<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SOLUTIONSAMERICA, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 7394 62-1787638
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION
CLASSIFICATION NUMBER)
INCORPORATION OR ORGANIZATION) CODE NUMBER)
</TABLE>
SOLUTIONSAMERICA, INC.
600 CORPORATE POINTE, 12TH FLOOR
CULVER CITY, CALIFORNIA 90230
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
FLOYD W. KEPHART
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SOLUTIONSAMERICA, INC.
600 CORPORATE POINTE, 12TH FLOOR
CULVER CITY, CALIFORNIA 90230
(310) 665-7600
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO:
PAULA J. PETERS, ESQ.
MICHAEL V. BALES, ESQ.
GREENBERG GLUSKER FIELDS CLAMAN & MACHTINGER LLP
1900 AVENUE OF THE STARS, SUITE 2100
LOS ANGELES, CALIFORNIA 90067-4590
(310) 553-3610
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the registration statement becomes effective.
If any of the shares being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If this Form is filed to register additional shares 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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PROPOSED MAXIMUM AMOUNT OF
OF SHARES TO BE REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE REGISTRATION FEE(1)
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Common Stock, .0001 Par
Value....................... 3,930,000 $5.00 $19,650,000 $5,188
Common Stock, Underlying
Warrants and Options(2)..... 1,611,775 $5.00 8,058,875 2,127
Common Stock, Underlying
Investment Agreement(3)..... 11,000,000 $5.00 33,000,000 8,712
Common Stock Underlying Swartz
Warrant..................... 600,000 $1.00 600,000 159
Total Registration and
Fee................. 17,141,775 $61,308,875 16,186
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(1) No exchange or over-the-counter market exists for the common stock of
SolutionsAmerica, Inc. Estimated at $5.00 per share, the price at which it
is proposed to offer the shares. Estimated solely for the purpose of
calculating the amount of the registration fee pursuant to Rule 457 under
the Securities Act of 1933.
(2) Pursuant to Rule 416 under the Securities Act, such additional number of
shares of common stock subject to the Warrants and Options are also being
registered to cover any adjustment resulting from the operation of the
anti-dilution provisions relating to the Warrants. The indeterminate number
of additional shares shall be issuable pursuant to Rule 416 to prevent
dilution resulting from stock splits, stock dividends or similar
transactions.
(3) Includes 1,000,000 shares underlying warrants to be issued to Swartz on
exercise of our put options under the investment agreement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SHARES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SHARES UNTIL
THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SHARES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SHARES IN ANY
STATE IN WHICH THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 2000
PROSPECTUS
17,141,775 SHARES OF COMMON STOCK
SOLUTIONSAMERICA, INC.
This is the initial public offering of common stock of SolutionsAmerica,
Inc., and no public market currently exists for shares of our common stock.
There is no minimum number of shares to be sold and there is no assurance that a
public market will develop.
These shares will initially be offered at a price of $5.00 per share.
We intend to file an application to list our shares on the Nasdaq SmallCap
Market.
Of the shares of common stock being offered, SolutionsAmerica is offering
2,000,000 shares and the selling stockholders identified on pages 38 and 39 are
offering 3,541,775 shares, including 1,611,775 shares underlying warrants and
options held by the selling stockholders. We will not receive any proceeds from
the sale of the shares by the selling stockholders. However, we will receive the
proceeds of the shares sold by us and proceeds of $1.00 per share upon the
exercise of the warrants and options for shares sold by the selling
stockholders.
The remaining 11,600,000 shares may be issued pursuant to an investment
agreement by and between Swartz Private Equity, LLC ("Swartz") and us as further
described in this prospectus. We will receive the sale price of any common stock
up to a maximum of 10,000,000 shares that we sell pursuant to the investment
agreement and the exercise price of the 600,000 warrants Swartz now owns and up
to 1,000,000 additional warrants that may be granted. Swartz may resell those
shares pursuant to this prospectus.
SolutionsAmerica, the selling stockholders and have entered
into a selling agreement pursuant to which will coordinate the
offering on a best efforts basis of the 2,000,000 shares we are offering and the
3,541,775 shares the selling stockholders are offering. The selling agreement
provides that all shares sold will be sold by us and by each of the selling
stockholders in proportion to the total number of shares offered by each of us.
We have agreed that the minimum offering price will be $5.00 per share. We
expect to pay commissions of % of the offering price to and other
brokers that participate in the offering. The selling stockholders and any
participating brokers may be deemed to be "underwriters" as defined in the
Securities Act of 1933.
In order for us to sell any of the shares subject to the investment
agreement, there must be a public market for the shares. Swartz is an
"underwriter" within the meaning of Section 2(11) of the Securities Act of 1933
in connection with its sale. We will indemnify Swartz and the selling
stockholders against certain liabilities, including certain liabilities under
the Securities Act of 1933.
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INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE "RISKS OF INVESTING IN OUR SHARES" SECTION BEGINNING ON
PAGE 5 OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SHARES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is , 2000.
<PAGE> 3
You should rely on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is legal
to sell these shares. The information in this document may be accurate only on
the date of this document.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risks of Investing in Our Shares............................ 5
Special Note Regarding Forward-Looking Statements........... 12
Use of Proceeds............................................. 12
Dividend Policy............................................. 12
Dilution.................................................... 13
Capitalization.............................................. 14
Management's Discussion and Analysis or Plan of
Operations................................................ 15
Business.................................................... 19
Management.................................................. 33
Principal and Selling Stockholders.......................... 38
Certain Relationships and Related Party Transactions........ 41
Investment Agreement........................................ 41
Common Stock................................................ 45
Shares Eligible For Future Sale............................. 45
Transfer Agent and Registrar................................ 46
Reports to Security-Holders................................. 46
Legal Matters............................................... 46
Experts..................................................... 46
Where You Can Find More Information......................... 47
</TABLE>
Until , 2001 (90 days after the date of this prospectus), all
dealers that buy, sell or trade these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
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PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO
YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISKS OF
INVESTING IN OUR SHARES" SECTION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO BEFORE MAKING AN INVESTMENT DECISION.
ABOUT SOLUTIONSAMERICA, INC.
We provide businesses with the technological infrastructure necessary to
process business-to-business (B2B) and business-to-consumer (B2C) transactions
over the Internet. We are currently in the development stage, but plan to be
fully operational by December 31, 2000.
Our digital business transaction processing (DBTP) infrastructure includes
functionality for payment transaction processing, fraud prevention and risk
analysis, distribution controls, fulfillment management, and digital document
archiving. We support our digital business clients with an array of value-added
services including web-design, database development, information systems
implementation, marketing services and financial services. We provide "portals"
for B2B e-commerce businesses around the world, with an initial focus on
businesses in the entertainment, healthcare, utilities, publishing, professional
services, collectibles and retail industries, and for political and charitable
organizations.
Businesses increasingly are establishing online presences to take advantage
of the rapid growth and benefits of e-commerce. To conduct commerce online,
however, businesses must be able to efficiently, effectively and securely
process business transactions in a digital world.
Our technological infrastructure and support services address this need by
enabling businesses to conduct and complete online transactions, including
producing online transaction documentation and obtaining financing and payment
to complete transactions.
By outsourcing their e-commerce "backroom" to us, online companies can
speed their time to market, reduce their overall operating costs, improve cash
flow and process orders from any customer. Our DBTP service is comprehensive,
scalable to meet increases in the number of transactions, highly reliable and
performed via a secure protocol or transmission format.
Our primary focus initially is on the B2B and B2C transactions of small to
medium-sized businesses. Additionally, OneStop.com, our B2B e-commerce center
and transactional portal will aggregate businesses that want to transact
business with one another and will provide them with the digital business
transaction processing capability to enter into online contracts for the
purchase of goods and services and to finance and pay for such transactions.
Our objective is to be the premier provider of real-time e-commerce payment
solutions and the premier service for integrated, web-enabled digital business
transaction processing. Key elements of our strategy include deploying our DBTP
infrastructure, launching our B2B e-commerce center, utilizing strategic
partnerships to drive transaction volume and create new markets, and expanding
the availability and brand recognition of our digital business transaction
processing service throughout the world, initially focusing on the Caribbean and
Western Europe.
Our economic model is based on the management and execution of e-commerce
business transactions and the provision of other value-added services. We will
utilize a per transaction fee for service model based upon receiving either a
percentage of the gross amount of the transaction or a flat fee for the
transaction being processed, depending on the type of transaction, and we will
enter into revenue sharing arrangements with strategic partners. Fee
arrangements for specific professional services may be computed on a project
basis, a monthly fee basis, a per transaction basis or on a combined basis. Our
economic model is built to generate revenue from every client, every time a
transaction occurs or every time a service is provided.
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Target customers for our e-commerce transaction processing services include
Internet-centric businesses, established retailers that have opened online
stores to supplement their traditional retail models and merchant aggregators
that host websites for other merchants. Our target market also includes
subscription based services as well as large institutions that are moving to
accept recurring payments over the worldwide web.
We intend to target businesses through a direct sales force, indirect sales
channels and alliance marketing that leverages existing sales and marketing
infrastructures developed by us and our alliance partners.
We intend to grow our B2B business by penetrating specific vertical
industries, initially focusing on the entertainment, healthcare, utilities,
publishing, professional services, collectibles and retail industries, and
political and charitable organizations. The Company is developing a marketing
plan for each vertical industry.
CORPORATE INFORMATION
We were incorporated in Delaware in July 1999. Our principal executive
offices are located at 600 Corporate Pointe, 12th Floor, Culver City, California
90230. Our telephone number is (310) 665-7600. Our worldwide website is located
at http://www.solutionsamerica.com. We are providing an inactive textual
reference only to our website because it does not constitute part of this
prospectus. SolutionsAmerica, OneStop and the SolutionsAmerica and OneStop logos
are our trademarks. Each other trademark or service mark of any other company
appearing in this prospectus is the property of its holder.
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THE OFFERING
COMMON STOCK OFFERED BY
SOLUTIONSAMERICA........... 2,000,000 shares
COMMON STOCK OFFERED BY THE
SELLING STOCKHOLDERS....... 3,541,775 shares
COMMON STOCK TO BE
OUTSTANDING AFTER THE
OFFERING................... 13,751,445 shares
ESTIMATED MAXIMUM NET
PROCEEDS TO
SOLUTIONSAMERICA........... $10,500,000
USE OF PROCEEDS............ We expect to use the net proceeds of this offering
principally for repayment of short-term debt and
operational needs, expansion of our marketing and
sales capabilities, the purchase of capital
equipment, mergers and acquisitions and working
capital and general corporate needs.
DIVIDEND POLICY............ We currently intend to retain any future earnings
to fund development and growth of our business.
Therefore, we do not anticipate paying dividends on
our common stock in foreseeable future.
PROPOSED NASDAQ SMALLCAP
MARKET SYMBOL.............. "SAMI"
PROPOSED BOSTON STOCK
EXCHANGE SYMBOL............ "SAMI"
INTERNET WEBSITE ADDRESS... www.solutionsamerica.com
The number of shares of common stock to be outstanding after the offering
is based on 10,139,670 shares outstanding as of August 31, 2000, and assumes the
exercise of the warrants and options for the shares included in this offering,
but does not include any other option or warrant shares and does not include any
shares subject to the Swartz equity line.
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SELECTED FINANCIAL DATA
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PRO FORMA
ACTUAL (UNAUDITED)
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FROM JULY 16, 1999 (INCEPTION)
TO MAY 31, 2000
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STATEMENT OF OPERATIONS DATA
Revenues.................................................... 529,494 529,494
Net Loss.................................................... (1,093,289) (1,093,289)
Net Loss per Common Share(2)................................ (0.13) (0.13)
Weighted Average Shares of Common Stock Outstanding During
the Period(2)............................................. 8,371,074 8,371,074
Shares of Common Stock Outstanding at the End of the
Period.................................................... 8,559,670 9,559,670
BALANCE SHEET DATA AS OF MAY 31, 2000
-------------------------------
Total Equity (Deficit)...................................... (1,063,966) 2,058,124
Total Assets................................................ 225,259 3,347,349
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(1) Pro forma numbers reflect acquisition of the shares of OneStop.com, Inc. in
a transaction accounted for as a purchase assuming the transaction took
place May 31, 2000.
(2) Weighted average share figures are adjusted to reflect a 4.116233 to 1 stock
split that took place in June 2000.
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RISKS OF INVESTING IN OUR SHARES
Investing in our common stock involves substantial risks. You should
carefully consider the risks and uncertainties described below before making an
investment decision. These risks and uncertainties are material risks and
uncertainties which may adversely affect our business. We have included every
material risk and uncertainty of which we are aware. If any of the following
risks or uncertainties actually occur, our business, financial condition or
results of operations may be materially adversely affected. In this event, the
trading price of our common stock may decline, and you may lose all or part of
your investment. This prospectus also contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ from those
described in the forward-looking statements. This may occur because of the risks
described below.
WE ARE A DEVELOPMENT STAGE COMPANY WITH NO OPERATING HISTORY.
We were founded in July 1999 and have not yet operated at a profit. Our
limited operating history offers little information to serve as a basis for
evaluating us and our long-term prospects. You should consider our prospects in
light of the risks, expenses and difficulties that companies in their earlier
stage of development encounter, particularly companies in new and rapidly
evolving markets. Our success depends upon our ability to address those risks
successfully, which include, among other things:
- Whether we will be able to assemble and maintain the necessary resources,
including financial resources, that we will need to develop, integrate,
deploy and continually upgrade our digital business processing system and
technology to meet evolving market demands;
- Whether we can continue to build and maintain a strong management team
that can develop and execute our business strategy, and respond
effectively to changes in the markets for our services and digital
business transaction processing system;
- Whether we can respond quickly and effectively to technological changes
and competitive forces in our markets;
- Whether we will be successful in implementing our sales and marketing
strategy; and
- Whether we will be able to develop and manage strategic relationships to
maximize acceptance of our services and system.
If we do not succeed in addressing these risks, our business likely will be
materially and adversely affected.
WE NEED TO RAISE ADDITIONAL CAPITAL IN THE NEAR FUTURE WHICH MAY NOT BE
AVAILABLE ON ACCEPTABLE TERMS, OR AT ALL.
We need to raise additional funds in the near future to fund our
operations, to finance the investments in equipment and corporate infrastructure
that we will need for the continuing development and deployment of our DBPT
system, to launch our e-commerce center, for expansion, to enhance and expand
the range of services we offer or to respond to competitive pressures or
perceived opportunities, such as investment, acquisition and expansion
activities. Additional financing may not be available on terms favorable to us,
or at all. Moreover, we may only be able to obtain adequate funds in the future
by offering shares with rights senior to or more favorable than the shares
offered in this offering. If adequate funds are not available when required or
adequate funds are not available on acceptable terms, we may be unable to take
advantage of opportunities, or perhaps remain viable. There are significant
contractual limitations in the Swartz investment agreement which, with certain
exceptions, prohibit us from raising money in private transactions without
Swartz's consent. Moreover, there is no assurance that sufficient trading volume
in our common stock will occur for us to access the Swartz equity line.
5
<PAGE> 9
NO MARKET CURRENTLY EXISTS FOR OUR SHARES, AND NONE MAY DEVELOP FOLLOWING THIS
OFFERING. NO PRIOR MARKET EXISTS FOR THE SHARES BEING OFFERED IN THIS
PROSPECTUS. WE MAY BE UNABLE TO LIST OUR SHARES ON NASDAQ. NASDAQ HAS CERTAIN
MARKET ELIGIBILITY AND MAINTENANCE REQUIREMENTS FOR INCLUSION ON THE NASDAQ
SMALLCAP MARKET, WHICH WE MAY NOT BE ABLE TO MEET WITH THE CONSEQUENCE THAT THE
COMMON STOCK MAY BE TRADED ONLY OVER-THE-COUNTER OR ON THE BULLETIN BOARD, AND
BROKERS MAY BE REQUIRED TO COMPLY WITH "PENNY STOCK" TRADING RESTRICTIONS.
Under the current rules relating to the listing of shares on the Nasdaq
SmallCap Market, we must have:
- at least $4 million in net tangible assets, or $750,000 in net income in
two of the last three years, or a market capitalization of at least $50
million;
- public float of at least 1,000,000 shares;
- market value of public float of at least $5 million; and
- a minimum bid price of $4.00 per share, among other requirements.
For a continued listing, a company must maintain:
- at least $2 million in net tangible assets, or $500,000 in net income in
two of the last three years, or a market capitalization of at least $35
million;
- public float of at least 500,000 shares;
- market value of public float of at least $1 million; and
- a minimum bid price of $1.00 per share among other requirements.
Our common stock will not initially be eligible for listing on the Nasdaq
SmallCap Market. Accordingly, trading, if any, in the shares will be conducted
in the over-the-counter market on an electronic bulletin board established for
shares that do not meet the Nasdaq SmallCap Market listing requirements or in
what are commonly referred to as the "pink sheets." As a result, an investor may
find it more difficult to dispose of or to obtain accurate quotations as to the
price of our shares.
SHOULD WE FAIL TO OBTAIN NASDAQ SMALLCAP MARKET ELIGIBILITY AND THE COMMON STOCK
IS TRADED ONLY IN THE OVER-THE-COUNTER MARKET OR BULLETIN BOARD, LIQUIDITY IN
THE COMMON STOCK MAY BE SEVERELY LIMITED.
Stocks in the over-the-counter, bulletin board or "pink sheet" market
ordinarily have much lower trading volume than in the Nasdaq SmallCap Market.
Very few market makers take interest in shares traded over-the-counter, and
accordingly the markets for such shares are less orderly than is usual for
Nasdaq SmallCap Market stocks. As a result of the low trading volumes ordinarily
obtained in over-the-counter markets, sales of common stock in any significant
amount could not be absorbed without a dramatic reduction in price. Moreover,
thinly traded shares in the over-the-counter markets are more susceptible to
trading manipulations than is ordinarily the case for more actively traded
shares.
WE ARE REQUIRED TO KEEP OUR PROSPECTUS CURRENT, AND ANY FAILURE BY US TO DO SO
MAY LIMIT YOUR ABILITY TO TRADE OUR SHARES.
Although we intend to maintain a current registration statement, there can
be no assurance that we will be successful in maintaining a current registration
statement.
After our registration statement becomes effective, we will be required to
file a post-effective amendment, if facts or events occur which represent a
material change in the information contained in the registration statement.
We intend to qualify the sale of the shares sold by us and selling
stockholders in a limited number of states. Qualification for the sale of the
shares in the states is essential for the establishment of a trading market in
the shares. We can provide no assurances that we will be able to qualify our
shares in any state.
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OUR REVENUES AND PROFITABILITY DEPEND UPON MARKET ACCEPTANCE OF OUR SYSTEM AND
SERVICES AND CORPORATE PARTICIPATION IN THE VIRTUAL MARKETPLACE IN GENERAL.
The market for our digital business transaction processing system and
services is still immature and is evolving rapidly. The growth of our business
principally depends upon market acceptance of our system and services, in
particular by financial institutions with whom we will set up merchant accounts
and other mechanisms for accepting digital financing instruments for our
clients, and corporate decision makers creating or participating in a virtual
marketplace for purchasing goods or services and conducting other business
transactions. Acceptance of our system and services by clients with large
transaction volume is critical to our success because a large portion of our
revenue will be derived from recurring fees charged to those clients using our
system and services. The slow acceptance of our system or services, or
businesses' reluctance to participate in the virtual marketplace, would have a
material adverse effect on our business.
WE FACE INTENSE COMPETITION.
The digital business transaction processing industry is new and evolving
rapidly, resulting in a dynamic, competitive environment. An increasing number
of market entrants have introduced or are developing competing systems and
services to enable digital business transaction processing over the Internet,
including payment transactions. We expect competition to persist, intensify and
increase in the future. Many of our current and potential competitors have
longer operating histories, greater name recognition, larger installed client
bases and significantly greater financial, technical and marketing resources
than us.
We expect that competition in our markets may force us to compete on price
for some of our services. Unless we can increase the number of our clients or
the volume of their transactions or reduce our costs, any such price reductions
would have an adverse effect on our profitability.
WE RELY SUBSTANTIALLY ON TECHNOLOGY LICENSES.
We rely on certain significant technology which we license from third
parties, including software which is integrated with internally developed
software and used in our system to perform key functions. We cannot assure you
that third party technology licenses will continue to be available to us on
commercially reasonable terms or at all. Additionally, we cannot assure you that
we will be provided with the necessary third party software upgrades in a timely
fashion. The loss of or inability to maintain any of these technology licenses
or the failure of such licensed software to function without upgrades and
maintenance could result in the failure of our services or delays in
introduction of new services, which could have a material adverse effect on our
business, financial condition or operating results.
EVOLVING CREDIT CARD ASSOCIATION RULES AND REGULATIONS MAY CHANGE AND HARM OUR
BUSINESS.
Our operations will be subject to rules and regulations promulgated by the
credit card associations (including, Visa, MasterCard and American Express)
which may affect the pricing, availability and convenience of our services and
the functionality of our system. We have no control over the adoption of such
rules and regulations and we must comply with them to continue operations under
our current business model. Our compliance with any new rules or regulations
could be costly and have a material adverse effect on our business, financial
condition and operating results.
WE DEPEND UPON OUR KEY PERSONNEL AND MAY EXPERIENCE DIFFICULTY ATTRACTING AND
RETAINING KEY EMPLOYEES.
Our success depends on the continued service of our key management
personnel, including Floyd Kephart, Gary Horowitz, Jeffrey Kilbride and Steven
Tandberg. Currently, Messrs. Kephart, Horowitz, Kilbride and Tandberg have
entered into written employment agreements with us. At this time, we do not
carry life insurance policies on any of our key management personnel. The loss
of services from one or more of these persons would have a material adverse
effect on our business, operations and financial results. Our success also
depends on our ability to attract, motivate and retain highly-skilled
managerial, sales, marketing, customer service and support and technology
development personnel. Competition for
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such personnel in our business is intense. Any significant success which we
achieve as an Internet based e-commerce business will only enhance the
reputation of and alternatives available to our key personnel in that segment of
our business. Currently, e-commerce personnel are in very high demand, and
receive frequent offers of alternative employment, with salaries, stock options
and other benefits, which we may not be able to match. We may not be able to
retain our key employees or attract, motivate and retain additional key
employees in the future. Our failure to retain these key employees, or failure
to attract new technically proficient managers as our needs arise would entail
significant additional employment costs, and management personnel changes may
result in management strategy shifts which may diminish our ability to achieve
profitability.
