As filed with the Securities and Exchange Commission on November 18, 1999
Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WEBSTATION.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 91-1988004
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
7812
(Primary Standard Industrial Classification Code Number)
8439 SUNSET BOULEVARD, SUITE 306
WEST HOLLYWOOD, CALIFORNIA 90069
(323) 654-8001
(Address, including Zip Code, and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)
STEPHEN J. FISCHER
PRESIDENT
8439 SUNSET BOULEVARD, SUITE 306
WEST HOLLYWOOD, CALIFORNIA 90069
(323) 654-8001
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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COPIES TO:
SARA R. ZISKIN, ESQ. ___________________________
PAUL E. BURNS, ESQ. ___________________________
GALLAGHER & KENNEDY, P.A. ___________________________
2600 N. Central Avenue ___________________________
Phoenix, Arizona 85004-3020 (___)______________________
(602) 530-8000
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Approximate date 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 in this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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(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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed maximum
Title of each of securities aggregate Amount of
to be registered offering price (1) registration fee
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Common stock, par value $.0001(2)........ $36,000,000 $10,286
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) Includes 450,000 shares of common stock subject to the Underwriters'
over-allotment option.
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 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Prospectus (Not Complete)
Issued ____________, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT
NOTICE. WEBSTATION.COM MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WEBSTATION.COM IS NOT
SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY JURISDICTION WHERE THE OFFER
OR SALE OF THESE SECURITIES IS NOT PERMITTED.
3,000,000 SHARES
[COMPANY LOGO]
WEBSTATION.COM, INC.
COMMON STOCK
Webstation.com, Inc. is offering 3,000,000 shares of its common stock. This
is our initial public offering, and no public market currently exists for our
shares. We estimate that the initial public offering price for our shares will
be between $10.00 and $12.00.
We will apply to have our common stock quoted on the Nasdaq National Market
under the symbol "VIEW."
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
Per Share Total
--------- -----
Public Offering Price................................... $ $
Discounts and Commissions to Underwriters .............. $ $
Proceeds to Webstation.com, Inc......................... $ $
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Webstation.com, Inc. has granted the underwriters the right to purchase up
to an additional 450,000 shares of common stock to cover any over-allotments.
The underwriters can exercise this right at any time within _______ days after
the offering. First Financial Equity Corporation expects to deliver the shares
of common stock to investors on _____________, 1999.
FIRST FINANCIAL EQUITY CORPORATION
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The date of this prospectus is _______, 1999
<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, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................................... 1
Risk Factors................................................................ 4
Forward-Looking Statements.................................................. 15
Use of Proceeds............................................................. 16
Dividend Policy............................................................. 16
Capitalization.............................................................. 17
Dilution.................................................................... 18
Selected Financial Data..................................................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 20
Business.................................................................... 22
Management.................................................................. 36
Certain Relationships and Transactions...................................... 39
Principal Stockholders...................................................... 41
Description of Capital Stock................................................ 42
Shares Eligible for Future Sale............................................. 45
Underwriting................................................................ 46
Legal Matters............................................................... 48
Experts..................................................................... 48
Where You Can Find Additional Information................................... 48
Index to Consolidated Financial Statements.................................. F-1
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The Webstation.com, Webstation, CeWebrity, Multimedia Direct Marketing Option,
Inside-Ad, and Hyper-Ad names are our trademarks. This prospectus also includes
trade names and trademarks of other companies.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY. UNLESS OTHERWISE INDICATED,
ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS WILL
NOT EXERCISE THEIR OVER-ALLOTMENT OPTION. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
WEBSTATION.COM, INC.
Webstation.com, Inc. is a webcasting company that will provide users with a
multifaceted, interactive entertainment experience on the Internet from its web
site located at www.webstation.com. We will broadcast customized entertainment
content that will cover all segments of the entertainment industry including
television, film, music, sports, and fashion. In addition to producing our own
programming not generally available on television, we will offer users the
opportunity to:
* view entertainment news, gossip, and other features;
* participate in chat rooms on entertainment related subjects with
celebrities and others; and
* engage in electronic commerce.
Through a mix of conventional and unconventional entertainment content, we hope
to become Generation X and Y's primary Internet/entertainment convergence
portal, building brand loyalty that will translate into greater enthusiasm for
our sponsors and our electronic commerce offerings.
We will endeavor to make our 13 to 35 year old market feel that they are part of
the inside world of entertainment with a backstage pass to special events and
special connections to established celebrities and up and coming artists. One of
our founders, Soleil Moon Frye, is a well-known television and film star with
numerous longstanding relationships in the entertainment industry. Many members
of our target market will remember Ms. Frye as the star of the hit NBC
television series PUNKY BREWSTER. We believe that we will derive significant
benefits from Ms. Frye's extensive Hollywood experience and contacts.
The Internet and emerging computer and communications technology will enable us
to produce original, customized programming for a predefined market segment at a
fraction of the cost of television production. Central to our revenue model is
the ability to create an unlimited number of entertainment communities of
interest utilizing sponsor defined demographic criteria. This will enable
sponsors to promote their products and services to a specifically tailored
audience and get more bang for their advertising buck. Another equally important
facet of our strategy, is our ability to facilitate electronic commerce
transactions by relating product offerings to webcasted events. We believe that
our convergence strategy reflects the convergence not only of entertainment and
the Internet, but of entertainment and electronic commerce as well.
We will implement our convergence strategy by developing a user attribute
database that will track and record user demographic information, entertainment
preferences, and product purchases. Our user attribute database will help us
facilitate creation of entertainment communities of interest for sponsors and
electronic commerce opportunities. In addition, our user attribute database will
enable us to set up focus groups and marketing research opportunities, as well
as to license the use of aggregate database information.
We expect to generate revenue from four principal sources:
* sponsor and advertising fees,
* rent from an entertainment-themed cybermall,
* electronic commerce revenue, and
* fees for focus groups and user attribute database information.
Moreover, we will continue to seek out additional revenue sources, as well as
pursue strategic relationships that may involve barter of necessary services in
lieu of cash revenue.
1
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THE OFFERING
Common stock offered ......... 3,000,000 Shares.
Common stock to be outstanding 9,000,000 Shares. This amount does not include
after this offering. ......... (1) up to 450,000 additional shares which the
underwriters may purchase upon exercise of an
over-allotment option, or (2) any shares that
may be issued after the offering upon the
exercise of stock options, as discussed below.
Summary of Risk Factors ...... An investment in our common stock involves a
high degree of risk. We were formed in April
1999, have generated no revenue and have
incurred losses since inception, and we
anticipate that we will continue to incur net
losses in future periods. In addition, we face
a number of risks, including the need to
complete development of our web site, the need
to produce program content to be broadcast over
our web site, the need to successfully
establish a visitor and customer base, the need
to develop relationships with companies that
will provide a distribution and customer support
infrastructure for our intended sale of goods
from our web site, the unpredictability of
operating results, the need to raise additional
capital, the need to effectively manage our
growth, the need to hire additional management
and support personnel, and the need to
establish an online community and market
acceptance for our site-related products. You
should carefully consider these risks and
uncertainties as well as those other risks and
uncertainties described in "Risk Factors"
starting on page ____ of this prospectus before
deciding whether to invest in shares of our
common stock.
Use of Proceeds .............. We intend to use the proceeds of this offering
to complete development of our web site and our
in house production facility; to develop online
content and community features; to develop
e-commerce partnerships, to offer entertainment
related products on our network; to hire
management and other personnel; to enhance our
technology, software, and basic infrastructure;
for marketing and promotional activities; for
strategic relationships and acquisitions; and
for working capital and general corporate
purposes.
Listing ...................... We will apply for listing our common stock on
the Nasdaq National Market under the symbol
"VIEW."
OUR OFFICES
We are a Delaware corporation with executive offices located at 8439 Sunset
Boulevard, Suite 306, West Hollywood, California 90069. Our telephone number is
(323) 654-8001. All references to "we," "our," or "us" refer to Webstation.com,
Inc. Our web site is located at http://www.webstation.com. Information contained
on that web site and any of the web sites in our network does not constitute a
part of this prospectus.
2
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SUMMARY FINANCIAL DATA
The following table sets forth our summary financial data. You should read
this information in conjunction with the financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
PERIOD FROM APRIL 14, 1999
(INCEPTION) TO
OCTOBER 31, 1999
--------------------------
OPERATING DATA:
Revenue....................................... $ --
Expenses...................................... 162,665
Net loss...................................... 162,665
Basic and diluted net loss per share.......... $ 0.03
Basic and diluted weighted average
shares outstanding (1)........................ 5,698,004
October 31, 1999
--------------------------
(Unaudited)
Pro Forma
Actual As Adjusted (2)
--------- ---------------
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 9,677
Working capital (deficit)..................... (176,533)
Total assets.................................. 107,326
Long-term debt, net of current maturities..... --
Total equity (deficit)........................ (111,665)
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(1) See Note 1 of notes to our financial statements for an explanation of the
determination of the weighted average common and common equivalent shares
used to compute net loss per share.
(2) Adjusted to give effect to the sale of 3,000,000 shares of common stock
offered by this prospectus at the initial public offering price per share
equal to the initial public offering price, less the underwriting discounts
and commissions and estimated offering expenses, and the application of the
estimated net proceeds therefrom.
3
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS RELATED TO OUR BUSINESS AND OUR
COMMON STOCK, AS WELL AS THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE
PURCHASING ANY OF OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY
OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS MAY BE MATERIALLY
ADVERSELY AFFECTED. IN SUCH A CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
RISKS RELATED TO OUR OPERATIONS
WE ARE A DEVELOPMENT STAGE COMPANY, AND WE EXPECT TO ENCOUNTER RISKS AND
DIFFICULTIES FACED BY DEVELOPMENT STAGE COMPANIES IN NEW AND EVOLVING MARKETS.
We were incorporated in April 1999 and do not have a significant operating
history. However, our web site is in development and the preliminary design of
the basic look and feel of our site has been completed. We have not made any
significant investment in personnel, hardware, plant, promotion, and
advertising, or in the development, production, or acquisition of programming
and other content. Our business and prospects must be considered in light of the
risks, expenses, and difficulties frequently encountered by companies in their
early stages of development, particularly companies in new and rapidly evolving
markets such as webcasting and electronic commerce. These risks include our
potential inability to:
* complete our web site and make appropriate upgrades to the web site;
* develop, produce, and/or acquire programming and other content that
appeals to our target audiences;
* attract and retain sponsors and advertisers;
* develop electronic commerce capabilities;
* respond to competitive developments; and
* attract, retain, and motivate qualified people.
We cannot assure you that we will be successful in addressing these risks.
WE HAVE SUFFERED LOSSES TO DATE AND EXPECT CONTINUED LOSSES FOR THE FORESEEABLE
FUTURE.
We have generated no revenue and have incurred losses since inception. We
expect to continue to operate at a loss for the foreseeable future as we fund
operating and capital expenditures related to the following:
* continued development of our web site;
* acquisition, maintenance, and upgrading of computers, peripherals,
network infrastructure, and related hardware and software;
* acquisition and/or use of audio visual production facilities and
purchase or lease of production equipment;
* development, production, and/or acquisition of programming and other
content;
* hiring of management, information technology, creative, production,
public relations, talent, and sales/marketing personnel;
* marketing, and other promotional activities; and
* development of relationships with strategic business partners.
Our ability to become profitable depends on whether we can generate and
sustain substantial user interest necessary to generate revenue from sponsor and
advertising fees, cybermall rent, electronic commerce, focus groups and user
attribute database information while maintaining reasonable expense levels. We
cannot assure you that we will become profitable or that our cash flow will
become positive at any time in the foreseeable future, or at all.
4
<PAGE>
WE ARE UNABLE TO ASSESS OUR FUTURE CAPITAL REQUIREMENTS. WE BELIEVE THAT IT IS
LIKELY THAT WE WILL SPEND THE PROCEEDS OF THIS OFFERING BEFORE WE WILL HAVE
SUFFICIENT REVENUE TO FUND OUR OPERATIONS. THEREFORE, WE WILL NEED TO RAISE
ADDITIONAL CAPITAL.
We require substantial working capital to fund our business. We expect to
experience negative cash flow from operations for the foreseeable future.
Because of the novelty of webcasting over the Internet and our lack of staff
with webcasting production experience, we are unable to create a budget that
reflects our operating costs and capital expenditures as set forth above. We
cannot determine when the capital raised from this offering will be exhausted or
the amount of capital we will require in the future. Furthermore, we cannot be
certain that additional financing will be available to us on favorable terms
when required, or that it will be available at all. If we raise additional funds
through the issuance of equity, equity-related, or debt securities, the
securities may have rights, preferences or privileges senior to those of the
rights of our common stock and our shareholders may experience dilution.
QUALITY REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Our independent certified public accountants' report on our financial
statements for the period ended October 31, 1999 states that the negative
working capital and failure to attain profitable operations continued by October
31, 1999 raise substantial doubt about our ability to continue as a going
concern. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO BE VOLATILE AND DIFFICULT TO
PREDICT.
We expect our quarterly operating results to fluctuate significantly as a
result of a variety of factors, many of which are outside our control. These
factors will include:
* our ability to generate web traffic and encourage repeat usage of our
site;
* our ability to develop, produce, or acquire programming and other
content for our web site;
* our ability to attract and retain advertisers and sponsors;
* our ability to generate significant revenue from the sale of products
and services, and our ability to encourage repeat purchases;
* the timing, cost, and availability of advertising in traditional media
and on other web sites and online services;
* the growth of the Internet as an advertising and commerce medium;
* the seasonality of Internet usage, which generally decreases during
summer months, and the likely increase in our revenue during the
holiday season;
* the amount and timing of operating costs and capital expenditures to
adequately develop, maintain, and upgrade our web site and our
systems;
* the announcement or introduction by our competitors of new or enhanced
web sites, services or products; and
* consumer trends and popularity of specific types of entertainment and
information services.
Due to these factors, our quarterly revenue and operating results are
difficult to forecast. We believe that period to period comparisons of our
operating results will not be meaningful. In addition, it is possible that in
one or more future quarters, our operating results will fall below the
expectations of securities analysts and investors. In such event, the trading
price of our common stock would almost certainly be materially and adversely
affected.
5
<PAGE>
IF WE ARE UNABLE TO DEVELOP CUSTOMIZED ENTERTAINMENT CONTENT THAT IS APPEALING
TO OUR TARGET AUDIENCE AND SPONSORS, OUR ABILITY TO GENERATE REVENUE WILL BE
ADVERSELY AFFECTED.
Our initial principal market consists of Generation X and Y users aged 13
to 35. Our future success depends on our ability to deliver customized
entertainment programming and other content over the Internet that will attract
targeted audiences within our principal market with demographic characteristics
valuable to sponsors and advertisers. We believe that successful implementation
of this strategy will help us build revenue from sponsors and advertisers.
Because of the difficulty in gauging the tastes and preferences of our
prospective targeted audiences, we may be unable to develop programming and
other content that attracts audiences with demographic characteristics
attractive to sponsors and advertisers. If we are unable to do so, our financial
condition and results of operations would be adversely affected.
IF WE CANNOT BUILD STRONG BRAND LOYALTY, OUR BUSINESS MAY SUFFER.
We desire to become Generation X and Y's primary Internet/entertainment
convergence portal, building brand loyalty that will translate into greater
enthusiasm of our sponsors and our electronic commerce offerings. We believe
that we will build brand loyalty by offering a mix of unique, customized
programming and more traditional entertainment related content. We cannot
guarantee that we will succeed in building and maintaining brand loyalty. If we
do not succeed, our business, results of operations, and financial condition
will be adversely affected.
OUR BUSINESS STRATEGIES AND REVENUE MODELS ARE UNPROVEN AND HIGHLY SPECULATIVE.
Our business strategy includes converging entertainment with the Internet
as well as entertainment with electronic commerce. This business strategy is
unproven. We cannot guaranty that this strategy will be commercially successful.
BECAUSE OF THE LIMITED HISTORY OF ELECTRONIC COMMERCE AND THE NOVELTY OF
WEBCASTED PROGRAMMING, WE ARE UNABLE TO PREDICT THE VIABILITY OF OUR CONCEPT OF
OFFERING WEBCASTED, EVENT RELATED PRODUCTS VIA ELECTRONIC COMMERCE.
We intend to sell souvenirs and memorabilia that will memorialize our
webcasted events. Currently we do not have any employees with retail or
electronic commerce experience. We cannot guaranty that we will be able to
identify and employ experienced individuals or that if we do identify and employ
appropriate candidates that they will be successful in developing our retail and
electronic commerce business. Given the limited history of electronic commerce
and the novelty of webcasting, there is no historic data to use to predict the
viability of offering webcasted event related products.
FAILURE OF OUR ENTERTAINMENT THEMED CYBERMALL TO BECOME A VIABLE ELECTRONIC
COMMERCE MARKETPLACE WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
In addition to operating our own store in our cybermall, we intend to rent
space to a wide variety of retailers. Failure of users to visit our cybermall,
or to find products or services that they wish to purchase, will make it
difficult to retain existing tenants and to attract new tenants. In addition,
user dissatisfaction with our cybermall concept will likely result in loss of
rental income from tenants and loss of revenue from sales at our store.
FAILURE TO DEVELOP OUR USER ATTRIBUTE DATABASE MAY ADVERSELY AFFECT OUR ABILITY
TO ATTRACT SPONSORS AND ADVERTISERS AND WILL STOP US FROM OFFERING FOCUS GROUP
AND MARKETING RESEARCH SERVICES.
We expect our user attribute database to assist us in obtaining revenue
from sponsors and advertisers looking to target audiences with specified
attributes, and from entertainment companies, retailers, and market researchers
who use focus groups and user demographic and preference information in their
market research. Our ability to create our database depends on our ability to
attract enough visitors to our web site who are willing to provide the
information we request, our ability to identify and request pertinent
information, and our ability to develop or acquire software to create, modify
and query the database.
IF WE ARE UNABLE TO ATTRACT, TRAIN AND RETAIN HIGHLY QUALIFIED MANAGERIAL,
MARKETING, CREATIVE, AND TECHNICAL PERSONNEL, OUR BUSINESS WILL SUFFER.
6
<PAGE>
We have not completed building our managerial, marketing, creative, and
technical team. Currently we employ only eight full time employees. Our future
success will depend on our ability to attract, train, retain, and motivate other
highly skilled managerial, marketing, creative, and technical personnel.
