As filed with the Securities and Exchange Commission on May 8, 1998
Registration No. 333-________
Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INFONOW CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 7371 04-3083360
(State or jurisdiction of(Primary Standard Industrial (I.R.S. Employer
incorporation or organization)Classification Code Number)Identification No.)
1875 Lawrence Street, Suite 1100, Denver, CO 80202 (303) 293-0212
(Address, including zip code and telephone number,
including area code, of Registrant's principal executive offices and place of
business)
Kevin D. Andrew
Chief Financial Officer
InfoNow Corporation
1875 Lawrence Street, Suite 1100
Denver, CO 80202
(303) 293-0212
(Address, including zip code and telephone number,
including area code, of agent for service)
Copies to:
Peter J. Jensen
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, CO 80302
Approximate date of commencement of proposed sale to the public: From
time to time after the effective
date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the
Securities Act of 1933, check the following box and list the Securities Act of
1933 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 of 1933,
check the following box and list the Securities Act of 1933 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 of 1933,
check the following box and list the Securities Act of 1933 registration
statement number of the earlier effective
registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933,
please check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Title of Amount to be Proposed Proposed Amount of
each class registered maximum maximum registration
of offering aggregate fee
securities price per offering
to be share price (2)
registered
Common Stock,
$.001 par value 3,896,430 $1.46 $5,688,787 $1,678.19
Shares(1)
</TABLE>
(1) Of such amount, 2,634,485 are shares of Common Stock presently issued and
outstanding, and 1,261,945 are shares of Common Stock
underlying warrants to purchase Common Stock.
(2) Estimated solely for the purpose of calculating the registration fee.
Computed pursuant to Rule 457(c) on the basis of the average of
the bid and asked price on the NASD Electronic Bulletin Board trading
system as of the close of trading on May 4, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY
TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT
OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
PROSPECTUS 3,896,430 SHARES
INFONOW CORPORATION
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
This Prospectus relates to up to 3,896,430 shares (the "Shares") of the
common stock, $.001 par value per
share (the "Common Stock") of InfoNow Corporation ("InfoNow" or the
"Company"), which may be offered from
time to time by the Selling Stockholders named herein under "Selling
Stockholders." The Shares fall into two
categories: (i) those which are now owned by the Selling Stockholders as a
result of purchases from the Company or
received in connection with mergers with the Company, in private transactions
which were exempt from registration
under Section 4(2) or Regulation D of the Securities Act of 1933; and (ii)
those which may be purchased from the
Company in the future upon exercise of certain warrants held by the Selling
Stockholders.
The Company will not receive any of the proceeds from the sale of the
Shares. The distribution of the Shares
by the Selling Stockholders is not subject to any underwriting agreement. The
Shares offered by the Selling
Stockholders may be sold from time to time at designated prices that may be
changed, at market prices prevailing at
the time of sale, at prices relating to such prevailing market prices or at
negotiated prices. In addition, the Selling
Stockholders may sell the Shares through customary brokerage channels, either
through broker-dealers acting as agents
or principals. The Selling Stockholders may effect such transactions by
selling Shares to or through broker-dealers,
and such broker-dealers may receive compensation in the form of underwriting
discounts, concessions, commissions,
or fees from the Selling Stockholders and/or purchasers of the Shares for whom
such broker-dealers may act as agent,
or to whom they sell as principal, or both (which compensation to a particular
broker-dealer might be in excess of
customary commissions). Any broker-dealers that participate with the Selling
Stockholders in the distribution of
Shares may be deemed to be underwriters and any commissions received by them
and any profit on the resale of
Shares positioned by them might be deemed to be underwriting discounts and
commissions within the meaning of the
Securities Act of 1933, in connection with such sales.
As of the close of trading on May 4, 1998, the closing sale price of the
Common Stock as quoted on the
NASD Electronic Bulletin Board was $1.46 per share. The Common Stock is also
listed for trading on the Vancouver
Stock Exchange, under the symbol "INO.U". Total expenses of the offering are
estimated to be $15,000, all of which
will be paid by the Company.
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is___________, 1998.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
(the"Commission") a Registration
Statement (together with all amendments, exhibits, schedules and supplements
thereto, the "Registration Statement")
on Form SB-2 under the Securities Act for registration of the shares of Common
Stock offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all of the information set forth in the
Registration Statement, certain parts of which have been omitted as permitted
by the rules and regulations of the
Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference
is made to the Registration Statement. Statements contained in this
Prospectus regarding the contents of any contract
or any other document to which reference is made are not necessarily complete,
and where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions
of such exhibit, to which reference is hereby made.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended,
and in accordance therewith files periodic reports, proxy statements and
other information with the Commission.
Such periodic reports, proxy statements and other information, and a copy of
the Registration Statement can be copied
and inspected at the public reference facilities of the Commission at 450
Fifth Street, Washington, D.C. 20549, and
at the Commission's regional offices at the 75 Park Place, New York, New York
10278, and 219 South Dearborn
Street, Chicago, Illinois 60604. Copies of all or any portion of the
Registration Statement may be obtained from the
Public Reference Section of the Commission, 450 Fifth St., N.W., Washington,
D.C. 20549, at prescribed rates.
The Company files certain of its materials with the Commission electronically.
The Commission maintains a World
Wide Web site (www.sec.gov) that contains reports, proxy and information
statements and other information regarding
registrants that file electronically.
The Company intends to furnish its stockholders with Annual Reports
containing audited financial statements for each fiscal year.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise defined herein, capitalized terms
used in this summary have the respective meanings ascribed to them elsewhere
in this Prospectus. PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK
FACTORS".
THE COMPANY
InfoNowregistered trademark Corporation ("InfoNow" or the "Company")
develops, markets and provides technology-based
teleservices to leading North American companies. InfoNow's FindNowregistered
trademark Referral Management Services (RMS) are
designed to enable companies to manage consumer or commercial referrals with
greater effectiveness and efficiency.
Referrals are the ubiquitous "where can I buy your product" or "where's the
closest location" types of questions
received thousands of times a day by leading companies. FindNow's first
client was Visa International, implemented
in the third quarter of 1996. Since then, the list of FindNow RMS users has
grown significantly, and now includes
six of the eight largest banks in North America and six of the ten largest
computer/networking companies worldwide,
as well as other industry leading companies like American Airlines, FedEx,
Goodyear, Shell, and United Healthcare.
FindNow is an enterprise-wide referral management solution, provided as a
turnkey service. FindNow
Referral Management Services provide a customer-specific, geographically
precise referral, accessible by the Internet,
a client's call center, or an interactive voice response unit, delivered
across a range of geographies. The FindNow
system can provide other customized information to the customer depending on
the Client's requirements and can
produce summary reports for the Client's use in operations management or
market analysis. A sample of completed
FindNow RMS Internet implementations can be viewed by anyone with access to
the Internet by browsing the
"Customers" section of InfoNow's Internet site page at www.infonow.com.
InfoNow's primary objective is to be
the leading provider of technology-based referral management services to
corporate clients.
The Company was incorporated under the laws of the State of Delaware on
October 29, 1990, and was initially
focused on the sale of software through the use of encrypted CD-ROM
technology. In 1995, the Company
fundamentally changed its business focus and began developing its FindNow
system to provide technology-based
teleservices to large corporate clients. The Company ceased selling software
using encrypted CD-ROM technology
and installed a new senior management team, led by Michael Johnson, who became
President and Chief Executive
Officer in October 1995.
As part of its strategy, the Company acquired Cimarron International,
Inc. ("Cimarron") and Navigist, Inc.
("Navigist") in 1995. Cimarron provided interactive media authoring and
business services. Navigist offered network
engineering and Internet consulting services. These acquisitions allowed the
Company to utilize resources and
capabilities of Navigist and Cimarron to facilitate its change in strategic
direction as well as to provide an operating
infrastructure and revenues as the Company completed this transition. After
the Company completed the transition
to its new business, the Company sold Navigist on December 13, 1996, and
completed the sale of Cimarron on
December 11, 1997.
THE OFFERING
Common Stock offered by the Selling Stockholders . . 3,896,430 shares
Common Stock offered by the Company. None
Common Stock to be outstanding after the offering(1) 5,853,679 shares
Trading symbols:
NASD Electronic Bulletin Board "INOW"
Vancouver Stock Exchange . . . "INO.U"
(1) Excludes up to 3,603,063 shares of Common Stock issuable upon exercise of
outstanding warrants and options. 1,261,945 shares of
Common Stock underlying such warrants are registered for resale pursuant
to the registration statement of which this Prospectus is a
part.
SUMMARY FINANCIAL INFORMATION
(US DOLLARS IN THOUSANDS, except per share information)
<TABLE>
<S> <C> <C>
YEARS ENDED DECEMBER 31,
1997 1996
STATEMENT OF
OPERATIONS DATA:
Sales $ 1,053 $ 1,124
Operating expenses 2,678 4,275
Net loss from (1,625) (3,151)
continuing operations
Net loss (2,361) (3,092)
Net loss per
common share from (0.30) (0.89)
continuing operations
Net loss per share (0.44) (0.86)
Weighted average
common shares 5,396,024 3,587,128
outstanding
</TABLE>
<TABLE>
<S> <C> <C>
DECEMBER 31,
1997 1996
BALANCE SHEET DATA:
Working capital (deficit) $ (357) $ 1,284
Total assets 1,324 4,290
Total liabilities 926 1,118
Long term debt 47 92
Stockholder's 398 3,172
equity (deficit)
</TABLE>
RISK FACTORS
The securities offered hereby involve a high degree of risk. Each
prospective investor should carefully
consider the following risks inherent in, and affecting the business of, the
Company and this offering before making
an investment decision.
LIMITED OPERATING HISTORY; ACCUMULATED LOSS; GOING CONCERN QUALIFICATION
From the Company's inception in 1990 until May 1995, the Company was
involved in the business of
distributing software using encrypted CD-ROMs. During 1995 the Company made a
strategic decision to focus its
business on providing referral management systems under the name
FindNowregistered trademark. Accordingly, the Company has only
limited operating history upon which an evaluation of its business and
prospects can be based. Since adopting its current
business strategy, the Company has continued to incur net losses from
operations on a consolidated basis. The Company
has incurred net losses in each year of its existence and expects that it will
continue to incur net operating losses at least
through the second fiscal quarter of 1998. These continuing losses are
attributable to increases in operational capability
and marketing and sales costs related to the Company's new focus on its
FindNow system. There can be no assurance
that the Company can generate substantial revenue growth, or that any revenue
growth that is achieved can be sustained.
Revenue growth that the Company has achieved or may achieve may not be
indicative of future operating results. In
addition, the Company has increased and plans to increase further, its
operating expenses in order to enhance its currents
products and services and increase its sales and marketing efforts. To the
extent that increases in such expenses precede
or are not subsequently followed by increased revenues, the Company's
business, operating results and financial
condition will be materially adversely affected.
The auditors report included in the Company's annual report for the year
ended December 31, 1997 contains
an explanatory paragraph which states that "the Company has experienced
recurring losses from operations and requires
cash to fund continuing operations that raise substantial doubt about its
ability to continue as a going concern." The
Company will not be able to continue its operations as a going concern or
realize its business plan without achieving
increased revenues or obtaining financing to meet its working capital needs,
neither of which can be assured. In the
event that the Company is unable to continue as a going concern, an investor
holding equity securities of the Company
would likely lose the value of his or her entire investment.
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCT DEVELOPMENT
The teleservices industry is characterized by rapid technological change.
A significant portion of the
Company's success will depend on its ability to design, develop, test, market,
sell and support new products and
enhancements of current products on a timely basis in response to competitive
products and evolving demands of the
marketplace. There can be no assurance that the Company's financial and
technological resources will permit it to
develop or market new products successfully or respond effectively to
technological changes. The Company anticipates
that significant amounts of future revenue will be derived from products and
product enhancements which either do not
exist today or have not been sold in large enough quantities to ensure market
acceptance. The development of new
systems is a complex, expensive and uncertain process requiring technical
innovation and the accurate anticipation of
technological and market trends. The Company will need to continue to attract
and retain appropriately skilled
employees to successfully develop new systems. There can be no assurance that
the Company will not experience
difficulties that could delay or prevent the successful development and
introduction of product enhancements or new
products, or that such enhancements or new products will adequately meet the
requirements of the marketplace or
achieve market acceptance. If the Company is unable to develop and introduce
product enhancements and new products
in a timely and cost-effective manner in response to changing market
conditions or client requirements, the Company's
business, results of operations and financial condition could be materially
and adversely affected.
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET
The Company's future success is substantially dependent upon continued
growth in the use of the Internet and
the automation of call center activities in order to support the market for
its FindNow and other similar products and
services the Company may develop. Rapid growth in the use of and interest in
the Internet and use of the technologies
similar to the Company's is a recent phenomenon. There can be no assurance
that communication or commerce over
the Internet will become widespread. The Internet may not prove to be a
viable commercial marketplace for a number
of reasons, including potentially inadequate development of the necessary
infrastructure, such as reliable network
backbone, or timely development of performance improvements, including high
speed modems. Changes in or
insufficient availability of telecommunications services to support the
Internet also could result in slower response times
and adversely affect usage of the Internet and FindNow. If use of the
Internet does not continue to grow, or if the
Internet infrastructure does not effectively support growth that may occur,
the Company's business, results of operations
and financial condition would be materially and adversely affected.
EARLY STAGE RISKS; DEVELOPING MARKET; UNPROVEN ACCEPTANCE OF THE COMPANY'S
PRODUCTS
The Company's recent adoption of a business strategy focused on
teleservices solutions subjects the Company
to the risks inherent in a speculative new enterprise, including the absence
of a lengthy operating history, shortage of
cash, technology whose application to the Internet is relatively unproven, new
untried products and competition from
businesses with considerably greater resources. The markets for products and
services provided by the Company has
only recently begun to develop. As is typical in the case of a new and rapidly
evolving industry, demand and market
acceptance for recently introduced products and services are subject to a high
level of uncertainty and risk. Because
the market for the Company's products is new and evolving, it is difficult to
predict the future growth rate, if any, and
size of this market. There can be no assurance either that the market for the
Company's products will develop or that
demand for the Company's products will emerge or become sustainable. The
Company's ability to successfully develop
additional products and services depends substantially on market acceptance of
the Company's FindNow product. If
FindNow sales fail to continue to grow, the Company's ability to establish
enhancements and other products would be
materially and adversely affected. If the market fails to develop or develops
more slowly than expected or becomes
saturated with competitors, or if the Company's products and services do not
achieve or sustain market acceptance, the
Company's business, results of operations and financial condition will be
materially and adversely affected.
FLUCTUATION IN QUARTERLY OPERATING RESULTS
The Company has experienced, and expects to continue to experience,
significant fluctuations in its quarterly
results of operations. Factors which have had an influence on and may continue
to influence the Company's results of
operations include the size and timing of customer orders, timing of product
introductions or enhancements by the
Company or its competitors, market acceptance of new products technology,
changes in pricing strategy, and changes
status of development expenditures. As a result of the foregoing and other
factors, the Company anticipates that it may
experience material fluctuation in operating results on a quarterly basis,
which may contribute to the volatility in the
price of the common stock. See "Management's Discussion and Analysis".
DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS AND FUTURE SALES
As of the date of this Prospectus, the Company had contracted with over
thirty (30) customers for its FindNow
service. Although the use of cash in its operations has declined
significantly, the ongoing monthly revenue from these
customers is not sufficient to cover operating costs of the Company. The
success of the Company will require that the
Company increase its customer base, and its failure to do so would materially
and adversely affect its financial
condition. The Company's current FindNow customers purchase the service
pursuant to contracts with a duration of
three years or less. The success of the Company is materially dependent on
the ability of the Company to attract new
customers and obtain renewal contracts with its existing customers.
DEPENDENCE ON SINGLE PRODUCT; DEPENDENCE ON NEW PRODUCTS
The Company's primary product and service is the FindNow system. The
Company is substantially dependent
on the sales and market acceptance of FindNow to generate operating revenues
and profits. Although the Company is
in the process of developing additional products and services, these
development efforts are largely focused on
enhancing the functionality of the FindNow system. The failure of the Company
to successfully market and sell the
FindNow service would have a material adverse effect on the Company's
business, results of operations, and financial
condition. The Company may also develop other related products that allow
customers to deliver customer service
information via the Internet in order to broaden its product line and remain
competitive with other offerings in the
marketplace. The development of new products involve many risks, including
technical, financial and market
acceptance risks. There can be no assurance that the Company will be
successful in developing and marketing new
products and services or that these new offerings would gain market
acceptance.
COMPETITION
The market for teleservices solutions, including the market for the
Company's products and services, is
intensely competitive, fragmented and rapidly evolving. Many of the Company's
potential competitors are larger and
have substantially greater financial, technical, and marketing resources than
the Company. Competition for these
services could result in price reductions for the Company's products and
services. Increased competition from existing
competitors and competing products, or the introduction of new products
superior to the Company's own products,
would have a material adverse affect on the Company's financial condition. The
Company's future success will be
dependent upon its ability to remain competitive with respect to services
offered and the technical capabilities of the
products offered.
GENERAL BUSINESS RISKS
The Company has developed its business plans and strategies based on the
rapidly increasing size of the
teleservices markets and the Company's participation in those markets. In
addition, the Company has made assumptions
regarding estimated sales cycle, price and acceptance of the Company's
products and services, and the costs of further
developing and providing those products and services. Although these are based
on the best estimates of management,
there can be no assurance that these assumptions will prove to be correct.
Future operational results of the Company
will depend on many factors including future economic, market and competitive
conditions, all of which are difficult
or impossible to predict accurately and many of which are beyond the ability
of the Company to control.
DEPENDENCE ON INTERNET AND TELECOMMUNICATION INFRASTRUCTURE AND ACCESS
The sales of the Company's products and services are dependent on
reliable access and operations of the
Internet and other telecommunications networks. Notwithstanding current
interest and worldwide subscriber growth,
the Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary
infrastructure or complementary products, such as high speed modems. Because
global commerce and on-line exchange
of information on the Internet and other open area networks are new and
evolving, it is difficult to predict with any
assurance whether the Internet will prove to be a viable commercial
marketplace.
LIMITED MARKET FOR SECURITIES; POSSIBLE VOLATILITY OF SHARE PRICE
The Company's securities are traded on the NASD's "Electronic Bulletin
Board" and the Vancouver Stock
Exchange. These markets have often been characterized by low trading volume,
large price fluctuations and limited
liquidity for many issuers listed on these markets. As a result, an investor
may find it more difficult to dispose of, or to
obtain accurate price quotations of the Company's securities. In addition, it
may be more difficult for the Company to
obtain additional equity financing needed for expansion of its operations in
the future if the Company's stock is not
traded on Nasdaq Small Cap or other national exchange.
POSSIBLE NEED FOR ADDITIONAL CAPITAL
The Company's cash flow from operations is not sufficient to fund the
operations of the Company. The
Company is currently dependent upon cash reserves to fund its ongoing
operations as well as to execute its business plan
with respect to the development of FindNow and related products. The Company
currently projects that available cash
balances together with projected cash flow from operations will be sufficient
to fund the Company's operations through
1998. However, in the event that the market acceptance of the Company's
products and services is not as robust as
anticipated, competition is greater than anticipated, development of new
products or enhancements to existing products
is costlier or slower than expected, or that the Company's projections
otherwise prove to be inaccurate, the Company
may need to seek additional financing. In such case, the Company will
generally be required to seek additional debt
or equity financing to fund the costs of daily operations. There can be no
assurance that the Company will be able to
successfully obtain additional debt or equity financing, if needed, or that
such financing would not result in substantial
dilution of current shareholders.
DEPENDENCE ON THIRD PARTY TECHNOLOGY
The Company's primary product, FindNow, incorporates technology developed
and owned by third parties.
The Company relies to a certain extent upon such third parties' ability to
enhance their current products, and to develop
new products on a timely and cost effective basis that will meet changing
customer needs and respond to competitive
and technological changes. If the Company were to breach its license
agreements or the license agreements were
terminated, the Company could lose the right to use the licensed software.
There can be no assurance that the Company
would be able to replace the functionality provided by the third party
software currently offered in conjunction with the
Company's products. In addition, if the Company were not able to obtain
adequate support for third party software or
such software were to become incompatible with the Company's software, the
Company would need to redesign its
software or seek comparable replacements. There can be no assurances that the
Company could successfully redesign
its software or that adequate replacements for third party software could be
located and integrated into the Company's
system.
CONTROL BY PRINCIPAL STOCKHOLDERS
As of March 11, 1998, the Company had 5,364,179 shares of Common Stock
outstanding. Of this total amount
outstanding, officers, directors and those shares holders holding more than 5%
of the outstanding shares control 46.1%
of the outstanding shares, or approximately 57.4% assuming that these
shareholders were to exercise options and
warrants exercisable within the next 60 days. As a result, these shareholders
acting together will be able to exercise
significant influence over all matters requiring stockholder approval,
including the election of directors and the approval
of significant corporate transactions.
DEPENDENCE UPON KEY PERSONNEL; CHANGES IN MANAGEMENT GROUP; ATTRACTION AND
RETENTION OF QUALIFIED
PERSONS
The Company is substantially dependent upon the services of its senior
management and key technical
personnel. The loss of the services of one or more of such executives could
have a material adverse effect on the
Company. The Company's future growth and success depends, in large part, upon
its ability to obtain, retain and expand
its staff of technical and marketing personnel. There can be no assurance
that the Company will be successful in its
efforts to attract and retain such personnel. The Company has employment
agreements with its chief executive officer
and certain other senior officers but does not have employment agreements with
its key technical personnel.
BUSINESS INTERRUPTIONS
The Company's operations are dependent on its ability to protect its
computer equipment against damage from
fire, earthquakes, power loss, telecommunications failures and similar events.
