cross Reference
Sheet; Prospectus Cover Page
2 Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . . . Prospectus Cover Page; Prospectus
Back Cover Page
3 Summary Information and Risk Factors. . . . Prospectus Summary; Business;
Risk Factors
4 Use of Proceeds . . . . . . . . . . . . . . Use of Proceeds
5 Determination of Offering Price . . . . . . Risk Factors; Underwriting
6 Dilution. . . . . . . . . . . . . . . . . . Dilution and Other Comparative
Data
7 Selling Security Holders. . . . . . . . . . Description of Securities
8 Plan of Distribution. . . . . . . . . . . . Prospectus Cover Page; Underwriting
9 Legal Proceedings . . . . . . . . . . . . . Legal Proceedings
10 Directors, Executive Officers, Promoters
and Control Persons . . . . . . . Management; Principal Shareholders
11 Security Ownership of Certain
Beneficial Owners and Management. . . . . . Principal Shareholders
12 Description of Securities . . . . . . . . . Description of Securities
13 Interest of Named Experts and Counsel . . . Legal Matters; Experts
14 Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities . . . . . . . . . . . . . . Certain Relationships and Related
Transactions
15 Organization within Last Five Years . . . . Prospectus Summary; Business
16 Description of Business . . . . . . . . . . Business
17 Management's Discussion and
Analysis or Plan of Operation . . . . . . . Management's Discussion
and Analysis or Plan of Operation
18 Description of Property . . . . . . . . . . Business
19 Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . Certain Relationships and
Related Transactions
<PAGE>
20 Market for Common Equity and
Related Stockholder Matters . . . . . . . . Description of Securities
21 Executive Compensation. . . . . . . . . . . Management
22 Financial Statements. . . . . . . . . . . . Financial Statements
23 Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . Not applicable
</TABLE>
-2-
<PAGE>
SUBJECT TO COMPLETION MAY 26, 2000
PROSPECTUS
1,600,000 SHARES
1,600,000 WARRANTS
n-GEN SOLUTIONS.COM, INC.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
Prior to this offering, there has been no public market for our common
stock and warrants. The initial public offering price of our common stock
is $5.00 per share and the initial public offering price of our warrant is
$.125 per warrant. We have recently applied for the inclusion of our
common stock and warrants on the Nasdaq SmallCap Market ("Nasdaq") under
the symbols "LERN" and "LERNW" and the Boston Stock Exchange under the
symbols "N-GEN" and"N-GENW."
The underwriter has an option to purchase a maximum of 240,000
additional shares of our common stock and 240,000 additional warrants, to
cover over-allotments of our shares and warrants.
INVESTING IN OUR COMMON STOCK AND WARRANTS INVOLVES RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 9.
UNDERWRITING DISCOUNTS
PRICE TO AND INVESTOR
PUBLIC COMMISSIONS
------ -----------
Per Share . . . . . . . . . . . . . . $5.00 $.50
Per Warrant . . . . . . . . . . . . . $.125 $.0125
Per Share Total . . . . . . . . . . .$8,000,000 $800,000
Per Warrant Total . . . . . . . . . . $200,000 $20,000
Neither the Securities and Exchange Commission nor any other state
securities commission has approved these securities or determined that this
prospectus is accurate or complete. Any representation to the contrary is
illegal.
It is expected that delivery of the certificates representing the
common shares and the warrants will be made at the offices of Barron Chase
Securities, Inc. on or about ________, 2000.
[LOGO] BARRON CHASE SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS _____________, 2000
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . .4
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . .8
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS. . . . . . . . . . . 28
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING. . . . . . . . . . 29
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS . . . . . . 33
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 63
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS . . . . . . . . . 64
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . 65
SHARES ELIGIBLE FOR FUTURE SALE. . . . . . . . . . . . . . . . . . . . 68
TRANSFER AGENT AND REGISTRAR . . . . . . . . . . . . . . . . . . . . . 69
REPORTS TO SECURITY-HOLDERS. . . . . . . . . . . . . . . . . . . . . . 69
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . 73
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . . . . . 73
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . 75
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT
IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY BE
ACCURATE ONLY ON THE DATE OF THIS DOCUMENT.
-2-
<PAGE>
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or
possession or distribution of this prospectus in any jurisdiction where
action for that purpose is required, other than in the United States. You
are required to inform yourselves about and to observe any restrictions
relating to his offering and the distribution of this prospectus.
ATTENTION CALIFORNIA RESIDENTS
- ------------------------------
Offers and sales of the Common Stock and Warrants of n-Gen
Solutions.com, Inc. to California residents pursuant to this prospectus
are restricted to individuals who meet suitability standards of not less
than $250,000 liquid net worth (a net worth exclusive of home, home
furnishings and automobile), plus $65,000 gross annual income or a
$500,000 liquid net worth (a net worth exclusive of home, home furnishings
and automobile).
-3-
<PAGE>
PROSPECTUS SUMMARY
n-GEN SOLUTIONS.COM, INC.
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT
TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
"RISK FACTORS" SECTION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING IN THE CONSOLIDATED FINANCIAL STATEMENTS
BEFORE MAKING AN INVESTMENT DECISION.
OUR BUSINESS
We design, install and outfit computer classrooms for schools,
businesses and government agencies that are customized for each customer to
address the various subject areas being taught. The classrooms we design
and install typically contain the following components:
* 10 to 30 computer workstations for students;
* 1 instructor computer workstation;
* specially designed furniture and seating;
* audio and video switching equipment;
* an electronic whiteboard for visual projections and
demonstrations; and
* a digital video server and a software database for searching and
accessing customer identified Internet sites, video materials,
audio files, software and images.
Management believes that our computer classrooms help promote student
learning by:
* giving the teacher the ability to work closely with students by
allowing the teacher to display the teacher's computer screen to
students as a whole class or to individual students who may
require additional assistance;
* giving the teacher the ability to work closely with the students
by allowing the instructor to talk with the class as a whole or
to individual students via headsets;
* giving students the ability to use many forms of information
available on their computer workstation, such as the Internet,
video, audio, pictures and photographs. Each student can access
this information when they need it or when the teacher tells them to;
* allowing students to work at their own pace and at their own
level while following a curriculum that is interactive and that
contains the many forms of data described above; and
* giving the teacher the ability to monitor student progress
through the computer database. Students can be prompted by the
instructor either verbally or over the computer system
-4-
<PAGE>
to answer questions. The classroom's audio/video system
automatically collects the students' answers for the instructor
and displays the results for the instructor to review.
We are also developing an on-line e-commerce web site to provide our
customers the opportunity to purchase a broad assortment of educational
products, software and office and school supplies. Our hope is that we can
provide an easy-to-use, single, centralized source for purchasing products
designed to meet the immediate needs of school purchasing agents, school
administrators and individuals in the educational community. We anticipate
the launch of our web site in Spring of 2000.
Key elements of our on-line strategy include:
* continued development of our web site,
* aggressive marketing and sales efforts to familiarize our
existing customer base with the convenience of on-line
purchasing,
* building brand awareness and product diversity, and
* insure competitive pricing of products.
We may be unable to achieve these goals, as we have not yet launched
our web site and to date have not sold any products on-line. We are also
dependent on the August Group to develop and maintain our web site and
dependent on contractual relationships with the suppliers of our products.
We were incorporated in Delaware in July 1998 under the name AAE
Education Corporation and changed our name to n-Gen Solutions.Com, Inc. in
January 2000. Our web site address is www.ngensolutions.com. The
information on our web site is not incorporated by reference into this
prospectus. We have applied for a trademark for the name "N-GEN LEARNING
ENVIRONMENT." We have also applied for servicemarks for the names "n-Gen
Solutions," "Learningwire.com," "n-Gen Learning Suite," and "n-Gen Enable."
This prospectus also contains trademarks of other companies.
Our principal executive offices are located at 410 17th Street, Suite
1940, Denver, Colorado 80202, and our telephone number is (303) 628-0747.
n-Gen's operations office is located at 8245 West I-25, Frontage Road,
Erie, Colorado 80516.
RISK FACTORS
Investing in our common stock and warrants involves a very high degree
of risk. Before investing, you should consider the following risks and the
risks set forth and information included in this prospectus. Risk Factors
of this offering include:
* limited operating history
-5-
<PAGE>
* control by insiders
* history of losses
* changing business model
* highly competitive market
* changing technology
* governmental regulation
* e-commerce model difficult to evaluate
-6-
<PAGE>
THE OFFERING
Common Stock Offered . . . . . . . . . . 1,600,000 Shares(1)
Warrants Offered . . . . . . . . . . . . 1,600,000 Warrants(1)
Common Stock Outstanding:
Before the Offering . . . . . . . . . . 6,045,250 Shares(2)
After the Offering. . . . . . . . . . . 7,645,250 Shares(2)
Warrants Outstanding:
Before the Offering . . . . . . . . . . None
After the Offering. . . . . . . . . . . 1,600,000
Estimated Net Proceeds . . . . . . . . . $6,884,000
Use of Proceeds. . . . . . . . . . . . . We expect that the net proceeds will
be approximately $6,884,000. We
expect to use these net proceeds
principally for operational needs, the
purchase of capital equipment,
expansion of our marketing and sales
capabilities, mergers and acquisitions
and working capital and general
corporate needs.
Dividend Policy. . . . . . . . . . . . . We currently intended to retain any
future earnings to fund development
and growth of our business.
Therefore, we do not currently
anticipate paying dividends on our
common stock.
Common Stock Warrants
Proposed Nasdaq Small ------------ --------
Cap Market(SM) Symbols: . . . . . . . . "LERN" "LEARNW"
Proposed Boston Stock
Exchange Symbols. . . . . . . . . . . . "N-GEN" "N-GENW"
Internet Web Site Address. . . . . . . . www.ngensolutions.com
________________________
(1) Our underwriter has an over-allotment option to purchase an additional
240,000 shares and 240,000 warrants solely to cover over-allotments.
Our underwriter will have 45 days from the effective date of this
prospectus to exercise this option.
(2) Includes 105,250 shares which will be issued to noteholders at the
completion of the public offering. Also, we have no outstanding
options or warrants, however, the 1,600,000 warrants being offered
hereby when and if exercised will increase our outstanding shares by
1,600,000, in addition to the amount stated. The underwriter is also
entitled to warrants to purchase additional shares as more fully
described herein.
-7-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
STATEMENT OF EARNINGS DATA:
<TABLE>
<CAPTION>
SIX MONTHS ENDED NINE MONTHS JULY 13, 1998
---------------- ENDED (INCEPTION) TO
MARCH 31, MARCH 31, SEPTEMBER 30, DECEMBER 31,
2000 1999 1999 1998
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . $2,663,353 $ 707,355 $3,927,353 $ 0
Operating (loss) . . . . . . . . $ (376,757) $ (446,706) $ (767,408) $ (244,254)
(Loss) before Income taxes. . . $ (442,896) $ (446,676) $ (850,954) $ (238,124)
Net (loss) . . . . . . . . . . . $ (588,704) $ (446,676) $ (850,954) $ (238,124)
(Loss) per share . . . . . . . . $ (0.09) $ (0.11) $ (0.18) $ (0.06)
Basic and dilutive weighted
average shares Outstanding . . . 5,011,882 3,994,561 4,690,515 3,994,561
</TABLE>
The following table indicates a summary of our balance sheet at our
year end September 30, 1999 and at the six months ended March 31, 2000
as described below:
BALANCE SHEET DATA:
AT
MARCH 31 AT
2000 SEPTEMBER 30,
(UNAUDITED) 1999
----------- ----
Working capital (deficit) . . . . . . $ (733,523) $ (562,876)
Total assets. . . . . . . . . . . . . $1,677,885 $2,570,539
Total liabilities . . . . . . . . . . $2,101,324 $3,044,786
Stockholders' (deficit) . . . . . . . $ (423,439) $ (474,247)
-8-
<PAGE>
RISK FACTORS
Investing in our common stock and warrants involves risk. You should
carefully consider the risks and uncertainties described below before
making an investment decision. These risks and uncertainties are all
material risks and uncertainties which may adversely affect our business.
We have included every material risk and uncertainty of which we are aware.
If any of the following risks or uncertainties actually occur, our
business, financial condition or results of operations may be materially
adversely affected. In this event, the trading price of our common stock
may decline, and you may lose all or part of your investment. This
prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ from those described in the
forward-looking statements. This may occur because of the risks described
below.
RISKS RELATING TO OUR COMPUTER CLASSROOM BUSINESS
OUR LIMITED OPERATING HISTORY HINDERS OUR ABILITY TO EVALUATE OUR
BUSINESS AND ENTAILS RISK THAT WE MAY FAIL TO ADEQUATELY ADDRESS BUSINESS
ISSUES WITH WHICH WE HAVE LIMITED EXPERIENCE. Our limited operating
history in the computer classroom industry and an accumulated deficit since
inception of ($1,531,974) as of March 31, 2000 hinders our ability to
evaluate our business and prospects. Our revenues for the six months
ending March 31, 2000 of $2,663,353 for this line of business may not be
indicative of n-Gen's future operating results. As a relatively young
company in the new and rapidly changing market for education services,
n-Gen faces numerous risks and uncertainties. Some of these risks relate
to difficulties we may experience in our efforts to:
* maintain and increase our school customer base;
* implement an evolving and unproven business model;
* compete favorably in a highly competitive market;
* expand our service offerings;
* attract, motivate and retain qualified employees;
* access sufficient capital to support our growth;
* build an infrastructure to effectively handle our growth; and
* upgrade and enhance our technologies.
We may not be successful in addressing these risks.
As a business with a limited operating history, if we fail to establish a
profitable or viable business, compete effectively in our market, attract
capital, attract qualified employees, build an adequate infrastructure or
enhance our technologies, we may not obtain or maintain profitability.
-9-
<PAGE>
BECAUSE OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY,
OUR COSTS AND EXPENSES WILL SIGNIFICANTLY PRECEDE OR EXCEED RELATED REVENUE.
Because of our limited operating history and the emerging nature of the
digital classroom environment, we may be unable to accurately forecast our
revenues. The sales cycle for our market varies widely. Accordingly, it
is difficult to predict the timing of particular sales, the rate at which
technological classrooms will be implemented and/or the number of students
who will utilize our technology. The cancellation or delay of even a small
number of implementations could cause our revenues to fall short of
projections. Since most of our costs are fixed and are based on
anticipated revenue levels, small variations in the timing of revenue
recognition could cause significant variations in operating results from
quarter to quarter. Sales and operating results may fluctuate from quarter
to quarter depending on:
* our ability to successfully install classrooms;
* the amount and timing of operating costs and capital expenditures
relating to expansion of our business;
* our introduction of new or enhanced services and products and
similar introductions by n-Gen's competitors;
* the budgetary cycles of educational institutions;
* the seasonality inherent in the academic calendar;
* our ability to upgrade and develop our systems and
infrastructure;
* our ability to attract, motivate, and retain personnel in a
timely and effective manner;
* technical difficulties in delivering our services;
* governmental regulation; and
* general economic conditions.
Failure by us to manage significant fluctuations in our operating results
on a quarter-to-quarter basis may result in failure to meet our revenue
projections, inadequate investment to support future revenues, or even
failure to met our fixed cost obligations.
OUR LENGTHY SALES CYCLE IMPAIRS OUR ABILITY TO FORECAST THE TIMING AND
AMOUNT OF SALES AND RESULTING REVENUE AND MAY CAUSE FINANCIAL RESULTS TO
VARY SIGNIFICANTLY FROM PERIOD TO PERIOD. The sales cycle between initial
customer contact and signing of a contract varies widely, reflecting
differences in our customers' decision-making processes and budget cycles.
Typically our customers are large institutions, where a decision to
implement our technological concept may involve a cumbersome process, with
multiple individuals and groups participating in the
-10-
<PAGE>
decision. Our customers typically conduct extensive and lengthy evaluations
before committing to our system. Delays in the sales cycle can result from,
among other things, changes in an institution's budget, the need for
approval from both the customer's administration and faculty and the need to
educate the customer as to the potential applications of and cost savings
associated with our services. Generally, we have little or no control over
these factors, which may cause a potential customer to favor a competitor's
solution or to delay or forgo purchases altogether. As a result, we may
not be able to forecast the timing and amount of specific sales and
resulting revenue. The delay in, or failure to complete planned
transactions which results from our lengthy sales cycle could cause our
revenue to vary significantly from period to period.
WE MAY FAIL TO MEET OUR CUSTOMERS' NEEDS WITH THE RESULT THAT WE MAY
FAIL TO ACHIEVE SUFFICIENT SALES TO BECOME PROFITABLE. We must accurately
determine the features and functionality required by educational
institutions and students and design and implement technological learning
solutions that meet those requirements in a timely and efficient manner.
We may not be able to accurately determine customer requirements or deliver
features and functions that will completely satisfy our customers' demands.
Our failure to determine and address customer needs in a timely and
efficient manner may result in failure to achieve sufficient sales revenues
to obtain or maintain profitability.
OUR MODEL OF TECHNOLOGICAL LEARNING MAY NOT BE BROADLY ACCEPTED WITH
THE RESULT THAT OUR MODEL MAY NOT ATTRACT AND RETAIN SUFFICIENT BUSINESS
FOR US TO BE PROFITABLE. Some academics and educators are opposed to our
digital classrooms and software and their use in education in principle.
They have expressed concerns regarding the perceived loss of control over
the education process that can result from a digital environment. Some of
these critics have the capacity to influence the market for our services.
Their opposition could have a materially adverse impact on our business and
financial results. Further, the growth and development of the market for
digital classrooms and their use in long distance learning may prompt calls
from some within the academic community for more stringent protection of
intellectual property associated with course content. This may impose
additional burdens on companies offering on-line learning. The adoption of
any additional laws or regulations may impair our growth, which could
result in our failure to attract and retain sufficient business for us to
be profitable.
WE MAY FAIL TO COMPETE EFFECTIVELY IN OUR HIGHLY COMPETITIVE MARKET TO
PROVIDE TECHNOLOGICAL LEARNING SOLUTIONS AND ITS TECHNOLOGY. Our most
intense competition is with the information technology departments in
certain schools themselves. Such in-house information technology
departments may seek to develop digital learning capabilities internally
rather than using an outsourced provider. In addition, we face significant
competition from a variety of companies including:
* other companies which seek to offer a complete solution including
software and services;
* software companies with specific products for the education
market;
* systems integrators; and
-11-
<PAGE>
* hardware vendors.
Many such competitors are better capitalized and more well recognized
firms. We may achieve insufficient market share to be profitable, if we
fail to satisfactorily address the competitive pressures of our market.
WE MAY LOSE SALES REVENUE AND MARKET SHARE, IF OUR KEY SERVICE
PROVIDERS AND SUPPLIERS FAIL TO PROVIDE SUFFICIENT QUANTITIES OF QUALITY
MERCHANDISE ON ACCEPTABLE COMMERCIAL TERMS. We depend upon a limited
number of suppliers for some of our products. We also depend upon a
limited number of service providers for delivery of our products. Vendors
may stop selling merchandise to us and we may not be able to secure
identical or comparable merchandise from alternative vendors in a timely
manner or on acceptable terms. From time to time, we expect to experience
difficulty in obtaining sufficient quantities of certain products. If our
suppliers or service providers are unable to provide the products or
services that we require or significantly increase their costs, this could
impair our ability to deliver our products on a timely and profitable
basis. If we cannot supply our products to consumers at acceptable prices,
we may lose sales and market share as consumers make purchases elsewhere.
Further, an increase in supply costs could increase operating losses beyond
current expectations.
IF WE FAIL TO MANAGE THE RAPID TECHNOLOGICAL CHANGE WHICH
CHARACTERIZES OUR MARKET FOR LEARNING SOFTWARE AND SERVICES, WE MAY LOSE
SALES AND MARKET SHARE. The market for our software and services is
characterized by rapid technological change, changes in customer demands
and evolving industry standards. The introduction of services embodying
new technologies and the emergence of new industry standards can render
existing services obsolete and unmarketable. To succeed, we must address
the increasingly sophisticated needs of higher education by improving our
software and services to keep pace with requirements. We may not be able
to do so successfully. Our future success may depend on our ability to do
the following:
* Both license and internally develop leading technologies useful
in our business;
* Enhance our existing services;
* Develop new services and technologies that address the
increasingly sophisticated and varied needs of our prospective
customers; and
* Respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
ANY SIGNIFICANT DECLINE IN STUDENT POPULATIONS OR DECREASE IN PER-STUDENT
SCHOOL EXPENDITURES MAY PREVENT SUFFICIENT GROWTH IN OUR BUSINESS FOR US TO
OBTAIN OR MAINTAIN PROFITABILITY. Our growth strategy and profitability
depend upon growth in the student population and expenditures per student in
public and private education. The level of student enrollment is largely a
function of demographics, while expenditures per student are also affected by
government budgets and the prevailing political and social attitudes towards
education. A significant and sustained decline in student enrollment and/or
expenditures per student could prevent our growth or reduce our sales volume
below the level required for us to be profitable.
-12-
<PAGE>
WE MAY BE UNABLE TO MEET THE SECURITY NEEDS OF OUR MARKET, AND ANY
RESULTING LOSS OF CUSTOMER CONFIDENCE IN OUR SECURITY MAY REDUCE OUR
REVENUES. Our learning classrooms may be vulnerable to security risks.
Our success depends on our ability to provide superior internal and
external network security protection. Security risks of improper access
may include pirating of course content, unauthorized disclosure of
confidential information, and insertion of improper material into the
content we provide to users. Further, we may not be able to prevent
unauthorized disruptions whether caused unintentionally or caused by
computer "hackers." These disruptions may harm our customers and result in
liability to us. While every Internet-based e-commerce business must
satisfy its customers that their credit, invoicing, delivery address and
similar information is secure, our business is anticipated to be subject to
especially high security requirements, associated with the orientation of
our site toward youth consumer educational products and educational
institutions. Our market involves persons who are in a protected class.
Our market also involves persons and institutions that have been particular
targets of focused activities of hackers and on-line criminals.
Accordingly, our security needs should be considered substantial.
Unfortunately, we are aware that site content has been altered and secure
information compromised on many high security government web sites, weapons
procurement sites, and law enforcement sites. Accordingly, we can offer no
assurance that a hacker or criminal will not compromise the security of our
site, or that neither we nor a third party service or content provider will
employ an unsuitable individual who may compromise our security. We have
acquired the use of a secure server, but we cannot prevent a breach of
our security. A security breach may cause our customers to lose confidence
in our security, and may result in lost sales, lost market share and
declining revenues.
RISKS RELATING TO OUR E-COMMERCE BUSINESS
OUR E-COMMERCE BUSINESS IS DIFFICULT TO EVALUATE, BECAUSE WE HAVE BEEN
OPERATING UNDER OUR REVISED BUSINESS MODEL FOR LESS THAN SIX MONTHS. We
have a very limited operating history upon which you can evaluate our
e-commerce business. We have not launched our web site, nor have we begun
selling educational products on-line. In November 1999, we began diverging
our business model to on-line sales of educational products. From that
period to the present, we have invested substantial resources to achieve a
launch of our e-commerce web site in the second quarter of 2000.
You must consider the challenges, risks and difficulties frequently
encountered by early stage companies using new and unproven business models
in new and rapidly evolving markets. Some of these challenges, which are
even of greater magnitude in e-commerce markets, include:
* Challenges relating to our ability to manage our
supplier/distributor relationships;
* Challenges relating to our ability to expand our customer base;
* Challenges relating to our ability to continually upgrade the
functionality and ease of use of our web site, while remaining
"on-line;"
-13-
<PAGE>
* Challenges relating to our ability to develop and augment
transaction-processing systems capable of managing a widely
fluctuating and possibly quite large volume of transactions; and
* Challenges relating to maintaining adequate inventory levels and
shipment of product may limit our ability to meet the demands of
our customers. Providing customers up to date information on the
web site about products, orders, shipping status and delivery may
present further challenges. We rely on our suppliers to provide
adequate inventory levels, product availability, shipping of
products and information about order status.
WE MAY NOT BE ABLE TO RELY UPON THE THIRD PARTIES UPON WHICH WE DEPEND
TO ADEQUATELY MANAGE EACH OF THE CRITICAL ISSUES RELEVANT TO OUR SUCCESS IN
OUR E-COMMERCE STRATEGY. Management of each of the challenges listed
above, upon which we depend for success in our e-commerce strategy, depends
on performance by third party service providers, third party software
providers, and third party fulfillment infrastructure providers. Each of
our third party service providers is itself in the process of evolving to
develop greater capability to address our e-commerce initiatives and those
of other businesses. Innovation in the Internet based e-commerce business
is crucial to the success of our strategy. We have elected to enter into
critical business relationships with providers whom we believe to be
capable and inventive, regardless of their inexperience or lack of long-term
business success. While we depend upon such third parties to handle
critical issues in our e-commerce business, we would have little recourse
and few alternative remedies were any such third party fail to perform in
a timely or effective manner.
WE EXPECT TO EXPERIENCE CONTINUING AND INCREASING OPERATING LOSSES IN
OUR E-COMMERCE BUSINESS, AND WE CANNOT BE CERTAIN THAT OUR BUSINESS
STRATEGY WILL BE SUCCESSFUL OR THAT WE WILL SUCCESSFULLY ADDRESS THESE AND
OTHER CHALLENGES, RISKS AND UNCERTAINTIES. We expect operating losses and
negative cash flow to continue for the foreseeable future. We anticipate
our losses will increase significantly from current levels, because we
expect to incur significant additional costs and expenses related to:
* brand development, advertising, marketing and promotional
activities, including product discounts;
* expansion of our supplier/distributor relationships;
* continued development of our web site, transaction-processing
systems, fulfillment capabilities and network infrastructure;
* expansion of our product offerings and web site content; and
* employment of additional personnel as our business expands.
MARKETING COSTS REQUIRED TO ATTRACT ON-LINE CUSTOMERS MAY EXCEED
LEVELS WHICH PERMIT US TO BECOME PROFITABLE. Our ability to become
profitable depends on our ability to generate and
-14-
<PAGE>
sustain substantially higher revenue, while maintaining reasonable expense
levels. To achieve higher revenues, we intend to increase significantly
our spending on marketing and promotional activities. These advertising
and marketing efforts may not be effective in converting a large number of
customers from traditional shopping methods to on-line shopping for
educational products and services or effective in attracting on-line
customers to our web site. In addition, we are obligated to pay
commissions, based on a percentage of revenue achieved as a result of
click-throughs, to companies with which we have on-line marketing
relationships. Our on-line marketing relationships will initially be at a
higher per-unit cost while our volumes are small, but will be at a lower
per unit cost when volumes increase. As is ordinarily the case with on-line
marketing relationships, our advertisements and marketing opportunities may
be cut, or even eliminated, if our marketing relationship partner does not
achieve revenue goals out of the relationship.
WE MAY SELECT ON-LINE MARKETING RELATIONSHIPS WITH PARTIES FROM WHICH
OUR SITE DERIVES INSIGNIFICANT TRAFFIC. Our strategy to establish on-line
marketing relationships is to focus on sites and opportunities where we are
likely to be noticed by parents and educators. Many of these sites are
themselves in the development stage or may currently have only limited
functionality and relatively low numbers of site visits. Accordingly, our
click-throughs from such sites may be limited, and may not justify the cost
of our continued presence in the site, either from the host's standpoint,
or ours.
OUR MARKETING STRATEGY TO OFFER VOLUME-BASED PREMIUMS AND BENEFITS TO
SCHOOLS AND SCHOOL-BASED ORGANIZATIONS MAY NOT SUCCEED. We intend to
permit schools and school-based organizations to earn credits for future
purchases, based upon the volume of transactions resulting from their
referrals. After expending substantial effort to develop the software
protocols to implement this program, we recently learned that several other
on-line retailers have begun implementing marketing strategies which seek
referral based customers through school based organizations, and offer
products and cash to school based organizations based upon the volume of
referral business. At least one of these programs has been announced
through parent mailers sponsored by parent organizations in technologically
proficient neighborhoods. Although we are not aware of any other
educational products enterprise currently using a marketing strategy, such
as ours, which awards volume based premiums and benefits schools, there can
be no assurance that our competitors will not employ such a strategy, or
even achieve first mover status in this marketing category.
WE MAY NOT BE ABLE TO RAPIDLY ATTRACT A HIGH VOLUME OF CUSTOMER
BUSINESS TO OUR E-COMMERCE SITE, WHICH WOULD INHIBIT OUR REVENUE GROWTH.
If we do not attract, service and retain a high volume of on-line customers
at a reasonable cost, we will not be able to generate our revenues or
achieve profitability. Although we intend to increase significantly our
expenditures for marketing and promotional activities, these efforts may
not be effective in converting a large number of customers from traditional
shopping methods to on-line shopping for educational products and services
or attracting on-line customers to our web site. We do not know if the
forms of marketing and promotional activities that we intend to implement
will have the desired result. Even if we are successful at attracting
additional on-line customers to our web site, we cannot predict whether
their per visit expenditures will be sufficient to meet our costs. Even if
we attract sufficient numbers of customers, and their order volume becomes
substantial, we
-15-
<PAGE>
expect it will take several years to adequately build our customer base for
long-term success. Factors that could prevent us from attracting and
retaining customers include:
* Lack of customer awareness of our web site;
* Customer concern about the security of on-line transactions and
privacy of information that customers supply;
* Shipping charges which are invisible to the consumer, when
shopping at traditional stores;
* Longer delivery times associated with Internet orders, as
compared to the immediate receipt of products at a traditional
store;
* Pricing that does not meet customer expectations or prices
offered by our competitors;
* Product damage from shipping and improper shipments arising from
incorrectly filled orders;
* Delayed response to customer service requests; and
* Difficulty in returning or exchanging orders.
BECAUSE OUR MARKET IS SEASONAL, OUR OPERATING RESULTS MAY FLUCTUATE
FROM QUARTER TO QUARTER WITH THE RESULT THAT OUR REVENUES MAY NOT MEET
EXPENSES FOR THE PERIODS IN WHICH A DECLINE IN SALES OCCURS. The market
for educational books, and technology products, and software is highly
seasonal due to the academic calendar and holiday season. In addition,
Internet usage generally declines in the summer. Accordingly, we expect to
experience significant seasonal fluctuations in our revenue. Excessive
costs per unit sold by our suppliers may result from excess capacity, but
lost sales and reputation may result from insufficient capacity. If for
any reason our revenue is below expectations, our annual operating results
would be adversely affected.
Our limited operations during last year's holiday season provide us
with no meaningful comparative data indicating the volume or timing of
holiday orders. We may not accurately predict appropriate inventory levels
or staffing needs. In the future, our seasonal sales patterns may become
more pronounced, may strain our personnel and fulfillment relationships and
may cause a shortfall in revenue as compared to expenses in a given period.
These seasonal fluctuations in operating results may limit our ability to
match capacity to sales volume, result in higher per unit costs and reduce
profitability.
OUR ON-LINE ADVERTISING OPPORTUNITIES MAY BE ADVERSELY AFFECTED BY THE
SEASONALITY OF OUR BUSINESS. The seasonality of our business may cause our
on-line advertising opportunities to be severely limited as a result of the
decreased volume of click-through activity during our off-season.
Typically, Internet portals and sites with substantial site-visit volume
sell advertising to
-16-
<PAGE>
on-line merchants on the basis of a fee per click-through, plus a
percentage of participation in the resulting sales revenue. During our
off-season, such click-throughs and sales-based revenue will be diminished.
Successful advertising sites ordinarily re-shuffle their advertising
openings every month, or every quarter, to seek increasing revenues from
the finite number of click-through buttons and banners reasonably available
on the site. Any business, such as ours, which is markedly seasonal is at
a serious disadvantage, not only during the off-season, but even during its
busy periods, in its competition to obtain valuable advertising slots. We
also face serious problems in accessing advertising opportunities as a
result of the coincidence of our busy period with that of many other
businesses and accordingly seek on-line advertising slots on a seasonal basis.
MANUFACTURERS MAY MARKET DIRECTLY TO OUR CUSTOMERS ON THE INTERNET AT
COSTS BELOW OUR ABILITY TO COMPETE. Our Internet based e-commerce business
strategy involves on-line re-intermediation, in the sense that we are
offering our on-line market as an alternative to the retail marketplaces
where our customers have traditionally purchased educational products.
Accordingly, to a certain extent, we depend upon alteration of traditional
habits regarding acquisition of educational products. However, some
analysts suggest that the Internet will result in a complete dis-
intermediation, whereby customers directly access manufactured goods from
the manufacturer, without use of any intermediary. Although most
manufacturers, including those which manufacture the educational products
which we market, do not offer their goods for sale in sufficiently small
quantities to directly market to the consumer, some manufacturers have
begun to engage in direct marketing, using the Internet to attract
customers. Should educational products manufacturers directly compete with
us in offering consumer quantities of their products on the Internet, their
pricing structure may limit or eliminate our ability to compete effectively
in this market.
