As filed with the Securities and Exchange Commission on March 15, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________________
NATIONAL MEDIA TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
New York 7371 13-3859618
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
59 John Street
New York, New York 10038
(800) 795-7490
(212) 271-6292 Facsimile
(Address, including zip code, and telephone number, including area code,
of Registrant's executive offices)
________________________________
ANTHONY L. WILLSEA
President and Chief Executive Officer
National Media Technologies, Inc.
59 John Street
New York, New York 10038
(800) 795-7490
(212) 271-6292 Facsimile
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
________________________________
Copies to:
Kenneth S. Rose, Esq. Andrew Cosentino, Esq.
Morse, Zelnick, Rose & Lander, LLP Greenberg Traurig, LLP
450 Park Avenue 200 Park Avenue
New York, New York 10022 New York, New York 10166
(212) 838-5030 (212) 801-9200
(212) 838-9190 Facsimile (212) 805-9304 Facsimile
________________________________
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
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, as amended (the "Securities Act"), check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. |_|
________________________________
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities to be Registered Price(1) Registration Fee
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Common Stock, $.01 par value........ $28,050,000.00 $7,433.25
================================================================================
(1) Estimated solely for purposes of calculating the amount of the
registration fee paid pursuant to Rule 457(o) under the Securities Act.
________________________________
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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PROSPECTUS (Subject to Completion)
Dated March 15, 2000
_____________ COMMON SHARES
[COMPANY LOGO]
NATIONAL MEDIA TECHNOLOGIES, INC.
____________
This is our initial public offering. We are offering common shares. We
expect the public offering price to be between $____ and $____ per share.
No public market currently exists for our common shares. We will apply to
have our common shares listed on the Nasdaq National Market under the symbol
"NATL."
See "Risk Factors" beginning on page 9 to read about factors you should
consider before buying our common shares.
____________
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
____________
Per Share Total
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Initial public offering price.................. $ $
Underwriting discounts and commissions......... $ $
Proceeds to us, before expenses................ $ $
We and our principal shareholder have granted the underwriters a 45-day
option to purchase up to an additional common shares at the initial public
offering price less the underwriting discounts and commissions to cover
over-allotments.
____________
ROTH CAPITAL PARTNERS, INC.
The date of this Prospectus is ________, 2000
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INSIDE FRONT COVER
GRAPHIC FEATURING SCREEN SHOTS OF THE FOLLOWING WEB SITES DEVELOPED
BY NATIONAL MEDIA TECHNOLOGIES:
HOME PAGE OF IPOPLUS.COM, the online investment bank
CUSHMAN & WAKEFIELD FINANCIAL SERVICES HOME PAGE
EDGAR123.COM HOME PAGE
Screen shots of the home pages of the Web sites developed for Whale Securities
and Cushman & Wakefield financial services and for our EDGAR123.com site.
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Table of Contents
Page Page
---- ----
Prospectus Summary............. Business........................
Risk Factors................... Management......................
Use of Proceeds................ Certain Transactions............
Dividend Policy................ Principal Shareholders..........
S Corporation Termination...... Description of Capital Stock....
Capitalization................. Shares Eligible for Future Sale.
Dilution....................... Underwriting....................
Selected Financial Data........ Legal Matters...................
Management's Discussion and Experts.........................
Analysis of Financial Where You Can Find
Condition and Results More Information.............
of Operations................ Index to Financial Statements...
Unless otherwise stated, all information contained in this prospectus
assumes no exercise of (a) the over-allotment option to purchase up to _________
common shares granted to the underwriters, (b) warrants to purchase _________
common shares to be granted to the representatives of the underwriters in
connection with the completion of this offering, (c) _________ common shares
issuable upon exercise of options granted under our 1998 stock option plan and
(d) _________ common shares reserved for issuance under our 2000 stock option
plan.
Until _________, 2000 (the 25th day after the date of this prospectus) all
dealers effecting transactions in our common shares, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
You may rely on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor sale of common shares
means that information contained in this prospectus is correct after the date of
this prospectus. This prospectus is not an offer to sell or solicitation of an
offer to buy our common shares in any circumstances under which the offer or
solicitation is unlawful.
3
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information you should consider before investing in our common shares. You
should read this entire prospectus carefully, including our financial statements
and the notes to those statements. Except as otherwise indicated, all
information in this prospectus assumes a _______-for-1 stock split, which will
be implemented immediately before this offering, resulting in _________ common
shares outstanding before the sale of shares offered by this prospectus.
National Media Technologies
We are a rapidly growing business-to-business Internet professional
services company. We use a combination of software and services to create,
design and deliver secure business-critical communications to the financial,
business and legal communities. We incorporate text, sophisticated graphics,
audio and/or video into an integrated, interactive, searchable and easy-to-use
format. Our communications are delivered over Web-based channels, such as the
World Wide Web, intranets, extranets and wireless networks as well as CD-ROMs.
We enable our customers to deliver time-sensitive, business-critical information
to their target audiences securely and in an effective, consistent and
cost-efficient manner.
Our services include securities compliance filings, Web site development,
preparation of electronic brochures, interactive multimedia presentations and
virtual tours. As the leading independent securities compliance filing service,
we prepare and file compliance documents, such as registration statements and
proxy materials. These documents are filed with the Securities and Exchange
Commission via our secure, dedicated, proprietary, 10-channel frame-relay
system. We have also developed a proprietary communications model -- SOLID(SM)
- -- to securely deliver investment and offering documents over the Internet. We
currently market this service primarily to real estate investment banks in
connection with commercial real estate transactions and to investment banks in
connection with public offerings and private placements. We have entered into
exclusive term contracts with Cushman & Wakefield, Sonnenblick-Goldman and
Eastdil Realty to develop and coordinate their online property offerings.
The emergence of the Web as a global communications medium has enabled
companies to gather information, communicate and conduct business electronically
over Web-based channels. The ability to communicate effectively represents an
important competitive advantage for business enterprises under increasing
pressure to operate more efficiently and to better serve the needs of their
customers. However, there are a number of technical and economic challenges that
have prevented business enterprises, particularly smaller ones, from taking full
advantage of the opportunities presented by the Web. We believe we have
developed a highly effective and cost-efficient means for creating, designing
and delivering time-sensitive, business-critical communications securely and in
an integrated, interactive, searchable and easy-to-use format.
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We believe that we provide our customers with many benefits, including:
o Comprehensive service offerings. We offer our customers a broad
range of services for the creation, design and delivery of their
business communications.
o Enhanced communication. We deliver time-sensitive, business-critical
communications in a consistent, visually rich and interactive
manner.
o Reduced cost. Our services eliminate many of the costs and expenses
typically associated with traditional communication methods.
o Increased speed and flexibility. Our services enable businesses to
publish and distribute information faster and with more flexibility
than traditional business communication methods.
o Secure and reliable service. We offer our customers a highly secure
and reliable computing environment.
Our objective is to become a leading business-to-business Internet
professional services company. Key elements of our strategy include:
o expanding our presence in the markets we currently serve;
o leveraging our reputation to expand into new markets;
o expanding and enhancing our service offerings;
o increasing our marketing and promotional activities; and
o pursuing strategic relationships and acquisitions.
Our History
We were organized in 1995 under the name National Filing Services, Inc. to
capitalize on the escalating demand for securities compliance filing services.
In June 1999 we changed our name to National Media Technologies, Inc. to more
accurately reflect our expanded service offerings. Our executive offices are
located at 59 John Street, New York, New York 10038 and our telephone number is
(800) 795-7490. We maintain a site on the World Wide Web at www.natlmedia.com;
however, the information found on our Web site is not a part of this prospectus.
We also maintain sales and production offices in Boston, Massachusetts, Chicago,
Illinois and Ft. Lauderdale, Florida.
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The Offering
Common shares offered.............. ________________
Common shares to be
outstanding after the
offering........................ ____________, or ____________ if the
underwriters exercise their
over-allotment option in full.
Use of proceeds.................... Repayment of debt, general corporate
purposes, which may include strategic
acquisitions or investments, upgrades
of internal systems and working
capital requirements.
Proposed NASDAQ symbol............. NATL
Risk factors....................... Investment in our common shares
involves significant risk and you
could lose your entire investment.
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Summary Financial Information
The following table presents a summary of our financial information. Since
our inception we have been an S corporation for Federal and state income tax
purposes. Immediately before this offering is consummated we will terminate our
S election. Pro forma statement of operations data reflects an adjustment to
show assumed Federal and state income taxes for the year ended December 31, 1999
as if we were a C corporation for income tax purposes.
Pro forma balance sheet data gives effect to the following transactions
occurring after December 31, 1999 and before the date of this prospectus:
o the receipt of an aggregate of $1.0 million of loan proceeds;
o the payment of $50,000 for software licenses acquired as part of a
litigation settlement;
o a distribution of $650,000 to our sole shareholder; and
o a capital contribution of $650,000 by our sole shareholder.
Pro forma balance sheet data as adjusted for this offering also takes into
account the following:
o the receipt of the estimated net proceeds of this offering of
$_________ assuming an initial public offering price per share of
$_________, less underwriting discounts and commissions and
estimated offering expenses payable by us;
o the repayment of a $950,000 subordinated note out of the offering
proceeds;
o the repayment of a $357,000 loan from our sole shareholder out of
the offering proceeds; and
o the conversion of a $50,000 convertible subordinated note into a
number of common shares having a value of $1.0 million based on the
initial public offering price per share.
The following information should be read together with the sections of this
prospectus entitled "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our audited
balance sheets as of December 31, 1998 and 1999 and the related statements of
operations, shareholder's equity/deficiency and cash flows for each of the three
years in the period ended December 31, 1999 and the related notes, included
elsewhere in this prospectus.
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Year ended December 31,
-----------------------------
1997 1998 1999
------ ------ ------
(in thousands, except share
and per share data)
Statement of operations data:
Revenues.................................... $3,419 $3,332 $5,024
Gross profit................................ 2,192 2,045 3,179
Selling, general and administrative
expenses.................................. 1,231 1,926 2,667
Non-cash stock compensation................. -- 246 --
Litigation settlement....................... -- 700 --
Income (loss) before provision
(benefit) for income taxes................ 1,012 (857) 448
Provision (benefit) for income taxes........ 85 (19) 50
Net income (loss)........................... $ 927 $ (838) $ 398
====== ====== ======
Basic net income (loss) per share........... $ $ $
====== ====== ======
Diluted net income (loss) per share......... $ $ $
====== ====== ======
Basic weighted average number of common
shares outstanding........................
====== ====== ======
Diluted weighted average number of
common shares outstanding.................
====== ====== ======
Pro forma statement of operations data
(unaudited):
Income before provision for income
taxes..................................... $ 448
Pro forma income tax expense................ 206
------
Pro forma net income........................ $ 242
======
Pro forma basic net income per
share..................................... $
======
Pro forma diluted net income per
share..................................... $
======
Number of shares used in computing
pro forma basic net income per
share.....................................
======
Number of shares used in computing
pro forma diluted net income per
share.....................................
======
As of December 31, 1999
------------------------------------------
Pro forma,
as adjusted
for the
Actual Pro forma offering
-------------- ------------ ------------
(in thousands)
Balance sheet data:
Current assets.................... $ 941 $ 1,241 $
Working capital (deficiency)...... (930) (930)
Total assets...................... 1,411 1,711
Total liabilities................. 1,903 2,203
Shareholder's equity (deficit).... (492) (492)
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RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information in this prospectus,
including our financial statements and the notes to those statements, before you
purchase any common shares. Additional risks and uncertainties, including those
generally affecting the market in which we operate or that we currently deem
immaterial, may also impair our business. The information in this prospectus
includes forward-looking statements that involve risks and uncertainties. These
statements refer to our future plans, objectives, expectations and intentions.
These statements may be identified by the use of words such as "believes,"
"may," "will," "expects," "anticipates," "intends," "plans" and similar
expressions. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those discussed in this section and in the sections of this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Risks Related to Our Business
Our limited operating history makes it difficult to predict our future success.
Our business has evolved, making predictions of future profitability even more
difficult.
We were organized in November 1995 and commenced operations in February
1996 to provide securities compliance filing services to the financial, business
and legal communities. Since then our business has expanded so that we now offer
a variety of services. Accordingly, we have a limited operating history upon
which you can evaluate our business and prospects. You should evaluate our
chances of financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with starting a new
business in the rapidly changing and highly competitive Internet professional
services market, many of which may be beyond our control.
Our services are being marketed to niche markets and it is uncertain whether the
principal participants in these markets will change their existing methods of
doing business.
We plan to aggressively market our proprietary format for distributing
investment and offering documents online to the real estate investment banking
and investment banking industries. We also intend to aggressively market our Web
site development services to regional investment banks as they migrate to the
Internet. We do not expect that investment banks will purchase our services
without intensive sales and marketing efforts. Various factors could adversely
affect our efforts, including overcoming concerns about security issues and a
general reluctance to move away from traditional methods of doing business. Our
potential customers may have a substantial investment in their current
production and distribution methods and may be reluctant to adopt a new approach
that will compete with or replace their existing methods.
The emerging market for Internet professional services is relatively new and
there is no assurance that it will continue to grow.
The market for Internet professional services has only recently begun to
develop, is rapidly evolving and is characterized by an increasing number of
market entrants. The market for our services is new and rapidly evolving.
Therefore, it is difficult to predict with any assurance whether such services
will achieve or maintain commercial acceptance or the growth rate or the
ultimate size of the market. If the market fails to develop, develops more
slowly than expected, or becomes saturated with competitors, our products and
services do not achieve market acceptance, or our pricing becomes subject to
significant competitive pressures, our business, results of operations and
financial condition would be materially and adversely affected.
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Our business could be materially and adversely affected by a downturn in the
financial and real estate markets.
Most of our revenues are derived from companies in the financial services
and real estate industries. Our growth thus far reflects the recent strength of
the capital markets, both public and private, and the real estate market. If the
capital markets were to contract, the number of securities compliance filings
would probably decrease, as would the number of private placements and public
offerings. The real estate market also would be negatively affected, decreasing
investor demand.
Our quarterly financial results are subject to significant fluctuations due to
many factors, any of which could adversely affect our stock price.
Our revenues and operating results may vary significantly from quarter to
quarter and, therefore, quarter to quarter comparisons of our operating results
may not be meaningful and may not be indicative of our future performance. It is
possible that our operating results may fall below the expectations of analysts
and investors. Any decline in revenues or earnings or a greater than expected
loss for any quarter could cause the market price of our common shares to
decline. The factors, some of which are outside our control, which may cause our
financial results to vary from quarter to quarter include:
o the number, size and scope of our client engagements;
o unanticipated delays, deferrals or cancellations of client
engagements or unanticipated changes in the scope of major client
engagements;
o the efficiency with which we utilize our billable professionals,
plan and manage our existing and new client engagements and manage
future growth;
o the extent to which we use subcontractors or hire new billable
professionals whom we may not be able to immediately utilize on
client engagements;
o variability in market demand for Internet professional services;
o our ability to attract qualified professionals in a timely and
effective manner;
o our ability to complete fixed-fee engagements on budget;
o changes in pricing policies by us or our competitors; and
o general economic conditions.
We generate a large portion of our revenues from a small number of clients.
We derive a significant portion of our revenues from a limited number of
clients. For example, in 1999 three clients accounted for 54.0% of our revenues,
one of which accounted for approximately 36.0% of our revenues. We expect a
relatively high level of client concentration to continue. The volume of work
performed for these clients may not be sustained from year to year and there is
a risk that these principal clients may not retain us in the future. To the
extent that any significant client uses less of our services or terminates its
relationship with us, our revenues in the relevant fiscal period could
substantially decline and our operating results could be adversely affected.
10
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Our revenues are difficult to predict because they are generated on a
project-by-project basis.
Our revenues are derived primarily from project-based client engagements,
which vary in size and scope. As a result, our revenues are difficult to predict
from period to period. Our revenue growth and operating results would be
adversely affected if we cannot secure new client engagements to replace
completed projects.
We perform work for clients without contracts or under contracts that are
terminable upon little or no notice. Any termination could result in a loss.
In general, our client contracts tend to be short-term agreements and may
be terminated by the client upon 30, 60 or 90 days prior written notice.
Furthermore, our clients can generally reduce the scope of an engagement without
penalty and with little or no notice. If a client terminates a contract before
we complete the project or reduces the scope of an engagement, we may be unable
to recoup the revenues we would have earned had the contract not been
terminated. Also, a substantial portion of our expenses, including those related
to employee compensation and equipment, are relatively fixed. Consequently, if
we cannot quickly enter into new agreements to replace the terminated
agreements, we will continue to incur those costs without having the benefit of
any related revenues.
The loss of our founder and chief executive officer would make it difficult to
implement our growth strategy, complete existing projects and bid for new
projects.
Our success depends on the continued services of our founder and chief
executive officer, Anthony L. Willsea. If Mr. Willsea were unable or unwilling
to continue to be actively involved in our business, our client relationships
and our ability to implement our growth strategy, complete existing projects and
bid for new projects could be severely impaired. We intend to enter into an
employment agreement with Mr. Willsea prohibiting him from competing with us or
soliciting our clients for a period of three years after his employment
terminates. However, the enforceability of these restrictions has never been
addressed by a court and we cannot assure that they will be upheld if
challenged.
Our executive management team has limited experience working together, which may
make it difficult to conduct and grow our business.