The Company's principal Web server
equipment and operations are housed and maintained by Rocky Mountain Internet
at its operations center in Denver,
Colorado. The Company has also recently completed the installation of a
redundant operations site at Qwest
Communications also located in Denver, Colorado. Although these facilities
have safeguard protections such as a halon
fire system, redundant telecommunications access, off-site storage of backups
and 24 hour systems maintenance support,
the Company may still experience outages due to multiple failures of systems
or area-wide natural disasters as both sites
are located in Denver. In addition, despite the implementation of network
security measures by the Company, its servers
may remain vulnerable to computer viruses and similar disruptions from
unauthorized tampering with the Company's
computer systems. The occurrence of any of these events could result in
interruptions or delays in service to the
Company's customers which could have a material adverse effect on the
Company's business, results of operations and
financial condition. The Company also carries property insurance in the event
of equipment damage. However, such
safeguards and insurance may not be adequate to compensate for all losses that
may occur from business interruptions.
FORWARD LOOKING STATEMENTS
The Company's actual results may vary materially from the forward looking
statements made above. The
Company intends that such statements be subject to the safe harbor provision
of the Securities Act. The Company's
forward-looking statements include the plans and objectives of management for
future operations and relate to: (i) the
ability of the Company to generate future sales of the Company's FindNowSM
service, (ii) market acceptance of the
FindNowSM service, (iii) success of the Company in forecasting and meeting the
demand of the customers of the
FindNowSM service, including maintaining technical performance of the system
as new FindNowSM customers are
added, (iv) ability to obtain financing to purchase equipment needed to
provide service to additional FindNowSM
customers, (v) ability to maintain pricing and adequate profit margins on its
products and services (vi) ability to retain
qualified technical personnel (vii) ability of the company to maintain current
pricing and sales volume in its operations
of Cimarron (viii) ability to control development costs of FindNowSM service
within current budgeted levels, (ix) and
the ability of the Company to raise additional capital.
The foregoing assumptions are based on judgments with respect to, among
other things, future economic,
competitive and market conditions, and future business decisions, all of
which are difficult or impossible to predict
accurately and many of which are beyond the Company's ability to control.
There are also other risks which could
cause the Company's revenues or costs to vary markedly from the
forward-looking statements made above, such as
the risk that the market demand for the FindNowSM may not develop as expected
or if it does develop, that the
Company will be able to generate sufficient sales to fund its operations.
Accordingly, although the Company believes
that the assumptions underlying the forward-looking statements are reasonable,
any such assumption could prove to
be inaccurate and therefore there can be no assurance that the results
contemplated in forward-looking statements will
be realized and any statements should not be regarded as are presentation by
the Company or any other person that
the Company's objectives or plans will be achieved.
THE COMPANY
InfoNowregistered trademark Corporation ("InfoNow" or the "Company")
develops, markets and provides technology-based
teleservices to leading North American companies. InfoNow's FindNowregistered
trademark Referral Management Services (RMS) are
designed to enable companies to manage consumer or commercial referrals with
greater effectiveness and efficiency.
Referrals are the ubiquitous "where can I buy your product" or "where's the
closest location" types of questions
received thousands of times a day by leading companies. FindNow's first
client was Visa International, implemented
in the third quarter of 1996. Since then, the list of FindNow RMS users has
grown significantly, and now includes
six of the eight largest banks in North America and six of the ten largest
computer/networking companies worldwide,
as well as other industry leading companies like American Airlines, FedEx,
Goodyear, Shell, and United Healthcare.
In 1997 the Company generated approximately 55% and 45% of its total
revenue from the Internet products
and business presentations segments of its business, respectively. See Note 9
to the Consolidated Financial Statements
herein for financial information as to the Company's business segments.
The Company was incorporated under the laws of the State of Delaware on
October 29, 1990, and was
initially focused on the sale of software through the use of encrypted CD-ROM
technology. In 1995, the Company
fundamentally changed its business focus and began developing its FindNow
system to provide technology-based
teleservices to large corporate clients. The Company ceased selling software
using encrypted CD-ROM technology
and installed a new senior management team, led by Michael Johnson, who became
President and Chief Executive
Officer in October 1995.
As part of its strategy, the Company acquired Cimarron International,
Inc. ("Cimarron") and Navigist, Inc.
("Navigist") in 1995. Cimarron provided interactive media authoring and
business services. Navigist offered network
engineering and Internet consulting services. These acquisitions allowed the
Company to utilize resources and
capabilities of Navigist and Cimarron to facilitate its change in strategic
direction as well as to provide an operating
infrastructure and revenues as the Company completed this transition. After
the Company completed the transition
to its new business, the Company sold Navigist on December 13, 1996, and
completed the sale of Cimarron on
December 11, 1997.
The following trademarks and servicemarks mentioned in this Prospectus
are owned by the Company:
InfoNowTM and FindNow-0212, and its World Wide Web site is located at
www.infonow.com.
USE OF PROCEEDS
The proceeds from the sale of the Shares will be received directly by
each Selling Stockholder and the
Company will not receive any portion of the proceeds.
MARKET FOR THE COMPANY'S COMMON STOCK
The following table sets forth the high and low bid price of the
Company's Common Stock, reported for the
fiscal periods indicated on the OTC Electronic Bulletin Board system, the
principal market upon which such securities
were traded under the symbol INOW. The Company's shares are also listed on the
Vancouver Stock Exchange and
are traded in US dollars under the symbol INOU.V. Such quotations reflect
inter-dealer prices, without retail mark-
up, mark-down or commissions and may not necessarily represent actual
transactions. As of February 13, 1998, there
were approximately 180 holders of record of the Common Stock.
<TABLE>
<S> <C> <C>
High Low
YEAR ENDING DECEMBER 31, 1996
First Quarter $3.75 $2.00
Second Quarter 3.00 1.38
Third Quarter 1.88 0.75
Fourth Quarter 2.13 1.25
YEAR ENDING DECEMBER 31, 1997
First Quarter $2.93 $1.50
Second Quarter 2.41 0.87
Third Quarter 0.69 0.19
Fourth Quarter 0.81 0.22
</TABLE>
DETERMINATION OF OFFERING PRICE
This Prospectus may be used from time to time by the Selling Stockholders
who offer the Shares registered
hereby for sale. The offering price of such Shares will be determined by the
Selling Stockholders and may be based
on market prices prevailing at the time of sale, at prices relating to such
prevailing market prices, or at negotiated
prices. See "Plan of Distribution".
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock and does not currently
anticipate paying any such dividends in the foreseeable future. The Board of
Directors of the Company intends to
review this policy from time to time after taking into account various factors
such as the Company's financial
condition, results of operations, current and anticipated cash needs and plans
for expansion.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1997. This table should
be read in conjunction with the Consolidated Financial Statements and notes
thereto included elsewhere in this
Prospectus.
<TABLE>
<S> <C>
(US DOLLARS IN THOUSANDS)
DECEMBER 31, 1997
Long term debt: $47
Stockholder's Equity:
Preferred Stock, $.001 par
value:
1,962,335 shares 0
authorized, no shares
issued and outstanding
Common Stock, $.001 par
value:
15,000,000 shares 5
authorized, 5,364,179
shares issued and outstanding(1)
Additional paid in capital 21,904
Accumulated Deficit (21,511)
Total stockholder's equity 398
Total capitalization 445
</TABLE>
(1) Excludes 3,603,063 shares of Common Stock issuable upon exercise of
outstanding options and warrants. "See Management
Employee Benefit Plans" and "Description of Securities."
SELECTED FINANCIAL DATA
The following selected financial data are for, and as of the end of, each
of the years in the two-year period
ended December 31, 1997 and have been derived from the consolidated financial
statements of the Company, which
for such years were audited by Hein + Associates LLP. The report of Hein +
Associates LLP dated February 13,
1998 covering the consolidated financial statements as of December 31, 1997
contained an explanatory paragraph
concerning the Company's ability to continue as a going concern. The
Consolidated Financial Statements as of
December 31, 1997, and for each of the years in the two-year period ended
December 31, 1997, and the reports
thereon, are included elsewhere in this Prospectus. The selected financial
data set forth below should be read in
conjunction with "Management's Discussion and Analysis" and the Consolidated
Financial Statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<S> <C> <C>
(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
1997 1996
STATEMENT OF
OPERATIONS DATA:
Sales $1,053 $1,124
Operating expenses $2,678 $4,275
Net loss from (1,625) (3,151)
continuing operations
Net loss (2,361) (3,092)
Net loss per
common share from (0.30) (0.89)
continuing
operations
Net loss per share (0.44) (0.86)
Weighted average
common shares 5,396,024 3,587,128
outstanding
</TABLE>
<TABLE>
<S> <C> <C>
DECEMBER 31,
1997 1996
BALANCE SHEET DATA:
Working capital (deficit) $(357) $1,284
Total assets 1,324 4,290
Total liabilities 926 1,118
Long term debt 47 92
Stockholder's 398 3,172
equity (deficit)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company develops, markets, and provides a suite of technology-based
teleservices, called FindNow
Referral Management Services, that are designed to help leading companies
manage consumer and commercial
referrals more efficiently and effectively.
This report includes a number of forward-looking statements which reflect
the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and
uncertainties, including those discussed below that could cause actual results
to differ materially from historical results
or those anticipated. In this report, the words "anticipate," "believes,"
"expects," "future," "intends," and similar
expressions identify forward-looking statements.
The Company's sells its FindNow services under multi-year contracts. The
client pays a setup fee for the
initial installation of the service, and a monthly service fee for maintenance
of the service thereafter. The Company
currently has 32 contracts in its sales backlog, resulting in $1,459,000 in
sales backlog, an increase of 107% since
January 1, 1997.
Although the Company has experienced a significant increase in its
backlog from sales of its FindNow
service, the Company has also experienced significantly greater operating
expenses during the same period. These
increases in operating expenses are directly related to the expansion of
technical and sales capabilities through the
addition of personnel during the first half of 1997 and the establishment of
the data center infrastructure necessary
to deliver its FindNow service for a significant number of additional
customers. These increases have not yet been
offset by additional revenues from new contracts. The Company believes that
most of its infrastructure costs, such
as servers, technical personnel, telecommunications and certain of its data
costs are largely fixed and are not expected
to vary significantly with an increase in client contracts in the near future.
In addition, the management of the
Company believes that the majority of the infrastructure is in place to
support a sufficient number of clients for the
Company to achieve profitability. The Company's success in achieving
profitability is primarily dependent on market
acceptance and future sales of its FindNow service to additional customers to
offset operating costs. Although
significant selling efforts are underway to add new customer contracts, the
limited operating history of the Company
makes it difficult or impossible to predict the timing of these future sales.
RESULTS OF OPERATIONS
The results for the year ended December 31, 1996 include the sales and
related costs of its FindNow
operations and the results of its subsidiaries, Navigist and Cimarron. The
Company sold the assets and operations of
Cimarron on December 11, 1997 and it has been classified as discontinued
operations for the years ended December
31, 1997 and 1996. In addition, the Company sold its Navigist operations on
December 13, 1996. The statement of
operations for the year ended December 31, 1997 does not include the
operations of Navigist and is not comparable
with the operating results for the year ended December 31, 1996. The following
pro forma statement of operations
was prepared showing the effect of excluding the results of Navigist
operations for the year ended December 31, 1996
and will be used in the analysis of the operations discussion that follows.
(US dollars in thousands)
Year Ended December 31,
1997 1996
(Pro forma)
Revenues $1,053 $ 345
Cost of Sales 1,501 238
Administrative and Selling 1,540 1,265
Impairment of Asset (363) -
Other (income) expense (16) 23
Net Loss from continuing
operations (1,609) (1,181)
Discontinued Operations (752) 95
Net Loss $(2,361) $(1,086)
Comparison of Year Ended December 31, 1997 with Pro forma Year Ended December
31, 1996
Net Revenues. The Company's revenues from continuing operations consist
primarily of setup and monthly fees
from ongoing contracts for its FindNow service. Total sales from the Company's
FindNow service increased by
$708,000, or 205% for the year ended December 31, 1997, compared to the pro
forma period in the prior year. The
increased revenues were generated by additional contracts sold and implemented
during the year. The Company
recognized substantially no revenues from ongoing FindNow services prior to
July 1996. During 1997 the number
of FindNow contracts increased from two (2) active contracts at the beginning
of 1997 to 21 active contracts as of
December 31, 1997.
Cost of Sales. The cost of sales, as a percent of revenues, increased from
69% for the year ended December 31,
1996 to 142% for the year ended December 31, 1997. The total cost of sales
also rose by 531% or $1,263,000. This
increase is a result of increased costs in creating an infrastructure for
delivering its FindNow service. These costs
include technical personnel payroll, contract labor, data acquisition costs,
depreciation and amortization for server
equipment and capitalized software development, telecommunications and other
costs related to operating the
Company's data center.
Selling, General and Administrative. Selling, general and administrative
expenses, as a percent of revenues,
decreased from 367% of sales for the year ended December 31, 1996 to 146% of
sales for the year ended December
31, 1997. The total amount of selling, general and administrative expenses
increased by 21% or $275,000. This
overall increase is primarily the result of the addition of sales personnel
and other marketing and promotion costs in
1997. A portion of the increase can also be attributed to approximately
$60,000 in expensed costs related to a proposed
financing undertaken by the Company in the second quarter of 1997 which was
not completed. General and
administrative expenses are expected to decline as a percentage of revenues
while selling and marketing expenses are
expected to increase proportionately with revenues.
Non-operating Income (expense). Net non-operating income was $16,000 for
the year ended December 31, 1997
compared to a net non-operating expense of $23,000 for the year ended December
31, 1996. The increase in interest
income is primarily due to interest income on cash and cash equivalents.
Net Loss from continuing operations. The reported net loss of the Company
for the year ended December 31,
1997 increased by approximately $428,000, or 36%, as compared to the pro
forma results in the prior year. The
results for the year ended December 31, 1997 include a non-cash gain of
$363,060 related to the retirement of
common shares originally issued in conjunction with the acquisition of
Navigist. Without this non-cash charge, the
net loss of the Company increased by 67% or $791,000 compared to the pro
forma loss in the prior year. This
increase is due primarily to additional cost of sales, and increases in
selling and marketing expenses which increased
faster than revenues during 1997.
Discontinued Operations. The results of operations of Cimarron have been
classified as discontinued operations
after its sale on December 11, 1997. The Company reported income from
discontinued operations of $95,000 for the
year ended December 31, 1996 compared to a loss of $752,000 for the year ended
December 31, 1997. The figure
for 1997 includes a charge for impairment of the goodwill related to the
acquisition of Cimarron in 1995 and the gain
recognized on the sale of Cimarron assets in December 1997. Without this
charge, the Company would have reported
income from discontinued operations of $86,000, or a decrease of 9% from the
prior year which reflects declining
revenues from the operations of Cimarron for the year ended December 31, 1997
as compared to the year ending
December 31, 1996. The declining revenues are a result of a shift away from
35mm slide productions and towards
electronic presentations on programs such as Powerpoint which generally are
produced in-house rather than
outsourced.
LIQUIDITY AND CAPITAL RESOURCES; POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company had cash and equivalents of $325,000 at December 31, 1997,
compared to $2,050,000 at
December 31, 1996. Of this $1,725,000 decrease in cash, $1,205,000 was
utilized in the operations of the Company,
$314,000 was utilized in purchase of data and computer equipment, $100,000 was
used to retire debt to a related party
and $171,000 was used to service third party debt and pay financing
acquisition costs.
The Company has made significant progress in commercializing its FindNow
service during 1997. The Company
has 32 clients in backlog as of February 28, 1998 compared to two (2)
implemented contracts as of December 31,
1996. As a result of the implementation of these additional contracts, the
Company significantly reduced the amount
of cash utilized throughout 1997. Cash utilized during the year was $769,000,
$652,000, $205,000 and $99,000 in
the first, second, third and fourth quarters, respectively. The Company
expects continued operating losses during the
first two quarters of 1998, but anticipates that revenues from additional
sales of its FindNow service will continue to
reduce the amount of cash utilized in its operations.
The Company currently projects that available cash balances, together with
projected cash flow from operations,
will be sufficient to fund the Company's operations into 1998. These
projections assume that the Company can
continue to reduce cash used in its operations through additional revenues
from new FindNow contracts and that
overall operating costs of the Company will not change significantly as new
client contracts are added. However, the
timing or amount of new sales can not be accurately determined due to the
limited operating history of the Company.
Accordingly, an explanatory paragraph in the auditors report describing
uncertainties concerning the Company's
ability to continue as a going concern was included in the Company's audited
financial statements dated December
31, 1997.
The Company has recently completed enhancements to its FindNow technology
that it believes will broaden
market acceptance of its offerings and enhance its ability to sell its FindNow
technology to customer service and call
center markets. The Company is currently in negotiations with several
potential customers for this new expanded
FindNow service. In addition, to these sales efforts, the Company is currently
evaluating several other options to raise
additional capital and is considering changes in its operations in the event
that new sales do not materialize as
anticipated or additional capital cannot be obtained externally. Options being
considered include a small private
placement, proceeds from the exercise of expiring "in-the-money" warrants, the
sale-leaseback of certain owned
equipment and reduction of operating costs of the Company.
The Company believes that its success in obtaining new contracts for its
FindNow service will determine its need
to raise additional capital from external sources. As the Company is not able
to accurately predict the timing of new
sales, it has not yet determined what action or combination of actions the
Company may take to assure continuation
of operations. However, in the event that the market acceptance of the
Company's products and services is not as
robust as anticipated, competition is greater than anticipated, development of
new products or enhancement of existing
products is costlier or slower than expected, or the Company's projections
otherwise prove to be inaccurate, the failure
to obtain needed financing would have a material adverse effect on the
Company's business.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of certain computer programs being
written using two digits rather than four
to indicate the applicable year. As a result, computer programs with
date-sensitive software may incorrectly recognize
a date using "00" as the year 1900 rather than the year 2000. Such an error
could result in a system failure or
miscalculations resulting in disruptions of operations, including a temporary
inability to process normal business
transactions.
The Company has recently examined its production and internal
administrative systems for year 2000 issues. As
a result of that review, the Company has determined that no significant
modifications will be required to make their
systems year 2000 compliant and does not expect that any modifications
required will have a material impact on its
business, operations or financial condition.
FORWARD LOOKING STATEMENTS AND RELATED BUSINESS RISKS AND ASSUMPTIONS
The Company's actual results may vary materially from the forward looking
statements made above. The
Company intends that such statements be subject to the safe harbor provision
of the Securities Act of 1933 and the
Securities Exchange Act of 1934. The Company's forward-looking statements
include the plans and objectives of
management for future operations and relate to: (i) the ability of the Company
to generate future sales of the
Company's FindNow service, (ii) market acceptance of the FindNow service,
(iii) success of the Company in
forecasting and meeting the demands of the customers of the FindNow service,
including maintaining technical
performance of the system as new FindNow customers are added, (iv) ability to
obtain financing to purchase
equipment needed to provide service to additional FindNow customers, (v)
ability to maintain pricing and thereby
maintain adequate profit margins on its products and services, (vi) ability to
retain qualified technical personnel (vii)
ability to control development costs of FindNow service within current
budgeted levels, (viii) and the ability of the
Company to raise additional capital if needed to fund current operations.
The foregoing assumptions are based on judgments with respect to, among
other things, future economic,
competitive and market conditions, and future business decisions, all of which
are difficult or impossible to predict
accurately and many of which are beyond the Company's ability to control.
There are also other risks which could
cause the Company's revenues or costs to vary markedly from the
forward-looking statements made above, such as
the risk that the market demand for the FindNow may not develop as expected or
if it does develop, that the Company
will not be able to generate sufficient sales to fund its operations.
Accordingly, although the Company believes that
the assumptions underlying the forward-looking statements are reasonable, any
such assumption could prove to be
inaccurate and therefore there can be no assurance that the results
contemplated in forward-looking statements will
be realized. Any statements should not be regarded as presentation by the
Company or any other person that the
Company's objectives or plans will be achieved.
BUSINESS
OVERVIEW
InfoNowregistered trademark Corporation ("InfoNow" or the "Company")
develops, markets and provides technology-based
teleservices to leading North American companies. InfoNow's FindNowregistered
trademark Referral Management Services (RMS) are
designed to enable companies to manage consumer or commercial referrals with
greater effectiveness and efficiency.
Referrals are the ubiquitous "where can I buy your product" or "where's the
closest location" types of questions
received thousands of times a day by leading companies. FindNow's first
client was Visa International, implemented
in the third quarter of 1996. Since then, the list of FindNow RMS users has
grown significantly, and now includes
six of the eight largest banks in North America and six of the ten largest
computer/networking companies worldwide,
as well as other industry leading companies like American Airlines, FedEx,
Goodyear, Shell, and United Healthcare.
FindNow is an enterprise-wide referral management solution, provided as a
turnkey service. FindNow Referral
Management Services provide a customer-specific, geographically precise
referral, accessible by the Internet, a
client's call center, or an interactive voice response unit, delivered across
a range of geographies. The FindNow
system can provide other customized information to the customer depending on
the Client's requirements and can
produce summary reports for the Client's use in operations management or
market analysis. A sample of completed
FindNow RMS Internet implementations can be viewed by anyone with access to
the Internet by browsing the
"Customers" section of InfoNow's Internet site page at www.infonow.com.
During 1997, the Company also provided business presentation and
interactive media services through its
subsidiary, Cimarron International, Inc. ("Cimarron"). The Company ceased all
operations in this business when it
sold substantially all of the Cimarron assets and operations in December 1997.
COMPANY BACKGROUND
The Company was incorporated under the laws of the State of Delaware on
October 29, 1990, and was initially
focused on the sale of software through the use of encrypted CD-ROM
technology. In 1995, the Company
fundamentally changed its business focus and began developing its FindNow
system to provide technology-based
teleservices to large corporate clients. The Company ceased selling software
using encrypted CD-ROM technology
and installed a new senior management team, led by Michael Johnson, who became
President and Chief Executive
Officer in October 1995.
As part of its strategy, the Company acquired Cimarron and Navigist, Inc.