IF WE ARE UNABLE TO RETAIN OR ACQUIRE THE NECESSARY DOMAIN NAMES, OUR
BRAND AND REPUTATION COULD BE DAMAGED AND WE COULD LOSE CUSTOMERS. We
currently hold the Web domain name Learningwire.com(TM) as well as several
other variations of this domain name. The acquisition and maintenance of
domain names generally is regulated by governmental agencies and their
designees. In the United States, the National Science Foundation has
appointed Network Solutions, Inc., and recently several others, as the
current registrars for the ".com," ".net," and ".org" generic top-level
domains. The regulation of domain names in the United States and in
foreign countries is subject to change in the near future. As a result, we
may be unable to acquire or maintain relevant domain names in all countries
in which we conduct business. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and
similar proprietary rights is unclear. Therefore, we may be unable to
prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights. In addition, other parties hold domain names that are
similar to ours and any confusion of our web site with another party's
could diminish our brand.
WE MAY FAIL TO COMPETE EFFECTIVELY IN OUR MARKET. The on-line market
for educational products is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future. Barriers
to entry are minimal, and current and new competitors can launch new web
sites at a relatively low cost. In addition, the markets for books, and
software in general,
-17-
<PAGE>
including those for educational products, are very competitive and highly
fragmented, with no clear dominant leader and increasing public and
commercial attention.
Our competitors can be divided into several groups, including:
* mass market retail chains;
* mass market book sellers, toy stores and computer hardware and
software stores;
* traditional regional or local bookstores, toy stores and computer
and software stores;
* on-line book sellers, toy sellers and computer software sellers; and
* educational catalog distributors.
Many of our current and potential competitors have or may have, longer
operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other
resources than we do. Many of these current and potential competitors can
devote substantially greater resources to marketing and promotional
campaigns and web site and systems development than are available to us.
Their financial strength could prevent us from increasing market share. In
addition, larger, more well-established and more well-financed entities are
acquiring, investing in and forming joint ventures with on-line competitors
and publishers or suppliers of educational books, toys and games, and
software, as the use of the Internet increases.
Our competitors may be able to secure products from vendors on more
favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than are available to
us. Traditional store-based retailers also enable customers to see, feel
and return products in a manner that is not possible over the Internet.
Some of our competitors have significantly greater experience in selling
educational products.
Our strategy to achieve market share is based in part upon our
reputation with educational institutions, but our reputation may not be
easily transferable to the on-line educational product marketplace. Many
of the institutions with which we have worked have little influence upon
the on-line market choices of their participants whom we seek as customers.
Additionally, within the institutions we have served there may be little
awareness of our identity outside the information technology department,
facilities department or purchasing department.
WE MAY NOT ACHIEVE "FIRST MOVER" STATUS. Analysts of Internet based
e-commerce businesses have told us that "first mover" status is critical to
achieve the high volume of traffic and brand identification which marks
successful Internet based businesses. First mover status results from
being the first business in a specific on-line market, which provides the
functionality, ease of use and product access required by customers. We
are not aware of any other on-line business which has achieved "first
mover" status or market dominance in the on-line market we seek to enter.
However, several competitors in the educational product market
-18-
<PAGE>
are currently seeking entry to the on-line market, and more may attempt to
go on-line prior to our launch. Should any of these alternatives achieve
first mover dominance before we launch our on-line service or before our
on-line service establishes a reputation as first mover, an important
market advantage will have been forfeited and we may be handicapped in our
future ability to compete for market share.
WE MAY NOT ACHIEVE THE NECESSARY OPERATIONAL CAPABILITIES TO GO ON-LINE
WITH A CAPABILITY TO EFFECT INTERNET BASED E-COMMERCE TRANSACTIONS. We have
expended substantial resources to achieve an Internet based business capable
of effecting on-line transactions to sell educational products. However, an
element of uncertainty remains regarding our ability to actually go on-line
with this business. There are many anecdotes regarding businesses which were
either unable to "go live," or which were required to expend substantial
additional sums to achieve on-line operational protocols which actually
permitted effective commercial use of their sites. Until we "go live," in
early 2000, significant uncertainty will remain regarding the operational
capabilities which we are building into our site.
WE MAY BE UNABLE TO STRIKE AN ATTRACTIVE BALANCE BETWEEN INNOVATION
AND PREDICTABILITY, TO ATTRACT CUSTOMERS AND REPEAT VISITS TO OUR SITE.
Our success as an Internet-based e-commerce business will depend upon our
having what is referred to as a "sticky site," which is a site to which
customers will return to make purchases again and again. The "stickiness"
of our site may depend upon ease of use, availability of significant
breadth of inventory, advantageous pricing, and useful non-commercial
content. The "stickiness" of our site will also depend upon whether we
strike the right balance between innovation and predictability which will
keep our site "fresh" to repeat customers, and yet permit them to conduct
transactions in a predictable fashion.
HIGH QUALITY INTERNET SITE CONTENT MAY BE UNAVAILABLE OR VERY COSTLY.
The "stickiness" of our web site may depend, in part, on our ability to
make high quality education content available on our site. Use of site
content, as a means to attract repeat customers to a web site and to build
on-line purchasing communities, is a strategy which has been employed by
medical product sites, with varying degrees of success. The experience of
medical product sites suggests that content may become progressively more
expensive, as the consumers using a site require ever-increasing
professional credentials for site content providers. Many medical product
sites have entered into site content agreements with well-known
professionals, universities and research centers, all of which require
substantial payments, including cash and securities of the Internet-based
business. In addition, many of the content provider relationships require
that the product sales site offer below market advertisement opportunities
for the other businesses, for-profit web sites and not-for-profit web sites
of the content providers. These developments have not occurred in our
educational product business. However, both medicine and education are
areas where professional credentials of information providers are of great
significance to consumers. Accordingly, content providers for our
educational product site may demand increasing financial benefits from the
relationship, as we develop our business. Any inability to meet the
demands of content providers may diminish our brand, and adversely affect
our relative ability to compete effectively in our market.
WE WILL BE REQUIRED TO UNDERGO RISKY AND COSTLY INNOVATIONS TO
ACCOMMODATE ONGOING CHANGES IN THE MANNER IN WHICH INTERNET BASED BUSINESS
TRANSACTIONS ARE CONDUCTED. Fast-
-19-
<PAGE>
paced, ongoing development of the Web infrastructure, and rapid change in
the manner in which on-line transactions are effected, will result in ever
evolving requirements to introduce new elements and functionalities to our
site protocols. These developments, in conjunction with our use of third
party service providers, will involve substantial financial investment,
intellectual capital and Internet business management skills. Such
financial investment, intellectual capital and Internet business management
skills may be unavailable to us, unless we have achieved a degree of
success in our business model, which cannot currently be predicted. In
addition, assuming that we have established effective on-line operational
protocols, each innovation which we adopt will involve a degree of risk
that a portion or all of our then existing Web capability will not
satisfactorily interact with the innovation. To maintain our Web presence,
once we "go live," we will be required to effect such innovations without
"going dark." In short, we must become able to make substantial and wide-
ranging changes in the hardware, software, internal protocol and external
environment of our Internet-based e-commerce business, while remaining
available for on-line purchases by our customers.
RISKS RELATED TO THE INTERNET INDUSTRY
IF THE INTERNET INDUSTRY FAILS TO SUBSTANTIALLY IMPROVE RELIABILITY,
SPEED, DATA CAPACITY AND SECURITY OF THE WEB INFRASTRUCTURE, OUR E-COMMERCE
SALES MAY FAIL TO ACHIEVE SUFFICIENT VOLUME FOR US TO OBTAIN OR MAINTAIN
PROFITABILITY. Our success depends, in large part, upon the maintenance of
the Web infrastructure as a reliable network with the speed, data capacity,
and security demanded by consumers. We depend as well on timely
development of enabling products such as high speed modems, to provide
reliable Web access and services. In addition, our Internet based business
will depend upon improved content generally available on the Web, as well
as on our site. Currently, Internet access is exciting, but involves
significant frustration for most consumers. Unless there are substantial
improvements in reliability and ease of access, Internet based business
generally, and our business in particular, will not achieve our goals.
OUR BUSINESS MAY EXPERIENCE RISKS ASSOCIATED WITH INCREASED VOLUME OF
WEB-BASED OPERATIONS AND THE CHANGES IN THE STRUCTURE OF THE WEB RESULTING
FROM INCREASED VOLUME. We depend on a single company to maintain the
operational integrity of our network backbone. Increases in the number of
users, frequency of use or bandwidth requirements may strain the Web
infrastructure and degrade the performance and reliability of the Web.
Furthermore, the Web has experienced a variety of outages and delays as a
result of damage to portions of its infrastructure. Future outages or
delays could adversely affect our on-line campuses, as well as our e-commerce
business.
RESOLUTION OF LEGAL ISSUES INVOLVING REGULATION OF E-COMMERCE AND
INTERNET BASED BUSINESS ACTIVITIES MAY LIMIT OUR ABILITY TO BECOME
PROFITABLE. Critical issues concerning the commercial use and government
regulation of the Internet (including security, cost, ease of use, access,
intellectual property ownership and other legal liability issues) remain
unresolved and could materially and adversely impact the growth of the
Internet and our business and financial results. A continued atmosphere of
uncertainty regarding intellectual property rights on the Web may inhibit
the willingness of participants to make the substantial investments
required to enhance reliability, security and ease of use of both the Web
generally, and e-commerce sites such as ours in particular. On the other
hand, further development of Web infrastructure and
-20-
<PAGE>
intellectual property law governing Internet access may result in further
requirements to obtain intellectual property rights to operate a viable
Internet based business. The costs to obtain such rights may adversely
affect our ability to become profitable.
COSTS AND COMPETITIVE DISADVANTAGES ASSOCIATED WITH CONNECTIVITY WITH
MAJOR INTERNET SERVICE PROVIDERS MAY IMPAIR OUR DEVELOPMENT. Popular and
powerful Internet service providers, web-browsers, network access companies
and portal operations, such as America Online, Yahoo, Lycos and Microsoft,
may promote our competitors or charge us a substantial fee for promotion
and for connection to our web site. Either of these developments, in which
Internet service providers burden commerce by imposition of a "toll," may
reduce the margins at which we can market our products and services below
the level at which our business can obtain or maintain profitability.
OUR BUSINESS IS SUBJECT TO GOVERNMENT REGULATION OF THE INTERNET AND
OTHER LEGAL UNCERTAINTIES, WHICH COULD NEGATIVELY IMPACT OUR OPERATIONS.
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. The United States Congress
recently enacted Internet laws, including laws relating to children's
privacy, the transmission of sexually explicit material and taxation of
Internet-based enterprises. As directed by Congress in the Children's
Online Privacy Protection Act, also know as COPPA, the Federal Trade
Commission recently adopted regulations, effective April 21, 2000,
prohibiting unfair and deceptive acts and practices in connection with the
collection and use of personal information from children under 13 years old
on the Internet.
In addition, the European Union recently enacted its own privacy
regulations. The European Union Directive on the Protection of Personal
Data, which became effective in October 1998, fosters electronic commerce
by establishing a stable framework to ensure both a high level of
protection for private individuals and the free movement of personal data
within the European Union. The EU and the U.S. Department of Commerce are
currently negotiating an agreement under which the privacy policies of
American businesses may be deemed to be adequate under the EU Directive.
Until such time as an agreement is reached, the EU has voluntarily agreed
to a moratorium on enforcement of the EU Directive against U.S. businesses.
Although n-Gen received less than 1% of revenues from outside of the United
States in the nine months ended September 30, 1999, the European legislation
and its adoption via any agreement could adversely affect our ability to
expand our sales efforts to Europe by limiting how information about us can
be sent over the Internet in the EU and limiting our efforts to collect
information from European users.
The U.S. Omnibus Appropriations Act of 1998 places a moratorium on
taxes levied on Internet access from October 1, 1998 to October 21, 2001.
However, states may place taxes on Internet access, if taxes had already
been generally imposed and actually enforced prior to October 1, 1998.
States which can show they enforced Internet access taxes prior to October
1, 1998 and states after October 21, 2001 may be able to levy taxes on
Internet access resulting in increased cost of access to the Internet.
Upon any increase in cost of access, assuming an efficient market with non-
Internet sales channels, we will be required to reduce prices, perhaps
below the level at which our business can be profitable.
-21-
<PAGE>
The laws governing the use of the Internet, in general, remain largely
unsettled, even in areas where there has been some legislative action. It
may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet. In addition, the growth and development of the market for on-line
commerce may prompt calls for more stringent consumer protection laws,
both in the United States and abroad. This occurrence may impose
additional burdens on companies conducting business on-line by limiting how
information can flow over the Internet and the type of information that can
flow over the Internet. The adoption or modification of laws or
regulations relating to the Internet could adversely affect our business.
Because we receive a significant amount of orders as a result of e-mail
advertising, new regulations affecting the use of unsolicited e-mail
advertising would impair our marketing efforts.
OUR REVENUES COULD DECREASE IF WE BECOME SUBJECT TO SALES AND OTHER
TAXES. We do not currently collect sales or other similar taxes for
physical shipments of goods into states. However, one or more local, state,
federal or foreign jurisdictions may seek to impose sales tax collection
obligations on us. A number of legislative proposals have been made at the
federal, state and local level, and by foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet
and certain states have taken measures to tax Internet-related activities.
Although Congress recently placed a three-year moratorium on new state and
local taxes on Internet access or on discriminatory taxes on electronic
commerce, existing state or local laws were expressly excepted from this
moratorium. Further, once this moratorium expires, some type of federal
and/or state taxes may be imposed upon Internet commerce. The moratorium
is presently scheduled to expire on October 20, 2001. Such legislation or
other attempts at regulating commerce over the Internet may substantially
impair the growth of commerce on the Internet and, as a result, adversely
affect our opportunity to derive financial benefit from such activities.
If one or more states or any foreign country successfully asserts that we
should collect sales or other taxes on a sale of products or services, we
may have liability for taxes not collected in prior periods. Taxes on
sales of our products or services may require us to reduce our prices, to
maintain competitive after tax prices for our customers, and the resulting
loss in revenues may reduce our profitability.
RISKS RELATING TO OUR COMPANY
WE DEPEND UPON OUR KEY PERSONNEL AND MAY EXPERIENCE DIFFICULTY
ATTRACTING AND RETAINING KEY EMPLOYEES. Our success depends on the
continued service of our key management personnel, including Robert Arnold,
Michael Schranz, Gary Nelson, Dean Myers and Joseph Ford. Currently, only
Messrs. Nelson and Myers have entered into written employment agreements
with us. At this time, we do not carry life insurance policies on any of
our key management personnel. The loss of services from one or more of
these persons would have a material adverse effect on our business,
operations and financial results. Our success also depends on our ability
to attract, motivate and retain highly-skilled managerial, sales,
marketing, customer service and support and technology development
personnel. Competition for such personnel in our business is intense. Any
significant success which we achieve as an Internet-based e-commerce
business will only enhance the reputation of and alternatives available to
our key personnel in that segment of our business. Currently, e-commerce
personnel are in very high demand, and receive frequent offers of
alternative employment, with salaries, stock options and
-22-
<PAGE>
other benefits, which we may not be able to match. We may not be able to
retain our key employees or attract, motivate and retain additional key
employees in the future. Our failure to retain these key employees, or
failure to attract new technically proficient managers as our needs arise
would entail significant additional employment costs, and management
personnel changes may result in management strategy shifts which may
diminish our ability to achieve profitability.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE WHICH MAY NOT BE
AVAILABLE ON ACCEPTABLE TERMS, OR AT ALL. We may need to raise additional
funds in the future to fund our operations, to finance the investments in
equipment and corporate infrastructure that we will need for our expansion,
to enhance or expand the range of services we offer or to respond to
competitive pressures or perceived opportunities, such as investment,
acquisition and expansion activities. Additional financing may not be
available on terms favorable to us, or at all. Moreover, we may only be
able to obtain adequate funds in the future by offering securities with
rights senior to or more favorable than the Securities offered in this
offering. If adequate funds are not available when required or adequate
funds are not available on acceptable terms, we may be unable to take
advantage of opportunities, or perhaps remain viable.
BECAUSE OUR OFFICERS AND DIRECTORS ARE PROTECTED BY LIMITATION OF
THEIR LIABILITY TO US AND TO YOU, AND BY THEIR INDEMNIFICATION, UNDER OUR
CERTIFICATE OF INCORPORATION, THEY ARE NOT LIABLE TO YOU FOR LOSSES AND
LIABILITIES RESULTING FROM THEIR MANAGERIAL ACTS. Our officers and
directors are required to exercise good faith and high integrity in the
management of our affairs. The certificate of incorporation and bylaws
provide, however, that the officers and directors have no liability to the
shareholders for losses sustained or liabilities incurred arising from any
transactions entered into in their managerial capacities, unless they
violate their duty of loyalty, do not act in good faith, engage in
intentional misconduct, engage in a knowing violation of the law, approve
an improper dividend or stock repurchase or derive an improper benefit from
the transaction. As a result, we and you have a more limited right to
action than would have been available, if such provisions were not present.
The certificate of incorporation and bylaws also provide for the
indemnification by us of the officers and directors, against any losses or
liabilities they may incur as a result of the manner in which they operated
our business or conducted our internal affairs, provided that in connection
with these activities they acted in good faith and in a manner which they
reasonably believed to be consistent with (or at least, not against) our
best interest, and their conduct did not constitute gross negligence,
misconduct or a breach of their fiduciary obligations to us or you.
WE DO NOT ANTICIPATE PAYMENT OF DIVIDENDS. As holders of our
securities, you will only be entitled to receive those dividends that are
declared by our board of directors out of surplus. We do not expect to
have surplus available for declaration of dividends in the foreseeable
future. Indeed, there is no assurance that such a surplus will ever
materialize to permit payment of dividends to you as holders of the
Securities. The board of directors will determine future dividend policy
based upon our results of operations, financial condition, capital
requirements, reserve needs and other circumstances.
OUR BUSINESS AND OPERATIONS MAY SUBJECT US TO LIABILITY, FOR WHICH OUR
INSURANCE MAY BE INSUFFICIENT. We provide training and related services to
our customers in connection with our technology, products and systems. We
also provide educational products to be used by children,
-23-
<PAGE>
a class of potential plaintiffs accorded greater than usual solicitude by
the courts. We therefore may be exposed to the substantial risk of
significant liability for injury. We maintain quality control programs in
an attempt to reduce the risk of potential injuries, damage to individual
interests, and any associated potential liability. We also maintain
liability insurance, with the limits of $1,000,000 per loss event and
$6,000,000 for the policy aggregate, covering damages resulting from
negligent acts, errors, mistakes or omissions in rendering or failing to
render our services or liability arising from use or misuse of our
products. As with any insurance policy, we may suffer a loss which is not
a covered loss under the policy, or which exceeds the policy limits. We are
not a party to any legal proceedings and, to the best of our information,
knowledge and belief, none is contemplated or has been threatened.
AFTER THIS OFFERING, OUR EXECUTIVE OFFICERS, DIRECTORS AND 5% OR
GREATER STOCKHOLDERS WILL STILL CONTROL ALL MATTERS REQUIRING A STOCKHOLDER
VOTE. Currently, our existing officers, directors and 5% or greater
stockholders (and their affiliates) in the aggregate, beneficially own
approximately 82.3% of our outstanding stock. Upon consummation of this
offering, this group will continue to own approximately 64.8% of our
outstanding stock. As a result, such persons, acting together, will have
the ability to control the vote on all matters requiring approval of our
stockholders, including the election of directors and approval of
significant corporate transactions. This concentration of ownership among
a small number of our stockholders may have the effect of delaying,
deferring or preventing a change in control.
RISKS RELATING TO OUR OFFERING
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
Investors participating in the initial public offering will incur an
immediate, substantial dilution of $4.19 in the net tangible book value per
shares of the common stock from the initial public offering price of $5.00
per share. Furthermore, to the extent that we issue additional shares of
our common stock pursuant to acquisitions or our strategic relationships,
or issue options or warrants to purchase our common stock, these options,
when exercised, will result in further dilution. For more information, see
"Dilution."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF PROCEEDS.
Our board of directors and management team will have significant
flexibility in applying the net proceeds of this offering. We currently
intend to use the net proceeds from this offering for the following:
* to fund operating losses;
* expansion of our operations;
* advertising and brand promotion;
* operate and maintain our web site;
* content development; and
* working capital and other general corporate purposes.
-24-
<PAGE>
The failure of our management team to apply such funds effectively could
have a material adverse effect on our business, financial condition and
results of operations. See "Use of Proceeds" and "Management."
THE WARRANTS OFFERED FOR SALE IN THIS OFFERING MAY BE REDEEMED AT $.05
PER WARRANT UNDER CERTAIN CONDITIONS AND THERE MAY BE NO MARKET FOR THE
WARRANTS, OR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS, IN
CERTAIN JURISDICTIONS WHERE WE FAIL TO QUALIFY TO OUR SECURITIES FOR SALE.
The warrants are redeemable by n-Gen for $.05 per warrant, if the closing
bid price for our common stock equals or exceeds $10.00 per share during
the thirty (30) consecutive trading day period ending no more than fifteen
(15) days prior to the mailing of the notice of redemption, provided there
is then a current effective registration statement under the Securities Act,
for the common stock issuable upon the exercise of the warrants. Warrant
redemption during the one-year period from the date of this prospectus
requires the underwriter's consent. We cannot issue common stock upon
exercise of the warrants in those states where state securities laws
exemptions are unavailable or we have failed to qualify the common stock
issuable upon exercise of the warrants. If the warrants cannot be
exercised or sold in a state, the warrants will expire and have no value.
The market for the warrants may be limited by the requirement to comply
with such legal requirements.
NASDAQ HAS CERTAIN MARKET ELIGIBILITY AND MAINTENANCE REQUIREMENTS TO
MAINTAIN OUR ELIGIBILITY FOR INCLUSION ON THE NASDAQ SMALLCAP MARKET(SM),
WHICH WE MAY NOT BE ABLE TO SUSTAIN. Under the current rules relating to
the listing of securities on the Nasdaq SmallCap Market(SM), we must have:
* at least $4,000,000 in net tangible assets, or $750,000 in net
income in two of the last three years, or a market capitalization
of at least $50,000,000;
* public float of at least 1,000,000 shares;
* market value of public float of at least $5,000,000; and
* a minimum bid price of $4.00 per share, among other requirements.
For a continued listing, a company must maintain:
* at least $2,000,000 in net tangible assets, or $500,000 in net
income in two of the last three years, or a market capitalization
of at least $35,000,000;
* public float of at least 500,000 shares;
* market value of public float of at least $1,000,000; and
* a minimum bid price of $1.00 per share among other requirements.
-25-
<PAGE>
Our common stock and the warrants are expected to be eligible for
initial listing on the Nasdaq SmallCap Market(SM), under the current rules
upon the closing of this offering. If at any time after issuance, the
common stock and warrants are not listed on the Nasdaq SmallCap Market(SM),
and no other exclusion from the definition of a "penny stock" under the
Exchange Act were available, transactions in the securities would become
subject to the penny stock regulations which impose additional sales
practice requirements on broker-dealers who offer and sell penny stocks.
If we should experience losses from operations, we may be unable to
maintain the standards for a continued listing and the securities may be
subject to delisting from the Nasdaq SmallCap Market(SM). Trading, if any,
in the Securities would thereafter be conducted in the over-the-counter
market on an electronic bulletin board established for securities that do
not meet the Nasdaq SmallCap Market(SM) listing requirements or in what are
commonly referred to as the "pink sheets." As a result, an investor may
find it more difficult to dispose of or to obtain accurate quotations as to
the price of our securities.
SHOULD WE FAIL TO MAINTAIN NASDAQ SMALLCAP MARKET(SM) ELIGIBILITY AND
THE COMMON STOCK IS THEREAFTER TRADED ONLY IN THE OVER-THE-COUNTER MARKET
OR BULLETIN BOARD, LIQUIDITY IN THE COMMON STOCK MAY BE SEVERELY LIMITED.
Stocks in the over-the-counter, bulletin board or "pink sheet" market
ordinarily have much lower trading volume than in the Nasdaq SmallCap
Market(SM). Very few market makers take interest in securities traded
over-the-counter, and accordingly the market for such securities are less
orderly than is usual for Nasdaq SmallCap Market(SM) stocks. As a result
of the low trading volumes ordinarily obtained in over-the-counter markets,
sales of common stock or warrants in any significant amount could not be
absorbed without a dramatic reduction in price. Moreover, thinly traded
securities in the over-the-counter markets are more susceptible to trading
manipulations than is ordinarily the case for more actively traded
securities.
IF OUR COMMON STOCK BECOMES SUBJECT TO "PENNY STOCK" REGULATIONS,
SECURITIES AND EXCHANGE COMMISSION REGULATIONS MAY IMPOSE SIGNIFICANT
LIMITATIONS ON THE ABILITY OF BROKER DEALERS TO ENTER TRADES IN OUR COMMON
STOCKS. The Securities and Exchange Commission has adopted regulations
which generally define "penny stock" to be any equity security which has a
market price less than $5.00 per share, subject to certain exceptions. Upon
authorization of the common stock offered hereby for quotation, such
securities will initially be exempt from the definition of "penny stock."
After the effectiveness of the offering, the common stock will be exempt
from the "penny stock" definition, for so long as the common stock is
quoted on the Nasdaq SmallCap Market(SM), which offers "real time"
transaction information. In addition, our common stock will be excluded
from the "penny stock" definition, based upon our net tangible assets when
our net tangible assets exceed $5 million, or after three (3) years of
continuing operations our net tangible assets exceed $2 million. Net
tangible book value on the closing date is anticipated to be approximately
$6.4 million. If the common stock falls within the definition of a "penny
stock" following the effective date, our securities may become subject to
rules that impose additional sales practice requirements on broker-dealers
who sell such securities to persons other than established customers and
accredited investors (generally those with assets in excess of $1,000,000
or annual income exceeding $200,000, or $300,000 together with their spouse).
For transactions covered by these rules, the broker-dealer must make a
special
-26-
<PAGE>
suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a risk
disclosure document mandated by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole market-
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. Consequently, the
"penny stock" rules may restrict the ability of broker-dealers to sell our
securities and may affect the ability of purchasers in this offering to
sell our securities in the secondary market.
THE OFFERING PRICE FOR OUR SECURITIES DOES NOT NECESSARILY BEAR ANY
RELATIONSHIP TO OUR ASSETS, BOOK VALUE, EARNINGS OR OTHER ESTABLISHED
CRITERIA OF VALUE. There has been no prior public market for our
securities. The price to the public of the Securities offered hereby has
been determined by negotiations between us and the underwriter. Among
factors considered in determining the offering prices were the history of,
and the prospects for, our business, an assessment of our management, our
past and present operations, our development and the general condition of
the securities market at the time of this offering. The offering prices
for the securities does not necessarily bear any relationship to our
assets, earnings, book value or any other recognized criteria of value. The
offering price of $5.00 per share is substantially in excess of our pro
forma net tangible book value of $(.14) per share, and in excess of the
price received by n-GEN for shares sold in prior recent securities transactions.
WE ARE REQUIRED TO KEEP OUR PROSPECTUS AND STATE BLUE SKY
REGISTRATIONS CURRENT, AND ANY FAILURE BY US TO DO SO MAY LIMIT YOUR
ABILITY TO TRADE OUR SECURITIES. We will be able to issue shares of our
common stock upon the exercise of the warrants and the common stock
underwriter's warrants, only if:
* there is a current prospectus relating to the securities offered
hereby under an effective registration statement filed with the
Securities and Exchange Commission; and
* such common stock is then qualified for sale or exempt from the
requirement to be so qualified, under applicable state securities
laws of the jurisdictions in which the various holders of
warrants reside.
Although we intend to maintain a current registration statement, there can
be no assurance that we will be successful in maintaining a current
registration statement.
After our registration statement becomes effective, we will be
required to file a post-effective amendment, if facts or events occur which
represent a material change in the information contained in the
registration statement. We intend to qualify the sale of the warrants
in a limited number of states, although certain exemptions under certain
state securities ("Blue Sky") laws may permit the warrants to be
transferred to purchasers in states other than those in
-27-
<PAGE>
which the warrants were initially qualified. Qualification for the exercise
of the warrants in the states is essential for the establishment of a
trading market in the Securities. We can make no assurances that we will be
able to qualify our Securities in any state. We will be prevented, however,
from issuing common stock upon exercise of the warrants in those states
where exemptions are unavailable and we have failed to qualify, or maintain
qualification of, the common stock issuable upon exercise of the warrants.
We may decide not to seek, or may not be able to obtain or maintain
qualification of the issuance of such common stock in all of the states in
which the ultimate purchasers of the warrants reside. In such a case, the
warrants of those purchasers will expire and have no value if such warrants
cannot be exercised or sold.
NO MARKET CURRENTLY EXISTS FOR OUR SECURITIES, AND NONE MAY DEVELOP
FOLLOWING THIS OFFERING. No prior market exists for the Securities being
offered in this prospectus. Further, although we intend to apply for
inclusion of the common stock for quotation on the Nasdaq SmallCap
Market(SM) no assurance can be given that a stable, actively trading
market in the common stock will develop subsequent to this offering.
Although it is anticipated that market makers will enroll as such in
respect of the common stock, in connection with our Nasdaq SmallCap
Market(SM) application, there can be no assurance that such market
makers will continue indefinitely to act as such in respect of the common
stock, nor that their continued presence will stimulate active trading in
the common stock.
IN THE PAST, RELATED PARTY TRANSACTIONS WERE APPROVED BY LESS THAN A
MAJORITY OF INDEPENDENT DIRECTORS. As noted in this prospectus we have, in
the past, entered into related party transactions with certain officers,
directors and affiliates. In addition, we currently rent our corporate
office space from One Capital Corporation, an affiliated entity and have
reimbursed them for costs advanced on our behalf. This arrangement was
only ratified by Dave Clem, an independent director. We now have Mr.
Stephen K. Smith on our board of directors who is an independent director
and all future transactions of this nature are required to be approved by
both of our independent directors, currently Messrs. Clem and Smith.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus and in our
periodic filings with the Commission constitute forward-looking statements.
These statements involve risks known to us, significant uncertainties and
other factors what may cause our actual results, levels of activity,
performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among
other things those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "intends," "potential"
or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. In evaluating these
statements, you should
-28-
<PAGE>
specifically consider various factors, including the risks outlined above.
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor
any other person assume responsibility for the accuracy and completeness of
such statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus.
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We will receive estimated net proceeds of $6,884,000 from the sale in
this offering of 1,600,000 shares of common stock and warrants at an
initial public offering price of $5.00 per share and $.125 per warrant
after deducting expenses of the offering. If the underwriters' over-
allotment option is exercised in full, we will receive net proceeds of
$7,954,000.
We intend to use the proceeds as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Development of our web site and e-commerce business $2,400,000 34.9%
Expansion of our sales and marketing capabilities 1,200,000 17.4%
Potential acquisitions 1,800,000 26.1%
Working capital and general corporation purposes $1,484,000 21.6%
---------- -----
Total $6,884,000 100%
========== ====
</TABLE>
Although we may use a portion of the net proceeds to acquire
technology or businesses that are complementary to our business, we
currently have no commitments or agreements for such acquisitions and are
not involved in negotiations regarding any acquisitions. Pending use of
the net proceeds for the above purposes, we intend to invest the net
proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We currently intend to retain all future earnings, if any, for funding
our growth and, therefore, do not expect to pay any dividends in the
foreseeable future. The declaration and payment of dividends are subject
to the discretion of our board of directors.
-29-
<PAGE>
DILUTION
As of March 31, 2000, we had a net tangible book value of $(816,250)
or $(.14) per share, after completion of a private placement of stock in
2000. Our net tangible book value per share means our tangible assets,
less all liabilities, divided by the number of shares of common stock
outstanding. After giving effect to the sale of the common stock in this
offering at an assumed price of $5.00 per share after deducting
underwriting discounts and estimated offering expenses, adjusted net
tangible book value would be $6,218,437 or $.81 per share. The result will
be an immediate increase in net tangible book value per share of $.95 to
existing shareholders and an immediate dilution to new investors of $4.19
per share. As a result, investors in this offering will bear most of the
risk of loss since their shares are being purchased at a cost substantially
above the price that existing shareholders acquired their shares.
"Dilution" is determined by subtracting net tangible book value per share
after the offering from the offering price to investors. The following
table illustrates this dilution assuming no exercise of the warrants, the
underwriter's over-allotment option, the underwriter's common stock option
on the underwriter's warrant option:
Public offering price per share of the common stock
offered hereby . . . . . . . . . . . . . . . . . . . . . $5.00
Net tangible book value per share, before the offering. . $ (.14)
Increase per share attributable to the sale by n-GEN
of the shares offered hereby. . . . . . . . . . . . . . . $ .95
Pro forma net tangible book value per share, after
the offering . . . . . . . . . . . . . . . . . . . . . . $ .81
-----
Dilution per share to new investors . . . . . . . . . . . $4.19
=====
The above table assumes no exercise of the warrants, the underwriter's
over-allotment option or the underwriter's common stock option on the
underwriter's warrant Option purchase option. The following table
summarizes the investments of all existing stockholders and new
investors after giving effect to the sale of the shares in this offering
assuming no exercise of the underwriter's over-allotment option:
PERCENTAGE
SHARES OF TOTAL AGGREGATE
PURCHASED SHARES CONSIDERATION
--------- ------ -------------
Present Stockholders(1). . . . . . . 6,045,250 79.1% $1,108,535
Public Stockholders. . . . . . . . . 1,600,000 20.9% $8,000,000
---------- ----- ----------
Total . . . . . . . . . . . . . 7,645,250 100% $9,108,535
========== ==== ==========
(1) Includes the sale of certain promissory notes and the issuance of
105,250 shares of common stock upon completion of this offering.
