As
filed with the Securities and Exchange Commission on April 24,
2009
No. 333-
157352
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________________
FORM
S-1/A
(Amendment
No. 1)
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
BETAWAVE
CORPORATION
(Exact
name of registrant as specified in its charter)
__________________________
Nevada
|
8999
|
20-2471683
|
(State
or other jurisdiction of
incorporation
or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
Number)
|
706
Mission Street, 10
th
Floor
San
Francisco, CA 94103
(415) 738-8706
(Address,
including zip code, and telephone number, including
area
code, of registrant’s principal executive offices)
__________________________
Tabreez
Verjee, President
Betawave
Corporation
706
Mission Street, 10
th
Floor
San
Francisco, CA 94103
(415)
738-8706
(Name,
address, including zip code, and telephone number, including area
code,
of agent for service)
__________________________
With
Copies to:
John
W. Campbell III, Esq.
John
M. Rafferty, Esq.
Morrison
& Foerster LLP
425
Market Street
San
Francisco, California 94105
(415)
268-7000
|
Anthony J.
McCusker, Esq.
Brian
C. Patterson, Esq.
Gunderson
Dettmer Stough
Villeneuve
Franklin & Hachigian LLP
1200
Seaport Blvd.
Redwood
City, California 94063
(650)
321-2400
|
__________________________
Approximate
date of commencement of proposed sale to the public: From time to time after the
effective date of this registration statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box.
þ
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 the earlier effective registration
statement for the same offering.
¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check
one):
Large
accelerated filer
¨
|
|
Accelerated
filer
¨
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|
|
|
Non-accelerated
filer
¨
(Do not check if
a smaller reporting company)
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Smaller
reporting company
þ
|
CALCULATION OF REGISTRATION
FEE
Title of
Securities to be Registered
|
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Amount to be
Registered
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|
Proposed Maximum
Offering Price Per
Share(1)
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|
|
Proposed Maximum
Aggregate
Offering Price(1)
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Amount of
Registration
Fee(3)
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Shares
of common stock, par value $0.001 per share, issuable upon exercise of
warrants
|
|
|
28,261,172
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(1)
|
|
$
|
0.175
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(2)
|
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$
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4,945,705.10
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|
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$
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194.37
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|
Shares
of common stock, par value $0.001 per share, issuable upon conversion of
Series A preferred stock
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70,652,930
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$
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0.175
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$
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12,364,262.75
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$
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485.92
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Total:
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98,914,102
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|
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$
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0.175
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$
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17,309,967.85
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$
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680.29
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(1)
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there is also
being registered hereby such indeterminate number of additional shares of common
stock of Betawave Corporation as may be issued or issuable because of stock
splits, stock dividends, stock distributions, and similar
transactions.
(2)
Estimated solely for the purpose of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933 and based on the average of the
high and low bid prices of Common Stock on February 12, 2009 as reported by
the OTC Bulletin Board.
(3)
Previously paid.
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, as amended, or until the registration statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. The selling
stockholders may not sell these securities under this prospectus until the
registration statement of which it is a part and filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED APRIL 24, 2009
BETAWAVE
CORPORATION
PROSPECTUS
70,652,930
Shares of Common Stock
(underlying
Series A preferred stock)
28,261,172
Shares of Common Stock
(underlying
Warrants)
This
prospectus relates to the offering from time to time by the selling stockholders
of Betawave Corporation identified in this prospectus under “Selling
Stockholders”, and any of their pledgees, donees, transferees or other
successors-in-interest, of up to 98,914,102 shares of common stock, par
value $0.001 per share, including (i) 70,652,930 shares they may acquire on
conversion of Series A preferred stock and (ii) 28,261,172 shares they may
acquire on exercise of warrants. The Series A preferred stock and
warrants were issued to the selling stockholders in a private placement
completed in December 2008 (the “
Private
Placement
”). The Series A preferred stock and warrants were
sold as units at a purchase price of $4.00 per unit, with each unit consisting
of (i) one share of Series A preferred stock and (ii) a warrant to purchase
eight shares of common stock.
The
Series A preferred stock is convertible into common stock at any time at the
rate of 20 shares of common stock for each share of Series A preferred stock
(subject to certain anti-dilution and other adjustments as set forth in the
certificate of designation of the Series A preferred stock). Each
share of Series A preferred stock will have a liquidation preference of $4.00
per share and is entitled to receive dividends, prior and in preference to any
declaration or payment of any dividend on the common stock, at the rate of $0.32
per annum when and if any such dividends are declared by our board of
directors. The warrants have an exercise price of $0.20 per share
(subject to adjustment). All of the warrants expire in five
years.
For more
details of the Private Placement, see “Description of Securities” included
elsewhere in this prospectus.
The
selling stockholders or their pledgees, donees, transferees or other
successors-in-interest may sell all or a portion of these shares from time to
time in market transactions through the OTC Bulletin Board or any other market
on which our common stock is then traded, in negotiated transactions or
otherwise, and at prices and on terms that will be determined by then prevailing
market prices or at negotiated prices directly or through a broker or brokers,
who may act as agent or as principal or by a combination of such methods of
sale.
We will
not receive any proceeds from the sale of shares of common stock offered by the
selling stockholders, and any of their pledgees, donees, transferees or other
successors-in-interest, under this prospectus. We will receive the proceeds from
any cash exercises of the warrants, which we intend to use for general corporate
purposes, including, but not limited to, working capital.
Our
common stock is traded on the OTC Bulletin Board under the symbol “BWAV.OB”. On
April 23, 2009, the closing price of our common stock was $0.13 per
share.
Investing in our common stock involves
a high degree of risk. Before making any investment in our common
stock, you should read and carefully consider the risks described in this
prospectus under “Risk Factors” beginning on page 6 of this
prospectus.
You should rely only on the information
contained in this prospectus or any prospectus supplement or amendment
thereto. We have not authorized anyone to provide you with different
information.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This
prospectus is
dated ,
2009
TABLE
OF CONTENTS
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Page
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SUMMARY
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2
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RISK
FACTORS
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6
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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22
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SELLING
STOCKHOLDERS
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23
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DETERMINATION
OF OFFERING PRICE
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27
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PLAN
OF DISTRIBUTION
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27
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USE
OF PROCEEDS
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28
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MARKET
PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED MATTERS
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29
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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34
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BUSINESS
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45
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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53
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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58
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EXECUTIVE
COMPENSATION
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59
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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66
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DESCRIPTION
OF SECURITIES
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67
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LEGAL
MATTERS
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69
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EXPERTS
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69
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WHERE
YOU CAN FIND MORE INFORMATION
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69
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FINANCIAL
STATEMENTS
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F-1
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This
summary does not contain all of the information that should be considered before
investing in our common stock. Investors should read the entire prospectus
carefully, including the more detailed information regarding our business, the
risks of purchasing our common stock discussed in this prospectus under “Risk
Factors,” and our financial statements and the accompanying
notes.
In this
prospectus, unless the context requires otherwise, “Betawave,” the “Company,”
“we,” “us,” and “our” refer to Betawave Corporation, a Nevada corporation, and
its wholly-owned subsidiaries (GoFish Technologies, Inc., Internet Television
Distribution Inc., and BM Acquisition Corp., Inc.), taken as a whole, and also
refers to the operations of GoFish Technologies, Inc. prior to the October 27,
2006 merger which resulted in GoFish Technologies, Inc. becoming a wholly-owned
subsidiary of Betawave Corporation. Internet Television Distribution Inc. and BM
Acquisition Corp., Inc. have no present operations.
The
Company is the industry’s first attention-based digital media company. We have
assembled some of the leading immersive casual gaming, virtual world, social
play and entertainment websites into a network of sites (the “Betawave
Network”). We generate revenue by selling innovative, accountable and
attention-grabbing advertising campaigns on those sites to brand advertisers. We
offer marketers broad reach into a targeted audience in desirable editorial
environments. We combine the scale of a portal or advertising network
with the custom programs and client focus of a niche publisher.
The
Betawave Network delivers scale with a unique monthly audience of over 25
million domestically and attention with an average audience engagement of more
than 48 minutes per month. To ensure that we consistently offer the
highest level of service to publishers and advertisers, we are highly
discriminating in our selection of publishers. We seek to ensure that
the Betawave Network is comprised of quality publishers that have unique value
propositions for marketers and advertisers trying to reach youth, moms, and a
growing audience base of 18 to 34 year olds.
We enter
into agreements with our publishers where we are responsible for selling their
advertising inventory. Generally, these relationships are exclusive and allow us
to decide how we sell the advertising inventory, what we sell and to whom we
sell it. We have secured advertising buys from strong brands, including four of
the biggest spenders against kids online. In addition, we procure media content
that we believe to be compelling to both users of the sites within the Betawave
Network and advertisers in categories targeting these users. In February 2009,
we launched Betawave TV, an ad-supported video platform with distribution on
several publishers in the Betawave Network. The product features
advertiser-safe, family-friendly programming including quality animation,
youth-oriented news, action sports, movie and video game information, special
events, celebrity interviews, fashion, and health and beauty
segments.
Our goal
is to become the most valuable digital media company for brand advertisers. To
do so, we seek to expand the size of the Betawave Network by forging
relationships with publishers that have large, deeply engaged audiences with
which advertisers want their brands to be affiliated.
We sell
our inventory and marketing services in the United States through a sales and
marketing organization that consisted of 41 employees as of April 7,
2009. These employees are located at our headquarters in San
Francisco, California, and New York, New York, and also in our sales offices in
Los Angeles, California, and Chicago, Illinois. The team is focused on selling
advertising space on our network to top quality brands and their advertising
agencies.
In
addition, we operate a business development team tasked with sourcing, securing
and retaining quality publishers into our network. These employees are located
at our headquarters in San Francisco. They keep current with the latest online
trends in our targeted demographics and are responsible for finding and securing
relationships with a broad network of sites that extends the reach of our
network portfolio.
Our
market consists of publishers that operate websites with large, deeply engaged
audiences and advertisers interested in reaching consumers online within our
target demographics. Publisher websites provide a platform for brands to engage
consumers through effective and targeted advertising initiatives. Our
advertisers provide us with revenue by paying us to promote their brands,
products and services on the websites in our network.
We
believe that advertisers must reach consumers online as this is where they
increasingly spend time relative to other media. The advertiser’s
ability to effectively reach these consumers, however, is being impacted by
several trends taking place on the Internet that lead to fragmentation of
Internet traffic. This fragmentation makes it difficult for marketers
to reach their targeted demographics at scale. Betawave believes it
can provide the diversity, scale and the targeting of an advertising network
with the integration, editorial quality and customization of large publishers.
Betawave seeks to bridge the gap by uniting mid-size sites, offering rich
content experiences, and introducing standard and immersive ad formats uniformly
across our portfolio. The focus on immersive experiences is central to the
concept of Attention-Based Media.
We
compete against well-capitalized advertising companies as well as smaller
companies. The market for our services is highly competitive.
Advertisers
have several options for how to reach consumers online. Betawave has
several attributes which we believe allow us to compete aggressively for online
advertising dollars. With over 25 million unique users in the United
States, the average U.S. user on the Betawave Network spends 48 minutes per
month according to comScore MediaMetrix, with tweens (9-14) and teen girls
spending well over 60 minutes per month and teen boys just under that
number. The average of one minute per page across publishers in the
Betawave Network is 41% higher than the Internet average and is 66% higher than
the minutes per page average at teen sites and is two times as high as the
minutes per page average at social networking sites.
Publishers have several options to
monetize the traffic on their websites. They can build a direct sales
organization to sell the advertising space on their website directly or partner
with a third party advertising network to sell their advertising. We
believe our company is attractive to publishers in our targeted demographics
because of our ability to attract relevant, high quality advertisers at higher
CPMs than can otherwise be obtained. We have expertise in defining
innovative ad products and strategy, and we provide related platforms such as
Betawave TV. We also believe that we are uniquely positioned with our focus and
experience with attention-based media and we offer an unprecedented level of
transparency and integration on our partner sites.
For more
information regarding our business, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Business,” included
elsewhere in this prospectus.
We were
incorporated under the laws of the State of Nevada on February 2, 2005. Our
principal executive offices are located at 706 Mission Street, 10
th
Floor,
San Francisco, CA 94103. The telephone number at our principal executive offices
is (415) 738-8706. Our website address is www.betawave.com. Information
contained on our website is not intended to be part of this prospectus and the
reference to our website is an inactive textual reference
only.
This
prospectus relates to the resale by the selling stockholders identified in this
prospectus of up to 98,914,102 shares of our common stock, including 70,652,930
shares they may acquire on conversion of Series A preferred stock and 28,261,172
shares they may acquire on exercise of warrants. The Series A
preferred stock and warrants were purchased by the selling stockholders in a
series of private placements made exclusively to accredited investors completed
on December 12, 2008, and the common stock issuable upon conversion or
exercise of those securities may be offered for sale by the selling stockholders
from time to time. No shares are being offered for sale by the
Company.
Common
stock outstanding prior to offering
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29,229,284
shares as of April 7, 2009
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Common
stock offered by the selling stockholders
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98,914,102
(assuming all shares of Series A preferred stock have been converted and
all warrants have been exercised)
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Common
stock to be outstanding after the offering
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128,143,386
(assuming all shares of Series A preferred stock have been converted and
all warrants have been exercised)
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Use
of Proceeds
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We
will not receive any proceeds from the sale of common stock offered by the
selling stockholders under this prospectus. We will receive the proceeds
from any cash exercises of warrants, which we intend to use for general
corporate purposes, including, but not limited to, working
capital.
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OTC
Bulletin Board Symbol
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“BWAV.OB”
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Pursuant
to the terms of a securities purchase agreement dated December 3, 2008, which we
entered into with the selling stockholders, we raised approximately $22.5
million in gross proceeds and cancelled indebtedness representing an aggregate
principal amount of approximately $5,427,864 in exchange for the issuance of
shares of our Series A preferred stock and warrants to purchase our common
stock. The cancelled indebtedness was (a) our 6% senior convertible
notes due June 7, 2010 (the “Senior Notes”) issued under the terms of that
certain purchase agreement, dated as of June 7, 2007, that we entered into with
such investors, and (b) our unsecured convertible 15% original issue discount
notes due June 8, 2010 (collectively, the “Subordinated Notes”) that we issued
under the terms of the subscription agreement dated April 18, 2008 (the “April
2008 Subordinated Notes”) and the accession agreement dated June 30, 2008 (the
“June 2008 Subordinated Notes”).
The
Series A preferred stock and warrants were sold as units at a purchase price of
$4.00 per unit, with each unit consisting of (i) one share of Series A preferred
stock and (ii) a warrant to purchase eight shares of common
stock. The Series A preferred stock and warrants were sold at two
closings that occurred on December 3, 2008 and December 12, 2008.
Pursuant
to the terms of the securities purchase agreement, we sold an aggregate of (i)
7,065,293 shares of our Series A preferred stock, which shares are convertible
into 141,305,860 shares of our common stock, and (ii) warrants to purchase
56,522,344 shares of our common stock, at an exercise price of $0.20 per share,
with a term of five years.
Qatalyst
Partners LP (“Qatalyst”) acted as our financial advisor in connection with the
financing. In accordance with the terms of our engagement letter with
Qatalyst, we issued to Qatalyst warrants to purchase 6,665,343 shares of our
common stock as compensation for its services to us, and we have paid Qatalyst a
cash fee in accordance with the terms of the engagement
letter.
The
issuances of securities described above are exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”),
pursuant to Section 4(2) thereof.
This
offering is not being underwritten. The selling stockholders will
sell their shares of our common stock at prevailing market prices or privately
negotiated prices. The selling stockholders themselves directly, or
through their agents, or through their brokers or dealers, may sell their shares
from time to time, in (i) privately negotiated transactions, (ii) in one or more
transactions, including block transactions in accordance with the applicable
rules of the OTC Bulletin Board or (iii) otherwise in accordance with the
section of this prospectus entitled “Plan of Distribution.” To the
extent required, the specific shares to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the
names of any agent, broker or dealer and any applicable commission or discounts
with respect to a particular offer will be described in an accompanying
prospectus. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather
than pursuant to this prospectus.
For
additional information on the methods of sale, you should refer to the section
of this prospectus entitled “Plan of Distribution,” beginning on page
27.
RISK
FACTORS
We face a variety of risks that may
affect our financial condition, results of operations or business, and many of
those risks are driven by factors that we cannot control or predict. The
following discussion addresses those risks that management believes are the most
significant, although there may be other risks that could arise, or may prove to
be more significant than expected, that may affect our financial condition,
results of operations or business.
RISKS
RELATED TO OUR COMPANY
We
have a history of operating losses which we expect to continue, and we may not
be able to achieve profitability.
We have a
history of losses and expect to continue to incur operating and net losses for
the foreseeable future. We incurred a net loss of approximately $5.3 million for
the year ended December 31, 2006, a net loss of approximately $16.4 million for
the year ended December 31, 2007 and a net loss of approximately $17.0 million
for the year ended December 31, 2008. As of December 31, 2008, our
accumulated deficit was approximately $41.1 million. We have not achieved
profitability on a quarterly or on an annual basis. We may not be able to
achieve profitability. Our revenues for the year ended December 31, 2008
were approximately $7.7 million. If our revenues grow more slowly than
anticipated or if our operating expenses exceed expectations, then we may not be
able to achieve profitability in the near future or at all, which may depress
the price for our common stock.
The
effects of the current global economic crisis may impact our business, operating
results, or financial condition.
The
current global economic crisis has caused significant disruptions and extreme
volatility in global financial markets and increased rates of default and
bankruptcy, and has significantly impacted levels of consumer
spending. The current deterioration in economic conditions has caused
and could cause additional decreases in or delays in advertising spending in
general. In addition, many industry forecasts are predicting negative
growth in certain channels of online advertising in 2009. These
developments could negatively affect our business, operating results, or
financial condition in a number of ways. For example, current or
potential customers such as advertisers may delay or decrease spending with us
or may not pay us or may delay paying us for previously purchased
services. In addition, if consumer spending continues to decrease,
this may affect consumer’s behavior on the Internet and online advertising
spending.
A
limited number of advertisers account for a significant percentage of our
revenue, and a loss of one or more of these advertisers could materially
adversely affect our results of operations.
We
generate almost entirely all of our revenues from advertisers on our network.
For the year ended December 31, 2008, revenue from our five largest
advertisers accounted for 36.3% of our revenue. Our largest advertiser accounted
for 12.3% of our revenue for the year ended December 31, 2008. Our
advertisers can generally terminate their contracts with us at any time. The
loss of one or more of the advertisers that represent a significant portion of
our revenue could materially adversely affect our results of operations. In
addition, our relationships with publishers participating in our network require
us to bear the risk of non-payment of advertising fees from advertisers.
Accordingly, the non-payment or late payment of amounts due to us from a
significant advertiser could materially adversely affect our financial condition
and results of operations.
A
small number of publishers account for a substantial percentage of our revenue
and our failure to develop and sustain long-term relationships with our
publishers, or the reduction in traffic of a current publisher in our network,
could limit our ability to generate revenue.
For the
year ended December 31, 2008, advertising revenue connected to our largest
publisher accounted for approximately 66% of our revenues. Until the sales cycle
on the newest sites in our publisher network matures, a small number of
publishers will account for a substantial percentage of our revenue. We cannot
assure you that any of the publishers participating in our network will continue
their relationships with us. Moreover, we may lose publishers to competing
publisher networks that have longer operating histories, the ability to attract
higher ad rates, greater brand recognition, or the ability to generate greater
financial, marketing and other resources. Furthermore, we cannot assure you that
we would be able to replace a departed publisher with another publisher with
comparable traffic patterns and demographics, if at all. Accordingly, our
failure to develop and sustain long-term relationships with publishers or the
reduction in traffic of a current publisher in our network could limit our
ability to generate revenue.
Our
future financial results, including our expected revenues, are unpredictable and
difficult to forecast.
Our
revenues, expenses and operating results fluctuate from quarter to quarter and
are unpredictable which could increase the volatility of the price of our common
stock. We expect that our operating results will continue to fluctuate in the
future due to a number of factors, some of which are beyond our control. These
factors include:
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·
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our
ability to attract and incorporate publishers into our
network;
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·
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the
ability of the publishers in our network to attract visitors to their
websites;
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·
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the
amount and timing of costs relating to the expansion of our operations,
including sales and marketing
expenditures;
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·
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our
ability to control our gross
margins;
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·
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our
ability to generate revenue through third-party advertising and our
ability to be paid fees for advertising on our network;
and
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·
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our
ability to obtain cost-effective advertising throughout our
network.
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Due to
all of these factors, our operating results may fall below the expectations of
investors, which could cause a decline in the price of our common stock. In
addition, since we expect that our operating results will continue to fluctuate
in the future, it is difficult for us to accurately forecast our
revenues.
Our
limited operating history in the operation of an online entertainment and media
network of websites makes evaluation of our business difficult, and our revenues
are currently insufficient to generate positive cash flows from our
operations.
We have
limited historical financial data upon which to base planned operating expenses
or forecast accurately our future operating results. We formally launched our
website in October 2004 and only began building our network during 2007. We
formally launched our network in February 2008 and we rebranded as Betawave
Corporation in January 2009. The revenue received currently is insufficient to
generate positive cash flows from our operations.
We
may need to raise additional capital to meet our business requirements in the
future and such capital raising may be costly or difficult to obtain and could
dilute current stockholders’ ownership interests.
We may
need to raise additional capital in the future, which may not be available on
reasonable terms or at all, especially in light of the recent downturn in the
economy and dislocations in the credit and capital markets. The raising of
additional capital may dilute our current stockholders’ ownership interests. We
may need to raise additional funds through public or private debt or equity
financings to meet various objectives including, but not limited
to:
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pursuing
growth opportunities, including more rapid
expansion;
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acquiring
complementary businesses;
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growing
our network, including the number of publishers and advertisers in our
network;
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hiring
qualified management and key
employees;
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responding
to competitive pressures; and
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maintaining
compliance with applicable laws.
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In
addition, the raising of any additional capital through the sale of equity or
equity-backed securities would dilute our current stockholders’ ownership
percentages and would also result in a decrease in the fair market value of our
equity securities because our assets would be owned by a larger pool of
outstanding equity. The terms of those securities issued by us in future capital
transactions may be more favorable to new investors, and may include
preferences, superior voting rights and the issuance of warrants or other
derivative securities, which may have a further dilutive effect.
If we are
unable to obtain required additional capital, we may have to curtail our growth
plans or cut back on existing business and, further, we may not be able to
continue operating if we do not generate sufficient revenues from operations
needed to stay in business.
We may
incur substantial costs in pursuing future capital financing, including
investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities we
issue, such as convertible notes and warrants, which may adversely impact our
financial condition.
Our
auditors have indicated that there are a number of factors that raise
substantial doubt about our ability to continue as a going concern.
Our
audited consolidated financial statements for the fiscal year ended December 31,
2008 were prepared on a going concern basis in accordance with United States
generally accepted accounting principles. The going concern basis of
presentation assumes that we will continue in operation for the foreseeable
future and will be able to realize our assets and discharge our liabilities and
commitments in the normal course of business. However, the report of our
independent registered public accounting firm on our audited consolidated
financial statements for the fiscal year ended December 31, 2008 has indicated
that we have incurred net loss since our inception, have experienced liquidity
problems, negative cash flows from operations, and a working capital deficit at
December 31, 2008, that raise substantial doubt about our ability to continue as
a going concern.
If
we acquire or invest in other companies, assets or technologies and we are not
able to integrate them with our business, or we do not realize the anticipated
financial and strategic goals for any of these transactions, our financial
performance may be impaired.
As part
of our growth strategy, we routinely consider acquiring or making investments in
companies, assets or technologies that we believe are strategic to our business.
We do not have extensive experience in integrating new businesses or
technologies, and if we do succeed in acquiring or investing in a company or
technology, we will be exposed to a number of risks, including:
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we
may find that the acquired company or technology does not further our
business strategy, that we overpaid for the acquired company or technology
or that the economic conditions underlying our acquisition decision have
changed;
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we
may have difficulty integrating the assets, technologies, operations or
personnel of an acquired company, or retaining the key personnel of the
acquired company;
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our
ongoing business and management’s attention may be disrupted or diverted
by transition or integration issues and the complexity of managing
geographically or culturally diverse
enterprises;
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we
may encounter difficulty entering and competing in new markets or
increased competition, including price competition or intellectual
property litigation; and
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we
may experience significant problems or liabilities associated with
technology and legal contingencies relating to the acquired business or
technology, such as intellectual property or employment
matters.
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If we
were to proceed with one or more significant acquisitions or investments in
which the consideration included cash, we could be required to use a substantial
portion of our available cash. To the extent we issue shares of capital stock or
other rights to purchase capital stock, including options and warrants, existing
shareholders might be diluted.
Our
recently announced business model and name changes carry a number of risks which
may be harmful to our business.
We have
recently refined our business model significantly to become an attention-based
media company and have recently changed our name to Betawave Corporation. A
significant portion of our future success will depend on us forging contractual
relationships with additional third-party websites (“publishers”) under which we
will assume responsibility for selling their inventory of available advertising
opportunities, as well as syndicating video content to them. With the
implementation of the new phase of our business strategy, we are susceptible to
the risks of operating an advertising-supported business. There is no guarantee
that we will enter into contracts with such publishers and, if we are unable to
enter into such contractual relationships, our business will be adversely
affected.
Furthermore,
in connection with the development and implementation of our refined strategic
focus, we have spent, and continue to expect to spend, additional time and
costs, including those associated with advertising and marketing efforts and
building a network that includes other publishers. If we are unable
to effectively implement our refined strategic focus, our business and operating
results would be adversely affected.
Our
recent name change to Betawave Corporation and rebranding campaign may involve
substantial costs and may not be favorably received by our base of users,
advertisers, publishers in our network and other partners.
In
January 2009, we changed our name from GoFish Corporation to Betawave
Corporation and launched a campaign to rebrand our business using the “Betawave”
name. As a result, we may lose any brand recognition associated with the
“GoFish” name that we previously established with advertisers, publishers in our
network and other partners. In addition, our rebranding campaign may
involve substantial costs and may not be favorably received by advertisers,
publishers in our network and other partners. We may not be able to establish,
maintain and/or enhance brand recognition associated with the “Betawave” name
that is comparable to the brand recognition that we may have previously had
associated with the “GoFish” name. If we fail to establish, maintain and/or
enhance brand recognition associated with the “Betawave” name, it could affect
our ability to attract advertisers, publishers in our network and other
partners, which could adversely affect our ability to generate revenues and
could impede our business plan.
Our
business depends on enhancing our brand, and any failure to enhance our brand
would hurt our ability to expand our base of users, advertisers and publishers
in our network.
Enhancing
our brand is critical to expanding our base of users, advertisers, publishers in
our network, and other partners. We believe that the importance of brand
recognition will increase due to the relatively low barriers to entry in the
Internet market. If we fail to enhance our brand, or if we incur excessive
expenses in this effort, our business, operating results and financial condition
will be materially and adversely affected. Enhancing our brand will depend
largely on our ability to provide high-quality products and services, which we
may not do successfully.
We
intend to expand our operations and increase our expenditures in an effort to
grow our business. If we are unable to achieve or manage significant growth and
expansion, or if our business does not grow as we expect, our operating results
may suffer.
Our
business plan anticipates continued additional expenditure on development and
other growth initiatives. We may not achieve significant growth. If achieved,
significant growth would place increased demands on our management, accounting
systems, network infrastructure and systems of financial and internal controls.
We may be unable to expand associated resources and refine associated systems
fast enough to keep pace with expansion. If we fail to ensure that our
management, control and other systems keep pace with growth, we may experience a
decline in the effectiveness and focus of our management team, problems with
timely or accurate reporting, issues with costs and quality controls and other
problems associated with a failure to manage rapid growth, all of which would
harm our results of operations.
Payments
to certain of our publishers have exceeded the related fees we receive from our
advertisers.
We are
obligated under certain agreements to make non-cancelable guaranteed minimum
revenue share payments to certain of our publishers. In these agreements, we
promise to make these minimum payments to the publisher for a pre-negotiated
period of time. At December 31, 2008, our aggregate outstanding non-cancelable
guaranteed minimum revenue share commitments totaled $5.65 million through 2010.
It is difficult to forecast with certainty the fees that we will earn under
agreements with guarantees, and sometimes the fees we earn fall short of the
guaranteed minimum payment amounts.
Losing
key personnel or failing to attract and retain other highly skilled personnel
could affect our ability to successfully grow our business.
Our
future performance depends substantially on the continued service of our senior
management, sales and other key personnel. We do not currently maintain key
person life insurance. If our senior management were to resign or no longer be
able to serve as our employees, it could impair our revenue growth, business and
future prospects. In addition, the success of our monetization and sales plans
depends on our ability to retain people in direct sales and to hire additional
qualified and experienced individuals into our sales organization.
To meet
our expected growth, we believe that our future success will depend upon our
ability to hire, train and retain other highly skilled personnel. Competition
for quality personnel is intense among technology and Internet-related
businesses such as ours. We cannot be sure that we will be successful in hiring,
assimilating or retaining the necessary personnel, and our failure to do so
could cause our operating results to fall below our projected growth and profit
targets.
Decreased
effectiveness of equity compensation could adversely affect our ability to
attract and retain employees and harm our business.
We have
historically used stock options as a key component of our employee compensation
program in order to align employees’ interests with the interests of our
stockholders, encourage employee retention, and provide competitive compensation
packages. Volatility or lack of positive performance in our stock price may
adversely affect our ability to retain key employees, many of whom have been
granted stock options, or to attract additional highly-qualified
personnel.
Rules
issued under the Sarbanes-Oxley Act of 2002 may make it difficult for us to
retain or attract qualified officers and directors, which could adversely affect
the management of our business and our ability to retain the trading status of
our common stock on the OTC Bulletin Board.
We may be
unable to attract and retain those qualified officers, directors and members of
board committees required to provide for our effective management because of
rules and regulations that govern publicly held companies, including, but not
limited to, certifications by principal executive officers. The enactment of the
Sarbanes-Oxley Act of 2002 has resulted in the issuance of rules and regulations
and the strengthening of existing rules and regulations by the SEC. The
perceived increased personal risk associated with these recent changes may deter
qualified individuals from accepting roles as directors and executive
officers.
We may
have difficulty attracting and retaining directors with the requisite
qualifications. If we are unable to attract and retain qualified officers and
directors, the management of our business and our ability to retain the
quotation of our common stock on the OTC Bulletin Board or obtain a listing of
our common stock on a stock exchange or NASDAQ could be adversely
affected.
Our
management has identified a number of material weaknesses in our internal
control over financial reporting as of December 31, 2008, which, if not
sufficiently remediated, could result in material misstatements in our annual or
interim financial statements in future periods and the ineffectiveness of our
disclosure controls and procedures.
In
connection with our management’s assessment of our internal control over
financial reporting as required under Section 404 of the Sarbanes-Oxley Act of
2002, our management identified a number of material weaknesses in our internal
control over financial reporting as of December 31, 2008. A material weakness is
a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis by our internal controls. As a result, our
management has concluded that we did not maintain effective internal control
over financial reporting as of December 31, 2008. In addition, based on the
evaluation and the identification of these material weaknesses in our internal
control over financial reporting, our Chief Executive Officer and our Chief
Accounting Officer concluded that, as of December 31, 2008, our disclosure
controls and procedures were not effective.
We are in
the process of implementing remediation efforts with respect to our control
environment and these material weaknesses. However, if these
remediation efforts are insufficient to address these material weaknesses, or if
additional material weaknesses in our internal control over financial reporting
are discovered in the future, we may fail to meet our future reporting
obligations, our financial statements may contain material misstatements and our
financial conditions and results of operations may be adversely impacted. Any
such failure could also adversely affect our results of periodic management
assessment regarding the effectiveness of our internal control over financial
reporting, as required by the SEC’s rules under Section 404 of the
Sarbanes-Oxley Act of 2002. The existence of a material weakness could result in
errors in our financial statements that could result in a restatement of
financial statements or failure to meet reporting obligations, which in turn
could cause investors to lose confidence in reported financial information
leading to a decline in our stock price.
Although
we believe that these remediation efforts will enable us to improve our internal
control over financial reporting, we cannot assure you that these remediation
efforts will remediate the material weaknesses identified or that any additional
material weaknesses will not arise in the future due to a failure to implement
and maintain adequate internal control over financial reporting. Furthermore,
there are inherent limitations to the effectiveness of controls and procedures,
including the possibility of human error and circumvention or overriding of
controls and procedures.
We
may have undisclosed liabilities that could harm our revenues, business,
prospects, financial condition and results of operations.
Our
present management had no affiliation with Unibio Inc. (which changed its name
to GoFish Corporation on September 14, 2006 and subsequently to Betawave
Corporation on January 20, 2009) prior to the October 27, 2006 mergers, in
which Betawave Corporation acquired GoFish Technologies, Inc. as a wholly-owned
subsidiary in a reverse merger transaction and IDT Acquisition Corp., a
wholly-owned subsidiary of Betawave Corporation, simultaneously merged with and
into Internet Television Distribution, Inc. as a wholly-owned subsidiary.
Pursuant to the mergers, the officers and board members of Betawave Corporation
resigned and were replaced by officers of GoFish Technologies, Inc. along with
newly elected board members.
Although
the October 27, 2006 Agreement and Plan of Merger contained customary
representations and warranties regarding our pre-merger operations and customary
due diligence was performed, all of our pre-merger material liabilities may not
have been discovered or disclosed. We do not believe this to be the case but can
offer no assurance as to claims which may be made against us in the future
relating to such pre-merger operations. The Agreement and Plan of Merger and
Reorganization contained a limited, upward, post-closing, adjustment to the
number of shares of common stock issuable to pre-merger GoFish Technologies Inc.
and Internet Television Distribution Inc. shareholders as a means of providing a
remedy for breaches of representations made by us in the Agreement and Plan of
Merger and Reorganization, including representations related to any undisclosed
liabilities, however, there is no comparable protection offered to our other
stockholders. Any such undisclosed pre-merger liabilities could harm our
revenues, business, prospects, financial condition and results of operations
upon our acceptance of responsibility for such liabilities.
Regulatory
requirements may materially adversely affect us.
We are
subject to various regulatory requirements, including the Sarbanes-Oxley Act of
2002. Section 404 of the Sarbanes-Oxley Act of 2002 requires the evaluation and
determination of the effectiveness of a company’s internal control over its
financial reporting. In connection with management’s assessment of our internal
control over financial reporting as required under Section 404 of the
Sarbanes-Oxley Act of 2002, we identified material weaknesses in our internal
control over financial reporting as of December 31, 2008. As a result, we have
incurred additional costs and may suffer adverse publicity and other
consequences of this determination.
We
may be subject to claims relating to certain actions taken by our former
external legal counsel.
In
February 2007, we learned that approximately half of the three million shares of
our common stock issued as part of a private placement transaction we
consummated in October 2006 to entities controlled by Louis Zehil, who at the
time of the purchase was a partner of our former external legal counsel for the
private placement transaction, McGuireWoods LLP, may have been improperly
traded. We believe that Mr. Zehil improperly caused our former transfer agent
not to place a required restrictive legend on the certificate for these three
million shares and that Mr. Zehil then caused the entities he controlled to
resell certain of these shares. Mr. Zehil’s conduct was reported to the SEC, and
the SEC recently sued Mr. Zehil in connection with this matter and further
alleged that Mr. Zehil engaged in a similar fraudulent scheme with respect to
six additional public companies represented at the relevant time by McGuireWoods
LLP. Mr. Zehil also is the subject of criminal charges brought by federal
prosecutors in connection with the fraudulent scheme.
In December 2008, Sunrise Equity
Partners, L.P. (“Sunrise”) brought an action against us in the United States
District Court in the Southern District of New York on behalf of itself and all
other purchasers of our securities in our 2006 private placement. In the
complaint, Sunrise alleged, among other things, that we breached the
representation in the subscription agreement for the 2006 private placement
which provided that no purchaser in the private placement had an agreement or
understanding on terms that differed substantially from those of any other
investor. Sunrise claimed that we breached this representation because Mr.
Zehil’s entities received certificates without any restrictive legend while all
other investors in the private placement received certificates with such
restrictive legends. In February 2009, the complaint was dismissed without
prejudice. It is possible that Sunrise will re-file the complaint in
federal or state court or that one or more other stockholders could also claim
that they somehow suffered a loss as a result of Mr. Zehil’s conduct and attempt
to hold us responsible for their losses. If any such claims are
successfully made against us and we are not adequately indemnified for those
claims from available sources of indemnification, then such claims could have a
material adverse effect on our financial condition. We also may incur
significant costs resulting from our investigation of this matter, defending any
litigation against us relating to this matter, and our cooperation with
governmental authorities. We may not be adequately indemnified for such costs
from available sources of indemnification.
RISKS
RELATED TO OUR BUSINESS
We
may be unable to attract advertisers to our network.
Advertising
revenues comprise, and are expected to continue to comprise, almost entirely all
of our revenues generated from our network. Most large advertisers have fixed
advertising budgets, only a small portion of which have traditionally been
allocated to Internet advertising. In addition, the overall market for
advertising, including Internet advertising, has been generally characterized in
recent periods by softness of demand, reductions in marketing and advertising
budgets, and by delays in spending of budgeted resources. Advertisers may
continue to focus most of their efforts on traditional media or may decrease
their advertising spending. If we fail to convince advertisers to spend a
portion of their advertising budgets with us, we will be unable to generate
revenues from advertising as we intend.
Even if
we initially attract advertisers to our network, they may decide not to
advertise to our community if their investment does not have the desired result,
or if we do not deliver their advertisements in an appropriate and effective
manner. If we are unable to provide value to our advertisers, advertisers may
reduce the rates they are willing to pay or may not continue to place ads with
us.
We
generate almost entirely all of our revenue from advertising, and the reduction
in spending by, or loss of, advertisers could seriously harm our
business.
We
generate almost entirely all of our revenues from advertisers on our network.
Our advertisers can generally terminate their contracts with us at any time. If
we are unable to remain competitive and provide value to our advertisers, they
may stop placing ads with us, which would negatively affect our revenues and
business. In addition, expenditures by advertisers tend to be cyclical,
reflecting overall economic conditions and budgeting and buying patterns. Any
decreases in or delays in advertising spending due to general economic
conditions could reduce our revenues or negatively impact our ability to grow
our revenues. We also may encounter difficulty collecting from our advertisers.
We are a relatively small company and advertisers may choose to pay our bills
after paying debts of their larger clients.
If
we fail to compete effectively against other Internet advertising companies, we
could lose customers or advertising inventory and our revenue and results of
operations could decline.
The
Internet advertising markets are characterized by rapidly changing technologies,
evolving industry standards, frequent new product and service introductions, and
changing customer demands. The introduction of new products and services
embodying new technologies and the emergence of new industry standards and
practices could render our existing products and services obsolete and
unmarketable or require unanticipated technology or other investments. Our
failure to adapt successfully to these changes could harm our business, results
of operations and financial condition.
The
market for Internet advertising and related products and services is highly
competitive. We expect this competition to continue to increase, in part because
there are no significant barriers to entry to our industry. Increased
competition may result in price reductions for advertising space, reduced
margins and loss of market share. We compete against well-capitalized
advertising companies as well as smaller companies.
We
compete against self-serve advertising networks such as Google AdSense,
Valueclick, Advertising.com and Tribal Fusion that serve impressions onto a wide
variety of mostly small and medium sites. We compete against behavioral
networks, such as Tacoda and Blue Lithium, which serve the same inventory as
general networks, but add behavioral targeting. We also compete against other
full-service advertising networks that provide a more complete service when
selling advertising, such as Gorilla Nation and Glam.
If
existing or future competitors develop or offer products or services that
provide significant performance, price, creative or other advantages over those
offered by us, our business, results of operations and financial condition could
be negatively affected. Many current and potential competitors enjoy competitive
advantages over us, such as longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical, sales and marketing resources. As a result, we may not be able to
compete successfully. If we fail to compete successfully, we could lose
customers or advertising inventory and our revenue and results of operations
could decline.
We
face competition from websites catering to consumers, as well as traditional
media companies, and we may not be included in the advertising budgets of large
advertisers, which could harm our revenues and results of
operations.
In the
online advertising market, we compete for advertising dollars with all websites
catering to consumers, including portals, search engines and websites belonging
to other advertising networks. We also compete with traditional advertising
media, such as direct mail, television, radio, cable, and print, for a share of
advertisers’ total advertising budgets. Most large advertisers have fixed
advertising budgets, a small portion of which is allocated to Internet
advertising. We expect that large advertisers will continue to focus most of
their advertising efforts on traditional media. If we fail to convince these
companies to spend a portion of their advertising budgets with us, or if our
existing advertisers reduce the amount they spend on our programs, our revenues
and results of operations would be harmed.
We
may be unable to attract and incorporate high quality publishers into our
network.
Our
future revenues and success depend upon, among other things, our ability to
attract and contract with high-quality publishers to participate in our network.
We cannot assure you that publishers will want to participate, or continue to
participate, in our network. If we are unable to successfully attract publishers
to our network, it could adversely affect our ability to generate revenues and
could impede our business plan. Even if we do successfully attract publishers,
we cannot assure you that we will be able to incorporate these publishers into
our network without substantial costs, delays or other problems.
Our
services may fail to maintain the market acceptance they have achieved or to
grow beyond current levels, which would adversely affect our competitive
position.
We have
not conducted any independent studies with regard to the feasibility of our
proposed business plan, present and future business prospects and capital
requirements. Our services may fail to gain market acceptance and our
infrastructure to enable such expansion is still limited. Even if adequate
financing is available and our services are ready for market, we cannot be
certain that our services will find sufficient acceptance in the marketplace to
fulfill our long and short-term goals. Failure of our services to achieve or
maintain market acceptance would have a material adverse effect on our business,
financial condition and results of operations.