("Navigist") in 1995. Cimarron
provided interactive media authoring and business services. Navigist offered
network engineering and Internet
consulting services. These acquisitions allowed the Company to utilize
resources and capabilities of Navigist and
Cimarron to facilitate its change in strategic direction as well as to provide
an operating infrastructure and revenues
as the Company completed this transition. After the Company completed the
transition to its new business, the
Company sold Navigist on December 13, 1996, and completed the sale of Cimarron
on December 11, 1997. A full
discussion of the sale of these two subsidiaries is contained in "Note 2.
Discontinued Operations" of the Company's
financial statements.
INDUSTRY BACKGROUND
Teleservices is the use of the telephone and, increasingly, the Internet,
for sales, marketing and customer service
activities. The North American teleservices market was over $85 billion in
1996, with outsourced teleservices,
currently representing 5 -
customer interaction. In addition to providing access to a vast array of
information, the Internet represents a new
vehicle through which organizations and individuals can conduct business. The
potential benefits of conducting
business through the Internet include direct, immediate communications with
consumers and reduced communications
and other customer service transaction costs. In addition, the unique
interactive capabilities of the Internet can help
companies better pinpoint customer needs, more effectively answer customer
inquiries, and provide a faster, more
convenient response than traditional customer service approaches.
The Company believes that the Internet will play a growing role in the
teleservices market due to a number of
factors, including the proliferation of Internet-enabled computers, increases
in the public data network infrastructure,
reductions in the cost of Internet access, and the availability of intuitive
graphical software that allows non-technical
users to access the Web. Such developments would support widespread Internet
access at a declining cost. The
Company believes these factors will promote continued growth in consumer usage
of the Internet and spur the interest
of leading corporations in utilizing the Internet as a tool for interacting
with customers or prospects. This trend should
create significant demand for products or services that facilitate the success
of such interactions.
The Company believes that it can provide significant value by supplying
systems and services to enable
companies to provide automated customer service via the Internet and other
means. The Company believes that these
systems and services are an attractive alternative to many functions currently
performed within a traditional, telephone
agent-based call center.
InfoNow's long-term objective is to develop systems and services that will
facilitate the shift of a large portion
of this live agent call center market to the Internet and other self-service
technologies. FindNow is the Company's
first technology-based teleservices offering. InfoNow developed its FindNow
Referral Management Services to enable
companies to respond to consumer or commercial referral inquiries with greater
effectiveness and efficiency.
BUSINESS STRATEGY
InfoNow's primary objective is to be the leading provider of
technology-based referral management services to
corporate clients. The Company is pursuing the following strategies with
respect to its FindNow RMS offering:
Extend Functionality of the FindNow Service. InfoNow intends to provide a
broader and more flexible menu of
FindNow services through internally-developed enhancements and the integration
of purchased third party applications.
During 1997, the Company introduced several new FindNow RMS extensions,
including the ability to receive and
respond to queries from Interactive Voice Response systems ("IVRs"). The
Company will use a combination of
customer input and its own knowledge of using the Internet and other
self-service technologies to deliver referral
management services as its primary source of direction in developing new
referral management technologies and
services.
Leverage the Company's Information-based Assets. The Company currently has
licenses for geographic data for
the United States, Australia, and other countries, including an exclusive
license for certain geographic data in Canada.
In addition, the Company has developed unique location databases through its
activities with its current customer base.
The Company intends to utilize this information as well as other databases it
may acquire or build, to enhance and
distinguish its service offering.
Target Industry-Leading Corporate Customers. The Company intends to focus
primarily on corporate customers,
utilizing its own direct sales force to sell to such companies.
Emphasis on Customer Support and Value Added. The Company intends to
develop and maintain strong customer
relationships, by leveraging the broad range of expertise of its consultative
sales force, and to provide excellent client
service, through skilled, dedicated client service teams.
Establish and Extend Strategic Alliances. The company will continue to
pursue strategic alliances that can provide
additional technical, financial or distribution resources that will allow the
Company to develop and market its products
and services into a broader range of markets. In addition, the Company may
seek to accelerate its growth through
strategic acquisition of complementary businesses, products or technology.
However, the Company currently has no
plans, commitments or agreements with respect to any such transactions.
PRODUCTS AND SERVICES
With the discontinuation of its Cimarron operations, the Company is focused
on providing its FindNow
technology-based teleservices. The sales of its FindNow services generated all
of the revenues from continuing
operations for the year ended December 31, 1997, amounting to $1,053,000
compared to $345,000 in the prior year
ended December 31, 1996. See Note 9 to the Consolidated Financial Statements
in this report for financial information
as to the Company's business segments.
FindNowregistered trademark Referral Management Services
FindNow can support customer queries from a Client's call center agent,
interactive voice response system or
corporate web site. The customer's location is established through the input
of an address by the user or via other
means. Once this is done, the FindNow system uses advanced geographic
information system ("GIS") technology to
determine the locations closest to the specified address that also meet any
additional customer requirements. FindNow
can then produce a map to help the customer find the identified locations. The
map can include other company location
information and be delivered immediately upon a customer's request. The
FindNow system can also provide other
customized information to the customer depending on the Client's requirements
and can produce referral summary
reports for the Client's use in operations management or market analysis.
The Company believes that, by using FindNow RMS, a Client can significantly
improve the effectiveness and
efficiency of its referral activities. Significant benefits include: increased
revenue capture; reduced cost, resulting from
the replacement of telephone agents with an automated approach; the ability to
gather customer-specific information;
advanced reporting capabilities; and the ability to provide a consistent
response across the enterprise.
The GIS technology used as part of the FindNow system can pinpoint
locations, calculate the "true" location
proximity, and generate dynamically scaled maps. Many call centers currently
employ simple city and state listings
or search approaches based on zip code areas. These traditional approaches do
not always provide the nearest
locations and give no information such as a map or directions that would help
a user find the nearest location once
it has been identified. The ability to respond virtually instantaneously with
text and graphics rather than a verbal
explanation results in a reduction in wait times and represents a substantial
improvement in efficiency and effectiveness
over current call center solutions from a customer's perspective. Because the
FindNow system utilizes database
searching, it can also perform sophisticated searches for locations with
certain criteria.
Although each FindNow application uses the same basic underlying
technology, the Company customizes a suite
of services to meet the individual Client requirements.
These services are sold under multi-year contracts. A typical FindNow
installation includes the development of
customized, Client-specific access to the service, and the design and
implementation of client databases. The FindNow
service is generally provided on a two-year contract basis which provides for
an initial setup charge and a monthly
service fee. These combined fees for the initial year of service typically
range from $20,000 for a simple installation
to greater than $100,000 for a complex corporate application. Ongoing services
include hosting the FindNow service
on the Company's servers, maintenance of the Client's locations database, and
maintaining operation of the Client's
FindNow interface. The setup and monthly service fees are determined based on
a variety of factors, and may include
the type of service selected, the number of Client locations supported,
anticipated transaction volumes, geographies
required and the level of service customization requested by the Client. In
addition to standard services, the Company
also offers other additional services which are priced and delivered on a
project by project basis.
Business Presentation and Media Services.
Prior to the sale of Cimarron, this subsidiary provided comprehensive
business presentation services that ranged
from simple graphic design to complete productions and presentations utilizing
sophisticated multimedia presentations,
multimedia authoring, production and project management. These services were
generally provided on a time and
materials basis or were billed based on a standard pricing list depending upon
the nature of the service.
RESEARCH AND DEVELOPMENT
The Company believes that its future success will largely be dependent on
its ability to enhance the functionality
of the FindNow system and to develop other related products and services. The
Company's research and development
efforts at the current time are influenced significantly by customer
requirements. New features are customized initially
for delivery to a single customer and then incorporated into future versions
of the Company's products and services.
The Company continually evaluates its products and services to determine what
additional products or enhancements
are required by its customers and plans to utilize both purchased technologies
as well as internally developed software
that will be integrated into the Company's products.
The custom installation and service nature of the Company's FindNow system
and other services was such that
the Company did not incur direct research and development expense for the
years ended December 31, 1997 and 1996.
However, the Company capitalized $250,248 during 1996 related to the
development of its FindNow system in
accordance with FAS 86 "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise
Marketed." The Company may incur significant direct research and development
expenses in the future as it develops
new Internet products and services or new capabilities for the FindNow system
not developed in conjunction with
specific customer projects.
SALES AND MARKETING
The Company's sales efforts for its FindNow service rely primarily on
direct sales contact, promotional mailings
and referrals. The Company utilizes a staff of sales professionals
headquartered in its Denver, Colorado offices that
sell to national and international accounts. The Company's primary sales and
marketing efforts have been directed
at increasing the visibility of the FindNow product through the use of direct
sales efforts, trade show exhibits and
promotional mailings. The Company has recently added additional sales
personnel and plans to further expand its sales
and marketing efforts in 1998. The Company intends to leverage its acquisition
of an exclusive license for Canadian
geographic data as well as other recent data acquisitions by focusing
significant sales efforts on customers who may
require such data assets. Although InfoNow is initially targeting several
selected vertical markets for FindNow, the
Company believes that the market for FindNow includes every major national or
multinational company that has
multiple locations and could benefit from helping its consumers find them.
CUSTOMERS
The Company serves primarily medium to very large corporate organizations,
including many Fortune 500
companies. The following table is a representative list of current clients of
the Company:
American Airlines H&R Block
Apple Computer IBM
BancOne Kenwood USA
Bank of America Lexmark International
Canadian Airlines NationsBank
Cisco Systems Royal Bank of Canada
Citibank 3Com Corporation
Compaq Computers Toronto Dominion Bank
Federal Express of Canada United Healthcare
First Union Bank Visa International
Fujitsu
The Company has approximately 32 long term contracts for its FindNow
service which contribute approximately
equally to revenues. In addition the Company may perform significant initial
setup work on a contract which may
account for a significant portion of the Company's revenue in a given period.
In 1997, two customers accounted for
29% of the Company's total revenues. A single customer accounted for 16% of
the Company's total revenue in 1996.
The Company anticipates that its revenues per customer will become less
concentrated as more contracts for its
FindNow services are awarded.
The Company's backlog is composed of future monthly service fees for the
Company's FindNow services, which
range in terms from one to three years and are non-cancelable except for
cause. As of February 28, 1998 the
Company had $1,459,000 of backlog which represented 32 contracts for FindNow
services.
COMPETITION
The market for teleservices applications and services is highly competitive
and is characterized by rapidly
changing technologies, evolving industry standards, frequent new product
introductions or enhancements and rapid
changes in customer requirements. As the growth in these markets continues,
the Company expects that competition
will continue to intensify. The markets for the Company's FindNow system are
in an early stage of development and
no one competitor has established a dominant position in the market. The
Company believes that the size and diversity
within the teleservices markets will allow more than one supplier of products
and services similar to those of the
Company. However, it is possible that a single supplier may dominate one or
more market segments. The Company
is aware of several other providers of products and services that are in
various stages of development which may
compete with the Company's own offerings. In addition, the Company believes
that as the markets continue to
develop, it may face competition from new sources of competition, including
(i) Web developers, (ii) systems
integrators and consultants, (iii) call center outsourcing companies, (iv) GIS
tool providers, and (v) internal service
groups within targeted clients. In some cases, these competitors are larger,
more established and have substantially
greater financial, technical and marketing resources than the Company. There
can be no assurance that the Company
will be able to compete successfully against its current or future competitors
or that competition will not have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company believes the principal competitive factors relative to the
FindNowregistered trademark system are the functionality
and features of the system, ability to adapt to specific customer needs,
reliability, accuracy and "yield" of geocoding
and mapping of locations, response time, product reputation based on client
referrals, pricing relative to functionality
offered, quality of customer support and the ability to develop strong
customer relationships.
INTELLECTUAL PROPERTY
The Company has received federal trademark registrations for the names
"InfoNowregistered trademark" and "FindNowregistered trademark" and
considers its FindNow software service, trade secrets, service marks and
similar intellectual property as proprietary.
The Company relies on a combination of copyright and trademark law,
non-disclosure agreements and certain
contractual provisions within its customer agreements to establish and
maintain proprietary rights in the FindNow
service and other intellectual property of the Company. However, these
measures can afford only limited protection
for the Company's intellectual property as it does not prevent competitors
from independently developing equivalent
or superior technology. While the Company may have a limited ability to
prevent others from developing similar
technologies, the Company believes that such protection is less significant to
the future success of its business than
other factors, including the knowledge, ability and experience of the
Company's personnel in delivering service and
support to its customers, the development of unique information assets, the
strength of its ongoing product
development activities, customer loyalty to the Company's products and the
market position of the Company's
products and services.
The Company believes that its products, trademarks, service marks and other
proprietary rights do not infringe
on the intellectual property rights of others. However, there can be no
assurances that third parties will not assert
infringement claims against the Company in the future, or that such assertions
will not lead to litigation and the
requirement that the Company pay a license fee or royalties to obtain
intellectual property rights needed to sell its
products and services. Such royalties or licensing agreements, if required,
may be unavailable or be available on terms
unacceptable to the Company. The failure to receive needed licensing or
royalty agreements could result in delays or
interruptions in the Company's services and could have a material adverse
impact on the Company's business,
operating results and financial condition.
The Company relies on certain software and geographic data that it licenses
from third parties, including software
and data that is integrated with internally developed software and used in the
Company's FindNow system. There can
be no assurance that these third party software licenses will continue to be
available to the Company or will be
available on terms acceptable to the Company. In addition, the Company is
somewhat dependent upon the ability of
the vendors of such third party software and data to enhance their current
products on a timely and cost effective basis
in order to meet changing customer needs. If the Company were not able to
acquire software and geographic data
licenses from its current vendors, equivalent software and geographic data
would need to be developed or purchased
and integrated into the Company's systems. Although other alternative sources
exist for the technology and data
embodied in these license agreements, the Company may not be able replace the
functionality of its current systems
or may not be able to successfully integrate new software and data into its
current system. Delays and interruptions
could occur in the FindNow service which would result in a material adverse
impact on the Company's business,
operating results and financial condition.
EMPLOYEES
As of February 13, 1997, the Company had a total of 22 full time employees
including 5 in sales and marketing,
12 in software implementation, development, system operations, and customer
support, and 5 in finance, management
and administration. Outside contractors are used by the Company on an
as-needed basis.
InfoNow considers its relations with its employees to be good and has not
experienced any interruption of
operations as a result of labor disagreements. None of the Company's employees
is subject to a collective bargaining
agreement
The Company believes that its ability to continue to attract and retain
qualified personnel will be a key factor
in the success of the Company. Competition for technical personnel with the
skills required by the Company to deliver
its products and services is intense. It may be difficult for the Company to
obtain personnel with the required
technical skills and could have a material adverse effect on the operations of
the Company if it is unable to obtain
additional qualified personnel needed for the planned growth of the Company's
business or to replace existing
employees in the event that the Company had to replace several key employees
within a relatively short period of time.
PROPERTIES
The Company leases approximately 7,800 square feet of office space at its
headquarters in Denver, Colorado
for its product development, marketing, operations and administration
activities. This lease is with an unrelated party
and terminates on June 30, 1999. The Company believes that its facilities are
adequate for its current needs and that
suitable additional space can be acquired if needed.
The Company's principal Web server equipment and operations are housed and
maintained by Rocky Mountain
Internet at its operations center in Denver, Colorado. The Company's
operations are dependent in part upon its ability
to protect its operating systems against physical damage from fire, floods,
power loss, telecommunications failures
and similar events. Although these facilities have safeguard protections such
as a halon fire system, redundant
telecommunications access, off-site storage of backups and 24 hour systems
maintenance support, the Company does
not presently have redundant multiple site capability to maintain
uninterrupted operation in the event of any such
occurrence. In addition, despite the implementation of network security
measures by the Company, its servers are
vulnerable to computer viruses, and similar disruptions from unauthorized
tampering with the Company's computer
systems. The occurrence of any of these events could result in interruptions
or delays in service to the Company's
customers which could have a material adverse effect on the Company's
business, results of operations and financial
condition.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property
is subject.
CHANGES IN COMPANY'S CERTIFYING ACCOUNTANT
On January 27, 1997, the Company engaged the accounting firm of Hein +
Associates LLP ("Hein") as its
principal independent accountants to audit the Company's financial statements
for its fiscal year ending December 31,
1996. The appointment of new independent accountants was approved by the Audit
Committee and Board of Directors
of the Company. The Company dismissed its former independent public
accountants, Arthur Andersen LLP, effective
with the appointment of Hein.
Prior to the appointment of Hein, management of the Company had not
consulted with Hein except that, at the
Company's request, Hein read the Company's reports filed on Form 10-Q for the
quarterly periods ending June 30,
1996 and September 30, 1996.
During the two fiscal years ended December 31, 1995 and 1994, and the
interim period subsequent to December
31, 1995, there were no disagreements with the former accountants on any
matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure
which would have caused the former
accountants to make reference in their report to such disagreements if not
resolved to their satisfaction.
Arthur Andersen's reports on the financial statements for the years ended
December 31, 1995 and 1994 contained
no adverse opinion or disclaimer of opinion and were not modified as to audit
scope or accounting principles except
for an explanatory paragraph regarding the Registrant's ability to continue as
a going concern. Arthur Andersen LLP
furnished the Company with a letter addressed to the Commission stating that
it agreed with the above statements.
MANAGEMENT
DIRECTORS
The directors of the Company and their ages as of February 28, 1997 are as
follows:
All Positions
and Offices Year first
held with became
Name Age the Company Director
Michael W. Johnson 36 President,
Chief Executive Officer, 1995
Director
Donald E. Cohen (A)(C) 43 Vice Chairman, Director 1995
Nahum Rand (A) 60 Chairman, Director 1991
Duane Wentworth(A)(C) 68 Director 1997
Michael Basch(A)(C) 60 Director 1998
_______________________
(A) Member of the Audit Committee
(C) Member of the Compensation Committee
The principal occupation and business experience of each director is set forth
below:
Michael W. Johnson has been Chief Executive Officer and President and a
director of the Company since
October 1995. From 1990 to October 1995, Mr. Johnson was a consultant with
McKinsey & Company, an
international management consulting firm, where he served leading technology
companies in the United States and
Europe on issues of growth, strategy, customer service, and mergers and
acquisitions. Mr. Johnson received a
Bachelor of Science degree in Applied and Engineering Physics, and a Bachelors
of Arts degree in English from
Cornell University, a Dipl
Nahum Rand has been a director since April 1991 and was elected Chairman
of the Board in October 1994. He
served as a consultant to the Company from April 1991 through December 1992.
From November 1990 to the
present, he has served as the chairman and chief executive officer of Regions,
Inc., an investment company which
he founded.
Duane Wentworth has been a director since July 1997 and has served as a
management consultant to various
businesses since 1992. Mr. Wentworth has over 41 years of business experience,
including serving in management
positions with IBM and Control Data. During his tenure at Control Data, from
1976 to 1982, he was responsible for
the formation of Professional Services division, which provided world-wide
consulting services for Control Data. Mr.
Wentworth has also served as chairman and owner of Data Decisions, Inc., a
supplier of specialized data processing
services.
Michael Basch has been a director since February 1998. Mr. Basch founded
and has served as President of
Service Impact since 1989 which was established to advance the art, science
and practice of leadership. Mr. Basch
was Senior Vice President and a founding officer of Federal Express
Corporation, for the first ten years of its
existence, from 1972 to 1982. During his tenure at Federal Express, Mr. Basch
established and led a number of key
functions, including Sales, Customer Service, Personnel, Corporate
Development, the Federal Express Southern
Division, PartsBank, and Hub Distribution Services. He also conceived of the
Federal Express tracking and tracing
system and designed, built and managed the $100 million Superhub, which
remains the largest system of its kind in
the world.
There are presently five directors serving on the Company's Board of
Directors. Directors are elected annually
to serve until the next annual meeting of stockholders or until their
successors are duly elected
EXECUTIVE OFFICERS
Set forth below is certain information relating to the current executive
officers and key employees of the
Company. Biographical information with respect to Michael W. Johnson is
included under "Directors" above.
NAME AGE POSITION(S)
Michael W. Johnson 36 Chief Executive Officer and President
Kevin D. Andrew 39 Vice President and Chief Financial Officer,
Secretary and Treasurer
W. Brad Browning 33 Vice President
Donald Kark 34 Vice President, Engineering and Technology
Information concerning the business experience of Mr. Johnson is provided
under the section entitled "Election of Directors."
Kevin D. Andrew was elected to his current positions in March 1996. Prior
to joining InfoNow, Mr. Andrew
was President of Andrew Consulting, LLC, a financial management services firm.
From 1992 to 1995 he served as
Chief Financial Officer of Air Methods Corporation, a publicly held provider
of emergency air ambulance services,
and from 1983 to 1991 served in various senior financial management positions
at CRSS, Inc., a diversified services
company listed on the New York Stock Exchange. During his tenure at CRSS, Mr.
Andrew served as chief
accountant, director of general accounting, director of internal audit and
Vice President and controller of Natec
Resources, Inc., a 50%-owed affiliate of CRSS, Inc. Prior to 1983, Mr. Andrew
was with KPMG Peat Marwick.
Mr. Andrew has held CPA certificates in both Colorado and Texas. He earned his
Bachelor of Science degree in
Business from Arizona State University.
W. Brad Browning has been a Vice President and General Manager of the
Company since January 1996. From
1990 to 1995, Mr. Browning was a consultant with McKinsey & Company, an
international management consulting
firm. Mr. Browning joined McKinsey & Company in June 1990 after obtaining an
Masters of Business
Administration degree from Harvard University Graduate School of Business.
While with McKinsey, he led
technology and consumer clients on major marketing and sales initiatives
focused on driving growth and significant
profit improvement. He earned his Bachelor of Business Administration degree
in Marketing from the University of
Georgia.
