UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FIRST AMENDMENT TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VERTICALBUYER, INC.
--------------------------------------------
(Name of small business issuer in its charter)
Delaware 7389 98-0216911
----------------------- ---------------------------- -------------------
(State of incorporation (Primary Standard Industrial (I.R.S. Employer
or jurisdiction Classification Code Number) Identification No.)
of organization)
40 Linnell Circle
Billerica, Massachusetts 01821
(978) 663-7598
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(Address and telephone number of principal executive offices)
Timothy Neil David Rosen
President and Chief Executive Officer
VerticalBuyer, Inc.
40 Linnell Circle
Billerica, Massachusetts 01821
(978) 663-7598
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(Name, address and telephone number of agent for service)
Copies of all communications, including all communications set to the agent
for services, should be sent to:
Roger Fidler, Esq.
163 South Street
Hackensack, New Jersey 07601
Telephone No.:(201) 457-1221
Facsimile No.: (201) 457-1331
Approximate date of proposed sale to the public: From time to time after
the effective date of the registration statement until such time that all of the
shares of common stock registered hereunder have been sold. 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, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
<PAGE>
------------------------------------
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount Proposed Proposed Amount of
Securities Being Being Maximum Maximum Registration
Registered Registered Offering Aggregate Fee
Price Per Offering
Share(1) Price(1)
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Shares of Common Stock
by Selling Stockholders 2,000,000 $ 1.00 $ 2,000,000 $ 508.00
Shares of Common Stock
Underlying "A" Warrant 1,000,000 1.00 1,000,000 254.00
Shares of Common Stock
Underlying "B" Warrant 1,000,000 1.00 1,000,000 254.00
Shares of Common Stock
Underlying "C" Warrant 1,000,000 1.00 1,000,000 254.00
Shares of Common Stock
Underlying "D" Warrants 225,000 1.00 225,000 57.15
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TOTAL $ 5,225,000 $ 1,327.15
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(1) Estimated for purposes of computing the registration fee pursuant to Rule
457.
(2) Pursuant to Rule 416, there are also being registered such indeterminate
number of shares as may become issuable as a result of stock splits, stock
dividends or similar events.
The registrant hereby amends the 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 the registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
Cross Reference Sheet Showing the Location In Prospectus of
Information Required by Items of Form SB-2
Part I. Information Required in Prospectus
Item
No. Required Item Location or Caption
----- ------------- -------------------
1. Front of Registration Statement Front of Registration and
Outside Front Cover of
Statement and Outside Prospectus
Front Cover of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front Cover Page
of Prospectus and Outside Front
Cover Page of Prospectus
3. Summary Information and Risk
Factors Prospectus Summary;
High Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Prospectus Summary
Determination of Offering Price;
High Risk Factors
6. Dilution Dilution
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Litigation
10. Directors, Executive Officers,
Promoters and Control Persons Management
11. Security Ownership of Certain
Beneficial Owners and Management
of Common Stock Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and
Counsel Legal Opinions; Experts
14. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities Statement as to Indemnification
15. Organization Within Last
Five Years Management; Certain Related
Party Transactions
<PAGE>
16. Description of Business Business
17. Management's Discussion
and Analysis or Plan of
Operation Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related
Transactions Certain Transactions
20. Market for Common Stock and
Related Stockholder Matters Prospectus Summary;
High Risk Factors
21. Executive Compensation Remuneration
22. Financial Statements Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure Not Applicable
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL, NOR DOES IT SEEK AN OFFER TO BUY, THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED ,2000.
PROSPECTUS
Initial Public Offering
VERTICALBUYER, INC.
5,225,000 Shares of Common Stock
VerticalBuyer, Inc. has created two Internet websites focussing on the
needs of commercial sellers and buyers of lighting equipment - one an
information site and the other a site which facilitates the purchase and sale of
excess lighting inventory. We intend to use these sites as models for similar
sites featuring other product categories within the construction industry.
o All of the shares of our common stock offered in this prospectus are being
sold by the selling stockholders listed on page 39 of this prospectus.
o This prospectus covers the resale of 5,225,000 shares of our common stock,
including common stock to be issued to the selling stockholders upon the
exercise of warrants.
We sold privately 2,000,000 shares of our common stock to CSP Inc., a
public company trading under the symbol "CSPI" on the Nasdaq National Market,
and we are registering the resale of these 2,000,000 shares. CSPI intends to
distribute to its stockholders of record on July 7, 2000, on the basis of one of
our shares to every five shares of CSPI common stock owned on that date, 718,487
of the 2,000,000 shares purchased from us. The distribution of certificates
representing our shares should occur as soon as possible after the date of this
prospectus. We also issued to CSPI, on a private basis, warrants divided into
three classes which, if exercised in full, would permit CSPI to purchase a total
of 3,000,000 of our shares for $3,000,000. We are registering 1,000,000 shares
of our common stock underlying our Class "A" Warrant, 1,000,000 shares
underlying our Class "B" Warrant and 1,000,000 shares underlying our Class "C"
Warrant. We also issued Class "D" Warrants to purchase 225,000 of our shares,
150,000 of which we issued as compensation to financial consultants and 75,000
of which we sold to option holders of CSPI.
We will not receive any of the proceeds for the sale of shares by CSPI or
any other selling stockholder. CSPI is considered to be a statutory underwriter;
and, as such, will deliver to each person who is a stockholder on the record
date, a certificate representing the shares of our common stock, a copy of the
prospectus and a calculation sheet showing the number of shares of our common
stock to which the stockholder is entitled. We intend that our shares of common
stock and warrants trade on the Over the Counter Bulletin Board. CSPI presently
owns 2,000,000 of 17,000,000 shares, representing 11.8% of the issued and
outstanding shares of our common stock. After it distributes 718,487 shares of
our common stock to its stockholders and exercises its warrants, it would own
4,281,513 of 20,225,000 or 21.4% of the issued and outstanding shares of our
common stock.
There is no underwriter or coordinating broker acting in connection with
this offering. To the best of CSPI's knowledge, none of its stockholders are
broker dealers or affiliates of broker dealers.
See "Risk Factors" beginning on page 6 to read about certain factors you
should consider before exercising common stock purchase warrants or purchasing
shares of our common stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................ 3
Risk Factors.................................................. 6
Dilution...................................................... 19
Use of Proceeds............................................... 20
Capitalization................................................ 21
Dividend Policy............................................... 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 21
Business...................................................... 25
History................................................. 25
General................................................. 25
LightingBuyer.com....................................... 26
Competition............................................. 28
LightingNews............................................ 28
Lightseek............................................... 29
FinanceBuyer............................................ 29
Marketing............................................... 29
Employees............................................... 29
Facilities.............................................. 30
Management.................................................... 30
Certain Related Party Transactions............................ 33
Principal Stockholders........................................ 34
Description of Securities..................................... 35
Selling Stockholders.......................................... 38
Plan of Distribution.......................................... 39
Shares Eligible for Future Sale............................... 41
Where You Can Find More Information........................... 41
Legal Proceedings............................................. 42
Legal Matters................................................. 42
Financial Statements.......................................... F-1
2
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, exercise of our common stock warrants, the
shares of our common stock registered and our financial statements and notes to
those statements appearing elsewhere in this prospectus. This prospectus
contains forward-looking statements based on current expectations of our company
and our industry. You can identify these forward-looking statements when you see
us using words such as "expect," "anticipate," estimate" and other similar
expressions. These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of the factors described in the "Risk
Factors" section and elsewhere in this prospectus.
We have launched both an information website and an auction website
dedicated to the commercial lighting industry. We refer to these kinds of
websites as vertical portals, as they are gateways to companies in particular
industries to buy and sell products and services and to receive current industry
information. We have also launched, in conjunction with a finance company, a
website dedicated to small business finance. We presently generate revenues from
advertising and finance and anticipate generating revenues in the future
primarily from commissions based upon transactions carried out on our auction
websites.
Our management has an extensive background in marketing, publishing,
software development, corporate finance and emerging public company management.
Our current portfolio consists of the following sites:
o Lightseek.com -- sponsored by Philips Lighting, GE Lighting and
Osram-Sylvania. Lightseek.com aims to be the premier portal site for
lighting designers, architects and lighting specifiers.
o LightingBuyer.com - recently launched as a global marketplace for the
commercial lighting industry.
o LightingNews.com -- sponsored by Philips Lighting is a news wire service
for the world lighting industry.
o FinanceBuyer.com -- the product of a strategic alliance with SierraCities,
an online bank, provides online financing for small businesses.
VerticalBuyer, Inc., is a newly-formed company. Lightseek Ltd. was owned
substantially by a partnership consisting of its founders, Tim Rosen and Leslie
Kent, presently our President and Secretary-Treasurer. Messrs. Rosen and Kent
had personally financed Lightseek since its inception in 1998. In order to gain
further funding, to establish an alliance with an established e-commerce company
and to move the center of its operations from the United Kingdom to the United
States, we acquired Lightseek and shortly thereafter, sold 2,000,000 shares of
our common stock and 3,000,000 common stock purchase warrants to CSPI. Messrs.
Rosen and Kent own an aggregate of 14,050,000 shares out of 17,000,000
outstanding.
We intend to continue the development of our portfolio of information and
business exchange websites in the following vertical sectors:
o Electrical
o Construction
o Aviation/Aerospace
o Shipping
o Automotive
o Marine
3
<PAGE>
To this end, in addition to our portfolio of websites, we have registered
and own the following Internet website domain names:
o WorldLightingExchange.com
o LightBid.com
o LampX.com
o ElectricalBuyer.com
o ElectricalTimes.com
o ConstructionBuyer.com
o AviationBuyer.com
o MarineBuyer.com
o AutoPartsBuyer.com
o AerospaceBuyer.com
o ShippingBuyer.com
o PlasticsBuyer.com
o FMBuyer.com
o Utilitiesbuyer.com
o Globalutilitiesexchange.com
The Offering Shares offered
by the selling stockholders 2,000,000 shares
Shares underlying warrants 3,225,000 shares
Exercise price of warrants $1.00*
Shares to be outstanding after warrant exercise 20,225,000 shares
Use of proceeds from warrant exercise For general corporate
purposes, principally
working capital and capital
expenditures.
Proposed OTCBB symbol "VERB"
-----------------------------
* The exercise price of the warrants was determined through negotiation
between us and CSPI and with certain consultants and bears no relation to
our book value, revenues, profits, our present or proposed business
prospects or other economic criteria of value.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
Statement of Income Data:
Three Months Ended Period Ended
March 31, 2000 (2) December 31, 1999 (1)
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Actual Actual Pro-forma
------ ------ ---------
Net revenues $ 10,320 $21,945 $21,945
Gross profit 3,226 (80) (80)
Income (loss) from operations (194,004) (25,273) (25,273)
Net income (186,686) (25,273) (25,273)
Net income (loss) per share(3):
Basic $ (0.00) $(0.00)
Weighted average shares--basic 17,000,000 17,000,000
Diluted (3) $ (0.00) $(0.00)
Weighted average shares--diluted 17,000,000 17,000,000
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(1) This Statement of Income Data reflects the operations of Lightseek Limited
for the period from inception (May 13, 1999) through December 31, 1999. The
Pro-forma column reflects the consolidated results of VerticalBuyer and
Lightseek as if the acquisition had occurred on December 31, 1999.
(2) This Statement of Income Data reflects the consolidated results of
VerticalBuyer and Lightseek for the quarter ended March 31, 2000.
(3) Pro-forma diluted loss per share excludes the 3,225,000 shares of common
stock underlying the warrants since the exercise of such warrants would be
antidilutive.
Balance Sheet Data:
As of March 31, 2000 As of December 31, 1999
-------------------- -----------------------
Proforma After Proforma
Consolidated Exercise of Lightseek After CSPI
VerticalBuyer of Warrants(2) Limited Acquisition
(1)
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Cash and cash equivalents $1,694,699 $4,919,699 $ - $1,860,000
Working capital 1,478,372 4,703,372 (62,311) 1,797,689
Total assets 1,973,526 5,198,526 47,809 1,907,809
Debt and leases,
long-term portion - - - -
Total stockholders' equity 1,652,057 4,877,057 (23,658) 1,836,342
----------------------------
(1) This pro-forma "After CSPI Acquisition" column represents the consolidated
accounts of VerticalBuyer and Lightseek as if VerticalBuyer's acquisition
of Lightseek and CSPI's acquisition of 2 million shares of VerticalBuyer's
common stock had occurred on December 31, 1999.
(2) This pro-forma "After Exercise of Warrants" column represents the
consolidated accounts of VerticalBuyer and Lightseek as of March 31, 2000
as if all warrants had been exercised as of that date.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks actually occur, our business could be
harmed. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
We have a limited operating history upon which you may evaluate our operations.
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We were formed in September, 1999 and acquired Lightseek, the business of
which we have assumed, on March 1, 2000. Lightseek was formed only in May, 1999.
Accordingly, we have limited operating history upon which you may evaluate us.
Because our Internet auction site and Internet news portal have only recently
been launched and because we have a small customer and advertiser base to date,
you may find it difficult to evaluate our future prospects and evaluate our
business strategy.
Our revenue model is evolving.
------------------------------
Our revenue model calls for the collection of fees for listing products and
commissions for effecting sales on our auction website as well as advertising
revenues from our information website, Lightseek.com and our new website,
LightingNews.com. We can give no assurance that this revenue model will be
successful in that sellers will pay commissions pursuant to our present
structure or existing advertisers will continue to their programs with us or
that potential advertisers will choose our sites to promote their products and
services. In addition, our revenue model calls for levels of transactions which
may not be met.
We have a limited financial history upon which you may evaluate our financial
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performance.
------------
Because of our limited financial history, we also believe that
period-to-period comparisons of our results of operations will not be meaningful
in the short term and should not be relied upon as indicators of future
performance.
If we do not generate revenues from our initial target market of lighting
manufacturers, distributors and suppliers, or our revenues are lower than we
anticipate, the ability of our company to operate as a going concern might be
adversely affected.
6
<PAGE>
To address these risks and uncertainties, we must do the following:
o maintain and increase our number of registered users, items listed on our
service and completed auctions;
o maintain and grow our website and customer operations;
o make trading through our service safer for users;
o maintain and enhance our brand;
o successfully execute our business and marketing strategy;
o refine and upgrade our technology and information processing systems;
o enhance our service to meet the needs of a changing market;
o provide superior customer service;
o respond to competitive developments; and
o attract, integrate, retain and motivate qualified personnel.
Our ability to generate and increase revenues in our initial market may depend
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on the factors stated in other risk factors and other issues.