AFTER THIS OFFERING, OUR EXECUTIVE OFFICERS, DIRECTORS AND 5% OR GREATER
STOCKHOLDERS WILL STILL CONTROL ALL MATTERS REQUIRING A STOCKHOLDER VOTE.
Currently, our existing officers, directors and 5% or greater stockholders
(and their affiliates) in the aggregate, beneficially own approximately 86.8% of
our outstanding common stock. Upon consummation of this offering, this group
will continue to own approximately 60.1% of our outstanding common stock. As a
result, such persons, acting together, will have the ability to control the vote
on all matters requiring approval of our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership among a small number of our stockholders may have the effect of
delaying, deferring or preventing a change in control.
WE MAY EXPERIENCE SOFTWARE DEFECTS AND DEVELOPMENT DELAYS, DAMAGING CLIENT
RELATIONS.
Services based on the integration of sophisticated software and computing
systems often encounter development delays, and the underlying software,
including software developed by us and software licensed from third parties
which we have integrated into our system may contain undetected errors or
failures when introduced or when the volume of services provided increases. We
may experience delays in the development of our system and the integration and
customization of the third party software that we license. In addition, despite
testing by us and potential clients, it is possible that the software we utilize
in our system may nevertheless contain errors, and this could have a material
adverse effect on our business.
WE MAY EXPERIENCE BREAKDOWNS IN OUR DIGITAL BUSINESS TRANSACTION PROCESSING
SYSTEM, HARMING OUR BUSINESS.
The operations for our digital business transaction processing services
depend on whether we are able to protect our system from interruption by events
that are beyond our control. Events unrelated to the functioning of our
technology infrastructure that could cause system interruptions include: fire,
natural disasters, power loss, telecommunications failure, unauthorized entry or
other events, and failure of banks and other financial institutions to provide
financial services.
We currently have a backup system in place that provides backup support for
our services, and additional backup systems are currently in development. Once
operational, we may experience growing transaction volumes that may from time to
time stress the capacity of our system. There is a possibility that our existing
system may be inadequate and cause serious failures of our service. Finally,
although we intend to regularly back up data from operations, and take other
measures to protect against loss of data, there is still some risk of such
losses. A system outage or data loss could materially and adversely affect our
business. Despite the security measures we maintain, our infrastructure may be
vulnerable to computer viruses, hackers, rogue employees or similar sources of
disruption.
Events related to the functioning of our technology infrastructure that
could cause system interruption include: damage to or disruption of hosting
communications, and damage to or disruption of service from third party servers.
Any damage or failure that causes interruptions in our operations could
have a material adverse effect on our business. Any problem of this nature could
result in significant liability to clients or financial institutions and also
may deter potential clients from using our services. We currently do not
maintain
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insurance to limit this sort of liability though we are currently exploring
purchasing such insurance. However, we cannot assure you that any insurance
coverage we did obtain would be adequate to cover any liabilities we did
sustain.
WE RELY ON THE INTERNET INFRASTRUCTURE PROVIDED BY OTHERS TO OPERATE OUR
BUSINESS.
Our success depends in large part on other companies maintaining the
Internet infrastructure. In particular, we rely on other companies to maintain a
reliable network backbone that provides adequate speed, data capacity and
security and to develop products that enable reliable Internet access and
service. If the Internet continues to experience significant growth in the
number of users, frequency of use and amount of data transmitted, the Internet
infrastructure of thousands of computers communicating over telephone lines,
coaxial cable and other telecommunications systems may be unable to support the
demands placed on it, and the Internet's performance or reliability may suffer
as a result of this continued growth. If the performance or reliability of the
Internet suffers, Internet users could have difficulty obtaining access to the
Internet. In addition, data transmitted over the Internet, including information
and graphics contained on web pages, could reach Internet users much more
slowly. This could result in frustration of Internet users, which could decrease
online traffic and cause businesses and merchants to process these transactions
off-line.
SECURITY AND DISRUPTION PROBLEMS WITH THE INTERNET OR TRANSACTING BUSINESS OVER
THE INTERNET MAY INHIBIT THE GROWTH OF OUR BUSINESS.
The secure transmission of confidential information over the Internet is
essential to maintaining client confidence in our digital business transaction
processing service. Customers generally are concerned with security and privacy
on the Internet and any publicized security problems could inhibit the growth of
the Internet. Substantial security breaches on our system could significantly
harm our business. A party that is able to circumvent our security systems could
misappropriate proprietary information or cause interruptions in our operations.
We incur substantial expenses to protect against and remedy security breaches
and their consequences. Despite the implementation of security measures, our
networks may be vulnerable to unauthorized and illegal access, computer viruses
and other disruptive problems. Eliminating computer viruses and alleviating
other security problems may require interruptions, delays or cessation of
service to users accessing our solution.
Internet service providers have in the past experienced, and may in the
future experience, interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
We may be required to expend significant capital or other resources to protect
against the threat of security breaches or to alleviate problems caused by these
breaches. Although we intend to continue to implement industry-standard security
measures, we cannot be certain that measures implemented by us will not be
circumvented in the future.
If we experience a security breach that results in the misappropriation of
proprietary information maintained in our systems or if we experience
interruptions in our service, our reputation and brand names may be damaged and
we may be exposed to a risk of loss or litigation and possible liability. Damage
to our reputation and brand names could cause us to lose clients and negatively
affect our business, results of operations and financial condition. Our
insurance policies may not be adequate to reimburse us for losses caused by
security breaches or service disruption.
WE EXPECT OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE.
We anticipate that our quarterly operating results will vary significantly
as a result of a variety of factors, many of which are outside our control:
- Changes in the number of transactions effected by our clients, especially
as the result of seasonality, success of each client's business, general
economic conditions or regulatory requirements restricting our clients;
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<PAGE> 13
- Our ability to attract new clients and to retain our existing clients;
- Client acceptance of our pricing model; and
- Our success in expanding our sales and marketing programs.
In addition to these factors, as a strategic response to changes in the
competitive environment, we may from time to time make pricing decisions,
marketing decisions, licensing decisions or business combinations that adversely
affect our revenues or increase our costs. Extraordinary events such as material
litigation or acquisitions also could result in fluctuations in our operating
results from one reporting period to the next.
For these reasons, period-to-period comparisons of our results of
operations are not and will not be necessarily a reliable indication of future
performance.
WE WILL BE SUBJECT TO EVOLVING GOVERNMENT LEGISLATION AND REGULATIONS, WHICH MAY
CHANGE AND HARM OUR BUSINESS.
Our operations will be subject to continually evolving state and federal
laws and regulations affecting Internet commerce, including data collection and
online privacy regulations, and business to business transactional regulations.
Because electronic commerce in general, and most of our service in particular,
are so new, it is difficult to anticipate the extent to which these regulations
will affect our business. Any new regulations or change in regulations could
lead to increased operating costs and could also reduce the convenience and
functionality of our services or system, possibly resulting in reduced market
acceptance. The adoption of such laws or regulations may decrease the growth of
the Internet, which could in turn decrease the demand for our services and
systems and increase our cost of doing business or could otherwise have a
material adverse effect on our business, financial condition or operating
results.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, INCLUDING OUR TRADE SECRETS
AND PROPRIETARY SOFTWARE AND BUSINESS PROCESSES.
Our success and ability to compete is dependent in part upon our
proprietary technology which includes certain proprietary anti-fraud software
and business processes relating to the integration of third party software into
our system. We rely primarily on copyright, trade secret and trademark law to
protect our technology. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our services or system without
authorization, or to develop similar services or technology independently.
Policing unauthorized use of our services and systems is difficult, particularly
in the global environment in which we expect to operate, and the laws of other
countries may afford us little or no effective protection of our intellectual
property. We cannot assure you that the steps that we have taken will prevent
others from misappropriating our system and technology.
We may engage in litigation related to our intellectual property for a
number of reasons, including to enforce our intellectual property rights,
protect our trade secrets, determine the validity and scope of the proprietary
rights of others, or defend against claims of infringement or invalidity. This
litigation, whether successful or unsuccessful, could result in substantial
costs and diversion of resources, either of which could have a material adverse
effect on our business, financial condition or operating results.
OUR SYSTEMS AND SERVICES MAY INFRINGE CLAIMS OF THIRD-PARTY PATENTS, WHICH COULD
ADVERSELY AFFECT OUR BUSINESS AND PROFITABILITY.
We are aware of various patents held by independent third parties in the
area of digital business transaction processing systems. It is possible that the
holders of rights under these patents could assert them against us. We cannot
assure you that our services and system are not within the scope of patents held
by others, either now or in the future. If any such claims are asserted, we may
seek to obtain a license under a third party's intellectual property rights.
There can be no assurance that such a license would be available on reasonable
terms or at all. We may also decide to defend against a claim of
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<PAGE> 14
infringement, but litigation, even if successful, is costly and may have a
material adverse effect on us regardless of the eventual outcome.
THE OFFERING PRICE FOR OUR SHARES DOES NOT NECESSARILY BEAR ANY RELATIONSHIP TO
OUR ASSETS, BOOK VALUE, EARNINGS OR OTHER ESTABLISHED CRITERIA OF VALUE.
There has been no prior public market for our shares. The minimum price to
the public of the shares offered hereby has been determined by the selling
stockholders and us. Among factors considered in determining the offering prices
were the history of, and the prospects for, our business, an assessment of our
management, our past and present operations, our development and the general
condition of the securities market at the time of this offering, but the primary
factor was the desire to meet the conditions of the investment agreement to
access additional capital. The offering price for the shares does not
necessarily bear any relationship to our assets, earnings, book value or any
other recognized criteria of value. The minimum offering price of $5.00 per
share is substantially in excess of our pro forma net tangible book value of
$.20 per share, and in excess of the price received by us for shares sold in
prior recent securities transactions.
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
Investors participating in the initial public offering will incur an
immediate, substantial dilution of $4.05 in the net tangible book value per
shares of the common stock from the minimum offering price of $5.00 per share.
Furthermore, to the extent that we issue additional shares of our common stock
pursuant to acquisitions or our strategic relationships, or issue options or
warrants to purchase our common stock, these options, when exercised, will
result in further dilution. For more information, see "Dilution."
WE DO NOT ANTICIPATE PAYMENT OF DIVIDENDS, AND INVESTORS WILL BE WHOLLY
DEPENDENT UPON THE MARKET FOR THE COMMON STOCK TO REALIZE ECONOMIC BENEFIT FROM
THEIR INVESTMENT.
As holders of our shares, you will only be entitled to receive those
dividends that are declared by our board of directors out of surplus. We do not
expect to have surplus available for declaration of dividends in the foreseeable
future. Indeed, there is no assurance that such a surplus will ever materialize
to permit payment of dividends to you as holders of the shares. The board of
directors will determine future dividend policy based upon our results of
operations, financial condition, capital requirements, reserve needs and other
circumstances.
WE MAY BE UNABLE TO SUCCESSFULLY ACQUIRE NEW BUSINESSES NEEDED TO EFFECTIVELY
COMPETE, OR TO MAKE THESE BUSINESSES PERFORM ONCE ACQUIRED.
As our business evolves, we may acquire complementary products,
technologies, and businesses. Any significant acquisition would entail a risk
that we would not be successful in integrating and operating the acquired
business, product or technology. A failure to do so could have a material
adverse effect on us.
BECAUSE OUR OFFICERS AND DIRECTORS ARE PROTECTED BY LIMITATION OF THEIR
LIABILITY TO US AND TO YOU, AND BY THEIR INDEMNIFICATION, UNDER OUR CERTIFICATE
OF INCORPORATION AND BYLAWS, THEY ARE NOT LIABLE TO YOU FOR LOSSES AND
LIABILITIES RESULTING FROM THEIR MANAGERIAL ACTS.
Our officers and directors are required to exercise good faith and high
integrity in the management of our affairs. The certificate of incorporation and
bylaws provide, however, that the officers and directors have no liability to
the shareholders for losses sustained or liabilities incurred arising from any
transactions entered into in their managerial capacities, unless they violate
their duty of loyalty, do not act in good faith, engage in intentional
misconduct, engage in a knowing violation of the law, approve an improper
dividend or stock repurchase or derive an improper benefit from the transaction.
As a result, we and you have a more limited right to action than would have been
available if such provisions were not present. The certificate of incorporation
and bylaws also provide for the indemnification by us of the officers and
directors, against any losses or liabilities they may incur as a result of the
manner in which they operated
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<PAGE> 15
our business or conducted our internal affairs, provided that in connection with
these activities they acted in good faith and in a manner which they reasonably
believed to be consistent with (or at least, not against) our best interest, and
their conduct did not constitute gross negligence, misconduct or a breach of
their fiduciary obligations to us or you.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risks of Investing in
Our Shares," "Management's Discussion and Analysis or Plan of Operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. These statements involve risks known to us, significant
uncertainties and other factors which may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things those
listed under "Risks of Investing in Our Shares" and elsewhere in this
prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "intends," "potential" or "continue" or the
negative of such terms or other comparable terminology. These statements are
only predictions. In evaluating these statements, you should specifically
consider various factors, including the risks outlined above. These factors may
cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assume responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 2,000,000 shares of
common stock offered by SolutionsAmerica and the exercise of warrants and
options for 1,611,775 shares offered by the selling stockholders will be
approximately $10.5 million, based on the assumed public offering price of $5.00
per share and after deducting commissions to selling brokers and estimated
offering expenses.
The principal purposes of this offering are to obtain additional capital
and to create a public market for our common stock, thereby enhancing our
ability to acquire other businesses, products or technologies, and enabling us
to access the Swartz equity line. In addition, we believe that as a public
company we will gain credibility and increase awareness of our brand name and
services. We intend to use the net proceeds from this offering for the repayment
of short-term indebtedness, expansion of sales and marketing activities, product
development, facilities expansion and other capital expenditures, and for
working capital and other general corporate purposes. We may also acquire or
invest in businesses, technologies or products that are complementary to our
business. We currently have no commitments or agreements for any acquisitions.
Pending our use of the net proceeds, we intend to invest them in short-term,
interest bearing, investment grade securities.
If the market price and trading volume of our common stock are at the
levels required by the investment agreement with Swartz, we may receive up to an
additional $30 million upon the issuance of common stock pursuant to that
investment agreement.
DIVIDEND POLICY
We currently intend to retain all future earnings, if any, for funding our
growth and, therefore, do not expect to pay any dividends in the foreseeable
future. The declaration and payment of dividends are subject to the discretion
of our board of directors.
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DILUTION
As of May 31, 2000, our net tangible book value was $2,558,124 or $.20 per
share, pro forma after giving effect to the acquisition of OneStop.com, Inc. in
August, 2000 for 1,000,000 shares and the issuance of 580,000 additional shares
for $500,000 cash and services. Our net tangible book value per share means our
tangible assets, less all liabilities, divided by the number of shares of common
stock outstanding. After giving effect to the sale by us of 2,000,000 shares in
this offering and the receipt of the proceeds from the exercise of the warrants
and options for the warrant and option stock in this offering, but assuming no
issuance of shares pursuant to the investment agreement, and after deducting
estimated offering expenses, adjusted net tangible book value would be
$13,069,230 or $.95 per share. The result will be an immediate increase in net
tangible book value per share of $.75 to existing stockholders and an immediate
dilution to new investors of $4.05 per share. As a result, investors in this
offering will bear most of the risk of loss since their shares are being
purchased at a cost substantially above the price that existing stockholders
paid for their shares. "Dilution" is determined by subtracting net tangible book
value per share after the offering from the offering price to investors. The
following table illustrates this dilution assuming exercise of the options and
warrants for the option and warrant shares offered hereby, and no issuance of
shares pursuant to the investment agreement.
<TABLE>
<S> <C>
Minimum offering price per share of the common stock offered
hereby.................................................... $5.00
Net tangible book value per share, before the offering...... $ .20
Increase per share attributable to the sale of the shares
offered hereby............................................ $ .75
-----
Pro forma net tangible book value per share, after the
offering.................................................. $ .95
-----
Dilution per share to new investors......................... $4.05
=====
</TABLE>
The above table assumes exercise of options and warrants, and issuance of
the option and warrant shares offered hereby. The following table summarizes the
investments of all existing stockholders and new investors after giving effect
to the sale of the shares offered hereby:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL AGGREGATE
SHARES PURCHASED SHARES CONSIDERATION
---------------- ------------------- -------------
<S> <C> <C> <C>
Present Stockholders.................. 8,209,670 60% $ 459,234
Public Stockholders................... 5,541,775 40% $27,708,875
Total............................... 13,751,445 100% $28,168,109
</TABLE>
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CAPITALIZATION
The following table sets forth our capitalization as of May 31, 2000:
- on an actual basis, after giving effect to our 4.11623325 for 1 stock
split on June 23, 2000.
- on a pro forma basis to reflect the acquisition of our wholly-owned
subsidiary, OneStop.com, Inc., for 1,000,000 shares of common stock and
the issuance of an additional 580,000 shares between June 1 and September
1, 2000, and
- on a pro forma as adjusted basis to give effect to the receipt of the
estimated net proceeds from the sale of 2,000,000 shares of common stock
at the offering price of $5.00 per share and the issuance of 1,611,775
shares upon the exercise of warrants and options at the exercise price of
$1.00 per share, after deducting estimated offering expenses.
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of May 31, 2000 and does not
include the following:
- 1,131,775 shares of common stock not included in this offering which may
be issued upon the exercise of warrants.
- 125,000 shares of common stock issuable upon exercise of options
outstanding under our stock option plan and 1,759,266 shares of common
stock issuable upon exercise of options granted to our key employees at
an exercise price of $1.00 per share.
- 1,125,000 shares of common stock reserved for issuance pursuant to future
grants under our stock option plan.
- an indeterminate number of shares of common stock that may be issued in
the future pursuant to the investment agreement with Swartz.
The information below is qualified by, and should be read in conjunction
with, our "Management's Discussion and Analysis or Plan of Operations" and the
financial statements and the notes to those statements appearing at the end of
this prospectus.
<TABLE>
<CAPTION>
MAY 31, 2000
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA ADJUSTED
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Long-term debt...................................... -- -- --
Stockholders' equity:
Common Stock, $.0001 par value; 50,000,000 shares
authorized; 8,559,670 shares issued and
outstanding, actual; 10,139,670 shares issued
and outstanding, pro forma; 13,751,445 shares
issued and outstanding, pro forma as
adjusted....................................... $ 208 $ 358 $ 719
Additional paid-in capital.......................... 29,115 3,651,105 14,162,519
Accumulated deficit................................. (1,093,289) (1,093,289) (1,093,289)
Total stockholders' equity (deficit)................ (1,063,966) 2,558,124 13,069,230
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read together with the
financial statements and related notes of SolutionsAmerica Inc. Included in this
Prospectus, beginning on Page F-1. The discussion in this Prospectus contains
forward-looking statements that involve risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions. The cautionary
statements made in this Prospectus apply to all related forward-looking
statements wherever they appear in this Prospectus. Our actual results may
differ materially from those anticipated in such forward-looking statements.
Factors that may cause or contribute to differences include those discussed in
"Risks of Investing in our Shares," as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
We incorporated in Delaware on July 16, 1999. We began operations in Los
Angeles, California in September 1999 when we entered into an agreement to
provide management services to Paycom Billing Services, Inc. ("Paycom"), an
internet transaction processing company. In December 1999, we acquired Sentinel
Software, Inc., a database development company as a wholly owned subsidiary in
exchange for the issuance of 327,204 shares of our common stock. The net value
of the assets acquired as a result of the transaction was $29,073. We also
formed two subsidiaries, SolutionsAmerica (Nevis), Inc., a wholly owned
subsidiary, and E-Commerce Transaction Services, Ltd., which is 50% owned with
an unaffiliated joint venture partner. SolutionsAmerica (Nevis), Inc. was formed
to permit us to provide offshore merchant banking services and E-Commerce
Transaction Services, Ltd. was formed as an offshore independent sales
organization. To date, neither subsidiary has generated any revenues.
In December 1999, we acquired Paycom as a wholly owned subsidiary in
exchange for our common stock and promissory notes. The merger was subject to
being unwound if we did not obtain a financing commitment in the amount of $15
million. Due to the difficult capital markets at the time, the nature of
Paycom's business, and the inability of Paycom to provide financial statements
acceptable to the investment market, we were unable to obtain the required
commitment. As a result, the management agreement with Paycom was terminated in
March 2000, and the merger was unwound by transferring Paycom back to its former
shareholders and cancelling their equity in and promissory notes from
SolutionsAmerica.
In May 2000, we entered into a letter agreement with Swartz, whereby the
parties agreed to enter into an investment agreement for the purchase of our
common stock up to an aggregate amount equal to $30 million (the "equity line"),
subject to our registering the shares of our common stock subject to the equity
line. Within 36 months from the effective date of the registration statement, we
have the right to "put" common stock to Swartz, subject to certain dollar amount
limitations and other conditions. Generally, shares of common stock "put" to
Swartz will be at a purchase price per share equal to the lesser of (i) 91% of
the current market price, as defined, or (ii) the current market price as
defined minus $.10 subject to a floor price if specified by us. On July 18,
2000, we entered into the investment agreement with Swartz, and granted Swartz a
warrant to purchase 600,000 shares of our common stock for its commitment to
furnish the equity line.
Also in May 2000, we entered into a letter of intent to merge with Avenue
Entertainment Group, a publicly traded entertainment company. In July 2000, the
letter of intent expired and the merger discussions were terminated.
In May 2000, we also entered into a letter agreement with Dunwoody
Brokerage Services, Inc. ("Dunwoody"), whereby Dunwoody will act as placement
agent on a best efforts basis in a private placement offering pursuant to
Regulation D under the Securities Act of 1933 for up to $2 million of our equity
securities.