We
may fail to select the best publishers for our network.
The
number of websites has increased substantially in recent years. Our publishers’
websites face numerous competitors both on the Internet, and in the more
traditional broadcasting arena. Some of these companies have substantially
longer operating histories, significantly greater financial, marketing and
technical expertise, and greater resources and name recognition than we do.
Moreover, the offerings on our network may not be sufficiently distinctive or
may be copied by others. If we fail to attain commercial acceptance of our
services and to be competitive with these companies, we may not ever generate
meaningful revenues. In addition, new companies may emerge at any time with
services that are superior, or that the marketplace perceives are superior, to
ours.
If
we fail to anticipate, identify and respond to the changing tastes and
preferences of consumers, our business is likely to suffer.
Our
business and results of operations depend upon the appeal of the sites in our
network to consumers. The tastes and preferences of our consumers frequently
change, and our success depends on our ability to anticipate, identify and
respond to these changing tastes and preferences by incorporating appropriate
publishers into our network. If we are unable to successfully anticipate,
identify or respond to changing tastes and preferences of consumers or misjudge
the market for our network, we may not be able to establish relationships with
the most popular publishers, which may cause our revenues to
decline.
We
may be subject to market risk and legal liability in connection with the data
collection capabilities of the publishers in our network.
Many
components of websites on our network are interactive Internet applications that
by their very nature require communication between a client and server to
operate. To provide better consumer experiences and to operate effectively, many
of the websites on our network collect certain information from users. The
collection and use of such information may be subject to U.S. state and federal
privacy and data collection laws and regulations, as well as foreign laws such
as the EU Data Protection Directive. Recent growing public concern regarding
privacy and the collection, distribution and use of information about Internet
users has led to increased federal, state and foreign scrutiny and legislative
and regulatory activity concerning data collection and use practices. Any
failure by us to comply with applicable federal, state and foreign laws and the
requirements of regulatory authorities may result in, among other things, in
liability and materially harm our business.
The
websites on our network post privacy policies concerning the collection, use and
disclosure of user data, including that involved in interactions between our
client and server products. Because of the evolving nature of our business and
applicable law, such privacy policies may now or in the future fail to comply
with applicable law. The websites on our network are subject to various federal
and state laws concerning the collection and use of information regarding
individuals. These laws include the Children’s Online Privacy Protection Act,
the Federal Drivers Privacy Protection Act of 1994, the privacy provisions of
the Gramm-Leach-Bliley Act, the Federal CAN-SPAM Act of 2003, as well as other
laws that govern the collection and use of information. We cannot assure you
that the websites on our network are currently in compliance, or will remain in
compliance, with these laws and their own privacy policies. Any failure to
comply with posted privacy policies, any failure to conform privacy policies to
changing aspects of the business or applicable law, or any existing or new
legislation regarding privacy issues could impact the market for our publishers’
websites, technologies and products and this may adversely affect our
business.
Activities
of advertisers or publishers in our network could damage our reputation or give
rise to legal claims against us.
The
promotion of the products and services by publishers in our network may not
comply with federal, state and local laws, including but not limited to laws and
regulations relating to the Internet. Failure of our publishers to comply with
federal, state or local laws or our policies could damage our reputation and
adversely affect our business, results of operations or financial condition. We
cannot predict whether our role in facilitating our customers’ marketing
activities would expose us to liability under these laws. Any claims made
against us could be costly and time-consuming to defend. If we are exposed to
this kind of liability, we could be required to pay substantial fines or
penalties, redesign our business methods, discontinue some of our services or
otherwise expend resources to avoid liability.
We also
may be held liable to third parties for the content in the advertising we
deliver on behalf of our publishers. We may be held liable to third parties for
content in the advertising we serve if the music, artwork, text or other content
involved violates the copyright, trademark or other intellectual property rights
of such third parties or if the content is defamatory, deceptive or otherwise
violates applicable laws or regulations. Any claims or counterclaims could be
time consuming, result in costly litigation or divert management’s
attention.
We
depend on third-party Internet, telecommunications and technology providers for
key aspects in the provision of our services and any failure or interruption in
the services that third parties provide could disrupt our business.
We depend
heavily on several third-party providers of Internet and related
telecommunication services, including hosting and co-location facilities, as
well as providers of technology solutions, including software developed by third
party vendors, in delivering our services. In addition, we use third party
vendors to assist with product development, campaign deployment, video streaming
for Betawave TV and support services for some of our products and services.
These companies may not continue to provide services or software to us without
disruptions in service, at the current cost or at all.
If the
products and services provided by these third-party vendors are disrupted or not
properly supported, our ability to provide our products and services would be
adversely impacted. In addition, any financial or other difficulties our third
party providers face may have negative effects on our business, the nature and
extent of which we cannot predict. While we believe our business relationships
with our key vendors are good, a material adverse impact on our business would
occur if a supply or license agreement with a key vendor is materially revised,
is not renewed or is terminated, or the supply of products or services were
insufficient or interrupted. The costs associated with any transition to a new
service provider could be substantial, require us to reengineer our computer
systems and telecommunications infrastructure to accommodate a new service
provider and disrupt the services we provide to our customers. This process
could be both expensive and time consuming and could damage our relationships
with customers.
In
addition, failure of our Internet and related telecommunications providers to
provide the data communications capacity in the time frame we require could
cause interruptions in the services we provide. Unanticipated problems affecting
our computer and telecommunications systems in the future could cause
interruptions in the delivery of our services, causing a loss of revenue and
potential loss of customers.
More
individuals are using non-PC devices to access the Internet. We may be unable to
capture market share for advertising on these devices.
The
number of people who access the Internet through devices other than personal
computers, including mobile telephones, smart phones, handheld computers and
video game consoles, has increased dramatically in the past few years. Most of
the publishers in our network originally designed their services for rich,
graphical environments such as those available on desktop and laptop computers.
The lower resolution, functionality and memory associated with alternative
devices make the use of these websites difficult and the publishers in our
network developed for these devices may not be compelling to users of
alternative devices. In addition, the creative advertising solutions that thrive
in rich environments may be less attractive to advertisers on these devises. The
use of such creative advertising is part what makes our services attractive to
advertisers and is what most contributes to our margins. If we are slow to
develop services and technologies that are more compatible with non-PC
communications devices or if we are unable to attract and retain a substantial
number of publishers that focus on alternative device users to our online
services, we will fail to capture a significant share of an increasingly
important portion of the market for online services, which could adversely
affect our business.
RISKS
RELATED TO OUR INDUSTRY
Anything
that causes users of websites on our network to spend less time on their
computers, including seasonal factors and national events, may impact our
profitability.
Anything
that diverts users of our network from their customary level of usage could
adversely affect our business. Geopolitical events such as war, the threat of
war or terrorist activity, and natural disasters such as hurricanes or
earthquakes all could adversely affect our profitability. Similarly, our results
of operations historically have varied seasonally because many of our users
reduce their activities on our website with the onset of good weather during the
summer months, and on and around national holidays.
If
the delivery of Internet advertising on the Web is limited or blocked, demand
for our services may decline.
Our
business may be adversely affected by the adoption by computer users of
technologies that harm the performance of our services. For example, computer
users may use software designed to filter or prevent the delivery of Internet
advertising; block, disable or remove cookies used by our ad serving
technologies; prevent or impair the operation of other online tracking
technologies; or misrepresent measurements of ad penetration and effectiveness.
We cannot assure you that the proportion of computer users who employ these or
other similar technologies will not increase, thereby diminishing the efficacy
of our products and services. In the event that one or more of these
technologies became more widely adopted by computer users, demand for our
products and services would decline.
Advertisers
may be reluctant to devote a portion of their budgets to marketing technology
and data products and services or online advertising.
Companies
doing business on the Internet, including us, must compete with traditional
advertising media, including television, radio, cable and print, for a share of
advertisers’ total marketing budgets. Potential customers may be reluctant to
devote a significant portion of their marketing budget to online advertising or
marketing technology and data products and services if they perceive the
Internet or direct marketing to be a limited or ineffective marketing medium.
Any shift in marketing budgets away from marketing technology and data products
or services or online advertising spending, or our offerings in particular,
could materially and adversely affect our business, results of operations or
financial condition. In addition, online advertising could lose its appeal to
those direct marketers and advertisers using the Internet as a result of its ad
performance relative to other media.
The
lack of appropriate measurement standards or tools may cause us to lose
customers or prevent us from charging a sufficient amount for our products and
services.
Because
many online marketing technology and data products and services remain
relatively new disciplines, there is often no generally accepted methods or
tools for measuring the efficacy of online marketing and advertising as there
are for advertising in television, radio, cable and print. Therefore, many
advertisers may be reluctant to spend sizable portions of their budget on online
marketing and advertising until more widely accepted methods and tools that
measure the efficacy of their campaigns are developed. In addition, direct
marketers are often unable to accurately measure campaign performance across all
response channels or identify which of their marketing methodologies are driving
customers to make purchases. Therefore, our customers may not be able to assess
the effectiveness of our services and as a result, we could lose customers, fail
to attract new customers or existing customer could reduce their use of our
services.
We could
lose customers or fail to gain customers if our services do not utilize the
measuring methods and tools that may become generally accepted. Further, new
measurement standards and tools could require us to change our business and the
means used to charge our customers, which could result in a loss of customer
revenues and adversely impact our business, financial condition and results of
operation.
We
may infringe on third-party intellectual property rights and could become
involved in costly intellectual property litigation.
Other
parties claiming infringement by the advertisements or video content on the
sites in our network could sue us. We may be liable to third parties for
elements of advertising campaigns designed by us, which may violate the
copyright, trademark, or other intellectual property rights of such third
parties.
In
addition, any future claims, with or without merit, could impair our business
and financial condition because they could:
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result
in significant litigation costs;
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·
|
divert
the attention of management;
|
|
·
|
require
us to enter into royalty and licensing agreements that may not be
available on terms acceptable to us or at
all.
|
We
may experience unexpected expenses or delays in service enhancements if we are
unable to license third-party technology on commercially reasonable
terms.
We rely
on a variety of technology that we license from third parties. These third-party
technology licenses might not continue to be available to us on commercially
reasonable terms or at all. If we are unable to obtain or maintain these
licenses on favorable terms, or at all, our ability to efficiently deliver
advertisements at the best rates available might be impaired and this would
adversely impact our business.
It
is not yet clear how laws designed to protect children that use the Internet may
be interpreted and enforced, and whether new similar laws will be enacted in the
future which may apply to our business in ways that may subject us to potential
liability.
The
Children’s Online Privacy Protection Act (“COPPA”) imposes civil penalties for
collecting personal information from children under the age of 13 without
complying with the requirements of COPPA. Publishers in our network
may violate COPPA on their websites.
Although
COPPA is a relatively new law, the Federal Trade Commission (the “FTC”) has
recently been more active in enforcing violations with COPPA. In the last two
years, the FTC has brought a number of actions against website operators for
failure to comply with COPPA requirements, and has imposed fines of up to $3
million. Future legislation similar to these Acts could subject us to potential
liability if we were deemed to be noncompliant with such rules and
regulations.
Increasing
governmental regulation of the Internet could harm our business.
The
publishers in our network are subject to the same federal, state and local laws
as other companies conducting business on the Internet. Today there are
relatively few laws specifically directed towards conducting business on the
Internet. However, due to the increasing popularity and use of the Internet,
many laws and regulations relating to the Internet are being debated at the
state and federal levels. These laws and regulations could cover issues such as
user privacy, freedom of expression, pricing, fraud, quality of products and
services, advertising, intellectual property rights and information security.
Furthermore, the growth and development of Internet commerce may prompt calls
for more stringent consumer protection laws that may impose additional burdens
on companies conducting business over the Internet.
Applicability
to the Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, libel, obscenity and personal
privacy could also harm our business. The majority of these laws was adopted
before the advent of the Internet, and do not contemplate or address the unique
issues raised by the Internet. The courts are only beginning to interpret those
laws that do reference the Internet, such as the Digital Millennium Copyright
Act and COPPA, and their applicability and reach are therefore uncertain. These
current and future laws and regulations could harm our business, results of
operation and financial condition.
In
addition, several telecommunications carriers have requested that the Federal
Communications Commission regulate telecommunications over the Internet. Due to
the increasing use of the Internet and the burden it has placed on the current
telecommunications infrastructure, telephone carriers have requested the FCC to
regulate Internet service providers and impose access fees on those providers.
If the FCC imposes access fees, the costs of using the Internet could increase
dramatically which could result in the reduced use of the Internet as a medium
for commerce and have a material adverse effect on our Internet business
operations.
We
depend on the growth of the Internet and Internet infrastructure for our future
growth, and any decrease or less than anticipated growth in Internet usage could
adversely affect our business prospects.
Our
future revenue and profits, if any, depend upon the continued widespread use of
the Internet as an effective commercial and business medium. Factors which could
reduce the widespread use of the Internet include:
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possible
disruptions or other damage to the Internet or telecommunications
infrastructure;
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failure
of the individual networking infrastructures of our merchant advertisers
and distribution partners to alleviate potential overloading and delayed
response times;
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·
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a
decision by merchant advertisers to spend more of their marketing dollars
in offline areas;
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increased
governmental regulation and taxation;
and
|
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·
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actual
or perceived lack of security or privacy
protection.
|
In
addition, websites have experienced interruptions in their service as a result
of outages and other delays occurring throughout the Internet network
infrastructure, and as a result of sabotage, such as electronic attacks designed
to interrupt service on many websites. The Internet could lose its viability as
a commercial medium due to reasons including increased governmental regulation
or delays in the development or adoption of new technologies required to
accommodate increased levels of Internet activity. If use of the Internet does
not continue to grow, or if the Internet infrastructure does not effectively
support our growth, our revenue and results of operations could be materially
and adversely affected.
RISKS
RELATED TO OUR COMMON STOCK
You
may have difficulty trading our common stock as there is a limited public market
for shares of our common stock.
Our
common stock is currently quoted on the NASD’s OTC Bulletin Board under the
symbol “BWAV.OB.” Our common stock is not actively traded and there is a limited
public market for our common stock. As a result, a stockholder may find it
difficult to dispose of, or to obtain accurate quotations of the price of, our
common stock. This severely limits the liquidity of our common stock, and would
likely have a material adverse effect on the market price for our common stock
and on our ability to raise additional capital. An active public market for
shares of our common stock may not develop, or if one should develop, it may not
be sustained.
Applicable
SEC rules governing the trading of “penny stocks” may limit the trading and
liquidity of our common stock which may affect the trading price of our common
stock.
Our
common stock is currently quoted on the NASD’s OTC Bulletin Board. On
April 7, 2009, the closing bid price of our common stock was $0.14 per
share. Stocks such as ours which trade below $5.00 per share are generally
considered “penny stocks” and subject to SEC rules and regulations which impose
limitations upon the manner in which such shares may be publicly traded. These
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the
associated risks. Under these regulations, certain brokers who recommend such
securities to persons other than established customers or certain accredited
investors must make a special written suitability determination regarding such a
purchaser and receive such purchaser’s written agreement to a transaction prior
to sale. These regulations have the effect of limiting the trading activity of
our common stock and reducing the liquidity of an investment in our common
stock.
There
is a limited public market for shares of our common stock, which may make it
difficult for investors to sell their shares.
There is
a limited public market for shares of our common stock. An active public market
for shares of our common stock may not develop, or if one should develop, it may
not be sustained. Therefore, investors may not be able to find purchasers for
their shares of our common stock.
The
price of our common stock has been and is likely to continue to be highly
volatile, which could lead to losses by investors and costly securities
litigation.
The
trading price of our common stock has been and is likely to continue to be
highly volatile and could fluctuate in response to factors such as:
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actual
or anticipated variations in our operating
results;
|
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·
|
announcements
of technological innovations by us or our
competitors;
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·
|
announcements
by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital
commitments;
|
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|
adoption
of new accounting standards affecting our
industry;
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|
additions
or departures of key personnel;
|
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·
|
introduction
of new services by us or our
competitors;
|
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·
|
sales
of our common stock or other securities in the open
market;
|
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|
conditions
or trends in the Internet and online commerce industries;
and
|
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·
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other
events or factors, many of which are beyond our
control.
|
The stock
market has experienced significant price and volume fluctuations, and the market
prices of stock in technology companies have been highly volatile. In the past,
following periods of volatility in the market price of a company’s securities,
securities class action litigation has often been initiated against the Company.
Litigation initiated against us, whether or not successful, could result in
substantial costs and diversion of our management’s attention and resources,
which could harm our business and financial condition.
We
do not anticipate dividends to be paid on our common stock, and stockholders may
lose the entire amount of their investment.
A
dividend has never been declared or paid in cash on our common stock, and we do
not anticipate such a declaration or payment for the foreseeable future. We
expect to use future earnings, if any, to fund business growth. Therefore,
stockholders will not receive any funds absent a sale of their shares. We cannot
assure stockholders of a positive return on their investment when they sell
their shares, nor can we assure that stockholders will not lose the entire
amount of their investment.
Securities
analysts may not initiate coverage or continue to cover our common stock, and
this may have a negative impact on our market price.
The
trading market for our common stock will depend, in part, on the research and
reports that securities analysts publish about us and our business. We do not
have any control over these analysts. There is no guarantee that securities
analysts will cover our common stock. If securities analysts do not cover our
common stock, the lack of research coverage may adversely affect its market
price. If we are covered by securities analysts, and our stock is downgraded,
our stock price would likely decline. If one or more of these analysts ceases to
cover us or fails to publish regular reports on us, we could lose visibility in
the financial markets, which could cause our stock price or trading volume to
decline.
You
may experience dilution of your ownership interests because of the future
issuance of additional shares of our common stock and our preferred
stock.
In the
future, we may issue our authorized but previously unissued equity securities,
resulting in the dilution of the ownership interests of our present
stockholders. We are currently authorized to issue an aggregate of 410,000,000
shares of capital stock consisting of 400,000,000 shares of common stock, par
value $0.001 per share, and 10,000,000 shares of “blank check” preferred stock,
par value $0.001 per share, of which we have designated 8,003,000 of such shares
of Series A preferred stock. As of April 7, 2009, there were: (i)
29,229,284 shares of common stock outstanding; (ii) 7,065,293 shares of
Series A preferred stock outstanding; (iii) 102,799,132 shares reserved for
issuance upon the exercise of options granted or available for grant under our
2004 stock plan, our 2006 equity incentive plan, our 2007 non-qualified stock
option plan and our 2008 stock incentive plan; and (iv) 67,351,020 shares
reserved for issuance upon the exercise of outstanding
warrants.
We may also issue additional shares of
our common stock or other securities that are convertible into or exercisable
for common stock in connection with hiring or retaining employees or
consultants, future acquisitions, future sales of our securities for capital
raising purposes, or for other business purposes.
The future issuance of any such
additional shares of our common stock or other securities may create downward
pressure on the trading price of our common stock. There can be no assurance
that we will not be required to issue additional shares, warrants or other
convertible securities in the future in conjunction with hiring or retaining
employees or consultants, future acquisitions, future sales of our securities
for capital raising purposes or for other business purposes, including at a
price (or exercise prices) below the price at which shares of our common stock
are currently quoted on the OTC Bulletin Board.
Even
though we are not a California corporation, our common stock could still be
subject to a number of key provisions of the California General Corporation
Law.
Under
Section 2115 of the California General Corporation Law (the “CGCL”),
corporations not organized under California law may still be subject to a number
of key provisions of the CGCL. This determination is based on whether the
corporation has significant business contacts with California and if more than
50% of its voting securities are held of record by persons having addresses in
California. In the immediate future, we will continue the business and
operations of GoFish Technologies Inc. and a majority of our business
operations, revenue and payroll will be conducted in, derived from, and paid to
residents of California. Therefore, depending on our ownership, we could be
subject to certain provisions of the CGCL. Among the more important provisions
are those relating to the election and removal of directors, cumulative voting,
standards of liability and indemnification of directors, distributions,
dividends and repurchases of shares, shareholder meetings, approval of certain
corporate transactions, dissenters’ and appraisal rights, and inspection of
corporate records.
Panorama
Capital, L.P., Rembrandt Venture Partners Fund Two, L.P., Rembrandt Venture
Partners Fund Two-A, L.P. and Rustic Canyon Ventures III, L.P., whose interests
may not be aligned with yours, collectively control approximately 65.97% of our
company, which could result in actions of which you or other stockholders do not
approve.
In two
closings that occurred on December 3, 2008 and December 12, 2008, we completed a
$22.5 million preferred stock financing pursuant to the terms of a securities
purchase agreement dated December 3, 2008 that we entered into with Panorama
Capital, L.P. (“Panorama”), Rembrandt Venture Partners Fund Two, L.P.
(“Rembrandt Fund Two”), Rembrandt Venture Partners Fund Two-A, L.P. (“Rembrandt
Fund Two-A” and, together with Rembrandt Fund Two, “Rembrandt”) and Rustic
Canyon Ventures III, L.P. (“Rustic” and, together with Panorama and Rembrandt,
the “Lead Investors”). The Lead Investors currently own, collectively,
approximately 65.97% of our outstanding shares of common stock, assuming the
conversion of Series A preferred stock. Prior to the December 2008
financing, the Lead Investors did not own any shares of our common
stock.
In
addition, pursuant to the investors’ rights agreement we entered into with the
Lead Investors in connection with the December 2008 financing, we granted
the following rights: (i) Panorama has the right to designate one board member
for so long as Panorama shall own not less than 16,666,667 shares of common
stock issued or issuable upon conversion of Series A preferred stock, (ii)
Rustic has the right to designate one board member for so long as Rustic shall
own not less than 12,500,000 shares of common stock issued or issuable upon
conversion of Series A preferred stock, (iii) Rembrandt has the right to
designate one board member for so long as Rembrandt shall own not less than
8,333,333 shares of common stock issued or issuable upon conversion of Series A
preferred stock and (iv) Internet Television Distribution, Inc. and its
affiliates have the right to appoint one board member for so long as Internet
Television Distribution, Inc. shall own not less than 3,088,240 shares of common
stock issued or issuable upon conversion of Series A preferred
stock. The investors’ rights agreement also provides that each
investor party to the investors’ rights agreement shall take all actions
necessary within its control so that for as long as Panorama owns at least
16,666,667 shares of common stock issued or issuable upon conversion of Series A
preferred stock, (i) the compensation committee of the board of directors shall
consist of three members, at least two of which shall be directors appointed by
the Lead Investors as stated above, and (ii) each committee of the board of
directors shall include, at the option of Panorama, the member of the board of
directors designated by Panorama.
As a
result of the foregoing and provided the Lead Investors do vote their shares
together, they will be able to determine a significant part of the composition
of our board of directors, will hold significant voting power with respect to
matters requiring stockholder approval and will be able to exercise significant
influence over our operations. The interests of the Lead Investors may be
different than the interests of other stockholders on these and other matters.
This concentration of ownership also could have the effect of delaying or
preventing a change in our control or otherwise discouraging a potential
acquirer from attempting to obtain control of us, which could reduce the price
of our common stock.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. This prospectus includes
statements regarding our plans, goals, strategies, intentions, beliefs or
current expectations. These statements are expressed in good faith and based
upon a reasonable basis when made, but there can be no assurance that these
expectations will be achieved or accomplished. These forward looking statements
can be identified by the use of terms and phrases such as “believe,” “plan,”
“intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or
future-tense or conditional constructions “may,” “could,” “should,” etc. Items
contemplating or making assumptions about, actual or potential future sales,
market size, collaborations, and trends or operating results also constitute
such forward-looking statements.
We
believe that the statements we make regarding the following subject matters,
among others, are forward-looking by their nature:
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Our
anticipated revenue growth, future operating losses and estimated need for
additional capital in the future;
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Future
expansions in research and development, as well as the scope of our
operations;
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Anticipated
continuation of market trends, such as “deportalization” and buying power
in our target demographic;
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Corporate
governance developments, including the anticipated appointment of special
Board committees; and
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Continuing
not to declare or pay cash
dividends.
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Since our
common stock is considered a “penny stock” we are ineligible to rely on the safe
harbor for forward-looking statements provided in Section 27A of the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).
Although
forward-looking statements in this prospectus reflect the good faith judgment of
our management, forward-looking statements are inherently subject to known and
unknown risks, business, economic and other risks and uncertainties that may
cause actual results to be materially different from those discussed in these
forward-looking statements. Readers are urged not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
prospectus. We assume no obligation to update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
prospectus, other than as may be required by applicable law or regulation.
Readers are urged to carefully review and consider the various disclosures made
by us in our reports filed with the SEC which attempt to advise interested
parties of the risks and factors that may affect our business, financial
condition, results of operations and cash flows. If one or more of these risks
or uncertainties materialize, or if the underlying assumptions prove incorrect,
our actual results may vary materially from those expected or
projected.
Applicable
risks include those risks identified under the heading “Risk Factors” in the
prospectus, including the following risks:
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our
historical operating losses and uncertainties relating to our ability to
generate positive cash flow and operating profits in the
future;
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·
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difficulty
in evaluating our future prospects based on our limited operating history
and relatively new business model;
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our
ability to attract new advertisers to our website and retain our present
advertisers;
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the
highly competitive nature of our
business;
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our
ability to keep pace with rapid technological
change;
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the
strength of our existing brands and our ability to maintain and enhance
those brands;
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the
success of the Internet video market in general and our product and
service offerings; and
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our
ability to effectively manage our expected
growth.
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SELLING
STOCKHOLDERS
This
prospectus covers the resale from time to time by the selling stockholders
identified in the table below of:
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Up
to 70,652,930 shares of common stock issuable upon conversion of the
Series A preferred stock sold in the Private Placement;
and
|
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Up
to 28,261,172 shares of common stock issuable upon exercise of the
warrants sold in the Private Placement;
and
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The
selling stockholders identified in the table below, and their pledgees, donees,
transferees and other successors-in-interest that receive such shares from a
selling stockholder as a gift, partnership distribution or other non-sale
related transfer after the date of this prospectus, may from time to time offer
and sell under this prospectus any or all of the shares of common stock
described under the column “Shares of Common Stock Being Offered in this
Offering” in the table below. For additional information on the methods of sale,
you should refer to the section of this prospectus entitled “Plan of
Distribution,” beginning on page 27.
The table
below has been prepared based upon the information furnished to us by the
selling stockholders. Information concerning the selling stockholders may change
from time to time and, if necessary, we will amend or supplement this prospectus
accordingly. We cannot provide an estimate as to the number of shares of common
stock that will be held by the selling stockholders upon termination of the
offering covered by this prospectus because the selling stockholders may offer
some or all of their shares of common stock under this prospectus.
The
following table sets forth the name of each selling stockholder, the nature of
any position, office, or other material relationship, if any, which the selling
stockholder has had, within the past three years, with us or with any of our
predecessors or affiliates, and the number of shares of our common stock
beneficially owned by such selling stockholder before this offering. The number
of shares owned are those beneficially owned, as determined under the rules of
the SEC, and such information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership is
deemed to include any shares of common stock as to which a person has sole or
shared voting power or investment power and any shares of common stock which the
person has the right to acquire within 60 days through the exercise of any
option, warrant or right, through conversion of any security or pursuant to the
automatic termination of a power of attorney or revocation of a trust,
discretionary account or similar arrangement.
We have
assumed all shares of common stock reflected on the table will be sold from time
to time in the offering covered by this prospectus. Because the selling
stockholders may offer all or any portion of the shares of common stock listed
in the table below, no estimate can be given as to the amount of those shares of
common stock covered by this prospectus that will be held by the selling
stockholders upon the termination of the offering.
Unless
otherwise set forth below, the persons and entities named in the table have sole
voting and sole investment power with respect to the shares set forth opposite
the selling stockholder’s name, subject to community property laws, where
applicable.
In
computing the number of shares of common stock beneficially owned by a person
and the percentage of ownership of that person, shares of common stock subject
to options, warrants or other convertible securities held by that person that
are currently convertible or exercisable or become convertible or exercisable
within 60 days of the date of this prospectus are deemed outstanding even if
they have not actually been converted or exercised.
Selling Stockholder
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Shares of
Common
Stock Owned
Before this
Offering
|
|
|
Shares of
Common
Stock Being
Offered in this
Offering
|
|
|
Shares of
Common
Owned Upon
Completion of
this Offering (a)
|
|
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Percentage of
Common Stock
Outstanding
Upon
Completion of
this Offering (b)
|
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Alnoor
Shivji
|
|
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461,713
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(1)
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205,870
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(2)
|
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255,843
|
|
|
|
*
|
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Boldcap
Ventures LLC
|
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1,616,061
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(3)
|
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720,580
|
(4)
|
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895,481
|
|
|
|
*
|
|
Bridge
Financial LLC
|
|
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350,000
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(5)
|
|
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175,000
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(6)
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|
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175,000
|
|
|
|
*
|
|
Harborview
Master Fund L.P.
|
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13,283,432
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(7)
|
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4,117,638
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(8)
|
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|
9,165,794
|
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2.3
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%
|
Internet
Television Distribution LLC
|
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18,524,324
|
(9)
|
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6,485,290
|
(10)
|
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|
12,039,034
|
|
|
|
3.6
|
%
|
James
Moloshok
|
|
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2,539,541
|
(11)
|
|
|
1,132,348
|
(12)
|
|
|
1,407,193
|
|
|
|
*
|
|
Jeremy
Aksdal-Jansen
|
|
|
1,846,930
|
(13)
|
|
|
823,522
|
(14)
|
|
|
1,023,408
|
|
|
|
*
|
|
Julie
Kantrowitz
|
|
|
230,843
|
(15)
|
|
|
102,928
|
(16)
|
|
|
127,915
|
|
|
|
*
|
|
Mahmood
Panjwani
|
|
|
923,452
|
(17)
|
|
|
411,754
|
(18)
|
|
|
511,698
|
|
|
|
*
|
|
Panorama
Capital, L.P.
|
|
|
70,000,000
|
(19)
|
|
|
35,000,000
|
(20)
|
|
|
35,000,000
|
|
|
|
15.4
|
%
|
Rembrandt
Venture Partners Fund Two, L.P.
|
|
|
34,761,020
|
(21)
|
|
|
17,380,510
|
(22)
|
|
|
17,380,510
|
|
|
|
7.7
|
%
|
Rembrandt
Venture Partners Fund Two-A, L.P.
|
|
|
238,980
|
(23)
|
|
|
119,490
|
(24)
|
|
|
119,490
|
|
|
|
*
|
|
Rustic
Canyon Ventures III, L.P.
|
|
|
52,500,000
|
(25)
|
|
|
26,250,000
|
(26)
|
|
|
26,250,000
|
|
|
|
11.6
|
%
|
Rockmore
Investment Master Fund Limited
|
|
|
1,821,512
|
(27)
|
|
|
910,756
|
(28)
|
|
|
910,756
|
|
|
|
*
|
|
The
Hanna Family Trust
|
|
|
923,452
|
(29)
|
|
|
411,754
|
(30)
|
|
|
511,698
|
|
|
|
*
|
|
Technology
Credit Partners, LLC
|
|
|
9,415,356
|
(31)
|
|
|
4,666,662
|
(32)
|
|
|
4,748,694
|
|
|
|
2.1
|
%
|
* Less
than 1%.
(a)
Assumes all of the shares of common stock covered by this prospectus held by the
selling stockholders are sold in this offering.
(b)
Applicable percentage ownership is based on 29,229,284 shares of common stock
outstanding as of April 7, 2009, plus the number of shares of common stock
issuable upon conversion of the outstanding shares of Series A preferred stock
and upon exercise of the warrants.
(1)
Includes 49,973 shares of common stock, 294,100 shares of
common stock issuable upon conversion of Series A preferred stock and 117,640
shares of common stock issuable upon the exercise of warrants.
(2)
Includes 147,050 shares of common stock issuable upon conversion of
Series A preferred stock and 58,820 shares of common stock issuable upon the
exercise of warrants.
(3)
Includes 174,901 shares of common stock, 1,029,400
shares of common stock issuable upon conversion of Series A preferred stock and
411,760 shares of common stock issuable upon the exercise of
warrants.
(4)
Includes 514,700 shares of common stock issuable upon conversion of Series
A preferred stock and 205,880 shares of common stock issuable upon the exercise
of warrants.
(5)
Includes 250,000 shares of common stock issuable upon conversion of Series
A preferred stock and 100,000 shares of common stock issuable upon the exercise
of warrants.
(6)
Includes 125,000 shares of common stock issuable upon conversion of Series
A preferred stock and 50,000 shares of common stock issuable upon the exercise
of warrants.
(7)
Includes 5,048,156 shares of common stock, 5,882,340 shares of common
stock issuable upon conversion of Series A preferred stock and 2,352,936 shares
of common stock issuable upon the exercise of warrants.
(8)
Includes 2,941,170 shares of common stock issuable upon conversion of Series A
preferred stock and 1,176,468 shares of common stock issuable upon the exercise
of warrants.
(9)
Includes 5,553,744 shares of common stock, 9,264,700 shares of common stock
issuable upon conversion of Series A preferred stock and 3,705,880 shares of
common stock issuable upon the exercise of warrants.
(10) Includes
4,632,350 shares of common stock issuable upon conversion of Series A preferred
stock and 1,852,940 shares of common stock issuable upon the exercise of
warrants. Internet Television Distribution LLC is an affiliate of
Tabreez Verjee (our President and a member of our board of directors) and Riaz
Valani (a member of our board of directors). Mr. Verjee and Mr. Valani share
voting and investment power over the shares owned by Internet Television
Distribution LLC.
(11) Includes
274,845 shares of common stock, 1,617,640 shares of common stock issuable upon
conversion of Series A preferred stock and 647,056 shares of common stock
issuable upon the exercise of warrants.
(12) Includes
808,820 shares of common stock issuable upon conversion of Series A preferred
stock and 323,528 shares of common stock issuable upon the exercise of
warrants.
(13) Includes
199,886 shares of common stock, 1,176,460 shares of common stock issuable upon
conversion of Series A preferred stock and 470,584 shares of common stock
issuable upon the exercise of warrants.
(14) Includes
588,230 shares of common stock issuable upon conversion of Series A preferred
stock and 235,292 shares of common stock issuable upon the exercise of
warrants.
(15) Includes
24,987 shares of common stock, 147,040 shares of common stock issuable upon
conversion of Series A preferred stock and 58,816 shares of common stock
issuable upon the exercise of warrants.
(16) Includes
73,520 shares of common stock issuable upon conversion of Series A preferred
stock and 29,408 shares of common stock issuable upon the exercise of
warrants.
(17) Includes
99,944 shares of common stock, 588,220 shares of common stock issuable upon
conversion of Series A preferred stock and 235,288 shares of common stock
issuable upon the exercise of warrants.
(18) Includes
294,110 shares of common stock issuable upon conversion of Series A preferred
stock and 117,644 shares of common stock issuable upon the exercise of
warrants.
(19) Includes
50,000,000 shares of common stock issuable upon conversion of Series A preferred
stock and 20,000,000 shares of common stock issuable upon the exercise of
warrants. Mike Jung serves as a Member of Panorama Capital Management, LLC, the
general partners of Panorama Capital, L.P. He shares voting control and
dispositive power over the shares but disclaims beneficial ownership, except to
the extent of his proportionate pecuniary interest therein.
(20) Includes
25,000,000 shares of common stock issuable upon conversion of Series A preferred
stock and 10,000,000 shares of common stock issuable upon the exercise of
warrants. Mike Jung serves as a Member of Panorama Capital Management, LLC, the
general partners of Panorama Capital, L.P. He shares voting control and
dispositive power over the shares but disclaims beneficial ownership, except to
the extent of his proportionate pecuniary interest therein.
(21) Includes
24,829,300 shares of common stock issuable upon conversion of Series A preferred
stock and 9,931,720 shares of common stock issuable upon the exercise of
warrants. Richard Ling serves as a Member of Rembrandt Venture Partners Fund
Two, LLC, the general partner of Rembrandt Venture Fund Two, L.P. He
shares voting control and dispositive power over the shares but disclaims
beneficial ownership, except to the extent of his proportionate pecuniary
interest therein.
(22) Includes
12,414,650 shares of common stock issuable upon conversion of Series A preferred
stock and 4,965,860 shares of common stock issuable upon the exercise of
warrants. Richard Ling serves as a Member of Rembrandt Venture Partners Fund
Two, LLC, the general partner of Rembrandt Venture Fund Two, L.P. He
shares voting control and dispositive power over the shares but disclaims
beneficial ownership, except to the extent of his proportionate pecuniary
interest therein.
(23) Includes
170,700 shares of common stock issuable upon conversion of Series A preferred
stock and 68,280 shares of common stock issuable upon the exercise of warrants.
Richard Ling serves as a Member of Rembrandt Venture Partners Fund Two, LLC, the
general partner of Rembrandt Venture Fund Two, L.P. He shares voting
control and dispositive power over the shares but disclaims beneficial
ownership, except to the extent of his proportionate pecuniary interest
therein.
(24) Includes
85,350 shares of common stock issuable upon conversion of Series A preferred
stock and 34,140 shares of common stock issuable upon the exercise of warrants.
Richard Ling serves as a Member of Rembrandt Venture Partners Fund Two, LLC, the
general partner of Rembrandt Venture Fund Two, L.P. He shares voting
control and dispositive power over the shares but disclaims beneficial
ownership, except to the extent of his proportionate pecuniary interest
therein.
(25) Includes
37,500,000 shares of common stock issuable upon conversion of Series A preferred
stock and 15,000,000 shares of common stock issuable upon the exercise of
warrants. Mark Menell serves as a Member of Rustic Canyon GP III, LLC, the
general partner of Rustic Canyon Ventures III, L.P. He shares voting control and
dispositive power over the shares but disclaims beneficial ownership, except to
the extent of his proportionate pecuniary interest therein.
(26) Includes
18,750,000 shares of common stock issuable upon conversion of Series A preferred
stock and 7,500,000 shares of common stock issuable upon the exercise of
warrants. Mark Menell serves as a Member of Rustic Canyon GP III, LLC, the
general partner of Rustic Canyon Ventures III, L.P. He shares voting control and
dispositive power over the shares but disclaims beneficial ownership, except to
the extent of his proportionate pecuniary interest therein.
(27) Includes
1,301,080 shares of common stock issuable upon conversion of Series A preferred
stock and 520,432 shares of common stock issuable upon the exercise of
warrants.
(28) Includes
650,540 shares of common stock issuable upon conversion of Series A preferred
stock and 260,216 shares of common stock issuable upon the exercise of
warrants. Rockmore Capital, LLC (“Rockmore Capital”) and Rockmore
Partners, LLC (“Rockmore Partners”), each a limited liability company formed
under the laws of the State of Delaware, serve as the investment manager and
general partner, respectively, to Rockmore Investments (US) LP, a Delaware
limited partnership, which invests all of its assets through Rockmore Investment
Master Fund Ltd., an exempted company formed under the laws of Bermuda
(“Rockmore Master Fund”). By reason of such relationships, Rockmore Capital and
Rockmore Partners may be deemed to share dispositive power over the shares of
our common stock owned by Rockmore Master Fund. Rockmore Capital and Rockmore
Partners disclaim beneficial ownership of such shares of our common stock.
Rockmore Partners has delegated authority to Rockmore Capital regarding the
portfolio management decisions with respect to the shares of common stock owned
by Rockmore Master Fund and, as of the date of this prospectus, Mr. Bruce T.
Bernstein and Mr. Brian Daly, as officers of Rockmore Capital, are responsible
for the portfolio management decisions of the shares of common stock owned by
Rockmore Master Fund. By reason of such authority, Messrs. Bernstein and Daly
may be deemed to share dispositive power over the shares of our common stock
owned by Rockmore Master Fund. Messrs. Bernstein and Daly disclaim beneficial
ownership of such shares of our common stock and neither of such persons has any
legal right to maintain such authority. No other person has sole or shared
voting or dispositive power with respect to the shares of our common stock as
those terms are used for purposes under Regulation 13D-G of the Exchange Act. No
person or “group” (as that term is used in Section 13(d) of the Exchange Act, or
the SEC’s Regulation 13D-G) controls Rockmore Master Fund.
(29) Includes
99,944 shares of common stock, 588,220 shares of common stock issuable upon
conversion of Series A preferred stock and 235,288 shares of common stock
issuable upon the exercise of warrants.
(30) Includes
294,110 shares of common stock issuable upon conversion of Series A preferred
stock and 117,644 shares of common stock issuable upon the exercise of
warrants.
(31) Includes
82,032 shares of common stock, 6,666,660 shares of common stock issuable upon
conversion of Series A preferred stock and 2,666,664 shares of common stock
issuable upon the exercise of warrants.
(32) Includes
3,333,330 shares of common stock issuable upon conversion of Series A preferred
stock and 1,333,332 shares of common stock issuable upon the exercise of
warrants. Technology Credit Partners, LLC is an affiliate of Tabreez
Verjee (our President and a member of our board of directors) and Riaz Valani (a
member of our board of directors). Mr. Verjee and Mr. Valani share voting and
investment power over the shares owned by Technology Credit Partners,
LLC.
DETERMINATION
OF OFFERING PRICE
The
selling stockholders will determine at what price they may sell the shares of
common stock offered by this prospectus, and such sales may be made at
prevailing market prices, or at privately negotiated prices.