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Generation and increase of revenues in our present markets depends on the
following factors, among others:
o our ability to develop an active base of users which list items for sale
and which complete transactions through our service;
o our ability to keep our website operational and to manage the number of
items listed on our service;
o federal, state or local government regulation;
o the introduction of new sites, services and products by us and our
competitors;
o the success of our brand building and marketing campaigns;
o the level of use of the Internet and online services by businesses, and, in
particular, the trading of products such as those listed on our present and
planned websites;
o confidence in the security of transactions on our websites;
o our ability to upgrade and develop our systems and infrastructure to
accommodate growth;
o our ability to attract new personnel in a timely and effective manner;
o the volume of items listed on our website;
o technical difficulties or service interruptions;
o the amount and timing of operating costs and capital expenditures relating
to expansion of our business, operations and infrastructure; and
o general economic conditions and economic conditions specific to the
Internet and electronic commerce industries.
Our failure to implement one or more of these factors may lead to the
failure of our business as a whole.
7
<PAGE>
We anticipate we will incur continued losses for the foreseeable future.
------------------------------------------------------------------------
We expect to incur losses for the foreseeable through costs associated with
building the infrastructure necessary for our business. Our revenue may not be
sufficient to fund these expenses. We may never be profitable or, if we become
profitable, we may be unable to sustain profitability.
Anticipated losses may result from our plan to increase our operating
expenses to:
o increase our sales and marketing operations;
o broaden our customer support and software capabilities;
o pursue strategic marketing and distribution alliances; and
o attract qualified managers for our expanded administrative and commercial
functions as well as for possible new acquisitions.
Some of our expenses are or will be fixed, including non-cancelable
agreements, equipment leases and real estate leases. Other expenses will
increase as we hire more personnel. If our revenues do not increase, we may not
be able to compensate by reducing expenses in a timely manner. Expenses may also
increase due to the potential impact of goodwill and other charges from any
future acquisitions.
We believe that profitability and growth will depend in large part on our
ability to do the following:
o develop our brand name awareness;
o provide our customers with superior trading experiences; and
o maintain sufficient transaction volume to attract buyers and sellers.
We may have difficulty in obtaining additional funding, if required.
--------------------------------------------------------------------
Although we believe that the funds to be raised through warrant exercise
will be sufficient for our needs for the foreseeable future, if additional funds
are needed, we may have difficulty obtaining them, and we may have to accept
terms that would adversely affect our shareholders. For example, the terms of
any future financings may impose restrictions on our right to declare dividends
or on the manner in which we conduct our business. Also, lending institutions or
private investors may impose restrictions on future decisions by us to make
capital expenditures, acquisitions or asset sales.
We may not be able to locate additional funding sources at all or on
acceptable terms. If we cannot raise funds on acceptable terms, if and when
needed, we may not be able to develop or enhance our services to customers, take
advantage of future opportunities for strategic alliances within a particular
industry, grow our business or respond to competitive pressures or unanticipated
requirements, which could seriously harm our business.
8
<PAGE>
Acquisitions and new strategic alliances may disrupt or otherwise have a
------------------------------------------------------------------------
negative impact on our business.
--------------------------------
We plan to make investments in complementary companies, technologies and
assets. Future acquisitions are subject to the following risks, among others:
o acquisitions may cause a disruption in our ongoing business, distract our
management and make it difficult to maintain our standards, controls and
procedures;
o we may acquire companies or make strategic alliances in markets in which we
have little experience;
o we may not be able successfully to integrate the services, products and
personnel of any acquisition or new alliance into our operations;
o we may be required to issue equity securities to pay for acquisitions,
which may be dilutive to existing shareholders; and
o our acquisitions may not result in any return on our investment and, as a
result, we may lose our entire investment.
Our success is dependent on retaining our current key personnel and attracting
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additional personnel, particularly in the areas of sales, technical services
----------------------------------------------------------------------------
and customer support.
---------------------
We believe that our success will depend on continued employment of our
senior management team, particularly Tim Rosen, our President, and Leslie Kent,
our Secretary- Treasurer, and other key technical personnel for the development
of our on-line services and our ability to attract businesses to use our on-line
websites for the effective management, purchase and sale of equipment, inventory
and assets. Their experience in e-commerce asset management, sales and
procurement is important to the establishment of business in the various
industries in which we hope to develop e-commerce sites. We do not maintain
key-man life insurance on any of our personnel.
Our success also depends on having a highly trained sales force, telephone
ssales group and technical and customer support personnel. We will need to
continue to hire additional personnel as our business grows. A shortage in the
number of trained sales, technical and customer support personnel in the on-line
service industry could limit our ability to increase sales and to sell services.
Competition for personnel, particularly for employees with technical expertise,
is intense. New hires also frequently require extensive training before they
achieve desired levels of productivity. If we cannot hire and retain suitable
personnel, we may not be able to expand and develop new business to business
online communities effectively or support those that are developed, resulting in
loss of customers and revenues.
9
<PAGE>
Our business may not develop additional revenue sources.
--------------------------------------------------------
We plan to generate revenues through relationships with strategic partners
for the sale of assets and services to particular industries. To generate
significant revenues from Internet business-to-business e-commerce, we will have
to continue to build these business relationships through our contacts and the
expertise of our current or future personnel. We may not be able to form new
strategic alliances due to a lack of sufficient financial resources or expertise
in a newly targeted industry. If we are not able to build these relationships
with strategic partners, we will have difficulty developing additional
businesses to generate revenues.
Marketing and distribution alliances may not generate the expected number of
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new of new customers or may be terminated.
------------------------------------------
We intend to use marketing, distribution and strategic trade group
alliances with other Internet companies to create traffic on our on-line
business communities and, consequently, to generate revenues. These marketing
and distribution alliances will allow us to link our on-line websites to
Internet search engines and other websites. The success of these relationships
depends on the amount of increased traffic we receive from the alliance
partners' websites.
We may have difficulty entering into marketing and distribution alliances.
These arrangements may not generate the number of new customers we expect. We
also cannot assure you that we will be able to enter into these marketing and
distribution alliances or renew any marketing and distribution alliance
agreements that we are able to establish. If we are unable to establish these
alliances or if any of these agreements is terminated, the traffic on our
on-line websites might not grow and could decrease.
We may not be able to compete effectively with other providers of e-commerce
----------------------------------------------------------------------------
services.
---------
We believe that the strongest potential competition does not come from
traditional service groups but rather the evolution of the Internet and the
types of business-to-business service providers that such evolution will create.
As applications for business-to-business e-commerce begin to proliferate and
mature, we will continue to compete with other technology companies and
traditional service providers that seek to integrate on-line business
technologies with their traditional service mix.
Competition for Internet products and services and electronic business
commerce is intense. We expect that competition will continue to intensify.
Barriers to entry are minimal, and competitors can launch new websites at a
relatively low cost. We expect that additional companies will establish
competing on-line business communities on a stand-alone basis.
E-commerce applications are in the early stages of development. Currently,
the principal focus of e-commerce business-to-business groups is to provide
information and generate revenues from advertising. As e-commerce evolves,
however, we expect that other entrepreneurs and large, well-known leaders in
specific industries will create other niche business-to-business services that
may compete with our services.
10
<PAGE>
These large industry leaders, particularly major original equipment
manufacturers, would have better name recognition in the markets that we may
target. We also expect competition from large consulting firms and software
solution providers, which have begun developing e-commerce applications for
their existing clients. The larger financial resources of these competitors may
enable them to market to potential buyers and sellers of equipment, inventory,
parts and other assets and launch more widespread marketing campaigns that would
make it more difficult for us to compete.
There are many risks associated with international operations.
--------------------------------------------------------------
As we expand internationally, we are subject to risks of doing business
internationally, including the following:
o regulatory requirements that may limit or prevent the offering of our
services in local jurisdictions;
o legal uncertainty regarding liability for the listings of our users,
including less Internet friendly basic law and unique local laws;
o government-imposed limitations on access to the Internet;
o difficulties in staffing and managing foreign operations;
o longer payment cycles, different accounting practices and problems in
collecting accounts receivable;
o political instability;
o seasonal reductions in business activity;
o potentially adverse tax consequences; and
o administrative burdens in collecting local taxes, including value-added
taxes.
To the extent we expand our international operations and have additional
portions of our international revenues denominated in foreign currencies, we
also could become subject to increased difficulties in collecting accounts
receivable and risks relating to foreign currency exchange rate fluctuations.
Our market is intensely competitive.
------------------------------------
The market for business to business trading over the Internet is new,
rapidly evolving and intensely competitive, and we expect competition to
intensify in the future. Barriers to entry are relatively low, and current and
new competitors can launch new sites at a relatively low cost using commercially
available software.
Our success depends on our ability to use an effective Internet marketing
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strategy that depends on Internet governance and regulation which are uncertain.
--------------------------------------------------------------------------------
The future success of our business is dependent on our ability to use an
effective Internet marketing strategy. Because the original role of the Internet
was to link the government's computers with academic institutions' computers,
the Internet was historically administered by organizations that were involved
in sponsoring research. Private parties have assumed larger roles in the
enhancement and maintenance of the Internet infrastructure. Therefore, it is
unclear what organization, if any, will govern the administration of the
Internet in the future, including the authorization of domain names.
11
<PAGE>
The lack of an appropriate organization to govern the administration of the
Internet infrastructure and the legal uncertainties that may follow pose risks
to the commercial Internet industry and our specific website business. In
addition, the effective operation of the Internet and our business is also
dependent on the continued mutual cooperation among several organizations that
have widely divergent interests, including the government, Internet service
providers and developers of system software and software language. These
organizations may find that achieving a consensus may become difficult,
impossible, time-consuming and costly.
Although we are not subject to direct regulation in the United States other
than federal and state business regulations generally, changes in the regulatory
environment could result in the Federal Communications Commission or other
United States regulatory agencies directly regulating our business.
Additionally, as Internet use becomes more widespread internationally, there is
an increased likelihood of international regulation.
We cannot predict whether or to what extent any new regulation affecting
e-commerce will occur. New regulation could increase our costs. For example, we
do not collect sales or other similar taxes with respect to the equipment,
inventory and other products sold through our on-line communities. One or more
states may seek to impose sales tax collection obligations on out-of-state
companies like ours that engage in or facilitate e-commerce. State and local
governments have made proposals that would impose additional taxes on the sale
of goods and services over the Internet. A successful assertion by one or more
states or any foreign country that we should collect sales and other taxes on
the exchange of equipment, inventory and other goods on our system could
increase costs that we could have difficulty recovering from users of our
websites.
Governmental agencies and their designees regulate the acquisition and
maintenance of web addresses generally. For example, in the United States, the
National Science Foundation had appointed Network Solutions, Inc. as the
exclusive registrar for the website names, known as generic top-level addresses,
ending in .com, .net and .org. Although Network Solutions no longer has
exclusivity, it remains the dominant registrar. The regulation of web addresses
in the United States and in foreign countries is subject to change. As a result,
we may not be able to acquire or maintain relevant web addresses in all
countries where we conduct business that are consistent with our brand names and
marketing strategy. Furthermore, the relationship between regulations governing
website addresses and laws protecting trademarks is unclear.
We may face increased access costs from browser providers and Internet
----------------------------------------------------------------------
distribution channels.
----------------------
Leading website, browser providers and other Internet distribution channels
may begin to charge us to provide access to our products and services which
would increase our cost of doing business.
If we cannot protect our trademarks and domain names we may not be able to
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maintain future business.
-------------------------
Proprietary rights are important to our success and our competitive
position. We are applying for federal registration of "Lightseek.com" and
"LightingBuyer.com" as service marks for use in connection with our electronic
commerce services.
12
<PAGE>
Although we seek to protect our proprietary rights, our actions may be
inadequate to protect any trademarks and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. We may not be able to protect our domain names for our on-line
industry-specific websites as trademarks because those names may be too generic
or perceived as describing a product or service or its attributes rather than
serving a trademark function.
If we are unable to protect our proprietary rights in trademarks, service
marks and other indications of origin, competitors will be able to use names and
marks that are identical or sufficiently similar to ours to cause confusion
among potential customers between us and our services and our competitors and
their services. This confusion may result in the diversion of business to our
competitors or the loss of potential or existing customers. Also, to the extent
competitors using identical or similar marks have problems with the quality of
their services, this confusion may injure our reputation for quality.
Litigation against infringers of our service marks, trademarks and similar
rights may be expensive. Because of the difficulty in proving damages in
trademark litigation, we may have difficulty in recovering damages should we
elect to bring an action against infringers of our marks.
We may encounter legal and financial risks in protecting our copyrights and
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patents.
--------
While we seek to protect our text, designs and other works of authorship by
copyright, we may not be able to detect all possible infringements. Also,
copyright protection does not extend to functional features of software and will
not be effective to prevent third parties from duplicating our software's
capabilities through engineering research and development. The global nature of
the Internet makes it impossible to control the ultimate destination of our
work; and our copyrights and trademarks may receive limited or no protection in
some countries.
Our software may infringe on the patents of third parties.
----------------------------------------------------------
We have not conducted searches to determine if our software infringes on
any patents of third parties. If our software is found to infringe on the
copyrights or patents of a third party, the third party could require us to pay
royalties for past use and for continued use, or to modify or replace the
software to avoid infringement. We cannot assure you that we will be able to
modify or replace our software. in addition, claims brought by or against us,
could subject us to costly litigation and the diversion of our technical and
management personnel.
Concerns regarding security of transactions and transmitting confidential
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information over the Internet may negatively impact our e-commerce business.
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We believe that concern regarding the security of confidential information
transmitted over the Internet, including, for example, business and supply
requirements, credit card numbers and other forms of payment methods, prevents
many potential business customers from engaging in online transactions. If we do
not add sufficient security features to future product releases, our services
may not gain market acceptance or we may face additional legal exposure.
13
<PAGE>
Our infrastructure is potentially vulnerable to physical or electronic
break-ins, computer viruses, hackers or similar problems caused by employees,
customers or other Internet users. If a person circumvents our security
measures, that person could misappropriate proprietary information or cause
interruptions in our operations. Security breaches that result in access to
confidential information could damage our reputation and expose us to a risk of
loss or liability. These risks may require us to make investments and efforts to
protect against or remedy security breaches, which would increase the costs of
maintaining our websites.
We may be subject to legal liability for publishing or distributing content over
--------------------------------------------------------------------------------
the Internet.
-------------
We may be subject to legal claims relating to the content in our
industry-specific on-line websites, or the downloading and distribution of
content. The representations as to the origin and ownership of licensed content
that we generally obtain may not adequately protect us. In addition, we draw
some of the content provided in our on-line business communities from data
compiled by other parties, including governmental and commercial sources. This
data may contain errors.
We depend on the continuous introduction of enhanced software capabilities and
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expansion of our software services, which we may not be able to project
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accurately.
-----------
As traffic in our on-line businesses increases, we must upgrade our
technology, transaction processing systems and network hardware and software. In
addition, we may not be able to expand and upgrade our systems and network
hardware and software capabilities to accommodate increased use of our on-line
businesses. If we do not appropriately upgrade our systems, network hardware and
software on an ongoing basis, we may have difficulty retaining our customers and
competing effectively.
The life cycles of the software used to support our e-commerce services are
difficult to predict because the market for our e-commerce websites for sales
and procurement of equipment, inventory and assets is new and emerging and is
characterized by changing customer needs and industry standards. The
introduction of on-line products employing new technologies and industry
standards could render our existing system obsolete and unmarketable.
