SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM S 1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[Graphic not included]
COSMOZ.COM, INC., A Delaware Corporation
Primary Standard Industrial Classification Code Number: 6799
I.R.S. Employer Identification No.: 94-3319536
Address of principal executive offices: 1515 S. El Camino Real San Mateo,
California 94402
Registrant's telephone number: Voice: 650/358 1188 Fax: 650/358 0188
Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service: Mr. Michael Spadaccini, 1515 So. El Camino, Suite 100, San
Mateo, California 94402 Voice: (650) 358 1188
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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 this Form is a post effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED (1) UNIT (2) PRICE REGISTRATION FEE
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I. Common stock, 26,666,666 $0.75 $20,000,000 $5,280
$.001 par value
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II. Common stock 2,666,666 $0.825 $2,199,999 $581
underlying warrants (3)
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III. Common stock 2,400,000 $0.375 $900,000 $237
underlying warrants (4)
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IV. Common stock 6,000,000 $.5983 $3,589,800 $947
underlying our stock
option plan (5)
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V. Common stock 3,030,303 $0.19 $575,757 $152
underlying prior
Regulation D Rule 506
offering.
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Totals 40,763,635 $27,265,556 $7,197
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(1) In the event of a stock split, stock dividend or similar transaction
involving our common stock, in order to prevent dilution, the number of shares
registered shall automatically be increased to cover the additional shares in
accordance with Rule 416(a) under the Securities Act of 1933.
(2) The aggregate offering price of shares of our common stock is estimated
solely for purposes of calculating the registration fees, as determined in
accordance with Rule 457, as follows:
o For the common stock indicated in row I., above, the filing fee is
based upon a bona fide estimate of the maximum offering price according
to Rule 457(a);
o For the common stock underlying warrants in rows II. and III., above,
the filing fee is based upon the price at which the warrants may be
exercised according to Rule 457(g);
o For the common stock underlying our stock option plan indicated in row
IV., above, the filing fee is based upon the price at which the options
may be exercised according to Rule 457(h)
o For the common stock underlying prior Regulation D Rule 506 offering
indicated in row V., above, the filing fee is based upon the average of
the high and low sales price reported by the OTC Bulletin Board for the
common stock on August 15, 2000, which was $0.19 per share according to
Rule 457(c).
(3) Represents shares of our common stock issuable to Swartz Private Equity,LLC
upon exercise of warrants issuable to Swartz as part of the investment agreement
between Swartz and us. According to the investment agreement, we are required to
issue to Swartz warrants to purchase a number of shares of common stock equal to
10% of the number of shares that we sell to Swartz under the investment
agreement at exercise prices equal to 110% of the market price when the warrant
is issued. The exercise price is subject to adjustment every six (6) months and
is tied to the lowest closing price for the five trading days preceding the
adjustment.
(4) Represents shares of common stock issuable to Swartz upon exercise of
outstanding warrants we issued to Swartz according to the investment agreement.
According to the investment agreement, we issued warrants to purchase up to
2,400,000 shares of common stock. We issued the warrants in May of 2000.
1,200,000 of the warrant shares bear an exercise price of $0.375, which is based
upon the lowest closing price for the five days preceding June 26, 2000. The
other 1,200,000 shares bear an exercise price that is the lower of:
o the lowest closing price for the 5 trading days prior to the effective
date of this registration statement; or
o the lowest closing price for the 5 trading days prior to October 27,
2000.
The exercise price is subject to adjustment every six (6) months and is tied to
the lowest closing price for the five trading days preceding the adjustment.
(5) Represents shares of common stock currently authorized under our 1999 stock
option plan. Presently, all grants under our stock option plan have been issued
with an exercise price of $0.5983 per share, although the plan allows grants to
be made based upon the market price of our stock.
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PROSPECTUS
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COSMOZ.COM, INC.
40,763,635 SHARES of COMMON STOCK
Of the 40,763,635 shares of our common stock being sold in this offering,
Cosmoz.com is offering 37,733,332 shares as follows:
o Up to 26,666,666 shares to Swartz Private Equity, LLC, which they may
then sell to the public, according to an investment agreement between
Swartz and us. The price to the public shall be the market price; the
price to Swartz shall be the lesser of 91% of the market price of our
shares during the twenty-day period following the date we deliver to
Swartz a notice of our intent to sell shares, or the market price minus
$0.075.
o Up to an additional 2,400,000 shares to Swartz upon exercise of
warrants issued to Swartz. 1,200,000 of the warrant shares bear an
exercise price of $0.375, which is based upon the lowest closing price
for the five days preceding June 26, 2000. The other 1,200,000 shares
bear an exercise price that is the lower of the lowest closing price
for the 5 trading days prior to the effective date of this registration
statement; or the lowest closing price for the 5 trading days prior to
October 27, 2000. The exercise price is subject to adjustment every six
(6) months and is tied to the lowest closing price for the five trading
days preceding the adjustment.
o Up to an additional 2,666,666 shares may be issued to Swartz upon
exercise of warrants that we may be required to issue to Swartz under
our investment agreement. The offering price shall be 110% of the
market price at the time the warrants are issued. The exercise price is
subject to adjustment every six (6) months and is tied to the lowest
closing price for the five trading days preceding the adjustment.
o Up to 6,000,000 shares to participating employees in our 1999 stock
option plan. The offering price of these shares to our employees will
the price at which the stock options are granted.
In addition, the selling shareholder, Tupelo Investments, Ltd. is offering up to
3,030,303 shares. Tupelo Investments, Ltd. is an investor who purchased
unregistered shares under a private placement and who enjoys piggyback
registration rights. The offering price of these shares will be the market price
of our shares.
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Trading Symbol:
OTC Bulletin Board: CMOZ
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Neither the SEC nor any state securities commission has approved these shares or
determined that this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
This Investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss of your investment. See "Risk Factors"
beginning on page 5.
You should rely on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, 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.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY................................................................................................5
RISK FACTORS......................................................................................................5
USE OF PROCEEDS..................................................................................................10
DIVIDEND POLICY..................................................................................................11
DILUTION.........................................................................................................11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................11
DESCRIPTION OF SECURITIES TO BE REGISTERED.......................................................................16
OUR BUSINESS.....................................................................................................19
MANAGEMENT.......................................................................................................22
EXECUTIVE COMPENSATION...........................................................................................22
INDEMNIFICATION OF OUR DIRECTORS AND OFFICERS....................................................................23
RELATIONSHIPS AND RELATED TRANSACTIONS...........................................................................23
PRINCIPAL AND SELLING SHAREHOLDERS...............................................................................24
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION......................................................................25
DESCRIPTION OF CAPITAL STOCK.....................................................................................25
EXPERTS..........................................................................................................26
RECENT SALES OF UNREGISTERED SECURITIES..........................................................................26
ADDITIONAL INFORMATION...........................................................................................29
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.......................................................................29
UNDERTAKINGS.....................................................................................................30
SIGNATURES.......................................................................................................31
EXHIBIT 5.1. OPINION OF COUNSEL RE: LEGALITY.....................................................................32
EXHIBIT 10.4. INVESTMENT AGREEMENT BETWEEN US AND SWARTZ PRIVATE EQUITY, LLC.....................................36
EXHIBIT 10.5. PURCHASE WARRANT TO PURCHASE OUR COMMON STOCK ISSUED IN CONNECTION
WITH INVESTMENT AGREEMENT BETWEEN US AND SWARTZ..................................................................70
EXHIBIT 10.6. REGISTRATION RIGHTS AGREEMENT ISSUED IN CONNECTION WITH
INVESTMENT AGREEMENT BETWEEN US AND SWARTZ.......................................................................77
EXHIBIT 10.7. WARRANT SIDE AGREEMENT ISSUED IN CONNECTION WITH INVESTMENT AGREEMENT BETWEEN US AND SWARTZ........85
EXHIBIT 10.8. COMMITMENT WARRANT TO PURCHASE OUR COMMON STOCK ISSUED IN
CONNECTION WITH INVESTMENT AGREEMENT BETWEEN US AND SWARTZ.......................................................87
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT.......................................................................95
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PROSPECTUS SUMMARY
Our headquarters are located at 1515 South El Camino Real, Suite 100, San Mateo,
California 94402, and our telephone number is (650) 358-1188. Our Web site
address is www.cosmoz.com. The information on our Web site is not a part of this
prospectus.
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The Offering
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o Common stock we are offering for sale (1) 37,733,332 shares
o Common stock Tupelo is offering for sale (2) 3,030,303 shares
o Common stock presently outstanding 64,513,448 shares
o Maximum common stock to be outstanding after the offering 105,277,083 shares
o Expenses of the Offering, Estimated $32,309
o Present OTC Bulletin Board Trading Symbol CMOZ
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(1) Includes up to 26,666,666 shares of common stock issuable to Swartz, and up
to an additional 5,066,666 shares issuable upon exercise of warrants held by or
issuable to Swartz, and up to 6,000,000 shares issuable by us under our 1999
stock option plan.
We have an investment agreement with Swartz that operates as follows:
o Our agreement allows us to sell to Swartz up to $20,000,000 worth of
our common stock.
o We determine number of shares that we wish to issue to Swartz, but the
amount we sell is subject to volume limitations.
o Swartz pays us either the market price of the common stock less 7.5
cents, or 91% of the market price, whichever is less.
o Swartz may either hold the shares, or sell them in the public market.
o We also issued a warrant to Swartz as part of our agreement.
Specifically, we issued a warrant for 2,400,000 shares of our common
stock. 1,200,000 of the warrant shares bear an exercise price of
$0.375, which is based upon the lowest closing price for the five days
preceding June 26, 2000. The other 1,200,000 shares bear an exercise
price that is the lower of the lowest closing price for the 5 trading
days prior to the effective date of this registration statement; or the
lowest closing price for the 5 trading days prior to October 27, 2000.
The exercise price is subject to adjustment every six (6) months and is
tied to the lowest closing price for the five trading days preceding
the adjustment.
o Swartz also has the right to additional warrants. Specifically, Swartz
is entitled to warrants for 10% of the number of shares that we sell to
them under our agreement. The price of a share under the warrants will
be 110% of the market price when the warrant is issued. An example will
illustrate: Say we sell 1,000,000 shares of our common stock to Swartz
under our agreement with them. The market price of the shares when we
sell our shares to Swartz is $1.00. Swartz is then entitled to a
warrant for 10% of the number of shares we sold to them, which would be
100,000 shares. Swartz is entitled to a warrant price of 110% of the
market price, which would be $1.10 per share. The exercise price is
subject to adjustment every six (6) months and is tied to the lowest
closing price for the five trading days preceding the adjustment.
(2) Purchased by Tupelo Investments, Ltd. from us in a private transaction with
piggyback registration rights.
RISK FACTORS
You should carefully consider the risks described below and other information in
this prospectus before deciding to invest in shares of our common stock. The
risks and uncertainties described below are not the only ones we will face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations. If any of the
following risks actually occur, our business could be harmed. In such case, the
trading price of our common stock could decline, and you may lose all or part of
your investment.
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RISK FACTORS: COMPANY RISKS
We Have a Limited Operating History
We were incorporated in 1996, and we have operated under our current business
model since early 1999. Our operations prior to January 1, 1999 offer little or
no instructive guidance for our post-January 1, 1999 operations. We have only a
limited operating history on which you can base an evaluation of our business
and prospects. We have yet to achieve profitability. As an Internet company in
the early stage of development, we face increased risks, uncertainties, expenses
and difficulties. You should consider an investment in our company in light of
these risks, uncertainties, expenses and difficulties.
We Are Not Yet a Profitable Company
We have incurred significant losses and cannot predict when, if ever, we will
make a profit. As of March 31, 2000, our accumulated deficit was $9,145,736 and
our total liabilities exceeded our total assets by $617,365. During the fiscal
year ended June 30, 1999, we incurred a net loss of $1,307,473 on total revenues
of $112,681. For the nine months ended March 31, 2000, we incurred a net loss of
$3,242,040 on total revenues of $270,363. These losses have resulted primarily
from our historical inability to achieve a level of revenues that is sufficient
to cover our general operating expenses. We expect to incur additional operating
losses in the future unless and until we are able to generate operating revenues
sufficient to support expenditures. We cannot guarantee that sales of our
products and services will ever generate sufficient revenues to fund our
continuing operations, that we will generate positive cash flow from operations
or that we will attain and then continue to make a profit in any future period.
We May Need Additional Capital in the Near Future
We have limited cash resources and need additional capital to pay our operating
costs that are in excess of our revenues, manage our present portfolio of
companies, and continue to increase our program of incubating and developing
internet and technology companies. Based on the rate of our cash operating
expenditures and our current plans, we anticipate our cash requirements for the
next twelve months may be met primarily from the proceeds to be obtained from
puts of our shares to Swartz under the investment agreement. However, our
ability to obtain funds under the agreement is subject to certain conditions.
These conditions include the effectiveness of this registration statement
covering the resale of the shares sold under the investment agreement and a
limitation on our ability to issue shares based on the volume of trading in the
common stock. Although we are planning to satisfy our future cash requirements
from improved sales, the recoupment of venture capital investments, the sale of
wholly owned subsidiaries, the sale of Internet e-commerce services and
advertising, we cannot guarantee that any funds required during the next twelve
months or thereafter will be generated from these, or any other potential
sources. The lack of additional capital could force us to substantially curtail
or cease operations, which would have a material adverse effect on our business.
Further, we cannot guarantee that any funds, if available, will be available on
attractive terms or that they will not have a significantly dilutive effect on
our existing shareholders.
Our Financial Statements Contain Going Concern Language
The footnotes accompanying our audited financial statements for our fiscal year
ended June 30 1999 states that because of our net losses and liquidity problems,
there is a concern that we will be unable to continue to operate. Our failure to
manage future growth could harm us. We currently are experiencing a period of
significant expansion in our staffing requirements, facilities and
infrastructure and we anticipate that further expansion will occur. This
expansion has placed, and we expect it will continue to place, a significant
strain on our management, operational and financial resources.
We Need to Constantly Maintain and Update Our Infrastructure
We anticipate a need to constantly add new hardware, update software and add new
engineering personnel to accommodate increased use of our websites. If we are
unable to increase the capacity of our systems at least as fast as the growth in
demand for this capacity, our websites may become unstable and may cease to
operate for periods of time. Unscheduled downtime could harm our business and
also could discourage users of our websites and reduce future revenues. If we
are unable to hire and successfully train sufficient employees or contractors in
the customer support area, users of our websites may have negative experiences
and current and future revenues could suffer.
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We Are Dependent on Key Personnel
Although current management has had experience in the development and operation
of other businesses, it does not have direct prior experience in establishing or
operating an incubator/accelerator business. We will need to retain experienced
management for these segments of the business. The loss of the services of any
of our executive officers or other key employees could harm our business. We do
not have long-term employment agreements with any of our key personnel and we do
not maintain any key person life insurance policies. The majority of our
employees today have been with us less than one year and we expect that our rate
of turnover and hiring will continue at a high pace. Our future success will
depend on our ability to attract, train, retain and motivate highly skilled
technical, managerial, marketing and customer support personnel. Competition for
these personnel is intense and we may be unable to successfully attract,
integrate or retain sufficiently qualified personnel. Our current and planned
personnel, systems, procedures and controls may not be adequate to support our
future operations.
