AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2000.
REGISTRATION NO. 333-91177
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TAKE TO AUCTION.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA 7389 65-0924433
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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5555 ANGLERS AVENUE, SUITE 16
FORT LAUDERDALE, FLORIDA 33312
(954) 987-0654
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ALBERT FRIEDMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5555 ANGLERS AVENUE, SUITE 16
FORT LAUDERDALE, FLORIDA 33312
(954) 987-0654
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
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Copies to:
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KEITH WASSERSTROM, ESQ. JOEL D. MAYERSOHN, ESQ.
BAKER & MCKENZIE ATLAS, PEARLMAN, TROP & BORKSON, P.A
1200 BRICKELL AVENUE, SUITE 1900 200 EAST LAS OLAS BOULEVARD, SUITE 1900
MIAMI, FLORIDA 33131 FORT LAUDERDALE, FLORIDA 33301
FACSIMILE NUMBER: (305) 789-8953 FACSIMILE NUMBER: (954) 766-7800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _______.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Common shares, par value $0.001 per share.............................. $15,600,000 $4,118.40
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(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
amount of the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 27, 2000
1,300,000 SHARES
[LOGO]
TAKE TO AUCTION.COM, INC.
COMMON SHARES
------------------------
This is an initial public offering of our common shares.
Prior to the offering, there has been no public market for the common
shares. We have applied to list our common shares on the American Stock Exchange
under the symbol TTA. Notwithstanding the reservation of a trading symbol, we
may not be able to obtain or maintain a listing on the American Stock Exchange.
We currently estimate that the initial public offering price will be between
$10.00 and $12.00 per share. For factors to be considered in determining the
initial public offering price, see 'Underwriting.'
SEE 'RISK FACTORS' BEGINNING ON PAGE 4 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING THESE SECURITIES.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
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PER SHARE TOTAL
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Initial public offering price.............................................. $ 11.00 $14,300,000
Underwriting discounts..................................................... $ 0.66 $ 858,000
Proceeds, before expenses, to Take to Auction.com.......................... $ 10.34 $13,442,000
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 130,000 common shares from Take to Auction.com solely to cover
over-allotments.
------------------------
The underwriters expect to deliver the shares in ,
on , 2000.
NOBLE INTERNATIONAL INVESTMENTS, INC.
THE DATE OF THIS PROSPECTUS IS , 2000.
The information contained in this prospectus is not complete and may be changed.
We have filed a registration statement relating to these securities with the
U.S. Securities and Exchange Commission. 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 securities, and we are not
soliciting offers to buy securities, in any State where the offer or sale is not
permitted.
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Step 1 Register Step 6 Spread the Word
Sign-Up and become Tell your friends and family
a TaketoAuction(sm) Member. about our community.
Step 2 Select Product
Choose an item from our Step 5 Collect your Profit
Online catalog of collectibles and We handle billing and collection.
specialty merchandise.
Step 3 TaketoAuction(sm)
With one click send your item to Step 4 SOLD!
auction. No obligation to purchase The item is packaged and
the item if it is not sold at shipped from our warehouse to
auction. the buyer.
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2
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PROSPECTUS SUMMARY
This summary highlights the material information about our business and
this offering, but you should read the entire prospectus, including the
financial statements and the notes to those statements appearing elsewhere in
this prospectus, before deciding to purchase our common shares. Unless otherwise
specifically stated, the information in this prospectus assumes (A) that the
underwriters will not exercise their over-allotment option and no options are
presently exercisable under our stock option plan (B) a 1,000-for-one
stock-split of our outstanding common shares effected on August 26, 1999 and (C)
a subsequent 2.326530644-for-one stock split of our outstanding common shares
effected on November 3, 1999. You should carefully consider the information set
forth under the heading 'Risk Factors.'
OUR BUSINESS
We are an Internet-based community providing our entrepreneurial members an
online catalog of authentic collectibles and factory-new specialty merchandise
to sell at online auction sites, such as eBay(sm), FairMarket(sm), Amazon(sm)
and Yahoo!(sm). eBay, FairMarket, Amazon and Yahoo! are registered service marks
of eBay Inc., FairMarket, Inc., Amazon.com, Inc. and Yahoo! Inc., respectively.
Currently, we have no formal relationship or agreement with any of these online
auction sites.
Our members pay an annual membership fee and, at no additional cost, they
select merchandise up to their membership dollar limit from our Web site that we
then list automatically on their behalf on a popular online auction site for one
week at a time. Each membership lasts for one year. Our members have the ability
to earn money by selling items through popular online auction sites at prices in
excess of the prices listed on our Web site. Our business model is distinct from
and complements the more than 200 online auction sites. We do not merely provide
a forum for buyers and sellers to meet, but rather we provide a total solution
for our members where they can take our merchandise and list it on popular
online auction sites. By doing this, we provide the various online auctions with
additional merchandise available to be placed for auction on their sites. We
intend to develop and expand our online membership base under the Take to
Auction brand by attracting Internet users who can earn additional income
through our Web site. We create Web site affinity by offering our members the
ability to follow their portfolio of merchandise currently listed on online
auction sites and to track their accumulated profits from completed online
auctions. In the near future we intend to conduct monthly and annual
competitions for the purpose of keeping members returning to our Web site.
We are a development stage company, having launched our Web site in July
1999. We provide our members with a total solution to take items to online
auction sites. Our principal sources of revenues are membership fees, the
purchase of additional credits and the sale of products. In the future, we also
anticipate receiving fees from third parties for advertising their products and
services on our Web site. As our membership base expands and the volume of
merchandise increases, our purchasing power and economies of scale should enable
us to offer a broader array of merchandise at even better prices.
We believe that our approach will appeal to Web users, create community
affinity and increase user traffic on online auction sites because:
o we provide members with a broad array of merchandise (currently 2,000
types of items) to take to online auctions;
o members never have to purchase or take possession of the merchandise;
o members do not have to take extensive steps to list items online such as
photographing the item, scanning or cropping the photograph, writing the
copy, setting the price, setting the length of auction, setting the
minimum bid, setting the delivery options, and setting the payment
options;
o we facilitate transactions, free of charge to the member, by accepting
credit cards and electronic checks and by handling shipping and
delivery; and
o our service is designed to promote an active membership community to
provide a positive environment for advertising and electronic commerce.
3
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RISK FACTORS
Our risks can be divided into the following three broad areas--risks
related to our business--risks related to our industry--and risks related to
this offering. For a more in depth discussion and listing of the risk factors,
please see 'Risk Factors.' Some of the most important risk factors include the
following:
o our limited operating history makes it difficult to evaluate our
business;
o we had an accumulated deficit of approximately $550,000 as of December
31, 1999 and we anticipate that our losses will continue;
o we have received a going concern opinion from our independent auditors
that expresses substantial doubt as to our ability to continue as a
going concern as a result of our operating losses;
o because our business model is unproven, we cannot assure you that our
revenues will grow or that we will become profitable;
o concerns about Web security pose risks to our entire business;
o governmental regulation and legal uncertainties relating to the Web
could increase our costs of transmitting data and increase our legal and
regulatory expenditures and could decrease our membership base;
o we may not be able to obtain or maintain a listing on the American Stock
Exchange, so you may not be able to sell your shares easily;
o possible volatility of our stock price could harm our shareholders; and
o we will need to raise additional capital which may affect our
shareholders, and our business will be harmed if we are unable to obtain
additional capital.
OUR STRATEGY
Our strategy is to use our innovative business model to capitalize on the
current popularity of online person-to-person auction sites. We believe we are
the only online business which enables its members to sell, for a profit,
products that they do not own or possess at online auction sites. Our strategy
includes the following key elements:
o take advantage of our innovative business model by providing our members
with a total solution to sell products at online auction sites to
attract more members;
o grow the Take to Auction.com community and increase the membership base;
o promote the Take to Auction.com brand;
o forge business relationships with leading online auction sites to
improve brand-name recognition and the efficiency of our network
systems;
o enhance the Take to Auction.com Web site features and functionality by
adding unique content to our membership community; and
o generate additional revenues from the sale of online advertising.
OUR CORPORATE HISTORY
Take to Auction.com, Inc. was incorporated in Florida in June 1999. Our
principal executive offices are located at 5555 Anglers Avenue, Suite 16, Fort
Lauderdale, Florida 33312. Our telephone number is (305) 436-8070, and our Web
site is located at www.taketoauction.com. The information contained on our Web
site is not incorporated by reference into this prospectus.
4
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THE OFFERING
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Common shares offered by Take to
Auction.com............................. 1,300,000 Shares
Common shares to be outstanding after this
offering................................ 19,300,000 Shares
Use of proceeds........................... Fund the development of our network infrastructure, implement our
growth strategy, launch a targeted advertisement campaign, increase
our inventory and for working capital, general administrative and
other expenses. Please see 'Use of Proceeds.'
Proposed American Stock Exchange symbol... TTA (notwithstanding the reservation of a trading symbol, we may not
be able to obtain or maintain a listing on the American Stock
Exchange).
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5
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SUMMARY FINANCIAL DATA
The following summary of the financial data for our business should be read
in conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and our financial statements and the accompanying
notes to those statements included elsewhere in this prospectus.
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FOR THE PERIOD FROM
JUNE 2, 1999
(DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
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STATEMENT OF OPERATIONS DATA:
Net revenues.................................................... $ 70,067
Operating expenses.............................................. (483,687)
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Net loss........................................................ (549,662)
=============
Basic and diluted loss per share................................ $ (0.03)
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Weighted average number of
common shares outstanding.................................. 17,090,297
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DECEMBER 31, 1999
----------------------------
ACTUAL AS ADJUSTED(1)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 856,949 $ 13,298,949
Working capital............................................. 288,032 12,730,032
Total assets................................................ 2,579,739 15,021,739
Shareholders' equity........................................ 1,150,338 13,592,338
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- ------------------
(1) Adjusted to give effect to the sale of the common shares offered by us (at
the assumed initial public offering price of $11.00 per share), and the
application of the estimated net proceeds therefrom as set forth under 'Use
of Proceeds.'
------------------------
We have applied for registration of the service marks Take to Auction.com,
Take to Auction, Take2Auction, and Take2Auction.com with the U.S. Patent and
Trademark Office. We have also applied for a U.S. patent registration of our
method for providing merchandise to online auction sites. We cannot assure you
that a patent will be issued to us, or, if issued, will provide us with all of
the protections that we have sought. This prospectus also includes tradenames
and trademarks that belong to other companies. Use or display by us of other
parties' trademarks, tradenames or products is not intended to, and does not
imply a relationship with, or endorsement or sponsorship of, Take to Auction by
the trademark or tradename owners.
6
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RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
you decide to invest in our common shares. If any of the following risks occur,
our business, results of operations and financial condition could be harmed.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS
We commenced operations in June 1999 and launched our Web site in July
1999. There are no period-to-period comparisons of our operating results from
which to evaluate our performance. An investor in our common shares must
consider the risks, uncertainties, expenses and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets such as online commerce. These
risks include depleting our cash reserves, lower than expected revenues and
earnings and not being able to pay expenses as they come due, as well as the
following:
o we may not be able to establish and grow our membership base;
o we may not be able to establish and maintain commercial relationships
with suppliers of merchandise to increase or maintain the number of
items listed on our service;
o we may not be able to maintain and enhance our brand and implement and
execute our business and marketing strategy;
o we may not be able to continue to develop and upgrade our technology and
information processing systems;
o we may not be able to provide superior customer service;
o we may not be able to secure adequate financing to fund growth;
o we may not be able to respond effectively to competitive developments
and a rapidly changing market; and
o we may not be able to attract qualified personnel, and if attracted, we
may not be able to integrate, retain and motivate such personnel.
Our failure to accomplish any of these objectives would harm our business,
financial condition and results of operations.
WE HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE THAT OUR LOSSES WILL CONTINUE
We launched our Web site in July 1999 and had only approximately 230
members as of February 24, 2000, representing approximately $147,000 of annual
membership fees. We have only generated revenues of approximately $70,000 as of
December 31, 1999. Therefore, we have not achieved profitability and expect to
incur operating losses for the foreseeable future. We incurred net losses of
approximately $550,000 for the period from June 2, 1999 (inception) through
December 31, 1999. We expect to continue to incur significant operating and
capital expenditures and net operating losses arising from initial development
costs, technology improvements and implementation of our business strategy. We
currently forecast an increased loss of approximately $7 million for fiscal year
2000. Our current and future expense levels are based largely on our investment
plans and estimates of future revenues and are, to a large extent, fixed. We
estimate fixed expenses over the next 12 months to be approximately $3.1
million. We may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues relative to our planned expenditures would have an immediate harmful
effect on our business, financial condition and results of operations. Further,
as a strategic response to changes in the competitive environment, we may from
time to time make certain pricing, service or marketing decisions that could
harm our short-term or medium-term financial condition and results of
operations.
7
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We may not achieve profitability. Even if we do so, we may never sustain or
increase profitability on a quarterly or annual basis in the future. If revenues
grow slower than we anticipate, or if operating expenses exceed our expectations
or cannot be adjusted accordingly, our business, financial condition and results
of operations will be harmed. Please see 'Management's Discussion and Analysis
of Financial Condition and Results of Operations.'
WE RECEIVED A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS
We received an opinion from our independent auditors on our December 31,
1999 financial statements expressing substantial doubt as to our ability to
continue as a going concern as a result of our operating losses during the
development stage and our need for substantial amounts of additional funding to
continue our operations.
WE MAY FACE COMPETITION FROM EXISTING ONLINE AUCTION SITES OR NEW
PERSON-TO-PERSON TRADING WEB SITES WHICH MAY HARM OUR BUSINESS
Currently we believe that we are the only entity using our innovative
business model. However, we could face competition from existing online auction
sites or new person-to-person trading Web sites that may provide the Take to
Auction concept in the future. In the event that existing online auction sites
begin to provide the Take to Auction concept in the future, they could attempt
to block us from accessing their auction sites. Barriers to entry are relatively
low and future competitors could launch new sites at a relatively low cost using
commercially available software. Likewise, it would not be costly for existing
online auction sites to modify their format to provide the Take to Auction
concept. Many of the major online auction sites, if they were to compete with us
in the future, have longer operating histories, larger user bases, longer
relationships with consumers, greater brand or name recognition and
significantly greater financial, technical and marketing resources than we do.
Competitive pressures created by any one of these companies, or by new entries
using the Take to Auction concept, could harm our business, financial condition
and results of operations. Please see 'Business--Competition.'
WE EXPECT TO GROW RAPIDLY AND MANAGING OUR GROWTH MAY BE DIFFICULT
We expect to grow rapidly by expanding our membership base. This growth is
likely to place a significant strain on our resources and systems. To manage the
expected growth of our operations and personnel, we will be required to improve
existing and implement new transaction processing, operational and financial
systems, procedures and controls, and to augment, train and manage our growing
employee base. We also will be required to expand our finance, administrative
and operations staff.
We may have to cease accepting new members if we fail to meet internally
set minimum inventory requirements. In such case, prospective members will be
placed on a waiting list until we are able to stock sufficient inventory. Each
prospective member on the waiting list will be contacted and granted membership
status once we determine that our inventory is sufficiently stocked.
OUR SUCCESS IS DEPENDENT UPON OUR MANAGEMENT TEAM WHO HAVE ONLY RECENTLY STARTED
WORKING TOGETHER IN THIS RELATIVELY NEW INDUSTRY
Our success is dependent upon our management team which has only recently
started working together in this relatively new industry. All members of our
senior management recently joined us. Although our executive management team has
some experience in operating businesses engaged in electronic commerce, due to
the relatively short-lived nature of the electronic commerce industry, it is
more difficult to assess and evaluate management in the electronic commerce
industry than it is in other industries. Our new employees include a number of
key managerial, marketing, planning, technical and operations personnel who have
not yet been fully integrated into our company, and we expect to add additional
key personnel in the near future. These individuals have not previously worked
together and, as a result, may not work together effectively as a team to
successfully manage our growth. Please see 'Business--Employees.'
8
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WE WILL HAVE BROAD DISCRETION IN ALLOCATING THE PROCEEDS OF THIS OFFERING
We have allocated a portion of the net proceeds of this offering for use as
working capital. As to such funds, you will be relying on our judgment and
discretion without specific information as to the uses which are proposed to be
made of such funds. Please see 'Use of Proceeds.'
IF WE ARE UNABLE TO ADEQUATELY ASSESS THE DEMAND FOR MERCHANDISE LISTED ON OUR
WEB SITE, OUR BUSINESS WOULD BE HARMED
We intend to rely on the expertise of our purchasing and marketing
professionals to select and purchase merchandise that is saleable on online
auction sites. Our evaluation of market demand for merchandise will be based on
internal periodic reports that will contain an analysis of the most popular
items sold at major online auction sites and our projections of new consumer
trends. The volume and type of merchandise that we maintain in our inventory
will also be based on these evaluations and projections. The lack of market
acceptance for the items of merchandise selected and purchased by us would
significantly reduce our revenues and, therefore, harm our business, results of
operation and financial condition. Please see 'Business--Purchasing and
Inventory.'
DIFFICULTIES ASSOCIATED WITH OUR BRAND DEVELOPMENT MAY HARM OUR ABILITY TO
ATTRACT MEMBERS
We believe that our growth will depend on the strengthening of our brand
which is critical to achieving widespread acceptance of Take to Auction.com,
particularly in light of the competitive nature of the online commerce industry.
Promoting and positioning our brand will depend largely on the success of our
marketing efforts and our ability to provide high quality services. To promote
our brand, we will need to increase our marketing budget and otherwise increase
our financial commitment to create and maintain brand loyalty among users. We
intend to increase our marketing efforts and budget as our membership base
expands. Over the next 12 months, we are estimating our marketing expenses to be
$100,000. Brand promotion activities may not yield increased revenues and any
such revenues may not offset the expenses incurred by us in attempting to build
our brand. Further, new users attracted to Take to Auction.com may not conduct
transactions through our Web site on a regular basis. If we fail to promote and
maintain our brand or if we incur substantial expenses in excess of $100,000 in
an attempt to promote and maintain our brand or if our future strategic
relationships fail to promote our brand or increase brand recognition, our
business, financial condition and results of operations would be harmed. Please
see 'Business--Take to Auction Strategy.'
BECAUSE OUR BUSINESS MODEL IS UNPROVEN, WE CANNOT ASSURE YOU THAT OUR REVENUES
WILL GROW OR THAT WE WILL BECOME PROFITABLE
Our business model depends upon our ability to leverage and to expand our
network of members, suppliers, manufacturers, wholesalers and online advertisers
to generate multiple revenue streams. The potential profitability of this
business model is unproven, and to be successful we must, among other things,
develop and market additional products and services to existing members
effectively. Furthermore, we may be forced by competitive pressures, industry
consolidation or otherwise, to change our business model, in which case our
financial results could be harmed. Our business model may not be successful and
we may not achieve revenue growth or profitability.
MANY OF THE ONLINE AUCTION SITES THAT ARE ACCESSED BY OUR MEMBERS THROUGH OUR
SERVICES ARE EMERGING INTERNET COMPANIES THAT REPRESENT BUSINESS AND CREDIT
RISKS
We expect to derive a significant portion of our revenues from the sale of
memberships and additional credits to Web users who want to earn additional
income by taking merchandise to online auction sites. Many of these online
auction sites have limited operating histories, are operating at a loss and have
limited access to capital. If the online auction sites or our online advertising
customer base experience financial difficulties or fail to experience commercial
success, we may lose a significant source of revenue and our business will
suffer. Ultimately, the success of these entities is entirely outside our
control.
9
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THE REVENUE EXPECTED FROM ONLINE ADVERTISING MAY NOT MATERIALIZE
We also plan to generate revenues from the sale of advertising and
navigation services to other Internet companies, including Web site owners,
Internet retailers, Internet portals and regional Internet Service Providers. It
is anticipated that this will be a relatively minor revenue stream which will
not severely impact us if it does not materialize. We currently have banner
arrangements with two entities: Perfumania.com, Inc. and SR7 Leasing, Inc.,
doing business as Potamkin Auto Leasing. These entities are permitted to display
their banners on our Web site, and in return we receive a small portion of any
sales which result from the banners. To date, we have derived no revenues from
such online advertising. In the future, we may have 'per click' arrangements
whereby a company is permitted to display its banner on our Web site and we are
compensated based on the number of 'clicks' or 'hits' on the banner.
OUR SUCCESS DEPENDS ON THE SUCCESS OF ONLINE AUCTION WEB SITES, AND THE MARKET
FOR ONLINE AUCTION SITES IS DEVELOPING AND DEPENDS ON THE CONTINUED GROWTH OF
ONLINE PERSON-TO-PERSON COMMERCE
Our business depends on the continued growth and success of online auction
sites. The growth and popularity of online auctions, if maintained, should allow
us to retain members who are interested in making money by taking goods to
online auction sites. Online auction sites are part of a developing market
which, like us, depends on the continued growth of online person-to-person
commerce. The market for the sale of goods over the Internet, particularly
through person-to-person trading, is a new and emerging market. The future
revenues and profits of online auction sites and, consequently, our revenues and
profits, are substantially dependent upon the widespread acceptance and use of
the Internet and other online services as a medium for commerce by consumers.
Rapid growth in the use of and interest in the Web, the Internet and other
online services is a recent phenomenon and this acceptance and use may not
continue to develop. A sufficiently broad base of consumers may not adopt, and
continue to use, the Internet as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty, and few proven services and products
exist. Growth in our member base relies on attracting consumers who have
historically used traditional means of commerce to purchase goods and on
entrepreneurial individuals who may desire to augment their income. We will only
be successful if these consumers and entrepreneurs accept and use novel ways of
conducting business and exchanging information.
WEB USERS MAY BE RELUCTANT TO JOIN ONLINE COMMUNITIES THAT PROMISE MONEY-MAKING
OPPORTUNITIES
With the variety of online person-to-person trading services available
today, Web users may have grown weary of the opportunities presented to them on
the Internet and may be reluctant to join online communities that promise
money-making opportunities. To some extent, we believe that this may be
indicative of the standard reluctance of consumers to respond to marketing
campaigns with money-making claims, as opposed to any systemic reluctance by Web
users as a separate population. However, regardless of whether it pertains to
Web users or the general consumer population, such weariness or reluctance may
have a detrimental effect on our ability to attract and retain members. We will
only be successful if Web users can overcome such reluctance and be convinced
that the opportunity presented to them is genuine.