Our business may be harmed by fraudulent activities on our website.
-------------------------------------------------------------------
Our future success will depend largely upon sellers reliably delivering and
accurately representing their listed goods and buyers paying the agreed purchase
price. While we can suspend the accounts of users who fail to fulfill their
obligations to other users, we do not have the ability to require users to make
payments or deliver goods or otherwise make users whole. Any negative publicity
generated as a result of fraudulent or deceptive conduct by users of our service
could damage our reputation and diminish the value of our brand name.
14
<PAGE>
The inability to expand our systems may limit our growth.
---------------------------------------------------------
We seek to generate a high volume of traffic and transactions on our
service. The satisfactory performance, reliability and availability of our
website, processing systems and network infrastructure are critical to our
reputation and our ability to attract and retain large numbers of users. Our
revenues depend on the number of items listed by users, the volume of user
auctions that are successfully completed and the final prices paid for the items
listed. If the volume of traffic on our website or the number of auctions being
conducted by customers continues to increase, we will need to expand and upgrade
our technology, transaction processing systems and network infrastructure. We
may not be able to accurately project the rate or timing of increases, if any,
in the use of our service or to timely expand and upgrade our systems and
infrastructure to accommodate any increases.
System failures could harm our business.
----------------------------------------
Our future success, and in particular our ability to facilitate trades
successfully and provide high quality customer service, will depend on the
efficient and uninterrupted operation of our computer and communications
hardware and software systems, which are, in general, operated and maintained by
third parties. Our systems and operations are vulnerable to damage or
interruption from a variety of causes. They are also subject to break-ins,
sabotage, intentional acts of vandalism and similar misconduct. We do not have
fully redundant systems, a formal disaster recovery plan or alternative
providers of hosting services. Any damage to or failure of our systems could
result in interruptions in our service. Such interruptions will reduce our
revenues and profits, and our future revenues and profits will be harmed if our
users believe that our system is unreliable.
Our business is dependent on the development and maintenance of the web
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infrastructure.
---------------
The success of our service will depend largely on the development and
maintenance of the Internet infrastructure, including a reliable network
backbone with the necessary speed, data capacity and security. Because global
commerce and the online exchange of information is new and evolving, we cannot
predict whether the Web will prove to be a viable commercial marketplace in the
long term. The Web has experienced, and is likely to continue to experience,
significant growth in the numbers of users and amount of traffic. If the Web
continues to experience increased numbers of users, increased frequency of use
or increased bandwidth requirements, the Web infrastructure may be unable to
support the demands placed on it. In addition, the performance of the Web may be
harmed by increased users or bandwidth requirements.
Our business is subject to online commerce security risks.
----------------------------------------------------------
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. Our security
measures may not prevent security breaches. Our failure to prevent security
breaches could harm our business. Advances in computer capabilities, new
discoveries in the field of cryptography, or other developments may result in a
compromise or breach of the technology used by us to protect customer
transaction data. Any such compromise of our security could harm our reputation
and, therefore, our business.
15
<PAGE>
We must keep pace with rapid technological change to remain competitive.
------------------------------------------------------------------------
The market in which we compete is characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
introductions and enhancements and changing customer demands. These market
characteristics are worsened by the emerging nature of the Internet and the
apparent need of companies from a multitude of industries to offer Web-based
products and services. Our future success therefore will depend on our ability
to adapt to rapidly changing technologies, to adapt our services to evolving
industry standards and to continually improve the performance, features and
reliability of our service. Our failure to adapt to such changes would harm our
business.
We are controlled by certain stockholders, executive officers and directors.
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Upon completion warrant exercise, our officers and directors will own
approximately 71.6% of our outstanding common stock. As a result, they have the
ability to control our company and direct our affairs and business, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of our company and may make some transactions
more difficult or impossible without the support of these stockholders. Any of
these events could decrease the market price of our common stock.
Management will have broad discretion over allocation of proceeds from exercise
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of the warrants.
----------------
The net proceeds to us from the exercise of our warrants will be $3,225,000
as all expenses relating to the registration of our shares underlying the
warrants are being paid from funds presently in our treasury. We currently have
no specific plans for a significant portion of the net proceeds from warrant
exercise. Consequently, our management will have the discretion to allocate the
net proceeds to uses that stockholders may not deem desirable. We may be unable
to yield a significant return on any investment of the proceeds. Substantially
all of the proceeds from exercise of our warrants will be invested in
short-term, interest-bearing, investment grade government and corporate
securities and bank deposits.
We are controlled by certain stockholders, executive officers and directors.
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Upon completion warrant exercise, our officers and directors will own
approximately 71.6%% of our outstanding common stock. As a result, they have the
ability to control our company and direct our affairs and business, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of our company and may make some transactions
more difficult or impossible without the support of these stockholders such as
mergers or takeover attempts, in a manner that could conflict with the interests
of our public shareholders. Any of these events could decrease the market price
of our common stock.
16
<PAGE>
Anti-takeover provisions and our right to issue preferred stock could make a
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third party acquisition of us difficult and could deprive stockholders of a
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takeover premium for their shares.
----------------------------------
We are a Delaware corporation. Anti-takeover provisions of Delaware law
could make it more difficult for a third party to acquire control of us, even if
a change in control would be beneficial to shareholders.
Our amended certificate of incorporation provides that our board of
directors may issue preferred stock without shareholder approval. The issuance
of preferred stock could make it more difficult for a third party to acquire us.
Our board of directors may issue preferred stock with voting or conversion
rights that may have the effect of delaying, deferring or preventing a change of
control of us and would adversely affect the market price of the VerticalBuyer
stock or voting and other rights of holders of VerticalBuyer common stock.
CSPI's right to appoint a member of our board of directors and percentage
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of common stock it will own if it exercises its warrants will permit it to
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influence, if not control, our direction.
-----------------------------------------
CSPI has the right to appoint a member of our board of directors and has
exercised this right by appointing its Chairman of the Board, Alexander
Lupinetti to our board. CSPI presently owns 2,000,000 of 17,000,000 outstanding
shares of our common stock and will own approximately 4,281,513 shares out of
20,225,000 outstanding (21.2%) if all of the warrants are exercised. Under the
circumstances, it could influence our operations in a manner contrary to the
interests of other stockholders.
Fluctuations in our quarterly results may adversely affect our stock price.
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Our quarterly operating results will likely vary significantly in the
future. Our operating results, from time to time, will likely fall below the
expectations of our investors or analysts and others who may be following our
stock. Our failure to meet these expectations would likely adversely affect the
market price of our common stock.
Our quarterly operating results may vary depending on a number of factors,
including:
o demand of buyers and sellers to use our websites to list and purchase
equipment, inventory and parts;
o actions taken by our competitors, including new product introductions, fee
schedules, pricing policies and enhancements;
o size and timing of sales of our services;
o our ability to control costs;
o budget cycles of buyers and sellers of equipment, inventory and parts and
changes in these budget cycles; and
o general economic factors.
17
<PAGE>
Our common stock price is likely to be highly volatile.
-------------------------------------------------------
We initially intend that our common stock trade on the Over-the-Counter
Bulletin Board. The market price of our common stock is likely to be highly
volatile, as the stock market in general, and the market for Internet-related
and technology companies in particular, has been highly volatile. Our
shareholders may not be able to resell their shares of our common stock
following periods of volatility because of the market's adverse reaction to this
volatility. The trading prices of many technology and Internet-related
companies' stocks have reached historical highs within the past 24 months and
have reflected relative valuations substantially above historical levels. During
the same period, these companies' stocks have also been highly volatile and have
recorded lows well below those historical highs. We cannot assure you that our
stock will trade at the same levels of other Internet stocks or that Internet
stocks in general will sustain their current market prices.
Factors that could cause this volatility may include, among other things:
o actual or anticipated variations in quarterly operating results;
o announcements of technological innovations;
o new sales formats or new products or services;
o changes in financial estimates by securities analysts;
o conditions or trends in the lighting industry;
o conditions or trends in the Internet industry;
o changes in the market valuations of other Internet companies;
o announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
o changes in capital commitments;
o additions or departures of key personnel; and
o sales of our common stock.
Many of these factors are beyond our control. These factors may materially
adversely affect the market price of our common stock, regardless of our
operating performance.
Shares eligible for future sales by our current stockholders may adversely
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affect the market price of our stock price.
-------------------------------------------
If our existing shareholders, particularly Tim Rosen, our President, Leslie
Kent, our Treasurer, and CSPI, our major investor and the holder of most of our
warrants, sell in the public market substantial amounts of our common stock,
including shares issued on the exercise of outstanding options and warrants,
the market price of our common stock could fall.
18
<PAGE>
The exercise of warrants will cause dilute the interests of existing
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stockholders and purchasers of our common stock from CSPI or its
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stockholders.
-------------
We presently have 17,000,000 shares of our common stock outstanding. If all
the warrants are exercised, we will have 20,225,000 shares outstanding. Thus,
the percentage of shares owned by all existing stockholders and those who
purchase from CSPI or its stockholders who receive our shares as a dividend,
will be reduced proportionately as warrants are exercised.
DILUTION
Our net tangible book value as of March 31, 2000 was $1,652,057. For
purpose of the following table, our net tangible book value has been taken to be
the consolidated book value of VerticalBuyer on March 31, 2000. Our net tangible
book value per share was $0.10. Net tangible book value represents our net
tangible assets which are our total assets less our total liabilities and
intangible assets. The warrant exercise price is $1.00 which represents both
gross and net proceeds per share as there are no commissions associated with
warrant exercise and all expenses of registering the shares underlying the
warrants are being paid from funds in our treasury. The pro forma net tangible
book value after warrant exercise will be $4,877,057. The pro forma net tangible
book value per share after warrant exercise will be $0.24 per share. The shares
purchased by warrantholders who exercise their warrants will be diluted $0.76 or
76.0%. As of March 31, 2000, 17,000,000 shares of our common stock were
outstanding. Dilution represents the difference between the warrant exercise
price and the net pro forma tangible book value per share immediately following
the exercise of our Warrants.
The following table illustrates the dilution which will be experienced by
warrantholders who exercise their warrants:
Warrant exercise price............................................... $1.00
Net Tangible book value per share as of March 31, 2000............... $0.10
Pro-forma net tangible book value per share after warrant exercise... $0.24
Pro-forma increase per share attributable to warrant exercise........ $0.14
Pro-forma dilution to warrant holders who exercise their warrants.... $0.76
19
<PAGE>
The following table sets forth, as of the date of the prospectus, the
percentage of equity to be purchased by warrant holders who exercise their
warrants compared to the percentage of equity to be owned by the present
stockholders, and the comparative amounts paid for the shares by the warrant
holders as compared to the total consideration paid by our present stockholders.
Common Stockholder
------------------
Percentage of
Shares Purchased common shares owned
------------------------- ----------------------
Pro-forma Pro-forma
As of after all As of after all
March 31, warrants are March 31, warrants are
2000 exercised 2000 exercised
---------------------------------------------------------
New Investors - 3,225,000 0.0% 15.9%
Existing Shareholders
Founders 14,250,000 14,250,000 83.8% 70.5%
CSPI 2,000,000 2,000,000 11.8% 9.9%
Consultants 750,000 750,000 4.4% 3.7%
17,000,000 17,000,000 100.0% 84.1%
17,000,000 20,225,000 100.0% 100.0%
Common Stockholder
------------------
Percentage of
Cash Consideration common shares owned
------------------------- ----------------------
Pro-forma Pro-forma
As of after all As of after all
March 31, warrants are March 31, warrants are
2000 exercised 2000 exercised
---------------------------------------------------------
New Investors $ - $3,225,000 0.0% 15.9%
Existing Shareholders:
Founders 1,615 1,615 0.1% 0.0%
CSPI 2,000,000 2,000,000 96.3% 37.7%
Consultants 75,000 75,000 3.6% 1.4%
2,076,615 2,076,615 100.0% 39.2%
$2,076,615 $5,301,615 100.0% 100.0%
USE OF PROCEEDS
Both gross and net proceeds of warrant exercise will be $3,225,000 as all
costs associated with registration of the shares of our common stock underlying
the warrants have been or will be paid from funds presently in our treasury. We
will use funds raised through warrant exercise for working capital needs and, as
a result, they are unallocated. Prior to use, all of the proceeds from warrant
exercise will be invested in short-term, interest-bearing, investment grade
government and corporate securities and bank deposits.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000.
March 31, 2000
--------------
Long-term debt $ -
Stockholders' equity:
Common stock, $.001 par value; authorized
50,000,000 shares, issued and outstanding
17,000,000 shares; 17,000
Preferred stock, $.001 par value; authorized
5,000,000 shares, issued and outstanding -0-. -
Additional paid-in capital 1,845,365
Accumulated other comprehensive income 1,651
Accumulated deficit (211,959)
Total stockholders' equity 1,652,057
-----------
Total capitalization $1,652,057
===========
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
--------
We develop and operate business to business Internet e-commerce sites in
vertical market sectors. Our initial focus will be in the global commercial
lighting market.
We commenced our operations in May, 1999 as Lightseek Limited, a United
Kingdom corporation. Lightseek was acquired by VerticalBuyer, Inc., a Delaware
Corporation, in a transaction categorized as a reverse takeover on February 24,
2000 and have transferred our United States operations to VerticalBuyer. In a
reverse takeover, the business of the acquired company becomes the business of
the parent. We began development of our first website, an information portal
called www.Lightseek.com, in June 1999. Our business-to-business auction
website, www.LightingBuyer.com, commenced operations in February 2000. We
recently booked our first auction sales. In February, 2000, we commenced
operations of www.financeBuyer.com our small business online financing website.
Finally, in May, 2000, we launched www.LightingNews.com, a 24 hour/7 day news
center for the global commercial lighting industry. Other than Tim Rosen,
President, and Leslie Kent, Secretary/Treasurer, we presently employ no
personnel having outsourced all required activities.
Most of our present income arises from advertising. However, we anticipate
ultimately that most of our income will be derived from fees derived from
auction sales.
21
<PAGE>
We do not charge fees to buyers and, to date, we have chosen not to sell
advertising on our auction website. Sellers pay a nominal placement fee to list
items for sale. Sellers also pay a success fee for each item sold, equal to 5%
of the gross value of each transaction.
Revenues from placement fees are recognized when an item is listed;
revenues relating to success fees are recognized at the time that an auction is
successfully concluded. At no point during the auction process do we take
possession of the item being sold. Successful buyers' payments are held in an
escrow account until the goods are received by the buyer.
Our business model differs from those of online sellers of goods. Because
individual sellers list the items, we do not incur any cost for goods sold, nor
do we pay procurement, carrying or shipping costs and bear no inventory risk.
Thus, we anticipate that any growth in our expenses will be driven by increases
in expenditures for advertising and promotion and the development of additional
websites. We anticipate increases in our expenses, and in particular
advertising, promotion and personnel, in our effort to grow our
business-to-business sales.