Donald Kark was elected to his position as Vice President, Engineering and
Technology in May 1997. Prior to
joining InfoNow in December 1996, Mr. Kark was with Welkin Associates, Ltd.,
from June 1995 to December 1996,
where he was a consultant and advisor to high technology clients on advanced
technology information systems. From
June 1985 to June 1995, Mr. Kark worked with TRW, Inc., as a chief engineer,
project manager, hardware engineer
and software developer. He holds a B.S.C.E.E. from Purdue University and has
won numerous awards for his
professional accomplishments, including TRW's most prestigious engineering
award, the TRW Chairman's Award
for Innovation.
All executive officers are appointed by the Board of Directors and serve at
the Board's discretion.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and a Compensation Committee. The
Audit Committee is responsible
for (i) reviewing the scope of, and the fees for, the annual audit, (ii)
reviewing with the independent auditors the
corporate accounting practices and policies, (iii) reviewing with the
independent auditors their final report, and (iv)
being available to the independent auditors during the year for consultation
purposes. The Audit Committee met one
time in the fiscal year ended December 31, 1997. The Compensation Committee
determines the compensation of the
officers of the Company and performs other similar functions. The
Compensation Committee met one time in the
fiscal year ended December 31, 1997. The Board of Directors may, from time to
time, establish certain other
committees to facilitate the management of the Company.
Directors are reimbursed for expenses incurred for attending any Board or
committee meeting. There is no
family relationship between any current or prospective director of the Company
and any other current or prospective
executive officer of the Company except for Michael Basch, who is the
father-in-law of Michael Johnson, the Chief
Executive Officer and a director of the Company.
During the fiscal year ended December 31, 1997, there were ten meetings of
the Board of Directors. All
directors attended at least 75% of the meetings of the Board and committees of
the Board on which they were
members.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive
officers and holders of more than 10% of the Company's Common Stock to file
with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock of the Company.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to the Company during the fiscal year
ended December 31, 1997 and Forms 5 and amendments thereto furnished to the
Company with respect to the fiscal
year ended December 31, 1997, to the best of the Company's knowledge, the
Company's directors, officers and
holders of more than 10% of its Common Stock complied with all Section 16(a)
filing requirements.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no additional
compensation for service on the Board of
Directors. Each director who is not a full-time employee of the Company is
reimbursed expenses for attendance at
Board and Committee meetings. Effective July 2, 1997, a retainer fee of $1,000
per month is also paid to each non-
employee director. This monthly retainer has been voluntarily deferred by the
current directors. As of December 31,
1997, the Company had accrued $20,000 for this obligation. In addition, each
non-employee director is awarded an
option to purchase 20,000 shares of the Company's common stock on a bi-annual
basis. The options are exercisable
at the fair market value of the Company's common stock on the date of issuance
and are exercisable over a 24 month
period. Options expire ten (10) years from date of issuance. The options are
forfeited upon resignation from the Board
of Directors.
The Company issued options to non-employee directors to purchase an
aggregate of 60,000 shares of the
company's common stock for their services during 1997 at exercise prices
ranging from $0.81 to $1.84.
On May 22, 1997, Directors Nahum Rand, Donald Cohen, Michael Johnson and
Gene Copeland were each
awarded non-statutory options to purchase 8,500 shares of the Company's common
stock at an exercise price equal
to the fair market value of the Company's stock which was $1.84 per share for
their service as directors in 1996. One-
third of the underlying shares were exercisable at the date of issuance. The
remaining underlying shares vest over 24
months. The options expire ten (10) years from the date of issuance. The
options are forfeited upon resignation from
the Board of Directors.
All options granted to former director, Gene Copeland, were forfeited upon
his resignation from the Board of
Directors on December 10, 1997.
In addition to the above, non-employee director Nahum Rand is entitled to
receive a commission of 15% of the
contracted total value of sales initiated and closed by him.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the cash compensation
earned for the fiscal years ended
December 31, 1997, 1996 and 1995 by the Company's Chief Executive Officer and
by the highest compensated
executive officers who were serving as executive officers at the end of the
1997 fiscal year whose individual total cash
compensation for the 1997 fiscal year exceeded $100,000 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
Restricted
Name and Principal Stock Options/ All Other
Position Year Salary Bonus Awards SARS Compensation
Michael W. Johnson(1) 1997 110,000 -0- -0- 582,493 -0-
Chief Executive Officer, 1996 101,778(4) -0- -0- 105,705 -0-
President 1995 22,372 -0- -0- 170,038 (2) -0-
W. Brad Browning (3) 1997 110,000 1,500 -0- 170,000 -0-
Vice President 1996 103,918 -0 - -0- 85,000 15,000(5)
Internet Products Group
___________________
(1) Mr. Johnson joined the Company in October 1995.
(2) Includes warrants to purchase 8,500 shares of Common Stock, issued to Mr.
Johnson in connection with his service as a director of the
Company. See "Management - Director Compensation".
(3) Mr. Browning joined the Company in January 1996.
(4) The Company accrued and deferred $72,611 of Mr. Johnson's 1996 salary, of
which $58,000 was satisfied by way of issuance on September
13, 1996 of 51,555 shares of Common Stock at a price of $1.12 per share.
(5) Represents reimbursement of relocation expenses.
The following table presents information concerning individual grants of
options to purchase Common Stock of
the Company made during the fiscal year ended December 31, 1997, to each of
the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Number of Percent of Total
Securities Options/SARs Exercise
Underlying Granted to or
Options/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh.) Date
Michael W. Johnson 8,500 (1) 0.5% 1.84 5/22/07
573,993 (2) 35.7% 1.40 10/23/07
W. Brad Browning 70,000 (3) 4.4% 2.11 1/9/06
5,000 (4) .3% 2.11 1//06
80,000 (5) 5.0% 1.40 10/23/07
15,000 (6) .9% .79 10/23/07
____________________
(1) Immediately exercisable as to 1/3 of the shares as of the grant date of
May 22, 1997, with the remainder vesting at 1/36 of the total shares
each month thereafter.
(2) Immediately exercisable as to 2/3 of the shares as of the grant date of
October 23, 1997, with the remaining 1/3 vesting at 1/18 each month
thereafter. These options cancel and replace certain options ranging in
price from $1.38 to $4.43. Agreement provides anti-dilution
provisions. See "Employment Contracts."
(3) Issued as repricing of earlier issued options. Vests over 36 months from
the grant date of 1/9/96, with 7/36 vesting seven months after grant,
and an additional 1/36 vesting each month thereafter.
(4) Issued as repricing of earlier issued options. Immediately exercisable
in full.
(5) Vests over eighteen months from the grant date of October 23, 1997, with
1/18 vesting each month after the grant.
(6) Vests over twelve months from the grant date of October 23, 1997, with
1/12 vesting each month after the grant.
The following table sets forth the fiscal year-end value of unexercised
options to purchase Common Stock of the
Company for each Named Executive Officer. No options or SARs were exercised
by the Named Executive Officers
during the fiscal year ended December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the_Money Options/SARS
Options/SARs at FY-End (#) at FY-End ($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
Michael W. Johnson 418,407 174,086 0 0
W. Brad Browning 68,333 111,667 0 0
___________________
(1) Based upon the difference between the exercise price and the fair market
value of the Common Stock for those options which at December
31, 1997 had an exercise price less than the fair market value of the Common
Stock on such date. The fair market value of Company
Common Stock at December 31, 1997, measured as the mean of the closing bid
and asked prices of the Common Stock on such date, was
$0.29 per share.
COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS
The Compensation Committee of the Board of Directors (the "Committee") has
furnished the following report
on repricing of employee stock options. The Committee has responsibility for
making recommendations for
compensation and compensation policy. In carrying out this responsibility, an
objective of the Committee is to
structure compensation programs that will promote long-term stable growth and
development within the Company.
The Committee believes that corporate development at InfoNow, an innovative
technology company, is dependent on
its ability to attract and retain high quality people and operates to ensure
that goal.
The Committee believes that stock options are a critical component of the
compensation offered by the
Corporation to promote long-term retention of key employees, motivate high
levels of performance and recognize
employee contributions to the success of the Company. The market price of the
Corporation's common stock
decreased substantially from a high of $5.00 in the fourth quarter of 1995 to
a low of $0.21 in the fourth quarter of
1997. In light of this substantial decline in the market price, the Committee
believed that the outstanding stock options
held by the Named Executive Officers with an exercise price far in excess of
the actual market price were no longer
an effective tool to encourage employee retention or to motivate high levels
of performance. As a result, on April 25,
1997, the Committee approved the repricing of stock options held by the Named
Executive Officers.
On April 25, 1997, the Committee recommended and the Board of Directors
approved the repricing of incentive
options granted to Michael Johnson, Chief Executive Officer and President of
the Company. The repricing affected
options to purchase 162,288 common shares of the Company. The options were
exercisable at prices ranging from
$2.81 to $4.43 per share. All options were repriced to be exercisable at $2.11
per share, which was the fair market
value of the Company's common stock at the date of the repricing. All other
terms and conditions of the options
remained unchanged. On October 23, 1997, Mr. Johnson exchanged all incentive
options, including the repriced
options, representing the right to buy 257,243 share of the Company's common
stock, for a single option to purchase
573,993 shares of common stock at $1.40 per share. Such option was immediately
exercisable as to two-thirds of the
shares, with the remaining one-third vesting at one-eighteenth of the total
per month thereafter.
On April 25, 1997, the Committee recommended and the Board of Directors
approved the repricing of incentive
options grated to W. Brad Browning, Vice President-term development
of new products and product lines, retention of high quality people, and
promotion of long-term growth with the
Company.
COMPENSATION COMMITTEE
Donald E. Cohen
Duane Wentworth
Michael Basch
EMPLOYMENT AGREEMENTS
On January 1, 1998, the Company entered into a eighteen month employment
agreement with Michael W.
Johnson, Chief Executive Officer and President of the Company. The agreement
provides for an annual base salary
of $110,000 and cash performance bonuses of up to $130,000 based on defined
financial performance targets. The
agreement provides for the acceleration of the vesting of all options awarded
to him in the event that there is a change
in control of the Company. If Mr. Johnson is terminated without cause, he is
entitled to a 90 day advance notice and
a severance payment equal to 75% of his annual base salary then in effect. In
addition, the Company will accelerate
vesting of 50% of all unvested options held by him at the date of his
termination.
On October 23, 1997, the Company entered into an agreement with Michael
Johnson which expires on April 23,
1999, and provides compensation to Mr. Johnson in the event the Company is
sold while he is President of the
Company or within 120 days after Mr. Johnson ceases to be President. The
compensation to be paid is based on a
varying percentage of the transaction value ranging from 4% to 12% of the
transaction value. No compensation will
be paid for transactions valued less than $7.5 million.
A provision in the option agreement between the Company and Mr. Johnson
provides for dilution protection.
The agreement provides that additional options to purchase common shares shall
be issued to Mr. Johnson equal to
10.7% of options exercised that were outstanding as of October 23, 1997. On
October 23, 1997, there were 962,000
shares subject to unexercised options.
On January 14, 1996, the Company entered into a two-year employment
agreement with W. Brad Browning,
Vice President and General Manager of the Company's Internet Products Group.
The agreement provides for an
annual base salary of $110,000, including a non-recoverable draw against
bonus of $25,000. Mr. Browning is eligible
for an annual performance bonus equal to a percentage of revenues of the
Internet Products Group, with total annual
compensation capped at $200,000. Pursuant to the employment agreement, the
Company is required to grant to Mr.
Browning options to purchase an additional 10,000 shares of Common Stock if
cumulative gross sales of the Internet
Products Group reach certain specified levels. All options vest over a 12
month period from date of grant. All
options are to be issued at the fair market value of the date when the options
are awarded. All options vest
immediately upon a change of control of the Company. If Mr. Browning is
terminated without cause, he is entitled
to a severance payment equal to 50% of his annual base compensation then in
effect.
1990 STOCK OPTION PLAN
The Company's 1990 Stock Option Plan (the "Plan") was adopted by the Board
of Directors on February 22,
1990 and approved by the Company's stockholders in October 1990. The Plan
permits the granting of both incentive
stock options ("ISOs") and non-statutory stock options ("NSOs") with respect
to Company Common Stock. Options
may only be granted to persons who are employees of the Company, which may
include officers and directors who
are employees. A total of 1,000,000 shares of the Company's Common Stock is
reserved for issuance pursuant to
awards granted under the Plan and options for an aggregate of 716,745 shares
are outstanding as of February 28, 1997
at exercise prices ranging from $1.00 to $4.43. 59,475 options have been
exercised since inception of the Plan. The
Board of Directors has proposed an amendment to the Plan, to be voted upon by
the stockholders of the Company at
its April 1997 Annual Meeting of Stockholders, which would allow the Company
to grant NSOs to non-employee
directors of the Company and would increase the number of shares of Common
Stock reserved for issuance under the
Plan from 1,000,000 to 1,700,000. The Plan is required to be administered by
the Board of Directors or by a
committee of two or more directors of the Company. It is currently
administered by the Compensation Committee
which determines the terms and conditions of options granted under the Plan,
including the exercise price. The
exercise price of incentive stock options granted under the Plan must be at
least 100% (or 110% in the case of a holder
of 10% or more of the voting power of all classes of stock of the Company) of
the fair market value of the Company's
Common Stock at the date of grant while the exercise price of non-qualified
options is at the discretion of the
Committee. Each option must expire within 10 years of the date of grant.
Options granted under the 1990 Plan are
not transferable other than by will or the laws of descent and distribution
unless the Board of Directors or
Compensation Committee at the time an option is granted provides that such
option may be assigned or transferred.
Securities subject to options granted under the 1990 Plan that lapse or
terminate may again be subject to options
granted under such Plan. The Plan provides that all options become fully
exercisable upon a merger of the Company,
the sale of substantially all of the Company's assets or the termination of an
option holder's employment following
a change in control of the Company.
Certain Federal Income Tax Consequences of Options. Certain of the federal
income tax consequences to
optionees and the Company of options with respect to Company stock granted
under the 1990 Plan should generally
be as set forth in the following summary.
An employee to whom as ISO which qualifies under Section 422 of the Code is
granted will not recognize income
at the time of grant or exercise of such option. However, upon the exercise
of an ISO, any excess in the fair market
price of the Common Stock over the option price constitutes a tax preference
item which may have alternative
minimum tax consequences for the employee. If the employee sells such shares
more than one year after the date of
transfer of such shares and more than two years after the date of grant of
such ISO, the employee will generally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale prices of such shares and
the option price. The Company will not be entitled to a federal income tax
deduction in connection with the grant or
exercise of an ISO. If the employee does not hold such shares for the
required period, when the employee sells such
shares the employee will recognize ordinary compensation income and possibly
capital gain or loss (long-term or
short-term, depending on the holding period of the stock sold) in such amounts
as are prescribed by the Code and the
regulations thereunder and the Company will generally be entitled to a federal
income tax deduction in the amount
of such ordinary compensation income recognized by the employee.
An employee to whom an NSO is granted will not recognize income at the time
of grant of such option. When
such employee exercises such NSO, the employee will recognize ordinary
compensation income equal to the excess,
if any, of the fair market value, as of the date of the option exercise, of
the shares that the employee receives upon
such exercise over the option price paid. The tax basis of such shares to
such employee will be equal to the option
price paid plus the amount, if any, includable in the employee's gross income,
and the employee's holding period
for such shares will commence on the date on which the employee recognizes
taxable income in respect of such
shares. Gain or loss upon a subsequent sale of any Company Common Stock
received upon the exercise of a NSO
generally would be taxed as capital gain or loss (long-term or short-term,
depending upon the holding period of the
stock sold). Certain additional rules apply if the employee pays the option
price in shares previously owned by the
employee. Subject to the applicable provisions of the Code and regulations
thereunder, the Company will be entitled
to a federal income tax deduction in respect of a NSO in an amount equal to
the ordinary compensation income
recognized by the employee. This deduction will, in general, be allowed for
the taxable year of the Company in
which the optionee recognizes such ordinary income.
PRINCIPAL STOCKHOLDERS
The following table and notes set forth as of March 11, 1998, the number of
shares of the Company's outstanding
Common Stock beneficially owned by (i) the Company's Chief Executive Officer
and by the highest compensated
executive officers who were serving as executive officers at the end of the
1997 fiscal year whose individual total cash
compensation for the 1997 fiscal year exceeded $100,000 (the "Named Executive
Officers"), (ii) each director and
nominee for director of the Company, (iii) all executive officers and
directors of the Company as a group and (iv)
each person or group of persons known by the Company to beneficially own more
than five percent (5%) of the
outstanding Common Stock. All information is taken from or based upon
ownership filings made by such persons
with the Commission or upon information provided by such persons to the
Company.
SHARES
AMOUNT AND BENEFICIALLY OWNED
NATURE OF WHICH MAY BE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF CLASS ACQUIRED WITHIN
BENEFICIAL OWNER OWNERSHIP BENEFICIALLY OWNED(1) 60 DAYS(4)
OFFICERS AND DIRECTORS:
Donald E. Cohen 555,079 10.2% 62,745
1875 Lawrence, Suite 1100
Denver, CO 80202
Michael W. Johnson 822,778 14.5% 313,436
1875 Lawrence, Suite 1100
Denver, CO 80202
Nahum Rand 358,161(3) 6.4% 208,244
1875 Lawrence St., Suite 1100
Denver, CO 80202
W. Brad Browning 203,667 3.7% 135,000
1875 Lawrence St., Suite 1100
Denver, CO 80202
Duane Wentworth 8,333 -- 8,333
1875 Lawrence St., Suite 1100
Denver, CO 80202
SHARES
AMOUNT AND BENEFICIALLY OWNED
NATURE OF WHICH MAY BE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF CLASS ACQUIRED WITHIN
BENEFICIAL OWNER OWNERSHIP BENEFICIALLY OWNED(1) 60 DAYS(4)
Michael D. Basch 2,366 -- 1,666
1875 Lawrence St.,
Suite 1100
Denver, CO 80202
All Officers and
Directors 2,138,191 34.2% 901,453
as a Group
(8 persons)
PRINCIPAL STOCKHOLDERS:
Dieter Heidrich 415,326(2) 7.6% 102,695
1113 Spruce Street
Boulder, CO 80302
Robertson Stephens 498,615 9.0% 178,572
Orphan Fund
555 California Street,
Suite 2600
San Francisco, CA 94104
Robertson Stephens 384,273 7.0% 142,858
Diversified Growth Fund
555 California Street,
Suite 2600
San Francisco, CA 94104
Robertson Stephens 287,229 5.2% 107,143
Global Low-Price Fund
555 California Street,
Suite 2600
San Francisco, CA 94104
_______________________________
(1) Beneficial ownership is determined in accordance with the rules of the
Commission, and includes generally
voting power and/or investment power with respect to securities. Shares
of Common Stock subject to options
or warrants which are currently exercisable or exercisable within 60 days
are deemed outstanding for
computing the percentage of the person holding such options or warrants
but are not deemed outstanding for
computing the percentage of any other person. Except as indicated by
footnote, the Company understands
that the persons named in the table above have sole voting and investment
power with respect to all shares
of Common Stock shown as beneficially owned by them.
(2) Includes 142,857 shares of common stock and warrants to purchase 71,429
shares of common stock held by
Opus Capital Fund, LLC, which is managed by Opus Capital, LLP.
(3) Includes 208,244 shares of common stock and warrants to purchase 135,319
shares of common stock held
by the Rand Family Trust. Mr. Rand and his wife Jane Rand are the
trustees of the trust and have sole voting
and disposition power of the Trust.
(4) Represents the number of common shares set forth in column 1 that can be
obtained through the exercise of
warrants or options that are currently exercisable or that are
exercisable within the next 60 days from March
11, 1998.
CERTAIN TRANSACTIONS
On March 29, 1996, the Company borrowed $100,000 from Kevin Andrew, Vice
President and Chief
Financial Officer of the Company. In consideration therefor, the Company
issued Mr. Andrew a promissory note
in the principal amount of $100,000, due March 29, 1997, bearing interest at
the prime rate plus 2.75%, and secured
by all of the accounts receivable of the Company. The promissory note was
convertible at the option of the holder
at any time into shares of Common Stock of the Company at the rate of $3.00
per share. The note was subsequently
extended to June 30, 1997, and was repaid on that date.
On September 13, 1996, the Company issued shares of Common Stock to three
officers of the Company as
follows: (i) the Company issued 82,667 shares of Common Stock at a price of
$1.12 and warrants to purchase 41,333
shares at $1.50 per share to Michael Johnson, President and Chief Executive
Officer of the Company, in consideration
for $20,000 in cash and $73,000 in accrued salary and expense obligations;
(ii) the Company issued 17,778 shares
of Common Stock at a price of $1.12 and warrants to purchase 8,889 shares at
$1.50 per share to Kevin Andrew, Vice
President and Chief Financial Officer of the Company in consideration for
$20,000 in accrued salary obligations; (iii)
the Company issued 66,667 shares of Common Stock at a price of $1.12 and
warrants to purchase 33,333 shares at
$1.50 per share to W. Brad Browning, Vice President of the Company, in
consideration for $75,000 in cash. All such
warrants are exercisable until September 13, 1998.
On December 11, 1997, the Company sold all the assets of its wholly-owned
subsidiary, Cimarron
International, Inc. ("Cimarron"), to Cimarron Dog and Pony, Inc. ("Dog and
Pony"). Dog and Pony is owned by
Donald Cohen, a director of the Company and the former owner of Cimarron prior
to its acquisition by the Company
in 1995. After execution of the Transaction, the Company ceased all operations
of its Cimarron subsidiary and
liquidated the subsidiary on December 19, 1997. Because the Transaction did
not involve a substantial part of the
Company's assets, it was not submitted to the Stockholders for approval prior
to consummation. Prior to its disposal
on December 11, 1997, Cimarron had sales of $852,000 and lost $792,000 from
operations which included a charge
to impairment of long-lived assets of $863,000.