Competition for personnel is intense, especially for engineers, web designers,
and advertising sales personnel, and we may be unable to successfully attract
sufficiently qualified personnel. Furthermore, if we are successful in
attracting qualified personnel, but we are unable to integrate these employees
into our business, we will not be able to effectively manage our growth and may
reduce the quality and quantity of our programs, products, and services.
WEBCASTING IS A NEW INDUSTRY AND MANAGEMENT PERSONNEL WITH SIGNIFICANT
EXPERIENCE MAY NOT BE AVAILABLE.
Our co-founder, Soleil Moon Frye, has over 18 years of Hollywood
entertainment experience, including starring in the NBC TV hit program PUNKY
BREWSTER, co-starring in numerous films, writing and directing a full length
feature film, and most recently guest starring on NBC TV's FRIENDS, and being
the featured celebrity on E! CELEBRITY PROFILE. Our Director of Programming,
Maggie Wright, is experienced in network television, publishing, and radio. Her
experience includes assisting SATURDAY NIGHT LIVE producer Lorne Michaels,
working on LATE NIGHT WITH CONAN O'BRIEN, and, most recently, working in
creative development with The Fred Silverman Company. However, no member of our
management team has any significant webcasting production experience. We cannot
guaranty that we will be able to attract personnel with appropriate experience
or that our management team will be successful in developing, producing, or
acquiring programming and other content that will appeal to any portion of our
anticipated market of Generation X and Y users.
WE HAVE NOT YET BEGUN TO PURSUE RELATIONSHIPS WITH SPONSORS OR ADVERTISERS.
We expect that sponsors and advertising fees will make up a substantial
portion of our revenue. While we have engaged in some preliminary conceptual
discussions with a limited number of potential sponsors, we believe that it is
premature to actively pursue sponsors until initial development of our web site
is complete and specific webcasted events are scheduled. Our initial efforts to
obtain sponsors and advertisers will be focused on obtaining sponsors and
advertisers for particular webcasted events in conjunction with our launch and
promotional Spring Break 2000 tour. We cannot guaranty that we will be
successful in attracting sponsors and advertisers at the rates we set, if at
all. In addition, our arrangements with sponsors and advertisers may include a
significant amount of fees paid in barter. Our business will suffer if we are
unable to establish and maintain arrangements with sponsors and advertisers and
if we are unable to generate sufficient agreements that provide for cash
payments.
WE MAY BE UNABLE TO ACQUIRE OR MAINTAIN THE NECESSARY WEB DOMAIN NAMES.
We currently hold the web domain name "www.webstation.com." Similar domain
names held or acquired by third parties could create confusion that diverts
traffic to other web sites, which could adversely affect our business. The
regulation of domain names in the United States and in foreign countries is
subject to change in the near future. Internet regulatory bodies may establish
additional top-level domains, appoint new or additional domain registrars, or
modify the requirements for holding domain names. As a result, we may be unable
to acquire or maintain relevant domain names in all countries in which we
conduct business. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon, or otherwise decrease the value
of, our proprietary rights.
IF WE FAIL TO DEVELOP A RELIABLE WEB SITE, OUR OPERATIONS WILL BE ADVERSELY
AFFECTED.
Our ability to generate a large number of visitors to our web site is
essential to our business strategy. Accordingly, the satisfactory performance,
reliability, and availability of our web site, processing systems, and
infrastructure will be critical to our reputation and our ability to attract and
retain both a large audience for our entertainment content and advertisers to
sponsor that programming. Any web site is vulnerable to interruption or damage
from fire, earthquake, flood, power loss, telecommunications failure, break-ins,
unauthorized access to our underlying systems, and other events beyond our
control. Any system interruptions that result in a decline in the use of our web
site or availability of our service could negatively impact the sales of our
advertising, which we expect will constitute a substantial portion of our
revenue. Interruptions of service also may diminish the attractiveness of our
programming and services and inhibit electronic commerce opportunities.
7
<PAGE>
Significant increases in the volume of traffic on our network or in the
number of our programs being visited by users will require us to make
significant expansions and upgrades to our technology, processing systems, and
infrastructure. In addition, we may add additional features and functionality to
our services that would necessitate significant expansions and upgrades to our
technology or infrastructure. We cannot guarantee that we will be able to
project accurately the rate or timing of increases, if any, in the use or number
of our services or that we will be able to expand and upgrade our systems and
infrastructure to accommodate such increases or additions in a timely manner.
Failure to take these or other actions may cause unanticipated system
disruptions, slower response times, and impaired quality of the user's
experience on our web site, any of which could have a material adverse effect on
our business, results of operations, and financial condition.
We also will be dependent upon third parties such as web browser producers,
Internet service providers, streaming media providers and transmitters,
telecommunications providers, computer software, hardware and network providers,
and entertainment news and other content providers to enable our users to view
content on our web site. Users may experience difficulties accessing or using
our web site due to system failures or delays unrelated to our systems. These
difficulties may negatively affect the audio and video quality of our content or
result in intermittent interruption in our programming. Any such sustained
failure or delay could reduce the attractiveness of our web site to users and
advertisers and adversely affect our business, results of operations, and
financial condition. Although we believe that we will be able to identify third
parties that have sufficient network capacity to satisfy our needs at prices
that we consider reasonable, we cannot guarantee that they will be able to
provide us sufficient products or services or increased products or services if
our need for products or services grows significantly, or that such products or
services will be available at an acceptable price.
IF WE EXPERIENCE PROBLEMS WITH THIRD PARTY PROVIDERS OF ENTERTAINMENT RELATED
GOODS, WE COULD LOSE VISITOR LOYALTY AND REVENUE.
We may rely on third party e-commerce providers for completion of product
sales, product shipments, and consumer satisfaction. We will be, therefore,
subject to the risk that third-party providers may be unable to fulfill their
obligations to our customers, including the risks associated with third-party
employee strikes and failure of technology associated with these e-commerce
providers. In addition, the failure of a third party e-commerce provider to
deliver products to visitors of our web site in a timely manner would damage our
reputation and name. Any of these occurrences could have a material and adverse
effect on our financial condition and results of operations.
IF WE ARE UNABLE TO KEEP PACE WITH ADVANCES IN TECHNOLOGY, CONSUMERS MAY STOP
USING OUR SERVICES AND REVENUE WILL DECREASE.
The Internet, the entertainment industry, and the electronic commerce
industry continue to encounter rapid technological change, changes in user
requirements and preferences, new products and services embodying new
technologies, and changes in new industry standards and practices. These factors
could render our technology and systems obsolete. Our performance will depend in
part on our ability to:
* continue to enhance our existing services, including our web site;
* develop new technology that addresses the increasingly sophisticated
needs of our users, sponsors and advertisers; and
* license leading technologies and respond to technological advances and
emerging industry standards and practices on a timely and
cost-effective basis.
We may not be successful in using new technologies effectively or adapting
our network to user requirements or to emerging entertainment or electronic
commerce industry standards. If we are unable to adapt to these developments,
our business, financial condition, and results of operations would be materially
and adversely affected.
Although we believe the original nature of our content will draw users to
our network initially, our long-term ability to maintain interest in our
programming may depend on our ability to improve the audio and visual quality of
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our content. The clarity, smooth transmission and overall quality of our images
and sounds are directly related to how quickly digital information can reach our
users' computers. Therefore, our long-term success may depend on the increasing
availability of high-speed Internet connection technologies at prices affordable
to our users. Such technologies currently have limited availability nationally,
and their cost is prohibitive for many Internet users. If high-speed connection
services do not become more widely available to the public, or if such services
are too costly for most of our target audience to afford, growth in the use of
our services may fall short of expectations, and our results of operations may
be materially and adversely affected.
THE ENTERTAINMENT, MUSIC, ADVERTISING, AND ELECTRONIC COMMERCE MARKETS ARE
FIERCELY COMPETITIVE, WHICH COULD LIMIT OUR MARKET SHARE AND ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS.
WEBCASTING AND ENTERTAINMENT CONTENT
Other companies that currently (or intend to) provide webcasted programming
to, or otherwise target, Generation X and Y on the Internet can rightfully be
called competitors. Some examples of these include Digital Entertainment
Network, Inc., AtomFilms, CRAPtv, Honkworm.com, Moviehead.com, Pseudo.com,
Shockwave.com, SlackerTV, Slywire.com, Sputnik7.com, Sync.com and Wildweb.com.
Broadcast.com, Inc., recently acquired by Yahoo for in excess of $5 billion,
probably has the greatest selection of multimedia content on the Internet.
However, Broadcast.com historically has refrained from producing its own
content. Rather, it provides the backend infrastructure to content producers to
webcast their content over the Internet. Examples of their offerings include
broadcast and cable television programming, live streaming audio from broadcast
and Internet radio stations, and music industry related webcasts.
In addition to our direct competition, we will encounter indirect
competition. Examples include content providers that focus solely on the music
industry, including MP3.com, Launch.com, and Viacom's MTV Online Network. In
addition, portal companies, which started out as Internet search engines, such
as Yahoo, Excite and Lycos continue to add services and content to their web
sites. Impressive content and service offerings continue to expand at such
bellwether Internet service providers as America Online and the Microsoft
Network. Traditional entertainment companies such as Disney and Warner Brothers
have entered the fray with concepts such as the Go Network and Entertaindom.
At the outer reaches of indirect competition, television, radio,
interactive games, sports, education, and hobbies all compete for a finite
amount of Generation X and Y's discretionary time. Moreover, the potential
impact of cable and telecommunication (wire and wireless) companies who can
build large user communities by bundling Internet access with their existing
services cannot be underestimated.
We depend upon the unique nature of our business model to provide us with a
competitive advantage. However, this business model is untested and may not
compete effectively with existing methods of music promotion, development, and
distribution.
SPONSORS AND ADVERTISERS
We compete with traditional media, such as television, radio, and print,
for a share of sponsors' and advertisers' total advertising budgets. Most of our
competitors in the traditional media have larger and more established sales
organizations than ours and have greater name recognition. In addition, many
have more established relationships with advertisers and advertising agencies
than we will have. These competitors may be able to undertake more extensive
marketing campaigns, adopt more aggressive pricing policies, and devote
substantially more resources to attract users and advertisers than we can. In
addition, several of these traditional media companies have formed alliances
with other Internet companies, which may result in them favoring these other
Internet companies' web sites.
There is intense competition for the sale of advertising on high-traffic
web sites, which has resulted in a wide range of rates quoted by different
vendors for a variety of advertising services, making it difficult to project
the level of Internet advertising revenue that will be realized generally or by
any specific company. In addition, the available inventory of advertising space
on the Internet and elsewhere has recently increased substantially. Accordingly,
we may face increased pricing pressure for the sale of advertisements. A
reduction in our anticipated advertising revenue would have a material adverse
effect on our business, results of operations, and financial condition.
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ELECTRONIC COMMERCE
The electronic commerce market is new, rapidly evolving, and very
competitive. We expect competition to intensify in the future, as we will be
competing with online retailers offering consumer goods to our target audience,
such as iTurf, Alloy Online, and Digital Entertainment Network, Inc., as well as
traditional retailers that have or plan to have online electronic commerce
stores, such as The Gap and Wal-Mart. Increased competition is likely to result
in price reductions and reduced gross margins, either of which could seriously
harm the prospects for our electronic commerce operations. We expect to compete
with other online retailers of youth-oriented goods, as well as traditional
retailers, many of which have longer operating histories, larger customer bases
and greater retail brand recognition than we have.
WE DEPEND ON THE AVAILABILITY OF STREAMING MEDIA TECHNOLOGY AT AFFORDABLE
PRICES.
We rely on online video player software products such as Microsoft's Media
Player, Apple Computer's Quicktime and RealNetwork's RealPlayer to provide our
users with the ability to view our programming. In order to receive video
content over the Internet adequately, users generally must have multimedia
personal computers with certain microprocessor requirements and videoplayer
software. Users typically electronically download such software and install it
on their computers. Such installation may require technical expertise that some
users do not possess. In addition, older versions of certain web browsers may
need to be reconfigured in order to receive streaming media from our network.
We intend to distribute our streaming media content by licensed software
and/or by outsourcing through third parties. Internet users can download
electronically copies of Microsoft's Media Player, Apple Computer's Quicktime
software and RealNetwork's RealPlayer (basic version) free of charge. If these
or other providers of content-viewing software substantially increase license
fees charged to us for the use of their products, refuse to license these
products to us, or begin charging users for copies of their player software,
such actions could have a material adverse effect on our business, results of
operations, and financial condition.
MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS COULD
IMPAIR OUR COMPETITIVE POSITION.
We regard our content and certain of our technology as proprietary and rely
primarily on a combination of trademark, copyright, and trade secret laws, and
employee and third-party nondisclosure agreements to protect our proprietary
rights. We cannot assure you that these steps will be adequate, that we will be
able to secure trademark registrations for any or all of our marks in the United
States or other countries, that employees and/or third parties will not breach
non-disclosure agreements or infringe upon or misappropriate our copyrights,
trademarks, service marks, and similar proprietary rights. In addition,
effective copyright and trademark protection may be unavailable or limited in
certain countries, and the global nature of the Internet makes it impossible to
control the ultimate destination of our content. In the future, litigation may
be necessary to enforce and protect our trade secrets, copyrights, trademarks,
and other intellectual property rights. Any such litigation or threatened
litigation could be costly and could result in a diversion of management's
attention, which could have a material adverse effect on our business, operating
results, and financial condition.
INTELLECTUAL PROPERTY CLAIMS AGAINST US COULD BE COSTLY AND COULD RESULT IN THE
LOSS OF SIGNIFICANT RIGHTS.
Other parties may assert intellectual property infringement or unfair
competition claims against us. We cannot assure you that this coverage will be
sufficient to cover all potential claims or that affordable coverage will be
available in the future. We cannot predict whether third parties will assert
such claims against us, or whether those claims will harm our business. If we
are forced to defend against claims of intellectual property infringement or
unfair competition, whether they are with or without merit or are determined in
our favor, we may face costly litigation and diversion of management's
attention. As a result of such disputes, we may have to develop non-infringing
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technology, develop new brands, trademarks, trade names, or trade dress, or
enter into royalty or licensing agreements. These agreements, if necessary, may
be unavailable on terms acceptable to us, or may not be available at all. If
there is a successful claim of infringement against us and we are unable to
develop non-infringing technology or license the infringed or similar technology
or content on a timely basis, it would harm our business, results of operations,
and financial condition.
WE MAY BE SUBJECT TO LIABILITY FOR THE INTERNET CONTENT THAT WE PUBLISH.
As a publisher of online content, we will face potential liability for
defamation, negligence, copyright, patent, or infringement, or other claims
based on the nature and content of materials that we publish or distribute. Such
claims have been successfully brought against online services in the past. If we
face liability, our reputation and our business may suffer. In addition, we
could be exposed to liability for the unauthorized duplication of content or
unauthorized use of other parties' proprietary technology. We cannot be certain
that we will be able to obtain insurance to cover claims of this type on
reasonable terms or that it will be adequate to indemnify us for all liability
that we may have. Any imposition of liability that is not covered by our
insurance or is in excess of insurance coverage, including the cost of defending
any claims, could have a material negative impact on our profitability and
results of operations.
Additionally, we intend to attempt to sell products and services for
certain electronic commerce providers. Such arrangements may expose us to
additional legal risks and uncertainties, including potential liability to
consumers of such products and services. While we expect that many of such
agreements will provide that we will be indemnified against such liabilities, we
cannot guarantee that any such indemnification will be enforceable on a
practical basis or will be adequate to fully compensate us for such liabilities.
FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PRODUCTS TO BE YEAR 2000 COMPLIANT
COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR ABILITY TO DELIVER OUR PROGRAMMING.
There are issues associated with the programming code in existing computer
systems as the year 2000 approaches. The "year 2000 problem" is pervasive and
complex, as virtually every computer operation will be affected in some way by
the rollover of the two-digit year value to 00. These issues relate to whether
computer systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. Because our equipment
is new and to a great extent not yet purchased, we do not anticipate that we
will incur significant operating expenses or be required to invest heavily in
computer systems improvements to be year 2000 compliant. However, significant
uncertainty exists concerning the potential costs and effects associated with
any year 2000 compliance. If either we or our users, vendors, or advertisers
encounter a year 2000 problem and the problem is unresolved after the date we
begin significant operations, such a problem could have a material adverse
effect on our business, results of operations, and financial condition. In
addition, although most of our vendors have made assurances that their systems
are year 2000 compliant, we cannot assure you that all of them will successfully
avoid disruption in their businesses from a year 2000 problem. Any disruption of
our vendors' services that remains unresolved after the date that we begin
significant operations, could materially harm our business.
IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT ACCOUNTING AND FINANCIAL REPORTING
SYSTEMS, OUR STOCK PRICE COULD DECLINE.
We anticipate implementing financial and management information systems to
accommodate new data. If we fail to successfully implement our new financial
reporting and management information systems or if we are not able to expand
these systems to accommodate our growth, we may not have adequate, accurate, or
timely financial information. Our failure to have adequate, accurate or timely
financial information could hinder our ability to manage our business and
negatively impact our operating results. If we grow rapidly, we will face
additional challenges in upgrading and maintaining our financial and reporting
systems.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF USAGE OF THE INTERNET DOES NOT
CONTINUE TO GROW AND IF "BROADBAND" DOES NOT CONTINUE TO BECOME MORE AFFORDABLE
AND AVAILABLE.
Our business will be adversely affected if usage of the Internet does not
continue to grow, particularly usage by young people. A number of factors may
inhibit usage of the Internet, including:
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* inadequate network infrastructure;
* security concerns;
* inconsistent quality of service; and
* lack of availability of cost-effective, high-speed service.
As high-speed digital delivery systems, commonly referred to as
"broadband," become more affordable and available to consumers, such systems may
not be able to support the demands placed on them by this growth and their
performance and reliability may be impacted. In addition, web sites have
experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, usage of our service could
grow more slowly than anticipated or decline.
The emergence of broadband technologies to transmit large amounts of data
should facilitate more reliable and better quality distribution of our
entertainment content and information services. However, we cannot assure you
that broadband technologies will be widely available and used for the
foreseeable future or that, if widely available, such technologies will lead to
increased reliability of network infrastructure.
IF THE INTERNET DOES NOT GAIN WIDE ACCEPTANCE AS AN ADVERTISING MEDIUM, OUR
RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.