We are a development company and have a limited operating history on which
to base an evaluation of our business and prospects. Our prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as online
commerce.
It is difficult for us to forecast our revenues or earnings accurately. We
believe that future period-to-period comparisons of our operating results may
not be meaningful and should not be relied upon as an indication of future
performance as we have and will have no backlog of orders. Our operating results
in one or more future quarters may fall below investor expectations. Assuming
our common stock trades on a recognized market, in that event, the future
trading price of our common stock would almost certainly decline.
Results of Operations
---------------------
The following table sets forth, for the quarter ended March 31, 2000 and
for the period from our inception (May 13, 1999) through December 31, 1999,
certain data from our statements of income and the percentage of such data to
net revenues. This data has been derived from and should be read in conjunction
with the unaudited consolidated financial statements of VerticalBuyer, Inc. as
of and for the quarter ended March 31, 2000 and the audited financial statements
as of and for the period from May 13, 1999 to December 31, 1999 of our
subsidiary, Lightseek Limited which are presented elsewhere in this prospectus.
The operating results are not necessarily indicative of the results that may be
expected for any future period.
22
<PAGE>
Period from
Quarter Ended May 13, 1999
to
March 31, 2000 December 31, 1999
-------------- -----------------
Net revenues $ 10,320 100.0% $21,945 100.0%
Cost of net revenues 7,094 68.7% 22,025 100.4%
Gross profit 3,226 31.3% (80) (0.4)%
Operating expenses:
Sales and marketing 15,227 147.5% 3,165 14.4%
Product development 36,248 351.2% 13,686 62.4%
General and administrative 145,795 1412.7% 8,342 38.0%
Total operating expenses 197,270 1911.5% 25,193 114.8%
(Loss) from operations (194,044) (1880.3)% (25,273) (115.2)%
Interest income (expense), net 7,358 71.3% 0 0.0%
Net (loss) $(186,686) (1809.0)% $(25,273) (115.2)%
Revenues
--------
Revenues were $10,320 and $21,945 for the quarter ended March 31, 2000 and
the period ended December 31, 1999, respectively. These revenues consist
substantially of advertising sales on our www.lightseek.com site. Sales for the
balance of 2000 and in future years will be of an unknown mix of commissions
from auction sales, site sponsorships and advertising revenues.
Cost of Sales
-------------
Cost of sales were $7,094 and $22,025 for the quarter ended March 31, 2000
and the period ended December 31, 1999, respectively. These costs consist of
Internet service provider connectivity charges and the amortization of purchased
hardware and software.
Sales and Marketing Expense
---------------------------
Our sales and marketing expenses have been nominal to date and primarily
consist of expenditures for sales and marketing activity, including advertising,
and other promotional costs.
Product Development Expense
---------------------------
Product development expenses were $36,248 and $13,686 for the quarter ended
March 31, 2000 and the period ended December 31, 1999, respectively. These costs
consist principally of payments for editorial and technical support, web site
operations, advertising production, and consulting costs related to enhancing
the features of the Company's Web sites. Product development costs are generally
expensed as incurred, except for certain costs relating to the acquisition or
development of internal-use software which are capitalized in accordance with
Emerging Issues Task Force ("EITF") No. 2000-02 "Accounting for Web Site
Development Costs".
23
<PAGE>
General and Administrative Expense
----------------------------------
Our general and administrative expenses amounted to $145,795 and $8,342 for
the quarter ended March 31, 2000 and the period ended December 31, 1999,
respectively. This expense category includes compensation and travel and
entertainment reimbursements paid to Tim Rosen and Leslie Kent for business
development, contract negotiations, and other general corporate purposes, print
and stationary expense and professional services.
The initial cash funding of both www.lightseek.com and
www.lightingbuyer.com was principally undertaken by Rosen & Kent, the private
partnership of the two founder stockholders. As a result, we did not incur any
principal debt during the period. Thus, our cash flow has no meaningful
significance in terms of future developments.
Capital expenditures to date consist solely of the acquisition of web site
related hardware and software. These expenditures amounted to $151,823 and
$46,382 during the quarter ended March 31, 2000 and the period ended December
31, 1999, respectively.
We believe that our existing cash, cash equivalents and short-term
investments and any cash generated from operations together with the proceeds
from warrant exercise will be sufficient to fund our operating activities,
capital expenditures and other obligations for the foreseeable future. However,
if during that period or thereafter, we are not successful in generating
sufficient cash flow from operations or in raising additional capital when
required in sufficient amounts and on terms acceptable to us, our business could
suffer. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our then-current stockholders would be
reduced.
Year 2000 Issues
----------------
We have not suffered any programming problems as a result of Year 2000
issues. In the development of our programming, we endeavor to use only vendors
and contractors who are Year 2000 compliant. We have reviewed our internal
programs and have determined that there are no significant Year 2000 issues
within our systems or services.
24
<PAGE>
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed in "Risk Factors."
History
-------
Tim Rosen, our President, and Leslie Kent, our Secretary/Treasurer
conceived the concept of a business to business internet site in October, 1998.
The original concept was to create an online database of United Kingdom lighting
companies where buyers could search for product information from lighting
companies. In December, 1998, Rosen & Kent, a partnership of Messrs. Rosen and
Kent, commissioned an interactive web designer to develop a website with the
top-level name of www.lightseek.com. Lightseek.com is an information provider or
portal site aimed at lighting designers, electrical contractors or architects
with a lighting design practice. In May, 1999, Rosen & Kent formed Lightseek
Ltd., a United Kingdom corporation.
In September, 1999, Rosen & Kent created an information page on the
lightseek.com website for a prospective auction site, www.lightingbuyer.com.
This information page elicited in excess of 600 responses from companies and
individuals seeking to register as either buyers or sellers or both. In
November, 1999, Rosen & Kent commissioned the development of an auction site
capable of allowing sellers to list products for sale in an English auction
format. English auctions are ascending auctions where each subsequent bidder
must bid a higher price to conclude a purchase at the end of the pre-defined
auction period. The site went live in February, 2000.
Between October and December, 1999, Rosen & Kent registered a number of
domain names, including www.lightseek.com, www.lightingbuyer.com, www.finance -
buyer.com, www.electricalbuyer.com, www.constructionbuyer.com, www.autoparts -
buyer.com, www.aviationbuyer.com, www.fmbuyer.com, www.marinebuyer.com and
www.shippingbuyer.com.
In February, 2000, Rosen & Kent transferred its interest in the commercial
lighting internet information and auction business, including intellectual
property rights, including web domain names, to Lightseek in return for 14,050
ordinary shares, representing all of Lightseek's capital stock valued at nominal
consideration. Lightseek then issued 200 additional ordinary shares to the
website developers of the www.lightseek.com website as partial compensation for
their services. In March, 2000, VerticalBuyer, an inactive corporation, acquired
all the capital stock of Lightseek for 14,250,000 shares of its common stock
(7,025,000 shares to Mr. Rosen, 7,025,000 shares to Mr. Kent and 200,000 shares
to the website developers Anthony Meyers and Paul Meyers). In addition,
VerticalBuyer issued 750,000 shares of its common stock and 150,000 "D" warrants
for services consisting of structuring the acquisition of Lightseek by
VerticalBuyer, introducing the founders of Lightseek to the management of CSPI,
structuring the acquisition of shares of our common stock and warrants to
purchase additional shares at $1.00. The warrants are unvalued as the exercise
price is the same as the purchase price of the shares purchased by CSPI and the
warrants owned by CSPI.
General
-------
We were incorporated on September 24, 1999, and serve as a holding company
of Lightseek, our wholly owned United Kingdom subsidiary and as an operating
company for our United States operations. We are a business-to-business company
specializing in the creation of web-based news portals and marketplaces. We
intend to develop a portfolio of business to business news and auction sites in
some or all of the domain names we own. We refer to this kind of website as a
vertical portal - a website dedicated to a specific industry for use by
companies in that particular industry to buy and sell products and services.
Aside from our sites involving the lighting industry, we have not as yet started
the development of any additional sites and cannot predict which business sites
will be developed. However, the underlying software architecture of both our
lighting news site and lighting auction exchange site are extensible. Thus, we
can rapidly deploy additional sites with a minimum of further software
development.
25
<PAGE>
Our technology permits us to offer to buyers and sellers a variety of
transaction methods including fixed price sales, auctions and electronic
procurement. Our technology can be applied and customized across a broad
spectrum of industries. We seek to generate revenue from transaction fees as
well as from advertising on our news portals. Currently, we own and operate one
news portal and one e-commerce site relating to the commercial lighting
industry, as well as a finance portal.
Our operating model is to spread our administrative and logistical
functions across a broad range of markets. Thus, the marginal cost of entering
new markets is small since one of the major costs associated with establishing
Internet sites on which products are purchased and sold is the capital cost of
developing the core technology architecture. Our management approach is for each
of our vertical market sites to be led by an industry expert whose principal
responsibility will be to focus on business development. Operational tasks are
the responsibility of our central operations facility based in Kingston upon
Thames, England and Billerica, Massachusetts.
Some of the key elements of our strategy are:
o growing the community of buyers and sellers so that we become the preferred
method of purchasing and selling excess inventory in the areas in which we
develop websites;
o expanding the number and product categories in each of our websites so as
to attract additional buyers and sellers;
o increasing buyers' trust through checking of sellers' credibility,
verification of user and insurance;
o enhancing the features and functionality of our websites;
o expanding value-added services, such as scanning and uploading photographs
of listed items, arranging shipping of purchased goods and arranging
financing of purchases; and
o developing international markets by actively marketing and promoting our
website in selected countries.
In addition to developing new vertical markets, we intend to pursue
acquisition opportunities, strategic alliances and act as an incubator for
ventures. However, we have not as yet identified any potential business to
acquire.
LightingBuyer.com
-----------------
LightingBuyer.com's purpose is to facilitate the buying and selling of
surplus stock for the lighting industry. In addition to services provided
through its website located at www.lightingbuyer.com, we intend to provide
related services in inventory evaluation, inventory cataloging and the private
sale or auction of surplus equipment. LightingBuyer.com's available listings
originate largely from overstocked, never-used inventories held by companies
based mainly in the United States. LightingBuyer.com also makes available
products from foreign companies.
26
<PAGE>
We expect that transaction fees will constitute LightingBuyer.com's
principal compensation. Clients seeking to accelerate the sale of surplus
inventories can arrange for on-line auctions through our website. In a general
auction, bidding is permitted on equipment and products of multiple sellers for
a listed period of time, and sales are consummated for the items listed at the
close of bidding.
Users can browse the site and review auction listings. However, we require
buyers and seller to register in order to participate in the auction process.
Upon registration, buyers may place bids on products immediately. We check
sellers' credentials, including credit history, in an approval process that can
take up to 48 hours. Sellers can list their products for sale using an Internet
wizard that guides them through the protocols of listing items for auction sale,
providing details such as product description, asking price and shipping
details. Sellers may enter additional information such as product images,
reserve pricing, product dimensions and weight. A seller can publish an auction
listing as soon as when satisfied with the content of the listing. The website
provides comprehensive categories of lighting products, such as bulbs, fixtures,
ballasts (the supports for fluorescent lighting fixtures), components and
controls along with detailed subcategories.
Originally, the functionality of the site permitted prospective buyers to
bid only in an English auction format. In April and May, 2000, we began to offer
an additional auction format known as reverse auction for buyers to place
requests for products on which suppliers are invited to bid.
Reverse auctions tend to be used by buyers requesting offers from sellers
for products they require. A reverse auction works on the basis of a buyer
setting a maximum price it wishes to pay for an item. Sellers then bid in
amounts below the maximum set by the buyer. The bargain is struck at lowest
price accepted by the buyer.
Unlike many business-to-business or business-to-consumer auction sites, we
facilitate the transaction between buyers and sellers once there has been a
successful bid. Our management believes that left to their own devices, seller
and buyers fail to complete transactions even when there is active bidding and a
successful bid above a seller's reserve price. Consequently, we provide as part
of our site software that permits the buyer to calculate shipping costs provides
online assistance in arranging the logistics, and, if requested, keys into the
online software integrated to the United Parcel Service.
Additionally, and of equal importance, we are able to arrange the flow of
capital between buyer and seller so that both parties are protected. We have
established an escrow account into which buyers may deposit the purchase
proceeds. We release funds to the seller only when the buyer is satisfied with
the goods. To avoid intractable disputes, we also offer arbitration by
independent arbitrators and, where required, we will organize third party
valuations and inspections of stock.
In order to avoid uncertainty with the system and to reassure buyers and
sellers, we also offer online customer service support in a live chat room. We
intend in the near future to offer additional personal services to private
auction clients including consolidation of stock from various distribution
centers to a single site and repackaging and relabeling to maintain branded
standards on an international basis.
27
<PAGE>
Competition
-----------
We believe that we compete favorably with competing sites because of the
functionality of our e-commerce software and support services. We differentiate
ourselves from many of our market competitors through the expertise of our
strategic partners and internal management and operations expertise. Our
management believes that the companies that operate certain competing websites
do not have the management experience within the industries their websites seek
to penetrate. Many of these Internet companies base their competitive strength
on their technology. We believe that our strength is based on our experience
within the targeted industry and its strategic alliance partners.
Other companies do operate Internet websites that currently list lighting
parts and equipment for sale and auction. To the best of our knowledge, these
companies do not have the business skills, business methodologies or industry
related expertise that LightingBuyer.com provides through its internal
operations.
Competitive websites include the following:
o Tradeout.com is a general auction site spanning many industries in that it
is not industry specific or buyer targeted.
o i2i.com is a new auction/exchange site. It has very few listings and is not
targeting specific categories of the business audience.
o GE SupplyLight.com is the GE Lighting E-commerce site. It only stocks GE
lamps from normal stock.
o Grainger.com sells a broad range of industrial products. Its site is
essentially an online catalog.
LightingNews
------------
In October, 1999, we approached Philips Lighting Company, a division of
Philips Electronics North America Corporation, with a concept to create a global
newswire service for the commercial lighting industry. After discussions,
Philips agreed to sponsor an online news forum entitled "www.lightingnews.com"
which was launched in the second quarter of 2000. It will allow lighting
companies and suppliers to post their press releases on a continuous as needed
basis, initially free of charge. In the future, charges will be made for adding
product images, website links and other information. The site has been designed
to be simple to use and news suppliers that could be a client company or its
public relations firm will be able to post material directly to the site.
Registered users of the site can search by product category, application
(for example, lighting for industry, for institutions, for residences etc.),
people or corporation information. Users can also personalize the site to take
account of individual preferences. They can also customize a newsletter entitled
My Lighting News which contains news alerts and set the frequency at which they
receive it. In essence, rather than visiting the site, readers can receive
information via email in the categories they have selected and at the frequency
at which they wish to receive it. The software is scalable in that it allows for
a virtually unlimited increase in subscribers or users and also permits added
functionality and the creation of sites for additional vertical industry
sectors.