Cimarron provides comprehensive business presentation services that range
from simple graphic design to
complete productions and presentations utilizing sophisticated multimedia
presentations, multimedia authoring,
production and project management. The Company acquired Cimarron in May 1995
to facilitate a change in the
Company's strategy. From the Company's inception until 1995, the Company was
focused on the distribution of
software via encrypted CD-ROM. In 1995, the Company fundamentally changed its
business and began to develop
its Referral Management Services for large corporate clients. The acquisition
of Cimarron allowed the Company to
utilize resources and capabilities of Cimarron, such as multimedia authoring
capability and its existing client contacts,
to facilitate its change in strategic direction as well as to provide an
operating infrastructure and revenues as the
Company completed this transition. The Company paid total consideration of
$1,348,000 to acquire Cimarron in 1995
of which Mr. Cohen received $1,100,000 of the total proceeds which included
common stock of the Company valued
at $640,000.
The Board of Directors unanimously approved the sale of Cimarron assets
on December 11, 1997, with the
exception of Mr. Cohen, who abstained from voting in this matter. The Board of
Directors believe this sale has two
major benefits to the Company and its shareholders; first, it allows the
Company to focus exclusively on developing
its FindNow Referral Management Services business which the Company believes
has a much higher growth potential
than the Cimarron business. Second, the sale provides significant additional
cash to invest in this core business. In
addition, the Board of Directors believe that a sale of Cimarron is desirable
because substantial management attention
will be required in the future to reverse a three year trend of declining
revenues and profits due to changing market
conditions in Cimarron's core business.
The Company estimates the total value of the sale transaction (the
"Transaction") be $321,000, including
$100,000 of contingent consideration. The Transaction included assets of
approximately $63,000 consisting of
specialized computer equipment and software, of which the Company recognized a
book gain of approximately
$24,000. Also included in the Transaction were approximately $58,500 of
accounts receivable which were transferred
at full value as recorded on Cimarron's books with no offset for bad debt.
Approximately $66,000 of intangible assets
related to the business tradename, customer lists, in-process contracts and
related unbilled revenues were also included
in the Transaction. Dog and Pony also assumed all recorded liabilities of
Cimarron which amounted to approximately
$51,000, consisting of approximately $13,000 of accounts payable and $37,000
of other accrued liabilities. The
Company believes substantially all of these liabilities have been satisfied.
Mr. Cohen also agreed to terminate his own
employment agreement with the Company. As part of the Transaction, the Company
executed an earnout agreement
which provides that Dog and Pony shall pay 25% of all quarterly gross profits
in excess of $116,500 to the Company
until the earlier of: (i) March 31, 2001, or (ii) until payments total $100,000.
In connection with the Transaction, the Company executed a cost sharing
agreement with Dog and Pony
which provides that the Company shall provide certain administrative services
for $12,000 per month. This agreement
expires March 31, 1998, and can be extended by mutual agreement of both parties.
The Company submitted the Transaction to the Vancouver Stock Exchange
("VSE") for approval in
accordance with the rules and regulations of the VSE. The Company obtained VSE
approval of the Transaction subject
to ratification by the shareholders of the Company. The Transaction will be
submitted to the shareholders of the
Company for ratification at the May 8, 1998 annual meeting of shareholders.
The total consideration paid including contingent consideration equals
5.2 times 1997 cash flow of
approximately $62,400 and represents 3.5 times 1997 cash flow if contingent
consideration is excluded. The Board
of Directors determined that this valuation was consistent with a business in
a mature or declining market such as
Cimarron. Revenues from Cimarron have been declining over the last three years
due to a shift away from 35mm
slides to electronic presentations and a trend towards in-house production of
many types of business presentations.
The Board of Directors believes that ratification of the Transaction is
in the best interest of the Company's
Stockholders.
In the event that shareholders do not ratify the Transaction, the Board
of Directors believes that it would not
be practicable to reverse the Transaction. As a result, the Company may be
subject to disciplinary action from the
VSE, including possible suspension of trading or delisting from the VSE.
SELLING STOCKHOLDERS
The following tables set forth certain information with respect to the
Common Stock beneficially owned by
each Selling Stockholder as of April 15, 1998, and as adjusted to give effect
to the sale of such securities. The Shares
are being registered to permit public secondary trading of such securities,
and the Selling Stockholders may offer such
securities for resale from time to time. See "Plan of Distribution."
The Shares of Common Stock being offered by the Selling Stockholders fall
into two categories: (i) 2,634,485
Shares acquired from the Company in various private transactions in 1995, 1996
and 1997in reliance on Section 4(2)
of the Securities Act and Regulation D promulgated thereunder as the basis for
an exemption from registration; and
(ii) 1,261,945 Shares that may be purchased by the Selling Stockholders upon
exercise of warrants ("Warrants") held
by such persons to purchase Common Stock. In connection with such private
transactions, the Company agreed to
register all such shares of Common Stock and the shares of Common Stock
issuable upon exercise of the Warrants.
Except as set forth below, none of such Selling Stockholders has had a
material relationship with the Company within
the past three years other than as a result of ownership of the securities of
the Company. The Shares may be offered
from time to time by the Selling Stockholders named below or their nominees,
and this Prospectus may be required
to be delivered by persons who may be deemed to be underwriters in connection
with the offer or sale of such
securities. See "Plan of Distribution". In accordance with the rules of the
Commission, the columns "Common Stock
Owned After Offering" show the amount of securities owned by Selling
Stockholders after the offering. The numbers
in such columns assume all Shares registered and offered by this Prospectus,
shown in the column "Common Stock
Offered" are sold by the Selling Stockholders. However, the Selling
Stockholders are not required to sell any of the
Shares offered, and the Selling Stockholders may sell as many or as few Shares
as they choose. See "Plan of
Distribution".
<TABLE>
<CAPTION>
Common Stock
Name of Common Stock Common Stock Owned After
Selling Stockholders Owned Prior Offered Offering (1)
Amount Percent(3) Amount(4) Percent(3)(5)
<S> <C> <C> <C> <C> <C>
Rand Family Trust(6) 336,244 5.6% 128,000(2) 208,244 --
Nahum Rand 24,176 -- 8,500(2) 0 --
OPUS Capital
Fund LLC(7) 214,286 3.6% 214,286(2) 0 --
Environmental
Systems Research 115,000 1.9% 115,000(2) 0 --
Institute, Inc.
Dieter Heidrich(7) 201,040 3.4% 201,040 0 --
Donald Cohen(8) 556,260 9.4% 500,834(2) 55,426 --
Copeland 143,530 2.4% 143,530(2) 0 --
Consulting Group,
Inc.(9)
Michael Johnson(10) 628,061 10.2% 363,269(2) 264,792 3.7%
Paul Stapleton 37,500 -- 37,500 0 --
Kevin Andrew(11) 131,252 2.2% 26,667(2) 104,585 1.5%
W. Brad Browning(12) 209,861 3.5% 100,000(2) 109,861 1.5%
David Honan 38,286 -- 7,143(2) 31,143 --
Robertson Stephens 107,143 1.8% 107,143(2) 0 --
Global Low Price
StockFund
Joren Peterson 225,000 3.8% 225,000 0 --
Stuart Fulinwider 225,000 3.8% 225,000 0 --
Pfeiffer Public
Relations 75,000 1.3% 75,000(2) 0 --
Robert Louthan 30,000 -- 30,000(2)
Robertson Stephens 364,273 6.1% 364,273(2) 0 --
Diversified Growth
Fund
Robertson Stephens 498,615 8.3% 498,615(2) 0 --
Orphan Fund
Robertson Stephens 287,130 4.9% 287,130(2) 0 --
Orphan Offshore Fund
Larry Baratz 28,500 -- 28,500(2) 0 --
Dennis DeCoste 105,000 1.8% 105,000(2) 0 --
Cruttenden Roth
Incorporated 105,000 1.8% 105,000(2) 0 --
All Selling 4,686,157 61.0% 3,896,430 774,051 10.8%
Stockholders
as a Group
</TABLE>
(1) Includes shares underlying options and Warrants to purchase Common Stock
which are currently exercisable or are exercisable within
60 days.
(2) Includes the following Shares which may be purchased by Selling
Stockholders upon exercise of Warrants: Rand Family Trust - 128,000
Shares; Nahum Rand - 8,500 Shares; Pfeiffer Public Relations - 75,000
Shares; Michael W. Johnson - 49,833 Shares; Donald Cohen -
8,500 Shares; Copeland Consulting Group, Inc. - 93,530 Shares; Kevin
Andrew - 8,889 Shares; David Honan - 7,143 Shares; Dennis
B. DeCoste - 35,000 Shares; Cruttenden Roth Incorporated -105,000 Shares;
W. Brad Browning -33,333 Shares; Robertson Stephens
Orphan Fund - 178,572 Shares; Robertson Stephens Orphan Offshore Fund -
35,715 Shares; OPUS Capital Fund, LLC - 71,429 Shares;
Larry Baratz - 28,500 Shares; ESRI - 115,000 Shares; Robertson Stephens
Global Low Price Fund - 107,143 Shares; Robertson Stephens
Diversified Growth Fund - 142,858 Shares; Robert Louthan - 30,000 Shares.
(3) No percent of class is shown for holders of less than 1%. Percentage
computations are based on 5,853,679shares of Common Stock
outstanding as of April 15, 1998.
(4) Assumes sale of all Common Stock offered hereby. See "Plan of
Distribution".
(5) Assumes issuance of 1,261,945 shares of Common Stock issuable upon
exercise of shares of Common Stock underlying the Warrants
registered hereby, and is therefore based on 7,115,624 shares of Common
Stock outstanding. No percent of class is shown for holders
of less than 1%.
(6) Nahum Rand, a director of the Company, and his wife are the trustees of
the trust and have sole voting and disposition power over the
trust..
(7) OPUS Capital Fund, LLC is managed by OPUS Capital, Inc. OPUS Capital
Inc. ("OPUS") provided financial and strategic consulting
services to the Company. Gene R. Copeland, a former director of the
Company, is an associate of OPUS. Dieter Heidrich is a managing
director of OPUS.
(8) Mr. Cohen is Vice-Chairman of the Company, and has served as a director
of the Company since May 1995.
(9) Mr. Copeland is a former director of the Company.
(10) Mr. Johnson is the President, Chief Executive Officer and a director of
the Company.
(11) Mr. Andrew is a Vice President and Chief Financial Officer of the Company.
(12) Mr. Browning is a Vice President of the Company.
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders is not subject
to any underwriting agreement. The
Shares offered by the Selling Stockholders may be sold from time to time at
designated prices that may be changed,
at market prices prevailing at the time of sale, at prices relating to such
prevailing market prices or at negotiated
prices. In addition, the Selling Stockholders may sell the Shares through
customary brokerage channels, either
through broker-dealers acting as agents or principals. The Selling
Stockholders may effect such transactions by selling
Shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting
discounts, concessions, commissions, or fees from the Selling Stockholders
and/or purchasers of the Shares for whom
such broker-dealers may act as agent, or to whom they sell as principal, or
both (which compensation to a particular
broker-dealer might be in excess of customary commissions). Any
broker-dealers that participate with the Selling
Stockholders in the distribution of Shares may be deemed to be underwriters
and any commissions received by them
and any profit on the resale of Shares positioned by them might be deemed to
be underwriting discounts and
commissions within the meaning of the Securities Act of 1933, in connection
with such sales. The Company has
entered into a Selling Agreement with holders of all of the Shares offered
hereby, which contains the Company's
agreement to indemnify the Selling Stockholders for losses or damages,
including losses or damages under the
Securities Act, to which the Selling Stockholders may become subject arising
out of or based upon untrue statements
of fact contained in the registration statement of which this Prospectus is a
part.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of an aggregate of
15,000,000 shares of Common
Stock, $.001 par value, and 1,962,335 shares of Preferred Stock, $.001 par
value. As of the date hereof, 5,853,679
shares of Common Stock, and no shares of Preferred Stock, are outstanding.
COMMON STOCK
Subject to preferences that may apply to any Preferred Stock outstanding
at the time, the holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such
times and in such amounts as the Board of Directors may from time to time
determine. Each stockholder is entitled
to one vote for each share of Common Stock held on all matters submitted to a
vote of stockholders. Cumulative
voting for the election of directors is not provided for in the Company's
Certificate of Incorporation, which means
that the holders of a majority of the shares voted can elect all of the
directors then standing for election. The Common
Stock is not entitled to preemptive rights and is not subject to conversion or
redemption. Upon liquidation, dissolution
or winding-up of the Company, the assets legally available for distribution to
stockholders are distributable ratably
among other holders of the Common Stock and any participating Preferred Stock
outstanding at that time after
payment of liquidation preferences, if any, on any outstanding Preferred Stock
and payment of other claims of
creditors. Each outstanding share of Common Stock is, and all shares of
Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Of the 1,962,335 shares of authorized Preferred Stock, 213,483 shares are
designated Series A Convertible
Preferred Stock, and 1,748,852 shares are without designation.
Each share of Series A Convertible Preferred Stock is convertible into
four shares of Common Stock. The
Series A Convertible Preferred Stock has a liquidation preference of $1.593
per share, and is entitled to dividends
when, as and if declared, and is entitled to dividends in preference to
dividends on any junior securities of the
Company. The Series A Convertible Preferred Stock has voting rights on all
matters subject to stockholder voting,
and votes on an as-converted-to Common Stock basis. There are no shares of
Series A Convertible Preferred Stock
outstanding and the Company has no plans to issue such stock.
The Board of Directors is authorized, subject to any limitations
prescribed by Delaware law, to provide for
the issuance of 1,748,852 shares of Preferred Stock in one or more series, to
establish from time to time the number
of shares to be included in each such series, to fix the powers, designations,
preferences and rights of the shares of
each wholly unissued series and any qualifications, limitations or
restrictions thereon and to increase or decrease the
number of shares of any such series (but not below the number of shares of
such series then outstanding) without any
further vote or action by the stockholders. The Board of Directors may
authorize the issuance of Preferred Stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of Common
Stock. Thus, the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in
control of the Company. See "Risk FactorsFuture Issuance of Stock by Company
Without Shareholder Approval".
The Company has no current plan to issue any shares of Preferred Stock.
STOCK OPTIONS AND WARRANTS
The 1990 Plan provides for the grant of options to acquire a maximum of
2,300,000 shares of Common
Stock. As of February 28, 1998, options for an aggregate of 1,553,079 shares
are outstanding at exercise prices
ranging from $0.29 to $2.56. 61,587 options have been exercised since
inception of the Plan. See "Management
1990 Stock Option Plan".
As of February 28, 1998, warrants to purchase 2,121,388 shares of Common
Stock are outstanding, and of
such number 2,068,972 are currently exercisable or are exercisable within 60
days from such date. The warrants were
issued between 1993 and 1998 in financing transactions, as director
compensation, and for other purposes. The
warrants are exercisable at prices ranging from $.29 to $121.13. 1,585,525 of
the warrants expire in 1998, 200,000
of the warrants expire in 1999, 200,000 of the warrants expire in 2000,
125,000 expire in 2001 and 10,861 of the
warrants expire in 2005. Certain of the warrants which expire in 1998 contain
ratcheting provisions which act to
protect the warrant holder from issuances of Company securities below market
value.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American
Securities Transfer & Trust, Inc.
INDEMNIFICATION
Article VII of the Registrant's Certificate of Incorporation provides
that the personal liability of the directors
of the Registrant to the Registrant or its stockholders for monetary damages
for a breach of fiduciary duty as a director
is eliminated to the maximum extent permitted by Delaware law. Article V of
the Registrant's Bylaws provides for
the indemnification of the Registrant's directors and officers in a variety of
circumstances, which may include
liabilities under the Securities Act of 1933 (the "Securities Act"). Insofar
as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling the registrant, pursuant to the
foregoing provisions, the registrant 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 and is therefore unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 5,853,679 shares
of Common Stock outstanding
based upon the number of shares outstanding as of April 15, 1998. Of the
3,896,430 Shares offered pursuant to this
Prospectus, 2,634,485 are shares of Common Stock which prior to this offering
were outstanding but not freely
tradeable, but which are now freely tradeable without restriction or further
registration under the Securities Act unless
acquired by an "affiliate" of the Company as that term is defined in Rule 144
("Rule 144") under the Securities Act,
which shares will be subject to the resale limitations of Rule 144 described
below. Of the 3,896,430 Shares offered
pursuant to this Prospectus, the remaining 1,261,945 Shares represent shares
of Common Stock underlying Warrants
which have not been exercised. If all of such Warrants are exercised, the
total number of shares of Common Stock
outstanding would increase from 5,853,679 to 7,115,624.
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned for at least one
year shares privately acquired directly or indirectly from the Company or from
an affiliate of the Company, and
persons who are affiliates of the Company who have acquired the shares in
registered transactions, will be entitled
to sell within any three month period a number of shares that does not exceed
the greater of: (i) 1% of the outstanding
shares of the Common Stock (approximately 58,536 shares immediately after
completion of the offering); or (ii) the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements relating to the manner and
notice of sale and the availability of
current public information about the Company.
In general under Rule 144(k), as currently in effect, a stockholder, who
is not an affiliate of the Company,
and who has beneficially owned such shares for at least two years, may sell
all of such stockholder's shares without
the volume limitations of Rule 144 described above.
The Company has reserved 2,200,000 shares of Common Stock for issuance
under the 1990 Plan. At
appropriate times subsequent to completion of the offering, the Company
intends to file registration statements under
the Securities Act to register the Common Stock to be issued under those
plans. After the effective date of such
registration statements, shares issued under these plans will be freely
tradable without restriction or further registration
under the Securities Act, unless acquired by affiliates of the Company.
Prior to this offering, the market for the Company's securities has been
characterized by volatility and small
trading volume. No predictions can be made with respect to the effect, if
any, that public sales of shares of the
Common Stock or the availability of shares for sale will have on the market
price of the Common Stock after the
offering. Sales of substantial amounts of Common Stock in the public market
following the offering, or the perception
that such sales may occur, could adversely affect the market price of the
Common Stock or the ability of the Company
to raise capital through sales of its equity securities. See "Risk
FactorsSecurities Eligible for Future Sale."
CERTAIN U.S. TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the
ownership and disposition of Common Stock by a holder who is not a U.S. person
(a "Non-U.S. Holder"). For this
purpose, the term "Non-U.S. Holder" means any person who or that is, for
United States federal income tax purposes,
a foreign corporation, a non-resident alien individual, a foreign estate or
trust, or a foreign partnership one or more
of the members of which is a Non-U.S. Holder. This discussion does not deal
with foreign, state and local tax
consequences and does not address all aspects of U.S. federal income and
estate taxes that may be relevant to Non-
U.S. Holders in light of their personal circumstances. (In particular, the
discussion does not discuss the treatment
of Non-U.S. Holders subject to special tax treatment under the federal income
tax laws, including banks, insurance
companies, dealers in securities, and holders of securities as part of a
"straddle", "hedge", or "conversion
transaction".) Furthermore, this discussion is based on current provisions of
the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed regulations promulgated thereunder
and administrative and judicial
interpretations thereof, all of which are subject to change (possibly with
retroactive effect). Each prospective
purchaser of Common Stock is advised to consult a tax advisor with respect to
current and possible future tax
consequences of acquiring, holding and disposing of Common Stock.
An individual will be deemed to be a resident alien for U.S. tax purposes
if the individual is treated as a
permanent U.S. resident under U.S. immigration laws or, subject to certain
exceptions, if the individual is present
in the United States on at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-
calendar year period ending with the current calendar year (counting for such
purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the
second preceding year). Resident aliens are subject to U.S. federal tax as if
they were U.S. citizens; they are also
subject to the U.S. estate tax (generally without benefit of the marital
deduction for a non-citizen spouse).
DIVIDENDS
The gross amount of any dividends paid by the Company to a Non-U.S.
Holder of Common Stock will
generally be subject to withholding of U.S. federal income tax at a 30% rate
or such lower rate as may be specified
by an applicable income tax treaty, unless the dividends are effectively
connected with the conduct of a trade or
business of the Non-U.S. Holder within the United States. If a dividend is
effectively connected with the conduct of
a trade or business of the Non-U.S. Holder within the United States (and if a
tax treaty applies, is attributable to a
"permanent establishment" in the United States, through which such trade or
business is conducted), the dividend
would be subject to U.S. federal income tax on a net income basis at
applicable graduated individual or corporate
rates, as the case may be, and, provided that the applicable certificate is
provided, would be exempt from the 30%
withholding tax described above. Any such dividends received by a corporate
Non-U.S. Holder may be eligible for
the 70% dividends-received-deduction. Any effectively connected dividend may
under certain circumstances, also
be subject to an additional "branch profits tax" at a 30% rate or at such
lower rate (including zero) as may be specified
by an applicable income tax treaty.
Under current U.S. Treasury regulations, dividends paid to an address
outside the United States are presumed
to be paid to a resident of such country (unless the payor has knowledge to
the contrary) for purposes of determining
the applicability of a tax treaty rate. Under proposed U.S. Treasury
regulations not currently in effect, however, a
Non-U.S. Holder of Common Stock who wishes to claim the benefit of an
applicable treaty rate would be required
to satisfy applicable certification and other requirements.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of U.S.
withholding tax pursuant to a tax
treaty may obtain a refund of any excess amounts of U.S. tax withheld by the
Company by filing an appropriate claim
for refund with the U.S. Internal Revenue Service (the "Service").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income
tax (and generally no tax will be
withheld) with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is
effectively connected with the conduct of a trade or business of the Non-U.S.
Holder within the United States and,
where a tax treaty applies, is attributable to a United States permanent
establishment of the Non-U.S. Holder, (ii) in
the case of a Non-U.S. Holder who is an individual and holds the Common Stock
as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year of the
sale or other disposition and certain other
conditions are met, or (iii) the Company is or has been a "U.S. real property
holding corporation" for U.S. federal
income tax purposes. The Company has not been and does not anticipate
becoming a "U.S. real property holding
corporation" for U.S. federal income tax purposes. Non-U.S. Holders who fall
under clause (i) or (ii) above, should
consult their tax advisors regarding the tax treatment applicable to them.