Our Stock Price is Volatile
The trading prices of Internet stocks in general, and ours in particular, have
experienced extreme price and volume fluctuations in recent months. These
fluctuations often have been unrelated or disproportionate to the operating
performance of these companies in general, and ours in particular. The
valuations of many Internet stocks, including ours, are still extraordinarily
high, based on conventional valuation standards such as price to earnings and
price to sales ratios. These trading prices and valuations may not be sustained.
Negative changes in the public's perception of the prospects of Internet or
e-commerce companies are likely to depress our stock price regardless of our
results
Our Services Are Not Diverse, and We Must Expand Our Services
We will need to develop new services, features and functions in order to expand.
Right now, we receive substantially all of our revenues from online advertising
and through offering investor relations services. We plan to expand our
operations by developing new or complementary services, products or transaction
formats or by expanding the breadth and depth of services. We may be unable to
expand our operations in a cost effective or timely manner. Even if we do
expand, we may not maintain or increase our overall market acceptance. If we
launch a new business or service that is not favorably received by consumers, it
could damage our reputation.
We Are Very Dependent on Third Parties
We may pursue strategic relationships with third parties to provide many of our
services. By using third parties to deliver these services, we may be unable to
control the quality of the services, and our ability to address problems will be
reduced if any of these third parties fails to perform adequately. Expanding our
operations also will require significant additional developmental expense and
will strain our management, financial and operational resources. The lack of
market acceptance of any new services could harm our business. Acquisitions
could result in dilution, operating difficulties and other harmful consequences.
We Are Subject to Liability Risks
We are subject to risks associated with information disseminated through our
Websites. We provide financial information such as investment advice and stock
quotes. Similarly, we operate financial-related message boards. The participants
in such message board activity may subject us to suit or subpoena as a result of
their statements. As we do not currently carry any liability insurance that
covers this type of exposure, any costs incurred as a result of this liability
or asserted liability could harm our business. Because materials may be
downloaded from the Internet and subsequently distributed to others, there is a
potential that claims will be made against us for defamation, negligence,
copyright or trademark infringement, personal injury or other theories based on
the nature, content, publication and distribution of such materials.
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We Are Dependent on Our Physical and Technological Infrastructure
System failures could harm our business. Our future success in the Internet
business, and ability to provide high quality customer service to our members,
will depend on the efficient and uninterrupted operation of our computer and
communications hardware and software systems. The computer web servers for
operating our services are currently located off-site. These systems and
operations are vulnerable to damage or interruption from hurricanes, floods,
fires, power loss, telecommunication failures and similar events. Our systems
are also subject to break-ins, sabotage, intentional acts of vandalism and
similar misconduct. We do not have fully redundant systems, a formal disaster
recovery plan or alternative providers of hosting services, and we do not carry
any business interruption insurance to compensate us for losses that may occur.
Despite any precautions we may take, the occurrence of a natural disaster or
other unanticipated problems with our servers could result in interruptions in
our services. In addition, the failure by our communications providers to
provide our required data communications capacity could result in interruptions
in our service. Any damage to or failure of our systems could result in
interruptions in our service. Such interruptions would harm our future revenues
and profits if our members believe that our system is unreliable.
Computer Break-Ins, Vandalism, and Computer Viruses Can Harm Us
Unauthorized break-ins to our service or computer or communications systems
could harm our business. Our servers and systems are vulnerable to computer
viruses. Viruses are becoming more common and more sophisticated. Our servers
and systems are also subject to physical or electronic break ins and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to complete on line transactions. In addition, unauthorized persons
may improperly access our data.
We Are Controlled by Some Shareholders, Executive Officers and Directors
As of the date of this Offering, our executive officers and directors and their
affiliates own significant amounts of our outstanding common stock. Several
other shareholders hold a significant percentage of our shares and can thus
exercise significant control over us. As a result, they may have the ability to
control our company and direct our affairs and business, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of our company and may make some transactions
more difficult or impossible without the support of these shareholders. Any of
these events could decrease the market price of our common stock.
We Have Indemnified Our Directors, Officers, Employees, and Agents
Our Articles of Incorporation provide for the indemnification of our officers,
directors, employees and agents. Under most circumstances, they are indemnified
against attorneys' fees and other expenses incurred by them and judgments
rendered against them in any litigation to which they become a party arising
from their association with or activities on our behalf. We may also bear the
expenses of such litigation for any of our officers, directors, employees or
agents, upon their promise to repay such sums if it is ultimately determined
that they are not entitled to indemnification. This indemnification policy could
result in substantial expenditures by us that we may be unable to recoup even if
we are entitled to do so.
We Expect That Many Existing Shareholders Intend to Sell Their Shares
A significant number of shares are eligible for sale and their sale could
depress our stock price. We have a significant market overhang on our common
stock because in the past we have paid many of the people with whom we have done
business with restricted shares of our common stock instead of cash. It is
likely that these stockholders will continue to sell in the future. Sales of
substantial amounts of our common stock including shares issued upon the
exercise of outstanding options in the public market after this offering could
depress the market price of our common stock. These sales also might make it
more difficult for us to sell equity or equity related securities in the future
at a time and price that we deem appropriate.
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If You Buy Our Shares, You Will Suffer Dilution
The assumed price at which you will purchase shares is substantially higher than
the net tangible book value per outstanding share of common stock. You will
therefore incur immediate and substantial dilution in the net tangible book
value of the shares that you purchase. Additional dilution will occur upon the
exercise of outstanding stock options.
We Do Not Manage Some of Our Assets
Some of our assets are represented by ownership interests in other companies.
Often, the operation of such other companies is beyond our control. The
management of such companies may make decisions that we are powerless to
control, and the value of our investment may suffer, and our business may be
adversely affected.
We Expect our Operating Results to Fluctuate Greatly
We expect significant fluctuations in future quarterly operating results. Such
fluctuations have been and may in the future be caused by numerous factors, many
of which are outside our control including demand for our products and services,
incurrence of costs associated with acquisitions, divestitures and investments,
the timing of divestitures, market acceptance of new products and services,
specific economic conditions in the Internet industry, and general economic
conditions. The emerging nature of commercial use of the Internet makes
predictions concerning future revenues difficult. We believe that
period-to-period comparisons of its results of operations will not necessarily
be meaningful and should not be relied upon as indicative of future performance.
Also, it is possible that in some future quarters our operating results will be
below the expectations of securities analysts and investors. In such
circumstances, the price of our common stock may be adversely affected.
We Do Not and Will Not Pay Dividends
To date, we have not paid any dividends on our common stock and we do not intend
to declare any dividends in the foreseeable future. Any future profits will be
reinvested in our company to attempt to expand its business operations.
Related Party Transactions
There are some transactions to which we are a party and some matters affecting
us have or will result in a material benefit to certain of our directors and
executive officers, or may create conflicts of interest. Some of the proceeds we
will receive from puts of our shares to Swartz under the investment agreement we
will pay to our affiliates in the form of salaries, payment for legal fees, and
repayment of bridge financing.
RISK FACTORS: INDUSTRY RISKS
The Market for Investment-Related Websites Is Intensely Competitive
One of our core businesses is the operation of Investment-Related Websites. We
currently or potentially compete with many other companies. There are many other
companies that offer a site or a service that competes with sites or services
offered by one or more of our properties. Quicken.com, Yahoo!Finance, CNBC,
RagingBull.com, and numerous other financial websites sites compete with the
financial information services provided by our subsidiaries such as
FinancialContent.com, StreetIQ.com, MonsterQuote.com, and BuckInvestor.com. Many
of our competitors are more experienced, more well funded, and have higher
brand-recognition than us and our subsidiaries, among numerous other advantages.
Additionally, other competitors undoubtedly will enter the market.
The Market for Investor Relations Services Is Intensely Competitive
The staff that comprises our ProfitWire subsidiary is inexperienced, and
ProfitWire does not presently maintain an active base of existing customers.
Many of our competitors are more experienced, more well funded, and have higher
brand-recognition than us and our subsidiaries, among numerous other advantages.
Additionally, other competitors undoubtedly will enter the market.
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Internet Regulation Could Harm Us
New and existing regulation of the Internet could harm our planned business
activities. We are subject to the same federal, state and local laws as other
companies conducting business on the Internet. Today there are relatively few
laws specifically directed towards Internet services. However, due to the
increasing popularity and use of the Internet, it is possible that laws and
regulations will be adopted for the Internet or online services. Changes to
existing laws or the passage of new laws intended to address these issues could
directly affect the way we do business or could create uncertainty in the
marketplace. This could reduce demand for our services, increase the cost of
doing business because of litigation costs or increased service delivery costs,
or otherwise harm our business. In addition, because our services are accessible
worldwide, and we intend to facilitate sales of goods to members worldwide,
foreign jurisdictions may claim that we are required to comply with their laws.
Our failure to comply with foreign laws could subject us to penalties ranging
from fines to bans on our ability to offer our services. In the United States,
companies are required to qualify as foreign corporations in states where they
are conducting business. As an Internet company, it is unclear in which states
we are actually conducting business. Our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us to
taxes and penalties for the failure to qualify and could result in our inability
to enforce contracts in those jurisdictions. Any new legislation or regulation,
or the application of laws or regulations from jurisdictions whose laws do not
currently apply to our business, could harm our business.
We Are Dependent Upon the Continued Growth of the Internet
Our future success is dependent upon the continued growth of the Internet.
Assuming we are successful in achieving an acceptable level of market
recognition, our future revenues and profits will be substantially dependent
upon the widespread acceptance of the Internet. Rapid growth in the use of and
interest in the Web, the Internet and online services is a recent phenomenon.
This acceptance and use may not continue. Even if the Internet is accepted,
concerns about fraud, privacy and other problems may mean that a sufficiently
broad base of consumers will not adopt the Internet as a medium of commerce. In
particular, our websites require users to make publicly available their email
addresses and other personal information that some potential users may be
unwilling to provide. These concerns may increase as additional publicity over
Internet privacy issues increases. Market acceptance for recently introduced
services and products over the Internet is highly uncertain, and there are few
proven services and products. In order to expand our member base, we must appeal
to and acquire consumers who historically have used traditional means of
commerce to purchase goods.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among other
things, market acceptance of our solutions, expansion into new targeted
industries, product development, sales and marketing strategies, development and
maintenance of strategic alliances, technological advancement, global expansion,
use of proceeds, projected capital expenditures, liquidity and availability of
additional funding sources. 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, Our Business and in this prospectus generally. In some cases, you
can identify forward-looking statements by terminology such as may, will,
should, expects, plans, anticipates, believes, estimates, predicts, potential,
continue or the negative of such terms or other comparable terminology. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including all the
risks discussed in Risk Factors and elsewhere in this prospectus. We undertake
no obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
USE OF PROCEEDS
We expect to receive between approximately $12,000,000.00 to $27,500,000.00 in
net proceeds from the sale of the shares of common stock in this offering,
depending on the number of shares put to Swartz under the investment agreement,
and after deducting estimated offering expenses payable by us. We generally
intend to use the net proceeds of this offering for the following purposes:
o working capital and other general corporate purposes
o expansion of our sales and marketing activities
o expansion of our FirstParsec business enterprise development service
o acquisition of additional businesses, products and technologies
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We are not currently engaged in any negotiations for any acquisition or
strategic investment. The amounts that we actually expend for working capital
purposes will vary significantly depending on a number of factors, including
future revenue growth, if any, the amount of cash we generate from operations
and the progress of our product development efforts. As a result, we will retain
broad discretion in the allocation of the net proceeds of this offering. Pending
the uses described above, we will invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain any future earnings for the expansion and operation of our business.
DILUTION
Purchasers of common stock offered will suffer an immediate and substantial
dilution in the net tangible book value per share. Dilution is the amount by
which the initial public offering price paid by the purchasers of the shares of
common stock will exceed the net tangible book value per share of common stock
after the offering. The net tangible book value per share of common stock is
determined by subtracting total liabilities from the total book value of the
tangible assets and dividing the difference by the number of shares of common
stock deemed to be outstanding on the date the book value is determined. As of
March 31, 2000, we had a tangible book value of $207,454 or $0.003 per share.
After giving effect of this offering at an assumed initial price of $0.50 per
share, the application of the proceeds of this offering as described under the
Use of Proceeds section and after deducting the assumed book value as of March
31, 2000, would have been $18,207,454, or $0.179 per share. This represents an
immediate increase in net tangible book value to existing stockholders of $0.176
per share and an immediate dilution to new investors of $0.321 per share. The
following table illustrates this per share dilution:
Dilution to New Shareholders:
o Estimated offering price $0.50
o Net tangible book value before offering $207,454
o Increase attributable to payments by new shareholders $18,000,000
o Net tangible book value after Offering $18,207,454
o Dilution to new shareholders $0.321
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OFOPERATIONS.
For an overview of our company and our operations, please see the section
entitled Our Business, below.
We obtained initial working capital for our new Internet related operations
through a blend of equity and debt financing. In January 1999, we commenced our
Internet operations and we raised $715,875 in cash and $281,250 in services from
the sale of common stock in accordance with Regulation D, Rule 504. We converted
$2,750,000 of short term debt financing into 2,750,000 shares of restricted
common stock in July 1999. We issued common stock for services. Our initial
focus was to develop an Internet-portal for age 21-35 investors. We developed
our own portal, and we made strategic acquisitions of Internet properties. The
following is a summary of the Internet properties we acquired:
o On May 5, 1999, we completed the acquisition of BuckInvestor.com, Inc.,
a privately held online financial information content provider, through
the issuance of 900,000 shares of our common stock, having a market
value of $1,012,500 at the time of the transaction. The acquisition was
accounted for as a purchase in accordance with the provisions of APB
16. We recorded goodwill of $1,006,700, which we will amortize over
seven years. Results of operations for BuckInvestor.com have been
included with our results subsequent to the date of acquisition. The
historical financial results of BuckInvestor.com were de minimis, prior
to date of the acquisition.