PLAN
OF DISTRIBUTION
The
selling stockholders and any of their pledgees, donees, transferees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits investors;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
to
cover short sales made after the date that this registration statement is
declared effective by the SEC;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
·
|
through
the distribution of common stock by any selling stockholder to its
partners, members or stockholders;
|
|
·
|
any
other method permitted pursuant to applicable law;
and
|
|
·
|
a
combination of any such methods of
sale.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell shares of common stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
Upon a
selling stockholder’s notification to us that any material arrangement has been
entered into with a broker-dealer for the sale of such stockholder’s common
stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act disclosing (i) the name of each such selling stockholder and of
the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such shares of common stock were sold, (iv) the commissions
paid or discounts or concessions allowed to such broker-dealer(s), where
applicable, (v) that such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this prospectus,
and (vi) other facts material to the transaction. In addition, upon our being
notified in writing by a selling stockholder that a donee or pledgee intends to
sell more than 500 shares of common stock, a supplement to this prospectus will
be filed if then required in accordance with applicable securities
law.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the donees, assignees, transferees, pledgees or
other successors in interest will be the selling beneficial owners for purposes
of this prospectus and may sell the shares of common stock from time to time
under this prospectus after we have filed any necessary supplements to this
prospectus under Rule 424(b), or other applicable provisions of the Securities
Act, supplementing or amending the list of selling stockholders to include such
donee, assignee, transferee, pledgee, or other successor-in-interest as a
selling stockholder under this prospectus.
In the
event that the selling stockholders are deemed to be “underwriters,” any
broker-dealers or agents that are involved in selling the shares will be deemed
to be “underwriters” within the meaning of the Securities Act, in connection
with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
Discounts, concessions, commissions and similar selling expenses, if any, that
can be attributed to the sale of the shares of common stock will be
paid by the selling stockholder and/or the purchasers. Each selling stockholder
has represented and warranted to us that it acquired the securities subject to
this registration statement in the ordinary course of such selling stockholder’s
business and, at the time of its purchase of such securities such selling
stockholder had no agreements or understandings, directly or indirectly, with
any person to distribute any such securities.
We have
advised each selling stockholder that it may not use shares registered on this
registration statement to cover short sales of common stock made prior to the
date on which this registration statement shall have been declared effective by
the SEC. If a selling stockholder uses this prospectus for any sale of the
common stock, it will be subject to the prospectus delivery requirements of the
Securities Act. The selling stockholders will be responsible to comply with the
applicable provisions of the Securities Act and the Exchange Act, and the rules
and regulations thereunder promulgated, including, without limitation,
Regulation M, as applicable to such selling stockholders in connection with
resales of their respective shares under this registration
statement.
We have
agreed with the selling stockholders to keep this registration statement
effective until all of the shares covered by this registration statement have
been sold, or may be sold without volume or manner-of-sale restrictions pursuant
to Rule 144 promulgated under the Securities Act, without the requirement for
the Company to be in compliance with the current public information requirement
under Rule 144.
We are
required to pay all fees and expenses incident to the registration of the
shares, but we will not receive any proceeds from the sale of the common stock.
We have agreed to indemnify the selling stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act.
USE
OF PROCEEDS
We will
not receive any proceeds from the sale of shares of common stock by the selling
stockholders under this prospectus. We will receive the proceeds from any
cash exercises of the warrants, which we intend to use for general corporate
purposes, including, but not limited to, working capital. If all the
warrants held by the selling stockholders are exercised in cash, we will receive
$5.7 million in proceeds.
The
warrant holders may exercise their warrants at any time until their expiration,
as further described under “Description of Securities” included elsewhere in
this prospectus. Because the warrant holders may exercise the warrants in their
own discretion, we cannot plan on specific uses of proceeds beyond application
of proceeds to general corporate purposes. We have agreed to bear the expenses
in connection with the registration of the common stock being offered hereby by
the selling stockholders.
MARKET
PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED MATTERS
Our
common stock is quoted on the OTC Bulletin Board of the National Association of
Securities Dealers, Inc. under the symbol “BWAV.OB.” From July 3, 2006 until
mid-September 2006 our stock was quoted under the symbol “UBIO.” From
mid-September 2006 to February 26, 2009 our stock was quoted under the
symbol “GOFH.OB.” From February 27, 2009 to the present, our stock has been
quoted under the symbol “BWAV.OB.” The following table sets forth, for the
fiscal quarters indicated, the high and low closing bid prices per share of our
common stock as reported by the National Association of Securities Dealers
composite feed or other qualified interdealer quotation medium. Such quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions. Where applicable, the prices set
forth below give retroactive effect to our 8.333334-for-1 forward stock split
which was effected on October 9, 2006.
Fiscal Year 2007
|
|
High Bid
|
|
|
Low Bid
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
5.95
|
|
|
$
|
3.65
|
|
Second
Quarter
|
|
$
|
4.30
|
|
|
$
|
1.04
|
|
Third
Quarter
|
|
$
|
1.11
|
|
|
$
|
0.26
|
|
Fourth
Quarter
|
|
$
|
0.55
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008
|
|
High Bid
|
|
|
Low Bid
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.57
|
|
|
$
|
0.23
|
|
Second
Quarter
|
|
$
|
0.42
|
|
|
$
|
0.20
|
|
Third
Quarter
|
|
$
|
0.37
|
|
|
$
|
0.18
|
|
Fourth
Quarter
|
|
$
|
0.32
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
|
|
High Bid
|
|
|
Low Bid
|
|
First
Quarter
|
|
$
|
0.24
|
|
|
$
|
0.10
|
|
Second
Quarter (through April 16, 2009)
|
|
$
|
0.18
|
|
|
$
|
0.12
|
|
As of
April 7, 2009, there were 29,229,284 shares of our common stock issued and
outstanding.
As of
April 7, 2009, there were 90 holders of record of shares of our common
stock.
Dividend
Policy
We have
never declared or paid dividends. We intend to retain earnings, if any, to
support the development of the business and therefore do not anticipate paying
cash dividends for the foreseeable future. Payment of future dividends, if any,
will be at the discretion of our board of directors after taking into account
various factors, including current financial condition, operating results and
current and anticipated cash needs.
Securities Authorized for Issuance
Under Equity Compensation Plans
As of
December 31, 2008, we had the following securities authorized for issuance under
(i) the 2004 stock plan, which was the stock option plan that was adopted by
GoFish Technologies, Inc. prior to the merger in 2006 merger, (ii) the 2006
equity incentive plan, (iii) the 2007 non-qualified stock option plan (as
hereinafter defined) and (iv) the 2008 stock incentive plan (as hereinafter
defined):
Plan category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
|
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
3,207,799
|
|
|
$
|
0.23
|
|
|
|
16,498,084
|
|
Equity
compensation plans not approved by security holders
|
|
|
76,839,697
|
|
|
$
|
0.41
|
|
|
|
(6,833,750
|
)
|
Total
|
|
|
80,047,496
|
|
|
$
|
0.41
|
|
|
|
9,664,334
|
|
2004 Stock
Plan
In 2004, the board of directors of
GoFish Technologies, Inc. adopted the 2004 stock plan. The 2004 stock
plan authorized the board of directors to grant incentive stock options and
non-statutory stock options to employees, directors, and consultants for up to
2,000,000 shares of common stock. Under the plan, incentive stock options and
nonqualified stock options were to be granted at a price that is no less than
100% of the fair value of the stock at the date of grant. Options will be vested
over a period according to the option agreement, and are exercisable for a
maximum period of ten years after date of grant.
In May 2006, GoFish Technologies
increased the shares reserved for issuance under the 2004 stock plan from
2,000,000 to 4,588,281. Upon completion of the merger in 2006, we decreased the
shares reserved under the 2004 stock plan from 4,588,281 to 804,188 and
suspended the 2004 stock plan.
2006 Equity
Incentive Plan
Immediately prior to the merger in
2006, our board of directors and a majority of our stockholders approved and
adopted the 2006 equity incentive plan. Initially a total of 2,000,000 shares of
our common stock was reserved for issuance under the 2006 equity incentive
plan. On October 30, 2006, in accordance with the terms of the
2006 equity incentive plan, our board of directors increased the number of
shares reserved under the 2006 equity incentive plan to 4,000,000 shares,
subject to approval by our stockholders within one year of such
date. In March 2008, our board of directors suspended all future
grants under the 2006 equity incentive plan.
2007
Non-Qualified Stock Option Plan
On October 24, 2007, our board of
directors approved and adopted the 2007 non-qualified stock option
plan. Initially, a total of 3,600,000 shares of our common stock was
reserved for issuance under the 2007 non-qualified stock option
plan. In accordance with the terms of the 2007 non-qualified stock
option plan, on October 31, 2007, our board of directors increased the number of
shares reserved under the 2007 non-qualified stock option plan to 4,000,000; on
December 18, 2007, our board of directors increased the number of shares
reserved under the 2007 non-qualified stock option plan to 5,500,000 shares; on
February 5, 2008, our board of directors further increased the number of shares
reserved under the 2007 non-qualified stock option plan to 10,500,000; on June
4, 2008, our board of directors further increased the number of shares reserved
under the 2007 non-qualified stock option plan to 16,500,000; on December 2,
2008, our board of directors increased the number of shares reserved under the
2007 non-qualified stock option plan to 69,141,668; and on January 16, 2009, our
board of directors increased the number of shares reserved under the 2007
non-qualified stock option plan to 82,963,169 shares. If an incentive
award granted under the 2007 non-qualified stock option plan expires,
terminates, is unexercised or is forfeited, or if any shares are surrendered to
us in connection with an incentive award, the shares subject to such award and
the surrendered shares will become available for further awards under the 2007
non-qualified stock option plan.
Administration.
Our
board of directors (or any committee composed of members of our board of
directors appointed by our board of directors to administer the 2007
non-qualified stock option plan), administers the 2007 non-qualified stock
option plan. The administrator has the authority to, among other things,
(i) select the employees, consultants and directors to whom options may be
granted, (ii) grant options, (iii) determine the number of shares
underlying option grants, (iv) approve forms of option agreements for use under
the 2007 non-qualified stock option plan, (v) determine the terms and conditions
of the options and (vi) subject to certain exceptions, amend the terms of any
outstanding option granted under the 2007 non-qualified stock option
plan.
The 2007 non-qualified stock option
plan also contains provisions governing: (i) the treatment of options under the
2007 non-qualified stock option plan upon the occurrence of certain corporate
transactions (including merger, consolidation, sale of all or substantially all
the assets of the Company, or complete liquidation or dissolution of the
Company) and changes in control of the Company, (ii) transferability of options
and (iii) tax withholding upon the exercise or vesting of an
option.
Grants.
The 2007
non-qualified stock option plan authorizes grants of nonqualified stock options
to eligible employees, directors and consultants. The term of each option under
the 2007 non-qualified stock option plan may be no more than ten years from the
date of grant. Options granted under the 2007 non-qualified stock option plan
entitle the grantee, upon exercise, to purchase a specified number of shares
from us at a specified exercise price per share. The exercise price for an
Option is determined by the administrator, but it cannot be less than the fair
market value of our common stock on the date of grant unless agreed to otherwise
at the time of the grant.
Duration, Amendment, and
Termination.
The 2007 non-qualified stock option plan will
continue in effect for a term of ten years, unless sooner terminated. Our board
of directors may at any time amend, suspend or terminate the 2007 non-qualified
stock option plan.
2008
Stock Incentive Plan
On March 31, 2008, in connection with
the suspension of our 2006 equity incentive plan, our board of directors
adopted the 2008 stock incentive plan. As originally adopted, the
2008 stock incentive plan provided for the issuance of up to 2,400,000 shares of
common stock pursuant to awards granted thereunder, up to 2,200,000 of which may
be issued pursuant to incentive stock options granted thereunder.
On June 4, 2008, our board of
directors adopted an amendment to the 2008 stock incentive plan to (i) decrease
the maximum aggregate number of shares of common stock that may be issued
pursuant to awards granted under the plan from 2,400,000 shares to 1,500,000
shares and (ii) decrease the maximum aggregate number of shares that may be
issued pursuant to incentive stock options granted under the plan from 2,200,000
shares to 1,500,000 shares.
On December 2, 2008, our board of
directors adopted an amendment to the 2008 stock incentive plan to increase the
maximum aggregate number of shares of common stock that may be issued pursuant
to awards granted under the plan from 1,500,000 shares to 19,224,774
shares. On December 11, 2008, holders of a majority of the
outstanding shares of our capital stock adopted the 2008 stock incentive plan,
as amended through such date.
Purpose
. The purpose of the
2008 stock incentive plan is to provide our employees (including officers),
consultants and directors, whose present and potential contributions are
important to our success, an incentive, through ownership of common stock, to
continue in service to us, and to help us compete effectively with other
enterprises for the services of qualified individuals.
Shares Reserved for Issuance under
the 2008 Stock Incentive Plan
. A total of 19,224,774 shares of common
stock are reserved for issuance under the 2008 stock incentive plan. The number
of shares of common stock available under the 2008 stock incentive plan is
subject to adjustment in the event of a stock split, stock or other
extraordinary dividend, or other similar change in common stock or the Company’s
capital structure.
Administration
. The 2008
stock incentive plan is administered, with respect to grants to employees,
directors, officers, and consultants, by the plan administrator (the
“Administrator”), defined as our board of directors or one or more
committees designated by the board.
Terms and Conditions of
Awards
. The 2008 stock incentive plan provides for the grant of stock
options, restricted stock, restricted stock units, and stock appreciation rights
(collectively referred to as “awards”). Stock options granted under the 2008
stock incentive plan may be either incentive stock options under the provisions
of Section 422 of the Internal Revenue Code of 1986, as amended, or nonqualified
stock options. Incentive stock options may be granted only to employees. Awards
other than incentive stock options may be granted to our employees, directors
and consultants or to employees, directors and consultants of our related
entities. Each award granted under the 2008 stock incentive plan shall be
designated in an award agreement.
Subject to applicable laws, the
Administrator has the authority, in its discretion, to select employees,
directors and others to whom awards may be granted from time to time, to
determine whether and to what extent awards are granted, to determine the number
of shares of common stock or the amount of other consideration to be covered by
each award (subject to the limitations set forth above under “Shares Reserved
for Issuance under the 2008 Stock Incentive Plan”), to approve award agreements
for use under the 2008 stock incentive plan, to determine the terms and
conditions of any award (including the vesting schedule applicable to the
award), to amend the terms of any outstanding award granted under the 2008 stock
incentive plan, to construe and interpret the terms of the 2008 stock incentive
plan and awards granted, to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable non-U.S. jurisdictions
and to take such other action not inconsistent with the terms of the 2008 stock
incentive plan, as the Administrator deems appropriate.
The 2008 stock incentive plan provides
that stockholder approval is required in order to (i) reduce the exercise price
of any option or the base appreciation amount of any stock appreciation right
awarded under the 2008 stock incentive plan or (ii) cancel any option or stock
appreciation right awarded under the 2008 stock incentive plan in exchange for
another award at a time when the exercise price exceeds the fair market value of
the underlying shares unless the cancellation and exchange occurs in connection
with a Corporate Transaction (defined below). However, canceling an option or
stock appreciation right in exchange for another option, stock appreciation
right, restricted stock or other award, with an exercise price, purchase price
or base appreciation amount (as applicable) that is equal to or greater than the
exercise price or base appreciation amount (as applicable) of the original
option or stock appreciation right will not require stockholder
approval.
Change in Capitalization
.
Subject to any required action by our stockholders, the number of shares of
common stock covered by outstanding awards, the number of shares of common stock
that have been authorized for issuance under the 2008 stock incentive plan, the
exercise or purchase price of each outstanding award, the maximum number of
shares of common stock that may be granted subject to awards to any participant
in a calendar year, and the like, shall be proportionally adjusted by the
Administrator in the event of (i) any increase or decrease in the number of
issued shares of common stock resulting from a stock split, stock dividend,
combination or reclassification or similar event affecting common stock, (ii)
any other increase or decrease in the number of issued shares of common stock
effected without receipt of consideration by the Company or (iii) any other
transaction with respect to common stock including a corporate merger,
consolidation, acquisition of property or stock, separation (including a
spin-off or other distribution of stock or property), reorganization,
liquidation (whether partial or complete), distribution of cash or other assets
to stockholders other than a normal cash dividend, or any similar transaction;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been “effected without receipt of
consideration.”
Corporate Transaction or Change in
Control
. Effective upon the consummation of a Corporate Transaction (as
defined in the 2008 stock incentive plan), all outstanding awards shall
terminate. However, all such awards shall not terminate to the extent the
contractual obligations represented by the awards are assumed by the successor
entity. Except as provided in an individual award agreement, the Administrator
shall have the authority to provide for the full or partial automatic vesting
and exercisability of one or more outstanding unvested awards under the 2008
stock incentive plan and the release from restrictions on transfer and
repurchase or forfeiture rights of such awards in connection with a Corporate
Transaction or Change in Control (as defined in the 2008 stock incentive plan),
on such terms and conditions as the Administrator may specify.
Under the 2008 stock incentive plan, a
Corporate Transaction is generally defined as:
|
·
|
acquisition
of 50% or more of our stock by any individual or entity including by
tender offer or a reverse merger;
|
|
·
|
a
sale, transfer or other disposition of all or substantially all of the
assets of the Company;
|
|
·
|
a
merger or consolidation in which the Company is not the surviving entity;
or
|
|
·
|
a
complete liquidation or
dissolution.
|
Under the 2008 stock incentive plan, a
Change in Control is generally defined as:
|
·
|
acquisition
of 50% or more of the Company’s stock by any individual or entity which a
majority of our board members (who have served on our board for at least
twelve months) do not recommend our stockholders accept,
or
|
|
|
|
|
·
|
a
change in the composition of our board of directors over a period of
twelve months or less such that a majority of our board members ceases, by
reason of one or more contested elections for board membership, to be
comprised of individuals who have either been board members continuously
for a period of at least twelve months or have been board members for less
than twelve months and were elected or nominated for election by at least
a majority of board members who have served on our board of directors
for at least twelve months.
|
Amendment, Suspension or Termination
of the 2008 Stock Incentive Plan
. Our board of directors may at any
time amend, suspend or terminate the 2008 stock incentive plan. The 2008 stock
incentive plan will be for a term of ten years unless sooner terminated by the
board. To the extent necessary to comply with applicable provisions of federal
securities laws, state corporate and securities laws, the Internal Revenue Code
of 1986, as amended, the rules of any applicable stock exchange or national
market system, and the rules of any non-U.S. jurisdiction applicable to awards
granted to residents therein, we shall obtain stockholder approval of any such
amendment to the 2008 stock incentive plan in such a manner and to such a degree
as is required.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations provides information that we believe is relevant to an assessment and
understanding of our financial condition and results of operations. This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the audited consolidated financial
statements and related notes thereto included elsewhere in this
prospectus.
This
prospectus, including this Management’s Discussion and Analysis of Financial
Condition and Results of Operations, contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties,
such as statements of our plans, objectives, expectations and intentions. Any
statements that are not statements of historical fact are forward-looking
statements. When used, the words “believe,” “plan,” “intend,” “anticipate,”
“target,” “estimate,” “expect,” and the like, and/or future-tense or conditional
constructions (e.g., “will,” “may,” “could,” “should,” etc.) or similar
expressions identify certain of these forward-looking statements.
These
forward-looking statements are subject to risks and uncertainties that could
cause actual results or events to differ materially from those expressed or
implied by the forward-looking statements in this prospectus. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in this prospectus, and in particular, the risks discussed under the
heading “Risk Factors” included elsewhere in this prospectus and those
discussed in other documents we file with the SEC. We undertake no obligation to
revise or publicly release the results of any revision to these forward-looking
statements. Given these risks and uncertainties, readers are urged not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this prospectus.
Overview
Betawave
Corporation is a young and rapidly growing company that operates an
attention-based digital media company. We have assembled some of the leading
immersive casual gaming, virtual world, social play and entertainment websites
into a network of sites (the “Betawave Network”). We generate revenue
by selling innovative, accountable and attention-grabbing advertising campaigns
on those sites to brand advertisers.
During
most of fiscal year 2008, the Company sold advertising on a network of websites
focused on children ages six to 17 and their co-viewing parents.
In
December 2008, the Company completed its Series A preferred stock financing in
which it raised approximately $22.5 million in gross proceeds and cancelled
indebtedness representing an aggregate principal amount of approximately $5.4
million in exchange for the issuance of shares of the Company’s Series A
preferred stock and warrants to purchase the Company’s common
stock.
In
January 2009, the Company changed its name from GoFish Corporation to Betawave
Corporation and launched a rebranding campaign and changed its focus to selling
advertising and providing content for websites in high attention
environments.
In March
2009, the Company entered into a loan and security agreement with Silicon Valley
Bank that provides for a secured revolving credit arrangement to provide
advances in an aggregate principal amount of up to $4 million (based upon a
percentage of certain eligible billed and unbilled accounts receivable). See
Note 17 to our audited consolidated financial statements included in this
prospectus.
Results
of Operations
The following discussion of the results
of our operations and financial condition should be read in conjunction with our
audited consolidated financial statements and related notes thereto included in
this prospectus beginning on page F-1.
Summary
of 2008 Results
Our total revenues for the year ended
December 31, 2008 were approximately $7.7 million, increasing 270% from the
prior year amount of approximately $2.1 million. The increase
reflects higher sales from advertising that was sold across the Betawave
Network. According to comScore Media Metrix, the Betawave Network
reached roughly 25 million unique U.S. users per month at the end of 2008
compared to just under 20 million unique U.S. users per month at the end of
2007.
Total
costs of revenues and expenses for the year ended December 31, 2008 were
approximately $22.5 million, increasing 30% from the prior year amount of
approximately $17.3 million. This increase was primarily due to
direct payments to publishers for revenue share on advertising revenues,
compensation related expenses and loss on debt extinguishment.
Our
operating loss for the year ended December 31, 2008 was approximately $14.8
million, decreasing 3% from the prior year amount of approximately $15.2 million
in 2007. This decrease in operating loss was primarily the result of the
increase in total revenues, which was partly offset by higher total cost of
revenues and expenses.
Our net
loss for the year ended December 31, 2008 was approximately $17.0 million,
increasing 3.6% from the prior year amount of approximately $16.4 million. This
increase in net loss was primarily the result of increased interest expense,
which was not fully offset by interest income and miscellaneous income,
notwithstanding the increase in total revenues.
2009
Outlook
We expect
that revenue will increase in fiscal 2009 as a result of our planned continued
expansion of the Betawave Network’s reach, scale and scope. We also
expect to incur additional expenses for the development and expansion of our
publisher network. In addition, we anticipate gains in operating
efficiencies as a result of the increase to our sales and marketing
organization. Our revenue expectations are based on certain
assumptions and subject to certain risk factors and uncertainties that could
cause actual results to differ materially from those
expectations. Our revenue expectations assume that we will continue
in operation for the foreseeable future. As discussed under the
heading “Risk Factors,” our auditors have indicated that our inability to
generate sufficient revenue raises substantial doubt as to our ability continue
as a going concern. In addition, our revenues fluctuate from quarter
to quarter and are unpredictable. We expect that our revenues will
continue to fluctuate in the future due to a number of factors, some of which
are beyond our control. Accordingly, it is difficult for us to
accurately forecast our revenues. Factors causing fluctuations in our
revenues include: (i) our ability to attract quality publishers to the Betawave
Network; (ii) the ability of our publishers to increase the number of visitors
to their sites; (iii) the amount and timing of costs relating to the expansion
of our operations, including sales and marketing expenditures; (iv) our ability
to control our gross margins; and (v) our ability to generate revenue through
third-party advertising and our ability to be paid fees for advertising on the
Betawave Network.
We expect to continue to experience an
operating loss in fiscal year 2009, despite the anticipated increase in revenue
as we incur additional expenses for the development and expansion of the
Betawave Network and operational infrastructure. However, we
anticipate these losses will decrease from current levels as we continue to grow
and develop.
Revenue
We derive almost entirely all of our
revenues from fees we receive from our advertisers. We believe an
opportunity exists to provide advertisers with a platform to engage consumers
through effective and targeted advertising initiatives that provide the reach of
a portal with the engagement of niche sites. Factors that we believe
will influence the success of our advertising programs include:
|
·
|
growth
in the number of users populating the websites on the Betawave
Network;
|
|
·
|
growth
in the amount of time spent per user on the websites on the Betawave
Network;
|
|
·
|
the
number of advertisers and the variety of products
available;
|
|
·
|
advertisers’
return on investment and the efficacy of click-through
conversions;
|
|
·
|
enhanced
ad vehicles, products, services and sponsorships;
and
|
We
believe that Internet advertising currently represents a small segment of the
overall advertising market and that the growth in Internet usage and consumers’
behavioral changes will eventually lead to a dramatic shift in ad revenues from
traditional media to the Internet. To take advantage of this, the
main focus of our advertising programs is to provide usefulness to our
advertisers, and relevancy to our users. We are continuing to take
steps to increase our revenue by offering a comprehensive solution for
advertising across the Betawave Network. We also intend to broaden
our reach through syndication opportunities brought about by the launch of
Betawave TV. Through this commitment to premium content, scaled
distribution, and scope, we hope to broaden our appeal to the advertising
community, which we believe will ultimately drive both the quality and quantity
of constituents looking to advertise through the Betawave Network.
The
following table presents our revenues for the periods presented:
Revenues
— Comparison of the Years Ended December 31, 2008 and 2007
|
|
Year Ended
December 31,
2008
|
|
|
Year Ended
December 31,
2007
|
|
|
Percent Change
|
|
Revenues
|
|
$
|
7,701,599
|
|
|
$
|
2,081,182
|
|
|
|
270
|
%
|
Our
revenues increased $5,620,417 in 2008 from 2007. The increase in 2008
reflects higher sales from advertising that was sold across our network of owned
and affiliate publisher websites. Revenues in both periods consisted
of advertising fees, primarily from banner and text-based ads. As we
begin to add publisher websites into the Betawave Network, we have been able to
generate a greater number of user impressions for our
advertisers. Additionally, these sales reflect the build out of our
sales organization, which grew from 9 to 14 throughout the
year. These sales personnel were primarily responsible for the
corresponding increase in revenue over the prior year.
Cost
of Revenues — Comparison of the Years Ended December 31, 2008 and
2007
|
|
Year Ended
December 31,
2008
|
|
|
Year Ended
December 31,
2007
|
|
|
Percent Change
|
|
Cost
of Revenues
|
|
$
|
6,551,870
|
|
|
$
|
2,437,047
|
|
|
|
169
|
%
|
Cost of
revenues consist primarily of direct payments to publishers on advertising
revenues, costs associated with hosting our websites, ad serving costs for
impressions delivered in connection with advertising revenues and production
costs for Betawave TV.
Cost of
revenues increased $4,114,823 in 2008 from 2007. The increase included
$4,213,395 of payments to publishers, $275,313 for ad serving costs, $90,513 for
licensing expenses, $84,107 for share-based compensation related to SFAS No,
123(R), $75,569 for advergame development costs and $15,714 for development of
custom media player. These increases were partly offset by a reduction in video
production costs of $540,335 and a reduction in web hosting costs of
$99,453.
Sales
and Marketing — Comparison of the Years Ended December 31, 2008 and
2007
|
|
Year Ended
December 31,
2008
|
|
|
Year Ended
December 31,
2007
|
|
|
Percent Change
|
|
Sales
and Marketing
|
|
$
|
6,480,550
|
|
|
$
|
6,174,158
|
|
|
|
5
|
%
|
Sales and
marketing expenses consist primarily of advertising and other marketing related
expenses, compensation-related expenses, sales commissions, and travel
costs.
Sales and marketing expenses increased
$306,392 in 2008 from 2007. The increase was attributable to a $1,832,046
increase in personnel and other benefits related costs, including a $238,813
increase in share-based compensation expenses related to SFAS No. 123(R), a
$168,134 increase in travel expenses and a $450,320 increase in allocation of
facilities, IT and other operating expenses. These increases were
partly offset by a $1,410,055 decrease in advertising and other marketing
related expenses and a $734,053 decrease in professional services for public
relations and related development research expense.
The growth in direct sales personnel
was responsible for the increases in personnel and other benefit related costs.
The reduction in advertising, other marketing expenses, public relations and
related development research expenses correlated to the refinement of our
strategic focus and a reduced need for advertising
campaigns.
Employees
in sales and marketing at December 31, 2008 and 2007 were 34 and 20,
respectively.
Product
Development — Comparison of the Years Ended December 31, 2008 and
2007
|
|
Year Ended
December 31,
2008
|
|
|
Year Ended
December 31,
2007
|
|
|
Percent Change
|
|
Product
Development
|
|
$
|
713,964
|
|
|
$
|
2,261,481
|
|
|
|
(68
|
)%
|
Product
development expenses consist primarily of compensation-related expenses incurred
for the development of, and enhancement to, systems that enable us to drive and
support revenue generating activities across our network of
websites.
Product
development expenses decreased $1,547,517 in 2008 from 2007. The decrease was
attributable primarily to a decrease in compensation related expenses of
$1,356,922 including a $194,552 decrease in share-based compensation expenses
related to SFAS No. 123(R), and the reduction in the allocation of approximately
$190,595 of facilities, IT and other operating expenses. The
decrease in expenses reflects the scaleback of product development projects
which resulted in a reduction of employees from 14 at the beginning of 2007 to 5
at the end of 2008.
Employees
in product development at December 31, 2008 and 2007 were 5 and 5,
respectively.
General
and Administrative — Comparison of the Years Ended December 31, 2008 and
2007
|
|
Year Ended
December 31,
2008
|
|
|
Year Ended
December 31,
2007
|
|
|
Percent Change
|
|
General
and Administrative
|
|
$
|
6,024,801
|
|
|
$
|
5,186,981
|
|
|
|
16
|
%
|
General
and administrative expenses consist primarily of compensation-related expenses
(including stock-based compensation expenses) related to our executive
management, finance and human resource organizations and legal, accounting,
insurance, investor relations and other operating expenses to the extent not
otherwise allocated to other functions.
General
and administrative expenses increased $837,820 in 2008 from 2007. The increase
was attributable to a $1,401,236 increase in compensation-related expenses
including a $1,422,503 increase in share-based compensation expenses related to
SFAS No. 123(R) and a $190,015 increase in the amortization of deferred
financing costs related to the debt issuance costs of the Senior Notes and the
Subordinated Notes. These increases were partly offset by a $567,112
decrease in legal, accounting, D&O insurance, investor relations and other
professional services, a $108,901 decrease in travel expenses and a $77,418
decrease in unallocated facilities, IT and other operating expenses. The
issuance of employee options was primarily responsible for the increase in
share-based compensation.
Employees
in general and administrative at December 31, 2008 and 2007 were 7 and 5,
respectively.
Loss
on Debt Extinguishment — Comparison of the Years Ended December 31, 2008 and
2007
|
|
Year Ended
December 31,
2008
|
|
|
Year Ended
December 31,
2007
|
|
|
Percent Change
|
|
Loss
on Debt Extinguishment
|
|
$
|
2,736,832
|
|
|
$
|
—
|
|
|
|
N/A
|
|
In
December 2008, we used proceeds from our $22.5 million preferred stock financing
to repurchase the remaining, unconverted portion of our outstanding convertible
debt and related detachable warrants. The repurchase occurred with a
combination of cash payments and exchanges of convertible debt and warrants for
either new Series A preferred stock and warrants or common stock. The
transaction resulted in a loss on the extinguishment of debt.
Acquisition
Costs — Comparison of the Years Ended December 31, 2008 and 2007
|
|
Year Ended
December 31,
2008
|
|
|
Year Ended
December 31,
2007
|
|
|
Percent Change
|
|
Acquisition
Costs
|
|
$
|
—
|
|
|
$
|
1,270,348
|
|
|
|
N/A
|
|
In fiscal
year 2007, we incurred costs during the second quarter of 2007 associated with
our previously proposed acquisition of Bolt Media, which was terminated in
August 2007. During the period from February 2007 to September 2007, the Company
advanced Bolt $1,020,338. The Company only had a secured interest in Bolt’s
trade accounts receivables of $600,000. As a result, the Company recorded an
allowance for doubtful accounts of $420,338. In addition, the Company incurred
$850,010 of direct acquisition costs. The total related acquisition costs of
$1,270,348 for the year ended December 31, 2007 was expensed.
Other
Income and Expenses — Comparison of the Years Ended December 31, 2008 and
2007
|
|
Year Ended
December 31,
2008
|
|
|
Year Ended
December 31,
2007
|
|
|
Percent
Change
|
|
Interest
Income
|
|
$
|
23,238
|
|
|
$
|
147,007
|
|
|
|
(84
|
)%
|
Miscellaneous
Income
|
|
|
278,740
|
|
|
|
536
|
|
|
|
51,904
|
%
|
Interest
Expense
|
|
|
(2,465,545
|
)
|
|
|
(1,276,568
|
)
|
|
|
93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
(2,163,567
|
)
|
|
|
(1,129,025
|
)
|
|
|
92
|
%
|
Other
expense increased $1,034,542 in 2008 from 2007. The increase was a result of
increased interest expense, which was not fully offset by interest income and
miscellaneous income.
Interest
income is derived primarily from short-term interest earned on operating cash
balances.
Miscellaneous
income represents income from the settlement of a dispute with a third party
service provider.
The
increase in interest expense during fiscal year 2008 as compared to fiscal year
2007 is as a result of the payment of interest during 2008 on both the Senior
Notes and the Subordinated Notes. Interest expense during fiscal year 2007
included only the payment of interest for a partial year on the Subordinated
Notes.
Liquidity
and Capital Resources
To date,
we have funded our operations primarily through private sales of securities and
borrowings. As of December 31, 2008, we had $11,863,121 in cash and
cash equivalents. We may need to raise additional capital in the
future, which may not be available on reasonable terms or at all. The
raising of additional capital may dilute our current stockholders’ ownership
interests.
Net cash
used in operating activities was $7,077,358 and $13,550,034 for the years ended
December 31, 2008 and 2007, respectively. For the year ended December
31, 2008, the cash used in operating activities was primarily due to a net loss
of $8,804,358, which is net of non cash expenses of $8,165,627 and a change in
working capital of $1,727,000. The non cash expense items included
loss on debt extinguishment of $2,736,832, loss on disposal of fixed assets of
$1,959, depreciation and amortization of $260,028, amortization of convertible
note fees of $474,618, stock-based compensation of $2,723,377, and non cash
interest expense of $1,866,537 and non cash cost of revenues of
$102,000. For the year ended December 31, 2007, the primary use of
cash was due to a net loss of $13,402,032, which is net of non cash expenses of
$2,975,826 and a negative change in working capital of $148,002. The
non cash expense items included depreciation and amortization of $224,784,
amortization of convertible note fees of $273,714, stock-based compensation of
$1,172,506 and non cash interest expense of $884,484 and write off of
acquisition advances of $420,338.
Net cash
used in investing activities was $41,118 for the year ended December 31, 2008
and net cash provided by investing activities was $692,846 for the year ended
December 31, 2007. For the year ended December 31, 2008, net cash
used in investing activities consisted of the purchase of property and equipment
in the amount of $41,118 and funds of $550,000 held as restricted cash which
were equally offset by release of such funds from restricted
cash. For the year ended December 31, 2007, net cash provided by
investing activities consisted of payment of acquisition advances of $600,000,
an additional $1,728,728 of funds released from restricted cash from the sale of
our common stock and write off of $17,216 advances to founder and stockholder,
and cash used in investing activities consisted of acquisition advances of
$1,020,338, the purchase of property and equipment in the amount of $524,781 and
funds held as deposits of $107,979.
Net cash
provided by financing activities was $17,872,763 and $10,596,480 for the years
ended December 31, 2008 and 2007, respectively. The net cash provided
by financing activities for the year ended December 31, 2008 was derived from
the proceeds from the issuance of Series A Preferred Stock of $21,022,438 (net
of issuance cost of $1,477,562), advances of $610,000 from a shareholder,
proceeds from issuance of unsecured convertible original issue discount notes in
the amount of $3,188,700, repayment to shareholder of $400,000, repayment of
convertible notes in the amount of $6,414,187 and purchase of warrants in the
amount of $134,188. The net cash provided by financing activities for
the year ended December 31, 2007 was derived from the proceeds from the issuance
of our senior convertible notes and related warrants in the amount of
$9,219,707, proceeds from the issuance of common stock in the amount of
$1,761,566, repayment of amounts due to a stockholder of $384,793, and
repayments of notes payable which were equally off set against proceeds from the
issuance of such notes payable.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial statements requires us
to make estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. We base our estimates on historical
experience and on various other assumptions that we believe are reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates.
An
accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used, or changes in the accounting estimate that are reasonably
likely to occur, could materially impact the consolidated financial statements.
We believe that the following critical accounting policies reflect the more
significant estimates and assumptions used in the preparation of the
consolidated financial statements.
Revenue
Recognition
We
recognize revenue from the display of graphical advertisements on the websites
of the publishers in Betawave’s Network as “impressions” are delivered up to the
amount contracted for by the advertiser. An “impression” is delivered when an
advertisement appears in pages viewed by users. Arrangements for these services
generally have terms of less than one year.
We
recognize these revenues as such because the services have been provided, and
the other criteria set forth under Staff Accounting Bulletin Topic 13:
Revenue Recognition
have been
met, namely, the fees charged by the Company are fixed or determinable, the
advertisers understand the specific nature and terms of the agreed-upon
transactions and collectability is reasonably assured. In accordance with
Emerging Issues Task Force (“EITF”) Issue No. 99-19,
Reporting Revenue Gross as Principal
Versus Net as an Agent
(“EITF 99-19”), Betawave reports revenues on a
gross basis principally because the Company is the primary obligor to the
advertisers.
Costs
of Revenues and Expenses
Cost
of revenues and expenses primarily consist of payments to publishers in the
Betawave Network, personnel-related costs, including payroll, recruitment and
benefits for executive, technical, corporate and administrative employees, in
addition to professional fees, insurance and other general corporate expenses.
We believe the key element to the execution of our strategy is the hiring of
personnel in all areas that are vital to our business. Our investments in
personnel include business development, sales and marketing, advertising,
service and general corporate marketing and promotions.
Accounting
for Stock Based Compensation
Prior to
January 1, 2006, we used the intrinsic value method to record stock-based
compensation for employees, which requires that deferred stock based
compensation be recorded for the difference between an option’s exercise price
and the fair value of the underlying common stock on the grant date of the
option.
Effective
January 1, 2006, we adopted the fair value recognition provisions of FASB
Statement No. 123 (R),
Share-Based Payment
, (“SFAS
123 (R)”) using the modified prospective transition method. Under
that transition method, compensation cost recognized for the periods ended
December 31, 2008 and 2007 includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of January 1, 2006, based on
the grant date fair value estimated in accordance with the original provisions
of FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”),
and (b) compensation cost for all share-based payments granted or modified
subsequent to January 1, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R).
Share-based
compensation expense for performance-based options granted to non-employees is
determined in accordance with SFAS 123(R) and Emerging Issues Task Force Issue
No. 96-18, Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services (EITF
96-18”), at the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably
measured. The fair value of options granted to non-employees is
measured as of the earlier of the performance commitment date or the date at
which performance is complete (“measurement date”). When it is
necessary under generally accepted accounting principles to recognize the cost
for the transaction prior to the measurement date, the fair value of unvested
options granted to non-employees is remeasured at the balance sheet
date.
We
currently use the Black-Scholes option pricing model to determine the fair value
of stock options. The determination of the fair value of stock based payment
awards on the date of grant using an option-pricing model is affected by our
stock price as well as by assumptions regarding a number of complex and
subjective variables. These variables include our expected stock price
volatility over the term of the awards, actual and projected employee stock
option exercise behaviors, risk-free interest rate and expected dividends. We
estimate the volatility of our common stock at the date of the grant based on a
combination of the implied volatility of publicly traded options on our common
stock and our historical volatility rate. The dividend yield assumption is based
on historical dividend payouts. The risk-free interest rate is based on observed
interest rates appropriate for the term of our employee options. We use
historical data to estimate pre-vesting option forfeitures and record
share-based compensation expense only for those awards that are expected to
vest. For options granted, we amortize the fair value on a straight-line basis.
All options are amortized over the requisite service periods of the awards,
which are generally the vesting periods. If factors change we may decide to use
different assumptions under the Black-Scholes option model and stock-based
compensation expense may differ materially in the future from that recorded in
the current periods.
The
following table presents share-based compensation expense included in the
Consolidated Statements of Operations related to employee and non-employee stock
options, restricted shares and warrants as follows as of December 31, 2008 and
2007:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Cost
of revenue
|
|
$
|
84,106
|
|
|
$
|
—
|
|
Sales
and marketing
|
|
|
700,340
|
|
|
|
461,526
|
|
Product
development
|
|
|
18,501
|
|
|
|
213,053
|
|
General
and administrative
|
|
|
1,920,430
|
|
|
|
497,927
|
|
Total
share-based compensation
|
|
$
|
2,723,377
|
|
|
$
|
1,172,506
|
|
Share-based
compensation cost is measured at the grant date, based on the calculated fair
value of the award, and is recognized as an expense over the service period,
generally the vesting period of the equity grant.
The fair
value of each option grant has been estimated on the date of grant using the
Black-Scholes valuation model with the following assumptions (weighted average)
at December 31, 2008 and 2007:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Risk
free interest rate
|
|
|
2.16
|
%
|
|
|
4.08
|
%
|
Expected
lives
|
|
5.91 Years
|
|
|
5.95 Years
|
|
Expected
volatility
|
|
|
75.84
|
%
|
|
|
68.33
|
%
|
Dividend
yields
|
|
|
0
|
%
|
|
|
0
|
%
|
The
weighted-average grant date fair value of the options granted during the years
ended December 31, 2008 and 2007 were $0.14 and $0.81,
respectively.
At
December 31, 2008, there was $7,365,758 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
plans. This cost is expected to be recognized over the weighted
average period of 2.79 years.
Basic net
loss per share to common stockholders is calculated based on the
weighted-average number of shares of common stock outstanding during the period
excluding those shares that are subject to repurchase by the Company. Diluted
net loss per share attributable to common shareholders would give effect to the
dilutive effect of potential common stock consisting of stock options, warrants,
convertible debt and preferred stock. Dilutive securities have been excluded
from the diluted net loss per share computations as they have an antidilutive
effect due to the Company’s net loss for the years ended December 31, 2008 and
2007.