Our future is highly dependent on increased use of the Internet as an
advertising medium. We expect to derive a substantial portion of our revenue
from sponsorships and advertising for the foreseeable future. The Internet
advertising market is new and rapidly evolving, and, as a result, demand for and
market acceptance of Internet advertising is uncertain. Potential sponsors and
advertisers may find Internet advertising to be less effective for promoting
their products and services than traditional advertising media.
In addition, no standards have been widely accepted to measure the
effectiveness of Internet advertising. If such standards do not develop,
existing advertisers may not continue their current levels of Internet
advertising and advertisers who are not currently advertising on the Internet
may be reluctant to do so.
Various pricing structures are used to sell advertising on the Internet. It
is difficult to predict which, if any, will emerge as the industry standard,
making it difficult to project our future advertising rates and revenue. Our
sponsorships and advertising revenue could be materially adversely affected if
we are unable to adapt to new forms of Internet advertising. Moreover, "filter"
software programs are available that limit or prevent advertising from being
delivered to an Internet user's computer. Widespread adoption of this software
could adversely affect the commercial viability of Internet, and our
advertising.
We cannot assure you that the market for Internet advertising will continue
to emerge or be sustainable. If the market for Internet advertising fails to
develop or develops more slowly than we expect, our business, results of
operations, and financial condition would be materially and adversely affected.
OUR LONG-TERM ABILITY TO ESTABLISH AND EXPAND OUR REVENUE BASE DEPENDS IN PART
UPON THE GROWTH OF THE ELECTRONIC COMMERCE MARKET.
Part of our strategy is to offer users the chance to purchase goods and
services on our web site that tie in with our programming. If electronic
commerce does not grow, or grows more slowly than expected, we may not succeed
in establishing and expanding our revenue base to include significant electronic
commerce revenue. As a result, our long-term success depends in part on
widespread market acceptance of electronic commerce. A number of factors could
prevent such acceptance, including the following:
* electronic commerce is at an early stage, and buyers may be unwilling
to shift their purchasing from traditional vendors to online vendors;
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* adverse publicity and concern about the security of electronic
commerce transactions could discourage its acceptance and growth; and
* increased government regulation or taxation may adversely affect the
viability of electronic commerce.
INTERNET CONTENT AND COMMERCE HAVE YET TO ATTRACT SIGNIFICANT REGULATION.
PROPOSALS FOR NEW GOVERNMENT REGULATION, IF IMPLEMENTED, MAY RESULT IN
ADMINISTRATIVE MONETARY FINES, PENALTIES, TAXES, OR LICENSING FEES THAT MAY
REDUCE OUR FUTURE EARNINGS.
We are not currently subject to direct regulation by any governmental
agency, other than regulations applicable to businesses generally and laws and
regulations directly applicable to access to, or commerce on, the Internet.
However, a number of legislative and regulatory proposals under consideration by
federal, state, local, and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities, and jurisdiction. Additionally, it is uncertain how
existing laws governing issues such as property ownership, copyright, trade
secret, libel, and personal privacy will be applied to the Internet. Further,
given the global nature of the Internet, it is uncertain whether foreign
governmental agencies will attempt to claim jurisdiction over our activities and
impose regulation upon us. The adoption of new laws or the broader application
of existing laws may expose us to significant liabilities and decrease the
growth in the use of the Internet, which could in turn decrease the demand for
our services, increase our cost of doing business, or otherwise have a material
adverse effect on our business, results of operations and financial condition.
See "Business -- Government Regulation and Law."
CONCERNS REGARDING SECURITY OF TRANSACTIONS AND TRANSMISSION OF CONFIDENTIAL
INFORMATION OVER THE INTERNET MAY NEGATIVELY IMPACT OUR PLANNED ELECTRONIC
COMMERCE BUSINESS.
We intend to offer products and services for sale on our web site. Possible
inadequacies in the security of transmission of confidential information over
public networks are seen by many as a significant barrier to such online
commerce. In the future, a number of our users may authorize us to bill their
credit card accounts directly for all transaction fees charged by us. We expect
to rely on encryption and authentication technology licensed from third parties
to effect secure transmission of confidential information, including customer
credit card numbers. We cannot guarantee that advances in computer capabilities,
new discoveries in encryption technologies, or other events or developments will
prevent a compromise or breach of the technology we will use to protect customer
transaction data. If any such compromise of our security were to occur, it could
have a material adverse effect on our reputation and, therefore, on our
business, results of operations and financial condition. Concerns over the
security of transactions conducted on the Internet and other online services and
the privacy of users may also inhibit the growth of the Internet and other
online services, especially as a means of conducting commercial transactions.
Furthermore, a party who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our operations.
We intend to employ network security services, firewalls and intrusion detection
services to deter outside parties from gaining access to our systems. However,
we may need to expend further capital and other resources to protect against
such breaches of our security. To the extent that our activities involve the
storage and transmission of proprietary information, such as credit card
numbers, security breaches could damage our reputation and expose us to a risk
of loss or litigation and possible liability.
RISKS RELATED TO THIS OFFERING AND THE SECURITIES MARKETS
OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING
AND MAY ALLOCATE PROCEEDS TO USES THAT COULD MATERIALLY ADVERSELY AFFECT THE
VALUE OF OUR COMMON STOCK.
We estimate that net proceeds from the sale of the shares of common stock
offered by us in this offering at an assumed initial public offering price of
$________ per share will be approximately $___________ after deducting the
underwriting discount and estimated offering expenses of approximately $ _____
million. The primary purposes of this offering are to obtain capital, create a
public market for our common stock, and facilitate future access to public
markets. The proceeds of this offering will be used to complete development of
our web site, the development of our network and network infrastructure
(including the development of e-commerce capabilities), the production of
original programming and content, hiring additional management and staff,
advertising and marketing programs designed to increase awareness of our name,
and other general corporate purposes. We have not yet determined the actual
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expected expenditures and cannot estimate the amounts we will need for each
specified purpose. The actual amounts and timing of these expenditures will vary
significantly based on a number of factors, including the amount of cash
generated by our operations and the market response to the introduction of our
web site. Accordingly, our management will retain broad discretion over the
allocation of the proceeds of this offering. The failure of management to apply
such funds effectively could have a material adverse effect on our business,
results of operations, and financial condition. See "Use of Proceeds."
Of our shares of common stock, 6,000,000 are restricted from immediate
resale, but may be sold into the market in the near future. This could cause the
market price of our common stock to drop significantly.
Sales of a substantial number of shares of our common stock in the public
market after this offering could adversely affect the market price of our common
stock by introducing a large number of sellers to the market. Given the
volatility that will likely exist for our shares, such sales could cause the
market price of our common stock to decline.
Upon completion of this offering, we will have 9,000,000 outstanding shares
of stock, and we will have reserved an additional 198,700 shares of common stock
for issuance pursuant to stock options outstanding as of November 15, 1999. All
of the shares of common stock to be sold in this offering will be freely
tradable without restriction on further registration under the federal
securities laws unless purchased by one of our "affiliates," as that term is
defined in Rule 144 under the Securities Act of 1933. The remaining shares of
outstanding common stock, representing 66.7% of our outstanding common stock
upon completion of this offering, will be "restricted securities" under the
Securities Act subject to restrictions on the timing, manner and volume of sales
of such shares.
Our directors, executive officers, and shareholders that own 5% or more of
our outstanding common stock on a fully-diluted basis have agreed not to
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of our underwriter for a period
of 180 days after the date of this prospectus.
We cannot predict whether future sales of our common stock, or the
availability of a large number of shares of our common stock for sale, will
adversely affect the market price for our common stock or our ability to raise
capital by offering equity securities.
NO PUBLIC MARKET FOR OUR COMMON STOCK CURRENTLY EXISTS.
Prior to this offering, there has been no public market for our common
stock. We cannot be certain that an active trading market for our common stock
will develop or be sustained following this offering. Further, we cannot be
certain that the market price of our common stock will not decline below the
initial public offering price. The initial public offering price was determined
by negotiation among us and the underwriters based upon several factors and may
not be indicative of future market prices for our common stock.
OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
FOR INDIVIDUAL STOCKHOLDERS.
The market price for our common stock is likely to be highly volatile and
subject to wide fluctuation in response to factors including the following, some
of which are beyond our control:
* actual or anticipated variations in our quarterly operating results;
* announcements of technological innovations or new services by us or
our competitors;
* changes in financial estimates by securities analysts;
* conditions or trends in the Internet and/or online commerce
industries;
* changes in the economic performance and/or market valuations of other
Internet, online commerce or retail companies;
* announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures, or capital commitments;
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* additions or departures of our key personnel;
* release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock;
and
* potential litigation.
In addition, the stock market has from time to time experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of our common stock.
IF OUR STOCK PRICE IS VOLATILE, WE COULD FACE A SECURITIES CLASS ACTION LAWSUIT.
In the past, following periods of volatility in the market price of their
stock, many companies have been the subject of securities class action
litigation. If we were sued in a securities class action, it could result in
substantial cost and a diversion of management's attention and resources and
could cause our stock price to fall.
EXECUTIVE OFFICERS, DIRECTORS AND ENTITIES AFFILIATED WITH THEM WILL CONTINUE TO
HAVE SUBSTANTIAL CONTROL OVER OUR COMPANY AFTER THE OFFERING WHICH COULD DELAY
OR PREVENT A CHANGE IN OUR CORPORATE CONTROL FAVORED BY OUR OTHER STOCKHOLDERS.
Upon completion of this offering, Stephen Fischer, our Chairman of the
Board, President, and Chief Financial Officer, and Soleil Moon Frye, our Senior
Vice President, Secretary and Director, will own approximately 63.4% of our
outstanding shares of common stock. See "Principal Stockholders." Accordingly,
Mr. Fischer and Ms. Frye may be able to control our company through their
ability to determine the outcome of elections of directors and the results of
other matters submitted to any vote of stockholders. This concentration of
ownership may have the effect of preventing a change in control of our company
or limiting the price that some investors may be willing to pay for shares of
our common stock.
CERTAIN ANTI-TAKEOVER PROVISIONS COULD PRECLUDE AN ACQUISITION OR LIMIT THE
PRICE THIRD PARTIES ARE WILLING TO PAY FOR OUR STOCK.
Provisions of our certificate of incorporation, bylaws, and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our shareholders, and may also limit the price third
parties are willing to pay for our stock. See "Description of Capital Stock."
WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS.
We have never paid any cash or other dividends on our common stock. For the
foreseeable future, we intend to retain future earnings, if any, to finance our
business operations and do not anticipate paying any cash dividends with respect
to the common stock. See "Dividend Policy."
INVESTORS WILL SUFFER IMMEDIATE DILUTION.
The initial public offering price per share is substantially higher than
our net tangible book value per share. Accordingly, if you invest in our common
stock, you will suffer immediate and substantial dilution of approximately
$_____ in the book value per share of the common stock from the assumed offering
price of $_____ per share. Any exercises of options to purchase common stock
will further dilute existing stockholders. See "Dilution."
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among
other things, development of our web site and network infrastructure,
development and production of content, programming and marketing strategy,
development of relationships with entertainment celebrities, development of
relationships with sponsors and advertisers, use of proceeds of this offering,
market acceptance of the Internet as an entertainment, advertising, and
commercial medium, sales of goods and services via electronic commerce and
ability to develop name recognition. These statements may be found in the
sections of this prospectus entitled "Prospectus Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and in this prospectus generally.
Forward-looking statements, by their very nature, include risks and
uncertainties, many of which are beyond our control. Accordingly, actual results
may differ, perhaps materially, from those expressed in or implied by the
forward-looking statements. Factors that could cause actual results to differ
materially include the risks discussed in "Risk Factors" and elsewhere in this
prospectus.
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USE OF PROCEEDS
Assuming an initial offering price of $_____ per share, we estimate that we
will receive net proceeds of $_______ million ($ _______ million if the
underwriters' over-allotment option is exercised in full) from the sale of the
______ shares of common stock that we intend to sell in this offering, after
deducting underwriting discounts and commissions and estimated offering expenses
payable by us. The proceeds of this offering will be used as follows:
Production costs............................ $12,520,000 %
Salaries.................................... 5,220,000
Computer hardware and software.............. 5,100,000
Marketing................................... 2,655,000
Equipment................................... 710,000
Working capital(1)..........................
----------- ----------
$ %
=========== ==========
- ----------
(1) Includes approximately $325,000 of debt to be repaid to a related party.
The actual amounts and timing of these expenditures will vary significantly
based on a number of factors, including the amount of cash generated by our
operations and the market response to the introduction of our web site.
Accordingly, our management will retain broad discretion over the allocation of
the proceeds of this offering.
We also may use a portion of the proceeds of this offering for possible
acquisitions of or investments in businesses and the introduction of products or
technologies that expand, complement, or are otherwise related to our current or
planned services. We have no current plans, agreements or commitments with
respect to any such transaction, and we are not currently engaged in any
negotiations with respect to any such transaction.
Pending such uses, we intend to invest the net proceeds from this offering
in short-term, investment-grade, interest-bearing securities and U.S. government
obligations such as treasury bills.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock. We currently
plan to retain all of our future earnings, if any, for use in our business, and
therefore we do not expect to pay any cash dividends on our common stock in the
foreseeable future.
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CAPITALIZATION
The following table sets forth our actual capitalization as of October 31,
1999, and our capitalization as adjusted to reflect the sale of the 3,000,000
shares of common stock in this offering (assuming an offering price of $______
per share) and the application of the estimated net proceeds from this offering,
after deducting estimated underwriting discounts and offering expenses. You
should read the information set forth below together with our financial
statements and the notes to these statements appearing elsewhere in this
prospectus.
October 31, 1999
----------------------
Actual As Adjusted
------ -----------
Related party debt .................................... $ 176,822 $
--------- ---------
Stockholders' equity (deficit)
Common stock $.0001 par value, 50,000,000 shares
of common stock and 10,000,000 shares of preferred
stock authorized, 6,000,000 shares of common stock
and no shares of preferred stock issued and
outstanding actual; 9,000,000 shares of common
stock and no shares of preferred stock issued and
outstanding as adjusted ........................... 570
Additional paid-in capital .......................... 50,430
Accumulated deficit ................................. (162,665)
---------
Total stockholders' equity (deficit) ............ (111,665)
--------- ---------
Total capitalization .......................... $ 65,157 $
========= =========
The number of shares of issued and outstanding common stock described above
excludes an aggregate of 198,750 additional shares issuable upon exercise of
outstanding stock options under our 1999 Incentive Stock Plan as well as an
additional 801,250 shares reserved for future grants under our 1999 Incentive
Stock Plan. See "Management - 1999 Incentive Stock Plan." The pro forma
adjustments described above assume no exercise of the underwriters'
over-allotment option. If the underwriters exercise their over-allotment option
in full, we will have 9,450,000 shares of common stock issued and outstanding,
total stockholders' equity of $__________, and total capitalization of
$____________.
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DILUTION
Our net tangible book value as of October 31, 1999 was approximately
$(111,665), or $(0.02) per share of common stock. Net tangible book value per
share represents the amount of total tangible assets less total liabilities,
divided by the shares of common stock outstanding as of October 31, 1999. Our
pro forma net tangible book value as of October 31, 1999, after giving effect to
the issuance and sale of the 3,000,000 shares of common stock in this offering
and after deducting underwriting discounts and commissions and estimated
offering expenses, would have been $______ million, or $________ per share. This
represents an immediate increase in pro forma net tangible book value of
$________ per share to the existing stockholders and an immediate dilution of
$_______ per share to new investors. The following table illustrates this
per-share dilution:
Initial public offering price per share ............ $
------
Net tangible book value per share before
this offering $(0.02) Increase in pro forma
net tangible book value per share
attributable to new investors ................... $
------
Pro forma net tangible book value per share after
this offering .................................... $
------
Dilution per share to new investors ................ $
======
The following table summarizes, on a pro forma basis, as of October 31,
1999, the number of shares of common stock purchased in this offering, and the
aggregate cash consideration paid and average price per share paid by the
existing stockholders and by new investors purchasing shares of common stock in
this offering:
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing stockholders... 5,698,004 % $ 51,000 % $ 0.009
New investors ..........
--------- ------ -------- ------
Total ............. 100% $ 100%
========= ====== ======== ======
The foregoing discussion and tables assume no exercise of any stock
options. As of November 15, 1999, there were options outstanding to purchase a
total of 198,750 shares of common stock at a weighted average exercise price of
$0.015 per share. To the extent that these options are exercised, there will be
further dilution to new investors.
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SELECTED FINANCIAL DATA
The statement of operations data for the period from April 14, 1999
(inception) to October 31, 1999 and the balance sheet data as of October 31,
1999 are derived from our financial statements which have been audited by Toback
CPAs, P.C., independent accountants, and are included elsewhere in this
prospectus.
You should read the following selected financial data in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
The weighted average shares do not include any common stock equivalents
because such inclusion would have been anti-dilutive. See the financial
statements and related notes appearing elsewhere in this prospectus for the
determination of shares used in computing basic and diluted net loss per share.
PERIOD FROM APRIL 14, 1999
(INCEPTION) TO
OCTOBER 31, 1999
----------------
OPERATING DATA:
Revenue............................................ $ --
Network operations................................. 52,275
General and administrative......................... 110,390
----------
Total operating
expenses......................................... 162,665
----------
Net loss........................................... $ (162,665)
==========
Net loss per share:
Basic and diluted................................ $ (0.03)
Weighted average
shares (1).................................... 5,698,004
OCTOBER 31, 1999
----------------
BALANCE SHEET DATA:
Cash and cash Equivalents.......................... $ 9,677
Working capital (deficit).......................... (176,533)
Total assets....................................... 107,326
Total shareholders'
equity (deficit)................................. (111,665)
- ----------
(1) See Note 1 of notes to financial statements for an explanation of the
determination of the weighted average common and common equivalent shares
used to compute net income per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our financial
statements including the related notes, which appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates, and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include those discussed below and
elsewhere in this prospectus, particularly in "Risk Factors."
RESULTS OF OPERATIONS
We formed Webstation.com, Inc. in April, 1999 and have not yet commenced
significant operations. We anticipate commencing the operation of our web site
in the first quarter of 2000. We have experienced losses since inception and
anticipate that we will continue to have a negative cash flow from our
operations for at least 12 to 24 months.