Most of our senior executive officers are relatively recent hires. Our
chief marketing officer was hired in February 1999, and our executive vice
president -- Internet/new media services and chief financial officer joined us
in May 1999. Therefore, there has been little opportunity to evaluate the
effectiveness of our executive management team as a combined unit. The failure
of executive management to function effectively as a team may have an adverse
effect on our ability to obtain and execute client engagements, maintain a
cohesive culture and compete effectively in the marketplace.
Our inability to attract, hire and retain qualified professionals could hinder
our ability to serve our clients and implement our growth strategy.
If we cannot attract, hire and retain the qualified Internet professionals
and technical personnel that are integral to our business, we may not be able to
complete existing projects, take on new projects or develop new products and
services. We must continually recruit talented professionals in order for our
business to grow. These professionals must have skills in business strategy,
marketing, branding, technology and creative design. The Internet professional
services market is labor intensive and currently there is a shortage of
qualified technical personnel that is likely to continue into the foreseeable
future.
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We may be unable to manage our growth.
Our revenues for the year ended December 31, 1999 increased 51.5% over
1998 revenues. The number of our employees increased from 12 at January 1, 1997
to 43 at December 31, 1999. This rapid growth has placed, and our planned future
growth will continue to place, a significant strain on our operational,
managerial, technical and financial resources. We cannot assure you that we will
be able to manage our growth effectively. To manage future growth, we must
continue to improve our operational and financial systems, procedures and
controls and expand, train, manage and retain our employees. In addition, our
growth strategy contemplates strategic acquisitions as a means to acquire new
talent and expertise and gain access to new markets. Acquisitions involve
numerous risks and uncertainties including costs, delays and difficulties of
integrating the acquired company's operations, technologies and personnel into
our existing operations, organization and culture.
We may need additional capital in the future, which may not be available to us.
In the future, we may need to raise additional funds, either through
public or private financings, to take advantage of expansion or acquisition
opportunities, develop new services or compete effectively in the marketplace.
Future liquidity and capital requirements will depend upon numerous factors,
including the success of our existing and new services and competing
technological and market developments. We may not be able to obtain additional
financing when needed on favorable terms. We have not entered into any
agreements to raise additional funds.
We face intense competition and may be unable to compete effectively.
The Internet professional services market is relatively new and highly
competitive. We expect competition to further intensify as this market rapidly
evolves. Increased competition could result in price reductions, reduced gross
margins and loss of market share, any of which could have a material and adverse
affect on our business, results of operations and financial condition. Many of
our competitors have longer operating histories, larger client bases, longer
relationships with their clients, greater brand or name recognition and
significantly greater financial, technical and marketing resources than we do.
Consequently, our competitors may be in a better position than we are to respond
quickly to new or emerging technologies, address changes in client requirements,
adopt more aggressive pricing policies, make attractive offers to potential
employees and strategic partners and devote resources to the development,
promotion and sale of products and services.
Our competitors vary in size and in the scope and breadth of services
offered. We believe that our primary competitors include the following
companies:
o Internet professional service firms including Scient, Viant,
Razorfish, Proxicom, Sapient and USWeb;
o technology consulting firms and integrators including the consulting
affiliates of the major accounting firms, Diamond Technology
Partners, EDS and IBM;
o in-house information technology, marketing and design service
departments of our current and potential clients;
o multimedia production and entertainment companies including Digital
Lava, Pacific Media and DigitalThink;
o large financial printers including Merrill Corporation, Bowne, R.R.
Donnelley & Sons and Global Financial Press; and
o corporate filing services including ADP, CCH and Prentice Hall.
In addition, the emergence of new competitors may pose a threat to our
business. There are relatively low barriers to entry into the Internet
professional services market. Existing or future competitors may develop and
offer services that are superior to, or have greater market acceptance than
ours.
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Our business may suffer and we may not be able to implement our growth strategy
if we are unable to maintain our reputation and expand our name recognition.
We believe that establishing and maintaining a strong reputation and
increasing brand awareness of our products and services are critical for
attracting and retaining clients and employees. We also believe that the
importance of reputation and name recognition will increase due to the growing
number of Internet professional services providers. In order to establish and
maintain our good name and reputation, we must continue to provide secure, high
quality, efficient service. In order to build brand awareness for our products
and services, we must expand our marketing efforts.
If third parties ever assert that we have infringed on their intellectual
property rights or that our employees have misappropriated their proprietary
information, we could incur substantial costs, experience diversion of
management's attention and disruption of our business.
Third parties may assert infringement claims against us in the future or
claim that we have violated their intellectual property rights. We have recently
settled one such claim. While we know of no basis for any future claims of this
type, authorship of intellectual property rights can be difficult to verify.
Competitors could assert, for example, that former employees of theirs whom we
have hired have misappropriated their proprietary information for our benefit.
Our business may suffer if we are unable to renew our software licensing for
EDGARease(C) or if we have disputes over our right to reuse intellectual
property developed for specific clients.
Currently, we license EDGARease(C), a program that converts documents into
the EDGAR ASCII format required by the SEC, from Document Technologies, Inc. If
we are unable to maintain or renew such license, we would be forced to
discontinue our use of this software and develop or license comparable
technology which may not be available. In addition, when we develop software
applications for discrete client engagements, we typically retain the right to
reuse the applications, processes and other intellectual property we develop.
Issues relating to the rights to intellectual property can be complicated, and
disputes may arise that could adversely affect our ability to reuse these
applications, processes and other intellectual property. These disputes could
damage our relationships with our clients and our business reputation, divert
our management's attention and have a material adverse effect on our ability to
maintain or grow our business.
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Risks Related to Our Industry
If we do not keep pace with changing technologies and client preferences, our
current services may become obsolete or unmarketable.
Our business and the Internet professional services market is
characterized by rapidly changing technologies, evolving industry standards,
frequent new product and service introductions, and changing customer demands.
To be competitive and serve our clients effectively, we must respond on a timely
and cost-efficient basis to changes in technology, industry standards and client
preferences. We may experience technical or other difficulties that prevent or
delay our responses. These delays could cause our current services to become
obsolete and unmarketable. In addition, we may incur substantial costs if we
need to modify our services or infrastructure in order to adapt to these
changes.
Our business depends on continued growth in the use of the Internet.
If the usage and volume of commercial transactions on the Internet does
not continue to increase, demand for our services may decrease and our business,
results of operations and financial condition could materially suffer. The
future of our business depends upon continued growth in Internet usage by our
clients, prospective clients and their customers and suppliers. Growth in
Internet usage has caused capacity constraints that may potentially impede
further growth if left unresolved. The factors that may affect Internet usage or
e-commerce adoption include:
o actual or perceived lack of security of information;
o congestion of Internet traffic or other usage delays;
o inconsistent quality of service;
o increases in Internet access costs;
o increases in government regulation;
o uncertainty regarding intellectual property ownership;
o reluctance to adopt new business methods;
o costs associated with the obsolescence of existing infrastructure;
and
o economic viability of e-commerce models.
If the Internet infrastructure is not adequately maintained, we may be unable to
provide our products and services in a timely manner.
Our future success will depend, in substantial part, upon the continued
development of the Internet technology infrastructure, including a reliable
network backbone with the necessary speed, data capacity and security, and the
timely development of enabling products, including high-speed modems, for
providing reliable and timely Internet access and services. To the extent that
the Internet continues to experience increased numbers of users, frequency of
use or increased bandwidth requirements of users, the Internet infrastructure
may not continue to support the demands placed on it and as a result, the
performance or reliability of the Internet may be adversely affected.
Furthermore, the Internet has experienced a variety of usage and other delays.
The infrastructure and complementary products and services necessary to maintain
the Internet as a viable commercial medium may not be developed or maintained.
Moreover, critical issues concerning the commercial use of the Internet,
including security, cost, ease of use and access, intellectual property
ownership and other legal liability issues, remain unresolved and could
materially and adversely affect both the growth of Internet usage generally and
our business, results of operations and financial condition in particular.
14
<PAGE>
System failures may interrupt or delay our ability to provide our services and
security breaches could be harmful to our reputation.
The continued and uninterrupted performance and security of our computer,
data and telecommunications systems is critical to our success. Any system
failure that causes interruptions or delays in our ability to deliver our
services to our clients could reduce customer satisfaction, damage our
reputation and cause us to lose clients. Security breaches would also have a
material adverse effect on us. We must protect our computer, data and
telecommunications systems against viruses, vandalism, other malicious acts and
similar unexpected adverse events. The occurrence of any of these events would
cause us to be unable to operate our business for a substantial period of time
or could harm our reputation. Although we carry general liability insurance, our
insurance may not cover claims by dissatisfied customers or may not be adequate
to indemnify us for any liability we may incur if we are the subject of a claim.
Increasing government regulation could adversely affect our business.
Due to the increasing popularity of the Internet, various laws or
regulations relating to the Internet have been proposed or adopted and the
application of existing laws and regulations to the Internet is being reviewed
by various governmental agencies. An increase or change in federal, state or
foreign legislation or regulation of e-commerce could hinder the Internet's
growth and could decrease its usage as a commercial marketplace. If this decline
occurs, existing and prospective clients may decide not to use our services. In
addition, a number of legislative proposals have been made at the federal, state
and local levels and by foreign governments that could impose taxes on online
commerce. The three-year moratorium preventing state and local governments from
taxing Internet access, taxing electronic commerce in multiple states and
discriminating against electronic commerce is scheduled to expire on October 21,
2001. If the moratorium ends, state and local governments could impose these
types of taxes or discriminate against electronic commerce. In addition,
existing state and local laws that tax Internet related matters were expressly
excluded from this moratorium. These regulations, and other attempts at
regulating commerce over the Internet, could impair the viability of e-commerce
and the growth of our business.
Risks Related to this Offering
The market price of our common shares could fluctuate significantly.
The market price of our common shares could fluctuate significantly after
this offering in response to a variety of factors, many of which may be beyond
our control, including the following:
o changes in financial estimates or investment recommendations by
securities analysts following our business;
o quarterly operating results falling below or exceeding analysts' or
investors' expectations in any given period;
o changes in economic and capital market conditions for Internet and
other Internet professional service companies;
o changes in market valuations of, or earnings and other announcements
by, Internet professional services and other Internet technology
companies;
o announcements by us or our competitors of new service offerings,
contracts, acquisitions or strategic relationships;
o additions or departures of key personnel; and
o changes in business or regulatory conditions.
15
<PAGE>
Many companies' equity securities, including the equity securities of
Internet and other technology companies, have experienced extreme price and
volume fluctuations in recent years. Often, these fluctuations are unrelated to
the companies' operating performance. Elevated levels in market prices for
securities, often reached following these companies' initial public offerings,
may not be sustainable and may not bear any relationship to operating
performances. Our common shares may not trade at the same levels as other
Internet stocks, and Internet stocks in general may not sustain their current
market prices. However, if investor interest in these stocks declines, the price
for our common shares could drop suddenly and significantly, even if our
operating results are positive. In the past, following periods of market
volatility, stockholders have instituted securities class action litigation. If
we were involved in securities litigation, we could incur a substantial cost and
experience diversion of resources and the attention of management away from our
business.
We are controlled by a single shareholder.
Immediately after this offering, our president and chief executive
officer, Anthony L. Willsea, will own % of our issued and outstanding common
shares. If the underwriters exercise their over-allotment option in full he will
own %. In either event, Mr. Willsea has the ability to exercise substantial
control over our affairs and corporate actions requiring shareholder approval,
including the election of directors, a sale of substantially all of our assets,
a merger with another entity or an amendment to our certificate of
incorporation. Mr. Willsea's ownership position could delay, deter or prevent a
change in control and could adversely affect the price that investors might be
willing to pay in the future for our common shares.
The initial public offering price of our common shares does not necessarily
relate to any established criteria of value so our common shares may trade below
the initial public offering price.
The initial public offering price per share in this offering has been
determined through negotiations between representatives of the underwriters and
us and does not necessarily relate to any established criteria of value. We
cannot assure you that the trading price of our common shares after this
offering will equal or exceed the initial public offering price.
An active trading market for our common shares may not develop after this
offering and you may be unable to sell your shares.
There is currently no public market for our common shares. We cannot
assure that an active public trading market for our common shares will develop
or be sustained after this offering. If an active and liquid trading market does
not develop or is not sustained, you may have difficulty selling your shares.
The future sale or availability for sale of substantial amounts of our shares
could cause the share price to decline.
Sales of a substantial number of our common shares after this offering, or
the public perception that these sales may occur, could cause the market price
of our common shares to decline and could materially impair our ability to raise
capital through the sale of additional equity securities. Upon completion of
this offering, we will have ____________ common shares outstanding (____________
if the option we granted to the underwriters to purchase additional common
shares from us is exercised in full). In addition, we have reserved ____________
common shares for issuance under our 1998 stock option plan, all of which are
covered by options granted before the date of this prospectus and ____________
common shares are reserved for issuance under our 2000 stock plan, of which
____________ common shares are covered by options granted on or before the date
of this prospectus. Finally, ___________ common shares are issuable upon
exercise of warrants issuable to the representatives of the underwriter in
connection with this offering. The ______________ common shares sold in this
offering (____________if the option we granted to the underwriters to purchase
additional common shares from us is exercised in full), other than shares held
by an "affiliate" (as that term is defined by the rules and regulations issued
under the Securities Act), will be freely transferable without restriction under
the Securities Act. The __________ common shares held by existing shareholders
are "restricted securities" as that term is defined in Rule 144 under the
Securities Act. These shares may be sold in the future without registration only
as permitted by Rule 144 or Rule 701 under the Securities Act or another
exemption from registration.
16
<PAGE>
In connection with this offering, we, our executive officers and directors
and all of our existing shareholders have agreed not to sell any common shares
for 180 days after this offering without the consent of the representatives of
the underwriters. However, these shares may be released from these restrictions
by the representatives of the underwriters at any time. The effect that sales in
the public market of shares held by principal shareholders or other shareholders
or the potential availability for future sale of these shares will have on their
market price is unpredictable.
Our management has broad discretion over the use of proceeds from this offering.
We currently have identified specific uses for only a small portion of the
net proceeds of this offering. Our management has significant flexibility as to
the timing and the use of the proceeds. Accordingly, investors in this offering
will be relying on management's judgement with only limited information about
our specific intentions regarding the use of proceeds. We may spend most of the
net proceeds of this offering in ways with which you may not agree. If we fail
to apply these funds effectively, our business, results of operations and
financial condition may be materially adversely affected.
You will experience immediate and substantial dilution.
If you purchase common shares in this offering, you will pay more for your
shares than existing shareholders paid for their shares. In fact, you will
experience immediate and substantial dilution of approximately $___ per share,
representing the difference between our book value per share after giving effect
to this offering and the initial public offering price. In addition, you may
experience further dilution to the extent that common shares are issued upon the
exercise of existing stock options at exercise prices less than the initial
public offering price per share. As of the date of this offering, we have
granted options to our employees and contractors to purchase common shares at
prices ranging from $ to $ per share. Furthermore, any additional capital raised
through the sale of equity or equity-linked securities would dilute your
ownership percentage in us. These securities could also have rights, preferences
or privileges senior to those of the common shares.
17
<PAGE>
Our certificate of incorporation and bylaws, as well as provisions of the New
York Business Corporation Law could deter takeover attempts that may offer you a
premium, which could adversely affect our share price.
Provisions of our certificate of incorporation, our bylaws and New York
law make acquiring control of us without the support of our board of directors
difficult for a third party, even if the change of control would be beneficial
to our shareholders. The existence of these provisions may deprive you of an
opportunity to sell your shares at a premium over prevailing prices. The
potential inability of our shareholders to obtain a control premium could
adversely affect the market price for our common shares. For example, our
certificate of incorporation provides that the board of directors will be
divided into three classes as nearly equal in size as possible with staggered
three-year terms. This classification of the board of directors has the effect
of making it more difficult for shareholders to change the composition of the
board of directors. In addition, our certificate of incorporation authorizes our
board of directors to issue up to five million "blank check" preferred shares.
This means that, without shareholder approval, the board of directors has the
authority to attach special rights to preferred shares, including voting and
dividend rights. With these rights, preferred shareholders could make it more
difficult for a third party to acquire our company. A special meeting of
shareholders may only be called by a majority of the board of directors or by
our president, chief executive officer or chairman. In addition, a shareholder
proposal for an annual meeting must be received within a specified period of
time to be placed on the agenda. Because shareholders do not have the ability to
require the calling of a special meeting of shareholders and are subject to
timing requirements in submitting stockholder proposals for consideration at an
annual meeting, any third-party takeover not supported by the board of directors
would be subject to significant delays and difficulties.
18
<PAGE>
USE OF PROCEEDS
The estimated net proceeds to us from the sale of the ____________ common
shares offered at an assumed initial public offering price of $________ per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses, are expected to be approximately $_________
million, or approximately $_________ million if the underwriters' over-allotment
option is exercised in full.
We expect to use the net proceeds of this offering to repay indebtedness,
for working capital and for general corporate purposes, including:
o purchasing additional capital equipment;
o expanding our facilities;
o expanding our human resources department and hiring additional
personnel;
o developing and expanding our sales and marketing department; and
o upgrading our internal technical systems.