On June 23, 2000, we effected an approximate 4.1 to 1 stock split of our
common stock.
SolutionsAmerica has incurred significant net losses and negative cash
flows from operations since inception, and as of May 31, 2000, had an
accumulated deficit of $1,093,000. We intend to continue to
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invest heavily in technology and infrastructure development, and marketing and
promotion. As a result, we believe that we will continue to incur operating
losses and negative cash flows from operations for the foreseeable future and
that the rate at which such losses will be incurred may increase from current
levels. There can be no assurance that we will be able to achieve or sustain
revenue growth, profitability, or positive cash flow on either a quarterly or
annual basis.
Since the termination of our agreements with Paycom in March, 2000, we have
used and expect to continue to use private sources of capital to fund our
operations. As of August 31, 2000, private sources had provided $826,000 in
loans, $16,000 of which was provided by our president, and an equity infusion of
$400,000 by an outside investor group. We have granted warrants to purchase
common stock in connection with these debt and equity placements. In addition,
we have granted warrants to certain vendors, principally our lawyers, who have
agreed to defer payments. As of August 31, 2000, the total amount of deferred
payments was approximately $1 million.
In August 2000, SolutionsAmerica acquired from Frontier Insurance Group,
Inc. its inactive, wholly owned subsidiary, OneStop.com, Inc. ("OneStop").
OneStop was a direct marketing business-to-business e-commerce company, which
used its website and technology platform to aggregate, resell, and provide
relevant value-added products, services and information to small businesses
through the customized vertical communities which it created. We issued
1,000,000 shares of our common stock to Frontier. The transaction was accounted
for as a purchase, with the acquired assets recorded at their appraised value of
$3,122,090.
SolutionsAmerica developed an integrated transaction processing system
between March and July, 2000. This system has a capacity of 1,000,000
transactions per month; provides for fraud detection and filtering; recurring
charge management; chargeback controls and management; and online, realtime
reporting. This system became operational in September 2000.
We are currently developing for launch in the fourth calendar quarter of
2000 a customized digital business transaction processing infrastructure for
businesses and merchants transacting B2B and B2C business worldwide on the
Internet.
We have redesigned the payment system and the information management
procedures of the OneStop "vortals" (vertical portals). We intend to re-launch
the OneStop vortals during the fourth quarter of 2000. We will also use the
infrastructure provided through the OneStop acquisition as the basis for its B2C
and B2B future business.
We expect to incur losses for the near future. Over the next twelve months,
we expect the losses to decrease as we bring on customers and increase our
revenue stream from the services being offered. However, we also expect to incur
more operating expenses as we add staff and incur costs in connection with the
marketing of internet commerce solutions.
We do not currently have sufficient cash available to fund operations. We
expect to fund operations primarily from private financing until we are able to
access the equity line. We have tangible assets that we acquired in connection
with the OneStop acquisition that could be leveraged or sold to raise additional
cash. However, there is no guarantee that we will be successful in obtaining
additional operating capital.
Target customers for our e-commerce transaction processing services include
Internet-centric businesses, established retailers that have opened online
stores to supplement their traditional retail models and merchant aggregators
that host websites for other merchants. Our target market also includes
subscription based services, as well as large institutions, such as utilities
and colleges, that are moving to accept recurring payments over the worldwide
web.
We intend to grow our B2B business by penetrating specific vertical
industries. The initial focus is on the entertainment, healthcare, professional
services, collectibles, utilities, publishing and retail industries, and
political and charitable organizations. We are developing a marketing plan for
each vertical industry.
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RESULTS OF OPERATIONS
Our e-commerce processing platform became operational in September 2000. We
have been operating as a development stage company since inception in July 1999.
Virtually all the revenues that we recognized from inception to May 31, 2000
were the result of the Paycom management agreement that has terminated. Since
inception, much of our efforts have consisted of organizing our company,
developing our transactional processing system, redefining our business plan,
identifying acquisition or merger targets, and the raising of operating capital.
From inception to May 31, 2000, we had $529,000 in revenue. We incurred
approximately $898,000 in salary and payroll tax costs for the same period. We
required trained and experienced staff to provide the necessary management
support to Paycom, and to help us begin operations, enter into various vendor
and strategic partner agreements, and develop our technology and business
development platform. In addition, we incurred substantial expenses in
connection with acquisitions. Travel and entertainment, and consulting expenses,
totaled $135,000 and $92,000 respectively, related to capital raising, business
plan development, and company organization functions. Occupancy expenses were
$86,000 and do not reflect the ongoing expenditure for space as we received free
space during the relationship with Paycom and had limited staff during this
period. With $68,000 in other expenses (printing, telephone, supplies,
insurance, etc.), we incurred a net loss of $1.1 million from inception to May
31, 2000.
NET OPERATING LOSS CARRYFORWARDS
At May 31, 2000, we had available net operating loss carryforwards of
approximately $1.1 million to offset future taxable income for federal tax
purposes. The utilization of the loss carryforwards to reduce future income
taxes will depend upon our ability to generate sufficient taxable income prior
to the expiration of the net operating loss carryforwards. The federal
carryforwards expire beginning in the year 2020. However, the Internal Revenue
Code of 1986, as amended, limits the maximum annual use of net operating loss
and tax credit carryforwards in certain situations where changes occur in the
stock ownership of a corporation. As a result of this offering, a change in
ownership is likely to occur which would substantially restrict our use of the
net operating loss carryforwards for federal and state income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2000, we had $51,000 in cash and $174,000 in current assets, and
we had $1.3 million in current liabilities. We subsequently received an
additional $325,000 loan in June and an additional $400,000 from the sale of
stock in July. The proceeds from these infusions of cash were used for current
operating expenses.
The May 31, 2000 pro forma balance sheet reflects the acquisition of the
net assets of OneStop as if the transaction had taken place on that date. Our
balance sheet improved substantially as the result of this acquisition, which
was accounted for as a purchase of approximately $2.7 million appraised value of
fixed assets and a note receivable of $.4 million. However, our cash balance
continued to decline due to cash proceeds from new debt and equity financing
being used for ongoing operating expenses. We will incur additional expenses as
our transactional processing operations commence full operations; we continue to
develop our e-business commerce platform; the operations of OneStop are
integrated into our transaction processing system; and we begin our sales and
marketing efforts. We obtained an additional loan of $100,000 in August, and we
expect to continue to fund operations from private sources until we are able to
access the Swartz equity line. We do expect to receive funds from the exercise
of warrants to purchase shares included in this offering and from the sale of
our shares in this offering, but those funds will be sufficient to meet only a
portion of our anticipated cash needs.
Our future capital requirements will depend on several factors:
- Market acceptance of our services.
- Marketing promotions.
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- The amount of resources we devote to the technical development of our
current and future service platforms.
- The amount of capital necessary to maintain technological parity or
achieve a competitive advantage.
- Increased staffing.
We are committed to developing our technology and servicing our customers
in-house with sufficient resources to offer the best service possible, while at
the same time providing our stockholders with an appropriate return on
investment. To this end, we expect the operating overhead expenses for fiscal
2001 (June 1, 2000 to May 31, 2001) to total approximately $10 million. We
expect our employee count to increase from the current level of 24 to a level of
60 by May 31, 2001. We expect to spend approximately $600,000 on capital
equipment and new software during the 12 months to meet the level of business
projected, the support of the B2B platform and our desire to remain current with
the addition of new technologies.
Until we are able to access the Swartz equity line, we will need to
continue to raise working capital privately through loans or other financing
arrangements. No specific opportunities can be identified at this time, and we
cannot be certain that funds will be available in the future as our needs arise.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income, defined as all changes in equity from non-owner sources.
Adoption of SFAS No. 130 does not have a material effect on the Company's
financial position or results of operations.
The Company has adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way public enterprises report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to stockholders. Adoption of SFAS No. 131 is not expected to have a
material effect on the Company's financial position or results of operations.
IMPACT OF INFLATION
We do not believe that inflation has had a material adverse effect on the
operating results since our inception. Increases in wage rates, supplies or
other operating costs may adversely affect our operations in the future.
However, we believe we will be able to increase the prices of our products,
systems and services to offset increases in operating costs.
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BUSINESS
OVERVIEW
We are a development stage company that will provide businesses with the
customized, technological infrastructure necessary to process both
business-to-business (B2B) and business-to-consumer (B2C) transactions over the
Internet. Our digital business transaction processing (DBTP) infrastructure
includes functionality for payment transaction processing, fraud prevention and
risk analysis, distribution controls, fulfillment management, and digital
document archiving. We support our digital business clients with an array of
value-added services including web-design, database development, information
systems implementation, marketing services and financial services. In the B2B
marketplace, we provide "portals" for B2B e-commerce businesses around the
world, with an initial focus on businesses in the entertainment, healthcare,
utilities, publishing, professional services, collectibles and retail
industries, and for political and charitable organizations. We plan to be fully
operational by December 31, 2000.
INDUSTRY BACKGROUND
Rapid Growth of the Internet and E-Commerce.
The Internet has grown in less than a decade from a limited research tool
into a global network consisting of millions of computers and users. The
Internet is an increasingly significant medium for communication, information
and commerce. According to a report published by ActivMedia Research LLC, there
are currently over 117 million web users in the United States and over 300
million web users worldwide, a global online expansion of 70% in the past year.
The rapid growth of the Internet has given businesses, merchants and
consumers the opportunity to conduct an increasing amount of commerce online.
E-commerce offers numerous advantages to businesses, merchants and consumers.
Consumers receive increased selection, competitive prices and the convenience of
being able to shop on the Internet 24 hours a day, 7 days a week from the
location of their choice. The Internet enables merchants to reach a global
audience and operate with limited physical infrastructure, reduced overhead and
greater economies of scale. By facilitating access to information, the Internet
enables merchants to give customers more detailed product information while
affording merchants the opportunity to personalize website content to match the
needs and preferences of individual consumers. In addition, online merchants can
reduce selling costs by reducing or eliminating investments in physical retail
locations and automating much of their interaction with customers.
These advantages are resulting in a dramatic increase in the amount of
commerce conducted over the Internet and the number of businesses and merchants
advertising and selling goods and services online. According to ActivMedia
Research LLC estimates, the Internet currently represents $132 billion in global
revenues, a 129% rise in business activity from 1999. ActivMedia Research LLC
estimates that these revenues will increase to approximately $1.4 trillion in
2005.
CHALLENGES TO CONDUCTING COMMERCE OVER THE INTERNET
Businesses and merchants increasingly are determining that they need an
online presence to take advantage of the rapid growth and benefits of
e-commerce. To conduct commerce online effectively and efficiently, however,
businesses and merchants must address a number of challenges, the most critical
of which is processing the business transaction in a digital world.
Businesses and merchants must develop or acquire a transaction processing
infrastructure that enables them to efficiently, effectively and securely
process transactions. Online transaction processing is complex and involves a
number of elements:
- Payment processing: The vast majority of online consumer purchases are
conducted using credit cards. These credit card transactions should be
processed in real-time to confirm an order while the customer is online.
Increasingly, merchants are also seeking to process transactions in local
currencies around the world.
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- Fraud prevention: Because of the anonymity offered by the Internet and
the speed with which one can make purchases, the opportunity for fraud is
significant. In e-commerce transactions, because the credit card is not
present, a merchant is generally held liable by its bank for the full
value of the transaction in the event of credit card fraud even if a
pre-authorization has been obtained. Online merchants must find ways to
combat this fraud to avoid losing both the product being sold and the
related revenue.
- Sales tax/VAT: An online merchant must comply with many different
national, state and local sales tax/value-added tax (VAT) regulations
that vary depending on merchant and customer locations or product type.
- Export compliance: Online businesses must ensure that a proposed
transaction complies with complex, rapidly changing export regulations
that restrict the export of some goods to prohibited countries, persons
and entities.
- Territory management: A transaction may be subject to policies and
restrictions imposed by manufacturers that may prohibit the businesses
from selling products due to a customer's geographic location. In
addition, discounts based on volume or pricing based on resellers
agreements may need to be managed on a micro-transaction basis.
- Customer Service: Online orders for physical goods must be transmitted to
fulfillment centers, distributors or merchant-owned distribution centers
for shipment of the goods. The billing issues relating to credit card
charges, charge backs, returns, failed deliveries, unfilled
subscriptions, and product breakage, all require a personal interface
between the customer and the merchant.
The online merchant must often address these demands while the customer is
waiting online. Information that a traditional retailer can collect during a
period of hours, such as fraud screen, customer history or export restrictions,
often must be available to the online merchant immediately. In addition, the
merchant must have an e-commerce system that scales as the business grows,
provides a high level of reliability and handles peak loads. The merchant's
e-commerce system should also integrate smoothly into its existing business and
technology and must support secure, authenticated messaging.
The business-to-business e-commerce marketplace faces additional
complexities because of the lack of a secure and inexpensive payment mechanism.
Businesses can find what they want on the Internet through market-enabling
websites that bring buyers and sellers together. They can even purchase items
over the Internet. But since there is no easy way to pay for goods online,
financial settlement must move off-line and occur in a less timely, less
efficient paper environment, resulting in the loss of much of the potential
benefit of electronic commerce. Beyond the value of reducing search costs for an
item, standardizing systems and improving matching for both buyers and sellers,
these electronic trading marketplaces need to complete their members' experience
by closing the transaction loop with a financial settlement mechanism that can
encompass the increased volume and price of B2B transactions.
As if the payment dilemma were not enough in the domestic market,
international business-to-business e-commerce is even more complex. Complexities
arise in cross border trade from the multitude of independent logistics
providers handling consolidation, freight forwarding, shipping and customer
services. Each country has unique, elaborate customs, rules and processes for
cross-border business transactions, including import/export laws and
regulations. International trade is also a cumbersome, time-consuming,
paper-intensive business. Many of the tools and methods used to conduct trade
have gone unchanged for several hundred years, and their legal underpinnings are
still dependent on paper documents. The different currencies, payment systems,
languages and business practices additionally complicate matters and create
barriers to entry.
Electronic marketplaces, e-commerce hubs, infomediaries, digital
marketplaces, market enablers, and other online marketplaces of buyers and
sellers are predicted to become the leading online business-to-business
purchasing solutions. Reaching the masses of willing and able suppliers,
customers and partners will be the value-added benefit of such Internet
marketplaces. Buyers will have an enhanced online purchasing experience that
will seamlessly move them from product discovery to financial settlement.
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Meanwhile, suppliers will gain valuable insight into buyers' markets with better
tools for tracking buying behavior and assessing product performance, while
lowering costs and creating opportunities for market expansion.
The advantages of doing business online are greatly diminished, however,
if, after gaining access to a worldwide selection of buyers and sellers,
choosing a product to buy, and even negotiating a price, businesses must move
offline to settle or finance the transaction. In the business-to-consumer
sector, the problem is easily resolved by the myriad of accepted credit cards.
An individual consumer may even select shipping options, track a package and
receive confirmation over the Internet. But until now, this has not been
possible in the B2B sector, especially in the international marketplace.
EVOLUTION OF E-COMMERCE TRANSACTION PROCESSING SYSTEMS
In light of these challenges, businesses and merchants who choose to
internally develop and maintain an e-commerce presence must invest a significant
amount of capital and technical resources. E-commerce technology evolves
rapidly, necessitating timely implementation and upgrades. The lengthy and often
cost-prohibitive nature of in-house development and maintenance has caused an
increasing number of businesses and merchants to outsource some or all of their
e-commerce capability development to third-party service providers. Outsourced
solutions offer convenience and savings but most service providers specialize in
specific, limited aspects of an e-commerce business. Businesses which outsource
development of their e-commerce capability typically must devote significant
technical expertise and other resources to coordinate multiple vendors and
integrate the various components.
As the Internet becomes an essential marketplace, businesses seek
e-commerce service providers with the expertise to deliver a comprehensive
system that shortens time to market and maximizes the value of their investment.
A transaction processing solution should be available at a low initial and
overall cost and, at the same time, be scalable to support the growth of the
online business. A solution should also allow the merchant or business to
maintain control over its online content, pricing, credit management and
customer relationships and to integrate or add new services easily.
As online businesses and merchants proliferate, need and demand increase
for outsourced e-commerce solutions that allow the digital business transaction
process to be securely, efficiently and seamlessly conducted between buyer and
seller.
OUR SOLUTION
We are a developer and provider of customized digital business transaction
processing infrastructure for businesses and merchants transacting B2B and B2C
business worldwide over the Internet. Our technological infrastructure and
support services enable businesses and merchants to conduct and complete online
transactions, including producing online transaction documentation and obtaining
financing and payment to complete transactions.
Our e-commerce platform includes fraud prevention, payment processing,
distribution control, fulfillment management and digital document archiving. We
offer value-added professional services to our e-commerce businesses for website
functionality design and development, database development, marketing and
financing. OneStop.com, our B2B e-commerce center and transactional portal will
aggregate businesses that want to transact business with one another and will
provide them with the digital business transactions processing capability to
enter into online contracts for the purchase of goods and services and to
finance and pay for such transactions.
Our digital business transaction processing system and professional
services will enable e-commerce businesses to focus their resources on areas
where they can most effectively differentiate themselves, such as marketing,
merchandising and product fulfillment. By outsourcing their e-commerce
"backroom" to us, online companies can speed their time to market, reduce their
overall operating costs, improve cash flow and process orders from any customer.
Our DBTP service is comprehensive, scalable to meet increases in
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the number of transactions, highly reliable and performed through a secure
protocol or transmission format.
Our primary focus initially is on the B2B and B2C transactions of small to
medium-sized businesses. Our digital business transaction processing
infrastructure and supporting services will empower small and medium-sized
businesses to compete for their share of their respective online markets.
Key benefits of our DBTP solution include:
- Integrated Transactional Service. We believe that we provide all of the
critical capabilities required to enable businesses and merchants to
conduct commerce online. We will offer businesses and merchants a
comprehensive infrastructure to process business transactions in a
digital environment. Our integrated solution minimizes the time,
complexity, inconvenience and cost ordinarily associated with a
multi-vendor or internally developed online transaction processing
solution.
- Faster Time To Market. The pace of change and the rate of growth of the
Internet require greater speed in implementation of e-commerce solutions.
Our technological infrastructure and our experience in the planning and
development of website functionality and vertical B2B portals will enable
online businesses to begin processing transactions in less time than
would be required for in-house development and without lengthy or costly
integration efforts. Our B2C transaction processing services will be
accessed by a single common interface installed on a merchant's
e-commerce server or through a web-enabled link. This interface may be
easily installed with an Application Programming Interface (API) that
resides on the merchant's e-commerce server and will enable them to
easily activate our services. Our B2B transaction processing service will
be provided through OneStop.com, an Internet based integrated operating
center or portal for all B2B e-commerce transactions.
- Access to Comprehensive Digital Business Transaction Processing
Services. We will provide businesses with online access to services that
address a broad spectrum of e-commerce transaction processing issues
related to global payment processing, fraud prevention, distribution
controls, fulfillment management and digital document archiving. We have
identified a third-party technology and intend to develop a strategic
alliance to enable us to manage micro-transactions in addition to
providing analysis on vast amounts of data.
- Reduced Overall Costs. Our services will enable merchants and businesses
to process online transactions without the cost of developing and
maintaining their own complex transaction processing systems, database
and infrastructure. Furthermore, we believe that our services will lower
transaction costs by reducing fraud, chargebacks and credits, while
speeding up collections.
- Comprehensive Technology Platform. We will provide a technical staff of
system integrators to work with our customers to ensure the ease of
online operations utilizing the most advanced technologies. The
technology underlying our e-commerce transaction processing services
provides the following benefits:
- Scalability. Our services will allow merchants and businesses to
deliver consistent quality of service as transaction volumes grow, and
to handle daily and seasonal peak periods. As a result, merchants and
businesses will not have to expand their hardware, software or customer
service area to accommodate the transaction processing infrastructure
as their businesses grow.
- High Reliability. Our systems are engineered to provide high
reliability, and we will provide transaction processing 24 hours a day,
7 days per week. In addition, we will offer our customers technical
services support 24 hours a day, 7 days per week. We intend to enter
into a strategic alliance with a customer service company that can
provide continual support to our customers 24 hours a day, 7 days per
week. In the long term, we intend to acquire or build a customer
service operation.
- Secure Communications. All communications between the business' or
merchant's web server and our system will be facilitated by our
Commerce Messaging Protocol (CMP). This encrypted
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protocol allows for message integrity, and identity verification of all
communications between the business or merchant and us. We intend to
incorporate digital signature processing and digital "wrapping" to
enhance secured communications for all media.
- Real-Time Responses. Because our services will enable online businesses
to process e-commerce transactions in real-time, merchants and
businesses can improve their level of customer satisfaction and reduce
their support costs by avoiding delayed responses and minimizing the
need for follow-up communications.
- Risk Management and Fraud Prevention. We believe that utilizing both
"positive" and "negative" databases in conjunction with our alliance
with Card Systems, Inc. enables us to provide the most technologically
advanced system of risk management, fraud detection and transaction
analysis in the marketplace. This risk management and fraud detection
system will reduce chargebacks and credits, and enhance collections.
- Immediate and Long-Term Savings. We enable businesses and merchants to
improve their return on investment by allowing them to avoid the
significant diversion or investment of resources required to develop and
maintain e-commerce transaction processing capabilities internally or to
integrate a multi-vendor solution. Because we will regularly reevaluate
and update the infrastructure and services we provide, our clients can
easily keep pace with rapidly evolving e-commerce technology.
- Greater B2B Efficiencies. OneStop.com, our B2B e-commerce center and
transaction processing portal, will create cost savings and economic
efficiencies for our B2B customers and their trading partners by
eliminating the need to settle transactions and process payments through
slow, paper-intensive off-line mechanisms.
- International Availability. By establishing off-shore processing centers
through which foreign financial institutions can participate, we will be
able to extend our digital business transaction processing solution to
foreign businesses in both the B2B and B2C marketplaces.
