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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
January 21, 2000
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HOLLYWOOD PARTNERS.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 000-24755 33-0379106
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(State or Other (Commission (IRS Employer
Jurisdiction of File No.) Identification No.)
Incorporation)
1800 Avenue of the Stars, Suite 480, Los Angeles, California 90067
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(310) 552-0555
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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Item 5. Other Events
Hollywood Partners.com, Inc. and our representatives may from time
to time make written or oral statements, including statements regarding our
businesses and markets, projections of future performance, statements of
management's plans and objectives, forecasts of market trends and other
matters which, to the extent they are not historical fact, may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements may be contained in our
filings with the Securities and Exchange Commission, press releases, and
written or oral presentations made by our representatives to analysts, rating
agencies, stockholders, news organizations and others. The results forecast in
any forward-looking statements may not be achieved and actual results could
be affected by one or more factors that could cause them to differ materially.
We wish to ensure that any written or oral forward-looking statements made
by us or on our behalf, are accompanied by, or referenced to, meaningful
cautionary statements in order to maximize to the fullest extent possible the
protections of the safe harbor established in the Private Securities Litigation
Reform Act of 1995.
Therefore, for the general information of the current investors in
Hollywood Partners.com, Inc., a Delaware corporation, as well as those
persons who may purchase Hollywood Partners.com, Inc.'s securities from
time to time in the over-the-counter market once trading commences, and in
accordance with the Securities and Exchange Commission rules and
regulations requiring companies to disclose risk factors in "plain English"
under certain circumstances, we are filing this Current Report on Form 8-K
which contains various risk factors related to the business, operations and
strategies of Hollywood Partners.com. In these risk factors we are
identifying important factors that could cause our actual results of operations
to differ materially from those projected in forward-looking statements made
by us or on our behalf. Certain of these risk factors are also intended to
inform investors of the most significant factors that should be considered in
making an investment in our securities. The risk factors are contained in
Exhibit 99.1 to this Current Report on Form 8-K.
All forward-looking statements made by us or on our behalf are hereby
qualified in their entirety by reference to the important factors contained in
Exhibit 99.1 to this Current Report on Form 8-K, among others, that could
affect our businesses and cause actual results to differ materially from those
projected. Any forward-looking statement speaks only as of the date on
which that statement is made, and we undertake no obligation to update
forward-looking statement to reflect events or circumstances arising after the
date they are made.
Item 7. Financial Statements and Exhibits
(c) Exhibits
99.1 Risk factors
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be filed on its behalf by
the undersigned hereunto duly authorized.
HOLLYWOOD PARTNERS.COM, INC.
By: /s/ Lee M. Lambert
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Dated:
January 20, 2000
Name: Lee M. Lambert
Title: President and Chief Executive Officer
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EXHIBIT INDEX
Exhibit Number Description
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99.1 Risk factors
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EXHIBIT 99.1
RISK FACTORS
AN INVESTMENT IN HOLLYWOODPARTNERS.COM, INC.'s
EQUITY SECURITIES INVOLVES VARIOUS RISKS. CURRENT AND
PROSPECTIVE INVESTORS IN HOLLYWOOD PARTNERS.COM, INC.'s
SECURITIES SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS. THESE RISK FACTORS ARE NOT EXHAUSTIVE AND
SHOULD BE READ TOGETHER WITH THE OTHER REPORTS AND
DOCUMENTS THAT WE FILE WITH THE SECURITIES AND
EXCHANGE COMMISSION, WHICH MAY INCLUDE ADDITIONAL OR
MORE CURRENT INFORMATION THAT IS IMPORTANT TO AN
INVESTMENT IN HOLLYWOOD PARTNERS.COM, INC.
