HOUSTON INTERWEB DESIGN, INC.
(Exact name of Registrant as specified in its charter)
(AMENDMENT NO. 2)
TEXAS 7310 76-0532709
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
HARRY L. WHITE
HOUSTON INTERWEB DESIGN, INC. HOUSTON INTERWEB DESIGN, INC.
1770 ST. JAMES PLACE, SUITE 420 1770 ST. JAMES, SUITE 420
HOUSTON, TEXAS 77056 HOUSTON, TEXAS 77056
(713) 627-9494 (713) 627-9494
(Address and telephone number (Name, address and telephone number
of principal executive offices) of agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE BEING OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1)(2) FEE(3)
Common Stock 252,633 .0156799 $18,334.51 $100.00
TOTAL . . . . . . . 252,633 .0156799 $18,334.51 $100.00
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) The book value of the Common Stock, calculated pursuant to Rule 457(f).
(3) Previously paid with the original filing of the Form SB-2 on November 24,
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.
SUBJECT TO COMPLETION, DATED MAY 6, 1999
HOUSTON INTERWEB DESIGN, INC.
RESALE OF 252,633 SHARES OF COMMON STOCK HELD BY SELLING STOCKHOLDERS
This prospectus relates to the resale of 252,633 shares of company common stock currently outstanding, which may be sold by the selling stockholders.
The company has been advised that 166,667 shares of company common stock which were sold on February 1999 were sold without having filed a registration statement which may have been required. Accordingly, those people who purchased those shares may have the right to rescind those purchases. Our liability, if any, under the Securities Act of 1933, as amended (the "1933 Act") for the sale of those shares may not be limited by this rescission offer. We offer to each purchaser of those shares the right to rescind this purchase upon the terms and conditions as set forth below. See "The Rescission Offer." The rescission offer will expire on __________, 1999, unless we extend it.
We do not make any recommendation about whether those purchasers should accept or reject the rescission offer. Acceptance or rejection of this offer may not terminate a purchaser's right to bring a civil action against the Company for its prior failure to register the Common Stock, as the case may be, under federal and applicable state securities laws.
Currently, there is no market for the company's shares.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ABOUT THE COMPANY THAT DIFFERS FROM, OR ADDS TO, THE INFORMATION IN THIS PROSPECTUS OR IN OUR DOCUMENTS THAT WE FILED WITH THE SEC. ACCORDINGLY, IF ANYONE DOES GIVE YOU DIFFERENT OR ADDITIONAL INFORMATION YOU SHOULD NOT RELY ON IT. IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO BUY THE SECURITIES OFFERED BY THIS PROSPECTUS, OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS PROSPECTUS DOES NOT EXTEND TO YOU. THE INFORMATION IN THE PROSPECTUS SPEAKS ONLY AS OF THIS DATE UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES.
The date of this prospectus is May 6, 1999.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
POSSIBLE VIOLATION OF SECURITIES LAWS; RESCISSION OFFER . . . . . . . . . . . . .2
WE HAVE A LIMITED OPERATING HISTORY WITH A HISTORY OF LOSSES AND
WE ANTICIPATE LOSSES UNTIL AT LEAST THE YEAR 2000 . . . . . . . . . . . . . . . .2
OUR WORKING CAPITAL REQUIREMENTS MAY REQUIRE US TO PURSUE ADDITIONAL
FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
OUR FINANCIAL STATEMENTS HAVE BEEN PREPARED ASSUMING WE WILL BE ABLE TO
CONTINUE AS A GOING CONCERN . . . . . . . . . . . . . . . . . . . . . . . . . . .3
AS AN ADVERTISING MEDIUM THE INTERNET IS STILL AN EVOLVING MARKET . . . . . . . .3
OUR BUSINESS MODEL IS UNPROVEN AND DEPENDS ON THE MARKET'S ACCEPTANCE OF OUR
SITEBLAZER NETWORK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ACCEPTANCE OF OUR SITEBLAZER NETWORK. . . . . . . . . . . . . . . . . . . . . . .3
RISK OF SYSTEM FAILURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
OUR ABILITY TO ADAPT TO RAPIDLY CHANGING TECHNOLOGY . . . . . . . . . . . . . . .3
VARIOUS FACTORS RELATING TO COMPETITION IN THE INTERNET INDUSTRY. . . . . . . . .4
OUR ABILITY TO EFFECTIVELY MANAGE GROWTH IN OUR OPERATIONS. . . . . . . . . . . .5
WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL . . . . . . . . . . . . . . . . . . . .5
WE DEPEND ON THIRD PARTIES TO DISTRIBUTE OUR PRODUCTS AND SERVICES. . . . . . . .5
OUR BUSINESS IS DEPENDENT ON THE MAINTENANCE OF THE INTERNET INFRASTRUCTURE . . .5
WE ARE DEPENDENT ON OUR PROPRIETARY RIGHTS. . . . . . . . . . . . . . . . . . . .5
RISKS OF INFRINGEMENT IN INTERNET-RELATED INDUSTRIES. . . . . . . . . . . . . . .6
POSSIBLE ADDITIONAL TAX BURDENS . . . . . . . . . . . . . . . . . . . . . . . . .6
GOVERNMENT REGULATION OF INTERNET ACTIVITIES. . . . . . . . . . . . . . . . . . .6
SHARES ELIGIBLE FOR FUTURE SALE . . . . . . . . . . . . . . . . . . . . . . . . .6
THERE IS NO MARKET FOR OUR COMMON STOCK AND IF ONE DEVELOPS IT WILL LIKELY BE
VOLATILE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
PENNY STOCK REGULATIONS MAY DECREASE YOUR ABILITY TO SELL OUR COMMON STOCK. . . .6
CONTINUED CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS . . . . . . .7
LACK OF DISINTERESTED, INDEPENDENT DIRECTORS. . . . . . . . . . . . . . . . . . .7
Note Regarding Forward-looking Statements. . . . . . . . . . . . . . . . . . . . . .7
Rescission Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management's Discussion And Analysis of Financial Condition And Results of
Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Shares Eligible For Future Sale. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
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PROSPECTUS SUMMARY
To understand this offering fully, you should read the entire prospectus carefully, including the risk factors and financial statements. The company's principal executive office is located at 1770 St. James Place, Suite 420, Houston, Texas 77056, (713) 627-9494. Unless otherwise indicated, this prospectus reflects a 165-for-one forward stock split that occurred in August 1998, and assumes purchasers being offered the right to rescind will elect to retain their shares.
KEY FACTS
The Company . . . . . . . . . . . . . . . . Houston Interweb Design is a web
site development company
specializing in the design,
creation and marketing of cost-
effective Internet products.
Common stock to be resold . . . . . . . . . 252,633 shares by selling stockholders.
Common stock subject to rescission offer. . 166,667 shares
Common stock outstanding . . . . . . . . . 16,448,300 shares
Risk factors . . . . . . . . . . . . . . . An investment in the shares of common
stock involves a high degree of risk.
Prospective investors should review
carefully the information set forth
under "Risk Factors" beginning on page 2.
No proceeds . . . . . . . . . . . . . . . . The resale will result in no proceeds
to the company.
Lack of market. . . . . . . . . . . . . . . There is currently no market for the
common stock, and there is no
assurance that any market will
develop. If a market develops for the
company's securities, it will likely
be limited, sporadic and highly
volatile.
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SUMMARY FINANCIAL DATA
THE FINANCIAL INFORMATION PRESENTED BELOW IS DERIVED FROM THE AUDITED FINANCIAL STATEMENTS OF THE COMPANY FOR THE PERIOD FROM INCEPTION (AUGUST 9, 1996) THROUGH JULY 31, 1997, AND FOR THE YEAR ENDED JULY 31, 1998, AND UNAUDITED INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1998, AS COMPARED TO THE SIX MONTHS ENDED JANUARY 31, 1999.
AUDITED UNAUDITED
------- ---------
PERIOD ENDED YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JULY 31, 1997 JULY 31, 1998 JANUARY 31, 1998 JANUARY 31, 1999
------------- ------------- ---------------- ----------------
Revenues . . . . . . . . . . . . $185,994 $628,070 $262,437 $258,747
Total Expenses . . . . . . . . . 225,824 1,402,169 277,069 770,029
-------- --------- -------- ---------
Income (Loss) Before
Federal Income Tax . . . . . . (69,830) (774,099) (14,632) (511,282)
Federal Income Tax (Benefit) . . (4,998) 7,496 1,045 2,498
Net Loss . . . . . . . . . . . . $(64,832) $(81,595) $(13,587) $(508,784)
-------- --------- -------- ---------
-------- --------- -------- ---------
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BALANCE SHEET DATA
JULY 31, 1997 JULY 31, 1998 JANUARY 31, 1999
------------- ------------- ----------------
Working Capital Deficits . . $(74,061) $(106,092) $(297,219)
Total Assets . . . . . . . . 88,338 159,369 113,235
Long-Term Liabilities . . . . -- -- --
Shareholders' Deficit . . . . (60,832) (92,427) (278,870)
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RISK FACTORS
POSSIBLE VIOLATION OF SECURITIES LAWS; RESCISSION OFFER
The company sold 166,667 shares of common stock in February 1999. The securities sold in February did not have a registration statement on file with the SEC. The federal securities laws require registration of securities unless an appropriate exemption from the registration requirements of those laws is available. If an exemption did not exist for the sale of these securities, the company may have violated the registration requirements. If so, purchasers could seek rescission of their purchase and recover money paid for the securities. The company makes no admission of any violation of federal securities laws and no investor has sought rescission of any purchase. However, the company intends to make a rescission offer to the February investors by means of this prospectus. Should those purchasers accept the rescission offer, the company would need to pay those investors up to approximately $250,000 (plus interest and other costs).
WE HAVE A LIMITED OPERATING HISTORY WITH A HISTORY OF LOSSES AND WE ANTICIPATE LOSSES UNTIL AT LEAST THE YEAR 2000
We were incorporated in August 1996, and our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies with limited operating histories, particularly companies in the new and rapidly evolving markets for the Internet and Internet services. Although we have experienced revenue growth, growth rates may not be sustained and are not necessarily indicative of future operating results. Since our inception, we have had an accumulated deficit of $1,355,211 and as of January 31, 1999, had cash in the amount of $43,640. Given the level of planned operating and capital expenditures, we anticipate that we will continue to incur operating losses at least into the year 2000. If revenues do not grow at anticipated rates, if increases in operating expenses precede or are not subsequently followed by commensurate increases in revenues, or if we are unable to adjust operating expense levels accordingly, our business, results of operations, and financial condition will be materially and adversely affected.
OUR WORKING CAPITAL REQUIREMENTS MAY REQUIRE US TO PURSUE ADDITIONAL FINANCING
At January 31, 1999, we had a working capital deficit of $297,219. Our ability to maintain adequate working capital will be largely dependent upon our results of operations. Net cash used in the operation of our business was $275 for the period from inception (August 9, 1996) to July 31, 1997, as compared to net cash provided by operating activities of $3,169 for the year ended July 31, 1998. For the six-month period ended January 31, 1998, net cash provided in the operation of our business was $39,228 and as compared to net cash used in the operation of our business of $182,992 for the six months ended January 31, 1999. We may need to raise additional capital to fund future operations and to satisfy future capital requirements. If we are unable to secure sufficient capital in the future, our ability to pursue our business strategy will be limited and our results from operations may be impaired. The failure to raise any needed additional funds will likely have a material adverse effect on our company. In addition, it is possible that raising additional funds will result in substantial additional dilution.
OUR FINANCIAL STATEMENTS HAVE BEEN PREPARED ASSUMING WE WILL BE ABLE TO CONTINUE AS A GOING CONCERN
The financial statements included herein have been prepared assuming the company will be able to continue as a going concern. The company had a working capital deficit of $106,092 and a stockholders' deficit of $92,427 at July 31, 1998, and experienced significant losses in fiscal 1998 which raise doubts about the Company's ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or capital and to refinance its debt and ultimately attain profitable operations.
AS AN ADVERTISING MEDIUM THE INTERNET IS STILL AN EVOLVING MARKET
The market for the development and design of web sites has only recently begun to develop, is rapidly evolving and is characterized by an increasing number of market entrants. As is typical 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. Since we expect to derive substantially all of our revenues in the foreseeable future from the development and design of web sites, our future success is highly dependent on the increased use of the Internet. The Internet as an advertising medium has not been available for a sufficient period to gauge its effectiveness as compared with traditional advertising media. The utilization of Internet web sites, particularly by those entities that have historically relied upon traditional media for advertising, requires the acceptance of a new way of conducting business and exchanging information. If the market for the development and design of web sites fails to develop or develops more slowly than expected, our business, results of operations and financial condition could be materially and adversely affected. There are no widely accepted standards for the measurement of the effectiveness of an Internet web site as an advertising medium.
OUR BUSINESS MODEL IS UNPROVEN AND DEPENDS ON THE MARKET'S ACCEPTANCE OF OUR SITEBLAZER NETWORK
Our business model is to generate revenues by designing and developing Internet web sites and placing these web sites in the SITEBLAZER network. The profit potential of our business model is unproven, and, to be successful, we must, among other things, develop and market programs that achieve broad market acceptance and recognition by our customers, Internet advertisers, commerce partners and Internet users. Market acceptance of the SITEBLAZER network will depend, in large part, on the market's acceptance of our search engine. Our ability to generate significant revenues from SiteBlazer.com will depend, in part, on the development of the SITEBLAZER network and our ability to attract search engines and have web sites generate sufficient user traffic with characteristics that are attractive to such search engines.
RISK OF SYSTEM FAILURE
The performance of our servers and networking hardware and the Internet infrastructure is critical to our business and reputation and our ability to attract web users, new customers and commerce partners to our web sites. Any system failure that causes an interruption in service or a decrease in responsiveness of our web sites could result in less traffic on our web sites and, if sustained or repeated, could impair our reputation and the attractiveness of our brand name.
Our servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering. In addition, our operations are dependent upon our ability to protect our computer systems against damage from fire, power loss, telecommunications failures, vandalism and other malicious acts, and similar unexpected adverse events. Finally, to the extent we do not effectively address any capacity constraints, such constraints could cause system failure. The occurrence of any of these events could result in interruptions, delays or cessation in services.
OUR ABILITY TO ADAPT TO RAPIDLY CHANGING TECHNOLOGY
The market in which we compete is characterized by rapidly changing technology, evolving industry standards, frequent new products and services and changing customer demands. Accordingly, our success will depend on our ability to adapt to rapidly changing technologies and industry standards, and our ability to continually improve the speed, performance, features, ease of use and reliability of our server and networking system in response to both evolving demands of the marketplace and competitive service and product offerings.
We continually strive to incorporate new technology into our web sites for the benefit of our customers, visitors and commerce partners. Introducing new technology into our systems involves numerous technical challenges, substantial amounts of personal resources and often times takes many months to complete. The continuing and uninterrupted performance of our computer system is critical to the success of our business.
VARIOUS FACTORS RELATING TO COMPETITION IN THE INTERNET INDUSTRY
The market for customers, visitors and related products and services is intensely competitive and such competition is expected to continue to increase. There are no substantial barriers to entry in this market and we believe that our ability to compete depends upon many factors within and beyond our control, including:
- the timing and market acceptance of new product and services developed by us and our competitors,
- customer service and support,
- sales and marketing efforts,
- the ease of use,
- performance,
- price, and
- reliability of our products and services.
- We also compete with:
- Internet content providers and Internet service providers,
- web directories,
- search engines,
- shareware archives,
- content sites,
- commercial online services and sites maintained by Internet service providers,
- thousands of Internet sites operated by individuals, and
- government and educational institutions.
We believe that the number of Internet companies relying on revenues from their company web sites will increase substantially in the future. Accordingly, we will likely face increased competition, resulting in increased pricing pressures on our web site design rates.
Many of our existing and potential competitors, including web site designers have longer operating histories in the Internet market, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products and services. Such competitors are able to undertake more extensive marketing campaigns for their brands and services, adopt more aggressive pricing policies and make more attractive offers to potential employees, distribution partners and commerce companies.
We also expect that competition may increase as a result of industry consolidation. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the comprehensive set of services offered to customers. Accordingly, it is possible that new competitors or alliances among existing or potential competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which would have a material adverse effect on our business, results of operations and financial condition.
OUR ABILITY TO EFFECTIVELY MANAGE GROWTH IN OUR OPERATIONS
We have experienced rapid growth in our operations. This rapid growth has placed, and is expected to continue to place, a significant strain on our managerial, operational and financial resources. We have grown from three employees as of August 31, 1996, to 21 employees as of May 3, 1999. We expect that the number of employees will continue to increase for the foreseeable future, including the hiring of new programmers, graphic designers and other personnel. Furthermore, we must continue to improve our financial and management controls, reporting systems and procedures, and expand, train and manage our work force.
WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL
Our future success depends, in significant part, upon the continued service of our key technical, sales and senior management personnel, particularly Harry L. White, chief executive officer and chairman of the board of directors, Lee A. Magness, chief financial officer, and Richard J. Finn, chief technology officer, all of whom have entered into employment agreements which expire in August 2001. The loss of the services of one or more of the our key personnel could have a material adverse effect on our business, results of operations and financial condition. We do not maintain "key man" life insurance policies for Messrs. White, Magness and Finn. Our future success also depends on our continuing ability to attract and retain highly qualified technical, sales and marketing, customer support, financial and accounting, and managerial personnel.
WE DEPEND ON THIRD PARTIES TO DISTRIBUTE OUR PRODUCTS AND SERVICES
We rely on arrangements with independent resellers and licensees to market and distribute our software products. Under our arrangements with independent resellers and licensees, we typically grant a non-exclusive license to distribute our software technology and restrict the reseller's/licensee's ability to distribute software programs in competition with us. These independent resellers and licensees have only recently begun to offer our products and, as such, have extremely limited experience in distributing our software technology. We currently have agreements with Websource Media, L.L.C. Harry Bauge, Eduardo F. Azcoitia, West Marketing Services Corp. and Axis Technologies Corp. For the fiscal year ended July 31, 1998, Websource Media and Bauge accounted for an aggregate of $288,572 or 46% of revenues. The loss of one or more of the licensees or resellers that represent a material portion of our revenues could have a material adverse effect on our business, results of operations and financial condition. In addition, the non-payment or late payment of amounts due by a significant licensee or reseller could have a material adverse effect on our business. We cannot accurately predict the timing or the extent of the success of these resellers and licensees.
OUR BUSINESS IS DEPENDENT ON THE MAINTENANCE OF THE INTERNET INFRASTRUCTURE
Our success will depend, in large part, upon the maintenance of the Internet infrastructure, such as a reliable network backbone with the necessary speed, data capacity and security. To the extent that the Internet continues to experience increased numbers of users, and frequency of use or increased requirements of users, the Internet infrastructure may not continue to be able to support the demands placed on it and the performance or reliability of the Internet may be adversely affected. Furthermore, the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and such outages and delays could adversely affect the web sites of customers utilizing our programs and the level of traffic on such web sites. In addition, the Internet could lose its viability as a form of media due to delays in the development or adoption of new standards and protocols that can handle increased levels of activity. If the necessary infrastructure, standards or protocols or complimentary products, services or facilities are not developed, or if the Internet does not become a viable commercial medium, our business will be materially and adversely affected. If such infrastructures, standards or protocols or complimentary products, services or facilities are developed, we may be required to incur substantial expenditures in order to adapt our solutions to changing or emerging technologies.
WE ARE DEPENDENT ON OUR PROPRIETARY RIGHTS
We regard our intellectual property as critical to our success, and we expect to rely upon trademark, service mark, copyright and trade secret laws in the United States and other jurisdictions to protect our proprietary rights. If our trademark registrations are not approved or granted due to the prior issuance of trademarks to third parties or for other reasons, we may not be able to enter into arrangements with such third parties on commercially reasonable terms allowing the company to continue to use such trademarks. Trademark, copyright and trade secret protection may not be available in every country in which our programs are available. In addition, although we plan to protect our proprietary rights through confidentiality agreements with employees, consultants, advisors, licensees, resellers and others, the confidentiality agreements may not provide adequate protection for our proprietary rights.
RISKS OF INFRINGEMENT IN INTERNET-RELATED INDUSTRIES
Legal standards relating to the validity, enforceability and scope of protection of certain proprietary rights in Internet-related industries are uncertain and still evolving, and accordingly, the future viability or value of any of our proprietary rights is unknown. Any infringement or misappropriation by third parties, should it occur, could have a material adverse effect on our business. Furthermore, our business activities may infringe upon the proprietary rights of others and other parties may assert infringement claims against us. From time to time we expect to be subject to claims in the ordinary course of our business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties by us or our commerce partners. Any such future litigation could have a material adverse effect on our business. Claims of infringement and any resultant litigation could subject us to significant liability for damages and could result in invalidation of our proprietary rights. Even if not meritorious, claims of infringement could be time-consuming and expensive to defend, and could result in the diversion of management time and attention, any of which could have a material adverse effect on our business.
POSSIBLE ADDITIONAL TAX BURDENS
We do not currently collect sales or other similar taxes in states other than Texas. However, one or more states may seek to impose sales tax collection obligations on out-of-state companies which engage in or facilitate online commerce, and a number of proposals have been made at the state and local levels that would impose additional taxes on the sale of goods and services through the Internet. These proposals, if adopted, could substantially impair the growth of electronic commerce and could adversely affect our opportunity to derive financial benefit from our activities.
Legislation limiting the ability of the states to impose taxes on Internet-based transactions has been proposed by Congress. Failure to enact this legislation could allow various states to impose taxes on Internet-based commerce and the imposition of taxes could have a material adverse effect on our business.
GOVERNMENT REGULATION OF INTERNET ACTIVITIES
Due to concerns arising in connection with the increasing popularity and use of the Internet, a number of laws and regulations may be adopted covering issues such as: user privacy, pricing, characteristics, acceptable content, taxation and quality of products and services. With the adoption of these laws or regulations, the costs of communicating on the Internet could increase substantially, potentially adversely affecting the growth in use of the Internet. Further, due to the global nature of the Internet, it is possible that, although transmissions relating to our programs originate in the State of Texas, the governments of other states or foreign countries may attempt to regulate our transmissions. Any of the foregoing developments could have a material adverse effect on our business.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 3, 1999, a total of 16,448,300 shares of common stock were outstanding. The 252,633 shares of common stock held by the selling shareholders will be eligible for immediate resale in the public market. All of the remaining 16,195,667 shares of common stock outstanding will be subject to resale pursuant to the provisions of Rule 144. Sales of common stock in the public market may have an adverse effect on prevailing market prices for the common stock.
THERE IS NO MARKET FOR OUR COMMON STOCK AND IF ONE DEVELOPS IT WILL LIKELY BE VOLATILE
Prior to this offering, there has been no public market for the company's common stock and there can be no assurance that an active public market for the common stock will develop. The market prices for securities of Internet related companies have been highly volatile and the market has experienced significant price an volume fluctuations that are unrelated to the operating performance of Internet related companies. In the past, following periods of volatility in the market place of a specific company's securities, securities class action litigation has often been brought against that company. In the event such litigation were to be brought against the company it could result in substantial costs and divert management's attention and resources, which could have a material adverse effect upon the company's business, financial condition and result of operations.