STRATEGY
Our objective is to be the premier provider of real-time e-commerce payment
solutions and the premier service for integrated, web-enabled digital business
transaction processing. Key elements of our strategy include the following:
- Deploy Our DBTP Infrastructure. We have developed a scalable,
state-of-the-art digital business transaction system, and are currently
processing a limited number of B2C transactions. Our system is currently
capable of processing one million transactions per month, the capacity of
which will be significantly increased when integrated with our B2B
e-commerce center. This integration is projected to be completed in the
third quarter of 2000. We expect to conclude beta testing of the B2B
system and begin rolling out our DBTP infrastructure to customers by
year-end 2000.
- Enhance and Extend Our E-commerce Services. After deployment of our DBTP
infrastructure, we intend to continue to invest resources in our core
transaction processing system, thereby further improving availability,
reliability and scalability. Based on input from our customers and our
strategic partners, we plan to introduce new services to help manage
various business functions impacted by transaction processing, including
inventory controls and accounts receivable management, accounts
receivable and inventory financing, and to solve e-commerce problems as
they emerge. To supplement our internal technology development efforts,
we acquired Sentinel Software, Inc. and will consider additional
acquisitions of complementary technologies or companies as well as new
strategic alliances.
- Launch e-Commerce Transaction Processing Center. We acquired OneStop.com
in August 2000. OneStop.com owned and operated a B2B on-line marketplace
with a variety of vertical industry portals. We plan to redesign this
portal and integrate it with our DBTP infrastructure to create our
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B2B e-commerce transaction processing center. We plan to launch
OneStop.com in the fourth quarter of 2000 as an e-commerce transaction
processing center which will enable businesses through various vertical
portals which we will support to immediately process transactions,
examine fraud risks on a real time basis, track, finance and settle
payments, track distribution and fulfillment and digitally archive
transaction records for future reference.
- Expand Our Customer Base through Improved Brand Recognition and Increased
Marketing. To date, we have made limited investments in marketing and
branding. We intend to substantially increase our marketing and
promotional programs, including brand recognition, advertising and public
relations efforts, to position ourselves as a leader in the e-commerce
transaction processing services market. We also intend to increase the
size of our direct sales force and enter into additional collaborative
relationships to generate new B2B and B2C customers as well as to
increase the number of professional services used by our existing
customers.
- Utilize Partnerships to Drive Transactions. We intend to utilize or
leverage our strategic relationships to increase our transaction volume
and create new markets. We intend to enter into relationships with other
companies that offer complementary benefits and allow us to enter new
markets.
- Build Organization Around the Business. We will continue to focus on the
needs of our merchant and business customers and build our services and
organization accordingly. For example, to provide transaction processing
solutions for financial institutions that wish to provide e-commerce
merchant banking services, we developed a turnkey e-commerce solution for
such banks.
- International Presence and Operation. We intend to expand the
availability and brand recognition of our digital business transaction
processing services throughout the world with an initial focus on the
Caribbean and Western Europe. We plan to offer foreign businesses digital
business transaction processing services by establishing local processing
centers in these areas. We currently are identifying and negotiating
partner agreements in the Bahamas, Great Britain, Ireland, and the Isle
of Mann. We will be establishing facilities to provide our clients with
foreign corporations and offshore reporting in addition to offshore
transaction processing. These services will be provided through a
separate transaction portal.
- Banking Relationships. We intend to establish a number of major merchant
banking relationships. At the core of our digital business transaction
process will be our ability to provide merchant banking access to our
clients, interface with "backend" payment processors and provide
financial support services to our clients. We have established a
relationship with the emerging growth division of Imperial Bank and we
are negotiating agreements with six additional financial institutions. In
addition, we are negotiating with two Caribbean banks to provide similar
service in the foreign marketplace.
OUR PRODUCTS AND SERVICES
DBTP Infrastructure. Our digital business transaction processing
infrastructure offers the following functionality:
- Payment Service. We provide secure, real-time credit card processing
services for all major card brands through major processing gateways in
the United States. We intend to establish additional gateways in the
Carribean and Western Europe. Through our banking relationships we also
provide access to various online financial settlement mechanisms in
addition to credit cards.
- Risk Management Services. Fraud control remains the most crucial issue in
e-commerce and the greatest challenge facing online merchants and
businesses. We are committed to providing the most technologically
advanced system of online risk management, fraud detection and
transaction analysis available. Our alliance with Internet Query Object
Corporation has allowed us to apply their new patented technology for
web-enabled, Internet-accessible data queries and online risk management.
The result is "Fraud Alert." Fraud Alert enables the tracking of each
user for any particular credit
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card number or merchant account, providing online, real time analysis of
credit card use to both banks and merchants. It also tracks the
distribution of economic or digital rights on the Internet, providing
notification to the intellectual property owner of the distribution of
digital rights where an economic transaction did not occur.
- Distribution Control. We provide a range of distribution control services
to help ensure that merchants and businesses comply with corporate,
partner, and government policies for product and service sales. They
include:
- Policy control. We offer this distribution control service to assist
merchants and businesses in complying with internal corporate policies
and partner marketing and distribution agreements for product sales.
This service allows merchants and businesses to limit product or
service distribution to specific territories, thereby ensuring
compliance with marketing policies or distribution agreements.
- Secure Site Seal/Inspection. Through relationships with leaders in
their respective markets we have put together a program to assure
buyers of the security and safety of their purchasing transactions.
This service, which is provided in conjunction with Verisign and
TrustE, will provide a higher level on confidence in the site that is
being accessed while also building brand awareness for us.
- Fulfillment Management. We support a number of services to help online
merchants and businesses manage physical and digital product delivery in
a secure, efficient fashion. These include:
- Fulfillment messaging. We can provide secure fulfillment messaging to
simplify the transmission of online orders to fulfillment centers,
distributors, and merchant-owned distribution centers. The service
handles all message routing and supports secure mail, file transfer
protocol and electronic data interchange formats. In addition, this
service works in conjunction with our payment services to comply with
card association rules regarding settlement on product shipment or
content usage.
- Secure digital delivery. We use third party patented technology and
digital certificates to provide simple, secure, electronic delivery of
digital content, such as software, music, images and documents. We
intend to integrate new technologies that are available from
InterTrust, Reciprocal, Destiny Technology, MediaDNA or RPK to enhance
our total digital security system.
- Inventory Control. Our system is currently able to track product sales
on a transactional basis. However, we are currently integrating an
inventory control feature incorporating third party technology which
will be capable of handling an unlimited number of inventory items, and
will feature a sophisticated pricing and time tracking system that
effectively manages inventory at an unlimited number of warehouse and
sales sites. Accurate inventory tracking enables our merchants to spot
trends and to accurately track future purchase needs.
- Receivables Management. We are also integrating a receivables
management feature incorporating third party technology which will
automate the sales management process, track customers, manage
invoices, process receipts, and analyze customer activity.
- Digital Archiving. Utilizing third party technology, we will provide
complete digital archiving for all documents created in the digital
business transaction process. All documents will be stored
electronically in a secure "digital vault" with monitored access. All
documents will be indexed to provide ease of retrieval and to create an
audit trail for future reference. Clients will be provided with an
integrated summary of all related documents. We are currently
outsourcing this function.
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Professional Services. Our digital business transaction processing services
are enhanced by the value-added professional services we provide our clients. We
provide business application expertise and technical know-how to complement our
DBTP system and assist our clients in reducing costs, chargebacks and credits,
and speeding up collections, and generally enhancing their ability to process
transactions in a digital environment.
- E-Commerce Creative Solutions. When Internet shoppers enter an online
store, they expect an effortless, aesthetically pleasing purchasing
environment complete with clean, clever interfaces, dynamic, fast-loading
graphics, and simple, easy navigation. Pointyheads Intermedia, our
in-house design team of graphic artists and web architects, fulfills that
expectation. Pointyheads provides full web design solutions for
businesses looking to create or improve their own online retail
destinations, from initial creative concept to website planning and
implementation. Pointyheads also provides advanced portal development
services to clients engaged in e-commerce activities through a portal,
and is currently working with several "community destination" or "portal"
developers in designing their commerce sites.
- E-Commerce Technology Solutions. Sentinel Software, Inc. is our wholly
owned, Virginia-based software consulting firm specializing in the
creation of database and web-based solutions for information
dissemination, electronic processing, and data analysis for e-commerce
businesses. Sentinel is responsible for the design, development and
release of our core infrastructure and e-commerce service. Sentinel's
development methodology is built on quality assurance throughout the
project life cycle. Sentinel places a strong emphasis on analysis,
design, integration, and prototyping early in the project life cycle, in
order to reduce the number and cost of defects that may be found in later
stages. Sentinel customizes its product delivery by market, enabling
localization, fraud detection and local regulatory compliance from a
single code base.
- Marketing Services. Our Marketing Services division enables clients to
reach their target market, brand their product and capitalize on the
marketing and promotional opportunities inherent in e-commerce. Services
include: direct marketing strategy, vehicles and implementation; cross-
promotional activities with affiliated e-commerce companies; strategic
marketing and promotional programs; integration of web-enabled technology
with traditional media; search engine placement; customer tracking and
profiling; and market and demographic analysis.
- Financial Services. Our Financial Services division provides financial
advisory and management consulting services to e-commerce businesses
worldwide. We are establishing relationships with several financial
institutions, both domestic and foreign, to assist our clients in
obtaining and maintaining merchant accounts for e-commerce operations. We
can also provide our clients with access to accounts receivable and
inventory financing, credit insurance, and digital document archiving. We
will be providing the capability to utilize electronic letters of credit
when available from financial institutions.
- Additional International Services. Internationally, we assist our clients
with a comprehensive range of services including the establishment of
foreign corporations, on-site jurisdictional representation, offshore
transaction processing and foreign reporting requirements.
- Portal Management. Through OneStop.com, our wholly-owned subsidiary, we
provide total portal management services with a focus on recognized
e-commerce opportunities in the healthcare, entertainment, utilities,
publishing, professional services, collectibles and retail industries,
and for political and charitable organizations. In the fourth quarter of
2000, we will launch OneStop.com, our B2B e-commerce transaction
processing center through which management information, as well as
marketing, technical, processing and information services can be provided
to each vertical portal or individual business we support.
Our economic model is based on the management and execution of e-commerce
business transactions and the provision of other value-added services. We will
utilize a per transaction fee for service model based upon receiving a
percentage of the gross amount of the transactions purchased for high risk
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merchants, B2B businesses and Independent Sales Organizations (ISOs) and
receiving a flat fee for the transactions being processed for low risk merchants
and B2C businesses. We will also enter into revenue sharing arrangements with
strategic partners. Our professional services can be accessed individually which
allows businesses and merchants to tailor their service package to their
particular needs. Fee arrangements are based on the specific professional
service purchased and may be computed on a project basis, a monthly fee basis, a
per transaction basis or in combination. Our economic model is built to generate
revenue from every client, every time a transaction occurs or every time a
service is provided.
RECENT ACQUISITIONS
We have acquired a number of businesses that expand the range of our
e-commerce enabling capabilities, enhance our technology and facilitate our
expansion. We intend to evaluate acquisition opportunities on a continuous
basis.
On December 30, 1999 we acquired Sentinel Software, Inc., a software
consulting firm specializing in the creation of database and web-based solutions
for information dissemination, electronic processing, and data analysis for
e-commerce businesses. Sentinel is responsible for the design, development and
release of our core infrastructure and e-commerce service.
On August 15, 2000, we acquired OneStop.com, an inactive, direct marketing
business-to-business e-commerce company, which had used its website and
technology platform to aggregate, resell, and provide relevant value-added
products, services and information to small and medium size businesses through
the customized vertical communities which it had created. This website and
technology platform will be redesigned to become our B2B e-commerce transaction
processing center.
STRATEGIC BUSINESS RELATIONSHIPS
We have entered into strategic business relationships with the following
companies:
InternetQuery Object Corporation. Our alliance with InternetQuery Object
Corporation created the first e-commerce transaction processing service to
utilize iQO.com(TM) technology. The alliance will enable us to provide online
merchants new analytical and reporting tools optimized for fraud prevention, and
data access and distribution over the Internet. Whereas most databases were
designed for client-server transaction processing, iQO.com(TM) technology was
created for Internet data analysis. Its design permits large amounts of source
data to be efficiently stored as a densely compressed loss-less mass, while a
polynomial index provides instant random access to both the cross-dimensional
totals and by match keys to the supporting transaction level data. The benefits
are fast, consistent analysis of large data volumes and concurrent support of a
large user population.
Card Systems, Inc. Card Systems, Inc. and its wholly owned subsidiary,
Maverick International Processing Services, Inc. provide community, regional and
multinational banks with a complete array of end-to-end solutions for all types
of card processing. We utilize Card Systems' methodologies to assist our clients
in streamlining their financial systems, enabling them to earn greater profits
and build stronger relationships with their customers.
Nexxus Holdings Ltd. Nexxus Holdings Ltd. operates an offshore consultancy
and data processing center based in the Commonwealth of the Bahamas for the
purpose of facilitating Internet-based commerce and related services, including
the marketing, processing, issuing, acquiring and settlement of credit/debit
card transactions in a secure and private environment. We plan to enter into a
joint venture with Nexxus in the Bahamas to establish a processing center.
Although we view our business relationships as an important factor in our
overall business strategy, the other parties to these relationships may reassess
their significance at any time. These relationships generally do not establish
minimum performance requirements but instead rely on the contractual best
efforts of the parties. In addition, our strategic business relationships may be
terminated with little notice.
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We believe that our future success will depend in part on our ability to
license, develop and maintain advanced e-commerce technologies. Consequently, we
expect to invest heavily in acquiring and integrating new technologies and to
continue to make strategic acquisitions to augment our digital business
transaction processing infrastructure and enhance our technology.
SALES AND MARKETING
Sales
Target customers for our e-commerce transaction processing services include
Internet-centric merchants and businesses, including those that have developed
custom transaction processing systems, established retailers that have opened
online stores to supplement their traditional retail models and merchant
aggregators that host websites for other merchants. Our target market also
includes subscription based services as well as large institutions such as
utilities and colleges that are moving to accept recurring payments over the
worldwide web.
We intend to grow our B2B business by penetrating specific vertical
industries. The initial focus is on the following industries: entertainment,
health, utilities, publishing, professional services, collectibles and retail,
and political and charitable organizations. The Company is developing a
marketing plan for each vertical industry.
We intend to target merchants and businesses through a direct sales force,
indirect sales channels and alliance marketing that leverages existing sales and
marketing infrastructures developed by us and alliance partners.
Our direct sales effort will be comprised of dedicated sales professionals
that target small to medium-sized e-commerce merchants and businesses. Our focus
will be in providing our digital business transaction processing services to
businesses that typically process over 1,000 customer orders per month. In
addition, these merchants typically maintain their own online stores. Our direct
sales organization will consist of account managers, industry specific managers,
and territory managers. Our account managers will focus on maintaining high
merchant satisfaction and selling additional professional services to existing
merchants. Our industry specific managers will seek to capture a vertical market
and our territory managers are responsible for attracting new merchants and
businesses to our services.
Our indirect sales channel partners will include financial institutions,
ISOs, Internet Service Providers (ISPs), vertical market industry leaders and
resellers, systems integrators, Application Services Providers (ASPs), which are
developers of software for Internet commerce servers, Commerce Service Providers
(CSPs), merchant aggregators, which are Internet companies that host groups of
merchants and content owners.
In addition to our direct and indirect sales efforts, we intend to work
with several strategic partners to promote our e-commerce transaction processing
services. Through partnerships, strategic relationships and contracted sales
organizations, we will sell transaction processing services to aggregated groups
of customers through ISOs, ISPs, ASPs and CSPs.
Our strategic partners are expected to work with us to enhance our existing
transaction processing services, develop new services, and drive the adoption of
industry standards while further increasing the visibility of our e-commerce
services. We will pay commissions or share revenue with our strategic partners
who refer Internet merchants and businesses to us and with whom we enter into a
contractual relationship. Our initial focus will be on those marketing partners
that can provide us with committed monthly recurring revenue from subscription
based services, monthly billing services, or retail buying clubs.
Marketing
The marketing efforts of the Company have been limited to date. We intend
to use a variety of marketing activities to increase the market awareness of our
services and to educate our target audience. In addition to building awareness
of our brand, our marketing activities will focus on generating leads for
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our sales efforts through our banking relationships. To build awareness and
attract new merchants we will institute marketing and partnership programs
including, advertising, public relations activities, referral programs,
co-branded initiatives, virtual seminars and trade shows. We anticipate
launching an awareness campaign in the second quarter of 2001.
TECHNOLOGY
Transaction Processing (Digital Business Transaction Processing System).
Our proprietary digital business transaction processing system employs a
modular architecture that was designed to scale rapidly and handle the
transaction processing demands of our merchants and businesses across the
Internet. This system is composed of multiple groups of servers and routers
acting as a single point of contact for our customers' transaction processing
requirements. The primary software components of our system are the
E-Transaction Databases, the Net Transaction Commerce Engine, the Internet
Commerce Services Applications, the Commerce Messaging Protocol, and the client
program. This system utilizes industry standards to maximize our compatibility
with our customers' e-commerce systems. In addition, we are planning an
expansion of our data center and access points that are designed to minimize
transaction processing time and eliminate system interruptions.
E-Transaction Database Architecture.
A number of databases form the core of our transaction processing system:
- the transaction process database which maintains information necessary to
process each individual transaction;
- the decision support database, which processes reports and provides
detailed information about transactions;
- the digital products rights management database, which manages, tracks,
and documents digital products or transactions;
- a product catalog database which contains the B2B products available
through e-commerce transaction processing from our business clients; and
- a pricing database for each vertical B2B portal in our e-commerce
transaction processing center which permits various pricing methodologies
including auctions and reverse auctions.
Our transaction services rely on these databases to store the information
necessary to manage the transaction process. For example, our fraud prevention
service relies upon a database of millions of transactions to assess the risk of
fraud.
Net Transaction Engine.
Our Net Transaction Engine manages work flow functions and the required
communications between Net Transaction Commerce servers, our database and any
external resources including each of our participating banks. Our Net
Transaction Engine is designed to meet the transaction processing demands of our
customers in a secure, fast, efficient, reliable, scalable and inter-operable
manner. Our Net Transaction Engine was designed to scale rapidly to handle peak
transaction processing loads. Separate Net Transaction Commerce Engine servers
share the transaction load from our merchants and provide for immediate backup
services should any server fail. Additional servers can be readily added to our
data centers to accommodate increased customer demand.
Net Transaction Services Applications.
We have developed a set of software applications that perform transaction
processing services. These services include payment processing, fraud
prevention, information management, and consumer response. These applications
contain the rules and logic necessary to provide our transaction processing
services to
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our customers. The applications share resources with the databases which allow
us to efficiently add new application services to meet our customers needs. We
have also designed our B2B transaction processing system so that it will operate
on the same platform.
Commerce Messaging Protocol.
The Commerce Messaging Protocol enables efficient and secure connections
between our Net Transaction Engine and our merchants and businesses. In order to
ensure secure messaging, Net Transaction utilizes industry standards for secure
communications including the Data Encryption Standard. Net Transaction enables
our merchants and businesses to securely access our suite of commerce services.
Most importantly, the protocol can be integrated into any software product that
might require our application services.
Industry Standard.
The implementation of our architecture is based on, and complies with,
widely accepted industry standards. For example, the engine utilizes industry
standard components from industry leaders such as Cisco, On Display, Vignette,
Verisign, Sun Microsystems, Oracle and Microsoft. Adherence to industry
standards provides compatibility with existing applications, enables ease of
modification and reduces the need for software modules to be rewritten over
time, thus protecting our investment.
Data Centers and Network Access.
Our data center is hosted by Global Crossing and is currently located in
San Ramon, California. We intend to establish our own data center in Northern
Virginia with a back-up center in California by the end of 2001. A data center
is a facility containing servers, modem banks, network circuits and other
physical equipment necessary to connect users to the Internet. Our data center
will have multiple levels of redundant connectivity to the Internet, back-up
power, fire suppression, seismic reinforcement and security surveillance 24
hours a day, 7 days a week. Our access is provided by an Internet service
provider and allows us to serve merchants globally. A point of presence (POP) is
a point along an Internet service provider's network that enables users to
connect to the Internet more directly and therefore more quickly. These points
of presence provide rapid access to our suite of services and significantly
reduce the number of Internet connections a transaction must pass through to
reach us. We intend to establish processing centers in Western Europe and the
Caribbean within the next 24 months.
Product Development.
Our product development team is responsible for the design, development and
release of our core infrastructure and transaction processing system. We have a
defined software development methodology that we believe enables us to deliver
services that satisfy real business needs for our market while meeting
commercial quality expectations. We emphasize quality assurance throughout our
software development life cycle. We believe that a strong emphasis placed on
analysis, design and rapid prototyping early in the project life cycle reduces
the number and costs of defects that may be found in later stages. Our
development methodology focuses on delivery of product to each market, enabling
localization, fraud detection, and local regulatory compliance from a single
code base. When appropriate, we utilize third parties to expand the capacity and
technical expertise of our internal product development organization. On
occasion, we have licensed third party technology that we believe provides the
strongest technical alternative. We believe this approach shortens time to
market without compromising our competitive position or product quality.
INTELLECTUAL PROPERTY
Our future success depends upon our proprietary technology and our ability
to integrate new technologies of our strategic partners. We intend to rely on a
combination of patent, copyright, trademark,
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trade secret rights, confidentiality procedures, licensing arrangements, and new
intellectual property management technology to establish and protect our
proprietary rights.
RESEARCH AND DEVELOPMENT
Our research and development efforts are directed towards improving the
design and functionality of our online portals, improving our network systems
and enhancing the technology underlying the features of our e-commerce
infrastructure and service.