-30-
<PAGE>
If the over-allotment option is exercised in full, the investors in
this offering will have paid $9,200,000 and will hold 1,840,000 shares of
common stock, representing 89.2% percent of the total consideration and
23.7% percent of the total number of outstanding shares of common stock.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
* on an actual basis, giving effect to our acquisition of our
wholly-owned subsidiary, n-Gen Solutions.Com, Inc. (formerly
known as Lab Technologies in March 1999 (effective January 1999)
and our subsequent name change to n-Gen Solutions. Com, Inc.
(formerly known as AAE Education Corporation) in January 2000,
* on a pro forma basis to reflect the conversion of the outstanding
promissory notes into 105,250 shares of common stock on
completion of this offering, and
* on a pro forma as adjusted to give effect to the receipt of the
estimated net proceeds from the sale of 1,600,000 shares of
common stock and 1,600,000 warrants offered by us in this
offering at the assumed public offering price of $5.00 per share
and $.125 per warrant, after deducting underwriting discounts and
commissions and estimated offering expenses.
The number of shares of common stock to be outstanding after this
offering is based on the number of shares outstanding as of March 31, 2000
and does not include the following:
* 240,000 shares of common stock and warrants that the underwriters
may purchase within 45 days after the date of this prospectus
solely to cover over-allotments, if any;
* 1,600,000 shares of common stock which may be issued upon the
exercise of the 1,600,000 warrants to purchase up to 1,600,000
shares of common stock;
* Additional underwriter's warrants to purchase additional shares
of common stock.
The information below is qualified by, and should be read in
conjunction with, our "Management's Discussion and Analysis or Plan of
Operations" and the financial statements and the notes to those statements
appearing at the end of this prospectus.
-31-
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------ ------------ -----------
<S> <C> <C> <C>
Capital lease obligations, long-term portion . . . . $ 63,870 $ 63,870 $ 63,870
----------- ----------- -----------
Shareholders' equity:
Common Stock, $.0001 par value; 25,000,000 shares
authorized; 5,940,000 shares issued and outstanding,
actual; 6,045,250 shares issued and outstanding, pro
forma; 7,645,250 shares issued and outstanding, pro
forma as adjusted . . . . . . . . . . . . . . . . 594 605 765
Additional paid-in capital. . . . . . . . . . . . . 1,107,941 1,107,930 7,991,770
Accumulated deficit . . . . . . . . . . . . . . . . (1,531,974) (1,531,974) (1,531,974)
---------- ---------- ----------
Total shareholders' equity (deficit). . . . . . . . $ (423,439) $ (423,439) $6,460,561
---------- ---------- ----------
Total capitalization (deficit). . . . . . . . . . . $ (359,569) $ (359,569) $6,524,431
========== ========== ==========
</TABLE>
____________________
(1) Includes the 105,250 shares of common stock previously sold and to be
delivered on completion of this offering.
-32-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES OF N-GEN INCLUDED IN THIS
PROSPECTUS, BEGINNING ON PAGE F-1. THE DISCUSSION IN THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES,
SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS.
THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS APPLY TO ALL RELATED
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. OUR
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE OR CONTRIBUTE TO
DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW OF THE CURRENT COMPANY
We were initially incorporated in Delaware in July 1998 under the name
AAE Education Corporation and in March 1999, we began operations in our
present form when we acquired all of the issued and outstanding shares
effective January 1, 1999 of Technology Learning Systems, Inc. d.b.a. Lab
Technologies from Gary D. Nelson, our current President and a Director.
After the acquisition and reorganization, we changed Lab Technologies' name
to n-Gen Solutions.Com, Inc. (Colorado) and also subsequently changed our
name in Delaware to n-Gen Solutions.Com, Inc. in January 2000. To
consolidate operations and change our corporate domicile to Delaware, on
January 21, 2000, we merged our wholly owned Colorado subsidiary into n-Gen
Solutions.Com, Inc. (Delaware), which remains as the surviving corporation.
All of our business is now conducted under n-Gen Solutions.Com, a Delaware
corporation.
We currently specialize in designing, selling and installing
interactive, computerized classrooms to public, private and charter
educational institutions, government agencies, corporations and
individuals. We believe our classroom products provide teachers and
students with the ability to:
* access meaningful content from specially-designed data bases;
* utilize computers for distance learning and access to on-line
course materials and supplements;
* learn and interact with instructors and with curriculum that can
be personalized to each student's needs; and
* engage students in state-of-the-art computer technology and
software that enhances and enlivens the learning experience
compared to a traditional classroom.
We have designed web-enabled software programs which have the ability
to store, manage and deliver digital media across specially designed
internal networks or over the Internet when used in conjunction with our
distance learning applications. Our students and instructors can use these
applications to instantly locate, access and play on demand media resources
-33-
<PAGE>
ranging from digital video, digital images, web sites and web audio, to
software applications and CD-ROMs. Our software applications allow our
users to pre-index hundreds of lesson plans, web sites and media resources,
by grade levels and content areas.
In addition, we currently are developing an e-commerce web site to
complement our current business model which is expected to allow us to
offer a centralized source for purchasing a wide range of educational
products, software titles, office/school supplies and hardware. We have
selected products which we feel will be a particular interest to our target
customers, primarily school and district administrators.
Currently our customers are comprised of educational institutions
(75%), commercial users (22%) and training individuals (3%). Our revenues
are comprised of product sales (85%), commissions from manufacturers (12%)
and training and installation services (3%).
Our business involves a high degree of risk as a result of the
following factors and other factors discussed throughout this prospectus:
* our business model recently changed to include an e-commerce solution;
* we have a history of losses;
* our past revenues have been derived from product sales; and
* the change in our business model makes past revenue comparisons
less meaningful.
We expect to incur significant losses for the foreseeable future. Over
the next twelve months, we expect that our losses will increase
significantly from current levels as we continue to incur additional
expenses to advertise and promote our web site, expand our product
offerings and increase our in-house sales staff.
Our marketing efforts will target those customers who currently
purchase our computer classrooms or who are potential users such as school
districts, governmental agencies and corporations. By using the new
business to business approach for the educational industry, we will attempt
to concentrate and enhance our selling efforts in a viable and financially
stable market niche.
Since we only recently commenced operations in our present form when
we acquired our subsidiary, interperiod comparisons are not as meaningful
as would be the case if we had a longer operating history.
WEB SITE AND TECHNOLOGY DEVELOPMENT
Competition for user traffic among business-to-business related web
sites is intense. Web sites can differentiate themselves from others by
providing users with an on-line experience that is easy, efficient and
useful. By providing an on-line experience that is also informative and
-34-
<PAGE>
entertaining and visually pleasing, web sites can increase the percentage
of first time users that return to the web site again. The quality of the
on-line experience is directly related to the underlying technologies
utilized by the web site. This technology includes:
* web site content,
* design,
* operational software,
* transaction processing systems, and
* telecommunications infrastructure.
We will be required to consistently update our hardware and software
systems in order to deliver leading-edge technical solutions on our web
site and provide users with an on-line experience superior to that provided
by competitors. Accordingly, we will incur significant ongoing expense
with respect to our technology.
Currently, we rely on The August Group, Inc. for our technical
infrastructure and to host and deliver our web sites and e-commerce
solution. We have negotiated an agreement with August Group, whereby August
Group will perform and deliver certain services in the development of our
web site(s). The agreement contemplates that we will engage August Group
for specific projects at fixed prices as we continue to construct and
develop our web site(s). The specific projects may include:
* Web Site Business Issues including SSL application and Merchant
Account
* Database Development
* Web Site Graphical and User Interface Design
* EDI - Development
* Help Functionality
* Login Features
* Reporting and Administration
* Security
* Shopping Cart
* Sign-up Features
* Back-end Sales Automation
n-Gen does not pay on a project basis, but rather will pay a set price for
the entire August Group work.
We believe that by initially outsourcing a large portion of our
technology infrastructure, we will be able to reduce the up-front costs
associated with constructing and expanding a complex e-commerce and
business information community, pay for a large portion of the services
provided by third-party technology providers only as we generate revenues
from our web site, and harness the proven experience of these technology
providers. Over time, as our
-35-
<PAGE>
web site and operations mature, we intend to internally develop or
otherwise internalize a significant portion of the technology used to
operate our business.
DISCUSSION OF PREDECESSOR OPERATING COMPANY
The predecessor operating company, formerly known as Lab Technologies,
existed as a stand-alone company prior to our acquiring it.
The company sells its products predominantly to education institutions
in the Rocky Mountain States through its own representatives or through
other reseller arrangements. Most products sold have approximately a 25%
discount to us as an authorized distributor. This, plus our commission
income on sales, which are not included in our reseller sales, results in
gross profit of approximately 29%. Most cost of generating these sales is
Selling or General Administrative expenses. Included in General
Administrative expenses were the salary and associated expenses for the
owner prior to our acquisition.
Since we carry only a limited amount of inventory, there are very
little costs associated with holding inventory or inventory write off. Bad
debt expenses are minimal, less than 1%, as a majority of the sales have
been to public school districts or other established educational institutions.
SEASONALITY
Due to the seasonality inherent in the academic calendar, as well as
our customers' plans for on-line learning centers and course development,
our operating company experiences seasonal fluctuations from quarter to
quarter. Many orders, especially for large installations such as our
digital classrooms are received in the spring or early summer for
installation in late summer, prior to the academic year. Therefore, higher
revenues are booked in the fourth quarter of our fiscal year (third
calendar quarter) resulting in higher than average accounts receivable and
accounts payable. This in turn results in higher cash balances for the
quarter ended December 31 and lower accounts receivable and payable. Our
operating expenses are relatively fixed in nature and seasonal fluctuations
in revenue will result in seasonal fluctuations in our operating results.
As a result, quarter-to-quarter financial results are not directly comparable.
In view of the rapidly evolving nature of our e-commerce business and
our limited operating history in this regard, we believe that our historic
revenue and other operating results should not be relied upon as
indications of future performance.
-36-
<PAGE>
RESULTS OF OPERATIONS
CURRENT COMPANY
PERIOD JULY 13, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998 AND THE NINE
MONTHS ENDED SEPTEMBER 30, 1999
In the accompanying financial statements, the statements for periods
in 1999 are consolidated and include the accounts of n-Gen and its wholly
owned subsidiary. The statements for periods in 1998 are not consolidated
since they are prior to the acquisition of Lab Technologies.
Effective January 1, 1999, we became operational with the acquisition
of Lab Technologies (n-Gen Solutions.com, Inc., a Colorado corporation).
The acquisition significantly changed our operations since we now have an
operating company. In addition, we changed the fiscal year from December
31, to September 30 to more closely fit to our business sales cycle in the
education business. During the nine months ended September 30, 1999, in
addition to continuing the operations of the acquired company, we focused
on raising additional capital to pay for costs associated with a potential
public offering as well as to fund our expanded working capital needs.
Our initial period of approximately six months in 1998 consisted
primarily of organizing our company and searching for acquisition targets
in for-profit education industry sectors. Other than a nominal amount of
interest in the amount of $6,130, we had no revenues in 1998. We incurred
approximately $244,000 of expenses for salaries, office costs, acquisition
due diligence efforts, travel costs, legal and accounting services and
capital fund raising.
As a result of the continuing operations of our operating company, in
the nine months ended September 30, 1999, we had total revenues of
$3,927,353 compared to no sales in 1998. Those revenues consisted primarily
of equipment and software sales of $3,328,944 (85%). Of the product sales,
$2,497,000 were school sales. Of total revenues, $492,381 (12%) were
commissions and $106,028 (3%) were training and installation. The product
and labor cost of those sales were $2,690,979, or 69% of total revenues.
CURRENT COMPANY FOR THE NINE MONTHS ENDED SEPTEMBER COMPARED TO THE
PREDECESSOR COMPANY FOR THE YEAR ENDED DECEMBER 31, 1998
While we did not own our operating company subsidiary in 1998,
comparing some financial information of the current company for the nine
months ended September 30, 1999 to the predecessor operating company's
operating results for the twelve months ended December 31, 1998 helps to
understand our 1999 operating results. To compare the results of operations
of our subsidiary with the prior year, the reader should refer to the
financial statements of n-Gen Solutions.Com, Inc. (a Colorado corporation)
beginning on page F29 and compare them with the amounts for the nine months
ended September 30, 1999.
-37-
<PAGE>
REVENUE
The predecessor operating company's total revenues for 1998 were
$5,588,563. Overall, the operating company's revenues in 1999 decreased
from 1998 by proximately $2,260,000 due primarily to our 1999 fiscal year
having only nine months of sales. The distribution of sales in 1998 was 91%
product sales, 6% commission sales and 3% training and installation. The
increase in percentage of commissions (6%) from 1998 to 1999 occurred
because of an increase of CLS products. We sell a variety of educational
software and hardware products and systems. In the majority of our
transactions we act as a distributor and invoice the customer directly;
these transactions appear as "Sales" on our Statement of Operations. Our
profits come from the difference between the sales price and the cost of
goods sold. For other sales, we act as agent and receive a commission from
the manufacturer.
Our training revenues decreased by $20,971 from $129,999 in 1998 to
$106,028 in 1999 a decrease of approximately 18% due to nine-month
reporting period. However, since the profit margins in this segment are
significantly higher than our educational and commercial sales, we intend
to expand this business in 2000 by offering more courses, hiring additional
instructors and increasing the advertising expenditures.
COST OF REVENUES AND GROSS PROFIT
Cost of goods declined accordingly from $3,965,661 in 1998 (78% of
sales) to $3,640,658 in 1999 (77% of sales). As a percentage of sales, cost
of sales declined resulting in an improvement of gross profit from 71% to
69%. This occurred primarily because we can achieve higher margins on our
smart classroom sales.
The net result was a 10% increase in gross profit of $162,608 from
$1,622,902 in 1998 to $1,785,510 in 1999. As discussed above most of our
increased costs were in general and administrative expenses due to
corporate and financing costs and not in areas directly attributable to the
traditional operations of the business we acquired. Although revenues
decreased (about 3%), there was a 24% decrease in gross profit of $386,528,
from $1,622,902 in 1998 to $1,236,374 in 1999, again due to the shorter period.
SELLING EXPENSES
Selling expenses increased $24,158 from, $649,330 in 1998 to $673,488
in 1999. As a percentage of total revenues, the increase is less than 1%
and we don't consider it to be significant. The operating company's selling
expenses also decreased from 1998 to 1999 from $649,330 to $525,730. This
was also due to the 1999 period having only nine months compared to twelve
months.
BAD DEBT EXPENSES
Since we sell the majority of our products to school districts,
collection of receivables is assured in a reasonable time period after we
invoice our customer. Bad debts are approximately 1% of total sales and do
not contribute significantly to our operating expenses and are a positive
-38-
<PAGE>
aspect of our business sector. However, bad debts expense increased from
1998 to 1999. This occurred because of our doubt about collecting a single
private institutional account of $60,857, which we reserved for possible
uncollectiblity. We are still trying to collect this account. Although
the inability to collect in a timely manner a single private institution
account of $60,857 has caused all but approximately $14,000 of the bad debt
expenses.
GENERAL AND ADMINISTRATIVE
General and administrative costs increased from $626,702 for the
twelve months ended December 31, 1998 to $1,224,204 for the nine months
ended September 30, 1999. This was a result of several key items. n-Gen
was formed in July 1998 to investigate and acquire businesses in the for-
profit education sector utilizing and/or delivering high technology.
Substantial expenses were incurred in late calendar 1998 and early 1999 in
the due diligence review and negotiations for the acquisition of Lab
Technologies, renamed n-Gen Solutions.Com, Inc. (Colorado). All of the
internal payroll and related search, due diligence costs and negotiation
costs were expensed. Additionally, significant costs were incurred in the
raising of capital from the private placement of debt and equity and in
preparation of n-Gen for the proposed public offering, to investigate other
acquisitions and in development of our e-commerce web site. A majority of
these costs were incurred at the corporate level; the general and
administrative costs at the operating company level remained relatively
constant. With future growth in projected sales, total general and
administrative costs should decrease substantially as a percentage of total
costs and revenue.
INTEREST EXPENSE
Interest expenses increased from $13,890 in the year ended December
31, 1998 to $95,160 for the nine months ended September 30, 1999 primarily
due to the debt financing with promissory notes during 1999 and the debt to
Gary Nelson for the acquisition of Lab Technologies.
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 2000
The six months ended March 31, 1999 included the negotiation and due
diligence efforts that culminated in the acquisition on March 26 of Lab
Technologies. Since the effective date of the transaction was January 1,
1999, only three months of operations of the acquired operating company are
reflected in the statement of operations. The period ending March 31, 2000
reflects full operations of the consolidated companies, including the
ongoing operating business.
Total sales increased from $707,355 to $2,633,353, an increase of
$1,925,998, or 272%. Of total sales, training and installation increased
significantly from 37,321 to 104,210, reflecting our attempts to increase
training revenues due to their higher profit margins.
Cost of sales increased as well but the gross profit percent increased
from 29% to 34% due to proprietary product sales. The gross profit margin
did improve in the six months ended March 31, 2000 to 34% from 31% for the
nine months ended September 30, 1999 due, in part, to sales of proprietary
products such as our n-Gen Smart Classroom described elsewhere. General
-39-
<PAGE>
and administrative expenses increased from $437,979 to $934,906. This
increase was due to additional expenses (1) such as internal administrative
and accounting costs incurred at the corporate level to raise funds in
private placement of debt and equity and (2) expenses incurred in the
design, development, marketing and testing of our new Learningwire web
site. The selling costs of education products to schools and commercial
customers of the operating company have remained relatively consistent
between the periods at approximately 12% of total sales. Depreciation and
amortization increased significantly between the periods due primarily to
the increased amortization of intangible costs that were associated with
the acquisition of the operating company in January 1999. Bad debts were
relatively insignificant due the company's increased monitoring of customer
receivables and additional collection efforts. Overall, the loss from
operations decreased from $446,706 to $376,757.
Interest expenses increased from $10,264 in the six months ended March 31,
1999 to $68,448 for the six months ended March 31, 2000 primarily due
to the debt financing with promissory notes completed in December 1999 and
with the debt to Gary Nelson for the acquisition of Lab Technologies.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had $210,196 in cash and cash
equivalents. As of March 31, 2000, the cash position increased to $251,898.
For the nine months ended September 30, 1999, our operating activities
used $149,570 of cash which included $254,400 of stock issued for services.
The cash provided by operations also resulted from significant increases in
accounts payable ($918,512), deferred revenues ($225,281) and amounts paid
by related parties ($319,891). This contrasts with the six months ended
March 31, 2000 in which operations consumed $99,514 of cash due to the
seasonality of the business.
For the nine months ended September 30, 1999 the Company spent $82,533
on web site and technology development costs. Of these costs, $41,143 were
capitalized as internally developed software and $41,390 were incurred in
the preliminary project or training stages and were expensed and are
included in General and Administrative costs. For the six months ended
March 31, 2000, we spent $139,697 on web site application development
costs, all of which was capitalized. It is our policy to expense costs
which consist of conceptualization of web site alternatives, evaluation of
the alternatives, verification of the existence of canned software and
related technology, selection of the final specifications and training.
Costs directly associated with application development of the web site are
capitalized.
Since inception, we have financed the majority of our operations
through capital contributions made by management and through private
placements of promissory notes and shares of our common stock for total
proceeds of $1,441,250. In the nine months ended September 30, 1999,
financing activities provided cash of $160,779 compared to $311,178 in the
six months ended March 31, 2000. In the nine months ended September 30,
1999, the changes in cash provided was due primarily to debt financing
proceeds of $262,500 reduced by $230,137 of repayment of debt and payables.
In the six months ended March 31, 2000, changes
-40-
<PAGE>
in cash from financing activities occurred primarily from private placement
stock sale proceeds and debt.
Our future capital requirements will depend on several factors which
include:
* Market acceptance of our services;
* Marketing promotions;
* The amount of resources we devote to the development of our
current and future products; and
* The expansion of our in-house sales force and marketing our
services.
At December 31, 1999 and for the nine months ending September 30,
1999, we had no material commitments for capital expenditures. Our
investment in web site development and infrastructure for our Internet-based
e-commerce business is not treated as a capital expenditure, but is
expensed for accounting purposes.
In June 1999, we entered into a letter of intent with the underwriter
in connection with this public offering. The net proceeds of this
offering, totaling approximately $6,884,000, should provide adequate
working capital for us to enhance and otherwise stabilize cash flow during
at least the 12 months of operations following the closing of this
offering, such that any shortfalls between cash generated by operating
revenues and costs will be covered by working capital. Although we prefer
to retain our working capital in reserve, we may be required to expend part
or all of these offering proceeds as our financial demands dictate.
Although it is uncertain that the market price of our shares of common
stock will rise to a level at which the warrants may be exercised, in the
event investors in this offering elect to exercise the warrants at $5.50
per warrant (not including the underwriter's over-allotment option or the
underwriter's purchase option), we will receive gross proceeds of up to
$8,800,000. We anticipate that the proceeds from the exercise of the
warrants would be contributed to working capital. Nonetheless, we may at
the time of exercise allocate a portion of the proceeds to any other
corporate purposes.
We are unable to predict the precise period for which this offering
will provide financing, although we believe that we should have sufficient
working capital to meet our cash requirements for the 12 month period
following the date of this offering. Accordingly, we may need to seek
additional funds through loans or other financing arrangements during this
period of time. No such arrangements exist or are currently contemplated
and we cannot be sure that they may be obtained in the future should the
need arise.
Pending utilization, we intend to invest the net proceeds of this
offering in insured, short-term, investment-grade, interest-bearing securities.
-41-
<PAGE>
IMPACT OF INFLATION
We do not believe that inflation has had a material adverse effect on
our income since our inception. Increases in supplies or other operating
costs may adversely affect our operations in our future. However, we
believe we will be able to increase the prices of our products, systems and
services to offset increases in operating costs.
YEAR 2000 COMPLIANCE
Many computer systems and software programs were written to accept and
process only two digit entry codes for the year when storing dates.
Beginning with the year 2000 these entry codes will need to accept four
digit entries to distinguish 21st century dates from the 20th century
dates. As a result, computer systems and software programs may need to be
updated to solve this problem and avoid incorrect or lost data.
To date we have not experienced any material problems attributable to
the inability to recognize dates beginning with the year 2000 in our
products or internal systems. We face risks associated with the year 2000
issue if we encounter undetected errors or defects. Our operations could
be adversely affected if systems do not correctly recognize date information
when the year changes to 2000. We face risks primarily in the following areas:
* systems used by us to run our business including information
systems, equipment and facilities;
* systems used by our suppliers; and
* potential warranty or other claims from our customers.
We continue to evaluate and mitigate our exposure in these areas
where appropriate.
-42-
<PAGE>
BUSINESS
COMPANY OVERVIEW
N-Gen designs, installs and outfits computer classrooms for schools,
businesses and government agencies which are customized to teach the
various subjects that each customer wants taught. Our business model
consists of our computer classrooms and an integrated e-commerce web site,
both tailored to meet the needs of our customers. We focus our computer
classrooms on providing schools and businesses with:
* high technology, interactive, computer classrooms;
* audio, video and multi-media capabilities within the classrooms; and
* distance learning technology and features.
Our e-commerce web site will compliment our computer classrooms by offering
our customers on-line shopping for:
* computer hardware;
* computer software;
* educational materials;
* school and office supplies;
* school and office furniture; and
* entertainment products.
Through our computer classrooms and e-commerce web site, we believe that we
can build technological infrastructures for our customers that can enhance,
streamline and compliment the traditional educational system.
The goal of our computer classrooms is to combine interactive,
educationally-sound computer classrooms and curriculum with the dynamics of
the Internet, digital video, audio and multimedia applications. The
computer classrooms we provide typically contain the following integral
components, some of which are n-Gen proprietary products and some of which
are provided by third-party suppliers:
* 10 to 30 computer workstations for students;
* 1 instructor computer workstation;
* specially designed furniture and seating;
* audio and video switching equipment;
* an electronic whiteboard for visual projections and
demonstrations; and
-43-
<PAGE>
* a digital video server and a software database for searching and
accessing customer identified Internet sites, video materials,
audio files, software and images.
Based on management's experience, we believe our computer classrooms
provide the following benefits:
* giving the teacher the ability to work closely with students by
allowing the teacher to display their computer screen to students
as a whole class or to individual students who may require
additional assistance;
* giving the teacher the ability to work closely with the students
by allowing the instructor to talk with the class as a whole or
to individual students via headsets;
* giving students the ability to use many forms of information
available on their computer workstation, such as the Internet,
video, audio, pictures and photographs. Each student can access
this information when they need it or when the teacher asks them to;
* allowing students to work at their own pace and at their own
level while following a curriculum that is interactive and that
contains the many forms of data described above; and
* giving the teacher the ability to monitor student progress
through the computer database. Students can be prompted by the
instructor either verbally or over the computer system to answer
questions. The classroom's audio/video system automatically
collects the students' answers for the instructor and displays
the results for the instructor to review.
Our computer classrooms have the ability to deliver relevant,
meaningful content to students using the latest technology. Based on
management's own limited experience with technology in the education
industry, we believe that our computer classrooms will assist and enhance
many students' learning experience and will become a standard in many
educational environments. However, we have not conducted any formal study
to independently verify our belief.
In addition, we have designed web-enabled software programs which have
the ability to store, manage and deliver digital media across internal
networks or the Internet when used in conjunction with our distance
learning applications. Students and instructors can use this application
to instantly locate, access and play on demand media resources ranging from
digital video, digital images, web sites and web audio, to software
applications and CD-ROMS. Our software allows the user to pre-index
thousands of lesson plans, web sites and media resources, by grade levels
and content areas.
We are developin an e-commerce web site which will allow us to offer
a centralized source for purchasing of a wide range of educational products,
software titles, office and school supplies and hardware. We are in the
process of selecting a wide range of products which we feel will be a
particular interest to the educational market. The site is designed to help
our customers manage their purchasing by tracking their order history.
Customers will be able to view their current orders and past orders, view
which items have been shipped and which items have already been paid for.
We have entered into a web development agreement with The August Group to
assist our developers in implementing this strategy and in constructing a high
-44-
<PAGE>
quality e-commerce web site. We expect our e-commerce web site to launch
on-line operations in early 2000.
EDUCATION INDUSTRY
BACKGROUND
A recent study published by Market Data Retrieval Education, a private
marketing firm, analyzed the three major educational markets and came up
with the following statistics:
* THE K-12 MARKET has 108,520 schools with 50.7 million students
and spends over $6.9 billion a year on instructional technology.
* THE POST-SECONDARY MARKET consists of over 10,000 schools
including 1,723 two-year colleges and 2,595 four-year colleges.
The National Center for Education Statistics estimates that
$263.7 billion a year will be spent in higher education in 2007-
2008, which is a 40% increase from 1994-1995.
* THE FOR-PROFIT MARKET, consisting of corporate America, is the
third largest market. Over one-fifth of the adult population,
which represents over 40 million people, pursues work-related
continuing education. Corporate America invested $58.6 billion
in 1996 to enable its employees to maintain, enhance and upgrade
their skill level to effectively compete in today's
technologically advanced workplace.
Congress has taken a strong position to ensure the workforce of
tomorrow is prepared and well educated. Increased spending on education
has translated into increased spending on education related technology.
For example, the proportion of public elementary and secondary schools with
Internet access increased from 35 percent in 1994 to 65 percent in 1996,
according to the Market Data Retrieval study.
LEARNING TECHNOLOGY
Technology and the Internet are allowing for changes in how we
educate. Educators are striving to incorporate technology into the
classroom in an effort to graduate a student body that is well prepared to
compete for jobs in our technology driven society. According to a report
issued by the U.S. Department of Commerce, the national expenditures in
1997-1998 for computer hardware and software was estimated at $2.8 billion.
SCHOOL SUPPLIES
The demand for school supplies is driven primarily by the level of the
student population and, to a lesser extent, expenditures per student.
Student population is a function of demographics, while expenditures per
student are also affected by government budgets and the prevailing
political and social attitudes toward education. According to U.S.
Department of Education estimates and National Center for Education
statistics, student enrollment in kindergarten through twelfth grade public
and private schools began growing in 1986, reaching a
-45-
<PAGE>
record level of 52.7 million students in 1998. Current projections by the
U.S. Department of Commerce indicate that student enrollment will continue
to grow to 53.7 million by the year 2000. The U.S. Department of Education
also projects that expenditures per student in public elementary and
secondary schools will continue to rise through the year 2006.
Expenditures of $272.4 billion in 1997 are projected to increase to $340.7
billion by the year 2001. We believe that the current political and social
environment is currently favorable for education spending.
E-COMMERCE
Because of the inherent limitations of traditional channels of
distribution, the Internet is dramatically affecting the way businesses and
consumers buy and sell products and services. Computer Industry Almanac,
in a study available online, estimates that there were 259 million Internet
users worldwide at the end of 1999, and projects that this number will grow
to over 490 million users by the end of 2002. Forrester Research, in a
study published online, estimates that the worldwide e-commerce market will
grow to approximately $6.9 trillion by 2004. Management believes that the
Internet is well-suited for consumer commerce for a number of reasons:
* Increased convenience due to the ability to access the Internet
at any time from almost any location;
* Virtually unlimited "shelf" space to allow merchants to offer a
wide selection of products and services;
* Low facilities and staffing costs;
* Merchandising flexibility due to merchant's ability to quickly
update and customize product selection and presentation,
editorial content and prices; and
* Enhanced knowledge of customers' needs from the merchant's
ability to gather, process and store large amounts of customer
information.
OUR SOLUTION
We specialize in building technological infrastructures that can
enhance, streamline and complement traditional educational systems. Our
technological infrastructures include computer classrooms and an e-commerce
web site.
COMPUTER CLASSROOMS:
We provide interactive, computerized classrooms, which combine the
dynamics of the Internet with computerized technologies to give students
access to instructional material via their computers in many different
forms, including video materials, audio files, software, and Internet
sites. We provide schools and business with the resources and technology
necessary to transform ordinary classrooms into electronically enhanced and
fully interactive classrooms. Starting with an empty classroom, we
customize the classroom to fit our customer's needs. Examples of the
-46-
<PAGE>
types of classrooms that we can create include Digital Language Labs,
Interactive Distance Learning Centers, Multimedia Design Labs, Visual
Mathematics Classrooms, Certification Training Centers, Community Learning
Centers, Staff Development Classrooms, Computer-aided design ("CAD") labs
and Science Labs.
The computer classroom we design and install is more interactive than
a traditional classroom. A typical workstation in the classroom is
equipped with a personal computer, keyboard, monitor, headset and student
console. The teacher's station has a display panel allowing the teacher to
access each student's workstation to view what a student is working on.
Students have the power to access many different curriculums, resources and
instructional materials, on demand and in whatever media format is most
likely to be effective for each individual student. The material is
delivered directly to each individual student's desktop computer. In
addition, the classroom technology gives the instructor or the student the
ability to make presentations to the class as a whole, to select groups or
to individual students. The delivery of the curriculum may be made through
On-line Content, DVD, Laserdiscs, Satellite and Cable TV, Digital Video,
web sites, Streaming Audio, Electronic Textbooks, Computer Applications and
CD-Roms. Our system can also provide for interactive distance learning to
link together students and facilities from across the city, nation and
around the world.
In our computer classroom, the instructor can personalize the
instruction for each student, or can teach in a more traditional group
format. The instructor can also use the technology to gather feedback from
the students, so the teaching can be adjusted to more efficiently meet each
student's needs.
DISTANCE LEARNING:
Our computer classrooms also provide distance learning capabilities,
which we believe will become an increasingly popular means of instruction.
Distance learning means using various methods to teach people who are
widely dispersed geographically. Historically, this has meant using a
video to broadcast a lecture. Due to the high costs of education and the
limited supply of qualified teachers, experts in all fields are in high
demand. Based on its own limited experience, n-Gen management believes
that the benefits of using our distance learning technology include:
* Increased student comprehension & performance;
* Increased interaction between students and teachers and between
students;
* Decreased travel costs;
* Decreased training cost per student; and
* Increased content coverage;
Our distance learning systems integrate the latest computer-based
interactive teaching tools with the traditional instructor-led classroom to
create virtual classrooms. A virtual class is
-47-
<PAGE>
comprised of one or more physical classroom sites, with an instructor who
is physically distant from at least one of the classrooms. The virtual
classroom integrates multi-site interactive videoconferencing, computerized
classroom management tools and computer based instructional resources.
HARDWARE AND SOFTWARE USED IN OUR COMPUTER CLASSROOMS:
Our multi-media learning environment uses a custom designed digital
video server in conjunction with our web-enabled software programs. The
server can be custom designed to fit each customer's specific needs and
budget. Our digital server and web-enabled software programs have the
ability to store, manage and deliver digital media across internal networks
or the Internet. Our server and software allow users to:
* Locate, access and play on demand media resources ranging from
digital video, digital images, web sites and web audio, to
software applications and CD-ROMs;
* Pre-index lesson plans, web sites and media resources by grade
levels and content areas;
* Archive the location of print materials and analog based media;
* Retrieve and review assignments, leave comments for teachers, and
examine attendance records;
* Teachers can give students on-line feedback about their work and
general performance; and
* Parents can review their child's lessons and performance from
their home computer and see how their child compares to other
students in the class, in the school or around the country.