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o On May 6, 1999, we acquired a 49% interest in MB Technologies, Inc., a
privately held operator of online message boards. Under the terms of
the acquisition, we issued 100,000 shares of our common stock with a
market value of $112,800 for 49% interest in MB Technologies. The
difference between the amount paid and the value of the pro rata share
of MB's stockholders' equity was recorded as goodwill. We recorded
goodwill of $112,899, which we will amortize over seven years. The
historical financial results of MB Technologies were de minimis. We
exercised our option to purchase the remaining 51% interest in MB
Technologies on July 30, 1999. We issued 150,000 shares of our common
stock with a market value of $315,000 to acquire the remaining 51%
ownership interest. We recorded goodwill of $315,149, which we will
amortize over seven years.
o On June 10, 1999, we completed the acquisition of all outstanding
shares of KingFine, Inc., a privately-held online financial information
content provider and operator of an online message board, through the
issuance of 200,000 shares of our common stock for all of KingFine's
outstanding shares. The acquisition was accounted for as a pooling of
interests. The consolidated financial statements for the year ended
June 30, 1999 and the accompanying notes reflect our financial position
and the results of operations as if KingFine were our wholly owned
subsidiary since inception.
o On August 9, 1999, we completed the acquisition of all outstanding
shares of StreetIQ, Inc., a privately-held online financial information
content provider focusing on women investors, through the issuance of
400,000 shares of our common stock, a market value of $800,000 at the
time of transaction. The acquisition was accounted for as a purchase in
accordance with the provision of APB 16. Results of operations for
StreetIQ, Inc. have been included with our results subsequent to the
date of acquisition. We recorded goodwill of $800,199, which we will
amortize over seven years. The historical financial results of
StreetIQ, Inc. were de minimis.
o On October 7, 1999, we completed the acquisition of all outstanding
shares of iTrack, Inc., a privately-held online auction monitoring
service that lets users track specific products on various online
auction houses, through the issuance of 1,225,000 shares of our common
stock, a market value of $1,722,595 at the time of transaction, for all
of iTrack's outstanding shares. The acquisition was accounted for as a
purchase in accordance with the provision of APB 16. Results of
operations for iTrack have been included with our results subsequent to
the date of acquisition. We recorded goodwill of $1,722,594, which we
will amortize over seven years. The historical financial results of
iTrack were de minimis.
o On January 5, 2000, we completed the acquisition of Ivory Acquisition
Corporation, a fully reporting company under regulation 12(g) of the
Securities Exchange Act of 1934. Ivory has no material assets or
liabilities. The business combination is accounted for under the
pooling of interest method of accounting. The operations of Ivory
before the acquisition date were de minimis. We incurred acquisition
related cost of $100,000. We issued 250,000 shares of our common stock
in exchange for all outstanding shares of Ivory.
o In March, 1999, Cosmoz Online Ltd., a privately held foreign
corporation, entered into an exclusive marketing arrangement with us
for a sole purpose of developing and promoting Cosmoz Online's online
casinos. Under the terms of this marketing arrangement, we agreed to
promote Cosmoz Online's online casinos as stand alone businesses. In
exchange for its services, we received a one-time fee for $20,000 and a
5% commission on all player deposits generated from the casinos' online
activities. Cosmoz Online currently operates five online casinos:
DragonCasino.com, RealBet.com, Tikicasino.com, DesertCasino.com and
KingsCourtCasino.com.
We earn operating revenues from two principal sources. First, we earn revenues
from the sale of banner and sponsorship advertisements that appear on our
Internet websites. Sponsorship advertising contracts have terms ranging from one
month to one year, longer than standard banner advertising contracts and also
involve more integration with our web-sites, such as the placement of buttons
that provide users with direct links to our advertisers' websites. Advertising
revenues on both banner and sponsorship contracts are recognized on a prorated
basis over the period in which the advertising is displayed, if no significant
company obligations remain at the end of a period and collection of the
resulting receivable is probable. We have agreements that provide revenue from
electronic commerce transactions. We recognize these revenues upon notification
from the advertiser of revenues earned by us.
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We earn our second revenue source from providing investor relations services to
other companies through our ProfitWire subsidiary. We distribute advertisements
and reports through our family of financial websites and through an opt-in email
list on behalf of growth stock companies. We obtained this opt-in email list
through marketing efforts in our family of investment-related websites.
ProfitWire also recently began offering standard investor relations services. We
often receive payment in shares of stock in lieu of cash.
Costs and expenses are recognized as incurred. The majority of costs and
expenses are related to advertising, salaries, management fees, public and
investor relations services, and amortization of goodwill.
Cost of revenue includes purchase of electronic mail distribution lists and any
directly related customer acquisition costs.
Sales and marketing expenses consist principally of salaries and benefits for
sales, marketing and associated support group personnel. Also included are the
costs for public relations, advertising, tradeshows and marketing materials.
Product and development expenses consist primarily of salaries and benefits for
research and development personnel and also include related expenses, such as
general hardware and software costs and fees paid to outside contractors for
quality assurance activities, maintenance activities, web hosting, financial
content news feeds and stock quotes. Costs incurred in the development of new
products or properties and enhancements to existing products are charged to
expense as incurred until technological feasibility is achieved. Material
software development costs incurred subsequent to the establishment of
technological feasibility are capitalized. Technological feasibility is
determined based on the completion of a working model. We have not incurred
material software development costs and accordingly have not capitalized any
software development costs.
General and administrative expenses consist of salaries and benefits for
executive staff and administrative personnel, management fees paid to
SharpManagement for the services of Wilfred Shaw, chairman and chief executive
officer, facility costs, recruiting, legal, accounting and other general
corporate expenses.
Amortization expenses consist of amortization of goodwill. Goodwill from the
acquisition of Internet properties is amortized over seven years.
Investment gain/loss resulted from sales of marketable securities that are
classified as available-for-sale as of the balance sheet date and are reported
at fair value, with unrealized gains and losses, net of tax recorded in
shareholders' equity. We invest our excess cash in mutual funds and equity
securities traded on national stock markets. Realized gains or losses and
permanent declines in value, if any, on available-for-sale securities are
reported in other income or expense as incurred. We had approximately $25,000 in
investment loss during the nine-month period ended March 31, 2000. We had
approximately $5,000 in investment gain during the year ended June 30, 1999.
During the fiscal year ended June 30, 1999, we terminated our acquisition of
Investors Guru, a website specializing in providing financial content to
investors. Under the terms of the purchase agreement, we made an initial payment
of $200,000 to the owners of Investors Guru, which was forfeited when the
acquisition was terminated by us. Accordingly, we recorded a one-time charge of
$200,000 as a result of the terminated acquisition.
We have incurred net losses and negative cash flows from operations. For the
year ended June 30, 1999, we had a net loss of $1,009,528 from continuing
operations and a net loss of $297,945 from discontinued operations. We have been
able to raise capital through the sale of our common stock. The cash we raised
is used to fund operations. We intend to continue to fund, acquire and develop
Internet companies by providing strategic consulting services, business services
and seed capital to emerging companies that are developing Internet web sites or
web-enabling technologies. We believe that we will continue to incur operating
losses and negative cash flow for the foreseeable future. In addition, we
believe that as a result of the rapidly evolving nature of our business and our
limited operating history, period-to-period comparisons of our revenues and
operating results are not meaningful and should not be relied upon as indicators
of future performance.
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During fiscal year ended June 30, 1999, consolidated revenue from discontinued
operations was $64,769. Cost of revenues was $16,016. Operating expenses from
discontinued operation were $119,163. Loss on disposal of operations, including
a provision of $98,685 for loss contingency. Total loss from discontinued
operations was $297,945. We discontinued operations in Canada by July, 1998,
however, some minor costs associated with the closing were incurred till October
1998.
Results of Operations for the fiscal year ended June 30, 1999
Revenues. Revenues from continuing operations were approximately $48,000 for the
year ended June 30, 1999, approximately $25,000 were attributed to commission
income from an exclusive marketing agreement with Cosmoz Online's online
casinos. Revenues from discontinued operations were approximately $65,000 for
the year ended June 30, 1999.
Cost of revenues. Cost of revenues from discontinued operations for the year
ended June 30, 1999 was approximately $16,000.
Sales and marketing. Sales and marketing expenses from continuing operations
were approximately $106,000 for the year ended June 30, 1999. Advertising costs
were approximately $93,000. Total sales related expenses were $13,000. Sales and
marketing costs included participation in trade shows. Advertising costs
comprised of advertising online and traditional media through radio.
Product development. Product development expenses from continuing operations
were approximately $118,000 for the year ended June 30, 1999.
General and administrative. General and administrative expenses from continuing
operations were approximately $594,000 for the year ended June 30, 1999
including administrative personnel, third party public relations services,
investor relations expenses, general operating facilities, legal, accounting
fees, telephone and other support costs. General and administrative expenses
from discontinued operations were approximately $119,000.
Amortization of intangibles. Amortization of intangibles expenses were
approximately $27,000 for the year ended June 30, 1999 due to acquisitions of
Internet properties recorded under the purchase method in accordance with the
provisions of APB 16. Intangible assets are being amortized on a straight-line
basis over seven years.
Non-recurring costs. Non-recurring costs were approximately $16,000 for the year
ended June 30, 1999 due to currency translation loss from discontinued Canadian
operations.
Depreciation and amortization. Depreciation and amortization expenses were
approximately $1,000 for the year ended June 30, 1999 due to purchase of
property and equipment which are depreciated over the estimated useful lives of
the assets using the straight-line method.
Other income (loss). Net other income was approximately $5,000 for the year
ended June 30, 1999 due to gain on sale of marketable securities.
Extraordinary loss. Extraordinary loss was $200,000 for the year ended June 30,
1999 resulted from loss of initial payment made to Investors Guru upon the
termination of purchase agreement.
Loss on disposal of operations. Loss of disposal of operations from discontinued
operations was approximately $228,000 including a provision of approximately
$100,000 for loss contingency.
Results of Operations for the nine months ended March 31, 2000 compared to the
nine months ended March 31, 1999
Revenues. Revenues increased to approximately $270,000 in the nine-month period
ended March 31, 2000 from $498 in the nine-month period ended March 31, 1999.
This growth in revenues was primarily attributable to revenues derived from our
ProfitWire subsidiary. Total revenues derived from ProfitWire since inception
was approximately $137,000. We expect the growth should continue due to our
continual development of ProfitWire's sales team.
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Cost of revenues. Cost of revenues increased to approximately $34,000 in the
nine-month period ended March 31, 2000 from $0 in the nine-month period ended
March 31, 1999 because of electronic mail distribution expenses related to
ProfitWire.
Sales and marketing. Sales and marketing expenses increased to approximately
$659,000 in the nine month period ended March 31, 2000 from $0 in the nine month
period ended June 30, 1999 as a result of various advertising campaigns, trade
show, direct sales, marketing and related support personnel. We expect to
increase our sales and marketing expenses by focusing on direct sales and
promotions.
Product development. Product development expenses increased to approximately
$370,000 in the nine-month period ended March 31, 2000 from $30,000 in the
nine-month period ended March 31, 1999 due to increase in product development
personnel and other related expenses.
General and administrative. General and administrative expenses increased to
approximately $1,944,000 in the nine month period ended March 31, 2000 from
$112,000 in the nine month period ended March 31, 1999 due to a significant
increase in administrative personnel, management fees, third party public
relations services, investor relations expenses, and the significant growth in
general operating facilities, legal, accounting fees, telephone and other
support costs related to our expansion.
Amortization of intangibles. Amortization of intangibles expenses increased to
approximately $359,000 in the nine month period ended March 31, 2000 from $0 in
the nine month period ended March 31, 1999 due to an increase in the
acquisitions of subsidiaries recorded under the purchase method in accordance
with the provisions of APB 16. Intangible assets are being amortized on a
straight-line basis over 7 years.
Non-recurring costs. Non-recurring costs increased to approximately $100,000 in
the nine month period ended March 31, 2000 from $0 in the nine month period
ended March 31, 1999 due to an increase in the transaction costs of acquisitions
and initial filing expenses.
Depreciation and amortization. Depreciation and amortization expenses increased
to approximately $21,000 in the nine month period ended March 31, 2000 from $0
in the nine month period ended March 31, 1999 due to increase in property and
equipment which are depreciated over the estimated useful lives of the assets
using the straight-line method.
Other income (loss). Net other loss increased to approximately $25,000 in the
nine-month period ended March 31, 2000 from $0 in the nine-month period ended
March 31, 1999 due to investment loss from sale of marketable securities.
Liquidity and Capital Resources
To date, we have financed our operations primarily through the private placement
of equity securities and conversion of debt to common stock. For the year ended
June 30, 1999, we generated net proceeds from financing activities of
$2,803,258. In the nine month period ended March 31, 2000, we generated net
proceeds from financing activities of $741,267. Net cash used in operating
activities from the period of July 1, 1998 to June 30, 1999 was $698,247 and
resulted from net losses, decreases in accounts receivable, and decreases in
inventory. These amounts were partially offset by an increase of accrued
expenses and non-cash charges. Net cash used in operating activities from the
period of July 1, 1999 to March 31, 2000 was $1,870,610 and resulted from net
losses, decreases in accounts receivable. These amounts were partially offset by
an increase of accrued expenses, security deposits required for our new office
and non-cash charges.
Net cash used in investing activities from the period of July 1, 1998 to June
30, 1999 included purchases of marketable securities, net of capital
expenditures and equipment disposal of $1,723,176. The purchases of marketable
securities were incurred due to its excess cash from equity raised. Net cash
provided by investing activities from the period of July 1, 1999 to March 31,
2000 included sale of marketable securities, purchase of long-term investments
and capital expenditures of $913,647.
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Our future capital requirements depend on numerous factors, including market
acceptance of our services, the timing and rate of expansion of our business,
the resources we allocate to our customers and FirstParsec/Acceleration projects
and other factors. We have experienced substantial increases in our expenditures
since January 1, 1999 consistent with growth in our operations and personnel,
and we anticipate that our expenditures will continue to increase in the
foreseeable future. Our continued existence is dependent upon our ability to
increase operating revenues and/or raise additional equity financing. If
additional funds are raised through the issuance of equity securities, dilution
to existing shareholders may result.
DESCRIPTION OF SECURITIES TO BE REGISTERED
We are authorized to issue 200,000,000 shares of common stock with a par value
of $.001. We have a second class of authorized stock; specifically, we have
authorized 50,000,000 shares of preferred stock at a par value of $0.001 per
share. We have never issued shares of preferred stock. As of July 31, 2000, we
have issued 64,513,448 shares. All issued shares of common stock are fully paid
and non-assessable. All of our common stock has one equal non-cumulative vote on
all corporate matters. All of our shares participate equally in any dividends or
liquidation distributions. There are no pre-emptive rights relative to the
issuance of additional common stock. We have never paid dividends and will not
do so in the foreseeable future. We have retained the services of American Stock
Transfer & Trust Company to serve as our transfer agent.
Our common stock is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended, and is listed on the OTC Bulletin Board under
the symbol "CMOZ." On August 15, 2000, the last reported sale price of the
common stock was $0.19 per share. As of August 15, 2000 there are 64,513,448
shares currently issued and outstanding. We have never declared dividends.
THE INVESTMENT AGREEMENT BETWEEN SWARTZ AND US
On June 26, 2000, we entered into an investment agreement with Swartz Private
Equity, LLC. According to the investment agreement, we may, in our sole
discretion and subject to certain restrictions, periodically sell shares of our
common stock to Swartz. We call each sale of shares a "put". Under the
investment agreement, we may sell up to $20,000,000 of our shares. We may begin
putting shares when the shares become registered, and for 3 years after. The
investment agreement allows us to choose to sell common stock to Swartz at times
that we decide are advantageous. The investment agreement is not a debt
instrument. Any put exercised by us is the sale of common stock and not a loan.
How a Put Works
We must deliver an advance put notice to Swartz at least ten business days prior
to the date that we intend to sell common stock to Swartz. The advance put
notice must state the put date as well as the number of shares of common stock
that we intend to put to Swartz. The notice may also state a minimum purchase
price per share which cannot be greater than 80% of the closing bid price of our
common stock on the date of the advance put notice. The number of shares Swartz
may be required to purchase in a given put is the lesser of the actual number of
shares we intend to sell to Swartz as set forth in the advance put notice we
deliver and the "Individual Put Limit".