THE LIMITED OPERATING HISTORY OF OUR COMPANY AND
OUR PREDECESSOR COMPANIES MAKES EVALUATING OUR
BUSINESS DIFFICULT
Neither we nor any of our predecessor companies have more than a
limited operating history on which to evaluate our prospects for future
success. We were initially formed in August 1989 as Guideline Capital
Corporation. As Guideline, we did not have any material operations. Our
predecessor parent corporation, Vitafort International Corporation, was
formed in 1986 and, until May 1993, it was in the business of formulating and
developing value-added foods and beverages for third parties and marketing
branded seafood. In May 1993, these businesses were discontinued and later
in 1993 Vitafort disposed of these businesses. In September 1993 Vitafort
installed new management and entered the business of developing and
marketing branded low fat and fat-free foods using proprietary formulations.
In June 1994 Vitafort commercially introduced its principal product, a line of
fat-free brownies under the brand name "Fudgets." Some stock keeping units,
or SKUs, were discontinued. Other products were introduced or acquired in
1996 and 1997. Vitafort's business did not achieve operating profitability
during 1997, 1998 nor in the first three quarters of 1999.
We launched our first promotion in September, 1999. Accordingly,
we have a limited operating history upon which to evaluate our web-based
operations and future prospects. In addition, our revenue model is evolving
and relies substantially upon the growth of promotions and advertising
spending on the Internet and our ability to become a full-service Internet
promotions company. As an early-stage company in a new and rapidly
evolving market, we face risks and uncertainties relating to our ability to
successfully implement our business plan, which are described in more detail
below. We may not successfully address these risks.
NEITHER WE NOR OUR PREDECESSOR COMPANIES HAVE
BEEN PROFITABLE AND WE MAY NOT BECOME PROFITABLE, IN
WHICH EVENT OUR BUSINESS AND STOCK PRICE WOULD BE
ADVERSELY AFFECTED
To date, we have not been profitable. We may never be profitable, or,
if we become profitable, we may be unable to sustain profitability. We expect
to continue to incur losses for the foreseeable future because we expect to
continue to spend significant resources to expand our business. Although we
have experienced revenue growth in recent periods, these growth rates may
not be sustainable or indicative of future growth. We reported a loss of
$347,453 for the nine months ended September 30, 1999. As of September
30, 1999, our accumulated deficit was approximately $357,114. For us to
make a profit, our revenues will need to increase sufficiently to cover our
costs and expenses.
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Vitafort incurred losses from operations of $4,151,305 in 1997, and
$2,040,617 for the nine months ended September 30, 1999. For the year
ended December 31, 1998, the auditors for our parent, Vitafort, included an
explanatory paragraph in their report indicating there was substantial doubt
regarding Vitafort's ability to continue as a going concern. Although Vitafort
generated a profit before income taxes in 1998, the profit was derived from an
arbitration award, which was an extraordinary event.
WE WILL REQUIRE ADDITIONAL FINANCING TO EXPAND
OUR BUSINESS, AND WE MAY NOT BE ABLE TO OBTAIN
ADDITIONAL FINANCING
Our capital requirements associated with the introduction and
development of new products and services and the marketing of existing
products and services have been and will continue to be substantial. We
anticipate (based on management's internal forecasts and assumptions related
to operations) that our existing capital resources will not be sufficient to
permit us to develop or acquire new products and services and complete the
marketing of those products and services, as well as the marketing of existing
products and services. We, therefore, will need to raise additional funds in
the future in order to fund more aggressive brand promotion or more rapid
expansion, to develop new or enhanced products and services, to respond to
competitive pressures or to make acquisitions. Additional financing may not
be available on terms favorable to us, and may not be available at all. If
adequate funds are not available on acceptable terms, we may be unable to
fund our expansion, successfully promote our brand, take advantage of
acquisition opportunities, develop or enhance services or respond to
competitive pressures, any of which could have a material adverse effect on
our business, results of operations and financial condition. If additional
funds are raised by our issuing equity securities, stockholders may experience
dilution of their ownership interest and the newly issued securities may have
rights superior to those of the common stock. If additional funds are raised
by our issuing debt, we may be subject to limitations on our operations,
including limitations on the payment of dividends.