DESIGN OF OUR COMPUTER CLASSROOMS:
Our staff works side by side with school technology directors,
curriculum directors, superintendents, principals and teachers to design
and implement technology plans focused on budget requirements and goals.
We assist in the planning and design of network architecture, Internet
access, information and instructional management, facilities planning,
curriculum design, multimedia utilization, media delivery systems,
technology education and staff development.
We build 3-D computer drawings and walk-through visuals for our
customers, in an effort to present concepts and ensure accurate planning
and successful implementation of our learning environments. We are capable
of creating corporate training classrooms, educational computer classrooms,
science labs, CAD classrooms, lecture halls, technology education labs,
teacher and staff development centers and many other technology-enriched
facilities.
-48-
<PAGE>
COST OF OUR COMPUTER CLASSROOMS:
A computer classroom may cost between $140,000 and $250,000. This
cost includes a custom designed classroom to meet the specifications of
each school's particular space, computer hardware and software,
installation and training. We are often able to use a customer's existing
computer hardware to provide a lower-cost alternative. A full classroom
can usually be operational within six to eight weeks from the order date.
Once an order is placed, we notify our vendors and the equipment is shipped
directly to our customer's site. We then inventory and install the
classroom on site, and provide technical training and instructional staff
development.
E-COMMERCE WEB SITE:
Our soon to be launched e-commerce web site, LearningWire.com, will
provide a business-to-business solution for the educational product market.
Our site will be targeted at school purchasing agents, administrators,
businesses and individuals.
It is our hope that our e-commerce site will provide a single
centralized source for purchasing a wide range of products, including
software, office and school supplies, education related hardware,
furniture, books, and entertainment products.
INCENTIVE PROGRAM:
An additional feature of our e-commerce site will be the incentive
program. Under this program, schools earn credits toward future purchases
and districts simultaneously earn cash rebates. When a purchase is made,
the customer will be asked to designate a school as the recipient of reward
points. The school will earn points every time that customer makes a
purchase through our web site. These reward points then transfer into
credits for that school on future purchases made by the school on the web
site. Additionally, the district in which that school is a member will
automatically receive points that transfer into cash rebates paid by us
directly to the district. We believe that this cash back incentive will
encourage districts, schools, businesses and individuals to make purchases
on our e-commerce site.
MARKETING AND PROMOTION
We will be aggressively targeting regional and national education
markets. We believe that our computer classrooms, coupled with our e-
commerce web site, will provide a one-stop solution for our customer's
education and technology needs. Our goal is to reach school association
and governing boards through our web site and direct sales. Currently, we
have 8 sales representatives stationed throughout the Rocky Mountain
region, in Colorado, Utah, Arizona, New Mexico, Idaho, Montana, Nevada and
Wyoming. We have also contracted with several independent companies to
distribute and re-sell our products and services in twelve other states
throughout the United States. The states include Washington, Arkansas,
Oregon, Wisconsin, Michigan, Illinois, Indiana, Ohio, Pennsylvania, New
York, Delaware and Texas. The companies use n-Gen marketing materials at
trade shows and conferences and sell our products and services in exchange
for a commission on each sale they make. Currently, the amount of revenue
generated from these relationships is insignificant. Our goal is to
develop a
-49-
<PAGE>
strong electronic Web presence while supporting the sales and marketing
strategy through strong customer-oriented marketing, advertising and
printed media support. Our soon to be launched e-commerce site,
LearningWire.com, will use our already established sales force to promote
the sites use to schools, districts, businesses and individuals. Through
this strategy, we hope to build a membership base and establish a customer
base that views LearningWire.com as a trusted source for purchasing. Our
sales and marketing strategy is based on two complimentary models:
* TOP DOWN MODEL: We will aggressively market our products and
services to school administrators at the state, regional and
local levels using our regional sales force and our e-commerce
presence. Strategic press releases and publication campaigns
will promote customer awareness and enhance name recognition.
This support will enhance the direct sales efforts and the e-
commerce sales opportunities. Marketing will be directed to
specific educational trade magazines, educational conferences,
seminars and school site decision makers;
* BOTTOM UP MODEL: We will also target our products and services
to community associations, parent associations, parents and
individual teachers through direct mailings and selected
advertising. Parents and community alliances will be targeted in
n-Gen's marketing campaigns for the support of implementing new
teaching strategies and improving the learning process for all
students.
* DIRECT CONTACT MODEL: New technology and educational teaching
methods have to be seen, touched, manipulated and experienced by
customers in order to understand the full utility of the learning
that takes place in a highly technical environment. The
expansion into new geographic markets will require a strategic
increase in the operational activities of the sales and marketing
programs. These activities will include our e-commerce presence,
developing distribution channels and expanding the technical and
customer support teams.
GROWTH STRATEGY
Our objective is to become the leading provider of computer
classrooms, instructional technology products and technology-based,
performance-driven consultative services for educational institutions and
corporate training centers worldwide.
We hope to accomplish our growth strategy as follows:
* AGGRESSIVE MARKETING OF OUR NEWLY ENGINEERED, DESIGNED AND
DEVELOPED LEARNING SOLUTION. We will target learning
organizations, including public and private schools, colleges,
universities, technical training centers and corporations.
Worldwide corporations, research centers, global learning
foundations, educational leaders in foreign countries, and
parents will be targeted in our marketing campaigns for universal
acceptance and implementation;
* POSITIONING LEARNINGWIRE.COM AS THE WEB PORTAL FOR ON-LINE
ELECTRONIC EDUCATIONAL BUSINESS TRANSACTIONS WORLDWIDE. We will
market our e-commerce
-50-
<PAGE>
site to school purchasing agents, administrators, businesses and
individuals. The site will be marketed as a complimentary
component to our learning solution classrooms and as a separate
solution for online shoppers. Our existing sales representatives
will help market our site and will be available to personally
assist our customers with their online purchases. This type of
personalized service, combined with the incentive/rebate program
and the variety of products offered on the site should help
establish our site as a centralized source for online educational
and entertainment purchasing. The site will also help promote
our learning solution offerings, including our classroom
technology, and increase brand recognition;
* Aggressive acquisition program. We feel we can achieve growth
through acquisitions without creating distractions from the focus
of our other growth opportunities along the way. Acquisitions
will allow n-Gen to consolidate and open new territories faster,
secure and integrate new learning technologies, grow globally,
create higher profit margins by becoming a more powerful seller
and provide the educational community highly integrated and
simplified technological solutions.
n-GEN SOLUTIONS.COM CUSTOMERS
We build long-term relationships with our customers and their
respective facilities to ensure that the computer classrooms and
educational products we sell become an important and successful extension
of the schools' and businesses' learning processes. We believe that we
establish and maintain relationships with our customers in several ways.
We offer year-round professional development programs for teachers and
staff to help them learn how to use our products in their classrooms. We
also provide toll-free technical support, quarterly newsletters containing
special promotions and new product offerings, and routine visits to schools
and businesses by our sales staff. While we believe that these aspects of
our business help us build long-term relationships with our customers, we
currently do not maintain any statistics identifying the portion of our
revenues attributed to purchases by customer's after the initial sale.
Currently, we have customers in:
* Secondary education (K through 12 public, private and charter
educational institutions);
* Community colleges and universities;
* Vocational & technical education centers;
* Corporate training centers;
* Information technology training centers;
* Government agencies; and
* Engineering firms.
We have an established customer base among educational institutions in
Colorado, Utah, Arizona, New Mexico, Idaho, Montana and Wyoming. We
currently do not collect data to quantify the exact number of education
institutions with which we have done business, but management estimates
that it is about 500 school districts and 3000 schools. We also have an
-51-
<PAGE>
established customer base in Colorado among businesses and government
agencies. Management estimates that we have done business with about 1,900
businesses and government agencies.
TECHNOLOGY
The technology used in our computer classrooms consists of off-the-shelf
components organized by us to create a proprietary architecture. The hardware
and software we develop, design or select supports industry-standard
technology. The technology used in our classrooms include digital
video delivered through Ethernet and ATM networks; a video server that
provides varying bandwidth for video delivery and storage of thousands of
hours of high quality audio and video; distance learning capabilities that
utilize desktop videoconferencing protocols; classroom instructional
control systems with touch screen, icon-based interfaces; interactive
student response and monitoring systems; computer monitor video signals up
to 2000 resolution to allow for delivery of high-end software applications;
audio network systems connecting students and instructors with each other
and with the audio devices employed in the classroom; large electronic,
touch-sensitive white boards and multimedia projection systems to provide
presentation capabilities; and Internet access through the use of satellite
based systems and phone lines.
We have several licenses that allow us to incorporate technology of
other companies into our computer classrooms. The material licenses and
agreements include:
* An agreement with Robotel to resell their audio and video
switching technology;
* An agreement with Smart Technologies to resell their electronic,
touch-sensitive whiteboard; and
* An agreement with Interior Concepts to resell their customized
furniture.
We also sell many different software packages with our classrooms, but the
software is only sold by us, and any software license arrangement is
between the software developer and our customer. We do not have any
specific software licenses for our classrooms.
We have implemented an advanced Internet electronic data exchange
systems in conjunction with our education portal and e-commerce web site.
These systems result in improved speed and efficiency. Our information
systems include:
* Electronic Data Interchange (EDI) to ensure fulfillment from
suppliers, distributors and manufacturers;
* Virtual Private Networks (VPN) solutions for secure transactions;
* Web-based e-mail, order approval and processing, payment
processing and merchant account processing;
-52-
<PAGE>
* Office administration, electronic accounting and reporting; and
* Real time pricing, auto-generated proposal templates and on-demand
customer profiles.
Our on-line information systems infrastructure, including our e-commerce
web site, are hosted by The August Group, Inc. in Frederick, Maryland. August
Group provides redundant communication lines on honed T3 backbones from
multiple stand-by providers, 24-hour monitoring and engineering support, its
own independent generators and multiple data back-up systems. Our operations
offices utilize T1 landlines for voice and data, Satellite communications and
Fast-Ethernet networking, providing high-speed access to our information
systems for all staff. The Satellite communications system provides each and
every user with 400kbs bandwidth, providing the optimal customer support
response times and efficiency of business operations.
Our systems are based on industry-standard architectures, which have
been designed to minimize downtime in case of outages or catastrophes. Our
systems ensure 24-hours-a-day, 7-days-a-week availability. Our transaction
processing methods and databases are designed without arbitrary capacity
constraints and are scalable to handle increased volume demands that are
both expected and unexpected. We have implemented load balancing systems
and redundant servers to provide for fault tolerance and secure systems, to
promote maximum uptime.
COMPETITION
The education market is diverse and new technological teaching
strategies are becoming a requirement. n-Gen believes that the principal
competitive factors in our market include:
* Teacher and trainer staff development and skill sets;
* Service features such as adaptability, scalability and the
ability to integrate customer curriculum requirements;
* Quality control of implementation and service teams;
* Ever-greening of technology (keeping all aspects of the
technology up to date); and
* Pricing and budgets.
Our competitors vary in size and in the scope and breadth of the
products and services they offer. Schools' and businesses' in-house
technical personnel, systems integrators and hardware vendors are
competition for our solutions. Large computer manufacturers, such as
Gateway, are installing computer classrooms in schools and businesses.
There are several small regional education resellers in the United States
that are also competitors with us in their respective territories.
-53-
<PAGE>
Competition in the e-commerce sector is similarly varied and diverse.
Our competitors with substantial market share in e-commerce include:
* CLASSROOMDIRECT.COM(TM) sells a variety of educational products
and services on the Internet. Formerly known as Re-Print,
ClassroomDirect.com began selling direct to classroom teachers in
1992 and has grown into one of the largest distributors of
educational goods and services. Technology solutions for
education were added in 1998 with the acquisition and integration
of Education Access.
* KICKSTART.COM(TM) is an on-line fundraising service for non-profit
organizations that allows non-profit organizations to
build a portal site with a search engine, links to other sites,
and information about the organization. The non-profit
organization raises funds by promoting links to other sites that
sell items and the non-profit is given a specified percentage of
the revenue. KickStart.com is actively marketing through parent
organizations in technologically-advanced neighborhoods.
* AMAZON.COM(TM) is one of the most widely recognized e-commerce
portals. The company offers a wide range of books, videos, CDs,
DVDs, and other published products to adult and youth on-line buyers.
We believe that the growth of competitors in the educational market
demonstrates the viability of the market for businesses that understand the
market. We do not believe that all the needs of the market are being
addressed. We believe the educational market demands:
* Capacity to purchase products on-line securely;
* A large and diverse product base;
* Educational products or services; and
* A rewards or incentives program for on-line purchasing.
CUSTOMER SERVICE
We are dedicated to providing exceptional customer and technical
support services. We currently have 4 employees dedicated to customer
service and plan to add additional technical and customer service employees
in the near future. Our customer service personnel are trained and
proficient in a wide range of technologies including the full scope of our
products. The staff has a broad knowledge base that allows them to assist
with and solve technical issues. Our various methods of technical and
customer support include toll-free technical telephone support, web site
"on-line" technical assistance, and email correspondence. It is our intent
that by utilizing many different styles and methods of support protocol, we
can provide services that result in superior results and a high degree of
customer satisfaction.
-54-
<PAGE>
Customer service and support is also critical to the success of any
business that involves the Internet. We believe that our sales approach
will be crucial to providing the support that schools and businesses need
for on-line purchasing. In addition to providing personal support, we are
building a customer support and call center that focuses on providing
useful product knowledge through friendly, courteous customer
representatives. A third party will operate this call center under an
agreement with us. Customer representatives will be trained within
specific content areas such as office supplies, computers and networking,
software, and entertainment products.
INTELLECTUAL PROPERTY
Although our business model and the services we provide define our
business, our software and copyrights, service marks, trademarks, trade
dress, trade secrets, proprietary technology and similar intellectual
property are also very important to our success. We intend to rely on a
combination of trademark and copyright laws, trade secret protection,
confidentiality and/or license agreements with our employees, customers,
suppliers, consultants and others to protect our proprietary rights. We
have applied for the registration of certain trademarks and service marks
in the United States and may seek international protection where
appropriate and feasible. We have applied for trademark protection for our
proprietary software and related products. Currently we have one trademark
application pending: It is N-GEN LEARNING ENVIRONMENT.
We also have four servicemark applications pending. They are:
* N-GEN SOLUTIONS
* LEARNINGWIRE.COM
* N-GEN LEARNING SUITE
* n-Gen ENABLE
Our trademark and servicemark applications are newly filed and have not yet
been assigned to an examining attorney.
In the future, we may license certain proprietary rights such as
trademarks, technology and copyrighted material to third parties.
Currently, protection of our intellectual property has been limited due to
a lack of funds. Our current financial circumstances reduce our ability to
prosecute any potential infringement.
We also have several licenses that allow us to incorporate the
technology of other companies into our computer classrooms. The material
licenses and agreements are:
* An agreement with Robotel to resell their audio and video
switching technology;
-55-
<PAGE>
* An agreement with Smart Technologies to resell their electronic,
touch-sensitive whiteboard; and
* An agreement with Interior Concepts to resell their customized
furniture.
The licenses for the software sold with our computer classrooms exists
between the software developer and our customer. We do not have any
specific software licenses.
EMPLOYEES
As of February 1, 2000, we had 27 full-time employees, including 14 in
marketing and sales development, 4 in customer service, 2 in development
and 7 with management and administrative responsibilities. We also use
both individual and corporate independent contractors to support in house
capabilities of marketing and professional relations, graphics design,
software development and programming. No union represents our employees,
and we believe our employee relations are good.
FACILITIES
Our corporate headquarters is located in Denver, Colorado, which we
sublease on a month to month sublease from an affiliated company for
$3,200. The headquarters leasehold consists of 2,500 square feet. Our
operations office, located in Longmont, Colorado, encompasses approximately
6,300 square feet and is leased at $5,900 per month, for five years with
the lease expiring in 2003. Our operations office includes one seven
station and one twelve station state-of-the-art computerized training
classroom. The facilities also include a thirteen-station learning
solution classroom, showcasing the latest in technology from on-demand
video delivery to interactive desktop distance learning. We believe our
existing facilities are adequate for current requirements and that
additional space can be obtained on commercially reasonable terms to meet
future requirements.
-56-
<PAGE>
MANAGEMENT
DIRECTORS, OFFICERS AND KEY PERSONNEL
The officers and directors of n-Gen are as follows:
Name Title
- ----------------- ----------------------------------------
Robert D. Arnold chairman of the board of directors, chief
executive officer, director
Michael V. Schranz treasurer, secretary, chief financial officer,
director
D. Gary Nelson president, director
Dean C. Myers vice president of operations, director
Robert C. Vaughan vice president, director
David Clem(1)(2) director
Allan R. Short director
Stephen K. Smith director
____________________
(1) Messrs. Clem, Short and Smith serve as the members of n-Gen's audit
committee. Mr. Schranz attends meetings of the audit committee in an
advisory capacity.
(2) Messrs. Clem, Short and Smith serve as the members of n-Gen's
compensation committee. Mr. Nelson attends meetings of the
compensation committee in an advisory capacity.
Each of the directors of n-Gen hold office for a one-year period
expiring August 16, 2000. At present, n-Gen's by-laws provide for not less
than five directors nor more than eleven directors. Currently, there are
seven directors in n-Gen. The by-laws permit the board of directors to
fill any vacancy and such director may serve until the next annual meeting
of shareholders or until his successor is elected and qualified. Officers
serve at the discretion of the board of directors. There are no family
relationships among any officers or directors of n-Gen. The officers of
n-Gen devote full time to the business of n-Gen.
The principal occupations and business experience for each officer and
director of n-Gen for at least the last five years are as follows:
ROBERT D. ARNOLD, age 61, became chairman of the board of directors,
chief executive officer and director of n-Gen in March 1998. In addition,
he served as a director, chairman and chief executive officer of our former
subsidiary. Mr. Arnold has 33 years of investment banking, entrepreneurial
management, and sales experience with companies in the technology,
proprietary education, finance, and energy sectors, including extensive
private placement financing in the USA and Europe. Prior to entering the
investment business, Mr. Arnold spent 12 years as a
-57-
<PAGE>
teacher and supervisor in secondary education. From August 1973 to July
1978, Mr. Arnold was in sales management with Aegon USA, a life insurance
and financial company; from July 1978 to August 1979, Mr. Arnold was an
institutional sales manager with NYSE member Newhard, Cook, and Co. an NASD
member broker-dealer and institutional investment advisor; from September
1979 to June 1992, Mr. Arnold was an independent consultant; and from
August 1992 to March 1999, Mr. Arnold is the managing director of One
Capital Corporation, a financial consulting firm in Denver and New York
City. Mr. Arnold holds a Masters in Educational Administration and
Supervision from the University of Illinois earned in 1968 and a Bachelor
of Arts from Wheaton College awarded in 1961.
MICHAEL V. SCHRANZ, age 56, became treasurer, secretary, chief
financial officer and director of n-Gen in March 1998. In addition, he
served as secretary, treasurer, chief financial officer and a director of
our former subsidiary. Mr. Schranz has 29 years advising public companies
on financial and regulator issues, including management experience in the
energy industry. From June 1975 to January 1977, Mr. Schranz worked as an
audit and tax manager of Laventhol & Horwath, a public accounting firm in
Denver, Colorado. From February 1977 to January 1980, he was the chief
financial officer of CleveRock Energy, Inc. of Denver, Colorado, which was
subsequently purchased by Lexicon Resources, Inc. From January 1980 to
August 1990, Mr. Schranz was an officer and director of Overthrust
Resources, Inc. of Denver, Colorado. From August 1990 to March 1998, he
was a managing partner of One Capital Corporation, a financial consulting
firm in Denver, Colorado. Mr. Schranz holds a Masters of Business
Administration from the University of Denver earned in 1975, a Bachelors of
Science in Civil Engineering/Industrial Management from Purdue University
earned in 1965, a CPA license awarded in 1977, and is a member of the
Colorado and American Societies of Certified Public Accountants.
D. GARY NELSON, age 47, is the founder of Lab Technologies, Inc. the
predecessor company to N-Gen. In January 2000, he became our president and
a director. Since 1984, he served as a director and president of our
former subsidiary. From 1976-1977, Mr. Nelson taught Industrial Arts in
the Dallas Independent School District. From 1977-1984, he served as an
educational consultant for Brodhead-Garrett, a technical education and
supply company. In 1984, Mr. Nelson founded Lab Technologies, Inc. to
assist educators in integrating academic and technological skills into the
classroom. Mr. Nelson received his Bachelor of Science Degree in
Industrial Arts from North Texas State University in 1976.
DEAN C. MYERS, age 29, joined Lab Technologies, Inc., the predecessor
company to N-Gen, in 1992 providing technical as well as sales support. In
January 2000 he became our vice president of operations, chief technical
officer and a director. As chief technical officer, Mr. Myers works with
our customers in designing and implementing the technology used in our
learning solution classrooms. Mr. Myers graduated from Colorado State
University in 1992, with a Bachelor of Science Degree in Electrical Engineering.
ROBERT C. VAUGHAN, age 64, has served as vice president and director
of n-Gen since January 2000 and has served as a chief executive officer and
chief operating officer with numerous other firms over the past twenty
years. From August 1981 to December 1999, Mr. Vaughan managed the Orbis
Group, a business-consulting firm in Phoenix, Arizona providing
-58-
<PAGE>
merger and acquisition, marketing, finance and other services. In
addition, from 1994 to 1997, Mr. Vaughan was a mergers and acquisitions
consultant to long distance telecommunication firms in Phoenix, Arizona and
elsewhere. Mr. Vaughan attended the University of Wisconsin in 1954.
DAVID CLEM, age 45, has served as a director of n-Gen since March
1998. He has 15 years experience in the telecommunications industry.
After spending many years as a real estate developer/broker in southern
California, he cofounded and directed the development of Call America,
Inc., a long distance telecommunications company, beginning in 1983. After
11 years, Mr. Clem sold his business to US Long Distance, a Texas-based
major, publicly traded telecommunications firm, joining them as vice
president to develop new markets and evaluate acquisition candidates.
Currently, Mr. Clem manages an investment portfolio and is active in n-Gen's
acquisition selections. He received a Bachelor's degree in Business
Administration from California Polytechnic State University - San Louis
Obispo in 1977.
ALLAN R. SHORT, age 46, became a director of n-Gen in January 2000.
In addition, he served as chief operating officer and director of our
former subsidiary since 1998. Mr. Short has over 20 years of experience in
higher education. From 1979 to 1982, he was the director of administrative
services for Denver Automotive & Diesel College in Denver, Colorado. From
1982-1986, Mr. Short served as the director of administration for American
Diesel & Automotive College in Denver, Colorado. Mr. Short was a director
and chief executive officer of Wooster Business College in Cleveland, Ohio
from 1986 to 1989. From 1989 to 1998, he was the president and chief
executive officer of AccuTech Business Institute in Frederick, Maryland.
Mr. Short has extensive experience in higher education financial aid
regulations, school administrative and business plan development, new
program approvals and curriculum development, accreditation procedures and
requirements, and marketing and sales staff training. He received a
Bachelor of Science in Theology and Economics from Edgewood Dominican
College in Madison, Wisconsin in 1979 and completed graduate courses in
Education at University of Denver, in Denver, Colorado from 1984 to 1985.
STEPHEN K. SMITH, age 58, became a director of n-Gen in May 2000. Mr.
Smith has over 11 years of experience in the computer industry, all of
those years with Dell Computer Corporation. Currently, Mr. Smith serves as
the director of operations for Dell, since 1997, directing all operations
involving assembly, test and distribution of the core desktop line of Dell.
From 1995 to 1997 Mr. Smith was the director of worldwide product
development for Dell. From 1992 to 1995, he served as the director of
customer service and technical support for the Dell. He was a senior
manufacturing manager and executive assistant from 1989 to 1992, overseeing
the manufacturing and production operations for assembly and distribution
of computer products worldwide. Mr. Smith is a retired colonel in the U.S.
Marine Corps, serving from 1964 to 1989. He received a Bachelor of Arts
degree from Hanover College in Hanover, Indiana in 1964 and a Masters of
Arts degree from the University of Northern Colorado in Greeley, Colorado
in 1978.
-59-
<PAGE>
KEY EMPLOYEES
JOSEPH FORD, age 28, joined n-Gen in October 1999, as our e-commerce
director. He is in charge of developing our e-commerce initiative and
integrating this concept into our existing business model. From 1997 to
1998 he was a program analyst in the Office of the Secretary of the United
States Department of Health and Human Services. From 1998 to 1999 he was
in charge of sales and marketing for The August Group, Inc., an e-commerce
design, development and implementation company, in Frederick, Maryland.
Mr. Ford received his Masters Degree in social work from the University of
Maryland at Baltimore in 1998 and received his Bachelor of Arts Degree from
Mt. St. Mary's College in Emmitsburg, Maryland in 1995.
EXECUTIVE COMPENSATION
The following table sets forth remuneration in excess of $100,000
has been paid by n-Gen to certain officers and directors of n-Gen whose
total compensation will or currently exceeds $100,000 and to all officers
and directors as a group:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
---------------------------------------------------------------------------------
Other All
Name Annual Restricted LTIP Other
and Compen- Stock Options/ Pay- Compen-
Principal Salary Bonus(1) sation Award(s) SARs outs sation(2)
Position Year ($) ($) ($) ($) (#) ($) ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert D. Arnold 1999 $156,000 $ 0 $ 0 N/A -0- N/A $10,000
Chairman of the 1998 $ 0 $ 0 $ 0 -- -0- -- $ 0
Board, CEO, 1997 $ 0 $ 0 $ 0 -- -0- -- $ 0
Director
Michael V. Schranz 1999 $125,000 $ 0 $ 0 N/A -0- N/A $10,000
Treasurer, 1998 $ 0 $ 0 $ 0 -- -0- -- $ 0
Secretary, CFO, 1997 $ 0 $ 0 $ 0 -- -0- -- $ 0
Director
D. Gary Nelson 1999 $108,000 $ 0 $ 0 N/A -0- N/A $10,000
President, 1998 $ 0 $ 0 $ 0 -- -0- -- $ 0
Director 1997 $ 0 $ 0 $ 0 -- -0- -- $ 0
Dean C. Myers 1999 $ 92,000 $ 0 $ 0 -- -0- -- $10,000
Vice President 1998 $ 0 $ 0 $ 0 -- -0- -- $ 0
and Director 1997 $ 0 $ 0 $ 0 -- -0- -- $ 0
</TABLE>
________________
(1) The Company has entered into employment agreements with D. Gary Nelson
and Dean C. Myers, which include certain incentive bonuses, not to
exceed 50% of their annual income.
(2) The officers of n-Gen may receive remuneration as part of an overall
group insurance plan providing health, life and disability insurance
benefits for employees of n-Gen. The amount
-60-
<PAGE>
allocable to each individual officer cannot be specifically
ascertained, but, in any event, will not exceed $10,000 as to each
individual. In addition, Messrs. Arnold, Schranz, Nelson, Smith and
Myers are directors and are reimbursed for reasonable expenses
incurred in attending board of directors Meetings.
DIRECTOR EXPENSES
Each director of n-Gen is entitled to receive reasonable expenses
incurred in attending meetings of the board of directors of n-Gen. The
members of the board of directors intend to meet at least quarterly during
n-Gen's fiscal year, and at such other times duly called. n-Gen presently
has seven directors.
STOCK OPTIONS
We have no currently outstanding options issued to any person,
including our officers and directors. We may issue options in the future.
At the conclusion of the public offering, we may adopt an employee stock
option plan. If any such plan were to receive favorable tax treatment as
are incentive stock option plans, affirmative vote of the shareholders to
adopt the plan would be required.
EMPLOYMENT AGREEMENTS
In February 2000, n-Gen entered into an employment agreement with Dean
C. Myers, our vice president of operations for a three-year period at an
annual salary of $92,000 per year. In addition, Mr. Myers is eligible for
annual bonuses based on revenue targets to be established by the board of
directors. The bonuses payable in any year are not permitted to exceed 50%
of Mr. Myers' annual salary. Mr. Myers received 100,000 shares of n-Gen's
common stock in connection with his employment, subject to future
adjustment in the event n-Gen does not complete a public offering. Such
grant of shares to Mr. Myers was not made subject to any vesting requirement.
In March 1999, n-Gen entered into an employment agreement with Gary D.
Nelson, our president, for a five-year period at an annual salary of
$108,000. In addition, Mr. Nelson may receive incentive bonuses as may be
determined by the board of directors. Bonuses payable in any year may not
exceed 50% of Mr. Nelson's annual salary. Mr. Nelson also receives
customary health ad life insurance benefits.
LIMITATION ON LIABILITY OF DIRECTORS
Our certificate of incorporation includes provisions which eliminate
the personal liability of officers and directors for monetary damages
resulting from breaches of their fiduciary duty (except for liability for
breaches of the duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
violations under Section 174 of the Delaware General Corporation Law
("DGCL") or for any transaction from which the director derived an improper
personal benefit). We believe that these provisions are necessary to
attract and retain qualified persons as directors and officers.
-61-
<PAGE>
Section 145 of the DGCL permits indemnification by a corporation of
certain officers, directors, employees and agents. Our certificate of
incorporation provides that we will indemnify, to the fullest extent
permitted under law, each of our directors and officers with respect to all
liability and loss suffered and expenses incurred by such person in any
action, suit or proceeding in which such person was or is made or
threatened to be made a party or is otherwise involved by reason of the
fact that such person is or was one of our directors or officers. We are
also obligated to pay the expenses of the directors and officers incurred
in defending such proceedings, subject to their obligation to reimburse
n-Gen, if it is subsequently determined that such person is not entitled to
indemnification.
We intend to obtain a policy of insurance under which our directors
and officers will be insured, subject to the limits of the policy, against
certain losses arising from claims made against such directors and officers
by reason of any acts or omissions covered under such policy in their
respective capacities as directors or officers, including liabilities under
the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we
have been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
-62-
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our outstanding common stock as of May 1, 2000 and
as adjusted to reflect this offering by:
* each person who is the beneficial owner of more than 5% of our
capital stock;
* each of our directors;
* each of our named executive officers in the summary compensation
table;
* all of our named executive officers and directors as a group.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
-------------------- --------------------
Before Offering(1) After Offering(1)
------------------ -----------------
Name and Address Shares Percent Shares Percent
- ---------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Robert D. Arnold 1,760,000(2) 29.6% 1,760,000(2) 23.3%
410 17th Street
Suite 1940
Denver, CO 80202
Michael V. Schranz 150,000 2.5% 150,000 2.0%
410 17th Street
Suite 1940
Denver, CO 80202
Allan R. Short 140,000 2.4% 140,000 1.9%
1357 43rd Avenue
Greeley, CO 80634
D. Gary Nelson 160,000 2.7% 160,000 2.1%
1604 Sunset Street
Longmont, CO 80501
Dean C. Myers 100,000 1.7% 100,000 1.3%
685 Ridge View Drive
Louisville, CO 80027
Robert C. Vaughan 1,000,000 16.8% 1,000,000 13.2%
2315 Kachina Street
Mesa, AZ 85203
David Clem 1,580,000 26.6% 1,580,000 21.0%
P.O. Box 10379
Zephyr Cove, WV 89448
All Executive Officers
and Directors as a
group (8 persons) 4,890,000 82.3% 4,890,000 64.8%
</TABLE>
-63-
<PAGE>
_____________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. 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 number and percentage owned by each other person listed.
(2) Includes a total of 300,000 shares of common stock owned beneficially
by Mr. Arnold's wife and children.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On March 26, 1999, Gary D. Nelson, n-Gen's president, sold all of his
issued and outstanding shares of Lab Technologies to n-Gen for $50,000 in
cash and a promissory note in the amount of $550,000 at an interest rate of
8%. Commencing in July 1999 in equal monthly installments with a final
payment of the balance to be paid April 2004. As part of the total
purchase price, Mr. Nelson, additionally received 160,000 shares of n-Gen
common stock, a second promissory note of $100,000 at 8% per annum with a
maturity date of June 30, 2000, distribution of $200,000 of retained
earnings in the predecessor sub-chapter s corporation, payment of an
existing $100,000 promissory note and a five (5) year employment agreement.
Mr. Robert D. Arnold, chief executive officer and a director, and David
Clem, a director, have personally guaranteed 50% of the outstanding balance
of Mr. Nelson's promissory notes.
The Company's executive office is located in the offices of One
Capital Corporation, a company partially controlled by certain major
stockholders and officers, including Messrs. Arnold and Schranz, of the
Company. The Company subleases under a verbal contact from One Capital for
office space by paying substantially all of the rent.
Executive office rent expense paid to One Capital was $20,361
(unaudited) and $12,449 (unaudited) for the six months ended March 31, 2000
and 1999, respectively,$30,084 for the nine months ended September 30, 1999
and $18,178 for the period from July 13, 1998 (Inception) to December 31, 1998.