The Individual Put Limit is equal to the lesser of the following:
o 15% of the sum of the aggregate daily reported trading volumes of our
common stock, during the 20 business days prior to the date of the put,
excluding any trading day in which the common stock trades below a
minimum price, if any, that we specify in our put notice, and also
excluding any block trades of common stock equal to or exceeding the
lesser of 50,000 shares or $50,000 worth of stock;
o 1,500,000 shares of common stock;
o The number of put shares which, when multiplied by their respective put
share prices, equals the maximum put dollar amount, which is the lesser
of the maximum put amount set forth in our advance put notice or
$2,000,000; or
o A number of shares that, when added to the number of shares acquired by
Swartz under the investment agreement during the 31 days preceding the
put date, would exceed 9.99% of our total number of shares of common
stock outstanding, as calculated under Section 13(d) of the Securities
and Exchange Act of 1934.
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How the Put Price Is Calculated
The purchase price for the shares that we put to Swartz is based upon the market
price of our shares. The market price we use is the lowest closing bid price for
our common stock during the twenty-day pricing period that begins the day after
the date we select as the put date, subject to a minimum purchase price if we
designate one in our advance put notice. Then we calculate the purchase price as
follows: The purchase price that we receive is the lesser of the following:
o The market price for the put shares minus $.075
o 91% of the market price
o But not less than our designated minimum put share price, if we
designated one in our advance put notice.
We Issued a Warrant to Swartz as Part of Our Investment Agreement.
As part of our investment agreement with Swartz, we issued warrants to Swartz to
purchase 2,400,000 shares of our common stock. We call this warrant the
commitment warrant. 1,200,000 of the warrant shares bear an exercise price of
$0.375, which is based upon the lowest closing price for the five days preceding
June 26, 2000. The other 1,200,000 shares bear an exercise price that is the
lower of the lowest closing price for the 5 trading days prior to the effective
date of this registration statement; or the lowest closing price for the 5
trading days prior to October 27, 2000. The exercise price is subject to
adjustment every six (6) months and is tied to the lowest closing price for the
five trading days preceding the adjustment. Thus, if the market price of our
stock goes down, the price of a share under the warrant goes down. By this
prospectus, we seek to register the shares underlying these warrants. The
commitment warrant shall expire 5 years after it was issued.
Swartz Also Receives Additional Warrants Each Time We Put
Swartz is entitled to warrants for 10% of the number of shares that we sell to
them under our agreement. We call these warrants the purchase warrants. The
price of a share under the purchase warrants will be 110% of the market price
when a purchase warrant is issued. An example will illustrate: Assume we sell
1,000,000 shares of our common stock to Swartz under our agreement with them.
Then assume that the market price of the shares when we sell our shares to
Swartz is $1.00. Swartz is then entitled to a purchase warrant for 10% of the
number of shares we sold to them, which would be 100,000 shares. Swartz is
entitled to a purchase warrant price per share of 110% of the market price per
share, which would be $1.10 per share. The warrants have a semi-annual reset
provision, which means that if the market price of our stock goes down, the
price of a share under the warrant goes down. By this prospectus, we seek to
register the shares underlying these warrants. The warrants shall expire 5 years
after it is issued.
General Information About the Warrants
The shares of common stock underlying the commitment and purchase warrants will
be fully paid and nonassessable. We will pay any transfer tax incurred as a
result of the issuance of the common stock to the warrant holders upon exercise.
Each of the warrants contains provisions that protect the holder against
dilution by adjustment of the exercise price. Such adjustments will occur in the
event of a merger, stock split or reverse stock split, stock dividend or
recapitalization. We are not required to issue fractional shares upon the
exercise of any registered shareholder warrants. The warrants may be exercised
upon surrender on or before the expiration date at our offices, with an exercise
form completed and executed, accompanied by payment of the exercise price for
the number of shares for which the warrant is being exercised.
For the life of each of the Swartz warrants, the holder thereof has the
opportunity to profit from a rise in the market price of the common stock
without assuming the risk of ownership of the shares of common stock issuable
upon the exercise of the warrants. The warrant holder may be expected to
exercise the warrants at a time when we would, in all likelihood, be able to
obtain any needed capital by an offering of common stock on terms more favorable
than those provided for by the Swartz warrants. Furthermore, the terms on which
we could obtain additional capital during the life of the Swartz warrants may be
adversely affected.
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Short Sale Restrictions
Swartz and its affiliates are prohibited from engaging in short sales of our
common stock unless they have received a put notice and the amount of shares
involved in a short sale do not exceed the number of shares specified in the put
notice.
Cancellation of Puts
We must cancel a particular put if between the date of the advance put notice
and the last day of the pricing period:
o We discover an undisclosed material fact relevant to Swartz's investment
decision
o The registration statement registering resales of the common shares becomes
ineffective, or
o Our shares are delisted from the then primary exchange.
Non-Usage Fee
If we have not put a minimum of $1,000,000 in shares during any six month period
of time during the three year term of the investment agreement, we will be
required to pay Swartz a non usage fee equal to the difference of $100,000 minus
10% of the aggregate dollar amount of the shares we put to Swartz during such
six month period. Also, we can terminate the investment agreement if we pay a
penalty as follows: In the event that we terminate the investment agreement with
Swartz or if the agreement terminates automatically, we must pay Swartz a
termination fee equal to the difference of $200,000 minus 10% of the aggregate
dollar amount of the shares we put to Swartz during all puts up to such date.
Shareholder Approval
We may issue more than 20% of our outstanding shares. If we become listed on the
Nasdaq Small Cap Market or Nasdaq National Market, then we must get shareholder
approval to issue more than 20% of our outstanding shares. Since we are
currently a bulletin board company, we do not need shareholder approval.
We Are Restricted From Some Transactions
During the term of the investment agreement and for a period of one year
thereafter, we are prohibited from some transactions. These include the issuance
of any debt or equity securities in a private transaction which are convertible
or exercisable into shares of common stock at a price based on the trading price
of the common stock at any time after the initial issuance of such securities or
with a fixed conversion or exercise price subject to adjustment. We are also
prohibited from entering into any private equity line type agreements similar to
the investment agreement without obtaining Swartz' prior written approval.
Swartz has a right of first refusal to purchase any variable priced securities
offered by us in any private transaction that closes on or prior to six months
after the termination of the investment agreement.
Swartz Enjoys a Right of Indemnification
We are obligated to indemnify Swartz and their stockholders, officers,
directors, employees and agents from all liability and losses resulting from any
misrepresentations or breaches we make in connection with the investment
agreement and its related documents, or this prospectus.
Additional Information About Swartz
Swartz has not had any material relationship with us or any of our affiliates
within the past three years other than because of the ownership of our shares,
through the placement by Swartz or its affiliates of our shares or because of
the negotiation and the execution of the investment agreement. The natural
person controlling Swartz is Eric Swartz.
18
<PAGE>
Under our investment agreement with Swartz we agreed to register these shares of
common stock to permit their resale by Swartz from time to time to the public
without restriction. We will prepare and file such amendments and supplements to
this registration statement as may be necessary in accordance with the rules and
regulations of the Securities Act to keep it effective until the earlier to
occur of (i) the date as of which all of the shares of common stock may be
resold in a public transaction without volume limitations or other material
restrictions without registration under the Securities Act, or (ii) the date as
of which all of the shares of common stock offered hereby have been resold.
We have agreed to pay the expenses incurred other than broker discounts and
commissions, if any in connection with this Prospectus.
OUR BUSINESS.
Company Overview
We are an accelerator/incubator company that develops and acquires Internet
companies. We provide strategic consulting, business services and seed capital
to emerging companies that are developing Internet web sites or web-enabling
technologies. We also showcase our portfolio of holdings through a
consumer-friendly marketing portal.
We were incorporated in the State of Delaware on October 15, 1996, as MIS
International, Inc., which merged with MIS Multimedia Interactive Services,
Inc., a Canadian Corp., on July 1, 1997. We changed our name to Cosmoz.com, Inc.
on December 17, 1998. On January 5, 2000, we acquired Ivory Acquisition
Corporation, a fully reporting blank check company. Following the acquisition,
we thus became the reporting company under Rule 12g-3 of the Securities Exchange
Act of 1934. Presently, our headquarters are located in San Mateo, California.
MIS Multimedia Interactive Services, Inc. and its subsidiaries, Pretzel
Franchising, Inc. and Wheel-to-Wheel Franchising, Inc., all Canadian
Corporations, were engaged in the business of operating retail stores and
selling franchise licenses. We ceased all Canadian operations by January 1,
1999, and our Canadian subsidiaries are inoperative and we are presently winding
up their affairs. In early 1999, concurrently with our name change and the
termination of our Canadian operations, we developed our current business model.
Therefore, our financial information prior to January 1, 1999 is not
instructive.
Current Operations
We offer a network of branded, technology- and community-driven Internet
Websites focused on personal finance, investing, Internet search, business to
business commerce and games. Between April 1999 and October 1999, we acquired
five wholly owned subsidiaries shares of our common stock were the sole
consideration in our acquisition of these five entities:
o BuckInvestor.com, Inc., which operates BuckInvestor.com.
o KingFine, Inc., which operates MonsterPick.com.
o MB Technologies, Inc., which operates TickerZone.com.
o StreetIQ.com, Inc., which operates StreetIQ.com.
o iTrack, Inc., which operates iTrack.com.
BuckInvestor.com presents investment information, financial advice and education
via an Internet Web site. Featured services include original articles on
investment basics, personal financial advice, daily market news, and commentary
from certified financial consultants, stock quotes, and message boards. Also
featured is large online directory of approximately 700 investment clubs from
around the world.
MonsterPick.com provides personal online investing information and day trading
contests. MonsterPick.com members scoring the greatest cumulative gains each
month based on their stock picks win prizes provided by sponsors and
advertisers. MonsterPick.com is undergoing upgrades and recently launched an
operative and improved version, which we are testing.
19
<PAGE>
TickerZone.com is an Internet-based message board community. The TickerZone.com
technology also serves as the message board software engine for our other
properties such as FinancialContent.com and BuckInvestor.com.
StreetIQ.com serves as a women's Internet Web site community with a primary
focus on finance and investing. The service offers stock quotes, personal stock
portfolios, stock research, broker ratings, initial public offering information,
free electronic mail, and a variety of commentary and discussion forums
targeting women.
iTrack.com is a personalized online auction monitoring service. The service is
based upon criteria provided by customers and monitors auctions that take place
on Ebay.com, Yahoo, Amazon.com, Auction Universe, BoxLot, Gold's Auctions,
Haggle Online, OnSale.com, Ubid.com, and Xoom Auctions.
We have also acquired passive investments through direct monetary investment. We
own 56,108 shares of eCal, a privately held corporation. eCal bills itself as
"the leading application service provider of Web-based calendar communications."
We acquired our interest when eCal acquired iPing, Inc. We had formerly made a
direct investment in iPing. eCal is not currently a publicly traded company.
We also hold a passive investment in Ridgewood Venture Partners II, LLC, a
venture capital fund. The Ridgewood fund's portfolio of companies include
Medibuy.com, a medical supply ecommerce service; Metasound, an Internet
telecommunications company; Quantum Conveyors, an automated package handling
technology company; InViso, a maker of screens for portable Internet devices;
Marketfusion.com, a business to business electronic commerce company; Sycon,
specialized computer chip design software maker; and Feedroom.com, a broadband
Internet channel.
We have also recently formed two subsidiaries, FinancialContent.com and
ProfitWire.com, and one internal division, FirstParsec.
FinancialContent.com combines and formats the existing content from our
investment-related websites and redistributes this content to third party
websites which then offer the content to end users. This service has been
extremely popular in the few months it has been offered, already garnering
several hundred redistributors. FinancialContent.com provides the combined and
reformatted content to third parties without charge, but controls the content,
appearance and advertisements that are ultimately fed to end users.
ProfitWire.com is a full-service investor relations firm offering a
comprehensive package of online and offline news dissemination and communication
management solutions. ProfitWire is geared toward the needs of emerging small
cap companies.
FirstParsec is a division that offers incubation/acceleration services to
companies in the concept or early development stage. Companies selected for
incubation are given resources and support to accelerate their goals as set
forth in each candidate's business plan. Through this division, we aid our
clients in implementing their product development, strategic direction,
management building, and raising of venture capital. We designate a mentor that
documents the process and facilitates the needs of the participating company
oversees the program. This mentor meets regularly with our team and is charged
with managing the relationships between Cosmoz and the participating company.
Trademarks and Patents
We own a U.S. trademark for "iTrack". We have made application for U.S.
trademarks for "Cosmoz.com" and "ProfitWire.com", and the applications are
pending.
Suppliers
We employ the services of a number of suppliers whose services range from
providing high speed Internet access to financial and other news content
providers. Among many service providers are the following companies:
20
<PAGE>
o We license from several individual authors, in the ordinary course of
our business, various articles which primarily are educational-themed
articles on investing and money-management that we publish on our
various investment-related websites.
o We license from NAQ, Inc. delayed and historical stock quotes, which we
then publish on our various investment-related websites.
o We license from Comtex News, Inc. financial news stories that we then
publish on our various investment-related websites.
o We license from StockPoint, Inc. real-time stock quotes which we then
publish on our various investment-related websites.
o We license from Uexpress.com, Inc. interactive crossword puzzles which
we then publish on our MyCosmoz.com website.
o We license from eLingo.com translation software that we implement on
its various websites.
o We license from The Weather Channel weather delivery services which we
display on our MyCosmoz.com website.
o We license syndicated content services from iSyndicate.com, which
includes: Associated Press news feeds, general domestic news,
entertainment news, sports news, business news and accurate weather
news.
o We purchase services from AboveNet Communications, a California company
that provides domain hosting and server services. AboveNet is located
at 50 West San Fernando Street, Suite 1010, San Jose, California,
95113.
The loss of any one of these single providers would not cause a materially
adverse effect on our operations or revenues.
Employees
We currently employ 12 full time, and 4 part-time employees. We also engage the
services of outside consultants from time to time. Upon securing of additional
funding, we intend to hire an additional 10 to 15 full time employees during the
next several months.
Facilities
On March 1, 2000, we relocated our principal executive offices to a 5,900 square
foot facility at 1515 So. El Camino Real, Suite 100, San Mateo, California
94402. We lease the facility under a 3-year agreement that terminates on
February 28, 2003, with no renewal option. The aggregate annual rental rate for
the entire facility for the first, second, and third years of the lease term is
$248,094, $255,182, and $262,271, respectively. We are also obligated to pay
33.34% of increases in operating expenses and property taxes paid or incurred by
the landlord in the second and third years of the lease term. All operations
including system development, control, and maintenance are performed at this
facility.
Legal Proceedings
We are periodically involved in legal actions and claims that arise as a result
of events that occur in the normal course of operations, including claims of
alleged infringement of trademarks, copyrights and other intellectual property
rights. We are not currently aware of any legal proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse effect
on our financial position or results of operations.
Legal Matters
Our General Counsel, Michael Spadaccini, has prepared the prospectus and the
related offering documents. The validity of the issuance of the shares of common
stock we hereby offer will be passed upon for us by Boyd & Chang, LLP, a law
firm based in Irvine, California.
21
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our directors, executive officers and other management employees and their
respective ages and positions as of August 15, 2000, are as follows.