The
following outstanding stock options, warrants, convertible debt and preferred
stock (on an as-converted into common stock basis) were excluded from the
computation of diluted net loss per share attributable to holders of common
stock as they had an antidilutive effect as of December 31, 2008 and
2007:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Shares
issuable upon exercise of employee and non-employee stock
options
|
|
|
4,717,067
|
|
|
|
7,194,770
|
|
Shares
issuable upon exercise of warrants
|
|
|
5,744,335
|
|
|
|
7,598,899
|
|
Shares
issuable upon conversion of notes
|
|
|
—
|
|
|
|
6,412,500
|
|
Shares
issuable upon conversion of Series A preferred stock
|
|
|
7,355,648
|
|
|
|
—
|
|
Total
|
|
|
17,817,050
|
|
|
|
21,206,169
|
|
Property
and Equipment
Property
and equipment are recorded at cost less accumulated depreciation and
amortization. Major improvements are capitalized, while repair and maintenance
costs that do not improve or extend the lives of the respective assets are
expensed as incurred. Depreciation and amortization charges are calculated using
the straight-line method over the following estimated useful lives:
|
|
Estimated Useful Life
|
Computer
equipment and software
|
|
3
years
|
Furniture
and fixtures
|
|
5
years
|
Leasehold
improvements
|
|
Shorter of estimated useful Life or lease term
|
Upon
retirement or sale, the cost and related accumulated depreciation are removed
from the balance sheet and the resulting gain or loss is reflected in operating
expenses. If factors change we may decide to use shorter or longer estimated
useful lives and depreciation and amortization expense may differ materially in
the future from that recorded in the current periods.
Impairment
of Long-Lived Assets
We
continually evaluate whether events and circumstances have occurred that
indicate the remaining estimated useful life of long-lived assets may warrant
revision or that the remaining balance of long-lived assets may not be
recoverable. When factors indicate that long-lived assets should be evaluated
for possible impairment, we typically make various assumptions about the future
prospects the asset relates to, consider market factors and use an estimate of
the related undiscounted future cash flows over the remaining life of the
long-lived assets in measuring whether they are recoverable. If the estimated
undiscounted future cash flows exceed the carrying value of the asset, a loss is
recorded as the excess of the asset’s carrying value over its fair value. There
have been no such impairments of long-lived assets through December 31,
2008.
Assumptions
and estimates about future values are complex and often subjective. They can be
affected by a variety of factors, including external factors such as industry
and economic trends, and internal factors such as changes in our business
strategy and our internal forecasts. Although we believe the assumptions and
estimates we have made in the past have been reasonable and appropriate,
different assumptions and estimates could materially affect our reported
financial results. More conservative assumptions of the anticipated future
benefits could result in impairment charges, which would increase net loss and
result in lower asset values on our balance sheet. Conversely, less conservative
assumptions could result in smaller or no impairment charges, lower net loss and
higher asset values.
Income
Taxes
We are
subject to income taxes, federal and state, in the United States of America. We
use the asset and liability approach to account for income taxes. This
methodology recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax base of assets and liabilities and operating loss and tax
carryforwards. We then record a valuation allowance to reduce deferred tax
assets to an amount that more likely than not will be realized. In evaluating
our ability to recover our deferred income tax assets we consider all available
positive and negative evidence, including our operating results, ongoing tax
planning and forecasts of future taxable income. Through December 31, 2008,
we have provided a valuation allowance of approximately $15.8 million against
our entire net deferred tax asset, primarily consisting of net operating loss
carryforwards. In the event we were to determine that we would be able to
realize our deferred income tax assets in the future in excess of their net
recorded amount, we would make an adjustment to the valuation allowance which
would reduce the provision for income taxes.
Advertising
and Promotion Costs
Expenses
related to advertising and promotions of products are charged to expense as
incurred. Advertising and promotional costs totaled $129,414 and $1,731,170 for
the years ended December 31, 2008 and 2007, respectively.
Recent
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (FASB) issued
(SFAS) No. 141 (Revised 2007) (SFAS 141R),
Business Combinations
. This
statement will significantly change the accounting for business acquisitions
both during the period of the acquisition and in subsequent periods. SFAS 141R
provides companies with principles and requirements on how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, liabilities assumed, and any noncontrolling interest in the acquiree
as well as the recognition and measurement of goodwill acquired in a business
combination. SFAS 141R also requires certain disclosures to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141R will be effective January 1, 2009 for the
Company and will be applied to all business combinations occurring on or after
that date.
Concurrent
with the issuance of SFAS No. 141R, the FASB issued SFAS No. 160 (“SFAS
160”),
Noncontrolling
Interests in Consolidated Financial Statements—An Amendment of ARB
No. 51
. SFAS 160 establishes new accounting and reporting standards
for the non-controlling interest in a subsidiary and for the deconsolidation of
a subsidiary. SFAS 160 will also be effective for the Company effective January
1, 2009. Early adoption is not permitted. The Company does not currently expect
the adoption of SFAS 160 to have any impact on its financial
statements.
In March
2008, the FASB issued SFAS No. 161 (“SFAS 161”),
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement
No. 133
. SFAS 161 intends to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. SFAS 161 also requires
disclosure about an entity’s strategy and objectives for using derivatives, the
fair values of derivative instruments and their related gains and losses. SFAS
161 is effective for fiscal years and interim periods beginning after
November 15, 2008, and will be applicable to the Company in the first
quarter of fiscal 2009. The Company does not currently expect the adoption of
SFAS 161 to have any impact on its financial statements.
In May
2008, the FASB issued SFAS No. 162 (“SFAS 162”),
The Hierarchy of Generally Accepted
Accounting Principles
. SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that presented
in conformity with generally accepted accounting principles in the United States
of America. SFAS 162 will be effective 60 days following the SEC’s approval of
the PCAOB amendments to AU Section 411,
The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles
. The
Company does not believe SFAS 162 will have a significant impact on the
Company’s consolidated financial statements.
In June
2008, the FASB issued Staff Position FSP EITF No. 03-6-1,
Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
:
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 provides that unvested shares-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earning per share pursuant to the two-class method. FSP EITF
03-6-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. Upon
adoption, a company is required to retrospectively adjust its earnings per share
data (including any amounts related to interim periods, summaries of earnings
and selected financial data) to conform to the provisions in FSP EITF 03-6-1.
Early application of FSP EITF 03-6-1 is prohibited. The adoption of FSP EITF
03-6-1 is not anticipated to have a material effect on the Company’s
consolidated financial statements.
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
BUSINESS
Company
Overview
Betawave
Corporation is an attention-based digital media company. We have assembled some
of the leading immersive casual gaming, virtual world, social play and
entertainment websites into a network of sites (the “Betawave Network”). We
generate revenue by selling innovative, accountable and attention-grabbing
advertising campaigns on those sites to brand advertisers.
Our
Mission
Our goal
is to become the most valuable digital media company for brand advertisers. To
do so, we seek to expand the size of the Betawave Network by forging
relationships with publishers that have large, deeply engaged audiences with
which advertisers want their brands to be affiliated.
Our
History
Our
business was originally conducted by GoFish Technologies, Inc. (“GoFish
Technologies”), which was incorporated in California in May 2003. GoFish
Technologies originally operated a multimedia search service, delivering
targeted results for Internet searches conducted on digital media content from
the entertainment and media sectors. During the third quarter of 2005, due to
the increasing popularity of user-generated video, GoFish Technologies refined
its focus to aggregating original short-form and user-generated video at the URL
www.gofish.com.
In order
to obtain additional financing to continue its operations, in October 2006,
GoFish Technologies completed a reverse merger and related transactions, which
also resulted in the business of GoFish Technologies being acquired by a
publicly-traded company. These transactions consisted principally of three
parts. In the first part of these transactions, GoFish Technologies merged with
and into GF Acquisition Corp., a wholly-owned subsidiary of GoFish Corporation
(formerly known as Unibio Inc. until September 14, 2006) (“GoFish
Corporation”), which was originally a publicly-traded “shell company” as that
term is defined in Rule 405 of the Securities Act, and Rule 12b-2 of the
Exchange Act. In the second part of these transactions, ITD Acquisition Corp., a
wholly-owned subsidiary of GoFish Corporation, merged with and into Internet
Television Distribution Inc., a Delaware corporation (“ITD”) (collectively both
the GoFish Technologies and the ITD mergers are referred to herein as the
“mergers”). In the third part of these transactions, GoFish Corporation
split-off a wholly-owned subsidiary, GF Leaseco, Inc. (“GF Leaseco”), through
the sale of all of the outstanding capital stock of GF Leaseco to the former
owners of GoFish Corporation.
As a
result of the mergers, GoFish Corporation acquired the business of GoFish
Technologies and continued its business operations as a publicly-traded company
whose common stock is quoted on the NASD’s OTC Bulletin Board. Also, as a result
of the mergers, GoFish Technologies and ITD became wholly-owned subsidiaries of
GoFish Corporation.
During
2007, GoFish Corporation made a strategic decision to focus on an aspect of its
business where it saw an attractive market opportunity and began building a
network of youth oriented websites for which it could sell advertising and
deliver premium content. As a result of its success in the youth
market, the Company expanded its focus to include “moms.” By June
2008, GoFish Corporation had built the largest youth-focused advertising network
in the United States which was also top 10 in the “moms” category based on the
number of unique monthly users, in each case, excluding portals and as measured
by comScore Media Metrix. Our sites were high engagement sites that
delivered consumers in a deeply engaged state of mind, far in excess of industry
averages.
In June
2008, GoFish Corporation appointed Matt Freeman, a leading digital advertising
executive, to serve as its new Chief Executive Officer. In December
2008, GoFish Corporation completed a financing in which it raised approximately
$22.5 million in gross proceeds and cancelled indebtedness representing an
aggregate principal amount of approximately $5.4 million in exchange for the
issuance of shares of Series A preferred stock and warrants to purchase common
stock.
In
January 2009, GoFish Corporation changed its name to “Betawave Corporation” and
launched a rebranding campaign, announcing that it would focus on the highest
attention span media environments as measured by time spent per month, time
spent per page and receptivity to brand advertising, and not solely on youth and
moms.
In March
2009, the Company entered into a loan and security agreement with Silicon Valley
Bank that provides for a secured revolving credit arrangement to provide
advances in an aggregate principal amount of up to $4 million (based upon a
percentage of certain eligible billed and unbilled accounts receivable). See
Note 17 to our audited consolidated financial statements included in this
prospectus.
Business
Operations
Betawave
is the industry’s first attention-based media company. We deliver quality
advertising and content to large audiences of highly-engaged users through
innovative ad formats. Publishers in the Betawave Network span all
types of online experiences enjoyed by Internet users, including entertainment
focused and educational virtual worlds, casual and massively multi-player games
avatar-based social networks, educational, informational and photo sharing
sites. We offer marketers broad reach into a targeted audience in
desirable editorial environments. We combine the scale of a portal or
advertising network with the custom programs and client focus of a niche
publisher
The
Betawave Network delivers scale with a unique monthly audience of over 25
million domestically and attention with an average audience engagement of more
than 48 minutes per month. We have extended beyond the narrow
industry definition of a vertical advertising network as we provide additional
services to our publishers, for example, securing and providing our publishers
with: (i) relevant and engaging video content for use on their sites, (ii)
enabling technology, and (iii) business services to facilitate the growth of
capabilities and revenue on their sites. In addition, we work with publishers to
ensure that their brand is well positioned and their website is maximized for
monetization through standard and immersive advertising
experiences.
To ensure
that we consistently offer the highest level of service to publishers and
advertisers, we are highly discriminating in our selection of
publishers. We seek to ensure that the Betawave Network is comprised
of quality publishers that have unique value propositions for marketers and
advertisers trying to reach youth, moms, and a growing audience base of 18 to 34
year olds. Some of the publishers in the Betawave portfolio
are:
|
·
|
Miniclip.com
(www.miniclip.com), the Internet’s largest dedicated online games
website;
|
|
·
|
Cartoon
Doll Emporium (www.cartoondollemporium.com), a leading dress-up game
destination for girls age 6-16;
|
|
·
|
Shutterfly
(www.shutterfly.com), the leading site for publishing, sharing and
printing pictures and has an audience primarily composed of moms and
families: memory makers; and
|
|
·
|
Cookie
Jar Entertainment (www.thecookiejarcompany.com), a global independent
producer, marketing and brand manager of such renowned children’s
properties as “Magi-Nation,” “The Doodlebops,” “Caillou,” “Spider Riders”
and “Johnny Test.”
|
We enter
into agreements with our publishers where we are responsible for selling their
advertising inventory. Generally, these relationships are exclusive
and allow us to decide how we sell the advertising inventory, what we sell and
to whom we sell it. We have secured advertising buys from strong
brands, including four of the biggest spenders against kids
online. Our advertisers fall into various categories, including
consumer packaged goods (e.g. Kellogg’s, General Mills, Procter & Gamble),
entertainment (e.g. Disney, Cartoon Network, Lionsgate), consumer electronics
and software (e.g. Sony, Electronics Arts, Nintendo, Ubisoft) and retail (e.g.
Lego, Hasbro, Sears).
In
addition, we procure media content that we believe to be compelling to both
users of the sites within the Betawave Network and advertisers in categories
targeting these users. In February 2009, we launched Betawave TV, an
ad-supported video platform with distribution on several publishers in the
Betawave Network. The product features advertiser-safe,
family-friendly programming including quality animation, youth-oriented news,
action sports, movie and video game information, special events, celebrity
interviews, fashion, and health and beauty segments.
Betawave
TV offers marketers a scalable video advertising and distribution solution and
enables them to extend their relationship beyond display media and immersive
integrations. The universal video player is customized for each
publisher’s look and feel and is incorporated into the navigation of each site
ensuring a high level of consumer adoption. Sponsorship opportunities
include the ability to feature messages before and after professionally produced
video programming, as well as through overlays at appropriate points in the
viewing experience.
Betawave
has secured distribution agreements with several prestigious content providers
including:
|
·
|
Cookie
Jar Entertainment – A leading independent producer of children’s
entertainment and world-renowned programmer of the CBS Saturday morning
kids’ block presents long-term franchises like: “Johnny Test,” “Paddington
Bear,” “Mona the Vampire,” “Dark Oracle,” “The Wombles,” “Ripley’s Believe
It or Not!,” “The Wonderful Wizard of Oz,” “Animal Crackers” and “Emily of
New Moon” plus special full-length animated
movies.
|
|
·
|
Kids
Who Rip – An action sports movement of kids who are fearless, fun, focused
and ready to show the world their skills. From surfing, to
skateboarding, to snowboarding, these kids are positive role models who
know who they and are ready to compete to
win.
|
|
·
|
MGM
– One of the movie world’s most prestigious studios provides live action
and animated programming ranging from series like “Pink Panther and Sons”
and “All Dogs Go To Heaven” to full-length live-action movies and TV
series.
|
|
·
|
Teen/Kid
News – The creator of Eyewitness News, Al Primo, presents news coverage
just for kids and teens. Delivered on a full-news set by an
anchor team of youth who bring the audience the latest on celebrities,
news and events of special appeal.
|
|
·
|
Young
Hollywood – R.J. Williams founded Young Hollywood to create unique
celebrity programming that provides an authentic take on the next
generation of Hollywood. It’s the inside story of celebrity
life as told by the best source…the celebrities themselves. The
programming offers unparalleled access to the world beyond the velvet
rope.
|
The
advertising that we sell on the publisher sites in the Betawave Network can be
divided into two categories: Direct Sales and Remnant Inventory.
Direct
Sales
The
majority of our revenues come from direct sales to brand advertisers. Direct
sales of advertising can take the following two forms:
|
·
|
IAB
Graphical Advertising – IAB graphical advertising is standard banner and
text ads where advertisers pay a cost per thousand impressions (“CPM”) fee
directly to us. Banners are ad graphics hyperlinked to the URL
of the advertiser or to a custom landing page within the Betawave
portfolio. This form of online advertising entails embedding an
advertisement on a web page. It is intended to attract traffic
to the advertiser’s website by linking them from the ad on a website to
the website of the advertiser, to initiate an action within the site where
the banner is embedded (i.e. watch a movie trailer), or to increase
metrics on brand awareness. The banner advertisement is
constructed from an image (GIF, JPEG, PNG), JavaScript program or
multimedia object employing technologies such as Java, Shockwave or
Flash.
|
|
·
|
Rich
Media/Immersive Advertising – We also provide custom marketing
opportunities to brands by tailoring advertising solutions to specific
needs and leveraging the rich, immersive environments of publishers in the
Betawave portfolio. These include roadblocks, front page
takeovers, rich media ads, video and interstitial ads, custom integration
in leading virtual worlds, advergames and custom
sponsorships. These opportunities provide for the highest CPMs,
which start at $10. These out-of-the-box ideas are developed on
a custom basis with the goal of productizing the solution for future
advertisers and campaigns.
|
Our
blended CPM on direct sales advertising is currently over $5.
Remnant
Inventory
Advertising
inventory on a website that is not sold directly to an advertiser is referred to
as “remnant inventory.” Publishers typically monetize this inventory, at a small
fraction of direct sales, through third-party ad networks (ValueClick, Tribal
Fusion, and Advertising.com) and ad network exchanges (Right Media and
ContextWeb). We offer our publishers the ability to achieve a higher rate of
return on their remnant inventory through our network of strategic partnerships.
Our service is designed to be easy to implement and lifts the operational
minutia and complexity for publishers of having to monetize remnant
inventory.
In
addition, we may monetize a percentage of remnant inventory through cost per
click (“CPC”) or cost per action (“CPA”) campaigns. In the case of CPC
advertisements, advertisers will pay fees per click throughs to their site
generated from ads placed throughout the website. CPA banners placed throughout
the website generate fees only when an action occurs as a result of the
click-through on an individual advertisement. That action may be a purchase, a
registration, or some other transaction. We do not currently have, or plan to
have, any CPC or CPA campaigns. However, we may choose to include these formats
in the future.
Sales
and Marketing
We sell
our inventory and marketing services in the United States through a sales and
marketing organization that consisted of 41 employees as of April 7, 2009.
These employees are located at our headquarters in San Francisco, California and
New York, New York and also are based in Los Angeles, California and Chicago,
Illinois. The team is focused on selling advertising space on the Betawave
network of websites (the “Betawave Network”) to top quality brands and their
advertising agencies.
In
addition, we operate a business development team tasked with sourcing, securing
and retaining quality publishers into the Betawave Network. These employees are
located at our headquarters in San Francisco. They keep current with the latest
online trends and are responsible for finding and securing relationships with a
broad network of sites that extends the reach of the Betawave
Network.
Market
Our
market consists of publishers that operate websites with large, deeply engaged
audiences and advertisers interested in reaching consumers online within our
target demographics. Publisher websites provide a platform for brands to engage
consumers through effective and targeted advertising initiatives. Our
advertisers provide us with revenue by paying us to promote their brands,
products and services on the websites in the Betawave Network.
Despite
the economic downturn, eMarketer still forecasts online ad spending will
increase in 2009 to $25.7 billion up from an estimated $23.6 billion in 2008,
ultimately reaching $42 billion by 2013. The research firm gives several reasons
for the resiliency of Internet advertising spending in the context of the
overall macroeconomic decline in the economy. These are: measurability with a
better understanding of the audience, more effective ad placements resulting in
increased prices, easier purchases for advertisers and their agencies through
networks and exchanges, better targeting, wooing audiences through video
advertising and reaching that vital audience by following eyeballs. eMarketer
also projects that Internet ad spend growth will surpass all other major media.
Search-based advertising still leads in ad spending but the greatest growth will
come from rich media and video ads, both categories in which Betawave is an
active participant.
The
growth of online video consumption further underscores the trend of people
consuming media online at the expense of other sources. According to comScore
Media Metrix, in November 2008, 146 million people (77% of the U.S. Internet
audience) viewed online video, watching 34% more videos than they did in
2008. The increase in online video consumption has lead to the
creation of new vernacular, for example, “Video snacking,” a term now used to
describe how consumers are creating viewing habits around repeated, quick
consumption of online video, causing significant spikes in online video watching
right at lunchtime. As MediaPost puts it, there are “more people, watching more
videos, more often.”
We
believe that advertisers must reach consumers online as this is where they
increasingly spend time relative to other media. The advertiser’s
ability to effectively reach these consumers, however, is being impacted by
several trends taking place on the Internet. Consumer behavior online
is changing through an accelerated progression towards “deportalization.”
Deportalization describes the phenomenon where Internet traffic moves from large
portals to smaller, niche sites. The drivers of this trend are search
and increased user confidence with regard to the medium. We expect
that, in the next several years, the large sites will continue to lose traffic
to smaller sites.
This
fragmentation makes it difficult for marketers to reach their targeted
demographics at scale. As a result, they are turning to advertising
networks to help them bridge the gap. A survey done at the iMedia Brand Summit
showed that brand agency executives think that ad networks will be the second
most important channel for their advertising dollars in 2009. Most ad networks,
however, are geared towards direct response advertisers (“e-tailers”) and
specialize in driving consumers towards an immediate response (i.e. purchase
online). These ad networks have become fairly commoditized and provide little in
the way of the quality, transparent and integrated experiences that brand
advertisers seek. That realm has typically belonged to the same portals and
large publishers which are now quickly losing market share to small and medium
sized sites which have, until now, relied on general ad networks to sell their
advertising .
Betawave
believes there is a better way to approach this opportunity, bringing together
the best of both worlds - diversity, scale and the targeting of a network with
the integration, editorial quality and customization of large publishers.
Betawave seeks to bridge the gap by uniting mid-size sites, offering rich
content experiences, and introducing standard and immersive ad formats uniformly
across our portfolio. The focus on immersive experiences is central to the
concept of Attention-Based Media. Our offering is built around products that
leverage the consumer activities in which our publisher sites specialize.
Betawave works closely with the publishers to understand audience expectations
of the site experience and to ensure that the delivery of the intersection
between audience needs and brand needs, the “Attention Opportunity” is
systematically sought and delivered for every marketing campaign. Betawave does
not operate portfolio sites. Thus, we retain flexibility to optimize inventory
based on changing traffic patterns or brand needs.
In this
way, Betawave offers the rich, impactful, scalable experiences and
objective-based solutions that have typically been the expertise of the Portals
while mitigating the negative impact of deportalization suffered by competitors
entrenched by owned and operated properties. We believe that buying advertising
through Betawave provides marketers the ability to reach their intended audience
while achieving scale and without sacrificing deep engagement. In addition,
marketers can supplement campaigns anchored on other sites and extend their
reach against key demographics due to a large percentage of unduplicated
audience with top competitors also serving these demographics. As an example,
for a youth target, comScore Media Metrix reported that, in January 2009, 43% of
Betawave users did not visit the other top three youth sites.
Betawave
breaks down its advertising opportunities into demographic categories, which is
how brand advertisers tend to buy media. At inception, Betawave served the 6-17
year old demographic. We later expanded to the “moms” demographic as there is a
high concentration of women visiting the same websites their children use either
through co-play or on their own time. Betawave will expand beyond just youth and
moms as there are opportunities for us to reach new demographics through
attention-based executions. We already reach 7.1 million 18-34 year olds, who
spend 44 minutes per month on the sites in the Betawave
Network.
It is our
belief that brand advertisers trying to reach the youth demographic are
relatively underserved by the current online market, particularly in the area of
deep immersive advertising experiences. The youth demographic tends
to be on the cusp of the most recent online trends, including gaming, virtual
worlds and social networking. Kids and teens also represent an
important consumer segment. According to Packaged Facts, a consumer
goods market research company, teens alone have an estimated total annual
aggregate income of $80 billion, while the buying power of kids is expected to
total $21.4 billion in 2010. Combined, kids and teens influence an
estimated additional $225 billion in spending by their parents.
There are
an estimated 31.5 million 6 to 17 year old Internet users per month in the U.S
(source: comScore Media Metrix) and eMarketer estimates that 82% of US teens
ages 12 to 17 and 43.5% of children ages 3 to 11 will use the Internet on a
monthly basis in 2009. Approximately 48% of consumers between the ages of 8 and
12 spend two hours online every day, according to eMarketer, while 24% of teens
between 13 and 17 spend more than 15 hours online each week. A recent article by
AdAge titled “SOURCE” suggests that the rise of social-networking sites, online
video and applications for portable media devices will further drive up the
hours young consumers spend with these forms of media, eroding the advertising
base of television.
In
addition, there are an estimated 50 million moms in the U.S. today with spending
power estimated at $2.1 trillion. This is projected to grow to $3
trillion by 2012. According to Nielsen NetRatings, 32 million of
these women in the U.S. who have children under 18 go online, which translates
to about 64% of all moms and 40% of all women online in the U.S.
today. Although moms go online for their own enjoyment, many spend
time monitoring their child’s behavior, including as much as 47% of women with
children ages 12-17 who use social networking sites, according to a study by
Razorfish and CafeMom. MediaPost also noted a significant trend in how women are
using video compared to last year, noting that women watched 41% more online
videos than they did last year, with average videos per month up 33% to 79
videos and average minutes watching online video up 46% to 227
minutes. The average video length for women is 2.9 minutes, vs. 3.4
for men. Moms control 85% of household spending and upwards of
two-thirds of online moms research products online.
For
publishers, Betawave is designed to provide a scalable offering, expertise in
high impact, cross-network takeovers and sponsorships and immersive experiences,
and established relationships with brand marketers and their agencies.
Specifically, mid-size publishers benefit from the reach of other partners
increasing the value of their own site through the combined scale while still
being able to execute upon the immersive experiences that define their offering.
This results in increased mindshare from marketers. Generally, the publishers in
the Betawave Network would not have access to the type and quality of
advertising that they receive as a result of their inclusion in the Betawave
Network.
Competition
We
compete against well-capitalized advertising companies as well as smaller
companies. The market for our services is highly competitive.
Advertisers
have several options for how to reach consumers online. Advertisers
must first select between the various mediums, including television, radio,
direct mail, print media and the Internet, as well as others. In the
online advertising market, we compete for advertising dollars with all websites
catering to our target demographics, including portals, large independent sites,
and websites belonging to other advertising networks.
Historically,
the portals have been a primary vehicle for big brands to reach big audiences
online. Though once experts in audience and customer-centric
solutions, the portals have largely devolved into utility environments that
offer reach at the expense of attention and engagement, in part due to the trend
of “Deportalization” described above. Betawave offers an alternative
for brand advertisers who are seeking both scale and attention with increasing
efficiency and accountability.
Betawave
has several attributes which we believe allow us to compete aggressively for
online advertising dollars. With over 25 million unique users in the
United States, the average U.S. user on the Betawave Network of sites spends 48
minutes per month according to comScore MediaMetrix, with tweens (9-14) and teen
girls spending well over 60 minutes per month and teen boys just under that
number. The average of 1 minute per page across publishers in the
Betawave Network is 41% higher than the Internet average and is 66% higher than
the minutes per page average at teen sites and is two times as high as the
minutes per page average at social networking sites.
Publishers
have several options to monetize the traffic on their websites. They
can build a direct sales organization to sell the advertising space on their
website directly. However, the high cost to build, train and operate such an
organization is significant and cost prohibitive for many but the largest
websites. In addition, it requires substantial traffic to achieve
advertiser mindshare.
Publishers
can also partner with a third party advertising network to sell their
advertising. There are several ways to categorize advertising
networks, but they can generally be divided into several categories based on how
they target consumers. The first is performance-based networks, such
as Google (AdSense), Valueclick and Advertising.com, which try to use a variety
of optimization tools to increase the value of a publisher’s ad
inventory. However, in general, these companies cater to the direct
response model and tend to deliver low CPMs and advertisers with low relevance
to the sites themselves. Behavioral-targeting networks, such as
Tacoda and Revenue Science use a consumer’s past web-surfing habits to target
them with relevant ads. Contextual networks try to match an ad's
subject to that of the page on which it appears. Video and widget
networks sell in videos and widgets.
Finally,
publishers can choose to use full-service advertising representation networks
that provide a more robust solution when selling advertising. Some
companies, such as Gorilla Nation, incorporate a wide variety of sites into
their network. Others, such as Glam Media, aggregate inventory in a
specific vertical and sell advertising to those trying to reach that
audience. These companies are able to offer more relevant advertising
to the publishers in their network while delivering better content alignment for
brands. Few, if any, offer the depth of products offered by Betawave , and none
offer the same combination of scale, transparency and custom advertising
opportunities that websites on the Betawave Network offer.
We
believe our company is attractive to publishers in our targeted demographics
because of our ability to attract relevant, high quality advertisers at higher
CPMs than can otherwise be obtained. We have expertise in defining
innovative ad products and strategy, and we provide related platforms such as
Betawave TV. We also believe that we are uniquely positioned with our focus and
experience with attention-based media. Betawave is the only online
media company targeted to youth and moms that offers this level of transparency
and integration on its partner sites.
Intellectual
Property and Other Proprietary Rights
We
currently rely on a combination of copyright, trademark and trade secret laws
and restrictions on disclosure to protect our intellectual property
rights. We also enter into proprietary information and
confidentiality agreements with our employees, consultants and commercial
partners and generally control access to and distribution of our confidential
and proprietary information. We rely on the technology of third
parties to assist us with several aspects of our business. When doing
so, we obtain appropriate licenses which allow us to use that
technology. We have registered the trademark “GOFISH” in the United
States. We have applied for registration of the service marks
“BETAWAVE” and “ATTENTION-BASED MEDIA” in the United States. These
applications are currently pending.
Government
Regulation
We are
subject to a number of foreign and domestic laws and regulations that affect
companies conducting business on the Internet. Laws applicable to e-commerce,
online privacy and the Internet generally are becoming more prevalent and it is
possible that new laws and regulations may be adopted regarding the Internet or
other online services in the United States and foreign countries. Such new laws
and regulations may address user privacy, advertising, freedom of expression,
pricing, content and quality of products and services, taxation, intellectual
property rights and information security. The nature of such legislation and the
manner in which it may be interpreted and enforced cannot be fully determined at
this time. Such legislation could subject us and/or our customers to potential
liability or restrict our present business practices, which, in turn, could have
an adverse effect on our business, results of operations and financial
condition. In addition, the FTC has investigated the privacy practices of
several companies that collect information about individuals on the Internet.
The adoption of any such laws or regulations might also decrease the rate of
growth of Internet use generally, which, in turn, could decrease the demand for
our service or increase our cost of doing business or in some other manner have
a material adverse effect on our business, results of operations and financial
condition.
The Children’s Online Privacy
Protection Act (“COPPA”) imposes civil penalties on persons collecting personal
information from children under the age of 13. We do not knowingly
collect personal information from children under the age of 13. We
work with our publishers to ensure that they are compliant with COPPA and we
currently require all new publishers to protect us from any violation of
applicable laws on their website.
Employees
As of
April 7, 2009, we had
52 full-time employees
and two
part-time
employees. None of our employees is represented by a labor union, and we
consider our employee relations to be good. We believe that our future success
will depend in part on our continued ability to attract, hire and retain
qualified personnel.
Seasonality
Both
seasonal fluctuations in Internet usage and traditional retail seasonality have
affected, and are likely to continue to affect, our
business. Advertisers generally place fewer advertisements during the
first and third calendar quarters of each year, which directly affects our
business. Further, Internet user traffic typically drops during the
summer months, which reduces the amount of online advertising. Online
advertising has, in the past, peaked during the fourth quarter holiday
season. Advertising expenditures tend to vary in cycles that reflect
overall economic conditions as well as budgeting and buying
patterns. Our revenue has been, and may continue to be, affected by
these fluctuations. Our revenue has been, and will continue to be,
materially affected by the recent decline in the economic prospects of our
customers and the economy and our industry in general, which has had the effect
of altering our current and prospective customers’ spending priorities and
budget cycles and extending our sales cycle.
Description
of Property
Our
executive offices are located at 706 Mission Street, 10
th
Floor,
San Francisco, California 94103, and our telephone number is (415) 738-8706. Our
executive offices in San Francisco consist of approximately 10,000 square feet,
and we currently lease the facilities for $17,968 per month under a lease
expiring in April 2010. Our monthly rental payment will increase to $20,010
beginning in April 2009. Our New York office is located at 34 West 22nd Street,
5th. Floor, New York, New York. The New York office consists of approximately
2,300 square feet, and we currently lease it for $8,625 per month under a lease
expiring in October 2011. We have an office in Los Angeles at 4571 Wilshire
Blvd. 3rd. Floor, Los Angeles, California. The office is approximately 1,500
square feet plus common areas, and we lease it for approximately $2,900 per
month on a month-to-month basis. We also have an office in Chicago at 221 North
LaSalle Street. The office is approximately 871 square feet and we currently
lease the facilities for $1,350 per month under a lease expiring in February
2010.
Legal
Proceedings
From time
to time we may be named in claims arising in the ordinary course of business.
Currently, no legal proceedings, government actions, administrative actions,
investigations or claims are pending against us or involve us that, in the
opinion of our management, would reasonably be expected to have a material
adverse effect on our business and financial condition.
In
December 2008, Sunrise brought an action against us in the United States
District Court in the Southern District of New York on behalf of itself and all
other purchasers of our securities in our 2006 private placement. In the
complaint, Sunrise alleged, among other things, that we breached the
representation in the subscription agreement for the 2006 private placement
which provided that no purchaser in the private placement had an agreement or
understanding on terms that differed substantially from those of any other
investor. Sunrise claimed that we breached this representation because Mr.
Zehil’s entities received certificates without any restrictive legend while all
other investors in the private placement received certificates with such
restrictive legends. The complaint was dismissed without prejudice in
February 2009. Although it is possible that Sunrise may refile the lawsuit
in state or federal court, in the opinion of our management, we do not
reasonably expect this case to have a material adverse effect on our business
and financial condition.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Set forth
below is certain information regarding our directors, executive officers and key
personnel.
Name
|
|
Age
|
|
Position
|
Matt
Freeman
|
|
39
|
|
Chief
Executive Officer and Director
|
James
Moloshok
|
|
59
|
|
Executive
Chairman and Director
|
Tabreez
Verjee
|
|
33
|
|
President
and Director
|
Lennox
L. Vernon
|
|
62
|
|
Chief
Accounting Officer and Director of Operations
|
John
Durham
|
|
57
|
|
Director
|
Michael
Jung
|
|
39
|
|
Director
|
Richard
Ling
|
|
48
|
|
Director
|
Mark
Menell
|
|
44
|
|
Director
|
Riaz
Valani
|
|
32
|
|
Director
|
Our
directors and officers hold office until the earlier of their death,
resignation, or removal or until their successors have been duly elected and
qualified. There are no family relationships among our directors and executive
officers. Our above-listed officers and directors have neither been convicted in
any criminal proceeding during the past five years nor parties to any judicial
or administrative proceeding during the past five years that resulted in a
judgment, decree or final order enjoining them from future violations of, or
prohibiting activities subject to, federal or state securities laws or a finding
of any violation of federal of state securities laws or commodities laws.
Similarly, no bankruptcy petitions have been filed by or against any business or
property of any of our directors or officers, nor has bankruptcy petition been
filed against a partnership or business association in which these persons were
general partners or executive officers.
Matt Freeman, Chief Executive Officer
and Director
Matt
Freeman is the former founder and Chief Executive Officer of Tribal DDB
Worldwide, an interactive agency that is a part of Omnicom Group’s DDB
Worldwide. Prior to joining the Company and since 1998, Mr. Freeman served as
chief executive officer of Tribal DDB Worldwide, where he helped grow the
company from $5 million in annual revenue to over 1,500 employees and $250
million in annual revenue while building a global network of 45 offices spanning
28 countries. Prior to that, from 1997 to 1998, he served as executive creative
director for Modem Media/Poppe Tyson, where he helped with the merger
integration between Modem Media and Poppe Tyson (since then acquired by Digitas,
Inc.; now a Division of Publicis Group). Previously, from 1995 to 1997, he was
partner and executive creative director for Poppe Tyson (formerly a division of
True North, now Interpublic Group), where he helped shape and scale one of the
industry’s first and largest interactive agencies. In January 2006, AdWeek named
Tribal DDB Worldwide its Interactive Agency of the Year and in January 2008
Adverting Age awarded it Global Agency Network of the Year. Both publications
cited Freeman’s leadership as a critical factor in Tribal’s enduring success.
Mr. Freeman, a graduate of Dartmouth College and the NY School of Visual Arts,
has been inducted into the American Advertising Federation Hall of Achievement;
is the Founder of the Interactive Agency Board of the IAB, is an active Board
member of the Advertising Club and the American Association of Advertising
Agencies (4As) and is a member of the Marketing Advisory Board of the Modern
Museum of Art (MOMA).
James Moloshok, Executive Chairman
and Director
James
Moloshok joined us as our Executive Chairman and a director on December 18,
2007. Prior to joining us, from 2005 to 2007, Mr. Moloshok was President of
Digital Initiatives for HBO Network, where Mr. Moloshok was responsible for
exploring new opportunities for the company, focusing on innovative content and
fast-changing technology. Prior to that, from 2001 to 2005, Mr. Moloshok served
in various positions with Yahoo! Inc., serving most recently as Senior Vice
President, Entertainment and Content Relationships, during which he helped build
partnerships with movie studios, TV networks and producers. Prior to that, Mr.
Moloshok was a co-founder of Windsor Digital, an entertainment and investment
company. From 1999 to 2000, Mr. Moloshok served as president of Warner Bros.
Online and president and CEO of Entertaindom.com, an original entertainment
destination for Time Warner. From 1989 to 1999, Mr. Moloshok served as Senior
Vice President of Marketing at Warner Bros. and previously held the same
position at Lorimar Telepictures, a television distribution company, which was
formed when Lorimar merged with Telepictures in 1986 where he was also
responsible for marketing to consumers, broadcasters and advertisers. Mr.
Moloshok also serves on the board of directors of SpectrumDNA,
Inc.
Tabreez Verjee, President and
Director
Tabreez
Verjee has served as Betawave’s President since February 26, 2007 and has served
as a director since October 27, 2006. Mr. Verjee is currently a General Partner
at Global Asset Capital, LLC, which directed more than $500 million in committed
assets from leading global institutional investors across two venture capital
funds and over 40 portfolio companies in the United States and Europe. Prior to
that, Mr. Verjee co-headed IMDI/Sonique and successfully negotiated its sale to
Lycos. Sonique was one of the most popular consumer Internet music applications
with approximately four million unique users and status as the fifth most
downloaded application on the Internet in 1999. Mr. Verjee also brings media
finance expertise to Betawave from his prior role as managing director of Global
Entertainment Capital, which was a pioneer in media asset securitizations with
$150 million in committed capital. Mr. Verjee began his career as a strategy
consultant at Bain & Company. Mr. Verjee received his bachelor of science in
Engineering with honors at the University of California at Berkeley. He is
currently on the board of directors of kiva.org and is a charter member of
TiE.
Lennox L. Vernon, Chief Accounting
Officer & Director of Operations
Lennox
Vernon joined Betawave as its Chief Accounting Officer and Director of
Operations on October 30, 2006. Mr. Vernon brings over 25 years of successful
financial and operations experience to Betawave. Prior to joining Betawave and
since 2004, Mr. Vernon was Controller of Moderati Inc., a provider of
high-impact mobile content to consumers and wireless carriers. Previously, from
2003 to 2004, Mr. Vernon was the Controller of Optiva Inc. and from 2002 to
2003, he was the Controller of PaymentOne Corporation. From 2000 through 2002,
Mr. Vernon was a financial consultant whereby he managed financial accounting
and economic projects, and completed year end reports, annual reports and proxy
statements. Mr. Vernon has also worked for many years at various software
companies including Fair Isaac, as Acting CFO, at Macromedia, a developer of
software tools for web publishing, multimedia and graphics, as Vice President
Controller and at Pixar, a high-tech graphics and animation studio, as Corporate
Controller. Mr. Vernon graduated from San Jose State University with a Bachelor
of Science, and is a certified public accountant in the State of
California.
John Durham,
Director
John
Durham joined our board of directors on November 1, 2007. Mr. Durham is
currently CEO and Managing Partner at Catalyst, which specializes in connecting
emerging technology companies, publishers and brand marketers facilitating the
integration of paid media, non-paid media and emerging media. Mr. Durham was
previously President of Sales & Marketing for Jumpstart Automotive Media
since August 2006 and on the board of directors of Jumpstart Automotive Media
since 2004. From 2004 to 2006, Mr. Durham had served as the Executive Vice
President, Business Strategy at Carat Fusion. Prior to that, he was a founder of
Pericles Communication. Before the launch of Pericles Communication, Mr. Durham
had served as Chief Operating Officer of Interep Interactive. Prior to that, he
was with Winstar Interactive/Interep Interactive, which he joined in March 1998
as Vice President of Advertising Sales. Mr. Durham has been teaching advertising
and marketing classes since 1992 and currently teaches advertising in the MBA
program at the University of San Francisco. He also founded and is the president
of the Bay Area Interactive Group, an Internet industry networking group. Mr.
Durham also serves on the board of directors of ZVUE Corporation.
Michael Jung,
Director
Michael
Jung joined our board of directors on December 3, 2008. Mr. Jung
is a partner at Panorama Capital. Mr. Jung was part of the founding
team at Panorama Capital in late 2005 and became a partner in November
2008. Panorama is the successor to the venture capital program of
JPMorgan Partners, which Mr. Jung joined in 2003. Prior to working in
venture capital, he was vice president of corporate strategy and development at
the Exigen Group, an enterprise software and services company where he managed
the company’s day-to-day business development activities. He also
served as vice president of strategic corporate development at Ask Jeeves,
leading the company’s mergers and acquisitions and strategic partnership
efforts. Early in his career, Mr. Jung advised a variety of high
technology companies both as an investment banker with BancBoston Robertson
Stephens and as an attorney with Gunderson Dettmer. He holds a JD and
an MBA from the University of Michigan and bachelor’s degree in political
economy of industrial societies from the University of California,
Berkeley.