OUR PARENT COMPANY EXPERIENCED AND MAY
CONTINUE TO EXPERIENCE WORKING CAPITAL SHORTAGES
During 1997 and 1998, Vitafort's operations were curtailed as a result
of working capital shortages. We experienced working capital shortages from
time to time as a division of Vitafort. While Hollywood Partners.com
working capital position has been greatly improved through a $2 million
funding, the likelihood that, without additional financing, a working capital
shortage will occur in the future is high based on our present and projected
levels of operations and operating results.
WE FACE SIGNIFICANT COMPETITION, AND WE MAY NOT
BE ABLE TO COMPETE SUCCESSFULLY
The market for Internet promotion services and Internet content is
intensely competitive. We expect competition in our markets to continue to
intensify as a result of increasing market size, greater visibility of the
market opportunity for Internet promotion services and Internet content and
minimal barriers to entry. Industry consolidation may also increase
competition. We compete with many types of companies, including both online
and offline promotion companies, large Internet publishers, search engine and
other Internet portal companies, a variety of Internet-based advertising
networks and other companies that facilitate the marketing of products and
services on the Internet. Many of our existing competitors, as well as a
number of potential new competitors, have longer operating histories, greater
name recognition, larger client bases and significantly greater financial,
technical and marketing resources than we do. This may allow them to compete
more effectively and be more responsive to industry and technological change
thanus. We may not be able to compete successfully and competitive pressures
may reduce our revenues and result in increased losses or reduced profits.
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Our ability to compete depends on many factors both within and
beyond our control. These factors include:
o the success of the sales and marketing efforts of us and
our competitors;
o the ease of use, performance, price and reliability of
promotions offered by us and our competitors; and
o the timing and market acceptance of new promotion
services and content developed by us and our
competitors.
The market for snacks is large and highly competitive. Competitive
factors in the snack industry include product quality and taste, brand
awareness among consumers, access to supermarket shelf space, price,
advertising and promotion and variety of snacks offered.
OUR FAILURE TO MANAGE OUR GROWTH EFFECTIVELY
COULD ADVERSELY AFFECT OUR BUSINESS
In order to successfully implement our business plan, we must grow
significantly. Our anticipated future growth will likely place a significant
strain on our management resources and systems. To manage our growth
effectively, we will need to continue to improve our operational, financial and
managerial controls and reporting systems and procedures, and we will need
to continue to expand, train and manage our workforce. If we do not manage
our growth effectively, our business would be negatively affected.
WE NEED IMPROVED OPERATING CONTROLS
To improve our results, we must continue to implement and improve
our financial, accounting and management information systems and to hire,
train, motivate and manage our employees. A failure to improve management
controls would have a material adverse effect on our business and on our
ability to execute our business strategy successfully.
WE MAY BE UNABLE TO INCREASE SUFFICIENTLY OUR
PERSONNEL, WHICH WOULD HAVE A MATERIAL ADVERSE
IMPACT ON THE GROWTH OF OUR BUSINESS
We need to substantially expand our personnel to increase our content,
market awareness and sales of our promotion services and advertising
opportunities. Competition for qualified personnel is intense, and we might
not be able to hire the quality and number of personnel we require. New hires
require extensive training and typically take several months to achieve
productivity. If we fail to effectively increase our personnel, our business
would be negatively affected.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO
RETAIN KEY EXECUTIVE PERSONNEL - PART TIME OFFICERS
Our future success is substantially dependent upon the continued
service of key personnel, including Mark Beychok, our Chairman, Lee
Lambert, our President and Chief Executive Officer, John Coppolino,
Director, and other personnel. The loss of the services of any of our
executive officers could have a material adverse affect on our business. We
have only employed many of our personnel, including our Chief Executive
Officer, for a short time. We do not currently have "key person" life
insurance policies on any of our employees. We have an employment agreement
with Mr. Lambert through June 2000. Competition for senior management is
intense, and we may not be successful in attracting and retaining key personnel.
Although we have not experienced significant problems in recruiting and
retaining qualified personnel, we may encounter problems in the future.