In addition, One Capital has paid certain expenses which included
management and other salaries, due diligence costs, travel and office
equipment leases on behalf of the Company, of which $0 and $83,218 is still
owed to One Capital as of March 31, 2000 and September 30, 1999,
respectively. The total amount paid by One Capital on behalf of the
Company was $172,518 and $200,772 for the six months ended March 31, 2000
and 1999, $319,891 for the nine months ended September 30, 1999 and
$185,964 for the period from July 13, 1998 (Inception) to December 31,
1998. The total amount reimbursed by the Company to One Capital was
$265,217 and $155,500 for the six months ended March 31, 2000 and 1999,
respectively, $230,137 for the nine months ended September 30, 1999 and
$192,500 for the period from July 13, 1998 (Inception) to December 31, 1998.
-64-
<PAGE>
Mr. Robert D. Arnold and Dave Clem have personally guaranteed the
revolving line of credit with a bank for $350,000. Also, Robert D. Arnold
and Gary D. Nelson have personally guaranteed a capital lease for the
acquisition of equipment of approximately $120,000. Mr. Nelson and Mr.
Schranz also personally guaranteed the office lease of the operations office.
N-Gen ratified the foregoing transactions by unanimous consent of the
board, which at the time was comprised of one independent director, David
Clem. Management believes these transactions to be on terms as favorable
as could be obtained from a non-affiliated entity, but did not obtain any
independent bids from non-affiliated entities. Any future transactions
with our officers, directors or 5% shareholder, or their affiliates, will
be made or entered into on terms that are no less favorable to n-Gen than
could be obtained from unaffiliated third parties. Any future forgiveness
of loans will be required to be approved by a majority of our independent
directors who have no interest in the transaction and who have access, at
n-Gen's expense, to our legal counsel or independent legal counsel.
DESCRIPTION OF SECURITIES
COMMON STOCK
Our authorized capital stock of n-Gen consists of 30,000,000 shares
consisting of 25,000,000 shares of common stock and 5,000,000 shares of
preferred stock, $.0001 value. There are presently 6,045,250 issued and
outstanding shares of common stock. Holders of the common stock do not
have preemptive rights to purchase additional shares of common stock or
other subscription rights. The common stock carries no conversion rights
and is not subject to redemption or to any sinking fund provisions. All
shares of common stock are entitled to share equally in dividends from
sources legally available therefore when, as and if declared by the board
of directors and, upon liquidation or dissolution of n-Gen, whether
voluntary or involuntary, to share equally in the assets of n-Gen available
for distribution to stockholders. All outstanding shares are validly
authorized and issued, fully paid and nonassessable. Subject to certain
restrictions that may be imposed by the underwriting agreement, the board of
directors is authorized to issue additional shares of common stock, not to
exceed the amount authorized by n-Gen's certificate of incorporation, and
to issue options and warrants for the purchase of such shares on such terms
and conditions and for such consideration as the Board may deem appropriate
without further stockholder action. Each holder of common stock is
entitled to one vote per share on all matters on which such stockholders
are entitled to vote. Since the shares of common stock do not have
cumulative voting rights, the holders of more than 50% of the shares voting
for the election of directors can elect all directors if they choose to do
so and, in such event, the holders of the remaining shares will not be able
to elect any person to the board of directors. The above description
concerning the common stock of n-Gen does not purport to be complete.
Reference is made to n-Gen's certificate of incorporation and by-laws,
which are available for inspection at n-Gen's principal executive offices,
as well as to the applicable statutes of the State of Delaware for a more
complete description concerning the rights and liabilities of stockholders
under Delaware law.
-65-
<PAGE>
PREFERRED STOCK
The board of directors of n-Gen is empowered, without approval of n-Gen's
shareholders, to cause up to 5,000,000 shares of preferred stock to
be issued in one or more series and to establish the number of shares to be
included in each such series and their respective designations,
preferences, limitations and relative rights, including voting rights.
Because the board of directors has the power to establish the preferences
and rights of each series, it may afford the holders of any series of
preferred stock preferences, powers and rights, voting or otherwise, senior
to the rights of holders of common stock. This includes, among other
things, voting rights, conversion privileges, dividend rates, redemption
rights, sinking fund provisions and liquidation rights which shall be
superior to the common stock issued to purchasers in this offering. Future
issuance of shares of preferred stock could have the effect of delaying or
preventing a change in control of n-Gen. No shares of preferred stock will
be outstanding at the close of this offering. The board of directors has
no current plans to issue any shares of preferred stock. No preferred stock
may be issued for a three (3) year period, without the underwriter's prior
written consent.
WARRANTS
Prior to this offering, there were no warrants issued and outstanding.
The warrants will be issued in registered form under an agreement dated on
the date of this prospectus ("Warrant Agreement"), between n-GEN and
Corporate Stock Transfer, Inc., Denver, Colorado, as warrant agent (the
"Warrant Agent"). The following discussion of certain terms and provisions
of the warrants is qualified in its entirety by reference to the Warrant
Agreement. A form of the certificate representing the warrants which forms
a part of the Warrant Agreement has been filed as an exhibit to the
registration statement of which this prospectus forms a part.
Each of the warrants entitles the registered holder to purchase one
share of common stock. The warrants are exercisable at a price of $5.50
subject to certain adjustments. The warrants are subject to adjustments up
or down in their exercise prices and in the number of shares of common
stock or other securities deliverable upon the exercise thereof in the
event of a stock dividend, stock split, reclassification, reorganization,
consolidation or merger.
The warrants may be exercised at any time and continuing thereafter
until the close of five years from the date hereof, unless such period is
extended by n-GEN. After the expiration date, warrant holders shall have no
further rights. warrants may be exercised by surrendering the certificate
evidencing such warrant, with the form of election to purchase on the
reverse side of such certificate properly completed and executed, together
with payment of the exercise price and any transfer tax, to the Warrant
Agent. If less than all of the warrants evidenced by a warrant certificate
are exercised, a new certificate will be issued for the remaining number of
warrants. Payment of the exercise price may be made by cash, bank draft or
official bank or certified check equal to the exercise price.
Warrant holders do not have any voting or any other rights as
shareholders of n-GEN. N-GEN has the right at any time to redeem the
warrants, at a price of $.05 per warrant, by written notice to the
registered holders thereof, mailed not less than thirty (30) nor more than
sixty (60)
-66-
<PAGE>
days prior to the Redemption Date. N-GEN may exercise this right only if
the closing bid price for the common stock equals or exceeds $10 per share
during a thirty (30) consecutive trading day period ending no more than
fifteen (15) days prior to the date that the notice of redemption is mailed,
provided there is then a current registration statement under the Securities
Act of 1933, as amended with respect to the issuance and sale of common
stock upon the exercise of the warrants. If n-GEN exercises its right to
call warrants for redemption, such warrants may still be exercised until the
close of business on the day immediately preceding the Redemption Date. If
any warrant called for redemption is not exercised by such time, it will
cease to be exercisable, and the holder thereof will be entitled only to the
repurchase price. Notice of redemption will be mailed to all holders of
warrants or record at least thirty (30) days, but not more than sixty (60)
days, before the Redemption Date. The foregoing notwithstanding, n-GEN may
not call the warrants at any time that a current registration statement
under the Act is not then in effect. Any redemption of the warrants during
the one-year period commencing on the date of this prospectus shall require
the written consent of the underwriter.
The Warrant Agreement permits n-GEN and the Warrant Agent, without the
consent of warrant holders, to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereafter that n-GEN and the Warrant
Agent deem necessary or desirable and that do not adversely affect the
interest of any warrant holder. N-GEN and the Warrant Agent may also
supplement or amend the Warrant Agreement in any other respect with the
written consent of holders of not less than a majority in the number of
warrants then outstanding; however, no such supplement or amendment may (i)
make any modification of the terms upon which the warrants are exercisable
or may be redeemed; or (ii) reduce the percentage interest of the holders
of the warrants without the consent of each warrant holder affected thereby.
In order for the holder to exercise a warrant, there must be an
effective post effective amendment to this registration statement, with a
current prospectus on file with the Securities and Exchange Commission
covering the shares of common stock underlying the warrants, and the
issuance of such shares to the holder must be registered, qualified or
exempt under the laws of the state in which the holder resides.
-67-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering we will have outstanding 7,645,250
shares of common stock, assuming no exercise of the underwriters' over-
allotment option on any other option on warrant. Excluding the 1,600,000
shares of common stock offered hereby and assuming no exercise of the
underwriters' over-allotment option or any other options or warrants, as of
the effective date of the registration statement, there will be 6,045,250
shares of common stock outstanding, all of which are "restricted" shares
under the Securities Act. All restricted shares are subject to lock-up
agreements with the underwriters pursuant to which the holders of the
restricted shares have agreed not to sell, pledge or otherwise dispose of
such shares for a period of fifteen (15) months after the date of this
prospectus. The underwriter may release the shares subject to the lock-up
agreements in whole or in part at any time with or without notice. However,
the underwriter has no current plans to do so.
The following table indicates approximately when the 6,045,250 shares
of our common stock that are not being sold in the offering but which will
be outstanding at the time the offering is complete will be eligible for
sale into the public market:
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
At effective date . . . . . . . . . . . . . . . . . . . . .0
Fifteen months after effective date . . . . . . . .6,045,250
Most of the restricted shares that will become available for sale in
the public market after the lock-up period will be subject to volume and
other resale restrictions pursuant to Rule 144 because the holders are our
affiliates. The general provisions of Rule 144 are described below.
In general, under Rule 144, any of our affiliates, or person, or
persons whose shares are aggregated, who has beneficially owned restricted
shares for at least one year, will be entitled to sell in any three-month
period a number of shares that does not exceed the greater of:
* 1% of the then outstanding shares of the common stock,
approximately 76,000 shares immediately after this offering, or
* the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.
Sales pursuant to Rule 144 are subject to requirements relating to
manner of sale, notice and availability of current public information about
us. A person, or persons whose shares are aggregated, who is not deemed to
have been one of our affiliates at any time during the 90 days immediately
preceding the sale and who has beneficially owned his or shares for at
least two years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above.
-68-
<PAGE>
LOCK-UP AGREEMENTS
All officers and directors and all of the holders of common stock have
agreed pursuant to "lock-up" agreements that they will not offer, sell,
contract to sell, pledge, grant any option to sell, or otherwise dispose
of, directly or indirectly, any shares of common stock or securities
convertible or exchangeable for common stock, or warrants or other rights
to purchase common stock for a period of fifteen (15) months after the date
of this prospectus without the prior written consent of the underwriter.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our securities is Corporate
Stock Transfer, Inc. of Denver, Colorado 80228.
REPORTS TO SECURITY-HOLDERS
We will furnish to holders of our securities annual reports containing
audited financial statements. Contemporaneously, with this offering, we
have registered our securities with the Securities and Exchange Commission
under the provisions of Section 12 (b) of the Securities Exchange Act of
1934, as amended, and, in accordance therewith, we will be required to
comply with certain reporting, proxy solicitation and other requirements of
the Exchange Act.
UNDERWRITING
Subject to the material terms and conditions of the Underwriting
Agreement, all of which are included herein, Barron Chase Securities, Inc.,
the underwriter, has agreed to purchase from n-GEN an aggregate of
1,600,000 shares of common stock and 1,600,000 warrants. The securities are
offered by the underwriter subject to prior sale, when, as and if delivered
to and accepted by the underwriter and subject to legal review of certain
matters by legal counsel and certain other conditions. The underwriter is
committed to purchase all of the securities offered by this prospectus, if
any are purchased (other than those covered by the over-allotment option
described below).
We have been advised by the underwriter that the underwriter proposes
to offer the securities to the public at the offering prices set forth on
the cover page of this prospectus. The underwriter has advised us that the
underwriter proposes to offer the securities through members of the
National Association of Securities Dealers, Inc. ("NASD"), and may allow
concessions, in its discretion, to certain selected dealers who are members
of the NASD and who agree to sell the securities in conformity with the
NASD's Conduct Rules. Such concessions will not exceed the amount of the
underwriting discount that the underwriter is to receive.
We have granted to the underwriter an over-allotment option, exercisable
for 45 days from the effective date of the offering, to purchase up to an
additional 240,000 shares of common
-69-
<PAGE>
stock and an additional 240,000 warrants at the respective public offering
prices less the underwriting discounts set forth on the cover page of this
prospectus. The underwriter may exercise this option solely to cover over
allotments in the sale of the securities being offered by this prospectus.
Our officers and directors may introduce the underwriter to persons to
consider this offering and to purchase securities either through the
underwriter or through participating dealers. In this connection, no
securities have been reserved for those purchases and officers and
directors will not receive any commissions or any other compensation. We
have agreed to pay to the underwriter a commission of ten percent (10%) of
the gross proceeds of this offering which is the underwriting discount,
including the gross proceeds from the sale of the over-allotment option, if
exercised. In addition, we have agreed to pay to the underwriter the non-
accountable expense allowance of three percent (3%) of the gross proceeds
of this offering, including proceeds from any securities purchased pursuant
to the over-allotment option. We have paid to the underwriter a $50,000
advance with respect to the non-accountable expense allowance. The
underwriter's expenses in excess of the non-accountable expense allowance
will be paid by the underwriter. To the extent that the expenses of the
underwriter are less than the amount of the non-accountable expense
allowance received, such excess shall be deemed to be additional
compensation to the underwriter. The underwriter has informed us that it
does not expect sales of discretionary accounts to exceed five percent (5%)
of the total number of securities offered by us.
We have agreed to engage the underwriter of the offering as a
financial advisor for a fee of $108,000, which is payable to the
underwriter on the closing date. Under the terms of a financial advisory
agreement, the underwriter has agreed to provide, at our request, advice to
us concerning potential financing proposals, whether by public financing or
otherwise. We have also agreed that if we participate in any transaction
which the underwriter has introduced in writing to us during a period of
five years after the closing (including mergers, acquisitions, joint
ventures and any other business transaction for us introduced in writing by
the underwriter), and which is consummated after the closing (including an
acquisition of assets or stock for which it pays, in whole or in part, with
shares or other securities of n-GEN), or if we retain the services of the
underwriter in connection with any such transaction, then we will pay for
the underwriter's services an amount equal to 5% of up to one million
dollars of value paid or received in the transaction, 4% of the next one
million dollars of such value, 3% of the next one million dollars of such
value, 2% of the next one million dollars of such value, and 1% of the next
million dollars of such value and of all such value above $4,000,000. With
regard to the underwriter's engagement to locate mergers or acquisitions for
us, the underwriter does not have any current plans, proposals, arrangements
or understandings in this regard.
Prior to this offering, there has been no public market for the shares
of common stock or the warrants. Consequently, the initial public offering
prices for the securities, and the terms of the warrants (including the
exercise price of the warrants), have been determined by negotiation
between n-GEN and the underwriter. Among the factors considered in
determining the public offering prices were the history of, and the
prospects for, our business, an assessment of our management, our past and
present operations, our development and the general condition of the
securities market at the time of this offering. The initial public
offering prices do not necessarily bear any relationship to our assets,
book value, earnings or other established criteria of value.
-70-
<PAGE>
Such prices are subject to change as a result of market conditions and other
factors, and no assurance can be given that a public market for the shares
or the warrants will develop after the closing, or if a public market in
fact develops, that such public market will be sustained, or that the shares
or the warrants can be resold at any time at the offering or any other price.
At the closing, we will issue to the underwriter and/or persons
related to the underwriter, for nominal consideration, the common stock
underwriter warrants to purchase up to 160,000 shares of common stock and
the underwriter warrant options to purchase up to 160,000 warrants. The
common stock underwriter warrants, the underwriter warrant options and the
underlying warrants are registered pursuant to this offering and sometimes
referred to in this prospectus as the "underwriter warrants." The common
stock underwriter warrants and the underwriter warrant options will be
exercisable for a five-year period commencing on the effective date. The
initial exercise price of each common stock underwriter warrant shall be
$8.25 per underlying share (165% of the public offering price). The initial
exercise price of each underwriter warrant option shall be $0.20625 per
underlying warrant (165% of the public offering price). Each underlying
warrant will be exercisable for a five-year period commencing on the
effective date to purchase one share of common stock at an exercise price of
$9.0755 per share (165% of the public offering price) of common stock. The
underwriter warrants will be restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the effective date by the
holder, except:
* to officers of the underwriter and members of the selling group
and officers and partners thereof;
* by will; or
* by operation of law.
The common stock underwriter warrants and the underwriter warrant
options contain provisions providing for appropriate adjustment in the
event of any merger, consolidation, recapitalization, reclassification,
stock dividend, stock split or similar transaction. The underwriter
warrants contain net issuance provisions permitting the holders thereof to
elect to exercise the underwriter warrants in whole or in part and instruct
n-GEN to withhold from the securities issuable upon exercise, a number of
securities, valued at the current fair market value on the date of
exercise, to pay the exercise price. Such net exercise provision has the
effect of requiring n-GEN to issue shares of common stock without a
corresponding increase in capital. A net exercise of the underwriter
warrants will have the same dilutive effect on the interests of our
shareholders as will a cash exercise. The underwriter warrants do not
entitle the holders thereof to any rights as a shareholder of n-GEN until
such underwriter warrants are exercised and shares of common stock are
purchased thereunder.
The underwriter warrants and the securities issuable thereunder may
not be offered for sale except in compliance with the applicable provisions
of the Securities Act. We have agreed that if we shall cause a post-effective
amendment, a new registration statement or similar offering document to be
filed with the Commission, the holders shall have the right, for seven (7)
years from the effective date, to include in such registration statement or
offering statement the
-71-
<PAGE>
underwriter warrants and/or the securities issuable upon their exercise at
no expense to the holders. Additionally, we have contractually agreed
that, upon request by the holders of 50% or more of the underwriter
warrants during the period commencing one year from the effective date and
expiring four years thereafter, we will, under certain circumstances, such
as failing to maintain a current registration statement or post effective
amendment pursuant to this offering, re-register the underwriter warrants
and/or any of the securities issuable upon their exercise.
In order to facilitate the offering of the common stock and warrants,
the underwriter may engage in transactions that stabilize, maintain or
otherwise affect the price of the common stock and warrants. Specifically,
the underwriter may over allot in connection with the offering, creating a
short position in the common stock and warrants for its own account. In
addition, the underwriter may establish a syndicate short position of from
20% to 30% of the total offering. To cover over-allotments or to stabilize
the price of the common stock and warrants, the underwriter may bid for,
and purchase, shares of common stock and warrants in the open market.
Finally, the underwriter may reclaim selling concessions allowed to a
dealer for distributing the common stock and warrants in the offering, if
the underwriter repurchases previously distributed common stock or warrants
in transactions to cover the underwriter's short position in stabilization
transactions or otherwise. Any of these activities may stabilize or
maintain the market price of the common stock and warrants above
independent market levels. The underwriter is not required to engage in
these activities and may end any of these activities at any time. To the
extent the underwriter engages in these activities it will deliver a
prospectus to all purchasers of shares in short positions as may be
required by the Securities Act of 1933. All short position purchasers are
entitled to the same remedies under the federal securities laws as any
other purchaser of the shares and warrants covered by this registration
statement.
We have agreed to indemnify the underwriter against any costs or
liabilities incurred by the underwriter by reason of misstatements or
omissions to state material factors in connection with the statements made
in the registration statement filed by n-GEN with the Commission under the
Securities Act, together with all amendments and exhibits thereto, and
this prospectus. The underwriter has in turn agreed to indemnify n-GEN
against any costs or liabilities by reason of misstatements or omissions to
state material facts in connection with the statements made in the
registration statement and this prospectus, based on information relating
to the underwriter and furnished in writing by the underwriter. To the
extent that these provisions may purport to provide exculpation from
possible liabilities arising under the federal securities laws, in the
opinion of the Securities and Exchange Commission, such indemnification is
contrary to public policy and therefore unenforceable.
We have agreed to allow the underwriter to appoint one observer to
attend our board of directors meetings for a three year period.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to
copies of each such agreement which are filed as exhibits to the
registration statement.
-72-
<PAGE>
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation that arises in the
normal course of business operations. As of the date of this prospectus,
n-GEN is not a party to any legal proceedings and, to the best of our
information, knowledge and belief, none is contemplated or has been
threatened.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed
upon for n-GEN by Berenbaum, Weinshienk & Eason, P.C., 370 Seventeenth
Street, Suite 2600, Denver, Colorado 80202-5626. Certain legal matters
will be passed upon for the underwriter by David A. Carter, P.A., 2300
Glades Road, Suite 210W, Boca Raton, Florida 33431.
EXPERTS
The financial statements of n-Gen Solutions.Com, Inc. (a Delaware
corporation) and n-Gen Solutions.Com, Inc. (a Colorado corporation) as of
and for the nine months ended September 30, 1999 and the period July 13,
1998 (Inception) to December 31, 1998 and the financial statements of n-Gen
Solutions.Com, Inc. (a Colorado corporation) for the year ended December 31,
1998, included in the registration statement and this prospectus have
been included herein in reliance on the report of Gordon, Hughes & Banks
LLC, independent certified public accountants, given on the authority of
Gordon, Hughes & Banks LLC as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933, as
amended, with respect to the securities offered in this prospectus. This
prospectus does not contain all of the information contained in the
registration statement and the exhibits and schedules to the registration
statement. Some items are omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. For further
information about n-GEN and the securities offered under this prospectus,
you should review the registration statement and the exhibits and schedules
filed as a part of the registration statement. Descriptions of contracts
or other documents referred to in this prospectus are not necessarily
complete. If the contract or document is filed as an exhibit to the
registration statement, you should review that contract or document. You
should be aware that when we discuss these contracts or documents in the
prospectus we are assuming that you will read the exhibits to the
registration statement for a more complete understanding of the contract or
document. The registration statement and its exhibits and schedules may be
inspected without charge at the public reference facilities maintained by
the Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Securities and Exchange Commission's
regional offices located at 500 West Madison Street, Suite 1400,
-73-
<PAGE>
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies may be obtained from the Securities and Exchange
Commission after payment of fees prescribed by the Securities and Exchange
Commission. The Securities and Exchange Commission also maintains a web site
that contains reports, proxy and information statements and other
information regarding registrants, including n-GEN, that file electronically
with the Securities and Exchange Commission. The address of this web site is
www.sec.gov. You may also contact the Securities and Exchange Commission by
telephone at (800) 732-0330.
-74-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
n-GEN SOLUTIONS.COM, INC.
Page
----
CONSOLIDATED FINANCIAL STATEMENTS OF N-GEN SOLUTIONS.COM, INC.
(A DELAWARE CORPORATION):
Report of independent public accountant . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets at March 31, 2000
(unaudited) and September 30, 1999 . . . . . . . . . . . . F-3 - F-4
Consolidated Statements of Operations --For the six months
ended March 31, 2000 (unaudited) and 1999 (unaudited),
the nine months ended September 30, 1999 and the period
from July 13, 1998 (Inception) to December 31, 1998. . . . . . . F-5
Consolidated Statement of Stockholders' (Deficit) -- For
the period from July 13, 1998 (Inception) to
September 30, 1999 and the six months ended
March 31, 2000 (unaudited) . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows -- For the six
months ended March 31, 2000 (unaudited) and 1999
(unaudited), the nine months ended September 30, 1999
and the period from July 13, 1998 (Inception) to
December 31, 1998. . . . . . . . . . . . . . . . . . . . . F-7 - F-8
Notes to consolidated financial statements. . . . . . . . . .F-9 - F-28
FINANCIAL STATEMENTS OF N-GEN SOLUTIONS.COM, INC. (A COLORADO CORPORATION)
Report of independent public accountant . . . . . . . . . . . . . .F-29
Statement of Operations - For the year ended
December 31, 1998. . . . . . . . . . . . . . . . . . . . . . . .F-30
Statement of Stockholders' Equity - For the year ended
December 31, 1998. . . . . . . . . . . . . . . . . . . . . . . .F-31
Statement of Cash Flows - for the year ended
December 31, 1998. . . . . . . . . . . . . . . . . . . . . . . .F-32
Notes to financial statements . . . . . . . . . . . . . . . F-33 - F-37
-75-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
n-Gen Solutions.com, Inc. (a Delaware Corporation)
Denver, Colorado
We have audited the accompanying consolidated balance sheet of n-Gen
Solutions.com, Inc. (a Delaware corporation) and subsidiary as of September 30,
1999 and the related consolidated statements of operations, stockholders'
(deficit) and cash flows for the nine months ended September 30, 1999 and
for the period July 13, 1998 (Inception) to December 31, 1998. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of n-Gen
Solutions.com, Inc. (a Delaware corporation) and subsidiary as of September 30,
1999, and the consolidated results of its operations and cash flows for
the nine months ended September 30, 1999 and for the period July 13, 1998
(Inception) to December 31, 1998 in conformity with generally accepted
accounting principles.
GORDON, HUGHES & BANKS, LLP
February 1, 2000
Englewood, Colorado
F-2
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
2000 September 30,
(Unaudited) 1999
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 251,898 $ 210,196
Accounts receivable, trade, net of allowances for doubtful
accounts of $98,590 (Unaudited) and $98,590 426,439 1,399,319
Employee advances 60,764 35,368
Accounts receivable - related party (Note 10) 9,481 -
Work in progress 114,624 304,719
Inventory 51,902 42,316
------------ ------------
Total current assets 915,108 1,991,918
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
(NOTE 3) 367,466 199,464
OTHER ASSETS
Intangible assets, net of accumulated amortization (Note 2) 227,660 310,051
Deferred offering costs 150,687 30,000
Debt acquisition costs, net 14,464 36,606
Other 2,500 2,500
------------ ------------
395,311 379,157
------------ ------------
Total assets $ 1,677,885 $ 2,570,539
============ ============
</TABLE>
See accompanying notes to financial statements F-3
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
<TABLE>
<CAPTION>
March 31,
2000 September 30,
(Unaudited) 1999
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 350,220 $ 1,186,221
Accounts payable - related party (Note 10) - 83,218
Accrued expenses 108,346 155,081
Deferred sales revenue 24,756 93,451
Notes payable, current portion - related party (Note 4) 198,275 194,459
Notes payable - bank (Note 5) 353,449 354,859
Notes payable - investors (Note 6) 552,694 242,418
Capital lease obligation, current portion (Note 7) 60,891 45,087
------------ ------------
Total current liabilities 1,648,631 2,554,794
Long-term liabilities
Notes payable, net of current portion - related party
(Note 4) 388,823 434,639
Capital lease obligation, net of current portion (Note 7) 63,870 55,353
------------ ------------
Total long-term liabilities 452,693 489,992
------------ ------------
Total liabilities 2,101,324 3,044,786
COMMITMENTS (NOTES 4, 6 AND 7)
STOCKHOLDERS' (DEFICIT)
Preferred stock, $.0001 par value, 5,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.0001 par value, 25,000,000 shares
authorized, 5,940,000 (unaudited) and 5,010,000 shares
issued and outstanding 594 501
Additional paid-in capital 1,107,941 614,330
Retained (deficit) (1,531,974) (1,089,078)
------------ ------------
Total stockholders' (deficit) (423,439) (474,247)
------------ ------------
Total liabilities and stockholders' (deficit) $ 1,677,885 $ 2,570,539
============ ============
</TABLE>
See accompanying notes to financial statements F-4
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended March 31, July 13, 1998
------------------------------- Nine Months (Inception) to
1999 ended December 31,
2000 (Unaudited) September 30, 1998
(Unaudited) (Note 1) 1999 (Note 1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Sales $ 2,493,798 $ 641,625 $ 3,328,944 $ -
Training and installation 104,210 37,321 106,028 -
Commissions 35,345 28,409 492,381 -
----------- ----------- ----------- -----------
Total revenue 2,633,353 707,355 3,927,353 -
COST OF GOODS SOLD 1,735,801 504,427 2,690,979 -
----------- ----------- ----------- -----------
Gross profit 897,552 202,928 1,236,374 -
OPERATING EXPENSES
Selling expenses 305,501 145,638 525,730 -
General and administration 789,098 437,979 1,224,204 244,254
Depreciation and amortization 175,073 66,017 178,788 -
Bad debts 4,637 - 75,060 -
----------- ----------- ----------- -----------
Total operating expenses 1,274,309 649,634 2,003,782 244,254
----------- ----------- ----------- -----------
(Loss) from operations (376,757) (446,706) (767,408) (244,254)
OTHER INCOME (EXPENSE)
Interest (expense) (68,448) (10,264) (95,160) -
Interest and other income 2,309 10,294 11,614 6,130
----------- ----------- ----------- -----------
NET (LOSS) $ (442,896) $ (446,676) $ (850,954) $ (238,124)
=========== =========== =========== ===========
Net (loss) per common share
Basic and dilutive earnings
per share $ (0.09) $ (0.11) $ (0.18) $ (0.06)
=========== =========== =========== ===========
Basic and dilutive weighted average
shares outstanding 5,011,882 3,994,561 4,690,515 3,994,561
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements F-5
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)
FOR THE PERIOD JULY 13, 1998 (INCEPTION) TO MARCH 31, 2000
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-in Retained
Shares Amount Capital (Deficit) Total
--------- ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance, July 13, 1998 (Inception) - $ - $ - $ - $ -
Issuance of shares for
services at $.001 per share 2,170,000 217 1,953 - 2,170
Issuance of shares for
cash at $.15 per share 2,000,000 200 299,800 - 300,000
Net (loss) - - - (238,124) (238,124)
--------- ----- ---------- ----------- ---------
Balance, December 31, 1998 4,170,000 417 301,753 (238,124) 64,046
Issuance of common stock ($.15 per
share) to acquire business
(Note 2) 250,000 25 37,475 - 37,500
Issuance of common stock pursuant
to sale of debt securities
($.15 per share) 100,000 10 14,990 - 15,000
Return of shares (770,000) (77) 77 - -
Issuance of common stock for
services to employees ($.19
per share) 1,260,000 126 239,274 - 239,400
Common stock to be issued pursuant
to debt offering (Note 6) - - 20,761 - 20,761
Net (loss) - - - (850,954) (850,954)
--------- ----- ---------- ----------- ---------
Balance, September 30, 1999 5,010,000 501 614,330 (1,089,078) (474,247)
Issuance of common stock for
cash ($.50 per share) (Unaudited) 930,000 93 420,907 - 421,000
Common stock to be issued pursuant
to debt offering (Note 6) (Unaudited) - - 72,704 - 72,704
Net (loss) (Unaudited) - - - (442,896) (442,896)
--------- ----- ---------- ----------- ---------
Balance, March 31, 2000 (Unaudited) 5,940,000 $ 594 $1,107,941 $(1,531,974) $(423,439)
========= ===== ========== =========== =========
</TABLE>
See accompanying notes to financial statements F-6
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
Six months ended March 31, July 13, 1998
------------------------------- Nine Months (Inception) to
1999 ended December 31,
2000 (Unaudited) September 30, 1998
(Unaudited) (Note 1) 1999 (Note 1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES
Net (loss) $ (442,896) $ (446,676) $ (850,954) $ (238,124)
Adjustments to reconcile net (loss)
to net cash (used) by operating activities:
Depreciation and amortization 175,073 66,017 178,788 -
Stock for services - - 254,400 2,170
Loss on disposal of assets - 13,152 19,441 -
Private placement stock accretion 19,230 1,000 679 -
Amortization of debt offering costs - - - -
Payment of expenses by related party 172,518 200,772 319,891 185,964
(Increase) decrease in:
Accounts receivable 947,484 276,371 (677,879) -
Inventory (9,586) 62,721 55,209 -
Work in process 190,095 (111,581) (304,719) -
Increase (decrease) in:
Accounts payable (836,001) 47,048 918,512 5,094
Deferred sales revenue (268,695) 13,411 225,281 -
Accrued expenses (46,736) 15,103 10,921 -
----------- ----------- ----------- -----------
Net cash (used) by operating
activities (99,514) 137,338 149,570 (44,596)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary - (82,913) (82,913) -
Acquisition of equipment (169,962) (37,523) (79,844) -
----------- ----------- ----------- -----------
Net cash (used) by investing
activities (169,962) (120,436) (162,757) -
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease (23,008) (13,190) (30,435) -
Payment of debt - related party (42,000) - (120,902) -
Reimbursement to related party (265,217) (155,500) (230,137) (192,500)
Proceeds from issuance of common stock 421,000 150,000 - 300,000
Proceeds from debt - private placement 413,750 100,000 262,500 -
Payment of debt (50,000) - - -
Proceeds from debt - bank - - 250,000 -
Payment of debt - bank (1,410) (784) (3,641) -
Payment of debt costs (21,250) - (36,606) -
Payment of offering costs (120,687) - (30,000) -
----------- ----------- ----------- -----------
Net cash provided by financing
activities 311,178 80,526 160,779 107,500
----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 41,702 97,428 147,592 62,604
Cash and Cash Equivalents:
Beginning of period 210,196 44,093 62,604 -
----------- ----------- ----------- ------------
Ending of period $ 251,898 $ 141,521 $ 210,196 $ 62,604
=========== =========== =========== ============
</TABLE>
See accompany notes to financial statements F-7
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Six months ended March 31, July 13, 1998
------------------------------- Nine Months (Inception) to
1999 ended December 31,
2000 (Unaudited) September 30, 1998
(Unaudited) (Note 1) 1999 (Note 1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OTHER INFORMATION:
Cash basis interest paid $ 34,549 $ 7,624 $ 35,156 $ -
=========== =========== =========== ===========
NON-CASH TRANSACTIONS:
Issuance of stock for note $ - $ - $ 15,000 $ -
=========== =========== =========== ===========
Issuance of stock for services $ - $ - $ 239,400 $ -
=========== =========== =========== ===========
Acquisition of equipment through
capital lease $ 47,329 $ - $ - $ -
=========== =========== =========== ===========
NON-CASH INVESTING AND FINANCING
TRANSACTIONS:
Acquisition of subsidiary:
Fair value of net assets acquired $ - $(1,447,234) $(1,447,234) $ -
Liabilities assumed - 1,364,321 1,364,321 -
=========== =========== =========== ===========
Net cash paid to acquire subsidiary $ - $ (82,913) $ (82,913) $ -
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements F-8
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
n-Gen Solutions.com, Inc. (the "Company"), formerly AAE Education
Corporation ("AAEE") was incorporated in Delaware on July 13, 1998.