28
<PAGE>
Lightseek
---------
We presently operate Lightseek.com that provides business-to-business
online services that facilitate the exchange of information within the global
lighting industry. Lightseek.com is initially focused on providing news,
articles, industry forums, recruitment services and product information for the
lighting industry. Its revenues have been derived from advertising fees.
The Lightseek.com site presently consists of a buyers' guide containing
contact information for almost all UK lighting companies, shop fronts where
advertisers can display information about their product lines, contacts to their
websites and where they can receive online inquiries from their prospective
buyers. The site also contains a message forum where industry professionals can
exchange opinions and ask questions of their peers. It also contains an events
diary of industry expositions and conferences. Since inception, the focus of
Lightseek.com has moved from being UK centric to international in scale. The
major change has been to feature international news in particular news from the
United States on the site. The site is also accepting international buyers'
guide listings.
FinanceBuyer
------------
One of the domain names transferred to Lightseek by Rosen & Kent was
www.financebuyer.com. We have entered into an agreement with SierraCities, Inc.,
an online financial institution which allows visitors to this website to apply
for loans and equipment leases online and to obtain action on the financing
request within a few minutes. Lightseek receives a commission on all financing
placed through the site.
Marketing
---------
We have retained KCSA, Inc. a New York City-based public relations and
investor relations advisory firm. KCSA will undertake trade public relations in
order to attract a critical mass of buyers and sellers initially to our
LightBuyer and eventually to other of our websites as well as providing investor
relations cousultancy. KCSA intends to place press releases and articles in
trade and business publications. We have and intend to continue to purchase
banner advertisements and key words on related trade websites and search
engines. We also plan a print advertising campaign in trade journals. In
addition, we intend to undertake a direct mail campaign targeted to sellers and
buyers, participate in trade shows and hire a sales force to make sales calls on
leading companies in the industry.
Employees
---------
As of March 28, 2000, we had no employees but employed consultants or
consultant companies. We have employed Tim Rosen, our President, and Leslie
Kent, our Secretary Treasurer, since April, 2000.
29
<PAGE>
Facilities
----------
As of May 31, our principal administrative facilities are located in the
premises of CSPI, 40 Linell Circle, Billerica, Massachusetts 01821 in Billerica
under a securities purchase and facilities agreement pursuant to which office
space, computers and administrative personnel are provided to us free of charge
for six months. Our marketing and research and development office is located in
an office of 800 square feet at 7 Gough House, 57 Eden Street,
Kingston-Upon-Thames, England pursuant to an oral agreement with an affiliated
party at the rate of one pound annually. We believe that our existing facilities
are adequate to meet our needs for the immediate future and that future growth
can be accommodated by leasing additional or alternative space near our current
facilities.
MANAGEMENT
Executive Officers and Directors
--------------------------------
The following table sets forth certain information regarding the executive
officers and directors of the Company as of March 28, 2000:
Name Age Position Since
---- --- -------- -----
Timothy Neil David Rosen 43 President, Chief Executive 2/2000
40 Linell Circle Officer and a Director
Billerica, MA 01821
Leslie Kent 45 Secretary, Treasurer, Chief 2/2000
40 Linell Circle Financial Officer and a Director
Billerica, MA 01821
Joseph Donahue (1)(2) 53 Director 2/2000
40 Linell Circle
Billerica, MA 01821
Alexander R. Lupinetti (1)(2) 54 Director 2/2000
40 Linell Circle
Billerica, MA 01821
-----------------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Tim Rosen has been Commercial Director of Lightseek since its inception in
May, 1999 and of our company since February, 2000. From 1988 to date, he has
been a partner, with Leslie Kent, Secretary/Treasurer, in Rosen & Kent, a
management consultancy. The partnership also incubates new business ventures.
Since 1988, he has also been a director of Litech Ltd., a specialist fiber optic
lighting provider for the commercial lighting industry. From 1983 to 1988, Mr.
Rosen was a director of OmniMedia plc, a digital video and CD-ROM
publisher/developer which traded on the Alternative Investment Market of the
London Stock Exchange. From 1983 to 1988, Mr. Rosen was a director of Oxford
House College, a London-based computer training and language school which was
sold to its employees. He was also a director, from 1983 to 1988 of Catalyst
Communications Group plc, a marketing and media group quoted on the London Stock
Exchange which was sold to another public company, Holmes & Marchant plc. Rosen
& Kent founded Homeshield Warranty, Co. in 1982 as a joint venture with Pentland
Industries plc, an English public company. Homeshield marketed extended
warranties for household appliances and was sold to a trade buyer in 1984. Mr.
Rosen served as an account supervisor at Craton Lodge and Knight plc, a new
product development agency, from 1981 to 1982 and at Grey Advertising from 1979
to 1981. He is a member of the National Association of Auctioneers. Mr. Rosen
received his B.Sc (Econ.) Magna cum Laude in Business Administration from the
Institute of Science and Technology, University of Wales in 1979.
30
<PAGE>
Leslie John Kent has been Marketing Director of Lightseek since its
inception in May, 1999 and, Secretary/Treasurer of our company since February,
2000. From 1988 to 1999, he was a partner, with Tim Rosen, our President, in
Rosen & Kent, a management consultancy. The partnership also incubates new
business ventures. Since 1988, he has also been a director in Litech Ltd., a
specialist fiber optic lighting provider for the commercial lighting industry.
From 1983 to 1988, Mr. Kent was a director of OmniMedia plc, a digital video and
CD-ROM publisher/developer which traded on the Alternative Investment Market of
the London Stock Exchange. From 1983 to 1988, Mr. Kent was a director of Oxford
House College, a London-based computer training and language school which was
sold to its employees. He was also a director, from 1983 to 1988 of Catalyst
Communications Group plc, a marketing and media group quoted on the London Stock
Exchange which was sold to another public company, Holmes & Marchant plc. Rosen
& Kent founded Homeshield Warranty, Co. Ltd. in 1982 as a joint venture with
Pentland Industries plc, an English public company. Homeshield marketed extended
warranties for household appliances and was sold to a trade buyer in 1984. In
1981, Mr. Kent was an advertising account manager at Boase Massimi Pollity plc,
from 1979 to 1981 for Grey Advertising and from 1977 to 1979 for Ted Bates. He
is an associate member of the Institution of Lighting Engineers and Secretary of
The Fibre Optic Lighting Association. Mr. Kent received his Master of Arts in
Philosophy, Politics and Economics from St. Edmund Hall, Oxford University, in
1977.
Joseph Donahue has been principal and President since 1994 of Donahue &
Associates, Trumbull, Connecticut, a financial consultancy which initiates and
arranges acquisitions. From 1982 to 1994, he was Executive Vice-President,
Corporate Finance of Sterling & Company, Los Angeles, California. Mr. Donahue
was International Investment Director of Specialized Systems, Inc., San Diego,
California in 1981 and a consultant and principal, from 1973 to 1981, in the
purchase, sale, exchange, salvage and chartering and management of yachts. He
received his B.A. in European History from the University of California at San
Diego in 1973 and attended University of Mexico in 1971 and San Diego City
College in 1970.
Alexander R. Lupinetti as been a Director of CSPI since 1996; Chairman of
the Class III Board of Directors since January 1998; Chief Executive Officer and
President of CSPI since October 1996; President and Chief Executive Officer of
each of TCAM Systems Inc., Shared Systems Corporation and SoftCom Systems, Inc.,
subsidiaries of Stratus Computer Inc., from 1987 to 1996.
Board Committees
----------------
The Audit Committee of our Board consists of Joseph Donahue and Alexander
Lupinetti. The Audit Committee reviews our financial statements and accounting
practices, makes recommendations to our board regarding the selection of
independent auditors and reviews the results and scope of the audit and other
services provided by our independent auditors. The Compensation Committee of our
Board consists of Joseph Donahue and Alexander Lupinetti. The Compensation
Committee makes recommendations to the Board concerning salaries and incentive
compensation for our officers and employees and administers our employee benefit
plans. Compensation Committee Interlocks and Insider Participation None of the
members of the compensation committee of our board was at any time since our
formation one of our officers or employees.
Director Compensation
---------------------
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable expenses for attending board
and board committee meetings.
31
<PAGE>
Executive Compensation
----------------------
The following table shows compensation earned during fiscal 1999 by our
President. The information in the table includes salaries, bonuses, stock
options granted and other miscellaneous compensation. No executive officer who
held office at December 31, 1999 received total annual compensation in excess of
$100,000 in 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term and Other
Annual Compensation Compensation
--------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Number of
Securities
Fiscal Other Annual Underlying All Other
Name and 1999 Principal Positions Year Salary Bonus(1) Compensation(2) Options Compensation
--------------------------------- ------ -------- -------- --------------- ---------- ------------
Tim Rosen, President 1999 None None None None None
</TABLE>
The following executive officers received grants of options in 2000
pursuant to the Year 2000 Stock Option Plan.
Option Grants During 2000
<TABLE>
Percentage Potential Realizable
of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise for Option Term(2)
Options during Price Per Expiration -----------------------
Name Granted(1) 2000 Share Date 0% 5% 10%
---- ---------- ---------- --------- ---------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Tim Rosen 250,000 16.7% $1.00 4 Years 0 53,877 116,025
Leslie Kent 250,000 16.7% $1.00 4 Years 0 53,877 116,025
Joseph Donahue 250,000 16.7% $1.00 4 Years 0 53,877 116,025
Alexander Lupinetti 250,000 16.7% $1.00 4 Years 0 53,877 116,025
</TABLE>
----------------------
(1) Options granted in 2000 were granted under the Year 2000 Plan. All options
granted were immediately exercisable and were either nonstatutory stock
options. These options were granted by our board of directors and vested
immediately.
(2) Since we are not public, the market price as of the date of issuance is
assumed to be $1.00 as this is the exercise price of the options as well as
all outstanding warrants.
32
<PAGE>
Compensation Arrangements
--------------------------
We have not entered into employment contracts with any of our management
employees. Mr. Rosen and Mr. Kent have received salaries at the rate of $150,000
per annum since April 1, 2000. Both also receive health insurance and a vehicle
allowance.
Indemnification of Directors and Executive Officers and Limitation of
---------------------------------------------------------------------
Liability
---------
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. As permitted by the Delaware General
Corporation Law, our amended certificate of incorporation includes a provision
that eliminates the personal liability of our directors for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to the Company or its stockholders, (2) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (3) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (4) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, our Bylaws provide
that (1) the Company is required to indemnify its directors and officers,
consultants and employees to the fullest extent permitted by the Delaware
General Corporation Law, subject to certain very limited exceptions, we are
required to advance expenses, as incurred, in connection with a legal proceeding
to the fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions, and the rights conferred in the our Bylaws
are not exclusive. We have not obtained directors' and officers' liability
insurance.
CERTAIN RELATED PARTY TRANSACTIONS
On March 2, 2000, we purchased all the capital stock of Lightseek from its
owners, including Tim Rosen, President and Leslie Kent, Secretary/Treasurer for
an aggregate of 14,250,000 shares. On that date, we also paid for consulting,
including structuring our acquisition of LightSeek, introduction to CSPI and
structuring the relationship with CSPI for 750,000 shares of our common stock,
including 375,000 shares to Joseph Donahue, a Director and $150,000 of which Mr.
Donahue received $75,000 and 150,000 Class D warrants. We have awarded an
aggregate of 1,000,000 nonstatutory stock options exercisable at $1.00 pursuant
to our Year 2000 Option Plan to our directors and an aggregate of 300,000 bonus
options to members of our committees and to consultants.
On March 2, 2000, we sold 2,000,000 shares of our common stock and three
redeemable common stock purchase warrants (Class A, Class B and Class C)
carrying the right to purchase in the aggregate 3,000,000 of our shares to CSPI.
The options are exercisable at $1.00 and expire two years after the date of an
effective registration statement relating to the underlying shares of our common
stock. The Class A warrants are redeemable in the event there is an effective
registration statement relating to the underlying shares of our common stock;
the Class B warrants are redeemable if the closing price of our common stock on
the market on which it trades exceeds $2.00 for a period of twenty consecutive
days; and the Class C warrants are redeemable if the closing price of our common
stock on the market on which it trades exceeds $3.00 for a period of twenty
consecutive days. CSPI intends to distribute as a dividend 718,487 of our shares
ratable to the holders of its common stock. Finally, we sold at $.10 each,
150,000 Class D warrants to holders of bonus options of CSPI. The Class D
warrants are not redeemable, but are otherwise identical to the other classes of
warrant.
33
<PAGE>
Tim Rosen, President, and Leslie Kent, Treasurer, have each received a
salary of $150,000 per annum since April 1, 2000.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of May 31, 2000 by each stockholder
known by us to be the beneficial owner of more than 5% of our Common Stock, each
of our directors and executive officers and all executive officers and directors
as a group.
Shares of Common Stock
Beneficially Owned (1)
----------------------
Prior to After
Warrant Exercise Warrant Exercise
---------------- ----------------
Name Number Percent Number Percent
---- ------ ------- ------ -------
Timothy Rosen 7,025,000 41.3% 7,025,000 34.7%
Leslie Kent 7,025,000 41.3% 7,025,000 34.7%
Joseph Donahue 375,000 2.2% 375,000 1.4%
Alexander Lupinetti 0 0.0% 47,017 0.2%(3)
CSP Inc. 2,000,000 11.8% 4,281,513(2) 21.2%
Directors and officers 14,425,000 84.9% 14,472,017 71.6%
(4 persons)
----------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Unless otherwise indicated
below, the persons and entity named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. Shares of our common stock
underlying warrants or options that are currently exercisable or
exercisable within 60 days of May 31, 2000 are deemed to be outstanding and
to be beneficially owned by the person holding such options for the purpose
of computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person. The above table does not include shares underlying bonus
options since no such options are exercisable within 60 days of May 31,
2000.
The percentage of beneficial ownership is based on 17,000,000 shares of our
common stock outstanding as of May 31, 2000 and, after warrant exercise, on
20,225,000 shares of our common stock outstanding.
(2) Includes the distribution of 718,487 of our shares of common stock by CSPI
ratably to its stockholders shortly after the effective date of the
registration statement of which this prospectus is a part.
(3) Does not include exercise of warrants owned by Mr. Lupinetti.
34
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
------------
We are authorized to issue 50 million shares of common stock, $.001 par
value per share, of which 17,000,000 shares are issued and outstanding as of the
date of the prospectus. Each outstanding share of common stock is entitled to
one vote, either in person or by proxy, on all matters that may be voted upon by
their holders at meetings of the stockholders.
Holders of our common stock (i) have equal ratable rights to dividends from
funds legally available therefor, if declared by our board of directors; (ii)
are entitled to share ratably in all of our assets available for distribution to
holders of common stock upon our liquidation, dissolution or winding up; (iii)
do not have preemptive, subscription or conversion rights, or redemption or
sinking fund provisions; and (iv) are entitled to one non-cumulative vote per
share on all matters on which stockholders may vote at all meetings of our
stockholders. Cumulative voting for the election of directors is not provided
for in our amended certificate of incorporation, which means that the holders of
a majority of the shares voted can elect all of the directors then standing for
election.