Messrs. Beychok and Coppolino are also officers and directors of our parent
company, Vitafort and may not be expected to devote their full time and
attention to the Companys affairs.
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THE INABILITY TO PROTECT OUR INTELLECTUAL
PROPERTY RIGHTS, AND ANY INFRINGEMENT ON THE
INTELLECTUAL PROPERTY RIGHTS OF OTHERS, COULD
ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL CONDITION
Our success is dependent to some degree on our ability to preserve our
trademarks and operate without infringing upon the proprietary rights of third
parties. Third parties may infringe or misappropriate our patents, trademarks
or other intellectual property rights, which could adversely impact us. The
actions we take to protect our trademarks and other proprietary rights may not
be adequate. In addition, the validity, enforceability and scope of protection
of proprietary rights in Internet-related industries are uncertain and still
evolving. We have registered various trademarks in the United States. We
have no guaranty of the degree of protection the trademarks will afford or of
our ability to avoid violating or infringing upon any trademarks issued to
others.
Third parties may assert infringement claims against us. Any claims
and any resulting litigation, should they occur, could subject us to
significant liability for damages. An adverse outcome could subject us to
significant liabilities to third parties, require us to obtain licenses from
third parties or require us to cease any related product development
activities or sales. In addition, even if we prevail, litigation could be
time-consuming and expensive to defend, and could result in the diversion of
our time and attention. Any claims from third parties may also result in
limitations on our ability to use the intellectual property subject to these
claims unless we are able to enter into contractual arrangements with the
third parties making these claims, which arrangements may not be available on
commercially reasonable terms.
Our success is also dependent upon the skills, knowledge and
experience (none of which is patentable) of our personnel. To help protect our
rights, we require all employees to enter into confidentiality agreements that
prohibit the disclosure of confidential information to anyone outside our
company. These agreements may not provide adequate protection for our
trade secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure. While the loss of any personnel could impede
our progress in the short term, the greater concern is the lack of protection
afforded us.
LAWS AND REGULATIONS PERTAINING TO THE INTERNET
MAY ADVERSELY AFFECT OUR BUSINESS
There are an increasing number of laws and regulations pertaining to
the Internet. These laws and/or regulations may relate to liability for
information retrieved from or transmitted over the Internet, online content
regulation, user privacy, taxation and the quality of products and services.
Moreover, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing. Any new law or regulation pertaining to the
Internet, or the application or interpretation of existing laws, could decrease
the demand for our promotion services, increase our cost of doing business or
otherwise have a material adverse effect on our business, results of operations
and financial condition.
LAWS AND REGULATIONS PERTAINING TO THE FOOD
INDUSTRY MAY ADVERSELY IMPACT OUR BUSINESS FOR
LICENSED FOOD PRODUCTS
The packaged food industry is subject to numerous federal, state and
local government regulations, including those relating to the preparation,
labeling and marketing of food products. Labeling standards imposed by
other countries may vary from those in the United States. If we were found to
have violated any regulations applicable to us or our products, our ongoing
operations could be adversely impacted and have a material adverse effect on
our business, results of operations and financial condition.
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IF THE DEMAND FOR INTERNET PROMOTION AND
ADVERTISING SERVICES DOES NOT INCREASE, OUR BUSINESS
WILL BE HARMED
Our success depends in part on the increased acceptance of online
promotion services. The market for Internet promotion and advertising
services has only recently begun to develop and is evolving rapidly. Most
businesses have little or no experience using the Internet for promotion and
advertising purposes. As a result, many businesses have allocated only a
limited portion of their marketing budgets to Internet promotion spending. An
increase in the demand for these services is dependent in part on the
effectiveness of the promotions and the recognition of this effectiveness by
clients and potential clients. The market for Internet promotion services may
not grow and any growth may not be sustained.