PENNY STOCK REGULATIONS MAY DECREASE YOUR ABILITY TO SELL OUR COMMON STOCK
If our common stock trades below $5.00 per share, it may become subject to the penny stock regulations. If our shares are subject to the penny stock regulations, the market liquidity in them could be adversely affected because the rules require broker-dealers to make a special suitability determination for the purchaser and have received the purchaser's written consent prior to the sale. This makes it more difficult administratively for broker-
dealers to buy and sell stock subject to the penny stock regulations on behalf of their customers. Consequently, the regulations may affect the ability of broker-dealers to sell our shares and may affect the ability of holders to sell them in the secondary market.
CONTINUED CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS
Mr. White owns 4,448,000 shares of company common stock, Mr. Finn owns 4,448,000 shares of company common stock, and Mr. Magness owns 4,207,000 shares of company common stock, which is collectively approximately 81% of the outstanding common stock. As a result, these stockholders could exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control.
LACK OF DISINTERESTED, INDEPENDENT DIRECTORS
All of our directors have a direct financial interest in the company. While we believe that our current directors will be able to exercise their fiduciary duty, we intend to add independent, disinterested directors to serve on the board of directors in the near future.
FOR ALL OF THESE REASONS, AND OTHERS SET FORTH BELOW, ANY PURCHASE OF THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR COMMON STOCK. OUR FAILURE TO ADDRESS ANY OF THESE RISKS COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus, in particular in the "Risk Factors" and "Business sections, discuss future expectations, contain projections of results of operation or financial condition or state other "forward-looking" information. These statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and is derived using numerous assumptions. In our opinion, important factors which may cause actual results to differ from projections include:
- the success or failure of our management's efforts to implement their business strategy;
- our ability to enter into joint ventures or partnerships with established industry participants;
- our ability to raise sufficient capital to meet operating requirements;
- the uncertainty of consumer demand for our technology;
- our ability to protect our intellectual property rights;
- our ability to compete with major established companies;
- the effect of changing economic conditions;
- the effect of changing technology;
- our ability to attract and retain quality employees; and
- other risks which may be described in future filings with the SEC.
We do not promise to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements.
THE RESCISSION OFFER
BACKGROUND
In February, 1999, the company sold 166,667 shares of common stock (the "Rescission Securities") to two purchasers in a private offering (the "Rescission Offerees"). The Rescission Securities were sold to the Rescission Offerees in order to provide the company with working capital. The Rescission Securities were not registered under the 1933 Act or the securities laws of any state, therefore, the Rescission Offerees may have the right under the 1933 Act and applicable state securities laws to rescind their purchases of the Rescission Securities to the extent an exemption from registration was not available. The Company estimates that if all Rescission Offerees accept the Rescission Offer, the Company would pay approximately $250,000, exclusive of interest, to repurchase all of the Rescission Securities.
LEGAL RIGHTS OF RESCISSION OFFEREES AND CONSEQUENCES OF ACCEPTANCE OR NON-ACCEPTANCE
Under federal and state securities laws, the sale of securities, such as the Rescission Securities, must either be registered or exempt from registration. Absent the availability of an exemption from registration, the sale of securities in an unregistered transaction is a violation of federal and state securities laws; the purchaser's remedy for this violation is to bring an action against the seller for rescission within the period specified under the applicable statute of limitations. If successful, a purchaser would receive the price paid for the security plus interest at the statutory rate less any distributions made with respect to the security or, if the purchaser previously sold the security, the purchaser would receive the price paid for the security plus interest at the statutory rate less the proceeds received upon sale. Under federal law, an action for rescission must be brought within one year of the issuance of the shares in violation of the registration provisions, but in no event more than three years after the shares were offered to investors. State statutes of limitation vary.
The company is making the Rescission Offer in an attempt to insulate the company from future civil liability for rescission. Under many state statutes, the Rescission offer, if carried out in compliance with the applicable statutes, extinguishes civil liability for rescission, regardless of whether the rescission offer is accepted.
The company may not be able to insulate itself from liability under federal securities laws because the SEC has taken the position that liability under federal law is not avoided because a potentially liable person makes a registered rescission offer. Rescission Offerees should be aware, however, that because the company, pursuant to the Rescission Offer, is unconditionally offering to Rescission Offerees exactly what they could receive in an action for rescission, under relevant case law there is authority that suggests that Rescission Offerees may be estopped from bringing any future claim for rescission. The company expects to defend any future action for rescission on this basis. Alternatively, there is some authority that holds that Rescission Offerees may be deemed to have released the company from future liability. In any event, Rescission Offerees who subsequently bring a rescission action may be limited in their recovery to no more than they would have received had they accepted the Rescission Offer. Thus, a Rescission Offeree who accepts the Rescission Offer may retain a federal cause of action but may not be entitled to additional damages and, in the view of the SEC, a Rescission Offeree who does not accept the Rescission Offer may retain a federal cause of action for rescission but any action may be subject to the defenses described above. In addition, in making a decision to accept or reject the Rescission Offer, Rescission Offerees should be cognizant of the statute of limitations and the possibility that the company may claim that an exemption from registration was available with respect to a given sale of Rescission Securities.
Rescission Offerees should also be aware that if they successfully allege that a material misrepresentation or omission occurred in connection with the sale of the Rescission Securities, they may have additional causes of action with respect to the sale of the Rescission Securities under the antifraud provisions of state and federal securities laws. If a material misrepresentation of fact or omission of fact occurred in connection with the sale of the Rescission Securities, causes of action for common law fraud may also exist.
TAX CONSEQUENCES
The federal income tax consequences of accepting the Rescission Offer are uncertain, and the consequences to each Rescission Offeree will depend, in part, on the circumstances and status of the Rescission Offeree. Generally, Rescission Offerees who transfer their Rescission Securities to the company in exchange for the price paid by the Rescission Offeree for the Rescission Securities, plus interest at the statutory rate, less any distributions with respect to the Rescission Securities, will realize gain equal to the excess of (a) the aggregate amount paid by the company to the Rescission Offeree for the Rescission Securities, over (b) the price originally paid by the Rescission Offeree for such securities. If the Rescission Offeree previously sold the Rescission Securities, the Rescission Offeree who accepts the Rescission Offer will realize gain an amount equal to the aggregate amount paid by the company to the Rescission Offeree.
Any gain realized as a result of accepting the Rescission Offer must be recognized. There is no direct authority, however, regarding the character of the gain for federal income tax purposes. Nevertheless, under general federal income tax principles, Rescission Offerees who hold their Rescission Securities as a capital asset on the date of the exchange (or, in the case of a prior sale of Rescission Securities, Rescission Offerees who held their Rescission Securities as a capital asset on the date of the prior sale or exchange), should be entitled to report gain recognized as a result of accepting the Rescission Offer as a distribution in redemption of, or in exchange for, the Rescission Securities, subject to the provisions and limitations of Section 302 of the Internal Revenue Code of 1986, as amended.
The discussion concerning certain federal income tax matters does not address all potentially relevant federal income tax matters, or the consequences to persons who, because of their circumstances or status are subject to special federal income tax treatment. The discussion does not address state, local or foreign tax issues, and is not intended as tax advice to any person. Consequently, RESCISSION OFFEREES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF ACCEPTING THE RESCISSION OFFER, INCLUDING TAX REPORTING REQUIREMENTS, THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, AND THE IMPLICATIONS OF ANY CHANGES IN THE TAX LAWS.
RESCISSION OFFER
The company hereby offers the Rescission Offerees the right to rescind their purchases of the Rescission Securities. Rescission Offerees who accept the Rescission Offer shall be entitled to exchange their Rescission Securities for cash in the amount of the price paid, plus simple interest at the rate of 9% per annum, from the date the Rescission Securities were purchased, less the Rescission Securities. Rescission Offerees who accept the Rescission Offer but disposed of their Rescission Securities at a price less than the original purchase price paid to the company are entitled to receive cash in the amount of such difference, plus simple interest at the rate of 9% per annum on the difference from the date of disposition. As of the effective date of the prospectus $250,000 will be held in escrow with Texas Commerce Bank, N.A. for payment to Rescission Offerees who elect to rescind their purchases.
The Rescission Offer will terminate at 5:00 p.m. local time, Houston, Texas on _________, 1999 (the "Rescission Expiration Date"). Accordingly, Rescission Offerees will have thirty (30) business days to respond to the Rescission Offer. Rescission Offerees who have not previously disposed of their Rescission Securities may accept the Rescission Offer only be completing the Rescission Agreement accompanying this prospectus as Attachment A and returning it to the company by 5:00 p.m. on the Rescission Expiration Date, together with the certificates and documents evidencing the Rescission Securities, as adjusted to give effect to any distributions paid with respect to such Rescission Securities, properly endorsed for transfer. Rescission Offerees who have previously disposed of their Rescission Securities may accept the Rescission Offer only by completing the Rescission Agreement accompanying this prospectus and returning it to the company by 5:00 p.m. on the Rescission Expiration Date.
Any Rescission Offeree who fails to return a signed Rescission Agreement or, if required, fails to tender the Rescission Securities by the Rescission Offer Expiration Date shall be deemed to have rejected the Rescission Offer.
All questions as to the validity, form, eligibility (including time of Receipt) and acceptance of the Rescission Agreement will be determined by the company, which determination will be final and binding. The company reserves the absolute right to reject any or all Rescission Agreements not properly completed or if their acceptance, in the opinion of the counsel to the company, would be unlawful. The company also reserves the right to waive any irregularity in the Rescission Agreement. The company's interpretation of the terms and conditions of the Rescission Agreement (including the instructions in the Rescission Agreement) shall be final and binding. The company shall not be under any duty to give notification of defects in connection with Rescission Agreements or incur any liability for failure to give such information.
Upon the terms and subject to the conditions of the Rescission Offer, payment of the purchase price and interest to Rescission Offerees who elect to rescind will be made as soon as practicable after receipt by the Company of the Rescission Agreement and the certificates and/or documents evidencing the Rescission Securities.
Rescission Offerees who elect not to accept the Rescission Offer need not submit a response to the Rescission Offer. Rescission Offerees who do not respond to the Rescission Offer will continue to be the owners of the Rescission Securities and will hold Rescission Securities subject to the restrictions which were in effect at the time of their issuance.
UNDER TEXAS LAW, RESCISSION OFFEREES MAY NOT SUE FOR LIABILITY UNDER ARTICLE 581-33 OF VERNON'S ANN. TEXAS CIV. ST. UNLESS THEY ACCEPT THE RESCISSION OFFER AND DO NOT RECEIVE THE AMOUNT OF THE OFFER, OR THEY REJECT THE RESCISSION OFFER IN WRITING WITHIN 30 DAYS OF ITS RECEIPT AND EXPRESSLY RESERVE IN THE REJECTION THE RIGHT TO SUE, IN WHICH CASE THEY MAY SUE WITHIN ONE YEAR FROM THE REJECTION.
USE OF PROCEEDS
The company will not receive any proceeds from the resale of common stock by the selling stockholders.
DIVIDEND POLICY
The company has not paid any dividends on its common stock and expects to retain any future earnings for use in its business. Future dividend policy will be determined by the board of directors and will depend on a number of factors, including the company's future earnings, capital requirements, financial condition and future prospects, restrictions on dividend payments pursuant to any of the company's future credit or other agreements, and such other factors as the board of directors may deem relevant.
CAPITALIZATION
The following table sets forth the capitalization of the company at January 31, 1999. This table should be read in conjunction with the company's financial statements and notes included elsewhere in this prospectus.
JANUARY 31, 1999
Long-term debt . . . . . . . . . . . . . . . . . . . . . . $ -
Shareholders deficit:
Common Stock, no par value,
50,000,000 shares authorized; 16,281,633
shares issued and outstanding. . . . . . . . . . . . . 1,090,950
Stock subscription receivables . . . . . . . . . . . . (14,609)
Accumulated deficit. . . . . . . . . . . . . . . . . . (1,355,211)
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Total shareholders' equity (deficit) . . . . . . . . . $ (278,870)
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Total capitalization . . . . . . . . . . . . . . . . . . . $ (812,080)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the financial statements and notes contained in this prospectus.
GENERAL
The following analysis compares the financial condition of the company for the period from inception (August 9, 1996) to July 31, 1997 and the year ended July 31, 1998, and for the six months ended January 31, 1998, as compared to the six months ended January 31, 1999.
The company recognizes revenue as services are provided, in accordance with customer agreements. For the year ended July 31, 1998, approximately 24% and 22% of the company's total revenues were derived from Websource Media, a company licensee, and Bauge, an independent reseller, respectively. Royalty income from software licensing agreements is recognized as it is earned per the individual terms of each royalty agreement, and is generally comprised of a minimum amount plus a stated percentage of the applicable licensee's sales. The company uses the direct write-off method in accounting for bad debts, the results of which are not materially different from the allowance method.
The company accounts for property and equipment at cost with depreciation calculated using the straight-line method over its estimated useful lives ranging from five to ten years. When assets are retired or otherwise removed from the accounts, any resulting gain or loss is reflected in income for the period. The cost of maintenance and repairs is charged to expense as incurred and significant renewals and improvements are capitalized.
The company utilizes the liability method in accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using anticipated tax rates and laws that will be in effect when the differences are expected to reverse. The realizability of deferred tax assets are evaluated annually and a valuation allowance is provided if it is likely that the deferred tax assets will not give rise to future benefits in the company's tax returns.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION TO JULY 31, 1997 COMPARED WITH THE RESULTS OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1998, AND FOR THE SIX MONTHS ENDED JANUARY 31, 1998 COMPARED WITH THE SIX MONTHS ENDED JANUARY 31, 1999.
Revenues increased from $185,994 for the period from inception through July 31, 1997 to $628,070 for the year ended July 31, 1998. The increase of $442,076 or 238% was primarily due to growth in web sites developed and SITEBLAZER license sales. Revenues decreased from $262,437 for the six months ended January 31, 1998, to $258,797 for the six months ended January 31, 1999. The decreased amount is $3,690 and is attributable to decreased dial up resales.
Consulting expense increased from $-0- for the period from inception through July 31, 1997 to $749,990 for the year ended July 31, 1998. The increase of $749,990 reflects the issuance of common stock to PinkMonkey.com in exchange for consulting services. The fair value of these issued shares totaling $749,990 was recorded as a consulting expense by the company in July 1998.
Advertising expense increased from $12,173 for the six months ended January 31, 1998, to $33,173 for the six months ended January 31, 1999. The increase of $21,000 or 173% primarily reflects costs of print advertising for the launch of Political Net.com.
General and administrative expenses increased from $3,605 for the period from inception through July 31, 1997 to $20,096 for the year ended July 31, 1998. The increase in general and administrative expenses of $16,491 or 457% primarily reflects the company's emergence from its development stage. General and administrative expenses increased from $3,152 for the six months ended January 31, 1998 to $47,803 for the six months ended January 31, 1999. The increase in general and administrative expenses of $44,651 or 1,417% primarily reflects the company's emergence from its development stage.
The company had a ($64,832) net loss for the period from inception through July 31, 1997 compared with a net loss of ($781,595) for the year ended July 31, 1998. The increased net loss of $716,763 or 1,106% is due primarily to the promotional expense recorded by the company in July 1998 for the fair value of common stock issued to PinkMonkey.com. The company had a ($13,587) net loss for the six months ended January 31, 1998 compared with a net loss of ($508,784) for the six months ended January 31, 1999. The increased net loss of $495,197 or 3,644% is due primarily to the increase in professional fees associated with this registration statement and an increase in salaries of $197,816.
Net loss per share of common stock increased from $(.00) to $(.05) for the period from inception (August 9, 1996) through July 31, 1997, compared to the year ended July 31, 1998.
The company may in the future experience significant fluctuations in its results of operations. Such fluctuations may result in volatility in the price and/or value of the company's common stock if any market develops. Results of operations may fluctuate as a result of a variety of factors, including demand for the company's design and creation of Internet web sites, the introduction of new products and services, the timing of significant
marketing programs, the success of reseller and license agreements, the number and timing of the hiring of additional personnel, competitive conditions in the industry and general economic conditions. Shortfalls in revenues may adversely and disproportionately affect the company's results of operations because a high percentage of the company's operating expenses are relatively fixed. Accordingly, the company believes that period to period comparisons of results of operations should not be relied upon as an indication of future results of operations. There can be no assurance that the company will be profitable. Due to the foregoing factors, it is likely that in one or more future periods the company's operating results will be below the expectations of the investor.
The financial statements included herein have been prepared assuming the company will be able to continue as a going concern. The company has a working capital deficit of $106,092 and a stockholders' deficit of $92,427 at July 31, 1998, and experienced significant losses in fiscal 1998 which raise doubts about the Company's ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or capital and to refinance its debt and ultimately attain profitable operations.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1999, the company's primary source of liquidity was $43,640 of cash and $51,246 of accounts receivable. The company's working capital deficit and shareholders' deficit was $81,969 and $74,419 at January 31, 1998, as compared to a working capital deficit of $297,219 and a shareholders' deficit of $278,870 at January 31, 1999.
Net cash provided by operating activities during the year ended July 31,
1998 was $3,169 compared with net cash used in operating activities of $275
for the period from inception through July 31, 1997. The increase in net
cash provided by operating activities was primarily due to the decreased net
loss after backing out the effect of the consulting expenses recorded in July
1999 described herein. Net cash used in operating activities during the six
months ended January 31, 1999 was $182, 992 compared with net cash provided
by operating activities of $39,228 for the six months ended January 31, 1998.
The increase in net cash used in operating activities was primarily due to
the increase in net loss for the six months ended January 31, 1999 of
$495,187, offset by common stock issued as compensation and a decrease in
accounts receivable.
Net cash used in investing activities the year ended July 31, 1998, was $2,332 compared with net cash used in investing activities of $14,796 for the period from inception to July 31, 1997, respectively. The decrease in the net cash used in investing activities is attributed to the decrease in the purchase of property and equipment. Net cash used in investing activities was $2,332 and $5,954 for the six months ended January 31, 1998 and the six months ended January 31, 1999, respectively. The increase in the net cash used in investing activities was attributed to an increase in purchases of property and equipment.
Net cash provided by financing activities was $25,275 for the period from inception (August 9, 1996) through July 31, 1997 compared with net cash provided by financing activities of $7,947 for the year ended July 31, 1998. The decrease in net cash provided by financing activities was primarily due to the repayment of a note. Net cash provided by financing activities was $5,414 for the six months ended January 31, 1998 compared with net cash provided by financing activities of $213,598 for the six months ended January 31, 1999. The increase in net cash provided by financing activities was primarily due to proceeds from issuance of common stock of $198,200.
The company's internally generated cash flows from operations have historically been and continue to be insufficient for its cash needs. As of May 3, 1999, the company's sources of external and internal financing were limited. It is not expected that the internal source of liquidity will improve until significant net cash is provided by operating activities, and until such time, the company will rely upon external sources for liquidity. The company has an unsecured revolving line of credit in the amount of $30,000 with Texas Commerce Bank, and to date has $30,000 available. The company will have to obtain additional financing of approximately $250,000, exclusive of interest and costs for payment to the Rescission Offerees. There can be no assurance that the company will be able to obtain additional financing on reasonable terms, if at all. Until the company can obtain monthly sales levels of approximately $90,000 which would be sufficient to fund current working capital needs, there is uncertainty as to the ability of the company to expand its business and continue its current operations. The company believes that it will be able to satisfy its cash requirements for the next 12 months. Historically, revenues have covered costs. Management believes that projected revenues from licensees will cover costs. There is no assurance that the current working capital will be sufficient to cover cash requirements for the balance of the current fiscal year or to bring the company to a positive cash flow position. Lower than expected earnings resulting from adverse economic conditions or otherwise, could restrict the company's ability to expand its business as planned, and if severe enough may shorten the period in which the current working capital may be expected to satisfy the company's requirements, force curtailed operations, or cause the company to sell assets. The
financial statements included herein have been prepared assuming the company will be able to continue as a going concern. The company has a working capital deficit of $106,092 and a stockholders' deficit of $92,427 at July 31, 1998, and experienced significant losses in fiscal 1998 which raise doubts about the Company's ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or capital and to refinance its debt and ultimately attain profitable operations.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities.
The company's board of directors has developed a Year 2000 strategy and has established a committee to determine the extent to which the company's operations are vulnerable to Year 2000 Issues. The company believes its operations are Year 2000 compliant. However, variability of definitions of "compliance" with the Year 2000 and of different combinations of software, firmware, and hardware may lead to lawsuits against the company. The outcomes of any such lawsuits and the impact of the company are not estimable at this time. The Year 2000 may affect the company's internal systems, however management believes the effect will be minimal as the company purchased its hardware systems within the last two years from name manufacturers who have certified the equipment year 2000 compliant in their manufacturer's warranty. Management believes out of pocket costs associated with Year 2000 will be minimal. The company has reviewed its internal programs and has determined there are no significant Year 2000 issues within its systems or services. However, although the company believes its systems are Year 2000 compliant, the equipment and software used by its licensees, resellers or customers may not be Year 2000 compliant. Failure of such third-party equipment or software to properly process dates for the year 2000 could result in unanticipated expenses and loss of revenues, which could have an adverse effect on the company's business. There can be no guarantee that the systems of other companies on which the company's operations rely will be timely converted. Any Year 2000 compliance problems of the company could have a material adverse effect on the company's business.
BUSINESS
THE COMPANY
The company was incorporated in the State of Texas in August 1996. The company is a web development company that specializing in the design, creation and marketing of cost-effective Internet products. The company strives to provide businesses, of all sizes, with interactive Internet web sites along with marketing services, to create long-term value for its customers worldwide. Some of the company's marketing services include:
- search engine marketing, which is marketing via advertisements that post findings on the results page of a search on the Internet,
- news group postings,
- custom statistical counters which provide statistical information about the visitors to a web site,
- web site tracking logs which record the number of visitors to a web site, and
- other traditional marketing methods.
In addition, the company develops customized software programs, on various platforms, that are Internet compatible (i.e. accounting/finance interfaces, online databases and Oracle/Lotus Internet database interfaces). The company's long-term strategy is to create valuable interactive web sites, e-commerce interfaces/sites and Intranets and Extranets, which will empower companies to utilize the super-efficiencies of the Internet worldwide. The company assists its customers in improving their Internet presence for products or services offered. The company uses proprietary technology for the creation of web sites which increases the chances that the company's customers' web sites are seen by an Internet user irrespective of the search engine used. Most of the company's custom web sites have password protected administrative areas that allow the company's customers to update their site with little or no programming skills. Although the majority of the company's current revenues are derived from custom web site design and search engine marketing, the company is expanding its operations to include a wider variety of interactive databases, electronic commerce sites, and network security.
The company offers instant web presence through SiteBlazer.com by offering its customers a tool to build customized, updateable web sites. The company developed SiteBlazer.com as a solution for mass production of affordable custom/dynamic web sites. Management expects SiteBlazer.com to provide an avenue for timely web site production at a reduced cost. The company's business divisions utilize SiteBlazer.com and the company's proprietary technology. Customers' web sites are included in the SiteBlazer.net network search engine if the monthly hosting fee is maintained.