Other than the repayment of a $950,000 loan from an unrelated party,
evidenced by a subordinated note, and the repayment of $357,000 owed to Anthony
L. Willsea, we do not have specific uses committed for the net proceeds of this
offering. The loan from the unrelated party was incurred in February 2000,
accrues interest at the prime rate of interest, currently 8.75% per annum, and
is payable out of the proceeds of this offering. We will have broad discretion
regarding the use of the remaining net proceeds, which will depend on a number
of factors, including our rate of revenue growth, cash generated by operations,
our overall financial performance, evolving business needs and the other factors
described in "Risk Factors." Pending use, we intend to invest the net proceeds
in short-term, interest-bearing, investment grade securities, certificates of
deposit or direct or guaranteed obligations of the U.S. government.
We expect that the net proceeds from this offering, together with cash
flow from operations, will be sufficient to fund our operations and capital
requirements for at least 12 months following the consummation of this offering.
We may be required to seek additional sources of capital sooner if our operating
assumptions change or prove to be inaccurate, or we consummate any acquisitions
of significant businesses or assets. We have no current plans, agreements or
commitments and are not currently engaged in any negotiations regarding any
acquisition transaction.
19
<PAGE>
DIVIDEND POLICY
We currently plan to retain all of our earnings to finance the expansion
and development of our business. The payment of dividends is within the
discretion of our board of directors. Our board of directors will make any
future determination of the payment of dividends based upon conditions then
existing, including our earnings, financial condition and capital requirements,
as well as other economic and general conditions as they may deem relevant. In
February 2000, we distributed $650,000 to our sole shareholder, Anthony L.
Willsea. Of this amount, $138,000 represented undistributed S corporation
taxable income through December 31, 1999.
S CORPORATION TERMINATION
Since our inception, we have been an S corporation for Federal and state
income tax purposes. As a result, we have not been subject to Federal income
taxes at all or to state income taxes at the regular corporate tax rates.
Immediately before this offering is consummated we will terminate our S
corporation status and, as a result, we will be subject to Federal and state
corporate income taxation at the regular corporate rates. We intend to pay a
final S corporation distribution to our sole shareholder, Anthony L. Willsea, in
an amount equal to our undistributed S corporation taxable income, if any, from
January 1, 2000 through the date of this offering to the extent of available
cash balances. At March 31, 2000, this amount would have been $____. Investors
purchasing common shares in this offering will not receive any portion of this
final distribution and we do not anticipate making any additional distributions
of this kind in the future.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on an actual basis, on a pro forma basis and on a pro forma, as adjusted basis:
Pro forma balance sheet data gives effect to the following transactions
occurring after December 31, 1999 and before the date of this prospectus:
o the receipt of an aggregate of $1.0 million of loan proceeds;
o the payment of $50,000 for software licenses acquired as part of a
litigation settlement;
o a distribution of $650,000 to our sole shareholder; and
o a capital contribution of $650,000 by our sole shareholder.
Pro forma balance sheet data as adjusted for this offering also takes into
account the following:
o the receipt of the estimated net proceeds of this offering of $_____
assuming an initial public offering price per share of $_____ less
underwriting discounts and commissions and estimated offering
expenses payable by us;
o the repayment of a $950,000 subordinated note out of the offering
proceeds;
o the repayment of a $357,000 loan from our sole shareholder out of
the offering proceeds; and
o the conversion of a $50,000 convertible subordinated note into a
number of common shares having a value of $1.0 million based on the
initial public offering price per share.
21
<PAGE>
The following table should be read together with the section of this
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our audited balance sheets as of December 31,
1998 and 1999 and the related statements of operations, shareholder's
equity/deficiency and cash flows for each of the three years in the period ended
December 31, 1999 and the related notes included elsewhere in this prospectus.
December 31, 1999
-----------------------------------
Pro forma,
Actual Pro forma as adjusted
-------- ---------- ------------
(in thousands)
Borrowings under lines of credit .......... $ 382 $ 382 $--
===== ===== ====
Due to shareholder ........................ $ 357 $ 357 $--
===== ===== ====
Subordinated note ......................... $-- $ 950 $--
===== ===== ====
Convertible subordinated note ............. $-- $ 50 $--
===== ===== ====
Long term obligations ..................... $ 29 $ 29 $
Shareholders' equity (deficit):
Preferred shares, $0.01 par
value; 5,000,000 shares
authorized; no shares issued
and outstanding actual and
as adjusted ......................... -- --
Common shares, $0.01 par value;
30,000,000 shares
authorized; ___________ shares issued
and outstanding actual and pro
forma; ___________shares issued and
outstanding as adjusted ............. -- --
Additional paid-in capital ............. 246 246
Accumulated deficit .................... (738) (738)
----- ----- ----
Total shareholders' equity (deficit) (492) (492)
----- ----- ----
Total capitalization ............. $(463) $(463) $
===== ===== ====
Common shares outstanding, actual, pro forma and as adjusted, excludes up
to ___________ common shares issuable if the underwriters exercise their
over-allotment option, __________common shares issuable upon exercise of the
warrants issuable to the representatives of the underwriters in connection with
this offering, ___________ common shares issuable upon exercise of options
granted under our 1998 option plan and ____________ common shares reserved for
issuance under our 2000 stock option plan.
22
<PAGE>
DILUTION
Our pro forma net tangible deficiency as of December 31, 1999 was
approximately $_______ , or $_______ per common share. Pro forma net tangible
deficiency per common share is determined by dividing the excess of our total
liabilities over our total tangible assets by the pro forma number of common
shares outstanding as of December 31, 1999 after giving effect to:
o the receipt of an aggregate of $1.0 million of loan proceeds;
o the payment of $50,000 for software licenses acquired as part of a
litigation settlement;
o a distribution of $650,000 to our sole shareholder; and
o a capital contribution of $650,000 by our sole shareholder.
Assuming the sale of the common shares offered hereby at an offering price
of $_______ per share, after deducting underwriting discounts and commissions
and estimated offering expenses payable by us, the application of net proceeds
from this offering to repay the subordinated notes and the shareholder loan, our
pro forma, as adjusted net tangible book value as of December 31, 1999 would
have been approximately $_______ million, or $_______ per share. This represents
an immediate increase in the pro forma net tangible book value per share of
$_______ to existing shareholders and an immediate dilution of $_______ per
share to new investors purchasing shares at the initial public offering price.
The following table illustrates this per share dilution.
Assumed initial public offering price per
share......................................... $
Net tangible pro forma deficiency per
common share at December 31, 1999............. $
Decrease in pro forma net tangible book value
per common share as a result of final
distribution to our shareholder............... $
Increase in pro forma net tangible book
value per common share attributable to
new investors................................. $
Pro forma, as adjusted net tangible book
value per common share after the
offering...................................... $
-------
Dilution per common share to new investors....... $
=======
23
<PAGE>
The following table summarizes, on a pro forma basis, as of December 31,
1999, the differences between the number of common shares we sold to, the total
consideration paid by and the average price per common share paid by our
existing shareholder and to be paid by new investors purchasing common shares
from us in this offering, assuming an initial public offering price of $_______
per share, and before deducting underwriting discounts and commissions and other
offering expenses:
Shares Purchased Total Consideration Average
---------------------- --------------------- Price
Number Percent Amount Percent Per Share
---------- ---------- --------- --------- ---------
Existing shareholder % $ % $
New investors
---------- ---------- --------- ---------
Total 100.0% 100.0%
========== =========
The table above does not include _________ common shares issuable if the
underwriters exercise their over-allotment option, __________ common shares
issuable upon exercise of the warrants issuable to the representatives of the
underwriters in connection with this offering, __________ common shares issuable
upon exercise of options granted under our 1998 option plan and __________
common shares reserved for issuance under our 2000 stock option plan.
24
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited financial statements and the related notes, included
in this prospectus. We derived the statement of operations data for each of the
three years in the period ended December 31, 1999, and the balance sheet
information as of December 31, 1998 and 1999 from our audited financial
statements, which are included elsewhere in this prospectus. We derived the
statement of operations for the period beginning February 14, 1996, the
commencement of operations, through December 31, 1996 and the balance sheet
information as of December 31, 1996 and 1997 from our unaudited financial
statements, which are not included in this prospectus. Since our inception we
have been an S corporation for Federal and state income tax purposes.
Immediately before this offering is consummated we will terminate our S
election. Pro forma statement of operations data reflects an adjustment to show
assumed Federal and state income taxes for the year ended December 31, 1999 as
if we were a C corporation for income tax purposes.
<TABLE>
<CAPTION>
February 14
(the commencement
of operations)
through Year Ended December 31,
December 31, -----------------------------------
1996 1997 1998 1999
------- ------- ------- -------
(unaudited)
(in thousands, except per share data)
Statement of operations data:
<S> <C> <C> <C> <C>
Revenues ............................. $ 1,102 $ 3,419 $ 3,332 $ 5,024
Cost of revenues ..................... 334 1,227 1,287 1,845
------- ------- ------- -------
Gross profit ......................... 768 2,192 2,045 3,179
Selling, general and
administrative expenses ........... 455 1,231 1,926 2,667
Non-cash stock compensation .......... -- -- 246 --
------- ------- ------- -------
Income (loss) from
operations ........................... 313 961 (128) 511
Other income (expense):
Interest expense, net ............. -- (9) (29) (64)
Litigation expense ................ -- -- (700) --
Recovery of insurance
proceeds in excess of
book value of net assets
lost ............................. -- 60 -- --
------- ------- ------- -------
Income (loss) before
provision (benefit) for
income taxes ...................... 313 1,012 (857) 448
Provision (benefit) for
income taxes ...................... 29 85 (19) 50
------- ------- ------- -------
Net income (loss) .................... $ 284 $ 927 $ (838) $ 398
======= ======= ======= =======
Basic net income (loss)
per common share .................. $ $ $ $
======= ======= ======= =======
Diluted net income (loss)
per share ......................... $ $ $ $
======= ======= ======= =======
Basic weighted average
number of common shares
outstanding .......................
======= ======= ======= =======
Diluted weighted average
number of common shares
outstanding .......................
======= ======= ======= =======
</TABLE>
25
<PAGE>
Pro forma statement of operations data
(unaudited)
Income before provision for income
taxes .............................. $ 448
Pro forma income tax expense ......... 206
-------
Pro forma net income ................. $ 242
=======
Pro forma basic net income per share . $
=======
Pro forma diluted net income per
share .............................. $
=======
Number of shares used in computing
pro forma basic net income per
share ..............................
=======
Number of shares used in computing
pro forma diluted net income per
share ..............................
=======
As of December 31,
----------------------------------------------
1996 1997 1998 1999
------ ------ ------ ------
(unaudited)
--------------------
Balance sheet data: (in thousands)
Current assets............. $ 297 $ 926 $ 561 $ 941
Working capital
(deficiency)............ 211 639 (297) (930)
Total assets............... 373 1,091 989 1,411
Long-term debt
including capital
leases.................. 33 -- 731 32
Total liabilities.......... 110 287 1,589 1,903
Shareholders' equity
(deficit)............... 263 804 (600) (492)
Basic and diluted net income (loss) per share does not take into account
__________ common shares issuable if the underwriters exercise their
over-allotment option in full and __________ common shares issuable upon
exercise of the warrants to be issued to the representatives of the underwriters
in connection with this offering.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section of the prospectus includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. We use words such as "anticipate," "believes," "expects,"
"future" and "intends" and similar expressions to identify forward-looking
statements. You should not rely on these forward-looking statements, which apply
only as of the date of this prospectus. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical results or our predictions. For a description
of these risks, see the section of this prospectus entitled "Risk Factors."
Background
We are a rapidly growing business-to-business Internet professional
services company. We were incorporated in 1995 and began operations in February
1996. Initially, we provided securities compliance filing services and other
ancillary services, such as typesetting, word processing and document imaging.
In 1998, we expanded our service offerings to include other forms of secure
business-critical communications, including Web site development, online
delivery of investment and offering documents, multimedia presentations and
virtual tours. Historically, these new services have accounted for less than
10.0% of our total revenues. However, revenues generated by these services have
been growing and, as a result, we expect that beginning with our 2000 fiscal
year, we will begin to report revenues and expenses separately for our
securities compliance filing services and our Internet/new media services.
Our revenues have grown from $1.1 million in 1996 to $5.0 million in 1999,
a compound annual growth rate of approximately 65.7%. Over the same period,
gross profit increased at a compound annual rate of approximately 58.7%, from
$800,000 to $3.2 million. This growth has been generated by expanding our
relationship with our existing customers, securing new customers and expanding
our service offerings. In 1999, we added a number of new clients, including
Cushman & Wakefield, Pratt & Whitney, a division of United Technologies, Eastdil
Realty, the U.S. Navy, the American Museum of Natural History,
Sonnenblick-Goldman and Whale Securities.
In our most recent three years of operations, we derived a significant
portion of our revenues from a limited number of clients. In 1999, our three
largest clients accounted for 36.0%, 9.0% and 9.0% of revenues; in 1998, our
three largest clients accounted for 33.0%, 16.0% and 5.0% of revenues; and in
1997, our three largest clients accounted for 55.0%, 9.0%, and 8.0% of our
revenues. The expansion of service offerings and addition of new clients is
expected to continue to reduce our revenues concentration.
Before 1999, we operated with a single sales agent, while our founder and
president handled the primary sales responsibilities. In 1999, we began to
develop a sales and marketing department by hiring a sales staff, including a
chief marketing officer, a sales employee dedicated to expanding our securities
compliance filing services, and a sales agent dedicated to marketing our
Internet professional services to the commercial real estate industry. In
January, 2000, this sales agent became a full-time sales employee. We are
actively seeking to expand our sales staff to further penetrate current markets
and new targeted niche markets. Our sales and marketing strategy is to hire
salespersons with significant industry experience and high-level contacts at
targeted business prospects within a specific industry.
27
<PAGE>
Accounting Overview
A substantial portion of our revenues is derived from time and materials
agreements and is recognized as the services are performed. A small portion of
our revenues is derived from fixed-fee agreements and is generally recognized as
services are rendered on the percentage of completion method of accounting,
based on the ratio of costs incurred to total estimated costs. Revenues exclude
reimbursable expenses charged to and collected from clients. Provisions for
estimated losses on uncompleted contracts are made on a contract by contract
basis and are recognized in the period in which those losses become probable and
can be reasonably estimated. To date, these types of losses have been
insignificant. Advanced billings and billings in excess of costs plus fees are
classified as deferred revenues.
Cost of revenues consist primarily of compensation and benefits payable to
our employees who are directly involved in the delivery of services. These
employees include members of our production staff (operators, proofreaders and
supervisors), designers and programmers, as well as some independent contractors
we use during our peak production periods. Our operators and supervisors are
compensated based primarily on their productivity. Therefore, as our revenues
fluctuate so does cost of revenues.
Selling, general and administrative expenses consist primarily of
administrative salaries and benefits, sales commissions, facilities costs, sales
and marketing expenses, professional fees, and office expenses. It also includes
a non-cash stock compensation charge of $250,000 in 1998 relating to the fair
value of options granted to non-employees for services rendered.
In July 1998, we and our principal shareholder, Anthony L. Willsea, were
named as defendants in a lawsuit asserting copyright infringement concerning
computer programs we use in connection with our securities compliance filing
services. Counterclaims were asserted. In January 2000, the parties to the
action entered into a settlement agreement under which we and Mr. Willsea agreed
to pay an aggregate of $700,000 to the plaintiffs. In accordance with the terms
of the settlement agreement, in January 2000 we paid $50,000 and in February
2000 Mr. Willsea paid $650,000. The payments made by Mr. Willsea will be
accounted for as a capital contribution in 2000. Since the lawsuit was filed in
1998, the related charge of $700,000 was recorded in that year.
In November 1997, a fire in our primary office destroyed most of our
equipment, which adversely affected our ability to take on new projects. Our
systems were restored within 24 hours and most of our losses were covered by
insurance. In 1997, we recorded other income of approximately $60,000 to reflect
the excess of our insurance recovery over the book value of the assets destroyed
in the fire.
Since our inception we have been an S corporation for Federal and state
income tax purposes. As a result, we have not been subject to Federal corporate
income taxes nor have we been required to pay state income taxes at the regular
corporate income tax rates. Immediately before this offering is consummated we
will terminate our S election and, as of that date, we will begin paying Federal
and state corporate income taxes at the regular corporate tax rates. Provisions
for income taxes as reflected on our financial statements include corporate
income taxes actually paid by us during those periods. The pro forma information
on our financial statements reflects the income taxes we would have paid had our
S election not been in effect in 1999. We assume that our effective tax rate in
the future will be approximately 46.2%.
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Results of Operations
The following table sets forth for the periods presented, statement of
operations data as a percentage of revenues. The trends suggested by this table
may not be indicative of future operating results.
February 14
(the date
operations
commenced)
through
December 31, Year ended December 31,
-------------------------------
1996 1997 1998 1999
------ ------ ------ ------
Revenues....................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues............... 30.3 35.9 38.6 36.7
----- ----- ----- -----
Gross profit................... 69.7 64.1 61.4 63.3
Selling, general and
administrative expenses...... 41.3 36.0 65.2 53.1
----- ----- ----- -----
Income (loss) from operations.. 28.4 28.1 (3.8) 10.2
Other income (expense)......... -- 1.5 (21.9) (1.3)
----- ----- ----- -----
Income (loss) before
provision for (benefit
from) income taxes........... 28.4% 29.6% (25.7)% 8.9
===== ===== =====
Pro forma income tax expense... 4.1
-----
Pro forma net income........... 4.8%
=====
Years ended December 31, 1999 and 1998
Revenues. Revenues increased $1.7 million, or 51.5%, from $3.3 million in
1998 to $5.0 million in 1999. This increase is attributable to the increased
transaction volume from existing customers as well as the addition of new
clients for existing and new services offered in 1999. During 1999, we entered
into exclusive term agreements with several new clients, including Cushman &
Wakefield, Sonnenblick-Goldman, Eastdil Realty and Commonwealth Associates.