IF WE ARE UNABLE TO ATTRACT A SUSTAINED HIGH
NUMBER OF VISITORS TO WWW.HOLLYWOODPARTNERS.COM,
RELATED SITES WE DEVELOP IN THE FUTURE AND THE WEB
SITES OF OUR CLIENTS, THE EFFECTIVENESS OF OUR
PROMOTIONS WOULD BE REDUCED, AND OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD
BE NEGATIVELY AFFECTED
Our future success depends upon our ability to continue to attract and
retain visitors with demographic characteristics desired by our clients to
www.hollywoodpartners.com, related sites we develop in the future and the
web sites of our clients. In addition, we may guarantee our clients that
visitors will view their sponsored pages and/or link to their web sites a
minimum number of times. If we are unable to meet these minimum guarantees,
we will be required to defer recognition of the related revenues until the
guaranteed minimum is achieved. In addition, we will be required to provide
services to the client for free until we are able to meet our guaranteed
minimum, which may reduce our promotion inventory in future periods.
IF WE ARE UNSUCCESSFUL IN BROADENING OUR PRODUCT
OFFERINGS, OUR REVENUE AND REVENUE GROWTH WILL BE
LIMITED
Our growth is largely dependent upon our ability to leverage our
sweepstakes expertise to become a full-service Internet promotion company
and to develop content that is appealing to a large number of visitors. In the
event that we are unable to successfully implement our growth strategy, our
business, results of operations and financial condition would be materially
adversely affected.
OUR BRAND MAY NOT ACHIEVE THE RECOGNITION
NECESSARY TO INCREASE OUR MEMBERSHIP BASE AND
ATTRACT CLIENTS
To be successful, we must continue to build our brand identity. We
believe that the importance of brand recognition will increase as more
companies enter our market. We may not be successful in our marketing
efforts or in increasing our brand awareness.
SWEEPSTAKES REGULATIONS MAY LIMIT OUR ABILITY TO
CONDUCT SWEEPSTAKES OR LIMIT PARTICIPATION IN OUR
SWEEPSTAKES, WHICH COULD ADVERSELY AFFECT OUR
BUSINESS
The sweepstakes industry is subject to extensive regulation on the
local, state and national levels, regardless of whether promotions are
conducted online or offline. Congress and many state attorneys general and
legislatures recently have announced regulatory initiatives aimed at the
sweepstakes industry due to recently reported deceptive industry practices.
The publicity generated by these initiatives may adversely affect demand for
our services. Although we believe that additional laws and regulations are
likely to be enacted, we cannot predict what they will be. Any new
sweepstakes regulations may have a material adverse affect on our business,
results of operations and financial condition. Additionally, the Internet is a
new medium for sweepstakes, and it is difficult to predict how existing laws
and regulations will be interpreted.
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ANY ACQUISITIONS THAT WE MAKE MAY NOT BE
SUCCESSFUL
We have no experience in making acquisitions. If we make an
acquisition, we could have difficulty in assimilating the acquired company's
personnel and operations. In addition, the key personnel of the acquired
business may not continue to work for us. These difficulties could disrupt our
ongoing business, distract our management and employees, increase our
expenses and adversely affect our results of operations. In addition,
effecting acquisitions could require use of a significant portion of our
available cash. Alternatively, we may have to issue equity or equity-linked
securities to pay for future acquisitions and any of these issuances could be
dilutive to existing and future stockholders. Any indebtedness incurred to
pay for acquisitions may contain covenants that limit our operations or our
ability to pay dividends.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS FOR
PRODUCTS GIVEN AS PRIZES IN OUR PROMOTIONS, FOR
PRODUCTS SOLD BY OUR CLIENTS OVER THE INTERNET AND FOR
PRODUCTS WE DEVELOP AND LICENSE TO DISTRIBUTION
Consumers may sue us if any of the products we give as prizes are
defective, fail to perform properly or injure the user. We may also be sued by
consumers who purchase products that are offered or marketed through
hollywoodpartners.com. We also develop and distribute food products
through third party distribution. Although our agreements with our clients
typically contain provisions intended to limit our exposure to these product
liability claims, these limitations may not eliminate our liability. Liability
claims could require us to spend significant time and money in litigation or
pay significant damages. As a result, any of these claims, whether or not
successful, could adversely affect us.