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of our common stock
are entitled to receive dividends out of legally available funds at such times
and in such amounts as our board of directors may from time to time determine.
Each stockholder is entitled to one vote for each share of our common stock held
on all matters submitted to a vote of stockholders. Our common stock is not
entitled to preemptive rights and is not subject to conversion or redemption.
Upon a liquidation, dissolution or winding-up, the assets legally available for
distribution to stockholders are distributable ratably among the holders of our
common stock and any participating preferred stock outstanding at that time
after payment of liquidation preferences, if any, on any outstanding preferred
stock and payment of other claims of creditors. Each outstanding share of our
common stock is, and all shares of common stock to be outstanding upon exercise
of the warrants will be, fully paid and nonassessable.
Preferred Stock
---------------
We may, subject to limitations prescribed by Delaware law, to provide for
the issuance of up to 5,000,000 shares of our preferred stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, to fix the rights, preferences and privileges of the shares of
each wholly unissued series and any qualifications, limitations or restrictions
thereon, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding) without any
further vote or action by the stockholders. Our board of directors may authorize
the issuance of preferred stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of our common
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, have the effect of delaying, deferring or preventing a change in
control and may adversely affect the market price of the common stock and the
voting and other rights of the holders of common stock. We have no current plans
to issue any shares of preferred stock.
35
<PAGE>
Common Stock Purchase Warrants
------------------------------
We have issued to CSPI three classes of redeemable common stock warrant.
Each class is exercisable for a period of two years commencing the date of the
prospectus. Each warrant entitles the holder to purchase one share of our common
stock at an exercise price of $1.00. The common stock underlying the warrants
will, upon exercise of the warrants, be validly issued, fully paid and
non-assessable. The warrants will be subject to redemption, at any time, for
$0.001 per warrant, upon 30 days' prior written notice under the following
circumstances: as to the "A" Warrants, in the event there is an effective
registration statement relating to the shares underlying the "A" warrants; as to
the "B" Warrants in the event there is an effective registration statement
relating to the shares underlying the "B" warrants and, in addition, if the bid
closing price on the market in which our common stock trades for a period of
twenty consecutive days exceeds $2.00 per share ending within ten days prior to
the date of the notice of redemption; and as to the "C" Warrants, in the event
there is an effective registration statement relating to the shares underlying
the "C" warrants and, in addition, if the bid closing price on the market in
which our common stock trades for a period of twenty consecutive days exceeds
$2.00 per share ending within ten days prior to the date of the notice of
redemption.
The warrants can only be exercised when there is a current effective
registration statement covering the underlying shares of common stock. If we do
not obtain or are unable to maintain a current effective registration statement,
warrantholders will be unable to exercise them and they may become valueless.
Moreover, if the shares of common stock underlying the warrants are not
registered or qualified for sale in the state in which a warrantholder resides,
such holder might not be permitted to exercise any warrants.
Warrants may be exercised by surrendering the warrant certificate, with the
form of election to purchase printed on the reverse side of the warrant
certificate properly completed and executed, together with payment of the
exercise price, to us or the warrant agent. Warrants may be exercised in whole
or from time to time in part. If less than all of the warrants evidenced by a
warrant certificate are exercised, a new warrant certificate will be issued for
the remaining number of unexercised warrants.
Warrantholders are protected against dilution of the equity interest
represented by the underlying shares of common stock upon the occurrence of
certain events, including, but not limited to, issuance of stock dividends. If
we merge, reorganize or are acquired in such a way as to terminate the warrants,
they may be exercised immediately prior to such action. In the event of
liquidation, dissolution or winding up, holders of the warrants are not entitled
to participate in our assets.
For the life of the warrants, holders are given the opportunity to profit
from a rise in the market price of our common stock. The exercise of the
warrants will result in the dilution of the then book value of our common stock
and would result in a dilution of the percentage ownership of then existing
stockholders. The terms upon which we may obtain additional capital may be
adversely affected through the period in which the warrants remain exercisable.
The holders of these warrants may be expected to exercise them at a time when we
would, in all likelihood, be able to obtain equity capital on terms more
favorable than those provided for by the warrants.
36
<PAGE>
We have issued to certain consultants and have sold to holders of CSPI
bonus options, in proportion to their holdings, our Class "D" Warrants. We may
not redeem these warrants, but otherwise they are identical to the other classes
of warrant.
Registration Rights
-------------------
Pursuant to a registration rights agreement between us and CSPI, dated
March 2, 2000, we agreed to file a registration statement relating to the shares
of our common stock issued to CSPI and the shares of our common stock underlying
the warrants issued to CSPI and issued to CSPI bonus option holders. We agreed
to assume all registration expenses pursuant to the registration rights
agreement. In the event, the registration statement is not effective within 90
days of the date of the agreement, we have agreed to issue to CSPI additional
shares of our common stock equal to one percent of the shares purchased by CSPI
for each full month, prorated daily, after 90 days, continuing through the date
the registration statement is declared effective by the SEC. Our obligations
will expire upon the earlier of the effectiveness of the registration statement
or the date all of the shares covered by the registration rights agreement may
be sold by under Rule 144 under the Securities Act without volume restrictions.
Future Financing
----------------
In the event the proceeds of warrant exercise are not sufficient the
development and growth of our business, we may seek additional financing. At
this time we believe that the proceeds of exercise of existing warrants, will be
sufficient for such purpose and therefore do not expect to issue any additional
securities at this time. However, we may issue additional securities, incur debt
or procure other types of financing if needed. We have not entered into any
agreements, plans or proposals for such financing and as of present have no
plans to do so. If we require additional financing, there is no guarantee that
such financing will be available to us or if available that such financing will
be on terms acceptable to us.
Reports to Stockholders
-----------------------
We intend to furnish our stockholders with annual reports containing
audited financial statements as soon as practicable after the end of each fiscal
year. Our fiscal year ends on December 31st.
Dividends
---------
We have only been recently organized, have no earnings and have paid no
dividends to date. We anticipate that we will reinvest all earnings, if any, in
our business and do not anticipate declaring or paying dividends in the
foreseeable future.
Transfer Agent
--------------
We have appointed Olde Monmouth Stock Transfer Co., Inc., 77 Memorial
Parkway, Suite 101, Atlantic Highlands, New Jersey 07716 as transfer agent for
our shares of common stock and our warrants.
37
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the persons or entities that are offering
their shares of common stock in this prospectus and the number of shares of
common stock being offered by each selling stockholder:
Shares Owned Prior Shares Owned After
to the Offering the Offering
------------------ ------------------
Number
of Shares
Selling Stockholder Offered Number Percent Number Percent
--------------------- ------------ ---------- ------- ------ --------
CSP Inc. 5,000,000 5,000,000 25.0% -0- -0-%
William Bent 2,126 2,126 (3) -0- -0-%
Albert Bessey 94 94 (3) -0- -0-%
Steven Bollinger 342 342 (3) -0- -0-%
Robert Crigler 500 500 (3) -0- -0-%
Kevin Chiavelli 114 114 (3) -0- -0-%
Ron Cook 908 908 (3) -0- -0-%
George Corbett 114 114 (3) -0- -0-%
Richard Cushman 285 285 (3) -0- -0-%
Frank D'Alessandro 160 160 (3) -0- -0-%
James Deluco 228 228 (3) -0- -0-%
Amy Dexter 548 548 (3) -0- -0-%
Sally Dowds 171 171 (3) -0- -0-%
Fernando Delaville 343 343 (3) -0- -0-%
Steve Demange 69 69 (3) -0- -0-%
Philippe Gauthier 1,071 1,071 (3) -0- -0-%
Anthony Gentile 50,000 50,000 (3) -0- -0-%
Daniel Gould 171 171 (3) -0- -0-%
Robert Gove 433 433 (3) -0- -0-%
Mark Hababu 228 228 (3) -0- -0-%
Leonard Hook 126 126 (3) -0- -0-%
James C. Shelton 605 605 (3) -0- -0-%
Karen Lacroix 188 188 (3) -0- -0-%
Gary Levine 6,484 6,484 (3) -0- -0-%
Alexander Lupinetti(4) 47,017 47,017 (3) -0- -0-%
David J. Lyons 605 605 (3) -0- -0-%
Brian Miller 1,299 1,299 (3) -0- -0-%
Dorothy Morris 114 114 (3) -0- -0-%
Faustino Mora 908 908 (3) -0- -0-%
Joseph Parent 228 228 (3) -0- -0-%
Walter Pastucha 1,799 1,799 (3) -0- -0-%
Joel Pensley 50,000 200,000 1.2% 150,000 (3)
Bernard Pelon 593 593 (3) -0- -0-%
David Packwood 171 171 (3) -0- -0-%
Stephan Pfeil 250 250 (3) -0- -0-%
Jack Phinney 228 228 (3) -0- -0-%
Sharon Sacco 422 422 (3) -0- -0-%
Felicitas Schaub 250 250 (3) -0- -0-%
Eric Schwegler 46 46 (3) -0- -0-%
Sanford Smith 605 605 (3) -0- -0-%
Bradley Stamp 3,152 3,152 (3) -0- -0-%
Michael Stern 207 207 (3) -0- -0-%
James Waggett 965 965 (3) -0- -0-%
George Weast 50,000 50,000 (3) -0- -0-%
Richard Whipple 456 456 (3) -0- -0-%
Robert Williams 377 377 (3) -0- -0-%
38
<PAGE>
---------------------
(1) Calculated for each selling stockholder based on 17,000,000 shares of our
common stock presently outstanding plus the shares specified for that
person in footnote (2).
(2) All of the shares being offered are issuable upon the exercise of warrants
except for the shares purchased by CSPI.
(3) Indicates less than one percent of the total outstanding common stock.
(4) Mr. Lupinetti is a director. Because the total number of shares which he
will receive is less than 1% of our total outstanding shares, Rule 144 will
not limit the number of shares of our common stock which he may sell in any
three month period.
(5) If all the warrants are exercised, the number of outstanding shares of our
common stock will increase from 17,000,000 to 20,225,000. The percentage of
our common stock owned by all existing shareholders as well as those who
purchase shares sold by CSPI or by its stockholders to whom it intends to
distribute shares will be proportionally diluted.
PLAN OF DISTRIBUTION
Conduct of the Offering
-----------------------
CSPI has indicated to us that it intends to distribute to its stockholders
718,487 shares of our common stock on a basis of one share for every five shares
of CSPI owned. CSPI has set a record date of July 7, 2000, as the date on which
the identity of the CSPI stockholders and number of CSPI shares of common stock
owned will be set for purposes of the distribution of our shares. CSPI intends
to make the distribution as soon as practicable after the date of the
prospectus. CSPI will include in such distribution to each stockholder of record
and to depositories certificates representing the shares distributed, a copy of
the prospectus, a calculation indicating the number of shares of our common
stock to be distributed and a cover letter explaining the transaction.
Warrantholders may exercise their warrants by completing the exercise form
on the reverse of each warrant certificate. The CSPI warrants are redeemable. We
anticipate calling each class of warrant for redemption if the conditions for
that particular warrant class are met. The class "D" warrants are not
redeemable.
We have retained no broker-dealer in connection with the distribution of
our shares to the stockholders of CSPI nor in connection with the exercise of
our warrants by CSPI or other warrantholders or of the sale of the shares of our
common stock underlying the warrants.
Method of Subscribing
---------------------
CSPI, its transferees, if any, or other warrantholders may exercise their
warrants by filling in and signing the exercise sheet attached to the warrant
and delivering it to us prior to the expiration date of each warrant. Exercising
warrantholders must pay $1.00 in cash or by check, bank draft or postal express
money order payable in United States dollars to us for each share they desire to
purchase and, in the event of partial exercise, will receive from us a new
warrant representing the right to subscribe for the remaining shares of our
common stock.
39
<PAGE>
We are registering our common stock on behalf of the selling stockholders.
Selling stockholders are free to offer and sell their shares of common stock at
such times, in such manner and at such prices as they determine. The common
stock may be offered by the selling stockholders in one or more types of
transactions, which may or may not involve brokers, dealers or cash
transactions. The selling stockholders may also use Rule 144 under the
Securities Act to sell their common stock, if they meet the criteria and conform
to the requirements of that rule.
There is no underwriter or coordinating broker acting in connection with
the proposed sale of common stock by the selling stockholders. The selling
stockholders have advised us that sales of common stock may be effected from
time to time by the following means:
o transactions on the over-the-counter bulletin board, including block
transactions;
o negotiated transactions;
o through the writing of options on the common stock; and
o a combination of the above methods of sale at fixed prices, which may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices
Selling stockholders may sell common stock directly to purchasers or
through broker-dealers which may act as agents or principals. Broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders.
The selling stockholders and any broker-dealers that act in connection with
the sale of their common stock may be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
them and any profit on the resale of the common stock as principal may be deemed
to be underwriting discounts and commissions under the Securities Act. The
selling stockholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. Because
selling stockholders may be deemed to be underwriters, they will be subject to
prospectus delivery requirements under the Securities Act. Furthermore, in the
event of a distribution of their common stock, any selling stockholder, any
selling broker-dealer and any affiliated purchasers may be subject to Regulation
M which prohibits any stabilizing bid or stabilizing purchase for the purpose of
pegging, fixing or stabilizing the price of the common stock in connection with
that distribution.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon exercise of the warrants, assuming no exercise of outstanding bonus
options, we will have outstanding 20,225,000 shares of our common stock. Of
these shares, the 5,225,000 shares registered herein or underlying warrants,
when exercised, will be freely tradable without restriction under the Securities
Act unless held by our "affiliates" as that term is defined in Rule 144 under
the Securities Act. These shares will be eligible for sale in the public market,
subject to certain volume limitations and the expiration of applicable holding
periods under Rule 144 under the Securities Act. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least one year (including the
holding period of any prior owner except an affiliate) would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (1) 1% of the number of shares of Common Stock then outstanding
(which will equal approximately 222,500 shares assuming all the warrants are
exercised) or (2) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the three months preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. We have not
filed a registration statement relating to the shares subject to outstanding
options under our Year 2000 Option Plan.
We can offer no assurance that an active public market in our shares will
develop. Future sales of substantial amounts of our shares (including shares
issued upon exercise of outstanding options) in the public market could
adversely affect market prices prevailing from time to time and could impair the
our ability to raise capital through the sale of our equity securities.
WHERE YOU CAN FIND MORE INFORMATION
We have not previously been required to comply with the reporting
requirements of the Securities Exchange Act. We have filed with the SEC a
registration statement on form SB-2 to register the shares of our common stock
issued to CSPI and the shares underlying the warrants. The prospectus is part of
the registration statement, and, as permitted by the SEC's rules, does not
contain all of the information in the registration statement. For further
information about us and the securities offered under the prospectus, you may
refer to the registration statement and to the exhibits and schedules filed as a
part of this registration statement. You can review the registration statement
and its exhibits at the public reference facility maintained by the SEC at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the SEC at 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. The registration statement is also
available electronically on the World Wide Web at http://www.sec.gov.