CHANGES IN CONSUMER TRENDS MAY HARM OUR BUSINESS
The popularity of certain categories of items, such as toys, dolls and
memorabilia, among consumers may vary over time due to perceived scarcity,
subjective value, and societal and consumer trends in general. A decline in the
popularity of, or demand for, certain collectibles or other specialty items
taken to auction through our service could reduce the overall volume of
transactions on our Web site, resulting in reduced revenues. Certain consumer
'fads' may temporarily inflate the volume of certain types of items provided on
our service, placing a significant strain upon our infrastructure and
transaction capacity. The decline of a 'fad' would leave us with a large
inventory of unsaleable goods and could harm our business, financial condition
and results of operations.
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UNEXPECTED INCREASES IN TRAFFIC MAY STRESS OUR SYSTEMS
We intend to generate a high volume of traffic and transactions on the Take
to Auction.com service. Accordingly, the satisfactory performance, reliability
and availability of our Web site, processing systems and network infrastructure
are critical to our reputation and our ability to attract and retain large
numbers of members who take merchandise to online auction sites while
maintaining adequate customer service levels. Our revenues depend on the number
of items listed by us, the number of members that join our service, the success
of our members in completing online auction transactions and our ability to
attract online advertisers. Any system interruptions that result in the
unavailability of our service or reduced member activity would reduce the volume
of items taken to online auction sites and online auction sales completed and
could affect the average selling price of the items. Interruptions of service
may also diminish the attractiveness of our services. The online auction sites
have experienced, and our service will likely experience, periodic system
interruptions, which we believe will continue to occur from time to time. Since
the opening of our Web site to the public in January 2000, we have experienced
only one interruption of service, which lasted approximately 8 hours. Any
substantial increase in the volume of traffic on our Web site or in the number
of members selecting merchandise to take to online auction sites will require us
to expand and upgrade our technology, transaction processing systems and network
infrastructure. We may be unable to accurately project the rate or timing of
increases, if any, in the use of our service or expand and upgrade our systems
and infrastructure to accommodate such increases in a timely manner. Any failure
to expand or upgrade our systems could harm our business, financial condition
and results of operations. Please see 'Business--Operations and Technology.'
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY
Our market is characterized by rapidly changing technology, evolving
industry standards, frequent new service and product announcements,
introductions and enhancements and changing customer demands. Accordingly, our
future success will depend on our ability to adapt to rapidly changing
technologies, to adapt our services to evolving industry standards and to
continually improve the performance, features and reliability of our service in
response to competitive service and product offerings and evolving demands of
the marketplace. Our failure to adapt to these changes would harm our business,
financial condition and results of operations. In addition, the widespread
adoption of new Internet, networking or telecommunications technologies or other
technological changes could require substantial expenditures by us to modify or
adapt our services or infrastructure, which could strain our resources, require
us to modify our business plan and harm our business, financial condition and
results of operations. Please see 'Business--Operations and Technology.'
RISKS RELATED TO OUR INDUSTRY
CONCERNS ABOUT WEB SECURITY POSE RISKS TO OUR ENTIRE BUSINESS
A significant barrier to the public's acceptance of online commerce and
communications is the secure transmission of confidential information over
public networks. We expect that a significant number of buyers of merchandise
auctioned by our members will authorize us to bill their credit card accounts
directly for all transaction fees charged by us. We rely on encryption and
authentication technology licensed from a third party to provide the security
and authentication technology to effect secure transmission of confidential
information, including buyer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the technology used by us
to protect customer transaction data. If any such compromise of our security
were to occur, it could harm our reputation and, therefore, our business,
financial condition and results of operations. Please see 'Business Operations
and Technology.'
OUR OPERATING RESULTS WOULD BE HARMED IF WE EXPERIENCE SIGNIFICANT CREDIT CARD
FRAUD
Under current practices, we are liable for fraudulent credit card
transactions because we do not require a customer's signature to authorize a
transaction. Our failure to adequately control fraudulent credit card
transactions would harm our business, financial condition and results of
operations. Although we do not
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maintain a reserve fund to cover potential fraudulent credit card transactions,
we have never experienced a fraudulent credit card transaction. If such loss
would exist in the future, we would record the loss in the period incurred.
WE DEPEND ON THE CONTINUING DEVELOPMENT OF THE WEB INFRASTRUCTURE, AND THE
UNAVAILABILITY OF TECHNOLOGY TO MEET THE GROWTH IN USE OF THE WEB FOR ONLINE
COMMERCE MAY REDUCE OUR REVENUES AND PROFITS
The success of our service will depend in large part upon the development
and maintenance of the Web infrastructure, such as a reliable network backbone
with the necessary speed, data capacity and security. We also depend on timely
development of complementary products, such as high speed modems, for providing
reliable Web access and services. Because global commerce and the online
exchange of information is new and evolving, it is difficult to predict with any
assurance whether the Web will prove to be a viable commercial marketplace in
the long-term. The Web has experienced, and is expected to continue to
experience, significant growth in the numbers of users and amount of traffic. To
the extent that the Web continues to experience increased numbers of users,
frequency of use or increased bandwidth requirements of users, the Web
infrastructure may not continue to be able to support the demands placed on it
by this continued growth and the performance or reliability of the Web may be
compromised. The infrastructure or complementary products or services necessary
to make the Web a viable commercial marketplace for the long-term may not be
developed and, even if they are developed, the Web may not become a viable
commercial marketplace for services such as those offered by us. If the
necessary infrastructure, standard or protocols or complementary products,
services or facilities are not developed, or if the Web does not become a viable
commercial marketplace, our business, financial condition and results of
operations will be harmed. Even if the infrastructure, standards or protocols or
complementary products, services or facilities are developed and the Web becomes
a viable commercial marketplace in the long term, we might be required to incur
substantial expenditures in order to adapt our service to changing Web
technologies, which could harm our business, financial condition and results of
operations. Please see 'Business--Industry Background.'
LEGAL RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH OUR SERVICE MAY
HARM OUR BUSINESS
The law relating to the liability of online services companies for
information carried on or disseminated through their services is currently
unsettled. It is possible that claims could be made against online services
companies under both United States and foreign law for defamation, libel,
invasion of privacy, negligence, copyright or trademark infringement, or other
theories based on the nature and content of the materials disseminated through
their services. Several private lawsuits seeking to impose such liability upon
other online services companies are currently pending. In addition, legislation
has been proposed in several states, including California, Maryland, Nevada,
Virginia and Washington that imposes liability for or prohibits the transmission
over the Internet of certain types of unsolicited e-mail or advertisements. The
imposition upon us and other online service providers of potential liability for
information carried on or disseminated through their services could require us
to implement measures to reduce our exposure to such liability, which may
require us to expend substantial resources and/or to discontinue certain service
offerings. In addition, the increased attention focused upon liability issues as
a result of these lawsuits and legislative proposals could impact the growth of
Internet use. We do not carry liability insurance. Therefore, any costs incurred
by us as a result of such liability or asserted liability could harm our
business, financial condition and results of operations. Please see
'Business--Government Regulation' and '--Privacy Policy.'
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB COULD
INCREASE OUR COSTS OF TRANSMITTING DATA AND INCREASE OUR LEGAL AND REGULATORY
EXPENDITURES AND COULD DECREASE OUR MEMBERSHIP BASE
Government regulation of communications and commerce on the Internet varies
greatly from country to country. Unlike some countries and the European Union,
the United States Congress has, to date, enacted relatively few laws expressly
aimed at e-commerce, although many bills expressly aimed at e-commerce are
currently pending. There is no assurance that these pending bills will become
law or how they may impact us if they do. An example of one of the laws aimed at
e-commerce enacted by the United States Congress, the
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Trademark Cyberpiracy Prevention Act of 1999, seeks to help trademark owners
protect their intellectual property against 'cybersquatters' who register
Internet domain names resembling famous trademarks in order to extort money from
or defame the trademark owner. Due to the increasing popularity and use of the
Internet and other online services, it is possible that a number of laws and
regulations may be adopted with respect to the Internet or other online services
covering issues such as user privacy, freedom of expression, pricing, content
and quality of products and services, taxation, advertising, intellectual
property rights, enforceability of contracts and information security. Because
our services are accessible worldwide, and we facilitate sales of goods to users
worldwide, any jurisdiction in which our services can be accessed or are used
may seek to impose its laws on us and to enforce those laws in proceedings in
those countries where we could be forced to defend ourselves. Please see
'Business--Government Regulation.'
THE IMPOSITION OF SALES AND OTHER TAXES ON OUR BUSINESS OR ON PRODUCTS WE OFFER
TO OUR MEMBERS AND ON INTERNET SERVICES GENERALLY COULD IMPAIR THE GROWTH OF
ELECTRONIC COMMERCE
We do not collect sales or other similar taxes with respect to goods sold
through our service. However, one or more states or countries may seek to impose
sales tax collection obligations on out-of-state companies which engage in or
facilitate online commerce, and a number of proposals have been made at the
Federal, state and local level, as well as in foreign jurisdictions, that would
impose additional taxes on the sale of goods and services through the Internet.
In addition, a bill was introduced in the U.S. Congress in July 1999 that would
impose a 5% Federal tax on sales by a merchant over the Internet that are not
otherwise taxable. These proposals, if adopted, could substantially impair the
growth of electronic commerce, and could harm our opportunity to derive
financial benefit from such activities. Moreover, a successful assertion by one
or more states or any foreign country that we should collect sales or other
taxes on the exchange of merchandise on our system could harm our business,
financial condition and results of operations. Please see 'Business--Government
Regulation.'
INTERNATIONAL BARRIERS MAY INCREASE OUR COSTS AND RISKS OF DOING BUSINESS
Although we do not ship goods internationally, our primary international
risk results from having international members who are subject to the laws of
another jurisdiction, and facilitating transactions related to the sale of goods
to users worldwide. As a result, we may be subject to significant costs and
risks with respect to potentially complex personal data privacy protection and
online contracting regulatory requirements, currency exchange controls and other
trade barriers. For example, in the context of international data privacy
regulations, if certain countries extend the extra-territorial application of
their data protection laws and regulations to our business, we may be forced to
restrict our membership by excluding persons resident in such countries from
becoming members. In other instances, we may be required to construct costly
additions to our Web site in order to comply with local laws on data privacy,
advertising and on-line contracting, such as having a separate series of Web
pages in the local languages where laws require that we make disclosures or post
online agreements or privacy policies (and similar consumer notification
requirements) in the local language of the member. We may also determine that in
order to comply with local data protection laws, which prohibit the transfer of
personally identifying information of our members outside of their home
jurisdiction, we may have to set up and maintain separate databases in such
countries. We may also have to customize our software programs to address
country-specific requirements for tracking and documenting transactions, as well
as take into account currency exchange issues.
WE MAY BE SUBJECT TO LIABILITY FOR PRODUCTS WHOSE SALE WE FACILITATE
Buyers of our products may sue us if they are harmed by any of the products
whose sales we facilitate. Although we do not manufacture these products, we are
exposed to potential liability. Liability claims could require us to spend
significant time and money in litigation and to pay significant damages, which
could harm our business, financial condition and results of operations. Although
we intend to disclaim all warranties and rely on the manufacturers to fulfill
their warranty obligations, we cannot be certain that the manufacturers will be
able to fulfill their warranty obligations. In addition, we believe that some
disclaimers may be unenforceable under the laws of certain foreign
jurisdictions. Please see 'Business--Product and Service Warranties.'
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OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR
BRAND-BUILDING EFFORTS AND ABILITY TO COMPETE EFFECTIVELY
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success, and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have applied for registration of the service marks
Take to Auction.com, Take to Auction, Take2Auction and Take2Auction.com with the
U.S. Patent and Trademark Office. We have also applied for a U.S. patent
registration on our method for providing merchandise to online auction sites.
The patent may not be issued to us, or, if issued, it may not provide us with
all of the protections that we have sought. Please see 'Business--Intellectual
Property Rights.'
We have entered into confidentiality and invention assignment agreements
with our employees and contractors, and nondisclosure agreements with parties
with which we conduct business to limit access to and disclosure of our
proprietary information. These contractual arrangements or the other steps taken
by us to protect our intellectual property may be insufficient to prevent
misappropriation of our technology and may not deter independent third-party
development of similar technologies. To date, we have not been notified that our
technologies infringe the proprietary rights of third parties, but third parties
may claim infringement by us with respect to past, current or future
technologies. We expect that participants in our markets will be increasingly
subject to infringement claims as the number of services and competitors in our
industry segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service upgrade delays or
require us to enter into royalty or licensing agreements. These royalty or
licensing agreements might not be available on terms that are acceptable or
favorable to us. As a result, any such claim could harm our business, financial
condition and results of operations. Please see 'Business--Intellectual Property
Rights.'
THE ISSUANCE AND ENFORCEMENT OF BROAD PATENTS COULD FORCE US TO MAKE CERTAIN
CHANGES IN THE WAY WE IMPLEMENT OUR BUSINESS MODEL
The recent issuance by the U.S. Patent Office to Amazon.com of broad
business-method patents regarding "one click" and "affiliate" transactions could
force us to change the way we do business in order to avoid the legal and
business ramifications of patent infringement. Nobody can be sure that the U.S.
Patent Office will not issue additional business-method patents which could have
a bearing on our business. The recent granting of such patents is still being
challenged. Furthermore, the likelihood and ability to enforce such broad
patents remains undetermined. Nonetheless, such broad patents could force us to
change our method of advertising, as well as other important aspects of our
business, or face the risk of litigation.
WE COULD STILL FACE PROBLEMS RELATED TO THE YEAR 2000 ISSUE WHICH COULD BE
DISRUPTIVE TO OUR BUSINESS OPERATIONS
To date, we have not experienced any problems as a result of the
commencement of the Year 2000. Nevertheless, computer experts have warned that
there may still be residual consequences stemming from the change in centuries
and, if these consequences become widespread, they could result in a decrease in
sales of our services, increased operating expenses and other business
interruptions. Year 2000 problems would also decrease our reputation for
reliability when we are trying to grow the membership base. We have not
developed any specific contingency plan for Year 2000 issues. Please see
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of Year 2000.'
RISKS RELATED TO THIS OFFERING
WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN A LISTING ON THE AMERICAN STOCK
EXCHANGE, SO YOU MAY NOT BE ABLE TO SELL YOUR SHARES EASILY
Because we may not be able to obtain or maintain a listing on the American
Stock Exchange ('AMEX'), your shares may be difficult or impossible to sell.
Trading in our common shares, if any, is intended to be conducted on the AMEX
after the initial offering period. However, we do not currently meet the AMEX
listing requirements and we would need either a waiver or exemption to list our
shares on the AMEX. If we are unable to obtain this listing, we believe that our
common shares may trade on the over-the-counter market in the so-called 'pink
sheets' or the OTC Bulletin Board, which was established for securities that do
not meet the AMEX's and other exchanges' listing requirements. Consequently,
selling your common shares would be more difficult because smaller quantities of
common shares could be bought and sold, transactions could be delayed, and
coverage of us by securities analysts and news media may be reduced. As a
result, shareholders may not be able to sell their shares, which illiquidity may
cause a decreased trading price and larger spreads in the bid and ask price for
our common shares.
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INVESTORS MAY BE UNABLE TO SELL OUR COMMON SHARES BECAUSE OF THE LOW PRICE
Although we intend to be listed on the AMEX, we cannot assure you that we
will be able to qualify and obtain this listing. If our application is not
approved, our shares may trade only on the over-the-counter market in the
so-called 'pink sheets' or on the OTC Bulletin Board. The effects of not being
eligible for trading on the AMEX include the limited release of the market
prices of our stock and limited news coverage of us. Ineligibility may also
restrict investors' interest in our stock and materially adversely affect the
trading market and prices for our stock and our ability to issue additional
securities or to secure additional financing.
IF THE TRADING PRICE OF OUR COMMON STOCK DROPS BELOW A CERTAIN LEVEL WE MAY
BECOME SUBJECT TO THE PENNY STOCK RULE
If the trading price of our common stock is less than $5.00 per share, our
common stock could become subject to Rule 15g-9 under the Securities and
Exchange Act of 1934, as amended. That rule, otherwise known as the 'Penny Stock
Rule,' requires that broker-dealers satisfy special sales practice requirements,
including making individualized written suitability determinations and receiving
purchasers' written consents, prior to any transaction. If our common stock is
deemed to be a penny stock under the Securities Enforcement and Penny Stock
Reform Act of 1990, this would require additional disclosure in connection with
trades in our common stock, including the delivery of a disclosure schedule
explaining the nature and risks of the penny stock market. Such requirements
could severely limit the liquidity of our common stock, the ability of
broker-dealers to sell our common shares and the ability of purchasers in this
offering to sell their securities in the secondary market.
WE MAY BE UNABLE TO SELL SHARES IN SOME STATES DUE TO BLUE SKY REGULATIONS
If we are unable to list our shares on the AMEX, we must register the
common shares in any state where we desire to sell our common shares. We must
also register our officers and directors as broker dealers in any state in which
we seek to sell our common shares or seek an exemption to such registration. The
underwriter must also register in such an event. If a registration of the common
shares in various states is not approved, it will not be possible for us to sell
the common shares in those states. We intend to use our best efforts to register
in every state where we believe there is a significant market for our common
shares. Should any or all common share registrations not be approved, this would
prohibit us from selling the common shares offered for sale in such
jurisdictions, would make it more difficult for you to sell your common shares
generally and could adversely affect the overall success of this offering.
POSSIBLE VOLATILITY OF OUR STOCK PRICE COULD HARM OUR SHAREHOLDERS
The stock markets in general, and the market for Internet-related and
technology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. The trading prices of many technology stocks are
at or near historical highs and reflect valuations substantially above
historical levels. These trading prices and valuations may not be sustained.
These broad market and industry factors may harm the market price of our common
shares, regardless of our operating performance. Market fluctuations, as well as
general political and economic conditions such as recession or interest rate or
currency rate fluctuations, may also harm the market price of our common shares.
In the past, following periods of volatility in the market price of a company's
securities, securities class-action litigation has often been instituted against
the company. This litigation, if instituted, could result in substantial costs
and a diversion of management's attention and resources, which would harm our
business, financial condition and results of operations.
CONTROL BY PRINCIPAL SHAREHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS COULD HARM
OUR SHAREHOLDERS
Upon completion of this offering, our executive officers and directors and
greater-than-five-percent shareholders will, in the aggregate, own approximately
44% of the outstanding common shares (43% if the underwriters' over-allotment
option is exercised in full). Further, our bylaws provide for a classified board
of directors which is controlled by our founders. This means that the board of
directors is divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the board of directors
will be elected each year. This makes it more difficult to gain control of the
board of directors and
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may delay, defer or prevent a change in control of our company. As a result, the
executive officers, directors and greater-than-five-percent shareholders, acting
together, will have the ability to control most, if not all, matters submitted
to shareholders and directors for approval (including the election and removal
of directors and officers and any merger, consolidation or sale of all or
substantially all of our assets) and to control our management and affairs.
Accordingly, this concentration of ownership, as well as the classified board of
directors, may have the effect of delaying, deferring or preventing a change in
our control, impede a merger, consolidation, takeover or other business
combination involving us or discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain our control, which in turn could harm
the market price of our common shares. The following four individuals own
greater than 5% of Take to Auction: Horacio Groisman (Vice Chairman and
Director); Albert Friedman (President, CEO and Director); Hugo Calemczuk
(Director); and Magdalena Zafir. In addition, Ilia Lekach (Chairman and
Director) owns all of Pacific Investments, which in turn owns greater than 5% of
Take to Auction. Please see 'Management' and 'Principal Shareholders.'
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD HARM OUR STOCK PRICE
Sales of substantial amounts of common shares (including shares issued upon
the exercise of outstanding options) in the public market after this offering
could harm the market price of our common shares. These sales also might make it
more difficult for us to sell equity or equity-related securities in the future
at a time and price that we deem appropriate. In addition to the common shares
we are offering (assuming no exercise of the underwriters' over-allotment
option), as of the date of this prospectus, there will be 18,000,000 common
shares outstanding, all of which are 'restricted securities' under the
Securities Act of 1933, as amended. Notwithstanding any earlier eligibility for
sale under the provisions of Rule 144, due to lock-up agreements with the
representatives of the underwriters, none of the restricted securities will be
available for sale in the public market until at least 180 days after the date
the registration statement is declared effective by the Securities and Exchange
Commission. Following the expiration of the 180 day lock-up agreements, _____ of
the restricted securities will be available for sale in the public market until
the expiration of any applicable holding periods under Rule 144 of the
Securities Act and our right to repurchase unvested shares. In addition, as of
the date of this prospectus, there were outstanding options to purchase 815,000
common shares, none of which were immediately exercisable or exercisable within
60 days of the date of this prospectus. Notwithstanding any earlier eligibility
for sale under the provisions of Rule 144(k), due to lock-up agreements with the
representatives of the underwriters, none of the outstanding options will be
available for sale in the public market until at least 180 days after the date
the registration statement is declared effective by the of the Securities and
Exchange Commission. Following the expiration of the 180 day lock-up agreements,
none of the outstanding options will be available for sale in the public market
until the expiration of the applicable holding periods under Rule 144(k) of the
Securities Act. The representative of the several underwriters acting together
may, in their sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements. Such waiver may occur
for certain types of transactions, including a secondary offering or merger or
acquisition of Take to Auction, or for other reasons all in the underwriters'
sole discretion. Although there is no preset level of stock price which will
trigger a waiver of the lock-up agreements, a substantial rise in the price of
our stock may be one of the factors the underwriters will consider in
determining whether to waive the lock-up agreements. Another factor the
underwriters may consider would be the ability of the market to sustain
additional stock in the public float. Immediately after this offering, we intend
to register approximately 2,442,857 common shares subject to outstanding options
and reserved for issuance under our stock option and purchase plans. Please see
'Shares Eligible for Future Sale.'