Cost of revenues. Cost of revenues increased $500,000, or 38.5%, from $1.3
million in 1998 to $1.8 million in 1999. This increase reflects additional
compensation paid to our production staff as a result of increased productivity.
As a percentage of revenues, cost of revenues decreased to 36.7% in 1999 from
38.6% in 1998. This decrease reflects reduced reliance on part-time and
temporary staff during peak production periods. We also benefited from minor
price increases and the higher margins attributable to Internet professional
services. As a result, gross profit increased $1.2 million, or 60.0%, from $2.0
million in 1998 to $3.2 million in 1999. Our gross profit margin for 1999 was
63.3% compared to 61.4% in 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $500,000, or 22.7%, from $2.2 million in 1998
to $2.7 million in 1999. This increase reflects a non-cash stock compensation
expense of $250,000, the hiring of personnel for sales and marketing, finance
and administration, technology, as well as increased commissions for our
expanded sales staff. As a percentage of revenues, selling, general and
administrative expenses decreased to 53.1% in 1999 from 65.2% in 1998.
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Other expense. Other expense decreased $665,000 from $729,000 in 1998 to
$64,000 in 1999. This decline is primarily due to a $700,000 litigation charge
in 1998. In 1999, we had a net interest expense of $64,000 compared to $29,000
for 1998. This increase reflects the increased average borrowings during 1999 to
finance our growth.
Provision (benefit) for income taxes. For 1999, the provision for income
tax was $50,000 compared to a tax benefit of $19,000 for 1998.
Years ended December 31, 1998 and 1997
Revenues. Revenues decreased $100,000, or 2.9%, from $3.4 million in 1997
to $3.3 million in 1998. This decrease was primarily attributable to relatively
flat to lower capital markets activities and a fire in November 1997 that caused
management's attention to be more focused on restoring our headquarters and
operations rather than on developing new business.
Cost of revenues. Cost of revenues increased $100,000, or 8.3%, from $1.2
million in 1997 to $1.3 million in 1998. Gross profit margin for 1998 was $2.0
million, or 61.4% of revenues, compared to $2.2 million, or 64.1% of revenues,
for 1997. The decrease in gross profit margin reflects lower premium charges for
expedited document services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.0 million, or 83.3%, from $1.2 million in
1997 to $2.2 million in 1998. As a percentage of revenues, selling general and
administrative expenses increased to 65.2% in 1998 from 36.0% in 1997. This
increase in absolute dollars and as a percentage of revenues reflects a non-cash
stock compensation expense of $250,000, additions to supervisory and management
staff, expansion of our technology infrastructure to support current and
near-term growth and additional legal fees relating to the copyright litigation.
Other income/expense. Other income for 1997 totaled $50,000 compared to
other expense of $729,000 for 1998. Other expense for 1998 includes a $700,000
litigation expense and $29,000 of net interest expense. Other income for 1997
includes net interest expense of $10,000 and a recovery of insurance proceeds in
excess of book value of $60,000 relating to the fire in our office in November
1997. The increase in net interest expense reflects additional borrowings
incurred to finance our growth.
Provision (benefit) for income taxes. For 1998, the benefit for income
taxes was $19,000 compared to a provision for income taxes of $85,000 for 1997.
Liquidity and Capital Resources
Our growth has been funded primarily by cash flow from operations, bank
debt and shareholder loans. We maintain two types of credit facilities to fund
our working capital needs. At December 31, 1999, we had a $700,000 revolving
credit facility and overdraft credit lines aggregating $80,000. Borrowings under
the revolving credit facility accrue interest at the bank's prime rate plus
1.0%, payable monthly, with principal payable on demand. The overdraft credit
lines are at the discretion of the bank and accrue interest at an annual rate of
16.0%. We use all available cash balances to reduce credit facility balances and
therefore generally maintain nominal cash balances.
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<PAGE>
As of December 31, 1999, total borrowings under lines of credit were
$380,000 compared to $630,000 as of December 31, 1998. We had total remaining
capital lease obligations of $51,000 as of December 31, 1999. As of December 31,
1999, we had total available credit of $400,000.
For the year ended December 31, 1999, net cash provided by operating
activities was $287,000, an increase of $87,000 from net cash provided by
operating activities of $200,000 for the prior year. Operating cash flow has
fluctuated and, we believe, will continue to fluctuate depending on a number of
factors, including growth in accounts receivable as a result of revenue growth,
as well as the availability of trade credit from vendors. The primary components
of operating cash flow are net income or net loss, as the case may be, growth in
accounts receivable, increased vendor trade credit and depreciation.
For the year ended December 31, 1999, net cash used in investing
activities was $20,000, a decrease of approximately $33,000 from net cash used
in investing activities of $53,000 for the prior year. Capital expenditures
during the year ended December 31, 1999 were $116,000 and were funded partially
by capital leases of $58,000. Capital expenditures for 1998 were $310,000 and
included replacing equipment destroyed in the November 1997 fire. Capital
expenditures for 1998 were funded by internally generated cash flow, capital
leases of $57,000 and insurance proceeds.
Net cash used in financing activities remained relatively flat at $267,000
and $259,000 for 1999 and 1998, respectively, and consisted primarily of net
borrowings under credit facilities and shareholder loans and distributions.
We intend to use the net proceeds from this offering to repay debt and for
working capital and general corporate purposes to fund the further expansion of
our business. As part of our growth strategy, we continuously evaluate potential
acquisitions and the net proceeds from this offering may be used, in part, to
fund such acquisitions. We have no current plans, agreements or commitments and
are not currently engaged in any negotiations regarding any acquisition
transactions. We believe that the net proceeds of this offering together with
our cash flows from operations and bank credit lines will be sufficient to meet
our working capital and capital expenditure requirements for the next 12 months.
In February 2000, we borrowed $1 million from an unrelated party. The loan
is comprised of two notes. The first note, in the principal amount of $950,000:
(a) bears interest at the prime rate until December 31, 2000 and the prime rate
plus 4% thereafter, (b) is repayable in equal monthly installments of $105,556
commencing January 31, 2001; and (c) is subject to mandatory repayment out of
the proceeds of this offering. The second note, in the principal amount of
$50,000: (a) bears interest at the prime rate; (b) is due on January 31, 2001;
and (c) is convertible, at the option of the holder at any time after the
closing of an initial public offering of our common shares and prior to
maturity, into a number of common shares having a value of $1 million based on
the initial public offering price per share. Each of these notes has been
personally guaranteed by our sole shareholder.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including some derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, the FASB
issued SFAS No. 137 which postponed the mandatory adoption of SFAS 133 until
January 1, 2001. We have not entered into any significant derivative financial
instrument transactions.
Year 2000 Readiness
We have not experienced any business interruptions or supplier delays from
year 2000 problems to date and have not discovered any year 2000 problems in
internal computer systems material to our operations. We intend to continue to
monitor our internal system for year 2000 problems. There can be no assurance,
however, that we or our suppliers may not face future problems as a result of
year 2000 issues.
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<PAGE>
BUSINESS
This prospectus contains statistical data regarding, among other things,
the past and projected growth of the worldwide e-commerce market and the market
for Internet services. We have taken this data from information published by
sources specializing in research of the relevant subject matter. However, this
data is by its nature imprecise, and we caution you not to rely on it unduly.
Overview
We are a rapidly growing business-to-business Internet professional
services company. We use a combination of software and services to create,
design, and deliver secure business-critical communications to the financial,
business and legal communities. We incorporate text, sophisticated graphics,
audio and/or video into an integrated, interactive, searchable and easy-to-use
format. Our communications are delivered over Web-based channels, such as the
World Wide Web, intranets, extranets and wireless networks as well as CD-ROMs.
We enable our customers to deliver time-sensitive, business-critical information
to their target audiences securely and in an effective, consistent and
cost-efficient manner.
Our services include securities compliance filings, Web site development,
preparation of electronic brochures, interactive multimedia presentations and
virtual tours. As the leading independent securities compliance filing service,
we prepare and file compliance documents, such as registration statements and
proxy materials. These documents are filed with the Securities and Exchange
Commission via our secure, dedicated, proprietary, 10-channel frame-relay
system. We have also developed a proprietary communications model -- SOLID(SM)
- -- to securely deliver investment and offering documents over the Internet. We
currently market this service primarily to real estate investment banks in
connection with commercial real estate transactions and to investment banks in
connection with public offerings and private placements. We have entered into
exclusive term contracts with Cushman & Wakefield, Sonnenblick-Goldman and
Eastdil Realty to develop and coordinate their online property offerings.
Industry Background
Growth of the Internet, the Web and e-commerce
The use of the Internet, in general, and the World Wide Web, in
particular, as a means of business communication and as a medium to publish,
disseminate and distribute information is increasing rapidly. Web usage is
expected to continue to grow rapidly due to unique characteristics that
differentiate it from traditional media, such as real-time access to and
delivery of interactive content, ease of use, flexibility in editing content,
reduced costs and the absence of geographic or temporal limitations. Forrester
Research, Inc., an industry research firm, estimates that the
business-to-business Internet commerce market in the United States will grow to
$2.7 trillion by 2004. The rapid growth in the use of the Internet and the Web
has created a significant and growing demand for third-party Internet
professional service providers.
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Need for more effective business communications
Business communications include marketing and promotion materials,
investment offering materials, product launch briefings to sales teams,
strategic and general presentations to employees, sales pitches to potential
customers, employee training seminars, investor relations programs and customer
support activities. These communications are essential to a business's ability
to increase the visibility of its products and services and strengthen its
relationships with key constituencies, including customers, suppliers, investors
and employees. As companies face increasing pressure to operate more efficiently
and to better serve the needs of key constituencies, effective business
communications represent a key competitive advantage. To maximize the
effectiveness of their communications, businesses must deliver information in a
timely, economical, secure and engaging manner -- a requirement that is even
more critical given today's accelerated product cycles and complex products and
services. However, traditional communication methods, in our view, have
significant limitations. We believe that traditional print media is costly to
produce and distribute and is generally ineffective. Furthermore, in-person
meetings can be costly, inconvenient and time-consuming.
Opportunity for business-to-business Internet professional service
companies
Companies now have the ability to deliver information, including text,
graphics, audio and video or any combination of them, in a variety of formats.
However, the availability of technology does not, by itself, enable companies to
deliver compelling business communications. Most companies lack the creative,
technical and production expertise and equipment required to develop and deliver
secure business-critical communications in a timely, cost-efficient manner.
Despite the compelling benefits of digital technology for business
communications, we believe these challenges have limited its adoption to date in
many industries. We further believe that a substantial market opportunity exists
for an Internet professional services company that can create, design and
deliver high quality secure business-critical communications that are engaging,
cost-efficient, flexible and reliable.
Our Solution
Our services are designed to overcome many of the limitations of
traditional business communications. We provide our customers with the ability
to communicate time-sensitive, business-critical information to target audiences
in a secure, effective, consistent and cost-efficient manner. Our digital
communications can be delivered over Web-based channels, such as the World Wide
Web, intranets, extranets and wireless networks as well as CD-ROMs.
We believe that we provide our customers with the following benefits:
Comprehensive service offerings. We offer our customers a broad range of
services for the creation, design and delivery of their business communications.
Our team of highly skilled professionals is knowledgeable and experienced in Web
site design, information technologies and Internet programming. We incorporate
text, sophisticated graphics, audio and/or video into an integrated,
interactive, searchable and easy-to-use format. We also provide valuable
end-user tracking services for our clients that monitor user interaction with a
particular communication. We can generate a variety of reports detailing the
length and frequency of a user session as well as a profile on that user. This
enhances the ability of our clients to assess the effectiveness of the
communication and formulate appropriate follow-up strategies.
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<PAGE>
Enhanced Communication. We deliver time-sensitive, business-critical
communications in a consistent, visually rich and interactive manner. We believe
that our visually rich, interactive communications improve the user's
comprehension and retention of information. Our searchable and easy-to-use
format enables the users to quickly and easily find information they need.
Furthermore, our services enable users to efficiently retrieve and update
information contained in the communications.
Reduced Cost. Our services eliminate many of the costs and expenses
typically associated with traditional communication methods. These costs include
printing, postage, airline, hotel and other travel expenses, facilities costs,
telecommunications costs and the opportunity costs associated with diverting
employees from their work schedules. In addition, we believe our technology and
expertise enable us to create, design and deliver secure business-critical
communications at a lower cost than our typical client would incur if they were
to do it internally.
Increased Speed and Flexibility. Our services enable businesses to publish
and distribute information faster and with more flexibility than they otherwise
could using traditional business communication methods. We believe distributing
business-critical communications quickly offers our customers significant
competitive advantages. Our communications are delivered over a variety of
Web-based channels including the Web, intranets, extranets and wireless
communication networks as well as CD-ROMs. The delivery channel chosen depends
on the needs and preferences of the client. Multiple delivery channels increase
flexibility because members of the target audience can access our communications
anywhere, at any time.
Secure and Reliable Service. We offer our customers a highly secure and
reliable computing environment. As a result of our experience in the securities
compliance filing industry, we recognize and respect the confidential and
proprietary nature of business-critical communications. Therefore, all of our
communications are designed to restrict access to only approved and qualified
users. As evidence of our commitment to the security of our clients' documents,
we collaborated with the SEC to develop and deploy a proprietary, secure
10-channel frame-relay system that connects our operations center in New York
City to the SEC's EDGAR operations center in Virginia. Our frame-relay system
can only be used by us and provides virtually unlimited capacity to securely
file documents with the SEC. Furthermore, we have emergency back up procedures
and redundant systems that are designed to assure uninterrupted services
operations upon the occurrence of a catastrophic event.
Our Growth Strategy
Our objective is to become a leading business-to-business Internet
professional services company. The key elements of our strategy include the
following:
Expanding our presence in the markets we currently serve. We believe that
we can grow our revenues significantly if we can successfully expand our
presence in the markets we currently serve. We are focused on:
o increasing our market share of the securities compliance filing
services market;
o further marketing our secure online investment documents to real
estate investment banks and investment banks; and
o further marketing our Web site development services to regional
"bricks and mortar" investment banks looking to create an online
identity.
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<PAGE>
Leveraging our reputation to expand into new markets. We believe that
there is a significant opportunity to increase revenues by identifying and
selling our existing services to other markets. We intend to use our platform
for securely publishing, distributing and disseminating investment and offering
documents online to service other industries, such as the reinsurance industry,
that regularly use investment-type documents. We intend to identify other niche
markets and aggressively attempt to expand into them. In order to accomplish
these goals, we will leverage our reputation as the leading independent
securities compliance filing service in the United States, our experience in
routinely handling sensitive, confidential and proprietary information on behalf
of some of the largest corporations and mutual funds in the country and the fact
that we were one of the first to use the Internet as a medium for delivering
confidential offering and investment material.
Expanding and enhancing our service offerings. We intend to continually
broaden the functionality of our communication platforms and provide value-added
services. We will continue to leverage technology in order to enhance our
service offerings by licensing leading edge technologies including software
systems and applications, investing in state-of-the-art equipment, recruiting
talented technology professionals and providing continuous training for our
employees.
Increasing our marketing and promotional activities. We will invest
heavily in strengthening our brand and building awareness of our name within the
financial, business and legal communities. We will aggressively seek to expand
our sales and marketing force. We will also substantially increase our
advertising and promotional efforts using traditional and new media channels and
significantly increase our budget for sales and marketing. In addition, we will
continue to compete for service awards and certificates of excellence. For
example, we were named "1998 Vendor of the Year" by Scudder Investor Services
and awarded "Preferred Vendor" status by John Hancock Funds.
Pursuing strategic relationships and acquisitions. We intend to continue
to identify large businesses in our targeted markets and attempt to enter into
strategic relationships with them. One of the keys to our success has been our
ability to establish strategic relationships with the principal businesses in
many of the markets in which we operate. For example, we currently provide
securities compliance filing services to three of the largest financial printers
in the United States, which we believe account for more than 50% of all EDGAR
filings, based on the number of pages filed. Similarly, we have entered into
exclusive term contracts with three of the largest real estate investment
banking firms in the United States, Cushman & Wakefield, Sonnenblick-Goldman and
Eastdil Realty. In addition, we believe that building a team of strategic,
technical and creative talent through both acquisitions and internal growth will
provide us with a substantial competitive advantage. As a result, we will
consider strategic acquisitions to acquire expertise in new technologies, gain
access to additional talented professionals, enter into new markets and expand
our client base.
Our Services
Following is a brief description of the principal services we currently
provide:
Web site development, hosting and publishing to existing Web sites. Our
Internet/new media production team is highly trained in the use of the latest
online interactive multimedia software and technology, including virtual reality
simulation, graphics, games and animation. For hosting Web sites, we own and
maintain a growing inventory of advanced computer servers and have entered into
co-location agreements with a national, Tier 1 Internet service provider. Our
high-speed network provides rapid access to the Internet for efficient
downloading of digitized text, graphics, audio and video data.