We expect that our primary costs will be for the production or acquisition
of programming and other content, broadcasting fees, and advertising and
promotion, as well as for capital expenditures, including hardware and software.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have experienced a working capital deficiency due mainly
to start up costs and investment in development. We have incurred losses since
inception and have sold common stock and debt to finance our operations. As of
November 15, 1999, Soleil Moon Frye and Titan Capital Partners, L.L.C. an
affiliate of Stephen Fischer, have invested debt and equity of approximately
$376,000 in Webstation.com, Inc. to meet our expenses. Due to our continuing
development, we expect to require additional capital in the foreseeable future.
We believe that the proceeds from this offering will provide us with sufficient
funds to continue our development of our web site and to begin operations.
FUTURE CAPITAL REQUIREMENTS
We are unable to predict when the proceeds will be exhausted and how much
additional capital will be required to reach positive cash flow, or if we will
be able to reach positive cash flow. Furthermore, to the extent we produce
revenue in the future, we anticipate significant increases in our working
capital requirements to finance accounts receivable, unbilled receivables and
other assets. While we also anticipate increases in accounts payable and other
liabilities, we do not expect the increases in accounts payable and other
liabilities will offset the increases in accounts receivable, unbilled
receivables and other assets.
We will also likely need to raise additional capital to fully execute our
business plan. If additional funds are raised through the sale of equity or
convertible debt securities, your percentage ownership will be reduced, you may
experience additional dilution, and these securities may have rights,
preferences or privileges senior to yours. There can be no assurance that
additional financing will be available or if so, will be available on terms
favorable to us. If adequate funds are not available or are not available on
acceptable terms, our ability to fund our expansion, take advantage of
unanticipated opportunities, develop or enhance products or services, or
otherwise respond to competitive pressures could be significantly limited. Our
business may be harmed by these limitations.
INTEREST RATE RISK
We will be exposed to changes in interest rates primarily from our intended
investment of cash in excess of operating requirements in certificates of
deposit and other investment grade, interest producing investments. Under our
current policies, we do not use interest rate derivative instruments to manage
exposure to interest rate changes.
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YEAR 2000 READINESS DISCLOSURE
Many existing computer programs cannot distinguish between a year beginning
with "20" and a year beginning with "19" because they use only the last two
digits to refer to a year. For example, these programs cannot tell the
difference between the year 2000 and the year 1900. As a result, these programs
may malfunction or fail completely.
Since our business and, consequently, our hardware, telecommunication and
software systems are or will be new, we believe most of these systems are
already or will be year 2000 compliant. In addition, we do not expect to
commence significant operations until after January 1, 2000. Therefore, we do
not expect internal year 2000 problems to materially affect us. Nevertheless,
because our business relies heavily on the Internet and on computer and
telecommunication systems, including those of our suppliers, customers and other
third parties, the year 2000 problem could seriously harm us.
THIRD-PARTY COMPLIANCE
Our material third party business relationships will include:
* customers who place orders for products using the Internet;
* our Internet service providers;
* vendors and suppliers who provide entertainment and news content,
goods, and services; and
* advertisers on our web site.
We are unable to predict, and have not attempted to assess, the year 2000
readiness of our potential customers or the systems they use to interact with
us. Since we will take all of our product orders and offer most of our
entertainment content over the Internet, our operations would be harmed if a
significant number of our customers were unable to use the Internet to view our
entertainment content and place orders due to year 2000 problems.
Year 2000 disruptions in the systems or equipment used by our suppliers, if
uncorrected by the time we start our operations, could result in our customers
being unable to obtain our products in a timely manner.
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BUSINESS
OVERVIEW
We are a webcasting company that will broadcast customized, interactive
entertainment content over the Internet from our web site located at
www.webstation.com. The formal launch of our web site is scheduled for the first
quarter of 2000. Our entertainment content will cover all segments of the
entertainment industry including television, film, music, sports, and fashion.
We will produce our own multimedia programming with a focus on content not
generally available to network and cable television viewers. Additionally, we
will offer users the opportunity to:
* view entertainment news, gossip, and other features;
* participate in chat rooms on entertainment related subjects with
celebrities and others: and
* engage in electronic commerce.
We believe that a strong correlation exists between a user's perception of
entertainment quality and his or her receptiveness to advertising. Rather than
airing programming that appeals to mass audiences as does television, we seek to
webcast programming designed for targeted audiences who are fiercely loyal to
their entertainment interests, and who will translate that loyalty to us and our
sponsors.
One of our founders, Soleil Moon Frye, is an internationally known
television and film star with numerous longstanding relationships in the
entertainment industry. We intend to expand the scope of our entertainment
contacts and influence by seeking to enter into strategic relationships with
several popular and influential celebrities and entertainment industry insiders.
Our principal target user market consists of Generation X and Y teens and
young adults aged 13 to 35. Specifically, we seek to build brand identity and
loyalty within this market by satisfying our users' desire for interactive
entertainment experiences that cannot conveniently be found in traditional
entertainment media. We intend to distinguish ourselves from other webcasting
companies by providing our users with opportunities to connect with celebrities,
established musical acts, and emerging talent through unique and creative
interactive programming formats. With the help of input from our users, from
focus groups and e-mail, we will identify and produce programs designed for
specific entertainment communities of interest with a view toward maximizing the
quality of their entertainment experience. Our creation and maintenance of these
entertainment communities of interest will provide prospective sponsors with the
ability to reach their preferred demographic population directly and cost
effectively. We believe this will maximize the impact of our sponsors'
advertising dollars.
DEVELOPMENT OF THE INTERNET
The Internet, specifically the World Wide Web, has become increasingly
important in all aspects of our economy and culture, domestically and
internationally. According to International Data Corporation, in 1998 there were
62.8 million Internet users in the United States and 142 million users
worldwide. That organization estimates that the coming four years will see an
increase in Internet usage to 177 million Internet users in the United States
and 502 million users worldwide.
From the first days of the World Wide Web's commercial use in the early
1990's, Internet content has evolved from being text dominated with limited
graphics to a multimedia collage of audio, animation, and live action video.
Current technology allows users to see and hear multimedia programming on
standard web browsers such as Netscape and Microsoft Internet Explorer through
standard modems connected to the Internet by dial-up accounts with standard
Internet service providers. This multimedia capability is delivered by streaming
media products such as RealNetwork's RealPlayer, Apple Computer's Quicktime, and
Microsoft's Media Player.
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Streaming media software enables a webcaster to broadcast live and
pre-recorded events in real time. Streaming media software works very much like
a bucket of water with a small hole in the bottom. The software keeps the bucket
half full so that a steady stream of digital data continues to flow through the
small hole, even if the supply is temporarily interrupted. This occasionally
occurs when data streams travel over the Internet in real time. Other formats,
such as MPEG (adopted by the Motion Picture Experts Group), may be used to
distribute pre-recorded audio and video by enabling the user to download the
data into a file stored on the user's computer and to subsequently play it.
The principal advantage of streaming media, in addition to its ability to
deliver live broadcasts, is that the user waits only a matter of seconds for the
program to begin. The principal disadvantage is that video quality is often
significantly lower than downloadable formats such as MPEG. In addition, for
users with slower modem connections, such as those below 56 kilobits per second
or kps, the data stream is occasionally disturbed by net congestion, i.e.
temporary transmission delays and interruptions. Net congestion causes the audio
and video to freeze while the user waits for the bucket of data to fill up
enough to allow the data to begin streaming through the bottom hole again. While
MPEG-type formats do not suffer from such interruptions when the program is
played back, users are forced to endure long waits for the data to initially
download to the user's computer. Although the file needs to be downloaded only
once, the multimedia data is stored on the user's computer. Therefore, multiple
downloads can use up substantial user memory resources.
Another format adapted by the Motion Picture Experts Group, known as MP3,
employs a compression algorithm which decreases the downloaded file space by a
ratio of approximately 10 to 1. Thus, an MP3 file can be downloaded
approximately ten times faster than an MPEG file. Presently, the MP3 format is
limited to audio. Its popularity as an alternative music distribution method
continues to grow.
Regardless of which multimedia delivery format is used, users benefit from
using the fastest available connection to the Internet. Currently, many users
utilize dial-up telephone connections that carry digital data from as low as
14.4 kps to 28.8 kps. At these connection speeds, MPEG type format downloads are
slow and streaming media picture quality tends to be far below television
quality with periodic stream interruptions. If this technology remained static,
user acceptance of our programming will be limited.
Fortunately, telecommunications and cable TV companies are working
diligently to make broader bandwidth connections, i.e. broadband, available to
more and more users. Broadband enables users to access the Internet at much
faster speeds, enabling more bits of data to be transmitted in a given time
frame. As connection speeds increase, streaming media picture quality improves
and suffers from fewer and fewer interruptions. Moreover, downloadable media
formats become more convenient because download time decreases substantially.
Examples of faster connections to the Internet include Digital Subscriber
Line connections, cable TV line connections, and connections used primarily by
businesses with large data transfer needs such as T1 and T3. Kinetic Strategies
reports that cable TV line connections are now available to 32 million North
American households, or one-third of all cable subscribers. Kinetic Strategies
expects this figure to increase to half of all cable TV subscribers in the next
six to 12 months. In addition, we expect other types of broadband connections to
be more readily available to a greater number of users in coming months.
As with television, the principal revenue sources supporting free content
on the Internet are sponsors and advertisers. Forrester Research estimates that
the amount of advertising dollars spent in the United States on the Internet
will reach $2.3 billion in 1999 and $22 billion in 2004. Moreover, a 1999 study
by Wired Digital and Millward Brown Interactive found that rich-media Internet
advertising increased brand perceptions by 31%, boosted intent to purchase by
25% and increased user response, as measured by click-through rates, by 340%
when compared to traditional banner advertising.
In addition to advertising revenue, electronic commerce represents a fast
growing revenue source for Internet companies. Forrester Research estimates that
North American online retail spending will increase from $8.0 billion in 1998 to
$115.8 billion by 2003. International Data Corporation projects worldwide
electronic commerce revenue to reach $1.3 trillion by 2003.
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THE OPPORTUNITY FOR WEBSTATION
The current stage of development of the Internet presents us with a unique
opportunity. In the past, technological limitations in media delivery formats
and available connection speeds prevented the growth of multimedia experiences
on the Internet. However, these technological limitations have given web site
developers and users alike time to become familiar with the Internet, to develop
an Internet culture, and to experiment with interactivity, the Internet's killer
application.
DESCRIPTION OF THE MARKET
Our principal target market ranges from age 13 to 35. Generation Y, a
demographic group that includes approximately 77 million people in the United
States between the ages of five and 24, has approximately 41 million people who
are between the ages of 14 and 24. Generation X, the demographic group
immediately preceding Generation Y, is made up of approximately 40 million
people in the United States between the ages of 25 and 35. Many Generation X
Internet users have grown up with personal computers at home and in school. They
have embraced interactivity through their experiences with interactive video
games and educational software. Generation Y Internet users have come to depend
even more heavily on interactivity, as many of them have learned to use
computers and become regular Internet users before they have completed
elementary school. Thus, most of our principal market, those aged 13 to 35, with
particular emphasis on Generation Y users aged 13 to 24, have integrated
computers, interactivity, and the Internet into their daily lives.
Compared to the time it took for previous generations to embrace radio or
television, the Internet has gained widespread acceptance among members of this
market with extraordinary speed. Accordingly, this market appears to be well
trained and ripe for the convergence of entertainment and the Internet. Research
appears to support these contentions, and extends them to future Generation Y
members of our principal target market. Jupiter Communications estimates that 17
million people in the United States between the ages of five and 18 were online
in 1998, and that this number will increase to 38.5 million by 2002. According
to Roper Reports' Global Consumers 2000 Study, 41% of United States teenagers
have access to the Internet. While Jupiter reports that 90% of United States
college students have free high speed access to the Internet and spend an
average of 22 hours per week online.
Research also underscores the strong economic influence of Generation Y.
Teen Research Unlimited reports that U.S. users aged 12 to 19 spent
approximately $122 billion in 1997 and $141 billion in 1998. The growing
influence of teenagers relative to electronic commerce has been confirmed by
Jupiter Communications' research showing that 67% of teenagers using the
Internet already have researched or bought products online and that by 2003, 95%
of university age students will spend in excess of $4 billion per year online.
With respect to projected e-commerce revenue, Jupiter estimates that in 2002,
teenagers will spend $1.2 billion and college students will spend $3.9 billion.
ADVANTAGES OF THE INTERNET FOR ENTERTAINMENT
We intend to exploit several advantages offered by the Internet as an
entertainment distribution medium. These advantages include:
* LOWER PRODUCTION AND TRANSMISSION COSTS ENABLE PROGRAMMING FOR
TARGETED AUDIENCES. Currently, production and transmission costs on
the Internet are substantially lower than those of television. Thus,
webcasted programs need not be designed for a mass audience. Rather,
programs may be customized for a smaller, pre-qualified, targeted
audience that will be more likely to enjoy the programming. Therefore,
the success rate of webcasted programs, as measured by the percentage
of the targeted audience who rate the program as excellent or very
good, is likely to be higher.
* TARGETED AUDIENCES VIEWING CUSTOMIZED ENTERTAINMENT ARE MORE LIKELY TO
RESPOND FAVORABLY TO SPONSORS. Internet technology will enable us to
compile and analyze key data relating to our users' demographics and
preferences. Therefore, rather than relying on costly market research
and rating report analyses of questionable accuracy, our sponsors will
be able to create a demographic profile for their ideal audience. We
can then design a customized program to attract that audience, and
implement a cost-effective direct marketing campaign to locate and
inform individuals who meet the profile. Our sponsors will enjoy
exposure to a tailor-made audience whose high level of program
enjoyment will facilitate greater receptiveness to the sponsor's
message.
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* TARGETED AUDIENCES ARE MORE LIKELY TO RESPOND FAVORABLY TO E-COMMERCE
OFFERINGS RELATED TO PROGRAMMING CONTENT. The pre-qualified, targeted
audience for a particular Webstation program is likely to possess more
zeal for the program content. Whether they are staunch fans of an up
and coming musical act, devotees of a particular celebrity, or fashion
aficionados, they are more likely to make impulse purchases and buy
products related to the program content at the time of viewing if an
electronic commerce opportunity presents itself. Consequently, we will
be able to simulate the concert venue phenomenon where devoted
attendees cannot seem to leave the venue without buying tee shirts,
hats, and other memorabilia by offering targeted users the opportunity
to buy program-related products with the click of a mouse before,
during, and after the webcast.
In addition, we will own much of our programming and will archive it for
future viewing at the convenience of our users. These advantages of Internet
webcasting over mass audience TV broadcasting, combined with Generation X and
Y's ripeness for Internet/entertainment convergence, is creating a unique
opportunity for us. How we will exploit this opportunity is discussed below.
OUR PLAN OF OPERATION
Currently our web site is in development. The preliminary design of the
basic look and feel of our site has been completed. An example of the design can
be viewed by pointing a web browser to www.webstation.com. Presently our site
contains:
* a temporary home page, with some additional sample pages;
* free e-mail addresses for our users;
* a short "welcome" video informing users about our content; and
* request for user input on future programming and feedback on existing
content.
OUR PLAN FOR DEVELOPING CONTENT
We intend to create an ever-changing mix of unique, exclusive programming
with more traditional entertainment content so that users will look to us for
all of their Internet entertainment. Most of our programming will feature
various forms of interactivity, including the opportunity for users:
* to communicate with celebrities and our CeWebrities(TM), i.e.
personalities who will host webcasts and establish ongoing,
interactive relationships with our users;
* to participate in immediate user surveys;
* to submit programming ideas; and
* to take advantage of e-commerce opportunities.
Some examples of anticipated programming and entertainment content include:
* LIVE AND PRE-RECORDED SPECIAL EVENTS. Like music industry artist and
repertoire personnel, we will be on the lookout for unique special
events to webcast. Movie premieres, fashion shows, skateboard
competitions, surfing events, concerts, and backstage parties are just
a few examples of special events that we intend to webcast. We will
also promote and produce special events, such as a planned Spring
Break 2000 Tour which will coincide with the formal launch of our site
and will cover events live from various college spring break venues
such as Daytona Beach and Key West, Florida, Cancun, and South Padre
Island, Texas. Through our coverage of unique special events, we will
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seek to offer our users unique entertainment experiences unavailable
elsewhere. Most importantly, we want our users to feel like they are
part of a hip celebrity scene with the ability to have access to
people, events, and locations that have been traditionally unavailable
on television. We will archive most live webcasts for later, on-demand
viewing at the convenience of users.
* WEBSTATION PRODUCED ORIGINAL PROGRAMS. We intend to produce unique
entertainment related programs that will resemble television
newsmagazines, variety shows, and talk shows, but will differ
substantially in content. For example, we will produce an
entertainment based webzine program hosted by Soleil Moon Frye and
Steve Fischer, who will travel to various venues to bring unique
content to our users. In addition, we will produce exclusive programs
that will give users an opportunity to get to know their favorite TV
and film celebrities in unique ways by viewing them doing such things
as interviewing their favorite bands and engaging in their favorite
hobbies. Also, we intend for our site to act as a small entertainment
venue where up and coming musical acts and comedians will have an
opportunity to perform and interact with their new found fans.
* THIRD-PARTY PRODUCED PROGRAMS. We intend to webcast programming of
interest to our users produced by third parties. Such programming may
include independent films, short subjects, and foreign produced shows.
* CHAT ROOMS AND MESSAGE BOARDS. We will have traditional chat rooms and
message boards that will enable our users to communicate with their
favorite celebrities, musical artists, each other, and our personnel.
Chat rooms and message boards will integrate with user e-mail
accounts. Audio communication may be added as future technology
develops.
* ENTERTAINMENT NEWS, GOSSIP, SCHEDULES, AND FEATURES. We will
consolidate various categories of entertainment content that are
presently available on the Internet in order to establish our brand as
a one-stop entertainment shop. We will obtain entertainment related
news and features from third party sources. TV listings, movie and TV
show trailers, horoscopes, psychics, and concert schedules are just
some of the features we will offer. As we retain additional personnel,
we intend to supplement outsourced news and features with our own.
* FREE ELECTRONIC MAIL ACCOUNTS, CUSTOMIZED HOME PAGES AND PERSONAL WEB
PAGES. As an incentive to our users to make us their primary Internet
entertainment portal and to foster a community setting, we intend to
offer users free electronic mail accounts and customized home pages
where they can choose their personal content preferences. Our users
will also be able to create their own personal web pages where they
will be able to display photos of, and information about, themselves.