THE INTERNET AND WORLD WIDE WEB
The Internet is a global collection of thousands of computer networks interconnected to enable commercial organizations, educational institutions, government agencies and individuals to communicate electronically, access and share information and conduct business. The Internet was historically used by a limited number of academic institutions, defense contractors and government agencies. It was used primarily for remote access to host computers and for sending and receiving electronic mail. Presently, commercial organizations and individuals are dominating the use of the Internet. Recent technological advances, improved microprocessor speed and the development of easy-to-use graphic user interfaces, combined with cultural and business changes, have enabled the Internet to be integrated into the operations, strategies, and activities of countless commercial organizations and individuals.
The Internet and the World Wide Web have introduced fundamental and structural changes in the way information can be produced, distributed and consumed, lowering the cost of publishing information and extending its potential reach. Companies from many industries are publishing product and company information or advertising materials, collecting customer feedback and demographic information interactively, and offering their products for sale on the web. The structure of web documents allows organizations to publish significant quantities of product information, while simultaneously allowing each user to view only those elements of the information which are of particular interest to them. This feature makes possible the dynamic tailoring of information delivery, to each user's interests, timely and cost effective. The web, by facilitating the publishing and exchange of information, is dramatically increasing the amount of information available to users.
BUSINESS STRATEGY
The mission of each company division is to become one of the predominant service providers within each division's respective market niche. The critical success factors are:
- understanding, developing and applying information technology to the Internet, interactive media markets, and data access and software tools;
- narrowing market focus while consummating strategic alliances to complement product and service offerings;
- investing in strategic Internet or interactive media investments or acquisitions, and
- most importantly, a continued understanding of customers' needs.
Management expects to utilize its expertise in database design/development and project management to create new database management products, and a suite of product and service offerings, that will enable sophisticated direct interactive marketing environments. Management believes these new products will enable the company to take advantage of the demand for data management services created from the Internet and interactive media, while continuing to grow and invest in its design and development of web sites.
The company has adopted a strategy of seeking opportunities to realize gains through the selective investment in companies whose web sites are designed and developed by the company. The company believes that this strategy provides the ability to increase shareholder value, as well as provide diversification within the company. Additionally, the company plans to continue to develop and refine the products and services of its businesses, with the goal of increasing revenue as new products are commercially introduced.
With respect to its businesses, the company will seek to expand its participation in Internet, and interactive media industries, and increase its market share. Key elements of this strategy include:
- UTILIZE THE LATEST TECHNOLOGY AVAILABLE TO THE INTERNET, INCLUDING JAVA, JAVASCRIPT, NEOWEB SCRIPT, TCL/TK AND SHOCKWAVE, TO ACHIEVE OPTIMUM INTERNET PRESENCE. The company builds web sites without the use of editors based on hypertext markup language (HTML), which is an authoring language used to create documents on the World Wide Web. Such editors often do not support many
new additions to the web and use codes designed for one particular kind of web server that could present problems. The company is constantly increasing its technological capabilities through the enhancement of existing software and the re-engineering of the company's proprietary database software in order to allow the company's customers greater ability to access, analyze and update their own databases through the use of the company's computer services and software.
- CONTINUE TO ENHANCE AND EXPAND THE COMPANY'S PRODUCTS AND SERVICES. The company has invested significant resources in new business ideas or investments which seek to capitalize on opportunities surrounding the growth of the Internet and the interactive marketing industry. The company intends to continue to pursue the growth and development of its technologies and services and to introduce its products commercially.
- PROVIDE THE HIGHEST LEVEL OF CUSTOMER SERVICE. Management plans to create an Internet presence that adds value to its clients organizations.
- PURSUE INNOVATIVE ADVERTISING SOLUTIONS. The company is actively seeking to develop innovative ways for advertisers to effectively reach their target audiences through the Internet. The company designs and offers customized packages which include the ability to change advertisements quickly and frequently, to link a specific search term to an advertisement, to conduct advertising test campaigns with rapid result delivery and to track daily usage statistics. The company is continuing its development of software that will provide it with the ability to target ads based on demographics and usage patterns.
- CROSS-SELL PRODUCTS AND SERVICES. The company is involved in many aspects of the direct marketing sales cycle. The company has experienced initial success in increasing the number of products and services purchased by its existing clients and intends to further this expansion.
DIVISIONS
CUSTOM WEB SITE DEVELOPMENT
The company develops high-end custom web sites, encompassing original graphics and innovative layouts. The company's business strategy is to develop and design web sites that achieve growth and organizational optimization for the company's customers by creating more efficient navigation, utilizing interactive databases, and by using proprietary technology to increase the likelihood of being found at or near the top of search engines. Management believes that its web site pricing is very competitive. The interactive databases enable customers to self-manage their web sites internally. Many of the company's proprietary scripting programs are adapted and included in individual web sites, allowing customers to manage, modify, and maintain their web sites with little or no programming knowledge. The company currently hosts one hundred eighty custom web sites which it has developed.
SITEBLAZER.COM
The focus of SiteBlazer.com is to allow companies to build customized, updateable web sites, within minutes, at a reduced cost. According to ADVERTISING AGE'S NETMARKETING April 1999 Web Price Index, the median price for small interactive web sites is $78,000, which does not include fees for hosting or changes. For approximately $450 plus a $20 per month hosting fee, SiteBlazer.com offers customers a three page web site. Also through SiteBlazer.com, the company offers additional options for customers to purchase and add to their site, i.e., products page, what's new page, press release page, services page, calendar of events page, interactive forum page and a wide variety of counters, statistic programs, and shopping cart or e-commerce solutions. The individual makes changes to the web site, eliminating any fees for changes. SiteBlazer.com sites also offer an economic avenue to broaden a client's Internet exposure. SiteBlazer.com offers hundreds of professional images, templates, and graphic designs. SiteBlazer.com's templates are constantly replaced, giving web site visitors an appearance of the site being constantly updated. These changes are randomly selected from a large collection of templates which are custom designed for specific business categories. With client-related information and content, SiteBlazer.com can build a site. SITEBLAZER sites can be built individually on-line, or data can be collected and uploaded in batches. With SiteBlazer.com, the company's customers are given a password which allows them to change information on their site at any time, at no extra charge. In addition, when web sites are created, description, title, and keyword tags are automatically embedded in them to attract major search engines. Management believes SiteBlazer.com's templates and databases are easily adapted to other SITEBLAZER applications and the company plans to license its technology with a desire to reach a large number of customers. A web site may be in existence
for testing purposes to a limited audience. The launch of a web site is the date the web site becomes available to the general public. SiteBlazer.com has been in existence since January 1998 and was launched May 1998. The company has developed one thousand five hundred ninety five SiteBlazer.com web sites. The company's licensees have developed approximately forty-five thousand SiteBlazer.com web sites.
SITEBLAZER NETWORK
The SITEBLAZER network is a business-to-business web guide/search engine designed to increase sales for its customers. The SiteBlazer.com program allows a business to have a stand-alone customized web site and still be part of the SITEBLAZER network. The company believes that the SITEBLAZER network contains up-to-date information, as each web site must pay a monthly hosting fee in order to continue to be on the SITEBLAZER network. The company is populating the SITEBLAZER network with SiteBlazer.com web sites and expects to launch the SITEBLAZER network as a search engine. At the time of launch, the SITEBLAZER network will allow non-SiteBlazer.com web sites to be included in the SITEBLAZER network search engine for a nominal fee.
INTERACTIVE DATABASES
The company has developed proprietary technology involving interactive databases. The interactive databases enable customers to self-manage their web sites internally. Many of the company's proprietary scripting programs are adapted and included in individual web sites, allowing customers to manage and modify their web sites. The company's interactive databases offer a cost-effective alternative to products and services offered by its competitors, and have been successfully implemented in a wide range of applications and by Fortune 500 companies, like Union Carbide and CSX.
POLITICAL NET.COM
The company's Political Net.com provides what management believes will be a rapidly growing network of political web sites by including links to existing sites in the database which are updated on an on-going basis. Visitors can search for politician's sites, participate in online political discussions, keep up-to-date with the most recent news or political events, or even cast their vote in weekly polls. Political Net.com also has chat rooms that focus on topics of interest ranging from family and education issues to foreign affairs. The company believes that Political Net.com provides politicians with a tool to build web sites for themselves quickly and more economically than ever before. Besides offering politicians inexpensive custom web sites, Political Net.com supplies sites to political parties at the county level and above, free of charge. Politicians are already operating sites on Political Net.com.
Political Net.com provides candidates with an opportunity to employ online questionnaires. Candidates can post up to twenty customized questions on their site which saves the costs associated with printing and mailing questionnaires. Potential voters can fill out the questionnaires and submit them with a keystroke. Candidates receive realtime information on what their constituents think about the issues, and can tailor their approaches accordingly. For $500, politicians get a web site with six pages (home page, more info, newsletter, press releases, a contact form for voters to fill out for more information, and an interactive forum page where readers can post their comments or questions) and candidates can post their answers or views. For additional charges, politicians can load up to three pages of their existing literature or brochures into their sites. They can also have their own photo gallery of up to 20 pictures or include up to five minutes of video clips or campaign commercials. Political Net.com's technology is derived from the adaptability of SiteBlazer.com and the SITEBLAZER network. Political Net.com provides a gateway for users to search for their local politicians or candidates and interact with them. Management believes current issues, on-line voting, news feed and resource links make Political Net.com attractive to the average Internet user as well as political parties. Political Net.com has been in existence since July 1998 and was launched in August 1998. The company has developed one hundred ten Political Net.com web sites.
ONLINE ACCOUNTING FINANCIAL PACKAGE
The company is currently developing an online accounting financial package to utilize the Internet to perform accounting work anywhere in the world. The online accounting financial package will allow a company to maintain its records online, including receipts and invoices. The online accounting financial package entails scanning invoices and receipts offsite by existing employees of the particular company. The online accounting financial package utilizes the Internet, and its inexpensive costs, to transmit all of its data throughout the world. All data is archived in a securable database on a secure Internet server. This system may reduce, or even eliminate, the traveling expenses of accountants/bookkeepers. Online accounting has been 30% developed. Expected launch is the fourth quarter of 1999. The company is not aware of any material conditions or uncertainties which need to be resolved prior to commercialization.
ONLINE AUCTION SYSTEM
The company has developed an online auction system which will allow traditional sealed bids or bids that can be viewed online. The online auction system allows dealers to view and bid on items online with products being sold to the highest bidder. The online auction system is adaptable and can be altered from a silent auction, to an auction where the highest bid and bidder are known. In order to utilize the online auction system, a person will need to be pre-approved by the company based on standards provided by the entity hosting the auction. Beta-testing is the last stage of testing for a computer product prior to its commercial release. Beta-testing usually involves sending the product to test sites outside the company for real world exposure. Online auction was successfully beta-tested by CSX in December 1998. Online auction was launched in February 1999. Online auction needs no additional development prior to commercialization, and there are no material conditions or uncertainties which need to be resolved prior to commercialization.
CAMPUS NETWORK
The company developed Campus Network to allow individuals of organizations to build customized, up-datable web sites. Management expects to offer Campus Network to alumni, student groups and organizations, and fraternities and sororities. Campus Network will allow each individual to have his own customized web site, and also to be a part of a group web site. Campus Network utilizes the SiteBlazer.com program and the SITEBLAZER network. Campus Network was fully beta-tested in November 1998. Campus Network was launched in January 1999. Campus Network needs no additional development prior to commercialization, and there are no material conditions or uncertainties which need to be resolved prior to commercialization.
HUNTING AND FISHING.COM
The company is developing Hunting and Fishing.com and expects it to become one of the most comprehensive collections of hunting and fishing resources on the Internet. The company plans to utilize SiteBlazer.com and the SITEBLAZER network technology for classified advertisements on Hunting and Fishing.com's searchable catalogs to search for: merchandise, hunting and fishing equipment, hunting and fishing licenses/leases, locations to visit and where to stay, state parks and wildlife, hunting seasons and hunting and fishing regulations. Hunting and Fishing.com will allow users to maintain an independent web site, while at the same time being part of a network. Hunting and Fishing.com is 60 % complete. The expected launch date is Fall 1999. The company is not aware of any material conditions or uncertainties which need to be resolved prior to commercialization.
LEGAL NET
The company is developing a legal network to utilize the technology of the SITEBLAZER network to offer web sites to attorneys and law firms. The company expects attorneys and law firms to utilize Legal Net to increase the exposure of their web sites by targeting specific topics which will raise the likelihood of placement/selection on search engines. Legal Net is complete, but has not been beta-tested. The expected launch date is summer 1999. The company is not aware of any material conditions or uncertainties which need to be resolved prior to commercialization.
COMMERCE PARTNER
ARFRA
The company owns a 30% interest in ARFRA, an Internet provider of pet medical records. ARFRA provides documented medical records detailing a pet's medical history in the event that an unexpected medical emergency should arise, or simply to provide a more organized record of a pet's medical history. ARFRA provides all participating veterinarians from anywhere in the continental United States, timely access to a pet's medical history. With ARFRA, pet-owners have the ability to offer timely, life-saving information to all emergency veterinary personnel by presenting an ARFRA access card to any veterinarian and the pet's medical history will be available twenty-four hours a day, three hundred and sixty-five days a year. Each record is securely protected by a personal identification number. The annual cardmember fee is only $25 per year. Nominal update fees may be assessed depending upon the veterinarian visited. ARFRA also offers a unique service called pet-locator. By simply contacting any participating veterinarian, pet-owners now have the unique ability to immediately post a "Lost Pet" bulletin to the network. The bulletin will remain a part of the network records until ARFRA is notified of a pet's recovery. To further assist in the recovery effort, ARFRA will broadcast a personal e-mail message about a missing pet to all ARFRA cardmembers in a member's specific area. In addition, ARFRA allows pet-owners the ability to identify a veterinarian through "Vet Locator." Vet Locator is a network catalog of licensed veterinarians throughout the United States that is provided on a complimentary basis to all members. The company expects to
utilize SITEBLAZER technology, allowing pet owners and prospective pet owners to design web sites for: the purchase and sale of pets, grooming/breeding and care of pets, and a pet cemetery. The sites will be indexed in a search engine specific to ARFRA and with the same restrictions as the SITEBLAZER network. ARFRA currently does not have any revenues, and has not distributed any dividends. In addition, other than test participants, there are currently no participating pets or vets in the ARFRA system. The company can provide no assurance that ARFRA will become profitable in the future. The majority shareholder of ARFRA has granted the company an option to purchase the remaining 70% of ARFRA in exchange for 10,000 shares of company common stock.
AFFILIATED TRANSACTION
NETTRADE ONLINE, L.L.C.
In November 1997, the company entered into an agreement with NetTrade Online, L.L.C., a Texas limited liability company, to design, develop, produce and install a computer program and related materials consisting of an interactive web site providing real time/on-line trading of various commodities, incorporating functions commercially available at the time. The company agreed to provide all system engineering services necessary to design, develop, produce, install, and maintain the program and the hardware. These services include, but are not limited to, special studies, programming and application design and development, systems analysis and design, conversion and implementation planning, and installation evaluation. The company intends to expand this technology to other commodities. NetTrade paid the company $80,000 in connection with this agreement. Webvest, Inc., a company owned by Messrs. White, Magness and Finn, has a 20% ownership interest in NetTrade.
NetTrade has been fully beta-tested, and was launched in April 1999. NetTrade needs no additional development prior to commercialization, and there are no material conditions or uncertainties which need to be resolved prior to commercialization. Over three hundred individuals have listed for trading on NetTrade, and transactions have been consummated.
SALES AND MARKETING
The company markets its products and services through a marketing staff using both telemarketing and direct sales. The company advertises its products and services through several media sources including trade journals and radio advertising. The company is in the process of developing a television media campaign. The company attends numerous trade shows in the Internet, high technology, and business markets, while further supplementing its sales efforts with space advertising and product and services listings in appropriate directories.
COMPETITION
The market for customers, visitors and related products and services are intensely competitive and such competition is expected to continue to increase. There are no substantial barriers to entry in this market and the company believes that its ability to compete depends upon many factors within and beyond its control, including:
- timing and market acceptance of new products and services developed by the company and its competitors,
- customer service and support,
- sales and marketing efforts, and
- the ease of use, performance, price and reliability of the company's products and services.
The company competes with:
- Internet content providers and ISPs, including web directories,
- search engines,
- shareware archives,
- content sites,
- commercial online services and sites maintained by Internet service providers,
- as well as thousands of Internet sites operated by individuals and government and educational institutions.
The company believes that the principal competitive factors in attracting customers include the amount of traffic on its web site, brand recognition, customer service, the demographics of the company's customers and viewers, the company's ability to offer targeted audiences and the overall cost-effectiveness of the products and services offered by the company. The company believes that the principal competitive factors in attracting search engines to a customer's web site include the company's design, title, meta tags descriptions and key words. The company believes that the number of Internet companies relying on revenues from their company web site will increase substantially in the future. In turn, the company will likely face increased competition, resulting in increased pricing pressures on its web site design rates which could in turn have a material, adverse effect on the company's business.
RESEARCH AND DEVELOPMENT
The company develops and markets a variety of Internet related products and services, as well as a number of database software technologies. These industries are characterized by rapid technological development. The company believes that its future success will largely depend upon its ability to continue the enhancement of its existing products and services and the development of other products and services which complement existing ones. To date, the company has incurred nominal research and development expenses. In order to respond to rapidly changing competitive and technological conditions, the company expects to incur significant research and development expenses during the initial development phase of new products and services as well as on an on-going basis with established products.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The company regards its technology as proprietary and attempts to protect it by relying on trademark, service mark, copyright and trade secret laws and restrictions on disclosure and transferring title and other methods. The company currently has no patents or patents pending and has not filed for patent protection, and does not anticipate that patents will become a significant part of the company's intellectual property in the future.
The company pursues the registration of its trademarks in the United States and internationally. The company has applied for the registration of the service mark and trademark SITEBLAZER and is in the process of applying for the registration of the trademark Politicalnet in the United States. The company is applying for a European Community Trademark for international protection of SITEBLAZER in every country in the European Community. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which the company's services are distributed or made available through the Internet, and policing unauthorized use of the company's proprietary information is difficult.
The company currently licenses certain technologies to other companies and utilizes an independent reseller to market and distribute the company's products and services. The company has entered into the following material agreements:
- In September 1997, the company entered into an agreement with Websource Media in which the company agreed to transport Internet protocol packets from Websource Media to the Internet and from the Internet to Websource Media. Websource Media paid a setup fee of $480 in connection with this agreement and pays the company fees based on the number of hits per day. This agreement automatically renews for successive one-month terms at the company's then month-to-month rates.
- In June 1998, the company entered into a software reseller agreement with Bauge in which the company granted Bauge a non-exclusive license to market and distribute software products manufactured and hosted by the company in return for royalty payments based on gross revenues of basic web sites and various other royalty payments. In June 1999, the agreement will automatically renew for successive one-year terms upon Bauge achieving certain sales levels.
- In January 1999, the company entered into a software reseller agreement Eduardo F. Azcoitia, dba Proses, in which the company granted Proses the non-exclusive right to market and distribute software products manufactured by the company in Mexico, Columbia and the Untied States. The company receives a percentage of products sold by Proses.
- In March 1999, the company entered into a three year joint marketing agreement with West Marketing Services Corporation in which the company granted West the exclusive right to direct telemarketing of the company's Internet web site services in North America. In order to retain the exclusivity provision of the agreement, West is required to maintain certain minimum volume requirements. The company receives a percentage of any sales made by West. The agreement automatically renews for successive three year terms.
- In April 1999, the company entered into a license and service agreement with Axis Technologies Corp. In which the company agreed to grant Axis a non-exclusive license to utilize the company's Internet web site generation application and market and sell the company's products to Axis existing and future customers in the United States. The company is entitled to receive a percentage of monthly gross revenues generated by Axis.
The company enters into confidentiality agreements with respect to its proprietary technology and limits access to, and distribution of its proprietary information.
EMPLOYEES
As of May 3, 1999, the company employed approximately 21 persons on a full-time basis. None of the company's employees are represented by a labor union. The company has entered into non-disclosure and non-competition agreements with its key personnel which provide that upon the termination of employment with the company for any reason, the individual will not compete with the company for two years. The company believes the non-compete covenants comply with state law, however, the company can provide you no assurances that a state court may determine not to enforce or only partially enforce such covenants. The company believes that its relations with its employees are good.
DESCRIPTION OF PROPERTY
The company currently leases approximately 6,643 square feet of office space in Houston, Texas. The lease expires in October 2000 and the monthly rental is currently $7,196. The company believes that its existing facilities are adequate to meet its current needs and to accommodate anticipated growth.
AVAILABLE INFORMATION
The SEC maintains a web site on the Internet that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC. The address of the site is http:\\www.sec.gov. Visitors to the site may access such information by searching the EDGAR data base on the site.
Prior to the date of this prospectus, the company was not subject to the information and reporting requirements of the Securities Exchange Act of 1934. As a result, the company will become subject to such requirements and begin filling periodic reports, proxy materials and other information with the SEC. The company will provide its shareholders with annual reports containing audited financial statements and, if determined to be feasible, quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. The company has filed a registration statement on Form SB-2 under the Securities Act, with respect to the securities being registered. This prospectus does not contain all the information set forth in the registration statement and its exhibits and schedules, to which reference is made. Copies of the registration statement and its exhibits are on file at the offices of the SEC and may be obtained upon payment of the fees prescribed by the SEC or may be examined, without charge, at the public reference facilities of the SEC, 450 Fifth Street, N.W., Washington D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Upon request, the company will provide without charge to each person who receives a copy of the prospectus, a copy of any of the information that is incorporated by reference in this prospectus (not including exhibits to the information that is incorporated by reference unless the exhibits are themselves specifically incorporated by reference). Any request for information should be directed to the company, attention Harry L. White, at 1770 St. James, Suite 420, Houston, Texas 77056, (713) 627-9494.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The company's directors and executive officers are:
NAME AGE POSITION
---- --- --------
Harry L. White 40 Chairman, Chief Executive Officer,
President, Treasurer and Secretary
Richard J. Finn 22 Chief Technical Officer and Director
Lee A. Magness 34 Chief Financial Officer, General Counsel
and Director
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HARRY L. WHITE has served as chairman, chief executive officer, president, secretary and treasurer of the company since inception. Since May 1998, Mr. White has served as a director of PinkMonkey.com, Inc., an Internet publisher of educational study aids. From December 1986 through February 1997, Mr. White worked at Air Products and Chemicals, a hydrogen production company, as the senior plant technician from December 1996 to February 1997. Mr. White also served as an ISO 9000 Manager from January 1994 to February 1997.
RICHARD J. FINN has served as chief technical officer and director of the company since inception. From December 1995 through February 1997, Mr. Finn served as the assistant webmaster for Neosoft, Inc., an Internet service provider. From August 1995 through December 1995, Mr. Finn served as the assistant network administrator of Cybersim, an Internet service provider. From October 1994 through August 1995, Mr. Finn served as an assistant network administrator for Triconex Systems, Inc.