The Company was initially created to raise capital and locate and
purchase a business in the educational industry. For the period July
13, 1998 to December 31, 1998, the Company was considered to be in the
development stage. On March 26, 1999 and effective January 1, 1999,
AAEE purchased all of the outstanding common stock of n-Gen
Solutions.com, Inc. (a Colorado corporation) ("n-Gen Colorado") in
exchange for cash, notes payable and common stock of AAEE. n-Gen
Colorado thereby became the Company's wholly owned subsidiary. With
the purchase of n-Gen Colorado, the Company exited the development
stage and became an operating company. n-Gen Colorado was formerly
known as Technologies Learning Systems, Inc., dba Lab Technologies.
In 1999 the Company changed its year end from December 31 to September 30.
On January 19, 2000, AAEE amended its articles of incorporation to
change its name to n-Gen Solutions.com, Inc. (a Delaware corporation)
("n-Gen Delaware").
In 1984, n-Gen Colorado, the Company's wholly owned subsidiary, began
business as a sole proprietorship and was incorporated on March 1,
1989 in Colorado as an S corporation. The Company, through its wholly
owned subsidiary, is primarily engaged in the business of selling
educational computer hardware and software to schools and computer
aided design ("CAD") software to businesses and providing installation
and training services. The Company sells its products in Montana,
Wyoming, Nevada, Arizona, Colorado, New Mexico, Utah and Idaho.
Training is done both in the Company's own classrooms and at the
customer's location. The Company also earns sales commissions for
vendors and acts as a sales representative for a company in California
that manufactures computerized classrooms.
CONSOLIDATION
In the accompanying financial statements, the statements as of March 31,
2000 (unaudited) and September 30, 1999 and for the six months
ended March 31, 2000 and 1999 (unaudited), the nine months ended
September 30, 1999, and the period from July 13, 1998 (Inception) to
December 31, 1998 are consolidated as described below.
The accompanying 2000 and 1999 consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary.
All significant intercompany transactions have been eliminated in
consolidation.
F-9
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 2000 and for the six months
ended March 31, 2000 and 1999 is unaudited, but includes all
adjustments (consisting of only normal recurring adjustments) that the
Company considers necessary for the fair presentation of the financial
position and the results of operations and cash flows for those
periods. The operating results for the unaudited six-month periods may
not be indicative of results that may be expected for the entire
fiscal years or annual periods.
INVENTORIES AND WORK IN PROCESS
Inventories consist primarily of computer software held for sale and
are stated at the lower of cost (determined on the first-in, first-out
method) or market. All inventories are pledged as collateral for a
bank loan (Note 5).
Work in process consists of product in transit to the customer or at
the customer's location but not yet installed.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major improvements are
capitalized, while repairs and maintenance, which do not improve or
extend the life of the respective assets, are expensed currently. All
equipment is pledged as collateral for a bank loan. (Note 5)
Depreciation is recorded for all equipment and property placed in
service using straight-line and accelerated methods over the estimated
useful lives of the assets with lives ranging from three to five years.
Depreciation expense was $49,290 (unaudited) and $24,822 (unaudited)
for the six months ended March 31, 2000 and 1999, respectively,
$55,201 for the nine months ended September 30, 1999 and $-0- for the
period from July 13, 1998 (Inception) to December 31, 1998.
SOFTWARE COSTS
The Company utilizes American Institute of Certified Public
Accountants Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" to
account for software costs. In accordance with SOP 98-1, the Company
expenses costs incurred in the preliminary project stage and,
thereafter, capitalizes costs incurred in developing the web site or
obtaining software
F-10
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
for the web site. Costs, such as planning and conceptualization,
maintenance and training and site updates, are expensed as incurred.
Capitalized costs at March 31, 2000 and September 30, 1999 amounted to
$35,033 (unaudited) and $41,443, respectively, and will be amortized
over a period of not more than 5 years after the software is placed
into operation. The capitalized costs are subject to impairment
evaluation in accordance with SFAS No. 121.
INTANGIBLE ASSETS
Intangible assets include the excess of cost over fair market value of
identifiable assets acquired through the purchase of n-Gen Colorado
(Note 2). Intangible items are being amortized on a straight-line
basis over their estimated useful lives, which range from two to five
years.
On an ongoing basis, the Company reviews intangible assets and other
long-lived assets for impairment whenever events or circumstances
indicate that carrying amounts may not be recoverable. To date, no
such events or circumstances have occurred. If such events or changes
in circumstances occur, the Company will recognize an impairment loss
if the discounted future cash flows expected to be generated by the
assets (or acquired business) are less than the carrying value of the
related assets. The impairment loss would adjust the assets to its
fair value. Amortization expense was $125,783 (unaudited) and $41,196
(unaudited) for the six months ended March 31, 2000 and 1999,
respectively, $123,587 for the nine months ended September 30, 1999
and $-0- for the period from July 13, 1998 (Inception) to December 31,
1998.
DEFERRED COSTS
Deferred offering costs are direct cumulative costs of the proposed
public offering. These costs will reduce the net proceeds of the
public offering if it is successful. If the offering is not
successful, the costs will be expensed.
Debt acquisition costs are direct expenditures incurred with regard to
the private placement debt offering. These costs are being amortized
to interest expense over the expected term of the related debt
instruments, which is approximately 8 months.
REVENUE RECOGNITION
The Company generates three types of revenues: product sales, training
and sales commissions. Products are sold primarily to two general
types of customers: schools and commercial businesses. For sales to
schools, the Company generally considers a sale to be completed and
revenue recognized after the equipment is installed and the customer
has received initial familiarization needed to operate the system. In
the case of commercial sales, for which installation and initial
familiarization is not required, revenue is recognized at the time the
Company or the manufacturer delivers the
F-11
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
products to the customer. The Company records amounts invoiced to
customers but not yet recognizable as sales as deferred revenue until
such time as the revenue recognition criteria have been met. The
Company does include extensive in-depth training in its sales
contracts and training revenues are recognized at the time such
service is provided.
The Company earns vendor commissions, the significant portion of which
derive from sales that it generates for a manufacturer in California.
The Company records commission revenues when the underlying sale and
delivery of product to the customer are completed and when receipt of
the commission is substantially assured. The Company earned commission
revenue from the California manufacturer of $-0- (unaudited) and
$13,000 (unaudited) for the six months ended March 31, 2000 and 1999,
respectively, $271,414 for the nine months ended September 30, 1999
and $-0- for the period from July 13, 1998 (Inception) to December 31,
1998, based on sales generated of approximately $-0- (unaudited) and
$160,211 (unaudited) for the six months ended March 31, 2000 and 1999,
respectively, $2,286,501 for the nine months ended September 30, 1999
and $-0- for the period from July 13, 1998 (Inception) to December 31,
1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation.
Significant differences can arise between the fair value and carrying
amount of financial instruments that are recognized at historical cost
amounts. The carrying value of the Company's financial instruments
approximate fair value.
For certain financial instruments, the following methods and
assumptions were used to estimate fair value:
Cash and cash equivalents - The carrying amount approximates fair
value because of the short maturities of such instruments.
Debt - The fair value of the Company's debt approximates the
carrying cost as their applicable interest rates of debt approximate
current market rates likely to be obtained from the creditors.
CONCENTRATION OF CREDIT RISK
Statement of Financial Accounting Standards No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance Sheet Risk
and Financial Instruments with Concentrations of Credit Risk" requires
disclosure of significant concentrations of credit risk regardless of
the degree of such risk. As of March 31, 2000 and
F-12
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
September 30, 1999, the financial instruments which potentially expose
the Companyto credit risk consist of bank depository accounts and
accounts receivable. The Company transacts its business with one
financial institution. The amount on deposit in that one financial
institution exceeded the $100,000 federally insured limit at March 31,
2000 (unaudited) and September 30, 1999. However, management believes
that the financial institution is financially sound, in part because
it is the Colorado operation of a national interstate bank corporation.
The Company extends credit to substantially all of its customers who
have generally demonstrated a high level of credit worthiness. A
substantial portion of the Company's revenues derives from public
schools and similar educational institutions where purchase
commitments are based only on appropriated funds. The Company's
commercial customers are geographically and economically dispersed in
the Western mountain states of the United States. The Company
historically has not had to record material amounts of allowances for
doubtful accounts. Management believes that the allowance for
doubtful accounts is adequate to cover potential credit risk losses.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Significant estimates are made regarding collectibility of
receivables, depreciation, amortization of intangible assets and
realizability of long-term assets.
STATEMENT OF CASH FLOWS
For the purposes of the statements of cash flows, the Company
considers short-term, highly liquid investments and savings
instruments with original maturities of three months or less to be
cash equivalents.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adheres to the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." The
Company reviews the carrying value its long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Any long-lived assets to be disposed of are reported at
the lower of the carrying amount or fair value less estimated costs to
sell.
EARNINGS (LOSS) PER SHARE
F-13
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," requires two presentations of earnings per share - "basic" and
"diluted." Basic earnings (loss)per share is computed by dividing
income available to common stockholders (the numerator) by the
weighted-average number of common shares (the denominator) for the
period. The computation of diluted earnings per share is similar to
basic earnings per share, except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued.
In the case of an operating net (loss), the dilutive calculation is
considered equivalent to the basic earnings per share. Additionally,
all shares issued prior to October 1, 1999 are considered as issuances
for nominal consideration and are included as outstanding in the
calculation of basic and dilutive earnings per share since the
inception of the company. There are no potentially dilutive common shares.
STOCK BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") in
accounting for stock based compensation. Under APB 25, the Company
recognizes no compensation expense related to employee or director
stock options unless options are granted with an exercise price below
fair value on the day of grant. Subsequently, the Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123") became effective. SFAS No. 123 provides
an alternative method of accounting for stock-based compensation
arrangements, based on fair value of the stock-based compensation
utilizing various assumptions regarding the underlying attributes of
the options and stock. The Financial Accounting Standards Board
encourages, but does not require, entities to adopt the fair-value
based method. The Company will continue its accounting under APB No.
25 but uses the disclosure-only provisions of SFAS No. 123 for any
options and warrants issued to employees and directors. No options
have been granted.
CAPITAL STRUCTURE
The Company utilizes Statement of Financial Accounting Standards No.
129, "Disclosure of Information about Capital Structure" ("SFAS No.
129"), which requires companies to disclose all relevant information
regarding their capital structure.
COMPREHENSIVE INCOME
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which establishes
standards for the reporting of comprehensive income. This
pronouncement requires all items considered under accounting standards
as components of comprehensive income to be reported in the statement
of operations and displayed with the same prominence as other
financial statements items. Comprehensive income components include all
F-14
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
changes in equity during a period except those resulting from
transactions with common or preferred stockholders. There are no
comprehensive income items.
SEGMENT REPORTING
The Company adheres to the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which requires
a public enterprise to report financial and descriptive information
about its reportable operating segments. Operating segments, as
defined in the pronouncement, are components of an enterprise about
which separate financial information is available that is evaluated
regularly by the Company in deciding how to allocate resources and in
assessing performance. The financial information is required to be
reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments.
PENSION AND OTHER POST RETIREMENT BENEFITS
The Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pension and Other Post Retirement Benefits" requires
certain disclosures about employers' pension and other post retirement
benefit plans and specifies the accounting and measurement or
recognition of those plans. SFAS No. 132 requires disclosure of
information on changes in the benefit obligations and fair values of
the plan assets that facilitates financial analysis. This standard
currently has no impact on the Company.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Financial Accounting Standards Board has recently issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
establishes standards for recognizing all derivative instruments,
including those for hedging activities, as either assets or
liabilities on the balance sheet and measuring those instruments at
fair value. This Statement is effective for fiscal years beginning
after June 30, 1999. The Company will adopt SFAS No. 133 in the year
2000 and believes that there will be no impact on its financial statements.
MORTGAGE BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF
MORTGAGE LOANS BY MORTGAGE BANKING ENTERPRISES
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 134, "Accounting for Mortgage
Backed Securities Retained after the Securitization of Mortgage Loans
Held by Mortgage Banking Enterprises" ("SFAS No. 134"). SFAS No. 134
establishes new reporting standards for certain
F-15
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
activities of mortgage banking enterprises. The Company believes this
statement has no impact on its financial statements.
NOTE 2 - ACQUISITION OF BUSINESS AND INTANGIBLE ASSETS
On March 26, 1999 and effective January 1, 1999, the Company purchased
100% of the outstanding common stock of n-Gen Colorado (a subchapter
S corporation) in exchange for cash, notes payable and common stock of
n-Gen Delaware as follows:
Cash $50,000
Note payable 100,000
Note payable 550,000
250,000 shares of common stock,
valued at $.15 per share 37,500
--------
Total $737,500
========
As part of the sales agreement, n-Gen Colorado, as an S corporation,
distributed cash of $200,000 to the seller. While this distribution
occurred on March 26, 1999, constructively, it was considered to have
occurred immediately prior to the sale on January 1, 1999. The
agreement also requires the Company to enter into a five-year
employment contract with the former stockholder, paying compensation
of approximately $100,000 per year. After the acquisition, the seller
of n-Gen Colorado owned 250,000 shares or 5.7% of the common stock of
the Company. The Company valued the 250,000 shares at $.15 per share
which approximates the value of the combined companies based on the
amount of cash and notes paid by the Company for the acquisition.
The acquisition has been accounted for as a purchase by the Company
and the results of operations of the acquired business are included in
the consolidated financial statements from the effective date of the
acquisition. For accounting purposes, the purchase price has been
allocated first to the book value of the net assets of the acquired
company, which were determined to equal the fair value. The excess of
the purchase price over the net assets has been allocated to various
intangible assets. No goodwill has been recorded as a result of this
purchase.
The following unaudited pro forma financial information summarizes the
results of operations as if the acquisition had occurred at January 1,
1998:
Revenues $5,558,563
Net (loss) $(162,002)
(Loss) per share $(.04)
As of March 31, 2000 and September 30, 1999, the cost basis and useful
lives of intangible assets consist of the following:
F-16
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
March 31,
2000 September 30, Estimated
(Unaudited) 1999 Lives
----------- --------- -------
<S> <C> <C> <C>
Goodwill $ - $ - -
Customer list 43,364 43,364 2 years
Distributor contracts 216,819 216,819 2 years
Non-compete covenant 173,455 173,455 5 years
--------- ---------
433,638 433,638
Less accumulated amortization (205,978) (123,587)
--------- ---------
$227,660 $310,051
========= =========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
March 31, 2000 September 30,
(Unaudited) 1999
------------ ------------
Demonstration supplies $ 16,169 $ 16,169
Demonstration equipment 385,036 361,839
Office furniture and equipment 138,654 131,584
Office equipment (under capital
lease) 47,328 -
Automobiles 65,745 65,745
Training and demonstration
equipment (under capital lease) 86,242 86,242
Internally developed software 180,840 41,143
---------- ----------
920,014 702,722
Less accumulated depreciation
and amortization (552,548) (503,258)
---------- ----------
$ 367,466 $ 199,464
========== ==========
All furniture, equipment and vehicles are pledged as collateral for
the bank loans, except for the Smart Classroom, which is pledged to
the capital lease.
NOTE 4 - NOTES PAYABLE - RELATED PARTY
As of March 31, 2000 and September 30, 1999, the Company owed to the
former owner of n-Gen Colorado, and a director, note payable amounts
of $487,098 (unaudited) and $100,000 (unaudited) and $529,098 and
$100,000, respectively, plus accrued interest of $33,788 (unaudited)
and $16,582 at March 31, 2000 and September 30, 1999, respectively.
These notes were issued in connection with the Company's purchase of
n-Gen Colorado (Note 2). The $529,098 note, bearing 8% interest, has
F-17
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
principal and interest payments of $33,500 due quarterly, with the
outstanding balance due in April 2004. Fifty-percent of the
outstanding balance is personally guaranteed by the Company's chairman
and majority stockholder. The $100,000 unsecured note, bearing 8%
interest, was originally due December 31, 1999. That note has been
extended to June 30, 2000, but with the interest rate increased from
8% to 10%. Current and long-term portions of the aggregate debt to the
related party are $198,275 (unaudited) and $434,639 as of March 31,
2000 and September 30, 1999, respectively.
Principal maturities of the above related party debt for each of the
next five years are as follows:
March 31,
2000 September 30,
(Unaudited) 1999
------------ ------------
Year ended
----------
2000 $ N/A $ 194,459
2001 202,570 102,245
2002 106,376 110,674
2003 115,145 119,797
2004 and thereafter 163,007 101,923
---------- ----------
Total $ 587,098 $ 629,098
========== ==========
NOTE 5 - NOTES PAYABLE, BANK
Notes payable to a bank consist of the following:
March 31,
2000 September 30,
(Unaudited) 1999
------------ ------------
Outstanding principal on a $350,000
revolving line of credit from a
bank, monthly interest payments at
an annual rate of one and one-half
percent above prime rate, due May 31,
2000, collateralized by all
inventories, equipment and accounts
receivable. Chairman of the Board
and majority stockholder and a
Director are jointly and severally
liable for the debt. $350,000 $350,000
Note due to bank, principal and
interest payable monthly, interest
at 9.750%, matures February 2001,
collateralized by automobile. 3,449 4,859
---------- ----------
Total notes payable $353,449 $354,859
========== ==========
F-18
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The notes have been included on the balance sheet as current
liabilities. As of March 31, 2000 and September 30, 1999, the weighted
average interest rate on the above outstanding borrowings is 10.52%
(unaudited) and 11.45%, respectively.
NOTE 6 - NOTES PAYABLE - INVESTORS
In March and April 1999, the Company issued notes payable, at $50,000
each, to three individuals for an aggregate of $150,000. Each of these
investors also received a certain number of shares of the Company's
common stock. The notes had initial due dates of approximately
September 30, 1999 but were all extended to dates in 2000. During
January, 2000 one investor note of $50,000 was repaid. At March 31,
2000 and September 30, 1999, the Company owed accrued interest on the
notes of $25,000 (unaudited) and $28,189, respectively. The stock issued to
the investors was valued at $15,000, or $.15 per share. The Company
recorded the $15,000 as additional interest expense which was fully
recognized through September 1999. One of the investors, who invested
$50,000, is considered by the Company to be a related party.
In 1999, the Company initiated the sale of debt securities (notes
payable) in a private placement offering. The notes payable are non-
interest bearing and automatically redeemable in cash, upon the
earlier of December 31, 2000 or completion of a proposed public
offering of the Company's common stock, at 90% of the investment
proceeds. In addition, at the time of repayment the investors in the
notes payable will receive shares of the Company's "restricted" common
stock at a rate of one share for every $5.00 of their cash investment.
Through March 31, 2000 and September 30, 1999, the Company raised
gross proceeds of $526,250 (unaudited) and $112,500, respectively. One
of the investors, who invested $50,000, is considered by the Company
to be a related party.
The Company has recorded the debt portion (ninety percent) of the
proceeds from each investor as a current liability, discounted at 10%
per annum to reflect imputed interest. The Company has recorded the
equity portion (ten percent) of the proceeds as additional paid-in
capital. The amount recorded as additional paid-in capital also
includes the total of the imputed interest (the discount). The imputed
interest discount is being amortized to interest expense over the
anticipated term of the notes using the interest method.
In connection with the debt private placement, the Company has
recorded direct debt offering costs of $57,856 (unaudited) and $36,606
as of March 31, 2000 and September 30, 1999, respectively, which
amounts are being amortized to interest expense over approximately 8
months, the expected term of the debt. The accumulated amortization
expense was $43,392 (unaudited) and $-0- at March 31, 2000 and
September 30, 1999, respectively.
Notes payable to investors consist of the following:
F-19
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
March 31,
2000 September 30,
(Unaudited) 1999
------------ ------------
Note payable to investor, interest
at 12% per annum, extended due date
April 15, 2000, uncollateralized,
50,000 shares of common stock
granted in conjunction with the
note payable. $ -0- $50,000
Note payable to investor,
non-interest bearing, principal
repayable with a premium of $12,500,
extended due date May 6, 2000,
uncollateralized, 25,000 shares
of common stock granted in
conjunction with the note payable,
investor a related party. 50,000 50,000
Note payable to investor,
non-interest bearing, principal
repayable with a premium of $12,500,
extended due date May 10, 2000,
uncollateralized, 25,000 shares of
common stock granted in conjunction
with the note payable. 50,000 50,000
Notes payable to investors through
private placement, net of unamortized
interest imputed at 10% per annum
and amount attributable to
beneficial equity interest, notes
uncollaterized. 452,694 92,418
---------- ----------
Total notes payable - investors $552,694 $242,418
========== ==========
NOTE 7 - CAPITAL LEASE OBLIGATIONS
In 1998, the Company borrowed $140,000 from a leasing company and is
repaying the amount under a capital lease agreement. The proceeds
were substantially used to acquire its "smart classroom," which is
used for sales demonstration and training. The underlying asset has
been capitalized at $86,242, net of internal labor used to construct
the classroom. At March 31, 2000 and September 30, 1999, the present
value of the lease was $78,575 (unaudited) and $100,440, respectively,
payable in monthly installments of $4,564 (including interest at 12%
per annum plus sales tax) and collateralized by the acquired
equipment. This lease has been personally guaranteed by a Director of
the Company.
F-20
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In February 2000, the Company borrowed $47,328 (unaudited) from a
leasing company and is repaying the amount under a capital lease
agreement. The proceeds were used to acquire computer equipment and
furniture which is used for a classroom. The underlying assets were
capitalized at $47,328 (unaudited). At March 31, 2000 and September
30, 1999, the present value of the lease was $46,186 (unaudited) and
$-0-(unaudited), respectively, payable in monthly installments of
$1,514 (unaudited) (including interest at 10% (unaudited) per annum
plus sales tax) and collateralized by the acquired equipment.
The Company leases computer equipment and related furniture under
capital leases expiring in December 2001 and March, 2003. The assets
and liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the
asset. The assets are depreciated over their estimated productive
lives. Depreciation of assets under capital leases is included in
depreciation expense for the six months ended March 31, 2000
(unaudited) and the nine months ended September 30, 1999.
Minimum future lease payments under the capital leases for each of the
next five years are:
March 31,
2000 September 30,
(Unaudited) 1999
------------ ------------
Year ended
----------
2000 $54,768 $54,768
2001 72,942 54,768
2002 22,738 4,564
2003 3,029
---------- ----------
Total minimum lease payments 153,477 114,100
Less: amount representing
interest and executory costs 28,716 (13,660)
---------- ----------
Present value of net minimum lease
payments 124,761 100,440
Less: Current portion (60,891) (45,087)
---------- ----------
Long-term portion $63,870 $55,353
========== ==========
NOTE 8 - LEASE COMMITMENTS
As of March 31, 2000 and September 30, 1999, the Company had entered
into an operating lease agreement for the rental of its retail and
office facility. The agreement was signed in 1998, amended in 1999 and
requires base monthly rent payments varying between $5,093 and $5,397
over a lease period of five years.
F-21
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company subleases office space for its headquarters from another
company partially controlled by certain major stockholders and
officers of the Company. The sublease is a verbal agreement under
which the total rent for the office suite shared with the related
company is paid by the Company.
Total rent expense for the entire Company was $60,640 (unaudited) and
$23,483 (unaudited) for the six months ended March 31, 2000 and 1999,
respectively, $35,126for the nine months ended September 30, 1999 and
$18,178 for the period from July 13, 1998 (Inception) to December 31, 1998.
Required minimum rentals, on an annual basis, for the next five years,
are as follows:
March 31,
2000 September 30,
(Unaudited) 1999
------------ ------------
Year ended
----------
2000 $ 61,858 $ 70,895
2001 63,215 62,871
2002 64,154 64,144
2003 and thereafter 21,289 36,627
---------- ----------
Total minimum lease payments 210,516 234,537
Less: amount representing
interest and executory costs (10,433) (11,019)
---------- ----------
Present value of net minimum
lease payments $200,083 $223,518
========== ==========
NOTE 9 - STOCKHOLDERS' EQUITY
The Company was originally capitalized with common stock of
100,000,000 authorized shares of $.0001 par value stock and 25,000,000
shares of preferred stock. The holders of the common stock are
entitled to one vote per share. On April 16, 1999, the Board of
Directors and shareholders decreased the total authorized number of
shares to 30,000,000, divided into 25,000,000 shares of common stock
and 5,000,000 shares of preferred stock. The Board of directors will
designate the voting powers, preferences and rights, and the
qualifications, limitations or restrictions of the preferred stock, as
needed, in the future. No shares of preferred stock have been issued.
On July 13, 1998, in connection with the formation of the Company, the
Company issued 2,000,000 and 170,000 shares of its common stock to two
officers and directors in exchange for services valued at $2,000 and
$170, respectively.
On July 28, 1998, the Company issued 2,000,000 shares of its common
stock valued at $.15 per share to a current Director of the Company in
exchange for $50,000 cash and a $250,000 note payable to the Company.
The note required monthly payments of $50,000 and was effectively non-
interest bearing. Interest income of $6,310 at 10%
F-22
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
per annum was imputed, recognized as income and charged to
compensation expense. As of December 31, 1998, the Director had paid
all amounts due to the Company.
In March 1999, the Company issued 250,000 shares of common stock
valued at $.15 per share as partial consideration for its purchase on
n-Gen Colorado (Note 2). In March and April 1999, the Company issued
100,000 shares of common stock valued at $.15 per share to three
individuals as consideration for working capital loans (Note 6).
In June 1999, the Company cancelled 770,000 shares of common stock.
These shares were returned by four directors without consideration.
In June 1999, the Company issued 1,260,000 shares of common stock
valued at $239,400 ($.19 per share) to four employees of the Company
in consideration of past services.
In September 1999, the Company recorded an increase of $20,761 to
additional paid-in capital which constituted equity interest granted
to individuals who loaned the Company money under the private debt
offering (Note 6).
In the months of October through December, the Company recorded an
increase of $72,704 to additional paid-in capital which constituted
equity interest granted to individuals who loaned the Company money
under the private debt offering (Note 6). (Unaudited)
From December 1999 through February 2000, the Company sold 930,000
shares of common stock in a private placement transaction to twelve
investors in consideration of $465,000, or $.50 per share.
Consideration at $.50 per share was the fair value that willing and
unrelated buyers agreed to pay. The Company paid commissions of
$44,000 for net proceeds of $421,000 for these transactions. (Unaudited)
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company's headquarters is located in the offices of One Capital
Corporation ("One Capital"), a company partially controlled by certain
major stockholders and officers of the Company. The Company subleases
under a verbal contract from One Capital for office space by paying
substantially all of the rent for the shared office space.
Headquarters rent expense paid to One Capital was $20,361 (unaudited)
and $12,449 (unaudited) for the six months ended March 31, 2000 and
1999, $30,084 for the nine months ended September 30, 1999 and $18,178
for the period from July 13, 1998 (Inception) to December 31, 1998.
F-23
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In addition, One Capital Corporation has paid certain expenses on
behalf of the Company, of which $-0- (unaudited) and $83,218 is owed
to One Capital as of March 31, 2000 and September 30, 1999,
respectively. The total amount paid by One Capital on behalf of the
Company was $172,518 (unaudited) and $200,772 (unaudited) for the six
months ended March 31, 2000 and 1999, $319,891 for the nine months
ended September 30, 1999 and $185,964 for the period from July 13,
1998 (Inception) to December 31, 1998. The total amount reimbursed by
the Company to One Capitalwas $265,217 (unaudited) and $155,500
(unaudited) for the six months ended March 31, 2000 and 1999, $230,137
for the nine months ended September 30, 1999 and $192,500 for the
period from July 13, 1998 (Inception) to December 31, 1998.
A Director has personally guaranteed the revolving line of credit with
a bank (Note 5). In addition, the Director has personally guaranteed
50% of the outstanding note payable balance to the prior owner of n-Gen
Colorado (Note 4). A Director and prior owner of n-Gen Colorado
has personally guaranteed a capital lease for the acquisition of equipment.
NOTE 11 - INCOME TAXES
There is no current or deferred tax expense for the six months ended
March 31, 2000 (unaudited) and 1999 (unaudited), the nine months ended
September 30, 1999 and the period from July 13, 1998 to December 31,
1998 due to net losses from operations by the Company.
Deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end.
Deferred income tax assets are recorded to reflect the tax
consequences on future years of income tax carry-forward benefits,
reduced by benefit amounts not expected to be realized by the Company.
The net deferred tax asset is comprised of the following at March 31,
2000 (unaudited) and September 30, 1999:
March 31, 2000 September 30,
(Unaudited) 1999
------------ ------------
Deferred tax asset:
Net operating loss benefit carry
Forward $683,222 $400,458
Amortization of goodwill 82,628 39,488
Allowance for doubtful accounts 38,204 38,204
Accrued interest 22,780 17,348
---------- ----------
Total 826,834 495,497
Valuation allowance for deferred
---------- ----------
F-24
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Tax assets (826,834) (495,497)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
The temporary differences causing the deferred tax asset are expected
to reverse over the next fifteen years. As of March 31, 2000 and
September 30, 1999, the Company had operating loss carryforwards of
$1,677,781 (unaudited) and $982,279, respectively. The operating loss
carryforwards expire beginning in 2018 ($238,124 in 2018 and $744,155
in 2019).
NOTE 12 - CONCENTRATIONS
For the six months ended March 31, 2000 and 1999, the nine months
ended September 30, 1999 and the period from July 13, 1998 (Inception)
to December 31, 1998, none of the Company's sales exceed 10% to any
one customer.
The Company is dependent upon relatively few manufacturers of
equipment and software to supply product to sell. The Company relies
upon renewable one-year distribution contracts with these
manufacturers. For the six months ended March 31, 2000 and 1999, the
nine months ended September 30, 1999 and the period from July 13, 1998
(Inception) to December 31, 1998, the Company's cost of sales was
concentrated in a few suppliers (only those exceeding 10% are
presented) as follows:
Six months Six months
ended ended Nine months July 13, 1998
March 31, March 31, ended (Inception) to
2000 1999 September 30, December 31,
(Unaudited) (Unaudited) 1999 1998
Supplier Per cent Per cent Per cent Per cent
-------- -------- -------- -------- --------
A 27% * 36% *
B * * 10% *
C * * 10% *
D 11% * * *
* Less than 10%
NOTE 13 - EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) profit sharing plan
for the employees of its Colorado subsidiary. Under the plan, all
employees age 21 and older with twelve consecutive months of service
and 1,000 hours of service may participate. Eligible employees may
voluntarily contribute from 1% to 15%, but not more than the maximum
allowed by law (currently $10,500), of their compensation annually to
the plan. The Company may elect at the Board's discretion to match
participant
F-25
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
contributions. Participant contributions are fully vested and Company
contributions become vested for participants over seven years.
NOTE 14 - SEGMENT INFORMATION
The Company's operations consist of three segments: (1) sales of computer
software and hardware, (2) computer training and (3) e-commerce site.
Identified assets by segment are those assets that are used in the
Company's operations in each segment. Corporate assets are
principally cash, furniture, fixtures, vehicles, and intangible assets.
The Company has adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). The adoption of SFAS 131 requires the
presentation of descriptive information about reportable segments
which is consistent with that made available to the management of the
Company to assess performance.
The sales segment derives its revenues from the sale of educational
computer hardware and software to schools and CAD software to businesses.
The training segment derives its revenues from providing primarily CAD
computer training to individuals.
The e-commerce site will derive revenues by providing customers the
opportunity to purchase a broad assortment of educational products,
software and office and school supplies. As of March 31,2000, the
site was in the development stage and no revenues have been received.
During all periods presented, there were no inter-segment revenues.
The accounting policies applied by each segment are the same as those
used by the Company in general.
Segment information consists of the following:
<TABLE>
<CAPTION>
Sales Training E-commerce Corporate Consolidated
----- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Six months ended
March 31, 2000
(Unaudited):
Revenues $2,529,143 $104,210 $ - $ - $2,633,353
Income (loss) from
operations 515,460 38,690 - (997,046) (442,896)
Assets 753,469 14,815 180,840 728,761 1,677,885
Depreciation and
F-26
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
amortization 29,969 3,294 - 141,810 175,073
Capital expenditures 23,197 - 92,368 54,397 169,962
Six months ended
March 31, 1999
(Unaudited):
Revenues $ 670,034 $ 37,321 $ - $ - $ 707,355
Income (loss) from
operations 44,919 6,673 - (481,498) (429,906)
Assets 760,090 16,347 - 597,460 1,373,897
Depreciation and
amortization 5,076 623 - 43,518 49,217
Capital expenditures - - - 37,523 37,523
Nine months ended
September 30, 1999:
Revenues $3,821,325 $106,028 $ - $ - $3,927,353
Income (loss) from
operations 568,920 30,499 (41,390) (1,325,437) (767,408)
Assets 1,938,830 14,547 - 617,162 2,570,539
Depreciation and
amortization 32,135 4,031 - 142,622 178,788
Capital expenditures - - - 79,844 79,844
July 13, 1998
(Inception) to
December 31, 1998:
Revenues $ - $ - $ - $ - $ -
Income (loss) from
operations - - - (244,254) (244,254)
Assets - - - 69,140 69,140
Depreciation and
amortization - - - - -
Capital expenditures - - - - -
</TABLE>
NOTE 15 - INITIAL PUBLIC OFFERING
In June 1999, the Company entered into a letter of intent with Barron
Chase Securities, Inc. ("Underwriter"), a broker-dealer firm and NASD
member, to represent the Company in an initial public offering ("IPO")
of its common stock and warrants on a "firm commitment" basis. The
letter of intent generally requires that the Company pay certain
expenses of the Underwriter in advance, and provides for ongoing
investment banking services by the Underwriter and a right of first
refusal to act as manager on future sales of the Company's securities
for a period of five years.