Name Age Title
-------------------------------------------------------------------------
Wilfred Shaw 29 Director, Chairman, CEO
Wing Yu 31 Director, Chief Operating Officer
Owen Naccarato 50 Director (non-employee)
Michael Spadaccini 35 General Counsel, Corporate Secretary
Wilfred Shaw has been our chairman of the board of directors since our
formation. We have entered into a consulting contract with SharpManagement LLC,
for the services of Mr. Shaw to perform the duties of the Chief Executive
Officer. Mr. Shaw owns SharpManagement LLC. Mr. Shaw has spent the last eight
years in the venture capital and investment industries, serving as Vice
President for Business Development for Intertech Group, a conglomerate of small
companies based in Southeast Asia. From 1994 to 1996, Mr. Shaw was employed as
the Vice President for Business Development for IG International, Inc., a
pharmaceutical company based in the San Francisco Bay area. Mr. Shaw earned his
Bachelor of Arts in Economics degree at Saint Mary's College.
Wing Yu, director and COO, has served as director since December of 1999, and as
COO since May of 2000. Prior to serving as COO, Mr. Yu was our Vice President of
Web Development. Prior to joining us, Mr. Yu was a teacher and a freelance Apple
Macintosh developer for 6 years. While coordinating online advertising for
Ticketmaster.com CitySearch.com Online, he developed various websites as a
freelance web developer. He holds a Bachelor of Arts in History from Occidental
College, and a Masters in Arts degree in Instructional Technology.
Owen Naccarato, director, is not an employee of ours. For more than the past
five years, Mr. Naccarato, an attorney, has practiced law as a sole practitioner
in Irvine, CA. Mr. Naccarato formerly served as our lead securities counsel. Mr.
Naccarato is admitted to the bar in the State of California.
Michael Spadaccini, General Counsel and Corporate Secretary, joined us in March
of 2000. Mr. Spadaccini practiced law as a sole practitioner specializing in
business law and intellectual property in San Francisco from 1993 until joining
us in March of 2000. In his practice, Mr. Spadaccini represented businesses in a
wide range of industries including furniture, fashion, farming, retail,
computers, and the Internet. Mr. Spadaccini is admitted to the California Bar,
as well as the Bars of the U.S. District Court for Northern California, the U.S.
Court of Appeals for the 9th Circuit, and the U.S. Court of Appeals for Federal
Circuit.
EXECUTIVE COMPENSATION
The following table provides information regarding the executive compensation of
our executive officers for the fiscal years ended 1999, 1998 and 1997. No other
executive officer received compensation in excess of $100,000 during such
periods.
<TABLE>
<CAPTION>
Summary Compensation Table:
Awards Payouts
-------------------------------------
Name Fiscal Restricted Securities LTIP
and Principal Year Salary Bonus Other Annual Stock options/SARs Payouts All other
Position Ended ($) ($) Compensation Awards (#) ($) compensation
--------------------- -------- ----------- ------- ---------------- ------------ ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wilfred Shaw 1999 0 0 0 0 0 0 0
CEO 1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
</TABLE>
Note to Summary Compensation Table: Effective 1/1/2000, we entered into an
agreement with SharpManagement, LLC, an entity entirely controlled by Wilfred
Shaw, to secure the services of Wilfred Shaw as our CEO. Under the agreement, we
are obligated to pay to SharpManagement an initial payment of $180,000, and
annual payments of $180,000. As of the date of this filing, payments under the
agreement have not been paid to either Mr. Shaw or SharpManagement.
22
<PAGE>
No executive officer or other employee is reasonably expected to earn
compensation in excess of $100,000 in the fiscal year ending June 30, 2000.
However, two employees in addition to Mr. Shaw are expected to earn more than
$100,000.00 in the fiscal year ending June 30, 2001. Michael Spadaccini, General
Counsel and Corporate Secretary, began his employ on March 13, 2000. He earns an
annual salary of $100,000.00, and in May of 2000, received options to purchase
84,000 shares of our common stock at a strike price of $0.5938 per share. Wing
Yu, a director, was promoted to chief operating officer on May 11, 2000. He
earns an annual salary of $120,000.00, and received a signing bonus of
$6,800.00.
Owen Naccarato was appointed as our director on April 10, 2000. On March 20,
2000, Mr. Naccarato executed a director's agreement in which he was granted
options to purchase 250,000 restricted shares of our common stock for $0.5938
per share.
On November 17, 1999, our Board of directors approved our 1999 stock option
plan. On December 20, 1999, our shareholders, at our annual meeting, approved
the plan, and authorized a pool of 6,000,000 shares of common stock to be issued
according to the plan. The plan authorizes both incentive stock options and
non-statutory stock options.
We do not yet have a compensation committee that approves or offers
recommendations on compensation for our employees.
INDEMNIFICATION OF OUR DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides, in effect, that
any person made a party to any action by reason of the fact that he is or was
our director, officer, employee or agent may and, in some cases, must be
indemnified by us against, in the case of a non derivative action, judgments,
fines, amounts paid in settlement and reasonable expenses including attorneys'
fees incurred by him as a result of such action, and in the case of a derivative
action, against expenses including attorneys' fees, if in either type of action
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to our best interests. This indemnification does not apply, in a
derivative action, to matters as to which it is adjudged that the director,
officer, employee or agent is liable to us, unless upon court order it is
determined that, despite such adjudication of liability, but in view of all the
circumstances of the case, he is fairly and reasonably entitled to indemnity for
expenses, and, in a non derivative action, to any criminal proceeding in which
such person had reasonable cause to believe his conduct was unlawful.
Article V of our certificate of incorporation, as amended, provides that all of
our directors shall be protected from personal liability to the fullest extent
permitted by law.
Article VII of our Bylaws provides that we shall indemnify our officers and
directors to the fullest extent permitted or authorized by current or future
legislation or judicial or administrative decision against all adverse
consequences.
RELATIONSHIPS AND RELATED TRANSACTIONS
Some transactions to which we are a party and some matters affecting us have or
will result in a material benefit to some of our directors and executive
officers, or may create conflicts of interest, as follows:
On January 7, 2000, our board approved a grant of 875,000 restricted shares to
Justin Keener, who at that time was serving as our chief operating officer, and
as a director. On May 12, 2000, Mr. Keener surrendered the share certificate and
cancelled the shares. The board has recently proposed, but has not yet approved,
a resolution that Mr. Keener receive non-qualified stock options to purchase
467,466 shares of our common stock. On or about May 12, 2000, Mr. Keener
resigned from his position as chief operating officer and resigned from the
board.
On January 7, 2000, our board approved a grant of 625,000 restricted shares to
Wing Yu, who at that time was serving as our Chief Technology Officer, and as a
director. On May 11, 2000, Mr. Yu surrendered the share certificate and
cancelled the shares. The board has recently proposed, but has not yet approved,
a resolution that Mr. Yu receive non-qualified stock options to purchase 937,500
shares of our common stock.
23
<PAGE>
On January 7, 2000, our board approved a grant of 625,000 restricted shares to
Gurkan Fidan, who at that time was serving as our Vice President of Internet
Operations. On May 11, 2000, Mr. Fidan surrendered the share certificate and
cancelled the shares. The board has recently proposed, but has not yet approved,
a resolution that Mr. Fidan receive non-qualified stock options to purchase
937,500 shares of our common stock.
On January 7, 2000, our board approved a grant of 1,250,000 restricted shares to
SharpManagement, an LLC wholly owned by our CEO and Chairman, Wilfred Shaw. On
May 10, 2000, SharpManagement surrendered the share certificate and cancelled
the shares. The board has recently proposed, but has not yet approved, a
resolution that SharpManagement receive non-qualified stock options to purchase
1,875,000 shares of our common stock.
Owen Naccarato, an attorney that performs legal services for us was appointed as
our director on April 10, 2000. On March 20, 2000, Mr. Naccarato executed a
director's agreement, in which he was granted options to purchase 250,000
restricted shares of our common stock at a price of $0.5938 per share.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding beneficial
ownership of common stock as of August 15, 2000 for a total of 64,513,448 shares
of common stock, by:
o each shareholder known by us to own beneficially more than 5% of our
common stock;
o each person or entity known to us to own beneficially more than 5% of
our common stock;
o each of our directors; o each of our executive officers; and
o all executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF CLASS
(1) TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1)
--------------------------- ----------------------------------------- ----------------------------- --------------------
<S> <C> <C>
CLASS A COMMON Asia Pacific Ventures (2) Suite 13 16th 6,000,000 9.30%
Floor, Kinwick Centre,
32 Hollywood Road
Central Hong Kong, Hong Kong
CLASS A COMMON Times Square International, Inc. 7,500,000 11.63%
C/O MIS International, Inc. 145 Traders
Blvd, E. #40, Mississauga, Ontario,
Canada L4Z 3L3
CLASS A COMMON Corworth Investment, Inc. C/O MIS 7,356,117 11.40%
International, Inc.
145 Traders Blvd, E. #40 Mississauga,
Ontario, Canada L4Z 3L3
CLASS A COMMON Tupelo Investments, Ltd., Box 107 5,780,303 8.96%
Oceanic House, Grand Turk, Turk &
Caicos Islands
CLASS A COMMON Wilfred Shaw, Chairman and CEO 1,526,768 2.53%
1515 So. El Camino Real, Suite 100, San
Mateo, CA 94402
CLASS A COMMON Wing Yu, Director and COO 175,000 0.27%
1515 So. El Camino Real, Suite 100, San
Mateo, CA 94402
CLASS A COMMON Michael Spadaccini, General Counsel and 5,700 0.0088%
Corporate Secretary
1515 So. El Camino Real, Suite 100,
San Mateo, CA 94402
</TABLE>
(1) These percentages are based upon 64,513,448 shares of our common stock
outstanding.
(2) Asia Pacific Ventures is a related party to Mr. Wilfred Shaw, Chairman and
Chief Executive Officer.
24
<PAGE>
Some of the shares that we seek to register are being offered for the account of
current security holders.
o Tupelo Investments, Ltd., a Turk and Caicos Islands limited
partnership, purchased 3,030,303 shares of unregistered shares from us
in a private placement transaction in May of 2000. We propose to
register these shares so that Tupelo may sell the shares into the
public markets. Before we sold Tupelo the 3,030,303 shares, they
already owned 275,000 shares. Thus, Tupelo now holds 5,780,303 of our
shares, which represents 8.96% of our outstanding shares.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the Offering are estimated as follows:
Attorneys Fees $ 8,000
Accountant Fees $ 10,000
Registration Fees $ 7309
Printing $ 0
Advertising $ 0
Other Expenses $ 1,500
Blue Sky Fees $ 5,500
------
TOTAL $ 32,309
All expenses are estimated except for the SEC fee.
DESCRIPTION OF CAPITAL STOCK
Common Stock
As of August 15, 2000, there were 64,513,448 shares of common stock outstanding.
As of July 17, 2000, our stock was held by approximately 438 shareholders of
record.
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders, including the
election of directors, with no cumulative voting. Subject to preferences that
may be applicable to any then outstanding preferred stock, 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. See the section
entitled Dividend Policy. Upon a liquidation, dissolution, or winding up of
Cosmoz.com, the holders of common stock will be entitled to share equally in the
net assets legally available for distribution to shareholders after the payment
of all debts and other liabilities of Cosmoz.com, subject to the prior rights of
any preferred stock then outstanding. Holders of common stock have no preemptive
or conversion rights or other subscription rights and there are no redemption or
sinking funds provisions applicable to the common stock.
Preferred Stock
We have a second class of authorized stock; specifically, we have authorized
50,000,000 shares of preferred stock at a par value of $0.001 per share. We have
never issued shares of preferred stock.
25
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company.
UNDERWRITING
This offering is self-underwritten by us and Tupelo Investments Ltd.
EXPERTS
Berg & Company LLP, independent auditors, have audited our consolidated
financial statements for the year ended June 30, 1999. We have included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Berg & Company LLP's report, given on their authority
as experts in accounting and auditing.
RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we have
issued the following securities, all Class A Common, our sole class of
securities, that were not registered under the Securities Act:
<TABLE>
<CAPTION>
Number of
Date Persons Receiving Shares Shares Consideration Received, Exemption, and Supporting Facts
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2/5/98 Corworth Investments, 7,356,117 Issued as consideration to retire a loan owed to Corworth in the amount
Inc. of $147,122. We issued these shares under Regulation S, because the
sale took place outside the United States.
2/5/98 Times Square 7,500,000 Issued as consideration to retire a loan owed to Times Square
International International in the amount of $150,000. We issued these shares under
Regulation S, because the sale took place outside the United States.
2/17/98 to Various Parties 6,390,000 We received $798,750 from a Regulation D, Rule 504 private placement
2/28/98 that we underwent between 2/17/98 and 2/28/98.
3/17/98 National Resources 100,000 Issued as consideration for broker-dealer services provided to us. We
Investment, Inc. issued these shares under Regulation D, Rule 505.
4/23/98 Asia Pacific Ventures 600,000 $75,000, through a private placement. We issued these shares under
Inc. Regulation S, because the sale took place outside the United States.
4/23/98 Asia Pacific Ventures 800,000 $100,000, through a private placement. We issued these shares under
Inc. Regulation S, because the sale took place outside the United States.
6/16/98 NIR Group 110,000 Issued as consideration for finder's fee services provided to us in
connection with private placements.
3/4/99 to Various Parties 12,000,000 We received $718,750 in cash and $281,250 in services, for a total of
4/14/99 $998,633, from a Regulation D, Rule 504 private placement that we
underwent between 3/4/99 and 4/14/99. The services
for which we issued shares included consulting on strategic
business and financial plans, and assistance in negotiations with
potential investors.
4/12/99 North American 100,000 Issued as consideration for investor relations services provided to us.
Corporation Consulting We issued these shares under Regulation D, Rule 505.
4/15/99 Stephen Carnes 50,000 In connection with the acquisition of MB TECHNOLOGIES, INC., the shares
were issued in exchange for a portion of Mr. Carnes's shares of MB
Technologies, Inc. We issued these shares under Regulation D, Rule 505.
4/15/99 Wing Yu 50,000 In connection with the acquisition of MB TECHNOLOGIES, INC., the shares
were issued in exchange for a portion of Mr. Yu's shares of MB
Technologies, Inc. We issued these shares under Regulation D, Rule 505.
5/6/99 Gurkan Fidan 450,000 In connection with the acquisition of BuckInvestor.com, Inc., the
shares were issued in exchange for Mr. Fidan's shares of
BuckInvestor.com, Inc. We issued these shares under Regulation D, Rule 505.
5/6/99 Justin Keener 405,000 In connection with the acquisition of BuckInvestor.com, Inc., the
shares were issued in exchange for Mr. Keener's shares of
BuckInvestor.com, Inc. We issued these shares under Regulation D, Rule 505.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Number of
Date Persons Receiving Shares Shares Consideration Received, Exemption, and Supporting Facts
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5/6/99 T. Penn & Mary Jo Nugent 45,000 In connection with the acquisition of BuckInvestor.com, Inc., the
shares were issued in exchange for the Nugent's shares of
BuckInvestor.com, Inc. We issued these shares under Regulation D, Rule 505.