* CONTESTS AND USER REQUESTED PROGRAMMING. We intend to solicit user
input and requests for specific programming content on an ongoing
basis. Also, we intend to run contests on our site, and will often use
contests to elicit input from our users. For example, we are presently
running a contest for users on our temporary home page to offer users
the opportunity to win a trip to Los Angeles if they come up with a
name for a particular program that we decide to use.
* HISPANIC CONTENT. We have commenced preliminary discussions with a
producer of a weekly Spanish language television program to share
content, to webcast Spanish speaking programming on our site, and
broadcasting our programming on Latin American television. While there
is no guaranty that these discussions will yield any results, we
intend to continue to pursue these discussions and to seek out other
entertainment opportunities of interest to prospective Hispanic
viewers in the United States and in Latin America. We believe that
Hispanic entertainment content on the Internet is sparse, and that the
Hispanic-American and Latin American markets are underserved.
Consequently, this market represents a substantial opportunity for us.
We believe that our offering of customized entertainment, together with
more traditional entertainment content, free electronic mail accounts, and other
incentives, will build a loyal user base from which targeted entertainment
communities of interest may be matched to sponsors seeking to reach a predefined
demographic group. Moreover, we believe that pre-qualifying targeted audiences
will facilitate greater user acceptance of electronic commerce offerings. Our
electronic commerce strategy is discussed below.
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OUR PLAN FOR BUILDING COMMUNITY
We intend to establish ourselves as a dominant webcasting brand, both
domestically and internationally, by creating a one-stop shop for entertainment.
We will target our principal market of Generation X and Y users who will adopt
us as their ultimate convergence portal to entertainment and the Internet at
large. Much like MTV captured the hearts and minds of the MTV Generation, many
of whom tune into that TV network continuously, we will strive to duplicate that
accomplishment by using incentives to encourage users to choose our site as
their default home page that comes up first upon their connection to the
Internet. These incentives will include:
* free electronic mail accounts, customized home pages, personal web
pages, and chat rooms;
* opportunities for users to have input into, and participate in the
creation of, program content;
* contests; and
* the development of our CeWebrities(TM), i.e. personalities who will
host webcasts and establish ongoing, interactive relationships with
our users.
OUR PLAN FOR DATABASE DEVELOPMENT
We intend to develop and maintain a user attribute database that will
contain demographic, personal interest, and entertainment preference information
for all of our users. Our first time users will register by filling out a data
entry form that will store the information in the database. On their subsequent
visits to our site, the database will track their electronic commerce purchases,
the webcasts and other page content they view, and their responses to surveys
(if they choose not to be anonymous). Over time, we will learn more and more
about our users' entertainment and e-commerce preferences, and this information
will be stored in our database. When we plan a live or pre-recorded webcast
event, we will be able to query the database to identify users with demographic
attributes and personal preferences sought to be targeted by the sponsor. We
will be able to send these pre-qualified users special invitations to "attend"
the sponsored webcast, thus enabling the sponsor to deliver its message to a
targeted audience that is likely to be most responsive to that message. Other
uses for the database will be discussed below.
OUR PLAN FOR IMPLEMENTATION OF ELECTRONIC COMMERCE
We believe that the convergence of the Internet and entertainment will
bring with it the convergence of electronic commerce and entertainment. To take
advantage of this opportunity, our electronic commerce strategy has three
principal components:
* WEBCASTED EVENT RELATED ELECTRONIC COMMERCE. We intend to offer
webcasted event related products for sale before, during, and after
our live and recorded webcasts of special events. We believe that
special event webcasts will induce users to impulse buy souvenirs and
memorabilia that memorialize the event, just as they do when they
attend live concerts and sporting events. For example, we intend to
sell tee shirts, hats, and other memorabilia with pictures of an up
and coming band featured in a webcast of a backstage interview or a
live concert. Other products offered may include apparel and jewelry
worn by celebrities during an interview, MP3 music downloads for
featured bands, and tickets to upcoming live concerts.
* ENTERTAINMENT THEMED CYBERMALL. We intend to create an online,
entertainment themed cybermall that will simulate a brick and mortar
shopping mall. We will generate revenue from the leasing of space in
the cybermall to retail tenants. The rent for the space will consist
of a minimum base rental fee plus additional rent based upon a
combination of banner advertising fees, click-through fees, and/or a
percentage of gross revenue. Presently we are seeking tenants for the
cybermall who will offer products that will include CDs, books,
videos, and apparel. We also plan to offer celebrities the opportunity
to "own" stores in the cybermall to sell their own line of products,
and we will have the ability to develop and maintain these stores. We
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intend to be one of the cybermall's anchor tenants, offering branded
and private label entertainment related goods and services. We intend
to continuously scan our user attribute database to ascertain and
satisfy our users' product preferences. We will solicit user input on
product offerings via e-mail on an ongoing basis. We intend to utilize
the existing distribution system of a strategic e-commerce partner to
deliver our e-commerce products. Also, we intend to operate a
cyber-auction house that will conduct online auctions of entertainment
related items.
* FOCUS GROUPS AND MARKETING RESEARCH. Our user attribute database will
enable us to create focus groups for TV networks, movie studios,
record companies, retailers, and market researchers to engage in
online, real time, test marketing and/or surveys of users who possess
desired demographic attributes, entertainment preferences, and
purchase habits at a much lower cost than that of traditional methods.
Additionally, we intend to license our database information to
interested parties for marketing research, product development, and/or
other proper purposes. We intend, where possible, to make such
services available via electronic commerce.
OUR PLAN FOR DEVELOPMENT OF SPONSORSHIP AND ADVERTISING OFFERINGS
Internet advertising fees have traditionally been based primarily upon the
number of page views, also known as ad views or impressions. A page view
generally refers to a display of the ad on the site at a given point in time.
The ad remains visible on the web page upon which it is displayed until the user
leaves the web page. Most Internet advertising fees are expressed in cost per
thousand page views. Currently, there is a wide variation in pricing for
Internet advertising depending upon the ad size, ad format, and where it is
positioned on a web site. For example, one entertainment related web site
charges as much as $50 per thousand page views for ads on certain of its web
pages. Other web sites require payment for a certain minimum number of page
views or provide a reduced rate for long term arrangements. Moreover,
advertising fees are frequently changing as Internet and other advertising
market conditions change.
We anticipate that we will offer a wide range of sponsorship and
advertising options. Some examples are as follows:
* WEBSTATION'S MULTIMEDIA DIRECT MARKETING OPTION(TM): SPONSORSHIP OF
CUSTOMIZED ENTERTAINMENT EVENTS DESIGNED TO ATTRACT SPONSOR-SPECIFIED
USER DEMOGRAPHICS. This is premium sponsorship option in which a
sponsor specifies its ideal user demographics, and we will produce a
specific live or prerecorded webcasted event designed to attract those
user demographics. Prospective viewers would receive e-mail and/or
regular mail notifications of the event at the sponsor's option. The
fee model for this service will likely consist of a base fee that will
include a minimum number of page views, coupled with a charge for page
views that exceed the minimum. The base fee will be determined through
analysis of creative, development, and production costs, as well as
fees charged by competitors who provide similar services, if any. Over
time, as we accumulate information regarding the success rate of this
type of advertising, fees may be adjusted upward as success rates
increase. In effect, this premium sponsorship combines a multimedia
presentation with effective direct marketing techniques.
* SPONSORSHIPS OF WEBSTATION PROGRAMS AND EVENTS. We will offer
exclusive sponsorships of webcasted programs and events developed and
produced by us without sponsor-specified user demographics.
Sponsorship fees will vary depending upon the nature of the program or
event, the cost of production, whether the sponsorship is exclusive,
and the frequency, length, and format of the desired advertising (e.g.
static banners, animated or live action audio/visual commercials). We
will also offer contests, special promotions, and discount coupons for
the benefit of particular sponsors.
* WEBSTATION INSIDE-AD(TM). We intend to develop a concept that we call
Inside-Ad(TM), consisting of interactive ads that are stand alone,
audio/visual, TV commercial like ads that play before, during, or
after our programs. An Inside-Ad(TM)allows users to get more detailed
product information and/or initiate a product purchase by clicking
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their mouse at a point within the audio/visual display. We may develop
and produce the audio/visual commercial to be used for the
Inside-Ad(TM)or use an existing sponsor commercial produced elsewhere.
Sponsors who desire an Inside-Ad(TM)will be charged an
Inside-Ad(TM)rate, which will be a premium over non-interactive
audio/visual advertisements. If we produce the commercial, the sponsor
will be charged development and production fees.
* WEBSTATION HYPER-AD(TM). Our Hyper-Ad(TM) concept consists of
advertisements that we envision will be intertwined into our program
content. We desire to develop and/or acquire the right to use
technology that will enable us to embed a sponsor's ad into a
Webstation program. For example, if we webcast a celebrity interview,
the user would be able to click her mouse on a particular piece of
jewelry worn by the celebrity in order to get detailed product
information and/or purchase the product. We will charge sponsors a
premium fee for this type of advertising.
* ENTERTAINMENT INDUSTRY DISPLAY AREAS. We anticipate creating areas on
our site for studios, television networks, and record companies to
display movie trailers, television show previews, and music samplings
from new album releases. Entertainment sponsors will also be able to
offer discount coupons and other promotions tied to these displays. We
will receive a fee for this service, which will be based upon the
number of users who watch and/or listen to particular entertainment
samples.
* TRADITIONAL BANNER ADVERTISING. We will offer non-program specific
advertising opportunities on all of our web pages. Advertising rates
will vary depending upon the size, format, location, display
frequency, and contract length, but will likely range from
approximately $15 to $50 per thousand page views.
We anticipate that we will provide incentives for first time sponsors and
advertisers to incorporate Webstation into their Internet advertising budgets.
In addition to the arrangements described above, we will attempt to develop
alternative arrangements to attract sponsor and advertiser revenue.
OUR PLAN FOR BRAND DEVELOPMENT
We intend to formally launch our site within 60 to 90 days after completion
of this offering. Presently, we hope to initiate the formal launch of our site
in conjunction with our Spring Break 2000 Tour, a promotional tour during which
our hosts and other personnel will travel to various spring break venues, such
as Daytona Beach and Key West, Florida, Cancun, and South Padre Island, Texas
and webcast spring break events, some of which will be produced by us. We desire
to commence the tour and the formal launch of our site in March, 2000.
To promote the formal launch and the Spring Break 2000 Tour, we intend to
begin a comprehensive marketing and promotional campaign designed to create a
critical mass of interest that will induce prospective users to tune in to the
site. This campaign is likely to include:
* CELEBRITY PROMOTIONAL OPPORTUNITIES. One of our founders, Soleil Moon
Frye, talked about her plans for launching Webstation during her
appearance on the E! Channel's CELEBRITY PROFILE aired in September
and October, 1999. Later in the program, NBC President Bob Wright,
father of Maggie Wright, our Director of Programming, joked that he
would probably be working for Ms. Frye some day. Ms. Frye expects that
she will have additional opportunities to talk about Webstation during
guest appearances on televised programs, print media interviews, and
in-person appearances at entertainment events. Through her extensive
contacts and longstanding relationships with Hollywood celebrities,
Ms. Frye anticipates that other celebrities will help her promote
Webstation's launch. Moreover, we have engaged in discussions with one
of the top five Hollywood talent agencies with a view toward
identifying celebrities who may be interested in a more formal
promotional relationship with us, e.g. as a stockholder/promoter or a
spokesperson.
* PUBLIC RELATIONS CAMPAIGN. We have already retained the public
relations services of B\W\R Public Relations to conduct a public
relations campaign to promote our launch with, among other things,
print, radio, and television news coverage. B\W\R is headquartered in
Beverly Hills, California with offices in New York and is one of the
entertainment industry's top public relations firms. We are hopeful
that, in addition to getting the word out about our formal launch,
B\W\R's extensive entertainment industry contacts will yield a steady
flow of celebrity talent that will appear in our programs.
* MEDIA ADVERTISING CAMPAIGN. We intend to retain one or more
advertising agencies to implement a mass media advertising campaign
promoting our formal launch that will include Internet, magazine,
newspaper, radio, cable TV, and other media advertising.
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* DIRECT MARKETING CAMPAIGN. We intend to retain a direct marketing
agency to conduct a direct marketing launch promotion campaign that
will consist of a combination of electronic mail and regular mail
communications.
* STRATEGIC CROSS-PROMOTION AGREEMENTS. We will continue to pursue
discussions with other Internet and entertainment companies to
identify and take advantage of synergies that may result from
cross-promotion agreements.
* WORD OF MOUTH. As our formal launch draws closer, we will attempt to
generate "word on the street" of our impending launch through
distribution of items displaying the Webstation domain name, such as
cards, key chains, pens, refrigerator magnets, matches, and other
novelties. In addition, we will promote brand presence at, and/or
sponsorship of, entertainment related events at colleges, high
schools, nightclubs, and other venues. Also, we anticipate using
promotional contests, such as the contest previously announced on our
site in which the person who comes up with the best name for one of
our programs wins a trip to Los Angeles.
After the formal launch of our site, we intend to continue to expand our
brand development strategies described above, as well as to develop other
strategies. As our user attribute database accumulates more information about
users and their entertainment preferences, we intend to analyze this information
to initiate cost effective, targeted campaigns to promote our brand, as well as
specific entertainment events that we will webcast.
OUR PLAN FOR HARDWARE AND NETWORK DEVELOPMENT
We will position ourselves to take advantage of rapidly evolving computer,
network and Internet technology in order to continue to distribute better
quality video efficiently and cost effectively. We will locate a portion of the
necessary hardware infrastructure at our own facilities, but will continue to
seek out strategic relationships with Internet technology companies whose
economies of scale will enable us to distribute high quality content for the
lowest possible cost.
We have installed a high speed Internet connection from our West Hollywood
offices to our Internet access provider. We host our site on web servers that
are located at our West Hollywood offices, along with other computers, routers,
and network equipment necessary for operation of our site, our user attribute
database, and our other information technology needs. With respect to live
streaming media webcasts and certain prerecorded and archived streaming media
webcasts that result in peak demand for bandwidth, server memory and processing
speeds, we envision utilizing hardware, software, and network infrastructure of
reliable Internet infrastructure companies capable of meeting such peak demand.
We believe that using third party infrastructure configurations will be more
cost effective than acquiring and maintaining our own infrastructure to
accommodate occasional peak demand. As demand for our content increases, we will
continue to expand the scope of our network and hardware infrastructure which
may be located at other webstation facilities.
OUR PLAN FOR HUMAN RESOURCE DEVELOPMENT
Currently, we have eight full time employees working out of our executive
offices in West Hollywood, California. Because of the nature of webcasting, we
outsource much of our production staff including directors, producers,
cameramen, lighting, writers, and editors. We anticipate that we will continue
to outsource production staffing for the foreseeable future.
Immediately upon completion of this offering, we intend to seek out and
hire additional management, information technology, creative, production,
marketing, public relations, talent, and sales personnel to complete development
of our site, to produce content and e-commerce offerings, to develop
sponsorship/advertising relationships and agreements, to run focus groups, and
to develop marketing strategy.
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OUR PLAN FOR REVENUE GENERATION
We anticipate that we will receive revenue from four principal sources:
* sponsor and advertising fees;
* rent from the entertainment themed cybermall;
* electronic commerce revenue; and
* fees for focus groups and user attribute database information.
We anticipate that sponsorship and advertising fees will comprise the
largest portion of our total revenue during the early stages of the Company's
development. As discussed above, our sponsorship and advertising models include
offerings such as our Multimedia Direct Marketing Option(TM), Inside-Ad(TM), and
Hyper-Ad(TM) for which we believe we will be able to charge premiums over
traditional Internet advertising.
We project that revenue from electronic commerce product offerings sold
directly by us in conjunction with webcasted events and/or through our cybermall
storefronts, as well as rent from cybermall tenants, will make up a substantial
percentage of our total revenue. We desire to limit our product offerings to
high margin, event related souvenirs and memorabilia such as tee shirts, hats,
posters, and novelty items, as well as entertainment related items that are
difficult to find elsewhere. Also, we intend to generate revenue from our
operation of a cyber-auction house that will auction off unique entertainment
industry items.
We anticipate revenue will be generated from conducting online,
interactive, multimedia enabled focus groups for market researchers from the
entertainment, fashion, retail, and other industries. In addition, we will make
aggregate user attribute database information available for a fee to licensees,
although we will not disclose specific user information without the user's
permission.
COMPETITION
In the coming months, Internet entertainment content companies will
continue to spring into existence and contribute to competition for user
eyeballs, "stickiness" (i.e. time users spend on a web site) and brand loyalty.
We believe that it is not as important to be among the first webcasting
companies, as it is to be among the best at relating to Generation X and Y's
customs and preferences and delivering content not readily available on
television or through other entertainment distribution media.
In our opinion, Digital Entertainment Network, known as DEN, is one of our
most formidable competitors. DEN, well financed and run by experienced
entertainment industry management, has spent tens of millions of dollars during
the last two years building its self-described "digital media network". DEN's
principal focus appears to us to be on producing and webcasting original,
fictional programs such as sitcoms and dramas. In our view, DEN seeks to compete
directly with television on the theory that television viewership continues to
decline, thus evidencing Generation Y's displeasure with television and desire
for fictional, live action programs webcast on the Internet.
We believe that DEN's philosophy is overly simplistic and fails to consider
historical examples of the integration of new forms of entertainment into the
fabric of society. For example, the advent of television certainly cannot be
said to have numbered radio's days any more than the availability of movie
videos has adversely affected the popularity of the multiplexes. We believe that
the success of new forms of entertainment does not depend upon the demise of
older forms. Accordingly, we do not seek to compete with broadcast, or even
cable television. Rather, we desire to apply the wonders of developing Internet
and computer technology to provide users with a novel entertainment experience.
Moreover, as important as our users' entertainment experience is, it is equally
important to give sponsors and advertisers new opportunities to benefit from
emerging technologies to enhance the cost effectiveness of their advertising
expenditures and to maximize electronic commerce opportunities.