The Company expects to offer 1,600,000 shares of common stock and
1,600,000 warrants to purchase common stock in the IPO for $5.00 per
share and $.125 per
F-27
<PAGE>
N-GEN SOLUTIONS.COM, INC. (A DELAWARE CORPORATION)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
warrant. Each warrant will exercisable for $5.50 per share for a
period of five years after the close of the IPO. The warrants will be
subject to voluntary redemption by the Company at $.05 per warrant.
The Company has granted the Underwriter an over-allotment option to
purchase after the effective date of the offering up to 240,000 shares
of common stock and 240,000 warrants. The Company must pay a non-
accountable expense allowance of 3% of gross proceeds and a commission
of 10% of gross proceeds. The Company has already paid the
Underwriter $30,000 in advance for the non-accountable fees.
NOTE 16 - SUBSEQUENT EVENTS
The Company intends to establish a stock option plan with two million
shares of the Company's common stock reserved for issuance through the
plan.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
n-Gen Solutions.com, Inc.
Longmont, Colorado
We have audited the statements of operations, stockholders' equity and cash
flows of n-Gen Solutions.com, Inc. for the year ended December 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
n-Gen Solutions.com, Inc. for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
GORDON, HUGHES & BANKS, LLP
February 1, 2000
Englewood, Colorado
F-29
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUE
Sales $ 5,112,432
Training and installation 129,999
Commissions 346,132
------------
Total revenue 5,588,563
COST OF GOODS SOLD 3,965,661
------------
Gross profit 1,622,902
------------
OPERATING EXPENSES
Selling expenses 649,330
General and administration 626,702
Depreciation 36,459
Bad debts 22,026
------------
Total operating expenses 1,334,517
------------
Income from operations 288,385
OTHER INCOME (EXPENSE)
Interest (expense) (13,890)
Interest income 11,861
------------
NET INCOME $ 286,356
============
Earnings per share $0.06
============
Weighted average shares outstanding 5,000,000
============
See notes to financial statements F-30
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock
------------ Retained
Shares Amount Earnings Total
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 5,000,000 $ 7,980 $ 297,525 $ 305,505
Net income 286,356 286,356
Distributions to owner - - (88,000) (88,000)
--------- --------- ---------- ----------
Balance, December 31, 1998 5,000,000 $ 7,980 $ 495,881 $ 503,861
========= ========= ========== ==========
</TABLE>
See notes to financial statements F-31
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net Income $ 286,356
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 36,459
(Increase) decrease in:
Accounts receivable (235,198)
Inventory 25,807
Employee advances 32,341
Deposits (2,500)
Increase (decrease) in:
Accounts payable (165,348)
Accrued expenses 71,191
Deferred revenue 68,170
------------
Net cash provided by operating activities 117,278
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (45,592)
------------
Net cash (used) by investing activities (45,592)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 44,630
Payments on debt (2,941)
Distributions to owner (88,000)
------------
Net cash (used) by financing activities (46,311)
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 25,375
Cash and Cash Equivalents:
Beginning of year 141,708
------------
Ending of year $ 167,083
============
OTHER INFORMATION:
Cash basis interest paid $ 22,557
============
Equipment acquired through capital lease $ 86,242
============
See notes to financial statements F-31
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
In 1984, n-Gen Solutions.com, Inc. (formerly known as Technology
Learning Systems, Inc.) (the "Company") began business as a sole
proprietorship and was incorporated on March 1, 1989 in Colorado
as an S corporation. The Company is primarily engaged in the
business of selling educational computer hardware and software to
schools and computer aided design ("CAD") software to businesses
and providing installation and training services. Training is
done both in its own classrooms and at the customer's location.
The Company also acts as a sales representative for a company in
California that manufactures computerized classrooms. The Company
sells its products in Montana, Wyoming, Nevada, Arizona,
Colorado, New Mexico, Utah and Idaho. The Company primarily
derives its revenues from sales of product in two sectors:
educational institutions and commercial business.
REVENUE RECOGNITION
The Company generates three types of revenues: product sales,
training, and sales commissions. Products are sold to two types
of customers: schools and commercial businesses. For computer
labs and computerized ("smart") classrooms, a sale is complete
and revenue is recognized when the equipment is installed and the
customer has received initial familiarization needed to operate
the system. Formal in-depth training is an additional service and
completion of the sale is not dependent upon delivery of in-depth
training. In the case of commercial sales, for which installation
and training is not required, revenue is recognized at the time
that products are delivered to the customer. Training revenues
are recognized when the training is provided. Sales commission
revenues are recognized when the manufacturer's systems are
installed at the customer.
The Company earns commissions based on sales that it generates
for a company in California. The Company earned commission
revenue of $346,132 for the year ended December 31, 1998, based
on sales of computerized classrooms generated of approximately
$2,900,000.
As of December 31, 1998, the Company was owed approximately
$97,000 from the California company. However, at December 31,
1998, the Company was negotiating the conversion of the
receivable to a note receivable but did not record the amount as
commission revenue or as a receivable since at the time
collection was not substantially assured.
F-33
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
DEPRECIATION
Property and equipment are recorded at cost. Major improvements
are capitalized, while repairs and maintenance, which do not
improve or extend the life of the respective assets, are expensed
currently. All equipment is pledged as collateral for a bank loan.
Depreciation is computed for all equipment and equipment using
the straight-line and accelerated methods over the estimated
useful lives of the assets with lives ranging from three to five
years.
INCOME TAXES
Through December 31, 1998, the Company has been taxed as an S
Corporation under the Internal Revenue Code and applicable state
statutes. Under an S Corporation election, the net income of the
Company flows through to the stockholders to be taxed at the
individual level rather than the corporate level. Accordingly,
the corporation has no tax liability in the period presented.
Subsequent to December 31, 1998, the control of the Company
changed and the Company's tax status automatically changed to a
C Corporation for federal and state income tax purposes.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ
from those estimates.
STATEMENT OF CASH FLOWS
For the purposes of the statement of cash flows, the Company
considers investments and savings instruments with maturities of
three months or less to be cash equivalents.
EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share," became effective in the fourth quarter of 1997 and
requires two presentations of earnings per share - "basic" and
"diluted." Basic earnings per share is computed by dividing
income available to common stockholders (the numerator) by the
weighted-average number of common shares (the denominator) for
the period. The computation of diluted earnings per share is
similar to basic earnings per share, except that the denominator
is increased to include the number of additional common shares that
F-34
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
would have been outstanding if the potentially dilutive common
shares had been issued. There were no dilutive common shares.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which establishes standards for the reporting of comprehensive
income. This pronouncement requires that all items recognized
under accounting standards as components of comprehensive income,
as defined in the pronouncement, be reported in a financial
statement that is displayed with the same prominence as other
financial statements. Comprehensive income includes all changes
in equity during a period except those resulting from investments
by owners and distributions to owners. The Company adopted SFAS
No. 130 in 1998 and determined there is no impact on any of the
periods presented. There were no comprehensive income items.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS No. 131"), which amends the
requirements for a public enterprise to report financial and
descriptive information about its reportable operating segments.
Operating segments, as defined in the pronouncement, are
components of an enterprise about which separate financial
information is available and that is evaluated regularly by the
Company in deciding how to allocate resources and in assessing
performance. The financial information is required to be
reported on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources to
segments. The Company adopted SFAS No. 131 in 1998.
NOTE 2 - LEASE COMMITMENTS
As of December 31, 1998, the Company entered into an operating
lease agreement for the rental of its retail and office facility.
The agreement was signed in 1998 and requires base monthly rent
payments varying between $1,613 and $4,121 over a lease period of
five years. Rent expense for 1998 was $40,788.
Required minimum rentals, on an annual basis, are as follows:
Year ending December 31,:
1999 $38,448
2000 39,329
2001 40,237
2002 41,172
2003 and thereafter 13,073
F-35
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
Total minimum lease payments 172,259
---------
NOTE 3 - STOCKHOLDER'S EQUITY
The common stock of the Company consists of 30,000,000 authorized
shares of no-par value stock, divided into 25,000,000 shares of
common stock and 5,000,000 shares of preferred stock. At December
31, 1998 8,000,000 shares of common stock were issued and
outstanding. However, in 1999, 3,000,000 shares were returned by
the stockholder and cancelled. All references in these financial
statements to the number of shares outstanding have been adjusted
for the returned 3,000,000 shares.
The holder of the common stock is entitled to one vote per share.
As disclosed in the statement of changes in stockholder's equity,
the Company made distributions periodically to the sole
stockholder. The distributions consisted of cash in 1998.
NOTE 4 - CONCENTRATIONS
For the year ended December 31, 1998, none of the Company's sales
exceed 10% to any one customer.
The company is dependent upon a relatively few manufacturers of
equipment to supply product to sell. The Company relies upon
renewable one-year distribution contracts with these
manufacturers. For the year ended December 31, 1998, the
Company's cost of sales was concentrated in a few suppliers (only
those exceeding 10% or are presented) as follows:
Supplier Per Cent
-------- --------
A 30%
B 16%
NOTE 5 - SEGMENT INFORMATION
The Company's operations consist of three segments: (1) sales of
computer software and hardware and (2) computer training.
Identified assets by segment are those assets that are used in
the Company's operations in each segment.
The Company has adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). The adoption of SFAS 131
requires the presentation of descriptive information about
reportable segments which is consistent with that made available
to the management of the Company to assess performance.
F-36
<PAGE>
N-GEN SOLUTIONS.COM, INC.
(A COLORADO CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
The sales segment derives its revenues from the sale of
educational computer hardware and software to schools and CAD
software to businesses.
The training segment derives its revenues from providing
primarily CAD computer training to individuals.
During all periods presented, there were no inter-segment
revenues. The accounting policies applied by each segment are
the same as those used by the Company in general.
Segment information consists of the following:
<TABLE>
<CAPTION>
Sales Training Corporate Total
----- -------- --------- -----
Year-ended December 31, 1998:
<S> <C> <C> <C> <C>
Revenues $5,458,563 $129,999 $ - $5,588,563
Income(loss) from operations $893,907 $31,937 $(637,459) $288,385
Depreciation and amortization $22,765 $2,937 $10,756 $36,459
Capital expenditures $31,359 $ - $14,233 $45,592
</TABLE>
In addition, $86,242 of equipment was acquired through a capital
lease during 1998.
NOTE 6 - SUBSEQUENT EVENTS
CHANGE IN CONTROL OF THE COMPANY
On March 26, 1999 and effective January 1, 1999, AAE Education
Corporation purchased all of the outstanding common stock from
the Company's then sole stockholder for cash, notes payable and
common stock in AAEE. As part of the sales price, AAEE agreed to
pay the seller $200,000 of the then existing retained earnings at
any time on or after closing. The agreement also requires the
Company to enter into a five-year employment contract with the
former sole stockholder at approximately $100,000 per year.
EMPLOYEE BENEFIT PLAN
Effective January 1, 1999, the Company adopted a defined
contribution 401(k) profit sharing plan for its employees.
F-37
<PAGE>
=========================================================================
You should only rely on the information contained in this prospectus.
We have not authorized anyone to provide you with information different
from that contained in this prospectus. We are offering to sell, and
seeking offers to buy, common shares and warrants only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of common shares.
Until , 2000, all dealers selling common shares or warrants
whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the obligation of dealers to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
___________________
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . .4
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . .8
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Special Note Regarding Forward-Looking Statements. . . . . . . . . . . 28
How We Intend to Use the Proceeds from the Offering. . . . . . . . . . 29
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Management's Discussion and Analysis
or Plan of Operation. . . . . . . . . . . . . . . . . . . . . . . . . 33
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 63
Certain Relationships and Related Party Transactions . . . . . . . . . 64
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . 65
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . 68
Transfer Agent and Registrar . . . . . . . . . . . . . . . . . . . . . 69
Reports to Security-Holders . . . . . . . . . . . . . . . . . . . . . 69
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Where You Can Find More Information. . . . . . . . . . . . . . . . . . 73
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . 75
___________________
=========================================================================
1,600,000 SHARES
1,600,000 WARRANTS
N-GEN SOLUTIONS.COM, INC.
COMMON STOCK
WARRANTS
________________
Prospectus
________________
Barron Chase
Securities, Inc.
7700 W. Camino Real
Boca Raton, Florida 33433
(561) 347-1200
Beverly Hills, California
Boca Raton, Florida
Boston, Massachusetts
Buffalo, New York
Chicago, Illinois
Clearwater, Florida
Edison New Jersey
Eureka Springs, Arkansas
Fort Lauderdale, Florida
Hasbrook Heights, New Jersey
La Jolla, California
Long Island, New York
New York, New York
Orlando, Florida
Sarasota Florida
Tampa, Florida
, 2000
=========================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation (the "Restated
Certificate") provides that the Company shall indemnify each person who is
or was a director, officer or employee of the Company to the fullest extent
permitted under Section 145 of the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of
such corporation, or is or was serving at the request of such corporation
as a director, officer, employee or agent of another corporation or
enterprise. A corporation may indemnify such person against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. A corporation
may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the
expenses (including attorneys' fees) incurred by any officer or director in
defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation.
A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation to procure a judgment in its
favor under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged
to be liable to the corporation. Where an officer or director is
successful on the merits or otherwise in the defense of any action referred
to above, the corporation must indemnify him against the expenses
(including attorneys' fees) which he actually and reasonably incurred in
connection therewith. The indemnification provided is not deemed to be
exclusive of any other rights to which an officer or director may be
entitled under any corporation's bylaw, agreement, vote or otherwise.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors,
officers, or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is
therefore unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimates of fees and expenses incurred or to be incurred in
connection with the issuance and distribution of securities being
registered, all of which are being paid exclusively by the Company, other
than underwriting discounts and commissions are as follows:
Securities and Exchange Commission filing fee . . . . . . . .$ 5,845.49
National Association of Securities Dealers filing fee . . . . 2,000.00 *
Nasdaq and Exchange filing fees . . . . . . . . . . . . . . . 13,000.00 *
State Securities Laws (Blue Sky) fees and expenses. . . . . . 15,000.00 *
Printing and mailing costs and fees . . . . . . . . . . . . . *
Legal fees and costs. . . . . . . . . . . . . . . . . . . . . *
Accounting fees and costs . . . . . . . . . . . . . . . . . . *
Due diligence and travel. . . . . . . . . . . . . . . . . . . 50,000.00 *
Transfer Agent fees . . . . . . . . . . . . . . . . . . . . . 1,000.00 *
Miscellaneous expenses. . . . . . . . . . . . . . . . . . . . 20,000.51 *
-----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,000.00*
===========
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company was incorporated in July 1998 in the State of Delaware.
The Company has authorized capital of 30,000,000 shares consisting of
25,000,000 shares of common stock, $.0001 par value and 5,000,000 shares of
preferred stock, $.0001 par value. The Company has 5,940,000 shares of
common stock issued and outstanding and no shares of preferred stock issued
and outstanding prior to this offering. See "Principal Stockholders" and
"Description of Securities."
On July 14, 1998, the Company issued 2,170,000 shares of common stock
(of which 260,000 were returned and cancelled) to two persons, both
officers and directors (Robert D. Arnold and Michael V. Schranz) in a
private transaction in consideration of $2,170 in services rendered or
$.001 per share. See "Principal Stockholders."
On July 28, 1998, the Company issued 2,000,000 shares of common stock
(of which 420,000 were returned and cancelled) to one person, an officer
and director (David Clem) in a private transaction in consideration of
$300,000 or $.15 per share. See "Principal Shareholders."
On March 26, 1999, the Company issued 250,000 shares of common stock
(90,000 of which were subsequently returned and cancelled) in a private
transaction to D. Gary Nelson in exchange for all of his shares owned in
Lab Technologies, Inc.
On June 10, 1999, the Company issued 1,260,000 shares of its common
stock to Allan Short, Dean Myers, Robert Vaughan and Karen Kittler,
officers, directors and employees for services valued at $189,000 or $0.15
per share.
II-2
<PAGE>
On December 17, 1999, the Company sold promissory notes which
consisted of a note and 105,250 shares of common stock for $526,250 to
twenty-one "accredited investors" in a private placement transaction
pursuant to Regulation D and Rule 506 adopted thereunder. Each promissory
note is payable at closing of this offering or upon the one year
anniversary of the notes, whichever occurs first. Pursuant to the notes,
the Company is obligated to issue 105,250 shares to the noteholders at
closing of this public offering which have been valued at $5.00 a share.
The following is a list of the note and share holders, amount invested and
number of shares owned:
NOTE COMMON
INVESTOR NAME AMOUNT SHARES
------------- ------ ------
Philip W. Clem $50,000 10,000
Hal W. Brown III 50,000 10,000
Axel E. Dahlberg 12,500 2,500
Michael Maldarescu 20,000 4,000
Patco A/C & Heating, Inc. 50,000 10,000
Timothy K. Shuckhart 12,500 2,500
Per Henning-Damm 25,000 5,000
Theo Vennaeien 50,000 10,000
William N. McLintock 12,500 2,500
Shawn E. Trevino 25,000 5,000
Philip Chavez 25,000 5,000
Ralph L. Hays Jr. 12,500 2,500
Thomas H. Stick 25,000 5,000
Michael D. Olsen 6,250 1,250
Steven M. Olsen 25,000 5,000
Dean Sumer 12,500 2,500
Heinz Beer 25,000 5,000
Jose Ngsee Tlee 25,000 5,000
Jack A. Metcalf 25,000 5,000
Felipe L. Chu 25,000 5,000
David Campos 12,500 2,500
$526,250 105,250
======== =======
On February 28, 2000, the Company issued 930,000 shares of its common
stock in a private transaction to twelve investors at $.50 per share for a
total of $465,000 pursuant to Regulation D and Rule 506 adopted thereunder.
The following is a list of the investors, the amount invested and shares
owned:
INVESTMENT COMMON
INVESTOR NAME AMOUNT SHARES
------------- ------ ------
Sergio Ii Trani, Jr., M.D. $12,500 25,000
Ruben & Virginia Casabar 12,500 25,000
Max Ulrich 6,250 12,500
Peter Mark Breunig 6,250 12,500
II-3
<PAGE>
C & G Dinglasan 25,000 50,000
Gualberto R. Dinglasan, M.D. 25,000 50,000
Felipe L. Chu, M.D. 12,500 25,000
Minh Niut Mach 55,000 110,000
Theo Vermaelen 25,000 50,000
Three Young Two Thousand LTEE 250,000 500,000
Tomer Keter 25,000 50,000
Longhal Chen 10,000 20,000
$465,000 930,000
======== =======
All unregistered securities issued by the Company to date are deemed
"restricted securities" within the meaning of that term as defined in
Rule 144 of the Securities Act of 1933, as amended ("Act") and have been
issued pursuant to certain "private placement" exemptions under Section
4(2) and Rule 506 of Regulation D of the Act, as promulgated by the
Securities and Exchange Commission, such that the sales of the securities
were to "accredited" investors, as that term is defined in Rule 501 of
Regulation D of the Act, and were transactions by an issuer not involving
any public offering. Such accredited investors had access to information
on the Company necessary to make an informed investment decision. Also,
under terms of the Underwriting Agreement or subscription agreement, the
current stockholders of n-Gen have agreed not to sell, transfer, assign
or otherwise dispose of any restricted securities of n-Gen for a period
of 15 months following the date of this Prospectus.
Reference is also made hereby to "Dilution," "Principal
Stockholders," "Certain Transactions" and "Description of Securities" in
the Prospectus for more information with respect to the previous issuance
and sale of the Company's securities.
All of the aforesaid securities have been appropriately marked with
a restricted legend and are "restricted securities," as defined in Rule
144 of the rules and regulations of the Securities and Exchange
Commission. All of the aforesaid securities were issued for investment
purposes only and not with a view to redistribution, absent registration.
All of the aforesaid persons have been fully informed and advised
concerning the Registrant, its business, financial and other matters.
Transactions by the Registrant involving the sales of these securities
set forth above were issued pursuant to the "private placement"
exemptions under the Securities Act of 1933, as amended, as transactions
by an issuer not involving any public offering. The Registrant has been
informed that each person is able to bear the economic risk of his
investment and is aware that the securities were not registered under the
Securities Act of 1933, as amended, and cannot be re-offered or re-sold
until they have been so registered or until the availability of an
exemption therefrom. The transfer agent and registrar of the Registrant
will be instructed to mark "stop transfer" on its ledgers to assure that
these securities will not be transferred absent registration or until the
availability of an exemption therefrom is determined.
ITEM 27. EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1 Form of Underwriting Agreement(1)
II-4
<PAGE>
1.2 Form of Participating Dealer Agreement(1)
3.1 Certificate of Incorporation dated July 13, 1998(1)
3.2 Bylaws(1)
3.3 Amendment to Certificate of Incorporation dated
January 19, 2000(1)
4.1 Form of Underwriter's Warrant Agreement(1)
4.2 Warrant Agreement between the Company and Corporate
Stock Transfer, Inc.
4.3 Form of Specimen Stock Certificate
4.4 Form of Specimen Warrant Certificate
5.0 Form of Opinion of Berenbaum, Weinshienk & Eason, P.C.(1)
5.1 Form of Opinion of Berenbaum, Weinshienk & Eason, P.C.
10.1 Distribution and Fulfillment Agreement with Ingram
Entertainment dated November 29, 1999(1)
10.2 Supplier Agreement with e-NITED dated February 8, 2000(1)
10.3 Website Development Agreement with The August Group, Inc.
dated February 24, 2000(1)
10.4 Content Agreement - Tech Notes I & II with Ingram Micro
dated September 2, 1997(1)
10.5 Discreet Authorized Educational Reseller Agreement dated
December 1, 1999(1)
10.6 Authorized Dealer Agreement with SMART Technologies Inc.
dated December 24, 1996(1)
10.7 Distribution Agreement with Robotel Electronique dated
April 6, 1994(1)
10.8 Reseller Agreement with Healthkit Company dated May 19, 1999(1)
10.9 EduTECH Dealer Agreement dated January 1, 1995(1)
10.10 Interior Concepts letter dated March 9, 1999(1)
10.11 intelitek Educational Dealer Agreement dated August 1, 1997(1)
II-5
<PAGE>
10.12 Employment Agreement, Dean C. Myers, dated February 2000(1)
10.13 Employment Agreement, Gary D. Nelson, dated March 26, 1999(1)
10.14 Lease Agreement dated July 13, 1999(1)
10.15 Master Equipment Lease Agreement with Lease Capital
Corporation dated December 21, 1998(1)
10.16 Autodesk Authorized Reseller Agreement(1)
10.17 Financial Advisory Agreement(1)
10.18 Merger and Acquisition Agreement(1)
24.1 Consent of Berenbaum, Weinshienk & Eason, P.C. is
contained on page II-8 of the Registration Statement(1)
24.2 Consent of Gordon, Hughes & Banks, LLC(1)
24.3 Consent of Gordon, Hughes, & Banks, LLC
27.1 Financial Data Schedule(1)
27.2 Financial Data Schedule
_____________________
(1) Filed as an Exhibit of the same number to the Registrant's
Registration Statement on Form SB-2 (No. 333-33416), and
incorporated herein by reference.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes the following to
provide to participating broker-dealers, at the closing, certificates in
such denominations and registered in such names as required by the
participating broker-dealers, to permit prompt delivery to each purchaser
The undersigned Registrant also undertakes
(1) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(2) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that
in the opinion of
II-6
<PAGE>
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by
a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
This Registration Statement consists of the following:
1. Facing page.
2. Cross-Reference Sheet.
3. Prospectus.
4. Complete text of Items 24-28 in Part Two of Registration Statement.
5. Exhibits.
6. Signature page.
7. Consents of:
Berenbaum, Weinshienk & Eason, P.C.
Gordon, Hughes & Banks, LLC
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and has
authorized this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado on May 26, 2000.
n-GEN SOLUTIONS.COM, INC.
By: /s/ Robert D. Arnold
-----------------------------------
Robert D. Arnold
Chairman and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ ROBERT D. ARNOLD Chairman of the Board, Chief May 26, 2000
- ------------------------ Executive Officer and Director
Robert D. Arnold
/s/ MICHAEL V. SCHRANZ Treasurer, Secretary, Chief May 26, 2000
- ------------------------ Financial Officer, Principal
Michael V. Schranz Accounting Officer and Director
/s/ GARY D. NELSON President and Director May 26, 2000
- ------------------------
Gary D. Nelson
/s/ DEAN C. MYERS Vice President and Director May 26, 2000
- ------------------------
Dean C. Myers
/s/ ROBERT C. VAUGHAN Vice President and Director May 26, 2000
- ------------------------
Robert C. Vaughan
/s/ DAVID CLEM Director May 26, 2000
- ------------------------
David Clem
/s/ ALLAN R. SHORT Director May 26, 2000
- ------------------------
Allan R. Short
/s/ STEPHEN K. SMITH Director May 26, 2000
- ------------------------
Stephen K. Smith
II-8
<PAGE>
CONSENT OF COUNSEL
The consent of Berenbaum, Weinshienk & Eason, P.C., 370 Seventeenth
Street, Suite 2600, Denver, Colorado 80202-5626, to the use of their name
in this Form SB-2 Registration Statement, and related Prospectus, as
amended, of n-Gen Solutions.Com, Inc. is contained in his opinion filed as
Exhibit 5.1 hereto.
II-9
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 1, 2000 accompanying the
financial statements of n-Gen Solutions.Com, Inc. contained in the
registration statement and prospectus. We have also issued our report
dated February 1, 2000 accompanying the financial statements of n-Gen
Solutions.Com, Inc. (a Colorado corporation) contained in the registration
statement and prospectus. We consent to the use of the aforementioned
report in the registration statement and prospectus, and to the use of our
name as it appears under the caption "Experts."
GORDON, HUGHES & BANKS, LLC
Denver, Colorado
May 24, 2000
II-10
<PAGE>
As filed with the Securities and Exchange Commission on May 26, 2000
Registration No. 333-33416
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM SB-2/A1
Registration Statement
Under
The Securities Act of 1993
n-GEN SOLUTIONS.COM, INC.
EXHIBITS
- --------------------------------------------------------------------------
II-11
<PAGE>
n-GEN SOLUTIONS.COM, INC.
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ----------- ----------- -------------
1.1 Form of Underwriting Agreement(1)
1.2 Form of Participating Dealer Agreement(1)
3.1 Certificate of Incorporation dated July 13, 1998(1)
3.2 Bylaws(1)
3.3 Amendment to Certificate of Incorporation dated January 19,
2000(1)
4.1 Form of Underwriter's Warrant Agreement(1)
4.2 Warrant Agreement between the Company and Corporate
Stock Transfer, Inc.
4.3 Form of Specimen Stock Certificate
4.4 Form of Specimen Warrant Certificate
5.0 Form of Opinion of Berenbaum, Weinshienk & Eason, P.C.(1)
5.1 Form of Opinion of Berenbaum, Weinshienk & Eason, P.C.
10.1 Distribution and Fulfillment Agreement with Ingram
Entertainment dated November 29, 1999(1)
10.2 Supplier Agreement with e-NITED dated February 8, 2000(1)
10.3 Website Development Agreement with The August Group, Inc.
dated February 24, 2000(1)
10.4 Content Agreement - Tech Notes I & II with Ingram Micro
dated September 2, 1997(1)
10.5 Discreet Authorized Educational Reseller Agreement dated
December 1, 1999(1)
10.6 Authorized Dealer Agreement with SMART Technologies Inc.
dated December 24, 1996(1)
10.7 Distribution Agreement with Robotel Electronique dated April 6,
1994(1)
10.8 Reseller Agreement with Healthkit Company dated May 19, 1999(1)
II-12
<PAGE>
10.9 EduTECH Dealer Agreement dated January 1, 1995(1)
10.10 Interior Concepts letter dated March 9, 1999(1)
10.11 intelitek Educational Dealer Agreement dated August 1, 1997(1)
10.12 Employment Agreement, Dean C. Myers, dated February 2000(1)
10.13 Employment Agreement, Gary D. Nelson, dated March 26, 1999(1)
10.14 Lease Agreement dated July 13, 1999(1)
10.15 Master Equipment Lease Agreement with Lease Capital
Corporation dated December 21, 1998(1)
10.16 Autodesk Authorized Reseller Agreement(1)
10.17 Financial Advisory Agreement(1)
10.18 Merger and Acquisition Agreement(1)
24.1 Consent of Berenbaum, Weinshienk & Eason, P.C. is contained
on page II-8 of the Registration Statement(1)
24.2 Consent of Gordon, Hughes & Banks, LLC(1)
24.3 Consent of Gordon, Hughes & Banks, LLC
27.1 Financial Data Schedule(1)
27.2 Financial Data Schedule
________________
(1) Filed as an Exhibit of the same number to the Registrant's
Registration Statement on Form SB-2 (No. 333-33416), and incorporated
herein by reference.
II-13
n-GEN SOLUTIONS.COM, INC.
and
CORPORATE STOCK TRANSFER, INC.
WARRANT AGREEMENT
Dated as of _____________, 2000
Exhibit 4.2
<PAGE>
WARRANT AGREEMENT, dated as of _____________, 2000, by and between
n-GEN SOLUTIONS.COM, INC., a Delaware corporation (the "Company"), and
CORPORATE STOCK TRANSFER, INC., as warrant and transfer agent
(hereinafter called the "Warrant Agent").
WHEREAS, the Company proposes to issue and sell to the public up to
1,600,000 shares of Common Stock, $.0001 par value (hereinafter referred to
as "Common Stock" or "Common Shares"), and up to 1,600,000 Redeemable
Common Stock Purchase Warrants to purchase a share of Common Stock at $5.50
per share (the "Warrant") (including the underwriter's over-allotment
option granted to Barron Chase Securities, Inc. (the "Underwriter"), (the
"Public Offering"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfers, exchanges and exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby
appoints the Warrant Agent to act as Agent for the Company in accordance
with the instructions hereinafter in this Agreement set forth, and the
Warrant Agent hereby accepts such appointment.
SECTION 2. FORM OF WARRANT. The text of the Warrant and of the
form of election to purchase shares as is printed on the reverse thereof as
now outstanding, is substantially as set forth respectively in Exhibit A
attached hereto. The per share Warrant Price (as hereinafter defined) and
the number of shares issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by the
manual or facsimile signature of the present or any future Chairman,
President, or Vice President of the Company, under its corporate seal,
affixed or in facsimile, attested by the manual or facsimile signature of
the present or any future Secretary or Assistant Secretary of the Company.
The Warrants will be dated as of the date of issuance by the Warrant
Agent either upon initial issuance or upon transfer or exchange.
SECTION 3. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent
shall maintain books for the transfer and registration of Warrants. Upon
the initial issuance of the Warrants, the Warrant Agent shall issue and
register the Warrants in the names of the respective holders thereof. The
Warrants shall be countersigned manually or by facsimile by the Warrant
Agent (or by any successor to the Warrant Agent then acting as warrant
agent under this Agreement) and shall not be valid for any purpose unless
so countersigned. Warrants may be so countersigned, however, by the
Warrant Agent (or by its successor as warrant agent) and be delivered by
the Warrant Agent, notwithstanding that the persons whose manual or
facsimile signatures appear thereon as proper officers of the Company shall
have ceased to be such officers at the time of such countersignature or
delivery.
-2-
<PAGE>
SECTION 4. TRANSFERS AND EXCHANGES. The Warrant Agent shall
transfer, from time to time, any outstanding Warrants upon the books to be
maintained by the Warrant Agent for that purpose, upon surrender thereof
for transfer properly endorsed or accompanied by appropriate instructions
for transfer. Upon any such transfer, a new Warrant shall be issued to the
transferee and the surrendered Warrant shall be delivered by the Warrant
Agent. Warrants so cancelled shall be delivered by the Warrant Agent to
the Company from time to time upon request. Warrants may be exchanged at
the option of the holder thereof, when surrendered at the office of the
Warrant Agent, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Common Shares.
SECTION 5. RIGHTS OF REDEMPTION BY COMPANY. The Warrants are
redeemable by the Company at a price of $.05 per Warrant commencing on the
Effective Date (as defined in the Prospectus), upon 30 days' prior written
notice if the closing bid or trading price of the Company's Common Stock,
as applicable, over 30 consecutive trading days ending within 15 days of
the notice of redemption of the Warrants, averages in excess of $10.00.