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<PAGE>
Web site user tracking and statistical monitoring. We track and compile
data on visits to a Web site, including analysis of hits, click-throughs and
demographic/user information. This is particularly useful for investment banking
clients with highly targeted marketing campaigns. For example, an investment
banker or real estate broker can gauge a client's level of interest based on the
amount of time they spend viewing the material and follow-up accordingly.
Online investment documents. We believe we were one of the first to use
the Internet as a medium for distributing investment documents in connection
with private placements of securities and sales of commercial real estate. We
developed a proprietary communications model -- Secure OnLine Investment
Documents, or SOLID(SM) -- for this purpose. All materials relating to the
offering, including the private placement offering memorandum, financial
information, operational data, management's "road show" presentation, including
streaming audio and video and due diligence materials are published to a secure,
dedicated Web site. We currently provide this service to Cushman & Wakefield,
Sonnenblick-Goldman, Eastdil Realty, Commonwealth Associates, Westport Resources
and Whale Securities.
Electronic brochures. We have the ability to convert hardcopy printed
marketing materials into a visually rich online interactive presentation. These
electronic brochures may include site plans, virtual tours, streaming audio,
demographic data and hyperlinks to other sites containing more detailed and
restricted information.
Virtual reality simulations and virtual tours. We utilize digital video
and/or computer animation techniques to create realistic interactive
environments. Simulations can be created to represent existing real-world sites
and facilities -- such as an office tower or a naval battleship -- or can be
used to test or communicate proposed structures.
Interactive multimedia presentations. We create and develop Web sites
using Macromedia Flash(C) animation technology that enable users to
interactively explore information. This service includes electronic "pitch
books," which are used to present a portfolio of real estate properties.
Online forms. We developed and host a Web site, EDGAR123.com, that enables
our customers to access, complete and file Forms 3, 4, 5, 13D, 13G, 12b-25 and
24F-2 with the SEC over our secure, proprietary frame-relay system, thereby
saving time and reducing costs. These forms generally are "fill in the
blanks"-type forms. The site features point-and-click submission of completed
forms, as well as prompting for incomplete information.
Securities compliance filing services. We provide our clients with a
secure, reliable, fast and cost-efficient option to file documents with the SEC.
The backbone of our securities compliance filing service is a secure,
proprietary, frame-relay system that runs directly from our operations center in
New York City to the SEC operations center in Alexandria, Virginia. The entire
process of converting and filing a document can take as little as an hour. Our
fees are based on the size of the document and the time in which it has to be
filed. In 1997, we prepared and filed the largest compliance document ever filed
via the EDGAR system.
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CD-ROM production. We maintain the latest equipment for CD-ROM mastering
as well as short-run CD-ROM duplicating. We can replicate a Web site or other
electronic offering on an interactive CD-ROM disk -- an ideal way to distribute
an electronic message without requiring clients to log onto the Internet or seek
out a site.
In addition to the foregoing, we also offer the following services:
Document imaging and data warehousing Software Development
Word processing Customized Web games
Typesetting and graphic design Interactive kiosk design
We provide customer service and technical support 24-hours a day, seven
days a week. Our customer service department is responsible for responding to
questions from clients through e-mail and our toll-free number.
Sales and Marketing
Our sales and marketing efforts are dedicated to strengthening our brand
name and building our reputation as a secure, reliable and cost-efficient
business-to-business Internet professional services company. The primary goals
of our sales and marketing efforts are to:
o Aggressively expand our sales and marketing force. We currently have
five sales and marketing personnel and expect to double the size of
this department by the end of 2000.
o Build brand recognition and awareness. Our sales and marketing team
engages in numerous branding activities, including public relations
initiatives, advertising campaigns and other promotional activities.
o Pursue strategic alliances. Our strategy is to enter into strategic
relationships with large players in niche markets as a means of
creating a barrier to entry. We have successfully pursued this
strategy in the securities compliance filing business through our
strategic relationships with a number of large financial printers
and in the real estate investment banking industry through our
relationship with Cushman & Wakefield, Sonnenblick-Goldman and
Eastdil Realty. These relationships further promote our brand name
recognition in the Internet professional services industry.
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Clients
Our clients include law firms, accounting firms, financial printers,
mutual funds and large corporations. In connection with our Internet
professional services, we target companies in industries that can use digital
technologies to increase sales, improve communications and create business
identities. These industries include financial and consulting services, media
and entertainment, software, technology and telecommunications, industrial and
cultural organizations. The following is a list of selected clients, past and
present:
Financial Services and Real
Estate Investment Banking: Media & Entertainment:
--------------------------- ----------------------
Commonwealth Associates BMG Records
Cushman & Wakefield Finish Edit
Eastdil Realty PI Edit
John Hancock International Soundtrack Recording Studios
Kemper Scudder Investments The New York Times
Sonnenblick-Goldman Viacom/MTV
Westport Resources
Whale Securities Consumer Brands & Retail:
Wit Capital -------------------------
Bevmaxx.com
Catch22.com
Financial Printing: Open Road USA
------------------- Reader's Digest
Bowne Relais & Chateaux
Global Financial Press
Merrill Corporation
R.R. Donnelley & Sons Cultural:
R.S. Rosenbaum ---------
Curran & Connors American Museum of Natural History
New York City Marathon
Software & Technology: Government:
---------------------- -----------
Macromedia United States Navy
Mediacraft Music
Industrial:
-----------
Pratt & Whitney
We derive a significant portion of our revenues from a limited number of
clients. In 1999, Merrill Corporation, Bowne and R.R. Donnelley & Sons, in the
aggregate, accounted for over half of our revenues. We expect that the expansion
of our service offerings and the addition of new clients will reduce revenue
concentration in the future.
Technology
Our production center utilizes a mixture of IBM and MacIntosh
workstations. IBM workstations are generally Pentium III computers running
Microsoft Windows operating systems. Each regional office maintains a Local Area
Network utilizing Microsoft Windows NT servers to connect the workstations
together over a 10baseT network. Regional offices are all connected through a
Wide Area Network through the New York production facility. Hosting for Web
clients is performed locally in our New York production facility on either one
of our two internal Web servers. One Web server utilizes Unix based Apache
hosting software and the other utilizes Microsoft Windows NT Internet
Information Server. We lease co-location space from Globix through an annual
contract supplying us with a "Full Rack" directly connected to Globix's OC-3
national backbone. Corporate data is backed up regularly offsite to our Boston
facility and on tape. We utilize standard development packages for software
development including but not limited to Microsoft SQL Server, Access, Visual
Basic, PERL, Java and C++. Our copyrighted applications have been developed in
Microsoft Access, PERL and Java.
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Research and Development
We have assembled a team of skilled operations and engineering personnel
with extensive experience in the fields of software development, applications
and user interface design and testing, Internet software, collaborative
computing, network system design and network operations. Our research and
development process is driven by the availability of new technology, market
demand and customer feedback. We have invested significant time and resources in
creating a structured process for undertaking all development projects. This
process involves all functional groups at all levels in the company.
Competition
The Internet professional services market has grown dramatically in recent
years as a result of the increasing use of digital technology by businesses for
communication, marketing and information dissemination to their employees,
customers, vendors and suppliers. The market for Internet professional services
is intensely competitive and rapidly evolving. We expect competition to persist
and intensify in the future. Increased competition could lead to decreasing
prices and reduced profitability.
Our competitors include:
o Internet professional services firms including Scient, Viant,
Razorfish, Proxicom, Sapient and USWeb;
o technology consulting firms and integrators including the consulting
affiliates of the major accounting firms, Diamond Technology
Partners, EDS and IBM;
o in-house information technology, marketing and design service
departments of our current and potential clients;
o multimedia production and entertainment companies including Digital
Lava, Pacific Media and DigitalThink;
o large financial printers including Merrill Corporation, Bowne, R.R.
Donnelley & Sons and Global Financial Press; and
o corporate filing services including ADP, CCH and Prentice Hall.
Many of our competitors have longer operating histories, larger installed
client bases, longer relationships with clients, greater brand or name
recognition, and significantly greater financial, technical, marketing and
public relations resources than us. Greater resources give a competitor
significant advantages over us, including the ability to respond quicker to new
or emerging technologies and changes in customer requirements, to undertake more
extensive marketing campaigns for the development, promotion and sale of
products, to adopt more aggressive pricing policies and to make more attractive
offers to potential employees and partners. In addition, the lack of significant
barriers to entry into this market permits new market entrants that further
intensify competition.
39
<PAGE>
We believe that the principal competitive factors in our market, in order
of relative importance, are:
o security and reliability;
o quality, price and timeliness of content production services;
o quality of the end-user experience;
o ease of use of our applications and tools;
o amount and quality of customer support; and
o brand recognition.
We believe that we compete favorably with respect to each of these factors and
that our competitors generally do not offer the broad range of services that we
offer. Nevertheless, we cannot assure you that we can compete successfully and
competitive pressures may cause our business to suffer.
Intellectual Property
We regard our copyrights, service marks, trade names, trademarks, trade
secrets, proprietary technology and similar intellectual property as critical to
our success, and we rely on trademark and copyright law, trade secret protection
and confidentiality and license agreements with our employees and independent
contractors to protect our proprietary rights. The steps taken by us to protect
our proprietary rights may not be adequate and third parties may infringe or
misappropriate our copyrights, trademarks or similar proprietary rights. In
addition, other parties may assert claims of infringement of intellectual
property rights against us. We may be subject to legal proceedings and claims
associated with our intellectual property from time to time in the future. These
claims, even if without merit, could cause us to expend significant financial
and managerial resources. Further, if these claims are successful, we may be
required to change our marks, alter our copyrighted material or pay financial
damages, any of which could harm our business.
We also intend to license software and technology that we believe will
enhance our service offerings. Currently, we license EDGARease(C), a program
that converts documents into the EDGAR ASCII format required by the SEC, from
Document Technologies, Inc. If we are unable to maintain or renew this license,
we would be forced to discontinue our use of this software and develop or
license comparable technology. This could require additional license fees or
extensive engineering efforts or significantly decrease our software's
functionality, either of which could harm our business, financial condition and
operating results. In addition, we may be required to obtain licenses from third
parties to refine, develop, market or deliver new services. We may be unable to
obtain any needed license on commercially reasonable terms or at all and rights
granted under any licenses may not be valid and enforceable.
Government Regulation
Congress has recently passed legislation that regulates certain aspects of
the Internet, including online content, copyright infringement, user privacy,
taxation, access charges, liability for third-party activities and jurisdiction.
In addition, Federal, state, local and foreign governmental organizations also
are considering, and may consider in the future, other legislative and
regulatory proposals that would regulate the Internet. Areas of potential
regulation include libel, pricing, product and service quality and intellectual
property ownership. It is not known how courts will interpret both existing and
new laws. Therefore, it is uncertain as to how new laws or the application of
existing laws will affect our business. In addition, our business may be
indirectly affected by the effect of laws and regulations on our clients.
Increased regulation of the Internet may decrease the growth in the use of the
Internet, which could decrease the demand for our services, increase our cost of
doing business or otherwise have a material adverse effect on our business,
results of operations and financial condition.
40
<PAGE>
Employees
As of March 1, 2000, we had 57 employees, 50 of whom were located in our
New York office, five in our Boston office and one in each of our Chicago and
Ft. Lauderdale offices. Our employees include 32 production personnel, seven
designers/programmers, five sales and marketing personnel, six support staff
(information services, human resources, financial and legal personnel), three
customer service personnel and four senior executives.
Our continuing success will depend, in large part, on our ability to
attract, motivate and retain highly qualified employees. Competition for such
personnel is intense, and we may not be able to retain our senior management or
other key personnel in the future. We plan to allocate a portion of the proceeds
of the offering to expand programs to recruit additional qualified personnel.
Our employees are not represented by any union and, except for senior
management and certain other employees, are retained on an at-will basis. We
consider our relations with our employees to be good.
Facilities
Our executive and principal operating office currently occupies
approximately 7,000 square feet at 59 John Street in New York City under a lease
expiring January 2002. Monthly rent is approximately $11,000.
Legal Proceedings
The Company is not a party to any material legal proceedings.
41
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages, as of March 1, 2000,
are as follows:
Name Age Position
Anthony L. Willsea(1) 30 Chairman of the board of directors, president,
and chief executive officer
James R. Hohl 31 Executive vice president--chief technology officer
Bruce A. Knef 45 Executive vice president--chief marketing officer
Robert J. Willsea(1) 33 Executive vice president--chief financial officer
Ira H. Penner 38 Executive vice president--document services
James A. Willis 38 Executive vice president--Internet/new media services
- ----------(2) -- Director nominee
- ----------(2) -- Director nominee
- ----------(2) -- Director nominee
- --------------------
(1) Anthony L. Willsea and Robert J. Willsea are brothers. There are no
other family relationships among our directors and executive officers.
(2) Messrs. ____________, _________ and ___________ will become directors upon
the closing of this offering.
All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified. Officers are elected
to serve subject to the discretion of the board of directors.
Set forth below is a brief description of the background and business
experience of our executive officers and directors.
Anthony L. Willsea, chairman, president and chief executive officer, is
our founding shareholder. Mr. Willsea's experience spans various areas of the
field of information technology, including software development, networking
and training. Mr. Willsea began his career in 1989 with Dyansen Galleries as
Director of Management Information Systems. In 1992, Mr. Willsea joined
International Document Services, Inc., a financial printer, where he served
as vice president of legal systems integration, providing strategic
consulting to law firms on new technology implementation. In 1992, Mr.
Willsea co-founded Document Technologies, Inc. ("dTech"), an EDGAR software
firm. He served as managing director of dTech from 1992 until November
1995. At dTech, Mr. Willsea was responsible for business development,
technology infrastructure, document automation and help system software
development. Additionally, Mr. Willsea has been involved with various
aspects of the SEC's EDGAR system since 1992, including training major firms
in methods of integrating EDGAR into their document processing environments
and developing a Windows-based EDGAR filing guide computer software package.
James R. Hohl, executive vice president -- chief technology officer,
joined us in June 1997 and has been an executive officer since May 1999. Mr.
Hohl is responsible for our technology infrastructure, including maintenance and
support, research and development and technology architecture for client
projects. From 1996 to 1997, Mr. Hohl was a freelance Web site designer,
Webmaster, programmer and consultant for several organizations, including the
United Nations. From 1994 to 1996, Mr. Hohl worked in New York City for a U.S.
subsidiary of the Japanese conglomerate, Itochu, Inc. and from 1991 to 1993 in
Japan for Panasonic.
42
<PAGE>
Bruce A. Knef, executive vice president -- chief marketing officer,
joined us in February 1999 as an executive. Before joining us, Mr. Knef
provided us with strategic consulting services. Mr. Knef is responsible for
the development of our sales and marketing department and our sales strategy.
Since 1979, Mr. Knef has worked in sales and marketing for numerous financial
printers, including R.R. Donnelley & Sons, Corporate Printing, Charles P.
Young and International Document Services.
Robert J. Willsea, executive vice president -- chief financial officer,
joined us in May 1999. Mr. Willsea is responsible for accounting & finance,
operations and human resources. From 1990 through 1994, Mr. Willsea was employed
by SunTrust Bank, rising to the level of assistant vice president - corporate
banking. He left SunTrust Bank in 1994 to become assistant treasurer for Danka
Business Systems PLC and was subsequently promoted to European/Asia-Pacific
Treasurer in 1997 and vice president - budget and planning in 1998.
Ira H. Penner, executive vice president -- document services, joined us in
May 1996 as our vice president of operations -- northeast region. He was hired
by us to start our Boston office and run our New England operations. In May
1999, Mr. Penner was promoted to his current position and is responsible for our
electronic document production services. Mr. Penner has worked within the
financial printing industry since 1983. From November 1993 through May 1996, Mr.
Penner worked as director of electronic print services at Daniels Printing in
Everett, Massachusetts. From December 1991 through November 1993, Mr. Penner
served as senior vice president of systems and programming at Global Financial
Press in New York.
James A. Willis, executive vice president -- Internet/new media services,
joined us in May 1999. Mr. Willis is responsible for the development of our
Internet services team, including business development, Internet project
management as well as the development and implementation of our Internet
business strategy. Mr. Willis began his career in 1987 as a cartoonist and
designer for Case-Hoygt Fabrigraphics, where he worked on their Disney and
Warner Brothers accounts. From 1989 to 1991, he was assistant design director
and lead artist for Federated Department Stores children's wear department,
leaving in 1991 to work as a freelance artist for Disney, Warner Bros., Hearst
Magazines and several other clients. Mr. Willis served as art director for
Innerworld, Inc. from 1993 to 1996. In 1996 he formed his own new media company,
StoneSoup Multimedia, which he operated until he joined us in 1999.
Our board of directors is divided into three classes as nearly equal in
number as possible. Each year the shareholders will elect the members of one of
the three classes to a three-year term of office. Mr. __________ serves in the
class whose term expires in 2001; Messrs. __________ and __________ serve in the
class whose term expires in 2002; and Messrs. __________ and __________ serve in
the class whose term expires in 2003.
Committees of the Board of Directors
Our board of directors has established compensation and audit committees.
Messrs. __________, __________ and __________, non-management directors, will be
members of both committees. The compensation committee reviews and recommends to
the board of directors the compensation and benefits of our all our officers,
reviews general policy matters relating to compensation and benefits of our
employees and administers the issuance of stock options under our 2000 stock
option plan and discretionary cash bonuses to our officers, employees, directors
and consultants. The audit committee will meet with management and our
independent public accountants to determine the adequacy of internal controls
and other financial reporting matters.