Richard Ling,
Director
Richard
Ling joined our board of directors on December 12, 2008. Mr.
Ling founded Rembrandt Venture Partners in 2004. Prior to co-founding
Rembrandt, Mr. Ling was the founding CEO and Chairman of MetaLINCs Inc., an
e-mail search and analytics company acquired by Seagate in
2007. Prior to MetaLINCs Mr. Ling was the co-founder, President and
CEO of AlterEgo Networks Inc., a wireless infrastructure company, acquired by
Macromedia Inc. in March 2002. Before AlterEgo, Mr. Ling led the
e-Commerce product organization at Inktomi, where he was responsible for
overseeing all areas of the group’s engineering and operations, including site
and network operations and product development. Mr. Ling was a
co-founder, VP of Products and Engineering, and acting CTO at Impulse Buy
Networks Inc., leading the development, operations and product management
groups. Impulse Buy Networks was acquired by Inktomi in
1998.
Mark Menell,
Director
Mark
Menell joined our board of directors on December 12, 2008. Mr.
Menell has been a partner at Rustic Canyon since January 2000. From
August 1990 to January 2000, Mr. Menell was an investment banker at Morgan
Stanley & Co. Incorporated, including as principal and co-head of Morgan
Stanley’s Technology Mergers and Acquisitions Group, in Menlo Park,
CA. Mr. Menell is a member of the board of directors of GSI Commerce,
Inc. (NASDAQGS: GSIC).
Riaz Valani,
Director
Riaz
Valani joined our board of directors on October 27, 2006. Mr. Valani is
currently a General Partner at Global Asset Capital, LLC, where he has worked
since 1997. He previously served as Chairman of Viventures Partners SA and
President of IMDI/Sonique. Mr. Valani was a Managing Director of Global
Entertainment Capital and was with Gruntal & Co. focused on private equity
and asset securitizations. Mr. Valani was one of the two investment bankers that
engineered the acclaimed “David Bowie Bonds” which was awarded Euromoney’s Deal
of the Year in 1997. Mr. Valani also privatized Quorum Growth Capital, one of
Canada’s leading publicly traded venture capital firms in a successful
management led buyout. Cumulatively he has several billion dollars of
transactional expertise across structured finance, real estate, and private
equity. He has overseen portfolios of over fifty venture investments in
technology, media, and telecom companies, and real estate investments in over
twenty office and hospitality properties. He currently serves as a director of
Maritz Properties, Inc., Avex Funding Corporation and is a Charter Member of
TiE.
Board of Directors and Corporate
Governance
Our board
of directors consists of eight members: Matt Freeman, James Moloshok, Tabreez
Verjee, John Durham, Michael Jung, Richard Ling, Mark Menell and Riaz
Valani. Mr. Jung, Mr. Ling and Mr. Menell were appointed to our board of
directors pursuant to the terms of the investors’ rights agreement that we
entered into in connection with the December 2008 preferred stock
financing. Mr. Jung was appointed by Panorama Capital, L.P., Mr. Ling
was appointed by Rembrandt Venture Partners Fund Two, L.P. and Rembrandt Venture
Partners Fund Two-A, L.P. and Mr. Menell was appointed by Rustic Canyon Ventures
III, L.P. See “Investors’ Rights Agreement” below.
Board Committees
The board
of directors has established a compensation committee, which sets the
compensation for officers of the Company, reviews management organization and
development, reviews significant employee benefit programs and establishes and
administers executive compensation programs. The compensation committee
currently consists of Mr. Jung, Mr. Menell and Mr. Durham. The board of
directors has also established an audit committee, which oversees the Company’s
accounting and financial reporting processes and the audit of the Company’s
financial statements. The audit committee currently consists of Mr. Menell and
Mr. Durham.
We have
not formally designated a nominating committee.
Our board
of directors intends to appoint such persons and form such committees as may be
required to meet the corporate governance requirements imposed by Sarbanes-Oxley
Act of 2002. Therefore, we intend that a majority of our directors will
eventually be independent directors and at least one director will qualify as an
“audit committee financial expert” within the meaning of Item 407(d)(5) of
Regulation S-B, as promulgated by the SEC. Additionally, our board of directors
is expected to appoint a nominating committee and to adopt a charter relative to
such committee. Until further determination by our board of directors, the full
board of directors will undertake the duties of the nominating committee. We do
not currently have an “audit committee financial expert.”
Investors’
Rights Agreement
In
connection with the December 2008 preferred stock financing, we entered into an
investors’ rights agreement with the Lead Investors. The investors’
rights agreement includes the following provisions relating to the composition
of our board of directors and our board committees:
|
·
|
each
investor party to the investors’ rights agreement is required to take all
actions necessary within its control and to vote all of its shares to
ensure that the size of our board of directors shall be set and remain at
eight directors;
|
|
·
|
each
investor party to the investors’ rights agreement is required to take all
actions necessary within its control so as to elect the following
individuals to our board of
directors:
|
|
o
|
Four
representatives designated by holders of a majority of the outstanding
shares of common stock issuable or issued upon conversion of the Series A
preferred stock (the “Investor Directors”), (i) one of whom shall be
designated by Panorama for so long as Panorama shall own not less than
16,666,667 shares of the common stock issued or issuable upon conversion
of Series A preferred stock, (ii) one of whom shall be designated by
Rustic for so long as Rustic shall own not less than 12,500,000 shares of
the common stock issued or issuable upon conversion of Series A preferred
stock, (iii) one of whom shall be designated by Rembrandt for so long as
Rembrandt shall own not less than 8,333,333 shares of the common stock
issued or issuable upon conversion of Series A preferred stock and (iv)
one of whom shall be designated by ITD for so long as ITD shall own not
less than 3,088,240 shares of the common stock issued or issuable upon
conversion of Series A preferred
stock.
|
|
o
|
Two
representatives of Company management (the “Common Directors”), one of
whom shall be our then-current Chief Executive Officer (currently Matt
Freeman) and the other of whom shall be our then-current President
(currently Tabreez Verjee).
|
|
o
|
Two
individuals who, subject to certain exceptions, are not then one of our
officers or employees and who are not affiliated with holders of shares of
Series A preferred stock or our management, and who are designated with
the mutual agreement (in good faith) of both the Common Directors and a
majority of the Investor Directors.
|
|
o
|
each
investor party to the investors’ rights agreement is required to take all
actions necessary within its control so that for as long as Panorama owns
at least 16,666,667 shares of common stock issued or issuable upon
conversion of Series A preferred stock (i) the compensation committee of
the board shall consist of three members, at least two of which shall be
Investor Directors; and (ii) each committee of the board shall include, at
the option of Panorama, the member of the board designated by
Panorama.
|
Section 16(a) Beneficial Ownership
Reporting Compliance
We are
not subject to Section 16(a) of the Exchange Act.
Code of
Ethics
We have
adopted a Code of Ethics that applies to all of our employees and officers,
including our principal executive, financial and accounting officers, and our
directors and employees. We have posted the Code of Ethics on our Internet
website at
http://www.gofishcorp.com/roller/corp/category/investors/code%20of%20conduct. We
recently amended our Code of Ethics to reflect our name change to Betawave
Corporation. . We intend to make all required disclosures concerning any
amendments to, or waivers from, our Code of Ethics that, in each case, apply to
our principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar functions, on our
Internet website.
Material Changes to Procedures to
Nominate Directors
We did
not make any material changes to the procedures by which security holders may
recommend nominees to our board of directors.
Stockholder
Communication
Stockholders
desiring to send a communication to our board of directors, or to a specific
director, may do so by delivering a letter to the Secretary of the Company at
706 Mission Street, 10
th
Floor,
San Francisco, California 94103. The mailing envelope must contain a clear
notation indicating that the enclosed letter is a “stockholder-board
communication” or “stockholder-director communication.” All such letters must
identify the author as a stockholder and clearly state whether the intended
recipients of the letter are all members of our board of directors or certain
specified individual directors. The Secretary will circulate such letters to the
appropriate director or directors of Betawave.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED
STOCKHOLDER MATTERS
The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of April 7, 2009. The table sets forth the
beneficial ownership of each person who, to our knowledge, beneficially owns
more than 5% of the outstanding shares of common stock, each of our directors
and executive officers, and all of our directors and executive officers as a
group. The address of each director and executive officer is c/o Betawave
Corporation, 706 Mission Street, 10
th
Floor,
San Francisco, California 94103.
Beneficial Owner
|
|
Shares of
Common
Stock
Beneficially
Owned
|
|
|
Percentage of Class of
Shares Beneficially
Owned(1)
|
|
Tabreez
Verjee
|
|
|
34,419,338
|
(2)
|
|
|
59.3
|
%
|
Riaz
Valani
|
|
|
28,753,039
|
(3)
|
|
|
55.0
|
%
|
James
Moloshok
|
|
|
4,979,843
|
(4)
|
|
|
14.7
|
%
|
Matt
Freeman
|
|
|
4,930,618
|
(5)
|
|
|
14.4
|
%
|
Michael
Jung
|
|
|
70,000,000
|
(6)
|
|
|
70.5
|
%
|
Richard
Ling
|
|
|
35,000,000
|
(7)
|
|
|
54.5
|
%
|
Mark
Menell
|
|
|
52,500,000
|
(8)
|
|
|
64.2
|
%
|
John
Durham
|
|
|
292,942
|
(9)
|
|
|
1.0
|
%
|
Lennox
L. Vernon
|
|
|
175,175
|
(10)
|
|
|
0.6
|
%
|
Executive
Officers and Directors as Group (9 persons)
|
|
|
203,111,275
|
|
|
|
89.7
|
%
|
(1) Beneficial
ownership percentages are calculated based on 29,229,284 shares of common stock
issued and outstanding as of April 7, 2009. Beneficial ownership
is determined in accordance with Rule 13d-3 of the Exchange Act. The
number of shares beneficially owned by a person includes shares underlying
options, warrants or other convertible securities held by that person that are
currently exercisable (or convertible) or exercisable (or convertible) within 60
days of April 7, 2009. The shares issuable pursuant to the
exercise of those options, warrants or other convertible securities are deemed
outstanding for computing the percentage ownership of the person holding those
options, warrants or other convertible securities, but are not deemed
outstanding for the purposes of computing the percentage ownership of any other
person. The persons and entities named in the table have sole voting
and sole investment power with respect to the shares set forth opposite that
person’s name, subject to community property laws, where applicable, unless
otherwise noted in the applicable footnote.
(2)
Includes (i) 6,479,658 shares
underlying stock options exercisable within 60 days of April 7, 2009 held
by Mr. Verjee, (ii) 5,553,744 shares of common stock, 9,264,700 shares of common
stock issuable upon conversion of Series A preferred stock and 3,705,880 shares
of common stock issuable upon exercise of warrants exercisable within 60 days of
April 7, 2009 held by Internet Television Distribution LLC, of which Mr.
Verjee is a member and over which Mr. Verjee and Mr. Valani have shared voting
and investment power; and (iii) 82,032 shares of common stock, 6,666,660 shares
of common stock issuable upon conversion of Series A preferred stock and
2,666,664 shares of common stock issuable upon exercise of warrants exercisable
within 60 days of April 7, 2009 held by Technology Credit Partners LLC, of
which Mr. Verjee is a member and over which Mr. Verjee and Mr. Valani have
shared voting and investment power. Excludes 13,111,450 shares
underlying stock options not exercisable within 60 days of April 7, 2009
and held by Mr. Verjee.
(3) Includes
(i) 46,805 shares of common stock held by Mr. Valani, (ii) 766,554 shares
underlying stock options exercisable within 60 days of April 7, 2009 held
by Mr. Valani, (iii) 5,553,744 shares of common stock, 9,264,700 shares of
common stock issuable upon conversion of Series A preferred stock and 3,705,880
shares of common stock issuable upon exercise of warrants exercisable within 60
days of April 7, 2009 held by Internet Television Distribution LLC, of
which Mr. Valani is a member and over which Mr. Valani and Mr. Verjee have
shared voting and investment power; and (iv) 82,032 shares of common stock,
6,666,660 shares of common stock issuable upon conversion of Series A preferred
stock and 2,666,664 shares of common stock issuable upon exercise of warrants
exercisable within 60 days of April 7, 2009 held by Technology Credit
Partners LLC, of which Mr. Valani is a member and over which Mr. Valani and Mr.
Verjee have shared voting and investment power. Excludes 186,667
shares underlying stock options not exercisable within 60 days of April 7,
2009 and held by Mr. Valani.
(4) Includes
(i) 274,845 shares of common stock held by Mr. Moloshok, (ii) 2,440,302 shares
underlying stock options exercisable within 60 days of April 7, 2009 held
by Mr. Moloshok, (iii) 1,617,640 shares of common stock issuable upon conversion
of Series A preferred stock held by Mr. Moloshok, and (iv) 647,056 shares
issuable upon exercise of warrants exercisable within 60 days of April 7,
2009. Excludes 3,495,372 shares underlying stock options not
exercisable within 60 days of April 7, 2009 and held by Mr.
Moloshok.
(5)
Includes 4,930,618 shares underlying
stock options exercisable within 60 days of April 7, 2009 held by Mr.
Freeman. Excludes 24,650,293 shares underlying stock options not
exercisable within 60 days of April 7, 2009 held by Mr.
Freeman.
(6) Includes
50,000,000 shares of common stock issuable upon conversion of Series A preferred
stock and 20,000,000 shares of common stock issuable upon exercise of warrants
exercisable within 60 days of April 7, 2009 held by Panorama Capital,
L.P. Mike Jung serves as a Member of Panorama Capital Management,
LLC, the general partner of Panorama Capital, L.P. He shares voting
control and dispositive power over the shares but disclaims beneficial
ownership, except to the extent of his proportionate pecuniary interest
therein.
(7) Includes
25,000,000 shares of common stock issuable upon conversion of Series A preferred
stock and 10,000,000 shares of common stock issuable upon exercise of warrants
exercisable within 60 days of April 7, 2009 held by Rembrandt Venture
Partners Fund Two, L.P. and Rembrandt Venture Partners Fund Two-A,
L.P. Richard Ling serves as a Member of Rembrandt Venture Partners
Fund Two, LLC, the general partner of Rembrandt Venture Fund Two, L.P. and
Rembrandt Venture Fund Two-A, L.P. He shares voting control and
dispositive power over the shares but disclaims beneficial ownership, except to
the extent of his proportionate pecuniary interest therein.
(8) Includes
37,500,000 shares of common stock issuable upon conversion of Series A preferred
stock and 15,000,000 shares of common stock issuable upon exercise of warrants
exercisable within 60 days of April 7, 2009 held by Rustic Canyon Ventures
III, L.P. Mark Menell serves as a Member of Rustic Canyon GP III,
LLC, the general partner of Rustic Canyon Ventures III, L.P. He
shares voting control and dispositive power over the shares but disclaims
beneficial ownership, except to the extent of his proportionate pecuniary
interest therein.
(9)
Includes (i) 2,800 shares of common
stock held by Mr. Durham, (ii) 240,182 shares underlying stock options
exercisable within 60 days of April 7, 2009 held by Mr. Durham and (iii)
50,000 shares of common stock issuable upon exercise of a warrant exercisable
within 60 days of April 7, 2009 held by Catalyst SF, of which Mr. Durham is
a member and over which he has shared voting and investment power. Excludes
334,046 shares underlying stock options not exercisable within 60 days of
April 7, 2009 held by Mr. Durham.
(10)
Includes 175,175 shares underlying
stock options exercisable within 60 days of April 7, 2009 held by Mr.
Vernon. Excludes 679,639 shares underlying stock options not
exercisable within 60 days of April 7, 2009 held by Mr.
Vernon.
EXECUTIVE
COMPENSATION
The
following table summarizes all compensation recorded by us in each of the fiscal
years ended December 31, 2008 and 2007 for (i) all individuals serving as
our principal executive officer and our principal financial officer during
fiscal year ended December 31, 2008 and (ii) our two most highly
compensated executive officers other than our principal executive officer, each
of whom was serving as one of our executive officers at the end of the
fiscal year ended December 31, 2008 and whose total compensation for the
fiscal year ended December 31, 2008 exceeded $100,000. Such officers are
referred to herein as our “Named Executive Officers.”
Executive
Compensation
|
|
Annual Compensation
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Fiscal
Year
|
|
Salary
(S)
|
|
|
Bonus
(S)
|
|
|
Stock
Awards
|
|
|
Option
Awards
($)(1)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings ($)
|
|
|
All Other
Compensation
($)
|
|
|
Total ($)
|
|
Matt
Freeman (2)
|
|
2008
|
|
$
|
250,131
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3,258,678
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,508,809
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Downing (3)
|
|
2008
|
|
$
|
88,566
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
100,000
|
|
|
$
|
188,566
|
|
Former
Chief Executive Officer (Former Principal Executive
Officer)
|
|
2007
|
|
$
|
175,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
175,000
|
|
Lennox
L. Vernon
|
|
2008
|
|
$
|
160,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
72,632
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
232,632
|
|
Chief
Accounting Officer and Director of Operations
|
|
2007
|
|
|
160,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
13,117
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
173,117
|
|
James
Moloshok (4)
|
|
2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
432,023
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
240,000
|
|
|
$
|
672,023
|
|
Executive
Chairman and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tabreez
Verjee
|
|
2008
|
|
$
|
175,000
|
|
|
|
|
|
|
|
—
|
|
|
|
2,139,078
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,244,676
|
|
President
|
|
2007
|
|
$
|
148,264
|
|
|
$
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
248,264
|
|
(1) The
amounts shown in this column represent the compensation costs of stock options
for financial reporting purposes for fiscal years 2008 and 2007 under FAS
123(R), rather than an amount paid to or realized by the named executive
officer. The FAS 123(R) value as of the grant date for options is spread over
the number of months of service required for the grant to become
non-forfeitable. The FAS 123(R) value as of the grant date for options is spread
over the number of months of service required for the grant to become
non-forfeitable. Compensation costs shown in this column reflect ratable amounts
expensed for grants that were made in fiscal years 2008 and 2007. There can be
no assurance that the FAS 123(R) amounts will ever be realized.
(2) Mr.
Freeman was appointed as our Chief Executive Officer on June 4, 2008. Mr.
Freeman was not one of our Named Executive Officers for fiscal year
2007.
(3) Mr.
Downing resigned as our Chief Executive Officer on June 4, 2008. Mr. Downing
continues to provide limited consulting services to us under his independent
contractor agreement. The $100,000 appearing under "All Other Compensation" for
fiscal year 2008 reflects the amount earned by Mr. Downing during such fiscal
year under his independent contractor agreement dated as of June 4, 2008,
pursuant to which he agreed to provide limited consulting services to us for a
period of one year in exchange for a total of $120,000, payable in monthly
installments through February 1, 2009.
(4) Mr.
Moloshok was not one of our Named Executive Officers for fiscal year 2007. The
$240,000 appearing under "All Other Compensation" reflects the amount earned by
Mr. Moloshok during fiscal year 2008 under his consulting agreement dated as of
December 18, 2007
Outstanding
Equity Awards at Fiscal Year-End for Fiscal Year 2008
The following
table sets forth the stock option and stock awards of each of our Named
Executive Officers outstanding at the end of fiscal year 2008.
Outstanding
Equity Awards at Fiscal Year-End for Fiscal Year 2008
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
|
Number of Securities
Underlying
Unexercised Options
(#)
|
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
|
|
Option
Exercise
Price
|
|
Option
Expiration
|
|
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
|
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
|
|
|
Equity
Incentive
Plan
Awards:
number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
|
|
|
Equity
Inventive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
(#)
|
|
|
($)
|
|
Date
|
|
|
(#)
|
|
|
($)
|
|
|
|
(#)
|
|
|
($)
|
|
Matt
Freeman
|
|
|
416,667
|
|
|
|
2,083,333
|
(1)
|
|
|
—
|
|
|
$
|
0.23
|
|
6/5/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
416,667
|
|
|
|
2,083,333
|
(2)
|
|
|
—
|
|
|
$
|
0.80
|
|
6/5/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
21,795,024
|
(3)
|
|
|
—
|
|
|
$
|
0.20
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
999,441
|
(4)
|
|
|
—
|
|
|
$
|
0.60
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
999,441
|
(5)
|
|
|
—
|
|
|
$
|
0.80
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
999,441
|
(6)
|
|
|
—
|
|
|
$
|
1.00
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
999,441
|
(7)
|
|
|
—
|
|
|
$
|
1.20
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
999,441
|
(8)
|
|
|
—
|
|
|
$
|
1.40
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Michael
Downing
|
|
|
150,000
|
|
|
|
150,000
|
(9)
|
|
|
—
|
|
|
$
|
0.23
|
|
6/4/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
James
Moloshok
|
|
|
881,250
|
|
|
|
618,750
|
(10)
|
|
|
—
|
|
|
$
|
0.23
|
|
12/18/2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
906,323
|
|
|
|
2,718,970
|
(11)
|
|
|
—
|
|
|
$
|
0.20
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
235,641
|
(12)
|
|
|
—
|
|
|
$
|
0.60
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
235,641
|
(13)
|
|
|
—
|
|
|
$
|
0.80
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
235,641
|
(14)
|
|
|
—
|
|
|
$
|
1.00
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
235,641
|
(15)
|
|
|
—
|
|
|
$
|
1.20
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
235,641
|
(16)
|
|
|
—
|
|
|
$
|
1.40
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Tabreez
Verjee
|
|
|
1,296,296
|
|
|
|
1,203,704
|
(17)
|
|
|
—
|
|
|
$
|
0.35
|
|
2/1/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
3,364,763
|
|
|
|
10,094,289
|
(18)
|
|
|
—
|
|
|
$
|
0.20
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
999,441
|
(19)
|
|
|
—
|
|
|
$
|
0.60
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
999,441
|
(20)
|
|
|
—
|
|
|
$
|
0.80
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
999,441
|
(21)
|
|
|
—
|
|
|
$
|
1.00
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
999,441
|
(22)
|
|
|
—
|
|
|
$
|
1.20
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
999,441
|
(23)
|
|
|
—
|
|
|
$
|
1.40
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Lennox
L. Vernon
|
|
|
33,854
|
|
|
|
28,646
|
(24)
|
|
|
—
|
|
|
$
|
1.50
|
|
10/30/2016
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
31,250
|
|
|
|
43,750
|
(25)
|
|
|
—
|
|
|
$
|
0.37
|
|
10/24/2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
599,363
|
(26)
|
|
|
—
|
|
|
$
|
0.20
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
38,494
|
(27)
|
|
|
—
|
|
|
$
|
0.60
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
38,494
|
(28)
|
|
|
—
|
|
|
$
|
0.80
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
38,494
|
(29)
|
|
|
—
|
|
|
$
|
1.00
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
38,494
|
(30)
|
|
|
—
|
|
|
$
|
1.20
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
38,494
|
(31)
|
|
|
—
|
|
|
$
|
1.40
|
|
12/2/2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
(1)
|
These
stock options vest monthly from June 2008 through June
2011.
|
(2)
|
These
stock options vest monthly from June 2008 through June
2011.
|
(3)
|
These
stock options vest monthly from January 2009 through June
2012.
|
(4)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(5)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(6)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(7)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(8)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(9)
|
These
stock options vest monthly from June 2008 through June
2009.
|
(10)
|
These
stock options vest monthly from December 2007 through December
2009.
|
(11)
|
These
stock options vest monthly from January 2009 through June
2012.
|
(12)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(13)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(14)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(15)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(16)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(17)
|
These
stock options vest monthly from February 2008 through February
2011.
|
(18)
|
These
stock options vest monthly from January 2009 through June
2012.
|
(19)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(20)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(21)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(22)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(23)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(24)
|
These
stock options vest monthly from October 2006 through October
2010.
|
(25)
|
These
stock options vest monthly from October 2007 through October
2010.
|
(26)
|
These
stock options vest monthly from January 2009 through June
2012.
|
(27)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(28)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(29)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(30)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
(31)
|
These
stock options vest only upon the earlier of a liquidation event or a
firmly underwritten public offering of our common stock at a price per
share equal to or greater than $0.40 and pursuant to which all of our
common stock issuable upon conversion of the Series A preferred stock and
upon exercise of the warrants held by the investors party to the December
3, 2008 securities purchase agreement will be
sold.
|
Director
Compensation for Fiscal Year 2008
The
compensation paid by us to non-employee directors for fiscal year 2008 is set
forth in the table below:
Name
|
|
Fees Earned
or Paid in
Cash ($)
|
|
|
Stock
Awards
(1)
($)
|
|
|
Option
Awards(2)
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings ($)
|
|
|
All Other
Compensation
($)
|
|
|
Total ($)
|
|
John
Durham(2)
|
|
$
|
29,625
|
|
|
$
|
—
|
|
|
$
|
23,492
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53,117
|
|
Peter
Guber
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
257,832
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
257,832
|
|
Michael
Jung
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Richard
Ling
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Mark
Menell
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Riaz
Valani (3)
|
|
$
|
88,000
|
|
|
$
|
—
|
|
|
$
|
179,800
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
267,800
|
|
(1) The
amounts shown in this column represent the compensation costs of stock options
for financial reporting purposes for fiscal years 2008 and 2007 under FAS
123(R), rather than an amount paid to or realized by the
director. The FAS 123(R) value as of the grant date for options is
spread over the number of months of service required for the grant to become
non-forfeitable. The FAS 123(R) value as of the grant date for
options is spread over the number of months of service required for the grant to
become non-forfeitable. Compensation costs shown in the column
“Option Awards” reflect ratable amounts expensed for grants that were made in
fiscal years 2008 and 2007. There can be no assurance that the FAS
123(R) amounts will ever be realized.
(2) Represents
compensation paid to Catalyst Strategy, Inc., a corporation that is an affiliate
of Mr. Durham, pursuant to a services agreement between our company and
Catalyst.
(3) Mr.
Valani earned fees and was granted stock options pursuant to a consulting
agreement entered into with our company dated February 1, 2008.
Employment
Agreements with Our Named Executive Officers
Matt
Freeman
Mr.
Freeman entered into a new employment agreement, dated as of December 3, 2008,
which supersedes his prior employment agreement dated June 5,
2008. His employment agreement provides for a salary at the monthly
rate of $50,000, less standard payroll deductions and tax
withholdings. In addition, under the terms of the employment
agreement, in connection with the closings of our December 2008 preferred
stock financing, Mr. Freeman will receive a bonus payment of $75,000 if he
remains with the Company until the one-year anniversary of his start
date. Mr. Freeman is eligible to receive incentive compensation of up
to $150,000 per year, contingent upon attainment of performance targets to be
mutually agreed upon with the Board.
The term
of Mr. Freeman’s employment as our Chief Executive Officer is indefinite,
subject to termination by either party in accordance with the terms of the
employment agreement. We may terminate Mr. Freeman at any time, without notice,
for any reason or no reason at all. Pursuant to the terms of his employment
agreement, in the event that Mr. Freeman’s employment is terminated by us other
than for cause, death or disability, Mr. Freeman is eligible to receive, among
other things, severance payments, in the form of a salary continuation, equal to
one year’s base salary (subject to reduction to six months if Mr. Freeman finds
subsequent employment prior to the expiration of the twelve month period) and an
additional twelve months of vesting on the options granted to Mr. Freeman from
the date of termination, which, to the extent unexercised, will expire on the
earlier of three years after such termination or the expiration date as set
forth in the applicable stock option agreement. If Mr. Freeman’s employment is
terminated by death or disability, Mr. Freeman is entitled to receive an
additional twelve months of vesting on the options granted to Mr. Freeman from
the date of termination, which, to the extent unexercised, will expire upon the
earlier of three years after such termination or the expiration date set forth
in the applicable stock option agreement. In the event of a “change of control,”
50% of any unvested options granted to Mr. Freeman shall become fully vested
immediately prior to the occurrence of the change of control. In addition, if
there is a “change of control” before Mr. Freeman’s service terminates and if
Mr. Freeman’s employment is terminated without cause or resigns for good reason
within 12 months of the “change of control,” then in addition to the foregoing
vesting of any unvested options, any remaining unvested options shall vest
immediately prior to the termination of employment. Mr. Freeman shall have 36
months from such separation of employment to exercise his vested options
(provided that no such exercise period shall extend beyond the maximum term
specified in the applicable stock option agreement).
James
Moloshok
On
December 10, 2008, we entered into an employment agreement with James
Moloshok. Mr. Moloshok had previously served as a consultant to us
since December 18, 2007. Under the terms of the employment agreement,
Mr. Moloshok is required to devote an average of 30 hours per week to his work
for us for an indefinite term, subject to termination by either party in
accordance with the terms of the employment agreement. We may
terminate Mr. Moloshok at any time without notice, for any reason or no reason
at all.
The
employment agreement provides that Mr. Moloshok will be paid a base monthly
salary of $20,000, less standard payroll deductions and tax
withholdings. Under the employment agreement, Mr. Moloshok will also
be eligible to (i) receive incentive compensation of $100,000 per year,
contingent upon attainment of performance targets to be agreed to with our board
of directors and (ii) participate in an incentive compensation plan to be
established by our board of directors under which Mr. Moloshok will be eligible
to receive up to 150,000 fully vested shares of restricted stock per year,
contingent upon attainment of performance targets to be agreed to with our board
of directors. In the event Mr. Moloshok’s employment is terminated by us other
than for cause, death or disability, or if Mr. Moloshok resigns for good reason,
the employment agreement provides for a severance payment of $120,000 and an
additional six months of vesting on any options, restricted stock or restricted
stock units awarded to Mr. Moloshok. In the event of a “change of
control” before Mr. Moloshok’s service terminates, any unvested options,
restricted stock, and restricted stock unit awards granted to Mr. Moloshok will
immediately become fully vested.
Tabreez
Verjee
On
December 3, 2008, we entered into an amended and restated employment agreement
with Tabreez Verjee, which supersedes and replaces his prior employment
agreement dated February 26, 2007. Mr. Verjee’s employment agreement
provides that Mr. Verjee will devote 95% of his time to the performance of his
duties to us as President for a salary at the monthly rate of $17,500, less
standard payroll deductions and tax withholdings. Mr. Verjee will also be
eligible to receive incentive compensation of up to $100,000 per year,
contingent upon attainment of performance targets to be mutually agreed upon
with the Board.
The term
of Mr. Verjee’s employment as our President is indefinite, subject to
termination by either party in accordance with the terms of the amended and
restated employment agreement. We may terminate Mr. Verjee at any time, without
notice, for any reason or no reason at all. Pursuant to the terms of his amended
and restated employment agreement, in the event that Mr. Verjee’s employment is
terminated by us other than for cause, death or disability, Mr. Verjee is
eligible to receive, among other things, severance payments, in the form of a
salary continuation, equal to one year’s base salary (subject to reduction to
six months if Mr. Verjee finds subsequent employment prior to the expiration of
the twelve month period) and any unvested options awarded to Mr. Verjee will
fully and immediately vest, which, to the extent unexercised, will expire on the
earlier of three years after such termination or the expiration date as set
forth in the applicable stock option agreement. If Mr. Verjee’s employment is
terminated by death or disability, Mr. Verjee’s unvested options will become
fully vested which, to the extent unexercised, will expire upon the earlier of
three years after such termination or the expiration date as set forth in the
applicable stock option agreement. In the event of a “change of control,” 50% of
any unvested options granted to Mr. Verjee shall become fully vested immediately
prior to the occurrence of the change of control. In addition, if there is a
“change of control” before Mr. Verjee’s service terminates and if Mr. Verjee’s
employment is terminated without cause or resigns for good reason within 12
months of the “change of control,” then in addition to the foregoing vesting of
any unvested options, any remaining unvested options shall vest immediately
prior to the termination of employment. Mr. Verjee shall have 36 months from
such separation of employment to exercise his vested options (provided that no
such exercise period shall extend beyond the maximum term specified in the
applicable stock option agreement).
Lennox
L. Vernon
On December 10, 2008, we entered into
an amended and restated employment agreement with Lennox L. Vernon, which
supersedes and replaces his previous employment agreement dated October 30,
2006. His amended and restated employment agreement provides that Mr.
Vernon will serve as our Chief Accounting Officer and Director of Operations at
an annual base salary of $160,000, less standard payroll deductions and tax
withholdings. Mr. Vernon is also eligible to receive annual bonus
payments of up to 15% of his base salary, contingent upon meeting certain goals
determined by the CEO. Subsequently, Mr. Vernon’s annual base salary was
increased to $168,000.
The term
of Mr. Vernon’s employment as our Chief Accounting Officer and Director of
Operations is indefinite, subject to termination by either party in accordance
with the terms of the amended and restated employment agreement. We
may terminate Mr. Vernon at any time upon 30 days’ notice, for any reason or no
reason at all. Pursuant to the terms of his amended and restated employment
agreement, in the event that Mr. Vernon’s employment is terminated by us other
than for cause, death or disability, Mr. Vernon is eligible to receive, among
other things, severance payments in the form of a salary continuation equal to
three months’ base salary. Generally, if Mr. Vernon’s employment is terminated
by us for or without cause, by Mr. Vernon with or without good reason, or by
death or disability, Mr. Vernon’s unvested options will immediately
expire. If there is a “change of control” before Mr. Vernon’s service
terminates, and if Mr. Vernon’s employment is terminated without cause or if Mr.
Vernon resigns for good reason within 12 months of the “change of control,” any
unvested options granted to Mr. Vernon will immediately become fully
vested. Any unexercised vested options will expire one month after
the termination of Mr. Vernon’s employment.
Michael
Downing
On October 27, 2006, we entered into an
employment agreement with Michael Downing pursuant to which Mr. Downing served
as our President and Chief Executive Officer. Mr. Downing’s employment agreement
provided for a term of four years, subject to annual renewal thereafter, with an
annual base salary of $175,000 and a bonus subject to our achieving our target
performance levels as approved by our board of directors or the compensation
committee thereof. Pursuant to the employment agreement, on October 27, 2006 Mr.
Downing received an option grant from our 2006 equity incentive plan, to acquire
500,000 shares of our common stock at a price of $1.50 per share, which was the
fair market value of our common stock on the date of grant. One-third (1/3) of
the options vest upon the first anniversary of the date of grant. An additional
one-thirty sixth (1/36) of the options vest on the last day of each month
thereafter. Under the agreement, Mr. Downing was subject to traditional
non-competition and employee non-solicitation restrictions while he was employed
by us. Mr. Downing and his spouse and dependents were entitled to participate in
our benefit plans in substantially the same manner, including but not limited to
responsibility for the cost thereof, and at substantially the same levels as we
make such opportunities available to all of our managerial or salaried executive
employees and their dependents.
On February 26, 2007, in conjunction
with Mr. Downing’s resignation as president, we and Mr. Downing entered into an
amendment to his employment agreement. The amendment clarified that Mr. Downing
was no longer our President but continued to serve as our Chief Executive
Officer. The amendment also provided that the appointment of Tabreez Verjee as
our president did not constitute good reason for Mr. Downing to terminate his
employment with us under his employment agreement.
Mr. Downing’s employment was terminated
effective as of June 4, 2008. As a result, the above option was
canceled.
In connection with Mr. Downing’s
resignation as our Chief Executive Officer and a director, on June 4, 2008, we
and Mr. Downing entered into a Separation Agreement and Mutual Release pursuant
to which, among other things: (i) we agreed to pay Mr. Downing all accrued
salary and all accrued and unused vacation benefits earned through June 4, 2008,
subject to standard payroll deductions, withholding taxes and other obligations;
(ii) we agreed to forgive outstanding debt in the amount of $17,876.05 owed by
Mr. Downing to us; (iii) the parties agreed to cancel an outstanding stock
option previously granted to Mr. Downing to purchase 500,000 shares of our
common stock; and (iv) the parties agreed to terminate Mr. Downing’s existing
employment agreement and to release each other from any and all claims that they
may have against each other.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions
with Riaz Valani
Effective
as of February 1, 2008, we entered into another one-year consulting agreement
with Mr. Valani under which Mr. Valani is to provide us with business and
corporate development consulting services and devote an average of 20% of his
working time to provide such services. Pursuant to the terms of the consulting
agreement, on February 5, 2008, our board of directors granted to Mr. Valani,
non-qualified stock options under our 2007 non-qualified stock option plan to
purchase 440,000 shares of common stock, with an exercise price of $0.31 per
share, which was the closing price per share of our common stock on the OTC
Bulletin Board on the date of grant. Thirty-three percent of the
total amount of such options granted to Mr. Valani vested on the date of the
grant and the remainder of the options granted to Mr. Valani vest monthly at the
rate of 1/24
th
per
month, provided that Mr. Valani continues to provide services to
us. In addition, the consulting agreement provides for us to pay to
Mr. Valani a fee consisting of cash compensation of $8,000 per month, the
payment of which is deferred until (i) our board of directors elects to pay the
cash compensation in its discretion, (ii) the occurrence of a change in control,
(iii) two years after the effective date of the consulting agreement or (iv) the
date when Mr. Valani ceases to provide services to us and is no longer a member
of our board of directors. In connection with the closings
under the securities purchase agreement in December 2008, we terminated the
consulting agreement.
Transactions
with Internet Television Distribution LLC and Technology Credit Partners,
Affiliates of Tabreez Verjee and Riaz Valani
In
connection with the closings under the securities purchase agreement in December
2008, Internet Television Distribution LLC (“ITD”), which is an affiliate of Mr.
Verjee and Mr. Valani, exchanged (i) Subordinated Notes held by ITD in the
aggregate principal amount of $1,852,941 into 463,235 shares of Series A
preferred stock and related warrants to purchase 3,705,880 shares of our common
stock and (ii) warrants held by ITD to purchase 1,798,973 shares of common stock
at an exercise price of $1.75 per share into 1,574,102 shares of common
stock. ITD previously purchased the Subordinated Notes and warrants
from us in April and June 2008 for an aggregate purchase price of
$1,575,000.
In
addition, in connection with the closings under the securities purchase
agreement, Technology Credit Partners (“TCP”), which is also an affiliate of Mr.
Verjee and Mr. Valani, exchanged (i) Senior Notes held by TCP in the aggregate
principal amount of $1,000,000 into 333,333 shares of Series A preferred stock
and related warrants to purchase 2,666,664 shares of our common stock and (ii)
warrants held by TCP to purchase 93,750 shares of common stock at an exercise
price of $1.75 per share into 82,032 shares of common stock. TCP
purchased the Senior Notes and warrants from various prior holders of such
securities during 2008.
Transactions
with James Moloshok
In
connection with the closings under the securities purchase agreement in December
2008, Mr. Moloshok exchanged (i) Subordinated Notes held by Mr. Moloshok in the
aggregate principal amount of $323,529.41 into 80,882 shares of Series A
preferred stock and related warrants to purchase 647,056 shares of our common
stock and (ii) warrants held by Mr. Moloshok to purchase 314,108 shares of
common stock at an exercise price of $1.75 per share into 274,845 shares of
common stock. Mr. Moloshok previously purchased the Subordinated
Notes and warrants from us in April and June 2008 for an aggregate purchase
price of $275,000.
Transactions
with Catalyst Strategy, Inc., an affiliate of John Durham
In
connection with a services agreement between the Company and Catalyst Strategy,
Inc. (“Catalyst”), a corporation that is an affiliate of Mr. Durham, on February
28, 2008 we issued to Catalyst a warrant to purchase 50,000 shares of our common
stock for a period of five years at an exercise price of $1.75 per share. The
exercise price of the warrant has subsequently been adjusted to $0.20 per share,
pursuant to its exercise price adjustment provisions. Both the services
agreement and the terms of the warrant grant were approved by our board of
directors following disclosure of Mr. Durham’s relationship with
Catalyst.
Director
Independence
Our board
of directors uses the definition of “independent director” as set forth in
NASDAQ Marketplace Rule 4200(a)(15) in determining whether members of our board
of directors are independent. Our board of directors has
affirmatively determined that Mr. Durham, Mr. Mennell, Mr. Jung and Mr. Ling is
each an “independent director” as that term is set forth in NASDAQ Marketplace
Rule 4200(a)(15). Our board of directors did not consider any
transactions, relationships or arrangements not disclosed pursuant to this
section entitled “Certain Relationships and Related Transactions, and Director
Independence” in making its subjective determination that each of these
directors is an “independent director” as that term is set forth in NASDAQ
Marketplace Rule 4200(a)(15).
DESCRIPTION
OF SECURITIES
Authorized
Capital Stock
Our
articles of incorporation, as amended, authorize the issuance of 410,000,000
shares of capital stock, of which there are authorized 400,000,000 shares of
common stock, par value $0.001 per share, and 10,000,000 shares of “blank check”
preferred stock, par value $0.001 per share. On the close of business on October
9, 2006 we effected an 8.333334-for-1 forward stock split in the form of a stock
dividend with respect to our common stock.
Capital
Stock Issued and Outstanding
As of
April 7, 2009, we had issued and outstanding:
|
·
|
29,229,284
shares of common stock;
|
|
·
|
7,065,293
shares of Series A preferred stock;
|
|
·
|
options
to purchase 83,347,017 shares of common stock outstanding under our stock
incentive plans; and
|
|
·
|
warrants
to purchase 67,351,020 shares of common stock, of which warrants to
purchase 63,787,687 shares have an exercise price of $0.20 per share,
warrants to purchase 3,133,333 shares have an exercise price of $1.72 per
share and warrants to purchase 430,000 shares have an exercise price
of $1.75 per share.
|
The
following description of our capital stock is derived from the provisions of our
articles of incorporation and by-laws. Such description is not intended to be
complete and is qualified in its entirety by reference to the relevant
provisions of our articles of incorporation and by-laws, which have been
publicly filed or incorporated by reference as exhibits to the registration
statement of which this prospectus is a part.