6/1/99 Stephen B. Mare 50,000 In connection with the acquisition of KingFINE, Inc., the shares were
issued in exchange for Mr. Marek's shares of KingFINE, Inc. We issued
these shares under Regulation D, Rule 505.
6/1/99 Stephen W. Carnes 50,000 In connection with the acquisition of KingFINE, Inc., the shares were
issued in exchange for Mr. Carnes shares of KingFINE, Inc. We issued
these shares under Regulation D, Rule 505.
6/1/99 Wing Yu 50,000 In connection with the acquisition of KingFINE, Inc., the shares were
issued in exchange for Mr. Yu's shares of KingFINE, Inc. We issued
these shares under Regulation D, Rule 505.
6/1/99 Benjamin Friedman 50,000 In connection with the acquisition of KingFINE, Inc., the shares were
issued in exchange for Mr. Friedman's shares of KingFINE, Inc. We
issued these shares under Regulation D, Rule 505.
7/15/99 Stephen Carnes 75,000 In connection with the acquisition of MB TECHNOLOGIES, INC., the shares
were issued in exchange for the remaining portion of Mr. Carnes's
shares of MB Technologies, Inc. We issued these shares under Regulation
D, Rule 505.
7/15/99 Wing Yu 75,000 In connection with the acquisition of MB TECHNOLOGIES, INC., the shares
were issued in exchange for the remaining portion of Mr. Yu's shares of
MB Technologies, Inc. We issued these shares under Regulation D, Rule 505.
7/27/99 Tupelo Investments 2,750,000 $2,750,000, through a private placement. We issued these shares under
Regulation S, because the sale took place outside the United States.
7/27/99 Bill Tunnell 50,000 Issued as consideration for investor relations services provided to us.
We issued these shares under Regulation D, Rule 505.
9/10/99 Corporate Imaging, Inc. 50,000 Issued as consideration for investor relations services provided to us.
We issued these shares under Regulation D, Rule 505.
9/16/99 Wanda Cavanaugh 24,500 In connection with the acquisition of iTrack.com, Inc.; the shares were
issued in exchange for Ms. Cavanaugh's shares of iTrack.com, Inc.
9/16/99 Kevin Savetz 12,250 In connection with the acquisition of iTrack.com, Inc.; the shares were
issued in exchange for Mr. Savetz's shares of iTrack.com, Inc. We
issued these shares under Regulation D, Rule 505.
9/16/99 Judi Wellnitz 12,250 In connection with the acquisition of iTrack.com, Inc.; the shares were
issued in exchange for Ms. Wellnitz' shares of iTrack.com, Inc. We
issued these shares under Regulation D, Rule 505.
9/16/99 Ashley E. Taylor Trust 49,000 In connection with the acquisition of iTrack.com, Inc.; the shares were
issued in exchange for the Trust's shares of iTrack.com, Inc. We issued
these shares under Regulation D, Rule 505.
9/16/99 Susan Cooney 98,000 In connection with the acquisition of iTrack.com, Inc.; the shares were
issued in exchange for Ms. Cooney's shares of iTrack.com, Inc. We
issued these shares under Regulation D, Rule 505.
9/16/99 Don Taylor & Sybill 61,250 In connection with the acquisition of iTrack.com, Inc.; the shares were
Taylor as Joint Tenants issued in exchange for Mr. & Mrs. Taylor's shares of iTrack.com, Inc.
We issued these shares under Regulation D, Rule 505.
9/16/99 Robert M. Dunlap 61,250 In connection with the acquisition of iTrack.com, Inc.; the shares were
issued in exchange for Mr. Dunlap's shares of iTrack.com, Inc. We
issued these shares under Regulation D, Rule 505.
9/16/99 Eric Ward 49,000 In connection with the acquisition of iTrack.com, Inc.; the shares were
issued in exchange for Mr. Ward's shares of iTrack.com, Inc. We issued
these shares under Regulation D, Rule 505.
9/16/99 Linda M. Dunlap & Dave 857,500 In connection with the acquisition of iTrack.com, Inc.; the shares were
Taylor issued in exchange for Ms. Dunlap's and Mr. Taylor's shares of
iTrack.com, Inc. We issued these shares under Regulation D, Rule 505.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Number of
Date Persons Receiving Shares Shares Consideration Received, Exemption, and Supporting Facts
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9/22/99 Kelly King 400,000 In connection with the acquisition of StreetIQ.com, Inc., the shares
were issued in exchange for Kelly King's shares of StreetIQ.com, Inc.
We issued these shares under Regulation D, Rule 505.
10/27/99 Bill Tunnell 100,000 Issued as consideration for public relations services provided to us.
We issued these shares under Regulation D, Rule 505.
10/27/99 Eric Ward 20,000 Issued as consideration for online public relations services provided
to us. We issued these shares under Regulation D, Rule 505.
10/27/99 Wanda Cavanaugh 90,000 Issued as consideration for public relations services provided to us.
We issued these shares under Regulation D, Rule 505.
12/9/99 National Financial 50,000 Issued as consideration for investor relations services provided to us.
Communication We issued these shares under Regulation D, Rule 505.
12/9/99 TPG Capital Corp. 250,000 Issued as consideration for services incident to our December 1999
merger with Ivory Acquisition Corp. We issued these shares under
Regulation D, Rule 505. Ivory Acquisition Corp. is an accredited
investor.
12/14/99 RBM Financial 1,500,000 Issued as consideration for consulting services provided to us. We
issued these shares under Regulation S, because the sale took place outside
the United States.
5/5/00 Eric Tyson 50,000 Issued as consideration for Mr. Tyson's services as an author of
investment-related articles for publishing on our websites. We issued
these shares under Regulation D, Rule 506.
5/10/00 Tupelo Investments 3,030,303 $1,000,000, through a private placement. We issued these shares under
Regulation S, because the sale took place outside the United States.
</TABLE>
28
<PAGE>
The foregoing sales of securities were made in reliance upon the exemption from
the registration provisions of the Securities Act provided for by Section 4(2)
thereof for transactions not involving a public offering. All of the foregoing
securities are deemed restricted securities for the purposes of the Securities
Act.
ADDITIONAL INFORMATION
If you would like additional information, please contact us: Cosmoz.com, Inc.
1515 So. El Camino Real, Suite 100, San Mateo, California 94402. Our telephone
number is (650) 358-1188. Our Web site address is www.cosmoz.com. The
information on our Web site is not a part of this prospectus.
FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
Consent of Independent Certified Public Accountants
We consent to the inclusion in this registration statement on Form S-1 of our
report dated December 16, 1999, with respect to the Financial Statements of
Cosmoz.com, Inc., for the year ended June 30, 1999.
We also consent to the references to our report under the caption "Experts".
//s// Berg & Company, LLP
-------------------------
Berg & Company LLP
August 10, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
COSMOZ.COM, INC.
Consolidated Balance Sheets
March 31, 2000 and June 30, 1999
March 31, June 30,
2000 1999
--------------- ---------------
(UNAUDITED) (AUDITED)
ASSETS
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 209,085 $ 424,781
Short-term investments in marketable securities 46,069 1,565,270
Accounts receivable - trade, net 5,715 24,846
Prepaid expenses 173,167 --
Note receivable - related party -- 900,000
Amounts due from shareholders -- 188,142
------------------ -------------------
Total Current Assets 434,036 3,103,039
------------------ -------------------
Property and Equipment
Office furniture 54,009 13,127
Leasehold Improvements 9,285 --
Equipment 151,807 55,519
------------------ ---------------
215,101 68,646
Accumulated depreciation (20,349) (1,136)
------------------ -------------------
Total Property and Equipment 194,752 67,510
------------------ -------------------
Other Assets:
Long-term investments 585,981 145,000
Deposits 44,086 18,486
Intangible assets, net 3,852,872 1,092,943
------------------ -------------------
Total Other Assets 4,482,939 1,256,429
------------------ -------------------
Total Assets $ 5,111,727 $ 4,426,978
================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
COSMOZ.COM, INC.
Consolidated Balance Sheets (Continued)
March 31, 2000 and June 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, June 30,
2000 1999
--------------------- ---------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 179,595 $ 81,849
Reserve for discontinued operations 85,623 85,623
Accrued expenses - discontinued operations 116,696 116,696
Accrued expenses and other current liabilities 404,898 162,320
Due to related parties 250,000 596,875
Notes payable - other 14,589 14,589
--------------------- ---------------------
Total Current Liabilities 1,051,401 1,057,952
--------------------- ---------------------
Stockholders' Equity
Preferred stock, $0.001 par value; 50,000,000 shares authorized;
none issued or outstanding -- --
Common stock, $0.001 par value; 200,000,000 shares authorized;
61,334,546 and 58,899,546 issued and outstanding respectively 61,334 58,899
Additional paid-in-capital 13,167,887 9,259,417
Accumulated other comprehensive income (loss) (23,159) (45,592)
Accumulated deficit (9,145,736) (5,903,698)
--------------------- ---------------------
Total Stockholders' Equity 4,060,326 3,369,026
--------------------- ---------------------
Total Liabilities and Stockholders' Equity $ 5,111,727 $ 4,426,978
===================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
COSMOZ.COM, INC.
Consolidated Statement of Operations
nine months For the year
ended ended
March 31, June 30,
2000 1999 1999
------------- ------------- -----------------
(UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C>
Revenues:
Revenues $ 270,363 $ 498 $ 47,912
Costs of revenues 33,500 -- --
------------- ------------- -----------------
Net revenues 236,863 498 47,912
------------- ------------- -----------------
Operating Expenses:
Sales and marketing 659,439 -- 105,741
Product development 369,822 30,000 117,626
General and administrative 1,944,133 112,396 594,090
Amortization of intangibles 359,263 -- 26,656
Non-recurring costs - acquisitions 100,462 -- 16,315
Depreciation and amortization 21,160 -- 1,136
------------- ------------- -----------------
Total operating expenses 3,454,279 142,396 861,564
------------- ------------- -----------------
Loss from operations (3,217,416) (141,898) (813,652)
------------- ------------- -----------------
Other Income (loss):
Investment (loss)/income (48,206) -- 4,608
Loss on disposal of fixed assets (4,103) -- --
Interest income 5,811 -- 328
Interest expense (2,660) -- (12)
Dividend income 24,534 -- --
------------- ------------- -----------------
Total other income (24,624) -- 4,924
------------- ------------- -----------------
Net loss before taxes (3,242,040) (141,898) (808,728)
Provision for income tax -- -- (800)
------------- ------------- -----------------
Loss after income taxes from operations (3,242,040) (141,898) (809,528)
Extraordinary loss (Note 6) -- -- (200,000)
Net loss from continuing operations $ (3,242,040) $ (141,898) $ (1,009,528)
============= ============= =================
Net loss per share from continuing operations :
Before extraordinary loss $ (0.053) $ (0.003) $ (0.018)
Extraordinary loss - -- (0.004)
------------- ------------- -----------------
Total net loss per share - basic $ (0.053) $ (0.003) $ (0.022)
============= ============= =================
Before extraordinary loss $ (0.050) $ (0.003) $ (0.017)
Extraordinary loss -- -- (0.004)
------------- ------------- -----------------
Total net loss per share - diluted $ (0.050) $ (0.003) $ (0.022)
============= ============= =================
Shares used in per share calculation - basic 61,112,782 43,757,046 46,118,595
============= ============= =================
Shares used in per share calculation - 65,376,032 50,257,046 46,299,005
diluted ============= ============= =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes to consolidated financial statements.
Consolidated Statement of Operations (Continued)
nine months For the year
ended ended
March 31, June 30,
2000 1999 1999
-------------- ------------ ------------
(UNAUDITED) (UNAUDITED) (AUDITED)
Discontinued operations:
<S> <C> <C> <C>
Revenues:
Sales $ -- $ 64,769 $ 64,769
Franchise fees -- -- --
Less costs of revenues -- (16,016) (16,016)
-------------- ------------ ------------
Gross profit -- 48,753 48,753
-------------- ------------ ------------
Operating expenses:
Personnel -- 20,855 20,855
General and Administrative -- 97,808 98,308
-------------- ------------ ------------
Operating expenses -- 118,663 119,163
-------------- ------------ ------------
Loss on disposal of operations,
including a
provision of $98,685 for loss -- 227,535 227,535
contingency
-------------- ------------ ------------
Loss before taxes -- (297,445) (297,945)
-------------- ------------ ------------
Provision for income tax -- -- --
Net loss from discontinued operations -- (297,445) (297,945)
Net loss $ (3,242,040) $ (439,343) $ (1,307,473)
============== ============ ============
Net loss per share from discontinued operations:
Net loss per share - basic -- (0.007) (0.006)
Net loss per share - diluted $ -- $ (0.006) $ (0.006)
============== ============ ============
Net loss per share
Net loss per share - basic $ (0.053) $ (0.010) $ (0.028)
============== ============ ============
Net loss per share - diluted $ (0.050) $ (0.009) $ (0.028)
============== ============ ============
Shares used in per share calculation - basic 61,112,782 43,757,046 46,118,595
============== ============ ============
Shares used in per share calculation - 65,376,032 50,257,046 46,299,005
diluted ============== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
COSMOZ.COM, INC.
Consolidated Statement of Changes in
Shareholders' Equity
for the nine month period ended March 31, 2000
Additional
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1999 -- $ -- 58,899,54 $ 58,899 $ 9,259,417
Comprehensive income (loss):
Net loss from operations
during the period -- -- -- -- --
Net unrealized gain on
securities -- -- -- -- --
Issuance of commons stock for
acquisitions -- -- 550,000 550 1,114,800
Issuance of common stock for
services -- -- 100,000 100 204,585
Compensation expense
recognized on grants -- -- -- -- 201,400
Balance, September 30, 1999 -- -- 59,549,546 59,549 10,780,202
Comprehensive income (loss):
Net loss from operations
during the period -- -- -- -- --
Net unrealized gain on
securities -- -- -- -- --
Issuance of commons stock for
acquisitions -- -- 1,225,000 1,225 1,721,370
Issuance of common stock for
services -- -- 260,000 260 310,365
Balance, December 31, 1999 -- $ -- 61,034,546 $ 61,034 $12,811,937
Comprehensive income (loss):
Net loss from operations
during the period -- -- -- -- --
Net unrealized gain on
securities -- -- -- -- --
Issuance of commons stock for
acquisitions -- -- 250,000 250 281,000
Issuance of common stock for
services -- -- 50,000 50 75,000
Balance, March 31, 2000 -- $ -- $61,334,546 $ 61,334 $13,167,887
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
COSMOZ.COM, INC.