43
<PAGE>
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
Before this offering we had no compensation committee or other committee
performing equivalent functions. As a result, compensation matters were
performed by the board of directors or senior management. None of the directors
expected to serve on the compensation committee is one of our employees. None of
our directors or executive officers is a director or executive officer of any
other corporation that has a director or executive officer of any other
corporation that has a director or executive officer who is also one of our
directors.
Compensation of Directors
Our non-employee directors will receive compensation for their services as
a director in the amount of $ per year. We will reimburse them for any
reasonable expenses related to attendance at meetings. Non-employee directors
will also be eligible to receive stock option grants under our 2000 stock option
plan.
Executive Compensation
Summary compensation. The following table sets forth certain information
regarding compensation earned by or paid to our chief executive officer and the
other four most highly compensated executive officers during 1999 whose
aggregate compensation exceeded $100,000 for that year.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation -------------
-------------------------------- Common shares
Other Annual Underlying All Other
Name Salary Bonus Compensation Options Compensation(2)
- -------------------- -------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Anthony L. Willsea, $208,997 -- -- $ 1,250
chief executive
officer
James R. Hohl, $ 89,375 $ 10,000 -- $ 1,250
executive vice
president --
chief
technology
officer
Bruce A. Knef, $ 94,792 -- $16,365 --
executive vice
president--
chief marketing
officer
Robert J. Willsea, $102,083 $ 10,000 -- --
executive vice
president--
chief financial
officer(1)
Ira H. Penner, $113,333 -- -- $ 1,250
executive vice
president--
document services
</TABLE>
- ------------
(1) Robert Willsea joined us in June 1999.
(2) 401(k) matching contributions.
44
<PAGE>
Option grants.
No options were granted by us in 1999 to the executives named in the table
above.
Option exercises and year-end values. The following table provides
information about options exercised in 1999 by the executives named in the
summary compensation table above and the number and value of unexercised options
held by those executives as of December 31, 1999.
Aggregated Option Exercise in Last Fiscal Year and Year-End Option Values
<TABLE>
<CAPTION>
Shares Value Number of Shares Underlying Value of Unexercised
Acquired on Realized Unexercised Options at In-the-Money Options At
Exercise(#) ($)(1) Fiscal Year-End(#) Fiscal Year-End ($)(1)
----------- -------- --------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony L. Willsea
James A. Hohl
Bruce A. Knef
Robert J. Willsea
Ira H. Penner
</TABLE>
Stock Option Plans
To attract and retain persons necessary for our success, in January 1998,
we adopted our 1998 stock option plan covering ____________ common shares and in
March 2000, our board of directors approved the adoption of our 2000 stock
option plan covering ____________ common shares. Under each plan officers,
directors, key employees and consultants are eligible to receive incentive
and/or non-qualified stock options. Each plan has a term of 10 years from the
date of its adoption and is administered by the compensation committee of the
board of directors. The compensation committee, in its sole discretion,
determines who is eligible to receive options, how many options they will
receive, the exercise price for the options and other conditions relating to the
exercise of the options. Incentive stock options granted under the plans must be
exercised within 10 years from the date of grant at an exercise price that is
not less than the fair market value of the common shares on the date of the
grant. Options granted to shareholders owning more than 10% of our outstanding
common shares must be exercised with five years from the date of grant and the
exercise price must be at least 110% of the fair market value of the common
shares on the date of the grant. Options covering ____________ common shares
with exercise prices ranging from $_____ to $_____ have been granted under the
1998 plan. As of the date of this prospectus, options covering common shares
have been granted under our 2000 plan. These options have an exercise price
equal to the initial public offering price per share in this offering. All
options granted under the 2000 plan have a term of _____ years and vest ratably
over a three-year period beginning with the one year anniversary of the grant
date. Except as otherwise described in this paragraph, we have not granted any
options, warrants or other rights to acquire our common shares.
Limitation of Directors' Liability and Indemnification
Our certificate of incorporation limits the liability of individual
directors to us for specified breaches of their fiduciary duty to us. The effect
of this provision is to eliminate the liability of directors for monetary
damages arising out of their failure, through negligent or grossly negligent
conduct, to satisfy their duty of care, which requires them to exercise informed
business judgment. The liability of directors under the federal securities laws
is not affected. A director may be liable for monetary damages only if a
claimant can show a breach of the individual director's duty of loyalty to us, a
failure to act in good faith, intentional misconduct, a knowing violation of the
law, an improper personal benefit or an illegal dividend or stock purchase.
45
<PAGE>
There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents in which we are required or permitted
to provide indemnification. We are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
Our certificate of incorporation also provides that we will indemnify and
hold harmless each of our directors or officers, against all expense, liability
and loss (including attorneys fees, judgments, fines, Employee Retirement Income
Security Act excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith to the fullest extent authorized by the New York Business Corporation
Law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
CERTAIN TRANSACTIONS
In 1998, an action asserting copyright infringement was brought against us
and Anthony L. Willsea, our sole shareholder. This lawsuit was settled in
January 2000. Under the settlement agreement, we agreed to pay $50,000 and Mr.
Willsea agreed to pay $650,000 in settlement of all claims and for our receipt
of current and future license rights to the subject software. In January 2000,
we paid $50,000 and in February 2000, we distributed $650,000 to Mr. Willsea,
which he used to pay his portion of the settlement amount. For financial
accounting purposes, the payment by Mr. Willsea is deemed to be paid on our
behalf and, accordingly, it has been recorded as a capital contribution by Mr.
Willsea in the first quarter of 2000.
During 1999, Anthony L. Willsea, our founder, sole shareholder and chief
executive officer, loaned us approximately $357,000. This loan is non-interest
bearing, is due on demand and will be repaid out of the proceeds of this
offering.
In February 2000, we borrowed $1.0 million. Mr. Willsea has personally
guaranteed the repayment of this obligation.
We have adopted a policy that, in the future, all transactions with any
officer, director or 5% shareholder must be approved by a majority of our
disinterested directors.
46
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of our common shares as of March 1, 2000 and as adjusted to
reflect the sale of the common shares offered by this prospectus, by:
o each person known by us to be the beneficial owner of more than 5%
of our outstanding common shares;
o each of our directors;
o each executive officer named in the summary compensation table
above; and
o all of our directors and executive officers as a group.
The following table does not take into account any common shares sold as a
result of the exercise of the over-allotment option granted to the underwriters.
Except as otherwise indicated, the persons listed below have sole voting
and investment power with respect to all of the common shares owned by them. All
information concerning their respective beneficial ownership has been furnished
to us by the individual shareholders.
Percent of Common
Common Shares Shares Beneficially
Beneficially Owned Owned
Name of beneficial -------------------------- ------------------------
owner or identity of Before After Before After
group(1)(2) Offering Offering Offering Offering
- ------------------------- ------------ ------------ ------------ ----------
Anthony L. Willsea(3)(4)
James R. Hohl(5).......
Bruce A. Knef(5).......
Robert J. Willsea(4)(5)
Ira H. Penner(5).......
James A. Willis(5)
.......................
.......................
.......................
All directors,
director nominees
and executive
officers as a
group (nine persons).
- ------------------
*Less than 1%
(1) All addresses are c/o National Media Technologies, Inc., 59 John
Street, New York, New York 10038.
(2) According to the rules and regulations of the SEC, common shares that a
person has a right to acquire within 60 days of the date of this
prospectus are deemed to be outstanding for the purpose of computing the
percentage ownership of that person but are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(3) Anthony L. Willsea has granted the underwriters a 45-day option to
purchase up to _____ common shares solely for the purpose of covering
over-allotments, if any. If that option is exercised in full, the number
of common shares he will beneficially own after the offering will be
______ and the percentage of common shares he will beneficially own after
the offering will be _____%.
(4) Anthony L. Willsea and Robert J. Willsea are brothers. Each disclaims
any ownership of the common shares owned by the other.
(5) Represents shares issuable upon exercise of options which vest immediately
upon the completion of this offering.
All of the common shares set forth in the above table are subject to
agreements prohibiting the sale, assignment or transfer for six months from the
date of this prospectus without the prior written consent of the underwriter.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 30,000,000 common shares, par
value $.01 per share and 5,000,000 preferred shares, par value of $.01 per
share. Upon completion of the offering, there will be _________ common shares
issued and outstanding ( _________ if the over-allotment option we granted to
the underwriters to purchase additional common shares is exercised in full) and
no preferred shares outstanding. As of the date of this prospectus, there were
_________ outstanding common shares held of record by one shareholder.
Common Shares
Subject to preferences that may apply to preferred shares outstanding at
the time, the holders of outstanding common shares are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the board of directors may from time to time determine. Each
shareholder is entitled to one vote for each common shares held on all matters
submitted to a vote of shareholders. The holders of a majority of the common
shares voting can elect all of the directors then standing for election. The
common shares are not entitled to preemptive rights and are not subject to
conversion or redemption. If we are liquidated or dissolved or our business is
otherwise wound up, the holders of common shares would be entitled to share
ratably in the distribution of all of our assets remaining available for
distribution after satisfaction of all our liabilities and the payment of the
liquidation preference of any outstanding preferred shares. Each outstanding
common share is, and all common shares to be outstanding upon completion of this
offering will be, fully paid and nonassessable.
Preferred Shares
The board of directors has the authority, within the limitations and
restrictions stated in our certificate of incorporation, to provide by
resolution for the issuance of preferred shares, in one or more classes or
series, and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of preferred shares could
have the effect of decreasing the market price of our common shares and could
adversely affect the voting and other rights of the holders of our common
shares.
Options
We have reserved _________ common shares for issuance under the 1998 stock
option plan and _________ common shares for issuance under our 2000 stock option
plan. All shares reserved for issuance under the 1998 plan are covered by
options granted under that plan. These options have exercise prices ranging from
$___ to $___ per share. As of the date of this prospectus, options covering
_________ common shares have been granted to employees and independent
contractors under the 2000 plan. These options have exercise prices equal to the
initial public offering price per share in this offering.
Authorized But Unissued Shares
The authorized but unissued common shares and all of the preferred shares
are available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued common shares
and preferred shares could render more difficult or discourage an attempt to
obtain control of us by means of a proxy contest, tender offer, merger or
otherwise.
48
<PAGE>
The New York Business Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
the corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our certificate of incorporation does not impose
any supermajority vote requirements.
Anti-takeover Effects of Our Certificate of Incorporation and Bylaws
Certain provisions of our certificate of incorporation and bylaws may be
deemed to have an anti-takeover effect and may delay, deter or prevent a tender
offer or takeover attempt, including attempts that might result in a premium
being paid over the market price for the shares held by shareholders.
Classified board of directors. Our board of directors is divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the board of directors will be elected each year.
This provision may deter a shareholder from attempting to remove incumbent
directors and simultaneously gaining control of the board of directors by
filling the vacancies created by such removal with his own nominees.
Special meetings of shareholders. Special meetings of our shareholders may
be called only by the chairman of the board of directors, a majority of the
board of directors or the holders of not less than 50% of all votes entitled to
be cast on any issue proposed to be considered at such meeting. This provision
could make it more difficult for shareholders to take actions opposed by the
board of directors.
Advance notice requirements for shareholders proposals and director
nominations. Our bylaws state that shareholders must provide timely notice of
their intention to bring business before an annual meeting of shareholders or to
nominate candidates for election as directors at an annual meeting of
shareholders. To be timely, notice must be delivered to, or mailed and received
by us, not less than 120 days nor more than 180 days before the first
anniversary of the date of our notice of annual meeting for the previous year's
annual meeting. If we held our annual meeting in the previous year or the date
of the annual meeting of shareholders is more than 30 calendar days earlier
than, or 60 calendar days after the anniversary of the last meeting, a timely
notice must be received not more than 60 days before to the annual meeting of
shareholders or the close of business on the 10th day following the date of the
meeting. The form and content of a shareholder's notice must comply with the
bylaws. These provisions may preclude shareholders from bringing matters before
an annual meeting of shareholders or from making nominations for directors at an
annual meeting of shareholders.
Listing on Nasdaq National Market
We will apply to list our common shares on the Nasdaq National Market
under the symbol "NATL".
Transfer Agent and Registrar
The transfer agent and registrar for our common shares will be American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
shares. We cannot predict the effect, if any, that sales of common shares or the
availability of common shares for sale will have on the market price of the
common shares prevailing from time to time. Future sales of substantial amounts
of common shares in the public market, including shares issued upon the exercise
of options granted under our stock option plans, could adversely affect the
prevailing market price of the common shares.
Upon completion of this offering, we will have _______ common shares
outstanding (____________ if the option we granted to the underwriters to
purchase additional common shares from us is exercised in full). In addition, we
have reserved ____________ common shares for issuance under our 1998 stock
option plan, all of which are covered by options granted before the date of this
prospectus and __________ common shares are reserved for issuance under our 2000
stock plan, of which _________ common shares are covered by options granted on
or before the date of this prospectus. Finally, _________ common shares are
issuable upon exercise of warrants issuable to the representatives of the
underwriter in connection with this offering. The _________ common shares sold
in this offering (____________ if the option we granted to the underwriters to
purchase additional common shares from us is exercised in full), other than
shares held by an "affiliate" (as that term is defined by the rules and
regulations issued under the Securities Act), will be freely transferable
without restriction under the Securities Act. The _____________ common shares
held by existing shareholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rule 144 promulgated under the Securities Act, which rules
are summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144, the restricted securities will be available for sale in
the public market subject to the volume limitations and other conditions of Rule
144. The shares could be available for resale immediately upon the expiration of
the one-year lock-up period imposed by the lock-up agreements described below.
Lock-Up Agreements
All of our officers, directors and pre-offering shareholders will sign
lock-up agreements under which they will agree not to transfer or dispose of,
directly or indirectly, any common shares or any securities convertible into or
exercisable or exchangeable for common shares, for a period of 180 days after
the date of this prospectus. Transfers or dispositions can be made sooner with
the prior written consent of the representatives of the underwriters.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
this offering, a person (or persons whose shares are aggregated) who has
beneficially owned common shares for at least one year is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the then outstanding common shares or (ii) the
average weekly trading volume of the common shares on the Nasdaq National Market
during the four calendar weeks preceding the date on which notice of the sale is
filed with the SEC. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about us. Under Rule 144(k) any person (or persons whose shares are
aggregated) who is not deemed to have been one of our affiliates at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
without regard to the volume limitations, manner-of-sale provisions, public
information requirements or notice requirements of Rule 144.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions of our underwriting agreement, the
underwriters named below, for whom Roth Capital Partners, Inc. and
__________________ are acting as representatives, have severally agreed to
purchase from us and we have agreed to sell to the underwriters, the respective
number of shares of common shares set forth opposite each underwriter's name
below:
Number
Underwriters of Shares
-------------- ----------
Roth Capital Partners, Inc. .................
Others.......................................
----------
Total...............................
==========
A copy of the underwriting agreement has been filed as an exhibit to this
registration statement. Our underwriting agreement provides that the obligations
of the underwriters are subject to certain conditions precedent, including the
absence of any material adverse change in our business, the receipt of
certificates, opinions and letters from our counsel and independent public
accountants. The nature of the underwriters' obligation is such that they are
committed to purchase and pay for all the common shares if any are purchased. We
have been advised by the representatives that the underwriters propose to offer
the common shares directly to the public on the terms set forth on the cover
page of this prospectus. The underwriters may allow selected dealers a
concession of not more than $___ per share, and the underwriters may allow, and
such selected dealers may re-allow, a concession of not more than $___ per
share, to other dealers.
After the initial public offering of our common shares, the public
offering price and other selling terms may be changed by the representative. No
change in these terms will change the amount of proceeds to be received by us as
set forth on the cover page of this prospectus.
We have granted an option to the underwriters, exercisable for a period of
45 days after the date of this prospectus, to purchase up to an additional
_________ common shares at the same price per share as the initial shares to be
purchased by the underwriters to cover over allotments, if any. To the extent
that the underwriters exercise this option, each of the underwriters will be
committed, subject to certain conditions, to purchase additional common shares
in approximately the same proportion as set forth in the above table. The
representatives have advised us that they do not expect any sales of common
shares offered by this prospectus to be made to discretionary accounts
controlled by the underwriters.
We have agreed to pay the representatives a non-accountable expense
allowance equal to 2% of the aggregate price of the common shares offered hereby
including with respect to common shares underlying the over allotment option, if
and to the extent it is exercised as set forth on the front cover of this
prospectus. The representatives' expenses in excess of the non-accountable
expense allowance, including its legal expenses, will be borne by the
representatives.
51
<PAGE>
We have agreed to issue to the representatives at the closing of the
offering warrants to purchase up to _________ common shares at an exercise price
per share equal to 125% of the initial per share public offering price. The
representatives' warrants are exercisable for a period of four years beginning
one year from the date of this prospectus. The holders of the representatives'
warrants will have no voting, dividend or other shareholder rights until the
representatives' warrants are exercised. The terms of the representatives'
warrants were established as the result of negotiations between the
representatives and us. If the representatives' warrants are exercised, the
representative may realize additional compensation. By their terms, the
representatives' warrants will be restricted from sale, transfer, assignment or
hypothecation, except to persons that are officers of the representative. The
number of shares covered by the representatives' warrants and the exercise price
are subject to adjustment to prevent dilution. In addition, we have granted
various rights to the holders of the representatives' warrants to register the
representatives' warrants and the common shares underlying the representatives'
warrants under the Securities Act of 1933. Total compensation to the
representatives and the underwriters is as follows:
Commissions...................... $ per share of common shares
sold
Nonaccountable expense
allowance...................... $ per share of common shares
sold
Warrants......................... XXX,000 shares of common
shares at 125% of the
initial public offering
price.