FEDERAL ESTATE TAXES
Common Stock owned, or treated as owned, by a non-resident alien
individual (as specifically determined
for U.S. Federal estate tax purposes) at the time of death will be included in
such holder's gross estate for U.S.
federal estate tax purposes, unless an applicable tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the Service and to each Non-U.S.
Holder the amount of dividends paid
to such holder and the tax withheld with respect to such dividends. These
information reporting requirements apply
whether or not withholding is required. Copies of the information returns
reporting such dividends and tax withheld
may also be made available to the tax authorities in the country in which the
Non-U.S. Holder resides under exchange-
of-information provisions of an applicable income tax treaty.
U.S. backup withholding tax (which generally is a withholding tax imposed
at the rate of 31% on certain
payments to persons not otherwise exempt who fail to furnish certain
information under U.S. information reporting
requirements) generally will not apply to (a) dividends paid to a Non-U.S.
Holder that is subject to U.S. withholding
at the 30% rate (or such lower rate provided under an applicable treaty) or
(b) under current law dividends paid to
a Non-U.S. Holder at an address outside the U.S. However, under proposed
regulations, in the case of dividends paid
after December 31, 1997 (December 31, 1999 in the case of dividends paid to
accounts in existence on or before the
date that is 60 days after the proposed regulations are published as final
regulations), a Non-U.S. Holder generally
would be subject to backup withholding at a 31% rate, unless certain
certification procedures (or, in the case of
payments made outside the United States with respect to an offshore account,
certain documentary evidence
procedures) are complied with, either directly or indirect through an
intermediary.
The backup withholding and information reporting requirements will not
apply with respect to the proceeds
paid to a Non-U.S. Holder upon the sale of Common Stock to or through the
foreign office of a broker. In the case
of the payment of proceeds from such a sale of Common Stock through a foreign
office of a broker that is a U.S.
person or a "U.S. related person", however, information reporting (but not
backup withholding) is required with
respect to the payment unless the broker has documentary evidence in its files
that the owner is a Non-U.S. Holder
and certain other requirements are met or the Holder otherwise establishes an
exemption. For this purpose, a "U.S.
related person" is (i) a "controlled foreign corporation" for U.S. federal
income tax purposes, or (ii) a foreign person
50% or more of whose gross income from all sources for the three-year period
ending with the close of its taxable
year preceding the payment (or for such part of the period that the broker has
been in existence) is derived from
activities that are effectively connected with the conduct of a U.S. trade or
business. The payment of the proceeds
of a sale of shares of Common Stock to or through a U.S. office of a broker is
subject to information reporting and
possible backup withholding unless the owner certifies its non-U.S. status
under penalties of perjury or otherwise
establishes an exemption. Any amounts withheld under the backup withholding
rules from a payment to a Non-U.S.
Holder will be allowed as a refund or a credit against the Holder's U.S.
federal income tax liability, provided that
required information is furnished to the Service.
These information reporting and backup withholding rules are under review
by the U.S. Treasury, and their
application to the Common Stock could be changed prospectively by future
regulations. The U.S. Treasury has
recently issued final regulations requiring Non-U.S. Holders to acquire U.S.
taxpayer identification numbers in
situations where they are obligated to file certain U.S. tax returns and where
they file refund claims. This provision
is not applicable with respect to information returns.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT WITH HIS TAX ADVISOR
WITH RESPECT TO THE INCOME AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP AND
DISPOSITION OF COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF UNITED
STATES
FEDERAL LAWS AND THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING
JURISDICTION.
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon
for the Company by Chrisman,
Bynum & Johnson, P.C., Boulder, Colorado.
EXPERTS
The Consolidated Financial Statements of the Company at December 31, 1997
appearing in this Prospectus
and Registration Statement have been audited by Hein + Associates LLP,
independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of
such firm as experts in accounting and auditing. The report of
Hein+Associates LLP dated February 13, 1998
contained an explanatory paragraph concerning the Company's ability to
continue as a going concern.
[INSERT "F" PAGES]
<TABLE>
<S> <C> <C>
NO PERSON HAS BEEN
AUTHORIZED TO GIVE ANY 3,896,430 Shares
INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE INFONOW CORPORATION
RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OFANY OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIESTO WHICH IT RELATES OR AN Common Stock
OFFER TO SELL OR THE SOLICITATIONOF AN OFFER TO BUY SUCH
(par value $.001 per share)
SECURITIES IN ANY CIRCUMSTANCESIN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHERTHE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE
DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS Page
Available Information..............2
Prospectus Summary.................3
Risk Factors.......................5
The Company........................9
Use of Proceeds...................10
Market for the Company's
Common Stock......................11
Determination of Offering Price...11
Dividend Policy...................11
Capitalization....................12
Selected Financial Data...........13
Management's Discussion and
Analysis.........................13
Business..........................17
Changes in Company's
Certifying Accountant.............23
Management........................24
Principal Stockholders............32
Certain Transactions..............34
Selling Stockholders..............35
Plan of Distribution..............37
Description of Securities.........37
Indemnification...................39
Shares Eligible for Future Sale...39
Certain U.S. Tax
Consequences to Non-U.S.
Holders
of Common Stock.................40
Legal Matters.....................42
Experts...........................42
Consolidated Financial
Statements.......................F-1
</TABLE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
contains provisions permitting
corporations organized thereunder to indemnify directors, officers and other
representatives from liabilities in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person was or
is a director, officer, employee or agent
of the corporation, against liabilities arising in any such action, suit or
proceeding, expenses incurred in connection
therewith, and against certain other liabilities. Article Seven of the
Registrant's Certificate of Incorporation provides
that the personal liability of the directors of the Registrant to the
Registrant or its stockholders for monetary damages
for a breach of fiduciary duty as a director is eliminated to the maximum
extent permitted by Delaware law. Article
Five of the Registrant's Bylaws provides for indemnification of the
Registrant's directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act of 1933.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses to be
borne by the Company in connection
with the offering described in the Registration Statement.
Registration Fee $1,678
Legal Fees and Expenses 10,000
Accounting Fees and Expenses 3,000
Printing Expenses 200
Miscellaneous Expenses 122
Total 15,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The information in this Item gives retroactive effect to a 1-for-25
reverse stock split of the Company's
Common Stock which was effective April 7, 1995.
The Registrant sold the following unregistered securities during 1995:
(1) On March 30, 1995, the Company delivered to Sigma Security (Europe
LTD.) a convertible
promissory note in the amount of $50,000, convertible into Common Stock for
$.80 per share. The note was
subsequently converted into 64,401 shares of Common Stock in May 1995. In
connection with such conversion, the
Company issued a warrant to purchase 62,500 shares of Common Stock at $1.30
per share.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(2) On May 9, 1995 the Company issued to the Lenders 299,028 shares of
Common Stock and warrants
to purchase 299,028 shares of Common Stock at prices ranging from $1.30 to
$2.60 in exchange for all remaining
principal and accrued interest through April 30, 1995 on the Master Note
($458,046) and 37,665 shares of Series A
Preferred Stock.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(3) On May 22, 1995, the Company sold an aggregate of 1,039,846 shares
of Common Stock to 13
accredited investors (9 Canadian residents and 4 United States residents), for
an aggregate purchase price of
$1,351,800. In connection with such transaction, the Company issued to a
placement agent a warrant to purchase
100,000 shares of Common Stock at $1.30 per share.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemptions provided by
Regulation D and Regulation S of the
Securities Act.
(4) On May 22, 1995, the Company issued 533,334 shares of Common Stock
(aggregate value of
$693,334) to Donald Cohen and a secured convertible promissory note in the
aggregate principal amount of $300,000
to Therese Cohen in exchange for all of the outstanding capital stock of
Cimarron International, Inc. In connection
with the acquisition, the Company issued warrants to purchase 107,844 shares
of Common Stock, exercisable at $.40
per share, to Opus Capital, Inc. for its advisory services in connection with
the transaction.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(5) On May 22, 1995, Nahum Rand, Chairman of the Board of the Company,
was issued 48,077 shares
of Common Stock valued at $1.30 per share, as well as a warrant to purchase
125,000 shares of Common Stock at
$0.40 per share, in consideration for services as Chairman of the Company.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(6) On May 22 1995, in consideration for financial advisory services,
the Company issued warrants to
purchase Common Stock at an exercise price of $.40 per share to the following
persons in the following amounts:
- --Dieter Heidrich, 170,065 shares, Daryl Yurek, 170,065 shares, and Copeland
Consulting Group, Inc., 120,043
shares. Gene Copeland, a director of the Company is a principal of Copeland
Consulting Group, Inc.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(7) On May 22 1995, in consideration for marketing consulting, the
Company issued to a consultant
warrants to purchase 37,500 shares of Common Stock at exercise prices ranging
from $.40 to $.80 per share.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(8) On June 19, 1995, the Company issued warrants to purchase 16,650
shares of Common Stock at
$2.25 to director Nahum Rand in consideration for services as Chairman of the
Company.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(9) On July 17, 1995, the Company issued to each of Dieter Heidrich and
Daryl Yurek warrants to
purchase 25,000 shares of Common Stock at $2.25 per share for financial
advisory services.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(10) On June 30, 1995, the Company issued 16,737 shares of Common Stock
to certain vendors of the
Company in consideration for the cancellation of Company accounts payable of
approximately $38,511.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(11) On August 21, 1995, the Company issued 67,731 shares of Common Stock
to an existing stockholder
in consideration for $39,961.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption provided by
Regulation S of the Securities Act.
(12) On August 23, 1995, the Company issued 498,621 shares of Common
Stock (aggregate value of
$2,119,139) and promissory notes in the aggregate principal amount of $50,000
to Paul D. Barker ($2,500); Craig
Michaelis ($23,970); David Wertzberger ($13,970); and Michael Yates ($19,560)
in exchange for all of the
outstanding capital stock of Navigist, Inc. In connection with the
acquisition, the Company issued to Opus Capital,
Inc. and Copeland Consulting Group, Inc. warrants to purchase an aggregate of
91,920 shares of Common Stock at
exercise prices ranging $.40 to $3.25 per share, for advisory services in
connection with the transaction. In addition,
the Company issued a warrant to purchase 24,000 shares of Common Stock at
$4.25 to a consultant of Navigist, Inc.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(13) On October 10, 1995, for management advisory services performed, the
Company issued warrants
to purchase Common Stock at $.40 per share to Copeland Consulting Group, Inc.,
Dieter Heidrich and Daryl Yurek,
in the amounts of 23,486, 35,229 and 35,229 shares respectively.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(14) On December 1, 1995, Michael Johnson, assignee of Therese Cohen,
converted a convertible
promissory note in the principal amount of $300,000 into 230,769 shares of
Common Stock.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(15) In June 1995 the Company issued to Mark Bronder, former Chief
Executive Officer of the
Company, 14,072 shares of the Company's Common Stock, valued at $2.38 per
share for accrued salary and expenses
of approximately $33,474.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
The Registrant sold the following unregistered securities during 1996:
(1) On March 29, 1996 the Company executed a promissory note to Kevin
Andrew, the Company's
Chief financial Officer, in the amount of $100,000, secured by all the
receivables of the Company. The note can be
converted into common stock at $3.00 per share at any time prior to maturity.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(2) On March 5, 1996, the Company issued a warrant to Environmental
Systems Research Institute,
Inc. to purchase 115,000 shares of Common Stock at $2.63 per share in
connection with an agreement to provide
services to the Company.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(3) On September 13, 1996, the Company issued an aggregate of 167,111
shares of Common Stock
and warrants to purchase an aggregate of 83,556 shares of Common Stock at a
purchase price of $1.50 each in return
for $188,000 net proceeds as follows:
Michael Johnson contributed $93,000 in cash, deferred salary and deferred
expenses for 82,667
shares and 41,333 warrants; W. Brad Browning contributed $75,000 in cash
for 66,667 shares and
33,333 warrants; and Kevin Andrew contributed $20,000 in deferred salary
for 17, 778 shares and
8,889 warrants
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(4) On December 6, 1996, the Company sold an aggregate of 2,014,723
Units, each Unit consisting
of one share of Common Stock and one non-transferrable share purchase warrant,
to 17 accredited investors (9 non-
United States residents and 8 United States residents), for an aggregate
purchase price of $2,820,612. Two share
purchase warrants entitle the holder to acquire one additional Common share at
$1.40 per share. In connection with
the transaction, the Company issued a warrant to purchase 105,000 shares of
Common Stock at $1.40 to Cruttenden
Roth, Inc. for services rendered in connection with the placement.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemptions contained in
Section 4(2) and provided by Regulation S
of the Securities Act.
The Registrant sold no unregistered securities during 1997.
The Registrant sold the following unregistered securities during 1998:
(1) On January 23, 1998, the Company issued warrants to purchase 30,000
shares of Common Stock
to a consultant who performed recruiting consulting services for the Company.
The warrant has an exercise price of
$.29 per share and expires January 23, 2001.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
(2) On March 2, 1998, the Company issued 2,000 shares of Common Stock
with an aggregate value
of $1,660 to a non-U.S. resident in connection with a loan to the Company.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemptions provided by
Regulation S of the Securities Act.
(3) On March 27, 1998, the Company sold an aggregate of 450,000 shares
of Common Stock to two
accredited investors for an aggregate purchase price of $787,500.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemptions provided by
Regulation D of the Securities Act.
(4) On April 9, 1998, the Company issued 37,500 shares of Common Stock
to an existing shareholder
upon exercise of warrants to purchase Common Stock, in consideration for
payment of an aggregate price of $22,000,
the exercise price of the warrants.
The Company believes this transaction was private in nature and was exempt
from the registration requirements of
Section 5 of the Securities Act by virtue of the exemption contained in
Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS
(a) The following documents are filed herewith and made a part of this
Registration Statement:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
1.1 Form of Selling Agreement
3.1 Certificate of Incorporation of the Company, as Amended.(A)
3.3 Bylaws of the Company, as Amended.(B)
4.1 Form of Common Stock Certificate for the Registrant's Common Stock, $.001
par value per share.(B)
4.4 Form of Class C Warrant.(C)
5.1 Opinion of Chrisman, Bynum & Johnson, P.C.
10.3 Conversion Agreement by and between the Registrant and Gilman Securities
Corporation dated as of August
19, 1993.(D)
10.14 InfoNow Corporation 1990 Stock Option Plan, as amended.(A)
10.27 Opus Agreements to Provide Financial Advisory Services dated May 23,
1995, July 17, 1995, August 2,
1995 and October 10, 1995.(E)
10.29 Employment Agreement between the Company and W. Brad Browning dated
January 9, 1996.(E)
10.30 Employment Agreement between the Company and Kevin Andrew dated
March 1, 1996.(E)
10.32 Agreement between the Company and Environmental Systems Research
Institute, Inc. ("ESRI") dated March
6, 1996.(E)
10.33 Stock Purchase and Sale Agreement by and among VDC Paradigms, Inc.,
Craig Michaelis, David
Wertzberger and InfoNow Corporation dated December 13, 1996.(A)
10.34 Employment Agreement between the Company and Donald E. Cohen dated
May 22, 1995, as amended.(A)
10.35 Asset Sale Agreement for sale of assets to Cimarron Dog and Pony
Company, Inc. dated December 11,
1997.(F)
10.36 Michael W. Johnson employment agreement dated January 1, 1998.(F)
10.37 Agreement dated October 23, 1997 between the Company and Michael W.
Johnson regarding sale of the
Company.(F)
16.1 Letter from Arthur Andersen LLP dated January 27, 1997.(G)
23.1 Consent of Hein + Associates LLP.
23.2 Consent of Chrisman, Bynum & Johnson, P.C. (included in its opinion filed
as Exhibit 5.1).
24.1 Power of Attorney (included in signature page of original filing).
_______________________
(A) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
(B) Incorporated by reference from Registration Statement No. 33-43035 on
Form S-1 dated February 14, 1992.
(C) Incorporated by reference from Post-Effective Amendment No. 2 to
Registration Statement No. 33-43035 on Form S-1 dated July 13,
1993.
(D) Incorporated by reference from Post-Effective Amendment No. 3 to
Registration Statement No. 33-43035 on Form S-1 dated September
30, 1996.
(E) Incorporated by reference from the Company's Annual Report on Form 10-K
for year ended December 31, 1995.
(F) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
(G) Incorporated by reference from the Company's Current Report on Form 8-K
dated January 27, 1997.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
A. To file, during any period in which offers or sales are being
made of the securities
registered hereby, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of
1933.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of
this 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 this
Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not
previously disclosed in this Registration Statement or any material change to
such information in this Registration
Statement;
B. 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.
C. 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 "Securities 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 Securities Act
and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of 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.
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 authorized this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City and County
of Denver, State of Colorado, on the _____ day of May, 1998.
INFONOW CORPORATION
By:
Michael W. Johnson, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and
appoints Michael W. Johnson, Kevin D. Andrew, or either of them, his true and
lawful attorney-in-fact and agent,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities,
to sign any and all amendments to this Registration Statement, including
post-effective amendments, 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, full power and
authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes
as he might or could do in person, and hereby ratifies and confirms all his
said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed
by the following persons in the capacities and on the dates indicated.
Name Title Date
President, Chief Executive Officer May __, 1998
Michael W. Johnson (Principal Executive Officer) and Director
Vice President, Chief Financial
Officer, Secretary May __, 1998
Kevin D. Andrew and Treasurer (Principal Financial and Accounting
Officer)
Director May __, 1998
Michael D. Basch
Vice Chairman and Director May __, 1998
Donald E. Cohen
Chairman and Director May __, 1998
Nahum Rand
Director May __, 1998
Duane H. Wentworth
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page No.
1.1 Form of Selling Agreement
3.1 Certificate of Incorporation of the Company, as Amended.(A)
3.3 Bylaws of the Company, as Amended.(B)
4.1 Form of Common Stock Certificate for the Registrant's Common Stock,
$.001 par value per share.(B)
4.4 Form of Class C Warrant.(C)
5.1 Opinion of Chrisman, Bynum & Johnson, P.C.
10.3 Conversion Agreement by and between the Registrant and Gilman
Securities Corporation dated as
of August 19, 1993.(D)
10.14 InfoNow Corporation 1990 Stock Option Plan, as amended.(A)
10.27 Opus Agreements to Provide Financial Advisory Services dated May 23,
1995, July 17, 1995,
August 2, 1995 and October 10, 1995.(E)
10.29 Employment Agreement between the Company and W. Brad Browning dated
January 9, 1996.(E)
10.30 Employment Agreement between the Company and Kevin Andrew dated March
1, 1996.(E)
10.32 Agreement between the Company and Environmental Systems Research
Institute, Inc. ("ESRI")
dated March 6, 1996.(E)
10.33 Stock Purchase and Sale Agreement by and among VDC Paradigms, Inc.,
Craig Michaelis, David
Wertzberger and InfoNow Corporation dated December 13, 1996.(A)
10.34 Employment Agreement between the Company and Donald E. Cohen dated May
22, 1995, as
amended.(A)
10.35 Asset Sale Agreement for sale of assets to Cimarron Dog and Pony
Company, Inc. dated December
11, 1997.(F)
10.36 Michael W. Johnson employment agreement dated January 1, 1998.(F)
10.37 Agreement dated October 23, 1997 between the Company and Michael W.
Johnson regarding sale
of the Company.(F)
16.1 Letter from Arthur Andersen LLP dated January 27, 1997.(G)
23.1 Consent of Hein + Associates LLP.
23.2 Consent of Chrisman, Bynum & Johnson, P.C. (included in its opinion
filed as Exhibit 5.1).
24.1 Power of Attorney (included in signature page of original filing).
_______________________
(A) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
(B) Incorporated by reference from Registration Statement No. 33-43035 on
Form S-1 dated February 14, 1992.
(C) Incorporated by reference from Post-Effective Amendment No. 2 to
Registration Statement No. 33-43035 on Form S-1 dated July 13, 1993.
(D) Incorporated by reference from Post-Effective Amendment No. 3 to
Registration Statement No. 33-43035 on Form S-1 dated September 30,
1996.
(E) Incorporated by reference from the Company's Annual Report on Form 10-K
for year ended December 31, 1995.
(F) Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997.
(G) Incorporated by reference from the Company's Current Report on Form 8-K
dated January 27, 1997.
EXHIBIT 1.1 SELLING AGREEMENT
This SELLING AGREEMENT is made as of this day of ,
1998, between
INFONOW CORPORATION, a Delaware corporation ("Company"), with principal
offices at 1875
Lawrence Street, Suite 1100, Denver, CO 80202, and those persons whose names
appear on the
signature pages hereof ("Selling Stockholders").
RECITALS:
WHEREAS, the Company has issued to Selling Stockholders shares of the
Company's Common Stock and/or warrants to purchase shares of the Company's
Common Stock
(said shares and shares issuable upon exercise of said warrants being
hereinafter referred to as the
"Shares");
WHEREAS, The Company filed a registration statement on Form SB-2
("Registration Statement") with the Securities and Exchange Commission (the
"Commission") under
the Securities Act of 1933 (the "Act"), registering the Shares for sale;
WHEREAS, this Agreement is entered into between the Company and the
Selling
Stockholders to facilitate a legal and orderly distribution of the Shares
pursuant to the Registration
Statement.
NOW, THEREFORE, in consideration of the promises made herein and for
other
good and valuable consideration, the parties agree as follows:
1. Covenants, Representations and Warranties of the Company.
(a) The Company shall use its best efforts to keep the
Registration
Statement effective so as to permit the public sale of the Shares for a period
of one (1) year after the
effective date of the Registration Statement.
(b) The Company will provide the Selling Stockholders with
sufficient
copies of the Registration Statement (and prospectus contained therein) as
shall be required to satisfy
prospectus delivery requirements under federal and state securities laws.
(c) The Company will pay all expenses of the public offering
of the Shares
except for fees of attorneys, accountants and other advisors retained by the
Selling Stockholders and
brokerage and other selling commissions associated with the distribution of
the Shares.