WE WILL NEED TO RAISE ADDITIONAL CAPITAL WHICH MAY AFFECT OUR SHAREHOLDERS, AND
OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital, capital expenditures and business expansion through at least
the next 12 months. Thereafter, we will need to raise additional funds. We may
need to raise additional funds sooner in order to fund more rapid expansion, to
develop new or enhanced services or products, to respond to competitive
pressures or to acquire complementary products, businesses or
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technologies. If additional funds are raised through the issuance of equity or
convertible debt securities, your percentage ownership will be reduced, you may
experience additional dilution and these securities may have rights, preferences
and privileges senior to those of the common shares. Additional financing may
not be available on terms favorable to us or at all. If we are unable to list
the shares of common stock on the AMEX, it may be more difficult to raise
additional funds. If adequate funds are not available or are not available on
acceptable terms, we may not be able to fund our expansion, take advantage of
unanticipated acquisition opportunities, develop or enhance services or products
or respond to competitive pressures. Our inability to raise additional capital
on acceptable terms could harm our business, financial condition and results of
operations. Please see 'Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Liquidity and Capital Resources.'
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AND MAY FACE FURTHER DILUTION
The initial public offering price of the common shares paid by you is
substantially higher than the net tangible book value per outstanding share of
our common shares. Purchasers of the common shares in this offering will suffer
immediate and substantial dilution of $10.30 per share in the net tangible book
value of the common shares from the initial public offering price, assuming an
initial public offering price of $11.00 per share. To the extent that
outstanding options to purchase our common shares are exercised, there may be
further dilution. Please see 'Dilution.'
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made some statements in this prospectus, including some under
'Prospectus Summary,' 'Risk Factors,' 'Management's Discussion and Analysis of
Financial Condition and Results of Operations,' 'Business' and elsewhere, which
constitute forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any results, levels of activity, performance or achievements
expressed or implied by any forward-looking statements. These factors include,
among other things, those listed under 'Risk Factors,' 'Market Data' and
elsewhere in this prospectus. In some cases, you can identify forward-looking
statements by terminology such as 'may,' 'will,' 'should,' 'could,' 'expects,'
'hopes,' 'intends,' 'plans,' 'anticipates,' 'believes,' 'estimates,' 'predicts,'
'potential' or 'continue' or the negative of these terms or other comparable
terminology. Although we believe that the expectations reflected in
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Furthermore, we undertake no
obligation to update publicly any forward-looking statements for any reason,
unless required to do so by law.
MARKET DATA
This prospectus contains market data related to Take to Auction.com and the
Internet. This data has been included in the studies published by the Internet
market research firms of International Data Corporation and Forrester Research,
Inc. This market data includes projections that are based on a number of
assumptions. These assumptions include that:
o the number of people online and the total number of hours spent online
will increase significantly over the next five years;
o the use of online auction sites will increase;
o Internet security and privacy concerns will be adequately addressed; and
o no catastrophic failure of the Internet will occur.
If any one or more of these assumptions turns out to be incorrect, actual
results may differ significantly from the projections based on these
assumptions.
USE OF PROCEEDS
At an assumed initial public offering price of $11.00 per share, we
estimate that the net proceeds to us from the sale of the common shares will be
approximately $12.4 million (approximately $14.5 million if the over-allotment
option is exercised in full) after deducting the estimated underwriting discount
and estimated offering expenses. We intend to use the net proceeds in
approximately the following manner:
Inventory....................................... $10,675,000
Salaries........................................ 475,000
Network Infrastructure.......................... 410,000
Marketing/advertising........................... 50,000
Working capital................................. 790,000
Within the above categories, we intend that our management will have broad
discretion in the application of the net proceeds. Remaining amounts, if any,
will be used for general corporate purposes. Pending such uses, we intend to
invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities. Please see 'Risk Factors--Risks Related to this
Offering--We will likely need to raise additional capital which may affect
shareholders, and our business will be harmed if we are unable to obtain
additional capital.'
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and fund operating losses and do not anticipate paying any cash
dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
o on an actual basis;
o on an as adjusted basis to reflect the estimated net proceeds from the
sale of the common shares offered by us after deducting the underwriting
discount and estimated offering expenses payable by us. Please see 'Use
of Proceeds.'
You should read this information together with our financial statements and the
accompanying notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued
and outstanding actual, pro forma and as adjusted............................... $ -- $ --
Common stock, $0.001 par value, 50,000,000 shares authorized, 18,000,000 shares
issued and outstanding actual; 19,300,000 shares issued and outstanding as
adjusted........................................................................ 18,000 19,300
Additional paid-in capital......................................................... 1,682,000 14,122,700
Accumulated deficit................................................................ (549,662) (549,662)
---------- -----------
Total stockholders' equity...................................................... 1,150,338 13,592,338
---------- -----------
Total stockholders' equity...................................................... $1,150,338 $13,592,338
---------- -----------
---------- -----------
</TABLE>
19
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999 was approximately $1.2
million or $0.06 per common share. Net tangible book value per share represents
the amount of total tangible assets less total liabilities, divided by the
number of common shares outstanding.
After giving effect to the sale of common shares offered by us at an
assumed initial public offering price of $11.00 per share, and the application
of the estimated net proceeds therefrom, our net tangible book value as of
December 31, 1999, would have been approximately $13.6 million or $0.70 per
common share. This represents an immediate increase in net tangible book value
of $0.64 per share to existing shareholders and an immediate dilution of $10.30
per share to new shareholders purchasing common shares in this offering. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................................... $11.00
Net tangible book value per share prior to this offering............................ $0.06
Increase per share attributable to new shareholders................................. 0.64
-----
Net tangible book value per share after this offering................................. 0.70
------
Total net tangible book value dilution per share to new shareholders.................. $10.30
------
------
</TABLE>
The following table summarizes as of December 31, 1999, on the pro forma
basis described above, the number of common shares purchased from us, the total
consideration paid to us and the average price per share paid by existing
shareholders and by investors purchasing common shares in this offering (before
deducting the estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARES
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........................ 18,000,000 93.3% $ 1,700,000 10.6% $0.09
New investors(1)............................. 1,300,000 6.7 14,300,000 89.4 11.00
---------- ------- ----------- ------- ---------
Total...................................... 19,300,000 100.0% $16,000,000 100.0%
---------- ------- ----------- -------
---------- ------- ----------- -------
</TABLE>
- ------------------
(1) If the underwriters' over-allotment is exercised in full, the number of
shares held by new investors will be increased to 1,495,000, or 7.7% of the
total common shares to be outstanding after this offering.
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of the date of this prospectus. As of the date of this
prospectus, there were options outstanding to purchase a total of 815,000 common
shares with a weighted average exercise price of $5.23 per share. To the extent
that any of these options are exercised, there will be further dilution to new
investors in this offering.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, the financial statements and notes thereto
and 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' appearing elsewhere in this prospectus. The financial statement data
as of December 31, 1999 and for the period from June 2, 1999 (date of inception)
through December 31, 1999 are derived from, and are qualified by reference to,
the audited financial statements of Take to Auction.com (which report includes
an explanatory paragraph related to our ability to continue as a going concern)
included elsewhere in this prospectus (excluding the balance sheet as adjusted,
which gives effect to the sale of common shares offered by us).
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 2, 1999
(DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
-------------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues......................................................................... $ 70,067
Cost of net revenues................................................................. 136,042
----------
Gross margin...................................................................... (65,975)
----------
Operating expenses:
General and administrative........................................................ 383,630
Auction fees...................................................................... 5,727
Sales and marketing............................................................... 19,061
Fulfillment....................................................................... 42,632
Web site development expenses..................................................... 32,637
----------
Total operating expenses............................................................. 483,687
Net loss............................................................................. (549,662)
----------
----------
Basic and diluted loss per common share.............................................. $ (0.03)
----------
----------
Weighted average number of common shares outstanding................................. 17,090,297
----------
----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------
AS
ACTUAL ADJUSTED(1)
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 856,949 $13,298,949
Working capital.................................................................... 288,032 12,730,032
Total assets....................................................................... 2,579,739 15,021,739
Shareholders' equity............................................................... 1,150,338 13,592,338
</TABLE>
- ------------------
(1) Adjusted to give effect to the sale of the common shares offered by us (at
the assumed initial public offering price of $11.00 per share), and the
application of the estimated net proceeds therefrom as set forth under 'Use
of Proceeds.'
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations is based upon and should be read in conjunction with our financial
statements and their related notes included elsewhere in this prospectus.
OVERVIEW
Take to Auction.com, Inc. was formed as a Florida corporation in June 1999
and operates its online service under the name of 'Take to Auction.com'.
We are a development stage company, having launched our Web site in July
1999. Our operations for the period from June 2, 1999 through December 31, 1999
were primarily limited to organizing our company, raising operating capital,
hiring initial management and employees and refining our business model. We also
began to target potential customers and to build and promote our
interactive-based community and brand through word-of-mouth marketing efforts,
as well as repeat business.
We provide our members with a total solution to take items to online
auction sites. Our revenues are from memberships purchased by our members,
additional credits purchased by existing members and sales of products. In the
future, we also anticipate receiving fees from third parties for online
advertising. We believe that word-of-mouth and repeat business from existing
members are the most effective means of implementing our growth strategy.
Members purchase membership credits to enable them to select items to take to an
online auction site. Each annual membership costs a minimum of $100.00 and
allows a member to take any number of items which have an aggregate value of
$100.00 or less from our Web site to an online auction site for one week at a
time. Each membership lasts for one year.
In order for a member to recoup his or her entire membership fee, he or she
must earn $100.00 from auctions over the course of the membership term. By
accumulating additional credits, the member will be eligible to list multiple
items and/or items that have greater value. The total number of credits and,
consequently, our revenues depend upon our members' interest in listing multiple
items at one time or seeking more valuable merchandise. That is because the more
credits a member purchases, the more (both in number and value) items he or she
can send to auction. The more credits a member purchases, the more revenues are
generated for Take to Auction.
Our rate of expense growth will follow revenue growth and will be primarily
driven by increases in membership and by the volume of successful online
transactions completed by existing members. That is because the more members we
have, the more expenses we incur, such as listing fees, customer service,
merchandise and warehouse expenses. In the short term, we intend to increase our
expenses significantly in an effort to attain a high level of revenue growth.
RESULTS OF OPERATIONS
Net revenues. Net revenues include the membership fees charged to our
members, prorated over the annual membership, and the sale of products to our
members upon a successfully completed auction. Net revenues amounted to
approximately $70,000 for the period from June 2, 1999 through December 31,
1999. We had approximately 600 completed transactions during the period from
June 2, 1999 through December 31, 1999 at an average sale price of approximately
$97.
Cost of net revenues. Cost of net revenues consist primarily of the cost of
the merchandise sold and inbound shipping costs related to those items. Cost of
net revenues amounted to approximately $136,000 for the period from June 2, 1999
through December 31, 1999. We believe that offering our members attractive
pricing is a key component to our success. The majority of our negative margins
is attributable to offering our current members discounted pricing to promote
our brand during our development stage. Our gross margin will improve as we
improve our supply chain management, including buying directly from the
manufacturers and taking advantage of volume purchase discounts. We expect to
realize positive margins from the sale of products in the future, although we
cannot assure you that this will prove to be the case.
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<PAGE>
General and administrative expenses. General and administrative expenses
consist of payroll and related expenses for executive, accounting and
administrative personnel, professional fees and other general corporate
expenses. General and administrative expenses amounted to approximately $384,000
for the period from June 2, 1999 through December 31, 1999. General and
administrative expenses will continue to increase as we expand our staff and
incur additional costs to support the growth of our business.
Auction fees. Auction fees consist of fees incurred for posting and selling
items at on line auction sites. Auction fees amounted to approximately $6,000
for the period from June 2, 1999 through December 31, 1999. Auction fees will
continue to increase as the number of items listed and sold at on line auction
sites increase through our increased membership base.
Sales and marketing. Sales and marketing expenses consist of fees incurred
for advertising and promotion. Sales and marketing expenses amounted to
approximately $19,000 for the period from June 2, 1999 through December 31,
1999. Sales and marketing expenses will continue to increase as we increase our
marketing efforts to attract new members.
Fulfillment fees. Fulfillment fees consist of fees incurred to implement
our outsource agreement with our third party warehousing facility and to
warehouse, fulfill and ship products to the highest bidders for completed
auctions. Fulfillment fees amounted to approximately $43,000 for the period from
June 2, 1999 through December 31, 1999. Fulfillment fees will continue to
increase as our sales increase.
Web site development expenses. Web site development expenses consist
principally of expenses incurred to develop our network operations and systems
and telecommunications infrastructure. Web site development expenses amounted to
approximately $33,000 for the period from June 2, 1999 through December 31,
1999. Web site development expenses are expected to increase as we increase our
network infrastructure to facilitate our operations.
Income taxes. We were incorporated in June 1999 and have not yet filed a
federal income tax return or a State of Florida income tax return. Our 1999
fiscal year ended on December 31, 1999. We expect to have operating losses for
the foreseeable future and do not expect to have any federal or state income tax
liability until we are profitable and utilize our operating loss carry forwards.
Net loss. As a result of the factors discussed above, primarily relating to
the general corporate expenses incurred in our start up activities, the net loss
totaled approximately $550,000 for the period from June 2, 1999 through December
31, 1999. We expect to incur net losses for the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are acquiring merchandise and
maintaining and improving our Web site.
We used approximately $349,000 of cash from operating activities for the
period from June 2, 1999 through December 31, 1999. This was primarily the
result of a loss of approximately $550,000 for the period from June 2, 1999
through December 31, 1999. The additional changes in other operating assets and
liabilities were principally related to increases in accounts payable and
accrued expenses offset by an increase in inventory.
We used cash in investing activities of approximately $191,000 during the
period from June 2, 1999 through December 31, 1999, primarily related to the
purchase of computer hardware and software.
Cash provided by financing activities for the period from June 2, 1999
through December 31, 1999 was approximately $1,397,000. This was the result of
proceeds received on our stock subscriptions receivable (relating to our initial
capitalization) in the amount of approximately $364,000, proceeds received from
the sale of our common shares to SLI.com Ventures Ltd. in the amount of
$350,000, proceeds received from the sale of our common shares to Dominion
Income Management in the amount of $350,000, and proceeds received for an
advance of $1,000,000 from Perfumania, Inc., a company related through common
chairman of the board, offset by payments made for offering costs of
approximately $668,000. The sale of common shares to SLI.com Ventures Ltd. and
Dominion Income Management was not part of the August 26, 1999 $1 million
initial capitalization.
23
<PAGE>
Subsequent to December 31, 1999, we collected the remaining balance of our
initial capitalization in the amount of approximately $635,000.
We believe that funds generated from our initial capitalization, other
private placements, operations and the net proceeds of this offering will be
sufficient to finance our current and anticipated operations for at least 12
months after this offering. Our long-term capital requirements beyond this
period will depend on numerous factors, including, but not limited to, the
following:
o The ability to expand our member base;
o The cost of upgrades to our Web site; and
o The level of expenditures for sales and marketing and other factors.
Without the proceeds from this offering, we will not have sufficient funds
to fund operations for the next twelve months. We would need to raise additional
funds by incurring debt or through other public or private offerings of our
capital stock. We may not be able to do either on terms favorable to us, if at
all. Please see 'Risk Factors--We will need to raise additional capital which
may affect our shareholders . . .' for a more detailed discussion of our ability
to raise capital to meet long-term capital requirements.
Although we do not have any current plans for a secondary offering, we may
seek such an offering in the future. There is no preset level of stock price
which will operate as a trigger to such offering, although a substantial rise in
the price of our stock may be one of the factors we will consider in determining
whether to seek a secondary offering. Another factor we may consider would be
the ability of our stock to sustain dilution.
IMPACT OF YEAR 2000
Even though the date is now past January 1, 2000, and we have not
experienced any immediate adverse impact from the transition to the Year 2000,
we cannot provide complete assurance that we have not been affected in a manner
that is not yet apparent. Furthermore, although the date is now past February
29, 2000, and we have not experienced any immediate adverse impact from the leap
year, we cannot provide complete assurance that we have not been affected in a
manner that is not yet apparent. We have tested our software and our internal
systems for potential problems relating to the Year 2000 and the leap year that
occurred in 2000 and do not believe that we will experience any date related
problems. In addition, we do not believe that we will incur material costs in
the future because of date related problems. Nonetheless, we will continue to
monitor our compliance and the compliance of our third party vendors and
licensors of material hardware and software services for date related problems.
We have developed testing procedures for all software and other systems
that we believe might be affected by Year 2000 or leap year issues. Since third
parties developed and currently support many of the systems that we use, a
significant part of this effort has been and will be to ensure that these
third-party systems are Year 2000 and leap year compliant. We received
assurances that the existing third-party software and the existing hardware are
Year 2000 and leap year compliant through a combination of representations by
these third parties regarding their products' Year 2000 and leap year
compliance, as well as specific testing of these systems.
Based on the above actions, we have not developed a formal contingency plan
to be implemented as part of our efforts to identify and correct date related
problems affecting our internal systems. However, all of our data is backed-up
so that we should be able to restore all data and normal service activity in the
event of a service interruption related to date related problems. Based on the
actions taken to date, and the lack of any problems to date, we are reasonably
certain that we have identified and resolved all date related problems that
could harm our business.
24
<PAGE>
BUSINESS
TAKE TO AUCTION.COM
We are an Internet-based community providing our entrepreneurial members an
online catalog of authentic collectibles and factory-new specialty merchandise
to sell at online auction sites, such as eBay(sm), FairMarket(sm), Amazon(sm)
and Yahoo!(sm). Our members pay an annual membership fee and, each week, if they
so choose, at no additional cost, select from more than 2,000 types of items in
more than 10 categories of merchandise from our Web site that we then list
automatically on a popular online auction site for one week at a time for the
duration of the one-year membership. Our business model is distinct from and
complements the more than 200 online auction sites. We intend to develop and
expand our online membership base under the Take to Auction brand by attracting
Internet users who can earn additional income through our Web site. We create
significant Web site affinity by offering our members the ability to follow
their portfolio of merchandise currently listed on online auction sites and to
track their accumulated profits from completed online auctions. We believe that
adding monthly and annual competitions, category indices and personalized
features such as the ability to track portfolios and members' profits will keep
members returning to our Web site.
We are a development stage company, having launched our Web site in July
1999. We provide our members with a total solution to take items to online
auction sites. Our principal sources of revenues are derived from membership
fees, the purchase of additional credits and sales of products. In the future,
we also anticipate receiving fees from third parties for advertising their
products and services on our Web site. As our membership base expands and the
volume of merchandise increases, our purchasing power and economies of scale
should enable us to offer a broader array of merchandise at even better prices.
INDUSTRY BACKGROUND
The Internet has emerged as a global medium enabling millions of people
worldwide to share information, communicate and conduct business electronically.
It also provides businesses with an attractive means of selling and marketing
their products. International Data Corporation, or IDC, estimates that the
number of Web users worldwide will grow to approximately 508 million by the year
2003. This growth is expected to be driven by the large and growing number of
PCs installed in homes and offices, the decreasing cost of PCs, easier, faster
and cheaper access to the Internet, improvements in network infrastructure, the
proliferation of Internet content and the increasing familiarity and acceptance
of the Internet by businesses and consumers. The Internet has a number of unique
characteristics that differentiate it from traditional media: users communicate
or access information without geographic or temporal limitations; users access
dynamic and interactive content on a real-time basis; and users communicate and
interact instantaneously with a single individual or with entire groups of
individuals. As a result of these characteristics, Web usage is expected to
continue to grow.
The growing adoption of the Web represents an opportunity for businesses to
conduct commerce over the Internet. IDC estimates that the total value of
commerce over the Internet will increase to approximately $1 trillion worldwide
by the year 2003.
Online auction sites like eBay, the only online auction site we currently
use, pioneered person-to-person trading of a wide range of goods over the
Internet using an efficient and entertaining auction format and has grown into
the largest and most popular person-to-person trading community on the Internet.
Although eBay is the only online auction site we currently use, we do not have
any formal agreement with eBay or any other online auction site. We believe that
there are currently over 200 online auction sites on the Internet. Online
auction services permit sellers to list items for sale, buyers to bid for and
purchase items of interest and all auction users to browse through listed items
from any place in the world at any time. Online auction sites offer buyers a
large selection of new and used items that can be difficult and costly to find
through traditional means such as classified advertisements, collectibles shows,
garage sales and flea markets or through intermediaries, such as auction houses
and local dealer shops. Online auction sites also enable sellers to reach a
larger number of potential buyers more cost-effectively than traditional
person-to-person trading
25
<PAGE>
forums. However, the volume of activity on existing online auction sites is
subject to some of the following limitations:
o Sellers on online auction sites own the listed merchandise and must pay
all listing fees assessed by certain online auction sites;
o Sellers of products own a limited supply of merchandise to place on
online auction sites;
o If the online auction of an item is unsuccessful, the seller continues to
own the item;
o Sellers of products are responsible for the collection of the purchase
price and the delivery of the merchandise to buyers;
o Sellers do not know the buyer so they are unsure whether the buyer will
pay for the merchandise;
o Sellers do not have an automatic and secure payment system;
o Buyers must rely on the sellers to make sure that the items purchased are
in good condition and are actually delivered;
o In many cases, the process of listing an item on an online auction site
is typically limited to users with some degree of Internet experience,
especially when a seller wants a photograph of the item to appear on the
auction site; and
o Sellers can earn a profit only after deducting the price paid by them for
the merchandise and the related listing fees and other expenses.
THE TAKE TO AUCTION.COM SOLUTION
We capitalize on the success of online auction sites by supplying these
online auction markets with many categories of collectibles and factory-new
specialty merchandise. Using our purchasing expertise, we supply entrepreneurial
members with items to bring to auction.
We believe that the Take to Auction concept will appeal to Web users,
create community affinity and increase user traffic on online auction sites for
the following reasons:
We provide members with a broad array of merchandise to take to online
auctions
While a typical seller has limited items to place for auction, we
currently provide our members with over 2,000 types of items of merchandise
in a broad array of categories from which to make a selection. The
merchandise categories include the following:
Autos and Auto Products Great Collections
Antiques Jewelry, Gemstones
Art Photo & Electronics
Books, Movies, Music Pottery & Glass
Coins, Stamps Sports Memorabilia
Collectibles Toys, Plush
Dolls, Figurines
In addition to providing single items, we also expect to offer bundled
items of merchandise from time to time to lower the reserve price of each
item and, therefore, improve the chances of a successful online auction.