COMPETITION
The market for our services is intensely competitive and subject to rapid
technological change. We expect competition to intensify in the future. We
believe that our direct, primary competitors currently are CyberCash,
Cybersource, DCTI, Bottomline Technologies, IFS and iBill in the
business-to-consumer sector. We also face competition from developers of other
systems for e-commerce transaction processing such as Clear Commerce, Digital
River, Trintech, Payment Net, HNC Software, Open Market, Shopnow.com,
Hewlett-Packard (VeriFone) and TradeCard, Inc. In addition, we face indirect
competition from such companies as iMall, Yahoo, Excite and other retail portals
that offer transaction processing as a part of their "Internet commerce
solution." Other competition comes from online merchants who develop custom
systems. Online merchants who have made large initial investments to develop
custom systems may be less likely to adopt an outsourced transaction processing
strategy. In addition, other companies including financial services and credit
companies may enter the market for our services. In the future, we may also
compete with large Internet-centric companies that derive a significant portion
of their revenues from e-commerce and will offer, or provide a means for others
to offer, e-commerce transaction services, including Cybersource; Go2Net,
through its subsidiary Authorize.net; eBay, through its acquisition of
Billpoint; Amazon.com, through its subsidiary Accept.com; and Shopnow.com.
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly than
we can to new or emerging technologies and changes in customer requirements.
Competition could seriously impede our ability to sell transaction processing
services on terms favorable to us. Our current and potential competitors may
develop and market new technologies that render our existing or future services
obsolete, unmarketable or less competitive. Our current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with other e-commerce transaction service
providers, thereby increasing the ability of their services to address the needs
of our prospective customers. Our current and potential competitors may
establish or strengthen cooperative relationships with our current or future
channel partners, thereby limiting our ability to sell services through these
channels. Competitive pressures could reduce our market share or require the
reduction of the prices of our services, either of which could materially and
adversely affect our business, results of operations or financial condition.
We compete on the basis of certain factors, including: system reliability;
service performance; breadth of service offering; ease of implementation; time
to market; customer support; and price.
We believe that we will compete favorably with respect to each of these
factors. However, the market for our services is still rapidly evolving, and we
may not be able to compete successfully against current and potential future
competitors.
FACILITIES
Our current headquarters are located in approximately 12,000 square feet of
office space in Culver City, California which we sublease on a month-to-month
basis for $25,000 per month. We anticipate moving the corporate headquarters
within the same Southern California area by the end of 2000. We have a small
office in Nashville, Tennessee which we lease on a year-to-year basis for $800
per month, a small sales office in Boca Raton, Florida which we lease on a
year-to-year basis for $200 per month and a 600 square foot processing and
development facility in Warrenton, Virginia which we lease on a monthly
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basis for $625 per month. We believe that our existing facilities are adequate
for our current requirements and that additional space can be obtained on
commercially reasonable terms to meet future requirements.
EMPLOYEES
As of August 31, 2000, we had a total of 25 employees, including four in
product development, two in sales and marketing, two in business development,
three in systems operation, three in financial services and eleven in general
and administrative services. None of our employees are represented by a labor
union, and we consider employee relations to be good. We recognize the existence
of a competitive labor market and realize that our growth is dependent upon our
ability to attract the quality of employee needed to support our planned growth.
REGULATIONS
The following laws and regulations can impact our business now or in the
future:
Fair Credit Reporting Act. Because our Internet fraud screening system
assesses the probability of fraud in an Internet credit card transaction, we may
be deemed a consumer reporting agency under the Fair Credit Reporting Act. As a
precaution, we are designing our systems and processes so that we will be in
compliance with the Act. Complying with this Act requires us to provide
information about personal data stored by us. Failure to comply with this Act
could result in claims being made against us by individual consumers and the
Federal Trade Commission.
Export Control Regulations. Current export control regulations prohibit the
export of strong encryption technology without a license, thereby preventing us
from using stronger encryption technology to protect the security of data being
transmitted to and from Internet merchants outside of the United States. We have
obtained a license to use 168-bit encryption technology with our international
merchants, which we believe is adequate for our business.
Internet Tax Freedom Act. Enacted in October 1998 and effective through
October 2001, the Act bars state or local governments from imposing taxes that
would subject buyers and sellers of electronic commerce to taxation in multiple
states. The Act also bars state and local governments from imposing taxes on
Internet access through October 2001. When the Act expires or if the Act is
repealed, Internet access and sales across the Internet may be subject to
additional taxation by state and local governments, thereby discouraging
purchases over the Internet and adversely affecting our business.
Privacy Laws. The collection, use and dissemination of personally
identifiable information is the subject of a variety of existing laws and
regulations applicable generally, such as the Fair Credit Reporting Act and FTC
Privacy Guidelines, and to online activities specifically, such as the EU
Privacy Directive, the Electronic Funds Transfer Act and the Child Online
Protection Act. We have adopted privacy policies which we believe comply with
these regulations, and we do not believe that compliance will be a problem for
us because we do not sell personal information.
LEGAL PROCEEDINGS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of business. We are not
currently involved in any pending litigation.
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MANAGEMENT
DIRECTORS, OFFICERS AND KEY PERSONNEL
The directors, executive officers and key personnel of SolutionsAmerica are
as follows:
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Floyd W. Chairman of the Board of Directors, Chief Executive Officer
Kephart.........
Gary Horowitz..... Director, President, Chief Operating Officer
Jeffrey Director, Senior Vice President Technology, Chief Technology
Kilbride........ Officer
Jordan Posell..... Director
Michael Sigman.... Director
Viviane Mattey.... Senior Vice President Financial Services
Marc Overman...... President, Sentinel Software, Inc., a wholly-owned
subsidiary of the Company
Michael Smith..... Treasurer, Chief Financial Officer, Secretary
Steven Tandberg... President, Pointyheads, a division of the Company
John Wheeler...... Senior Vice President Marketing
</TABLE>
Each director holds office for a one-year period or until his or her
successor has been elected. At present, our bylaws provide for five directors.
The bylaws permit the board of directors to fill any vacancy. A director
appointed to fill a vacancy may serve until the next annual meeting of
stockholders or until his or her successor has been elected. Officers serve at
the discretion of the board of directors. There are no family relationships
among any of our officers or directors. Our officers devote full-time to the
business of SolutionsAmerica.
The principal occupations and business experience of our directors,
executive officers and key personnel for at least the last five years are as
follows:
Floyd W. Kephart, age 58, has served as chairman of the board of directors
of SolutionsAmerica since its inception and has served as chief executive
officer since May 2000. Mr. Kephart has served on several corporate boards and
on the Securities and Exchange Commission's Advisory Commission on Small Capital
Formation. He has been a frequent speaker on issues relating to future trends in
business and government. Mr. Kephart has held several government positions and
has served as a policy consultant to three presidential administrations. As a
consultant, he has worked with over 30 Fortune 150 clients, including General
Motors, Sony Pictures Entertainment, Procter & Gamble, Chrysler, ABC, NBC, and
Columbia/HCA and has provided media training or advice on corporate strategy to
more than 100 corporate executives and celebrities. Prior to serving as chief
executive officer, Mr. Kephart was secretary and treasurer of SolutionsAmerica.
Mr. Kephart has served as chairman and chief executive officer of Artists &
Entertainment, Inc. since 1987. Mr. Kephart also served as chairman of the board
of directors of SCA, Inc. from January 1997 through May 1999. Artists &
Entertainment was a shareholder in SCA. The other shareholders of SCA deadlocked
over the operation of the corporation and decided to put the corporation into
bankruptcy. As chairman, Mr. Kephart oversaw the termination of all directors,
officers and employees of SCA and filed for protection under Chapter 11 of the
Bankruptcy Act. He was then replaced by a trustee who oversaw SCA. Mr. Kephart
directs our vision, strategic planning, new technological development, strategic
alliances and mergers and acquisitions activities.
Gary Horowitz, age 64, has served as a director and president of
SolutionsAmerica since its inception and currently also serves as our chief
operating officer. Mr. Horowitz served as our chief executive officer from its
inception to May 2000. From June 1998 through April 1999, Mr. Horowitz was
president of Recovery Network, Inc., a cable television network programming
subject matter relating to addiction and health issues. From July 1993 through
March 1996, Mr. Horowitz was president and chief executive officer of Harmony
Holdings, Inc., a publicly-held company whose shares are traded on the Nasdaq
SmallCap Market (HAHO), which owned and operated a group of television
commercial and music video production companies. Additionally, Mr. Horowitz
served as director, publisher and chief executive officer of the alternative
weekly publication, "LA Weekly" and was co-founder of Wakeford/Orloff, a
producer of
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worldwide television advertising for major American corporations and also of
motion pictures. Mr. Horowitz oversees our operations, including sales and
marketing, advertising, customer service, human resources, public relations, and
financial systems and reporting.
Jeffrey Kilbride, age 35, became senior vice president, technology and
chief technology officer in March 2000. Mr. Kilbride is an expert programmer and
systems analyst with extensive experience in large-scale Internet network design
and deployment; TCP/IP network programming, design, installation and
troubleshooting; software project management; and numerous programming
languages. Mr. Kilbride co-designed and developed all technologies related to
our online transaction engine, including the real time database-driven client
reporting system, which is capable of servicing over 10,000 clients. From July
1998 through March 2000, Mr. Kilbride served as chief executive officer of
Paycom, and served as chief technical officer of Paycom from July 1997 through
December 1998. Mr. Kilbride was a senior applications developer at Potentia
Technologies from July 1995 through July 1997. Mr. Kilbride is responsible for
the day-to-day operation of our systems.
Jordan Posell, age 36, became a director of SolutionsAmerica in July 2000.
Mr. Posell has been with eToys, Inc., as director, finance and administration
from February 1998 through December 1998; vice president, finance and
administration from December 1998 through September 1999; and vice president,
financial operations from August 1999 to the present. From 1997 through February
1998, Mr. Posell was vice president, portfolio company operations of idealab!
and he was chief operating officer and acting chief financial officer of Lone
Eagle Publishing Company from 1995 through April 1997.
Michael Sigman, age 51, joined our board of directors in May 2000. For the
past six years Mr. Sigman has served as president and chief executive officer of
the alternative weekly publications "LA Weekly" and "OC Weekly." Mr. Sigman is
currently on the board of directors of two non-profit organizations, the Wright
Institute and Antioch University. He also serves as executive vice president of
Village Voice Reading, Inc.
Viviane Mattey, age 43, joined SolutionsAmerica in January 2000 and has
served as senior vice president, financial services since May 2000. Ms. Mattey
is a financial services expert with nearly twenty years of experience in
corporate finance, international taxation, offshore structuring, strategic
planning and mergers and acquisitions. Ms. Mattey was vice president of The
Winterbotham Trust Company Limited from February 1999 to December 1999. From
April of 1997 to January 1999, Ms. Mattey served as vice president of Ermitage
Management Ltd. She also served as vice president of finance of Adarof Medical,
Inc., and its subsidiary, Perry Baromedical Corporation, from November 1993 to
March 1997.
Marc Overman, age 31, has served as president of Sentinel Software, Inc.
since December 1996. SolutionsAmerica acquired Sentinel Software in December
1999 and has maintained it as a wholly owned subsidiary to oversee our product
development. As founder and president of Sentinel, Mr. Overman developed
e-commerce systems including an online credit card transaction processing system
to protect against fraud and a real time Internet traffic brokering system for
e-commerce. Mr. Overman was chief technical lead of Logicon/Northrop Grumman
from January 1995 through April 1998.
Michael Smith, age 45, has served as chief financial officer, treasurer and
secretary of SolutionsAmerica since September 2000. Prior to joining
SolutionsAmerica, Mr. Smith was a principal in Strategic Focus, LLC, an
accounting and financial consulting firm, from 1994 through August 2000. Mr.
Smith also was vice president of finance and administration for Paul Monroe
Engineering, a $25 million subsidiary of a major Danish Company from 1989 to
1994. Mr. Smith has an extensive background in accounting and business
development and analysis, and he has worked in administrative and financial
management for the last twenty years with numerous companies, including Northrop
and Teledyne.
Steven Tandberg, age 34, has been president of Pointyheads, our creative
design division, since March 2000. Prior to that, Mr. Tandberg was vice
president, production for Paycom from April 1997 to February 2000 and president
and owner of The Internet Guy from March 1995 to March 1997.
John Wheeler, age 47, has served as senior vice president, marketing since
May 2000. Prior to joining SolutionsAmerica, Mr. Wheeler was chief operating
officer and senior vice president sales and marketing
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for Recovery Network, Inc. from February 1997 through March 1999 where he
implemented both the Internet and e-commerce components of the Network and
amassed a subscriber base of nearly five million affiliate homes in 20 months of
operation. Mr. Wheeler also served as president of Parenthood Television from
May 1994 through February 1997. Mr. Wheeler oversees our business development
and general operations.
DIRECTOR COMPENSATION
Jordan Posell and Michael Sigman have each received warrants to purchase up
to 50,000 shares of our common stock at $1.00 per share as compensation for
their services as directors. No other directors receive compensation for their
services other than reimbursement of expenses related to attending meetings of
the board of directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of our
executive officers for the year ended May 31, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- ---------------------------------
AWARDS PAYOUTS
OTHER ----------------------- ------- ALL
ANNUAL RESTRICTED SECURITIES OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
SALARY BONUS SATION AWARDS OPTIONS/ PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($)
--------------------------- ---- -------- ----- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Floyd W. Kephart................ 2000 175,000(1) -- -- -- -- -- --
Chief Executive Officer
Gary Horowitz,.................. 2000 175,000(2) -- -- -- -- -- --
President
Jeffrey Kilbride................ 2000 45,000(3) -- -- -- 642,133 -- --
Senior Vice President
Technology
John Wheeler.................... 2000 105,000(4) -- -- -- 75,000 -- --
Senior Vice President
Marketing
Steven Tandberg................. 2000 45,000(5) -- -- -- 642,133 --
President, Pointyheads
Viviane Mattey.................. 2000 43,750(6) -- -- -- 400,000 -- --
Senior Vice President
Financial
Services
Marc Overman.................... 2000 41,250(7) -- -- -- -- -- --
President, Sentinel Software
</TABLE>
-------------------------
(1) Represents amount actually accrued and paid in full in fiscal year 2000. Mr.
Kephart's annual salary is $300,000.
(2) Represents amount actually accrued and paid in full in fiscal year 2000. Mr.
Horowitz' annual salary is $300,000.
(3) Represents amount actually accrued and paid in full in fiscal year 2000. Mr.
Kilbride's annual salary is $200,000.
(4) Represents amount actually accrued and paid in full in fiscal year 2000. Mr.
Wheeler's annual salary is $180,000.
(5) Represents amount actually accrued and paid in full in fiscal year 2000. Mr.
Tandberg's annual salary is $200,000.
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(6) Represents amount actually accrued and paid in full in fiscal year 2000. Ms.
Mattey's annual salary is $175,000.
(7) Represents amount actually accrued and paid in full in fiscal year 2000. Mr.
Overman's annual salary is $165,000 per year plus 10% of Sentinel's net
income.
EMPLOYMENT AGREEMENTS
In August 2000, we entered into an employment agreement with Floyd W.
Kephart, our chief executive officer, providing that, commencing as of July 1,
2000 and terminating five years later, subject to automatic annual extension,
Mr. Kephart will devote his full-time business efforts to SolutionsAmerica for a
salary of $300,000 per year. Mr. Kephart will also receive an annual bonus
commencing in fiscal year 2001 equal to five percent of our fiscal year net
profits in excess of $5 million. Additionally, Mr. Kephart will receive stock
options in an amount determined by the board of directors on the Company's
initial public offering or merger with a public company at the lowest purchase
price at which options are granted under our stock option plan. These options
will vest over a three-year period commencing as of July 1, 2000. Mr. Kephart is
entitled to participate in insurance, pension and other benefit plans we
establish for our employees. If Mr. Kephart is terminated upon a "change in
control," which is deemed to have occurred when a person or affiliated group of
people obtain 50% or more of our voting securities or when a majority of our
board of directors are not elected as part of the management nominated slate,
Mr. Kephart will be entitled to his full salary and benefits for three years
from the date of termination and if his options would be terminated as a result
of a change in control, then all of his unvested options will become immediately
exercisable. If Mr. Kephart is terminated without cause or as a result of our
material breach of his employment agreement, he will be paid the remaining
balance of his salary for the term, all of his stock options will vest and
become immediately exercisable and he will be provided with all benefits to
which he is entitled for the remainder of the term.
In August 2000, we entered into an employment agreement with Gary Horowitz,
our president, providing that, commencing as of July 1, 2000 and terminating
five years later, subject to automatic annual extension, Mr. Horowitz will
devote his full-time business efforts to SolutionsAmerica for a salary of
$300,000 per year. Mr. Horowitz will also receive an annual bonus commencing in
fiscal year 2001 equal to five percent of our fiscal year net profits in excess
of $5 million. Additionally, Mr. Horowitz will receive stock options in an
amount determined by our board of directors on our initial public offering or
merger with a public company at the lowest purchase price at which options are
granted under our stock option plan. These options will vest over a three-year
period commencing as of July 1, 2000. Mr. Horowitz is entitled to participate in
insurance, pension and other benefit plans we establish for our employees. If
Mr. Horowitz is terminated upon a change in control, he will be entitled to his
full salary and benefits for three years from the date of termination and if his
options would be terminated as a result of a change in control, then all his
unvested options will become immediately exercisable. If Mr. Horowitz is
terminated without cause or as a result of our material breach of his employment
agreement, he will be paid the remaining balance of his salary for the term, all
of his stock options will vest and become immediately exercisable and he will be
provided with all benefits to which he is entitled for the remainder of the
term.
In August 2000, the Company entered into an employment agreement with
Steven Tandberg, president of Pointyheads, a division of SolutionsAmerica,
providing that, commencing as of August 1, 2000 and terminating one year later
subject to automatic annual extension, Mr. Tandberg will devote his full-time
business efforts to SolutionsAmerica for a salary of $200,000 per year. As of
June 24, 2000, Mr. Tandberg was granted an option to purchase 642,133 shares of
common stock at $1.00 per share. Additionally, Mr. Tandberg will receive stock
options in an amount determined by our board of directors on our initial public
offering or merger with a public company at the lowest purchase price at which
options are granted under our stock option plan. These options will vest over a
three year period commencing as of August 15, 2000. If Mr. Tandberg's options
would be terminated as a result of a change in control, all of Mr. Tandberg's
unvested options will become immediately exercisable. Mr. Tandberg is entitled
to participate in insurance, pension and other benefit plans we establish for
our employees. If Mr. Tandberg is terminated without cause or as a result of our
material breach of his employment
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<PAGE> 40
agreement, he will be paid the remaining balance of his salary for the term, all
of his stock options will vest and become immediately exercisable and he will be
provided with all benefits to which he is entitled for the remainder of the
term.
In August 2000, the Company entered into an employment agreement with
Jeffrey Kilbride, our chief technology officer, providing that, commencing as of
August 1, 2000 and terminating two years later subject to automatic annual
one-year renewal, Mr. Kilbride will devote his full-time business efforts to
SolutionsAmerica for a salary of $200,000 per year. As of June 24, 2000, Mr.
Kilbride was granted an option to purchase 642,133 shares of common stock at
$1.00 per share. Additionally, Mr. Kilbride will receive stock options in an
amount determined by our board of directors on our initial public offering or
merger with a public company at the lowest purchase price at which options are
granted under our stock option plan. These options will vest over a three year
period commencing as of August 15, 2000. If Mr. Kilbride's options would be
terminated as a result of a change in control, all of Mr. Kilbride's unvested
options will become immediately exercisable. Mr. Kilbride is entitled to
participate in insurance, pension and other benefit plans we establish for our
employees. If Mr. Kilbride is terminated without cause or as a result of our
material breach of his employment agreement, he will be paid the remaining
balance of his salary for the term, all of his stock options will vest and
become immediately exercisable and he will be provided with all benefits to
which he is entitled for the remainder of the term.
In connection with the acquisition of Sentinel Software, Inc., we entered
into an employment agreement with Marc Overman, the president of Sentinel
commencing as of December 30, 1999 and continuing through December 31, 2001. Mr.
Overman will devote his full-time business efforts to SolutionsAmerica with the
exception that Mr. Overman may continue to conduct his businesses which existed
as of December 30, 1999 so long as the conduct of such businesses does not
materially conflict with or interfere with his duties to us. Mr. Overman is paid
a base salary of $168,000 per year plus an annual bonus of 10% of Sentinel's net
income before taxes. In consideration for the acquisition of Sentinel, we issued
Mr. Overman 327,204 shares of common stock. Mr. Overman is entitled to
participate in insurance, pension and other benefit plans we establish for our
employees.
STOCK OPTIONS
The following table sets forth information for each of our executive
officers concerning stock options granted to them as of June 24, 2000.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE
---- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Jeffrey Kilbride........................... 642,133 34% $1.00 6/23/10
Viviane Mattey............................. 400,000 21.2% $1.00 6/23/10
Steven Tandberg............................ 642,133 34% $1.00 6/23/10
John Wheeler............................... 75,000 4.0% $1.00 6/23/10
</TABLE>
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<PAGE> 41
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information as of August 31, 2000 with
respect to (i) the beneficial ownership of our outstanding common stock by each
person who is the beneficial owner of more than 5% of our capital stock; each of
our directors; each of our executive officers and all of our executive officers
and directors as a group and (ii) the shareholders selling their shares in this
initial public offering.