POTENTIAL LIABILITY FOR INFORMATION DISPLAYED ON
OUR WEB SITE MAY REQUIRE US TO DEFEND AGAINST LEGAL
CLAIMS, WHICH MAY CAUSE SIGNIFICANT OPERATIONAL
EXPENDITURES
We may be subject to claims for defamation, libel, copyright or
trademark infringement or based on other theories relating to the information
we publish on our web site. These types of claims have been brought,
sometimes successfully, against online services as well as other print
publications in the past. We could also be subject to claims based upon the
content that is accessible from our web site through links to other web sites.
Our insurance may not adequately protect us against these claims.
RISKS RELATED TO THE INTERNET PRIVACY AND
SECURITY CONCERNS MAY CAUSE CONSUMERS NOT TO
PARTICIPATE IN OUR PROMOTIONS, WHICH WOULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS
An important feature of the services we provide our clients is our
ability to develop and maintain demographic and other information about
consumers participating in our promotions. Privacy and other security
concerns may cause consumers to resist providing us with personal data,
which would reduce the value of our services. Moreover, privacy and security
concerns may inhibit consumer acceptance of the Internet as a means of
commerce. If privacy and other security concerns of consumers are not
adequately addressed, our business would be adversely affected.
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OUR GROWTH WILL DEPEND ON THE GROWTH OF INTERNET USAGE
We depend on continued growth in the use of the Internet by
businesses and consumers. If electronic commerce does not grow or grows
more slowly than expected, the use of the Internet by businesses may decline
or grow more slowly than anticipated. In addition, the acceptance and growth
in the use of the Internet by consumers could be negatively affected by
consumer concerns about the security of electronic commerce transactions and
privacy. Even if Internet usage grows, the Internet infrastructure may not be
able to support the demands placed on it and its performance or reliability
may decline.
WE MAY BE UNABLE TO RESPOND TO TECHNOLOGICAL
CHANGE EFFECTIVELY
Our industry is characterized by rapid technological change, frequent
new service introductions, changing consumer demands and evolving industry
standards and practices. Our inability to anticipate and effectively respond
to these changes on a timely basis would adversely affect our business. Our
future success will depend, in part, on our ability to cost-effectively
adapt to rapidly changing technologies, to enhance existing services and
to develop and introduce a variety of new services to address changing demands
of consumers and our clients on a timely basis.
THE FAILURE OF OUR COMPUTER OR COMMUNICATIONS
SYSTEMS MAY ADVERSELY AFFECT OUR BUSINESS
Our business depends on the efficient and uninterrupted operation of
our computer and communications systems. Any system failure, including
network, software or hardware failure, which causes an interruption in our
service or decreases the responsiveness of hollywoodpartners.com, related
web sites we develop or the web sites of our clients could adversely affect our
business. Hollywoodpartners.com could also be affected by computer viruses,
electronic break-ins or other similar disruptions.
We use a third party data center service. Our operations depend on the
third party's ability to protect its own systems and our systems against damage
from fire, power loss, water, telecommunications failures, vandalism and
other malicious acts, and similar unexpected adverse events. Any disruption
in the Internet access provided by the third party could have an adverse effect
on us.
WE DEPEND ON THE CONTINUED
VIABILITY OF THE INTERNET INFRASTRUCTURE
Our success depends upon the development and maintenance of a
viable Internet infrastructure. The current Internet infrastructure may be
unable to support an increased number of users. The timely development of
products such as high-speed modems and communications equipment will be
necessary to continue reliable Internet access. Furthermore, the Internet has
experienced outages and delays as a result of damage to portions of its
infrastructure. Such outages and delays, including those relating to Year 2000
problems, could adversely affect hollywoodpartners.com and the level of
traffic on our customers' web sites. The effectiveness of the Internet may
decline due to delays in the development or adoption of new standards and
protocols designed to support increased levels of activity. If new
infrastructure, standards or protocols are developed, we may be required to
incur substantial expenditures to adapt our services to the new technologies.