Members never have to purchase or take possession of the merchandise
Unlike traditional auction settings where sellers place their own
items up for auction, our members enter our Web site, browse through a
product catalog and select an item to be listed at an online auction site.
If the item does not sell, the item returns to our electronic warehouse
automatically without the member incurring any expenses. There is no
additional cost to the member and, therefore, no risk to have items listed
at an online auction site because the minimum bid prices always cover the
value of the
26
<PAGE>
merchandise. The differential between the reserve price and the highest
bid, the spread, constitutes a member's profit.
Members do not have to take complicated steps to list items online
To list an item on a traditional online auction site, information
about the seller and the particular item must be entered into the system.
Sellers are not required to include a photograph of the item they wish to
take to auction, however, they often do to increase the salability of the
item. If a seller desires to include a photograph of the item, a digital
photograph of the item must be taken by the seller and then fitted
according to the required layout of the online auction site. We facilitate
the auction process because, once a member registers, the only thing he or
she has to do is select an item from our product catalog and choose from a
drop down menu the auction site where he or she desires to place the item
(presently, only eBay). Once an item is selected and the member has chosen
the online auction site, we automatically register the member and the
item's specifications on the online auction site, providing membership
information, a photograph and a description of the item.
We facilitate transactions by accepting credit cards and electronic checks
and by handling shipping and delivery
Buyers of our merchandise have the ability to pay by credit card or
electronic check protected by security services such as VeriSign, Inc. and
SSL Security Systems. This payment medium is not offered by online auction
sites because a typical seller is small and, therefore, not equipped to
have a credit card processing system or the ability to receive an
electronic check. We also package and ship the merchandise to the buyer, at
the buyer's expense.
Our service is designed to promote an active membership community to
provide a positive environment for advertising and commerce
We intend to encourage active participation in our community and to
offer a number of programs to increase levels of participation. We
currently provide our members with a personalized auction tracking page
which advises members of the status of their current auctions, as well as a
status report of the sales completed and profits earned to date. In the
near future, we intend to provide monthly and annual competitions, category
indices and other personalized features designed to keep members returning
to our Web site.
We believe that all of these features will appeal to advertisers and
consumers because advertisers will be able to specifically target their
advertisements based upon the information members provide us in their
applications and by tracking merchandise taken by our members to other
auction sites. Additionally, the banner ads and hyperlinks will not require
a member to leave our Web site in order to visit an advertiser or sponsor's
Web site.
In addition to the aforementioned reasons, ultimately we believe our
concept will increase traffic to online auction sites because the seller
does not have to own the merchandise being auctioned, but rather consigns
it to an online auction site at no risk. Without our concept, the seller
must own the merchandise sent to auction. Sellers invariably can only own a
finite amount of products to take to auction. We permit a whole new
population (those who do not own any merchandise that they wish to sell) to
participate as sellers in online auctions. We further believe that our
concept will attract a more entrepreneurial population who join to make
money, as opposed to the hobbyists and collectors who make up a significant
portion of the current online auction population. We believe that an
increase in user traffic on online auction sites will increase our
membership base because such an increase will expose us to a larger
population. Each bid sent by a member to an online auction site is
accompanied by a banner identifying us. Please see 'Marketing and
Advertising.' The more online auction participants, the more who will see
our banner. The more online auction participants who become familiar with
us through our banners, the more, we hope, who will want to become members.
It is the anticipated synergy between increasing traffic and increasing
membership which we believe we can capitalize on. Further, a greater number
of members of online auction sites leads to more potential buyers, which
27
<PAGE>
should, in turn, result in higher prices that our members may be able to
obtain for their goods. The more money our members make, the more credits
they may purchase, the more friends they may tell, and thus, the more
business which may be generated.
TAKE TO AUCTION STRATEGY
Our objective is to become a leading Internet based community offering a
broad array of products and services to our members. Our strategy includes the
following key elements:
Grow the Take to Auction community and increase the membership base
Because we intend to derive a large portion of our revenues from the
sale of membership credits, our success depends on our ability to grow our
membership base. We intend to use 'word-of-mouth' referrals and targeted
marketing to buyers of our merchandise posted on online auction sites to
expand our membership community.
Promote the Take to Auction brand
We believe that building greater awareness of our brand within and
beyond the Take to Auction.com community is critical to maintaining and
expanding our user base and promoting online advertising revenues. We
believe that controlled growth of the Take to Auction.com community and
brand will maximize customer satisfaction and promote our brand. All
merchandise listed by us on online auction sites will contain a banner
which provides hyperlink access to our Web site. We also intend to use a
portion of the proceeds from the offering to launch an advertising campaign
to increase our membership base.
Forge business relationships with online auction sites and other
partners to improve brand-name recognition and the efficiency of our
network systems
Although we do not have any yet, we intend to form business
relationships with online auction sites to improve our 'brand name'
recognition and the performance and efficiency of our network systems.
These business relationships would mainly consist of arrangements with
online auction sites in the following areas: cross marketing; discounted
fees; direct electronic interfacing; and mutual name protection. We believe
that business relationships with online auction sites will improve brand
name recognition by enabling our members to benefit from enhanced services
provided by online auction sites, including special recognition in the
'featured auctions' Web page of online auction sites and allowing us to
place our banner in each auction posted by us on behalf of our members.
Another important aspect of a business relationship with an online auction
site may consist of mutual name protection, whereby an online auction site
would agree to help protect the Take to Auction name by prohibiting sellers
or buyers, other than our members, from using Take to Auction as any part
of their listing name. We believe that business relationships with online
auction sites will improve the efficiency and performance of our network
systems by enabling us to interface directly with online auction sites.
Currently, we simulate a standard manual posting when interfacing with an
online auction site. A business relationship with an online auction site
may permit us to use such site's proprietary application programming
interface (API). Our use of an online auction site's API would allow us to
interface directly with such site's back end (possibly directly with their
database), as opposed to simulating a person when interfacing with the
site. Interfacing using an online auction site's API will eliminate data
loss, will eliminate waiting for responses from the site, will help us
avoid errors caused by previously unannounced protocol changes and will
eliminate the transfer of faulty data and increase our Web site's
processing power, thus increasing the efficiency or throughput.
Leverage our innovative business model
We believe that our business model provides a number of competitive
advantages. We have a unique appeal to entrepreneurial Web users because we
can provide them with the means to earn additional income at no additional
risk other than the amounts members pay for membership credits. Our
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<PAGE>
current volume of activity is approximately 22,000 transactions, based on
the current level of membership on an annualized basis. We completed
approximately 650 transactions during the period from June 2, 1999 through
December 31, 1999. Our current variety of merchandise equals over 2,000
types of items. As we increase our volume of activity and the variety of
merchandise available to take to online auction sites, we expect to
purchase merchandise at a greater discount, thereby increasing the
potential profits of the members.
Enhance the Take to Auction.com Web site features and functionality by
adding unique content to our membership
We intend to update and enhance the features and functionality of our
Web site frequently to continue to improve the user's trading experience by
introducing features such as new category-specific content. For example, we
intend to provide stock quotes, a 'tell your story' section and category
indexing. The category indexing we intend to offer will show the recent
sales trends in many of the categories of items we offer for auction. We
also intend to provide a real time confirmation of a completed auction to
our members and to the buyer, which will include a link for the buyer to
click to facilitate payment. We will continue to refine system response and
transaction processing time by investing in our infrastructure to
accommodate additional users, content and online auction sites. The system
response time refers to the speed and functionality of our Web site. The
transaction processing time refers to the processing time for all types of
transactions which can be accomplished on our Web site, such as signing up
for membership, purchasing additional credits and taking items to auction.
We believe that our format and Web site encourage users and members to
return on a frequent basis to review the inventory of items available to
them, to check the status of on-going auctions and to track their
historical success. The regular rotation of merchandise also encourages
customers to revisit the site frequently. Further, we anticipate that our
online advertising customers will benefit from our ability to provide
targeted marketing opportunities.
Generate revenues from the sale of online advertising
We intend to generate a minor portion of our revenues from online
advertising by leveraging our user database to enable Internet retailers to
advertise their products to our members. Our system provides these
retailers with information about the spending habits of our members based
on information obtained by tracking the posting habits of our members. We
do not provide retailers with personally identifiable information about our
users. Currently, we provide our members with an auction portfolio tracking
page. In the future, we intend to provide to our members with a stock
portfolio tracking system, a 'tell your story' section and category
indexing. These current and future features, we believe, will foster
community affinity by encouraging our members to spend more time on our Web
site. These factors, we believe, will appeal to Internet retailers that
desire to advertise their products because we can provide them with the
opportunity for a relatively captive audience. Currently, we have
arrangements with two entities whereby these entities display their banner
on our Web site. To date, we have derived no revenues from such online
advertising. Please see 'Risk Factors - Revenue expected from online
advertising may not materialize' for a more detailed discussion of our
online advertising.
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THE TAKE TO AUCTION SERVICE
Our platform is an Internet-based community supplying merchandise to
entrepreneurial members through an online catalog of collectibles and
factory-new specialty merchandise. The following describes our purchase and sale
process:
What can be taken to auction
Our service will offer our members numerous product categories. We
expect the number of product categories to grow in the future. Each
category below has numerous subcategories. Merchandise is available
individually or as bundled items. Current product categories include:
Autos and Auto Products Great Collections
Antiques Jewelry, Gemstones
Art Photo & Electronics
Books, Movies, Music Pottery & Glass
Coins, Stamps Sports Memorabilia
Collectibles Toys, Plush
Dolls, Figurines
REGISTRATION
Members purchase membership credits to enable them to select an item to
take to an online auction site. An annual membership costs a minimum of $100.00
for 100 credits, which allows a member to take any number of items which have an
aggregate value of $100.00 or less from our Web site to an online auction site
for one week at a time for the duration of the one-year membership. In addition,
as a member purchases additional credits, the member will be eligible to list
additional items or items that have greater value and/or are more difficult to
find. Initially, each additional credit beyond the membership fee costs $1.
However, the cost of additional credits will be prorated based on when they are
purchased within the members' membership term. Additional credits may be
purchased in 25 credit increments. The user interface clearly indicates to the
member how much it will cost to purchase additional credits. The number of
credits and, consequently, our revenues depend upon our members' interest in
listing multiple items at one time or more valuable items.
SELECTING AN ITEM
With the purchase of a membership, a member can access our site and select
one or more items from our fully automated catalog and post such merchandise on
an online auction site. Members select items based on the number of their
credits. Each credit is valued at $1.00. A member's membership, which costs a
minimum of $100.00, equals 100 credits. Additional credits can be purchased as
set forth in the above section. Members can increase their selling power by
purchasing additional credits. Additional credits allow members to list multiple
items simultaneously or items of greater value, always based on the number of
accumulated credits. For example, if a member purchases an additional 100
credits, such member would have 200 credits, 100 credits from his or her
membership fee plus the additional credits. Since the credits are valued at
$1.00, the member may now take any number of items which have an aggregate value
of $200.00 or less from our Web site to an online auction once a week for the
duration of the member's annual membership.
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TAKING AN ITEM TO AUCTION
Members can take an item they choose to an online auction site by clicking
on the item, causing a drop-down menu to list the popular online auction sites
to which members can choose to take the selected merchandise (presently, only
eBay). By highlighting and clicking on the online auction site, the item, with
its description and reference information (including minimum bids for opening
price and member information), is transferred to the auction site automatically.
Our domain name and the member's user name are displayed on the online auction
site to identify to potential buyers that a Take to Auction.com member is
placing the item on the online auction site. Our personalized Web address
ensures member anonymity and informs potential bidders that the item is backed
by the Take to Auction brand name. Of course, our backing will only become
relevant to online bidders if Take to Auction.com gains brand name recognition
as a safe and reliable company with which to do business.
SELLING AN ITEM AT AUCTION
Once the item is listed on an auction site, buyers from around the world
may bid on the item according to the rules of the selected online auction site,
usually 24 hours a day, seven days a week.
HOW TRANSACTIONS ARE COMPLETED
At the end of an auction period, if a bid meets or exceeds the minimum
price, we automatically notify the buyer and the member via e-mail and the buyer
can then consummate the transaction through Take to Auction.com. The member does
not take possession of the item being sold and is not responsible for the
collection of the buyer's payment for the item. We arrange for the shipment and
payment collection for the item. We accept electronic checks and credit cards.
We charge the buyer handling and shipping fees for the merchandise.
COMMUNICATIONS WITH THE WINNING BIDDER
With the delivery of the merchandise, the winning bidder receives a letter
thanking him or her for purchasing an item from us, inviting the buyer to join
Take to Auction.com and explaining our services.
MARKETING AND ADVERTISING
To promote the Take to Auction.com brand and to attract traffic and new
members, we currently employ 'word-of-mouth' marketing. In addition, we also
have banners and links on our members' listings at the online auction sites. We
believe that these links will provide additional traffic to our Web site. In the
near future we intend to use a portion of the proceeds from this offering to
expand our marketing department and to target specific Web users with
traditional and Web-based marketing programs.
We believe that 'word-of-mouth' referrals is the most effective means to
attract new members because referrals by existing members lend credibility to
our service and brand name by demonstrating to potential members that other
individuals have successfully used our service. We believe that we would impair
the quality of our service and the level of customer satisfaction if we were to
embark on a high-profile advertising campaign that generates attention in the
short-term, placing too great a burden on our existing infrastructure. We
believe that we can only achieve sustainable growth by proving to potential
users that others have benefited from our services and their experience was very
satisfactory through positive feedback on the online auctions. Likewise, we
believe that the marketing of our services to buyers of Take to Auction
merchandise on online auction sites will be effective because buyers know from
experience that the Take to Auction.com service works. Please see 'Risk
Factors--Unexpected increases in traffic may stress our systems.'
CUSTOMER SUPPORT
We provide customer service and support. Customer support is offered
through a toll-free telephone number and an e-mail address which are monitored
by our staff from 9:00 a.m. to 5:00 p.m., from Monday through Friday. Most
customer support inquiries are handled via e-mail, with customer inquiries
typically
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being answered within one business day after submission. We also offer an online
tutorial for new Take to Auction.com users.
OPERATIONS AND TECHNOLOGY
We are operating our first generation user interface and transaction
processing system that is based on internally-developed proprietary software.
Our system currently handles all aspects of the Take to Auction process
including notification of members via e-mail when they initially register for
the service, confirmation of the selection of the merchandise to take to
auction, registration of the item on an online auction site and notification to
our selling member and the buyer upon the successful completion of an auction.
The system maintains member registration information, billing accounts, current
auctions and historical listings. All data is regularly archived to a data
warehouse. Complete listings of all items for sale are generated on a daily
basis. The system sends electronic invoices to all buyers of merchandise sold by
our members via e-mail immediately after auction.
Our system has been designed around industry standard architectures and has
been designed to reduce downtime in the event of outages or catastrophic
occurrences. Our service is designed to be available 24 hours a day, seven days
a week. Our system hardware is hosted at a third party facility in Cary, North
Carolina, which provides redundant communications lines and emergency power
backup. Our system consists of one database running SQL relational database
management systems and a suite of Dual and Quad PentiumIII-based Microsoft(TM)
Internet servers running Windows NT operating system. Our Internet servers also
utilize VeriSign, Inc. SSL digital certificates for authentication. We have a
load balancing Web system with redundant servers to provide for fault tolerance.
Dell(TM) currently provides all of our hardware and we use both 6300 and 2400
series servers.
We are in the process of implementing a second-generation system using
internal resources. We expect this to cost approximately $250,000. The two main
reasons for the upgrade of the system are fault tolerance and scalability. Due
to the amount of data that must be stored and the expected volume of
transactions we expect to experience, we will replace our current Microsoft SQL
database server with Oracle's 8i database server, which will also allow for
better scalability. We are also in the process of mirroring the entire Web
system on a different geographical location for added redundancy. We continually
evaluate the latest technologies to provide the smartest solution available. In
the near future, we will out grow our Microsoft based solution, and we will
migrate to Sun Micro Systems running the Solaris operating systems, Zeus for our
Web services and Chili soft for ASP with an Oracle DB backend.
PURCHASING AND INVENTORY
Purchasing
Our management has an aggregate of 75 years experience in sourcing products
for the resale market. Ilia Lekach has 30 years retail and wholesale experience;
Lucien Lallouz has 30 years marketing experience; Albert Friedman has 6 years
retail, wholesale and manufacturing experience; Kevin Caricato has 9 years
retail and wholesale experience. The items of merchandise posted at our Web site
will be purchased by us from manufacturers and wholesalers on the open market.
By that we mean that we will not commit to purchase from a small group of
manufacturers or wholesalers, but rather make our purchasing decisions solely
based on the best prices offered for quality merchandise. Because the types of
products listed on our Web site are generally available from a large number of
wholesalers and manufacturers, we believe that we can leverage our management's
purchasing expertise to obtain better prices for these products by purchasing
them in the open market. Therefore, we have not entered, and do not expect to
enter, into any medium- or long-term supply agreements with any manufacturers or
wholesalers of products. Also, because of the broad array of products we intend
to carry and since we do not have a catalog, the need to carry specific items is
minimal. If an item is not readily available to us, we may choose to discontinue
the item or suspend it temporarily from our product offerings. We may, however,
enter into strategic alliances with some manufacturers from time to time to
source unique merchandise to be listed on our Web site. Please see 'Certain
Relationships--Exito Enterprises Sourcing Arrangement.'
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Inventory
We believe that we will be able to maintain an adequate inventory of
merchandise, which we will purchase from wholesalers and suppliers in the open
market (as discussed above), to meet projected demand. We believe that our
inventory will be adequate to meet the projected demand of our members and
potential buyers. Effective November 3, 1999, we entered into a six-month
service agreement with 2000 Logistics, Inc., an unrelated third party, to
outsource our warehouse and distribution functions. This service agreement
includes order processing, inventory management, warehousing, fulfillment and
shipping of product. The agreement is variable, based on volume of sales. We
estimate the cost of these services will be approximately $175,000 during the
initial term of the agreement. The majority of costs related to this agreement
are variable and thus based on the volume of sales. The agreement is cancelable
after 6 months and will automatically renew for successive one-year terms.
PRODUCT AND SERVICE WARRANTIES
When buyers purchase our merchandise on online auction sites, we pass on to
these buyers the warranties made by the manufacturers of the merchandise. We do
not provide and assertively disclaim separate additional warranties.
COMPETITION
We believe that we are the only entity currently using our innovative
business model. However, we could face competition from existing online auction
sites or new person-to-person trading Web sites that may provide the Take to
Auction concept in the future. In the event that existing online auction sites
begin to provide the Take to Auction concept in the future, they could attempt
to block us from accessing their auction sites. Barriers to entry are relatively
low and future competitors could launch new sites at a relatively low cost using
commercially available software. Likewise, it would not be costly for existing
online auction sites to modify their format to provide the Take to Auction
concept. Many of the major online auction sites, if they were to compete with us
in the future, have longer operating histories, larger user bases, longer
relationships with consumers, greater brand or name recognition and
significantly greater financial, technical and marketing resources than we do.
Competitive pressures created by any one of these companies, or by new entries
using the Take to Auction concept, could harm our business, financial condition
and results of operations.
Future competitors may include various online person-to-person auction
services that also serve as online clearing houses or sales and distribution
channels and auction sites for manufacturers and suppliers of a variety of
products, including First Auction(TM) (the auction site for Internet Shopping
Network, a wholly-owned subsidiary of the Home Shopping Network) and Ubid, Inc.,
an online auction site of surplus electronic and computer products. Other future
competitors may include business-to-consumer online auction services such as
Onsale and Surplus Auction. We may also face competition from a number of large
online communities and services that have expertise in developing online
commerce and in facilitating online person-to-person interaction. Certain of
these companies, including eBay(sm), FairMarket(sm), Amazon.com(sm), AOL(sm),
Microsoft(sm) and Yahoo!(sm), currently offer a variety of business-to-consumer
trading services and classified ad services, and certain of these companies
could introduce the Take to Auction concept in the future. Other large companies
with strong brand recognition and experience in online commerce, such as Cendant
Corporation, QVC and large newspaper or media companies may also seek to compete
in the online auction market, and upon doing so, introduce the Take to Auction
concept. Competitive pressures created by any one of these companies, or by new
entries using the Take to Auction concept, could harm our business, financial
condition and results of operations.
We believe that the principal competitive factors in the online auction
market are volume and selection of goods, population of buyers and sellers,
community cohesion and interaction, customer service, reliability of delivery
and payment by users, brand recognition, Web site convenience and accessibility,
price, quality of search tools and system reliability. Many of our potential
competitors have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing, technical and
other resources than us. In addition, other online trading services may be
acquired by, receive investments from or
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enter into other commercial relationships with larger, well-established and
well-financed companies as the use of Internet and other online services
increases and consolidates. Therefore, certain of our potential competitors may
be able to devote greater resources to marketing and promotional campaigns,
adopt more aggressive pricing policies or may try to attract traffic by offering
services for free and devote substantially more resources to Web site and
systems development than us. Increased competition may result in reduced
operating margins, loss of market share and diminished value in our brand. We
may be unable to compete successfully against future competitors. Further, as a
strategic response to changes in the competitive environment, we may, from time
to time, make certain pricing, service or marketing decisions or acquisitions
that could harm our business, financial condition and results of operations. New
technologies and the expansion of existing technologies may increase the
competitive pressures on us by enabling potential competitors to offer a
lower-cost service. Certain Web-based applications that direct Internet traffic
to certain Web sites may channel users to trading services that may compete with
us in the future. In addition, companies that control access to transactions
through network access or Web browsers could promote our future competitors or
charge us substantial fees for inclusion. Any and all of these events could harm
our business, financial condition and results of operations. Please see 'Risk
Factors--We may face competition from existing online auction sites or new
person-to-person trading Web sites which may harm our business.'
INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have also entered into confidentiality and invention
assignment agreements with our employees and contractors, and nondisclosure
agreements with our suppliers and strategic partners to limit access to and
disclosure of our proprietary information. These contractual arrangements or the
other steps taken by us to protect our intellectual property may be insufficient
to prevent misappropriation of our technology or to deter independent
third-party development of similar technologies. We are actively pursuing the
registration of our trademarks and service marks in the United States. We intend
to pursue the registration of our trademarks and service marks internationally
following completion of this offering, starting with Argentina, Australia,
Brazil, Canada, the European Union, Japan, Mexico, New Zealand and Venezuela. We
have applied for a U.S. patent registration of our proprietary system for taking
merchandise to online auction sites. This patent may not be issued to us or, if
issued, may not provide us with all of the protections that we have sought. We
have also applied for the registration of the service marks 'Take2Auction' and
'Take2Auction.com.' Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our services
are made available online. We may license in the future certain of our
proprietary rights, such as trademarks or copyrighted material, to third
parties. We also rely on certain technologies that we license from third
parties, such as Microsoft, the suppliers of key database technology, the
operating system and specific hardware components for the Take to Auction
service.
PRIVACY POLICY
We believe that issues relating to privacy and use of personal information
relating to Internet users are becoming increasingly important as the Internet
and its commercial use grow. We have adopted a detailed privacy policy that
outlines how we use information concerning our members and the extent to which
other registered members may have access to this information. Members must
acknowledge and agree to this policy when registering for the Take to Auction
service. We do not sell or rent any personally identifiable information about
our users to any third party. We use information about our members for internal
purposes only in order to improve our marketing and promotional efforts, to
statistically analyze site usage, and to improve content, product offerings and
site layout.
GOVERNMENT REGULATION
Government regulation of communications and commerce on the Internet varies
greatly from country to country. Some countries, such as the United States, have
not adopted many laws and regulations to specifically regulate online
communications and commerce. Due to the increasing popularity and use of the
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Internet and other online services, however, it is possible that a number of
laws and regulations may be adopted with respect to the Internet or other online
services covering issues such as user privacy, freedom of expression, pricing,
content and quality of products and services, taxation, advertising,
intellectual property rights, enforceability of contracts, and information
security. Because our services are accessible worldwide, and we facilitate sales
of goods to users worldwide, any jurisdiction in which our services can be
accessed or are used may seek to impose its laws on us and to enforce those laws
in proceedings in those countries, where we could be forced to defend ourselves.
For example, a country may seek to extend the extra-territorial application of
its data protection laws and regulations to our business. As a result, in order
to avoid possible liability for non-compliance, we may be forced to restrict our
membership to exclude residents of such country from becoming a member. In other
instances, we may be required to construct costly additions to our Web site in
order to comply with local laws on data privacy, advertising and on-line
contracting. This might require us to have separate Web pages in the local
languages where laws require that we make disclosures or post on-line agreements
or privacy policies (and similar consumer notification requirements) in the
local language of the member. We may also determine that in order to comply with
local data protection laws, which prohibit the transfer of personally
identifying information of our members outside of a particular country, we may
have to set up and maintain separate databases in such country. We may also have
to customize our software programs to address country-specific requirements for
tracking and documenting transactions, as well as take into account currency
exchange issues.
There have been several attempts to regulate the distribution of 'indecent'
materials to minors over the Internet, including the Communications Decency Act
of 1996, or CDA and the Child Online Protection Act, or COPA. Large portions of
the CDA have been struck down as unconstitutional and the COPA is currently
subject to court challenge. Moreover, other laws on this subject have been and
are likely to continue to be proposed and enacted by the legislatures of the
various states. The nature of legislation on this subject and the manner in
which it may be interpreted and enforced cannot be fully determined and,
therefore, such legislation could subject us and/or our customers to potential
liability, which in turn could harm our business, financial condition and
results of operations. The adoption of any such laws or regulations might also
decrease the rate of growth of Internet use, which in turn could decrease the
demand for our service or increase the cost of doing business or in some other
manner harm our business, financial condition and results of operations. In
addition, applicability to the Internet of existing laws governing issues such
as property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. The vast majority
of such laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies.
Some countries have enacted laws or regulations that limit the use of
personal user information gathered online or require online services to
establish privacy policies. The European Union recently enacted its own privacy
regulations. Several U.S. states have also proposed legislation that would
impose such limits. The Federal Trade Commission has also initiated action
against at least one online service regarding the manner in which personal
information is collected from users and provided to third parties. Changes to
existing laws or the passage of new laws intended to address these issues,
including some recently proposed changes, could create uncertainty in the
marketplace that could reduce demand for our services or increase the cost of
doing business as a result of litigation costs or increased service delivery
costs, or could in some other manner harm our business, financial condition and
results of operations.
In addition, because our services are accessible worldwide and we
facilitate sales of goods to users worldwide, other jurisdictions may claim that
we are required to qualify to do business as a foreign corporation in a
particular state or foreign country. We are qualified to do business in one
state in the United States. Our failure to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties for the failure to qualify and could result in our inability to
enforce contracts in such jurisdictions. Any such new legislation or regulation,
or the application of laws or regulations from jurisdictions whose laws do not
currently apply to our business could harm our business, financial condition and
results of operations.
Several telecommunications companies have asked the U.S. Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone
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carriers and to impose access fees and universal service obligations on these
companies. Imposition of such fees or obligations could increase the cost of
transmitting data over the Internet, which would reduce Internet usage and harm
our business, financial condition and results of operations.
In addition, numerous states, including California, have regulations
regarding the manner in which 'auctions' may be conducted and the liability of
'auctioneers' in conducting such auctions. We do not believe that such
regulations, which were adopted prior to the advent of the Internet, govern the
operations of our business nor have any claims been filed by any state implying
that we are subject to such legislation. However, a state may attempt to impose
these regulations upon us in the future and this imposition may harm our
business, financial condition and results of operations. Please see 'Risk
Factors--Governmental regulation and legal uncertainties relating to the Web
could increase our costs of transmitting data and increase our legal and
regulatory expenditures and could decrease our membership base.'
EMPLOYEES
As of the date of the prospectus, we had approximately 40 employees,
including our President and Chief Executive Officer, Chief Financial Officer and
Chief Technology Officer. We have never had a work stoppage and no employees are
represented under collective bargaining agreements. We consider our relations
with our employees to be good. Please see 'Management--Employment Arrangements.'
FACILITIES
Our principal administrative, marketing and product development facilities
are located in approximately 2,000 square feet of leased office space in Miami,
Florida. Currently, we are lessees under a one year lease expiring in August
2000. We have an option to terminate the lease after February 2000. Our monthly
lease payment during the initial term of this lease is approximately $2,000.
During January 2000, we notified the lessor that we would terminate the lease
during February 2000. On December 28, 1999, we entered into a five year lease
agreement for approximately 11,000 square feet of office space in Fort
Lauderdale, Florida. Monthly lease payments during the initial term of the lease
is approximately $12,500. We believe that our current facilities will be
adequate to meet our current needs.
LEGAL PROCEEDINGS
We are not currently a party to any formal legal proceedings. However, a
breach of contract lawsuit has been threatened by USinternetworking, Inc.
('USi'), a developer of Web sites. We signed a contract, effective as of
September 23, 1999, with USi for the development of our second generation user
interface, as well as certain other services (the 'USi Agreement').
Subsequently, we notified USi that we were terminating the USi Agreement (as per
the terms of the USi Agreement) for material breach of USi's obligations
thereunder. The parties are currently discussing a resolution of the matter. We
believe that we have meritorious defenses, as well as counterclaims, to any
claim which may be brought by USi, and if any such claim is brought, we will
defend it vigorously.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Ilia Lekach..................................... 50 Chairman of the Board of Directors and Class II
Director
Horacio Groisman................................ 46 Vice-Chairman of the Board of Directors and
Class III Director
Albert Friedman................................. 27 President, Chief Executive Officer and Class III
Director
Mitchell Morgan................................. 29 Vice-President, Chief Financial Officer and
Class II Director
Jonathan Geller................................. 23 Vice-President, Chief Technology Officer and
Class I Director
Hugo Calemczuk.................................. 48 Class I Director
Garrick Hileman................................. 26 Class I Director
Miguel Cauvi.................................... 38 Class II Director
Alan Blaustein.................................. 54 Class III Director
</TABLE>
Each director will hold office until their term expires and until his or
her successor at an annual meeting of shareholders is elected and qualified or
until his or her earlier resignation or removal. Each officer serves at the
discretion of the board of directors.
Ilia Lekach has been our Chairman of the Board and a Class II director
since October 1999. Mr. Lekach is a co-founder of Perfumania, Inc. and was
Perfumania, Inc.'s Chairman of the Board and Chief Executive Officer from its
incorporation in 1988 until his resignation in April 1994. In October 1998, Mr.
Lekach was re-appointed Perfumania, Inc.'s Chairman of the Board and Chief
Executive Officer. Mr. Lekach served as Chairman of the Board of L. Luria & Son,
Inc., a South Florida-based catalog retailer from January 1997 through August
1997. Mr. Lekach also serves as Chairman of the Board and Chief Executive
Officer of Parlux Fragrances, Inc., a publicly traded manufacturer of fragrance
and related products since 1990.
In August 1996 ORM Inc., and its affiliates, of which Mr. Lekach is a
principal, purchased a controlling interest in L. Luria & Son, Inc., a catalog
retailer with serious financial problems. On August 13, 1997, L. Luria & Son,
Inc. filed for relief under Chapter 11 of the Bankruptcy Code and has since been
liquidated.
Dr. Horacio Groisman served as our Chairman of the Board of Directors from
August 1999 until October 1999 and has been a Class III director since August
1999. Since October 1999, Dr. Groisman has served as Vice-Chairman of our Board
of Directors. Dr. Groisman has been a practicing physician since 1984, after
having received specialty training at Georgetown University. Since June 1994,
Dr. Groisman has been President of Otolaryngology, Head and Neck Associates, in
Miami, Florida. From January 1997 to December 1997, Dr. Groisman was President
and Chief of Staff of Cedars Medical Center in Miami, Florida. Since January
1991, Dr. Groisman has been Chief of Services at Cedars Medical Center. In
addition, Dr. Groisman has been a director of Perfumania, Inc. since March 1999.
Albert Friedman has been our President and Chief Executive Officer and a
director since July 1999 and a Class III director since August 1999. Prior to
joining us, Mr. Friedman served as Chief Operating Officer, Interim Chief
Financial Officer and director of Perfumania.com from its inception in January
1999 until June 1999. From April 1998 until January 1999, Mr. Friedman was
President of Corporate Communications Solutions, Inc., an investment banking
firm. From January 1997 until April 1998, Mr. Friedman was Executive Vice
President and Chief Financial Officer of L. Luria & Son, Inc., a catalog
showroom, where Mr. Friedman also served as a director. From June 1996 to
December 1996, Mr. Friedman served as an analyst for ORM, Inc., an
investment-banking boutique. From June 1994 to June 1996, Mr. Friedman was Vice
President of Art and Precision, Inc., a manufacturer and distributor of fine
jewelry.
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On August 13, 1997, L. Luria & Son, Inc. filed for relief under Chapter 11
of the Bankruptcy Code and was liquidated. Mr. Friedman was the senior officer
in charge of managing the liquidation process of L. Luria & Son, Inc.
Mitchell Morgan has been our Vice-President, Chief Financial Officer and a
Class II director since August 1999. From January 1994 to August 1999, Mr.
Morgan held various positions in PriceWaterhouseCoopers, LLP, most recently as
business assurance manager. Mr. Morgan holds a degree in accounting from the
University of Florida. Mr. Morgan is a Certified Public Accountant.
Jonathan Geller has been our Vice President, Chief Technology Officer and a
Class I director since October 1999. From January 1998 until September 1999, Mr.
Geller was co-founder of Jackpot S.A, Lima Peru, a privately owned company
specializing in the development of Web pages, providing high bandwidth Internet
connections and custom Web applications, where he served as Chief Executive
Officer. From May 1995 to August 1995, in addition to his several internships,
Mr. Geller co-founded Serious Fun, Inc., an online casino Web site that he
designed. From January 1994 until December 1997, Mr. Geller attended college at
North Carolina State University where he graduated with a degree in Industrial
Engineering.
Hugo Calemczuk has been our Senior Vice President of Merchandising and a
Class I director since August 1999. Mr. Calemczuk resigned as our Senior Vice
President of Merchandising effective January 2000. Mr. Calemczuk has been
President of Exito Enterprises, a distributor of watches and electronics, since
its founding in 1987. From 1984 to 1987, Mr. Calemczuk was President of Levimar,
a distributor of duty-free merchandise, including watches, jewelry, perfumes,
electronics and collectibles.
Garrick Hileman is currently Vice President of Business Development for
ZERO.NET, specializing in business development, start-up financing, merger and
acquisition analysis and management consulting. He currently serves on the board
of directors of three of ZERO.NET's portfolio companies: Envision Development
Corporation, Take to Auction.com, Inc., and b2bstores.com. Previously, Mr.
Hileman was employed at Montgomery Securities where he worked in both the
Corporate Finance and Equity Research departments. Mr. Hileman received his BA
in Business Administration from the University of Washington where he also
served as student body president.
Miguel Cauvi is currently an executive with IBM Global Services since
October 1999. From October 1994 until October 1999, Mr. Cauvi was an independent
consultant. During this time Mr. Cauvi worked for Hencorp Beckstone & Co., a
privately held securities firm and Groupo Ormeno, a large Peruvian bus
transportation company. From July 1993 until October 1994, Mr. Cauvi was the
Chief Information Officer for JE Seagram & Sons, Inc. (Spain) and a member of
the JE Seagram & Sons, Inc. worldwide re-engineering team. From January 1991
until June 1993, Mr. Cauvi was the Director of Organization and Information
Systems with CPC Spain, S.A. an affiliate of Corn Product Corporation USA, the
manufacturer and distributor of Mazzola and Hellman's brands. From October 1989
until January 1991 Mr. Cauvi was a manager with Ernst & Young consulting
division. From January 1984 until March 1989 Mr. Cauvi was an Experienced Senior
of Arthur Andersen & Co. consulting division.
Alan Blaustein is currently the President & CEO (founder) of
Convergence2net, LLC, a startup company that focuses on outsourcing of
network-centric applications and services. As a Network Service Provider, C2Net
provides e-business and network services for the mid tier carriers, enterprise,
commercial and Internet businesses. From 1991 to 1999, Mr. Blaustein was
President, CEO & Vice Chairman (founder) of Maxnet Communication Systems, a
company specializing in the network augmentation services of large, complex
network systems for the Fortune 1000. Mr. Blaustein has more than 20 years
experience in data communication, with positions in advance engineering, sales,
systems and marketing with Motorola (ISG), ITT and Exxon Enterprise
(Periphonics).
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board of
directors will be elected each year. These provisions, together with provisions
of our amended and restated articles of incorporation and bylaws, allow the
board of directors to fill vacancies or increase the size of the board of
directors, and may deter or hinder a shareholder from removing incumbent
directors and filling such vacancies with its own nominees in order to gain
control of the board.
38
<PAGE>
Our board has resolved that Hugo Calemczuk, Jonathan Geller and Garrick
Hileman will serve as Class I Directors whose terms expire at the 2000 annual
meeting of shareholders. Mr. Lekach, Mr. Morgan and Mr. Cauvi will serve as
Class II directors whose terms expire at the 2001 annual meeting of
shareholders. Mr. Friedman, Dr. Groisman and Mr. Blaustein will serve as Class
III directors whose terms expire at the 2002 annual meeting of shareholders.
BOARD COMMITTEES
The audit committee of our board of directors consists of Mr. Cauvi, Mr.
Blaustein and Dr. Groisman. The audit committee reviews our financial statements
and accounting practices, makes recommendations to the board of directors
regarding the selection of independent auditors and reviews the results and
scope of the audit and other services provided by our independent auditors. The
compensation committee of our board of directors consists of Mr. Lekach and Dr.
Horacio Groisman. The compensation committee makes recommendations to the board
of directors concerning salaries and incentive compensation for our officers and
employees and administers our employee benefit plans. As of the date of this
prospectus, our board of directors has performed all functions of the
compensation and audit committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee of the board of directors
was at any time since our formation an officer or employee of ours. Ilia Lekach,
our Chairman of the Board of Directors, and Horacio Groisman, our Vice-Chairman
of the Board of Directors, serve as members of the board of directors of
Perfumania, Inc. There is no business relationship between us and Perfumania,
Inc., other than the $1,000,000 advance further described in 'Certain
Transactions--Perfumania, Inc. Advance.'
DIRECTOR COMPENSATION
Our independent directors receive cash compensation in the amount of $2,500
and options to purchase 5,000 common shares per year for their services as
directors, and are reimbursed for their reasonable expenses for attending our
board of directors and board committee meetings. Directors compensation is paid
at the end of each year. To date, our directors have not received any
compensation in the form of options for director services. Our independent
directors will be compensated in part with options at the end of this year, at
the initial public offering price. Subsequent to the initial public offering,
the exercise price of the options which form part of the compensation paid to
directors will be based on the market value at the time the options are granted.
The market value will be based on the trading price at the time the options are
granted when our stock is traded on a recognized stock exchange.
EMPLOYMENT ARRANGEMENTS
In August 1999, each of Messrs. Albert Friedman, President, Chief Executive
Officer and director and Mitchell Morgan, Vice President, Chief Financial
Officer and director, entered into executive employment agreements with Take to
Auction.com. Each agreement has a term of three years unless terminated earlier
for cause, death, disability or upon a change in control of Take to Auction.com.
Mr. Friedman's agreement provides for an initial base salary of $125,000. Mr.
Morgan's agreement provides for an initial base salary of $120,000. The above
salaries are subject to annual increases equal to the greater of 5% or the
annual increase in the consumer price index plus other annual increases, if any,
as determined by the Compensation Committee in its sole discretion. In addition,
Mr. Friedman and Mr. Morgan were granted non-qualified stock options to purchase
a total of 75,000 and 175,000 common shares, respectively, exercisable at a
weighted average range of $0.41--$2.20, per share, one third of which vest on
each of the first, second and third anniversaries of the agreements.
In October 1999, Jonathan Geller, our Chief Technology Officer, entered
into an executive employment agreement with Take to Auction.com. The agreement
has a term of three years and provides for an initial base salary of $120,000
subject to annual increases equal to the greater of 5% or the annual increase in
the consumer price index. In addition, Mr. Geller was granted non-qualified
stock options to purchase a total of 175,000 common shares, exercisable at a
weighted average price of $1.14 per share, one third of which vest on each of
the first, second and third anniversaries of the agreement.
39
<PAGE>
In the event any of these individuals terminate the agreement (i) within
180 days from the date a person or entity acquires the beneficial ownership of
20 percent or more of the then outstanding common shares or 20 percent or more
of the voting power, or (ii) pursuant to certain transactions (including a
merger or a sale of substantially all the assets) approved by the shareholders,
they will be entitled to receive severance compensation in the amount of 200
percent of their annual base salary.
A committee of our Board of Directors determined the exercise price of the
options granted to the employees was the fair market value of the common stock
on the date of grant.
EXECUTIVE COMPENSATION
We commenced operations in June 1999, and no individual employed by us,
including our President and Chief Executive Officer, has been awarded, paid or
earned salary and bonus in excess of $100,000 since our inception. From July 31,
1999 through January 31, 2000, our President and Chief Executive Officer has
earned approximately $62,500 from us.
OPTION GRANTS FROM JUNE 2, 1999 TO JANUARY 31, 2000
The following table sets forth grants of stock options to our President and
Chief Executive Officer and our two most highly compensated executive officers,
other than our President and Chief Executive Officer, from inception to January
31, 2000. We have never granted any stock appreciation rights. The weighted
average exercise price of each option is equal to $1.16 per share. The potential
realizable value is calculated based upon the term of the option at its time of
grant (seven years). It is calculated assuming that the value of common shares
on the date of our initial public offering appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. These numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect our estimate of future stock price
growth.
<TABLE>
<CAPTION>
OPTION GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE PRICE TERM (1) (2)
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION --------------------------
NAME GRANTED (#) PERIOD (%)(1) ($/SH)(3) DATE 5%($) 10%($)
- ---------------------------- ----------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Albert Friedman............. 75,000 8.43% $ 0.41 08/01/06 1,160,858 1,607,692
Mitchell Morgan............. 145,408 16.35% $ 0.41 08/01/06 2,252,188 3,119,093
29,592 3.31% $11.00 01/31/07 456,480 632,187
--------- ----- --------- ---------
175,000 19.66% 2,708,668 3,751,280
--------- ----- --------- ---------
--------- ----- --------- ---------
Jonathan Geller............. 162,857 18.30% $ 0.41 10/01/06 2,520,718 3,490,984
12,143 1.36% $11.00 01/31/07 187,950 260,296
--------- ----- --------- ---------
175,000 19.66% 2,708,668 3,751,280
--------- ----- --------- ---------
--------- ----- --------- ---------
</TABLE>
- ------------------
(1) Potential realizable value is based on the assumption that the common share
price appreciates at the annual rate shown (compounded annually) from the
date of grant until the end of the option term. The amounts have been
calculated based on the requirements promulgated by the Securities and
Exchange Commission. The actual value, if any, a named executive officer may
realize will depend on the excess of the shares on the date of exercise.
Accordingly, there is no assurance that the value realized will be at or
near the potential realizable value as calculated in the table.
(2) These options have a term of seven years from the date of grant.
(3) The exercise price of the options granted was the fair market value of the
common stock on the date of grant, as determined by a committee of our Board
of Directors. Factors used by our board in determining the fair market value
include, but are not limited to, our status as a development stage company
and the purchase price of recent sales of our common shares.
40
<PAGE>
The following table provides certain summary information concerning stock
options held as of January 31, 2000 by our President and Chief Executive Officer
and our two most highly compensated executive officers, other than our President
and Chief Executive Officer. No options have been exercised as of January 31,
2000 by any of the officers. The value of unexercised in-the-money options at
January 31, 2000 is based on the value of the common shares at the date of this
offering.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT JANUARY 31, 2000 JANUARY 31, 2000
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Albert Friedman.................................... -- 75,000 -- --
Mitchell Morgan.................................... -- 175,000 -- --
Jonathan Geller.................................... -- 175,000 -- --
</TABLE>
EMPLOYEE BENEFIT PLANS
1999 Stock Option Plan
In August 1999, the Board adopted the 1999 Stock Option Plan, or Option
Plan. At that time, 2,442,857 common shares were reserved for issuance under the
Option Plan. Shares covered by any option granted under the Option Plan which
expires unexercised become available again for grant under the Option Plan. As
of January 31, 2000, options to purchase 815,000 common shares were outstanding
with a weighted average exercise price of $5.23 per share, and 1,627,857 shares
were available for future grants.