<TABLE>
<CAPTION>
SHARES OFFERED
-----------------------
SHARES BENEFICIALLY ISSUABLE SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING UNDER OWNED AFTER OFFERING
------------------------ WARRANTS ---------------------
NAME AND ADDRESS NUMBER PERCENT OWNED AND OPTIONS NUMBER PERCENT
---------------- ------------ --------- --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Floyd W. Kephart..................... 4,116,233 40.6% 300,000 3,816,233 27.8%
600 Corporate Pointe
12th Floor
Culver City, CA 90230
Gary Horowitz........................ 4,116,233 40.6% 300,000 3,816,233 27.8%
600 Corporate Pointe
12th Floor
Culver City, CA 90230
Frontier Insurance Group, Inc........ 1,000,000 9.9% 1,000,000 0 0%
245 Perimeter Center Pkwy
4th Floor
Atlanta, GA 30346
Kurt N. Feshbach(1).................. 1,125,000 10.5% 50,000 1,075,000 7.5%
2700 Middlefield Road
Palo Alto, CA 94306
Michael Sigman(2).................... 50,000 .5% 50,000 0 0%
6715 Sunset Boulevard
Los Angeles, CA 90028
Jordan Posell(3)..................... 50,000 .5% 50,000 0 0%
3100 Ocean Park Boulevard
Suite 300
Santa Monica, CA 90405
Swartz Private Equity, LLC(4)........ 600,000 5.6% 600,000 0 0%
c/o Eric S. Swartz
200 Roswell Summit, Suite 285
1080 Holcomb Bridge Road
Roswell, GA 30076
Citadel Capital Management
Corporation(5)..................... 1,151,775 10.2% 641,775 510,000 3.6%
333 So. Grand Avenue
Suite 3030
Los Angeles, CA 90071
Peter Banner(6)...................... 80,000 .8% 40,000 40,000 0 0%
220 Loma Metisse
Malibu, CA 90265
Kenny Coplon(7)...................... 95,000 .9% 40,000 45,000 10,000 .07%
19902 Pacific Coast Hwy.
Malibu, CA 90265
Jeffrey Kilbride(8).................. 642,133 6.0% 200,000 442,133 3.1%
600 Corporate Pointe
12th Floor
Culver City, CA 90230
</TABLE>
38
<PAGE> 42
<TABLE>
<CAPTION>
SHARES OFFERED
-----------------------
SHARES BENEFICIALLY ISSUABLE SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING UNDER OWNED AFTER OFFERING
------------------------ WARRANTS ---------------------
NAME AND ADDRESS NUMBER PERCENT OWNED AND OPTIONS NUMBER PERCENT
---------------- ------------ --------- --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Steven Tandberg(9)................... 642,133 6.0% 200,000 442,133 3.1%
600 Corporate Pointe
12th Floor
Culver City, CA 90230
John Wheeler(10)..................... 75,000 .7% 75,000 .5%
600 Corporate Pointe
12th Floor
Culver City, CA 90230
Viviane Mattey(11)................... 400,000 3.8% 80,000 320,000 2.3%
600 Corporate Pointe
12th Floor
Culver City, CA 90230
Marc Overman......................... 327,204 3.2% 200,000 127,204 .9%
600 Corporate Pointe
12th Floor
Culver City, CA 90230
The Presburger Family Trust(12)...... 180,000 1.7% 180,000 0 0%
5240-5 Yarmouth Avenue
Encino, CA 91316
All Executive Officers and Directors
as a group (10 persons)(13)........ 10,418,936 86.8% 800,000 580,000 9,038,936 60.1%
</TABLE>
-------------------------
(1) Includes shares and warrants held by the Kurt N. Feshbach Living Trust,
Feshbach Partners I and Feshbach Partners Offshore. Includes 625,000 shares
of common stock issuable upon exercise of warrants exercisable within 60
days of September 1, 2000.
(2) Includes 50,000 shares of common stock issuable upon exercise of warrants
exercisable within 60 days of September 1, 2000.
(3) Includes 50,000 shares of common stock issuable upon exercise of warrants
exercisable within 60 days of September 1, 2000.
(4) Includes 600,000 shares of common stock issuable upon exercise of
outstanding warrants which are currently exercisable. Does not include up
to an aggregate of 10,000,000 shares of our common stock that we may sell
to Swartz pursuant to the investment agreement and up to 1,000,000 shares
of our common stock underlying the warrants issuable in connection with the
investment agreement, which shares would not be deemed beneficially owned
within the meaning of Sections 13(d) and 13(g) of the Exchange Act before
their acquisition by Swartz. It is expected that Swartz will not
beneficially own more than 9.99% of our outstanding common stock at
anytime.
(5) Includes 641,775 shares of common stock issuable upon exercise of warrants
exercisable within 60 days of September 1, 2000 which warrants are held by
Citadel Capital Management Corporation and Matthew C. Fragner and Phillip
Roberts, the principals of Citadel. Includes common stock issuable upon
exercise by Citadel of its right to convert all or part of a $510,000 note
owned by Citadel to common stock for $1.00 per share.
(6) Includes 40,000 shares of common stock issuable upon exercise of warrants
exercisable within 60 days of September 1, 2000.
(7) Includes 55,000 shares of common stock issuable upon exercise of warrants
exercisable within 60 days of September 1, 2000.
(8) Shares listed represent fully vested and exercisable options to purchase
the shares of common stock.
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<PAGE> 43
(9) Shares listed represent fully vested and exercisable options to purchase
the shares of common stock.
(10) Shares listed represent fully vested and exercisable options to purchase
the shares of common stock.
(11) Shares listed represent fully vested and exercisable options to purchase
the shares of common stock.
(12) Includes 180,000 shares of common stock issuable to the Presburger Family
Trust and Presburger family members upon exercise of warrants, exercisable
within 60 days of September 1, 2000.
(13) Includes 1,859,266 shares of common stock issuable under fully vested stock
options and warrants exercisable within 60 days of September 1, 2000.
This prospectus covers the resale by the selling stockholders of these
shares, plus, in accordance with Rule 416 under the Securities Act of 1933, such
additional number of shares of our common stock as may be issued on exercise of
the warrants resulting from stock splits, stock dividends or the application of
antidilution provisions in the warrants. The number of shares shown in the
preceding table as being offered by the selling stockholders does not include
such presently indeterminate number of additional shares of our common stock.
Any and all of the shares of common stock may be offered for sale pursuant
to this prospectus by the selling stockholders from time to time. Accordingly,
no estimate can be given as to the amounts of shares of our common stock that
will be held by the selling stockholders upon consummation of any such sales. In
addition, the selling stockholders may have sold, transferred or otherwise
disposed of all or a portion of their shares since the date on which the
information regarding their common stock was provided in transactions exempt
from the registration requirements of the Securities Act of 1933.
Under the securities laws of certain states, the shares may be sold only
through registered or licensed broker-dealers or pursuant to available
exemptions from such requirements. In addition, in certain states the shares may
not be sold unless the shares have been registered or qualified for sale or an
exemption from such requirement is available and is complied with.
We will pay certain expenses in connection with this offering, estimated to
be approximately $1.1 million but we will not pay for any underwriting
commissions and discounts, if any, or counsel fees or other expenses of the
selling stockholders. We have agreed to indemnify the selling stockholders,
their directors, officers, agents and representatives, and any underwriters,
against certain liabilities, including certain liabilities under the Securities
Act of 1933. The selling stockholders have also agreed to indemnify us, our
directors, officers, agents and representatives against certain liabilities,
including certain liabilities under the Securities Act of 1933.
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<PAGE> 44
CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS
Pursuant to a stock purchase agreement dated December 30, 1999, we acquired
all of the stock of Sentinel Software, Inc., a Virginia corporation, now one of
our wholly-owned subsidiaries, and we secured the employment of Marc Overman,
president of Sentinel. In consideration for Sentinel's stock and the employment
agreement, we issued Mr. Overman 327,204 shares of our common stock.
As of May 3, 2000, we issued to Swartz warrants for 600,000 shares
exercisable at $1.00 per share, subject to reset if the lowest closing bid price
of our common stock is less than $1.00 on certain dates. These warrants are in
consideration of the equity line which Swartz is establishing for us under the
investment agreement.
Pursuant to a promissory note, dated May 24, 2000, Citadel Capital
Management Corporation loaned us $510,000 for operating capital and we issued
warrants to Citadel and Matthew C. Fragner and Phillip Roberts, Citadel's
principals, for a total of 641,775 shares exercisable at prices ranging from 75%
of the average bid price to the lesser of (i) 50% of the average bid price and
(ii) $1.00 per share. The average bid price is defined as the average bid price
as reported in the Wall Street Journal over the 30 day period prior to the
exercise of the warrant. Additionally, Citadel has the right to convert any or
all of the outstanding debt under the promissory note into shares of our common
stock at a price of $1.00 per share.
Pursuant to a merger agreement dated as of July 11, 2000, we acquired all
of the common stock of OneStop.com from OneStop's sole shareholder, Frontier
Insurance Group, Inc., a Delaware corporation. We issued 1,000,000 shares of our
common stock to Frontier in consideration for the merger. Under the merger
agreement, if we do not register Frontier's shares by December 31, 2000 or if
the per share market value does not exceed $1.00 on or before December 31, 2000,
Frontier can cause us to repurchase 500,000 shares of our common stock for $1
million.
As of June 29, 2000, we issued a total of 400,000 shares of our common
stock to Kurt N. Feshbach and his affiliates for a purchase price of $400,000.
Additionally, we issued warrants to Mr. Feshbach and his affiliates for 500,000
shares exercisable at a price per share equal to the lesser of (i) 50% of the
average bid price or (ii) $1.00 per share. As of September 1, 2000, we issued to
The Kurt N. Feshbach Living Trust 100,000 shares for a purchase price of
$100,000 and warrants for 125,000 shares exercisable at a price per share equal
to the lesser of (i) 50% of the average bid price or (ii) $1.00 per share.
INVESTMENT AGREEMENT
OVERVIEW
We signed an investment agreement, dated July 18, 2000, with Swartz Private
Equity, LLC, a Georgia limited liability company, for the future issuance and
purchase of shares of our common stock. The investment agreement establishes
what is sometimes termed an equity line. In general, the equity line operates
like this: the investor, Swartz, has committed to purchase up to $30 million
worth of shares of our common stock over a 3-year period following the
effectiveness of this registration statement. Once every 25 trading days, we may
cause Swartz to purchase up to $2 million of our common stock, subject to a
formula based on the lowest closing bid price for our common stock and the
trading volume during a prescribed 20 trading day pricing period. At the end of
the 20 trading day period following our exercise of our put option to cause
Swartz to purchase our shares, the actual purchase amount is determined based on
the aggregate trading volume and the lowest closing bid price during that 20
trading-day pricing period, subject to certain volume and price limitations. The
formulas for determining the number of shares we issue to Swartz and the price
per share paid by Swartz are described in detail beginning on page 42.
The aggregate total of all puts cannot exceed $30 million and no single put
can exceed $2 million. The investment agreement does not permit us to cause
Swartz to purchase our shares to the extent that the issuance of such shares,
when added to the number of shares acquired by Swartz under the investment
agreement during the 31 days preceding the put date, would exceed 9.99% of our
total number of shares of
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<PAGE> 45
common stock outstanding calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934.
Swartz will receive the greater of a $.10 discount or a 9% discount to the
lowest closing bid price of our common stock for any 20 day pricing period, but
the purchase price will not be less than a minimum purchase price if we have
specified one. We will receive the amount of the purchase price less this
discount. In addition, Swartz will receive in connection with each purchase a
five year warrant to purchase a number of shares equal to 10% of the shares
issued in each put at an initial price of 110% of the market price for that put,
subject to reset if the lowest closing bid price of our common stock is less
than the initial price on six-month anniversary dates.
We are under no obligation to sell shares during any period. However, if we
have not sold to Swartz at least $1 million of shares during each 6-month period
following effectiveness of this registration statement we have agreed to pay to
Swartz a semi-annual non-usage fee equal to $100,000 less 10% of the aggregate
dollar amount of the shares sold to Swartz during that 6-month period. We have
also agreed to pay a termination fee of the greater of the semi-annual non-usage
fee for the 6-month period in which termination occurs or $200,000 less 10% of
the aggregate dollar amount of all shares sold to Swartz.
We have also issued to Swartz stock purchase warrants to purchase 600,000
shares of our common stock with an initial exercise price of $1.00, subject to
reset if the lowest closing bid price of our common stock is less than $1.00 on
certain dates. The warrants expire May 3, 2005. The common stock issuable upon
exercise of those warrants is included in the registration statement of which
this prospectus is a part. On the earlier of January 31, 2001 or the date of the
first put, if we have more than 15,000,000 shares issued and outstanding, we
have agreed to issue Swartz additional warrants on the same terms as these
warrants covering a number of shares equal to 4% of the number of our shares
which are then outstanding on a fully diluted basis.
We are registering 10,000,000 shares of common stock for possible issuance
under the investment agreement and 1,600,000 shares of common stock underlying
the warrants delivered or which may be delivered to Swartz.
THE PURCHASE PROCEDURE AND THE STOCK PURCHASES
Generally, in order to sell our shares to Swartz, between 10 and 20 trading
days prior to any intended put, we must deliver to Swartz advance notice of our
intention to do so specifying the date on which we intend to cause a purchase
and the number of shares we intend for Swartz to purchase. We may also designate
a maximum dollar amount which we intend to sell or a minimum purchase price per
share for the purchase, or both. However, the minimum purchase price that we
designate cannot exceed the lesser of 80% of the closing bid price of our common
stock on the trading day preceding date of this notice or the closing bid price
on such date less $.15. We may then exercise our right to cause Swartz to
purchase our shares by sending them a put notice, on the date specified in the
advance notice and containing the same information as was contained in it. The
next 20 trading days immediately following this put notice are used to determine
the actual number of shares of our common stock that we will sell to Swartz and
the purchase price for those shares, based on the formulas described below.
NUMBER OF SHARES OF OUR COMMON STOCK TO BE SOLD
Swartz is required to purchase the number of shares specified in our notice
to them unless reduced because of certain volume limitations. Swartz is not
required to purchase a number of shares which exceeds the lesser of: (1) 15% of
the sum of the aggregate daily reported trading volume (excluding block trades
of 30,000 shares or more) for the 20 trading days preceding the put notice; (2)
15% of the sum of the aggregate daily reported trading volume (excluding block
trades of 30,000 shares or more) for the 20 trading days following the put
notice, not counting the volume for any trading day in the following period in
which the lowest intra-day trading price is less than the greater of the
designated put price in the put notice plus $.10 or the designated put price in
the put notice divided by .91; or (3) the number of shares
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<PAGE> 46
which when multiplied by the purchase price exceeds the maximum dollar amount
specified in our put notice or $2 million if no amount is so specified.
AMOUNT OF THE PURCHASE PRICE
If we have designated a minimum purchase price in our put notice, the
purchase price for the shares will be no less than that price. If we have not so
designated a minimum purchase price, then the purchase price for the shares to
be sold to Swartz is the lesser of $.10 less than the lowest closing bid price
for the shares during the 20 trading day period following the put notice, or 91%
of the lowest closing bid price during such pricing period.
NECESSARY CONDITIONS BEFORE SWARTZ IS OBLIGATED TO PURCHASE SHARES OF OUR COMMON
STOCK
The following conditions must be satisfied before Swartz is obligated to
purchase the shares of our common stock that we wish to sell from time to time:
- A registration statement for the shares of common stock we will be
issuing must be declared effective by the Securities and Exchange
Commission and must remain effective and available for making resales of
the shares of common stock purchased by Swartz and the shares covered by
their warrants;
- Our common stock must be listed for and actively trading on the O.T.C.
Bulletin Board, the NASDAQ Small Cap Market, the NASDAQ National Market,
the American Stock Exchange or the New York Stock Exchange and the shares
put to Swartz must be so listed, and trading of our shares may not be
suspended or delisted;
- We must have satisfied and be in compliance with any and all obligations
of the various agreements between us and Swartz relating to the equity
line, and all of our representations and warranties must be true and
correct in all material respects as if made on the date of sale of our
shares to Swartz;
- We must have reserved for issuance a sufficient number of shares for the
sale and to effect exercise of the warrants;
- The prospectus included in this registration statement must be current
and deliverable, and we must not be aware of any investigation or inquiry
concerning any stop order with respect to the registration statement;
- If the number of shares to be issued at any given time would exceed the
maximum number of shares that we can issue without stockholder approval,
we must have obtained such approval; and
- We must have retained an independent transfer agent who has agreed to
issue shares in compliance with our agreement with Swartz.
FURTHER LIMITATIONS
The investment agreement does not permit us to cause Swartz to purchase our
shares to the extent that the issuance of such shares, when added to the number
of shares acquired by Swartz under the investment agreement during the 31 days
preceding the put date, would exceed 9.99% of our total number of shares of
common stock outstanding, as calculated under Section 13(d) of the Securities
Exchange Act of 1934.
In addition, Swartz is not obligated to purchase any additional shares:
- Once the aggregate dollar amount paid by them equals $30 million dollars;
- If we have announced a subdivision or combination, including a reverse
split, of our common stock or we have subdivided or combined our common
stock between the date of the advance notice and the last day of the
pricing period;
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<PAGE> 47
- If we have paid a dividend of our common stock or have made any other
distribution of our common stock during that period;
- If we have made, during that period, a distribution of all or any portion
of our assets or evidences of indebtedness to the holders of our common
stock; or
- If a change of control has occurred during that period.
RESTRICTIONS ON FUTURE FINANCINGS
The investment agreement prohibits us from raising money by selling our
securities for cash in private transactions without Swartz's consent until 90
days after the investment agreement terminates. In addition, Swartz has a right
of first refusal for any private placement to which it has given its consent.
These restrictions do not apply to any issuances of securities in
connection with a merger, consolidation, acquisition or sale of assets, or in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or in connection with the disposition
or acquisition of a business product or license, the exercise of options by
employees, consultants or directors, or a primary underwritten offering of our
common stock. The capital raising limitation also does not apply to the issuance
of securities upon exercise or conversion of options, warrants or other
convertible securities which were outstanding when the investment agreement was
entered into; the grant of additional options or warrants, or the issuance of
additional securities, under any stock option or restricted stock plan for the
benefit of our employees, directors or consultants; the issuance of debt
securities, with no equity feature, incurred solely for working capital
purposes; or to an offering or offerings of an aggregate of up to $5 million in
common stock and warrants, placed prior to the effective date of this
registration statement, provided that the price of such common stock and the
exercise price of such warrants are not subject to being reset based upon the
market price of our common stock (not related to the issuance of other
securities by us) at some future date at any time after the initial issuance of
such securities.
TERMINATION OF THE INVESTMENT AGREEMENT
Our right to require Swartz to purchase any of our shares will terminate
upon the occurrence of any of the following:
- If, at any time, we or any of our directors or executive officers have
engaged in a transaction or conduct that has result in (i) a Securities
and Exchange Commission enforcement action, or (ii) a civil judgment or
criminal conviction for fraud or misrepresentation, or for any other
offense that, if prosecuted criminally, would constitute a felony under
applicable law;
- If, after we become obligated to issue periodic reports under the federal
securities laws, our registration statement is ineffective or our shares
are delisted or suspended from trading for an aggregate of four (4)
months;
- If at any time we have filed for or are subject to any bankruptcy,
insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief
of debtors instituted by or against us;
- If we have materially breached certain provisions of the investment
agreement; or
- If this registration statement has not been declared effective by July
17, 2001.
INDEMNIFICATION OF SWARTZ PRIVATE EQUITY, LLC
Swartz is entitled to customary indemnification from us for any losses or
liabilities suffered by it based upon our breach of any representation, warranty
or covenant in the agreements between us, any claim by our stockholders for
breach of fiduciary duties, claims based on violation of Section 5 of the
Securities Act of 1933, and for material misstatements or omissions from the
registration statement and the prospectus, except as they relate to information
supplied by Swartz to us for inclusion in the registration statement and
prospectus.
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<PAGE> 48
COMMON STOCK
Our authorized capital stock consists of 55,000,000 shares including
50,000,000 shares of common stock and 1,000,000 shares of preferred stock,
$.0001 par value. At August 31, 2000, there were 10,139,670 issued and
outstanding shares of common stock. Holders of the common stock do not have
preemptive rights to purchase additional shares of common stock or other
subscription rights. The common stock carries no conversion rights and is not
subject to redemption or to any sinking fund provisions. All shares of common
stock are entitled to share equally in dividends when declared by the board of
directors and, upon liquidation or dissolution, whether voluntary or
involuntary, to share equally in the assets available for distribution to
stockholders. All outstanding shares are validly authorized and issued, fully
paid and nonassessable. The board of directors is authorized to issue additional
shares of common stock, not to exceed the amount authorized by our certificate
of incorporation, and to issue options and warrants for the purchase of such
shares on such terms and conditions and for such consideration as the board may
deem appropriate without further stockholder action. Each holder of common stock
is entitled to one vote per share on all matters on which stockholders are
entitled to vote. Since the shares of common stock do not have cumulative voting
rights, the holders of more than 50% of the shares voting for the election of
directors can elect all directors if they choose to do so and, in such event,
the holders of the remaining shares will not be able to elect any person to the
board of directors. The above description concerning our common stock does not
purport to be complete. Reference is made to our certificate of incorporation
and bylaws, which are available for inspection at our principal executive
offices, as well as to the applicable statutes of the State of Delaware for a
more complete description concerning the rights and liabilities of stockholders
under Delaware law.
The board of directors of SolutionsAmerica is empowered, without approval
of stockholders, to cause up to 1,000,000 shares of preferred stock to be issued
in one or more series and to establish the number of shares to be included in
each such series and their respective designations, preferences, limitations and
relative rights, including voting rights. Because the board of directors has the
power to establish the preferences and rights of each series, it may afford the
holders of any series of preferred stock preferences, powers and rights, voting
or otherwise, senior to the rights of holders of common stock. This includes,
among other things, voting rights, conversion privileges, dividend rates,
redemption rights, sinking fund provisions and liquidation rights which are
superior to the common stock sold to purchasers in this offering. Future
issuance of shares of preferred stock could have the effect of delaying or
preventing a change in control of the Company. No shares of preferred stock will
be outstanding at the close of this offering. The board of directors has no
current plans to issue any shares of preferred stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market,
or the availability of shares for sale, could adversely affect the prevailing
market price of our common stock and our ability to raise capital by accessing
the Swartz equity line or through an offering of equity securities.
Upon completion of this offering, we will have 13,751,445 shares of common
stock outstanding, assuming no exercise of outstanding options or warrants other
than those being exercised by the selling stockholders in this offering and no
shares sold pursuant to the equity line. After the offering, the 5,541,775
shares sold in this offering will be immediately tradeable without restriction
under the Securities Act of 1933, except for any shares purchased by an
"affiliate" of ours, as that term is defined in the Securities Act of 1933.