Description
of Common Stock
We are
authorized to issue 400,000,000 shares of common stock, 29,229,284 shares of
which are issued and outstanding. The holders of our common stock are entitled
to one vote per share on all matters submitted to a vote of the stockholders,
including the election of directors. Generally, all matters to be voted on by
stockholders must be approved by a majority (or, in the case of election of
directors, by a plurality) of the votes entitled to be cast by all shares of our
common stock that are present in person or represented by proxy, subject to any
voting rights granted to holders of any preferred stock. Except as otherwise
provided by law, and subject to any voting rights granted to holders of any
preferred stock, amendments to our articles of incorporation generally must be
approved by a majority of the votes entitled to be cast by all outstanding
shares of common stock. The articles of incorporation do not provide for
cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of preferred stock created by our board of
directors from time to time, our common stock holders will be entitled to such
cash dividends as may be declared from time to time by our board of directors
from funds available. Subject to any preferential rights of any outstanding
series of preferred stock, upon liquidation, dissolution or winding up of us,
our common stock holders will be entitled to receive pro rata all assets
available for distribution to such holders.
Description
of Preferred Stock
We are
authorized to issue 10,000,000 shares of “blank check” preferred stock, $0.001
par value per share, 8,003,000 of which is designated as Series A preferred
stock. We currently have 7,065,293 shares of Series A preferred stock
issued and outstanding. Each share of Series A preferred stock is
convertible into 20 shares of common stock, subject to certain anti-dilution and
other adjustments as set forth in the certificate of designation of the Series A
preferred stock.
So long as 2,434,657 shares of Series A
preferred stock remain outstanding, holders of Series A preferred stock shall be
entitled to elect four directors to our board of directors. Holders
of Series A preferred stock also have voting rights and are entitled to vote, on
an as converted basis, together with the holders of common stock as a single
class with respect to any matter upon which holders of common stock have the
right to vote.
The
Series A preferred stock have a liquidation preference of $4.00 per share and
are entitled to receive dividends, prior and in preference to any declaration or
payment of any dividend on the common stock, at the rate of $0.32 per share per
annum, when and if any such dividends are declared by our board of
directors. So long as 2,434,657 shares of Series A preferred stock
remain outstanding, we are required to obtain the consent of the holders of at
least two-thirds of the outstanding shares of Series A preferred stock prior to
taking certain actions, including altering or changing the rights, preferences
or privileges of the shares of Series A preferred stock so as to affect
adversely such shares of Series A preferred stock.
Indemnification;
Limitation of Liability
Nevada
Revised Statutes (“NRS”) Sections 78.7502 and 78.751 provide us with the power
to indemnify any of our directors and officers. The director or officer must
have conducted himself/herself in good faith and reasonably believe that his/her
conduct was in, or not opposed to our best interests. In a criminal action, the
director, officer, employee or agent must not have had reasonable cause to
believe his/her conduct was unlawful.
Under NRS
Section 78.751, advances for expenses may be made by agreement if the director
or officer affirms in writing that he/she believes he/she has met the standards
and will personally repay the expenses if it is determined such officer or
director did not meet the standards.
Our
bylaws include an indemnification provision under which we have the power to
indemnify our directors and officers (including heirs and personal
representatives) against all costs, charges and expenses actually and reasonably
incurred, including an amount paid to settle an action or satisfy a judgment to
which the director or officer is made a party by reason of being or having been
a director or officer of ours or any of our subsidiaries.
Our
bylaws also provide that our directors may cause us to purchase and maintain
insurance for the benefit of a person who is or was serving as a director,
officer, employee or agent of ours or any of our subsidiaries (including heirs
and personal representatives) against a liability incurred by him/her as a
director, officer, employee or agent.
Our
indemnification agreements with certain of our executive officers and directors
contain provisions which require us to indemnify them for costs, charges and
expenses incurred in connection with their service as such. We are required to
provide such indemnification if (i) the executive officer acted honestly and in
good faith with a view to our best interests, and (ii) in the case of a criminal
action or proceeding, the executive officer had reasonable grounds for believing
that his conduct was lawful.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted for our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have 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.
LEGAL
MATTERS
The
validity of the common stock being offered hereby has been passed upon by
McDonald Carano Wilson, LLP, Reno, Nevada.
EXPERTS
Rowbotham
& Company LLP, an independent registered public accounting firm, have
audited our financial statements for the years ended December 31, 2008 and 2007,
as stated in their report appearing herein, and have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We file
annual reports, quarterly reports, current reports, proxy statements and other
information with the SEC. You may read or obtain a copy of these reports at the
SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C.
20549. You may obtain information on the operation of the public reference room
and its copy charges by calling the SEC at 1-800-SEC-0330. The SEC maintains a
website that contains registration statements, reports, proxy information
statements and other information regarding registrants that file electronically
with the SEC. The address of the website is
http://www.sec.gov
.
We have
filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock
being offered by this prospectus. This prospectus is part of that
registration statement. This prospectus does not contain all of the information
set forth in the registration statement or the exhibits to the registration
statement. For further information with respect to us and the shares we are
offering pursuant to this prospectus, you should refer to the registration
statement and its exhibits. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and you should refer to the copy of that contract or other
documents filed as an exhibit to the registration statement. You may read or
obtain a copy of the registration statement at the SEC’s public reference room
and website referred to above.
BETAWAVE
CORPORATION
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Audited
Financial Statements
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
|
|
F-3
|
|
Consolidated
Statements of Operations for the Years Ended December 31, 2008 and
2007
|
|
|
F-4
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the Years Ended December
31, 2008 and 2007
|
|
|
F-5
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008 and
2007
|
|
|
F-6
|
|
Notes
to the Consolidated Financial Statements
|
|
|
F-7
|
|
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders of
Betawave
Corporation
We have
audited the accompanying consolidated balance sheets of Betawave Corporation and
subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders’ equity (deficit), and cash
flows for the years then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis of designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial positions of the Company as of December
31, 2008 and 2007, and the results of their operations and their cash flows for
the years then ended, in conformity with United States generally accepted
accounting principles.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1
to the consolidated financial statements, the Company has incurred net loss
since its inception, has experienced liquidity problems, negative cash flows
from operations, and a working capital deficit at December 31, 2008, that raise
substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regards to these matters are described
in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
Rowbotham & Company LLP
San
Francisco, California
March 30,
2009
Betawave
Corporation
Consolidated
Balance Sheets
As
of December 31, 2008 and 2007
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
11,863,121
|
|
|
$
|
1,108,834
|
|
Trade
accounts receivable, net of allowance for doubtful accounts of none and
$17,216 at December 31, 2008 and 2007, respectively
|
|
|
3,108,136
|
|
|
|
1,604,209
|
|
Prepaid
expenses
|
|
|
961,829
|
|
|
|
503,792
|
|
Total
current assets
|
|
|
15,933,086
|
|
|
|
3,216,835
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
236,448
|
|
|
|
457,317
|
|
Convertible
note fees, net amortization of none and $273,714 at December 31, 2008 and
2007, respectively
|
|
|
—
|
|
|
|
1,189,486
|
|
Deposits
|
|
|
113,029
|
|
|
|
117,979
|
|
Total
assets
|
|
$
|
16,282,563
|
|
|
$
|
4,981,617
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
4,085,886
|
|
|
$
|
1,398,262
|
|
Accrued
liabilities
|
|
|
1,601,840
|
|
|
|
714,693
|
|
Deferred
revenue
|
|
|
109,243
|
|
|
|
—
|
|
Total
current liabilities
|
|
|
5,796,969
|
|
|
|
2,112,955
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes, net discount of none and $4,039,718 at December 31, 2008 and 2007,
respectively
|
|
|
—
|
|
|
|
6,260,282
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred Stock: $0.001 par value; 10,000,000 shares authorized;
7,065,293 and zero
shares issued and outstanding at December 31, 2008
and 2007, respectively (liquidation value of $28,261,172 and zero at
December 31, 2008 and 2007, respectively)
|
|
|
7,065
|
|
|
|
—
|
|
Common Stock: $0.001 par value; 400,000,000 shares authorized;
29,229,284 and 25,169,739
shares issued and outstanding at December 31, 2008
and 2007, respectively
|
|
|
29,230
|
|
|
|
25,171
|
|
Notes
receivable from stockholders
|
|
|
(18,910
|
)
|
|
|
(18,910
|
)
|
Additional
paid-in capital
|
|
|
51,563,483
|
|
|
|
20,727,408
|
|
Accumulated
deficit
|
|
|
(41,095,274
|
)
|
|
|
(24,125,289
|
)
|
Total
stockholders’ equity (deficit)
|
|
|
10,485,594
|
|
|
|
(3,391,620
|
)
|
Total
liabilities and stockholders’ equity (deficit)
|
|
$
|
16,282,563
|
|
|
$
|
4,981,617
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Betawave
Corporation
Consolidated
Statements of Operations
For
the Years Ended December 31, 2008 and 2007
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
$
|
7,701,599
|
|
|
$
|
2,081,182
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues and expenses:
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
6,551,870
|
|
|
|
2,437,047
|
|
Sales
and marketing
|
|
|
6,480,550
|
|
|
|
6,174,158
|
|
Product
development
|
|
|
713,964
|
|
|
|
2,261,481
|
|
General
and administrative
|
|
|
6,024,801
|
|
|
|
5,186,981
|
|
Loss
on debt extinguishment
|
|
|
2,736,832
|
|
|
|
—
|
|
Acquisition
costs
|
|
|
—
|
|
|
|
1,270,348
|
|
Total
costs of revenues and expenses
|
|
|
22,508,017
|
|
|
|
17,330,015
|
|
Operating
loss
|
|
|
(14,806,418
|
)
|
|
|
(15,248,833
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
23,238
|
|
|
|
147,007
|
|
Miscellaneous
income
|
|
|
278,740
|
|
|
|
536
|
|
Interest
expense
|
|
|
(2,465,545
|
)
|
|
|
(1,276,568
|
)
|
Total
other income (expense)
|
|
|
(2,163,567
|
)
|
|
|
(1,129,025
|
)
|
Net
loss before provision for income taxes
|
|
|
(16,969,985
|
)
|
|
|
(16,377,858
|
)
|
Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
$
|
(16,969,985
|
)
|
|
$
|
(16,377,858
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.66
|
)
|
|
$
|
(0.68
|
)
|
|
|
|
|
|
|
|
|
|
Shares
used to compute net loss per share - basic and diluted
|
|
|
25,707,208
|
|
|
|
24,024,966
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Betawave
Corporation
Consolidated
Statements of Stockholders’ Equity (Deficit)
For
the Years Ended December 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
From
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Stockholders
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balances
at January 1, 2007
|
|
|
—
|
|
|
$
|
—
|
|
|
|
23,099,230
|
|
|
$
|
23,100
|
|
|
$
|
(18,910
|
)
|
|
$
|
12,288,298
|
|
|
$
|
(7,747,431
|
)
|
|
$
|
4,545,057
|
|
Issuance
of Common Stock in January for cash upon exercise of
warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
1,749,000
|
|
|
|
—
|
|
|
|
1,750,000
|
|
Issuance
of Common Stock in January for cash upon exercise of
options
|
|
|
—
|
|
|
|
—
|
|
|
|
25,879
|
|
|
|
25
|
|
|
|
—
|
|
|
|
1,475
|
|
|
|
—
|
|
|
|
1,500
|
|
Issuance
of Common Stock in April for cash upon exercise of options
|
|
|
—
|
|
|
|
—
|
|
|
|
5,167
|
|
|
|
6
|
|
|
|
—
|
|
|
|
7,772
|
|
|
|
—
|
|
|
|
7,778
|
|
Issuance
of warrants in June
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,298,493
|
|
|
|
—
|
|
|
|
5,298,493
|
|
Nonemployee
stock-based compensation charge
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
227,883
|
|
|
|
—
|
|
|
|
227,883
|
|
Stock-based
compensation charge
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
944,623
|
|
|
|
—
|
|
|
|
944,623
|
|
Issuance
of Common Stock in November for cash upon exercise of
options
|
|
|
—
|
|
|
|
—
|
|
|
|
39,463
|
|
|
|
40
|
|
|
|
—
|
|
|
|
2,248
|
|
|
|
—
|
|
|
|
2,288
|
|
Issuance
of Common Stock in December for license, distribution and marketing
agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
199,000
|
|
|
|
—
|
|
|
|
200,000
|
|
Discount
on investor warrant
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,616
|
|
|
|
—
|
|
|
|
8,616
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,377,858
|
)
|
|
|
(16,377,858
|
)
|
Balances
at December 31, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
25,169,739
|
|
|
|
25,171
|
|
|
|
(18,910
|
)
|
|
|
20,727,408
|
|
|
|
(24,125,289
|
)
|
|
|
(3,391,620
|
)
|
Issuance
of Common Stock in February to publisher for representation
rights
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000
|
|
|
|
300
|
|
|
|
—
|
|
|
|
101,700
|
|
|
|
—
|
|
|
|
102,000
|
|
Beneficial
conversion on 2007 warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
772,500
|
|
|
|
—
|
|
|
|
772,500
|
|
Conversion
of 6% senior convertible note in June into common
stock
|
|
|
—
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
25
|
|
|
|
—
|
|
|
|
39,975
|
|
|
|
—
|
|
|
|
40,000
|
|
Issuance
of Series A preferred stock for cash, net of issuance
costs
|
|
|
5,625,000
|
|
|
|
5,625
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,016,813
|
|
|
|
—
|
|
|
|
21,022,438
|
|
Conversion
of 15% unsecured convertible original discount notes in
December
|
|
|
1,029,406
|
|
|
|
1,029
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,116,595
|
|
|
|
—
|
|
|
|
4,117,624
|
|
Exchange
of 15% unsecured convertible original issue discount notes
warrants in December for common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
3,498,013
|
|
|
|
3,498
|
|
|
|
—
|
|
|
|
556,401
|
|
|
|
—
|
|
|
|
559,899
|
|
Conversion
of 6% senior convertible in December for preferred
stock
|
|
|
410,887
|
|
|
|
411
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,643,138
|
|
|
|
—
|
|
|
|
1,643,549
|
|
Purchase
of warrants associated with 6% Senior convertible notes
in December
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(134,188
|
)
|
|
|
—
|
|
|
|
(134,188
|
)
|
Exchange
of 6% senior note warrants in December for common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
82,032
|
|
|
|
82
|
|
|
|
—
|
|
|
|
(82
|
)
|
|
|
—
|
|
|
|
—
|
|
Exchange
of placement agents warrants in December for common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
154,500
|
|
|
|
154
|
|
|
|
—
|
|
|
|
(154
|
)
|
|
|
—
|
|
|
|
—
|
|
Nonemployee
stock-based compensation charge
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
127,623
|
|
|
|
—
|
|
|
|
127,623
|
|
Stock-based
compensation charge
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,595,754
|
|
|
|
—
|
|
|
|
2,595,754
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,969,985
|
)
|
|
|
(16,969,985
|
)
|
Balances
at December 31, 2008
|
|
|
7,065,293
|
|
|
$
|
7,065
|
|
|
|
29,229,284
|
|
|
$
|
29,230
|
|
|
$
|
(18,910
|
)
|
|
$
|
51,563,483
|
|
|
$
|
(41,095,274
|
)
|
|
$
|
10,485,594
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Betawave
Corporation
Consolidated
Statements of Cash Flows
For
the Years Ended December 31, 2008 and 2007
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(16,969,985
|
)
|
|
$
|
(16,377,858
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Loss
on debt extinguishment
|
|
|
2,736,832
|
|
|
|
—
|
|
Loss
on disposal of fixed assets
|
|
|
1,959
|
|
|
|
—
|
|
Depreciation
and amortization of property and equipment
|
|
|
260,028
|
|
|
|
224,784
|
|
Amortization
of convertible note fees
|
|
|
474,618
|
|
|
|
273,714
|
|
Stock-based
compensation
|
|
|
2,723,377
|
|
|
|
1,172,506
|
|
Non
cash interest expense
|
|
|
1,866,813
|
|
|
|
884,484
|
|
Non
cash cost of revenues
|
|
|
102,000
|
|
|
|
—
|
|
Write-off
of acquisition advances
|
|
|
—
|
|
|
|
420,338
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
(1,503,927
|
)
|
|
|
(1,599,057
|
)
|
Prepaid
expenses
|
|
|
(458,037
|
)
|
|
|
(158,917
|
)
|
Deferred
direct acquisition costs
|
|
|
—
|
|
|
|
66,040
|
|
Other
assets
|
|
|
4,950
|
|
|
|
—
|
|
Accounts
payable
|
|
|
2,687,625
|
|
|
|
902,180
|
|
Accrued
liabilities
|
|
|
887,146
|
|
|
|
641,752
|
|
Deferred
revenue
|
|
|
109,243
|
|
|
|
—
|
|
Net
cash used in operating activities
|
|
|
(7,077,358
|
)
|
|
|
(13,550,034
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
advances
|
|
|
—
|
|
|
|
(1,020,338
|
)
|
Payment
of acquisition advances
|
|
|
—
|
|
|
|
600,000
|
|
Funds
held as restricted cash
|
|
|
(550,000
|
)
|
|
|
—
|
|
Funds
released from restricted cash
|
|
|
550,000
|
|
|
|
1,728,728
|
|
Funds
held as deposits
|
|
|
—
|
|
|
|
(107,979
|
)
|
Advances
to founder and stockholder
|
|
|
—
|
|
|
|
17,216
|
|
Purchase
of property and equipment
|
|
|
(41,118
|
)
|
|
|
(524,781
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(41,118
|
)
|
|
|
692,846
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of Series A Preferred Stock, net of issuance cost of
$1,477,562
|
|
|
21,022,438
|
|
|
|
—
|
|
Proceeds
from issuance of common stock, net of issuance cost
|
|
|
—
|
|
|
|
1,761,566
|
|
Proceeds
from issuance of due to stockholder
|
|
|
610,000
|
|
|
|
—
|
|
Repayment
of due to stockholder
|
|
|
(400,000
|
)
|
|
|
(384,793
|
)
|
Proceeds
from issuance of notes payable
|
|
|
—
|
|
|
|
200,000
|
|
Repayment
of notes payable
|
|
|
—
|
|
|
|
(200,000
|
)
|
Proceeds
from issuance of unsecured convertible original issue discount notes due
June 2010 and related warrants, net of fees of $101,300
|
|
|
3,188,700
|
|
|
|
—
|
|
Repayment
of convertible promissory notes
|
|
|
(6,414,187
|
)
|
|
|
—
|
|
Purchase
of warrants
|
|
|
(134,188
|
)
|
|
|
—
|
|
Proceeds
from issuance of convertible notes and related warrants, net of fees of
$1,080,293
|
|
|
—
|
|
|
|
9,219,707
|
|
Net
cash provided by financing activities
|
|
|
17,872,763
|
|
|
|
10,596,480
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
10,754,287
|
|
|
|
(2,260,708
|
)
|
Cash
and cash equivalents at beginning of the year
|
|
|
1,108,834
|
|
|
|
3,369,542
|
|
Cash
and cash equivalents at the end of the year
|
|
$
|
11,863,121
|
|
|
$
|
1,108,834
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Betawave
Corporation
Notes
to the Consolidated Financial Statements
For
the Years Ended December 31, 2008 and 2007
General
-
Unibio Inc. was incorporated in the state of Nevada on February 2,
2005. On September 14, 2006, Unibio Inc. changed its name to GoFish
Corporation. In January 2009, GoFish Corporation changed its name to
Betawave Corporation and launched a rebranding campaign focused on
attention-based digital media.
Betawave
Corporation (the “Company”) is the industry’s first attention-based media
company. The Company delivers quality advertising and content to
large audiences of highly-engaged users through innovative ad
formats. The Company has assembled a platform of some of the leading
immersive casual gaming, virtual world, social play and entertainment websites
into a network of sites (the “Betawave Network”). The Company
generates revenue by selling innovative, accountable and attention-grabbing
advertising campaigns on those sites to brand advertisers.
Management’s Plan
-
The Company has incurred operating losses and negative cash flows since
inception. Management expects that revenues will increase as a result
of its planned continued expansion of Betawave’s Network’s reach, scale and
scope. The Company also expects to incur additional expenses for the
development and expansion of its publisher network, marketing campaigns for a
number of its programming launches and the continuing integration of its
businesses. In addition, the Company also anticipates gains in
operating efficiencies as a result of the increase to its sales and marketing
organization. However, the Company expects that operating losses and
negative cash flows will continue for the foreseeable future but anticipates
that losses will decrease from current levels to the extent that the Company
continues to grow and develop. These Company’s expectations are
subject to risks and uncertainties that could cause actual results or events to
differ materially from those expressed or implied by such
expectations. While the Company believes that it will be able to
expand operations, gain market share, and raise additional funds, there can be
no assurance that in the event the Company requires additional financing, such
financing would be available on terms which are favorable or at
all. Failure to generate sufficient cash flows from operations or
raise additional capital would have a material adverse effect on the Company’s
ability to achieve its intended business objectives. These factors
raise substantial doubt about the Company’s ability to continue as a going
concern.
Going Concern
-
The Company’s consolidated financial statements have been presented on
a basis that contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company continues
to face significant risks associated with the successful execution of its
strategy given the current market environment for similar
companies. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
2.
|
Summary of Significant Accounting
Policies
|
Basis of
Presentation -
The accompanying consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America.
Principles of
Consolidation -
The consolidated financial statements include the
financial statements of Betawave Corporation and its wholly-owned
subsidiaries. All significant transactions and balances between the
Betawave Corporation and its subsidiaries have been eliminated in
consolidation.
Use of Estimates
-
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect reported
amounts and disclosures. Accordingly, actual results could differ
from those estimates.
Fair Value of
Financial Instruments -
The carrying amounts of
cash and cash equivalents, accounts receivable, prepaid expenses, accounts
payable, and accrued liabilities, approximate fair value due to the short-term
maturities of these instruments.
Cash and Cash
Equivalents -
For purposes of reporting cash flows, the Company considers
all short-term, interest-bearing deposits with original maturities of three
months or less to be cash equivalents. Cash and cash equivalents
include a certificate of deposit account.
Concentration of
Credit Risk -
Financial instruments that potentially subject the Company
to significant concentrations of credit risk, consist principally of cash and
cash equivalents and accounts receivable. The Company’s credit risk
is managed by investing its cash in a certificate of deposit
account. The receivables credit risk is controlled through credit
approvals, credit limits and monitoring procedures.
The
Company places its cash in banks. Cash in excess of federally insured
limits totaled $11,613,121 and $1,008,834 at December 31, 2008 and 2007,
respectively.
Accounts
Receivable
-
The Company generally requires no collateral from its customers. An
allowance for doubtful accounts will be recorded based on a combination of
historical experience, aging analysis, and information on specific
accounts. Account balances will be written off against the allowance
after all means of collection have been exhausted and the potential for recovery
is considered remote. The Company has recorded an allowance against
its receivables of none and $17,216 at December 31, 2008 and 2007,
respectively.
Accounts
Receivable Concentrations -
At December 31, 2008, three customers
accounted for 26%, 13% and 7%, respectively, of accounts
receivable. At December 31, 2007, three customers accounted for 27%,
21% and 9%, respectively, of accounts receivable.
Revenue
Concentrations
- The Company’s revenue is generated mainly from
advertisers who purchase inventory in the form of graphical, text-based or video
ads on the Company’s Network of websites. These advertisers’
respective agencies facilitate the purchase of inventory on behalf of their
advertisers. For the year ended December 31, 2008, four customers
accounted for 22%, 9%, 8% and 5%, respectively, of total
revenues. For the year ended December 31, 2007, four customers
accounted for 24%, 20%, 7% and 7%, respectively, of total revenues.
Property
and
Equipment -
Property and equipment are stated at cost less accumulated
depreciation and amortization. Major improvements are capitalized,
while repair and maintenance costs that do not improve or extend the lives of
the respective assets are expensed as incurred. Depreciation and amortization
charges are calculated using the straight-line method over the useful lives of
the assets, generally three years. Upon retirement or sale, the cost
and related accumulated depreciation are removed from the balance sheet and the
resulting gain or loss is reflected in operating expenses.
Impairment of
Long-Lived Assets -
The Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life of
long-lived assets may warrant revision or that the remaining balance of
long-lived assets may not be recoverable. When factors indicate that
long-lived assets should be evaluated for possible impairment, the Company
typically makes various assumptions about the future prospects the asset relates
to, considers market factors and uses an estimate of the related undiscounted
future cash flows over the remaining life of the long-lived assets in measuring
whether they are recoverable. If the estimated undiscounted future
cash flows are less than the carrying value of the asset, a loss is recorded as
the excess of the asset’s carrying value over its fair value. There
have been no such impairments of long-lived assets through December 31, 2008 and
2007.
Income Taxes
-
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax basis, and operating
loss carry-forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in the tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is recorded for loss
carryforwards and other deferred tax assets where it is more likely than not
that such loss carryforwards and deferred tax assets will not be
realized.
Revenue
Recognition -
Revenues are recognized from the display of graphical
advertisements on the websites of the publishers in the Company Network as
“impressions” are delivered up to the amount contracted for by the
advertiser. An “impression” is delivered when an advertisement
appears in pages viewed by users. Arrangements for these services
generally have terms of less than one year. These revenues are
recognized as such because the services have been provided, and the other
criteria set forth under Staff Accounting Bulletin Topic 13:
Revenue Recognition
have been
met, namely, the fees charged by the Company are fixed or determinable, the
advertisers understand the specific nature and terms of the agreed-upon
transactions and collectability is reasonably assured. In accordance
with Emerging Issues Task Force (“EITF”) Issue No. 99-19,
Reporting Revenue Gross as Principal
Versus Net as an Agent
(“EITF 99-19”), Betawave reports revenues on a
gross basis principally because the Company is the primary obligor to the
advertisers.
Expense
Recognition -
Expenses are charged
to expense as incurred.
Advertising
and
Promotion
Costs
-
Expenses related to advertising and promotions of products are charged
to expense as incurred. Advertising and promotional costs totaled $129,414 and
$1,731,170 for the years ended December 31, 2008 and 2007,
respectively.
Research and
Development -
Research and development costs are charged to operations as
incurred.
Stock-Based
Compensation -
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of FASB Statement No. 123,
Share-Based Payment
, (“SFAS
123(R)”) using the modified prospective transition method. Under that
transition method, compensation cost recognized for the periods ended December
31, 2008 and 2007 includes: (a) compensation cost for all share-based payments
granted prior to, but not yet vested as of January 1, 2006, based on the grant
date fair value estimated in accordance with the original provisions of FASB
Statement No. 123,
Accounting
for Stock-Based Compensation
(“SFAS 123”), and (b) compensation cost for
all share-based payments granted or modified subsequent to January 1, 2006,
based on the grant date fair value estimated in accordance with the provisions
of SFAS 123(R).
Share-based
compensation expense for performance-based options granted to non-employees is
determined in accordance with SFAS 123(R) and Emerging Issues Task Force Issue
No. 96-18,
Accounting for
Equity Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services
(EITF 96-18”), at the fair
value of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measured. The fair value of
options granted to non-employees is measured as of the earlier of the
performance commitment date or the date at which performance is complete
(“measurement date”). When it is necessary under generally accepted
accounting principles to recognize the cost for the transaction prior to the
measurement date, the fair value of unvested options granted to non-employees is
remeasured at the balance sheet date.
The
Company currently uses the Black-Scholes option pricing model to determine the
fair value of stock options. The determination of the fair value of
stock-based payment awards on the date of grant using an option-pricing model is
affected by our stock price as well as by assumptions regarding a number of
complex and subjective variables. These variables include our
expected stock price volatility over the term of the awards, actual and
projected employee stock option exercise behaviors, risk-free interest rate and
expected dividends. We estimate the volatility of our common stock at
the date of the grant based on a combination of the implied volatility of
publicly traded options on our common stock and our historical volatility
rate. The dividend yield assumption is based on historical dividend
payouts. The risk-free interest rate is based on observed interest
rates appropriate for the term of our employee options. We use
historical data to estimate pre-vesting option forfeitures and record
share-based compensation expense only for those awards that are expected to
vest. For options granted, we amortize the fair value on a
straight-line basis. All options are amortized over the requisite
service periods of the awards, which are generally the vesting
periods. If factors change we may decide to use different assumptions
under the Black-Scholes option model and stock-based compensation expense may
differ materially in the future from that recorded in the current
periods.
Included
in cost of revenues and expenses is $2,723,377 and $1,172,506 of stock-based
compensation for the years ended December 31, 2008 and 2007,
respectively. At December 31, 2008, this amount includes $36,820 of
stock-based compensation related to non-employees, $2,595,755 related to
employees, $66,000 related to restricted stock and $24,802 related to warrants.
At December 31, 2007, this amount includes $86,216 of stock-based compensation
related to non-employees, $944,623 related to employees and $141,667 related to
the warrants.
The
Company estimates the fair value of stock options using the Black-Scholes
valuation model. Key input assumptions used to estimate the fair
value of stock options include the exercise price of the award, expected option
term, expected volatility of the stock over the option’s expected term,
risk-free interest rate over the option’s expected term, and the expected annual
dividend yield. The Company believes that the valuation technique and
approach utilized to develop the underlying assumptions are appropriate in
calculating the fair values of the stock options granted during the years ended
December 31, 2008 and 2007.
Loss Per
Share
-
Basic net loss per share to common stockholders is calculated based on the
weighted-average number of shares of common stock outstanding during the period
excluding those shares that are subject to repurchase by the Company. Diluted
net loss per share attributable to common shareholders would give effect to the
dilutive effect of potential common stock consisting of stock options, warrants,
convertible debt and preferred stock. Dilutive securities have been excluded
from the diluted net loss per share computations as they have an antidilutive
effect due to the Company’s net loss for the years ended December 31, 2008 and
2007.
The
following outstanding stock options, warrants, convertible debt and preferred
stock (on an as-converted into common stock basis) were excluded from the
computation of diluted net loss per share attributable to holders of common
stock as they had an antidilutive effect as of December 31, 2008 and
2007:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Shares
issuable upon exercise of employee and non-employee stock
options
|
|
|
4,717,067
|
|
|
|
7,194,770
|
|
Shares
issuable upon exercise of warrants
|
|
|
5,744,335
|
|
|
|
7,598,899
|
|
Shares
issuable upon conversion of notes
|
|
|
—
|
|
|
|
6,412,500
|
|
Shares
issuable upon conversion of Series A preferred stock
|
|
|
7,355,648
|
|
|
|
—
|
|
Total
|
|
|
17,817,050
|
|
|
|
21,206,169
|
|
Comprehensive
Loss -
The
Company has no components of comprehensive loss other than its net loss and,
accordingly, comprehensive loss is the same as the net loss for all periods
presented.
Segments -
Segments are defined as components of the Company’s business for which separate
financial information is available that is evaluated by the Company’s chief
operating decision maker (its CEO) in deciding how to allocate resources and
assess performance. The Company has only one overall operating
segment.
Recent Accounting
Pronouncements -
In December 2007, the Financial Accounting Standards
Board (FASB) issued (SFAS) No. 141 (Revised 2007) (SFAS 141R),
Business Combinations
. This statement will significantly change the accounting for
business acquisitions both during the period of the acquisition and in
subsequent periods. SFAS 141R provides companies with principles and
requirements on how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree as well as the recognition and
measurement of goodwill acquired in a business combination. SFAS 141R
also requires certain disclosures to enable users of the financial statements to
evaluate the nature and financial effects of the business
combination. SFAS 141R will be effective January 1, 2009 for the
Company and will be applied to all business combinations occurring on or after
that date.
Concurrent
with the issuance of SFAS No. 141R, the FASB issued SFAS No. 160 (“SFAS 160”),
Noncontrolling Interests in
Consolidated Financial Statements—An Amendment of ARB No. 51
. SFAS 160 establishes new accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 will also be effective for the Company effective
January 1, 2009. Early adoption is not permitted. The
Company does not currently expect the adoption of SFAS 160 to have any impact on
its financial statements.
In March
2008, the FASB issued SFAS No. 161 (“SFAS 161”),
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
. SFAS 161 intends to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial position,
financial performance, and cash flows. SFAS 161 also requires
disclosure about an entity’s strategy and objectives for using derivatives, the
fair values of derivative instruments and their related gains and
losses. SFAS 161 is effective for fiscal years and interim periods
beginning after November 15, 2008, and will be applicable to the Company in the
first quarter of fiscal 2009. The Company does not currently expect
the adoption of SFAS 161 to have any impact on its financial
statements.
In May
2008, the FASB issued SFAS 162 (“SFAS 162”),
The Hierarchy of Generally Accepted
Accounting Principles
. SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that presented
in conformity with generally accepted accounting principles in the United States
of America. SFAS 162 will be effective 60 days following the SEC’s
approval of the PCAOB amendments to AU Section 411,
The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles
. The
Company does not believe SFAS 162 will have a significant impact on the
Company’s consolidated financial statements.
In June
2008, the FASB issued Staff Position FSP EITF No. 03-6-1,
Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
: (“FSP EITF 03-6-1”). FSP EITF 03-6-1 provides that unvested
shares-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earning per share pursuant to the
two-class method. EITF 03-6-1 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Upon adoption, a company is required to
retrospectively adjust its earnings per share data (including any amounts
related to interim periods, summaries of earnings and selected financial data)
to conform to the provisions in EITF 03-6-1. Early application of FSP
EITF 03-6-1is prohibited. The adoption of FSP EITF 03-6-1 is not
anticipated to have a material effect on the Company’s consolidated financial
statements.
During
the first quarter of fiscal 2008, the Company adopted the following accounting
standards:
In
February 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting
Standard (FAS) 157-1,
Application of FASB Statement No.
157 to FASB Statement No. 13 and Its Related Interpretive Accounting
Pronouncements That Address Leasing Transactions
, (“FSP FAS 157-1”) and
FSP FAS 157-2,
Effective Date
of FASB Statement No. 157
(“FSP FAS 157-2”). FSP FAS 157-1
removes leasing from the scope of SFAS No. 157, “Fair Value Measurements.” FSP
FAS 157-2 delays the effective date of SFAS No. 157 from 2008 to 2009 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, at least annually.
In
September 2006, the FASB finalized SFAS No. 157 which became effective January
1, 2008 except as amended by FSP FAS 157-1 and FSP FAS 157-2 as described
above. This Statement defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements;
however, it does not require any new fair value measurements. The
adoption of this Statement did not have any effect on the Company’s consolidated
financial statements.
In
February 2007, the FASB issued SFAS No. 159 (“SFAS 159”),
The Fair Value Option for Financial
Assets and Financial Liabilities,
which permits entities to elect to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. This
election is irrevocable. SFAS 159 was effective in the first quarter
of fiscal 2008. The Company has not elected to apply the fair value
option to any of its financial instruments.
The
Company adopted the provisions of SFAS No. 157 as amended by FSP FAS 157-1 and
FSP FAS 157-2 on January 1, 2008. Pursuant to the provisions of FSP
FAS 157-2, the Company will not apply the provisions of SFAS No. 157 until
January 1, 2009 for the following major categories of nonfinancial assets and
liabilities from the consolidated balance sheet: property and
equipment. The Company recorded no change to its opening balance of
accumulated deficit as of January 1, 2008 as it did not have any financial
instruments requiring retrospective application per the provisions of SFAS No.
157.
Fair
Value Hierarchy - SFAS No. 157 specifies a hierarchy of valuation techniques
based upon whether the inputs to those valuation techniques reflect assumptions
other market participants would use based upon market data obtained from
independent sources (observable inputs) or reflect the company’s own assumptions
of market participant valuation (unobservable inputs). In accordance
with SFAS No. 157, these two types of inputs have created the following fair
value hierarchy:
|
·
|
Level 1 - Quoted prices in active
markets that are unadjusted and accessible at the measurement date for
identical, unrestricted assets or
liabilities;
|
|
·
|
Level 2 - Quoted prices for
identical assets and liabilities in markets that are not active, quoted
prices for similar assets and liabilities in active markets or financial
instruments for which significant inputs are observable, either directly
or indirectly;
|
|
·
|
Level 3 - Prices or valuations
that require inputs that are both significant to the fair value
measurement and
unobservable.
|
SFAS No.
157 requires the use of observable market data if such data is available without
undue cost and effort.
Measurement
of Fair Value - The Company measures fair value as an exit price using the
procedures described below for all assets and liabilities measured at fair
value. When available, the company uses unadjusted quoted market
prices to measure fair value and classifies such items within Level
1. If quoted market prices are not available, fair value is based
upon internally developed models that use, where possible, current market-based
or independently-sourced market parameters such as interest rates and currency
rates. Items valued using internally generated models are classified
according to the lowest level input or value driver that is significant to the
valuation. Thus, an item may be classified in Level 3 even though
there may be inputs that are readily observable. If quoted market
prices are not available, the valuation model used generally depends on the
specific asset or liability being valued.
Credit
risk adjustments are applied to reflect the Company’s own credit risk when
valuing all liabilities measured at fair value. The methodology is
consistent with that applied in developing counterparty credit risk adjustments,
but incorporates the Company’s own credit risk as observed in the credit default
swap market.
The
following table presents the Company’s assets and liabilities that are measured
at fair value on a recurring basis at December 31, 2008:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash
and cash equivalents
|
|
$
|
11,863,121
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,863,121
|
|
4.
|
Property and Equipment,
net
|
Property
and equipment, net consisted of the following at December 31, 2008 and
2007:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Computer
equipment and software
|
|
$
|
652,877
|
|
|
$
|
614,009
|
|
Leasehold
improvements
|
|
|
145,794
|
|
|
|
145,794
|
|
Furniture
and fixtures
|
|
|
7,737
|
|
|
|
7,737
|
|
Total
property and equipment
|
|
|
806,408
|
|
|
|
767,540
|
|
Less
accumulated depreciation and amortization
|
|
|
(569,960
|
)
|
|
|
(310,223
|
)
|
Property
and equipment, net
|
|
$
|
236,448
|
|
|
$
|
457,317
|
|
Depreciation
and amortization expense totaled $260,028 and $224,748 for the years ended
December 31, 2008 and 2007, respectively.
Accrued
liabilities consisted of the following at December 31, 2008 and
2007:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Accrued
vendor obligations
|
|
$
|
687,928
|
|
|
$
|
236,833
|
|
Accrued
compensation
|
|
|
777,290
|
|
|
|
182,253
|
|
Accrued
travel and entertainment
|
|
|
—
|
|
|
|
106,904
|
|
Accrued
legal expenses
|
|
|
—
|
|
|
|
91,878
|
|
Accrued
city and county taxes
|
|
|
41,836
|
|
|
|
53,182
|
|
Accrued
interest expenses
|
|
|
—
|
|
|
|
39,483
|
|
Other
|
|
|
94,786
|
|
|
|
4,160
|
|
Total
accrued liabilities
|
|
$
|
1,601,840
|
|
|
$
|
714,693
|
|
In June
2007, the Company entered into a purchase agreement (the “Purchase Agreement”)
pursuant to which they sold the June 2007 Notes in the aggregate principal
amount of $10,300,000 and the June 2007 warrants to purchase an aggregate of
3,862,500 shares of common stock (the “June 2007 Warrants”) in a
private placement transaction the “June 2007 Private Placement”). The June 2007
Notes were outstanding until their purchase by the Company on or before December
12, 2008.
The June
2007 Notes bore interest at a rate of 6% per annum. The June 2007
Notes had maturity dates three years from the date of issuance and were
convertible into shares of the Company’s common stock at a conversion price of
$1.60 per share, subject to full-ratchet anti-dilution protection.
The
Purchase Agreement governing the June 2007 Notes contains various negative
covenants which are no longer applicable to the Company.
The June
2007 Warrants issued to the investors in the June 2007 Private Placement were
exercisable for a period of five years commencing one year after the date of
issuance at an exercise price of $1.75 per share. Utilizing the
Black-Scholes valuation model and the following assumptions: estimated
volatility of 85%, a contractual life of six years, a zero dividend rate, 5.12%
risk free interest rate, and the fair value of common stock of $1.72 per share
at date of grant, the Company determined the allocated fair value of the warrant
to be $4,924,202. The Company has recorded this amount as a debt
discount and is amortizing the debt discount over the term of the June 2007
Notes. The amortization is being recorded as interest expense and
totaled $1,559,331 and $884,484 for the years ended December 2008 and 2007,
respectively.
On
November 28, 2007, one of the original holders of the June 2007 Notes sold its
right, title and interest in its June 2007 Note to a third party at a $42,500
discount. The Company paid the original holder $42,500 and treated it
as a debt discount and is amortizing the debt discount over the term of the June
2007 Notes. The amortization is being recorded as interest expense
and totaled $15,612 and $1,369 for the years ended December 31, 2008 and 2007,
respectively.
As part
of the June 2007 Private Placement, the Company paid placement agent fees equal
to 7% of the gross proceeds raised in the June 2007 Private Placement, $721,000,
and associated expenses of $367,909 for a total of $1,088,909. In
addition, as part of the June 2007 Private Placement, the Company issued
placement agent warrants to purchase an aggregate of 309,000 shares of the
Company’s common stock (the “June 2007 Placement Agent Warrants”). A
portion of the June 2007 Placement Agent Warrants that were exercisable for
193,125 of the Company’s common stock were exercisable for a period
of five years commencing one year after issuance at an exercise price of $1.60
per share. Utilizing the Black-Scholes option-pricing model and an
assumed estimated volatility of 85%, an assumed contractual life of five years,
an assumed zero dividend rate, an assumed 5.12% risk free interest rate, and an
assumed fair value of the Company’s common stock of $1.72 per share
on the date of issuance, the Company determined the allocated fair
value of this portion of the June 2007 Placement Agent Warrants that are
exercisable for 193,125 shares of the Company’s common stock to be
$235,722. The remaining portion of the June 2007 Placement Agent
Warrants that are exercisable for 115,875 the Company’s common stock are
exercisable for a period of five years commencing one year after issuance at an
exercise price of $1.75 per share. Utilizing the Black-Scholes
option-pricing model and an assumed estimated volatility of 85%, an assumed
contractual life of five years, an assumed zero dividend rate, an assumed 5.12%
risk free interest rate, and an assumed fair value of the Company’s common stock
of $1.72 per share on the date of issuance, the Company determined the allocated
fair value of this remaining portion of the June 2007 Placement Agent Warrants
that were exercisable for 115,875 shares of the Company’s common stock to be
$138,569. The total convertible note fees were
$1,564,500. These fees are being amortized to expense over the term
of the June 2007 Notes and amounted to $447,618 and $273,714 for the years ended
December 31, 2008 and 2007, respectively.