You can also call or write us at any time with any questions you may have.
We would be pleased to speak with you about any aspect of our business and the
shares of our common stock underlying the warrants.
41
<PAGE>
LEGAL PROCEEDINGS
We are not a party to nor are we aware of any existing, pending or
threatened lawsuits or other legal actions.
LEGAL MATTERS
Roger L. Fidler, Esq., 163 South Street, Hackensack, New Jersey 07601 is
passing upon the validity of the shares to be sold by selling stockholders, and
the shares underlying the warrants.
FINANCIAL STATEMENTS
The following are our financial statements, with independent auditor's
report for Lightseek Limited for the period from inception, May 13, 1999, to
December 31, 1999.
42
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Lightseek Limited
We have audited the accompanying balance sheet of Lightseek Limited (the
"Company") (a development stage company) as of December 31, 1999, and the
related statements of operations, stockholders' equity and cash flows for the
period from May 13, 1999 (inception) through December 31, 1999. These financial
statements are prepared in accordance with U.S. generally accepted accounting
principles and are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1999, and the results of its operations and its cash flows for the period
then ended in conformity with generally accepted accounting principles.
New York, New York
March 13, 2000
F-1
<PAGE>
LIGHTSEEK LIMITED
(A Development Stage Company)
BALANCE SHEET
December 31, 1999
ASSETS
Current assets:
Accounts receivable $ 1,565
Prepaid expenses 7,591
---------
Total current assets 9,156
Purchased software, net of accumulated
depreciation of $7,729 38,653
--------
$ 47,809
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Cash overdraft $ 423
Accrued expenses 7,881
Due to affiliate (Note 4) 53,069
Deferred revenue 10,094
----------
Total current liabilities 71,467
Stockholders' equity (deficit):
Common stock, $1.61 par value; 100,000 shares
authorized, 1,000 issued and outstanding 1,615
Retained deficit accumulated during the development stage (25,273)
----------
Total stockholders' (deficit) (23,658)
----------
$47,809
==========
See accompanying notes.
F-2
<PAGE>
LIGHTSEEK LIMITED
(A Development Stage Company)
STATEMENT OF OPERATIONS
For the Period from May 13, 1999 (Inception) through December 31, 1999
Revenues $ 21,945
Cost of sales 22,025
---------
Gross profit (80)
---------
Operating expenses:
Sales and marketing 3,165
Product development 13,686
General and administrative 8,342
---------
Total operating expenses 25,193
---------
Net (loss) $(25,273)
=========
See accompanying notes.
F-3
<PAGE>
LIGHTSEEK LIMITED
(A Development Stage Company)
STATEMENT OF STOCKHOLDER'S EQUITY
For the Period from May 13, 1999 (Inception) through December 31, 1999
Common Stock Accumulated
Shares Amount (Deficit) Total
Balance, at inception 1,000 $1,615 $ - $ 1,615
Net (loss) - - (25,273) (25,273)
----- ------ --------- ---------
Balance, December 31, 1999 1,000 $1,615 $(25,273) $(23,658)
See accompanying notes.
F-4
<PAGE>
LIGHTSEEK LIMITED
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Period from May 13, 1999 (Inception) through December 31, 1999
Operating activities:
Net (loss) $(25,273)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation of property and equipment 7,729
Change in operating assets and liabilities:
Accounts receivable (1,565)
Prepaid expenses (7,591)
Accrued expenses 7,881
Deferred revenue 10,094
--------
Net cash provided by operating activities (8,725)
--------
Investing activities:
Acquisition of property and equipment (46,382)
--------
Net cash (used in) investing activities (46,382)
--------
Financing activities:
Proceeds from issuance of common stock 1,615
Due to affiliate 53,069
--------
Net cash provided by financing activities 54,684
--------
Decrease in cash (423)
Cash - beginning of period -
--------
Cash - end of period $ (423)
==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 20
==========
Income taxes $ -
==========
See accompanying notes.
F-5
<PAGE>
LIGHTSEEK LIMITED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
Note 1 - Organization and nature of business
--------------------------------------------
Lightseek Limited (the "Company") was incorporated in the United Kingdom on
May 13, 1999. The Company is principally engaged in the development of Internet
sites designed to exploit Business-to-Business e-commerce opportunities within
the global commercial electrical and lighting markets.
The Company is a development stage company as defined by Statement of
Financial Accounting Standard No. 7, "Accounting and Reporting by Development
Stage Company", as it devotes substantially all its efforts to establishing a
new business. The Company's planned principal operations have not commenced and
revenue has not been recognized from the planned principal operations.
Note 2 - Summary of significant accounting policies
---------------------------------------------------
The following summary of the Company's significant accounting policies is
presented as an integral part of the accompanying financial statements.
Use of estimates
----------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Concentrations of credit risk
-----------------------------
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and trade accounts receivable. The Company
currently places all of its cash with one financial institution and believes it
is not exposed to any significant credit risk on cash. The Company extends
credit to its customers based upon an evaluation of the customer's financial
condition and credit history. The Company since inception has not incurred any
credit losses and believes that its trade accounts receivable credit risk
exposure is limited.
Property and equipment
----------------------
Purchased software and computer equipment are stated at cost and
depreciated using the straight-line method over the estimated useful lives of
the respective assets, which is 3 years.
F-6
<PAGE>
LIGHTSEEK LIMITED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
Note 1 - Organization and nature of business (continued)
---------------------------------------------------------
Revenue recognition
-------------------
The Company's revenues are derived principally from the sale of banner and
sponsorship advertisements. Advertising revenues from both banner and
sponsorship contracts are recognized ratably over the period in which the
advertisement is displayed.
Cost of sales
-------------
Cost of sales consists of expenses associated with the production of the
Company's online media properties. These costs consist primarily of fees paid to
third parties for Web-site hosting charges and the depreciation of purchased
software and computer equipment.
Note 2 - Summary of significant accounting policies
---------------------------------------------------
Product development expenses
----------------------------
Product development expenses are primarily attributable to consulting costs
related to enhancing the features and functionality of the Company's Web sites
and transaction-processing systems, as well as increased investment in systems
and telecommunications infrastructure and new product offerings. Product
development costs are generally expensed as incurred, except for certain costs
relating to the acquisition or development of internal-use software that are
capitalized in accordance with the American Institute of Certified Public
Accountant's Statement of Position No. 98-1 "Accounting for the costs of
computer software developed or obtained for internal use".
Foreign currency translation gain or (loss)
-------------------------------------------
The Company's functional currency is the British Pound. The accompanying
financial statements have been translated to United States dollars using a
year-end rate of exchange for assets and liabilities, and average rates of
exchange for revenues and expenses. Translation gains (losses) are included in
comprehensive income and accumulated as a separate component of stockholders'
equity. The weighted average exchange rate of the British Pound to the U.S.
Dollar for the period from May 13 through December 31, 1999 was virtually
identical to the year-end rate of exchange and, accordingly, there was no
transaction gain or loss for this period.
Income taxes
------------
Deferred income taxes are provided on a liability method whereby deferred
tax assets are established for the difference between the financial reporting
and income tax basis of assets. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
F-7
<PAGE>
LIGHTSEEK LIMITED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
Note 3 - Due to affiliate
-------------------------
At December 31, 1999, the Company owed an affiliated entity $53,069 for
cash advances and certain software acquisitions paid on its behalf. This
affiliate payable is non-interest bearing.
Note 4 - Commitments
--------------------
The Company has an agreement with an investment banking firm under which it
has agreed to pay a fund raising fee of 7% of all funds raised as a result of
such firms direct involvement in all successful issues, including convertible
securities, debt, cash injections and equity issues. In future successful fund
raising efforts whereby the investment banking firm is indirectly involved in an
intermediary position, the fee will be reduced to 1.5% of the amount raised.
Note 5 - Subsequent events
--------------------------
On February 24, 2000, the Company acquired certain Domain Names and a
Web-site with the URL lightingbuyer.com from the shareholders of the Company in
exchange for 13,250 shares of the Company's authorized common stock.
On March 1, 2000, the Company was acquired by and became a wholly-owned
subsidiary of VerticalBuyer, Inc., a Delaware corporation ("VerticalBuyer"). On
that date, VerticalBuyer issued 14,250,000 shares of its common stock to the
shareholders of the Company in exchange for all of the outstanding common stock
of the Company. The acquisition will be accounted for as a pooling of interests.
On March 2, 2000, VerticalBuyer entered into a Securities Purchase and
Facilities Agreement (the "Agreement") with CSP Inc., a U.S. publicly traded
company ("CSPI"), under which CSPI purchased two million shares of
VerticalBuyer's common stock and redeemable warrants to purchase up to an
additional three million shares of such stock for an aggregate purchase price of
$2 million. The three classes of warrants (Class A, Class B and Class C) entitle
CSPI, subject to certain conditions and the occurrence of certain events, to
purchase up to one million shares each of VerticalBuyer's common stock at an
exercise price of $1 per share. The warrants are exercisable for a period of two
years beginning on the effective date of a registration statement covering the
underlying shares. In a Memorandum of Understanding that was executed in
connection with the Agreement, CSPI agreed to provide VerticalBuyer free of
charge approximately 1,000 square feet of office space and various accounting
services for a period of six months. After the six-month period, VerticalBuyer
and CSPI will negotiate a fee structure for the ongoing use of the office space
and accounting services.
F-8
<PAGE>
VERTICALBUYER, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
March 31, 2000
(Unaudited)
ASSETS
Current assets:
Cash and equivalents $1,694,699
Accounts receivable 92,232
Prepaid expenses 12,910
-----------
Total current assets 1,799,841
Property and equipment, net of accumulated depreciation
of $24,520 173,685
-----------
$1,973,526
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities $ 180,675
Due to affiliate (Note 3) 49,337
Deferred revenue 91,457
------------
Total current liabilities 321,469
Stockholders' equity (deficit):
Common stock, $.001 par value; 50,000,000 shares
authorized, 17,000,000 issued and outstanding 17,000
Preferred stock, $.001 par value; 5,000,000 shares
authorized, none issued and outstanding -
Additional paid-in capital 1,845,365
Accumulated other comprehensive income 1,651
Retained deficit accumulated during the development stage (211,959)
-----------
Total stockholders' equity 1,652,057
-----------
$1,973,526
===========
See accompanying notes.
F-9
<PAGE>
VERTICALBUYER, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF INCOME
AND OTHER COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2000 and
the Period from May 13, 1999 (Inception) through March 31, 2000
(Unaudited)
Three Months May 13, 1999
Ended (Inception) through
March 31, 2000 March 31, 2000
-------------- -------------------
Revenues $ 10,320 $ 32,265
Cost of sales 7,094 29,119
------------ -----------
Gross profit 3,226 3,146
------------ -----------
Operating expenses:
Sales and marketing 15,227 18,392
Product development 36,248 49,934
General and administrative 145,795 154,137
------------ -----------
Total operating expenses 197,270 222,463
------------ -----------
(Loss) from operations (194,044) (219,317)
Interest income (expense), net 7,358 7,358
------------ -----------
Net (loss) (186,686) (211,959)
Other comprehensive income (loss):
Foreign currency translation adjustment 1,651 1,651
------------ -----------
Comprehensive income (loss) $(185,035) $(210,308)
============ ===========
See accompanying notes.
F-10
<PAGE>
VERTICALBUYER, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2000 and
the Period from May 13, 1999 (Inception) through March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Preferred Paid-in Retained Comprehensive
------------
Shares Amount Stock Capital (Deficit) Income Total
------ ------ ----- ------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Recapitalization of Lightseek Limited 14,250,000 $14,250 $ - $ (12,635) $ - $ - $ 1,615
Issuance of common stock:
CSP, Inc. 2,000,000 2,000 - 1,998,000 - - 2,000,000
Others 750,000 750 - (750) - - -
Acquisition of warrants - - - 750 - - 750
Capital acquisition fees - - - (140,000) - - (140,000)
Foreign currency translation
adjustment - - - - - 1,651 1,651
Net loss for the period from
May 13, 1999 through March 31, 2000 - - - - (211,959) - (211,959)
---------- ------- ----- ---------- ---------- ----- -----------
Balance at March 31, 2000 17,000,000 $17,000 $ - $1,845,365 $(211,959) $1,651 $1,652,057
========== ======= ===== ========== ========== ====== ===========
</TABLE>
See accompanying notes.
F-11
<PAGE>
VERTICALBUYER, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and
the Period from May 13, 1999 (Inception) through March 31, 2000
(Unaudited)
May 13, 1999
Three Months (Inception)
Ended through
March 31, 2000 March 31, 2000
-------------- --------------
Operating activities:
Net (loss) $ (186,686) $(211,959)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Depreciation of property and equipment 16,791 24,520
Change in operating assets and liabilities:
Accounts receivable (90,668) (92,232)
Prepaid expenses (4,569) (12,160)
Accrued expenses 130,295 138,176
Deferred revenue 81,363 91,457
---------- -----------
Net cash (used) by operating activities (53,474) (62,198)
---------- -----------
Investing activities:
Acquisition of property and equipment (151,823) (198,206)
---------- -----------
Net cash (used) by investing activities (151,823) (198,206)
---------- -----------
Financing activities:
Proceeds from issuance of common stock 2,000,000 2,001,615
Repayment of affiliate advances (3,732) 49,337
Fund raising fees (97,500) (97,500)
---------- -----------
Net cash provided by financing activities 1,898,768 1,953,452
---------- -----------
Effect of exchange rate differences on cash and
cash equivalents 1,651 1,651
---------- -----------
Increase in cash and cash equivalents 1,695,122 1,694,699
Cash and cash equivalents - beginning of period (423) -
---------- -----------
Cash and cash equivalents - end of period $1,694,699 $1,694,699
=========== ===========
See accompanying notes.
F-12
<PAGE>
VERTICALBUYER, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Note 1 - Organization, nature of business and basis of presentation
--------------------------------------------------------------------
The consolidated financial statements include the accounts of
VerticalBuyer, Inc ("VerticalBuyer") and its wholly owned subsidiary Lightseek
Limited ("Lightseek"). VerticalBuyer, a Delaware corporation, was incorporated
on September 24, 1999 and on March 1, 2000 issued 14,250,000 shares of its
common stock to the shareholders of the Lightseek in exchange for all of the
outstanding common stock of Lightseek. The acquisition has been accounted for in
a manner similar to a pooling of interests since it occurred between entities
under common control. As such, the consolidated financial statements give
retroactive effect of the acquisition to January 1, 2000. VerticalBuyer and
Lightseek are collectively referred to as the "Company". All significant
intercompany transactions and balances have been eliminated in consolidation.
Lightseek was incorporated in the United Kingdom on May 13, 1999. The
Company is principally engaged in the development of Internet sites designed to
exploit Business-to-Business e-commerce opportunities within the global
commercial electrical and lighting markets.