We have agreed to grant to Roth Capital Partners a right of first refusal
on any subsequent investment banking business that we contemplate for a period
of two years following this offering. Any compensation to Roth Capital Partners
in connection with any such investment banking business shall be addressed
through a separate engagement agreement.
Our directors and executive officers have agreed that they will not,
without the prior written consent of the representatives, directly or indirectly
offer, sell or otherwise dispose any of our common shares or any other equity
security of ours, or any securities convertible into or exercisable or
exchangeable for our common shares or enter into any agreement to do any of the
foregoing for a period of 180 days from the date of this prospectus. The
representatives have no present intention to release the locked-up shares prior
to expiration of the 180-day period although the representatives may release the
locked-up shares prior to expiration of such period. The granting of any release
would be conditioned, in the judgment of the representatives, on the sale not
materially adversely impacting the prevailing trading market for the common
shares on the Nasdaq National Market. Specifically, factors such as average
trading volume, recent price trends, and the need for additional public float in
the market for the common shares would be considered in evaluating such a
request.
We have agreed to indemnify the underwriters against some liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the underwriters may be required to make in this respect.
Prior to this offering, there has been no established trading market for
the common shares. Consequently, the initial public offering price for the
common shares in this offering has been determined by negotiations between the
representatives and us. Among the factors considered in such negotiations were
the preliminary demand for the common shares, the prevailing market and economic
conditions, our results of operations, estimates of our business potential and
prospects, the present state of our business operations, an assessment of our
management, the consideration of these factors in relation to the market
valuation of comparable companies in related businesses, the current conditions
of the markets in which we operate, and other factors deemed relevant. There can
be no assurance that an active trading market will develop for our common shares
or that the common shares will trade in the public market after the offering at
or above the initial public offering price.
52
<PAGE>
The representatives have advised us that, pursuant to Regulation M under
the Securities Act of 1933, some persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the common shares at a level
above that which might otherwise prevail in the open market. A stabilizing bid
is a bid for or the purchase of common shares on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common shares.
A syndicate covering transaction is the bid for or purchase of common
shares on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. The underwriters may also impose
a penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the common shares sold in this offering for their
account may be reclaimed by the syndicate if these shares are repurchased by the
syndicate in stabilizing or covering transactions. The representatives have
advised us that these transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time. The
underwriting agreement provides that we will indemnify the underwriters and
their controlling persons against liabilities under the Securities Act or will
contribute to payments the underwriters and their controlling persons maybe
required to make in respect thereof.
LEGAL MATTERS
The validity of the common shares offered by this prospectus will be
passed upon for us by Morse, Zelnick, Rose & Lander, LLP, New York, New York.
Greenberg Traurig, LLP, New York, New York, has acted as counsel to the
underwriters named in this prospectus in connection with this offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We've included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities
Act with respect to the common shares with the SEC. This prospectus does not
contain all of the information included in the registration statement and the
accompanying exhibits and schedules. For further information with respect to us
and the shares, you should refer to the registration statement and the
accompanying exhibits and schedules. Statements contained in this prospectus
regarding the contents of any contract or any other document to which reference
is made are not necessarily complete, and in each instance you should refer to
the copy of the contract or other document filed as an exhibit to the
registration statement, each statement being qualified in all respects by
reference. You may inspect a copy of the registration statement and the
accompanying exhibits and schedules without charge at the SEC's public reference
facilities, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048, and you may obtain copies of all or any part of
the registration statement from those offices upon payment of the prescribed
fees. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the site is
http://www.sec.gov.
We intend to furnish our shareholders with annual reports containing
financial statements audited by its independent certified public accountants.
53
<PAGE>
National Media Technologies, Inc.
Index to Financial Statements
Report of Independent Auditors....................................... F-2
Balance Sheets as of December 31, 1998 and 1999...................... F-3
Statements of Operations for the
Years Ended December 31, 1997, 1998 and 1999....................... F-4
Statements of Changes in Shareholder's Equity (Deficiency)
for the Years Ended December 31, 1997, 1998 and 1999............... F-5
Statements of Cash Flows for the
Years Ended December 31, 1997, 1998 and 1999....................... F-6
Notes to Financial Statements........................................ F-7
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
National Media Technologies, Inc.
We have audited the accompanying balance sheets of National Media Technologies,
Inc. (the "Company") as of December 31, 1998 and 1999 and the related statements
of operations, shareholder's equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Media Technologies,
Inc. at December 31, 1998 and 1999 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
New York, New York
February 29, 2000, except as to
the third paragraph of Note 1, as
to which the date is April __, 2000
The foregoing report is in the form that will be signed upon the completion of
the restatement of capital accounts described in the third paragraph of Note 1
to the financial statements.
/s/ Ernst & Young LLP
New York, New York
March 13, 2000
F-2
<PAGE>
National Media Technologies, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1999
----------- -----------
<S> <C> <C>
Assets
Current assets:
Accounts receivable net of allowance of
$24,100 in 1998 and $12,300 in 1999 ........... $ 460,722 $ 829,719
Prepaid and refundable income taxes ............ 38,478 --
Other current assets ........................... 61,428 111,452
----------- -----------
Total current assets ............................. 560,628 941,171
Fixed assets, net ................................ 365,715 326,554
Deferred registration fees ....................... -- 75,000
Deferred tax assets .............................. 35,125 35,125
Other assets ..................................... 27,311 33,586
----------- -----------
Total assets ..................................... $ 988,779 $ 1,411,436
=========== ===========
Liabilities and shareholder's deficiency
Current liabilities:
Cash overdraft ................................. $ 33,722 $ 58,462
Borrowings under lines of credit ............... 599,867 378,400
Accounts payable ............................... 93,592 259,737
Accrued expenses ............................... 102,401 53,962
Loan payable to shareholder .................... -- 357,000
Income taxes payable ........................... -- 40,887
Litigation settlement payable .................. -- 700,000
Current portion of capital lease obligations ... 28,273 22,266
----------- -----------
Total current liabilities ........................ 857,855 1,870,714
Long-term portion of borrowings under lines
of credit ...................................... 30,815 3,400
Litigation settlement payable .................... 700,000 --
Obligations under capital leases ................. -- 28,805
----------- -----------
Total liabilities ................................ 1,588,670 1,902,919
Shareholder's deficiency:
Preferred shares, $.01 par value; 5,000,000
shares authorized; no shares issued and
outstanding
Common shares, $.01 par value; 30,000,000
shares authorized; _________ shares issued
and outstanding ............................... 100 100
Additional paid-in capital ..................... 246,441 246,441
Accumulated deficit ............................ (846,432) (738,024)
----------- -----------
Total shareholder's deficiency ................... (599,891) (491,483)
----------- -----------
Total liabilities and shareholder's deficiency ... $ 988,779 $ 1,411,436
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
National Media Technologies, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues ............................. $ 3,419,405 $ 3,332,489 $ 5,023,907
Cost of revenues ..................... 1,226,997 1,287,973 1,845,324
----------- ----------- -----------
Gross profit ......................... 2,192,408 2,044,516 3,178,583
Selling, general and administrative
expenses (including stock compensation
expense of $246,441 in 1998) ......... 1,231,185 2,172,674 2,667,270
----------- ----------- -----------
Income (loss) from operations ........ 961,223 (128,158) 511,313
Other income (expense):
Interest expense, net .............. (9,800) (28,882) (63,687)
Litigation settlement .............. -- (700,000) --
Recovery of insurance proceeds in
excess of book value of
net assets lost ..... 60,482 -- --
----------- ----------- -----------
Income (loss) before provision for
income taxes ......................... 1,011,905 (857,040) 447,626
Provision (benefit) for income taxes . 84,750 (19,000) 50,000
----------- ----------- -----------
Net income (loss) .................... $ 927,155 $ (838,040) $ 397,626
=========== =========== ===========
Historical basic net income (loss) per
share .............................. $ $ $
=========== =========== ===========
Historical diluted net income (loss)
per share .......................... $ $ $
=========== =========== ===========
Historical number of shares used in
computing basic net income (loss)
per share
=========== =========== ===========
Historical number of shares used in
computing diluted net income (loss)
per share
=========== =========== ===========
Pro forma (unaudited) (Note 12)
Historical income before provision
for income taxes ................... $ 447,626
Pro forma income tax expense ......... 206,000
-----------
Pro forma net income ................. $ 241,626
===========
Pro forma basic net income per share . $
===========
Pro forma diluted net income per share $
===========
Number of shares used in computing pro
forma basic net income per share
===========
Number of shares used in computing pro
forma diluted net income per share
===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
National Media Technologies, Inc.
Statements of Changes in Shareholder's Equity (Deficiency)
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Additional Retained
Paid-in Earnings
Shares Amount Capital (Deficit) Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 100 $ -- $ 262,693 $ 262,793
Net income ............... -- -- -- 927,155 927,155
Distributions to
shareholder ............ -- -- -- (385,605) (385,605)
--------- --------- --------- --------- ---------
Balance at December 31, 1997 100 -- 804,243 804,343
Net loss ................. -- -- -- (838,040) (838,040)
Issuance of stock options -- -- 246,441 -- 246,441
Distributions to
shareholder ............ -- -- -- (812,635) (812,635)
--------- --------- --------- --------- ---------
Balance at December 31, 1998 100 246,441 (846,432) (599,891)
Net income ............... -- -- -- 397,626 397,626
Distributions to
shareholder ............ -- -- -- (289,218) (289,218)
--------- --------- --------- --------- ---------
Balance at December 31, 1999 $ 100 $ 246,441 $(738,024) $(491,483)
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
National Media Technologies, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) ......................... $ 927,155 $(838,040) $ 397,626
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Recovery of insurance proceeds in excess
of book value of net assets lost ..... (60,482) -- --
Stock option issued for services ....... -- 246,441 --
Write-off/loss on fixed assets ......... -- 15,360 17,627
Bad debt expense ....................... 18,842 43,025 38,132
Depreciation and amortization .......... 61,229 72,840 93,994
Deferred tax assets .................... -- (35,125) --
(Increase) decrease in:
Accounts receivable .................. (399,109) 99,406 (407,129)
Other current assets ................. (4,307) (56,421) (50,024)
Prepaid and refundable income taxes .. -- (38,478) 38,478
Accounts payable and accrued expenses 101,969 46,027 117,706
Income taxes payable ................. 26,505 (55,505) 40,887
Litigation settlement payable ........ -- 700,000 --
--------- --------- ---------
Net cash provided by operating activities . 671,802 199,530 287,297
--------- --------- ---------
Cash flows from investing activities
Loss recovery receivable .................. (205,300) 205,300 --
Purchase of fixed assets .................. (312,826) (253,195) (57,891)
Proceeds from sale of fixed assets ........ 250,000 -- 43,731
Other assets .............................. (16,033) (5,111) (6,275)
--------- --------- ---------
Net cash used in investing activities ... (284,159) (53,006) (20,435)
--------- --------- ---------
Cash flows from financing activities
Cash overdraft ............................ -- 33,722 24,740
Net proceeds from borrowings under lines of
credit .................................. 81,883 548,799 --
Net repayments of borrowings under lines of
credit .................................. -- -- (248,882)
Principal payments under capital lease
obligations ............................. (44,475) (28,893) (35,502)
Deferred registration fees ................ -- -- (75,000)
Loan payable to shareholder ............... -- -- 357,000
Distributions to shareholder .............. (385,605) (812,635) (289,218)
--------- --------- ---------
Net cash used in financing activities ..... (348,197) (259,007) (266,862)
--------- --------- ---------
Net increase (decrease) in cash
and cash equivalents .................... 39,446 (112,483) --
Cash and cash equivalents at
beginning of year ....................... 73,037 112,483 --
--------- --------- ---------
Cash and cash equivalents at end of year .. $ 112,483 $ -- $ --
========= ========= =========
Supplemental disclosure of cash flow
information
Income taxes paid ......................... $ 58,245 $ 106,983 $ --
========= ========= =========
Interest paid ............................. $ 12,280 $ 24,999 $ 72,698
========= ========= =========
Non-cash investing and financing activities
Acquisition of fixed assets through capital
leases .................................. $ 50,617 $ 57,166 $ 58,300
========= ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements
1. Significant Accounting Policies
Description of Business and Basis of Presentation
The accompanying financial statements include the accounts of National Media
Technologies, Inc. ("NMT") and prior to October 22, 1999 its affiliated
companies (collectively, the "Company"). On October 21, 1999, National Filing
Services, Inc. ("NFS"), National Printing Services, Inc. and National Internet
Services, Inc. ("NIS") (collectively, the affiliated companies) were merged with
and into NFS with NFS changing its name to NMT. Prior to the merger, NMT and NIS
were inactive. One shareholder owned a 100% interest in the affiliated companies
and now owns a 100% interest in NMT.
The Company uses a combination of software and services to create, design and
deliver secure business-critical communications to the financial, business and
legal communities. Their services include securities compliance filings, Web
site development, preparation of electronic brochures, interactive multimedia
presentations and virtual tours. The Company has office and production
facilities in New York City, Boston, Chicago and Ft. Lauderdale.
Initial Public Offering
In _______ 2000, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission ("SEC") that would permit
the Company to sell shares of the Company's common stock in connection with a
proposed initial public offering ("IPO"). Upon the consummation of the Company's
IPO, the Company will be authorized to issue (i) _________ shares of common
stock, effect a stock split pursuant to which each share of common stock will be
exchanged for ________ shares of common stock, par value $.01 per share and (ii)
5,000,000 shares of preferred stock, par value $.01. The accompanying financial
statements give retroactive effect to the increase in the authorization of
common stock and the stock split.
Fixed Assets
Fixed assets, including those acquired under capital leases, are stated at cost
and depreciated by the straight-line method over the estimated useful lives of
the assets, which range from three to seven years. Leasehold improvements are
amortized over the lesser of the useful life of the asset or the remaining
period of the lease.
F-7
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Revenue Recognition
A substantial portion of the Company's revenues are derived pursuant to time and
materials agreements and revenue is recognized as services are performed. The
Company derives a portion of its revenues from service agreements and recognizes
such revenues in the month the service is provided. Hosting revenues are
recorded in the month earned. Revenues pursuant to fixed-fee contracts are
generally recognized as services are rendered on the percentage-of-completion
method of accounting (based on the ratio of costs incurred to total estimated
costs). To date, fixed-fee contracts have been insignificant.
Provisions for estimated losses on uncompleted contracts are made on a contract
by contract basis and are recognized in the period in which such losses become
probable and can be reasonably estimated. To date, such losses have been
insignificant. Advanced billings and billings in excess of costs plus fees are
classified as deferred revenue.
Cost of Revenues
Cost of revenues consist primarily of compensation and benefits of the Company's
employees engaged in the delivery of services.
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying balance sheets for accounts
receivable, accounts payable, accrued expenses, litigation settlement payable,
loan payable to shareholder and borrowings under lines of credit approximate
their fair values.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable. The
Company performs periodic credit evaluations of its customers' financial
condition and does not require collateral. Accounts receivable are due
principally under stated contract terms and the Company provides for estimated
credit losses at the time services are rendered. Such losses have not been
significant to date.
F-8
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Advertising Costs
The Company's policy is to expense advertising costs as incurred. For the years
ended December 31, 1997, 1998 and 1999, the Company incurred approximately
$65,000, $30,000 and $51,000 of advertising costs, respectively.
Income Taxes
The Company uses the liability method for income taxes, whereby deferred income
taxes are provided on items recognized for financial reporting purposes over
different periods than for income tax purposes. Valuation allowances are
provided when the expected realization of tax assets does not meet a more likely
than not criteria.
Computation of Historical Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with SFAS No.
128, "Earnings per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic and diluted net income
(loss) per share is computed by dividing the net income (loss) available to
common shareholders for the period by the weighted average number of shares of
common stock outstanding during the period. The calculation of diluted net loss
per share excludes potential common shares as their effect is anti-dilutive.
Potential common shares are incremental shares of common stock issuable upon the
exercise of stock options.
F-9
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
The following table sets forth the computation of basic and diluted earnings per
share for the year ended December 31, 1999:
Numerator:
Net income $ 397,626
===========
Denominator for basic earnings per share-
weighted-average shares
Effect of dilutive stock options
-----------
Denominator for diluted earnings per
share-adjusted weighted-average shares
and assumed conversions-treasury stock
method
===========
Comprehensive Income
The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from nonowner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Major Customers
One customer accounted for 55%, 33% and 36% of the Company's revenue for the
years ended December 31, 1997, 1998, and 1999, respectively. Another customer
accounted for 16% of the Company's revenue for the year ended December 31, 1998.