SIMPLE IRA Plan
We sponsor the Take to Auction.com, Inc. SIMPLE IRA Plan, a defined
contribution plan provided pursuant to the requirements of the Internal Revenue
Code of 1986, as amended. All employees eligible to participate may enter the
SIMPLE IRA Plan as of the first day of any month. Participants may make pre-tax
contributions to the SIMPLE IRA Plan subject to a statutorily prescribed annual
limit. We will make matching contributions, not to exceed 3% of a participant's
annual compensation, to the SIMPLE IRA Plan. Each participant is fully vested in
their account, including the participant's contributions, our matching
contribution and the investment earnings thereon. Contributions by the
participants or by us to the SIMPLE IRA Plan, and the income earned on such
contributions, are generally not taxable to the participants until withdrawn.
Contributions by us are generally deductible by us when made. The participant's
and our contributions are held in an IRA. We made a matching contribution to the
SIMPLE IRA Plan for Fiscal 1999 of approximately $5,100 during January 2000.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 607.0850 of the Florida Business Corporation Act, or FBCA, permits,
in general, a Florida corporation to indemnify any person who was or is a party
to any action or proceeding by reason of the fact that he or she was a director
or officer of the corporation, or served another entity in any capacity at the
request of the corporation, against liability incurred in connection with such
proceeding including the estimated expenses of litigating the proceeding to
conclusion and the expenses actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof, if
such person acted in good faith for a purpose he or she reasonably believed to
be in, or not opposed to, the best interest of the corporation and, in criminal
actions or proceedings, additionally had no reasonable cause to believe that his
or her conduct was unlawful. ss.607.0850(6) of the FBCA permits the corporation
to pay such costs or expenses in advance of a final disposition of such action
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount as and to the extent required by statute.
ss.607.0850 of the FBCA provides that the indemnification and advancement of
expense provisions contained in the FBCA shall not be deemed exclusive of any
rights to which a director or officer seeking indemnification or advancement of
expenses may be entitled.
Our amended and restated articles of incorporation provide, in general,
that we shall indemnify, to the fullest extent permitted by ss.607.0850 of the
FBCA, any and all persons whom it shall have the power to indemnify under that
section from and against any and all of the expenses, liabilities or other
matters referred
41
<PAGE>
to in or covered by said section. Our amended and restated articles of
incorporation also provide that the indemnification provided for therein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any by-law, agreement, vote of shareholders or disinterested
directors or otherwise, both as to actions taken in his or her official capacity
and as to acts in another capacity while holding such office.
In accordance with that provision of our amended and restated articles of
incorporation, we shall indemnify any officer or director (including officers
and directors serving another corporation, partnership, joint venture, trust, or
other enterprise in any capacity at our request) made, or threatened to be made,
a party to an action or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that he or she was serving in any of those
capacities against judgments, fines, amounts paid in settlement and reasonable
expenses (including attorney's fees) incurred as a result of such action or
proceeding. Indemnification would not be available if a judgment or other final
adjudication adverse to such director or officer establishes that (i) his or her
acts were committed in bad faith or were the result of active and deliberate
dishonesty or (ii) he or she personally gained in fact a financial profit or
other advantage to which he or she was not legally entitled.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and officers to
give these directors and officers additional contractual assurances regarding
the scope of the indemnification set forth in our amended and restated articles
of incorporation and bylaws and to provide additional procedural protections. At
present, there is no pending litigation or proceeding involving a director,
officer or employee of Take to Auction.com regarding which indemnification is
sought, nor are we aware of any threatened litigation that may result in claims
for indemnification.
With approval of our board of directors, upon completion of this offering,
we expect to obtain directors' and officers' liability insurance.
42
<PAGE>
CERTAIN TRANSACTIONS
Since our inception in June 1999, there has not been nor is there currently
proposed any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our common shares had
or will have a direct or indirect interest other than (i) compensation
arrangements, which are described where required under 'Management' and (ii) the
transactions described below.
SALES OF SECURITIES
Since our inception, we have made the following sales of our common shares
to our officers, directors and beneficial owners of 5% or more of all
outstanding common shares that were not registered under the Securities Act. The
common shares issued and listed hereunder reflect a split on a 1,000-to-1 basis
on August 26, 1999 and split on a 2.326530644-for-1 basis on November 3, 1999.
On August 26, 1999, we sold an aggregate of 16,283,387 common shares under
Rule 506, Regulation D, promulgated under the Securities Act, at a purchase
price of $0.06 per common share to certain sophisticated and accredited
investors, including the following officers, directors and beneficial owners of
5% or more of our issued and outstanding common shares:
<TABLE>
<CAPTION>
PURCHASE TOTAL TOTAL
SHARES PRICE PER SHARE PROCEEDS VALUE (4)
---------- --------------- -------- -----------
<S> <C> <C> <C> <C>
Horacio Groisman (1)........................... 1,628,571 $0.06 $100,000 $17,914,281
Albert Friedman (2)............................ 1,137,673 0.06 69,857 12,514,403
Hugo Calemczuk (1)............................. 1,140,000 0.06 70,000 12,540,000
Pacific Investments (3)........................ 4,560,000 0.06 280,000 50,160,000
Magdalena Zafir................................ 1,628,571 0.06 100,000 17,914,281
</TABLE>
(1) Messrs. Groisman and Calemczuk have served as directors of Take to
Auction.com since August 1999.
(2) Mr. Friedman has been our President, Chief Executive Officer and director
since July 1999.
(3) Pacific Investments is owned 100% by Ilia Lekach. Mr. Lekach has been our
Chairman of the Board and director since October 1999.
(4) Total value is based on the aggregate value of the common shares at the
assumed initial public offering price of $11.00 per share.
STOCK OPTIONS ISSUED TO DIRECTORS AND OFFICERS
The following directors and officers were awarded options to purchase the
following number of common shares:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE TOTAL TOTAL
GRANT DATE SHARES (1) PER SHARE PROCEEDS VALUE (5)
------------------- ---------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Horacio Groisman........... August 25, 1999 45,000 $ 0.41 $ 18,450 $ 495,000
Albert Friedman (4)........ August 25, 1999 75,000 0.41 30,750 825,000
Mitchell Morgan (4)........ (2) 175,000 2.20 295,750 1,925,000
Jonathan Geller (4)........ (3) 175,000 1.14 164,500 1,925,000
Ilia Lekach................ January 31, 2000 270,000 11.00 2,970,000 2,970,000
</TABLE>
- ------------------
(1) All of such options vest equally over a three year period commencing one
year from the date of grant.
(2) Mr. Morgan was awarded options to purchase 145,408 common shares on August
25, 1999 at an exercise price of $0.41 per share and an additional 29,592
common shares on January 31, 2000 at an exercise price of $11.00 per share.
(3) Mr. Geller was awarded options to purchase 162,857 common shares on October
1, 1999 at an exercise price of $0.41 per share and an additional 12,143
common shares on January 31, 2000 at an exercise price of $11.00 per share.
(4) Options were issued pursuant to employment agreements with Take to
Auction.com.
(5) Total value is based on the aggregate value of the common shares at the
assumed initial public offering price of $11.00 per share.
43
<PAGE>
EXITO ENTERPRISES SOURCING ARRANGEMENT
From time to time, we purchase merchandise from Exito Enterprises or Exito,
a distributor of watches and electronics. Hugo Calemczuk, a director of Take to
Auction, is the President and majority shareholder of Exito. We have purchased
approximately $72,000 of merchandise from Exito as of December 31, 1999. We
intend to purchase more items of merchandise from Exito in the future if the
terms and conditions of such proposed purchases are acceptable to us. All
purchases from Exito are made in the open market and all such transactions are
at 'arms-length' and on terms and at prices we could readily obtain from
unaffiliated third parties. We are not now, and have never been, under an
obligation to purchase merchandise from Exito.
PERFUMANIA, INC. ADVANCE
We received an advance of $1 million as of December 31, 1999 from
Perfumania, Inc. The chairman of the board of Perfumania, Inc. is also the
chairman of the board of Take to Auction. This advance is currently being
structured into a two-year convertible note agreement, bearing interest at six
percent (6%) per annum. Perfumania, Inc. will have the right to convert all, but
not less than all, of the principal amount into shares of our common stock at
the conversion price equal to our contemplated initial public offering price. In
addition, we have agreed to grant 300,000 warrants to Perfumania, Inc. at the
contemplated initial public offering price. These warrants expire one year from
the effective date of our contemplated initial public offering. Once the advance
is fully structured into a note, and assuming that this note is converted and
all warrants are exercised, Perfumania, Inc. will own approximately two percent
(2%) of our outstanding common shares (2% if the underwriters' over-allotment
option is exercised in full).
EMPLOYMENT AGREEMENTS BETWEEN US AND OUR OFFICERS AND DIRECTORS
Pursuant to employment agreements between Take to Auction.com and each of
Messers. Friedman, Morgan and Geller, our executive officers and directors, we
have agreed to pay an initial annual base salary to them in the amount of
$125,000, $120,000 and $120,000, respectively.
44
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to us with respect
to the beneficial ownership of our common shares as of January 31, 2000 by (i)
each shareholder known by us to be the beneficial owner of more than 5% of our
common shares, (ii) each director of Take to Auction.com and (iii) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY OWNED BEFORE BENEFICIALLY OWNED AFTER
THE OFFERING(2) THE OFFERING(2)
-------------------------- --------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENTAGE(3) NUMBER PERCENTAGE(3)
- --------------------------------------------------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Horacio Groisman(3)...................................... 1,628,571 9.05% 1,628,571 8.44%
Albert Friedman(3)....................................... 1,140,000 6.33% 1,140,000 5.91%
Mitchell H. Morgan(4).................................... 0 (*) 0 (*)
Hugo Calemczuk........................................... 1,140,000 6.33% 1,140,000 5.91%
Magdalena Zafir.......................................... 1,628,571 9.05% 1,628,571 8.44%
Pacific Investments(5)................................... 4,560,000 25.33% 4,560,000 23.63%
Jonathan Geller(6)....................................... 0 (*) 0 (*)
Executive officers and directors as a group
(7 persons)............................................ 8,468,572 47.05% 8,468,572 43.88%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Unless otherwise noted, the address of each shareholder is our address,
which is 5555 Anglers Avenue, Suite 16, Fort Lauderdale, Florida 33312.
(2) Percentage of ownership is based on 18,000,000 shares outstanding as of
December 31, 1999 prior to the offering and 19,300,000 shares after the
offering. Common shares subject to options currently exercisable or
exercisable within 60 days of January 31, 2000 are deemed outstanding for
the purpose of computing the percentage ownership of the person holding such
options, but are not deemed outstanding for computing the percentage
ownership of any other person. No options issued by us to date are
exercisable within 60 days of January 31, 2000. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
(3) Does not include options to purchase 45,000 and 75,000 shares granted to
Messrs. Groisman and Friedman, respectively, on August 25, 1999, one third
of which vest on the first, second and third anniversary of the date of
grant.
(4) Does not include options to purchase 175,000 common shares, granted to Mr.
Morgan on August 25, 1999 (145,408 shares) and January 31, 2000 (29,592
shares), one third of which vest on the first, second and third anniversary
of the date of grant.
(5) The address of this shareholder is 5555 Anglers Avenue, Suite 16, Fort
Lauderdale, Florida 33312. Ilia Lekach, our Chairman of the Board of
Directors, owns 100 percent of the issued and outstanding shares of common
stock of Pacific Investments. Does not include options to purchase 270,000
shares granted to Mr. Lekach on January 31, 2000, one third of which vests
on the first, second and third anniversary of the date of grant.
(6) Does not include options to purchase 175,000 common shares, granted to Mr.
Geller on October 1, 1999 (162,857 shares) and January 31, 2000 (12,143
shares), one third of which vest on the first, second and third anniversary
of the date of grant.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50 million common shares, $0.001
par value per share, and 10 million preferred shares, $0.001 par value per
share. As of January 31, 2000, there were outstanding 18,000,000 common shares
held of record by 27 shareholders and options to purchase 815,000 common shares.
As of January 31, 2000, there were no issued and outstanding preferred shares.
COMMON SHARES
Subject to preferences that may apply to preferred shares outstanding at
the time, the holders of our outstanding common shares are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the board of directors may from time to time determine. Each
shareholder is entitled to one vote for each common share held on all matters
submitted to a vote of shareholders. Cumulative voting for the election of
directors is not provided for in our amended and restated articles of
incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The holders of common
shares are not entitled to preemptive rights and are not subject to conversion
or redemption. Upon a liquidation, dissolution or winding-up of Take to
Auction.com, the assets legally available for distribution to shareholders are
distributable ratably among the holders of the common shares and any
participating preferred shares outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred shares and payment
of other claims of creditors. Each outstanding common share is, and all common
shares to be outstanding upon completion of this offering will be, duly
authorized, fully paid and nonassessable.
PREFERRED SHARES
We are authorized to provide for the issuance of preferred shares in one or
more series, to establish from time to time the number of shares to be included
in each such series, to fix the rights, preferences and privileges of the shares
of each wholly unissued series and any qualifications, limitations or
restrictions thereon, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then outstanding)
without any further vote or action by the shareholders. Our board of directors
may authorize the issuance of preferred shares with voting or conversion rights
that could significantly affect your voting power or your other rights. The
issuance of preferred shares, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change in control of Take
to Auction.com and may harm the market price of the common shares and the voting
and other rights of the holders of common shares. We have no current plans to
issue any preferred shares.
WARRANTS
In connection with this offering, we have agreed to sell to the
representative the underwriter warrant to purchase up to 130,000 common shares.
The nominal consideration for this is $130 ($.001 per share). The underwriter
warrant is exercisable for a period of four years commencing one year after the
date of this prospectus at an exercise price per share equal to $12.10 (based on
the mid range price) (110% of the public offering price). The underwriter
warrant may not be sold, transferred, assigned, pledged, or hypothecated for a
period of 12 months from the date of this prospectus, except to members of the
selling group. The underwriter warrant grants to the representative, with
respect to the registration under the Securities Act of the securities directly
and indirectly issuable upon exercise of the underwriter warrant, one demand
registration right during the exercise period, as well as piggyback registration
rights at any time. The underwriter warrant contains anti-dilution provisions
providing for adjustments of the exercise price and number of shares issuable on
exercise of the underwriter's warrant, upon the occurrence of some events,
including stock dividends, stock splits, and recapitalizations. The holders of
the underwriter warrant have no voting, dividend, or other rights as a
shareholder with respect to shares of common stock underlying the underwriter
warrant, unless the underwriter warrant shall have been exercised.
46
<PAGE>
REGISTRATION RIGHTS
Pursuant to the underwriting agreement between us and the representative of
the underwriters in this offering, we have agreed to sell to the representative
one demand registration right during the exercise period as well as 'piggy-back'
registration rights at any time. Please see '-- Warrants.' No options or common
shares issued prior to this offering are covered by any registration rights
agreements.
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF FLORIDA LAW AND THE TAKE
TO AUCTION.COM'S AMENDED AND RESTATED ARTICLES OF INCORPORATION AND BYLAWS
PROVISIONS
Some provisions of Florida law and of our amended and restated articles of
incorporation and amended and restated bylaws, which provisions are summarized
in the following paragraphs, may be deemed to have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider it in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
shareholders.
CLASSIFIED BOARD OF DIRECTORS
According to our amended and restated articles of incorporation and amended
and restated bylaws, our board of directors is divided into three classes of
directors serving staggered three-year terms. As a result, approximately
one-third of the board of directors will be elected each year. These provisions,
when coupled with the provision authorizing the board of directors to fill
vacant directorships or increase the size of the board of directors, may deter a
shareholder from removing incumbent directors and simultaneously gaining control
of the board of directors by filling the vacancies created by such removal with
its own nominees.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued common shares and preferred stock are available
for future issuance without shareholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued common shares and preferred stock could
render more difficult or discourage an attempt to obtain control of us by means
of a proxy contest, tender offer, merger or otherwise. Such attempts may have
resulted in a premium over the market price for the shares held by shareholders.
ANTI-TAKEOVER PROVISIONS UNDER FLORIDA LAW
We are subject to several anti-takeover provisions under Florida law that
apply to public corporations organized under Florida law unless the corporation
has elected to opt out of those provisions in its articles of incorporation or
its bylaws. We have not elected to opt out of these provisions.
The FBCA prohibits the voting of shares in a publicly held Florida
corporation that are acquired in a 'control share acquisition' unless the board
of directors approves the control share acquisition or the holders of a majority
of the corporation's voting shares approve the granting of voting rights to the
acquiring party. A 'control share acquisition' is defined as an acquisition that
immediately thereafter entitles the acquiring party, directly or indirectly, to
vote in the election of directors within any of the following ranges of voting
power:
o 1/5 or more but less than 1/3;
o 1/3 or more but less than a majority;
o a majority or more; or
o There are some exceptions to the 'control share acquisition' rules.
The FBCA also contains an 'affiliated transaction' provision that prohibits
a publicly-held Florida corporation from engaging in a broad range of business
combinations or other extraordinary corporate transactions with an 'interested
shareholder' unless:
o the transaction is approved by a majority of disinterested directors
before the person becomes an interested shareholder;
o the corporation has not had more than 300 stockholders of record during
the past three years;
47
<PAGE>
o the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years;
o the interested shareholder is the beneficial owner of at least 90% of the
voting shares (excluding shares acquired directly from the corporation in
a transaction not approved by a majority of the disinterested directors);
o consideration is paid to the holders of the corporation's shares equal to
the highest amount per share paid by the interested shareholder for the
acquisition of the corporation's shares in the last two years or the fair
market value of the shares, and other specified conditions are met; or
o the transaction is approved by the holders of two-thirds of the company's
voting shares other than those owned by the interested shareholder.
An 'interested shareholder' is defined as a person who, together with
affiliates and associates, beneficially owns more than 10% of a company's
outstanding voting shares. The FBCA defines 'beneficial ownership' in more
detail.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common shares is American Stock
Transfer & Trust Company. Its address is 40 Wall Street, New York, New York
10005, and its telephone number is (212) 936-5100.
LISTING
We have applied to list our common shares on the AMEX under the trading
symbol TTA. Notwithstanding the reservation of a trading symbol, we may not be
able to obtain or maintain a listing on the AMEX.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common shares, and
therefore a significant public market for the common shares may not develop or
be sustained after this offering. Future sales of substantial amounts of common
shares (including shares issued upon exercise of outstanding options) in the
public market after this offering could harm market prices prevailing from time
to time and could impair our ability to raise additional capital through the
sale of our equity securities. As described below, no shares currently
outstanding will be available for sale immediately after this offering due to
certain contractual and other restrictions on resale.
Upon completion of this offering, we will have outstanding 19,300,000
common shares, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, the 1,300,000 shares
sold in this offering will be freely tradable without restriction under the
Securities Act unless purchased by 'affiliates' of Take to Auction.com. An
'affiliate' is a person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
Take to Auction.com. The remaining shares held by existing shareholders are
subject to lock-up agreements generally providing that, with certain limited
exceptions, the shareholder will not (i) offer to sell, sell, contract to sell,
pledge or otherwise dispose of any common shares owned of record or beneficially
prior to the offering or any securities convertible into or exchangeable for
such common shares, (ii) establish a 'put equivalent position' with respect to
such common shares within the meaning of Rule 16a-1(h) under the Securities
Exchange Act of 1934, as amended, or (iii) publicly announce an intention to
take any of the actions set forth in (i) or (ii) for a period of 180 days
following the date the registration statement is declared effective by the
Securities and Exchange Commission without the prior written consent of Noble
International Investments, Inc. acting alone or each of the above listed
representatives acting together. As a result of these lock-up agreements,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144 and 144(k), none of these shares will be saleable until 180 days after
the date the registration statement is declared effective by the Securities and
Exchange Commission. Beginning 180 days after the date the registration
statement is declared effective by the Securities and Exchange Commission, of
these shares will be eligible for sale in the public market, although a portion
of such shares will be subject to certain volume limitations pursuant to Rule
144. The 18,000,000 restricted shares will become eligible for sale from time to
time thereafter upon expiration of applicable holding periods under Rule 144
under the Securities Act and our right to repurchase unvested shares.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one year (nobody in
our case has held shares for more than one year) would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) 1% of the number of common shares then outstanding (which will
equal approximately 193,000 shares immediately after this offering) or (ii) the
average weekly trading volume of the common shares during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about Take to
Auction.com. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Take to Auction.com at any time during the three months preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering common shares subject to outstanding options
under the Option Plan. Based on the number of shares subject to outstanding
options at December 31, 1999 and currently reserved for issuance under all such
plans, such registration statement would cover approximately 2,442,857 shares.
This registration statement will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will be
available for sale in the open market immediately after the 180-day lock-up
agreements expire. Also beginning six months after the date of this offering,
certain holders of common shares will be entitled to certain rights with respect
to registration of such common shares for offer and sale to the public. See
'Description of Capital Stock--Registration Rights.'
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, we have agreed to sell to each of the underwriters named below, and
each of the underwriters, for which Noble International Investments, Inc.
('Noble International') is acting as a representative, has severally, and not
jointly, agreed to purchase the number of shares offered in this offering set
forth opposite their respective names below.
NUMBER OF
NAME SHARES
------------------------------------------------------------- ---------
Noble International Investments, Inc.........................
.............................................................
Total...................................................
A copy of the underwriting agreement will be filed by amendment as an
exhibit to the registration statement of which this prospectus is a part. The
underwriting agreement provides that the obligation of the underwriters to
purchase the common shares is subject to some conditions. The underwriters shall
be obligated to purchase all of the common shares (other than those covered by
the underwriters' over-allotment option described below), if any are purchased.
Noble International has advised us that the underwriters propose to offer
the common shares to the public at the initial public offering price on the
cover page of this prospectus and that they may allow some dealers who are
members of the NASD, and some foreign dealers, concessions not in excess of
$ per share, of which amount a sum not in excess of $ per
share may in turn be reallowed by such dealers to other dealers who are members
of the NASD and to some foreign dealers. After the commencement of this
offering, the offering price, the concession to selected dealers, and the
reallowance to other dealers may be changed by Noble International.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the underwriters may be required to make in this regard.