<PAGE>
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE,
WHICH MAY CAUSE THE PRICE OF OUR COMMON STOCK TO
DECREASE
We expect our operating results to vary significantly from quarter to
quarter due to many factors discussed in this Risk Factors section, some of
which are beyond our control. It is possible that in future periods our
results of operations will be below the expectations of public market
analysts and investors. If this occurs, then the price of our common stock
would likely decrease. You should not rely on quarter-to-quarter comparisons
of our results of operations as an indication of future performance.
The rapidly evolving market in which we operate and potential
seasonal fluctuations in promotional spending and Internet use make it
difficult to forecast our revenues accurately. Our operating expenses are
based on our expectations of future revenues and are relatively fixed in the
short term. Accordingly, we may not be able to adjust our spending in a timely
manner to compensate for any unexpected revenue shortfall. If we have a
shortfall in revenues in relation to our expenses, or if our expenses precede
expected revenues, then our results of operations and financial condition
would be negatively affected.
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY
VOLATILE
Prior to our inclusion on the OTC Bulletin Board, there has not been a
public market for our common stock. We cannot predict the extent to which
investor interest will lead to the development of a trading market or how
liquid that market might become. The stock market has experienced
significant price and volume fluctuations and the market prices of securities
of technology companies, particularly Internet-related companies, have been
highly volatile. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against the company issuing the securities. This type of
litigation could result in substantial costs and a diversion of our management's
attention and resources.
PENNY STOCK RULES MAY ADVERSELY AFFECT THE
ABILITY TO TRADE IN OUR SECURITIES
Our common stock will trade on the OTC Bulletin Board
maintained by the National Association of Securities Dealers, Inc., also
known as the NASD. Under the Securities Enforcement and Penny Stock
Reform Act of 1990, our common stock is defined as a "penny stock" because
its market price is below $5.00. Additional disclosures are required related
to the market for penny stocks and for broker-dealers to effect trades in a
penny stock. In the absence of our obtaining Nasdaq listing, our common
stock and the liquidity of an investment in the common stock will be impaired.
Our common stock could not be included in Nasdaq unless, among other things,
the price of the common stock came to exceed $3.00 per share. Accordingly,
we do not know if our common stock will ever be eligible to be included in
Nasdaq. Furthermore, even if the common stock were to be included in
Nasdaq in the future, we might not be able to comply with the criteria for
continued listing, which include, among other things, stockholders' equity in
excess of $1,000,000 and assets in excess of $2,000,000. Consequently, the
effect of these rules may restrict the ability of broker-dealers to sell the
common stock and may affect the ability of holders of common stock to sell
their shares in the secondary market.
BECAUSE OF THE VERY NEW PUBLIC MARKET FOR OUR
SHARES, THERE MAY BE VERY LITTLE LIQUIDITY OF SHARES
The market for our common stock on the OTC Bulletin Board has not
yet developed. The OTC market is smaller than other securities markets, and
prices for OTC securities are not generally published in the news media.
Information about us and transactions in our shares will likely be more limited
on the OTC market. The limitations of the trading market for our common
stock and of the OTC Bulletin Board may adversely affect the liquidity of the
market for our common stock.
<PAGE>
OUR PRINCIPAL STOCKHOLDERS CONTROL US
Our former parent corporation presently owns approximately 62.5% of
our outstanding common stock. As a result, our former parent corporation
may be able to effectively exercise control over all matters requiring approval
by our stockholders, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of us, which
could adversely affect our stock price.
FUTURE SALES OF OUR COMMON STOCK BY OUR EXISTING
STOCKHOLDERS MAY ADVERSELY AFFECT THE MARKET PRICE
OF OUR COMMON STOCK
The market price of our common stock could decline as a result of
sales of shares of common stock by our existing stockholders after this
offering, or the perception that these sales could occur.
These sales also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate.