(d)
(i) In the case of the happening, at any time after the
commencement of the offering of the Shares, and prior to its termination,
of any event which
materially affects the Company or the Shares which should be set forth in
an amendment of
or supplement to the Registration Statement in order to make the
statements therein not
misleading, the Company agrees, upon receiving knowledge of such event,
to notify the
Selling Stockholders as promptly as possible of the happening of such an
event.
(ii) In such event, the Company agrees to prepare and
furnish to
the Selling Stockholders copies of an amended Registration Statement or a
supplement to the
Registration Statement (including the prospectus contained therein) in
such quantities as the
Selling Stockholders may reasonably request, in order that the
Registration Statement as so
amended or supplemented will not contain any untrue statement of material
fact, or omit to
state any material fact necessary in order to make the statements therein
not misleading in
light of the circumstances under which they were made. The Selling
Stockholders agree
temporarily to terminate the offering of the Shares during the period
between the notification
by the Company to the Selling Stockholders of the need for such amendment
or supplement
to the Registration Statement and the time such amendment or supplement
has been
completed. The duration of this time period shall be at the sole
discretion of the Company.
(e) The Company agrees to obtain the necessary state securities and
blue sky
registrations or clearances in only those states in which it elects to do so.
(f) No order preventing or suspending the use of any preliminary
prospectus
contained in the Registration Statement has been issued by the Commission, and
such preliminary
prospectus, at the time of filing thereof, conformed in all material respects
to the requirements of the
Act and the rules and regulations of the Commission thereunder, and did not
contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not
misleading; provided, however, that this representation and warranty does not
apply to any state-
ments or omissions made in reliance upon and in conformity with information
furnished in writing
to the Company by and with respect to the Selling Stockholders expressly for
use therein.
(g) The Company meets the requirements for the use of Form SB-2
under the Act
and the rules and regulations of the Commission.
(h) The Registration Statement and the final prospectus contained
therein and any
further amendments or supplements thereto (including any document incorporated
by reference
therein filed after the effective date of the Registration Statement) will,
when they become effective
or are filed with the Commission, as the case may be, conform in all material
respects to the
requirements of the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and
the rules and regulations of the Commission thereunder; all documents
incorporated by reference
into the Registration Statement will conform in all material respects to the
requirements of the
Commission thereunder; and no part of the Registration Statement, the
prospectus or any such
amendment or supplement (including documents incorporated by reference
therein) will contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that this representation
and warranty shall not apply to any statements or omissions in the
Registration Statement or
prospectus made in reliance upon and in conformity with substantive
information furnished in
writing to the Company by and with respect to the Selling Stockholders
expressly for use therein.
2. Covenants, Representations and Warranties of the Selling Stockholders.
(a) In the case of the happening, at any time after the
commencement of the
offering of the Shares, and prior to its termination, of any event which
materially affects the plan of
distribution of the Shares, which event should be set forth in an amendment of
or supplement to the
Registration Statement in order to make the statements therein not misleading,
the Selling
Stockholders, upon receiving knowledge of such event, agrees to notify the
Company, as promptly
as possible, of the happening of such an event, whereupon the provisions of
Section l(d) (ii) above
shall then apply.
(b) Each Selling Stockholder agrees to deliver copies of the final
prospectus
contained in the Registration Statement, as it may be amended and supplemented
from time to time,
to purchasers of the Shares as required by applicable federal and state
securities laws. Each Selling
Stockholder agrees that it will offer and sell the Shares in only those states
as to which counsel for
the Company has advised each Selling Stockholder in writing that the necessary
state securities or
blue sky clearances have been obtained. The Selling Stockholders will notify
the Company in
writing at the time the distribution of the Shares has been completed.
(c) Statements contained in the Registration Statement, the
prospectus or any
amendments or supplements thereto (including any document incorporated by
reference therein)
made in reliance upon and in conformity with substantive information furnished
in writing to the
Company by and with respect to the Selling Stockholders expressly for use
therein do not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or
necessary to make such statements therein not misleading.
(d) If during the effectiveness of the Registration Statement, the
Company notifies
the Selling Stockholders of the occurrence of any intervening event that, in
the opinion of the
Company's legal counsel, causes the prospectus included in the Registration
Statement not to comply
with the Act, each Selling Stockholder, promptly after receipt of the
Company's notice, shall cease
making any offers, sales, or other dispositions of the Shares included in the
Registration Statement
until the Selling Stockholders receive from the Company copies of a new,
amended, or supplemented
prospectus complying with the Act.
3. Suspension of Offering. It is understood that the Company and the
Selling Stockholders
will advise each other immediately, in writing, of the receipt of any threat
or the initiation of any
steps or procedures by any federal or state instrumentality or any individual
which would impair or
prevent the offer of the Shares or the issuance of any suspension orders or
other prohibitions
preventing or impairing the proposed offering. In the case of the happening
of any such event,
neither the Company nor the Selling Stockholders will acquiesce in such steps,
procedures or
suspension orders, and the Company agrees actively to defend against any such
actions or orders
unless all parties agree in writing to the acquiescence in such actions or
orders.
4. Indemnification.
(a) Company's Indemnification. The Company hereby agrees to
indemnify and
hold harmless each Selling Stockholder, its officers and directors, and each
other person, if any, who
controls the Selling Stockholders within the meaning of the Act, against any
losses, claims, damages
or liabilities, joint or several, to which the Selling Stockholders or any
such person controlling the
Selling Stockholders may become subject under the Act or otherwise, insofar as
such losses, claims,
damages or liabilities (or proceedings in respect thereof) arise out of or are
based upon any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof,
in the Registration Statement, or in any amendment or supplement thereto, or
arise out of or are
based upon the omission or alleged omission to state therein a material fact
necessary to make the
statements therein not misleading, and will reimburse the Selling Stockholders
or such person
controlling the Selling Stockholders for any legal or other expenses
reasonably incurred in
connection with investigating or defending any such loss, claim, damage,
liability or proceeding;
provided, however, that the Company will not be liable in any such case to the
extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement,
amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company
by the Selling Stockholders.
(b) Selling Stockholder's Indemnification. Each Selling
Stockholder hereby
agrees to indemnify and hold harmless the Company, its officers and directors,
and each other
person, if any, who controls the Company within the meaning of the Act,
against any losses, claims,
damages or liabilities, joint or several, to which the Company or such other
person controlling the
Company may become subject under the Act or otherwise, but only to the extent
that such losses,
claims, damages or liabilities (or proceedings in respect thereof) arise out
of or are based upon any
untrue statement or alleged untrue statement of any material fact contained,
on the effective date
thereof, in the Registration Statement or in any amendment or supplement
thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact necessary to make
the statements therein not misleading, which, in each such case, has been made
in or omitted from
the Registration Statement, amendment or supplement in reliance upon and in
conformity with
written information furnished to the Company by the Selling Stockholders and
will reimburse the
Company or such person controlling the Company for any legal or other expenses
reasonably
incurred in connection with investigating or defending any such loss, claim,
damage, liability or
proceeding.
5. Miscellaneous:
(a) This Agreement is made pursuant to and governed by the laws of
the State
of Colorado.
(b) Any notices by the Company to Selling Stockholders shall be
deemed
delivered if in writing and delivered personally, or sent by certified mail,
to the Selling Stockholders
addressed to them at their addresses as set forth in the Company's books and
records. Any notice
by Selling Stockholders to the Company shall be deemed delivered if in writing
and delivered
personally, or sent by certified mail, addressed to the Company at its address
as set forth at the
beginning hereof.
IN WITNESS WHEREOF, the parties have executed this Selling Agreement as
of the date
first above written.
COMPANY: INFONOW CORPORATION
By:
Michael W. Johnson, President
SELLING STOCKHOLDERS: Copeland Consulting Group, Inc.
By:
Rand Family Trust
By:
Trustee Michael Johnson
Nahum Rand Paul Stapleton
OPUS Capital Fund LLC
Kevin Andrew
By:
H. Brad Browning
Environmental Systems Research
Institute, Inc.
By:
David Honan
Robertson Stephens Global Low
Price Stock Fund
Dieter Heidrich
By:
Donald Cohen
Joren Peterson
EXHIBIT 5.1
[letterhead of Chrisman, Bynum & Johnson, P.C.]
May 8, 1998
InfoNow Corporation
1875 Lawrence Street, Suite 1100
Denver, CO 80202
Ladies and Gentlemen:
We have acted as counsel to InfoNow Corporation (the "Company") in connection
with
the preparation and filing of a Registration Statement on Form SB-2 (the
"Registration
Statement") registering under the Securities Act of 1933, as amended, an
aggregate of
3,896,430 shares (the "Shares") of common stock of the Company, $.001 par value
("Common Stock"), consisting of 2,634,485 shares of presently issued and
outstanding
shares of Common Stock and 1,261,945 shares underlying warrants to purchase
Common Stock ("Warrants"). As such, we have examined the Registration
Statement,
the Company's Articles of Incorporation, as amended, Bylaws, and minutes of
meetings
of the Company's Board of Directors.
Based upon the foregoing, and assuming that the Shares will be issued and sold
in
accordance with the Registration Statement at a time when effective, we are of
the
opinion that, upon issuance of the Shares and receipt of the consideration to
be paid for
the Shares, as applicable, the shares of Common Stock and the shares of Common
Stock to be issued upon the exercise of the Warrants in accordance with their
terms at
a time when the Registration Statement is effective, will be validly issued,
fully paid
and non-assessable securities of the Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement and
to the references to our firm in the Prospectus which is made a part of the
Registration Statement.
Very truly yours,
/s/ CHRISMAN, BYNUM & JOHNSON, P.C.
INFONOW CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors F-2
Consolidated Balance Sheets -- December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders Equity for the years ended
December 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
INDEPENDENT AUDITOR'S REPORT
Board of Directors
InfoNow Corporation and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheets of
INFONOW CORPORATION and subsidiaries as of December 31, 1997 and 1996
and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 1997 and 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide 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 InfoNow Corporation and subsidiaries, as of December 31, 1997 and
1996, and the results of their operations and their cash flows for the
years ended December 31, 1997 and 1996, 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, which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. As discussed in Note 11 to the
financial statements, the Company has experienced recurring losses
from operations which raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 11. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
February 13, 1998
F-2
INFONOW CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US Dollars in Thousands, except per share information)
December 31,
ASSETS 1997 1996
---- ----
Current Assets:
Cash and equivalents $ 325 $ 2,050
Accounts receivable 177 161
Prepaids and other current assets 20 99
-------- -------
Total current assets 522 2,310
Property and equipment, net 647 693
Capitalized software development costs, net
of accumulated amortization of $384
and $141 in 1997 and 1996 repectively 146 363
Goodwill, net of accumulated amortization
of $108 in 1996 - 913
Other assets and deferred charges 9 11
------- ------
Total Assets $ 1,324 $ 4,290
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - current portion $ 209 $ 210
Convertible notes payable to related party - 100
Accounts payable and accrued expenses 402 412
Unearned revenue and prepaid service fees 263 228
Deferred compensation 5 76
------- -------
Total current liabilities 879 1,026
NOTES PAYABLE, net of current portion 47 92
COMMITMENTS AND CONTINGENCIES
(Notes 10 and 11)
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 1,962,335
shares authorized, none issued or outstanding - -
Common stock, $.001 par value; 15,000,000
shares authorized, 5,364,179 and 5,515,164
issued and outstanding at December 31, 1997
and 1996 respectively 5 6
Additional paid-in capital 21,904 22,316
Accumulated deficit (21,511) (19,150)
-------- --------
Total stockholders' equity 398 3,172
Total Liabilities and Stockholders' -------- --------
Equity $ 1,324 $ 4,290
======= ========
The accompanying notes are an integral part of these financial statements
F-3
INFONOW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(US Dollars in Thousands, except per share information)
For the Years Ended December 31,
1997 1996
---- ----
SALES $ 1,053 $ 1,124
OPERATING EXPENSES:
Cost of sales and direct project related costs 1,501 732
Selling and marketing 575 231
General and administrative 965 1,772
Impairment of long-lived assets (363) 1,540
------- -------
Total operating expenses 2,678 4,275
------- -------
Loss from operations (1,625) (3,151)
OTHER INCOME (EXPENSE):
Gain (Loss) on disposition of assets 2 (15)
Interest income 40 13
Interest expense (26) (34)
------ -----
16 (36)
Loss from continuing operations (1,609) (3,187)
Discontinued operations
Income from operations of Cimarron Int'l 86 95
Loss on disposal of Cimarron (838) -
------- -------
Net loss $(2,361) $(3,092)
======== ========
Basic and Diluted EPS per common share:
Continuing operations $ (0.30) $ (0.89)
Discontinued operations (0.14) 0.03
-------- -------
Net loss $ (0.44) $ (0.86)
======== ========
The accompanying notes are an integral part of these financial statements
F-4
INFONOW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
For the Years ended December 31, 1997 and 1996
(US Dollars in Thousands, except per share information)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
--------- -------- -------- -----------
<S> <C> <C> <C> <C>
BALANCES, January 1, 1996 3,183,567 $ 3 $ 19,478 $ (16,058)
Issuance of common stock
in conjunction with the
exercise of employee stock
options 15,708 - 20 -
Issuance of common stock
in conjunction with the
exercise of warrants 469,554 - 188 -
Return of common stock
to treasury from escrow,
subsequently retired (92,000) - - -
Non-cash charge related
to the issuance of
warrants to purchase
115,000 shares of common
stock to ESRI - - 253 -
Common stock issued to
three officers of the
Company valued at $1.12
per share in exchange
for $95,000 cash, and
$93,000 in deferred
salaries and expenses 167,112 - 188 -
Common stock valued at
$1.40 per share for cash
in December 1996 private
placement net of cash
offering costs of
$57,868. Includes 50,000
shares issued to
placement agent as
compensation for
services rendered in
placement 2,045,273 2 2,712 -
Shares retired in
conjunction with sale of
Navigist, Inc. (274,050) - (523) -
Net loss - - - (3,092)
BALANCES, December 31,
1996 5,515,164 $ 5 $ 22,316 $(19,150)
Issuance of common
stock in conjunction
with the exercise of
employee stock options 2,819 - 4 -
Retirement of common
stock (153,804) - (364) -
Offering costs and
expenses for
December 6, 1996 private
placement - - (55) -
Non-cash charge
related to the issuance
of options to purchase
common stock issued to a
consultant to company - - 3 -
Net loss - - - (2,361)
BALANCES, December 31,
1997 5,364,179 $ 5 $ 21,904 $(21,511)
========= ==== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
INFONOW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US Dollars in Thousands)
For the Years Ended December 31,
1997 1996
---- ----
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $ (2,361) $ (3,092)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 619 508
Loss on disposal of
business segment 838 -
Impairment of long-lived
asset (363) 1,540
Loss on disposal of
property and equipment (1) 15
Compensation expense
recognized in connection
with stock option and
warrant issuances 3 -
Other - (8)
Changes in operating assets
and liabilities:
Accounts receivable (74) 204
Other current assets 137 (64)
Other assets and deferred charges 2 (8)
Accounts payable and
other liabilities (57) 365
Unearned revenues 52 175
Net cash used in ------ -------
operating activities (1,205) (365)
INVESTING ACTIVITIES:
Purchase of property and equipment (134) (693)
Disposition of subsidiaries 85 (97)
Acquisition of geographic data (180) -
Additions to capitalized software (26) (250)
Proceeds from sale of property
and equipment 6 2
----- -----
Net cash flows used in
investing activities (249) (1,038)
FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock (55) 2,809
Proceeds from exercise of
options and warrants 4 209
Proceeds from notes payable - 417
Proceeds (payment) of related
party note (100) 100
Principal payments on
debt obligations (120) (314)
Net cash provided by ------- -------
(used in) financing activities (271) 3,221
Net increase (decrease)
in cash and equivalents (1,725) 1,818
-------- -------
CASH AND EQUIVALENTS,
beginning of period 2,050 232
-------- -------
CASH AND EQUIVALENTS, end of period $ 325 $ 2,050
The accompanying notes are an integral part of these financial statements
F-6
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization and Business Activity
The Company was incorporated under the laws of the State of Delaware on
October 29, 1990, and was initially focused on the sale of software through
the use of encrypted CD-ROM technology. In 1995, the Company fundamentally
changed its business and began developing its FindNow system to provide
referral management services to large corporate clients which can be deployed
through their Internet sites and call centers via the Internet or private
frame relay connection. The Company ceased selling software using encrypted
CD-ROM technology in September 1995.
As part of its strategy, the Company acquired Cimarron
International, Inc. ("Cimarron") and Navigist ("Navigist") in 1995 in
order to utilize resources and capabilities of these companies to
complete the Company's change in strategic direction as well as to
provide an operating infrastructure and revenues as the Company
completed its transition. The Company sold Navigist on December 13,
1996, and completed the sale of Cimarron on December 11, 1997. A full
discussion of the sale of these two subsidiaries is contained in "Note
2. Discontinued Operations" of these financial statements.
b. Basis of Presentation
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
c. Revenue Recognition
The Company derives revenue by providing implementation and hosting
services for its FindNow service. Prior to its divestiture of Cimarron
and Navigist, the Company also generated revenues from several other
sources including the production of Multimedia and 35mm slide
presentations, and the provision of network engineering and consulting
services.
The Company recognizes revenue using the percentage-of-completion
method on its FindNow implementations. Revenues are recognized based
on labor costs incurred and total expected labor costs as well as
engineering estimates of percent complete. Revenue is recognized upon
completion, delivery and acceptance by the customer for design and
imaging services as such services are of short duration from order to
completion. For certain projects, the Company invoices for work yet to
be performed. These prebillings, together with cash received prior to
performing services, are reflected as unearned revenue and prepaid
service fees in the accompanying balance sheets.
d. Property and Equipment
Property and equipment are stated at cost. Replacements, renewals
and improvements are capitalized and costs for repairs and maintenance
are expensed as incurred. Depreciation is computed using the
straight-line method over estimated useful lives of three to five
years.
e. Consolidation
As of December 31, 1997, the financial statements include all
accounts of InfoNow Corporation. The operating results of Cimarron
are included through December 11, 1997 and the operating results of
its former subsidiary, Navigist, were included through December 13,
1996. All significant intercompany accounts and transactions have been
eliminated in consolidation.
f. Software Development Costs
In accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Cost of Computer Software to be Sold, Leased
or Otherwise Marketed" ("SFAS 86"), software development costs, which
consist primarily of salaries and related costs, purchased software,
contract labor costs and other direct expenses, are expensed as
research and development costs prior to the establishment of
technological feasibility. Technological feasibility for the Company's
software products is generally based upon achievement of a detailed
program design free of high risk development issues. After
technological feasibility is established for a product, all software
development costs are capitalized until the product is ready for
delivery. Subsequent software maintenance costs are expensed as
operating costs as incurred. Amortization of capitalized computer
software cost is provided on a product-by-product basis at the greater
of the amount computed using the ratio of current gross revenues for a
product to the total of current and anticipated future gross revenues
or the straight line method over the remaining useful economic life of
the product (generally for two years). Approximately $529,981 in
software development costs have been capitalized in conjunction with
the development of the Company's FindNow system at December 31, 1997,
including a $253,382 non-cash provision related to the fair value of
options issued to ESRI (Note 8). The Company amortized $243,583 and
$140,871 of these capitalized costs for the years ended December 31,
1997 and 1996, respectively.
g. Research and Development Costs
The Company's current research and development efforts are
influenced significantly by customer requirements. New features are
customized initially for delivery to a single customer and then
incorporated into future versions of its service. As a result, all
development costs were recorded as cost of sales and the Company did
not record any research and development expense in 1997 or 1996.
h. Goodwill
The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets" ("SFAS 121")
for its fiscal year ended December 31, 1995, for the purpose of
evaluating its long lived assets which consist principally of
goodwill. The Company evaluates its goodwill at each financial
reporting date to determine if events or circumstances indicate that
an impairment has occurred. In accordance with SFAS 121, management
has estimated expected future undiscounted cash flows from identified
assets and compared those values to the related carrying value of
those assets to determine if an asset impairment has occurred. During
1996, as a result of its review of long-lived assets as required by
SFAS 121, the Company took a non-cash charge against operating
results in the amount of $1,539,806 as a write down of all goodwill
related to its acquisition of Navigist, Inc. The Company sold this
subsidiary on December 13, 1996.
During 1997, the Company sold Cimarron resulting in a write-off of
all goodwill related to its acquisition in the amount of $861,921. The
Company no longer carries any goodwill or records any related to
amortization as a result of this transaction.
i. Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers
all highly liquid investments with original maturity dates of three
months or less to be cash equivalents.
j. Net Loss Per Common Share
The loss per share is presented in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, Earnings Per
Share (FAS 128). FAS 128 replaced the presentation of primary and
fully diluted earnings (loss) per share (EPS) with a presentation of
basic EPS and diluted EPS. Basic EPS is calculated by dividing the
income or loss available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock. Basic and Diluted EPS were the same for 1997 and 1996
because the Company had losses from operations and therefore, the
effect of all potential common stocks was anti-dilutive.
Options to purchase 1,478,579 shares of common stock, and warrants
to purchase, 2,033,888 shares of common stock were outstanding at
December 31, 1997. See Note 8, Stockholders' Equity, for a detailed
discussion of the options and warrants issued by the Company.
k. Stock Compensation Expense.
The Company records its stock compensation expense in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires all
companies to adopt a fair value based method to measure compensation
cost of issued stock options and similar instruments issued to
employees using a Black-Scholes model or other comparable method. The
Company has elected an option under SFAS 123 that allows a Company to
continue to recognize compensation cost for employees in accordance
with the guidance in APB No. 25 and disclose the proforma results of
operations as if SFAS 123 been applied to the financial statements.
Transactions in which the Company issues stock options or other equity
instruments to acquire goods or services from nonemployees are
accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more
reliably measurable.
l. Impact of recently issued accounting standards.