Consolidated Statement of Changes in
Shareholders' Equity
for the nine month period ended March 31, 2000
Accumulated
Other Total
Comprehensive Accumulated Shareholders' Comprehensive
Income (loss) Deficit Equity Income (loss)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1999 $ (45,592) $ (5,903,69) $3,369,026 (1,353,065)
Comprehensive income (loss):
Net loss from operations
during the period -- (823,269) (823,269) (823,269)
Net unrealized gain on
securities 44,375 -- 44,375 44,375
Issuance of commons stock for
acquisitions -- -- 1,115,350 --
Issuance of common stock for
services -- -- 204,685 --
Compensation expense
recognized on grants -- -- 201,400 --
Balance, September 30, 1999 (1,217) (6,726,967) 4,111,567 (778,894)
Comprehensive income (loss):
Net loss from operations
during the period -- (1,285,360) (1,285,360) (1,285,360)
Net unrealized gain on
securities 6,020 -- 6,020 6,020
Issuance of commons stock for
acquisitions -- -- 1,722,595 --
Issuance of common stock for
services -- -- 310,625 --
Balance, December 31, 1999 $ 4,803 $(8,012,327) $4,865,447 $(2,058,234)
Comprehensive income (loss):
Net loss from operations
during the period -- (1,133,409) (1,133,409) (1,133,409)
Net unrealized gain on
securities (27,962) -- (27,962) (27,962)
Issuance of commons stock for
acquisitions -- -- 281,250 --
Issuance of common stock for
services -- -- 74,950 --
Balance, March 31, 2000 $ (23,159) $(9,145,736) $4,060,326 $(3,219,605)
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flow
For the year
ended
For the nine months ended March 31, June 30,
2000 1999 1999
----------- ---------- -------------
(UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C>
Operating Activities:
Net Loss $(3,242,040) $ (439,343) $ (1,307,473)
Adjustments to reconcile net (loss)
to
net cash provided by (used in) operating activities:
Intangible amortization 359,263 -- 26,656
Stock compensation 201,400 -- 65,896
Amortization and 21,160 -- 1,136
depreciation
Loss on discontinued -- -- 98,039
operations
Issuance of common stock for services 589,900 817,868 272,605
Decrease in investment 39,019 -- --
Currency translation -- 7,079 --
Changes in operating assets and liabilities:
Accounts receivable - trade, net 19,131 8,322 (16,025)
Other Accounts receivable -- -- 33,230
Inventory -- 16,583 16,583
Reserve for discontinued -- 98,039 --
operations
Accrued expenses -discontinued operations -- (618) --
Prepaid expenses (173,167) -- (18,487)
Accounts payable 97,746 26,374 129,593
Deposits (25,600) (200,000) --
Accrued expenses and other current liabilities 242,578 -- --
----------- ---------- -------------
Net cash (used in) provided by operating (1,870,610) 334,304 (698,247)
activities ----------- ---------- -------------
Investing activities:
Sale (purchase) of marketable securities 1,541,637 -- (1,599,975)
Cash acquired in acquisitions -- -- 11,543
Other investments (480,000) -- (145,000)
Proceeds from disposal of property and equipment -- 124,596 78,902
Purchases of property and equipment (147,990) -- (68,646)
----------- ---------- -------------
Net cash provided by investing activities 913,647 124,596 (1,723,176)
----------- ---------- -------------
Financing activities:
Proceeds from issuance of common stock -- -- 717,383
Conversion of debt to common -- -- 2,750,000
stock
Note receivable - related party -- -- (900,000)
Payments on notes payable -- -- (361,000)
Payments received on note receivable - related 900,000 -- --
party
Note payable - related parties (158,733) -- 596,875
----------- ---------- -------------
Net cash provided by financing activities 741,267 -- 2,803,258
----------- ---------- -------------
(Decrease) increase in cash and cash (215,696) 458,900 381,835
equivalents
Cash and cash equivalents, beginning of period 424,781 42,946 42,946
Cash and cash equivalents, end of period $ 209,085 $ 501,846 $ 424,781
=========== ========== =============
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flow
(Continued)
For the year
ended
For the nine months ended March 31, June 30,
2000 1999 1999
--------------- --------------- ------------------
(UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 131 $ -- $ 12
Taxes $ -- $ -- $ --
The following noncash transactions occurred
during the year ended June 30, 1999:
Acquisition of BuckInvestor,
Inc
Intangibles $ -- $ -- $ 1,006,700
Issuance of common stock for acquisition -- -- (1,012,700)
Cash $ -- $ -- $ (6,000)
received
Acquisition of MBMagic, Inc.
Intangibles $ -- $ -- $ 112,900
Issuance of common stock for acquisition -- -- (112,900)
Cash $ -- $ -- $ --
received
Acquisition of StreetIQcom, Inc.
Intangibles $ 800,200 $ -- $ --
Issuance of common stock for acquisition (800,200) -- --
Cash $ -- $ -- $ --
received
Acquisition of MBMagic, Inc.
Intangibles $ 315,150 $ -- $ --
Issuance of common stock for acquisition (315,150) -- --
Cash $ -- $ -- $ --
received
Acquisition of iTrack.com, Inc.
Intangibles $ 1,722,595 $ -- $ --
Issuance of common stock for acquisition (1,722,595) -- --
Cash $ -- $ -- $ --
received
Acquisition of Ivory Acquisition Corporation
Intangibles 281,250 $ -- $ --
Issuance of common stock for acquisition (281,250) -- --
Cash $ -- $ -- $ --
received
</TABLE>
F-9
<PAGE>
Notes to the Financial Statements
1. Summary of Significant Accounting Policies.
----------------------------------------------
A. General Description of Business.
Cosmoz.com, Inc. ("Cosmoz" or the "Company"), a Delaware corporation,
http://www.cosmoz.com) is an Internet holding and incubator company that funds,
acquires, and develops Internet companies. The company provides strategic
consulting, business services, and seed capital to emerging companies that are
developing Internet Websites or Web-enabling technologies. The company also
showcases its portfolio of holdings through a consumer-friendly marketing
portal.
The Company was incorporated in Delaware on October 15, 1996, as MIS
International, Inc., which merged with MIS Multimedia Interactive Services Inc.,
a Canadian corporation, as of July 1, 1997. MIS Multimedia Interactive Services,
Inc., and its subsidiaries (Pretzel Franchising, Inc. ("PFI") and Wheel to Wheel
Franchising, Inc. ("WTW") were engaged in the business of developing and selling
franchises. WTW concentrated on the marketing of franchises for automotive
service centers that used recycled automotive parts, and it operated an
automotive service center in Ontario, Canada. PFI concentrated on the marketing
of franchises for "Pretzel Twister", and it operated a store in Toronto,
Ontario. These two Canadian entities are inactive as of September 30, 1998.
During the nine months ended March 31, 2000, the Company consummated the
acquisitions of Ivory Acquisition Corporation, StreetIQ, Inc., iTrack, Inc., and
the remaining 51% interest in MB Technologies, Inc. The shareholders of these
corporations exchanged all of their shares for shares of the Company's Common
Stock in business combinations that were accounted for under the purchase
method, with the exception of the acquisition of Ivory Acquisition Corporation,
which was accounted for under the pooling of interest method.
The Company's wholly-owned Internet properties include:
o BuckInvestor.com, Inc. (www.buckinvestor.com), which provides financial and
investment information in a format targeted to investors under the age of 35;
o KingFine, Inc. (www.monsterpick.com), which operates an investment content
website and online message boards targeted to active investors;
o MB Technologies, Inc. (www.tickerzone.com), a message board community
solutions provider;
o StreetIQ, Inc. (www.streetiq.com), which provides focused online investment
information and a community for women;
o iTrack, Inc. (www.itrack.com), operates an online auction monitoring service
that allows consumers to track specific products on the various online
auction houses; and
o Other Company Internet properties include www.monsterquote.com;
www.profitwire.com; www.financialcontent.com; www.casinowhiz.com; and
www.cosmozmall.com.
B. Basis of Presentation and Organization.
The accompanying unaudited consolidated financial statements for the nine months
ended March 31, 2000 have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The accompanying audited consolidated financial statements for the year ended
June 30, 1999 have been prepared in accordance with generally accepted
accounting principles. The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. All inter-company
transactions have been eliminated. The equity and net loss attributable to the
minority shareholder interests that related to the Company's subsidiaries are
shown separately in the consolidated balance sheet and consolidated statement of
operations, respectively. Losses in excess of the minority interest in equity
would be charged against the Company.
F-10
<PAGE>
These financial statements represent the financial activity of Cosmoz.com, Inc.,
a publicly traded company listed and traded on the NASDAQ Over the Counter
Bulletin Board ("OTC BB"). In December 1998, the Company changed its focus from
operating and franchising pretzel kiosks, retail stores and an automotive
service center (as described above) to investments and acquisitions of
Internet-related businesses and web-based technologies. The Company's Internet
acquisitions offer both a content source and an application source for
investors.
C. Cash and Cash Equivalents, Short and Long-Term Investments.
For purposes of cash flows, the Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents, those
with original maturities greater than three months and current maturities less
than twelve months from the balance sheet date are considered short-term
investments, and those with maturities greater than twelve months from the
balance sheet date are considered long-term investments.
The Company often receives revenue payment in shares of stock in lieu of cash
from its ProfitWire Media Group. The Company treats such revenues as cash, and
not as investments. The Company maintains such positions only for a short time.
The Company identifies and records impairment losses on long-lived assets when
events and circumstances indicate that such assets might be impaired. To date,
no such impairment has been recorded.
D. Property and Equipment.
Property and equipment are recorded at cost and are depreciated over the
estimated useful lives of the assets using the straight-line method. The cost
and related accumulated depreciation of all property and equipment retired or
otherwise disposed of are removed from the accounts. Any gain or loss is
recognized in the current period. Various accelerated methods are used for tax
purposes. Leasehold improvements are amortized on a straight-line basis over the
term of the lease.
Maintenance and repair costs are charged to expense as incurred, and renewals
and improvements that extend the useful lives of the assets are added to the
property and equipment.
E. Revenue Recognition.
The Company's revenues are derived principally from two sources. The first
source is the sale of banner and sponsorship advertisements that appear on the
Company's website properties. Sponsorship advertising contracts have longer
terms (ranging from one month to one year) than standard banner advertising
contracts and also involve more integration with Cosmoz's web-sites, such as the
placement of buttons that provide users with direct links to the advertiser's
Web site. Advertising revenues on both banner and sponsorship contracts are
recognized on a prorata basis over the period in which the advertising is
displayed, provided that no significant Company obligations remain at the end of
a period and collection of the resulting receivable is probable. The Company has
agreements that provide revenue from electronic commerce transactions. These
revenues are recognized by the Company upon notification from the advertiser of
revenues earned by Cosmoz.
The Company's second source of revenues is the distribution of advertisements
and reports on behalf of growth stock companies via electronic mail to the
Company's opt-in email distribution list. This opt-in email list was obtained
through marketing efforts in its family of investment-related websites. This
revenue source is derived from ProfitWire, a recently created division.
F. Product and Web-site Development.
Costs incurred in the development of new products or properties and enhancements
to existing products are charged to expense as incurred. Material software
development costs incurred subsequent to the establishment of technological
feasibility are capitalized. Technological feasibility is determined based on
the completion of a working model. The Company has not incurred material
software development costs and accordingly has not capitalized any software
development costs.
F-11
<PAGE>
G. Marketable Securities.
The Company's marketable securities are classified as available-for-sale as of
the balance sheet date and are reported at fair value, with unrealized gains and
losses, net of tax recorded in shareholders' equity. The Company invests its
excess cash in mutual funds and equity securities traded on national stock
markets. Realized gains or losses and permanent declines in value, if any, on
available-for-sale securities are reported in other income or expense as
incurred. As of March 31, 2000, the Company recorded a net unrealized loss of
$5,954.00 on these types of investments.
The Company invests in equity instruments of privately held, Internet and
information technology companies for business and strategic purposes. These
investments are included in other long-term assets and when ownership interest
is less than 20% are accounted for under the cost method. For these non-quoted
investments, the Company's policy is to regularly review such investments and
the assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The Company identifies and records impairment
losses on long-lived assets when events and circumstances indicated that such
assets might be impaired. To date, investment expenses have been recorded.
H. Use of Estimates.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Management makes estimates that affect reserves for discontinued operations,
deferred income tax assets and reserve for discontinued operations. Any
adjustments applied to estimates are recognized in the year in which such
adjustments are determined.
I. Earnings per Share.
The Company follows SFAS No. 128, "Earnings per Share," which establishes
standards for computing and presenting earnings per share ("EPS") and applies to
entities with publicly held common stock or potential common stock. SFAS No. 128
replaces the presentation of primary EPS with basic EPS, and fully diluted EPS
with diluted EPS. It also requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
Basic EPS is computed by dividing net income (loss) by the weighted average
number of common shares outstanding. The diluted EPS calculation gives effect to
all financial securities and instruments that potentially convert into common
shares, such as stock options or warrants, which were outstanding during the
period. Shares issued during the period and shares repurchased by the Company
are weighted for the portion of the period that they were outstanding for both
basic and diluted EPS calculations.
J. Segments of an Enterprise and Related Information.
The Company follows SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The Company has
reported its franchising operations in Canada as discontinued operations, and
the results of its Internet operations as continuing operations.
F-12
<PAGE>
K. Comprehensive Income.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive income
consists of net income and unrealized gains (losses) on available-for-sale
marketable securities and is presented in the consolidated statements of
shareholders' equity and comprehensive income. The Statement requires only
additional disclosures in the consolidated financial statements and does not
affect the Company's financial position or results of operations.
L. Business Risks and Credit Concentrations.
The Company operates in the Internet-Portal industry segment, which is
relatively new, rapidly evolving and highly competitive. The Company relies on
third-party suppliers of topical and relevant information content. There can be
no assurance that the Company will be able to continue product development and
secure content sufficient to support its operations. Financial instruments that
potentially subject the Company to significant concentration of credit risk
consist primarily of cash, cash equivalents, short and long-term investments,
and accounts receivable. Substantially all of the Company's cash, cash
equivalents, and short and long-term investments are managed by two financial
institutions. Accounts receivable are typically unsecured. The Company performs
ongoing credit evaluations of its customers' financial condition. It generally
requires no collateral and maintains reserves for potential credit losses on
customer accounts when necessary. Management estimates that no such reserves are
warranted at March 31, 2000.
M. Foreign Currency and International Operations.
The functional currency of the Company's international subsidiaries, PFI and
WTW, is the Canadian dollar. The financial statements of these subsidiaries are
translated to US dollars using period-end rates of exchange for assets and
liabilities, and average rates of exchange for the year for revenues, costs, and
expenses. Net gains and losses resulting from foreign exchange rate changes are
included in the consolidated statement of operations and were not significant
during the periods presented. There were no foreign exchange transactions during
the nine month period ended March 31, 2000. Foreign operations were discontinued
as of August 1998, and there are no foreign assets as of December 31, 1998.
N. Recent Accounting Pronouncements.
The FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities, effective for fiscal years beginning after June 15, 1999.
The Company is currently not engaged in hedging activities nor does it have any
derivative instruments, thus there is no impact on the current period financial
statements. The American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This standard requires
companies to capitalize qualifying computer software costs, which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company has adopted SOP 98-1 and it deemed to not have a
material impact on the financial statements and related disclosures.
O. Intangibles.
Intangible assets consist of goodwill resulted from acquisition of web-sites,
Internet properties. The difference between the amount received and the market
value of shares issued are recorded as goodwill. The Company estimated that the
economic useful life of the goodwill was seven years.