Prior to the first anniversary of the Effective Date, the Warrants will not
be redeemable by the Company without the written consent of the
Underwriter. Any Warrants, so called, and not either converted or tendered
back to the Company by the end of the date specified in the Notice of Call,
will be entitled only to the redemption price of such Warrants, if
redeemed, and the holder thereof shall have forfeited his right to so exercise.
SECTION 6. EXERCISE OF WARRANTS. Subject to the provisions of
this Agreement, each registered holder of Warrants shall have the right
which may be exercised through ____________, 2005 commencing from the
Effective Date and ending at the close of business on __________, 2005 to
purchase from the Company (and the Company shall issue and sell to such
registered holder of Warrants) the number of fully paid and non-assessable
Common Shares specified in such Warrants, upon surrender to the Company at
the office of the Warrant Agent of such Warrants, with the form of election
to purchase duly filled in and signed, and upon payment to the order of the
Company of the Warrant Price, determined in accordance with Sections 10 and
11 herein, for the number of shares in respect of which such Warrants are
then exercised. Payment of such Warrant Price shall be made in cash or by
certified check or bank draft or postal or express money order payable, in
United States dollars, to the order of the Company. No adjustment shall be
made for any dividends on any Common Shares issuable upon exercise of a
Warrant. Subject to Section 7, upon such surrender of Warrants, and
payment of the Warrant Price as aforesaid, the Company shall issue and
cause to be delivered with all reasonable dispatch to or upon the written
order of the registered holder of such Warrants and in such name or names
as such registered holder may designate, a certificate or certificates for
the largest number of whole Common Shares so purchased upon the exercise of
such Warrants. The Company shall not be required to issue any fraction of
a share of Common Stock or make any cash or other adjustment except as
provided in Section 12 herein, in respect of any fraction of a Common Share
otherwise issuable upon such surrender. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of record of such
shares as of the date of the surrender of such Warrants and payment of the
Warrant Price as aforesaid provided, however, that if, at the date of
surrender of such Warrants and payment of such Warrant Price, the transfer
books for the
-3-
<PAGE>
Common Shares or other class of stock purchasable upon the exercise of such
Warrants shall be closed, the certificates for the shares in respect of
which such Warrants are then exercised shall be issuable as of the date on
which such books shall be oened and until such date the Company shall be
under no duty to deliver any certificate for such shares; provided,
further, however, that the transfer books aforesaid, unless otherwise
required by law or by applicable rule of any national securities exchange,
shall not be closed at any one time for a period longer than 20 days. The
rights of purchase represented by the Warrants shall be exercisable, at the
election of the registered holders thereof, either as an entirety or from
time to time for part only of the shares specified therein and, in the
event that any Warrant is exercised in respect of less than all of the
shares specified therein at any time prior to the date of expiration of the
Warrant, a new Warrant or Warrants will be issued to such registered holder
for the remaining number of shares specified in the Warrant so surrendered,
and the Warrant Agent is hereby irrevocably authorized to countersign and
to deliver the required new Warrants pursuant to the provisions of this
Section during the Warrant exercise period, and the Company, whenever
requested by the Warrant Agent, will supply the Warrant Agent with Warrants
duly executed on behalf of the Company for such purpose.
SECTION 7. PAYMENT OF TAXES. The Company will pay any documentary
stamp taxes attributable to the initial issuance of Common Shares issuable
upon the exercise of Warrants; provided, however, that the Company shall
not be required to pay any tax or taxes which may be payable in respect of
any transfer involved in the issue or delivery of any certificates for
Common Shares in a name other than that of the registered holder of
Warrants in respect of which such shares are issued, and in such case
neither the Company nor the Warrant Agent shall be required to issue or
deliver any certificate for Common Shares or any Warrant until the person
requesting the same has paid to the Company the amount of such tax or has
established to the Company's satisfaction that such tax has been paid.
SECTION 8. MUTILATED OR MISSING WARRANTS. In case any of the
Warrants shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated
Warrant, or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company
and the Warrant Agent of such loss, theft or destruction of such Warrant
and indemnity, if requested, also satisfactory to them. Applicants for
such substitute Warrants shall also comply with such other reasonable
regulations and pay such reasonable charges as the Company or the Warrant
Agent may prescribe.
SECTION 9. RESERVATION OF COMMON SHARES. There have been
reserved, and the Company shall at all times keep reserved, out of the
authorized and unissued Common Shares, a number of shares sufficient to
provide for the exercise of the rights of purchase represented by the
Warrants, and the Transfer Agent for the Common Shares and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon
the exercise of any of the rights of purchase aforesaid are hereby
irrevocable authorized and directed at all times to reserve such number of
authorized and unissued shares as shall be requisite for such purpose. The
Company agrees that all Common Shares issued upon exercise of the Warrants
shall be, at the time of delivery of the certificates for such Common
Shares, validly issued and outstanding, fully paid and non-assessable
-4-
<PAGE>
and listed on any national securities exchange upon which the other Common
Shares are then listed. The Company will file such Registration
Statement(s) pursuant it to deliver to each person exercising a Warrant,
a Prospectus meeting the requirements of Section 11(a) (3) of such
Securities Act and otherwise complying therewith, and will deliver such a
Prospectus to each such person; PROVIDED, that the Company shall only be
obligated to use its reasonable, good faith efforts to have any such
registration statement declared effective by the Securities and Exchange
Commission, and to have such reserved shares qualified for delivery to
holders of the Warrants under applicable state securities laws, and to the
extent that the Company has used such prescribed efforts but has been
unsuccessful in obtaining any such registration(s) or qualification(s), it
shall not constitute a breach of this Agreement by the Company. The
Company will keep a copy of this Agreement on file with the Transfer Agent
for the Common Shares and with every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by the Warrants. The Warrant Agent is
hereby irrevocably authorized to requisition from time to time such
Transfer Agent for stock certificates required to honor outstanding
Warrants. The Company will supply such Transfer Agent with duly executed
stock certificates for such purpose. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be cancelled by the Warrant
Agent and shall thereafter be delivered to the Company, and such cancelled
Warrants shall constitute sufficient evidence of the number of Common
Shares which have been issued upon the exercise of such Warrants. Promptly
after the date of expiration of the Warrants, the Warrant Agent shall
certify to the Company the total aggregate amount of Warrants then
outstanding, and thereafter no Common Shares shall be subject to
reservation in respect to such Warrants which shall have expired.
SECTION 10. WARRANT PRICE. The Warrant Price at which Common Stock
shall be purchasable shall be $5.50 per whole share. No fractional shares
shall be issued.
SECTION 11. ADJUSTMENTS. Subject and pursuant to the provisions of
this Section 11, the Warrant Price and number of Common Shares subject to
this Warrant shall be subject to adjustment from time to time as set forth
hereinafter.
(a) If the Company shall at any time subdivide its outstanding
Common Shares by recapitalization, reclassification, split-up thereof,
or other such issuance without additional consideration, the Warrant
Price immediately prior to such subdivision shall be proportionately
decreased, and, if the Company shall at any time combine the
outstanding Common Shares by recapitalization, reclassification or
combination thereof, the Warrant Price immediately prior to such
combination shall be proportionately increased. Any such adjustment
to the Warrant Price, or the corresponding adjustment to the number of
Common Shares purchasable upon the exercise of Warrants, shall become
effective at the close of business on the record date for such
subdivision or combination.
(b) In the event the Company adopts a resolution for the
liquidation, dissolution, or winding up of the Company's business, the
Company will give written notice of such adoption of a resolution to
the registered holders of the Warrants. Thereupon all liquidation and
dissolution rights under the Warrants will terminate at the end of
thirty (30) days from the date of the notice to the extent not
exercised within those thirty (30) days.
-5-
<PAGE>
(c) If any capital reorganization or reclassification of the
Common Stock of the Company (other than a change in par value), or
consolidation or merger of the Company with another corporation (other
than a merger with a subsidiary in which the Company is the surviving
entity), or the sale of all or substantially all of its assets to
another corporation, shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities, cash, or
assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, the Company or such successor or purchasing
corporation, as the case may be, shall execute with the Warrant Agent
a supplemental Warrant Agreement providing that each registered holder
of a Warrant shall have the right thereafter and until the expiration
date to exercise such Warrant for the kind and amount of stock,
securities, cash or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale by a holder of the
number of shares of Common Stock for the purchase of which such
Warrant could have been exercised immediately prior to such
reorganization, reclassification, consolidation, merger or sale,
subject to adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 11.
(d) Upon any adjustment of the Warrant Price as hereinabove
provided, the number of Common Shares issuable upon exercise of a
Warrant shall be changed to the number of shares determined by
dividing (i) the aggregate Warrant Price payable for the purchase of
all shares issuable upon exercise of the Warrant immediately prior to
such adjustment by (ii) the Warrant Price per share in effect
immediately after such adjustment.
(e) Anything hereinabove to the contrary notwithstanding, no
adjustment of the Warrant Price or in the number of Common Shares
subject to any Warrant shall be made upon the issuance or sale by the
Company of any Common Shares pursuant to the exercise of any warrants
which may be issued by the Company pursuant to any underwriting
agreement between the Company and any underwriter (including the
Underwriter), pursuant to the issuance of shares of Common Stock upon
exercise of any of the Warrants, pursuant to any existing stock option
plan or any such plan which may be adopted by the Company, pursuant to
any merger, reorganization, consolidation, acquisition or other
corporate transaction, or otherwise in connection with any issuance of
securities by the Company, except as specifically identified herein.
(f) No adjustment in the Warrant Price shall be required under
this Section 11 unless such adjustment would require an increase or
decrease in such price of at least 10%; provided, however, that any
adjustments which by reason of the foregoing are not required at the
time to be made shall be carried forward and taken into account and
included in determining the amount of any subsequent adjustment; and
provided further, however, that in case the Company shall at any time
subdivide or combine the outstanding Common Shares or issue any
additional Common Shares as a dividend, said amount of 10% per share
shall forthwith be proportionately increased in the case of a
combination or decreased in the case of a subdivision or stock
dividend so as to appropriately reflect the same.
-6-
<PAGE>
(g) On the effective date of any new Warrant Price the number of
shares as to which any Warrant may be exercised shall be increased or
decreased so that the total sum payable to the Company on the exercise
of such Warrant shall remain constant.
(h) The form of Warrant need not be changed because of any
change pursuant to this Article, and Warrants issued after such change
may state the same Warrant Price and the same number of shares as is
stated in the Warrants initially issued pursuant to this agreement.
However, the Company may at any time in its sole discretion (which
shall be conclusive) make any change in the form of Warrant that the
Company may deem appropriate and that does not affect the substance
thereof; and any Warrant thereafter issued or countersigned, whether
in exchange or substitution for an outstanding Warrant or otherwise,
may be in the form as so changed.
SECTION 12. FRACTIONAL INTEREST. The Company shall not be required
to issue fractions of Common Shares on the exercise of Warrants or any cash
or other adjustment in respect of such fractions of Common Shares. If any
fraction of a Common Share would, except for the provisions of this Section
12, be issuable on the exercise of any Warrant (or specified portions
thereof), the Company shall issue such number of shares of Common Stock to
which the Warrant holder is entitled, rounded up to the nearest number of
whole shares.
SECTION 13. NOTICES TO WARRANTHOLDERS.
(a) Upon any adjustment of the Warrant Price and the number of
shares issuable on exercise of a Warrant, then and in each such case
the Company shall give written notice thereof to the Warrant Agent,
which notice shall state the Warrant Price resulting from such
adjustment and the increase or decrease, if any, in the number of
shares purchasable at such price upon the exercise of a Warrant,
setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(b) In case at any time:
(i) the Company shall pay any dividends payable in stock
upon its Common Stock or make any distribution (other than
regular cash dividends) to the holders of its Common Stock;
(ii) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company;
-7-
<PAGE>
then, in any one or more of such cases, the Company shall give written
notice to all Warrant holders of record not fewer than 10 days' prior
to the date on which the books of the Company shall close or a record
shall be taken for (i) such dividend, distribution, or subscription
rights, or (ii) such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding up shall take
place, as the case may be. Such notice shall also specify the date as
of which the holders of Common Stock of record shall participate in
such dividend, distribution, or subscription rights, or shall be
entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding up,
as the case may be. Failure to give or publish such notice, or any
defect therein, shall not affect the legality or validity of any of
the matters set forth in this Section 13 inclusive.
(c) The Company shall cause copies of all financial statements
and reports, proxy statements and other documents as it shall send to
its stockholders to be sent by first-class mail, postage prepaid, on
the date of mailing to such stockholders, to each registered holder of
Warrants at his address appearing on the Warrant register as of the
record date for the determination of the stockholders entitled to such
documents.
SECTION 14. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS.
(a) The Warrant Agent shall forward promptly to the Company,
with respect to Warrants exercised, the funds which will be deposited
in a special account in a bank designated by the Company for the
benefit of the Company, for the purchase of Common Shares through the
exercise of such Warrants.
(b) The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business
hours.
SECTION 15. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT
AGENT. Any corporation or company which may succeed to the business of the
Warrant Agent by any merger or consolidation or otherwise to which the
Warrant Agent shall be a party, shall be the successor Warrant Agent
hereunder without the execution or filing of any paper or any further act
on the part of any of the parties hereto; provided that such corporation
would be eligible for appointment as a successor Warrant Agent under the
provisions of Section 17 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement, any of the Warrants shall have been countersigned but not
delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent and deliver such Warrants so
countersigned; and in case at that time any of the Warrants shall not have
been countersigned, any successor to the Warrant Agent may countersign such
Warrants either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent; and in all such cases such Warrants shall
have the full force provided in the Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrants so countersigned; and in case at that time
-8-
<PAGE>
any of the Warrants shall not have been countersigned, the Warrant Agent
may countersign such Warrants either in its prior name or in its changed
name; and in all such cases such Warrants shall have the full force
provided in the Warrants and in this Agreement.
SECTION 16. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes
the duties and obligations imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of
Warrants, by their acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in
the Warrants shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of
the same except such as describe the Warrant Agent or action taken or
to be taken by it. The Warrant Agent assumes no responsibility with
respect to the distribution of the Warrants except as herein expressly
provided.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the
Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion or the written advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility
to the Company or to any holder of any Warrant for any action taken in
reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document or instrument reasonably
believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind
and nature incurred by the Warrant Agent in the execution of this
Agreement and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of the
Warrant Agent's negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action
likely to involve expense unless the Company or one or more registered
holders of Warrants shall furnish the Warrant Agent with reasonable
security and indemnity for any costs and expenses which may be
incurred, but this provision shall not affect the power of the Warrant
Agent to take such action as the Warrant Agent may consider proper,
whether with or without any such security or indemnity.
-9-
<PAGE>
All rights of action under this Agreement or under any of the Warrants
may be enforced by the Warrant Agent without the possession of any of
the Warrants or the production thereof at any trial or other
proceeding relative thereto, and any such action, suit or proceeding
instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery of judgment shall be for the ratable
benefit of the registered holders of the Warrants, as their respective
rights or interests may appear.
(g) The Warrant Agent and any stockholder, director, officer,
partner or employee of the Warrant Agent may buy, sell or deal in any
of the Warrants or other securities of the Company or become pecuniary
interested in any transaction in which the Company may be interested,
or contract with or lend money to otherwise act as fully and freely as
though it were not Warrant Agent under this Agreement. Nothing herein
shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent and
not in a ministerial capacity, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not be
liable for anything which it may do or refrain from doing in
connection with this Agreement except for its own negligence or bad faith.
(i) The Warrant Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys, agents or employees, and the
Warrant Agent shall not be answerable or accountable for any act,
default, neglect or misconduct of any such attorneys, agents, or
employees or for any loss to the Company resulting from such neglect
or misconduct, provided reasonable care has been exercised in the
selection and continued employment thereof.
(j) Any request, direction, election, or order or demand of the
Company shall be sufficiently evidenced by an instrument signed in the
name of the Company by its President or a Vice President or its
Secretary or an Assistant Secretary or its Treasurer or an Assistant
Treasurer (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Warrant Agent by a copy thereof certified by
the Secretary or an Assistant Secretary of the Company.
SECTION 17. CHANGE OF WARRANT AGENT. The Warrant Agent may resign
and be discharged from its duties under this Agreement by giving to the
Company notice in writing, and to the holders of the Warrants notice by
mailing such notice to holders at their addresses appearing on the Warrant
register, of such resignation, specifying a date when such resignation
shall take effect. The Warrant Agent may be removed by like notice to the
Warrant Agent from the Company and by like mailing of notice to the holders
of the Warrants. If the Warrant Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor
to the Warrant Agent. If the Company shall fail to make such appointment
within a period of 30 days after such removal or after it has been notified
in writing of such resignation or in capacity by the resigning or
incapacitated Warrant Agent or by the registered holder of a Warrant (who
shall, with such notice, submit his Warrant for inspection by the Company),
then the registered holder of any
-10-
<PAGE>
Warrant may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Any successor warrant
agent, whether appointed by the Company or by such court, shall be a bank,
or trust company or active transfer agent, in good standing, incorporated
under the laws of a state of the United States of America. After
appointment, the successor warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally
named as Warrant Agent without further act or deed; but the former Warrant
Agent shall deliver and transfer to the successor warrant agent all
cancelled Warrants, records and property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed
necessary for the purpose. Failure to file or mail any notice provided by
this Section, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Warrant Agent or the
appointment of thesuccessor warrant agent, as the case may be.
SECTION 18. IDENTITY OF TRANSFER AGENT. Forthwith upon the
appointment of any Transfer Agent for the Common shares or of any
subsequent transfer agent for Common Shares or other shares of the
Company's capital stock issuable upon exercise of the rights of purchase
represented by the Warrants, the Company will file with the Warrant Agent
a statement setting forth the name and address of such Transfer Agent. The
Warrant Agent hereby acknowledges that it is, at the time of execution
hereof, the Transfer Agent, and waives any statement required herein with
respect thereto.
SECTION 19. NOTICES. Any notice pursuant to this Agreement to be
given or made by the Warrant Agent or by the registered holder of any
Warrant to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is
filed in writing by the Company with the Warrant Agent) as follows:
n-GEN SOLUTIONS.COM, INC.
410 17th Street, Suite 1940
Denver, Colorado 80202
Attn: Robert D. Arnold
With a copy to:
Berenbaum, Weinshienk & Eason, P.C.
370 17th Street, Suite 2600
Denver, Colorado 80202
Attn: John B. Wills
Any notice pursuant to this Agreement to be given or made by the
Company or by the registered holder of any Warrant to or on the Warrant
Agent shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing by
the Warrant Agent with the Company) as follows:
-11-
<PAGE>
Corporate Stock Transfer, Inc.
______________________________
Denver, Colorado 80202
Attn: ____________________
SECTION 20. SUPPLEMENTS AND AMENDMENTS. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement
without the approval of any holders of Warrants in order to cure any
ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to
make any other provisions in regard to matters or questions arising
hereunder which the Company and the Warrant Agent may deem necessary or
desirable and which shall not be inconsistent with the provisions of the
Warrants and which shall not adversely affect the interests of the holders
of Warrants.
SECTION 21. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 22. COLORADO CONTRACT. This Agreement shall be deemed to
be a contract made under the laws of the State of Colorado and for all
purposes shall be construed in accordance with laws of said State.
SECTION 23. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of the Warrant any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the registered holders of the Warrants.
SECTION 24. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall be considered an
original.
SECTION 25. EFFECTIVENESS. This Agreement shall be deemed binding,
and, therefore, in effect, as of and subject to the effective date of the
Registration Statement for the Public Offering.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
n-GEN SOLUTIONS.COM, INC.
(Corporate Seal)
By: ____________________________________
Robert D. Arnold
Chairman and Chief Executive Officer
Attest:
-12-
<PAGE>
_________________________________
Michael V. Schranz, Secretary
CORPORATE STOCK TRANSFER, INC.
By: __________________________________
________________________
Executive Vice President
-13-
<PAGE>
EXHIBIT A
FORM OF WARRANT
This certifies that ___________________, or registered assigns, is the
registered holder of the number of Warrants indicated above, each of which
Warrants entitles the holder thereof to purchase, at any time on or before
_____________, 2005, one Share of the $.0001 par value common stock of n-Gen
Solutions.Com, Inc., a corporation duly organized and existing under
the laws of the state of Delaware, hereinafter called the Company, as such
shares are constituted on ____________, 2000, at the subscription price of
$5.50 per Share by surrendering this Warrant, with the subscription form on
the reverse side thereof duly executed, at the office of the Warrant Agent,
and by paying in lawful money of the United States, the Subscription Price
for each Share as to which this Warrant is exercised, buy only subject to
the conditions set forth herein and in the Warrant Agreement.
This Warrant is one of a duly authorized issue of Warrants for the
purchase of Shares evidencing the right to purchase shares of the Company.
It is issued under and in accordance with certain resolutions adopted by
the Board of Directors of the Company on _____________, 2000, and is
subject to the terms and provisions contained in the Warrant Agreement, to
all of which the holder of this Warrant, by acceptance hereof, consents.
A copy of the Warrant Agreement may be obtained for inspection by the
holder hereof upon written request to the Transfer Agent of the Company.
This Warrant is redeemable at the option of the Company on 30 days
notice at the price of $.05 per Warrant, subject to the terms of the
Warrant Agreement. No fractional shares will be issued upon the exercise
of this Warrant, but, in lieu of any fractional interest, the Company shall
pay cash as provided in the Warrant Agreement. Upon any partial exercise
of this Warrant, there shall be countersigned and issued to or upon the
order of the holder thereof a new Warrant in respect of the Shares as to
which this Warrant shall not have been exercised. This Warrant shall be
exchanged either separately or in combination with one or more other
Warrants for one or more new Warrants of the same aggregate number of
Shares as were evidenced by the Warrant or Warrants exchanged.
This Warrant is issued subject to the condition, and every holder
hereof by accepting the same agrees with every subsequent holder hereof and
with the Company, that delivery hereof by any person in possession of the
same, however such possession may have been acquired, if properly assigned
in blank, or if properly assigned to a specified person, by delivery hereof
to such person, shall vest title hereof and all rights hereunder in the
transferee to the same extent and for all purposes as would delivery under
like circumstances of any negotiable instrument; and that the Company may
treat the record holder hereof for the time being, or when presented
properly assigned to a specified person, the person to whom assigned, or,
when presented properly assigned in blank, the bearer hereof, as the
absolute holder for all purposes and shall not be affected by any notice to
the contrary.
This Warrant does not entitle any holder hereof to any rights of a
shareholder of this Company.
-14-
<PAGE>
IN WITNESS WHEREOF the Company has caused this Warrant to be signed by
its Chief Executive Officer and by its Secretary each by facsimile
signature and has caused a facsimile of its corporate seal to be imprinted
hereon.
Dated:
-15-
<PAGE>
n-GEN SOLUTIONS.COM, INC.
PURCHASE WARRANT
SUBSCRIPTION FORM
To Be Executed By The Registered Holder
In Order To Exercise Warrants
The undersigned registered holder irrevocably elects to exercise __________
Warrants represented by this Warrant Certificate, and to purchase the
shares of Common Stock issuable upon the exercise of such Warrants and
enclosed $__________ as purchase price therefor, and requests that
certificates for such shares be issued in the name of:
__________________________________________________________________________
(PLEASE TYPE OR PRINT NAME AND ADDRESS)
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
(SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER)
and be delivered to ________________________________________
(PLEASE PRINT OR TYPE NAME AND ADDRESS)
_____________________ and, if such number of Warrants shall not be all the
Warrants evidenced by this Warrant Certificate, that a new Warrant
Certificate for the balance of such Warrants be registered in the name of,
and delivered to, the Registered Holder at the address stated below.
______________________________________
(SIGNATURE)
______________________________________
(SIGNATURE)
Dated:____________________ ______________________________________
ADDRESS
______________________________________
__________________________ ______________________________________
SIGNATURE(s) GUARANTEED TAX IDENTIFICATION NUMBER
-16-
<PAGE>
ASSIGNMENT
To Be Executed By The Registered Holder
In Order to Transfer Warrants
For Value Received, _______________________________ hereby sell, assign and
transfer unto: __________________________________________________________
(PLEASE TYPE OR PRINT NAME AND ADDRESS)
_________________________________________________________________________
__________________________________________________________________________
___________________________________________________________________________
(SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER)
of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitute and appoint _______________________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated: _____________________ ______________________________________
(SIGNATURE)
____________________________ ______________________________________
SIGNATURE(s) GUARANTEED (SIGNATURE)
THIS SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND
TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND
MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM
OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC COAST
STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE.
-17-
NUMBER VOID AFTER 5:00 P.M. MOUNTAIN TIME ___________, 2005 WARRANTS
n-GEN SOLUTIONS.COM, INC.
________ Incorporated Under the Laws of the State of Delaware _________
WARRANT CERTIFICATE
CUSIP __________
SEE REVERSE
FOR CERTAIN DEFINITIONS
This Warrant Certificate certifies that
or registered assigns (the "Warrant Holder"), is the registered owner of
the above indicated number of Warrants expiring on April ___, 2005
("Expiration Date"). One Warrant entitles the Warrant Holder to purchase
one share of Common stock, $0.0001 par value ("Share") from n-Gen
Solutions.Com, Inc., a Delaware corporation ("Company"), at a purchase
price of $5.50 per share of Common Stock ("Exercise Price"), commencing on
__________, and terminating on the Expiration Date ("Exercise Period") upon
surrender of this Warrant Certificate with the exercise form hereon duly
completed and executed with payments of the Exercise Price at the office
of American Securities Transfer & Trust, Inc., Denver, Colorado ("Warrant
Agent"), but only subject to the conditions set forth herein and in a
Warrant Agreement dated as of April ___, 2000 ("Warrant Agreement")
between the Company and the Warrant Agent. The Exercise Price, the
number of shares purchasable upon exercise of each Warrant, the number of
Warrants outstanding and the Expiration Date are subject to adjustments
upon the occurrence of certain events. The Warrant Holder may exercise
all or any number of Warrants. Reference hereby is made to the
provisions on the reverse side of this Warrant Certificate and to the
provisions of the Warrant Agreement, all of which are incorporated by
reference in and made a part of this Warrant Certificate and shall for
all purposes have the same effect as though fully set forth as this place.
Upon the presentment for transfer of this Warrant Certificate at the
office of the Warrant Agent, a new Warrant Certificate or Warrant
Certificates of like terms and evidencing in the aggregate a like number
of Warrants, subject to any adjustments made in accordance with the
provisions of the Warrant Agreement, shall be issued to the transferee in
exchange for this Warrant Certificate, subject to the limitations
provided in the Warrant Agreement, upon payment of $5.50 per Warrant
Certificate and any tax or governmental charge impaired in connection
with such transfer.
The Warrant Holder of the Warrants evidenced by this Warrant
Certificate may exercise all or any whole number of such Warrants during
the period and in the manner stated herein. The Exercise Price shall be
payable in lawful money of the United States of America and in cash or by
certified or bank cashier's check or bank draft payable to the order of
the Company. If upon exercise of any Warrants evidenced by this Warrant
Certificate the number of Warrants exercised shall be less than the total
number of Warrants so evidenced, there shall be issued to the Warrant
Holder a New Warrant Certificate evidencing the number of Warrants as so
exercised.
Subject to the following paragraph, no Warrant may be exercised
after 5:00 p.m. Mountain Time on the Expiration Date and any Warrant not
exercised by such time shall become void, unless extended by the Company.
Exhibit 4.3
<PAGE>
Commencing after the Effective Date of the Company's prospectus the
Warrants are subject to redemption by the Company at $.05 per Warrant on
30 days' prior written notice if the closing bid price for the Company's
Common Stock, as reported on the Nasdaq Small Cap Market ("Nasdaq"), or
the closing sale price as reported on a national or regional securities
exchange, as applicable, for 30 consecutive trading days ending within 15
days of the notice of redemption of the Warrants, averages at least
$10.00. The Company is required to maintain an effective registration
statement with respect to the Common Stock underlying the Warrants at the
time of redemption of the Warrants. Prior to the first anniversary of
the Effective Date, the Warrants will not be redeemable by the Company
without the written consent of the Representative.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its Chief Executive Officer and by its Secretary, made by a facsimile
of his signature, and has caused a facsimile of its corporate seal to be
imprinted hereon.
Dated:
__________________________
Michael V. Schranz,
Secretary
CORPORATE SEAL
__________________________
Robert D. Arnold,
Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
Corporate Stock Transfer, Inc.
______________________________
Denver, Colorado 80202
By:___________________________________
Warrant Agent Authorized Signature
NUMBER SHARES
n-GEN SOLUTIONS.COM, INC.
________ Incorporated Under the Laws of the State of Delaware _________
25,000,000 Authorized Shares $0.0001 Par Value
CUSIP _______________
SEE REVERSE
FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF $0.0001 PAR VALUE COMMON STOCK OF
n-GEN SOLUTIONS.COM, INC.
transferable only on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until
countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signature of its duly authorized officers.
Dated: _____________, 2000
_____________________ CORPORATE SEAL ____________________
Michael V. Schranz, Robert D. Arnold,
Secretary Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
Corporate Stock Transfer, Inc.
______________________________
Denver, Colorado 80202
By:_____________________________________
Transfer Agent & Registrar
Authorized signature
Exhibit 4.4
May 24, 2000
Board of Directors
n-Gen Solutions.Com, Inc.
410 17th Street
Suite 1940
Denver, CO 80202
RE: N-GEN SOLUTIONS.COM, INC.
AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT, AND RELATED
PROSPECTUS
Dear Sirs/Madam:
As counsel to n-Gen Solutions.Com, Inc. ("Registrant"), a Delaware
corporation, in connection with the above-referenced SB-2 Registration
Statement, and related Prospectus ("Registration Statement"), relating to
the registration of up to 1,840,000 shares of common stock, $.001 par value
per share, up to 1,840,000 redeemable common stock purchase warrants,
160,000 underwriter's common stock options, 160,000 shares of common stock
underlying underwriter's common stock option, 160,000 underwriter's warrant
options, 160,000 warrants underlying underwriter's warrant option and
160,000 shares of common stock underlying underwriters warrant option we
have examined the Certificate of Incorporation and amendments thereto and
By-laws of the Registrant, and such other documents as we have deemed
relevant and material. Based on the foregoing, and certain representations
of the officers, directors and representatives of the Registrant, it is the
opinion of this office that:
1. The Registrant has been duly organized and is validly existing and
in good standing in the State of Delaware, the jurisdiction of its
incorporation.
2. The aforementioned securities to be registered pursuant to the
Registration Statement have been duly and validly authorized by the
requisite corporate action in accordance with the general requirements of
corporation law.
3. When, as and if the aforementioned securities are delivered
against payment in accordance with the Registration Statement, and related
Prospectus, such securities will be validly authorized and issued, fully
paid and nonassessable in accordance with the general requirements of
Delaware corporation law.
We hereby consent to the use of the opinion of this office as Exhibit
5.1 to the Registration Statement of the Registrant, and further consent to
the reference to its name in such Registration Statement, as amended, and
related Prospectus.
Very truly yours,
BERENBAUM, WEINSHIENK & EASON, P.C.
JBW/db
EXHIBIT 5.1
EXHIBIT 24.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 1, 2000 accompanying the
financial statements of n-Gen Solutions.Com, Inc. contained in the
registration statement and prospectus. We have also issued our report
dated February 1, 2000 accompanying the financial statements of n-Gen
Solutions.Com, Inc. (a Colorado corporation) contained in the registration
statement and prospectus. We consent to the use of the aforementioned
report in the registration statement and prospectus, and to the use of our
name as it appears under the caption "Experts."
GORDON, HUGHES & BANKS, LLC
Denver, Colorado
May 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS 9-MOS OTHER
<FISCAL-YEAR-END> SEP-30-2000 SEP-30-1999 SEP-30-1999 DEC-31-1998
<PERIOD-START> OCT-01-1999 OCT-01-1998 JAN-01-1999 JUL-13-1998
<PERIOD-END> MAR-31-2000 MAR-31-1999 SEP-30-1999 DEC-31-1998
<CASH> 251,898 0 210,196 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 595,274 0 1,533,277 0
<ALLOWANCES> 98,590 0 98,590 0
<INVENTORY> 166,526 0 347,035 0
<CURRENT-ASSETS> 915,108 0 1,991,918 0
<PP&E> 920,014 0 702,722 0
<DEPRECIATION> 552,548 0 503,258 0
<TOTAL-ASSETS> 1,677,885 0 2,570,539 0
<CURRENT-LIABILITIES> 1,648,631 0 2,554,794 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 594 0 501 0
<OTHER-SE> (424,033) 0 (474,748) 0
<TOTAL-LIABILITY-AND-EQUITY> 1,677,885 0 2,570,539 0
<SALES> 2,633,353 707,355 3,927,353 0
<TOTAL-REVENUES> 2,633,353 707,355 3,927,353 0
<CGS> 1,735,801 504,427 2,690,979 0
<TOTAL-COSTS> 1,274,309 649,634 2,003,782 244,254
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> (68,448) (10,264) (95,160) 0
<INCOME-PRETAX> (442,896) (446,676) (850,954) (238,124)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (442,896) (446,676) (850,954) (238,124)
<EPS-BASIC> (0) (0) (0) (0)
<EPS-DILUTED> (0) (0) (0) (0)
</TABLE>