LEE A. MAGNESS has served as chief financial officer, general counsel and director of the company since inception. Since August 1993, Mr. Magness has served as a financial consultant to various individuals and corporations. Prior to receiving his law degree from Thurgood Marshall School of Law, Mr. Magness served as a senior economic analyst at Transco Energy Corporation.
All executive officers of the company are chosen by the board of directors and serve at the board's discretion. There are no family relationships among the company's officers and directors. The company plans to reimburse directors for any expenses incurred in attending board of directors and Year 2000 board committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the chief executive officer of the company for the fiscal year ended July 31, 1998 and from inception (August 9, 1996) through July 31, 1997. No other executive officers of the company received total annual salary and bonus for the fiscal years ended July 31, 1998 or July 31, 1997 in excess of $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
NAME AND PRINCIPAL FISCAL OTHER ANNUAL COMPENSATION ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
-------- ---- ------ ----- --------------- ------- ------------
Harry L. White, 1998 $70,000
Chief Executive 1997 $30,000(2)
Officer and President
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EMPLOYMENT AGREEMENTS
In August 1996, Messrs. White, Finn and Magness entered into five year written employment contracts that provide for a base salary of $30,000 for the first year, $70,000 for the second year, and $120,000 annually for years three through five. In addition, these employment agreements entitle each of these individuals to an annual bonus of 1% of the company's earnings before income taxes and depreciation in excess of $5,000,000. In addition to salary, beginning in August 1998, Messrs. White, Finn and Magness each receive $600 per month as a car allowance and $200 per month for miscellaneous expenses. If the company terminates an employment contract with cause, such executive will not engage in certain activities in competition with the company for a period of six months following such termination. The company believes the non-compete covenants comply with state law, however, the company can provide you no assurances that a state court may determine not to enforce or only partially enforce such covenants.
STOCK OPTIONS
In August 1998, the Board of Directors and stockholders adopted a stock option plan under which 500,000 shares of common stock have been reserved for issuance. As of the date of this prospectus, options to purchase 288,000 shares of company common stock have been granted pursuant to the plan. The company does not have a defined benefit plan or any retirement or long-term incentive plans.
PRINCIPAL STOCKHOLDERS
The following table presents certain information regarding the beneficial ownership of all shares of the company common stock by (i) each person who owns beneficially more than five percent of the outstanding shares of common stock, (ii) each director of the company, (iii) each named executive officer, and (iv) all directors and officers as a group.
SHARES
BENEFICIALLY PERCENTAGE OF
NAME OF BENEFICIAL OWNER(1) OWNED VOTING POWER
Harry L. White 4,488,000 27.3%
Richard J. Finn 4,488,000 27.3%
Lee A. Magness 4,207,500 25.6%
All directors and officer as 13,183,500 80.2%
a group (3 persons)
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CERTAIN TRANSACTIONS
In August 1996, the company issued 4,488,000 shares of common stock to Harry L. White, 4,488,000 shares of common stock to Richard J. Finn, 4,207,500 shares of common stock to Lee A. Magness, 726,000 shares of common stock to Essitam Capital, Ltd., 709,500 shares of common stock to Sonsonate Capital, Ltd., and 660,000 shares of common stock to Seyat Capital, Ltd. for nominal consideration in connection with the company's formation. Peter Eberly is president and director of Essitam Capital Ltd., Timur Pulatoe is president and director of Sonsonate Capital, Ltd., and Woodward L. Terry is president and director of Seyat Capital, Ltd.
In July 1997, Messrs. White and Magness loaned the company $5,378 and $15,897, respectively. These loans bore interest at the rate of 6% per annum and were repaid as of July 31, 1998.
In November 1997, the company entered into an agreement with NetTrade for the design, development, production and installation of a computer program consisting of an interactive web site on the Internet providing
real time/on-line trading of commodities. The company received $80,000 in connection with this agreement. Webvest, Inc., a company owned by Messrs. White, Magness and Finn, has a 20% ownership interest in NetTrade.
In April 1998, Mr. Magness purchased 70,000 shares of PinkMonkey.com common stock in a private placement for an aggregate purchase price of $35,000.
In April 1998, Harry L. White, a director of PinkMonkey.com, was issued a three year warrant to purchase 100,000 shares of PinkMonkey.com common stock at an exercise price of $.625 per share in consideration for services rendered.
In September 1998, the company issued 750,000 shares of common stock to
PinkMonkey.com in consideration for $10 and services rendered. The company
designed PinkMonkey.com's web page and has continued to provide hosting,
maintenance and marketing services for PinkMonkey.com To date,
PinkMonkey.com has paid the company approximately $266,492 for these
services, which was comprised of $127,025 in marketing and advertising fees,
$14,250 in monthly site hosting, $6,050 in monthly maintenance and $119,167
in web site design, web site programming, licenses, set up and equipment
fees. PinkMonkey.com has been a customer of the company since October 1997,
and as such assisted in the company's development. Principals of
PinkMonkey.com have provided ongoing business advice to the company
including: (1) assistance in the development of the company's business plan,
(2) budget design, (3)market opportunity identification, and (4)
identification of acquisition and/or merger candidates. For the provision of
these ongoing services by principals of PinkMonkey.com, the company initially
issued PinkMonkey.com approximately 4,550 shares of company common stock.
The issuance was made in July 1998. On August 19, 1998, the company effected
a forward stock split of 165 for 1 for shareholders of record as of that
date. Accordingly, the shares of company common stock held by PinkMonkey.com
increased from 4,550 to 750,000. The company's accountants valued the common
stock issued to PinkMonkey.com at $749,990 in accordance with the Financial
Accounting Standards Board Statement in its Emerging Issues Task Force Issue
96-18, ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED OTHER THAN TO
EMPLOYEES FOR ACQUIRING OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES
which requires that shares issued for services rendered be valued similarly
to shares sold by the company within the same time period.
DESCRIPTION OF SECURITIES
The company is authorized to issue up to 55,000,000 shares, of which 50,000,000 shares are no par value common stock, and 5,000,000 shares are preferred stock, par value $.01 per share.
COMMON STOCK
The holders of shares of common stock are entitled to one vote per share on each matter submitted to a vote of stockholders. In the event of liquidation, holders of common stock are entitled to share ratably in the distribution of assets remaining after payment of liabilities, if any. Holders of common stock have no cumulative voting rights, and, accordingly, the holders of a majority of the outstanding shares have the ability to elect all of the directors. Holders of common stock have no preemptive or other rights to subscribe for shares. Holders of common stock are entitled to such dividends as may be declared by the board of directors out of legally available funds. The outstanding common stock is, and the common stock to be outstanding upon completion of this offering will be, validly issued, fully paid and non-assessable.
PREFERRED STOCK
The company's board of directors has the authority to issue up to 5,000,000 shares of preferred stock without any further vote or action by the stockholders, and to determine the price, rights, preferences, privileges and restrictions, including voting rights of those shares. Since the preferred stock could be issued with voting, liquidation, dividend and other rights superior to those of the common stock, the rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of preferred stock. The issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock.
TRANSFER AGENT
The company's transfer agent is Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004.
SHARES ELIGIBLE FOR FUTURE SALE
There are 16,281,633 shares of common stock currently outstanding. Upon the effectiveness of this registration statement, 252,633 shares of common stock will be eligible for immediate resale in the public market if and when any market for the common stock develops. Sales of such shares held by affiliates will, however, be subject to the restrictions of Rule 144 promulgated under the Securities Act. An affiliate of the issuer is any person who directly or indirectly controls, is controlled by, or is under common control with, the issuer. Affiliates of the company may include its directors, executive officers, and persons directly or indirectly owning 10% or more of the outstanding common stock. Under Rule 144 resales of common stock for the account of affiliates cannot be made until it has been held for one year from the later of its acquisition from the company or an affiliate of the company. Thereafter, shares of common stock may be resold without registration subject to Rule 144's volume limitation, aggregation, broker transaction, notice filing requirements, and requirements concerning publicly available information about the company. The volume limitations provide that a person (or persons who must aggregate their sales) cannot, within any three-month period, sell more than the greater of one percent of the then outstanding shares, or the average weekly reported trading volume during the four calendar weeks preceding each such sale.
PLAN OF DISTRIBUTION
The 252,633 shares offered by the selling stockholders may be sold by one or more of the following methods, without limitation: (i) ordinary brokerage transactions and transactions in which the broker-dealer solicits purchases; and (ii) face-to-face transactions between sellers and purchasers without a broker-dealer. In effecting sales, brokers or dealers engaged by the selling stockholders may arrange for other brokers or dealers to participate. The brokers or dealers may receive commissions or discounts from the selling stockholders in amounts to be negotiated. The brokers and dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act, in connection with such sales. The selling stockholder or dealer effecting a transaction in the registered securities is required to deliver a prospectus. As a result of the shares being registered under the Securities Act, holders who subsequently resell such shares to the public may be deemed to be underwriters with respect to such shares of common stock for purposes of the Securities Act, with the result that they may be subject to certain statutory liabilities if the registration statement to which this prospectus relates contains a material misstatement or omits a statement of material fact. The company has not agreed to indemnify any of the selling stockholders regarding this liability. The company will not receive any proceeds from the resale of common stock by the selling stockholders.
SELLING STOCKHOLDERS
This prospectus relates to the resale of 252,633 shares of common stock by the selling stockholders. The table below sets forth information with respect to the resale of shares of common stock by the selling stockholders. The company will not receive any proceeds from the resale of common stock by the selling stockholders for shares currently outstanding.
RESALE OF COMMON STOCK BY SELLING STOCKHOLDERS
SHARES CURRENTLY OUTSTANDING
SHARES
BENEFICIALLY AMOUNT OFFERED SHARES BENEFICIALLY
OWNED BEFORE (ASSUMING ALL SHARES OWNED AFTER
STOCKHOLDER RESALE IMMEDIATELY SOLD) RESALE PERCENTAGE
Ashraf K. Abadir 10,000 10,000 0% 0%
Jeffrey A. Ballenger 7,000 7,000 0% 0%
Stephen Bollman 4,000 4,000 0% 0%
24
|
Andrew B. Doerr(1) 8,366 8,366 0% 0% Leo Detassis 6,667 6,667 0% 0% Allen G. Dusek 3,000 3,000 0% 0% Debbie Esparza(2) 10,000 10,000 0% 0% Richard A. Finn 5,000 5,000 0% 0% W.B. Finn 1,000 1,000 0% 0% Henry Hailes 10,000 10,000 0% 0% Paul Hailes(3) 10,000 10,000 0% 0% Arthur Hebron 10,000 10,000 0% 0% Lucy Hebron 10,000 10,000 0% 0% Tom Hillman 2,000 2,000 0% 0% Hannah M. Loev 12,500 12,500 0% 0% David L. Magness(4) 15,000 15,000 0% 0% Price Lloyd Magness(4) 5,000 5,000 0% 0% Walter L. Magness(4) 22,000 22,000 0% 0% Hungson Van Nguyen 3,000 3,000 0% 0% True Lam V. Nguyen 1,000 1,000 0% 0% Dan Nelson 40,000 40,000 0% 0% Chris Truax 20,000 20,000 0% 0% Anthony Rahati 5,000 5,000 0% 0% Steve Reynolds 1,750 1,750 0% 0% Lora W. Rhein 10,000 10,000 0% 0% Frank Rhodes 1,800 1,800 0% 0% Larry Shoemaker 5,000 5,000 0% 0% Don C. Smith 2,000 2,000 0% 0% Jukka Tolonen 5,800 5,800 0% 0% Keith Ward 750 750 0% 0% Kevin Work(5) 5,000 5,000 0% 0% |
LEGAL PROCEEDINGS
The company was a plaintiff in HOUSTON INTERWEB DESIGN, INC. V. LANDRY'S SEAFOOD RESTAURANTS, INC. filed in the District Court of Harris County, Texas; 133rd Judicial District. The complaint alleged breach of contract and the company sought damages of $300,000. Landry's filed a counter-claim against the company asserting infringement of Landry's federally registered trademark LANDRY'S SEAFOOD HOUSE. The matter was resolved in the company's favor and the counter-claim was dropped.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer 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 small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
FINANCIAL STATEMENTS
The financial statements of the company appearing in this Form SB-2 Registration Statement for the period from inception (August 9, 1996) to July 31, 1997, and the year ended July 31, 1998, have been audited by Mann, Frankfort, Stein and Lipp, P.C. The financial statements have been prepared assuming that the Rescission Offerees elect not to rescind the purchase of the shares.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon for the company by Brewer & Pritchard, P. C., Houston, Texas.
HOUSTON INTERWEB DESIGN, INC.
FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
C O N T E N T S
Page
----
Independent Auditors' Report ........................................F-2
Balance Sheets ......................................................F-3
Statements of Operations ............................................F-4
Statements of Changes in Stockholders' Deficit ......................F-5
Statements of Cash Flows ............................................F-6
Notes to Financial Statements .......................................F-7
|
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Houston InterWeb Design, Inc.
We have audited the accompanying balance sheets of Houston InterWeb Design, Inc. as of July 31, 1998 and 1997, and the related statements of operations, changes in stockholders' deficit, and cash flows for the year ended July 31, 1998 and for the period from inception (August 9, 1996) to July 31, 1997. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Houston InterWeb Design, Inc. as of July 31, 1998 and 1997, and the results of its operations and its cash flows for the year ended July 31, 1998 and for the period from inception (August 9, 1996) to July 31, 1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
As shown in the financial statements, the Company incurred a net loss of $781,595 for 1998 and has incurred substantial net losses since inception. At July 31, 1998, current liabilities exceed current assets by $106,092 and total liabilities exceed total assets by $92,427. These factors, and the others discussed in Note B, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
MANN FRANKFORT STEIN & LIPP, P.C.
Houston, Texas
September 8, 1998
HOUSTON INTERWEB DESIGN, INC.
BALANCE SHEETS
July 31,
------------------------ January 31,
1998 1997 1999
--------- -------- -----------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 18,988 $ 10,204 $ 43,640
Accounts receivable - trade - related parties 55,259 14,611 23,043
Accounts receivable - trade - nonaffiliates 61,012 42,070 28,203
Deferred income tax asset - 4,998 -
Other current assets 10,445 3,226 -
--------- -------- -----------
TOTAL CURRENT ASSETS 145,704 75,109 94,886
PROPERTY AND EQUIPMENT
Office equipment 4,056 2,306 10,010
Furniture and fixtures 13,072 12,490 13,072
--------- -------- -----------
17,128 14,796 23,082
Less: accumulated depreciation 3,463 1,567 4,733
--------- -------- -----------
TOTAL PROPERTY AND EQUIPMENT 13,665 13,229 18,349
INVESTMENT UNDER THE EQUITY METHOD - - -
--------- -------- -----------
TOTAL ASSETS $ 159,369 $ 88,338 $ 113,235
--------- -------- -----------
--------- -------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 220,086 $127,895 $ 307,910
Advances payable - affiliate - - 30,000
Deposits - - 24,976
Deferred income tax liability 2,498 - -
Note payable - line of credit 29,212 - 29,219
Notes payable to stockholders - 21,275 -
--------- -------- -----------
TOTAL CURRENT LIABILITIES 251,796 149,170 392,105
STOCKHOLDERS' DEFICIT
Common stock, no par value, 50,000,000 shares
authorized, 16,029,000 and 15,279,000 shares
issued and outstanding at July 31, 1998 and 1997,
respectively, and 16,281,633 shares issued at
January 31, 1999 754,000 4,000 1,090,950
Stock subscriptions receivable - - (14,609)
Accumulated deficit (846,427) (64,832) (1,355,211)
--------- -------- -----------
TOTAL STOCKHOLDERS' DEFICIT (92,427) (60,832) (278,870)
--------- -------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 159,369 $ 88,338 $ 113,235
--------- -------- -----------
--------- -------- -----------
|
See accompanying notes to financial statements.
HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF OPERATIONS
Period From
Inception
(August 9, Six Months Ended
Year Ended 1996) January 31,
July 31, to July 31, -----------------------------
1998 1997 1999 1998
-------------- ------------- ------------- --------------
(unaudited) (unaudited)
REVENUES
Affiliates $ 110,951 $ 22,830 $ 41,486 $ 80,000
Nonaffiliates 517,119 163,164 217,261 182,437
-------------- ------------- ------------- --------------
TOTAL REVENUES 628,070 185,994 258,747 262,437
EXPENSES
Advertising 32,620 28,215 33,173 12,173
Computer equipment 25,051 38,248 21,528 16,998
Consulting costs 749,990 - - -
Contract labor 68,198 44,755 11,247 21,982
Depreciation 1,896 1,567 1,270 949
General and administrative 20,096 3,605 47,803 3,152
Interest 6,080 2,690 3,082 3,736
Internet service 29,019 8,073 17,932 11,063
Professional fees 15,288 1,228 201,706 -
Rent 21,105 10,450 37,449 8,873
Repairs and maintenance 3,474 3,391 2,773 4,205
Salaries and benefits 384,082 93,188 372,222 174,406
Supplies 26,036 11,461 5,228 11,314
Telephone 11,797 4,806 5,891 5,814
Travel 7,437 4,147 8,725 2,404
-------------- ------------- ------------- --------------
TOTAL EXPENSES 1,402,169 255,824 770,029 277,069
-------------- ------------- ------------- --------------
INCOME (LOSS) BEFORE FEDERAL
INCOME TAXES (774,099) (69,830) (511,282) (14,632)
FEDERAL INCOME TAX EXPENSE
(BENEFIT)
Deferred 7,496 (4,998) (2,498) (1,045)
-------------- ------------- ------------- --------------
NET LOSS $ (781,595) $ (64,832) $ (508,784) $ (13,587)
============== ============= ============= ==============
NET LOSS PER SHARE, BASIC AND
DILUTED $ (0.05) $ - $ (0.03) $ -
============= ============= ============ ==============
AVERAGE SHARES OUTSTANDING,
BASIC AND DILUTED 15,341,535 15,279,000 16,128,268 15,279,000
============== ============= ============= ==============
|
See accompanying notes to financial statements.
HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
YEAR ENDED JULY 31, 1998 AND PERIOD FROM INCEPTION (AUGUST 9, 1996) TO
JULY 31, 1997
Common Stock Stock
----------------------------- Accumulated Subscription
Shares Amount Deficit Receivable Total
------------- -------------- ------------- ------------- --------------
Contributions 15,279,000 $ 4,000 $ - $ - $ 4,000
Net loss, period from inception
(August 9, 1996) to July 31, 1997 - - (64,832) - (64,832)
------------- -------------- ------------- ------------- --------------
Balance, July 31, 1997 15,279,000 4,000 (64,832) - (60,832)
Issuance of common stock, issued
as compensation 750,000 750,000 - - 750,000
Net loss, year ended July 31, 1998 - - (781,595) - (781,595)
------------- -------------- ------------- ------------- --------------
Balance, July 31, 1998 16,029,000 754,000 (846,427) - (92,427)
Net loss, six months ended
January 31, 1999 (unaudited) - - (508,784) - (508,784)
Issuance of common stock
(unaudited) 160,133 198,200 - - 198,200
Issuance of common stock as
compensation (unaudited) 20,000 30,000 - - 30,000
Issuance of common stock for
services rendered (unaudited) 72,500 108,750 - - 108,750
Stock subscription receivable - - - (14,609) (14,609)
------------- -------------- ------------- ------------- --------------
Balance, January 31, 1999
(unaudited) 16,281,633 $ 1,090,950 $ (1,355,211) $ (14,609) $ (278,870)
============= ============== ============= ============= ==============
|
See accompanying notes to financial statements.
HOUSTON INTERWEB DESIGN, INC.
STATEMENTS OF CASH FLOWS
Period From
Inception
(August 9, Six Months Ended
Year Ended 1996) January 31,
July 31, to July 31, -------------------------
1998 1997 1999 1998
---------- ----------- ----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(781,595) $(64,832) $(508,784) $(13,587)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 1,896 1,567 1,270 949
Deferred income tax expense (benefit) 7,496 (4,998) (2,498) (1,045)
Common stock issued as compensation 749,990 - 138,750 -
Changes in assets and liabilities:
Accounts receivable (59,590) (56,681) 65,025 (25,451)
Deposits - - 24,976 -
Other current assets (7,219) (3,226) 10,445 2,287
Accounts payable and accrued expenses 92,191 127,895 87,824 76,075
---------- ----------- ----------- -----------
784,764 64,557 325,792 52,815
---------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 3,169 (275) (182,992) 39,228
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,332) (14,796) (5,954) (2,332)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from affiliate - - 30,000 -
Net proceeds (repayments) from notes payable (21,275) 21,275 - (21,275)
Net proceeds from line of credit 29,212 - 7 26,689
Proceeds from issuance of common stock 10 4,000 198,200 -
Increase in stock subscriptions receivable - - (14,609) -
---------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 7,947 25,275 213,598 5,414
---------- ----------- ----------- -----------
NET INCREASE IN CASH 8,784 10,204 24,652 42,310
CASH AT BEGINNING OF PERIOD 10,204 - 18,988 10,204
---------- ----------- ----------- -----------
CASH AT END OF YEAR $ 18,988 $ 10,204 $ 43,640 $ 52,514
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
SUPPLEMENTAL CASH FLOW
INFORMATION
Interest paid $ 6,080 $ 2,690 $ 3,082 $ 3,736
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
SUPPLEMENTAL NONCASH FINANCING
ACTIVITIES
July 31, 1998 issuance of 750,000 common
shares in exchange for consulting services $ 749,990 $ - $ - $ -
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
January 31, 1999 issuance of 92,500
common shares as compensation and for
services rendered $ - $ - $ 138,750 $ -
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
|
See accompanying notes to financial statements.
HOUSTON INTERWEB DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JULY 31, 1998 AND INITIAL PERIOD ENDED JULY 31, 1997
(INFORMATION SUBSEQUENT TO JULY 31, 1998 IS UNAUDITED)
NOTE A - NATURE OF OPERATIONS
Houston InterWeb Design, Inc. (the Company) was incorporated in the State of Texas in August, 1996. The Company is engaged in the design and creation of internet websites for customers. The Company uses internally developed technology for the creation of websites, which it licenses to customers, which ensures that customers websites are brought up in front of an internet user irrespective of the search engine used.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying financial statements have been prepared assuming the Company will be able to continue as a going concern. The Company has a working capital deficit of $106,092 and a stockholders' deficit of $92,427 at July 31, 1998, and experienced significant losses in fiscal 1998 which raise doubts about the Company's ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or capital and to refinance its debt and ultimately attain profitable operations.
Management's plans include the following:
- Increasing revenues by attracting new customers by increasing its sales and market operations to develop an awareness by potential customers of the Company's ability to create valuable interactive web sites.
- As described in Note J, the Company recently entered into a contract with a corporation (reseller) to market and distribute software products manufactured and hosted by the Company. The amount of revenue, if any, as a result of the above contract cannot presently be determined.
- Obtaining equity capital or debt financing.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost with depreciation calculated using the straight-line method over its estimated useful lives ranging from five to ten years. When assets are retired or otherwise removed from the accounts, any resulting gain or loss is reflected in income for the period. The cost of maintenance and repairs is charged to expense as incurred and significant renewals and improvements are capitalized.
