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DILUTION
Net tangible book value is the amount that results from subtracting the total
liabilities and intangible assets of an entity from its total assets. Dilution
is the difference between the public offering price of a security and its net
tangible book value per Share immediately after the Offering, giving effect to
the receipt of net proceeds in the Offering. As of March 31, 1999 (the date of
the last interim financial period for which audited financial statements were
prepared for us, our net tangible book value was $153,803 or $0.0067 per Share.
Taking into consideration our issuance of all offered Shares at the public
offering price of $___ per share, our pro forma net tangible book value would be
$_____, or $______ per Share, which would represent an immediate increase of
$0._____in net tangible book value per Share and $0.____ per Share dilution per
share to new investors. Dilution of the book value of the Shares may result from
future share offerings by us.
The following table illustrates the pro forma per Share dilution:
Assuming Maximum Shares Sold
Offering Price (1)
$---------
Net tangible book value per Share before Offering (2)
$0.0067
Net tangible book value per Share after Offering (3)
$-----------
Increase attributable to issue of stock to new investor (4)
$------------
Dilution to new investor (5)
$--------------
Percent Dilution to new investor (6,7)
----%
(1) Offering price before deduction of offering expenses, calculated on a
Common Share Equivalent basis.
(2) The net tangible book value per share before the Offering is determined
by dividing the number of Shares outstanding prior to this Offering into our net
tangible book value.
(3) The net tangible book value after the Offering is determined by adding
the net tangible book value before the Offering to the estimated proceeds to us
from the current Offering (assuming all the Shares are issued), and dividing by
the number of common shares to be outstanding. The net tangible book value per
share after the offering is determined by dividing the number of Shares that
will be outstanding, assuming issue of all the Shares offered, after the
offering into the net tangible book value after the offering as determined in
note 3 above.
(4) The increase attributable to purchase of stock by new investors is
derived by taking the net tangible book value per share after the offering and
subtracting from it the net tangible book value per share before the offering.
(6) The dilution to new investors is determined by subtracting the net
tangible book value per share after the offering from the offering price of the
Shares in this offering, which gives a dilution value.
(7) The Percent Dilution to new investors is determined by dividing the
Dilution to new investors by the offering price per Share.
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OUR PLAN FOR DISTRIBUTING THE STOCK
In this Offering, we will issue up to 5,000,000 Shares of common
stock, par value $0.001 per Share, to the public pursuant to this SB-2
Registration Statement. Of this total number of Shares, we will be offering
and will issue up to a maximum of 3,000,000 Shares of our common stock in a
"best efforts" offering undertaken by the Company's officers and directors.
Additionally, a selling shareholder will sell up to a maximum of 2,000,000
Shares of the Company's common stock in accordance with a Registration Rights
Provision which is incorporated into a Convertible Debenture Agreement which
is more fully explained below. Because this Offering is being made on a "best
efforts" basis, we cannot assure that all or any of the Shares offered will
be issued by the Company.
The gross proceeds to the Company represented by the 3,000,000 Shares
being sold by the Company under this offering will be approximately $_________,
if all of the Shares are sold by the Company. We will not receive any of the
proceeds from the Shares being sold by the Selling Shareholder except that
proceeds from the Convertible Debenture already received or to be received by
the Company will be converted from a debt obligation into an equity interest in
the Company. We will not pay commissions or other fees, directly or indirectly,
to any person or firm in connection with solicitation of sales of the shares
unless we enter into a written placement agent agreement or underwriting
agreement with a member NASD broker-dealer. We will modify the public offering
price of the Shares, from time to time, by amendment to this Prospectus, in
accordance with changes in the market price of the Company's common stock. We
are offering these securities subject to prior issue and to approval of certain
legal matters by counsel.
Previously, the Company issued a ten percent (10%) convertible
debenture to a single investor. The principal amount of the Convertible
Debenture is convertible into Shares of the Company's common stock, $0.001 par
value, upon the terms and subject to the conditions set forth in the note. In
addition, a Registration Rights Provision is included in the Convertible
Debenture Agreement and is included as an exhibit to this Form SB-2. The
Registration Rights Provision requires the Company to prepare and file with the
Securities and Exchange Commission a Registration Statement on Form SB-2,
covering a sufficient number of Shares to cover the principal amount of the
Debenture which is convertible into the common stock of the Company at $0.60 per
Share, up to a maximum of 2,000,000 Shares. Proceeds to the Company from the
Debenture, assuming that the principal amount is fully funded by the Selling
Shareholder, would be $1,200,000, without taking into account interest or other
expenses.
This Registration Statement covers a minimum of 2,000,000 Shares of the
Company's Common Stock which represents the Selling Shareholder's Shares. In
addition, the Registration Statement shall state that, in accordance with the
Securities Act, it also covers an indeterminate number of additional shares of
Common Stock necessary to prevent dilution resulting from stock splits, or stock
dividends. If at any time the number of shares of Common Stock into which the
Debenture may be converted exceeds the aggregate number of shares of Common
Stock then registered, the Company shall, within thirty (30) business days after
receipt of written notice from any Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC at that time,
to register all shares of Common Stock into which the Debenture may be
converted, or (ii) if such Registration Statement has been declared effective by
the SEC at that time, file with the SEC an additional Registration Statement on
Form SB-2 or any other applicable registration statement, to register the shares
of Common Stock into which the Debenture may be converted that exceed the
aggregate number of shares of Common Stock already registered.
YOU WILL HAVE AN OPPORTUNITY TO MAKE INQUIRIES
We will make available, prior to any issue of the Shares, the opportunity to ask
questions and receive answers from the Company concerning any aspect of the
investment and to obtain any additional information contained in this
Prospectus, to the extent that the Company possesses such information or can
acquire it without unreasonable effort or expense.
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LEGAL PROCEEDINGS
THE SECURITIES AND EXCHANGE COMMISSION INVESTIGATION AND CONSENT DECREE
The Securities and Exchange Commission filed a Complaint (SEC V. KANAKARIS
COMMUNICATIONS, INC., ET AL. - Civil Action No. CV-S-99-0967-JBR-LRL) on August
2, 1999 seeking permanent injunctions against and civil penalties from us, Alex
Kanakaris and other individuals based on certain alleged violations of the
Securities Act of 1933, the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder.
The Company, Alex Kanakaris, and David Valenti, a Sales Manager for the Company
and a former Director, have signed consent decrees with the Securities and
Exchange Commission without admitting or denying any guilt involving violations
cited in the decrees and have agreed to pay certain administrative fines. We and
the aforementioned individuals have cooperated fully with the SEC. Pursuant to
the terms of the consent decree order, we and the aforementioned individuals
have agreed not to take actions which would violate federal securities laws in
connection with the offer, purchase or sale of securities.
NETBOOKS - ALLEGED TRADEMARK INFRINGEMENT
We have received a demand from Tecknon Corporation to stop using the name
"Netbooks" in connection with our business and Website. Such demand to cease and
desist or stop our use of the term "Netbooks" is in effect until we either pay a
royalty granting us licensing rights for current and continued usage or
otherwise resolve the disputed claim. Tecknon Corporation claims that they were
first in time in receiving a trademark from the United States Patent and
Trademark Office for the name "Netbooks." We intend to continue discussions with
counsel for the entity with alleged trademark rights in order to resolve this
issue short of litigation. |