Affiliates will be subject to the resale limitations of Rule 144 under the
Securities Act.
We issued the remaining 8,209,670 outstanding shares of common stock in
private transactions in reliance upon one or more exemptions contained in the
Securities Act of 1933. These shares will be deemed "restricted securities" as
defined in Rule 144. Of these restricted securities, no shares have been held
for more than one year as of the date of this prospectus, and, therefore none of
these shares will be eligible for public sale until that year holding period has
occurred.
45
<PAGE> 49
In general, under Rule 144, a stockholder, or group of stockholders whose
shares are aggregated, who has beneficially owned "restricted securities" for at
least one year will be entitled to sell an amount of shares within any three
month period equal to the greater of:
- 1% of the then outstanding shares of common stock; or
- the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which notice of the sale
is filed with the Commission, provided certain requirements are
satisfied.
In addition, our affiliates must comply with additional requirements of
Rule 144 in order to sell shares of common stock, including shares acquired by
affiliates in this offering. Under Rule 144, a stockholder who has not been our
affiliate at any time during the 90 days preceding a sale by him, would be
entitled to sell those shares without regard to the Rule 144 requirements if he
owned the restricted shares of common stock for a period of at least two years.
The foregoing summary of Rule 144 is not a complete description. Non-affiliates
may resell our securities issued under Rule 701 in reliance upon Rule 144
without having to comply with Rule 144's public information, holding period,
volume and notice requirements.
All of the selling stockholders have agreed not to offer, sell, pledge,
grant any option to purchase, or otherwise sell or dispose directly or
indirectly of any of our shares for 180 days, or the length of the offering,
whichever period is shorter.
In addition, our officers and directors have agreed to refrain from selling
our shares for so long as shares may be sold to Swartz under the equity line.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust.
REPORTS TO SECURITY-HOLDERS
We will furnish to holders of our securities annual reports containing
audited financial statements. Contemporaneously, with this offering, we have
registered our securities with the Securities and Exchange Commission under the
provisions of Section 12 (b) of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, we will be required to comply with certain
reporting, proxy solicitation and other requirements of the Exchange Act.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
SolutionsAmerica by Greenberg Glusker Fields Claman & Machtinger LLP, Suite
2100, 1900 Avenue of the Stars, Los Angeles, California 90067-4590. Greenberg
Glusker has a warrant to purchase 250,000 shares of common stock at a price per
share equal to the lesser of 75% of the average bid price as reported in the
Wall Street Journal over the 30 day period prior to the exercise of the warrant,
or $1.00 per share.
EXPERTS
The financial statements of SolutionsAmerica, Inc. as of and for the period
from inception to May 31, 2000 included in the registration statement and this
prospectus have been included herein in reliance on the report of Grobstein,
Horwath & Company LLP, independent certified public accountants, given on the
authority of Grobstein, Horwath & Company LLP as experts in accounting and
auditing.
46
<PAGE> 50
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act of 1933, as amended, with
respect to the common stock offered in this prospectus. This prospectus does not
contain all of the information contained in the registration statement and the
exhibits and schedules to the registration statement. Some items are omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. For further information about SolutionsAmerica and the common stock
offered under this prospectus, you should review the registration statement and
the exhibits and schedules filed as a part of the registration statement.
Descriptions of contracts or other documents referred to in this prospectus are
not necessarily complete. If the contract or document is filed as an exhibit to
the registration statement, you should review that contract or document. You
should be aware that when we discuss these contracts or documents in the
prospectus we are assuming that you will read the exhibits to the registration
statement for a more complete understanding of the contract or document. The
registration statement and its exhibits and schedules may be inspected without
charge at the public reference facilities maintained by the Securities and
Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and the Securities and Exchange Commission's regional offices located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies may be obtained from
the Securities and Exchange Commission after payment of fees prescribed by the
Securities and Exchange Commission. The Securities and Exchange Commission also
maintains a website that contains reports, proxy and information statements and
other information regarding registrants, including SolutionsAmerica, that file
electronically with the Securities and Exchange Commission. The address of this
website is www.sec.gov. You may also contact the Securities and Exchange
Commission by telephone at (800) 732-0330.
47
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Financial Statements
Consolidated Balance Sheet................................ F-3
Consolidated Statement of Operations...................... F-4
Consolidated Statement of Stockholders' Deficit........... F-5
Consolidated Statement of Cash Flows...................... F-6
Notes to Consolidated Financial Statements.... F-7 through F-12
</TABLE>
F-1
<PAGE> 52
[GROBSTEIN, HORWATH & COMPANY LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Stockholders
SolutionsAmerica, Inc.
We have audited the accompanying consolidated balance sheet of
SolutionsAmerica, Inc. (a Development Stage Company) as of May 31, 2000, and the
related statements of operations, stockholders' deficit and cash flows for the
period from July 16, 1999 (inception) to May 31, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
SolutionsAmerica, Inc. as of May 31, 2000, and the results of its operations and
its cash flows for the period from July 16, 1999 (inception) to May 31, 2000, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company is in the development
stage and has negative working capital of $1,114,729 at May 31, 2000, and has a
deficit accumulated during the development stage of $1,093,289. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regards to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
June 9, 2000, except for Note 8
which is as of August 17, 2000
F-2
<PAGE> 53
SOLUTIONSAMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
MAY 31, 2000
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 50,719
Accounts receivable....................................... 3,000
Receivable from stockholder (Note 7)...................... 64,177
Income taxes receivable................................... 21,600
Prepaid expenses.......................................... 25,000
Deferred loan fee (Note 1)................................ 10,000
-----------
Total Current Assets........................................ 174,496
Net Property and Equipment (Notes 1 and 4).................. 50,763
-----------
Total Assets........................................... $ 225,259
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses (Note 5)............ $ 888,225
Loan agreement payable (Note 6)........................... 185,000
Payable to stockholder (Note 7)........................... 16,000
Note payable (Note 8)..................................... 200,000
-----------
Total Current Liabilities................................... 1,289,225
Commitments (Note 9)
Stockholders' Deficit:
Preferred stock, par value $.0001 per share, 1,000,000
shares authorized...................................... --
Common stock, par value $.0001 per share, 50,000,000
shares authorized; 8,559,670 issued and outstanding
(Note 10).............................................. 208
Additional paid-in capital................................ 29,115
Deficit accumulated during the development stage (Note
2)..................................................... (1,093,289)
-----------
Total Stockholders' Deficit................................. (1,063,966)
-----------
Total Liabilities and Stockholders' Deficit............ $ 225,259
===========
</TABLE>
See accompanying independent auditors' report and notes.
F-3
<PAGE> 54
SOLUTIONSAMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JULY 16, 1999 (INCEPTION) TO MAY 31, 2000
<TABLE>
<S> <C>
Revenues (Notes 1 and 2).................................... $ 529,494
-----------
Operating Expenses:
Officers' salaries........................................ 461,816
Office salaries........................................... 379,968
Professional fees......................................... 341,602
Travel and entertainment.................................. 134,827
Consulting expenses....................................... 92,156
Occupancy costs........................................... 86,150
Other expenses............................................ 66,829
Payroll taxes............................................. 57,635
-----------
Total Operating Expenses.................................... 1,620,983
-----------
Loss Before Provision for Income Taxes...................... (1,091,489)
Provision for Income Taxes (Notes 1 and 11)................. 1,800
-----------
Net Loss Available to Common Stockholders................... $(1,093,289)
===========
Net Loss Per Common Share (Note 1).......................... $ (0.13)
===========
Weighted Average of Common Shares Outstanding............... $ 8,371,074
===========
</TABLE>
See accompanying independent auditors' report and notes.
F-4
<PAGE> 55
SOLUTIONSAMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM JULY 16, 1999 (INCEPTION) TO MAY 31, 2000
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
------------------ PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE DEFICIT
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
July 16, 1999 --
Issuance of common stock................ 2,000,000 $200 $ 50 $ -- $ 250
December 30, 1999 --
Issuance of common stock for acquisition
of subsidiary (Note 3)................ 79,491 8 29,065 -- 29,073
Retroactive Adjustment for approximate
4.1 to 1 stock split (Note 10)........ 6,480,179 -- -- -- --
Net loss for the period from July 16,
1999
(inception) to May 31, 2000............. -- -- -- (1,093,289) (1,093,289)
--------- ---- ------- ----------- -----------
Balance, May 31, 2000................... 8,559,670 $208 $29,115 $(1,093,289) $(1,063,966)
========= ==== ======= =========== ===========
</TABLE>
See accompanying independent auditors' report and notes.
F-5
<PAGE> 56
SOLUTIONSAMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JULY 16, 1999 (INCEPTION) TO MAY 31, 2000
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net Loss.................................................... $(1,093,289)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 4,719
Sources and (uses) of cash from changes in operating
assets and liabilities:
Accounts receivable.................................. (3,000)
Income taxes receivable.............................. (26,311)
Prepaid expenses..................................... (25,000)
Accounts payable and accrued expenses................ 888,976
-----------
Net Cash Used in Operating Activities....................... (253,905)
-----------
INVESTING ACTIVITIES
Cash acquired in purchase of Sentinel Software, Inc......... 12,231
Increase in receivable from stockholder..................... (64,177)
Expenditures for property and equipment..................... (34,680)
-----------
Net Cash Used in Investing Activities....................... (86,626)
-----------
FINANCING ACTIVITIES
Proceeds from loan agreement payable........................ 185,000
Increase in deferred loan fee............................... (10,000)
Increase in subordinated note payable....................... 200,000
Increase in payable to stockholder.......................... 16,000
Proceeds from issuance of common stock...................... 250
-----------
Net Cash Provided by Financing Activities................... 391,250
-----------
Net Change in Cash and Ending Cash.......................... $ 50,719
===========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND
FINANCING ACTIVITIES
Cash paid for the period from July 16, 1999 (inception) to May 31, 2000 for
interest and income taxes was $174 and $29,411 respectively.
SolutionsAmerica, Inc. acquired Sentinel Software, Inc. on December 30,
1999, by issuing 79,491 shares of common stock at par value of $.0001 per share
in exchange for the following assets and liabilities:
<TABLE>
<S> <C>
Cash........................................................ $ 12,231
Furniture and fixtures...................................... 2,962
Equipment................................................... 2,674
Computers and software...................................... 15,166
Accrued expenses............................................ (3,960)
--------
Consideration paid.......................................... 29,073
Less: cash acquired in transaction.......................... (12,231)
--------
Net assets acquired, excluding cash......................... $ 16,842
========
</TABLE>
See accompanying independent auditors' report and notes.
F-6
<PAGE> 57
SOLUTIONSAMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Formation and Development Stage Activity
SolutionsAmerica, Inc. and its subsidiaries (collectively the "Company") is
a development stage company which will provide web site design, database
development, marketing, financial services and transaction processing services
to banks, corporations and merchants conducting e-commerce over the Internet. In
addition, the Company will manage merchant accounts in the United States on
behalf of various financial institutions which provide general banking services
to merchants for the acquisition of VISA and MasterCard bank drafts as well as
other third party credit cards. Merchants are businesses that accept credit
cards as a means of payment for goods or services rendered. The planned date of
full operational capacity has been estimated to be by the end of 2000.
SolutionsAmerica, Inc. ("SAI") was incorporated in the state of Delaware on
July 16, 1999. The subsidiaries included in the consolidated financial
statements consist of Sentinel Software, Inc. ("SSI") and SolutionsAmerica,
(Nevis), Inc. ("SANI"), both of which are wholly owned, and E-Commerce
Transaction Services, Ltd ("ECT"), which is 50.0% owned.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Financial Instruments
The fair values of cash, accounts receivable, receivable from stockholder,
accounts payable, accrued expenses, payable to stockholder and short-term debt
approximate their carrying values due to the short-term nature of these
financial instruments.
Deferred Loan Fee
Loan fees are amortized over the period the related loan is outstanding.
Property and Equipment
Property and equipment is stated at cost. Additions and betterments are
charged to the property and equipment accounts while maintenance and repairs,
which do not enhance the useful life of the respective assets, are expensed as
incurred. Depreciation is provided by the straight-line method over the
estimated useful lives of the related assets. Useful lives range from 3 to 5
years.
F-7
<PAGE> 58
SOLUTIONSAMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 2000
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company applies the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of," which requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. Recoverability of assets to be held and used in future is
measured by a comparison of the carrying amount of the asset to the future net
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. No assets were considered impaired as of May 31,
2000.
Revenue Recognition
When the Company achieves its planned principal operations, revenues from
daily merchant transactions will be recognized when the bank transaction is
accepted by the third-party credit card service provider. Other revenues are
recognized when earned.
Advertising Costs
Advertising costs are expensed as incurred. There were no advertising costs
for the period from July 16, 1999 (inception) to May 31, 2000.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and income tax bases of assets and
liabilities. Such deferred income tax asset and liability computations are based
on enacted law and rates applicable in periods in which the differences are
expected to reverse. If necessary, a valuation allowance is established to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the year and the change in deferred
income tax assets and liabilities during the year.
Earnings Per Share
Earnings per common share are computed in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 "Earnings per Share." Basic
earnings per common share are computed based on the weighted average number of
common shares and dilutive common share equivalents outstanding during the
period. Fully diluted loss per common share was not presented as there was no
dilutive potential common shares outstanding during the period.
Stock Options
The Company intends to adopt the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," upon
the granting of any stock options.
Recently Issued Accounting Pronouncements
The Company does not believe that any recently issued accounting
pronouncements will have a material effect on future financial position or
results of operations.
F-8
<PAGE> 59
SOLUTIONSAMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 2000
NOTE 2 -- DEVELOPMENT ACTIVITIES
The Company has been in the development stage since its inception on July
16, 1999. As shown in the accompanying consolidated financial statements, the
Company has negative working capital of $1,114,729 at May 31, 2000, and has a
deficit accumulated during the development stage of $1,093,289. Management
believes that a full year of operations should contribute towards profitable
operations.
As discussed more fully in Notes 6 and 12, the Company has obtained a
$510,000 line of credit, and has plans to initially raise up to $2 million of
additional equity through a private placement of securities pursuant to
Regulation D of the Securities Act of 1933, with possible subsequent issuances
up to an aggregate of $30 million provided the Company's equity securities
become publicly traded. Management believes that these, and other actions
presently being taken, provide the opportunity for the Company to obtain the
necessary capital to establish its planned principal operations and to continue
as a going concern.
NOTE 3 -- BUSINESS ACQUISITIONS
On December 30, 1999, SAI acquired all of the outstanding common shares of
SSI in exchange for 79,491 shares of common stock for a total consideration of
$29,073. SAI is engaged in the business of developing real time computer
software systems and applications for Internet and e-commerce businesses,
including database and transaction processing applications. The purchase price
equaled SSI's net assets on the date of acquisition. SSI's results of operations
prior to the date of acquisition were immaterial. Therefore, the unaudited pro
forma combined results of operations of the Company and SSI as if the
acquisition had taken place on July 16, 1999 (inception) have been omitted.
During the following 12 month period, the former stockholder of SSI has the
right to receive up to an additional 26,497 shares of SAI's common stock, at the
rate of .26497 shares for each dollar of net income earned by SSI above $300,000
up to a maximum of $400,000. In addition, should SSI have net income up to
$100,000, the purchase price will be decreased by 26,497 shares at the same rate
stated above. No change in the initial consideration paid for the stock of SSI
will occur if SSI's net income falls between $100,000 to $300,000. As part of
the acquisition of SSI, SAI has entered into an employment agreement with the
former sole stockholder of SSI, whereby for a period of two years, SAI is
obligated to pay the former sole stockholder an annual salary of $168,000 in
addition to a bonus equal to 10.0% of SSI's net income.
The above acquisition has been accounted for under the purchase method. The
results of operations of SSI have been included in the consolidated financial
statements from the date of acquisition.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Computers and software...................................... $36,831
Furniture and fixtures...................................... 12,178
Equipment................................................... 6,473
55,482
Less accumulated depreciation............................... (4,719)
-------
$50,763
=======
</TABLE>
Depreciation expense for the period from July 16, 1999 (inception) to May
31, 2000 is $4,719.
F-9
<PAGE> 60
SOLUTIONSAMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 2000
NOTE 5 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<S> <C>
Payroll and payroll taxes................................... $554,945
Accounts payable............................................ 322,223
Accrued expense............................................. 11,057
--------
$888,225
========
</TABLE>
NOTE 6 -- LOAN AGREEMENT PAYABLE
On May 24, 2000, the Company entered into a Letter Loan Agreement (the
"Agreement") providing up to $510,000 of funds for working capital purposes. The
Agreement bears interest at 9.0% per annum, is secured by substantially all of
the assets of the Company and matures on October 31, 2000. In addition, the
lender has the right to convert all or part of the loan obligation to shares of
common stock based at the same price per share which will be determined upon the
sale of the shares offered to investors in the anticipated private placement
offering (Note 12). The lender and certain of the lender's stockholders have
been granted warrants to purchase up to an aggregate of 641,775 of the Company's
common stock priced as follows: 427,850 shares at a price per share equal to the
lesser of (i) 50% of the average bid price as reported in the Wall Street
Journal over the thirty day period prior to the exercise of the warrant or (ii)
$1.00 per share; and 213,925 shares at a price per share equal to 75% of the
average bid price as reported in the Wall Street Journal over the thirty day
period prior to the exercise of the warrant. The right to purchase the warrants
expires on December 31, 2004. The Agreement contains certain covenants including
the maintenance of general insurance, limits on incurring additional liabilities
in excess of a prescribed amount, as well as other covenants. As of May 31,
2000, the Company was in compliance with these covenants.
Subsequent to May 31, 2000, the Company received an additional $325,000 of
funds under the Agreement.
Accrued interest expense for the period July 16, 1999 (inception) to May
31, 2000 was $319.
NOTE 7 -- RECEIVABLE FROM AND PAYABLE TO STOCKHOLDERS
Amounts receivable from, or payable to, stockholders represent advances
which are due on demand and are non-interest bearing.
NOTE 8 -- NOTE PAYABLE
The note is payable to a family trust related to one of the Company's
stockholders. The note bears interest at 10.0% per annum, with principal and
accrued interest due on September 1, 2000. On August 27, 2000, the maturity date
of the note was changed to November 1, 2000. In consideration for this change,
the Company made the note convertible, at the option of the holder, into common
stock at a rate of $1.00 of outstanding balance per share.
In addition, the Company has also issued the family trust a warrant to
purchase 120,000 shares of the Company's common stock exercisable at a price of
$1.00 per share, over a five year period expiring on March 20, 2005.
Accrued interest expense for the period July 16, 1999 (inception) to May
31, 2000 was $3,945.
F-10
<PAGE> 61
SOLUTIONSAMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 2000
NOTE 9 -- COMMITMENTS
Leases
The Company leases its Culver City, California and Nashville, Tennessee
offices for approximately $25,000 and $800 per month, respectively. The Culver
City lease is on a month-to-month basis while the Nashville facility lease
matures on December 31, 2000, with an option to renew. At May 31, 2000, the
Company's future minimum lease commitments required under noncancellable leases
with initial or remaining terms in excess of one year is $5,600 for the year
ending May 31, 2001.
Total lease expense for the period from July 16, 1999 (inception) to May
31, 2000 was approximately $102,000.
Referral Fees
The Company has entered into referral fee agreements with two unrelated
parties whereby the parties introduce banks, Internet merchants, corporations
and other entities requiring E-commerce services to the Company. In turn, the
Company pays a referral fee based on the number of transactions being processed
or a percentage of the amount charged for the design or redesign of web sites.
As of May 31, 2000, the Company, has not incurred any such referral fees.
NOTE 10 -- COMMON STOCK
On June 23, 2000, the Company executed an approximate 4.1 to 1 stock split
of its common stock, which has been retroactively reflected in the accompanying
financial statements.
NOTE 11 -- INCOME TAXES
The provision for income taxes consists of state franchise taxes which are
primarily current.
Temporary differences comprising the net deferred income tax asset on the
consolidated balance sheet were as follows:
<TABLE>
<S> <C>
Net operating loss carryforward............................. $ 275,200
Accrued expense............................................. 192,400
Valuation allowance......................................... (467,600)
---------
Deferred income tax asset.............................. $ --
=========
</TABLE>
The Company has available unused federal and state net operating loss
carryforwards of approximately $1,093,000 as of May 31, 2000, which may be
applied to reduce future taxable income in the years ending through 2020 and
2005, respectively. Realization of the deferred income tax asset is dependent on
the Company generating sufficient taxable income prior to the expiration of the
net operating loss carryforward. Since realization is not assured, management
has provided a valuation allowance for the entire balance of deferred income tax
assets.
F-11
<PAGE> 62
SOLUTIONSAMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 2000
The following sets forth the differences between the provision for income
taxes computed at the United States federal statutory income tax rate of 35% and
that reported for financial statement purposes:
<TABLE>
<S> <C>
Provisions computed at the United States federal statutory
income tax rate........................................... $ --
Net operating loss carryforward............................. 275,200
Accrued expenses............................................ 192,400
State income taxes, net of federal benefit.................. 1,800
Valuation allowance......................................... (467,600)
---------
Provision for income taxes.................................. $ 1,800
=========
</TABLE>
NOTE 12 -- PENDING CAPITAL TRANSACTIONS
On May 2, 2000, the Company entered into a Letter of Agreement with
Dunwoody Brokerage Services, Inc., dba Swartz Institutional Finance,
("Dunwoody") whereby Dunwoody will act as placement agent in a Private Placement
Offering pursuant to Regulation D of the Securities Act of 1933 for up to $2
million of the Company's equity securities. In addition, the Company also
entered into a Letter of Agreement with Swartz Private Equity, LLC ("Swartz")
whereby the parties agreed to enter into an Irrevocable Investment Agreement for
the purchase of the Company's common stock up to an aggregate amount equal to
$30 million (the "Equity Line"), subject to the Company achieving an effective
Registration Statement. Within 36 months from the effective registration date,
the Company has the right to "put" common stock to Swartz, subject to certain
dollar amount limitations and other conditions as set forth in the Letter of
Agreement. Shares of common stock "put" to Swartz will be at a purchase price
per share equal to 91.0% of the current market price, as defined, subject to a
floor price to be specified by the Company.