F-10
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
3. Fixed Assets
Fixed assets consist of the following:
December 31
1998 1999
-------- --------
Computer equipment ............................. $201,519 $279,545
Furniture and fixtures ......................... 95,841 99,372
Automobiles .................................... 69,860 --
Leasehold improvements ......................... 73,521 99,738
-------- --------
440,741 478,655
Less accumulated depreciation and
amortization ................................. 75,026 152,101
-------- --------
$365,715 $326,554
======== ========
Fixed assets include assets under capital lease aggregating approximately
$57,166 and $101,615 at December 31, 1998 and 1999, respectively. The
accumulated amortization related to assets under capital leases was
approximately $5,717 and $22,494 at December 31, 1998 and 1999, respectively.
4. Loan Payable to Shareholder
During 1999, the Company borrowed $357,000 from its sole shareholder. The loan
is non-interest bearing and is payable on demand. The balance is expected to be
repaid from the IPO proceeds.
F-11
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
5. Borrowings Under Lines of Credit
Borrowings under lines of credit consist of the following:
December 31
1998 1999
-------- --------
Revolving line of credit (a) ....................... $569,052 $375,000
Overdraft lines of credit (b) ...................... 61,630 6,800
-------- --------
630,682 381,800
Less current portion of borrowings under
lines of credit .................................. 599,867 378,400
-------- --------
Long-term portion of borrowings under lines
of credit ........................................ $ 30,815 $ 3,400
======== ========
(a)-- The Company has a $700,000 revolving line of credit facility with a bank,
payable on demand and bearing interest at the bank's prime rate (8.5% at
December 31, 1999) plus 1%. Borrowings on the credit facility are
collateralized by a security interest in substantially all of the
Company's assets and is guaranteed by the shareholder of the Company.
(b)-- The Company has overdraft lines of credit with a bank in the amount of
$80,000. Borrowings are to be repaid, at a minimum, in 24 equal monthly
principal installments plus interest at an annual rate of 16%. These lines
of credit are collateralized by a security interest in substantially all
of the Company's assets and are guaranteed by the shareholder of the
Company.
6. Capital Leases
The Company has entered into capital lease agreements for computer equipment.
The agreements provide for monthly payments of approximately $235 to $2,012
through November 2002, which includes interest at rates ranging from 10.50% to
11.50%.
F-12
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
6. Capital Leases (continued)
The following is a schedule of minimum lease payments under capital leases,
together with the present value of the net minimum lease payments:
2000 ................................................... $24,141
2001 ................................................... 24,141
2002 ................................................... 7,366
-------
Total minimum lease payments ........................... 55,648
Less amount representing interest ...................... 4,577
-------
Present value of net minimum lease payments ............ 51,071
Less current portion ................................... 22,266
-------
Long-term obligation at December 31, 1999 .............. $28,805
=======
7. Lease Commitments
The Company has noncancellable operating leases for office space which expire at
various dates through the year 2002. The Company is obligated under these leases
for aggregate minimum rentals approximating as follows:
Annual period ending December 31:
2000 ................................................. $199,000
2001 ................................................. 147,000
2002 ................................................. 26,000
--------
Total minimum lease payments ........................... $372,000
========
The leases provide that the Company pay its share of operating expenses and real
estate taxes. Rent expense for the years ended December 31, 1997, 1998 and 1999
was approximately $82,000, $162,000 and $193,000, respectively.
F-13
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
8. Income Taxes
The Company, with the consent of its shareholder, has elected to be taxed as an
S corporation pursuant to the Internal Revenue Code and certain state tax laws.
As such, the Company has not been subject to federal and certain state income
taxes and the shareholder has included the corporation's taxable income or loss
in his individual income tax returns. Income taxes in 1997, 1998 and 1999
primarily represent New York City corporate income taxes. Deferred tax assets
resulting from temporary differences relate to stock compensation expense and
certain expenses not currently deductible.
If the IPO is consummated, the Company will no longer be an S corporation. Upon
the change in tax status of the Company, under SFAS No. 109 "Accounting for
Income Taxes," the Company will record a deferred income tax asset relating to
the future tax deduction of items previously expensed for book purposes. Had the
change occurred on December 31, 1999, the deferred tax asset that would have to
be recognized would be approximately an additional $136,000.
The provision for pro forma income taxes computed as though the Company is a C
corporation in 1999 on pro forma income differs from the amounts computed by
applying the applicable federal statutory rates due to the following:
% of Pro Forma
Profit Before
Income Taxes
Year Ended
December 31, 1999
------------------
Federal statutory rate ............................ 34.0%
State and local taxes, net of
federal tax benefit ............................. 9.9
Nondeductible expenses ............................ 2.3
----
46.2%
====
F-14
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
9. Shareholders' Deficiency
Stock Option Plan
In January 1998, the Company established the 1998 Stock Option Plan (the "Option
Plan") for officers, employees, consultants and nonemployee directors to
purchase shares of the Company's common stock. The Option Plan requires the
Company to reserve a sufficient number of authorized shares for issuance upon
the exercise of all options that may be granted under the Option Plan. At
December 31, 1999, the Company had reserved _______ shares of common stock for
the exercise and future grants of stock options under Option Plan.
The Compensation Committee of the Board of Directors is responsible for
determining the type of award, when and to whom awards are granted, the number
of shares and terms of the awards and the exercise price. Each option agreement
shall state that the option constitutes an incentive stock option or a
nonqualified stock option. Incentive stock options may not be granted to a
nonemployee director or a consultant of the Company. The exercise price shall
not be less than the fair market value of the Company's common stock at the date
the option is granted unless, with respect to nonqualified stock options,
otherwise determined by the Compensation Committee. In the case of an incentive
stock option granted to a ten percent shareholder, (i) the option price shall
not be less than one hundred ten percent (110%) of the fair market value of
common stock on the date of grant of such incentive stock option, and (ii) the
exercise period shall not exceed five years from the date of grant of such
incentive stock option. In January 1998, the Company granted _______
nonqualified stock options and ________ incentive stock options. All incentive
options to date have been granted at or above fair market value and, as such,
the Company has not recorded compensation expense in connection with awards to
employees. Options granted to consultants for professional services rendered
were all granted in January 1998, and the Company recognized the fair value of
the options granted, amounting to $246,441 of compensation.
The options are exercisable for a period not to exceed ten years from the date
of the grant. For incentive stock options, vesting periods range from one to
four years and vesting is accelerated in the event of a qualified IPO, as
defined. For nonqualified stock options, vesting was immediate, as the options
granted were for services rendered. All options granted in 1998 are exercisable
as follows, (i) one-third on the later of January 27, 1999 or an IPO, (ii)
two-thirds on the later of January 27, 2000 or an IPO, and (iii) in any event on
January 27, 2002.
F-15
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
9. Shareholders' Deficiency (continued)
Activity in the Option Plan is summarized as follows (in shares):
Weighted
Average
Exercise
Shares Price
-------------- ---------
Granted ........................... $
Exercised ......................... -- --
Canceled and expired .............. -- --
-------------- ---------
Outstanding at December 31, 1998
Granted ........................... -- --
Exercised ......................... -- --
Canceled and expired ..............
-------------- ---------
Outstanding at December 31, 1999 .. $
============== =========
Exercisable at December 31, 1998 .. --
==============
Exercisable at December 31, 1999 .. --
==============
Available for grant at
December 31, 1998 ...............
==============
Available for grant at
December 31, 1999 ...............
==============
Pro forma information regarding net income (loss) is required by SFAS No. 123
and has been determined as if the Company had accounted for its employees' stock
options under the fair value method provided by that Statement. The fair value
of the options was estimated at the date of grant using a minimum value option
pricing model with the following assumptions for vested and nonvested options;
risk-free interest rate 6%, dividend yield 0% and expected life-5 years. The
weighted average fair value of options granted during the year ended December
31, 1998 was $ ___. The weighted average remaining contractual life of the 1998
options is 8 years.
F-16
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
9. Shareholders' Deficiency (continued)
For purposes of pro forma disclosures, the estimated fair value of the options
under SFAS 123 is amortized to expense over the options' vesting period. For the
year ended December 31, 1998 and 1999, pro forma net income (loss) under SFAS
123 amounted to approximately $(825,000) and $347,000, respectively and basic
and diluted income (loss) per share of $(___) (basic and diluted-1998) and $ ___
(basic-1999) and $ ___ (diluted-1999). The pro forma net income (loss) may not
be indicative of amounts to be included in future periods.
10. Profit Sharing Plan
In January 1997, the Company established a 401(k) savings plan (the "Plan")
covering all eligible employees. The 401(k) plan is primarily funded by employee
contributions with partial matching contributions by the Company. The Company is
required to make matching contributions based on amounts contributed by its
employees, not to exceed 25% of compensation, subject to a maximum of $1,250 per
employee. The Company contributed approximately $8,000 , $14,000 and $17,000 to
the Plan for the years ended December 31, 1997, 1998 and 1999, respectively.
11. Fire Loss
In November 1997, a fire destroyed a substantial part of the premises occupied
by the Company. The recognized gain of $60,482 represents the excess of
insurance proceeds received over the net book value of furniture, equipment and
leasehold improvements destroyed by the fire.
F-17
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
12. Pro Forma Information and Events Concurrent with the IPO (Unaudited)
Pro Forma Adjustments--Statement of Operations
If the IPO is consummated, the Company will no longer be treated as an S
corporation and, accordingly, will be subjected to federal and additional state
and local income taxes. The unaudited pro forma adjustments on the accompanying
statements of operations reflects an adjustment to record a provision for income
taxes as if the Company had not been an S corporation. Pro forma net income per
share for the year ended December 31, 1999 is computed by dividing pro forma net
income by the weighted average number of common shares outstanding.
13. Subsequent Events
Contingent Liabilities
In July 1998, a civil action was filed against the Company and its sole
shareholder for copyright infringement. The Company and its sole shareholder
asserted counterclaims in such actions. The action related to computer programs
used by the Company in providing security compliance services to its customers
and authorship issues with respect thereto. In January 2000, the parties entered
into a settlement agreement pursuant to which the Company and its sole
shareholder agreed to pay $700,000 and the Company received current and future
license rights to certain software, under the best available terms and
conditions granted to other customers. In accordance with the settlement, the
Company paid $50,000 in January 2000 and the Company's sole shareholder paid the
balance in February 2000. Payments made by the sole shareholder will be recorded
as capital contributions.
F-18
<PAGE>
National Media Technologies, Inc.
Notes to Financial Statements (continued)
13. Subsequent Events (continued)
Loan Transaction
In February 2000, the Company borrowed $1 million from an unrelated party. The
loan is comprised of two notes. The first note, in the principal amount of
$950,000: (a) bears interest at the prime rate until December 31, 2000 and the
prime rate plus 4% thereafter, (b) is repayable in equal monthly installments of
$105,555.56 commencing January 31, 2001; and (c) is subject to mandatory
repayment out of the proceeds of an initial public offering of the Company's
common shares (an "IPO"). The second note, in the principal amount of $50,000:
(a) bears interest at the prime rate; (b) is due on January 31, 2001; and (c) is
convertible, at the option of the holder at any time after the closing of an IPO
and prior to maturity, into a number of common shares having a value of $1
million based on the IPO price per share. Each of these notes has been
personally guaranteed by our sole shareholder.
F-19
<PAGE>
NATIONAL MEDIA TECHNOLOGIES, INC.
[COMPANY LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following are the expenses of the issuance and distribution of the
securities being registered, other than underwriting commissions and expenses,
all of which will be paid by the Company. Other than the SEC registration fee
and the NASD filing fees all of such expenses are estimated.
Registration fee..................................................$ 7,433.25
NASD fee..........................................................$ 3,305.00
Nasdaq National Market listing fee................................$ *
Printing expenses.................................................$ *
Accounting fees and expenses......................................$ *
Legal fees and expenses...........................................$ *
Transfer agent and registrar fees and expenses....................$ 3,500.00
Underwriter's nonaccountable expenses.............................$ *
Miscellaneous.....................................................$ *
----------
Total.........................................................$ *
===========
- -------------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Sections 722 and 723 of the New York Business Corporation Law grants us
the power to indemnify our officers and directors as follows:
(a) A corporation may indemnify any person made, or threatened to be made,
a party to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation or that he had reasonable
cause to believe that his conduct was unlawful.
II-1
<PAGE>
(c) A corporation may indemnify any person made, or threatened to be made,
a party to an action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interest of
the corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is settled
or otherwise disposed of, or (2) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and only
to the extent that the court on which the action was brought, or, if no action
was brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with respect to an employee benefit plan in
the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
Payment of indemnification other than by court award is as follows:
(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in section 722 shall be entitled to indemnification as authorized in such
section.
(b) Except as provided in paragraph (a), any indemnification under section
722 or otherwise permitted by section 721, unless ordered by a court under
section 724 (Indemnification of directors and officers by a court), shall be
made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are
not parties to such action or proceeding upon a finding that the director or
officer has met the standard of conduct set forth in section 722 or established
pursuant to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
II-2
<PAGE>
(A) By the board upon the opinion in writing of independent
legal counsel that indemnification is proper in the circumstances because the
applicable standard of conduct set forth in such sections has been met by such
director or officer, or
(B) By the shareholders upon a finding that the director or
officer has met the applicable standard of conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal action
or proceeding may be paid by the corporation in advance of the final disposition
of such action or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amounts as, and to the extent, required
by paragraph (a) of section 725.
Our certificate of incorporation provides as follows:
"TENTH: (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigation
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Business Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights that
said law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall incur to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the Business
Corporation Law requires, the payment of such expenses incurred by a director or
officer (in his or her capacity as a director or officer and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
II-3
<PAGE>
"(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Business Corporation Law for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Business Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
"(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
"(d) Insurance. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the Business Corporation Law.
"ELEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its shareholders for damages for any breach of duty in such
capacity, except for the liability of any director if a judgment or other final
adjudication adverse to him establishes that his acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law or that
he personally gained in fact a financial profit or other advantage to which he
was not legally entitled or that his acts violated Section 719 of the New York
Business Corporation Law."
The Underwriting Agreement provides for reciprocal indemnification between
us and our controlling persons, on the one hand, and the underwriters and their
respective controlling persons, on the other hand, against certain liabilities
in connection with this offering, including liabilities under the Securities Act
of 1933, as amended.
Item 15. Recent Sale of Unregistered Securities
In February 2000, the Registrant sold $1 million principal amount of notes
to Conifer NMT L.P. for $1 million. The investment is comprised of two notes.
The first note, in the principal amount of $950,000: (a) bears interest at the
Prime Rate until December 31, 2000 and the Prime Rate plus 4% thereafter, (b) is
repayable in equal monthly installments of $105,555.56 commencing January 31,
2001; and (c) is subject to mandatory repayment out of the proceeds of an
initial public offering. The second note, in the principal amount of $50,000:
(a) bears interest at the Prime Rate; (b) is due on January 31, 2001; and (c) is
convertible, at the option of the holder at any time after the closing of an
initial public offering by the Registrant (an "IPO") and prior to maturity, into
a number of common shares having a value of $1 million based on the IPO offering
price per share. The issuance of these notes were made in reliance upon the
exemption from the registration requirements of the Securities Act of 1933, as
amended, provided in Section 4(2) thereof, as a transaction by an issuer not
involving a public offering. No commissions were paid in connection with such
issuances.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
Exhibit
No. Description
- ------ -----------
1.1 Form of Underwriting Agreement*
3.1 Form of Proposed Amended and Restated Certificate of
Incorporation of the Company*
3.2 Amended and Restated Bylaws of the Company*
4.1 Specimen Stock Certificate*
4.2 Form of Representative's Warrant*
5.1 Form of Opinion of Morse, Zelnick, Rose & Lander, LLP*
10.1 Form of National Media Technologies, Inc. 1998 Stock Option
Plan*
10.2 Form of National Media Technologies, Inc. 2000 Stock Option
Plan*
10.3 Form of Proposed Employment Agreement between the Company and
Anthony L. Willsea*
10.4 Loan Agreement*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in
Exhibit 5.1)*
24 Power of Attorney (included in signature page)
27 Financial data schedule
99.1 Director Nominee Consents*
- -------------
* To be filed by amendment.
II-5
<PAGE>
Item 17. Certain Undertakings
A. The undersigned Registrant hereby undertakes:
(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;
(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; and
(iii) to include any material information with respect
to the 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, 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.
(4) To provide to the Underwriter at the closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the Securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-1 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York on March 15, 2000.
NATIONAL MEDIA TECHNOLOGIES, INC.
By: /s/ ANTHONY L. WILLSEA
----------------------------------
Anthony L. Willsea, President
ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Kenneth S. Rose his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all pre-
or post-effective amendments to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any one of them, or their or his substitutes,
may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities indicated on March 15, 2000.
Signature Title
--------- -----
/s/ ANTHONY L. WILLSEA
- ----------------------------
Anthony L. Willsea President, Chief Executive Officer
and Director
/s/ ROBERT J. WILLSEA
- ----------------------------
Robert J. Willsea Chief Financial and Accounting Officer
II-7
Exhibit 23.1
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 29, 2000 (except the third paragraph of
Note 1, as to which the date is March 13, 2000) in the Registration Statement
and related Prospectus of National Media Technologies, Inc. for the registration
of ____________ common shares.
New York, New York
The foregoing consent is in the form that will be signed upon the
completion of the restatement of capital accounts described in the third
paragraph of Note 1 to the financial statements.
/s/ Ernst & Young LLP
New York, New York
March 13, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 842,019
<ALLOWANCES> 12,300
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<CURRENT-ASSETS> 941,171
<PP&E> 478,655
<DEPRECIATION> 152,101
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 397,626
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