We have agreed to pay to Noble International an expense allowance on a
non-accountable basis, equal to 1% of the gross proceeds derived from the sale
of the 1,300,000 shares offered in this offering (or 1,495,000 common shares if
the underwriters' over-allotment option is exercised in full). We paid an
advance on this allowance in the amount of $50,000.
The following table provides information regarding the amount of the
discount we will pay to the underwriters:
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
DISCOUNT EXERCISE OF OVER- EXERCISE OF OVER-
PER SHARE ALLOTMENT OPTION ALLOTMENT OPTION
--------- ----------------- -----------------
<S> <C> <C> <C>
Take to Auction.................................... $0.66 $ 858,000 $ 999,570
</TABLE>
50
<PAGE>
The following table sets forth the amount and nature of other forms of
compensation we will pay to Noble International in connection with the offering:
<TABLE>
<CAPTION>
TYPE OF COMPENSATION TERMS TOTAL AMOUNT
- ------------------------- ---------------------------------------- ----------------------------------------
<S> <C> <C>
Non-Accountable Expenses 1% of the gross proceeds of the offering $______ ($______ if the underwriters'
over-allotment option is exercised in
full
Underwriter Option(1) Option to purchase up to 130,000 Depending upon the market price of
(149,500 if the underwriters' over- common stock at the time of exercise
allotment option is exercised in full)
shares at an exercise price of
110% of the initial public offering
price
Commissions 5% of the gross proceeds of the offering $_____ ($____ if the underwriters'
over-allotment option is exercised in
full)
Finders Fee(2) $50,000 upon completion of the offering $50,000 upon completion of the offering
with Noble International as underwriter with Noble International as underwriter
</TABLE>
- ------------------
(1) Underwriter Option is issued to Noble International.
(2) To be paid to CLR Associates, Inc. ('CLR'), upon completion of the offering
with Noble International as underwriter. CLR is an entity unaffiliated with
both Noble International and Take to Auction.
We have also agreed to pay some of Noble International's expenses in
connection with this offering, including expenses in connection with qualifying
the common shares offered in this offering for sale under the laws of such
states as Noble International may designate, the placement of tombstone
advertisements and preparing bound volumes of the public offering documents. We
estimate that the total expenses of the offering, excluding the underwriting
discount, will be approximately $1,000,000.
In connection with this offering, we have agreed to sell to Noble
International for nominal consideration, the underwriter warrant to purchase up
to 130,000 common shares. The underwriter warrant is exercisable for a period of
four years commencing one year after the date of this prospectus at an exercise
price per share equal to $12.10 (based on the mid range price) (110% of the
public offering price). The underwriter warrant may not be sold, transferred,
assigned, pledged, or hypothecated for a period of 12 months from the date of
this prospectus, except to members of the selling group. The underwriter warrant
grants to the representative, with respect to the registration under the
Securities Act of the securities directly and indirectly issuable upon exercise
of the underwriter warrant, one demand registration right during the exercise
period, as well as piggyback registration rights for seven years from the date
of this prospectus. The underwriter warrant contains anti-dilution provisions
providing for adjustments of the exercise price and number of shares issuable on
exercise of the underwriter warrant, upon the occurrence of some events,
including stock dividends, stock splits, and recapitalizations. The holders of
the underwriter warrant have no voting, dividend, or other rights as a
shareholder with respect to common shares underlying the underwriter warrant,
unless the underwriter warrant shall have been exercised.
In connection with this offering, we have granted Noble International the
right, for the three-year period commencing on the closing date of this
offering, at Noble International's option, to designate a member of our board of
directors, or to appoint an observer to attend all meetings of our board of
directors. This designee has the right to notice of all meetings of the board of
directors and to receive reimbursement for all out-of-pocket expenses incurred
to attend these meetings. In addition, the designee will be entitled to
indemnification to the same extent as our directors.
Noble International has advised us that the underwriters do not intend to
confirm sales of the common shares offered in this offering to any account over
which they exercise discretionary authority.
We, and each of our officers, directors, and shareholders, have agreed not
to offer, assign, issue, sell, hypothecate, or otherwise dispose of any common
shares, securities of Take to Auction convertible into, or exercisable or
exchangeable for, common shares, or common shares received upon conversion,
exercise, or
51
<PAGE>
exchange of these securities, to the public without the prior written consent of
Noble International for a period of at least six months after the date of this
prospectus.
We and each of the selling shareholders have also granted to the
underwriters an option, exercisable during the 45-day period commencing on the
date of this prospectus, to purchase at the public offering price per share,
less the underwriting discount, up to an aggregate of 130,000 common shares. To
the extent this option is exercised, the underwriters will become obligated,
subject to some conditions, to purchase additional common shares. The
underwriters may exercise this right of purchase only for the purpose of
covering over-allotments, if any, made in connection with the sale of common
shares. Purchases of common shares upon exercise of the over-allotment option
will result in the realization of additional compensation by the underwriters.
Noble International has informed us that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.
The underwriters have reserved for sale up to 700,000 shares for our
employees, directors and friends and family, as well as business associates of
ours. These reserved shares will be sold at the public offering price that
appears on the cover of this prospectus. The number of shares available for sale
to the general public in the offering will be reduced to the extent reserved
shares are purchased by such persons. The underwriters will offer to the general
public, on the same terms as other shares offered by this prospectus, any
reserved shares that are not purchased by such persons. Such shares will not be
subject to any lock-up agreements.
Rules of the Securities and Exchange Commission may limit the ability of
the underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
o Stabilizing transactions. The underwriters may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the common
shares, so long as stabilizing bids do not exceed a specified maximum.
o Over-allotments and syndicate coverage transactions. The underwriters
may create a short position in the common shares by selling more shares
than are set forth on the cover page of this prospectus. If a short
position is created in connection with the offering, the representative
may engage in syndicate covering transactions by purchasing common shares
in the open market. The representative may also elect to reduce any short
position by exercising all or part of the over-allotment option.
o Penalty bids. If the representative purchases common shares in the open
market in a stabilizing transaction or syndicate coverage transaction,
they may reclaim a selling concession from the underwriters and selling
group members who sold those common shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of
the common shares to be higher than it would be in the absence of such
transactions. The imposition of a penalty bid might also have an effect on the
price of the common shares if it discourages resales of the common shares.
Neither we nor the underwriters make any representation or prediction as to
the effect that the transactions described above may have on the price of the
common shares. These transactions may occur on the American Stock Exchange, in
the event that we obtain and maintain a listing with them, or otherwise. If such
transactions are commenced, they may be discontinued without notice at any time.
We and the underwriters expect that the common shares will be ready for
delivery on the fourth business day following the date of this prospectus. Under
Securities and Exchange Commission regulations, secondary market trades are
required to settle in three business days following the trade date (commonly
referred to as 'T-3'), unless the parties to the trade agree to a different
settlement cycle. As noted above, the common shares will settle in T-3.
Therefore, purchasers who wish to trade on the date of this prospectus or during
the next three succeeding business days must specify an alternate settlement
cycle at the time of the trade to prevent a failed settlement. Purchasers of the
shares who wish to trade shares on the date of this prospectus or during the
next 3 succeeding business days should consult their own advisors.
52
<PAGE>
Prior to this offering, there has been no public market for the common
shares. Consequently, the initial public offering price was determined by
negotiations among us and the representative of the underwriters. The principal
factors considered in determining the initial public offering price of the
common shares were our record of operations, our current financial condition,
our future prospects, our markets, the economic conditions in and future
prospects for the industry in which Take to Auction competes, our management and
currently prevailing general conditions in the equity securities markets,
including current market valuations of publicly traded companies considered
comparable to us. However, the public offering price of the units does not
necessarily bear any relationship to our assets, net worth, earnings, book
value, or other criteria of value applicable to us and should not be considered
an indication of the actual value of the common stock. As a result, the prices
at which the shares will sell in the public market after this offering may be
lower than the price at which they are sold by the underwriters and an active
trading market in the common stock may not develop or continue after this
offering.
LEGAL MATTERS
The validity of the issuance of the common shares offered hereby will be
passed upon for us by Baker & McKenzie, Miami, Florida. Atlas Pearlman, P.A. has
served as counsel to Noble International in connection with this offering.
EXPERTS
The financial statements included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and elsewhere in the registration statement (which report expresses an
unqualified opinion and includes an explanatory paragraph referring to our
ability to continue as a going concern), and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common shares
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and accompanying exhibits and schedule. For
further information with respect to us and our common shares, we refer you to
the registration statement and the accompanying exhibits and schedule.
Statements contained in this prospectus regarding the contents of any contract
or any other document filed as an exhibit to which we refer are not necessarily
complete. In each instance, we refer you to the copy of such contract or other
document filed as an exhibit to the registration statement, and each statement
is qualified in all respects by that reference. Copies of the registration
statement and the accompanying exhibits and schedule may be inspected without
charge at the Securities and Exchange Commission's principal office in
Washington, D.C. or obtained at prescribed rates from the Public Reference
Section of the Securities and Exchange Commission, at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Securities and Exchange Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants, such as us, that file electronically with the
Securities and Exchange Commission. The address of this Web site is http:
//www.sec.gov.
53
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Balance Sheet as of December 31, 1999...................................................................... F-3
Statement of Operations for the period from June 2, 1999 (date of inception) through December 31, 1999..... F-4
Statement of Changes in Shareholders' Equity for the period from June 2, 1999 (date of inception) through
December 31, 1999........................................................................................ F-5
Statement of Cash Flows for the period from June 2, 1999 (date of inception) through December 31, 1999..... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Take to Auction.com, Inc.
We have audited the accompanying balance sheet of Take to Auction.com, Inc. (a
development stage enterprise) (the 'Company') as of December 31, 1999, and the
related statements of operations, changes in shareholders' equity and cash flows
for the period from June 2, 1999 (date of inception) through December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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, such financial statements present fairly, in all material
respects, the financial position of Take to Auction.com, Inc. (a development
stage enterprise) as of December 31, 1999, and the results of its operations and
its cash flows for the period from June 2, 1999 (date of inception) through
December 31, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in developing and marketing an internet-based community to
sell merchandise at online auction sites. As discussed in Note 2 to the
financial statements, the Company has incurred losses since inception, and its
ability to successfully complete its development program and, ultimately, obtain
profitable operations is dependent upon future events, including completing
product development, verifying market acceptance, achieving a level of
memberships adequate to support the Company's cost structure and obtaining
adequate financing to fulfill its development activities, which raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
DELOITTE & TOUCHE LLP
Miami, Florida
February 11, 2000
(February 25, 2000, as to collection of the stock subscriptions described in
Note 8)
F-2
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................................... $ 856,949
Accounts receivable............................................................................... 5,964
Stock subscription receivable..................................................................... 635,466
Inventory......................................................................................... 200,429
Prepaid expenses.................................................................................. 18,625
----------
Total current assets........................................................................... 1,717,433
Prepaid offering costs.............................................................................. 667,842
Property and equipment, net......................................................................... 186,041
Other............................................................................................... 8,423
----------
Total assets................................................................................... $2,579,739
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................................. $ 289,719
Accrued expenses.................................................................................. 54,362
Accrued payroll................................................................................... --
Accrued professional fees......................................................................... 55,000
Deferred revenue.................................................................................. 30,320
Due to affiliate.................................................................................. 1,000,000
----------
Total current liabilities...................................................................... 1,429,401
Commitments and Contingencies (Note 6).............................................................. --
Shareholders' equity:
Preferred shares, $0.001 par value, 10 million shares authorized, no shares issued and
outstanding.................................................................................... --
Common shares, $0.001 par value, 50 million shares authorized, 18,000,000 shares issued and
outstanding.................................................................................... 18,000
Additional paid-in capital........................................................................ 1,682,000
Accumulated deficit............................................................................... (549,662)
----------
Total shareholders' equity..................................................................... 1,150,338
----------
Total liabilities and shareholders' equity..................................................... $2,579,739
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JUNE 2, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
Net revenues..................................................... $ 70,067
Cost of net revenues............................................. 136,042
----------
Gross margin................................................... (65,975)
----------
Operating expenses:
General and administrative expenses............................ 383,630
Auction fees................................................... 5,727
Sales and marketing............................................ 19,061
Fulfillment.................................................... 42,632
Web site development expenses.................................. 32,637
----------
Total operating expenses.................................... 483,687
----------
Net loss......................................................... $ (549,662)
----------
----------
Basic and diluted loss per common share:......................... $ (0.03)
----------
----------
Weighted average number of common shares
outstanding.................................................... 17,090,297
----------
----------
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 2, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at June 2, 1999 (date of inception)... 16,285,714 $16,286 $ 983,714 $ -- $1,000,000
Issuance of common shares..................... 1,714,286 1,714 698,286 -- 700,000
Net loss for the period from June 2, 1999
(date of inception) through December 31,
1999........................................ -- -- -- (549,662) (549,662)
---------- ------- ---------- --------- ----------
Balance at December 31, 1999.................. 18,000,000 $18,000 $1,682,000 $(549,662) $1,150,338
---------- ------- ---------- --------- ----------
---------- ------- ---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JUNE 2, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.......................................................................................... $ (549,662)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................................... 4,886
Inventory writedown............................................................................ 39,000
Change in operating assets and liabilities:
Accounts receivable.......................................................................... (5,964)
Inventory.................................................................................... (239,429)
Prepaid expenses............................................................................. (18,625)
Other assets................................................................................. (8,423)
Accounts payable............................................................................. 289,719
Accrued expenses............................................................................. 54,362
Accrued professional fees.................................................................... 55,000
Deferred revenue............................................................................. 30,320
----------
Net cash used in operating activities..................................................... (348,816)
----------
Cash flows from investing activities:
Purchase of property and equipment............................................................. (190,927)
----------
Net cash used in investing activities........................................................ (190,927)
Cash flows from financing activities:
Proceeds from issuance of common stock....................................................... 1,064,534
Payments for offering costs.................................................................. (667,842)
Net borrowings from affiliate................................................................ 1,000,000
----------
Net cash provided by financing activities................................................. 1,396,692
----------
Net increase in cash and cash equivalents........................................................... 856,949
Cash and cash equivalents at beginning of period.................................................... --
----------
Cash and cash equivalents at end of period.......................................................... $ 856,949
----------
----------
</TABLE>
Supplemental cash flow information:
o No amounts were paid for interest or income taxes during 1999.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS:
Take to Auction.com, Inc. (the 'Company') was incorporated in the State of
Florida on June 2, 1999. The Company is a development stage enterprise intending
to operate in the internet-based community providing its entrepreneurial members
with an online catalog of authentic collectibles and factory-new specialty
merchandise to sell at online auction sites. The Company is in the process of
developing its network infrastructure and implementing various growth
strategies.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES:
Significant accounting policies and practices used by the Company in the
preparation of the accompanying financial statements are as follows:
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has been in operation for less than one year and
incurred a net loss of approximately $550,000 during the period from June 2,
1999 (date of inception) through December 31, 1999. In addition, the Company has
not yet completed product development or verified market acceptance.
These factors, among others, may indicate that the Company will be unable
to continue as a going concern for a reasonable period of time. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. The Company's continuation as a going concern is dependent
upon future events, including completing product development, verifying market
acceptance, achieving a level of memberships adequate to support the Company's
cost structure and obtaining adequate financing to fulfill its development
activities to successfully operate in the internet-based community. The Company
is in the process of filing an initial public offering, the proceeds of which
will be used toward its development activities. However, there can be no
assurance that such offering will be successful or that the ultimate proceeds
will prove to be adequate.
Effective August 26, 1999, the Company declared a share dividend of an
aggregate of 6,993,000 common shares, $0.001 par value, immediately payable to
its shareholders of record in order to effect the equivalent of a 1,000-for-1
stock split to increase the number of common shares outstanding from 7,000
shares to 7,000,000 shares. On November 3, 1999, the Company declared a share
dividend of an aggregate of 10,263,158 common shares, $0.001 par value,
immediately payable to its shareholders of record in order to effect the
equivalent of a 2.326530644-for-1 stock split to increase the number of common
shares outstanding from 7,736,842 shares to 18,000,000 shares. Shareholders'
equity gives retroactive recognition to the stock splits as of June 2, 1999.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share is computed by dividing the net loss
available to common shareholders for the period by the weighted average number
of common shares outstanding for the period. The calculation of basic and
diluted net loss per share excludes common shares issuable upon exercise of
employee stock options as the effect of the exercise would be antidilutive.
INVENTORY
Inventory, consisting of finished goods, is stated at the lower of cost or
market, cost being determined based on a moving average cost basis which
approximates the first-in, first-out method. The cost of inventory includes
product cost and freight charges. The Company recorded a provision of
approximately $39,000 for the period from June 2, 1999 (date of inception)
through December 31, 1999 to reduce the carrying value of inventory to its net
realizable value. Provision for potentially slow moving or damaged inventory is
recorded based on management's analysis of inventory levels, turnover ratios and
through specific identification of slow moving merchandise.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the related assets. Costs of major additions and improvements
are capitalized and expenditures for maintenance and repairs which do not extend
the useful life of the asset are expensed when incurred. Gains or losses arising
from sales or retirements are included in income currently. The Company reviews
its long-lived assets for impairment on a periodic basis and records an
impairment loss to operations if the sum of the expected future undiscounted
cash flows is less than the carrying amount of the asset. An impairment loss
would be recognized to reduce the carrying amount of the impaired asset to its
fair value. To date, no such impairment losses have been recorded.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use ('SOP 98-1'), the
Company capitalizes acquired and internally developed or modified software
solely to meet the Company's internal needs integral to the Company's Web site.
The Company capitalizes certain internal and external costs directly associated
with developing or modifying the internal use software, which begins with the
application development stage and ends when the project is substantially
complete and ready for its intended use. The amount of costs capitalized in 1999
relating to internal use software in process was approximately $130,000,
consisting principally of software purchased from an external vendor, and is
included in Property and Equipment, net in the accompanying Balance Sheets (see
Note 3). As of December 31, 1999, no internal use software development projects
were ready for their intended uses and therefore, no amortization cost related
to this software is included in the accompanying Statements of Operations. The
ongoing assessment of recoverability of capitalized software development costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, estimated economic life and changes in
software and hardware technologies.
F-8
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
REVENUE RECOGNITION
Revenues from membership fees are deferred at the time of billing and are
recognized ratably over the term of annual membership. Revenues related to
auction sales are recorded at the sales price to the member and recognized at
the time that the product is shipped to the highest bidder. In December 1999,
the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101,
'Revenue Recognition in Financial Statements,' providing guidance with respect
to revenue recognition issues and disclosures. The Company believes that its
existing accounting policies comply with the requirements of this published
guidance.
SALES AND MARKETING EXPENSES
Marketing and sales expenses, which consist primarily of advertising and
promotional costs, are charged to operations as incurred.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
deferred income taxes. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
bases of assets and liabilities using tax rates in effect for the year in which
the differences are expected to reverse. A valuation allowance is established
when it is more likely than not that some or all of the deferred tax assets will
not be realized.
SIMPLE IRA PLAN
The Company sponsors the Take to Auction.com, Inc. SIMPLE IRA Plan (the
'Plan'), a defined contribution plan provided pursuant to the requirements of
the Internal Revenue Code of 1986, as amended. All employees eligible to
participate may enter the Plan as of the first day of any month. Participants
may make pre-tax contributions to the Plan subject to a statutorily prescribed
annual limit. The Company is required to make matching contributions, not to
exceed 3% of a participant's annual compensation, to the Plan. Each participant
is fully vested in their account, including the participant's contributions, the
Company's matching contribution and the investment earnings thereon.
Contributions by the participants or by the Company to the Plan, and the income
earned on such contributions, are generally not taxable to the participants
until withdrawn. Contributions by the Company are generally deductible by the
Company when made. The participant's and the Company's contributions are held in
an IRA. The Company accrued a matching contribution to the Plan as of December
31, 1999 of approximately $5,100, which represents the total contribution made
to the Plan by the Company for the period from June 2, 1999 (date of inception)
through December 31, 1999.
START UP COSTS
The Company expensed all start up costs as incurred.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, 'Reporting
Comprehensive Income' ('SFAS No. 130'), establishes standards for recording and
display of comprehensive income and its components. SFAS No. 130 requires
certain components of equity to be recorded as other comprehensive income. The
Company has no other comprehensive income during the period from June 2, 1999
(date of inception) through December 31, 1999.
F-9
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, 'Disclosures about
Segments of an Enterprise and Related Information' ('SFAS No. 131'), establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company
operated in one operating segment during 1999.
NOTE 3. PROPERTY AND EQUIPMENT:
Property and equipment include the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(IN YEARS) DECEMBER 31, 1999
------------ -----------------
<S> <C> <C>
Computer equipment............................................ 3 $ 42,609
Furniture and fixtures........................................ 5 9,292
Telecommunication equipment................................... 3 8,769
Software development costs.................................. 3 130,257
---------
190,927
Less: accumulated depreciation................................ (4,886)
---------
Property and equipment, net................................... $ 186,041
---------
---------
</TABLE>
As discussed in Note 1, the Company capitalizes certain costs in connection
with internal use software which will be amortized when the software is
available for use or project modules are implemented. As of December 31, 1999,
approximately $130,000 related to internal use software in process not yet
implemented is included within Software Development Costs in the above table.
NOTE 4. INCOME TAXES:
The income tax provision differs from the amount obtained by applying the
statutory Federal income tax rate to pretax income as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 2, 1999
(DATE OF INCEPTION)
TO DECEMBER 31, 1999
--------------------
<S> <C>
Benefit at Federal statutory rates........ $ 186,885
State income taxes, net of Federal
benefit................................. 19,952
----------
206,837
Valuation allowance....................... (206,837)
----------
$ --
----------
----------
</TABLE>
F-10
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. INCOME TAXES--(CONTINUED):
The primary components of temporary differences which give rise to the
Company's net deferred tax assets at December 31, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating losses carryforward....... $ 206,837
----------
Total deferred tax assets............ 206,837
Valuation allowance..................... (206,837)
----------
$ --
----------
----------
</TABLE>
The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. The Company has
established a valuation allowance against deferred tax assets of $206,837 at
December 31, 1999.
The Company has Federal and State net operating loss carryforwards of
approximately $550,000 at December 31, 1999, both of which will begin to expire
in the year 2019.