Statement of Financial Accounting Standards 130, "Reporting
Comprehensive Income" and Statement of Financial Accounting Standards
131 "Disclosures About Segments of an Enterprise and Related
Information" were recently issued. Statement 130 establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, Statement 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be
reported in a financial statement that displays with the same
prominence as other financial statements. Statement 131 supersedes
Statement of Financial Accounting Standards 14 "Financial Reporting
for Segments of a Business Enterprise," Statement 131 establishes
standards on the way that public companies report financial
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. Statement 131 defines operating
segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
Statements 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Because of the recent
issuance of these standards, management has been unable to fully
evaluate the impact, if any, the standards may have on the future
financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these
standards.
m. Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year classifications. Such
reclassifications had no effect on net loss.
Note 2. DISCONTINUED OPERATIONS
a. Cimarron International, Inc.
On December 11, 1997, the Company sold the operations of its
wholly-owned subsidiary, Cimarron International, Inc. ("Cimarron"), to
Cimarron Dog and Pony, Inc. ("Dog and Pony") through an asset sale for
total proceeds of $85,000 in cash. After execution of this
transaction, the Company ceased all operations of Cimarron and
liquidated the subsidiary on December 19, 1997.
As part of the sale transaction, the Company executed an agreement
which provides that Dog and Pony shall pay 25% of all quarterly gross
profits in excess of $116,500 to the Company until the earlier of: (i)
March 31, 2001, or (ii) until payments total $100,000. Dog and Pony is
owned by a director of the Company and the former owner of Cimarron
prior to its acquisition by the Company in 1995.
The results of Cimarron's operations have been classified as
discontinued operations in the accompanying financial statements. The
recorded loss on the sale includes a non-cash charge to impairment of
goodwill of $861,921. Cimarron recorded sales of approximately
$852,000 during its 1997 fiscal year prior to its sale on December 11,
1997 and $1,082,000 in 1996.
b. Navigist, Inc.
On December 13, 1996, the Company sold all the common shares of
Navigist to VDC Paradigms, Inc., which is owned by two of the
principal operating managers of Navigist. The Company received 274,050
shares of InfoNow common stock and the surrender of notes held by the
buyers amounting to $27,940 in consideration for the sale of Navigist.
As part of the transaction, the Company also made a cash payment of
$97,000 to the buyers, canceled all intercompany balances owed by
Navigist to InfoNow and Cimarron International, Inc., amounting to
approximately $490,400 and forgave a note owed by Navigist to InfoNow
in the amount of $142,500. In addition, the Company also retired the
remaining notes payable, amounting to $22,060 issued in the original
acquisition of Navigist by the Company in August 1995 in order to
facilitate the completion of the transaction.
c. Unaudited Pro Forma Financial Information
The following pro forma information for the years ended December
31, 1997 and 1996 assumes that the disposition of Navigist and
Cimarron took place on January 1, 1996. As the results presented are
prepared on a pro forma basis, they do not necessarily represent what
the Company's results would actually have been if such transactions
had in fact occurred on that date. The consolidated financial
statements of the Company for the year ended December 31, 1996,
include a provision of $1,539,806 for the impairment of goodwill
relating to the acquisition of Navigist.
1997 1996
(In thousands, except per share amounts)
Revenues $1,053 $345
Net loss (1,547) (1,181)
Net loss per share $(0.29) $(0.34)
Note 3. INCOME TAXES
The Company accounts for its tax liabilities in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred
tax assets and liabilities for the expected future income tax
consequences of transactions. Under this method, deferred tax assets
and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. Net deferred tax assets are then reduced by a
valuation allowance for amounts which do not satisfy the realization
criteria of SFAS 109.
At December 31, 1994, the Company had a net operating loss
carryforward for income tax purposes of approximately $14,350,000.
Because the Company experienced a significant change in control and
substantially changed its business on May 22, 1995 as described in
Note 1, the Company believes that, under current tax regulations, the
utilization of tax loss carryforwards will be limited to loss
carryforwards generated after May 23, 1995, which amount to
approximately $5,935,000 as of December 31, 1997.
The significant components of the net deferred tax asset consist of
the following:
December 31,
1997 1996
(In thousands)
Capitalized software $ (54) $ (40)
Net operating loss carryforwards 2,200 706
Deferred compensation 2 28
_______ _______
Deferred tax asset, net 2,148 694
------- -------
Less - valuation allowance (2,148) (694)
$ -- $ --
======= =======
The benefits of the Company's net operating loss carryforwards and
other temporary differences as of December 31, 1997 and 1996, do not
satisfy the realization criteria set forth in SFAS No. 109 and
accordingly, the Company has recorded a valuation allowance for the
entire net deferred tax asset. The valuation allowance increased by
$1,453,000 due to the current year loss.
Note 4. PROPERTY AND EQUIPMENT
Property and Equipment consist of the following:
December 31,
1997 1996
(In thousands)
Computer equipment $ 773 $ 763
Furniture and fixtures 90 110
Computer software and geographic
data licenses 334 167
------- -------
1,197 1,040
Less accumulated depreciation
and amortization (550) (347)
------- -------
Property and equipment, net $ 647 $ 693
======== =======
In connection with the sale of Cimarron International (Note 2), the
Company sold and wrote-off certain property which resulted in the
reduction of approximately $119,919 of property cost and $76,946 of
accumulated depreciation in 1997.
Note 5. LONG TERM DEBT
a. Summary of Long Term Debt
December 31,
1997 1996
(In Thousands)
Term loan payable to a bank, collateralized by all
property and equipment, bearing interest at prime
plus 1.25% (total of 9.75% at 12/31/97) due in
monthly installments of $3,817 to December 1999. $ 81 $ 117
Capital lease obligation bearing interest rate at 15%,
due in monthly installments of $497 to November 1999,
collateralized by equipment under the lease. 10 14
Non-interest bearing short term obligation payable
to ESRI in connection with development of FindNow
system, without collateral. This obligation is currently
in dispute andthe payment date, if any, has not been
determined. See Note 6. 150 150
Promissory note payable to officer of Company,
collateralized by all accounts receivable, bearing interest
at prime plus 2.75% (total of 11.25% at 12/31/96), interest
only payments due monthly, principal paid in full during
1997. Convertible into 33,333
shares of common stock. - 100
Notes payable to suppliers, at varying interest
rates and maturities ranging from January 1997
to June 2000 15 21
----- -----
256 402
Less current portion (209) (310)
------ ------
Long-term portion $ 47 $ 92
====== ======
b. Maturities of Long Term Debt
Future minimum lease payments under capital leases and annual maturities
of other long-term debt at December 31, 1997 are as follows:
Year ending December 31,
1998 $ 209
1999 47
---------
$ 256
=========
The Company paid $26,000 and $34,000 for interest during the years
ended December 31, 1997 and 1996 respectively, including $6,000 and
$14,000 paid to related parties in the years ended December 31, 1997
and 1996, respectively.
Note 6. SUPPLEMENTAL CASH FLOW INFORMATION
The Company had the following significant non-cash transactions:
During 1997, the Company completed a non-cash transaction in which
the Company financed its Directors and Officers insurance premium with
a note from AFCO Credit Corporation ("AFCO") for approximately
$61,000. The Company also completed a non-cash transaction in which
the Company financed the purchase of certain computer equipment with a
note from Sun Microsystems Finance for approximately $13,000.
During 1996, the Company completed a non-cash transaction with
Environmental Research Institute, Inc. ("ESRI"), in which the Company
received computer equipment and software licenses from ESRI in
exchange for an obligation. The remaining obligation, amounting to
$150,000, as of December 31, 1996 and 1997, has been recorded in the
notes payable-current portion caption on the balance sheets. This
obligation is currently in dispute as the Company believes that
certain requirements of the original agreement have not yet been met.
The Company also recorded a non-cash charge of $253,000 related to a
warrant to purchase 115,000 common shares of the Company stock issued
to ESRI in accordance with the guidance of SFAS 123. This charge was
recorded as capitalized software and $53,000 and $126,000 of this
charge was amortized in 1996 and 1997 respectively. The Company also
issued 167,112 shares of common stock in exchange for cash and
cancellation of $143,000 in current liabilities (Note 8).
Note 7. RELATED PARTY TRANSACTIONS
On March 29, 1996, the Company executed a promissory note to the
Chief Financial Officer of the Company in the amount of $100,000
collateralized by all the receivables of the Company. The note was due
in March 1997 bearing interest at prime plus 2.75 percent. The note
was subsequently extended to June 30, 1997, and was then paid on June
30, 1997.
In a separate transaction, a vice-president of the Company advanced
$50,000 to the Company as a short term non-interest bearing loan. On
September 13, 1996, this loan was exchanged for 44,444 shares of
common stock valued at $1.12 per share.
Note 8. STOCKHOLDERS' EQUITY
a. Preferred Stock
Shares of preferred stock may be issued from time to time in one or
more series, with the rights and powers of each series set by the
Board of Directors. Of the 1,962,335 authorized shares, 213,483 have
been designated as Series A Convertible Preferred Stock.
The Series A Convertible Preferred Stock is convertible to common
at the rate of four shares of common for one share of preferred. The
Series A Convertible Preferred Stock has a liquidation value of $1.593
per share and the holders have voting rights on an as-converted basis.
No preferred stock was outstanding as of December 31, 1997 or 1996.
b. Significant Equity Transactions
On March 18, 1997, the Company retired 153,562 shares of the
Company's stock in exchange for modifications to the provisions of an
agreement with a former officer and director of the Company. The
returned shares were valued at $2.38, which represented the
approximate fair value of the stock at the transaction date. The gain
was recorded as a reduction of impairment of long-lived assets.
On December 6, 1996, the Company completed a private placement of
1,995,273 Units at $1.40 per Unit, each Unit consisting of one share
of Common Stock, par value $.001 per share (the "Shares"), and one
share purchase warrant (the "Warrants"). Two warrants entitle the
holder to acquire one additional share of Common Stock at $1.40 per
share (the "Warrants") during the eighteen (18) month term of the
Warrant.
Total gross proceeds from the sale of Units were $2,793,000. Total
cash commissions paid or to be paid in conjunction with the placement
amounted to $50,000. In addition, 50,000 shares of common stock were
issued to Haywood Securities for corporate financial services rendered
in conjunction with the private placement. The Company also issued
305,000 warrants to purchase common stock at $1.40 per share and
expense reimbursements amounting to $15,000 will be paid to two
parties which facilitated the sale of the Units in conjunction with
the placement.
On September 13, 1996, the Company completed a private placement of
common shares to three officers of the Company in which the Company
issued 167,112 shares of common stock valued at $1.12 and granted
warrants to purchase 83,556 shares at $1.50 per share, exercisable
until September 13, 1998. In consideration for these shares, the three
officers provided $45,000 in cash and reduced obligations owed to them
including a $50,000 short term advance and $93,000 in deferred
salaries and other expenses.
In conjunction with the Company's initial public offering, the
Company's common shareholders agreed to escrow a portion of their
holdings amounting to 92,000 shares. The escrowed shares would be
released to the stockholders in the event certain conditions were met
by February 7, 1996. None of the stated conditions were met at that
date and as a result, all escrowed shares were forfeited and returned
to authorized, but unissued common shares.
c. Stock and Warrant Compensation
The Company applies APB Opinion No. 25 and related interpretations
in accounting for options and warrants issued to employees.
Accordingly, no compensation cost has been recognized for issuances of
options and warrants to employees at exercise prices not less than the
market value of the Company's common stock on the grant dates. Had
compensation cost for the Company's plans been determined consistent
with FASB Statement No. 123, the Company's net loss and loss per share
would have been increased to the pro forma amounts indicated below:
1997 1996
(In thousands, except per share amounts)
Net Loss As Reported $(2,361) $(3,092)
Pro Forma (2,962) (3,474)
Primary Earnings
Per Share As Reported $ (0.44) $ (0.86)
Pro Forma $ (0.55) $ (0.97)
The fair value of each grant was determined using the Black-Scholes
option pricing model with the following assumptions used for grants
for 1997 and 1996: risk free interest rate of 6.50%; no expected
dividend yield; expected lives of 5 years or the contractual term of
the option or warrant, whichever is less and assumed volatility of
approximately 242% and 133% in 1997 and 1996, respectively. The
weighted average contractual term of the options was 10 years compared
to a weighted average expected term of 5 years.
During 1996, the Company capitalized $253,000 into software
development costs related to the issuance of warrants to ESRI in
accordance with SFAS 123 which is being amortized over two years. The
Company recorded $126,00 and $53,000 of amortization expense related
to this charge for the year ended December 31, 1997 and 1996
respectively.
d. Stock Option Plan
The Company has a Stock Option Plan (the "Plan") to provide
officers and other key employees options to purchase shares of the
Company's common stock. On March 28, 1997, the Board of Directors
approved an increase in the amount of shares issuable under the plan
from 1,000,000 to 1,700,000. Under the terms of the Plan, the Board of
Directors may grant officers and key employees either "non-qualified"
or "incentive stock options" as defined by the Internal Revenue
Service code and regulations and may grant non-qualified options to
non-employee directors. Under the terms of the Plan, the purchase
price of the shares subject to an option will be the fair market value
of the Company's common stock on the date the option is granted. If
the grantee owns more than 10% of the total combined voting power or
value of all classes of stock on the date of grant, the purchase price
shall be at least 110% of the fair market value at the date of grant
and the exercise term shall be up to five years from the date of
grant. All other options granted under the Plan are exercisable up to
10 years from the date of the grant. Options issued under the Plan
generally vest over a three year period.
A summary of the status of the Company's stock option plan as of
December 31, 1997 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Weighted Weighted
-Average -Average
Fixed Exercise Exercise
Options Shares Price Shares Price
------ -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 720,745 $ 2.40 503,501 $ 3.06
Granted 1,606,281 1.59 474,842 2.25
Exercised (2,819) 1.30 (15,708) 1.30
Forfeited (845,628) 2.49 (241,890) 3.55
Outstanding at ---------- ---------
end of year 1,478,579 1.47 720,745 2.40
Options exercisable at ========= ========
year-end 770,978 235,258
Weighted-average
fair value $1.58 $2.23
of options
granted during the year
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------- --------------------
Weighted Weighted- Weighted
Range of Number Average Average Number -Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/97 Contractual Life Price at 12/31/97 Price
<S> <C> <C> <C> <C> <C>
$.45 to 1.30 263,584 7.5 years $ .95 107,542 $1.15
1.40 811,993 9.8 1.40 430,365 1.40
1.50 to 1.88 170,717 9.0 1.77 104,563 1.79
1.91 to 2.56 232,285 8.4 2.09 128,508 2.14
--------- -------
.45 to 2.56 1,478,579 9.1 1.47 770,978 1.54
========= =======
</TABLE>
In April 1997, the Board of Directors of the Company repriced the
options held by certain employees. A total of 277,288 employee options
ranging in exercise prices from $2.56 to $4.43 were repriced at $2.11
per share which approximated the estimated fair market value of the
Company's common stock on the date of repricing.
In October 1997, the Board of Directors of the Company issued to
the President of the Company options to purchase 573,993 shares of the
Company's common stock for $1.40 per share in exchange for the
surrender of all current compensations-related options representing
the right to buy 257,243 shares of the Company's common stock.
In November 1997, the Board of Directors of the Company awarded
options to a consultant as compensation for his services in locating
additional sales personnel. A non-qualified option to purchase 7,500
shares of the Company's common stock was issued with an exercise price
of $.453, which approximated the estimated fair market value of the
Company's common stock on the date of issuance.
e. Stock Warrants
A summary of the status of the Company's Warrants as of December
31, 1997 and 1996 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
Weighted Weighted
-Average -Average
Exercise Exercise
Warrants Shares Price Shares Price
- -------- ------ ------- ------- ------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 2,666,759 19.01 1,865,318 $ 26.88
Granted - - 1,586,194 1.65
Exercised - - (469,554) 1.30
Forfeited (632,871) 66.80 (315,199) 6.01
---------- ------ ---------- ------
Outstanding at
end of year 2,033,888 4.14 2,666,759 19.01
========= ====== ========= ======
Warrants
exercisable
at year-end 2,029,167 2,648,523
Weighted-average
fair value of
warrants granted
during the year -0- $0.88
</TABLE>
The following table summarizes information about Warrants
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
- -------------------------------------------------------- --------------------
Weighted Weighted- Weighted
Range of Number Average Average Number -Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/97 Contractual Life Price at 12/31/97 Price
<S> <C> <C> <C> <C> <C>
$.40 to .80 259,030 .4 $ .43 259,030 $ .43
1.30 to 1.40 1,419,639 .6 1.39 1,417,278 1.39
1.50 to 3.68 207,055 1.8 2.22 204,695 2.20
4.25 to 121.13 148,164 1.6 39.66 148,164 39.66
--------- ------- ---------
.40 to 121.13 2,033,888 1.3 4.14 2,029,167 4.15
========= =========
</TABLE>
The Company completed an initial public offering (the "Offering")
for 52,900 Units (the "Units") in March 1992. Each Unit consists of
two shares of common stock, two redeemable Class A Warrants, and one
redeemable Class B Warrant. The Class A and Class B Warrants are
transferable separately. These warrants expired on February 6, 1997.
The Company sold an option to purchase up to 4,600 units, at 140% of
the initial public offering price, to the Underwriter for $115. These
units are identical to the Units sold to the public, except that the
Class A and Class B Warrants are not redeemable by the Company.
Certain of these warrants contain ratcheting provisions within the
warrants which act to protect the warrant holder from below market
financings by the Company. These warrants expired on February 6, 1997.
Note 9. BUSINESS SEGMENT INFORMATION
After the sale of Cimarron on December 11, 1997, the Company now
operates one business segment. The segment information presented below
reflects continuing operations which contains the Company's FindNow
business and the Internet consulting business of Navigist which was
sold on December 13, 1996. Discontinued operations contains Cimarron's
business presentation services which were sold on December 11, 1997.
1997 1996
(US dollars in thousands)
Continuing Operations:
Sales (1) $ 1,053 $ 1,124
Income (loss) from operations (1,569) (2,978)
Identifiable Assets 1,324 3,156
Discontinued operations:
Sales (2) $ 852 $ 1,082
Income (loss) from operations (792)(3) (113)
Identifiable Assets - 1,135
(1) Intersegment sales are immaterial
(2) Includes charge for impairment of asset of $1,540,000 for
impairment of long-lived
asset and $290,000 operating losses from Navigist
(3) Includes charge to impairment of long-lived asset of $863,000
Note 10. COMMITMENTS AND CONTINGENCIES
a. Operating Lease Commitments
The Company has noncancelable leases for its facilities and certain
office equipment. At December 31, 1997, the Company was obligated
under non-cancelable operating leases for its office facilities and
equipment as follows:
Year ending
December 31, (In thousands)
1998 $ 89
1999 41
-----
$ 130
=====
Rent expense related to operating leases was $124,000 and $201,000
for the years ended December 31, 1997 and 1996 respectively.
b. Contingent Issuance of Stock Options
In connection with an employment agreement, the Company has agreed
to grant additional options to purchase 10,000 shares of common stock
in the first fiscal quarter in which the cumulative gross sales of the
Internet Products Group is equal to or greater than $1,600,000. All of
the awarded options will be issued at the fair market value on the
date the option is earned and will vest over a 12 month period.
A provision in the option agreement between the Company and the
Company's President and CEO, provides for dilution protection. The
agreement provides that additional options to purchase common shares
shall be issued to Mr. Johnson equal to 10.7% of options exercised
that were outstanding as of October 23, 1997.
On October 23, 1997, the Company entered into an agreement with
Michael Johnson, President and Chief Executive Officer of the Company.
This agreement expires on April 23, 1999, and provides compensation to
Mr. Johnson in the event the Company is sold while he is President of
the Company or within 120 days after Mr. Johnson ceases to be
President. The compensation to be paid is based on a varying
percentage of the transaction value ranging from 4% of transaction
values to 12% of transaction values. No compensation will be paid for
transactions valued less than $7.5 million.
Note 11. RISKS AND UNCERTAINTIES
a. Credit Concentration and Dependence upon Certain Customers
As of December 31, 1997, the Company had approximately 21
implemented long term service contracts for its FindNow service which
contribute approximately equally to revenues. In addition the Company
may perform specialized services on a contract basis which may account
for a significant portion of the Company's revenue in a given period.
In 1997, two customers accounted for 29% of the Company's total
revenues. A single customer accounted for 16% of the Company's total
revenue in 1996.
b. Continuing Operating Losses
The Company has experienced recurring losses from operations since
inception and incurred a net loss from continuing operations of
$1,609,000 for the year ended December 31, 1997. Further, the Company
required cash to fund operations of $1,205,000 and $365,000 for the
years ended December 31, 1997 and 1996 respectively. The Company
expects to continue to incur operating losses throughout the first
half of 1998 due to the continued development, sales and
administrative costs related to the development of its FindNow system.
Although the Company believes that it has sufficient cash to operate
its business during the next twelve months, the Company's continuing
losses raise substantial doubt about the Company's ability to continue
as a going concern because it has not yet demonstrated the ability to
generate positive cash flows from operations. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amount and
classification of liability carrying amounts that might result should
the Company be unable to continue as a going concern.
In addition to current sales efforts, the Company is currently
evaluating several other options to raise additional capital and is
considering changes in its operations in the event that additional
capital cannot be obtained externally. Options being considered
include a small private placement, potential proceeds from the
exercise of expiring "in-the-money" warrants, the sale-leaseback of
certain owned equipment and reduction of operating costs of the
Company.
INFONOW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration Statement and Prospectus of InfoNow
Corporation of our report dated February 13, 1998, accompanying the
consolidated financial sttements of InfoNow Corporation contained in such
Registration Statement, and to the use of our name and the statements with
respect to us, as appearing under the headings "Selecting Financial Data" and
"Experts" in the Prospectus.
/s/ Hein + Associates LLP
Hein + Associates LLP
Denver, Colorado
May 5, 1998