Accordingly, rather than attempting to duplicate the type of entertainment
content already passively available on television, we intend to focus on
covering events and producing programming that is not generally available, or
profitably aired, on television. Given the fractional production costs of
webcasting versus television broadcasts, we can profitably offer specific
programs designed for 500,000 users rather than 5,000,000.
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Other companies that currently (or intend to) provide webcasted programming
to, or otherwise target, Generation Y on the Internet can rightfully be called
competitors. Some examples of these include AtomFilms, CRAPtv, Honkworm.com,
Moviehead.com, Pseudo.com, Shockwave.com, SlackerTV, Slywire.com, Sputnik7.com,
Sync.com and Wildweb.com. Broadcast.com, Inc., recently acquired by Yahoo for in
excess of $5 billion, probably has the greatest selection of multimedia content
on the Internet. However, Broadcast.com historically has refrained from
producing its own content. Rather, it provides the backend infrastructure to
content producers to webcast their content over the Internet. Examples of their
offerings include broadcast and cable television programming, live streaming
audio from broadcast and Internet radio stations, and music industry related
webcasts.
In addition to our direct competition, we will encounter indirect
competition. Examples include content providers that focus solely on the music
industry including MP3.com, Launch.com, and Viacom's MTV Online Network. In
addition, portal companies, which started out as Internet search engines, such
as Yahoo, Excite and Lycos continue to add services and content to their web
sites. Impressive content and service offerings continue to expand at such
bellwether Internet service providers as America Online and the Microsoft
Network. Traditional entertainment companies such as Disney and Warner Brothers
have entered the fray with concepts such as the Go Network and Entertaindom.
Additional forms of indirect competition include, television, radio,
movies, theater, interactive games, sports, education, and hobbies that compete
for a finite amount of Generation X and Y's discretionary time. Moreover, the
potential impact of cable and telecommunication (wire and wireless) companies
who can build large user communities by bundling Internet access with their
existing services cannot be underestimated.
All of our direct and indirect competitors will compete with us for a share
of sponsors' and advertisers' budgets. It must also be noted that we will be
competing with other electronic commerce merchants and hosts, and to a
significant degree, focus group and marketing research firms.
Our strategy for carving out and maintaining a competitive niche is simply
to focus on, and maximize, our principal strengths:
* entertainment industry contacts;
* production and talent experience; and
* a strong connection to our target market.
INTELLECTUAL PROPERTY
Our performance and ability to compete depend to a significant degree on
our proprietary technology and other rights. We rely on a combination of
trademark, copyright, and trade secret laws, as well as confidentiality
agreements with employees and non-compete agreements executed by certain of our
executive officers and technical personnel to establish and protect our
proprietary rights.
We have applied for federal trademark registration on the Principal
Register for the Webstation.com trademark and intend to apply for registration
of other trademarks. We may not be able to secure such registrations on the
Principal Register for our trademarks. Our competitors or others may adopt
product or service names similar to Webstation.com, or other of our service
marks or trademarks, which could impede our ability to build brand identity and
lead to customer confusion. Our inability to protect the name Webstation.com as
well as our other trademarks or service marks, adequately, could have a material
adverse effect on our business, financial condition, and results of operations.
Any proprietary software or content developed by us will be protected by
copyright laws. In addition, the code for our proprietary software and our
confidential information will be protected under applicable trade secret laws.
As part of our confidentiality procedures, we generally enter into agreements
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with our employees and consultants and limit access to and distribution of our
software, documentation, and other proprietary information. The steps we take
may not prevent misappropriation of our technology, and the agreements we enter
into for that purpose may not be enforceable. Despite our precautions, third
parties could copy or otherwise obtain and use our software or other proprietary
information without our authorization. These third parties also may
independently develop similar software or content. Policing unauthorized use of
our technology is difficult, particularly because the global nature of the
Internet makes it difficult for us to control the ultimate destination or
security of transmitted software or other data. The laws of other countries may
afford us little or no effective protection of our intellectual property.
We may receive notices from third parties that claim our software or other
aspects of our business infringe their rights. While we are not currently
subject to any such claim, any future claim, with or without merit, could result
in significant litigation costs and diversion of resources, including the
attention of management, and could require us to enter into royalty and
licensing agreements, all of which could have a material adverse effect on our
business, financial condition, and results of operations. Such royalty and
licensing agreements, if required, may not be available on terms acceptable to
us or at all. In the future, we also may need to file lawsuits to enforce our
intellectual property rights, to protect our trade secrets, or to determine the
validity and scope of the proprietary rights of others. Such litigation, whether
successful or unsuccessful, could result in substantial costs and diversion of
resources, which could have a material adverse effect on our business, financial
condition, and results of operations.
We also rely on a variety of technologies that we license from third
parties, including our database and Internet server software, which perform key
functions. These third-party technology licenses may not continue to be
available to us on commercially reasonable terms. Our loss or inability to
maintain or obtain upgrades to any of these technology licenses could result in
delays in completing our proprietary software enhancements and new developments
until we identify, license, develop, and integrate equivalent technology. Any
such delays could have a material adverse effect on our business, financial
condition, and results of operations.
GOVERNMENT REGULATION AND LAW
There is an increasing number of laws and regulations relating to the
Internet. In addition, a number of legislative and regulatory proposals
regarding the Internet are under consideration by federal, state, local and
foreign governments and agencies.
ONLINE CONTENT
Several state, federal and foreign statutes and regulations prohibit or
limit the transmission of indecent, obscene or offensive information and
content, including sexually explicit information and content, over the Internet.
The enforcement of these statutes and regulations, and any future enforcement
activities, statutes and regulations, may result in limitations on the type of
content and advertisements available to us. Legislation and regulations relating
to online content could slow the growth in the use of the Internet generally and
decrease the acceptance of the Internet as an advertising and electronic
commerce medium, which could have a material adverse effect on our business.
LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE INTERNET
Materials may be downloaded and publicly distributed over the Internet by
the Internet services operated or facilitated by us or by the Internet access
providers with which we have relationships. These activities could result in
potential claims against us for defamation, negligence, copyright or trademark
infringement or other claims based on the nature and content of such materials.
Future legislation, regulations or court decisions may hold us liable for
listings accessible through our web site or through content and materials posted
in our chat rooms or bulletin boards. Such liability might arise from claims
alleging that, by directly or indirectly providing links to web sites operated
by third parties or allowing the posting of third-party content, we are liable
for copyright or trademark infringement or other wrongful actions by such third
parties. If any third-party material on our web site contains informational
errors, we may be sued for losses incurred in reliance on such information.
While we attempt to reduce our exposure to such potential liability through
provisions in user agreements, disclaimers and other means, the enforceability
and effectiveness of such measures are uncertain. Further, we cannot assure you
that the media liability insurance we carry will be sufficient to cover any or
all such claims.
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INTERNET PRIVACY
The Child Online Privacy Protection Act of 1998 requires the Federal Trade
Commission to adopt regulations regarding the collection and use of personal
information obtained from children under the age of 13 when accessing web sites.
Under the Act's regulations, web sites catering to children will be required to:
* provide parents of children under the age of 13 with notice of what
information is being collected, how the site uses the information, and
the web site's practices regarding disclosures of information;
* obtain verifiable parental consent regarding the collection and use of
their children's information and allow parents to terminate their
consent at any time;
* provide parents an account of the information collected from their
children; and
* limit the types of information collected from children in order for
them to participate in a game or contest.
In addition, the Federal Trade Commission may in the future adopt
regulations in this area applicable to all persons regardless of their age.
Although our target audience is 13 to 35 years old, we have implemented
policies and programs designed to conform to current laws and regulations
regarding the privacy of our users, including children. However, our current
programs may not conform with regulations adopted in the future by the Federal
Trade Commission or other governmental entities. Moreover, even in the absence
of such regulations, the Federal Trade Commission has begun investigating the
privacy practices of companies that collect information on the Internet. One
such investigation of an Internet company alleged to have failed to follow its
own published privacy policies has resulted in a consent decree under which the
Internet company agreed to establish programs to implement specific privacy
protections. We may become the subject of such an investigation, or the Federal
Trade Commission's regulatory and enforcement efforts may adversely affect our
ability to collect personal information from users, which could have an adverse
effect on our ability to provide highly targeted opportunities for advertisers
and electronic commerce marketers. Any such developments could have a material
adverse effect on our business.
It is also possible that "cookies," information that is stored on a user's
hard drive and used to track users' behavior and preferences and to target
advertising, may become subject to laws limiting or prohibiting their use.
Currently available Internet browsers allow users to modify their browser
settings to remove cookies at any time or prevent cookies from being stored on
their hard drives. In addition, a number of Internet commentators, advocates,
and governmental bodies in the United States and other countries have urged the
passage of laws limiting or preventing the use of cookies. Limitations on or
prevention of our use of cookies could limit the effectiveness of our targeting
of advertisements, which could have a material adverse effect on our business.
The European Union has adopted a directive that imposes restrictions on the
collection and use of personal data. Under the directive, European Union
citizens are guaranteed the right of access to their data, the right to know
where the data originated, the right to have inaccurate data corrected, the
right to recourse in the event of unlawful processing of information, and the
right to withhold permission to use their data for direct marketing. The
directive could affect U.S. companies that collect information over the Internet
from individuals in European Union member countries and may impose restrictions
that are more stringent than current Internet privacy standards in the United
States. The directive does not, however, define what standards of privacy are
adequate. As a result, there can be no assurance that the directive will not
adversely affect the activities of entities, including Webstation, that engage
in data collection from users in European Union member countries.
We intend to collect personal information about our users. However, if
unauthorized persons were able to penetrate our network security and gain access
to, or otherwise misappropriate, our users' personal information, we could be
subject to liability. Such liability could include claims for misuses of
personal information, such as for unauthorized marketing purposes or
unauthorized use of credit cards. These claims could result in litigation which
could require us to expend significant financial resources and divert
management's attention from operations.
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DATA PROTECTION
Legislative proposals have been made by the federal government that would
afford broader protection to owners of databases of information. Such protection
already exists in the European Union. If enacted, this legislation could result
in an increase in the price of services that provide data to web sites. In
addition, such legislation could create potential liability for unauthorized use
of such data.
INTERNET TAXATION
A number of legislative proposals have been made by federal, state, local
and foreign governments that would impose additional taxes on the sale of goods
and services over the Internet, and some states have taken measures to tax
Internet-related activities. Although in October 1998 Congress placed a
three-year moratorium on state and local taxes on Internet access or on
discriminatory taxes on electronic commerce, existing state or local laws were
excluded from this moratorium. Further, once this moratorium is lifted, some
type of federal or state taxes may be imposed upon Internet commerce. Such
legislation or other attempts at regulating commerce over the Internet may
substantially impair the growth of commerce on the Internet and, as a result,
adversely affect our opportunity to benefit financially from such activities.
DOMAIN NAMES
Our domain name is our Internet "address." Domain names have been the
subject of significant trademark litigation in the United States. We have
registered the domain name "www.webstation.com." We cannot assure you that third
parties will not bring claims for infringement against us for the use of these
domain names. Moreover, because domain names derive value from the individual's
ability to remember such names, it is possible that our domain name could lose
their value if, for example, users begin to rely on mechanisms other than domain
names to access online resources.
The current system for registering, allocating and managing domain names
has been the subject of litigation and of proposed regulatory reform. There can
be no assurance that our domain name will not lose its value, or that we will
not have to obtain an entirely new domain name in addition to or instead of our
current domain name if such litigation or reform efforts result in a
restructuring of the current system.
JURISDICTION
Due to the global reach of the Internet, it is possible that the
governments of other states and foreign countries might attempt to regulate our
activities or prosecute us for violations of their laws. This could have a
material adverse effect on our business, results of operations, and financial
condition.
EMPLOYEES
As of November 15, 1999, we had eight full-time employees. We have
experienced no work stoppages and are not a party to a collective bargaining
agreement. We believe that we maintain good relations with our employees.
FACILITIES
Our corporate headquarters are located in West Hollywood, California. As we
expand, we expect, but cannot assure, that suitable additional space will be
available on commercially reasonable terms.
LEGAL PROCEEDINGS
We currently are not involved in any legal proceeding that we believe would
have a material adverse effect on our business, results of operations, or
financial condition.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES
The following table sets forth certain information regarding our directors,
executive officers, and key employees.
NAME AGE POSITION HELD
---- --- -------------
Stephen J. Fischer 30 Director/President/Chief Financial Officer
Soleil Moon Frye 23 Director/Senior Vice President/Secretary
Dennis McGill 50 Director
Edouard Aslanian 36 Director
George Fischer 54 Director
Maggie Wright 23 Director of Programming
David Bowler 34 Director of Information Systems
STEPHEN J. FISCHER co-founded Webstation.com in April 1999 and has served
as its Director, President, and Chief Financial Officer since inception. Prior
to founding Webstation.com, in 1996, Mr. Fischer founded and acted as managing
member of Titan Capital Partners, L.L.C., an investment company. Prior to
founding Titan Capital Partners, L.L.C., from 1995 to 1996 Mr. Fischer was an
institutional equity trader for Wedbush Morgan Securities. From 1993 to 1995,
Mr. Fischer co-founded and held several key positions at First Financial Equity
Corporation, including establishing a retail brokerage and wholesale trading
division and managing all trading and market making activities. In 1999, Mr.
Fischer served as executive producer of HEART OF THE MATTER for Zero One
Productions. Stephen Fischer is the son of George Fischer.
SOLEIL MOON FRYE co-founded Webstation.com in April, 1999 and has served as
a Director and as our Senior Vice President and Secretary since inception. Ms.
Frye is an accomplished actress and director with strong ties to the
entertainment industry. Ms. Frye has over 18 years of Hollywood experience
including starring in the NBC TV hit program PUNKY BREWSTER. In addition, Ms.
Frye has starred in numerous films and has guest starred on NBC TV's FRIENDS and
been the featured celebrity on E! CELEBRITY PROFILE. At the age of 19, Ms. Frye
directed and wrote her first full length feature film and was credited as being
the youngest female director in Hollywood.
DENNIS MCGILL has agreed to serve and will be appointed as a Director of
our company prior to our initial public offering. Currently, Mr. McGill serves
as Senior Vice President and Chief Financial Officer for Miami Cruiseline
Services, B.V. From 1995 until 1999, Mr. McGill served as Vice President of
Finance of Hastings Entertainment, Inc., a retailer of books and CDs. Hastings
is a publicly traded company that had revenue for the first three quarters of
this year of approximately $300,000,000. From March 1994 to October 1995, Mr.
McGill served as a financial consultant to the toy manufacturing, bedding and
waste management industries. From December 1989 to February 1994, he served as
President and Chief Executive Officer of the Bed Outlet, an 18-store bedroom
furniture retailer in California. From August 1986 to December 1989, Mr. McGill
served as the Senior Vice President -- Finance and Chief Financial Officer of
San Francisco-based Lewis Galoob Toys, Inc., a New York Stock Exchange-listed,
international toy manufacturing company.
EDOUARD ASLANIAN has agreed to serve and will be appointed as a Director of
our company prior to our initial public offering. In 1993, Mr. Aslanian founded
International Integration, Inc. (i-Cube), a publicly traded Internet consulting
and application development service firm, where he has occupied various
positions in management, sales and operations. In November, 1999, i-Cube was
merged into Razorfish, a Nasdaq NMS traded company. In the merger, i-Cube was
valued at approximately $1 billion. Prior to founding i-Cube, from 1989 to 1992,
Mr. Aslanian was one of the initial seven members of Individual, Inc.
(NASDAQ:INDV), a provider of customized news delivered over the Internet. From
1986 to 1989, Mr. Aslanian was a principal consultant at Honeywell Bull's
Knowledge Engineering Center. Mr. Aslanian received his B.S. with high honors in
1986, and his M.S. in computer science in 1987, both from Brandeis University.
Mr. Aslanian is the holder of two U.S. Patents and the author of technical
papers published in various industry conferences.
GEORGE FISCHER has agreed to serve and will be appointed as a Director of
our company prior to our initial public offering. Mr. Fischer is the co-founder,
president and sole shareholder of First Financial Equity Corporation, a
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broker-dealer. Prior to co-founding First Financial Equity Corporation, in 1985
Mr. Fischer founded Fischer Investment Advisors, Inc. Mr. Fischer also has
worked for Harris Bankcorp, Inc. and its subsidiaries, Harris Trust and Savings
Bank in Chicago, Illinois and Harris Trust Company of Arizona in various
capacities, including Investment Officer regarding Personal Trust Investments;
Assistant Vice President regarding Personal Trust Investments, Investment
Advisory Accounts, Pension and Profit Sharing Accounts; Senior Investment
Officer and Chairman of the Trust Investment Committee; Vice President; and
Senior Vice President. Mr. Fischer also has served as President of
Turpin-Fischer Investment Advisors, Inc. and Fischer-Hackett Investment
Advisors, Inc. Mr. Fischer received his B.A. and M.B.A. from Miami University
(Oxford, Ohio). Mr. Fischer also holds the designation of Chartered Financial
Analyst. George Fischer is the father of Stephen Fischer.
MAGGIE WRIGHT has served as our Director of Programming since November
1999. Ms. Wright is an entertainment industry veteran with experience in network
television, publishing and radio. Throughout her television career, Ms. Wright
has worked and interned in programming, casting, and scheduling for such
programs as LATE NIGHT WITH CONAN O'BRIEN and SATURDAY NIGHT LIVE, where she
worked alongside legendary producer Lorne Michaels. She also previously served
in an editorial capacity for MARIE CLAIRE magazine and was music director for
the cutting edge radio station KXLU while attending Loyola Marymount. Most
recently she worked in creative/development with The Fred Silverman Company. Ms.
Wright heads up our advertising sponsorship sales and programming. Ms. Wright is
the daughter of NBC President and CEO, Bob Wright.
DAVID BOWLER has served as our Director of Information Systems since
November 1999 and is spearheading technology development at Webstation.com. From
1997 to 1999, Mr. Bowler served as the Manager of Information Systems at the Los
Angeles Philharmonic where he was responsible for the development, maintenance,
and operations of the organization's wide area network and the development and
implementation of the organization's web site. From 1993 through 1996, Mr.