REVENUE RECOGNITION: Revenues are recognized as services are provided, in accordance with customer agreements. For the year ended July 31, 1998, revenues from significant customers totaled $368,572. Included in this amount is $80,000 earned from a nonrecurring customer. Royalty income from website or other related licensing agreements is recognized as it is earned per the individual terms of each royalty agreement, and is generally comprised of a minimum amount which varies by customer, plus a stated percentage of the applicable licensee's sales. The minimum amount is recognized upon completion of the design and development of the InterWeb web site and placing the web site into the siteblazer network at which time the Company has completed all obligations under the licensing agreement. The Company uses the direct write-off method in accounting for bad debts, the results of which are not materially different from the allowance method.
HOUSTON INTERWEB DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JULY 31, 1998 AND INITIAL PERIOD ENDED JULY 31, 1997
(INFORMATION SUBSEQUENT TO JULY 31, 1998 IS UNAUDITED)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: The liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using anticipated tax rates and laws that will be in effect when the differences are expected to reverse. The realizability of deferred tax assets are evaluated annually and a valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits in the Company's tax returns.
USE OF ESTIMATES: 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.
UNAUDITED INTERIM INFORMATION: The accompanying financial information as of January 31, 1999 and for the six months ended January 31, 1999 and 1998 has been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments, consisting of normal recurring accruals which are, in the opinion of management, necessary to fairly present such information in accordance with generally accepted accounting principles.
NOTE C - INVESTMENTS UNDER THE EQUITY METHOD
At July 31, 1998, the Company owned a 30% interest in an internet provider of pet medical records (the investee). The Company obtained this ownership interest in exchange for providing its internet website search engine technology to this investee. The Company believes the fair value of these services provided to this investee to be de minimis, and therefore, has recorded its 30% ownership interest in this investee at a zero basis on its balance sheet. Additionally, at July 31, 1998 and January 31, 1999, the activities of the investee had not commenced.
NOTE D - NOTE PAYABLE
Note payable consist of the following:
July 31,
-------------------------
1998 1997
---------- ----------
Revolving line of credit with a bank, providing for $30,000 maximum
borrowings; uncollateralized, bearing interest at prime plus 1%;
interest payable monthly, principal payable on demand at the
bank's option. $ 29,212 $ -
========== ==========
|
HOUSTON INTERWEB DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JULY 31, 1998 AND INITIAL PERIOD ENDED JULY 31, 1997
(INFORMATION SUBSEQUENT TO JULY 31, 1998 IS UNAUDITED)
NOTE E - INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at July 31, 1998 and
1997 are as follows:
July 31,
-------------------------------
1998 1997
------------- -------------
Deferred tax assets:
Net operating loss carryforward $ 290,373 $ 5,177
Cash-to-accrual differences - 4,998
------------- -------------
Total gross deferred tax assets 290,373 10,175
Less: valuation allowance 290,373 5,177
------------- -------------
- 4,998
Deferred tax liabilities:
Tax over book depreciation (371) -
Cash-to-accrual differences (2,127) -
------------- -------------
Total gross deferred tax liabilities (2,498) -
------------- -------------
Net current deferred tax assets (liability) $ (2,498) $ 4,998
============= =============
|
The Company has net operating loss carryforwards of approximately $854,000 as of July 31, 1998, which expire through the year 2013. Valuation allowances have been provided for all net operating losses due to lack of evidence of future recoverability at July 31, 1998.
The difference between the reported income tax expense (benefit) and the income tax expense (benefit) computed by multiplying the loss before income taxes by the federal statutory income tax rate is as follows:
Year Ended July 31,
-------------------------------
1998 1997
------------- -------------
Current tax benefit computed at federal
statutory tax rate $ (263,194) $ (23,742)
Effect of marginal tax brackets - 11,284
Change in valuation allowance 285,196 5,177
Other (14,506) 2,283
------------- -------------
Total income tax expense (benefit) $ 7,496 $ (4,998)
============= =============
|
HOUSTON INTERWEB DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JULY 31, 1998 AND INITIAL PERIOD ENDED JULY 31, 1997
(INFORMATION SUBSEQUENT TO JULY 31, 1998 IS UNAUDITED)
NOTE F - RELATED PARTY TRANSACTIONS
The Company has notes payable to its stockholders, unsecured, with interest
payable at 6%, maturing July 31, 1998. Interest expense on these notes totaled
approximately $293 in 1998 and $1,660 in 1997. The following is a summary of
notes payable to stockholders:
July 31,
-------------------------------
1998 1997
------------- -------------
Lee Magness $ - $ 15,897
Harry White - 5,378
------------- -------------
$ - $ 21,275
============= =============
|
In July 1998, the Company issued 4,545.4545 shares of its common stock to a
publicly traded related party (certain officers and stockholders of the
Company are directors and own stock in the related party) in exchange for ten
dollars cash consideration and various consulting services provided. After
giving effect to the 165 for 1 common stock split discussed below in Notes H
and I, the amount of shares issued to this related party became 750,000. In
accordance with Financial Accounting Standards Board Statement in its
Emerging Issues Task Force Issue 96-18, ACCOUNTING FOR EQUITY INSTRUMENTS
THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH
SELLING, GOODS OR SERVICES, $749,990 was recognized as consulting costs to
account for the fair value of the consulting services received from this
related party.
As of July 31, 1998, the Company has recognized revenue of approximately $30,951 in connection with a web site marketing program between the Company and the related party described above. The Company had a receivable from the related party of $17,894 as of July 31, 1998 which has been recorded in accounts receivable related parties in the balance sheet.
Additionally, the Company recognized revenue of $80,000 for the year ended July 31, 1998 for services performed for a related party (an officer of the Company is a director of the related party) of which $37,365 remains uncollected at July 31, 1998 and has been included as accounts receivable - affiliates.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company's minimum rental commitments under a noncancelable operating
lease for office space is as follows:
Years Ending July 31,
---------------------
1999 $ 86,360
2000 86,360
2001 21,590
-------------
$ 194,310
=============
|
HOUSTON INTERWEB DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JULY 31, 1998 AND INITIAL PERIOD ENDED JULY 31, 1997
(INFORMATION SUBSEQUENT TO JULY 31, 1998 IS UNAUDITED)
NOTE G - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total rental expense for the year ended July 31, 1998 was $21,105 and for the initial period ended July 31, 1997 was $10,450.
The Company has instituted legal proceedings against a party for breach of contract seeking damages of $300,000. The party has made a counter claim against the Company, but has not plead any amount of damages. Management is of the opinion that the counter claim filed by the party is without basis and that the Company will prevail. Accordingly, no gain or loss has been accrued in these financial statements pertaining to these proceedings. In January 1999, in accordance with a confidential and mutual release and settlement agreement, the Company received nominal consideration in exchange for the mutual releases of all parties.
The Company has employment agreements with three of its stockholders providing a base annual salary through August, 2001. The base salary may be increased at the Company's option. In addition, this employment agreement entitles each of these stockholders to an annual bonus of 1% of the Company's earnings (before income taxes and depreciation) in excess of $5,000,000. Minimum annual commitments under these agreements amount to $360,000. Amounts incurred by the Company related to these employment agreements were $210,000 and $90,000 for the fiscal year ended July 31, 1998, and the initial period ended July 31, 1997, respectively, and $180,000 and $105,000 for the six months ended January 31, 1999 and 1998, respectively.
NOTE H - EARNINGS PER SHARE
In accordance with Financial Accounting Standards Board Statement 128, EARNINGS PER SHARE, basic earnings per common share amounts are calculated using the average number of common shares outstanding during each period, retroactively adjusted to give effect to the 165 for 1 common stock split discussed previously in Note F, and below in Note I. As there were no dilutive potential common shares outstanding during the year ended July 31, 1998, or during the initial period ended July 31, 1997, basic average shares outstanding and earnings per share are equal to diluted average shares outstanding and earnings per share, respectively, for the year ended July 31, 1998, and for the initial period ended July 31, 1997 and for the six month periods ended January 31, 1999 and 1998.
NOTE I - STOCKHOLDERS' EQUITY
Subsequent to July 31, 1998, in contemplation of the stock split and employee incentive stock option plan discussed below, the Company amended its articles of incorporation to increase its authorized capital to 50,000,000 common shares of no par value, and 5,000,000 preferred shares with $.01 par value. No preferred shares have been issued to date. All references herein have been restated to reflect the amended amounts.
HOUSTON INTERWEB DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JULY 31, 1998 AND INITIAL PERIOD ENDED JULY 31, 1997
(INFORMATION SUBSEQUENT TO JULY 31, 1998 IS UNAUDITED)
NOTE I - STOCKHOLDERS' EQUITY (Continued)
On August 19, 1998, the Company effected a stock split on its common stock of 165 for 1 for stockholders of record on August 19, 1998. Subsequent to this stock split, and prior to October 31, 1998, the Company sold an additional 117,500 shares of its common stock to various individuals at prices ranging from $1 per share to $1.50 per share. As a result of the stock split and the subsequent sales of common stock, the total common stock of the Company issued and outstanding increased to 16,146,500 shares. All references to shares issued have been restated for the above stock split for all periods presented.
On August 21, 1998, the Company formed an incentive stock option plan for its employees under which 500,000 shares of common stock will be awarded to employees based upon criteria established under the plan. During February 1999, 288,000 shares were issued to employees under this plan although no options have been exercised to date.
NOTE J - SUBSEQUENT EVENTS
Subsequent to January 31, 1999, the Company has continued to issue shares of common stock to individuals for cash at prices ranging from $1.00 per share to $1.50 per share, including 166,667 shares issued to two individuals for $250,000 cash in February 1999. In April 1999, the Company initiated a recision offer to the individuals.
At the end of January 1999, the Company entered into a contract with a corporation (reseller) to market and distribute software products manufactured and hosted by the Company. The amount of revenue, if any, as a result of the above contract cannot presently be determined.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Texas law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breach of directors' fiduciary duty of care. The amended and restated articles of incorporation of the company limit the liability of directors of the company (in their capacity as directors but not in their capacity as officers) to the company or its stockholders to the fullest extent permitted by Texas law. Specifically, directors of the company will not be personally liable for monetary damages for breach of a director's fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the company or its stockholders, (ii) for acts or omissions not in good faith that constitute a breach of duty of the director to the company or an act or omission which involves intentional misconduct or a knowing violation of law, (iii) for an act or omission for which the liability of a director is expressly provided by an applicable statute, or (iv) for any transaction from which the director received an improper personal benefit, whether the benefit resulted from an action taken within the scope of the director's office. Section 2.41 of the Texas Business Corporation Act relates to directors' liability for unlawful dividends and stock issuances.
The inclusion of this provision in the amended and restated articles of incorporation may have the effect of reducing the likelihood of derivative litigation against directors, and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefitted the company and its stockholders.
The company's amended and restated articles of incorporation provide for the indemnification of its executive officers and directors, and the advancement to them of expenses in connection with any proceedings and claims, to the fullest extent permitted by the Texas Business Corporation Act. The amended and restated articles of incorporation include related provisions meant to facilitate the indemnities' receipt of such benefits. These provisions cover, among other things: (i) specification of the method of determining entitlement to indemnification and the selection of independent counsel that will in some cases make such determination, (ii) specification of certain time periods by which certain payments or determinations must be made and actions must be taken, and (iii) the establishment of certain presumptions in favor of an indemnitee. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the company pursuant to the foregoing provisions, the company has been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in connection with the distribution of the securities being registered. The expenses shall be paid by the Registrant.
SEC Registration Fee . . . . . . . . . . . . $ 100.00
Printing and Engraving Expenses. . . . . . . 2,000.00
Legal Fees and Expenses. . . . . . . . . . . 40,000.00
Accounting Fees and Expenses . . . . . . . . 35,000.00
Miscellaneous. . . . . . . . . . . . . . . . 5,000.00
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TOTAL. . . . . . . . . . . . . . . . . . . . $82,100.00
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In August 1996, the company issued an aggregate of 15,279,000 shares of common stock to three individuals and three entities for nominal consideration in connection with the company's formation. The company believes these transactions were exempt from registration pursuant to Section 4(2) of the Securities Act as isolated transactions by an issuer not involving a pubic offering. The company believes as these investors were insiders they had access to the inner workings of the company, which would provide them the same kind of information as would be included in a registration statement.
From August 1998 through November 1998, the company issued an aggregate of 160,133 shares of common stock in consideration for an aggregate of $197,499.50. The Company believes that the foregoing transactions are exempt from registration as a limited offering pursuant to Rule 504 of Regulation D.
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In July 1998, the company issued 750,000 shares of common stock to PinkMonkey.com for nominal consideration and services rendered. The company believes these transactions were exempt from registration pursuant to Section 4(2) of the Securities Act as isolated transactions by an issuer not involving a pubic offering. The company believes as these investors were insiders they had access to the inner workings of the company, which would provide them the same kind of information as would be included in a registration statement.
In November 1998, the company issued an aggregate of 72,500 shares of common stock to three individuals in consideration for services rendered. The company believes these transactions were exempt from registration pursuant to Section 4(2) of the Securities Act as isolated transactions by an issuer not involving a pubic offering. The company believes as these investors were insiders they had access to the inner workings of the company, which would provide them the same kind of information as would be included in a registration statement.
In November 1998, the company issued an aggregate of 20,000 shares to three employees in consideration for services rendered. The company believes these transactions were exempt from registration pursuant to Section 4(2) of the Securities Act as transactions by an issuer not involving a pubic offering. The company believes as these investors were insiders they had access to the inner workings of the company, which would provide them the same kind of information as would be included in a registration statement.
In February 1999, the company issued 66,667 shares of company common stock to an accredited individual for $100,000.00. In addition, the company issued 100,000 shares of company common stock to an accredited individual for $150,000.00. The company believes these transactions were exempt from registration pursuant to Section 4(2) of the Securities Act as isolated transactions by an issuer not involving a pubic offering. The company believes that as accredited investors these individuals were able to fend for themselves due to their exceptional business experience.
ITEM 27. EXHIBITS
INDEX TO EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
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3.1(1) Amended and Restated Articles of Incorporation
3.2(1) Articles of Amendment to the Articles of Incorporation
3.3(1) By-Laws of the company
3.4(1) Articles of Correction to the Amended and Restated Articles
of Incorporation
3.5(1) Articles of Correction to the Articles of Amendment to the
Articles of Incorporation
4.1(1) Form of Specimen of common stock
5.1(3) Legal Opinion
10.1(1) Letter Agreement between the company and PinkMonkey.com,
Inc.
10.2(1) Software License and Marketing Agreement between the company
and Websource Media, L.L.C.
10.3(1) Software Reseller Agreement between the company and Harry
Bauge
10.4(1) Letter Agreement between the company and Harry Bauge
10.5(1) Agreement between the company and NetTrade Online, L.L.C.
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10.6(1) Employment Agreement between the company and Harry White
10.7(1) Employment Agreement between the company and Richard Finn
10.8(1) Employment Agreement between the company and Lee Magness
10.9(1) Lease Agreement
10.10(3) Software Reseller Agreement with Eduardo F. Azcoitia, dba
Proses
10.11(3) Joint Marketing Agreement with West Marketing Services
Corporation
10.12(3) License and Service Agreement with Axis Technologies Corp.
23.1(3) Consent of Mann, Frankfort, Stein and Lipp, P.C.
23.2(2) Consent of Brewer & Pritchard, P.C.
27.1(1) Financial Data Schedule
99.1(3) Notice of Recission
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(1) Filed as an Exhibit to the company's registration statement on Form SB-2
(File No. 67871) and herein incorporated by reference.
(2) Contained in Exhibit 5.1.
(3) Filed herewith.
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the Securities Act;
ii. Reflect in the prospectus any facts or events arising after the effective date of which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
iii. Include any additional or changed material on the plan of distribution.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) i. That, for the purpose of determining liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of
the time it was declared effective.
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ii. For determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof.
(b) Insofar as indemnification for liabilities arising under the 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 SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act, 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 of Houston, State of Texas, on the 6th day of May, 1999.
HOUSTON INTERWEB DESIGN, INC.
By: /s/ Harry White
-------------------------------------
HARRY L. WHITE, President and
Chief Executive Officer
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This registration statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Harry L. White President, Treasurer, May 6, 1999
------------------------------- Secretary and Chairman
HARRY L. WHITE
/s/ Richard J. Finn Chief Technical Officer and May 6, 1999
------------------------------- Director
RICHARD J. FINN
/s/ Lee A. Magness Chief Financial Officer, General May 6, 1999
------------------------------- Counsel and Director
LEE A. MAGNESS
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May 6, 1999
Board of Directors
Houston InterWeb Design, Inc.
1770 St. James Place
Suite 515
Houston, Texas 77056
Gentlemen:
As counsel for Houston InterWeb Design, Inc., a Texas corporation ("Company"), you have requested our firm to render this opinion in connection with the Registration Statement of the Company on Form SB-2 filed under the Securities Act of 1933, as amended ("Act"), with the Securities and Exchange Commission relating to the registration of the resale of 252,633 shares of Company common stock ("Shares").
We are familiar with the registration statement and the registration contemplated thereby. In giving this opinion, we have reviewed the registration statement and such other documents and certificates of public officials and of officers of the Company with respect to the accuracy of the factual matters contained therein as we have felt necessary or appropriate in order to render the opinions expressed herein. In making our examination, we have assumed the genuineness of all signatures, the authenticity of all documents presented to us as originals, the conformity to original documents of all documents presented to us as copies thereof, and the authenticity of the original documents from which any such copies were made, which assumptions we have not independently verified.
Based upon all the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas.
2. The Shares are duly authorized common shares in the capital of the Company.
3. The Shares are issued and, when sold in the manner described as in the Registration Statement, will be validly issued, fully paid and nonassessable
Board of Directors
May 6, 1999
We consent to the filing of this opinion as an exhibit to the Registration Statement and the use in the registration statement of the reference to Brewer & Pritchard, P.C. under the heading "Legal Matters."
Very truly yours,
BREWER & PRITCHARD, P.C.
SOFTWARE RESELLER AGREEMENT
THIS AGREEMENT is entered into as of January 15, 1999, by and between HOUSTON INTERWEB DESIGN, INC., a Texas corporation ("Interweb") and Eduardo F. Azcoitia, dba Proses, a Texas Corporation ("Reseller").
WHEREAS, Interweb has the right to license the Software Product(s); and
WHEREAS, the parties desire that Interweb license to Reseller the right to market and distribute Software Product(s) manufactured and hosted by Interweb, such distribution to be authorized on a stand-alone basis, subject to the terms and conditions hereof;
NOW, THEREFORE, in consideration of the foregoing, and in reliance on the mutual agreements contained herein, the parties agree as follows:
1. DEFINITIONS
1.1 "Software Product(s)." Interweb's computer program(s) in Object Code form as listed and described in Interweb's attached Confidential Product and Price List Exhibit, together with associated Documentation, and any fixes, updates, or upgrades which are delivered to Reseller by Interweb under this initial Agreement or under any other agreement or arrangement between the parties.
1.2 "Documentation." User's guides for the Software Product(s).
1.3 "Object Code." The representation of Software Product(s) in the binary instruction code form suitable for execution by a computer.
1.4 "Source Code." The representation of Software Product(s) in a relatively high-level computer programming language.
1.5 "Distributors." Distributors, wholesalers, and retailers of computer and/or software products.
1.6 "End-Users." Customers who acquire Software Product(s) for their internal use and not for redistribution, remarketing, time-sharing, or service bureau use.
1.7 "Field of Use." All industries.
1.8 "End-User License Terms." Terms and conditions described in the attached End-User License Terms Exhibit to be incorporated into an End-User license agreement by Reseller for use in the distribution of Software Product(s).
1.9 "Proprietary Rights." Any and all rights in and with respect to patents, copyrights, Confidential Information, know-how, trade secrets, moral rights, contract or licensing rights, confidential and proprietary information protected under contract or otherwise under law, and other similar rights or interests in intellectual or industrial property.
1.10 "Indemnify." To fully defend and indemnify the designated party to be indemnified, its officers, directors, employees, agents and other representatives, and to pay any and all liabilities, losses and damages (including awards of court costs and attorneys' fees) resulting from the subject claim.
1.11 "Confidential Information." Information (i) relating to the architecture, design, and coding methodology embodied in the Software Product(s); (ii) embodied herein regarding the terms and conditions of this Agreement; and (iii) disclosed by one party to the other regarding past, present, or future marketing and business plans, customer lists, and lists of prospective customers.
1.11.1 "Confidential Information" includes all tangible materials which contain the information described above, including without limitation, written or printed documents and electronic media.
1.11.2 "Confidential Information" does not include (i) information which is or becomes generally known or available through no act or failure to act by the receiving party; (ii) is already known by the receiving party as evidenced by its written records, (iii) is rightfully furnished to the receiving party by a third party without restriction or disclosure; or (iv) is independently developed by the receiving party without reference to Confidential Information.
1.12 "Technical Support Terms." Those terms and conditions set forth in the attached Technical Support Terms Exhibit, and by reference incorporated herein.
1.13 "Territory." Mexico, Colombia and the United States.
1.14 "Effective Date." The date of execution hereof by both parties as specified in the preamble hereof.
2. LICENSE AND RESTRICTIONS
2.1 Grant of License. Subject to the limitations and restrictions provided in this Section 2 and to the other terms and conditions of this Agreement, Interweb hereby grants, and Reseller hereby accepts, the limited right and license:
2.1.1 Use License - to practice, use, and operate the Software Product(s) and only those of Interweb's Proprietary Rights embodied therein which are necessary for purposes of the reasonable exercise and enjoyment of the limited rights granted herein.
2.1.2 Distribution License - to distribute and display the Software Product(s) on a standalone basis as authorized herein, only in Object Code form, only as limited by the Field of Use, and only to End-Users located within the Territory through a single tier of distribution consisting only of sales personnel with face-to-face contact with End-Users.
2.1.3 End-User Sublicenses - to grant sublicenses for Software Product(s) only to End-Users, only for purposes of use and not for redistribution, only in conformity with the Sublicense Terms, and only in written form and signed by the Reseller.
2.2 Non-Exclusive License. The license granted herein is non-exclusive. Interweb may distribute the Software Product(s) both on a stand-alone basis and as combined with other software without restriction.
2.3 Exclusive Dealing Restriction. During the term hereof, Reseller shall not distribute, or act as an agent or representative of any developer, publisher, or manufacturer, of software programs that are functionally comparable or intended, by applicable marketing and promotional programs directed to such products, to compete directly with the Software Product(s).
2.4 Internal Use of Software Product(s). Reseller may use the Software Product(s) to process Reseller's own internal data without restriction. Reseller is not authorized to process data for third parties.
2.5 Restriction on Promotional Copies. Notwithstanding anything to the contrary contained herein, distribution of promotional or demonstration copies of Software Product(s) by Reseller without payment of fair market value in money is not authorized, except for a maximum of the lesser of (i) five percent (5%) of copies distributed, or (ii) 500 copies per year during the term hereof.
2.6 Trademark Rights; Product Naming.
2.6.1 Reseller is hereby granted the limited right and license to reproduce Interweb's trademark(s) associated with the Software Product(s) on marketing materials and advertising for the Software Product(s), subject to a right of prior approval by Interweb for purposes of determining accuracy and correctness. Reseller shall not otherwise use such trademarks for any purpose without the prior written approval of Interweb.