Also
embedded in the June 2007 Private Placement, is a nondetachable conversion
feature that is in-the-money at the commitment date. Per EITF 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios” a beneficial conversion feature
allows the securities to be convertible into common stock at the lower of a
conversion rate fixed at the commitment date or a fixed discount to the market
price of the common stock at the date of conversion. The embedded
beneficial conversion feature is recognized and measured by allocating a portion
of the proceeds equal to the intrinsic value of that feature to additional
paid-in capital. That amount is calculated at the commitment date as
the difference between conversion price and the fair value of the common stock
or other securities into which the security is convertible, multiplied by the
number of shares into which the security is convertible (intrinsic
value).
The
beneficial conversion feature amounted to $772,500 and is recorded as a debt
discount and is amortizing over the term of the June 2007 Notes. The
amortization is being recorded as interest expense and totaled $236,900 and $0
for the years ended December 31, 2008 and 2007, respectively.
In two
separate closings, on April 18, 2008 and June 30, 2008, the Company sold
unsecured convertible original issue discount notes due June 8, 2010 in the
aggregate principal amount of $4,117,647 (the “2008 Notes”) and detachable
warrants (the “2008 Warrants”) to purchase an aggregate of 3,997,723 shares of
the Company’s common stock, in a private placement transaction for an aggregate
purchase price of $3,500,000. The 2008 Notes and 2008 Warrants were
outstanding until their conversion into stock of the Company on December 12,
2008. The 2008 Notes were discounted 15% from their respective principal
amounts, and will bear interest at a rate of 15% per annum beginning one year
from the date of issuance, payable on any conversion date or the maturity date
of the 2008 Notes in cash or shares of the Company’s common stock, at the
investor’s option. The 2008 Notes had a maturity date on June 8, 2010
and were convertible into shares of our common stock, at a conversion price of
$2.06 per share, subject to full-ratchet anti-dilution
protection. The Company has recorded $617,648 as a debt discount on
the 2008 Notes and is amortizing the debt discount over the term of the 2008
Notes. The amortization is being recorded as interest expense and
totaled $163,207 for the year ended December 31, 2008.
The 2008
warrants were exercisable after 181 days from issuance until April 18, 2013 at
an exercise price of $1.75 per share. Utilizing the Black-Scholes
option-pricing model and the following assumptions: estimated volatility of
64.9%, a contractual life of five years, a zero dividend rate, 3.34% risk free
interest rate, and the fair value of common stock of $1.75 per share at date of
grant, the Company determined the initial allocated fair value of the warrants
to be $276,858. The Company has recorded $276,858 as a debt discount
and is amortizing the debt discount over the term of the 2008
Notes. The amortization is being recorded as interest expense and
totaled $70,973 for the year ended December 31, 2008. As part of the
issuance on April 18, 2008 and June 30, 2008, the Company paid legal and due
diligence fees of $101,300. These fees are being amortized to expense
over the term of the 2008 Notes and amounted to $27,003 for the year ended
December 31, 2008.
The 2008
Warrants provided for a contingent cash settlement feature, as such, the initial
allocated fair value and subsequent re-measurements were classified as Warrant
Liability in the Company’s consolidated financial statements. See
Note 11.
Interest
expense, including amortization of debt discount, totaled $2,465,545 and
$1,276,568 for the years ended December 31, 2008 and 2007,
respectively. In December 2008, the Company issued 7,065,293 in
Series A Convertible Preferred Stock. Of the total shares issued,
5,625,000 shares were issued for net cash proceeds of $21,022,438 with the
remaining shares issued in satisfaction of certain convertible notes and related
detachable warrants. The Company utilized proceeds of $6,548,375 from
the issuance of the preferred stock to repay the remaining convertible notes and
reacquire related detachable warrants. At December 31, 2008, all
convertible notes have been fully paid. See Note 12.
7.
|
Commitments and
Contingencies
|
The
Company leases office space under non-cancelable operating leases with
expiration dates through 2011. The future minimum rental payments
under these leases at December 31, 2008 are as follows:
|
|
Future Minimum
|
|
Year Ending December 31:
|
|
Lease Payments
|
|
2009
|
|
$
|
340,116
|
|
2010
|
|
|
180,388
|
|
2011
|
|
|
94,248
|
|
|
|
$
|
614,752
|
|
Rent
expense totaled $363,122 and $244,452 for the years ended December 31, 2008 and
2007, respectively.
On
September 14, 2006, the Company increased its authorized capital stock from
75,000,000 shares of common stock, par value $0.001, to 300,000,000 shares of
common stock, par value $0.001, and 10,000,000 shares of preferred stock, par
value $0.001. On December 11, 2008, pursuant to the approval of the
Company’s Board of Directors and holders of a majority of outstanding shares of
the Company’s capital stock, the Company increased its authorized shares of
common stock, par value $0.001, to 400,000,000.
In
December 2008, the Company exchanged certain equity classified warrants issued
in conjunction with 6% convertible notes for 236,532 shares of Company common
stock and $134,188 in cash. As the warrants were classified in
equity, the net effect of these transactions was a reduction in additional
paid-in capital of $134,188.
Series
A Convertible Preferred Stock and Warrants
During
2008, the Company’s Board of Directors authorized 10,000,000 shares of Series A
Convertible Preferred Stock (“preferred stock”) with a par value of $.001 per
share. On two separate closings in December 2008, the Company issued
to certain investors 5,625,000 shares of preferred stock along with warrants to
purchase 45,000,000 shares of the Company’s common stock in exchange for
$22,500,000.
The
Company issued an additional 1,440,293 shares of preferred stock with warrants
to purchase 11,522,344 shares of the Company’s common stock in exchange for
certain convertible notes and related detachable warrants. The
preferred stock and warrants were issued as combined units valued at $4 per unit
with each unit consisting of 1 share of preferred stock with 1 warrant to
purchase 8 shares of common stock for $.20 per share.
Utilizing
the Black-Scholes option-pricing model and the following assumptions: estimated
volatility of 78.12%, a contractual life of five years, a zero dividend rate,
1.93% risk free interest rate, and the fair value of common stock on the grant
dates of $.20 on December 3, 2008 and $.16 on December 12, 2008, the Company
determined the fair value of the warrants to be $5,568,761. The
Company has determined that the warrants meet the requirements for equity
classification contained within EITF 00-19,
Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock
. As such, the fair value of the warrants has been recorded in
additional paid-in capital and will not be revalued on each reporting
date.
The
Company incurred $1,477,562 in stock issuance costs related to the
transactions. The stock issuance costs have been recorded as
reduction of the net proceeds from the sale. The Company also issued
warrants to a placement agent as partial compensation for services related to
the issuance of the preferred stock units. The warrants are for the
purchase of 6,665,343 shares of the Company’s common stock and are exercisable
for a period of 5 years at an exercise price of $.20 share. Utilizing
the Black-Scholes option-pricing model and the following assumptions: estimated
volatility of 78.12%, a contractual life of five years, a zero dividend rate,
1.93% risk free interest rate, and the fair value of common stock on the grant
date of $.16 on December 12, 2008, the Company determined the fair value of the
warrants to be $632,391. The Company has determined that the warrants
meet the requirements for equity classification contained within EITF
00-19. However, the issuance of these warrants had no net impact on
the Company’s consolidated financial statements as the direct stock issuance
expenses deducted from issuance proceeds included in additional paid-in capital
are offset by the fair value of the equity classified warrants
issued.
Based on
the fair market value of the Company’s stock on December 3, 2008, the preferred
stock issued on that date contained a conversion feature that was
in-the-money. Per EITF 98-5, a beneficial conversion feature allows
the securities to be convertible into common stock at the lower of a conversion
rate fixed at the commitment date or a fixed discount to the market price of the
common stock at the date of conversion. The beneficial conversion
feature is recognized and measured by allocating a portion of the proceeds equal
to the intrinsic value of that feature to additional paid-in
capital. That amount is calculated at the commitment date as the
difference between conversion price and the fair value of the common stock or
other securities into which the security is convertible, multiplied by the
number of shares into which the security is convertible (intrinsic
value).
The
beneficial conversion feature amounted to $1,007,250. Because the
Company’s preferred stock is not mandatorily redeemable and may be converted to
common stock at any time, this beneficial conversion feature would normally be
reflected as a dividend to the preferred stockholders. However,
because the Company has an accumulated deficit, such an adjustment would
necessarily reduce additional paid-in capital thus having no impact on the
Company’s consolidated financial statements.
Each
share of preferred stock is convertible into 20 shares of common stock, subject
to certain anti-dilution and other adjustments as set forth in the certificate
of designation of the preferred stock. So long as 2,434,657 shares of
Series A preferred stock remain outstanding, holders of Series A preferred stock
shall be entitled to elect four directors to the Company’s board of
directors. Holders of Series A preferred stock also shall have voting
rights and shall be entitled to vote, on an as converted basis as set forth in
the certificate of designation, together with the holders of common stock as a
single class with respect to any matter upon which holders of common stock have
the right to vote.
The
preferred stock will have a liquidation preference of $4.00 per share and shall
be entitled to receive dividends, prior and in preference to any declaration or
payment of any dividend on the common stock, at the rate of $0.32 per share per
annum, when and if any such dividends are declared by the board of directors of
the Company. Any declared and unpaid dividends are not
cumulative. So long as 2,434,657 shares of Series A preferred stock
remain outstanding, the Company will be required to obtain the consent of the
holders of at least two-thirds of the outstanding shares of Series A preferred
stock prior to taking certain actions.
9.
|
Stock Options and
Warrants
|
In 2004,
the Company’s Board of Directors adopted a 2004 Stock Plan (the “2004
Plan”).
The 2004
Plan authorized the Board of Directors to grant incentive stock options and
nonstatutory stock options to employees, directors, and consultants for up to
2,000,000 shares of common stock. Under the Plan, incentive stock options and
nonqualified stock options are to be granted at a price that is no less than
100% of the fair value of the stock at the date of grant. Options will be vested
over a period according to the Option Agreement, and are exercisable for a
maximum period of ten years after date of grant. Options granted to stockholders
who own more than 10% of the outstanding stock of the Company at the time of
grant must be issued at an exercise price no less than 110% of the fair value of
the stock on the date of grant.
In May
2006, the Company increased the shares reserved for issuance under the 2004 Plan
from 2,000,000 to 4,588,281. Upon completion of the Mergers, the Company
decreased the shares reserved under the 2004 Plan from 4,588,281 to 804,188 and
froze the 2004 Plan resulting in no additional options being available for grant
under the 2004 Plan.
In 2006,
the Company’s Board of Directors adopted a 2006 Stock Plan (the “2006
Plan”).
The 2006
Plan authorized the Board of Directors to grant incentive stock options and
nonstatutory stock options to employees, directors, and consultants for up to
2,000,000 shares of common stock. In October 2006, the Board of Directors
approved an additional issuance of 2,000,000 shares. Under the Plan, incentive
stock options and nonqualified stock options are to be granted at a price that
is no less than 100% of the fair value of the stock at the date of grant.
Options will be vested over a period according to the Option Agreement, and are
exercisable for a maximum period of ten years after date of grant. Options
granted to stockholders who own more than 10% of the outstanding stock of the
Company at the time of grant must be issued at an exercise price no less than
110% of the fair value of the stock on the date of grant. In March 2008, the
Board of Directors froze the 2006 Plan resulting in no additional options being
available for grant under the 2006 Plan.
On
October 24, 2007, the Company board of directors approved the Non-Qualified
Stock Option Plan (the “Non-Qualified Plan”). The purposes of the Non-Qualified
Plan are to attract and retain the best available personnel, to provide
additional incentives to employees, directors and consultants and to promote the
success of our business. The Non-Qualified Plan initially provided for a maximum
aggregate of 3,600,000 shares of our common stock that may be issued upon the
exercise of options granted pursuant to the Non-Qualified Plan. On November 1,
2007, the Company board of directors adopted an amendment to the Non-Qualified
Plan to increase the total number of shares of our common stock that may be
issued pursuant to the Non-Qualified Plan from 3,600,000 shares to 4,000,000
shares. On December 18, 2007, the Company board of directors adopted
a further amendment to the Non-Qualified Plan to increase the total number of
shares of our common stock that may be issued pursuant to the Non-Qualified Plan
from 4,000,000 shares to 5,500,000 shares. On February 5, 2008, the Company’s
board of directors adopted an additional amendment to the Non-Qualified Plan to
increase the total plan shares that may be issued from 5,500,000 shares to
10,500,000 shares. On June 4, 2008, the Company’s board of directors further
increased the number of shares reserved under the 2007 Plan to
16,500,000. On December 2, 2008, the board of directors increased the
number of shares reserved under the 2007 Plan to 69,141,668. The
Company’s board of directors (or any committee composed of members of the
Company board of directors appointed by it to administer the Non-Qualified
Plan), has the authority to administer and interpret the Non-Qualified Plan. The
administrator has the authority to, among other things, (i) select the
employees, consultants and directors to whom options may be granted, (ii) grant
options, (iii) determine the number of shares underlying option grants, (iv)
approve forms of option agreements for use under the Non-Qualified Plan, (v)
determine the terms and conditions of the options and (vi) subject to certain
exceptions, amend the terms of any outstanding option granted under the
Non-Qualified Plan. The Non-Qualified Plan authorizes grants of
nonqualified stock options to eligible employees, directors and
consultants. The exercise price for an Option shall be determined by
the administrator. The term of each option under the Non-Qualified
Plan shall be no more than ten years from the date of grant. The
Non-Qualified Plan became effective upon its adoption by our board of directors,
and will continue in effect for a term of ten years, unless sooner
terminated. The Company board of directors may at any time amend,
suspend or terminate the Non-Qualified Plan. The Non-Qualified Plan
also contains provisions governing: (i) the treatment of options under the
Non-Qualified Plan upon the occurrence of certain corporate transactions
(including merger, consolidation, sale of all or substantially all the assets of
our company, or complete liquidation or dissolution of our company) and changes
in control of our company, (ii) transferability of options and (iii) tax
withholding upon the exercise or vesting of an option.
On March
31, 2008, the Board froze the 2006 Plan and adopted a new plan, the GoFish
Corporation 2008 Stock Incentive Plan (as amended, the “2008
Plan”). The 2008 Plan is intended to replace the frozen 2006 Plan and
permits options and other equity compensation to be awarded to most California
employees. As originally adopted, the 2008 Plan provided for the
issuance of up to 2,400,000 shares of the Company’s common stock pursuant to
awards granted thereunder, up to 2,200,000 of which may be issued pursuant to
incentive stock options granted thereunder. However, no awards (as
defined in the 2008 Plan) were issued under the 2008 Plan.
On June
4, 2008, the Board adopted an amendment to the 2008 Plan to (i) decrease the
maximum aggregate number of shares of Common Stock that may be issued pursuant
to awards granted under the plan from 2,400,000 shares to 1,500,000 shares and
(ii) decrease the maximum aggregate number of shares the Company’s common stock
that may be issued pursuant to incentive stock options granted under the plan
from 2,200,000 shares to 1,500,000 shares. On June 4, 2008, the Board
also granted initial awards under the 2008 Plan, which were granted to certain
non-officer employees and consultants of the Company. On December 2,
2008, the Board increased the number of shares reserved under the Plan to a
maximum of 19,224,774. The 2008 Plan is administered, with respect to
grants to employees, directors, officers, and consultants, by the plan
administrator (the “Administrator”), defined as the Board or one or more
committees designated by the Board. The 2008 Plan will initially be
administered by the Board. The Board froze the 2004 Plan on October
27, 2006 and the 2006 Plan on March 31, 2008. As of December 31,
2008, there were 297,737 shares under the 2004 Plan and 3,073,229 shares under
the 2006 Plan that were unavailable for further issuance.
A summary
of stock option transactions is as follows:
|
|
Options
available for
grant
|
|
|
Number of
options
|
|
|
Weighted
Average
Exercise
price
|
|
Balances
at January 1, 2007
|
|
|
1,176,000
|
|
|
|
3,610,865
|
|
|
$
|
1.38
|
|
Additional
shares reserved
|
|
|
5,500,000
|
|
|
|
—
|
|
|
|
—
|
|
Options
granted
|
|
|
(6,476,400
|
)
|
|
|
6,476,400
|
|
|
$
|
1.40
|
|
Options
exercised
|
|
|
—
|
|
|
|
(70,511
|
)
|
|
$
|
0.17
|
|
Options
cancelled
|
|
|
2,821,984
|
|
|
|
(2,821,984
|
)
|
|
$
|
2.68
|
|
Balances
at December 31, 2007
|
|
|
3,021,584
|
|
|
|
7,194,770
|
|
|
$
|
0.91
|
|
Additional
shares reserved
|
|
|
82,866,442
|
|
|
|
—
|
|
|
|
—
|
|
Shares
frozen under the 2004 and 2006 Plans
|
|
|
(3,370,966
|
)
|
|
|
—
|
|
|
|
—
|
|
Options
granted
|
|
|
(75,606,727
|
)
|
|
|
75,606,727
|
|
|
$
|
0.39
|
|
Options
exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Options
cancelled
|
|
|
2,754,001
|
|
|
|
(2,754,001
|
)
|
|
$
|
1.30
|
|
Balances
at December 31, 2008
|
|
|
9,664,334
|
|
|
|
80,047,496
|
|
|
$
|
0.41
|
|
The
following table summarizes information concerning outstanding options as of
December 31, 2008:
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Exercise
price
|
|
Number of
Options
|
|
Weighted
Average
Remaining
Contractual
Life (in
Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Number of Options
|
|
Weighted
Average
Remaining
Contractual
Life (in Years)
|
|
|
Aggregate
Intrinsic
Value
|
$
|
0.06
|
|
|
364,300
|
|
5.43
|
|
|
|
|
|
358,376
|
|
5.41
|
|
|
|
$
|
0.19
|
|
|
234,765
|
|
9.89
|
|
|
|
|
|
4,765
|
|
9.89
|
|
|
|
$
|
0.20
|
|
|
48,628,342
|
|
9.92
|
|
|
|
|
|
4,744,094
|
|
9.92
|
|
|
|
$
|
0.23
|
|
|
5,070,000
|
|
9.29
|
|
|
|
|
|
1,542,917
|
|
9.18
|
|
|
|
$
|
0.24
|
|
|
82,000
|
|
9.42
|
|
|
|
|
|
15,750
|
|
9.42
|
|
|
|
$
|
0.25
|
|
|
105,000
|
|
9.58
|
|
|
|
|
|
25,000
|
|
9.58
|
|
|
|
$
|
0.27
|
|
|
400,000
|
|
8.83
|
|
|
|
|
|
155,556
|
|
8.83
|
|
|
|
$
|
0.29
|
|
|
400,000
|
|
9.24
|
|
|
|
|
|
83,951
|
|
9.24
|
|
|
|
$
|
0.35
|
|
|
4,840,000
|
|
9.08
|
|
|
|
|
|
2,728,611
|
|
9.08
|
|
|
|
$
|
0.37
|
|
|
1,820,358
|
|
8.79
|
|
|
|
|
|
1,072,387
|
|
8.80
|
|
|
|
$
|
0.42
|
|
|
130,000
|
|
9.02
|
|
|
|
|
|
—
|
|
—
|
|
|
|
$
|
0.60
|
|
|
2,998,324
|
|
9.92
|
|
|
|
|
|
—
|
|
—
|
|
|
|
$
|
0.80
|
|
|
5,498,324
|
|
9.70
|
|
|
|
|
|
416,667
|
|
9.43
|
|
|
|
$
|
1.00
|
|
|
2,998,324
|
|
9.92
|
|
|
|
|
|
—
|
|
—
|
|
|
|
$
|
1.20
|
|
|
2,998,324
|
|
9.92
|
|
|
|
|
|
—
|
|
—
|
|
|
|
$
|
1.40
|
|
|
2,998,324
|
|
9.92
|
|
|
|
|
|
—
|
|
—
|
|
|
|
$
|
1.50
|
|
|
116,840
|
|
7.81
|
|
|
|
|
|
88,200
|
|
7.81
|
|
|
|
$
|
3.08
|
|
|
50,000
|
|
7.96
|
|
|
|
|
|
29,167
|
|
7.96
|
|
|
|
$
|
3.65
|
|
|
64,271
|
|
7.87
|
|
|
|
|
|
64,271
|
|
7.87
|
|
|
|
$
|
3.78
|
|
|
15,000
|
|
8.38
|
|
|
|
|
|
5,938
|
|
8.38
|
|
|
|
$
|
3.80
|
|
|
65,000
|
|
8.30
|
|
|
|
|
|
27,083
|
|
8.30
|
|
|
|
$
|
5.79
|
|
|
170,000
|
|
8.08
|
|
|
|
|
|
81,042
|
|
8.08
|
|
|
|
|
|
|
|
80,047,496
|
|
9.75
|
|
$
|
1,037,898
|
|
|
11,443,775
|
|
9.29
|
|
$
|
152,365
|
Included
in cost of revenues and expenses is $2,723,377 and $1,172,506 of stock-based
compensation for the years ended December 31, 2008 and 2007,
respectively. At December 31, 2008, this amount includes $36,820 of
stock-based compensation related to non-employees, $2,595,755 related to
employees, $66,000 related to restricted stock and $24,802 related to
warrants. At December 31, 2007, this amount includes $86,216 of
stock-based compensation related to non-employees, $944,623 related to employees
and $141,667 related to the warrants.
The
following table presents share-based compensation expense included in the
Consolidated Statements of Operations related to employee and non-employee stock
options, restricted shares and warrants as follows as of December 31, 2008 and
2007:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Cost
of revenue
|
|
$
|
84,106
|
|
|
$
|
—
|
|
Sales
and marketing
|
|
|
700,340
|
|
|
|
461,526
|
|
Product
development
|
|
|
18,501
|
|
|
|
213,053
|
|
General
and administrative
|
|
|
1,920,430
|
|
|
|
497,927
|
|
Total
share-based compensation
|
|
$
|
2,723,377
|
|
|
$
|
1,172,506
|
|
Share-based
compensation cost is measured at the grant date, based on the calculated fair
value of the award, and is recognized as an expense over the service period,
generally the vesting period of the equity grant.
The fair
value of each option grant has been estimated on the date of grant using the
Black-Scholes valuation model with the following assumptions (weighted-average)
at December 31, 2008 and 2007:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Risk
free interest rate
|
|
|
2.16
|
%
|
|
|
4.08
|
%
|
Expected
lives
|
|
5.91 Years
|
|
|
5.95 Years
|
|
Expected
volatility
|
|
|
75.84
|
%
|
|
|
68.33
|
%
|
Dividend
yields
|
|
|
0
|
%
|
|
|
0
|
%
|
The
weighted-average grant date fair value of the options granted during the years
ended December 31, 2008 and 2007 were $0.14 and $0.81,
respectively.
On
December 2, 2008, the Company granted (under the Non-Qualified Plan) certain
employees options to purchase 14,991,620 shares of Company common
stock. These options will only vest with a change in control of the
Company, as defined in the option agreement. As the condition for
vesting is not probable, the Company has not recognized any compensation expense
related to these options at December 31, 2008. At December 31, 2008,
all of these options remain outstanding.
At
December 31, 2008, there was $7,365,758 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
plans. This cost is expected to be recognized over the weighted
average period of 2.79 years.
During
2008 and 2007, the Company accelerated vesting for certain employees who
terminated their employment and modified the terms of other
options. As a result, of these modifications the Company recognized
additional compensation expense of $202,865 and $153,900 for the years ended
December 31, 2008 and 2007, repectively.
The
Company did not realize any tax benefits from tax deductions of share-based
payment arrangements during the years ended December 31, 2008 and
2007.
Stock-based
compensation expense related to stock options granted to non-employees is
recognized as earned. In accordance with EITF 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services, the Company re-values the
non-employee stock-based compensation, at each reporting date, using the
Black-Scholes pricing model. As a result, stock-based compensation
expense will fluctuate as the estimated fair market value of the Company’s
common stock fluctuates. The Company recorded stock-based
compensation expense related to non-employees of $36,820 and $86,216 for the
years ended December 31, 2008 and 2007, respectively.
A summary
of outstanding Common Stock Warrants included those issued as non-employee
compensation as of December 31, 2008 is as follows:
Securities into which warrants are convertible
and reference
|
|
Shares
|
|
|
Exercise
Price
|
|
Expiration
Date
|
Common
Stock-
Non-employee
compensation
|
|
|
380,000
|
|
|
$
|
1.75
|
|
February 2013
|
Common
Stock-
See note
below
|
|
|
3,133,333
|
|
|
$
|
1.72
|
|
October 2011
|
Common
Stock-
Series A
preferred stock units. See Note 7.
|
|
|
56,522,344
|
|
|
$
|
0.20
|
|
December 2013
|
Common
Stock-
Non-employee
compensation. See Note 7.
|
|
|
6,665,343
|
|
|
$
|
0.20
|
|
December 2013
|
Common
Stock-
Non-employee
compensation
|
|
|
50,000
|
|
|
$
|
1.75
|
|
November 2013
|
Common
Stock-
See note
below
|
|
|
166,667
|
|
|
$
|
3.00
|
|
January 2012
|
Total
|
|
|
66,917,687
|
|
|
|
|
|
|
In
October 2006, the Company assumed warrants exercisable into 4,133,333 shares of
Common Stock. The warrants are immediately exercisable into shares of
Common Stock at a per share price of $1.72 and expire five years from the date
of issuance if unexercised and are callable by the Company under certain
circumstances. 2,000,000 of the Investor Warrants were exercised for the
purchase of 1,000,000 shares of the Company’s Common Stock in January
2007.
In
January 2007, in conjunction with a Strategic Alliance Agreement, the Company
issued warrants to purchase 500,000 shares of its common stock at an exercise
price of $3.00 per share to a company. The warrants are exercisable
for a period of five years. Utilizing the Black-Scholes valuation
model and the following assumptions: estimated volatility of 62%, a contractual
life of two and one-half -years, a zero dividend rate, 4.50% risk free interest
rate, and the fair value of the common stock of $3.70 per share, the Company
determined the fair value of the warrant to be $850,000. In August
2007, the Strategic Alliance Agreement was modified and the number of warrants
was reduced from 500,000 to 166,667. Utilizing the Black-Scholes
valuation model and the following assumptions: estimated volatility of 94%, a
contractual life of two and one-half -years, a zero dividend rate, 4.76% risk
free interest rate, and the fair value of the common stock of $0.34 per share at
date of grant, the Company determined the fair value of the warrant to be
$7,484. Because this amount is not in excess of amounts previously
expensed, no addition stock-based compensation will be recognized.
The
provision for income taxes consists of the following for the years ended
December 31, 2008 and 2007:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Currently
payable (refundable):
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Total
current
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Total
deferred
|
|
|
—
|
|
|
|
—
|
|
Provision
for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
A
reconciliation of the provision for income taxes with the expected provision for
income taxes computed by applying the federal statutory income tax rate (34%) to
the net loss before provision for income taxes for the years ended December 31,
2008 and 2007 is as follows:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Provision
for income taxes at federal statutory rate
|
|
$
|
(5,769,795
|
)
|
|
$
|
(5,642,436
|
)
|
Federal
research tax credits
|
|
|
—
|
|
|
|
146,576
|
|
Expenses
not deductible
|
|
|
150,665
|
|
|
|
259,337
|
|
Provision
to return reconciliation
|
|
|
(234,301
|
)
|
|
|
(33,014
|
)
|
Change
in federal valuation allowance
|
|
|
5,853,431
|
|
|
|
5,269,537
|
|
Provision
for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
As of
December 31, 2008, the Company had approximately $36,074,000 of federal and
$36,072,000 state operating loss carryforwards potentially available to offset
future taxable income. These net operating loss carryforwards are
expected to expire as follows:
Year Ended:
|
|
Federal
|
|
|
State
|
|
2013
|
|
$
|
—
|
|
|
$
|
21,000
|
|
2014
|
|
|
—
|
|
|
|
357,000
|
|
2015
|
|
|
—
|
|
|
|
1,804,000
|
|
2016
|
|
|
—
|
|
|
|
4,918,000
|
|
2017
|
|
|
—
|
|
|
|
15,014,000
|
|
2018
|
|
|
—
|
|
|
|
13,958,000
|
|
2023
|
|
|
21,000
|
|
|
|
—
|
|
2024
|
|
|
366,000
|
|
|
|
—
|
|
2025
|
|
|
1,793,000
|
|
|
|
—
|
|
2026
|
|
|
4,920,000
|
|
|
|
—
|
|
2027
|
|
|
15,016,000
|
|
|
|
—
|
|
2028
|
|
|
13,958,000
|
|
|
|
—
|
|
|
|
$
|
36,074,000
|
|
|
$
|
36,072,000
|
|
The Tax
Reform Act of 1986 (the “Act”) provides for a limitation on the annual use of
net operating loss carryforwards following certain ownership changes (as defined
in the Act) that could limit the Company’s ability to utilize these
carryforwards. Prior equity financings may significantly limit the
Company’s ability to utilize the net operating loss carryforwards.
The
components of the deferred tax assets as of December 31, 2008 and 2007 are as
follows:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Net
operating losses
|
|
$
|
14,342,608
|
|
|
$
|
8,508,905
|
|
Depreciation
and amortization
|
|
|
70,424
|
|
|
|
34,488
|
|
Stock-based
compensation
|
|
|
1,205,972
|
|
|
|
176,900
|
|
Debt
discount
|
|
|
—
|
|
|
|
352,290
|
|
Reserves
and accruals
|
|
|
146,597
|
|
|
|
52,561
|
|
Deferred
revenue
|
|
|
45,513
|
|
|
|
—
|
|
Total
deferred tax asset
|
|
|
15,811,114
|
|
|
|
9,125,144
|
|
Valuation
allowance
|
|
|
(15,811,114
|
)
|
|
|
(9,125,144
|
)
|
Net
deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Based on
the available objective evidence, management believes it is more likely than not
that the net deferred tax assets will not be fully realizable. Accordingly, the
Company has provided a full valuation allowance against its net deferred tax
assets.
In June
2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes (
FIN
48)
, which is applicable for
fiscal years beginning after December 15, 2006. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes
. FIN 48 prescribes a recognition threshold and measurement attribute
for financial statement recognition and measurement of a tax position reported
or expected to be reported on a tax return. FIN 48 also provides guidance
on the recognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. We adopted the provisions of
FIN 48 on January 1, 2007. Upon adoption of FIN 48 and through
December 31, 2007, we determined that we had no liability for uncertain
income taxes as prescribed by FIN 48. Our policy is to recognize potential
accrued interest and penalties related to the liability for uncertain tax
benefits, if applicable, in income tax expense. Net operating loss carryforwards
since inception remain open to examination by taxing authorities, and will
continue to remain open for a period of time post utilization. The adoption of
FIN 48 did not have an impact on the Company's results of operations and
financial position.
There are
no prior or current year tax returns under audit by taxing authorities, and
management is not aware of any impending audits.
The Tax
Reform Act of 1986 limits the use of net operating loss and tax credit
carryforwards in certain situations where changes occur in the stock ownership
of a company. In the event the Company has had a change in ownership,
utilization of the carryforwards could be restricted.
As
discussed in Note 6, in two separate closings, on April 18, 2008 and June 30,
2008, the Company sold the 2008 Notes and the 2008 Warrants. The 2008
Warrants had a five-year term and were exercisable after 181 days from issuance
until April 18, 2013 at an exercise price of $1.75 per share. The 2008 Warrant
contained a net cash settlement feature, which was available to the warrant
holders at their option, in certain change of control circumstances. As a
result, under EITF 00-19, the warrants were required to be classified as a
liability at their current fair value estimated using the Black-Scholes
option-pricing model. Warrants that are classified as a liability are revalued
at each reporting date until the warrants are exercised or expire with changes
in the fair value reported as interest expense. Accordingly, we
recorded a reduction in interest expense of $226,008 for the year ended December
31, 2008. The decrease represents the change in fair value of the warrant
liability from the date of issuance, April 18, 2008, through December 12, 2008,
the date the warrants were exchanged for Company common stock. See Note
6. The aggregate fair value and the assumptions used for the
Black-Scholes option-pricing models as of December 12, 2008 were as
follows:
|
|
December
12,
|
|
|
|
2008
|
|
Aggregate
fair value
|
|
$
|
97,437
|
|
Expected
volatility
|
|
|
78.12
|
%
|
Weighted
average remaining contractual term(years)
|
|
|
4.47
|
|
Risk-free
interest rate
|
|
|
1.93
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
Common
stock price
|
|
$
|
0.16
|
|
12.
|
Loss on Debt
Extinguishment
|
In
December 2008, the Company repurchased all of its then outstanding convertible
debt and related detachable warrants. The repurchase occurred with a
combination of cash payments totaling $6,548,316 and exchanges of convertible
debt and warrants for either new Series A preferred stock and warrants or common
stock.
The
Company recorded the transaction in accordance with APB No. 26, Early
Extinguishment Debt and recognized a loss on the extinguishment as
follows:
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
of Common
|
|
|
|
|
|
|
Net Carrying
|
|
|
Cash
|
|
|
Stock Units
|
|
|
Stock
|
|
|
Loss on Debt
|
|
Description
|
|
Amount
|
|
|
Payment
|
|
|
Issued
|
|
|
Issued
|
|
|
Extinguishment
|
|
Conversion
of 6% convertible notes into 410,887 preferred stock
units
|
|
$
|
1,135,221
|
|
|
$
|
—
|
|
|
$
|
(1,643,549
|
)
|
|
$
|
—
|
|
|
$
|
(508,328
|
)
|
Conversion
of 15% convertible notes into 1,029,406
preferred stock units
|
|
|
3,457,321
|
|
|
|
—
|
|
|
|
(4,117,624
|
)
|
|
|
—
|
|
|
|
(660,303
|
)
|
Exchange
of liability classified warrants for common
stock
|
|
|
97,437
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(559,682
|
)
|
|
|
(462,245
|
)
|
Repurchase
of 6% convertible notes
|
|
|
6,124,399
|
|
|
|
(6,414,187
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(289,788
|
)
|
Write-off
of unamortized issuance costs
|
|
|
(816,168
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(816,168
|
)
|
|
|
$
|
9,998,210
|
|
|
$
|
(6,414,187
|
)
|
|
$
|
(5,761,173
|
)
|
|
$
|
(559,682
|
)
|
|
$
|
(2,736,832
|
)
|
13.
|
Related
Party Transactions
|
The
following is the activity between the Company and a founder and stockholder
related to amounts due from this individual as of December 31, 2008 and
2007:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Beginning
balance
|
|
$
|
—
|
|
|
$
|
17,216
|
|
Amounts
advanced
|
|
|
—
|
|
|
|
660
|
|
Allowance
for doubtful account
|
|
|
—
|
|
|
|
(17,876
|
)
|
Due
from founder and stockholder
|
|
$
|
—
|
|
|
$
|
—
|
|
The
following is the activity between the Company and stockholders related to
non-interest bearing notes receivable as of December 31, 2008 and
2007:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Beginning
balance
|
|
$
|
18,910
|
|
|
$
|
18,910
|
|
Notes
receivable originally issued
|
|
|
—
|
|
|
|
—
|
|
Notes
receivable cancelled upon the repurchase of Common Stock
|
|
|
—
|
|
|
|
—
|
|
Notes
receivable from stockholders
|
|
$
|
18,910
|
|
|
$
|
18,910
|
|
The
following is the activity between the Company and a stockholder related to
amounts due to this individual as of December 31, 2008 and 2007:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Beginning balance
|
|
$
|
—
|
|
|
$
|
384,793
|
|
Amounts received by the Company
|
|
|
610,000
|
|
|
|
—
|
|
Amounts repaid by the Company
|
|
|
(400,000
|
)
|
|
|
(384,793
|
)
|
Amounts
converted to convertible original issue discount notes
|
|
|
(210,000
|
)
|
|
|
—
|
|
Due to stockholder
|
|
$
|
—
|
|
|
$
|
—
|
|
14.
|
Cash Flow
Information
|
Cash paid
during the years ended December 31, 2008 and 2007 is as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Interest
|
|
$
|
629,843
|
|
|
$
|
309,000
|
|
Income
taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Supplemental
disclosure of non-cash investing and financing activities for the years ended
December 31, 2008 and 2007 is as follows:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Conversion
of Convertible Promissory Notes into common stock
|
|
$
|
40,000
|
|
|
$
|
—
|
|
Issuance
of common stock for warrants
|
|
$
|
559,899
|
|
|
$
|
—
|
|
Issuance
of Series A preferred stock units for the extinguishment of
debt
|
|
$
|
5,761,173
|
|
|
$
|
—
|
|
Issuance
of common stock to a publisher
|
|
$
|
102,000
|
|
|
$
|
—
|
|
Convertible
notes issued upon conversion of amounts due to stockholder
|
|
$
|
210,000
|
|
|
$
|
—
|
|
Beneficial
conversion feature associated with convertible notes
|
|
$
|
772,500
|
|
|
$
|
—
|
|
Decrease
in warrant liability
|
|
$
|
115,147
|
|
|
$
|
—
|
|
Issuance
of common stock for warrants
|
|
$
|
236
|
|
|
$
|
—
|
|
Initial
recording of warrant liability
|
|
$
|
213,175
|
|
|
$
|
—
|
|
Issuance
of warrants with convertible notes
|
|
$
|
—
|
|
|
$
|
4,924,202
|
|
Issuance
of warrants to placement agents
|
|
$
|
—
|
|
|
$
|
374,291
|
|
Issuance
of common stock for license agreement
|
|
$
|
—
|
|
|
$
|
200,000
|
|
Issuance
of warrants to investors
|
|
$
|
—
|
|
|
$
|
8,616
|
|
In
February 2007, the Company announced that it had entered into a merger
agreement, pursuant to which Bolt, Inc., a/k/a Bolt Media, Inc., a Delaware
corporation (“Bolt”), pursuant to which Bolt would merge with and in to a
wholly-owned subsidiary of the Company. In August 2007, the Company
terminated the Bolt merger.
During
the period from February 2007 to September 2007, the Company advanced Bolt
$1,020,338. The Company only has a secured interest in Bolt’s trade
accounts receivables of $600,000. As a result, the Company recorded
an allowance for doubtful accounts of $420,338. In addition, the
Company incurred $850,010 of direct acquisition costs. The total
related acquisition costs of $1,270,348 for the year ended December 31, 2007
have been expensed.
The
accounts receivable of $600,000 has been repaid.
16.
|
Quarterly Financial Data
(Unaudited)
|
|
|
December 31, 2008
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
Revenues
|
|
$
|
657,150
|
|
|
$
|
1,282,439
|
|
|
$
|
2,786,139
|
|
|
$
|
2,975,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues and expenses
|
|
|
4,272,216
|
|
|
|
4,200,764
|
|
|
|
5,147,610
|
|
|
|
8,887,427
|
|
Operating
loss
|
|
|
(3,615,066
|
)
|
|
|
(2,918,325
|
)
|
|
|
(2,361,471
|
)
|
|
|
(5,911,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
4,525
|
|
|
|
5,659
|
|
|
|
5,662
|
|
|
|
7,392
|
|
Miscellaneous
income
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
278,640
|
|
Interest
expense
|
|
|
(568,957
|
)
|
|
|
(649,386
|
)
|
|
|
(893,227
|
)
|
|
|
(353,975
|
)
|
Total
other income (expense)
|
|
|
(564,332
|
)
|
|
|
(643,727
|
)
|
|
|
(887,565
|
)
|
|
|
(67,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
(4,179,398
|
)
|
|
|
(3,562,052
|
)
|
|
|
(3,249,036
|
)
|
|
|
(5,979,499
|
)
|
Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
$
|
(4,179,398
|
)
|
|
$
|
(3,562,052
|
)
|
|
$
|
(3,249,036
|
)
|
|
$
|
(5,979,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share – basic and diluted
|
|
$
|
(0.17
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used to compute net loss per share – basic and diluted
|
|
|
25,298,310
|
|
|
|
25,483,475
|
|
|
|
25,494,739
|
|
|
|
26,266,004
|
|
|
|
December 31, 2007
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
Revenues
|
|
$
|
24,074
|
|
|
$
|
31,686
|
|
|
$
|
485,812
|
|
|
$
|
1,539,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues and expenses
|
|
|
3,526,008
|
|
|
|
5,836,555
|
|
|
|
3,719,304
|
|
|
|
4,248,148
|
|
Operating
loss
|
|
|
(3,501,934
|
)
|
|
|
(5,804,869
|
)
|
|
|
(3,233,492
|
)
|
|
|
(2,708,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
33,839
|
|
|
|
21,292
|
|
|
|
65,471
|
|
|
|
26,405
|
|
Miscellaneous
income
|
|
|
954
|
|
|
|
(417
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
Interest
expense
|
|
|
—
|
|
|
|
(97,067
|
)
|
|
|
(612,501
|
)
|
|
|
(567,000
|
)
|
Total
other income (expense)
|
|
|
34,793
|
|
|
|
(76,192
|
)
|
|
|
(547,030
|
)
|
|
|
(540,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
(3,467,141
|
)
|
|
|
(5,881,061
|
)
|
|
|
(3,780,522
|
)
|
|
|
(3,249,134
|
)
|
Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
$
|
(3,467,141
|
)
|
|
$
|
(5,881,061
|
)
|
|
$
|
(3,780,522
|
)
|
|
$
|
(3,249,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used to compute net loss per share - basic and diluted
|
|
|
23,811,698
|
|
|
|
24,129,424
|
|
|
|
24,130,276
|
|
|
|
24,346,947
|
|
On March
27, 2009, the Company entered into a Loan and Security Agreement (the “Loan and
Security Agreement”) with Silicon Valley Bank that provides for a secured
revolving credit arrangement to provide advances in an aggregate principal
amount of up to $4 million on the terms and conditions set forth in the Loan and
Security Agreement. The Loan and Security Agreement consists of a $4 million
credit facility with a $500,000 sublimit for stand-by letters of credit,
$500,000 sublimit for cash management services and a $500,000 sublimit for
foreign exchange contracts. The borrowings are secured based upon a percentage
of certain eligible billed and unbilled accounts receivables. The Company may
borrow, repay and reborrow under the line of credit facility at any time. As of
March 27, 2009, the advances under the line of credit facility shall accrue
interest at a per annum rate equal to 3.0% above the greater of (i) Silicon
Valley Bank’s announced prime rate or (ii) 7.0%. This interest rate shall be
adjusted upwards at times when the Company’s liquidity ratio (as described in
the Loan and Security Agreement) equals less than 2.25 to 1.00. The Company is
required to pay a termination fee if the Loan and Security Agreement is
terminated prior to March 27, 2011 (the “Maturity Date”) in an amount equal to
the interest that would have accrued on an advance of an aggregate principal
amount of $1 million through the Maturity Date.