The Company is a development stage company as defined by Statement of
Financial Accounting Standard No. 7, "Accounting and Reporting by Development
Stage Enterprises", as it devotes substantially all its efforts to establishing
a new business. While the Company's planned principal operations have commenced,
the Company has not yet recognized significant revenues from such principal
operations.
Note 2 - Summary of significant accounting policies
---------------------------------------------------
The following summary of the Company's significant accounting policies is
presented as an integral part of the accompanying financial statements.
Use of estimates
----------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents
-------------------------
The Company considers all bank money market accounts and other investments
that can be liquidated on demand or with an original maturity of three months or
less to be cash equivalents.
F-13
<PAGE>
VERTICALBUYER, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Note 1 - Organization, nature of business and basis of presentation (continued)
--------------------------------------------------------------------------------
Concentrations of credit risk
-----------------------------
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and trade accounts receivable. The Company
currently places all of its cash with one financial institution and believes it
is not exposed to any significant credit risk on cash. The Company extends
credit to its customers based upon an evaluation of the customer's financial
condition and credit history. The Company since inception has not incurred any
credit losses and believes that its trade accounts receivable credit risk
exposure is limited.
Note 2 - Summary of significant accounting policies
---------------------------------------------------
Property and equipment
----------------------
Purchased software and computer equipment are stated at cost and
depreciated using the straight-line method over the estimated useful lives of
the respective assets, which is 3 years.
Revenue recognition
-------------------
The Company's revenues are derived principally from the sale of banner and
sponsorship advertisements. Advertising revenues from both banner and
sponsorship contracts are recognized ratably over the period in which the
advertisement is displayed.
Cost of sales
-------------
Cost of sales consists of expenses associated with the production of the
Company's online media properties. These costs consist primarily of fees paid
for Web-site hosting and hardware maintenance along with the depreciation of
purchased software and computer equipment.
Product development expenses
----------------------------
Product development costs such as content development, editorial
management, and modifications to graphics are generally expensed as incurred,
except for certain costs relating to the acquisition or development of
internal-use software which are capitalized in accordance with Emerging Issues
Task Force ("EITF") No. 2000-02 "Accounting for Web Site Development Costs".
Foreign currency translation gain or (loss)
-------------------------------------------
Lightseek's functional currency is the British Pound. The accompanying
financial statements have been translated to United States dollars using a
year-end rate of exchange for assets and liabilities, and average rates of
exchange for revenues and expenses. Translation gains (losses) are included in
other comprehensive income and accumulated as a separate component of
stockholders' equity.
F-14
<PAGE>
VERTICALBUYER, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Note 2 - Summary of significant accounting policies (continued)
---------------------------------------------------------------
Income taxes
------------
Deferred income taxes are provided on a liability method whereby deferred
tax assets are established for the difference between the financial reporting
and income tax basis of assets. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Note 3 - Due to affiliate
-------------------------
At March 31, 2000, the Company owed an affiliated entity approximately
$49,000 for cash advances and certain software acquisitions paid on its behalf.
This affiliate payable is non-interest bearing.
Note 4 - Stockholders' equity
-----------------------------
On March 1, 2000, Verticalbuyer issued 750,000 shares of its common stock
as payment for certain fund raising related consulting services.
On March 2, 2000, VerticalBuyer entered into a Securities Purchase and
Facilities Agreement with CSP Inc., a U.S. publicly traded company ("CSPI"),
under which CSPI purchased two million shares of VerticalBuyer's common stock
and redeemable warrants to purchase up to an additional three million shares of
such stock for an aggregate purchase price of $2 million. The three classes of
warrants (Class A, Class B and Class C) entitle CSPI, subject to certain
conditions and the occurrence of certain events, to purchase up to one million
shares each of VerticalBuyer's common stock at an exercise price of $1 per
share. These warrants, along with 225,000 Class D warrants which were issued in
March 2000 and are also exercisable at $1 per share, are exercisable for a
period of two years beginning on the effective date of a registration statement
covering the underlying shares.
In connection with CSPI's acquisition of VerticalBuyer's common stock and
redeemable warrants, the Company incurred a fund raising fee of $140,000
representing 7% of the funds raised.
F-15
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Effective February 24, 2000, VerticalBuyer acquired all the outstanding
shares of Lightseek. The acquisition has been accounted for as a "reverse
takeover" by Lightseek, and characterized as a recapitalization of Lightseek for
accounting purposes.
The following Unaudited Pro Forma Consolidated Financial Information (the
"Pro Forma Financial Information") is based on the historical financial
statements of Lightseek Limited and has been prepared to illustrate the effects
of the Recapitalization. See "Recapitalization".
The Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1999
has been prepared as if the Recapitalization had occurred on that date. The
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1999 gives effect to the Recapitalization as if it also had
occurred as of December 31, 1999.
The Pro Forma Financial Information is not necessarily indicative of the
actual results of operations or financial position of the Company at and for the
year ended December 31, 1999 and does not purport to represent the Company's
results of operations for future periods or its future financial position.
The Pro Forma Financial Information should be read in conjunction with the
Historical Financial Statements of Lightseek Limited and notes thereto which are
included elsewhere in this Prospectus. In management's opinion, the Pro Forma
Financial Information includes all adjustments necessary to reflect the effects
of the Merger and other transactions described below.
F-16
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
VERTICALBUYER, INC.
UNAUDITED PRO-FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 1999
Lightseek Pro-Forma
Limited Adjustments Pro-Forma
--------- ------------ ---------
ASSETS
Current assets:
Cash and cash equivalents $ - $1,860,000 $1,860,000
Accounts receivable 1,565 - 1,565
Prepaid expenses 7,591 - 7,591
Total current assets 9,156 1,860,000 1,869,156
Property and equipment, net 38,653 - 38,653
$ 47,809 $1,860,000 $1,907,809
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 423 $ - $ 423
Accrued expenses 7,881 - 7,881
Due to affiliate 53,069 - 53,069
Deferred revenue 10,094 - 10,094
Total current liabilities 71,467 - 71,467
Stockholders' equity:
Common stock 1,615 15,385 (a) 17,000
Additional paid-in capital - 1,844,615 (a) 1,844,615
Retained earnings (25,273) - (25,273)
Total stockholders' equity (23,658) 1,860,000 1,836,342
--------- ---------- -----------
$ 47,809 $1,860,000 $1,907,809
========= ========== ==========
NOTES TO UNAUDITED PRO-FORMA CONSOLIDATED BALANCE SHEET
(a) Reflects the impact on cash and stockholders' equity of the following:
Additional
Common Paid-in
Stock Capital Total
-------- ----------- -----------
(i) the acquisition of Lightseek with the
exchange of 14,250,000 shares of
VerticalBuyer's common stock for all
of the common stock of Lightseek $12,635 $ (12,635) $ -
(ii) the issuance of VerticalBuyer's
common stock and warrants to
CSP Inc. ("CSPI") 2,000 1,998,000 2,000,000
(iii) the issuance of 750,000 shares of
VerticalBuyer's common stock in
payment of certain consulting fees
incurred in connection with raising
capital 750 (750) 0
(iv) to record fund raising fees payable
equal to 7% of the $2 million stock
acquisition by CSPI 0 (140,000) (140,000)
------- ----------- -----------
$15,385 $1,844,615 $1,860,000
F-17
<PAGE>
VERTICALBUYER, INC.
UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
Lightseek Pro-Forma
Limited Adjustments Pro-Forma
-------- ----------- ---------
Revenues $ 21,945 $ - $ 21,945
Cost of sales 22,025 - 22,025
--------- ------------- ---------
Gross profit (80) - (80)
Operating expenses 25,193 - 25,193
--------- ------------- ---------
Net (loss) $(25,273) $ - $(25,273)
========= ============= =========
F18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Delaware General Corporation Law provides for the indemnification of
the officers, directors and corporate employees and agents of VerticalBuyer,
Inc. (the "Registrant") under certain circumstances as follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of 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 of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstance of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him in connection therewith.
43
<PAGE>
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized in this section. Such
expenses including attorneys' fees incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
44
<PAGE>
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
Articles Ninth and Tenth of the Registrant's certificate of incorporation
provide as follows:
NINTH:
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the Delaware General Corporation Law, as the
same may be amended and supplemented.
TENTH:
The Corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the Delaware General Corporation Law, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Article XII of the Registrant's by-laws provides as follows:
ARTICLE XII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or
was a director, trustee, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, trustee,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation, and with
respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was lawful.
45
<PAGE>
2. DERIVATIVE ACTION. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in the corporation's favor by reason of the fact that such person
is or was a director, trustee, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of such person's duty
to the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that,
despite circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation.
3. SUCCESSFUL DEFENSE. To the extent that a director, trustee, officer,
employee or agent of the corporation has been successful, on the merits or
otherwise, in whole or in part, in defense of any action, suit or
proceeding referred to in paragraphs 1 and 2 above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
4. AUTHORIZATION. Any indemnification under paragraph 1 and 2 above (unless
ordered by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the
director, trustee, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of
conduct set forth in paragraph 1 and 2 above. Such determination shall be
made (a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, (b) by independent legal counsel (selected by one or more of
the directors, whether or not a quorum and whether or not disinterested) in
a written opinion, or (c) by the stockholders. Anyone making such a
determination under this paragraph 4 may determine that a person has met
the standards therein set forth as to some claims, issues or matters but
not as to others, and may reasonably prorate amounts to be paid as
indemnification.
5. ADVANCES. Expenses incurred in defending civil or criminal actions, suits
or proceedings shall be paid by the corporation, at any time or from time
to time in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in paragraph 4 above upon
receipt of an undertaking by or on behalf of the director, trustee,
officer, employee or agent to repay such amount unless it shall ultimately
be determined by the corporation that the payment of expenses is authorized
in this Section.
46
<PAGE>
6. NONEXCLUSIVITY. The indemnification provided in this Section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any law, by-law, agreement, vote of stockholders or
disinterested director or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee or agent and shall insure to the benefit of the
heirs, executors, and administrators of such a person.
7. INSURANCE. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, trustee,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or
agent of any corporation, partnership, joint venture, trust or other
enterprise, against any liability assessed against such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability.
8. "CORPORATION" DEFINED. For purpose of this action, references to the
"corporation" shall include, in addition to the corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had the power and authority to indemnify its
directors, trustees, officers, employees or agents, so that any person who
is or was a director, trustee, officer, employee or agent of such of
constituent corporation will be considered as if such person was a
director, trustee, officer, employee or agent of the corporation.
Item 25. Expenses of Issuance and Distribution
The other expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are estimated as
follows:
Securities and Exchange Commission Registration Fee $ 1,326.88
Legal Fees 20,000.00
Accounting Fees 10,000.00
Printing and Engraving 2,000.00
Blue Sky Qualification Fees and Expenses 950.00
Transfer Agent Fee 5,000.00
Miscellaneous 1,673.12
------------
TOTAL $ 40,000.00
Item 26. Recent Sales of Unregistered Securities
The Registrant purchased all the issued and outstanding capital stock of
Lightseek Limited from four individuals, including Tim Rosen, President, and
Leslie Kent, Secretary/Treasurer, having a book value as of December 31, 1999 of
$(23,658) in exchange for an aggregate of 14,250,000 shares of its common stock
in February, 2000, and issued 750,000 shares of its common stock in exchange for
consulting services valued at $75,000 . In March, 2000, the Registrant issued
2,000,000 shares of its common stock and 3,000,000 common stock purchase
warrants for $2,000,000 to CSP Inc. and 225,000 warrants to certain consultants.
The warrants are exercisable at $1.00. In March, 2000, the Registrant also
issued 1,300,000 bonus options to 10 persons, including, Tim Rosen, President,
Leslie Kent, Secretary/ Treasurer, Joseph Donahue, a Director and Alexander
Lupinetti, a Director (each of whom received 250,000 bonus options) pursuant to
its Year 2000 Option Plan. The options are exercisable at $1.00 for a period of
three years.
These securities were sold under the exemption from registration provided
by Section 4(2) of the Securities Act. Neither the Registrant nor any person
acting on its behalf offered or sold the securities by means of any form of
general solicitation or general advertising. All purchasers represented in
writing that they acquired the securities for their own accounts. A legend was
placed on the stock certificates stating that the securities have not been
registered under the Securities Act and cannot be sold or otherwise transferred
without an effective registration or an exemption therefrom.
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EXHIBITS
Item 27.
3.1 Certificate of Incorporation(1)
3.2 Amendment to the Certificate of Incorporation(1)
3.3 By-Laws(1)
4.1 Specimen Certificate of Common Stock(1)
4.2 Form of "A" Warrant(1)
4.3 Form of "B" Warrant(1)
4.4 Form of "C" Warrant(1)
4.5 Form of "D" Warrant(1)
5.1 Opinion of Counsel(1)
5.1 Revised Opinion of Counsel
10.1 Securities Purchase and Facilities Agreement(1)
10.2 Registration Rights Agreement(1)
10.3 Voting Agreement(1)
10.4 Letter accompanying CSPI's distribution of shares to its stockholders(2)
23.1 Accountant's Consent to Use Opinion(1)
23.2 Counsel's Consent to Use Opinion(1)
23.3 Accountant's Consent to Use Opinion
23.4 Counsel's Consent to Use Opinion
-------------------------------------
1. Previously submitted with registration statement on Form SB-2 on April 5,
2000
2. To be submitted by amendment.
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Item 28.
UNDERTAKINGS
The Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendment to this registration statement (the "Registration
Statement"):
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933 (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;
(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 this registration
statement, including (but not limited to) the addition of an
underwriter;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be treated as a new
registration statement of the securities offered, and the offering of the
securities at that time 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 deposit into the Escrow Account at the closing, certificates in such
denominations and registered in such names as required by the Company to
permit prompt delivery to each purchaser upon release of such securities
from the Escrow Account in accordance with Rule 419 of Regulation C under
the Securities Act. Pursuant to Rule 419, these certificates shall be
deposited into an escrow account, not to be released until a business
combination is consummated.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any provisions contained in its Certificate of
Incorporation, or by-laws, or otherwise, the Registrant has been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by 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
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this first amendment
to the registration statement to be signed on its behalf by the undersigned, in
the Kingston-Upon-Thames, United Kingdom on June 12, 2000.
VERTICALBUYER, INC.
By: /s/Tim Rosen
---------------------------
Tim Rosen, President and
Chief Executive Officer
/s/Leslie Kent
---------------------------
Leslie Kent, Treasurer and
Chief Financial Officer
In accordance with the requirements of the Securities Act of 1933, the
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/Tim Rosen
------------------------------- Dated: June 12, 2000
Tim Rosen
President, Treasurer, Director
/s/Leslie Kent
------------------------------- Dated: June 12, 2000
Leslie Kent
Secretary, Director
/s/Joseph Donahue
------------------------------- Dated: June 12, 2000
Joseph Donahue
Director
/s/Alexander Lupinetti
------------------------------- Dated: June 12, 2000
Alexander Lupinetti
Director
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