NOTE 5. RELATED PARTY TRANSACTION:
During December 1999, the Company received an advance of $1 million from
Perfumania, Inc. The chairman of the board of Perfumania, Inc. is also the
chairman of the board of Take to Auction. This advance is classified as Due to
Affiliate in the accompanying balance sheet. This advance is currently being
structured into a two-year convertible note agreement, bearing interest at six
percent (6%) per annum. The note holder will have the right to convert all, but
not less than all, of the principal amount into shares of the Company's common
stock at the conversion price equal to the Company's contemplated initial public
offering price. In addition, the Company will grant 300,000 warrants to the note
holder at the contemplated initial public offering price. These warrants expire
one year from the effective date of the Company's contemplated initial public
offering.
The Company purchases inventory in the normal course of business with a
company owned by a shareholder of the Company. During the period from June 2,
1999 through December 31, 1999, the Company purchased approximately $72,000 of
inventory from this company.
NOTE 6. COMMITMENTS:
Effective August 25, 1999, the Company entered into employment agreements
with two executives for a three year initial term. On October 1, 1999, the
Company entered into an Employment Agreement with another executive for a
three-year term. The aggregate annual base salaries are $365,000. A total of
383,365 options to purchase common shares were granted (220,508 options were
granted on August 26, 1999 and 162,857 options were granted on October 1, 1999)
at a weighted average exercise price equal to $0.41 per share. These Options
vest over a three-year period from the date of grant. Upon a change of control
of the Company (as defined in the agreements), the executives will be entitled
to receive severance compensation in the amount of 200 percent of their annual
base salaries.
On December 28, 1999, the Company entered into a five year operating lease
agreement for its corporate headquarters. Monthly rent payments are
approximately $12,500 over this agreement.
Effective September 23, 1999, the Company entered into a 60 month service
agreement ('the USi Agreement') with USinternetworking, Inc. ('USi'), a software
and network provider, to develop and host the Company's Web site. The Company
paid an initial fee of $40,000 and the USi Agreement was for 60 equal monthly
service fee payments of $41,000 commencing on December 15, 1999 through December
14,
F-11
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. COMMITMENTS--(CONTINUED):
2004 (the 'Initial Period'). During December 1999, the Company notified USi that
it was terminating the USi Agreement (as per the terms of the USi Agreement) for
material breach of its obligations thereunder. A breach of contract lawsuit has
been threatened by USi. The Company and USi are currently discussing a
resolution of the matter. The Company believes that it has meritorious defenses,
as well as counterclaims, to any claim which may be brought by USi, and if any
such claim is brought, the Company will defend it vigorously.
On October 29, 1999, the Company entered into an agreement with ZeroDotNet,
Inc. ('ZeroDotNet') to provide financial advisory and strategic planning
services to the Company. The term of the agreement is one year. The Company paid
a $350,000 retainer fee to ZeroDotNet as compensation for services rendered
under this agreement.
Effective November 3, 1999, the Company entered into a six-month service
agreement to outsource its warehouse and distribution functions. This service
agreement includes order processing, inventory management, warehousing,
fulfillment and shipping of product. The Company paid an initial implementation
fee of $38,500 in connection with this agreement and the agreement will
automatically renew for successive one-year terms.
NOTE 7. STOCK OPTION PLAN:
Effective August 1999, the Company adopted the 1999 Stock Option Plan (the
'Option Plan'). Officers, key employees and nonemployee consultants may be
granted stock options, stock appreciation rights, stock awards, performance
shares and performance units under the Option Plan. The Company has reserved
2,442,857 common shares for issuance under the Option Plan, subject to further
antidilution adjustments.
The Company will grant 5,000 non-qualified stock options to each
non-employee director nominee of the Company. The options will allow such
directors to purchase the common shares at an exercise price equal to the
contemplated initial public offering (the 'Offering') price. These options will
have a term of ten years and vest on the date of grant.
Prior to establishment of a Compensation Committee (the 'Committee') of the
Board of Directors, the Option Plan will be administered by the Board of
Directors of the Company. The Board of Directors or the Committee will be
authorized to determine, among other things, the key employees to whom, and the
time at which, options and other benefits are to be granted, the number of
shares subject to each option, the applicable vesting schedule and the exercise
price. The Board of Directors or the Committee will also determine the treatment
to be afforded to a participant in the Option Plan in the event of termination
of employment for any reason, including death, disability or retirement. Under
the Option Plan the maximum term of an incentive stock option is seven years and
the maximum term of a nonqualified stock option is seven years.
The Board of Directors has the power to amend the Option Plan from time to
time. Shareholder approval of an amendment is only required to the extent that
it is necessary to maintain the Option Plan's status as a protected plan under
applicable securities laws or the Option Plan's status as a qualified plan under
applicable tax laws.
As of December 31, 1999, options to purchase an aggregate of 428,265 shares
have been granted under the Option Plan to employees of the Company at a
weighted average exercise price equal to $0.41 per share. These options have a
life of seven years and vest over a three-year term.
Statement of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation ('SFAS No. 123'), encourages, but does not require, companies
to record compensation cost for stock-based employee compensation plans at fair
value. The Company will measure compensation expense for the stock
F-12
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. STOCK OPTION PLAN--(CONTINUED):
plan using the intrinsic value method prescribed by Accounting Principal Board
Opinion No. 25, 'Accounting for Stock Issued to Employees' ('APB No. 25').
Accordingly, compensation expense for qualified and non-qualified employee stock
options granted under the Option Plan is equal to the difference between the
fair market value of the stock at the date of grant and the amount an employee
must pay to acquire the stock.
The fair value of each option grant under the Company's Stock Plans is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants in 1999:
<TABLE>
<S> <C>
Expected volatility..................................... 100.0%
Risk-free interest rate................................. 6.0%
Dividend yield.......................................... 0.0%
Expected life........................................... 7 years
</TABLE>
A summary of the status of the Company's Stock Plan as of December 31, 1999
is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding on June 2, 1999............................................................. -- $ --
Granted................................................................................. 428,265 0.41
Exercised............................................................................... -- --
Forfeited............................................................................... -- --
------- ------
Outstanding on December 31, 1999........................................................ 428,265 $ 0.41
------- ------
------- ------
Options exercisable on December 31, 1999................................................ --
-------
-------
Weighted-average fair-value of options granted during the period........................ $ 0.35
-------
-------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- -------------------------
WEIGHTED-AVERAGE WEIGHTED-
RANGE OF NUMBER REMAINING NUMBER AVERAGE
EXERCISE OUTSTANDING AT CONTRACTUAL LIFE WEIGHTED-AVERAGE EXERCISABLE EXERCISE
PRICES 12/31/99 (YEARS) EXERCISE PRICE AT 12/31/99 PRICE
- --------- -------------- ---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.41 428,265 6.70 $ 0.41 -- $--
</TABLE>
Had compensation cost for the Company's Stock Plans been determined based
on the fair value at the grant dates for awards under the Stock Plans consistent
with the method prescribed by SFAS 123, the Company's net loss and net loss per
share (diluted) for the period from June 2, 1999 (date of inception) through
December 31, 1999 would have been reduced to the proforma amounts indicated
below:
<TABLE>
<S> <C>
Net loss:
As reported........................................ $(549,662)
Proforma........................................... (567,654)
Diluted net loss per common share:
As reported........................................ $ (0.03)
Proforma........................................... (0.03)
</TABLE>
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. The Company anticipates that additional awards
will be granted in future years.
F-13
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. CAPITAL STOCK:
The Company concluded its $1 million initial capitalization on August 26,
1999, of which $364,534 was received by December 31, 1999. All shares issued in
connection with the initial capitalization were given effect to the 1,000-for-1
and the 2.326530644-for-1 stock splits (See Note 2). The remaining balance of
$635,466 was collected in full by February 25, 2000 and is classified as an
asset in the accompanying balance sheet as of December 31, 1999.
Subsequent to the initial capitalization, the Company sold 1,714,286 common
shares for $700,000.
On August 25, 1999 the Company's shareholders approved an increase in the
number of authorized common shares from 7,500 shares to 50 million shares and a
reduction in the par value per share of common stock from $1 to $0.001. The
Company also authorized 10 million shares, par value $0.001 per share, of
preferred stock.
F-14
<PAGE>
[INSIDE OF BACK COVER]
[ARTWORK]
<PAGE>
================================================================================
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON SHARES. TAKE TO AUCTION.COM, INC.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Special Note Regarding Forward-Looking
Statements................................... 18
Market Data.................................... 18
Use of Proceeds................................ 18
Dividend Policy................................ 18
Capitalization................................. 19
Dilution....................................... 20
Selected Financial Data........................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Business....................................... 25
Management..................................... 37
Certain Transactions........................... 43
Principal Shareholders......................... 45
Description of Capital Stock................... 46
Shares Eligible for Future Sale................ 49
Underwriting................................... 50
Legal Matters.................................. 53
Experts........................................ 53
Additional Information......................... 53
Index to Financial Statements.................. F-1
</TABLE>
Until , 2000 (25 days after the date of this prospectus), all dealers that
buy, sell or trade our common shares, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
1,300,000 SHARES
TAKE TO AUCTION.COM, INC.
COMMON SHARES
------------------------
P R O S P E C T U S
------------------------
NOBLE INTERNATIONAL
INVESTMENTS, INC.
, 2000
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by Take to
Auction.com in connection with the registration of the common shares hereunder.
All of the amounts shown are estimates, except for the Securities and Exchange
Commission registration fee, the NASD filing fee and the American Stock Exchange
filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................... $ 4,118.40**
NASD filing fee........................................................ 2,060
American Stock Exchange filing fee..................................... *
Accounting fees and expenses........................................... 125,000
Legal fees and expenses................................................ 350,000
Road show expenses..................................................... 100,000
Printing and engraving expenses........................................ 75,000
Blue sky fees and expenses............................................. *
Transfer agent and registrar fees and expenses......................... *
Miscellaneous.......................................................... *
----------
Total............................................................. $
----------
----------
</TABLE>
- ------------------
* To be completed by amendment.
** Payment of $6,672.00 already made.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ss.607.0850 of the Florida Business Corporation Act (the 'FBCA') permits,
in general, a Florida corporation to indemnify any person who was or is a party
to any action or proceeding by reason of the fact that he or she was a director
or officer of the corporation, or served another entity in any capacity at the
request of the corporation, against liability incurred in connection with such
proceeding including the estimated expenses of litigating the proceeding to
conclusion and the expenses, actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof, if
such person acted in good faith, for a purpose he or she reasonably believed to
be in, or not opposed to, the best interest of the corporation and, in criminal
actions or proceedings, in addition had non reasonable cause to believe that his
or he conduct was unlawful. ss.607.0850(6) of the FBCA permits the corporation
to pay in advance of a final disposition of such action or proceeding upon
receipt of any undertaking by or on behalf of the director or officer to prepay
such amount as, and to the extent, required by statute. ss.607.0850 of the FBCA
provides that the indemnification and advancement of expense provisions
contained in the FBCA shall not be deemed exclusive of any rights to which a
director or officer seeking indemnification or advancement of expenses may be
entitled.
Our Amended and Restated Articles of Incorporation provide, in general,
that we shall indemnify, to the fullest extent permitted by ss.607.0850 of the
FBCA, any and all persons whom we shall have the power to indemnify under said
section from and against any and all of the expenses, liabilities or other
matters referred to in, or covered by, said section. The Amended and Restated
Articles of Incorporation also provide that the indemnification provided for
therein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any By-Law, agreement, vote of shareholders or
disinterested directors or otherwise, both as to actions taken in his or her
official capacity and as to acts in another capacity while holding such office.
In accordance with our Amended and Restated Articles of Incorporation, we
shall indemnify any officer or director (including officers and directors
serving another corporation, partnership, joint venture, trust, or other
enterprise in any capacity at the company's request) made, or threatened to be
made, a party to an
II-1
<PAGE>
action or proceeding (whether civil, criminal, administrative or investigative)
by reason of the fact that he or she was serving in any of those capacities
against judgments, fines, amounts paid in settlement and reasonable expenses
(including attorney's fees) incurred as a result of such action or proceeding.
Indemnification would not be available if a judgment or other final adjudication
adverse to such director or officer establishes that (i) his or her acts were
committed in bad faith or were the result of active and deliberate dishonesty or
(ii) he or she personally gained in fact a financial profit or other advantage
to which he or she was not legally entitled.
We intend to enter into Indemnification Agreements with each of our current
directors and officers to give these directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
our Amended and Restated Articles of Incorporation and to provide additional
procedural protections. At present, there is no pending litigation or proceeding
involving a director, officer or employee of Take to Auction.com regarding which
indemnification is sought, nor are we aware of any threatened litigation that
may result in claims for indemnification.
We also refer you to Section of the Underwriting Agreement, which
provides for the indemnification of our officers, directors and controlling
persons against certain liabilities. The indemnification provision in our
Amended and Restated Articles of Incorporation, Amended and Restated Bylaws and
the Indemnification Agreements entered into between us and each of our directors
and officers may be sufficiently broad to permit indemnification of our
directors and officers for liabilities arising under the Securities Act.
We, with approval by our Board of Directors, expect to obtain directors'
and officers' liability insurance.
See also the undertakings set out in response to Item 17.
We refer you to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
- -------- ------
<S> <C>
Form of Underwriting Agreement...................................................... 1.01
Amended and Restated Articles of Incorporation as currently in effect............... 3.01
Amended and Restated Bylaws as currently in effect.................................. 3.02
Form of Indemnification Agreement to be entered into by Registrant with each of its
directors and executive officers.................................................. 10.06
Registrant's 1999 Stock Option Plan and related documents........................... 10.07
</TABLE>
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
us since our inception on June 2, 1999:
<TABLE>
<CAPTION>
AGGREGATE
PURCHASE PRICE
NUMBER OF AND FORM OF
NAME OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SECURITIES*(1) CONSIDERATION
- ------------------ ------------ ------------------- -------------- -----------------
<S> <C> <C> <C> <C>
Albert Friedman................................ 7/10/99 Common Stock 2,327 $ 142.86/Cash
Pacific Investments............................ 8/26/99 Common Stock 4,560,000 $ 280,005.60/Cash
Horacio Groisman............................... 8/26/99 Common Stock 1,628,571 $100,002.001/Cash
Magdelena Zafir................................ 8/26/99 Common Stock 1,628,571 $100,002.001/Cash
Albert Friedman................................ 8/26/99 Common Stock 1,137,673 $ 69,858.54/Cash
Hugo Calemczuk................................. 8/26/99 Common Stock 1,140,000 $ 70,001.40/Cash
Pesia Leder.................................... 8/26/99 Common Stock 814,287 $ 50,001.00/Cash
Sharon Lallouz................................. 8/26/99 Common Stock 651,429 $ 40,000.80/Cash
Maurice Alcavez................................ 8/26/99 Common Stock 651,429 $ 40,000.80/Cash
Dr. Michelle Fisher............................ 8/26/99 Common Stock 244,286 $ 15,000.30/Cash
Nadine Lallouz................................. 8/26/99 Common Stock 244,286 $ 15,000.30/Cash
Zouhir Beidoun................................. 8/26/99 Common Stock 488,571 $ 30,000.60/Cash
Isaac Lekach................................... 8/26/99 Common Stock 325,714 $ 20,000.40/Cash
David Lekach................................... 8/26/99 Common Stock 325,714 $ 20,000.40/Cash
Jassi Lekach................................... 8/26/99 Common Stock 325,714 $ 20,000.40/Cash
The Joseph Trust............................... 8/26/99 Common Stock 325,714 $ 20,000.40/Cash
(Issac Shalom)
Hannah Lekach.................................. 8/26/99 Common Stock 325,714 $ 20,000.40/Cash
Rachmil Lekach................................. 8/26/99 Common Stock 325,714 $ 20,000.40/Cash
Dr. Bernard Weinbach........................... 8/26/99 Common Stock 162,857 $ 10,000.20/Cash
Mayi De La Vega................................ 8/26/99 Common Stock 162,857 $ 10,000.20/Cash
Glenn Gopman................................... 8/26/99 Common Stock 162,857 $ 10,000.20/Cash
Israel Lewin................................... 8/26/99 Common Stock 162,857 $ 10,000.20/Cash
Alice Lekach................................... 8/26/99 Common Stock 162,857 $ 10,000.20/Cash
Andrea Koplowitz............................... 8/26/99 Common Stock 162,857 $ 10,000.20/Cash
Gabriel Groisman............................... 8/26/99 Common Stock 81,429 $ 5,000.10/Cash
Melissa Groisman............................... 8/26/99 Common Stock 81,429 $ 5,000.10/Cash
SLI.com Venture I, Ltd......................... 8/26/99 Common Stock 857,143 $ 350,000 Cash
Dominion Income Mgmt........................... 10/20/99 Common Stock 857,143 $ 350,000 Cash
----------
18,000,000
</TABLE>
- ------------------
* On June 6, 1999 we sold 100 shares of Common Stock to Sharon J. Lallouz who
transferred the common shares back to us on July 10, 1999.
(1) Assumes 1,000 for stock split effective August 26, 1999 and 2.326530644 for
1 stock split effective November 3, 1999.
No common shares were issued to Registrant's officers, directors, employees
and consultants pursuant to the exercise of stock options granted under the
Option Plan.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to the Registrant that the shares were being acquired
for investment.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
1.01 Form of Underwriting Agreement.*
3.01 Amended and Restated Articles of Incorporation as currently in effect.**
3.02 Amended and Restated Bylaws as currently in effect.**
4.01 Form of Specimen Certificate for common shares.*
4.02 Form of Lock-up Agreement.*
4.03 Form of Underwriters Warrant.*
5.01 Opinion of Baker & McKenzie regarding legality of the securities being registered.**
10.01 Executive Employment Agreement between Registrant and Albert Friedman dated August 25, 1999.**
10.02 Executive Employment Agreement between Registrant and Mitchell H. Morgan dated August 25, 1999.**
10.03 Executive Employment Agreement between Registrant and Jonathan Geller dated October 1, 1999.**
10.04 Office Building Net Lease between Anglers Office Park, Inc., a Florida corporation doing business as
Anglers Corporate Center, and the Registrant dated December 28,1999.**
10.05 Office Lease between Miami Freezone Corporation, a Florida corporation, and the Registrant dated August
4, 1999.**
10.06 Form of Indemnification Agreement to be entered into by Registrant with each of its directors and
executive officers.**
10.07 Registrant's 1999 Stock Option Plan and related documents.**
10.08 Stock Purchase Agreement between Registrant and SLI.com Venture I, Ltd. dated August 26, 1999.**
10.09 Stock Purchase Agreement between Registrant and Dominion Income Management dated October 20, 1999.**
10.10 Form of Stock Option Agreement and related schedule.**
10.11 Form of Warrant Agreement.**
10.12 Financial Advisory and Strategic Planning Services Agreement between Registrant and ZeroDotNet, Inc.
dated October 29, 1999.**
23.01 Consent of Baker & McKenzie (included in Exhibit 5.01).**
23.02 Consent of Deloitte & Touche LLP.
24.01 Power of Attorney (see Page II-6 of this Registration Statement).
27.01 Financial Data Schedule.**
</TABLE>
- ------------------
* To be filed by amendment.
** Previously filed.
(b) Financial statement schedules.
No financial statement schedules are provided because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Take to
Auction.com pursuant to the provisions described under Item 14 above, 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. In the event that a
claim for indemnification against such liabilities (other than the payment by
Take to Auction.com of expenses incurred or paid by a director, officer or
controlling person of Take to Auction.com in the successful defense of any
action, suit or proceeding) is asserted by such director, officer
II-4
<PAGE>
or controlling person in connection with the securities being registered, we
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.
We hereby undertake that:
(1) We will provide to the underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by Take to Auction.com pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(3) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
TAKE TO AUCTION.COM HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
LAUDERDALE, STATE OF FLORIDA, ON THE 27TH DAY OF MARCH, 2000.
TAKE TO AUCTION.COM, INC.
By: /s/ ALBERT FRIEDMAN
---------------------------------
Albert Friedman,
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS THAT EACH INDIVIDUAL WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS ALBERT FRIEDMAN AND MITCHELL H. MORGAN,
AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS WITH
FULL POWER OF SUBSTITUTION, FOR HIM OR HER AND IN HIS OR HER NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO SIGN ANY
REGISTRATION STATEMENT FOR THE SAME OFFERING COVERED BY THE REGISTRATION
STATEMENT THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO RULE 462(B)
PROMULGATED UNDER THE SECURITIES ACT, AND ALL POST-EFFECTIVE AMENDMENTS THERETO,
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND ALL DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT
OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR HIS, HER OR THEIR SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE OR BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
Principal Executive Officer
/s/ ALBERT FRIEDMAN President, Chief Executive Officer and Director March 27, 2000
- ------------------------------------------
Albert Friedman
Principal Financial Officer and Principal
Accounting Officer
/s/ MITCHELL MORGAN Vice President, Chief Financial Officer and March 27, 2000
- ------------------------------------------ Director
Mitchell Morgan
/s/ JONATHAN GELLER Vice President, Chief Technology Officer and March 27, 2000
- ------------------------------------------ Director
Jonathan Geller
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
ADDITIONAL DIRECTORS
/s/ HORACIO GROISMAN Director March 27, 2000
- ------------------------------------------
Horacio Groisman
/s/ ILIA LEKACH Director March 27, 2000
- ------------------------------------------
Ilia Lekach
/s/ GARRICK HILEMAN Director March 27, 2000
- ------------------------------------------
Garrick Hileman
/s/ HUGO CALEMCZUK Director March 27, 2000
- ------------------------------------------
Hugo Calemczuk
/s/ MIGUEL CAUVI Director March 27, 2000
- ------------------------------------------
Miguel Cauvi
/s/ ALAN BLAUSTEIN Director March 27, 2000
- ------------------------------------------
Alan Blaustein
</TABLE>
II-7
Exhibit 23.02
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-91177 of Take to Auction.com, Inc. of our report dated February 11, 2000
(February 25, 2000 as to collection of the stock subscriptions described in Note
8) (which report expresses an unqualified opinion and includes an explanatory
paragraph relating to the Company's ability to continue as a going concern),
appearing in the Prospectus, which is a part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- -------------------------------
Deloitte & Touche LLP
Miami, Florida
March 23, 2000