Bowler owned and managed Aswell Consulting where he consulted in project
coordination, systems analysis, management, computer programming, and technical
support. Mr. Bowler brings us years of hands-on information technology
experience, advanced computer systems design, and web site development
expertise, particularly in the area of advanced e-commerce and content-rich web
sites. Mr. Bowler earned his bachelor of science degree in electrical
engineering and computer science from UCLA.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Our bylaws authorize the board of directors to appoint among its members
one or more committees consisting of one or more directors. Immediately
following this offering, our board of directors will establish an audit
committee. The audit committee will be comprised of two independent directors
who are not affiliated with our company. The audit committee will review the
annual financial statements, any significant accounting issues, and the scope of
the audit with our independent auditors and will discuss with the auditors any
other audit related matters that may arise.
DIRECTOR COMPENSATION AND OTHER INFORMATION
Our bylaws authorize us to pay directors for serving as members of our
board of directors. In lieu of a salary, we may pay directors a specified sum
for each meeting attended in person by a director. All directors may be
reimbursed for their expenses in attending meetings of the board of directors.
Likewise, members of director committees may be allowed like reimbursement and
compensation for attending committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, our board of directors has not had a compensation
committee. Once formed, the compensation committee of our board of directors
will make all compensation decisions regarding our executive officers, directors
and members of director committees.
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EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Stephen Fischer, Soleil
Moon Frye and Maggie Wright at annual salaries of $95,000, $90,000 and $30,000,
respectively with bonuses, if any, to be determined by our board of directors.
In addition, Ms. Frye's agreement grants her up to three months paid leave per
year to pursue entertainment related projects and Ms. Wright's agreement grants
her up to 301,996 shares of our common stock. Ms. Wright's stock is subject to
forfeiture over a two year period. We employ Mr. Bowler as an at-will employee.
All of our employees are required to enter into an employee agreement to
keep our intellectual property confidential and to refrain from soliciting our
customers and employees during their employment with us and for twelve months
after leaving their employment with us.
1999 INCENTIVE STOCK PLAN
On October 23, 1999, our board of directors adopted our Incentive Stock
Plan. The incentive plan provides for the grant of incentive and nonqualified
stock options to acquire our common stock , the direct grant of common stock,
the grant of stock appreciation rights, or SARs, and the grant of other cash
awards to key personnel, directors, consultants, independent contractors, and
others providing valuable services to us. We believe that the incentive plan
represents an important factor in attracting and retaining executive officers
and other key employees, directors, and consultants and constitutes a
significant part of our compensation program. The incentive plan provides these
individuals with an opportunity to acquire a proprietary interest in our company
and thereby align their interests with the interests of our other stockholders
and give them an additional incentive to use their best efforts for our
long-term success.
The maximum number of shares of our common stock that we may issue under
the incentive plan is 1,000,000 shares, which, after the offering will be equal
to approximately 10% of our outstanding common stock. The maximum number of
shares of stock with respect to which options or other awards may be granted to
any employee (including officers) during any year of the incentive plan may not
exceed 50% of the shares of common stock covered by the incentive plan. As of
November 15, 1999, we have granted options to purchase approximately 198,700
shares of common stock. Of these options, none are vested. The options vest over
periods ranging from one to two years. To date, none of these options have been
exercised. See "Option Grants from Inception."
The power to administer the incentive plan with respect to our executive
officers and directors and all persons who own 10% or more of our issued and
outstanding stock rests exclusively with our board of directors or a committee
consisting of two or more non-employee directors who are appointed by our board
of directors. The power to administer the incentive plan with respect to other
persons rests with the board of directors or a committee appointed by our board
of directors.
The incentive plan will terminate in October, 2009, and options may be
granted at any time during the life of the incentive plan. The board of
directors or the plan administrator will determine when options become
exercisable, as well as the exercise prices of options. If an option is intended
to be an incentive stock option the exercise price may not be less than 100%
(110% if the option is granted to a stockholder who at the time of the grant of
the option owns stock possessing more than 10% of the total combined voting
power of all classes of our stock) of the fair market value of the common stock
at the time of the grant. Unvested and unexercisable options may terminate
before their expiration dates if the optionee's status as an employee or a
consultant is terminated or upon the optionee's death or disability.
The incentive plan is not intended to be the exclusive means by which we
may issue options or warrants to acquire our common stock, stock awards, or any
other type of award. To the extent permitted by applicable law and Nasdaq
requirements, we may issue any other options, warrants, or awards other than
pursuant to the incentive plan without stockholder approval. We have not granted
stock options to any of our executive officers and we have not issued any stock
appreciation rights.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
From April, 1999 through November 15, 1999, Titan Capital Partners, L.L.C.,
an affiliate of Stephen Fischer, our president, has loaned us approximately
$325,000. We have used these funds for working capital and have not yet
established terms for their repayment. However, we intend to repay this loan
from the proceeds of this offering. See "Use of Proceeds."
In April, 1999 we sold 3,703,702 and 1,994,302 shares of our common stock
to Stephen Fischer and Soleil Moon Frye, respectively, for $0.009 per share.
In November, 1999, we entered into employment agreements with Stephen
Fischer, Soleil Moon Frye and Maggie Wright. Ms. Wright's agreement included a
grant of up to 301,996 shares of common stock. The stock grant is subject to
forfeiture over a two year period. See "Management-Employment Agreements."
We believe that the transactions described above are on terms at least as
favorable as we could have received from parties that are unrelated to us.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the shares of
our outstanding common stock beneficially owned as of November 15, 1999 by each
of our directors and executive officers, all directors and executive officers as
a group, and by each person who is known by us to be the beneficial owner of
more than 5% of our common stock.
Shares of Common Stock
Beneficially Owned
--------------------------------
Number of Percentage Owned
Shares ------------------
Name and Address of Beneficially Before After
Beneficial Owner(1) Owned(2) Offering Offering
------------------- ------------ -------- --------
DIRECTORS AND EXECUTIVE OFFICERS
Stephen J. Fischer ................... 3,703,702 61.7% 41.2%
Soleil Moon Frye ..................... 1,994,302 33.2% 22.2%
Dennis McGill (3) ....................
Edouard Aslanian (3) .................
George Fischer (3) ...................
5% SHAREHOLDERS
Maggie Wright(4) ..................... 301,996 5.0% 3.4%
All directors and executive officers
as a group (5 persons).............. 5,698,004 94.9% 63.4%
- ----------
(1) Except as otherwise indicated, each person named in the table has sole
voting and investment power with respect to all common stock beneficially
owned by him, her, or it, subject to applicable community property law.
Except as otherwise indicated, the address for each person listed is c/o
Webstation.com, Inc., 8439 Sunset Boulevard, Suite 306, West Hollywood,
California 90069.
(2) The percentages shown are calculated based upon 6,000,000 shares of common
stock outstanding on November 15, 1999. The numbers and percentages shown
include the shares of common stock actually owned as of November 15, 1999
and the shares of common stock that the identified person or group had the
right to acquire within 60 days of such date. In calculating the percentage
of ownership, all shares of common stock that the identified person or
group had the right to acquire within 60 days of November 15, 1999 upon the
exercise of options are deemed to be outstanding for the purpose of
computing the percentage of the shares of common stock owned by such person
or group, but are not deemed to be outstanding for the purpose of computing
the percentage of the shares of common stock owned by any other person.
(3) Does not include 10,000 shares of common stock issuable upon the exercise
of stock options that will not vest for 12 months.
(4) Includes 301,996 shares that were granted to Ms. Wright, of which 150,998
are subject to forfeiture during her first 12 months of employment and
150,998 are subject to forfeiture during the first 24 months of employment.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $.0001 per share and 10,000,000 shares of preferred stock, par value
$.0001 per share.
The following descriptions of our capital stock and selected provisions of
our restated certificate of incorporation and bylaws are summaries. Complete
copies of our restated certificate of incorporation and bylaws have been filed
with the Securities and Exchange Commission as exhibits to the registration
statement containing this prospectus.
COMMON STOCK
We are offering 3,000,000 shares of common stock under this prospectus. As
of November 15, 1999, there were 6,000,000 shares of common stock outstanding
held of record by 3 stockholders. Following this offering, there will be
9,000,000 shares of common stock outstanding. The holders of common stock are
entitled to one vote for each share held of record on all matters to be voted on
by the stockholders. Subject to the prior rights of holders of any outstanding
shares of preferred stock, the holders of common stock are entitled to receive
ratably such dividends, if any, as may be declared by the board of directors out
of funds legally available for the payment of dividends. In the event of a
liquidation, dissolution, or winding up of Webstation.com, the holders of common
stock will be entitled to share pro rata all assets remaining after payment of
liabilities and prior liquidation preferences of any outstanding shares of
preferred stock. Holders of common stock have no preemptive rights or rights to
convert their common stock into any other securities. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common stock
to be issued following this offering will be fully paid and nonassessable. The
rights of holders of common stock will be subject to, and may be adversely
affected by, the rights of stockholders of any series of preferred stock that
may be designated in the future.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to an aggregate of 10,000,000 shares of preferred stock in one or
more series. The board also is able to fix or alter the designations,
preferences, rights, and any qualifications, limitations, or restrictions of the
shares of each series of preferred stock. There are no shares of preferred stock
outstanding. We have no present plans to issue any shares of preferred stock.
The issuance of preferred stock may have the effect of delaying, deferring, or
preventing a change in control of our company without further action by the
stockholders. Also, the issuance of preferred stock with voting and conversion
rights may adversely affect the voting power of the holders of common stock.
OPTIONS
As of November 15, 1999, we had outstanding options to purchase 198,700
shares of common stock, and up to an additional 801,300 shares of common stock
may be subject to options granted in the future under our Incentive Plan. See
"Management - 1999 Incentive Stock Plan."
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW
Upon completion of this offering, we will be subject to the provisions of
Section 203 of the Delaware General Corporation Law. In general, this statute
prohibits a publicly held Delaware corporation from engaging, under certain
circumstances, in a "business combination" with an "interested stockholder" (as
these terms are described below) for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless:
* the transaction in which such stockholder became an interested
stockholder is approved by the board of directors prior to the date
the interested stockholder attained that status;
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* upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding those shares owned by
persons who are directors and also officers, or by employee stock
plans where the employees do not have the right to confidentially
determine whether the plan shares will be tendered in a tender or
exchange offer; or
* on or subsequent to such time the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders, not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by
the interested stockholder.
"Business combinations" include mergers, asset sales, and other transactions
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with his, her, or its
affiliates and associates, owns, or within the prior three years did own, 15% or
more of the corporation's voting stock. The restrictions in this statute could
prohibit or delay the accomplishment of mergers or other takeover or change in
control attempts with respect to our company and could therefore discourage
attempts to acquire our company.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT
Our restated certificate of incorporation provides that the stockholders
can take action only at a duly called annual or special meeting of the
stockholders. Accordingly, our stockholders will not be able to take action by
written consent in lieu of a meeting. This provision may have the effect of
deterring hostile takeovers or delaying changes in control or management of our
company.
SPECIAL MEETINGS OF STOCKHOLDERS
Our restated certificate of incorporation provides that special meetings of
our stockholders can be called only by our Chairman of the Board, our Chief
Executive Officer or our board of directors.
CERTIFICATE OF INCORPORATION AND BYLAWS
Our restated certificate of incorporation and bylaws may delay, defer, or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in his or her best interest, including those attempts that might result in a
premium over the market price for the common stock. Our restated certificate of
incorporation and bylaws contain a number of other provisions relating to
corporate governance and to the rights of stockholders. These provisions include
(a) the authority of the board of directors to fill vacancies on the board, and
(b) the authority of the board of directors to issue preferred stock in series
with voting rights and other powers as the board of directors may determine.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breaches of directors' fiduciary duty of
care. Our restated certificate of incorporation includes a provision that
eliminates the personal liability of our directors for monetary damages for
breach of fiduciary duty as a director, except where such a limitation is not
permitted under Delaware General Corporate Law. Under Delaware General Corporate
Law, the personal liability of directors for monetary damages may not be
limited:
* for any breach of the director's duty of loyalty to our company or its
stockholders;
* for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
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* under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
* for any transaction from which the director derived an improper
personal benefit.
Our bylaws generally provide that:
* we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
* we may indemnify our other employees and agents to the same extent
that we indemnify our officers and directors, unless otherwise
required by law, our restated certificate of incorporation, our
bylaws, or other agreements; and
* we must advance expenses, as incurred, to our directors and executive
officers in connection with legal proceedings to the fullest extent
permitted by Delaware law.
Prior to the closing of this offering, we intend to obtain directors' and
officers' insurance providing indemnification for our directors, officers, and
certain employees. We believe that these indemnification provisions and
insurance are necessary to attract and retain qualified directors and executive
officers.
The limitation of liability and indemnification provisions in our restated
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty.
Such provisions may also reduce the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise benefit us and our stockholders. Furthermore, a stockholder's
investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers in connection with
these indemnification provisions.
There is no pending litigation or proceeding involving any of our
directors, officers or employees for which indemnification is sought. We are
unaware of any threatened litigation that may result in claims for
indemnification.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common and preferred stock are
available for future issuance without stockholder approval. We may use these
additional shares for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions, and employee
benefit plans. The existence of these shares could discourage or make more
difficult an attempt to obtain control of us by means of a proxy contest, tender
offer, merger, or otherwise.
LISTING
We will apply for listing of our common stock on the Nasdaq National Market
under the trading symbol "VIEW."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be American
Securities Transfer and Trust. Our transfer agent and registrar's telephone
number is (303) 234-5300. Our transfer agent and registrar's address is 938
Quail Street, Suite 101, Lakewood, Colorado 80215.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. We
cannot predict the effect, if any, that sales of shares or the availability of
shares for sale will have on the market price of our common stock. Sales of
substantial amounts of our common stock in the public market, or the perception
that sales might occur, could adversely affect the market price of our common
stock. Sales of substantial amounts of common stock in the public market after
the restrictions on resale described below lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 9,000,000 shares
of common stock. All of the 3,000,000 shares to be sold in this offering will be
freely tradable without restriction or further registration under the securities
laws unless held by one or more of our "affiliates," as that term is defined
under Rule 144 of the securities laws. Shares of common stock purchased by our
affiliates may be sold in the public market only if they are registered for
resale, if they are sold pursuant to Rule 144, or if they qualify for an
exemption from registration under the securities laws.
LOCK-UP AGREEMENTS
We and our respective directors, officers, and 5% shareholders have agreed,
subject to certain exceptions, not to sell or otherwise dispose of any shares of
common stock in the public market for a period of 180 days after the date of
this prospectus. Our underwriter may, at its sole discretion, and at any time
without notice, release all or any part of the shares subject to lock-up
agreements.
RULE 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person who has beneficially owned shares of our common stock for
at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
* 1% of the number of shares of our common stock then outstanding, which
will equal approximately 90,000 shares after the closing of this
offering; or
* the average weekly trading volume of our common stock on a national
securities exchange or on the Nasdaq National Market during the four
calendar weeks preceding the filing of a notice of Form 144 with
respect to the sale.
Sales under Rule 144 also are subject to manner of sale provisions, notice
requirements, and the availability of current public information about our
company. Certain persons are entitled to sell such shares without regard to any
of the volume limitations or other requirements described above if:
* such person is not an affiliate or has not been an affiliate within
three months prior to sale; and
* such person has beneficially owned the shares proposed to be sold for
at least two years.
STOCK OPTIONS
We have reserved 1,000,000 shares of common stock for issuance under the
1999 Incentive Stock Plan. After this offering, we may register these securities
under the securities laws by filing a registration statement with the SEC. After
the effective date of such registration statement, shares issued under the 1999
Incentive Stock Plan will be freely tradable without restriction or further
registration under the securities laws unless acquired by one or more of our
affiliates, who will be subject to the volume and other limitations of Rule 144.
ADDITIONAL SHARES
We may issue additional shares of common stock to raise additional capital
or as part of any acquisition we may complete in the future. We may decide to
register such securities under the securities laws before we offer and issue
them. Registered shares generally will be freely tradable after their issuance
by persons not affiliated with us.
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UNDERWRITING
We are offering the shares of common stock described in this prospectus
through First Financial Equity Corporation, which is acting as the
representative of the underwriter. We have entered into an underwriting
agreement with the representative. Subject to the terms and conditions of the
underwriting agreement, we have agreed to sell to the underwriters, and each of
the underwriters has agreed to purchase, the number of shares of common stock
listed next to its name in the following table:
Number of
Underwriter Shares
- ----------- ------
First Financial Equity Corporation
---------
Total...................................................
=========
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $_________ per share. The
underwriters also may allow, and any other dealers may reallow, a concession of
not more than $_______ per share to some other dealers. If all the shares are
not sold at the initial public offering price, the underwriters may change the
offering price and the other selling terms. The common stock is offered subject
to a number of conditions, including:
* receipt and acceptance of our common stock by the underwriters; and
* the right to reject orders in whole or in part.
We have granted an option to the underwriters to buy up to 450,000
additional shares of common stock. These additional shares would cover sales of
shares by the underwriters which exceed the number of shares specified in the
table above. The underwriters have 30 days to exercise this option. If the
underwriters exercise this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the table above.
We and our respective officers and directors have entered into lock-up
agreements with the underwriters. Under those agreements, we and those holders
of stock and options may not dispose of or hedge any common stock or securities
convertible into or exchangeable for shares of common stock. These restrictions
will be in effect for a period of 180 days from the date of this prospectus.
We will indemnify the underwriters against some liabilities, including some
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be required
to make in respect of those liabilities.
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
* short sales;
* stabilizing transactions; and
* purchase to cover positions created by short sales.
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Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:
* over-allotment;
* stabilization;
* syndicate covering transactions; and
* imposition of penalty bids.
As a result of these activities, the price of the common stock may be
higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be negotiated between us and the
underwriters. Among the factors to be considered in such negotiations are:
* our history and prospects, and the history and prospectus of the
industry in which we compete;
* our past and present financial performance;
* an assessment of our management;
* the present state of our development;
* our prospects for future earnings;
* the prevailing market conditions of the applicable U.S. securities
market at the time of this offer;
* market valuations of publicly traded companies that we and the
representatives believe to be comparable to us; and
* other factors deemed relevant.
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LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Webstation.com by Gallagher & Kennedy, P.A., a professional association,
Phoenix, Arizona. Selected legal matters in connection with this offering will
be passed upon for the Underwriters by ____________________.
EXPERTS
The audited financial statements included in this prospectus and elsewhere
in the registration statement have been audited by Toback CPAs, P.C.,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We filed a registration statement on Form S-1 with the Securities and
Exchange Commission relating to the common stock offered by this prospectus.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance we refer
you to the copy of such contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference. For further information with respect to Webstation.com and the
common stock offered by this prospectus, we refer you to the registration
statement, exhibits and schedules.