As compensation for entering into the Equity Line, the Company issued
Swartz a warrant to purchase 600,000 shares of the Company's common stock (the
"Commitment Warrants") exercisable at a price of $1.00 per share over a five
year period expiring on May 2, 2005, and will issue additional warrants (the
"Additional Warrants") on the same terms as the Commitment Warrants, to purchase
shares of the Company's common stock, if necessary, such that the sum of the
number of Commitment Warrants and Additional Warrants issued to Swartz shall
equal at least 4% of the number of fully diluted shares of common stock of the
Company that are then outstanding.
In the event the Company fails to "put" Swartz $1 million of common stock
during each six month period of the Equity Line term, the Company is obligated
to pay Swartz a non-usage fee equal to $100,000, less 10% of the dollar amount
"put" to Swartz during the six month period.
F-12
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation (the "Certificate") provides
that the Company shall indemnify each person who is or was a director, officer
or employee of the Company to the fullest extent permitted under Section 145 of
the Delaware General Corporation Law. Section 145 of the Delaware General
Corporation Law empowers a Delaware corporation to 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 such corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. A corporation may indemnify such person 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 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. A corporation may, in advance of the final disposition of
any civil, criminal, administrative or investigative action, suit or proceeding,
pay the expenses (including attorneys' fees) incurred by any officer or director
in defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) which he actually and
reasonably incurred in connection therewith. The indemnification provided is not
deemed to be exclusive of any other rights to which an officer or director may
be entitled under any bylaw, agreement, vote or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933, as amended, and is therefore unenforceable.
II-1
<PAGE> 64
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimates of fees and expenses incurred or to be incurred in connection
with the issuance and distribution of securities being registered, all of which
are being paid exclusively by the Company, other than underwriting discounts and
commissions are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 16,186
Nasdaq and Exchange filing fees............................. 10,000*
State securities laws (Blue Sky) fees and expenses.......... 35,000*
Printing costs and fees..................................... 130,000*
Legal fees and costs........................................ 225,000*
Accounting fees and costs................................... 10,000*
Transfer Agent fees......................................... 2,000
Miscellaneous expenses...................................... 21,814*
--------
TOTAL....................................................... $450,000
========
</TABLE>
-------------------------
* Estimated
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
Set forth below is a list of the unregistered securities we have sold since
inception (July 16, 1999) in reliance on exemptions under the Securities Act of
1933, as amended. Except as otherwise noted, all share amounts are adjusted to
reflect the approximate 4.1 for one stock split in June 2000.
We issued 4,116,233 shares of our common stock to each of Floyd W. Kephart
and Gary Horowitz (a total of 8,232,466 shares) on August 2, 1999 in exchange
for their services as promoters and founders of the Company.
We issued a total of 1,180,000 pre-split shares to the six shareholders of
Paycom Billing Services, Inc. in connection with the merger of Paycom into the
Company on December 6, 1999. The merger was subsequently unwound and all of
those shares were cancelled.
We issued 327,204 shares of our common stock on December 30, 1999 to Marc
Overman in consideration for the transfer of all the shares of Sentinel
Software, Inc.
As of May 3, 2000 we issued warrants to Swartz Private Equity, LLC to
purchase 600,000 shares of our common stock exercisable at $1.00 per share,
subject to reset if the lowest closing bid price of our common stock is less
than $1.00, in consideration for the commitment to provide an equity line of
credit.
On May 24, 2000, we borrowed $510,000 from Citadel Capital Management
Corporation pursuant to a promissory note that is convertible into shares of our
common stock at $1.00 per share. We also issued Citadel and its principals
warrants to purchase a total of 641,775 shares of our common stock exercisable
at prices ranging from 75% of the average bid price to the lesser of (i) 50% of
the average bid price and (ii) $1.00 per share.
On June 29, 2000, we issued a total of 400,000 shares of our common stock
to affiliates of Kurt N. Feshbach for $400,000 cash. Additionally, we issued
warrants to Mr. Feshbach and his affiliates for 500,000 shares exercisable at a
price per share equal to the lesser of (i) 50% of the average bid price or (ii)
$1.00 per share. As of September 1, 2000, we issued to the Kurt N. Feshbach
Living Trust 100,000 shares for a purchase price of $100,000 and warrants for
125,000 shares exercisable at a price per share equal to the lesser of (i) 50%
of the average bid price or (ii) $1.00 per share.
On August 16, 2000 we issued to the Presburger Family Trust and members of
the Presburger family warrants to purchase a total of 180,000 shares of our
common stock at the lesser of (i) 50% of the average bid price and (ii) $1.00
per share in consideration for the $200,000 loan to the Company by the
Presburger Family Trust.
II-2
<PAGE> 65
On August 18, 2000, we issued 1,000,000 shares of our common stock to
Frontier Insurance Group, Inc. in connection with the merger of OneStop.com,
Inc. into a wholly-owned subsidiary of the Company.
We have issued a total of 80,000 shares at $1.00 per share and warrants to
purchase up to 470,000 additional shares exercisable at prices ranging from the
lesser of (i) 50% - 75% of the average bid price and (ii) $1.00 per share in
connection with financial consulting, technical consulting, public relations and
legal services to six holders, two of whom are directors of the Company.
Finally, we have granted a total of ten employees options under our stock
option plan to purchase a total of 125,000 shares of our common stock at $1.00
per share and we have given four employees options to purchase 1,759,266 shares
of our common stock at $1.00 per share.
The Company issued the above securities in reliance on exemptions contained
in Section 4(2) of the Securities Act of 1933, as amended, and similar
exemptions in states in which such securities were issued.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Selling Agreement
3.1 Certificate of Incorporation filed with the Delaware
Secretary of State on July 16, 1999
3.2 Certificate of Amendment to Certificate of Incorporation
filed with the Delaware Secretary of State on August 11,
1999
3.3 Certificate of Amendment of Certificate of Incorporation
filed with the Delaware Secretary of State on June 16, 2000
3.4 Certificate of Correction of Certificate of Amendment filed
with the Delaware Secretary of State on June 23, 2000
3.5 Bylaws
4.1 Subscription Agreement dated June 29, 2000 for 50,000 shares
between the Company and Feshbach Partners Offshore
4.2 Subscription Agreement dated June 29, 2000 for 150,000
shares between the Company and Feshbach Partners I
4.3 Subscription Agreement dated June 29, 2000 for 200,000
shares between the Company and Kurt N. Feshbach, Trustee of
The Kurt N. Feshbach Living Trust
4.4 Subscription Agreement dated September 6, 2000 for 100,000
shares between the Company and Kurt N. Feshbach, Trustee of
The Kurt N. Feshbach Living Trust
4.5 Shareholder's Agreement dated December 30, 1999 between the
Company and Marc Overman
4.6 SolutionsAmerica, Inc. 2000 Stock Option Plan and form of
agreements thereunder
4.7 Warrant Agreement dated May 24, 2000 for 160,444 shares
between the Company and Citadel Capital Management
Corporation
4.8 Warrant Agreement dated May 24, 2000 for 320,888 shares
between the Company and Citadel Capital Management
Corporation
4.9 Warrant Agreement dated May 24, 2000 for 10,696 shares
between the Company and Phillip Roberts
4.10 Warrant Agreement dated May 24, 2000 for 21,392 shares
between the Company and Phillip Roberts
4.11 Warrant Agreement dated May 24, 2000 for 42,785 shares
between the Company and Matthew C. Fragner
4.12 Warrant Agreement dated May 24, 2000 for 85,570 shares
between the Company and Matthew C. Fragner
4.13 Warrant Agreement dated June 8, 2000 for 60,000 shares
between the Company and the Presburger Family Trust
*4.14 Warrant Agreement dated August 16, 2000 for 40,000 shares
between the Company and Daniel Presburger
</TABLE>
II-3
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.15 Warrant Agreement dated August 16, 2000 for 40,000 shares
between the Company and Michael Presburger
4.16 Warrant Agreement dated August 16, 2000 for 40,000 shares
between the Company and Paul Leon Presburger
4.17 Warrant Agreement dated June 21, 2000 for 250,000 shares
between the Company and Kurt N. Feshbach, as Trustee of The
Kurt N. Feshbach Living Trust
4.18 Warrant Agreement dated September 1, 2000 for 125,000 shares
between the Company and Kurt N. Feshbach, as Trustee of The
Kurt N. Feshbach Living Trust
4.19 Warrant Agreement dated June 21, 2000 for 187,500 shares
between the Company and Feshbach Partners I
4.20 Warrant Agreement dated June 21, 2000 for 62,500 shares
between the Company and Feshbach Partners Offshore
4.21 Warrant Agreement dated July 1, 2000 for 40,000 shares
between the Company and Peter Banner
4.22 Warrant Agreement dated July 1, 2000 for 45,000 shares
between the Company and Kenny Coplon
4.23 Warrant Agreement dated September 5, 2000 for 10,000 shares
between the Company and Kenny Coplon
4.24 Warrant Agreement dated July 7, 2000 for 50,000 shares
between the Company and Michael Sigman
4.25 Warrant Agreement dated July 7, 2000 for 50,000 shares
between the Company and Jordan Posell
4.26 Warrant Agreement dated July 20, 2000 for 25,000 shares
between the Company and DeMonte Associates
4.27 Warrant Agreement dated July 20, 2000 for 250,000 shares
between the Company and Greenberg Glusker Fields Claman &
Machtinger LLP
4.28 Warrant Agreement dated May 3, 2000 for 600,000 shares
between the Company and Swartz Private Equity, LLC
*4.29 Form of Warrant Agreement for 10% of the shares purchased
under each put between the Company and Swartz Private
Equity, LLC
*4.30 Form of Warrant Agreement for 10% of the shares placed
divided by the fair market value between the Company and
Swartz Institutional Finance
4.31 Registration Rights Agreement dated July 18, 2000 between
the Company and Swartz Private Equity, LLC
4.32 Warrant Side Agreement dated July 18, 2000 between the
Company and Swartz Private Equity, LLC
5.1 Form of Opinion of Greenberg Glusker Fields Claman &
Machtinger LLP regarding legality
10.1 Promissory Note dated March 20, 2000 in the principal amount
of $200,000 made by the Presburger Family Trust to the order
of the Company
10.2 Promissory Note dated August 16, 2000 in the principal
amount of $100,000 made by the Company to the order of
Christopher Sax
10.3 Promissory Note dated August 29, 2000 in the principal
amount of $400,000 made by Les Concierges, Inc. to the order
of OneStop.com, Inc.
10.4 Assignment of Promissory Note dated May 27, 1999 among the
Company, OneStop.Com, Inc. and Les Concierges, Inc.
10.5 Stock Purchase Agreement dated December 30, 1999 among the
Company, Sentinel Software, Inc. and Marc Overman
10.6 Letter Loan Agreement dated May 24, 2000 between the Company
and Citadel Capital Management Corporation
10.7 Agreement and Plan of Merger dated July 11, 2000 among the
Company, Frontier Insurance Group, Inc., OneStop.com, Inc.
and OneStop Acquisition Corp.
</TABLE>
II-4
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8 Investment Agreement dated July 18, 2000 between the Company
and Swartz Private Equity, LLC
10.9 Processing Services Agreement dated April 17, 2000 between
the Company and Maverick International Processing Services,
Inc.
10.10 Referral Fee Agreement dated April 28, 2000 between the
Company and Anthony Vicardo
10.11 Referral Fee Agreement dated May 2, 2000 between the Company
and Mobius Trust Company Ltd.
10.12 Alliance Agreement dated June 1, 2000 between the Company
and Nexxus Holdings Ltd.
10.13 Referral Fee Agreement dated June 27, 2000 between the
Company and The Compliance Company Ltd.
10.14 Letter of Intent dated August 3, 2000 between the Company
and Nexxus Holdings Ltd.
10.15 Merchant Services Agreement dated August 8, 2000 between the
Company and SGAA Ltd.
10.16 Lease dated April 23, 1999 between Sentinel Software -- Marc
Overman and Silvio Diana T/A Villa Park Professional Center
10.17 Short Term Lease Agreement dated February 17, 2000 between
the Company and Linton Towers, L.C.
10.18 Lease Agreement dated November 1, 1999 between the Company
and Historic Vanderbilt Medical School Building, Inc.
10.19 Employment Agreement dated August 1, 2000 between the
Company and Floyd W. Kephart
10.20 Employment Agreement dated August 1, 2000 between the
Company and Gary Horowitz
10.21 Employment Agreement dated August 21, 2000 between the
Company and Steven Tandberg
10.22 Employment Agreement dated August 21, 2000 between the
Company and Jeffrey Kilbride
10.23 Employment Agreement dated December 30, 1999 between the
Company and Marc Overman
21.1 List of Subsidiaries of the Company
23.1 Consent of Greenberg Glusker Fields Claman & Machtinger LLP
is contained in Exhibit 5.1
23.2 Consent of Grobstein, Horwath & Company, LLP
24.1 Power of Attorney is included on signature page
27.1 Financial Data Schedule
</TABLE>
-------------------------
* To be filed by amendment.
ITEM 28. UNDERTAKING
The undersigned Registrant hereby undertakes
(1) To file, during any period in which it offers or sales are being
made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE> 68
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-6
<PAGE> 69
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 for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California on September 14,
2000.
SOLUTIONSAMERICA, INC.
By: /s/ FLOYD W. KEPHART
------------------------------------
Floyd W. Kephart, Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Floyd W.
Kephart and Gary Horowitz, either one acting alone, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead in any and all capacities to execute in
the name of each such person who is then an officer or director of the
Registrant any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them full power and
authority to do and perform each and every act and thing required or necessary
to be done in and about the premises as fully as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
either of them, or their or his substitutes, may lawfully do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ FLOYD W. KEPHART Chairman of the Board September 14, 2000
----------------------------------------------------- Chief Executive Officer
Floyd W. Kephart (Principal Executive
Officer)
/s/ GARY HOROWITZ Director, President and September 14, 2000
----------------------------------------------------- Chief Operating Officer
Gary Horowitz
/s/ JEFFREY KILBRIDE Director, Senior Vice September 14, 2000
----------------------------------------------------- President and Chief
Jeffrey Kilbride Technology Officer
/s/ JORDAN POSELL Director September 14, 2000
-----------------------------------------------------
Jordan Posell
/s/ MICHAEL SIGMAN Director September 14, 2000
-----------------------------------------------------
Michael Sigman
/s/ MICHAEL SMITH Treasurer/Chief Financial September 14, 2000
----------------------------------------------------- Officer (Principal Financial
Michael Smith and Accounting Officer)
</TABLE>
II-7
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Selling Agreement
3.1 Certificate of Incorporation filed with the Delaware
Secretary of State on July 16, 1999
3.2 Certificate of Amendment to Certificate of Incorporation
filed with the Delaware Secretary of State on August 11,
1999
3.3 Certificate of Amendment of Certificate of Incorporation
filed with the Delaware Secretary of State on June 16, 2000
3.4 Certificate of Correction of Certificate of Amendment filed
with the Delaware Secretary of State on June 23, 2000
3.5 Bylaws
4.1 Subscription Agreement dated June 29, 2000 for 50,000 shares
between the Company and Feshbach Partners Offshore
4.2 Subscription Agreement dated June 29, 2000 for 150,000
shares between the Company and Feshbach Partners I
4.3 Subscription Agreement dated June 29, 2000 for 200,000
shares between the Company and Kurt N. Feshbach, Trustee of
The Kurt N. Feshbach Living Trust
4.4 Subscription Agreement dated September 6, 2000 for 100,000
shares between the Company and Kurt N. Feshbach, Trustee of
The Kurt N. Feshbach Living Trust
4.5 Shareholder's Agreement dated December 30, 1999 between the
Company and Marc Overman
4.6 SolutionsAmerica, Inc. 2000 Stock Option Plan and form of
agreements thereunder
4.7 Warrant Agreement dated May 24, 2000 for 160,444 shares
between the Company and Citadel Capital Management
Corporation
4.8 Warrant Agreement dated May 24, 2000 for 320,888 shares
between the Company and Citadel Capital Management
Corporation
4.9 Warrant Agreement dated May 24, 2000 for 10,696 shares
between the Company and Phillip Roberts
4.10 Warrant Agreement dated May 24, 2000 for 21,392 shares
between the Company and Phillip Roberts
4.11 Warrant Agreement dated May 24, 2000 for 42,785 shares
between the Company and Matthew C. Fragner
4.12 Warrant Agreement dated May 24, 2000 for 85,570 shares
between the Company and Matthew C. Fragner
4.13 Warrant Agreement dated June 8, 2000 for 60,000 shares
between the Company and the Presburger Family Trust
*4.14 Warrant Agreement dated August 16, 2000 for 40,000 shares
between the Company and Daniel Presburger
4.15 Warrant Agreement dated August 16, 2000 for 40,000 shares
between the Company and Michael Presburger
4.16 Warrant Agreement dated August 16, 2000 for 40,000 shares
between the Company and Paul Leon Presburger
4.17 Warrant Agreement dated June 21, 2000 for 250,000 shares
between the Company and Kurt N. Feshbach, as Trustee of The
Kurt N. Feshbach Living Trust
4.18 Warrant Agreement dated September 1, 2000 for 125,000 shares
between the Company and Kurt N. Feshbach, as Trustee of The
Kurt N. Feshbach Living Trust
4.19 Warrant Agreement dated June 21, 2000 for 187,500 shares
between the Company and Feshbach Partners I
4.20 Warrant Agreement dated June 21, 2000 for 62,500 shares
between the Company and Feshbach Partners Offshore
4.21 Warrant Agreement dated July 1, 2000 for 40,000 shares
between the Company and Peter Banner
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.22 Warrant Agreement dated July 1, 2000 for 45,000 shares
between the Company and Kenny Coplon
4.23 Warrant Agreement dated September 5, 2000 for 10,000 shares
between the Company and Kenny Coplon
4.24 Warrant Agreement dated July 7, 2000 for 50,000 shares
between the Company and Michael Sigman
4.25 Warrant Agreement dated July 7, 2000 for 50,000 shares
between the Company and Jordan Posell
4.26 Warrant Agreement dated July 20, 2000 for 25,000 shares
between the Company and DeMonte Associates
4.27 Warrant Agreement dated July 20, 2000 for 250,000 shares
between the Company and Greenberg Glusker Fields Claman &
Machtinger LLP
4.28 Warrant Agreement dated May 3, 2000 for 600,000 shares
between the Company and Swartz Private Equity, LLC
*4.29 Form of Warrant Agreement for 10% of the shares purchased
under each put between the Company and Swartz Private
Equity, LLC
*4.30 Form of Warrant Agreement for 10% of the shares placed
divided by the fair market value between the Company and
Swartz Institutional Finance
4.31 Registration Rights Agreement dated July 18, 2000 between
the Company and Swartz Private Equity, LLC
4.32 Warrant Side Agreement dated July 18, 2000 between the
Company and Swartz Private Equity, LLC
5.1 Form of Opinion of Greenberg Glusker Fields Claman &
Machtinger LLP regarding legality
10.1 Promissory Note dated March 20, 2000 in the principal amount
of $200,000 made by the Presburger Family Trust to the order
of the Company
10.2 Promissory Note dated August 16, 2000 in the principal
amount of $100,000 made by the Company to the order of
Christopher Sax
10.3 Promissory Note dated August 29, 2000 in the principal
amount of $400,000 made by Les Concierges, Inc. to the order
of OneStop.com, Inc.
10.4 Assignment of Promissory Note dated May 27, 1999 among the
Company, OneStop.Com, Inc. and Les Concierges, Inc.
10.5 Stock Purchase Agreement dated December 30, 1999 among the
Company, Sentinel Software, Inc. and Marc Overman
10.6 Letter Loan Agreement dated May 24, 2000 between the Company
and Citadel Capital Management Corporation
10.7 Agreement and Plan of Merger dated July 11, 2000 among the
Company, Frontier Insurance Group, Inc., OneStop.com, Inc.
and OneStop Acquisition Corp.
10.8 Investment Agreement dated July 18, 2000 between the Company
and Swartz Private Equity, LLC
10.9 Processing Services Agreement dated April 17, 2000 between
the Company and Maverick International Processing Services,
Inc.
10.10 Referral Fee Agreement dated April 28, 2000 between the
Company and Anthony Vicardo
10.11 Referral Fee Agreement dated May 2, 2000 between the Company
and Mobius Trust Company Ltd.
10.12 Alliance Agreement dated June 1, 2000 between the Company
and Nexxus Holdings Ltd.
10.13 Referral Fee Agreement dated June 27, 2000 between the
Company and The Compliance Company Ltd.
10.14 Letter of Intent dated August 3, 2000 between the Company
and Nexxus Holdings Ltd.
10.15 Merchant Services Agreement dated August 8, 2000 between the
Company and SGAA Ltd.
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.16 Lease dated April 23, 1999 between Sentinel Software -- Marc
Overman and Silvio Diana T/A Villa Park Professional Center
10.17 Short Term Lease Agreement dated February 17, 2000 between
the Company and Linton Towers, L.C.
10.18 Lease Agreement dated November 1, 1999 between the Company
and Historic Vanderbilt Medical School Building, Inc.
10.19 Employment Agreement dated August 1, 2000 between the
Company and Floyd W. Kephart
10.20 Employment Agreement dated August 1, 2000 between the
Company and Gary Horowitz
10.21 Employment Agreement dated August 21, 2000 between the
Company and Steven Tandberg
10.22 Employment Agreement dated August 21, 2000 between the
Company and Jeffrey Kilbride
10.23 Employment Agreement dated December 30, 1999 between the
Company and Marc Overman
21.1 List of Subsidiaries of the Company
23.1 Consent of Greenberg Glusker Fields Claman & Machtinger LLP
is contained in Exhibit 5.1
23.2 Consent of Grobstein, Horwath & Company, LLP
24.1 Power of Attorney is included on signature page
27.1 Financial Data Schedule
</TABLE>
-------------------------
* To be filed by amendment.