2.6.2 Reseller is not authorized (i) to alter or modify Interweb's trademark(s) associated with the Software Product(s), or (ii) to market or distribute the Software Product(s) under any other product name or trademark.
2.7 Export. Software Product(s), including associated technical data, are subject to United States export control laws, and may be subject to export or import regulation in other countries. If Reseller is authorized to distribute Software Product(s) outside the United States at any time during the term hereof, Reseller agrees to comply strictly with all such regulations, and acknowledges that it has the responsibility to obtain such licenses to export, re-export, or import Software Product(s). Reseller shall, at its own expense, obtain and arrange for the maintenance in full force and effect of all governmental approvals, consents, licenses, authorizations, declarations, filings and registrations as may be necessary or advisable for the performance of the terms and conditions of this Agreement, including without limitation, fair trade approvals.
2.8 Retained Rights. All rights that are not expressly granted to Reseller herein are retained by Interweb.
3. INTERWEB'S MARKETING AND SUPPORT RESPONSIBILITIES
3.1 Duties of Interweb. Interweb shall at its expense unless otherwise provided:
3.1.1 Manufacture Software Product units and host sites for
Reseller.
EA EA HW HW
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3
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3.1.2 Provide to Reseller two (2) days (consisting of 8 hours
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each) and up to 20 hours tech training/support of training at Interweb's facility or at a mutually agreeable location regarding the use and operation of the Software Product(s), all travel and lodging expenses to be the sole responsibility of Reseller; additional training, if requested by Reseller, will be provided at Interweb's then-current rates for consulting services.
3.1.3 Provide technical support only to Reseller in accordance with the Technical Support Terms. Interweb shall charge fees for technical support as provided in the Technical Support Terms.
3.2 Standard of Performance. Interweb shall use reasonable efforts to perform the marketing and support responsibilities described above.
4. RESELLER'S MARKETING AND SUPPORT RESPONSIBILITIES
4.1 Duties of Reseller. Reseller shall at its expense unless otherwise provided:
4.1.1 Design and print product advertising and collateral materials for the Software Product(s).
4.1.2 Develop and implement positioning strategies for the
Software Product(s).
4.1.3 Provide to Interweb within thirty (30) days of the Effective
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Date a written marketing plan describing the projected sales for Software Product(s) for the initial term hereof together with the strategies and tactics for achieving the projected results.
4.1.4 Provide suitable press releases and public relations efforts for the initial launch of Software Product(s), together with ongoing public relations activities.
4.1.5 Promote, market, and distribute the Software Product(s) only through sales personnel with face-to-face contact with End-Users; sales personnel may be employees and/or sales agents selected by Reseller.
4.1.6 Comply with all limitations and restrictions on marketing and distribution provided in Section 2.
4.2 Standard of Performance. Reseller shall use its reasonable efforts to perform the marketing and support responsibilities described above.
5. PAYMENT, AND TAXES
5.1 This Agreement Controls. Notwithstanding the content of Reseller's purchase orders, this Agreement shall take precedence over such purchase order, and any conflicting, inconsistent, or additional terms of Reseller's purchase order shall be null and void.
5.2 Price and Payment.
5.2.1 Price; Resale Prices. Subject to the terms and conditions set forth in the Confidential Product and Price List, Reseller shall pay the price per unit for the Software Product(s) as indicated on the Confidential Product and Price List. Retail prices indicated by Interweb from time-to-time are binding on Reseller, and Reseller is free to determine its own resale pricing structure by bundling individual components as long as the minimum levels of each upsell/enhancement as defined on Attachment A are maintained.
5.2.2 Payment Terms. Payment terms are in full on the 10th day of each month if such day is a business day and on the next business day after the 10th if such date is a weekend or holiday. Payment is calculated on the gross revenues received in each month and subject to the pricing provisions above in 5.2.1 and in the Confidential Product and Price List. Interweb reserves the right in its reasonable commercial judgment to place Reseller on credit hold, in which event Interweb will promptly inform Reseller, and Interweb may suspend Reseller orders.
5.2.3 Taxes and Duties. The prices stated are exclusive of income taxes, sales or use taxes, ad valorem taxes, duties, licenses, or levies imposed on the production, storage, sale, transportation or use of the Software Product(s). Reseller shall pay all such charges either as levied by taxing authorities or as invoiced by Interweb, or, in lieu thereof, Reseller shall provide an exemption certificate acceptable to the relevant taxing authorities.
6. WARRANTIES
6.1 Interweb's Limited Performance Warranty. For a period of ninety (90) days commencing with the date of purchase by the End-User, Interweb warrants that the unmodified Software Product(s) shall (i) perform substantially in accordance with any provided Documentation, and (ii) be free of defects in materials and workmanship. Reseller's sole and exclusive remedy for breach of this warranty shall be limited to the prompt repair or replacement of the affected Software Product unit at Interweb's expense.
6.2 Disclaimer. TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, INTERWEB DISCLAIMS ALL OTHER WARRANTIES, EXPRESS AND IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6.2.1 SPECIFICALLY, INTERWEB MAKES NO REPRESENTATION OR WARRANTY THAT ANY SOFTWARE PRODUCT IS FIT FOR ANY PARTICULAR PURPOSE, AND ANY IMPLIED WARRANTY OF MERCHANTABILITY IS LIMITED TO THE DURATION OF THE LIMITED WARRANTY COVERING THE DELIVERABLES ONLY, AND IS OTHERWISE HEREBY EXPRESSLY DISCLAIMED. BECAUSE SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF IMPLIED WARRANTIES, THE ABOVE LIMITATION MAY NOT APPLY.
6.2.2 RESELLER EXPRESSLY ACKNOWLEDGES THAT NO REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS AGREEMENT HAVE BEEN MADE RESPECTING THE GOODS OR SERVICES TO BE PROVIDED HEREUNDER, AND THAT RESELLER HAS NOT RELIED ON ANY REPRESENTATION NOT EXPRESSLY SET OUT HEREIN.
6.3 Reseller's Performance Warranty. Reseller is free to offer separate and additional warranty terms regarding the Software Product(s)in Reseller's name only, but Reseller shall not bind Interweb to such additional terms.
6.4 Rights Warranties.
6.4.1 Right to Contract and License. Interweb has the authority to enter into this Agreement and the right to grant the rights and licenses granted to Reseller herein without breach of obligation to any third party; and the performance of this Agreement will not breach any obligation to any third party.
6.4.2 No Encumbrances. Interweb hereby represents and warrants that the Software Product(s), and any prior or subsequent versions thereof (including any components thereof), as of the Effective Date and throughout the term hereof is not pledged, covered, collaterally assigned as security, or otherwise affected in any way by any bank loan, equipment financing, lending, or security arrangement, or other such arrangement which is entered into by or binding upon Interweb in any way.
6.4.3 Right to Quiet Enjoyment. Interweb hereby represents and warrants that the Reseller, and any prior or subsequent versions thereof (including any components thereof), as of the Effective Date and throughout the term hereof, does not contain any virus, Trojan horse, worm, or other software routine designed to permit unauthorized access to the associated computer system, or to disable, erase or otherwise damage software, hardware, or data, or to perform other similar actions; and does not contain or implement any back door, time bomb, software lockout key or device, drop dead device, or other software routine designed to disable a computer program, either automatically with the passage of time or under the positive control of a person other than Reseller.
7. INDEMNIFICATION
7.1 Reseller's Indemnity For Product Liability and Software Product Warranties. Subject to the terms and conditions provided herein regarding all Indemnities, Reseller shall Indemnify Interweb from and against any product liability or warranty claim regarding the Software Product(s) as a component of Software Product(s).
7.2 Rights Indemnities. Subject to the terms and conditions provided herein regarding all Indemnities, Interweb shall Indemnify Reseller against any breach by Interweb of any of the rights warranties stated above.
7.3 Infringement Indemnity of Reseller. Subject to the terms and conditions hereof, Reseller shall Indemnify Interweb against any claim that any material which Reseller combines or bundles with the Software Product(s) or derivative works based thereon created by Reseller infringes any Proprietary Right of a third party.
7.4 Infringement Indemnity of Interweb. Subject to the terms and conditions hereof, Interweb shall Indemnify Reseller against any claim that the Software Product(s) used by Reseller within the scope of this Agreement infringes any Proprietary Right of a third party.
7.5 Infringement Indemnity Terms and Conditions. The infringement Indemnities shall not apply to the extent that any third party's infringement claim is based upon modifications, enhancements and other revisions to the material which have been made by Indemnified party or by parties operating under license from or authorization by the Indemnified party. In the event of any ruling of infringement by a court of competent jurisdiction, or if the Indemnifying party reasonably believes such a ruling is likely, the
Indemnifying party shall, at its expense and after notice to and consultation with the Indemnified party, at the Indemnifying party's option either:
7.5.1 modify the subject infringing material so as not to infringe, or replace such infringing material with a material that does not infringe; provided, however, that any modified or replacement material provided by Interweb shall have the same functionality, operating characteristics, compatibility and interoperability as the infringing material being modified or replaced; or
7.5.2 if Reseller is the Indemnified party, Interweb shall obtain a license for Reseller to continue using the subject material, free of any future liability from the claiming party.
7.6 Conditions to All Indemnities. All Indemnities are subject to the following conditions:
7.6.1 The Indemnified party notifies the Indemnifying party in writing within thirty (30) days of being apprised of the claim.
7.6.2 The Indemnifying party has sole control of the defense and all related settlement negotiations, subject to the right of Indemnified party to participate in and monitor such defense, at its own cost and option and through its own counsel, for the purpose of consulting with the Indemnifying party's counsel.
7.6.3 The Indemnified party provides the Indemnifying party with the assistance, information, and authority necessary to perform as required above, provided that reasonable costs and expenses incurred by the Indemnified party in providing such assistance and information will be reimbursed by the Indemnifying party.
8. LIMITATION OF LIABILITY
8.1 Interweb's Limitation of Actual Damages. Except for rights and infringement Indemnities, Interweb's liability to Reseller for actual damages from any cause whatsoever, and regardless of the form of the action, whether in contract, tort (including negligence), product liability or otherwise, will be limited to the amounts paid to Interweb hereunder.
8.2 Disclaimer. NEITHER PARTY WILL BE LIABLE TO THE OTHER IN ANY EVENT FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING ANY DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, OR LOSS OF BUSINESS INFORMATION), EVEN IF INFORMED OF THE POSSIBILITY THEREOF IN ADVANCE. BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, THE ABOVE LIMITATIONS MAY NOT APPLY.
9. PROPRIETARY RIGHTS
9.1 Title to Software Product(s). Under this Agreement, Reseller acquires only a license for the Software Product(s) and does not acquire any rights of ownership of any Proprietary Rights embodied therein. All right, title and interest in and to the Proprietary Rights embodied in the Software Product(s) shall at all times remain the property of Interweb or its licensors.
9.2 Confidential Information. Each party acknowledges that the other party may disclose its Confidential Information to the other in the performance
of this Agreement. Each party further acknowledges the other party's assertion that the other party's Confidential Information is deemed to include valuable trade secrets and confidential business information proprietary to the other party and/or third parties. Accordingly, each party shall (i) take reasonable steps to keep the Confidential Information disclosed by the other party confidential, and (ii) use and disclose such Confidential Information only with the receiving party's employees and contractors who have a need to know and only for the purposes of fulfilling this Agreement, or for purposes of disclosure to affiliated companies and professional advisors for the purpose of disclosing the party's internal business.
9.3 Confidentiality of Software Product(s). Specifically regarding the Software Product(s), Reseller acknowledges Interweb's claim that the Software Product(s) embodies valuable trade secrets proprietary to Interweb. Accordingly, Reseller shall take reasonable measures to protect the Software Product(s) from unauthorized access, disclosure, and use, including without limitation, the placement of any Proprietary Rights notice on the Software Product(s) that is reasonably requested by Interweb. Reseller shall not:
9.3.1 Distribute, transfer, loan, rent, or provide access to the Software Product(s), except as provided herein.
9.3.2 Remove or add any Proprietary Rights notice associated with the Software Product(s) without the express written permission of Interweb.
9.3.3 Disassemble or decompile the Software Product(s) for any purpose.
9.4 Injunctive Relief. The parties hereby agree that any breach of this
Section regarding Proprietary Rights would constitute irreparable harm, and that
the aggrieved party shall be entitled to specific performance and/or injunctive
relief in addition to other remedies at law or in equity.
10. TERM AND TERMINATION
10.1 Term of Agreement. The initial term of this Agreement shall commence as of the Effective Date hereof and shall continue for a period of one (1) year.
10.2 Renewal. The initial term hereof shall automatically renew for successive one (1) year terms upon reseller attaining either of the following sales levels; (1) 4,000 sites sold, or (2) average daily sales of at least 30 sites (over 22 sales days for a total of 660 sites sold) in the month prior to the start of new annual term. Upon renewal, Interweb will set new average daily sales numbers and annual minimum sales levels to be met in the following year and such amounts shall not be unreasonable taking into consideration the then current year sales levels and in no event shall such new levels be higher than 150% of the previous years levels. Both the initial term and any renewal term are subject to earlier termination as otherwise provided herein.
10.3 Automatic Termination. Unless Interweb promptly after discovery of the relevant facts notifies Reseller to the contrary in writing, this Agreement will terminate immediately without notice upon the institution of insolvency, bankruptcy, or similar proceedings by or against Reseller, any assignment or attempted assignment by Reseller for the benefit of creditors, or any appointment, or application for such appointment, of a receiver for Reseller.
10.4 Termination by Interweb for Cause. Interweb may terminate this Agreement and all licenses granted herein for a material breach by Reseller which remains uncured after thirty (30) days from receipt by Reseller of written notice describing the nature of the breach.
10.5 Termination by Reseller for Cause. Reseller may terminate this
Agreement for a material breach by Reseller which remains uncured after thirty
(30) days from receipt by Interweb of written notice describing the nature of
the breach.
10.6 Acknowledgment and Waiver. The parties acknowledge that the provisions of this Section are essential, fair, and reasonable, and that the occurrence of any of the events described herein shall constitute good, just, and sufficient cause for the termination or nonrenewal of this Agreement. The parties further acknowledge that any amounts spent in the performance of this Agreement shall be spent with the understanding that this Agreement may not be renewed. Accordingly, each party hereby waives any claim against the other for loss or damage of any kind (including, without limitation, damages or other compensation for unjust enrichment, loss of prospective profits, reimbursement for expenditures or investments made, or commitments entered into or goodwill), due to failure of the parties to renew this Agreement or upon expiration to make a similar agreement.
10.7 Inventory Sell-Down Period. Upon the expiration hereof, but not in cases of termination by Interweb for cause, Reseller may continue to distribute its then-current inventory of Software Product(s), but in no event no longer than three (3) months after expiration or termination. During this period, the provisions of this Agreement shall continue in force to the extent required for the limited purpose of permitting OEM to distribute its current inventory of Software Product(s).
10.8 Continuing Obligations. The following obligations shall survive the expiration or termination hereof and the distribution grace period provided above: (i) any and all limitations of liability and Indemnities granted by either party herein, (ii) any covenant granted herein for the purpose of protecting the Proprietary Rights of either party or any remedy for breach thereof, (iii) the payment of taxes, duties, or any money to Interweb hereunder, and (iv) the payment of compensation for monthly hosting fees.
11. DISPUTE RESOLUTION
11.1 Documentation. Except for actions to protect Proprietary Rights and to enforce an arbitrator's decision hereunder, all disputes, controversies, and claims arising out of the terms, operation, or interpretation of this Agreement shall be initiated by a written demand for resolution, documented in writing, and escalated through the appropriate levels of management of each party, up to and including a corporate officer responsible for this Agreement, until resolution of the issue is achieved or those officers agree that the dispute cannot be resolved.
11.2 Arbitration. If the dispute cannot be resolved by the parties as provided above within thirty (30) days from the date of the written demand for resolution, the dispute shall be resolved by binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association ("AAA") then in effect. The proceedings shall be held in Houston, Texas under the
auspices of the AAA. As a minimum set of rules in the proceeding, the parties agree as follows:
11.2.1 The arbitration proceeding shall be held by a single arbitrator mutually acceptable to the parties. If the parties cannot agree on a single arbitrator within fifteen (15) days after the date written demand for the appointment of an arbitrator is made, each party shall identify one independent individual, and these individuals shall then meet to appoint a single arbitrator. If an arbitrator still cannot be agreed upon within an additional thirty (30) days, one shall be appointed by the AAA. The arbitrator shall be knowledgeable regarding the personal computer and software industries.
11.2.2 The parties shall equally bear the costs and fees of the arbitration proceeding, and each party shall bear its own legal expense.
11.2.3 Any arbitration proceeding hereunder shall be conducted on a
confidential basis.
11.2.4 The arbitrator shall specify the basis of his/her decision
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and the basis for any damages awarded. The decision of the arbitrator shall be considered as a final and binding resolution of the dispute, and may be entered as judgment in any court of competent jurisdiction in the United States. Each party agrees to submit to the jurisdiction of any such court for purposes of the enforcement of any such decision, award, order, or judgment.
11.2.5 The parties shall agree upon what, if any, discovery will be made available. If the parties cannot agree on the form of discovery within fifteen (15) days of the written demand for the appointment of the arbitrator, there shall be neither discovery nor the issuance of subpoenas. In no event, however, shall any such discovery take more than one (1) month.
11.2.6 Neither party shall sue the other where the basis of the suit is a disagreement arising directly under the express terms of this Agreement except for (i) injunctive relief for Infringement or misappropriation of Proprietary Rights, or (ii) enforcement of the arbitrator's decision in the event the other party is not performing in accordance with the arbitrator's decision.
12. GENERAL PROVISIONS
12.1 Notices. All notices shall be given in writing and shall be effective when either (i) served by personal delivery, (ii) upon receipt of mail sent as certified mail, return receipt requested, or (iii) upon receipt of facsimile transmission if verified by a written or electronic record of the transmission, provided that any such communication is addressed to the parties at their respective addresses and/or facsimile numbers set forth below, or to such other address or numbers as either party may later specify by written notice or provide as part of the performance of this Agreement.
If to Interweb:
Houston Interweb Design, Inc.
1770 St. James
Suite 515
Houston, TX 77056
Contact: Lee Magness
Telephone: (713) 627 - 9494
Facsimile: (713) 627 - 2744
If to Reseller:
Eduardo F. Azcoitia
13050 Champions Park #1201
Houston, TX 77069
Telephone: (281) 397 - 0273
Facsimile: (281) 397 - 0273
12.2 Merger; Amendment. This Agreement shall not be considered an offer by either party, and it shall not be effective until signed by both parties. This Agreement constitutes the entire understanding of the parties with respect to the subject matter of this Agreement and merges all prior communications, understandings, and agreements. This Agreement may be modified only by a written agreement signed by the parties.
12.3 Independent Contractors. The relationship of the parties is that of independent contractor, and nothing herein shall be construed to create a partnership, joint venture, franchise, employment, or agency relationship between the parties. Reseller shall have no authority to enter into agreements of any kind on behalf of Interweb and shall not have the power or authority to bind or obligate Interweb in any manner to any third party.
12.4 Severability. If any provision of this Agreement shall be held by a court of competent jurisdiction to be contrary to law or public policy, the remaining provisions shall remain in full force and effect.
12.5 No Implied Waivers. The failure of either party to enforce at any time any of the provisions hereof shall not be a waiver of such provision, or any other provision, or of the right of such party thereafter to enforce any provision hereof.
12.6 Governing Law. This Agreement shall be construed under the laws of the State of Texas, without regard to its principles of conflicts of law.
12.7 Force Majeure. Neither party shall be liable for damages for any delay or failure of delivery arising out of causes beyond their reasonable control and without their fault or negligence, including, but not limited to, Acts of God, acts of civil or military authority, fires, riots, wars, or embargoes.
12.8 Multiple Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each one of which shall be deemed an original, but all of which shall constitute one and the same instrument.
12.9 Assignment. Reseller shall not assign this Agreement or any right or interest under this Agreement, nor delegate any work or obligation to be performed under this Agreement, without Interweb's prior written consent. Any attempted assignment or delegation in contravention of this provision shall be void and ineffective and shall be deemed to be a material breach hereof.
12.10 Change of Control. In the event of the direct or indirect taking over or assumption of control or merger of Reseller or substantially all of its assets by any government authority or other third party, Interweb shall have the right to terminate this Agreement upon first giving written notice to Reseller.
EA EA HW HW ----------- ----------- |
12.11 Attached Exhibit(s). This Agreement includes the attached exhibit(s) listed below, which are hereby incorporated in this Agreement by reference.
Confidential Product and Price List Exhibit A
Sublicense Terms Exhibit B
Technical Support Terms Exhibit C
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed below.
HOUSTON INTERWEB DESIGN, INC. Reseller:
By: /s/ Harry White By: /s/ Eduardo F. Azcoitia
--------------------------- ------------------------------
Harry White - CEO Eduardo F. Azcoitia
Title: CEO Title: Director
------------------------- ---------------------------
Date: 1-27-99 Date: Jan-27-1999
------------------------- ---------------------------
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JOINT MARKETING AGREEMENT
BETWEEN
WEST MARKETING SERVICES CORPORATION
AND
HOUSTON INTERWEB DESIGN, INC.
This agreement, effective the 26th day of March, 1999, (the "Effective Date"), is entered into by and between Houston InterWeb Design, Inc. d/b/a SiteBlazer(TM), ("Houston") a Texas Corporation with its principal place of business in Houston, Texas and West Marketing Services Corporation, ("West") a Delaware corporation, with its principal place of business in Chicago, Illinois.
WHEREAS, West desires to market the internet web site services offered by Houston through direct telemarketing services.
WHEREAS, Houston desires to have West, market its internet website design services through direct telemarketing services.
NOW THEREFORE, in consideration as set forth in this agreement and the mutual covenants and conditions contained in this agreement, West and Houston agree as follows:
I. SERVICES.
a) West Services. West shall perform the services described in Exhibit A and attached hereto.
West will consult with Houston with the proposed telemarketing plan. West will also consult with Houston with the preparation of all telemarketing scripts and other materials to be used by West in the conduct of the telemarketing program. West shall make the final determination for all aspects of the telemarketing plan.
West shall have the right to perform the services described in Exhibit A through the use of other vendors including, but not limited to, West Telemarketing Corporation Outbound. West shall have the right to market the internet web site design services provided by Houston and described on Exhibit B under any trade name, title, or company name. In the event West uses the name of Houston InterWeb Design, Inc. or SiteBlazer(TM), West shall comply with Section V below. West shall have the right to market the Services described in Exhibit B through any other means West deems appropriate. However, West will notify Houston of any other marketing plan or technique prior to marketing the Services in any way other than telemarketing. In the event West markets the Services through any other
marketing technique, Houston shall have the right to terminate this agreement 90 days from the date of marketing the Services in another way.
b) Houston shall perform the services described in Exhibit B and attached hereto.