F-13
<PAGE>
2. Investments.
---------------
At March 31, 2000, short and long-term investments in marketable securities were
classified as available-for-sale as follows:
<TABLE>
<CAPTION>
=============================================================================================================
Gross Amortized Gross Unrealized Gross Unrealized Estimate Fair
----------------------- --------------------- -------------------- --------------------- --------------------
Cost Gain Loss Value
----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Mutual Funds $ 4,142 $47 $ 4,189
----------------------- --------------------- -------------------- --------------------- --------------------
Corporate equity $ 47,880 $ 6,000 $ 41,880
----------------------- --------------------- -------------------- --------------------- --------------------
Securities,
----------------------- --------------------- -------------------- --------------------- --------------------
Privately-held $625,000 $39,019 $585,981
----------------------- --------------------- -------------------- --------------------- --------------------
Total $677,022 $47 $45,019 $632,050
=============================================================================================================
</TABLE>
Investments in corporate equity securities of privately held companies, in which
the Company holds a less than 20% equity interest, are classified as long-term.
The Company made an investment of $375,000 in preferred stock of iPing, Inc.
("iPing"), a New York- based Internet company that operates MrWakeup.com.
MrWakeup.com allows computer users to send or receive customized phone calls
containing headline news, horoscopes and weather from the Internet at a
requested time. The Company's investment in iPing amounted to less than a 20%
equity interest. (see "Subsequent Events", below)
3. Stock Option Plan.
---------------------
The Board of Directors has granted management the authority to issue
non-statutory stock options to employees and consultants of the Company.
Non-statutory stock options issued as of March 31, 2000 are summarized as
follows:
<TABLE>
<CAPTION>
=============================================================================================================
Options Outstanding Weighted Average Price
------------------------------------- ----------------------------------- -----------------------------------
Per Share
------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Balance as of June 30, 1999 200,000 $1.25
------------------------------------- ----------------------------------- -----------------------------------
Options granted 1,273,500 $3.32
------------------------------------- ----------------------------------- -----------------------------------
Options canceled 825,000 $3.18
------------------------------------- ----------------------------------- -----------------------------------
Options exercised 0 0
------------------------------------- ----------------------------------- -----------------------------------
Balance as of March 31, 2000 648,500 $0.82
=============================================================================================================
</TABLE>
The non-statutory stock options are for periods of three to four years. Options
to purchase 263,000 shares were vested as of March 31, 2000.
Through March 31, 2000, the Company recorded compensation expense related to
certain stock options issued with exercise prices below fair market value of the
related common stock. Under APB-25, the cost of compensation is measured by the
excess of the quoted market price of the stock over the option price on the
measurement date. This is referred to as the intrinsic value method. The Company
recorded compensation expense in the amount of $201,400 for the nine-month
period ending March 31, 2000.
Options are usually granted at the prices equal to the current fair value of the
Company's common stock at the date of grant. The vesting period is usually
related to the length of employment or consulting contract period.
On October 15, 1999, options granted to CEO Wilfred Shaw in the amount of
2,500,000 shares expired without being exercised.
On November 17, 1999, the Company's board of directors approved the Cosmoz.com,
Inc. 1999 Stock Option Plan (the "Plan"). On December 20, 1999, the Company's
shareholders, at the Company's annual meeting, approved the Plan, and authorized
a pool of 6,000,000 shares of common stock to be issued according to the Plan.
4. Acquisitions.
----------------
On January 5, 2000, the Company concluded the acquisition of Ivory Acquisition
Corporation ("Ivory"), a fully reporting company under regulation 12(g) of the
Securities Exchange Act of 1934. Ivory has no material assets or liabilities.
The business combination will be accounted for under the pooling method of
accounting. The operations of Ivory previous to the acquisition date were de
minimis.
F-14
<PAGE>
The Company paid the transaction costs of acquisition and initial filing in the
amount of $100,000, and issued 250,000 shares of its common stock in connection
with the acquisition. The acquisition was accounted for as a purchase in
accordance with the provisions of APB 16.
5. Extraordinary Loss.
----------------------
During 1999, the Company terminated its acquisition of Investors Guru, a website
specializing in providing financial content to investors. Under the terms of the
purchase agreement, the Company forwarded an initial payment of $200,000 to the
owners of Investors Guru, which was lost when the acquisition was terminated
prior to completion. Accordingly, the Company has recorded a one-time charge of
$200,000 for the forfeited acquisition.
6. Discontinued Operations.
---------------------------
The Company's management and its Board of Directors decided to discontinue
operations in Canada in July 1998. Operations in Canada consisted of operating
and franchising "Pretzel Twister" stores, and the operation of an automotive
service center "Wheel to Wheel". To implement this decision, the Company
concluded the following transactions:
A. On August 31, 1998, the Company abandoned all operations of Wheel to Wheel,
including its facilities lease. The Company disposed of the assets of the Wheel
to Wheel store and used the proceeds to settle liabilities to the extent of
available funds.
B. In July 1998, the Company abandoned all operations of Pretzel Franchising,
Inc. The Company informed its franchisees that PFI had ceased operation, and the
Company-operated store in Toronto, Ontario was closed.
In consideration of the issues listed above, the Company continues to maintain a
reserve for potential loss contingencies from discontinued operations of
approximately $85,000. There are no assets from discontinued operations on the
balance sheet. The liabilities attributable to discontinued operations are
identified as such on the balance sheet.
7. Common Stock Transactions.
-----------------------------
On January 10, 2000, the Company issued 3,375,000 shares of its common stock
having a market value of $4,218,750 to three executive officers, who are also
directors of the Company, and to one employee. This distribution was made to
secure the services of these officers and employee, and to serve as a continuing
incentive to remain with the Company. These officers and one employee
subsequently canceled all 3,375,000 shares (see "Subsequent Events", below).
The Company issued 50,000 shares of its common stock to an individual in lieu of
cash compensation which had a market value of $75,000.00 in exchange for
drafting weekly articles for publishing on the Company's websites. The Company
also issued common stock to individuals and companies in lieu of cash
compensation.
The Company has issued outstanding warrants to purchase 4,000,000 shares of its
common stock at an exercise price of $0.75. The warrants expire on February 9,
2002.
8. Related Party Transactions.
------------------------------
The following transactions occurred between the Company and certain related
parties:
A. Asia Pacific Ventures. Asia Pacific Ventures ("APV") is a Hong Kong-based
company, and its authorized representative was Wilfred Shaw, the current CEO of
Cosmoz. APV has loaned money to the Company in previous years. The net of
advances due from shareholders and officers consists of overpayments by Cosmoz
on loans made by APV to the Company. APV holds 9.27% of the Company's common
stock, and APV's current authorized representative is a family member of Wilfred
Shaw, current CEO of the Company. The amount due from the shareholder at June
30, 1999 totaling $188,142 was paid in full on January 21, 2000.
F-15
<PAGE>
B. Wilfred Shaw. The following transactions took place between the Company and
Wilfred Shaw, the CEO and Chairman of the Board of Directors: The Company repaid
to Mr. Shaw $596,875 in the form of publicly traded securities for full
settlement of the outstanding debt of the Company to Mr. Shaw. The borrowing did
not bear any interest. Mr. Shaw repaid the Company $900,000 for full settlement
of the advances made to him by the Company. The loan to Mr. Shaw did not bear
any interest. Mr. Shaw has been performing the duties of President and CEO of
Cosmoz starting July 1, 1998 to December 31, 1999, and he has received no
remuneration for his services. He has performed these services pro bono.
Mr. Shaw also did not receive any remumeratin for the period starting July 1,
1998 to December 31, 1999 for serving as the Chairman of the Board of Directors.
Mr. Shaw has $60,000 in director fees due from the Company for serving as the
Chairman of the Board of Directors for the period prior to June 30, 1998. The
amount is included in the liabilities for discontinued operations.
C. Sharpmanagement.com, LLC. On January 10, 2000, the Company issued 1,250,000
shares of the Company's common stock that had a market value of $1,562,500.00 to
Sharpmanagment.com, LLC ("SharpManagement"). SharpManagement is 100% owned by
Wilfred Shaw. The Company issued the shares to SharpManagement to secure the
services of Wilfred Shaw as CEO and Director of the Company. SharpManagement
subsequently canceled the shares (see "Subsequent Events", below).
D. Amounts Due to Related Parties. In February, 2000, Asia Pacific Ventures, a
related party, advanced to the Company $250,000.00. The note payable is due upon
demand and bears an annual interest rate of 12%.
9. Commitments and Contingencies.
A. Legal. The Company is periodically involved in legal actions and claims that
arise as a result of events that occur in the normal course of operations,
including claims of alleged infringement of trademarks, copyrights and other
intellectual property rights. The Company is not currently aware of any legal
proceedings or claims that the Company believes will have, individually or in
the aggregate, a material adverse effect on the Company's financial position or
results of operations.
B. Operating Leases. The Company signed a lease termination agreement on March
27, 2000 with G & I Howard, LLC in connection with its previously leased
principal office at 55 Hawthorne Street, Suite 550, San Francisco, California,
94105. The Company paid a $3,081.00 termination fee. The lease termination
agreement constitutes a full and final accord and satisfaction and general
release from any and all obligations and liabilities in connection with the
lease.
On March 1, 2000, the Company's principal executive offices relocated to a 5,900
square foot facility at 1515 S. El Camino Real, Suite 100, San Mateo, California
94402. The Company leases the facility under a 3-year agreement that terminates
on February 28, 2003, with no renewal option. The aggregate annual rental rate
for the entire facility for the first, second, and third years of the lease term
is $248,094, $255,182, and $262,271, respectively. The Company is also obligated
to pay 33.34% of increases in operating expenses and property taxes paid or
incurred by the landlord in the second and third years of the lease term. All
operations including system development, control, and maintenance are performed
at this facility.
10.Going Concern Uncertainties.
-------------------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has experienced recurring
operating losses and negative cash flows from operations. The Company's
continued existence is dependent upon its ability to increase operating revenues
and/or raise additional equity financing.
F-16
<PAGE>
In view of these matters, management believes that actions presently being taken
to expand the Company's operations and to continue its web-site development
activity provide the opportunity for the Company to return to profitability. The
Company is currently in negotiations to obtain additional equity financing,
which enable it to achieve its strategic objectives.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
11.Subsequent Events.
A. Cancellation of Prior Stock Grant. As described above, on January 10, 2000,
the Company issued 3,375,000 shares of its common stock having a market value of
$4,218,750 to three executive officers, who are also directors of the Company
(including SharpManagement, LLC), and to one employee. This distribution was
made to secure the services of these officers and employee, and to serve as a
continuing incentive to remain with the Company. On or about May 11, 2000, these
officers and one employee executed written agreements agreeing to cancel all
3,375,000 shares. In consideration for such cancellation, the board has proposed
that option grants in the aggregate amount of 4,367,466 options be granted under
the Company's 1999 Stock Option Plan (the "Plan") to these officers and one
employee.
B. Stock Option Grants. On April 17, 2000, the Company's board of directors
granted an aggregate amount of 617,502 options to purchase the Company's common
stock. The grants were made pursuant to the Plan. 367,502 of the options were
Incentive Stock Options granted to full-time employees of the Company, and
250,000 were Non-Statutory Stock Options granted to an outside director in order
to secure his services.
C. IPing Acquisition. On April 26, 2000, eCal Corporation ("eCal") acquired
iPing, Inc. ("iPing"). Cosmoz' early-stage investment in iPing was converted
from 500,000 Series B iPing Preferred Stock into $375,000.00 in addition to
56,108 shares of eCal Common Stock.
D. Tupelo Investment Co., Ltd. ("Tupelo"). On May 6, 2000, the Company signed a
subscription agreement with Tupelo Investment Co., Ltd. to purchase 3,030,303
shares of the Company's restricted common stock at a discount from market price
of $0.33 per share, for an aggregate consideration of One Million Dollars
($1,000,000). Total payment shall be made in five equal monthly installments
commencing May 31, 2000. Each installment payment shall be paid no later than
30th of the month until the aggregate amount of $1,000,000 is fully paid. As of
June 30, 2000, the Company had received payment of $400,000 from Tupelo
Investment under this agreement.
F-17
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Number of Sequential
Item Numbering
Assigned in System
Regulation Page Number
S-K, Item 601 Description of Exhibit of Exhibit
-------------- -------------------------- ------------
<S> <C> <C>
(2) 2.1. Agreement and Plan of Reorganization between Cosmoz.com, Inc. and Ivory *
Acquisition Corporation dated January 5, 2000. Certificate of Ownership and
Merger Merging Ivory Acquisition Corporation into Cosmoz.com, Inc. (Incorporated
by reference to Exhibit 2 to Form 8-K/A, File No.: 000-28377)
(3) 3.1. Articles of Incorporation of Cosmoz.com, Inc. (Incorporated by reference to *
Exhibit 3.(I) to Form 8-K/A, File No.: 000-28377)
3.2. By-Laws of Cosmoz.com, Inc. (Incorporated by *
reference to Exhibit 3.(II) to Form 8-K/A, File
No.: 000-28377)
(5) 5.1. Opinion of Boyd re: Legality *
(10) 10.1. Cosmoz.com, Inc. 1999 Stock option plan. (Incorporated by reference to *
Exhibit 10.1 to Form 10-Q, File No.: 000-28377)
10.2. Owen Naccarato Director's Agreement. (Incorporated by reference to Exhibit *
10.2 to Form 10-Q, File No.: 000-28377)
10.3. Management and Consulting Agreement Between Us and SharpManagement, LLC. 33 - 35
10.4. Investment Agreement Between Us and Swartz Private Equity, LLC. 36 - 69
10.5. Warrant to Purchase Our Common Stock Issued in Connection With the
Investment Agreement Between Us and Swartz. 70 - 76
10.6. Registration Rights Agreement issued in connection with the Investment 77 - 84
Agreement Between Us and Swartz.
10.7. Warrant Side Agreement Issued in Connection With Investment Agreement 85 - 86
Between Us and Swartz.
10.8. Commitment Warrant to Purchase Our Common Stock Issued in Connection With 87 - 94
Investment Agreement Between Us and Swartz.
(21) 21.1. Subsidiaries of the Registrant. 95
</TABLE>
* incorporated by reference
29
<PAGE>
UNDERTAKINGS.
We undertake:
(1) To file, during any period in which offers or sales are being made, a post
effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information for plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, 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 (1) to provide to the underwriter
at the closing specified in the standby underwriting agreement, certificates in
such denominations and registered in such names as required by the underwriter
to permit prompt delivery to each purchaser; (2) that for purposes of
determining any liability under the Act, the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and (3) that
for the purpose of determining any liability under the Act, each post effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to supplement the prospectus, after
the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post effective amendment will be
filed to set forth the terms of such offering.
30
<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 San Mateo, California, on August 18,
2000.
COSMOZ.COM, INC.
By: /s/ Wilfred Shaw
----------------------------------------
Wilfred Shaw
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
SIGNATURE TITLE DATE
--------------------------------------------------------------------------------
/s/ Wing Yu
-----------------
Wing Yu COO and Director August 18, 2000
/s/ Linda Leung
-----------------
Linda Leung Controller August 18, 2000
/s/ Michael Spadaccini
----------------------
Michael Spadaccini General Counsel, Secretary August 18, 2000
31
<PAGE>
EXHIBIT 5.1. OPINION OF COUNSEL RE: LEGALITY
[Opinion of Counsel shall be filed as an amendment to the Registration
Statement]
32