Anyone may inspect a copy of the registration statement without charge at
the public reference facilities maintained by the Securities Exchange and
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; the
Chicago Regional Office, Suite 1400, 500 West Madison Street, Citicorp Center,
Chicago, Illinois 60661; and the New York Regional Office, Suite 1300, 7 World
Trade Center, New York, New York 10048. Copies of all or any part of the
Registration Statement may be obtained from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the prescribed fees. The public may obtain information on
the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Registration Statement is also
available through the Securities and Exchange Commission's web site at the
following address: http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
accordingly, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Upon approval of the common stock
for quotation or the Nasdaq National Stock Market, such reports, proxy
statements and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20096.
48
<PAGE>
WEBSTATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 14, 1999 (INCEPTION)
THROUGH OCTOBER 31, 1999
CONTENTS
Page
----
Independent auditor's report F-2
Financial Statements:
Balance sheet F-3
Statement of operations F-4
Statement of shareholders' deficit F-5
Statement of cash flows F-6
Notes to financial statements F-7 - F-11
F-1
<PAGE>
To the Board of Directors
Webstation.com, Inc.
Los Angeles, California
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of Webstation.com, Inc. (A
Development Stage Company) as of October 31, 1999 and the related statement of
operations, shareholders' deficit and cash flows for the period from April 14,
1999 (Inception) through October 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material aspects, the financial position of Webstation.com, Inc. (A
Development Stage Company) as of October 31, 1999 and the results of its
operations and its cash flows for the period from April 14, 1999 (Inception)
through October 31, 1999 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
Webstation.com, Inc. (A Development Stage Company) will continue as a going
concern. As discussed in Note 1 to the financial statements, the Company is a
development stage enterprise and since inception has earned no revenues and
incurred operating losses. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
TOBACK CPAs, P.C.
Phoenix, Arizona
November 8, 1999
F-2
<PAGE>
WEBSTATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
OCTOBER 31, 1999
ASSETS
Current assets:
Cash $ 9,677
Deposits 32,781
---------
Total current assets 42,458
Property and equipment, net of accumulated
depreciation (Note 2) 35,150
Other assets (Note 3) 29,718
---------
$ 107,326
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 42,169
Related party advances (Note 4) 176,822
---------
Total current liabilities 218,991
Commitments (Note 6)
Shareholders' deficit:
Preferred Stock, $.0001 par value, 10,000,000 shares
authorized; no shares issued or outstanding --
Common Stock, $.0001 par value, 50,000,000 shares
authorized; 5,698,004 shares issued and outstanding 570
Additional paid-in capital 50,430
Accumulated deficit (162,665)
---------
Total shareholders' deficit (111,665)
---------
$ 107,326
=========
F-3
<PAGE>
WEBSTATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 14, 1999 (INCEPTION)
THROUGH OCTOBER 31, 1999
Revenue
$ --
Operating Expenses:
Website development and operations 52,275
General and administrative expenses 110,390
162,665
Income taxes (Note 5) --
-----------
Net loss $ (162,665)
===========
Net loss per share, basic and diluted (.03)
===========
Weighted average basic and diluted shares
outstanding 5,698,004
F-4
<PAGE>
WEBSTATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE PERIOD FROM APRIL 14, 1999 (INCEPTION)
THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
------------------ ------------------ Paid in Accumulated Shareholders'
Shares Amount Shares Amount Capital Deficit Deficit
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of period -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock 1,000 1,000 50,000 51,000
5,698 for 1 stock split (Note 7) 5,697,004 (430) 430
Net loss for the period from
April 14, 1999 (Inception)
through October 31, 1999 (162,665) (162,665)
------ ---------- --------- ------- ---------- ---------- ----------
Balance, end of period -- $ -- 5,698,004 $ 570 $ 50,430 $ (162,665) $ (111,665)
====== ========== ========= ======= ========== ========== ==========
</TABLE>
F-5
<PAGE>
WEBSTATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 14, 1999 (INCEPTION)
THROUGH OCTOBER 31, 1999
Cash flows from operating activities:
Net loss $(162,665)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 3,423
Increase in deposits (32,781)
Increase in accounts payable 42,169
Increase in other assets (29,718)
---------
Net cash used in operating activities (179,572)
Cash flows from investing activities:
Acquisition of property and equipment (38,573)
Cash flows from financing activities:
Proceeds from issuance of common stock 51,000
Proceeds from related party advances 176,822
---------
Net cash provided by financing activities 227,822
---------
Net increase in cash 9,677
Cash, beginning of period --
---------
Cash, end of period $ 9,677
=========
F-6
<PAGE>
WEBSTATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 14, 1999 (INCEPTION)
THROUGH OCTOBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:ORGANIZATION:
Webstation.com, Inc. (the "Company") was incorporated on April 14, 1999
under the laws of the state of Delaware. The Company is continuing to
develop its web site, Webstation.com, to provide entertainment and
e-commerce over the internet. The Company is also in the preliminary stages
of developing programming content for its web site, however, no revenues
have been generated from operations and as such the Company is a
development stage enterprise.
BASIS OF PRESENTATION:
The Company has financed its operations through the sale of common stock
and borrowings from a related party (Note 4). The Company has experienced
losses and negative cash flows from operating activities since its
inception. Due to the Company's continued development, it has experienced
increased capital needs. The Company's ability to continue as a going
concern is dependent upon raising additional financing through a registered
public offering, private equity sources, signing contracts with advertisers
or securing other sources of financing to fund its planned operations. If
such resources are not available, the Company may be required to delay or
reduce expenditures. Should the Company be required to delay or reduce
expenditures, it may not be able to fund its expansion, promote its web
site, take advantage of acquisition opportunities, develop or enhance
services or respond to competitive pressures. The conditions described
above raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
PROPERTY AND EQUIPMENT AND DEPRECIATION:
Property and equipment are recorded at cost and are depreciated using the
straight-line method over their estimated useful life as follows:
Furniture and equipment 5 - 10 years
When properties are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts with any resulting
gain or loss reflected in income. Maintenance and repairs are expensed in
the year incurred.
INTANGIBLE ASSETS AND AMORTIZATON:
The trademark domain name costs for "Webstation.com" will be amortized over
40 years on a straight-line basis. The costs associated with the initial
public offering (IPO) will be offset against the proceeds received and as
such will be a reduction of additional paid in capital when the IPO is
effective. If the IPO does not become effective after a reasonable period
of time, these costs will be expensed at that time.
F-7
<PAGE>
WEBSTATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE PERIOD FROM APRIL 14, 1999 (INCEPTION)
THROUGH OCTOBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
INCOME TAXES:
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax benefit (expense) is the tax receivable
(payable) for the period and the change during the period in deferred tax
assets and liabilities.
ADVERTISING:
The Company expenses advertising costs at the first time that advertising
takes place. For the period from April 14, 1999 (inception) through October
31, 1999 there was no advertising expense.
ACCOUNTING 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 their reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
INCOME (LOSS) PER SHARE:
Basic and diluted earnings per share (EPS) are computed as net loss divided
by the weighted average number of common shares outstanding for the period.
Any conversion of common stock equivalents, had there been any at October
31, 1999, would be anti-dilutive due to the Company's loss and therefore
basic and diluted EPS are the same. The weighted average number of shares
is the average daily number of shares outstanding for the period ended
October 31, 1999.
F-8
<PAGE>
WEBSTATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE PERIOD FROM APRIL 14, 1999 (INCEPTION)
THROUGH OCTOBER 31, 1999
2. PROPERTY AND EQUIPMENT:
The components of property and equipment are as follows:
Equipment $ 23,365
Furniture and fixtures 15,208
--------
38,573
Less: accumulated depreciation (3,423)
--------
$ 35,150
========
Depreciation expense for the period from April 14, 1999 (inception) through
October 31, 1999 was approximately $3,400.
3. OTHER ASSETS:
At October 31, 1999 other assets consist of the following:
Internet domain costs $ 8,244
Initial public offering costs 21,474
--------
$ 29,718
========
4. DUE TO RELATED PARTY:
The Company has borrowed money from a company related through common
ownership. These funds have been used for working capital purposes. No
formal repayment terms have been established for these loans.
5. INCOME TAXES:
The Company's income tax benefit differs from the expected tax benefit
amount computed by applying the Federal statutory income tax rate of 34% to
loss before income taxes as a result of temporary differences and the
increase in valuation allowance.
F-9
<PAGE>
WEBSTATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE PERIOD FROM APRIL 14, 1999 (INCEPTION)
THROUGH OCTOBER 31, 1999
5. INCOME TAXES, CONTINUED:
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets at October 31, 1999 follow:
Deferred tax assets:
Intangibles $ 49,000
Less valuation allowance (49,000)
--------
Net deferred tax assets $ --
========
In assessing the potential realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will be realized. The ultimate realization of the
deferred tax assets is dependent upon the Company attaining future taxable
income and the deductibility of current operating expenses during the
periods in which those temporary differences become deductible. Due to the
uncertainty surrounding the realization of the benefits of its tax
attributes, including the deductibility of current operating expenses in
future tax returns, the Company has provided a 100% valuation allowance for
its deferred tax assets as of October 31, 1999.
No benefit for federal or state income taxes has been recorded because the
Company has incurred an operating loss for the period from April 14, 1999
(Inception) through October 31, 1999. For tax purposes, the Company will be
capitalizing substantially all of its expenses. As a result, the Company
does not have any net operating loss carryforward as of October 31, 1999.
The Company expects to begin to amortize such capitalized costs for tax
purposes over sixty months when the Company begins generating revenues.
6. COMMITMENTS:
Office lease:
The Company leases its office facility under an operating lease agreement
entered into by a related entity. The lease expires on July 31, 2002. Rent
expense under the operating lease was $19,553 for the period from April 14,
1999 (inception) through October 31, 1999.
F-10
<PAGE>
WEBSTATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE PERIOD FROM APRIL 14, 1999 (INCEPTION)
THROUGH OCTOBER 31, 1999
6. COMMITMENTS, CONTINUED:
OFFICE LEASE, CONTINUED:
Minimum rental commitments payable in future years are as follows:
Year Ending, October 31:
2000 $ 129,372
2001 129,372
2002 97,029
---------
Total minimum lease payments $ 355,773
=========
EMPLOYMENT AGREEMENTS:
The Company has entered into an employment agreement with one of its
employees subsequent to October 31, 1999. The agreement grants
approximately 302,000 shares of common stock to the employee for services
rendered. As a result of this grant the proforma loss per share would not
be materially affected.
7. SHAREHOLDERS EQUITY:
STOCK SPLIT:
The Company is currently preparing a registration statement and prospectus
for the purpose of effectuating an initial public offering. In October
1999, the Company approved a 5,698 for 1 common stock split as well as an
increase in the number of authorized shares of common stock from 1,000,000
to 50,000,000. The Company also approved an increase in the number of
authorized shares of preferred stock from 100,000 to 10,000,000. The loss
per share information included in the statement of operations reflects this
stock split.
INCENTIVE STOCK PLANS:
The Company is establishing a stock option plan that will set aside
approximately 1,000,000 shares of its authorized common stock for issuance
under the 1999 Incentive Stock Plan.
F-11
<PAGE>
================================================================================
3,000,000 Shares
[Webstation.com Logo]
-------------------------------
Prospectus
__________________, 1999
-------------------------------
Until ______________, 1999, all dealers that buy, sell or trade the common
stock may be required to deliver a prospectus, regardless of whether they are
participating in the offering. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
described in the Registration Statement. All such expenses are estimates except
for the SEC registration fee and NASD and Nasdaq National Market filing fees.
SEC registration fee....................................... $
NASD filing fee............................................
Blue Sky fees and expenses.................................
Nasdaq National Market.....................................
Transfer agent and registrar fees..........................
Accountants' fees and expenses.............................
Legal fees and expenses....................................
Printing and engraving expenses............................
Federal taxes..............................................
Listing fees...............................................
Miscellaneous fees.........................................
---------
Total...................................................... $
=========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The bylaws of the Registrant provide that the Registrant will indemnify and
advance expenses, to the fullest extent permitted by the Delaware General
Corporation Law, to each person who is or was a director or officer of the
Registrant, or who serves or served any other enterprise or organization at the
request of the Registrant (and "Indemnitee").
Under Delaware law, to the extent that an Indemnitee is successful on the
merits in defense of a suit or proceeding brought against him or her by reason
of the fact that he or she is or was a director, officer, employee, or agent of
the Registrant, or serves or served any other enterprise or organization at the
request of the Registrant, the Registrant shall indemnify him or her against
expenses (including attorneys' fees) actually and reasonably incurred in
connection with such action.
If unsuccessful in defense of a third-party civil suit or a criminal suit,
or if such a suit is settled, an Indemnitee may be indemnified under Delaware
law against both (i) expenses, including attorneys' fees, and (ii) judgments,
fines, and amounts paid in settlement if he or she acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Registrant, and, with respect to any criminal action, had no
reasonable cause to believe his or her conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of the
Registrant, where the suit is settled, an Indemnitee may be indemnified under
Delaware law only against expenses (including attorneys' fees) actually and
reasonably incurred in the defense or settlement of the suit if he or she acted
in good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Registrant except that if the Indemnitee
is adjudged to be liable to the Registrant, he or she cannot be made whole even
for expenses unless a court determines that he or she is fairly and reasonably
entitled to indemnification for such expenses.
Also under Delaware law, expenses incurred by an officer or director in
defending a civil or criminal action, suit, or proceeding may be paid by the
Registrant in advance of the final disposition of the suit, action, or
proceeding upon receipt of an undertaking by or on behalf of the officer or
director to repay such amount if it is ultimately determined that he or she is
not entitled to be indemnified by the Registrant. The Registrant may also
advance expenses incurred by former directors and officers and other employees
and agents of the Registrant upon such terms and conditions, if any, that the
Board of Directors of the Registrant deems appropriate.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On April 14th, 1999 the Registrant issued 650 share of common stock for an
aggregate of $51,000 to Stephen Fischer and 350 shares to Soleil Moon Frye
pursuant to an exemption from registration under Section 4(2) and/or 4(6) of the
Securities Act of 1933. In November an additional 5,697,004 shares were issued
to Mr. Fischer and Ms. Frye without further consideration pursuant to a stock
split subject to an exemption from registration under the Securities Act of
1933.
In November, 1999, 301,996 shares of common stock were issued to Maggie
Wright pursuant to an employment agreement with Ms. Wright. The shares were
valued at approximately $4,530 and issued for services. The shares were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act of 1933.
In November, 1999, 198,750 options to purchase shares of common stock were
issued to employees under the company's 1999 Incentive Stock Plan. The options
were issued under the exemption from registration under the Securities Act of
1933, provided by Rule 701.
ITEM 16. EXHIBITS.
(a) EXHIBITS
Exhibit
Number Exhibits
------ --------
1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the Registrant*
3.2 Bylaws of the Registrant*
4.1 Specimen of Common Stock Certificate* 5 Opinion of
Gallagher & Kennedy P.A., a professional association*
10.1(a) Executive Employment Agreement dated _________, 1999, by
and between Webstation.com, Inc. and Stephen J. Fischer*
10.1(b) Executive Employment Agreement dated _________, 1999, by
and between Webstation.com, Inc. and Soleil Moon Frye*
10.2 1999 Incentive Stock Plan*
23.1 Consent of Gallagher & Kennedy, P.A., a professional
association (included in Exhibit 5)*
23.2 Consent of Toback CPAs, P.C.
24 Power of Attorney of Directors and Executive Officers
(included on the Signature Page of the Registration
Statement)
27 Financial Data Schedule
----------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
The Registrant has not provided any financial statement schedules, because
the information called for is not required, or is shown either in the financial
statements or the notes thereto.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
* that for purposes of determining any liability under the Securities
Act of 1933, 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 the registrant pursuant to
Rule 424(b)(1), or (4), or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective; and
* that for purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering
thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on November 17, 1999.
WEBSTATION.COM, INC.
By: /s/ Stephen J. Fischer
------------------------------
Stephen J. Fischer
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints jointly and severally, Stephen J. Fischer and
Soleil Moon Frye and each one of them, as his/her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him/her and in his/her name, place and stead, in any and all
capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this registration statement, and to sign any
registration statement and amendments thereto for the same offering pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other 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 connection therewith,
as fully to all intents and purposes as he/she might or could do in person,
hereby ratifying and confirming all which said attorneys-in-fact and agents, or
any of them, or their or his/her substitute or substitutes, may lawfully do, or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stephen J. Fischer Director, President and November 17, 1999
- -------------------------- Chief Financial Officer
Stephen J. Fischer
/s/ Soleil Moon Frye Director, Senior Vice November 17, 1999
- -------------------------- President and Secretary
Soleil Moon Frye
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibits
------ --------
1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the Registrant*
3.2 Bylaws of the Registrant*
4.1 Specimen of Common Stock Certificate* 5 Opinion of
Gallagher & Kennedy P.A., a professional association*
10.1(a) Executive Employment Agreement dated _________, 1999, by
and between Webstation.com, Inc. and Stephen J. Fischer*
10.1(b) Executive Employment Agreement dated _________, 1999, by
and between Webstation.com, Inc. and Soleil Moon Frye*
10.2 1999 Incentive Stock Plan*
23.1 Consent of Gallagher & Kennedy, P.A., a professional
association (included in Exhibit 5)*
23.2 Consent of Toback CPAs, P.C.
24 Power of Attorney of Directors and Executive Officers
(included on the Signature Page of the Registration
Statement)
27 Financial Data Schedule
- ----------
* To be filed by amendment.
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of Webstation.Com, Inc. on
Form S-1 of our report dated November 8, 1999 appearing in the Prospectus, which
is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
Toback CPAs, P.C.
Phoenix, Arizona
November 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-14-1999
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<CASH> 9,677
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,458
<PP&E> 38,573
<DEPRECIATION> 3,423
<TOTAL-ASSETS> 107,326
<CURRENT-LIABILITIES> 218,991
<BONDS> 0
0
0
<COMMON> 570
<OTHER-SE> (112,235)
<TOTAL-LIABILITY-AND-EQUITY> 107,326
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 162,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (162,665)
<INCOME-TAX> 0
<INCOME-CONTINUING> (162,665)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (162,665)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