II. TERM.
a) This Agreement will commence on the effective date set forth above and shall continue for a period of three (3) years (the "Term"); provided, however, that the Agreement may be terminated prior to the expiration of the term by West any time after any of the following occurrences, except as provided in this Agreement:
1) The failure by Houston, to perform any material obligation hereunder which is not cured within thirty (30) days after receipt of written notice and demand for cure from West.
2) The filing of a petition in bankruptcy or for re-organization by or against Houston under any bankruptcy acts; the assignment by Houston for the benefit of Houston's creditors or the appointment of a receiver, trustee, liquidator or custodian for all or a substantial part of Houston's property, and the order of appointment is not vacated within sixty (60) days; or the assignment or encumbrance by Houston of this Agreement contrary to the terms hereof.
3) The substantial violation by Houston of any applicable law, statute, rule or regulation in relation to its performance of this Agreement.
4) In accordance with Section XII ("Force Majeure").
5) The sale by Houston of its business or substantially all of its assets.
b) Houston may terminate this Agreement prior to the expiration of the term at any time after any of the following occurrences, except as provided in this Agreement:
1) The failure by West, to perform any material obligation hereunder which is not cured within thirty (30) days after receipt of written notice and demand for cure from Houston.
2) The filing of a petition in bankruptcy or for re-organization by or against West under any bankruptcy acts; the assignment by West for the benefit of West creditors or the appointment of a receiver, trustee, liquidator or custodian for all or a substantial part of West property, and the order of
appointment is not vacated within sixty (60) days; or the assignment or encumbrance by West of this Agreement contrary to the terms hereof.
3) In accordance with Section XII ("Force Majeure").
4) West's failure to meet eighty percent (80%) of the volume agreements set forth in Exhibit A for any one quarter beginning July 1, 1999.
c) This contract shall be for a rolling three-year term. Upon the expiration of each contract year, this agreement shall renew for the following three (3) years provided that the Agreement is not terminated pursuant to Section II (a) or (b) above or in accordance with Section XI and XII below. In addition, either party may give written notice no less than ninety (90) days prior to the expiration of any contract year that such party will not renew the Agreement for the following three (3) years at which time the Agreement shall terminate at the end of the then existing three (3) year term.
III. FEES. West shall pay Houston weekly pursuant to Exhibit C.
a) Billing Reports. West shall provide to Houston the following reports relating to the services sold and the funds collected by West:
1) West shall provide the number of sales made by West on a daily basis. The format of the report shall be in the form attached as Exhibit D. In the event either party desires to change the format, the party requesting the change shall pay the cost of making such changes.
2) West shall provide on a weekly basis a report detailing the amount of the cash collected by West as well as all credits and adjustments made during the previous week. Such reports shall be in the form attached as Exhibit E. In the event either party desires to change the format, the party requesting the change shall pay the cost of making such changes.
3) West shall have the sole authority to determine the cost of the marketed services. West shall confer with Houston regarding the price of the marketed services subject to minimum price requirements of Exhibit C.
4) Houston agrees that if at any time it markets the Services outlined in Exhibit B through direct telemarketing, and the fees it agrees to accept for such services are more favorable in any way to those fees being paid by West, then Houston shall promptly notify West in writing of such favored fees and West shall be immediately entitled to terminate this agreement.
IV. INFORMATION AND NOTICES. Houston shall reasonably notify West of any technology changes that may change the method, quality, timing, or other aspects of Houston's fulfillment of the services described in Exhibit B. In addition, Houston shall provide to West quarterly financial statements including income statement and balance statement, and audited annual financial statements within 60 days of the end of such reporting period. Houston shall notify West of any changes in the executive management of Houston within thirty (30) days of such change. Houston shall notify West fifteen (15) days prior to any change in ownership, sale or transfer of a substantial portion of the assets of Houston, or a change in control of the company through the sale of stock or otherwise.
V. LICENSING AGREEMENT AND RESTRICTIONS.
a) Definitions:
1) "Composite Website(s)." Website(s) created by Houston by combining the Licensed Software with the West Customer Database(s) using interface specifications provided by Houston.
2) "End-Users." Customers who acquire Composite Website(s) for their use and not for redistribution or remarketing.
3) "End-User License Terms." Terms and conditions described in the attached End-User License Terms Exhibit to be incorporated into an End-User license agreement by West for use in the distribution of Composite Website(s).
b) Trademark License - Houston hereby grants to West and West hereby acknowledges receipt of a license to use all trademarks, service marks and the name of Houston InterWeb Design, Inc. and SiteBlazer(TM) for the direct telemarketing of the Services described on Exhibit B.
1) Houston shall not use West's trademark, trade names or logos without the advanced written consent of West. All reproductions of trademarks, trade names and logos shall conform to specifications furnished by West.
2) West agrees to verify with Houston that all reproductions of trademark, trade names, and logos shall conform to the specifications furnished by Houston.
c) Grant of Software License. Subject to the limitations and restrictions provided in this Section 5 and to the other terms and conditions of this Agreement, Houston hereby grants, and West hereby accepts, the limited right and license:
1) Use License - to practice, use, and operate the Licensed Software and only those of Houston's Proprietary Rights embodied therein which are necessary for purposes of the reasonable exercise and enjoyment of the limited rights granted herein.
2) Distribution License - to market and distribute the Licensed Software only as a component of Composite Website(s), only in HTML form; distribution is authorized for the telemarketing method of distribution only.
3) End-User Sublicenses - to grant sublicenses for Composite Website(s) to End-Users only for use of Composite Website(s) and not for redistribution, only in conformity with the Sublicense Terms, and only in the form of Houston's license agreement, which may be unsigned in either "shrink-wrapped" form or an electronic equivalent which permits the End-User to view and indicate agreement with the license terms prior to paying for the license.
4) Non-Exclusive License. The license granted herein is non-exclusive. Houston may distribute the Licensed Software both on a standalone basis and as combined with other software without restriction.
5) Restriction on Promotional Copies. Notwithstanding anything to the contrary contained herein, distribution of promotional or demonstration copies of Composite Website(s) by West without payment of fair market value in money is authorized, but only in quantities which are reasonably expected to stimulate sales of Composite Website(s) which quantities shall not exceed five percent (5%) of total West sites in any one month period.
6) Export. Composite website(s), including associated technical data, are subject to United States export control laws, and may be subject to export or import regulation in other countries. If West distributes Composite website(s) outside the United States at any time during the term hereof, West agrees to comply strictly with all such regulations, and acknowledges that it has the responsibility to obtain such licenses to export, re-export, or import Composite Website(s). West shall, at its own expense, obtain and arrange for the maintenance in full force and effect of all governmental approvals, consents, licenses, authorizations, declarations, filings and registrations as may be necessary or advisable for the performance of the terms and conditions of this Agreement, including without limitation, fair trade approvals.
7) Retained Rights. All Proprietary Rights that are not expressly granted to West herein are retained by Houston.
8) Title to Licensed Software and Derivative Works. Except as provided elsewhere in this Agreement, West acquires only a license for the Licensed Software and does not acquire any rights of ownership of any Proprietary Rights embodied therein. All right, title and interest in and to the Proprietary Rights embodied in the Licensed Software shall at all times remain the property of Houston or its licensors. To the extent that any Composite website is a derivative work based on the Licensed Software under applicable copyright laws, West shall own the copyrights embodied in any such derivative work, subject to the terms and conditions of this Agreement and the continuing ownership rights of Houston in the underlying Licensed Software. As the copyright owner, West may register such derivative works in West's name, but only as derivative works based on the Licensed Software, and not as separate, independent works of authorship.
VI. PROPRIETARY INFORMATION. All technical, financial, business, marketing, scripts, lists, training material, data or information (including but not limited to all call handling and marketing related data and statistics) contained in or derived from the marketing of the services set forth on Exhibit B by West in connection with the performance of its obligations pursuant to this Agreement shall be deemed exclusively owned by West. West shall own all information and data known or able to be known relating to the purchaser of the services or relating to the website developed by Houston for the purchaser, including but not limited to e-mail address, personal information, credit information, telephone number and electronic information associated with or related to the use of the developed website. Houston will allow West to telnet into the customer information database at anytime. In no event shall Houston contact any consumer without the express authority of West including but not limited to e-mail, telephone, or direct mail. Any and all system enhancements including but not limited to computer programming performed by West shall be deemed exclusively owned by West. Houston shall have no right to, or interest in West's proprietary software, processes, or techniques. However, West shall have no interest in Houston's proprietary software developed by Houston and used to provide the services described in Exhibit B.
VII. AUDIT - INSPECTION. West shall keep and maintain true and complete
records pertaining to its sale of products and services in sufficient
detail to enable the commissions payable to Houston to be accurately
determined. In addition, West shall make such records available upon
reasonable notice, at reasonable times during regular business hours
for inspection by a Big Six public accounting firm other than Deloitte
& Touche and supply such firm with the details and supporting data
necessary to verify the reports and payments set forth in Paragraph
III. above. West shall maintain such records for at least (1) year
after the end of the calendar year to which they pertain. Houston shall
bear its own expenses in conducting any such audit. However, in the
event an audit confirms a discrepancy greater than ten
percent (10%) of the commission payable to Houston per quarter in favor of Houston, West agrees to pay for the cost of such audit. In the event the audit reveals a discrepancy of less than five percent (5%) of the commission payable to Houston per quarter, Houston agrees to pay West for the time and expense West incurred complying with the audit request. In the event the audit reveals a discrepancy between five percent (5.0%) and ten percent (10%), the parties shall pay their own costs associated with such audit. Any discrepancies determined by the audit and agreed upon by the parties shall be paid by the parties within thirty (30) days. Houston shall keep and maintain true and complete records pertaining to the fulfillment of orders as set forth in Paragraph III. In addition, Houston shall make such books and records available upon reasonable notice at reasonable times during regular business hours for inspection by West or its designated representatives, and supply West with the details and supporting information necessary to verify the fulfillment of orders.
a) Houston shall have the right, upon reasonable notice to West, to visit and inspect the facilities used by West to perform its obligations under this Agreement. West shall reasonably cooperate with and assist Houston in exercising its inspection rights.
b) This section, with respect to audits, shall survive the expiration and/or termination of this Agreement.
VIII. COST & EXPENSES.
a) West shall be responsible and pay for all costs and expenses relating to the marketing of the services outlined on Exhibit B.
b) Houston shall be responsible for and pay all costs and expenses incurred in connection with the production and fulfillment of all website related services as more fully described in Exhibit B including, without limitation, all costs of artwork, photography, making of positives, hosting and design. However, West shall be responsible for mailing hard copies of materials including samples of client web pages to those consumers who cannot receive such materials through the internet.
IX. COLLECTION OF CHARGES. West shall be responsible for all collection of charges from consumers purchasing the services set forth on Exhibit B. West may use any method it deems reasonable in carrying out such collection effort. West has the sole discretion for providing adjustments and credits to the consumer. West may use, but not be limited to, direct billing of the consumer, check debiting, credit card billing, or billing through Local Exchange Carriers ("LECs"). Houston shall be entitled to and West shall pay only that amount based on the fees actually received by West. West shall own all receivables.
X. FULFILLMENT. Houston shall complete fulfillment within seventy-two (72) hours from the time an order is transferred by West to Houston. Houston will send West in electronic format, as requested by West, all data and information relating to fulfillment. In the event West requires additional information, Houston will add any fields required by West to prove fulfillment. Houston will also enhance this report at West's request if a reasonable amount of time is given to modify any required programming.
XI. EXCLUSIVITY.
a) During the term of this Agreement, Houston shall not directly or indirectly develop, operate or provide direct telemarketing solicitation of customers for the services outlined on Exhibit B in North America including Canada and Mexico; provided, however, in the event West fails to provide Houston with the minimum number of orders during a contract quarter set forth in Exhibit A, Houston may market the services in any manner it deems appropriate.
b) West will not engage in direct outbound telemarketing of substantially similar services as those outlined in Exhibit B and provided by Houston for other entities after 12/31/99 for its currently existing client or engage any new clients of substatially simmiliar services listed in Exhibit B, unless such entity is an affiliate of West, and as long as the SiteBlazer(TM) product provided by Houston is the leading technology of website development and the product is marketable at a competitive price profitable to West.
c) In the event West fails to provide Houston the minimum number of orders set forth in Exhibit A and Houston desires not to remain exclusive with West as set forth above in (a), West shall continue to have the absolute right to market the services of Houston pursuant to this Agreement under a name other than Houston InterWeb Design, Inc. or SiteBlazer(TM) and West shall have the right to engage in direct telemarketing of the Services at which time the exclusivity requirements for both parties shall be extinguished.
d) Houston currently telemarkets the services set forth in Exhibit B
bundled with other products and services from other vendors.
Houston shall have the right to continue marketing its services
by telemarketing means, however, Houston shall not expand,
increase or change in any way the telemarketing of its services
in bundles with other products unless legally obligated to do so.
In the event Houston does expand, increase, or change in any way
the telemarketing of its services, Houston shall give West three
(3) months prior notice of such expansion, increase, or change,
and West shall thereupon have the right to terminate this
agreement.
e) Houston will not directly market SiteBlazer(TM) using telemarketing on a "stand alone" basis subject to Provisions XI(a)(b) above. Houston may market SiteBlazer(TM) in any other manner it deems appropriate, including, but not limited to direct face to face sales, infomercials, shrinkwrapped.
XII. FORCE MAJEURE.
a) Neither party shall be liable to any other party for failure and performance hereunder if the failure is caused or contributed to by fires, floods, earthquakes, wars, riots, insurrections, requirements imposed by government regulations, acts of God, or other similar causes beyond such parties reasonable control (each a "Force Majeure"). Such non-performance shall be excused for the period of time such failure(s) causes such non-performance; provided, however that the parties acknowledge and agree that Force Majeure shall not include any work strike or work stoppage. If West is impacted by an event of Force Majeure and such event of Force Majeure continues for a period of more than thirty (30) consecutive days, Houston shall have the right to terminate this Agreement, with respect to those services provided by West, immediately upon written notice to West. If Houston is impacted by an event of Force Majeure and such event of Force Majeure continues for a period of more than thirty (30) consecutive days, West shall have the right to terminate this Agreement, with respect to those services that Houston provides immediately upon written notice to Houston.
b) Each party shall notify the other as soon as possible, but in any case, within twenty-four (24) hours after the notifying party becomes aware that it will be unable to perform its duties as a result of an act of Force Majeure.
XIII. REPRESENTATIONS AND WARRANTIES.
a) Representations and warranties of West. West continuously represents and warrants to Houston the following:
1) West is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisition corporate power and authority to carry on its business as it is now being conducted.
2) West has the requisite corporate power and authority to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereunder have been duly authorized by all necessary corporate action on the part of West and require no further authorization or consent by West. This Agreement is the valid and binding obligation of West, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency,
moratorium or other laws relating to the rights of creditors generally, and to equitable principles of general application.
3) Neither the execution and delivery of this agreement nor the consummation of the transaction contemplated hereby in the manner herein provided, nor the fulfillment of or compliance with the terms and conditions hereof shall:
i) contravene any provisions of the certificate of incorporation or bylaws of West; or
ii) violate any provisions of law, rule, regulation, order, permit, or license to which West is subject or pursuant to which West conducts its business.
iii) contravene any provisions of the certificate of incorporation or bylaws of West; or
iv) violate any provisions of law, rule, regulation, order, permit, or license to which West is subject or pursuant to which West conducts its business.
b) Representations and warranties of Houston. Houston continuously represents and warrants to West the following:
1) Houston is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has all requisition corporate power and authority to carry on its business as it is now being conducted.
2) Houston has the requisite corporate power and authority to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereunder have been duly authorized by all necessary corporate action on the part of Houston and require no further authorization or consent by Houston. This Agreement is the valid and binding obligation of Houston, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, moratorium or other laws relating to the rights of creditors generally, and to equitable principles of general application.
3) Neither the execution and delivery of this agreement nor the consummation of the transaction contemplated hereby in the manner herein provided, nor the fulfillment of or compliance with the terms and conditions hereof shall:
i) contravene any provisions of the articles of incorporation or bylaws of Houston; or
ii) violate any provisions of law, rule, regulation, order, permit, or license to which Houston is subject or pursuant to which Houston conducts its business.
iii) contravene any provisions of the certificate of incorporation or bylaws of Houston; or
iv) violate any provisions of law, rule, regulation, order, permit, or license to which Houston is subject or pursuant to which Houston conducts its business.
4) Houston will not develop any website or perform any service for the consumer that is in violation of law or infringes upon any copyright, patent, trademark or other property right. All services provided pursuant to Exhibit B by Houston will be provided in a good workmanlike manner, free of defects.
XIV. INDEMNIFICATION. Houston shall indemnify and hold harmless West and its agents from any and all claims, actions, suits, proceedings, costs, expenses, damages and liabilities including attorney's fees arising out of, connected with, or resulting from marketing of the products and services set forth in Exhibit B. West shall indemnify and hold harmless Houston and its agents from any and all claims, actions, suits, proceedings, costs, expenses, damages and liability, including attorney's fees arising out of, connected with, or resulting from providing the services set forth in Exhibit A.
XV. ACTS AND OMISSIONS OF CARRIER. West relies on the service of long distance and local carriers in marketing the services and products set forth on Exhibit B and assumes no responsibility for any act or neglect of those carriers which result in a failure to meet the obligations of West set forth in this Agreement.
XVI. LIMITATION OF LIABILITY. Notwithstanding anything to the contrary contained in this Agreement, in no event shall either party under this Agreement be liable to the other for any incidental or consequential damages, indirect or special losses or punitive damages including, but not limited to lost profits, lost revenues, decreased call volumes or loss of business, whether foreseeable or not, whether occasioned by any failure to perform or the breach of any obligation under this Agreement for any cause whatsoever. In no event shall any projections, forecasts, estimations of sales and/or market share or expected profits or other estimates or projections by any party or any of its directors, officers, employees, agents or affiliates be binding as commitments or, in anyway, promises by West or Houston, as appropriate.
XVII. CONFIDENTIALITY AGREEMENT.
a) In performing their obligations pursuant to this Agreement, Houston may have access to and receive disclosure of certain "Confidential Information" about West. Confidential Information shall include the terms and conditions of this Agreement. Confidential Information shall also include, formats, computer programs, policies, procedures, methods, technological developments, financial results, formulas, marketing research and development methods, marketing statistics, membership solicitation methods, membership statistics, product development plans, strategies and research data. Houston may not disclose any Confidential Information of West without the prior written consent of West.
b) In performing their obligation pursuant to this Agreement, West may have access to and receive disclosure of certain "Confidential Information" about Houston. Confidential Information shall include the terms and conditions of this Agreement. Confidential Information shall also include, formats, computer programs, policies, procedures, methods, technological developments, financial results, formulas, marketing research and development methods, product development plans, strategies and research data. West may not disclose any Confidential Information of Houston without the prior written consent of Houston.
c) Confidential information shall not include information which (i)
at the time of disclosure is generally available to and known by
the public (other than as a result of disclosure made directly or
indirectly in violation of this Agreement); (ii) becomes publicly
available in the future (other than as a result of a disclosure
made directly or indirectly in violation of this Agreement); or
(iii) information required to be disclosed by law. Each Party
agrees to promptly inform the other in the event that it receives
any legal demand for disclosure of Confidential Information. The
Party whose Confidential Information is requested may, at its
sole cost, defend such demand. The recipient of the demand shall
cooperate with the Party whose Confidential Information is being
sought as is reasonably necessary.
d) Each Party agrees that unauthorized disclosure or use of Confidential Information will cause substantial and irreparable injury to the other Party, that monetary damages may not adequately compensate the injured Party for such injury and that the Party whose Confidential Information is wrongly disclosed, is entitled to among other remedies that may be available at law, immediate injunctive or other equitable relief for any breach of this Agreement in any court of competent jurisdiction.
e) This Section will survive the termination or expiration of this Agreement.
XVIII. GOVERNING LAW. This Agreement shall be subject to, governed by and construed under the laws of the State of Nebraska without giving effect to the principle of conflicts of law.
a) The parties agree that any legal action involving this Agreement in any way will be instituted in the State of Nebraska, and Houston consents to jurisdiction of the courts of the State of Nebraska over Houston's person for purpose of such legal action.
XIX. ARBITRATION. In the event of dispute between the parties regarding this Agreement, the parties agree to submit the matter to one arbitrator selected pursuant to the rules of the American Arbitration Association and conducted in Omaha, Nebraska. The proceedings shall be conducted pursuant to the American Arbitration Association rules. The decision of the arbitrator shall be nonbinding and shall not preclude any other remedies afforded to the parties by law or equity.
XX. MISCELLANEOUS.
a) This Agreement constitutes the complete Agreement between the parties regarding the subject matter herein, superceding any previous Agreements or understanding. It may be modified only in writing and signed by both parties.
b) All notices required hereunder shall be in writing and shall be deemed duly given on the date mailed if sent by registered or certified mail, return receipt requested, as follows:
1) If to Houston:
Harry White
1770 St. James, Suite 420
Houston, TX 77056
2) If to West:
David C. Mussman
11808 Miracle Hills Drive
Omaha, NE 68154
c) The provisions of this Agreement are for the benefit only of the parties hereto and no third party may seek to enforce, or benefit from these provisions.
d) No waiver by either party of any breach of this Agreement shall be deemed a waiver of any proceeding or succeeding breach thereof.
e) This Agreement is not a joint venture or partnership, and each party is entering the relationship as principal and not as an agent of the other. The parties hereto agree that Houston is an independent contractor in performing the fulfillment services set forth on Exhibit B, as such, West shall be the sole employer of West's employees.
f) If any portion of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision thereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
g.) Neither party shall assign its rights obligations or duties under this agreement without the prior written consent of the other. Such consent shall not be unreasonably withheld.
Houston InterWeb Design, Inc.
By:______________________________
Its:_____________________________
Date:____________________________
West Marketing Services Corporation
By:______________________________
Its:_____________________________
Date:____________________________
LICENSE AND SERVICE AGREEMENT
THIS LICENSE AND SERVICE AGREEMENT ("Agreement") is dated effective as of the 4th day of May, 1999, between AXIS TECHNOLOGIES CORP., a Texas corporation ("Axis"), and HOUSTON INTERWEB DESIGN, INC., a Texas corporation ("Interweb").
WHEREAS, both Axis and Interweb are in the business of providing a variety of Internet related services including, among other things, web site design, storage, maintenance and Internet access to its customers;
WHEREAS, Interweb is the owner of a certain proprietary Internet web site generating process (the "Application") that has the capability of creating a multi-page, custom web site (the "SiteBlazer Web Site" or "Product") and is the owner of the SiteBlazer trademark/servicemark (the "Trademark"), which Interweb uses in connection with the sale of such web sites to end user customers;
WHEREAS, Axis desires to engage Interweb to provide it with the services as herein described and to acquire a nonexclusive license from Interweb to use the Application and to distribute, market and sell the Product to its existing and future customers located in the United States ("Territory"), under the Trademark; and
WHEREAS, Interweb is willing provide the services to Axis as described herein and to grant a license to Axis subject to the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual promises set forth herein, Interweb and Axis hereby agree as follows:
SECTION 1. GRANT OF LICENSE BY INTERWEB TO AXIS
1.1 LICENSE. Interweb hereby grants to Axis a nonexclusive license to
(i) provide the Product to its existing customers within the Territory, (ii)
market and sell the Product within the Territory, and (iii) use the Trademark
in connection therewith, strictly limited to the license, rights, privileges,
and reservations set forth in this Agreement. Interweb reserves the right to
use, market, provide and sell the Application and SiteBlazer Web Sites, to
authorize or license other parties to use, market, provide and sell the
Application and SiteBlazer Web Sites, and to use, authorize or license other
parties to use the Trademark within and outside the Territory. No sublicense
by Axis is permitted and Axis may not authorize or license any other party to
use, market, provide or sell the Application, SiteBlazer Web Sites or the
Trademark within or outside the Territory without Interweb's prior written
consent.
1.2 USE OF TRADEMARK. Axis is authorized and licensed to use the Trademark on and in connection with the use, distribution, market and sale of the Product and on documents relating to or used in connection with the such use, market, sale or distribution of the Product, and to display the Trademark on Axis's stationery, advertising, promotional materials and other documents used in connection with the use, distribution, market and sale of the Product, in the form and manner in
which the Trademark presently is used by Interweb and in such other form and manner as Interweb may in its discretion approve from time to time.
1.3 REGISTRATION OF TRADEMARK IN UNITED STATES. Interweb shall exercise its commercially reasonable good faith efforts to cause the Trademark to be and remain registered in the United States Patent and Trademark Office.
1.4 STANDARDS. The Product shall be provided by Interweb to Axis in strict accordance with the standards and procedures established and revised by Interweb from time to time and communicated to Axis.
SECTION 2. SERVICES TO BE PROVIDED BY INTERWEB TO AXIS
2.1 SCOPE OF SERVICES. During the term of this Agreement, Interweb shall devote such time as is necessary to diligently provide to Axis the following services (the "Services"):
(a) convert the web sites of existing Axis customers as of the date of this Agreement to SiteBlazer Web sites;
(b) host Axis's corporate web site, those certain customized web sites of Axis customers, and all other web sites of Axis customers (web sites of all Axis customers being "Axis Customer Web Sites"), be they web sites designed by Axis or SiteBlazer Web Sites;
(c) register Axis Customer Web Sites with at least ten (10) major Internet search engines; and
(d) those certain additional related services listed on the attached Exhibit A.
SECTION 3. AXIS'S COVENANTS
3.1 AXIS'S BUSINESS OPERATIONS. Axis agrees that, in using the Application, providing to its existing customers, and marketing, selling and distributing the Product, it will comply in all material respects with all applicable laws, regulations, and ordinances pertaining to the operation of its business and the provision, sale and marketing of the Product. Axis will comply with all instructions, formulae, standards, manufacturing and service specifications, quality control criteria and procedures, and production and service procedures in the marketing, sale and provision of the Product that are from time to time prescribed by Interweb for the purpose of assuring marketing, sale and provision of SiteBlazer Web Sites of uniform standards and quality.
3.2 QUALITY CONTROL SAMPLING. At Interweb's request Axis shall comply promptly with any quality control sampling and reporting procedures prescribed by Interweb.
3.3 SALES PROMOTION AND ADVERTISING. Axis shall submit all sales promotional and advertising materials not prepared by Interweb and depicting the Trademark in writing to Interweb
for its prior written approval.
3.4 BOOKS AND RECORDS. Axis shall maintain full and accurate books and records showing those existing customers of Axis that were provided with the Product, sales of the Product by Axis and of the recurring revenues generated from such existing customers and sales, and shall furnish reports with respect thereto as required by Interweb. Interweb's representatives shall be permitted to inspect Axis's books, records and other information relating to the use and sale of the Product at reasonable times during business hours.
3.5 CONFIDENTIALITY. It is understood and agreed that any Interweb proprietary engineering, software, processes, techniques, know-how, survey data, trade secrets and financial and other information (collectively, "Interweb Information") that may from time to time be made available or become known to Axis is to be treated as confidential, and shall not to be used or disclosed by Axis except in the performance of Axis's duties under the terms of this Agreement. Reasonable measures shall be taken to protect the confidentiality of the Interweb Information and any memoranda or papers containing trade secrets of Interweb that Axis may receive in connection herewith are to be returned to Interweb upon request. Axis's obligations and duties under this Section shall survive any termination of this Agreement.
3.6 INJUNCTIVE RELIEF. Interweb shall have the right to injunctive relief to enforce the covenants hereinabove set forth, in addition to any other relief to which it may be entitled at law or in equity.
SECTION 4. INTERWEB'S COVENANTS
4.1 THE PRODUCT. Interweb hereby represents and warrants to Axis that it owns and has the unrestricted right to grant the license for the Application and SiteBlazer Web Sites granted to Axis hereunder.
4.2 TRADEMARK.
(a) Interweb hereby represents and warrants to Axis that it owns and has the unrestricted right to grant the license for the Trademark granted to Axis hereunder.
(b) Interweb agrees that it will indemnify and hold harmless Axis from and against any and all costs, losses, and liabilities, including reasonable attorney's fees, arising out of or resulting from any claims that the authorized use by Axis of the Trademark pursuant hereto, and any and all other of Interweb's distinctive markings, designs, labels, or other marks used by Axis pursuant to this Agreement infringe the trademarks of another, and Interweb will defend any such trademark infringement claim, suit, action, or proceeding by any person, entity, firm, or corporation against Axis; provided, that prompt notice is given to Interweb of any such trademark infringement claim, suit, action, or proceeding which Axis expects that Interweb will be called upon to indemnify or defend Axis.
(c) Subject to the foregoing, Axis acknowledges the validity of and ownership by Interweb of the Trademark and in connection with the use and sale of the Product agrees to take no action that would prejudice or interfere with that validity or ownership. All use of the Trademark by Axis under this Agreement shall inure to the exclusive benefit of Interweb and Interweb's Trademark.
4.3 CONFIDENTIALITY. It is understood and agreed that any Axis proprietary engineering, software, processes, techniques, know-how, survey data, trade secrets and financial and other information (collectively, "Axis Information") that may from time to time be made available or become known to Interweb in connection with its provisions of the Services is to be treated as confidential, and shall not to be used or disclosed by Interweb except as reasonably necessary in connection with the performance of Interweb's duties under the terms of this Agreement. Reasonable measures shall be taken to protect the confidentiality of the Axis Information and any memoranda or papers containing trade secrets of Axis that Interweb may receive in connection herewith are to be returned to Axis upon request. Interweb's obligations and duties under this Section shall survive any termination of this Agreement.
4.4 INJUNCTIVE RELIEF. Axis shall have the right to injunctive relief to enforce the covenants hereinabove set forth, in addition to any other relief to which it may be entitled at law or in equity.
SECTION 5. COVENANTS OF BOTH PARTIES
5.1 FORCE MAJEURE. Neither Interweb nor Axis shall be held liable for any failure to comply with any of the terms of this Agreement when that failure is caused directly or indirectly by fire, strike, union or other labor problems, declared or undeclared war, riots, insurrection, government restrictions or other acts, or other causes beyond the control of or without fault on the part of either of them; provided, however, that Axis shall continue to be obligated to pay to Interweb any and all amounts that it shall have duly become obligated to pay in accordance with the terms of this Agreement prior to the occurrence of an event of the type referred to herein. Upon the occurrence of any event of the type referred to herein, the party affected thereby shall give prompt notice thereof to the other party, together with a description of the event and the duration for which the party expects its ability to comply with the provisions of this Agreement to be affected thereby. The party affected shall thereafter devote its best efforts to remedy to the extent possible the condition giving rise to that event and to resume performance of its obligations hereunder as promptly as possible.
5.2 INDEPENDENT CONTRACTOR. Nothing herein shall be deemed to constitute Axis and Interweb as partners, joint venturers, or otherwise associated in or with the business of the other, except as specifically provided herein. Interweb is and shall always remain an independent contractor, and neither party shall be liable for any debts, accounts, obligations, or other liabilities of the other party, its agents, or employees. Neither party is authorized to incur debts or other obligations of any kind on the part of or as agent for the other except as may be specifically
authorized in writing. It is expressly recognized that no fiduciary relationship exists between the parties.
5.3 CORPORATE AUTHORITY. Both Interweb and Axis have full power and legal authority to execute and perform their respective obligations under this Agreement. This Agreement is a legal, valid and binding obligation of Interweb and Axis, enforceable in accordance with its terms (except that enforcement may be subject to any applicable bankruptcy, insolvency or similar laws generally affecting the enforcement of creditors' rights).
SECTION 6. TERM, CONDITION PRECEDENT AND TERMINATION
6.1 TERM. The license of the Application, Product and Trademark granted hereunder and the term of the Services to be provided by Interweb to Axis shall commence on the later of (i) the date hereof, or (ii) the date the condition precedent set forth in Section 6.2 is met and continue indefinitely until terminated in accordance with the provisions hereof.
6.2 CONDITION PRECEDENT. Inteweb shall enter into separate employment arrangements with each of Cynthia Trout and Kari Mayo, the terms of which respective arrangements are acceptable to Interweb and the employee entering into same.
6.3 TERMINATION UPON MUTUAL CONSENT. This Agreement may be terminated at any time upon the mutual written consent of Interweb and Axis.
6.4 TERMINATION WITHOUT NOTICE. This Agreement and any and all rights of Axis and Interweb hereunder and any and all obligations of Axis and Interweb hereunder shall immediately terminate, without the requirement of any notice, in the event Axis sells, transfers and assigns to Interweb all of its web site customers and such termination shall be effective as of the closing of such transaction;
6.5 TERMINATION FOR CAUSE. Either party may terminate this Agreement for Cause, by providing the non-terminating party 45 days prior written notice thereof (the 45th days following the date of receipt of such notice by the non-terminating party as provided in Section 10.2 being the "For-Cause Termination Date"). For purposes of this Agreement, "Cause" means any material breach of any covenant contained in this Agreement. In the event this Agreement is terminated for Cause, such termination shall be without prejudice to any rights or obligations of the parties accruing prior to such termination and shall not limit the parties in any way from asserting any and all available remedies which the parties may have against one another; provided, however, that if this Agreement is terminated for Cause, the license granted to Axis by Interweb as provided in Section 1 herein shall continue for a period of 180 days following the For-Cause Termination Date (the "License Extension Period") and Axis's obligation to Interweb during the License Extension Period shall only be to pay to Interweb the commission as provided in Section 7.1.
6.6 UPON TERMINATION.
(a) Upon the termination of this Agreement, except as otherwise provided herein, the license and all rights and privileges granted to Axis under this Agreement shall immediately cease and terminate and Axis in the absence of a renewal or replacement agreement shall thereupon immediately discontinue forever (a) the use of the Application, (b) the provision, sale and marketing of the Product, and (c) the use of the Trademark in connection therewith or for any other use.
(b) Upon termination of this Agreement, except as otherwise provided herein, Axis shall have no further obligation to Interweb with respect to the payment of monies under this Agreement other than paying Interweb any commissions (as hereinafter defined) actually accrued and payable pursuant to the provisions of Section 7 hereof, less any amounts owing by Interweb to Axis, as of the close of business on the day prior to the termination date. The provisions of this Agreement concerning confidentiality shall survive termination of this Agreement.
6.7 RETURN OF INFORMATION. Upon the termination of this Agreement without execution of a renewal or replacement agreement by the parties hereto, at either party's request the nonrequesting party shall immediately return to the requesting party all information, survey data, software products, documents, materials, advertising and promotional material, all copies (documentary, magnetic, tape, electronic or otherwise) and any and all other documents, materials, information, technology, techniques and know-how of the requesting party that is in the possession of the nonrequesting party.
SECTION 7. COMMISSIONS AND FEES.
7.1 COMMISSION FOR LICENSE AND SERVICES. The consideration payable to Interweb by Axis in exchange for the license granted to Axis and the provision of the Services by Interweb to Axis as provided herein is set forth on the attached Exhibit B.
7.2 EXPENSES. Unless otherwise stated herein to the contrary, Interweb shall bear all expenses in connection with its performance of the Services and in conducting its business, without reimbursement from Axis.
SECTION 8. INDEMNITY
8.1 INDEMNIFICATION OF INTERWEB. Axis shall indemnify and hold Interweb and its shareholders, officers, directors, employees, agents and representatives harmless from any and all liability, claim, damage (whether actual, consequential, punitive, statutory or otherwise), loss, assessment, right of contribution or indemnity, proceedings, suits, actions, causes of action, cost or expense (including, without limitation, costs and expenses incurred in investigating, preparing, defending against, prosecuting or settling any claim, action, suit, proceeding or demand), whether arising in tort, in contract, by statute or otherwise, interest or penalty directly or indirectly
attributable to or arising out of (i) the actions of Axis's employees or independent contractors, (ii) the inaccuracy of any of the representations or warranties of Axis set forth in this Agreement, (iii) the breach of any covenants of Axis set forth in this Agreement, and (iv) any federal, state or local tax liabilities, assessments or obligations of Axis. No right or remedy herein conferred upon or reserved to Interweb is intended to be exclusive of any other right or remedy available at law or in equity, and all such rights and remedies shall be cumulative.
8.2 INDEMNIFICATION OF AXIS. Interweb shall indemnify and hold Axis and its shareholders, officers, directors, employees, agents and representatives harmless from any and all liability, claim, damage (whether actual, consequential, punitive, statutory or otherwise), loss, assessment, right of contribution or indemnity, proceedings, suits, actions, causes of action, cost or expense (including, without limitation, costs and expenses incurred in investigating, preparing, defending against, prosecuting or settling any claim, action, suit, proceeding or demand), whether arising in tort, in contract, by statute or otherwise, interest or penalty directly or indirectly attributable to or arising out of (i) the actions of Interweb's employees or independent contractors, (ii) the inaccuracy of any of the representations or warranties of Interweb set forth in this Agreement, (iii) the breach of any covenants of Interweb set forth in this Agreement, and (iv) any federal, state or local tax liabilities, assessments or obligations of Interweb. No right or remedy herein conferred upon or reserved to Axis is intended to be exclusive of any other right or remedy available at law or in equity, and all such rights and remedies shall be cumulative. Axis may offset, by notice to Interweb, any amount due from Interweb pursuant to the indemnification provisions of this Agreement against any payment due to Interweb under this Agreement.
SECTION 9. MEDIATION
9.1 MEDIATION PROCEDURE. In the event of any dispute arising from or in any manner connected with this Agreement the parties will first endeavor, in good faith, to promptly resolve the dispute through informal negotiation. If the parties are unable to resolve such dispute within a 45 day period (or within such extended period of time as the parties shall agree upon in writing), the parties will then submit the matters to mediation to be conducted in Houston, Texas and will have 5 business days from the end of such 45 day (or longer if jointly extended) period to submit to each other a written list of acceptable qualified mediators not affiliated with any of the parties. Within 10 days from the date of receipt of such list, the parties shall attempt to agree on a mediator. If no mediator has been selected under this procedure, the parties agree jointly to request a State or Federal District Judge of their choosing in Houston, Texas (or if they cannot agree, the Administrative Judge of Harris County, Texas) to supply a list of potential qualified mediators. Within 5 business days of receipt of the list, the parties shall rank the proposed mediators in numerical order of preference, shall simultaneously exchange such list and shall select as the mediator the individual receiving the highest combined ranking. If such mediator is not available to serve, they shall proceed to contact the mediator who was next highest in ranking until they are able to select a mediator. Mediation, as that term is used herein, means a forum in which the mediator conducts a non-binding conference to facilitate communication between the parties to promote a voluntary settlement of their dispute. The parties agree to participate in the mediation procedure to its conclusion. The mediation shall be terminated (i) by the execution of a settlement agreement by
the parties, (ii) by a declaration of the mediator that the mediation is terminated, or (iii) by a written declaration of a party to the effect that the mediation process is terminated at the conclusion of one full day's mediation session. Even if the mediation is terminated without a resolution of the dispute, the parties agree not to terminate negotiations and not to commence any legal action or seek other remedies prior to the expiration of five days following the mediation.
9.2 COSTS OF MEDIATION. All fees and costs of the mediation will be assessed and paid, in the absence of the parties' agreement to the contrary, equally by all parties.
9.3 STATUTE OF LIMITATIONS AND EQUITABLE RELIEF. Notwithstanding the foregoing, any party may commence litigation prior to the expiration of any applicable time period described above if litigation could be barred by an applicable statute of limitations or in order to request any equitable relief, including, without limitation, an injunction to prevent irreparable harm.
SECTION 10. OTHER PROVISIONS
10.1 ENTIRE AGREEMENT. This Agreement contains the complete agreement between the parties in respect of the subject matter hereof, and any and all prior agreements relating to the subject matter hereof are superseded in their entirety hereby. Except as specifically provided herein, this Agreement may not be amended or supplemented, nor any of the provisions hereof waived, except by an agreement in writing signed by the parties hereto and dated after the date first above written.
10.2 NOTICE. All notices, requests, demands and other communications under this Agreement or any instrument contemplated hereby shall be in writing (except where this Agreement authorizes verbal notice, in which case the party giving notice shall confirm such verbal notice in writing within a reasonable time) and shall be personally delivered, sent by facsimile transmission, or mailed by United States registered or certified mail, first class, postage prepaid, return receipt requested, to the address of the respective parties hereto as shown under their names on the signature page hereof and shall be deemed given on the earlier of actual receipt (as evidenced by return receipt if mailed) or the date three days after mailing. Any party hereto may change its address for such notices by giving notice of such change pursuant to this Section.
10.3 GOVERNING LAW. This Agreement shall be interpreted and governed by the laws of the State of Texas.
10.4 ASSIGNMENT OR OTHER TRANSFER. The grant of the license hereunder is unique to Axis, and may not be transferred, or in effect transferred, in whole or in part, whether by independent agreement, acquisition by another party of Axis's capital stock or assets, mortgage, pledge, lease or other assignment as security, merger, consolidation or other reorganization, the succession by another party to Axis's business by operation of law, as a consequence of any transaction that results in a change in the ownership or right of control of Axis, or otherwise, unless Interweb has expressly consented in writing thereto. Interweb may transfer its right to receive the monetary benefits of this Agreement subject to any rights of offset available to Axis under this Agreement,
but may not transfer any of its obligations owing to Axis hereunder without the prior written consent of Axis.
10.5 WAIVER. The failure of either party to give notice of nonperformance or termination shall not constitute a waiver of the covenants, terms, or conditions herein, or of the rights of either party thereafter to enforce those covenants, terms, or conditions or to terminate this Agreement upon any subsequent occurrence.
10.6 SEVERABILITY. In the event any provision in this Agreement shall be invalid, illegal or unenforceable, such provision shall be severable from the rest of this Agreement and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
10.7 OTHER REMEDIES. In addition to the right to terminate this Agreement, Interweb and Axis shall have all other rights and remedies at law and in equity, including the right to injunctive relief and specific performance, for breach by the other party of the terms and conditions of this Agreement.
10.8 FURTHER ASSURANCES. Each of the parties hereto shall, without charge to the other, take such additional actions and execute, deliver and file such additional instruments and other documents as may be reasonably required to give effect to the transactions contemplated hereby.
10.9 PARTIES IN INTEREST. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any person or entity other than the parties to it, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third party to any party to this Agreement, nor shall any provision give any third parties any right of subrogation or action over against any party to this Agreement.
10.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto by separate counterparts, each of which when so executed shall be an original, and all of which shall constitute one and the same instrument.
10.11 LICENSES MAY VARY. Axis understands and hereby acknowledges that other licensees of Interweb have been and may be granted licenses at different times and in different situations, the provisions of which may vary substantially from those contained in this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized representative as of the date first above written.
INTERWEB HOUSTON INTERWEB DESIGN, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address: 1770 St. James, Suite 420
Houston, Texas 77056
AXIS AXIS TECHNOLOGIES CORP.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address: 9800 Centre Parkway, Suite 800
Houston, Texas 77036
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the registration statement on Form SB-2 (File No. 333-67871) of our report dated September 8, 1998, on our audits of the financial statements of Houston InterWeb Design, Inc.
MANN FRANKFORT STEIN & LIPP, P.C.
Houston, Texas
May 6, 1999
ATTACHMENT A
NOTICE OF RESCISSION
HOUSTON INTERWEB DESIGN, INC.
Request for Rescission
or
Affirmation of Subscription and Release
THE RESCISSION OFFER WILL EXPIRE AT 5:00 P.M., HOUSTON, TEXAS, TIME,
_________________, 1999.
Please complete and sign this document and return it to Houston Interweb Design, Inc. at the address set forth below, on or before 5:00 P.M., Houston time, on _______________, 1999, the expiration date of the Rescission Offer. Please indicate your election by INITIALING Box A or Box B, as appropriate.
Houston Interweb Design, Inc.
1770 St. James Place, Suite 420
Houston, Texas 77056
Gentlemen:
The undersigned hereby acknowledges having received and carefully read the rescission offer (the "Rescission Offer") described in the prospectus dated ________________, 1999, by Houston Interweb Design, Inc. (the "Company") to repurchase the Rescission Securities hereinafter identified which were previously acquired by the undersigned from the Company (the "Securities").
As indicated below, the undersigned hereby (i) elects to accept the Rescission Offer and requests that the Company repurchase the Rescission Securities in accordance with the terms of the Rescission Offer or (ii) affirms the undersigned's subscription for all of such securities.
/ / A. Request for Rescission
1. The undersigned hereby irrevocably elects to accept the Company's Offer to repurchase all of the Securities and to pay the undersigned an amount equal of the consideration which the undersigned paid to the Company for the Rescission Securities together with simple interest at the rate of 9% per annum.
2. The undersigned hereby encloses the certificates identified below, representing all of the Rescission Securities that the undersigned acquired from the Company. All certificates representing shares of the Company's Common Stock must be duly endorsed for transfer or accompanied by an assignment separate from the applicable stock certificate. The enclosed
represents all, and not less than all, of the Rescission Securities that the undersigned acquired from the Company. The undersigned hereby represents that the undersigned is conveying all interests in the Rescission Securities free and clear of all liens and encumbrances of any kind, and that no such interest has been previously or concurrently transferred in any manner to any other person or entity.
Certificate No. ______________ for ___________ share of Common Stock
/ / B. Affirmation of Subscription
The undersigned hereby affirms the undersigned's subscription or subscriptions to purchase all Securities of the Company, and elects NOT to accept the Company's offer to repurchase such Rescission Securities.
THE UNDERSIGNED:
____________________________________
Print name of the undersigned and, (a) if
Rescission Securities are held by a
partnership, corporation, trust or
entity, the name and capacity of the
individual signing on its behalf, and
(b) if Rescission Securities are held as
joint tenants or as community property,
name(s) of co-purchaser(s).
Dated: ________________, 1999 ____________________________________
Signature
____________________________________
Tax I.D./Soc. Sec. No.
Dated: ________________, 1999 ____________________________________
Signature
____________________________________
Second Tax I.D./Soc. Sec. No.
Residence Address:
Street Address: ____________________________________
City, State and Zip Code: ____________________________________
|
Mailing Address (if different from residence):
Street Address: ____________________________________ City, State and Zip Code: ____________________________________