The
Company’s line of credit is collateralized by substantially all of the Company’s
assets and requires the Company to comply with customary affirmative and
negative covenants principally relating to liens, indebtedness, investments,
distributions to shareholders, use and disposition of assets, the satisfaction
of a liquidity ratio test and minimum tangible net worth requirements. In
addition, the Loan and Security Agreement contains customary events of default.
Upon the occurrence of an uncured event of default, among other things, Silicon
Valley Bank may declare that all amounts owing under the credit arrangement are
due and payable and the applicable interest rate shall become 4% above the rate
that would otherwise apply. The line of credit and facility expire on the
Maturity Date. As of March 30, 2009, there is no amount outstanding under this
revolving credit arrangement.
In
connection with the execution of the Loan and Security Agreement, the Company
issued a warrant to Silicon Valley Bank on March 27, 2009, which allows Silicon
Valley Bank to purchase up to 600,000 shares of the Company’s common stock at a
warrant price of $0.20 per share. This warrant expires on the fifth anniversary
of its issue date, subject to earlier expiration in accordance with its
terms.
PROSPECTUS
Up
to 98,914,102 shares of common stock, par value $0.001 per share
, 2009
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate (except
for registration fees, which are actual) of the approximate amount of the fees
and expenses payable by us in connection with the issuance and distribution of
the shares of common stock.
EXPENSE
|
|
AMOUNT
|
|
|
|
|
|
Registration
Fees
|
|
$
|
680
|
|
Legal
Fees
|
|
|
50,000
|
|
Accounting
Fees
|
|
|
10,000
|
|
Miscellaneous
Fees and Expenses
|
|
|
5,000
|
|
|
|
|
|
|
Total
|
|
$
|
65,680
|
|
Item
14. Indemnification of Directors and Officers.
Under Nevada law, a corporation shall
indemnify a director or officer against expenses, including attorneys’ fees,
actually and reasonably incurred by him, to the extent the director or officer
has been successful on the merits or otherwise in defense of any action, suit or
proceeding. A corporation may indemnify a director or officer who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, against expenses, including attorneys’ fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with the action, suit or proceeding. Excepted from that immunity
are:
|
·
|
A willful failure to deal fairly
with the company or its stockholders in connection with a matter in which
the director has a material conflict of
interest;
|
|
·
|
A violation of criminal law
(unless the director had reasonable cause to believe that his or her
conduct was lawful or no reasonable cause to believe that his or her
conduct was unlawful);
|
|
·
|
A transaction from which the
director derived an improper personal profit;
and
|
Our bylaws include an indemnification
provision under which we have the power to indemnify our directors, officers,
employees and other agents (including heirs and personal representatives)
against all costs, charges and expenses actually and reasonably incurred,
including an amount paid to settle an action or satisfy a judgment to which the
director or officer is made a party by reason of being or having been a director
or officer of ours. Our bylaws further provide for the advancement of all
expenses incurred in connection with a proceeding upon receipt of an undertaking
by or on behalf of such person to repay such amounts if it is determined that
the party is not entitled to be indemnified under our bylaws. No advance will be
made by us to a party if it is determined that the party acted in bad faith. The
indemnification rights are contractual rights and will continue as to a person
who has ceased to be a director, officer, employee, or other agent, and will
inure to the benefit of the heirs, executors, and administrators of such a
person.
We have entered into indemnity
agreements with certain of our directors and executive officers. Each of these
indemnity agreements generally provides for indemnification of certain expenses,
judgments, fines, and settlement amounts incurred by such director or executive
officer in any action or proceeding, including any action by or in the right of
ours arising out of his services to us, to any of our subsidiaries, or to any
other company or enterprise to which he provides services at our request. Each
of these indemnity agreements generally provides for the advancement of
expenses, makes indemnification contingent on his good faith in acting or
failing to act, and excepts the obligation to indemnify for expenses or
liabilities paid directly to him by directors’ and officers’
insurance.
Item
15. Recent Sales of Unregistered Securities.
There have been no sales of
unregistered securities within the last three years which would be required to
be disclosed pursuant to Item 701 of Regulation S-K, except for the
following:
SVB
Loan Transaction
In
connection with the Loan and Security Agreement that we entered into with
Silicon Valley Bank on March 27, 2009, we issued a warrant to Silicon Valley
Bank providing Silicon Valley Bank with the right to purchase up to 600,000
shares of our common stock at an exercise price of $0.20 per share. The warrant
expires on the fifth anniversary of the issue date of the warrant, subject to
earlier expiration in accordance with the terms of the warrant. The issuance of
the warrant was exempt from registration under Section 4(2) of the Securities
Act and Rule 506 of Regulation D as promulgated by the Securities and Exchange
Commission.
2008
Series A Financing
Pursuant
to the terms of a securities purchase agreement dated December 3, 2008, which we
entered into with the selling stockholders, we raised approximately $22.5
million in gross proceeds and cancelled an aggregate principal amount of
approximately $5,427,864 of the Senior Notes and the Subordinated Notes in
exchange for the issuance of an aggregate of 7,065,293 shares of our Series A
preferred stock and warrants to purchase 56,522,344 shares of our common
stock. The Series A preferred stock and warrants were sold as units
at a purchase price of $4.00 per unit, with each unit consisting of (i) one
share of Series A preferred stock and (ii) a warrant to purchase eight shares of
common stock. The Series A preferred stock and warrants were sold at
two closings that occurred on December 3, 2008 and December 12,
2008.
Qatalyst acted as our financial advisor
in connection with the financing. We have paid Qatalyst a cash fee
and have issued warrants to purchase 6,665,352 shares of our common stock to
Qatalyst as compensation for its services to us in accordance with the terms of
our engagement letter with Qatalyst.
In addition, in connection with the
closings under the securities purchase agreement, all remaining warrants
originally issued in connection with the issuance of the Senior Notes, the
Subordinated Notes and certain other transactions were converted into shares of
common stock or repurchased by us. We paid approximately $72,500 and
issued 154,500 shares of the common stock of the Company to repurchase and
convert warrants to purchase 4,184,170 shares of common stock originally issued
to such warrant holders.
The
issuance of each of the foregoing securities was exempt from registration under
Section 4(2) of the Securities Act and Rule 506 of Regulation D as promulgated
by the Securities and Exchange Commission.
Other
2008 Transactions
In two
separate closings, on April 18, 2008 and June 30, 2008, we sold the Subordinated
Notes and related warrants to purchase an aggregate of 3,997,723 shares of our
common stock at an exercise price of $1.75 per share, in a private placement
transaction for an aggregate purchase price of $3,500,000. The
Subordinated Notes were discounted 15% from their respective principal amounts,
and bore interest at a rate of 15% per annum beginning one year from the date of
issuance.
The
Subordinated Notes and related warrants were cancelled in connection with the
Series A preferred stock financing and are no longer outstanding, as described
further above under the subheading “2008 Series A
Financing.”
On
February 28, 2008 we issued warrants to purchase an aggregate of 120,000 shares
of our common stock at an exercise price of $1.75 per share for a period of five
years to designees of The Investor Relations Group (“IRG”). O
f these
warrants, 30,000 vested and remain outstanding and 90,000 have expired. We
also issued on February 28, 2008,
warrants to purchase 50,000 shares of
our common stock for a period of five years (the “Catalyst Restricted
Warrant”) to Catalyst Strategy, Inc. (“Catalyst”) at an exercise price of $1.75
per share.
The
issuance of each of the foregoing securities was exempt from registration under
Section 4(2) of the Securities Act and Rule 506 of Regulation D as promulgated
by the Securities and Exchange Commission.
2007
Transactions
On
December 10, 2007, in connection with our advertising representation agreement
with MiniClip Limited, a company registered in the United Kingdom (“MiniClip”),
we issued to MiniClip 300,000 shares of our common stock and a warrant to
purchase an additional 300,000 shares of our common stock at an exercise price
of $1.75 per share for a period of five years.
On
December 12, 2007, in connection with our license agreement with MTV Networks, a
division of Viacom International Inc. (“MTVN”), we issued to MTVN 1,000,000
restricted shares registered in the name of Viacom International, Inc. of common
stock of the Company and granted MTVN a participation right in certain future
financings of the Company to purchase additional securities equal to an
aggregate of 35% of the aggregate gross proceeds of any such financing during
the term our license agreement with MTVN.
On
November 28, 2007, we issued to an accredited investor a warrant to purchase
46,875 shares at an exercise price of $1.75 per share.
This
warrant was cancelled in connection with the Series A preferred stock financing
and is no longer outstanding, as described further above under the subheading
“2008 Series A Financing.”
In
connection with our original Strategic Alliance Agreement with Kaleidoscope
Sports and Entertainment LLC (“KSE”), we issued 500,000 warrants to KSE. Each of
these warrants gave holder the right to purchase one share of our common stock
for a period of up to five years at a price of $3.00 per share. On
August 10, 2007, we entered into an Amended and Restated Strategic Alliance
Agreement with KSE, pursuant to which, among other things, KSE surrendered its
warrants under the original Strategic Alliance Agreement in exchange for new
warrants to purchase 166,667 shares of common stock, exercisable at a price of
$3.00 per share, upon commencement of the term of the Amended and Restated
Strategic Alliance Agreement, while the Amended and Restated Strategic Alliance
Agreement was terminated as of August 4, 2008, KSE continues to have six months
from the date of termination within which to exercise its warrants to purchase
166,667 shares of common stock.
In
June 2007, we sold the Senior Notes in the aggregate principal amount of $10.3
million and warrants to purchase an aggregate of 3,862,500 shares of our common
stock in a private placement transaction. The notes
bore interest at a rate of 6% per annum. The warrants issued to the
investors were each exercisable to purchase one share of our common stock at a
price of $1.75 per share at any time during a five year period commencing on the
one year anniversary of the issuance date. We also issued an
aggregate of 309,000 warrants to the placement agents, 193,125 of which had an
exercise price of $1.60 and 115,875 of which had an exercise price of $1.75.
The
Senior Notes and related warrants were cancelled in connection with the Series A
preferred stock financing and are no longer outstanding, as described further
above under the subheading “2008 Series A Financing.”
The
issuance of each of the foregoing securities was exempt from registration under
Section 4(2) of the Securities Act and Rule 506 of Regulation D as promulgated
by the Securities and Exchange Commission.
Securities
issued in connection with 2006 private offering
On
October 27, 2006, we closed a private offering of 8,166,669 units of our
securities, raising an aggregate of approximately $12,250,000 in cash and
cancelled indebtedness, each unit consisting of one share of our common stock
and warrant to purchase one-half (1/2) of a share of our common stock for a
period of five years at an exercise price of $1.75 per whole
share. In connection with the private offering we also issued 100,000
warrants to purchase 50,000 shares to a financial advisor. In January 2007,
2,000,000 of these warrants were exercised for 1,000,000 shares of our common
stock.
The
issuance of the foregoing securities was exempt from registration under Section
4(2) of the Securities Act and Rule 506 of Regulation D as promulgated by the
Securities and Exchange Commission.
Securities
issued in connection with 2006 mergers
Prior to
October 27, 2006, all of the issued and outstanding shares of Series A Preferred
Stock of GoFish Technologies Inc. converted, on a one-for-one basis, into shares
of GoFish Technologies Inc. common stock. On October 27, 2006, the holders of
the common stock of GoFish Technologies Inc. surrendered all of their issued and
outstanding shares and received 3,632,555 shares of our common stock in
connection with the merger pursuant to which GoFish Corporation acquired GoFish
Technologies, Inc. In addition, (i) holders of issued and outstanding
warrants to purchase common shares of GoFish Technologies Inc. received warrants
for the purchase of shares of our common stock, and (ii) holders of issued and
outstanding options to purchase common shares of GoFish Technologies Inc.
received options for the purchase of shares of our common stock.
All of
the warrants have subsequently expired.
Further, 1-0 Holdings LLC was
issued 300,000 shares of our common stock for finder and advisory services in
connection with this merger and the concurrent private placement described
immediately above.
On
October 27, 2006, the holders of the common stock of ITD surrendered all of
their issued and outstanding shares and received 3,500,000 shares of our common
stock in connection with the merger of ITD Acquisition Corp., a wholly owned
subsidiary of Unibio, Inc., merger with and into ITD.
The
issuance of the foregoing securities was exempt from registration under Section
4(2) of the Securities Act and Rule 506 of Regulation D as promulgated by the
Securities and Exchange Commission.
Option
Issuances
During
the period October 24, 2007 through January 31, 2009, we issued an aggregate of
84,197,984 stock options under our 2007 non-qualified stock option plan
to 40 individuals. The options have exercise prices ranging from $0.20 to
$1.50. The issuance of the options was exempt from registration under Section
4(2) of the Securities Act.
During
the period October 27, 2006 through September 30, 2007, we issued an aggregate
of 4,099,000 stock options under our 2006 equity incentive plan to 33
individuals. The options have exercise prices ranging from $1.50 to $5.79. The
issuance of the options was exempt from registration under Section 4(2) of the
Securities Act.
In
connection with our October 2006 merger, we adopted the GoFish Technologies,
Inc. 2004 option plan. In January 2007, 25,879 options granted thereunder were
exercised for a like number of shares at an exercise price of $0.058 per share.
In May 2007, 5,176 options granted thereunder were exercised for a like number
of shares at an exercise price of $1.50 per share. The issuance of the shares
was exempt from registration under Section 4(2) of the Securities
Act.
Item
16. Exhibits and Financial Statement Schedules
Exhibit No.
|
|
Description
|
|
Reference
|
|
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger and Reorganization, dated as of October 27, 2006, by
and among the Registrant, GF Acquisition Corp., GoFish Technologies, Inc.,
ITD Acquisition Corp. and Internet Television Distribution
Inc.
|
|
Incorporated
by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
3.1
|
|
Amended
and Restated Articles of
Incorporation
of the Registrant filed with the
Nevada
Secretary of State on December 12,
2008.
|
|
Incorporated
by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K
dated December 12, 2008 filed with the Securities and Exchange Commission
on December 18, 2008 (File No. 333-131651)
|
|
|
|
|
|
3.2
|
|
Certificate
of Amendment to the Amended and
Restated
Articles of Incorporation of the
Registrant
filed with the Nevada Secretary of
State
on January 20, 2009.
|
|
Incorporated
by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K
dated January 16, 2009 filed with the Securities and Exchange Commission
on
January
21, 2009
(File
No. 333 131651)
|
|
|
|
|
|
3.3
|
|
Bylaws
of the Registrant.
|
|
Incorporated
by reference to Exhibit 3.2 to Registrant’s Registration Statement on Form
SB-2 filed with the Securities and Exchange Commission on February 7, 2006
(File No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
|
|
|
|
|
3.4
|
|
First
Amendment to Bylaws of the Registrant.
|
|
Incorporated
by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K
dated December 3, 2008 filed with the Securities and Exchange
Commission on December 9, 2008 (File No.
333-131651).
|
|
|
|
|
|
4.1
|
|
Form
of Warrant of the Registrant issued in private offering completed October
27, 2006.
|
|
Incorporated
by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
4.2
|
|
Lock
Up Agreement by and between Michael Downing and Tompkins Capital
Group.
|
|
Incorporated
by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
4.3
|
|
Lock
Up Agreement by and between Riaz Valani and Tompkins Capital
Group.
|
|
Incorporated
by reference to Exhibit 4.3 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
4.4
|
|
Lock
Up Agreement by and between Tabreez Verjee and Tompkins Capital
Group.
|
|
Incorporated
by reference to Exhibit 4.4 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
4.5
|
|
Purchase
Agreement dated as of June 7, 2007 by and among the Registrant and the
investors identified on the signature pages thereto.
|
|
Incorporated
by referenced to Exhibit 4.1 to Registrant’s Current Report on Form 8-K
dated June 7, 2007 filed with the Securities and Exchange Commission on
June 8, 2007 (File No. 333-131651).
|
|
|
|
|
|
4.6
|
|
Registration
Rights Agreement dated as of June 7, 2007, by and among the Registrant and
the investors identified on the signature pages thereto.
|
|
Incorporated
by referenced to Exhibit 4.2 to Registrant’s Current Report on Form 8-K
dated June 7, 2007 filed with the Securities and Exchange Commission on
June 8, 2007 (File No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
|
|
|
|
|
4.7
|
|
Form
of the June 2007 Notes.
|
|
Incorporated
by referenced to Exhibit 4.3 to Registrant’s Current Report on Form 8-K
dated June 7, 2007 filed with the Securities and Exchange Commission on
June 8, 2007 (File No. 333-131651).
|
|
|
|
|
|
4.8
|
|
Form
of the June 2007 Warrants.
|
|
Incorporated
by referenced to Exhibit 4.4 to Registrant’s Current Report on Form 8-K
dated June 7, 2007 filed with the Securities and Exchange Commission on
June 8, 2007 (File No. 333-131651).
|
|
|
|
|
|
4.9
|
|
Subscription
Agreement, dated as of April 18, 2008, by and among the Registrant and the
subscribers identified on the signature page thereto.
|
|
Incorporated
by referenced to Exhibit 4.1 to Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2008 (File
No. 333-131651).
|
|
|
|
|
|
4.10
|
|
Accession
Agreement, dated as of June 30, 2008, by and among the Registrant and the
subscribers identified on the signature page thereto.
|
|
Incorporated
by referenced to Exhibit 4.2 to Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2008 (File
No. 333-131651).
|
|
|
|
|
|
4.11
|
|
Form
of the 2008 Notes.
|
|
Incorporated
by referenced to Exhibit 4.3 to Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2008 (File
No. 333-131651).
|
|
|
|
|
|
4.12
|
|
Form
of the 2008 Warrants.
|
|
Incorporated
by referenced to Exhibit 4.4 to Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2008 (File
No. 333-131651).
|
|
|
|
|
|
4.13
|
|
Certificate
of Designation of Rights, Preferences, Privileges and Restrictions of
Series A Preferred Stock of the Registrant.
|
|
Incorporated
by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K
dated December 3, 2008 filed with the Securities and Exchange
Commission on December 9, 2008 (File No.
333-131651).
|
|
|
|
|
|
4.14
|
|
Warrant
to Purchase Stock issued to Silicon Valley Bank, dated March 27,
2009.
|
|
Incorporated
by referenced to Exhibit 4.1 to Registrant’s Current Report on Form 8-K
dated March 27, 2009 filed with the Securities and Exchange Commission on
April 1, 2009 (File No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
|
|
|
|
|
5.1
|
|
Opinion
of McDonald Carano Wilson, LLP.
|
|
Previously
filed.
|
|
|
|
|
|
10.1
|
|
Escrow
Agreement, dated as of October 27, 2006, by and among the Registrant,
Michael Downing, Riaz Valani and Gottbetter & Partners,
LLP.
|
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.2
|
|
Form
of Subscription Agreement, dated as of October 27, 2006, by and among the
Registrant and the investors in the private offering completed October 27,
2006.
|
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.3
|
|
Form
of Registration Rights Agreement, dated as of October 27, 2006, including
the Consent and Acknowledgment thereto, by and among the Registrant and
the investors in the private offering completed October 27,
2006.
|
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.4
|
|
Split
Off Agreement, dated as of October 27, 2006, by and among the Registrant,
Dianxiang Wu, Jianhua Xue, GoFish Technologies, Inc. and GF Leaseco,
Inc.
|
|
Incorporated
by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.5
|
|
Form
of Indemnity Agreement by and between the Registrant and Outside Directors
of the Registrant.
|
|
Incorporated
by reference to Exhibit 10.6 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.6
|
|
2006
Equity Incentive Plan.
|
|
Incorporated
by reference to Exhibit 10.7 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
|
|
|
|
|
10.7
|
|
Form
of Incentive Stock Option Agreement by and between the Registrant and
participants under the 2006 Equity Incentive Plan.
|
|
Incorporated
by reference to Exhibit 10.8 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.8
|
|
Form
of Non-Qualified Stock Option Agreement by and between the Registrant and
participants under the 2006 Equity Incentive Plan.
|
|
Incorporated
by reference to Exhibit 10.9 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.9
|
|
Employment
Agreement dated as of October 30, 2006, by and between the Registrant and
Greg Schroeder.
|
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated October 30, 2006 filed with the Securities and Exchange Commission
on November 3, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.10
|
|
Employment
Agreement dated as of October 27, 2006, by and between the Registrant
and Michael Downing.
|
|
Incorporated
by reference to Exhibit 10.5 to Registrant’s Current Report on Form 8-K
dated October 27, 2006, filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.11
|
|
Strategic
Alliance Agreement, dated as of December 22, 2006, by and between the
Registrant and Kaleidescope Sports and Entertainment LLC.
|
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated December 22, 2006 filed with the Securities and Exchange Commission
on December 28, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.12
|
|
Form
of Base Warrant issued to designees of Kaleidescope Sports and
Entertainment LLC as of January 1, 2007.
|
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
dated December 22, 2006 filed with the Securities and Exchange Commission
on December 28, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.13
|
|
Form
of Lock Up Agreement, to be dated as of the Closing Date, by and among the
Registrant and the persons to whom Betawave Common Stock will be issued in
the merger.
|
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K
dated February 11, 2007 filed with the Securities and Exchange
Commission on February 12, 2007 (File No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
|
|
|
|
|
10.14
|
|
Amendment
to Employment Agreement dated as of February 26, 2007, by and between
the Registrant and Michael Downing.
|
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
dated February 26, 2007 filed with the Securities and Exchange Commission
on March 2, 2007 (File No. 333-131651).
|
|
|
|
|
|
10.15
|
|
Separation
Agreement and Mutual Release dated as of June 4, 2008, by and between the
Registrant and Michael Downing.
|
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated June 4, 2008 filed with the Securities and Exchange Commission on
June 9, 2008 (File No. 333-131651).
|
|
|
|
|
|
10.16
|
|
Independent
Contractor Agreement dated as of June 4, 2008, by and between the
Registrant and Michael Downing.
|
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
dated June 4, 2008 filed with the Securities and Exchange Commission on
June 9, 2008 (File No. 333-131651).
|
|
|
|
|
|
10.17
|
|
First
Amendment to Strategic Alliance Agreement, dated as of June 29, 2007, by
and between GoFish Technologies, Inc., the Registrant and Kaleidoscope,
Inc. (acting through its wholly-owned subsidiary, Kaleidoscope Sports and
Entertainment LLC).
|
|
Incorporated
by reference to Exhibit 10.22 to Registrant’s Amendment No. 1 to
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission on July 11, 2007 (File No. 333-142460).
|
|
|
|
|
|
10.18
|
|
Second
Amendment to Strategic Alliance Agreement, dated as of July 31, 2007, by
and between GoFish Technologies, Inc., the Registrant and Kaleidoscope,
Inc. (acting through its wholly-owned subsidiary, Kaleidoscope Sports and
Entertainment LLC).
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on August 13,
2007 (File No. 333-145406).
|
|
|
|
|
|
10.19
|
|
Amended
and Restated Strategic Alliance Agreement, dated as of August 10, 2007, by
and among GoFish Technologies, Inc., the Registrant and Kaleidoscope, Inc.
(acting through its wholly-owned subsidiary, Kaleidoscope Sports and
Entertainment LLC).
|
|
Incorporated
by reference to Exhibit 10.24 to Registrant’s Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on August 13,
2007 (File No. 333-145406).
|
|
|
|
|
|
10.20
|
|
Amendment
to Employment Agreement dated as of July 11, 2007, by and between the
Registrant and Greg Schroeder.
|
|
Incorporated
by reference to Exhibit 10.25 to Amendment No. 2 to Registrant’s
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission on August 24, 2007 (File No.
333-142460)
|
Exhibit No.
|
|
Description
|
|
Reference
|
|
|
|
|
|
10.21
|
|
2007
Non-Qualified Stock Option Plan (as amended through February 5,
2008).
|
|
Incorporated
by reference to Exhibit 10.29 to Registrant’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2007 filed with the Securities and
Exchange Commission on March 31, 2008 (File No.
333-131651).
|
|
|
|
|
|
10.22*
|
|
Advertising
Representation Agreement, dated
as
of December 10, 2007, by and between the
Registrant
and MiniClip.
|
|
Incorporated
by reference to Exhibit 10.30 to Registrant’s Annual Report on Form
10-KSB
for
the fiscal year ended December 31, 2007 filed with the Securities and
Exchange Commission on March 31, 2008 (File No.
333-131651)
|
|
|
|
|
|
10.23*
|
|
Amendment
to Advertising Representation
Agreement,
dated as of November 12, 2008,
by
and between the Registrant and MiniClip.
|
|
Incorporated
by reference to Exhibit 10.12 to Registrant’s Annual Report on Form
10-KSB
for
the fiscal year ended December 31, 2008 filed with the Securities and
Exchange Commission on March 31, 2009 (File No.
333-131651)
|
|
|
|
|
|
10.24
|
|
Stock
and Warrant Issuance Agreement,
dated
as of December 10, 2007, by and between MiniClip Limited and the
Registrant.
|
|
Incorporated
by reference to Exhibit 10.31 to Registrant’s Amendment to Annual Report
on
Form
10-KSB/A for the fiscal year ended December 31, 2007 filed with the
Securities and Exchange Commission on April 1, 2008
(File
No. 333-131651)
|
|
|
|
|
|
10.25
|
|
Stock
Issuance and Participation Rights
Agreement,
dated as of December 12, 2007, by and between MTV Networks, a division of
Viacom International Inc. and the Registrant.
|
|
Incorporated
by reference to Exhibit 10.31 to Registrant’s Amendment to Annual Report
on
Form
10-KSB/A for the fiscal year ended December 31, 2007 filed with the
Securities and Exchange Commission on April 1, 2008
(File
No. 333-131651)
|
|
|
|
|
|
10.26
|
|
Consulting
Agreement, dated as of December
18,
2007, by and between the Registrant and James Moloshok.
|
|
Incorporated
by reference to Exhibit 10.33 to Registrant’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2007 filed with the Securities and
Exchange Commission on March 31, 2008 (File No.
333-131651)
|
Exhibit No.
|
|
Description
|
|
Reference
|
|
|
|
|
|
10.27
|
|
2008
Stock Incentive Plan.
|
|
Incorporated
by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 9, 2008. (File
No. 333-131651).
|
|
|
|
|
|
10.28
|
|
Form
of Option Agreement by and between Betawave Corporation and the
participants under the 2008 Stock Incentive Plan
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No. 333-157352)
|
|
|
|
|
|
10.29
|
|
Employment
Agreement dated as of June 5, 2008, by and between the Registrant and Matt
Freeman.
|
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 9, 2008. (File
No. 333-131651).
|
|
|
|
|
|
10.30
|
|
Securities
Purchase Agreement, dated as of December 3, 2008, by and among the
Registrant and the investors listed on Schedules A-1, A-2 and A-3
thereto.
|
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated December 3, 2008 filed with the Securities and Exchange
Commission on December 9, 2008 (File No.
333-131651).
|
|
|
|
|
|
10.31
|
|
Form
of Warrant to Purchase Common Stock issued in private offering completed
December 12, 2008.
|
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
dated December 3, 2008 filed with the Securities and Exchange
Commission on December 9, 2008 (File No.
333-131651).
|
|
|
|
|
|
10.32
|
|
Investors’
Rights Agreement, dated as of December 3, 2008, by and among the
Registrant and the investors listed on Schedule A thereto.
|
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K
dated December 3, 2008 filed with the Securities and Exchange
Commission on December 9, 2008 (File No.
333-131651).
|
|
|
|
|
|
10.33
|
|
Form
of Lock-Up Agreement entered into by the Company pursuant to the
Securities Purchase Agreement dated as of December 3, 2008, by and
among the Registrant and the investors listed on Schedule A
thereto.
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No. 333-157352)
|
|
|
|
|
|
10.34
|
|
Employment
Agreement dated as of December 3, 2008, by and between the Registrant
and Matt Freeman.
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No.
333-157352)
|
Exhibit No.
|
|
Description
|
|
Reference
|
|
|
|
|
|
10.35
|
|
Amended
and Restated Employment Agreement dated as of December 3, 2008, by
and between the Registrant and Tabreez Verjee.
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No. 333-157352)
|
|
|
|
|
|
10.36
|
|
Amended
and Restated Employment Agreement dated as of December 10, 2008, by
and between the Registrant and Lennox L. Vernon.
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No. 333-157352)
|
|
|
|
|
|
10.37
|
|
Employment
Agreement dated as of December 10, 2008, by and between the
Registrant and James Moloshok.
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No. 333-157352)
|
|
|
|
|
|
10.38
|
|
Loan
and Security Agreement dated as of March 27, 2009, by and between the
Registrant and Silicon Valley Bank.
|
|
Incorporated
by referenced to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated March 27, 2009 filed with the Securities and Exchange
Commission on April 1, 2009 (File No. 333-131651).
|
|
|
|
|
|
21.1
|
|
Subsidiaries
of the Registrant.
|
|
Incorporated
by reference to Exhibit 21.1 to Amendment No. 2 to Registrant’s
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission on August 24, 2007 (File No. 333-142460)
|
|
|
|
|
|
23.1
|
|
Consent
of Rowbotham and Company LLP.
|
|
Filed
herewith.
|
|
|
|
|
|
23.2
|
|
Consent
of McDonald Carano Wilson, LLP (included in Exhibit
5.1).
|
|
Previously
filed.
|
|
|
|
|
|
24.1
|
|
Power
of Attorney (included on signature page).
|
|
Previously
filed.
|
*
|
Confidential
treatment requested for certain portions of this exhibit, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
|
Item
17. Undertakings.
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) To reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement. 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)
if, in the aggregate, the changes in volume and price represent no more than a
20 percent change in the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the effective registration statement;
and
(iii) To include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of the 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 that
remain unsold at the termination of the offering.
(4) That, for the purpose of
determining liability of the undersigned registrant under the Securities Act to
any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes
that in a primary offering of securities of the undersigned registrant pursuant
to this registration statement, regardless of the underwriting method used to
sell the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:
(i) Any preliminary prospectus or
prospectus of the undersigned registrant relating to the offering required to be
filed pursuant to Rule 424 (§ 230.424 of this chapter);
(ii) Any free writing prospectus
relating to the offering prepared by or on behalf of the undersigned registrant
or used or referred to by the undersigned registrant;
(iii) The portion of any other free
writing prospectus relating to the offering containing material information
about the undersigned registrant or its securities provided by or on behalf of
the undersigned registrant; and
(iv) Any other communication that is an
offer in the offering made by the undersigned registrant to the
purchaser.
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 Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
For the purpose of determining
liability under the Securities Act to any purchaser, each prospectus filed
pursuant to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A (§ 230.430A of this chapter), shall
be deemed to be part of and included in the registration statement as of the
date it is first used after effectiveness.
Provided, however
, that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first
use.
SIGNATURES
Pursuant
to the requirements of the Securities Act, the registrant has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of San Francisco, State of California, on
April 24, 2009 .
|
BETAWAVE
CORPORATION
|
|
|
|
|
By:
|
/s/ Tabreez Verjee
|
|
Name:
Tabreez Verjee
|
|
Title:
President
|
Pursuant
to the requirements of the Securities Act, this registration statement has been
signed by the following persons in the capacities and on the dates
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
*
|
|
Chief
Executive Officer and Director
|
|
April
24, 2009
|
Matt
Freeman
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/ Tabreez Verjee
|
|
President
and Director
|
|
|
Tabreez
Verjee
|
|
|
|
|
|
|
|
|
|
*
|
|
Chief
Accounting Officer and Director of Operations
|
|
|
Lennox
L. Vernon
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
John
Durham
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Michael
Jung
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Richard
Ling
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Mark
Menell
|
|
|
|
|
|
|
|
|
|
*
|
|
Executive
Chairman and Director
|
|
|
James
Moloshok
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Riaz
Valani
|
|
|
|
|
*By:
|
/s/ Tabreez
Verjee
|
|
Tabreez
Verjee
|
|
Attorney-in-Fact
|
EXHIBIT
INDEX
Exhibit No.
|
|
Description
|
|
Reference
|
2.1
|
|
Agreement
and Plan of Merger and Reorganization, dated as of October 27, 2006, by
and among the Registrant, GF Acquisition Corp., GoFish Technologies, Inc.,
ITD Acquisition Corp. and Internet Television Distribution
Inc.
|
|
Incorporated
by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
3.1
|
|
Amended
and Restated Articles of
Incorporation
of the Registrant filed with the
Nevada
Secretary of State on December 12,
2008.
|
|
Incorporated
by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K
dated December 12, 2008 filed with the Securities and Exchange Commission
on December 18, 2008 (File No. 333-131651)
|
|
|
|
|
|
3.2
|
|
Certificate
of Amendment to the Amended and
Restated
Articles of Incorporation of the
Registrant
filed with the Nevada Secretary of
State
on January 20, 2009.
|
|
Incorporated
by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K
dated January 16, 2009 filed with the Securities and Exchange Commission
on
January
21, 2009
(File
No. 333 131651)
|
|
|
|
|
|
3.3
|
|
Bylaws
of the Registrant.
|
|
Incorporated
by reference to Exhibit 3.2 to Registrant’s Registration Statement on Form
SB-2 filed with the Securities and Exchange Commission on February 7, 2006
(File No. 333-131651).
|
|
|
|
|
|
3.4
|
|
First
Amendment to Bylaws of the Registrant.
|
|
Incorporated
by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K
dated December 3, 2008 filed with the Securities and Exchange
Commission on December 9, 2008 (File No.
333-131651).
|
|
|
|
|
|
4.1
|
|
Form
of Warrant of the Registrant issued in private offering completed October
27, 2006.
|
|
Incorporated
by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
4.2
|
|
Lock
Up Agreement by and between Michael Downing and Tompkins Capital
Group.
|
|
Incorporated
by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
4.3
|
|
Lock
Up Agreement by and between Riaz Valani and Tompkins Capital
Group.
|
|
Incorporated
by reference to Exhibit 4.3 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
4.4
|
|
Lock
Up Agreement by and between Tabreez Verjee and Tompkins Capital
Group.
|
|
Incorporated
by reference to Exhibit 4.4 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
4.5
|
|
Purchase
Agreement dated as of June 7, 2007 by and among the Registrant and the
investors identified on the signature pages thereto.
|
|
Incorporated
by referenced to Exhibit 4.1 to Registrant’s Current Report on Form 8-K
dated June 7, 2007 filed with the Securities and Exchange Commission on
June 8, 2007 (File No. 333-131651).
|
|
|
|
|
|
4.6
|
|
Registration
Rights Agreement dated as of June 7, 2007, by and among the Registrant and
the investors identified on the signature pages thereto.
|
|
Incorporated
by referenced to Exhibit 4.2 to Registrant’s Current Report on Form 8-K
dated June 7, 2007 filed with the Securities and Exchange Commission on
June 8, 2007 (File No. 333-131651).
|
|
|
|
|
|
4.7
|
|
Form
of the June 2007 Notes.
|
|
Incorporated
by referenced to Exhibit 4.3 to Registrant’s Current Report on Form 8-K
dated June 7, 2007 filed with the Securities and Exchange Commission on
June 8, 2007 (File No. 333-131651).
|
|
|
|
|
|
4.8
|
|
Form
of the June 2007 Warrants.
|
|
Incorporated
by referenced to Exhibit 4.4 to Registrant’s Current Report on Form 8-K
dated June 7, 2007 filed with the Securities and Exchange Commission on
June 8, 2007 (File No. 333-131651).
|
|
|
|
|
|
4.9
|
|
Subscription
Agreement, dated as of April 18, 2008, by and among the Registrant and the
subscribers identified on the signature page thereto.
|
|
Incorporated
by referenced to Exhibit 4.1 to Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2008 (File
No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
4.10
|
|
Accession
Agreement, dated as of June 30, 2008, by and among the Registrant and the
subscribers identified on the signature page thereto.
|
|
Incorporated
by referenced to Exhibit 4.2 to Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2008 (File
No. 333-131651).
|
|
|
|
|
|
4.11
|
|
Form
of the 2008 Notes.
|
|
Incorporated
by referenced to Exhibit 4.3 to Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2008 (File
No. 333-131651).
|
|
|
|
|
|
4.12
|
|
Form
of the 2008 Warrants.
|
|
Incorporated
by referenced to Exhibit 4.4 to Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August 14, 2008 (File
No. 333-131651).
|
|
|
|
|
|
4.13
|
|
Certificate
of Designation of Rights, Preferences, Privileges and Restrictions of
Series A Preferred Stock of the Registrant.
|
|
Incorporated
by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K
dated December 3, 2008 filed with the Securities and Exchange
Commission on December 9, 2008 (File No.
333-131651).
|
|
|
|
|
|
4.14
|
|
Warrant
to Purchase Stock issued to Silicon Valley Bank, dated March 27,
2009.
|
|
Incorporated
by referenced to Exhibit 4.1 to Registrant’s Current Report on Form 8-K
dated March 27, 2009 filed with the Securities and Exchange Commission on
April 1, 2009 (File No. 333-131651).
|
|
|
|
|
|
5.1
|
|
Opinion
of McDonald Carano Wilson, LLP.
|
|
Previously
filed.
|
|
|
|
|
|
10.1
|
|
Escrow
Agreement, dated as of October 27, 2006, by and among the Registrant,
Michael Downing, Riaz Valani and Gottbetter & Partners,
LLP.
|
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.2
|
|
Form
of Subscription Agreement, dated as of October 27, 2006, by and among the
Registrant and the investors in the private offering completed October 27,
2006.
|
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
10.3
|
|
Form
of Registration Rights Agreement, dated as of October 27, 2006, including
the Consent and Acknowledgment thereto, by and among the Registrant and
the investors in the private offering completed October 27,
2006.
|
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.4
|
|
Split
Off Agreement, dated as of October 27, 2006, by and among the Registrant,
Dianxiang Wu, Jianhua Xue, GoFish Technologies, Inc. and GF Leaseco,
Inc.
|
|
Incorporated
by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.5
|
|
Form
of Indemnity Agreement by and between the Registrant and Outside Directors
of the Registrant.
|
|
Incorporated
by reference to Exhibit 10.6 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.6
|
|
2006
Equity Incentive Plan.
|
|
Incorporated
by reference to Exhibit 10.7 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.7
|
|
Form
of Incentive Stock Option Agreement by and between the Registrant and
participants under the 2006 Equity Incentive Plan.
|
|
Incorporated
by reference to Exhibit 10.8 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.8
|
|
Form
of Non-Qualified Stock Option Agreement by and between the Registrant and
participants under the 2006 Equity Incentive Plan.
|
|
Incorporated
by reference to Exhibit 10.9 to Registrant’s Current Report on Form 8-K
dated October 27, 2006 filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.9
|
|
Employment
Agreement dated as of October 30, 2006, by and between the Registrant and
Greg Schroeder.
|
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated October 30, 2006 filed with the Securities and Exchange Commission
on November 3, 2006 (File No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
10.10
|
|
Employment
Agreement dated as of October 27, 2006, by and between the Registrant
and Michael Downing.
|
|
Incorporated
by reference to Exhibit 10.5 to Registrant’s Current Report on Form 8-K
dated October 27, 2006, filed with the Securities and Exchange Commission
on October 31, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.11
|
|
Strategic
Alliance Agreement, dated as of December 22, 2006, by and between the
Registrant and Kaleidescope Sports and Entertainment LLC.
|
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated December 22, 2006 filed with the Securities and Exchange Commission
on December 28, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.12
|
|
Form
of Base Warrant issued to designees of Kaleidescope Sports and
Entertainment LLC as of January 1, 2007.
|
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
dated December 22, 2006 filed with the Securities and Exchange Commission
on December 28, 2006 (File No. 333-131651).
|
|
|
|
|
|
10.13
|
|
Form
of Lock Up Agreement, to be dated as of the Closing Date, by and among the
Registrant and the persons to whom Betawave Common Stock will be issued in
the merger.
|
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K
dated February 11, 2007 filed with the Securities and Exchange
Commission on February 12, 2007 (File No. 333-131651).
|
|
|
|
|
|
10.14
|
|
Amendment
to Employment Agreement dated as of February 26, 2007, by and between
the Registrant and Michael Downing.
|
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
dated February 26, 2007 filed with the Securities and Exchange Commission
on March 2, 2007 (File No. 333-131651).
|
|
|
|
|
|
10.15
|
|
Separation
Agreement and Mutual Release dated as of June 4, 2008, by and between the
Registrant and Michael Downing.
|
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated June 4, 2008 filed with the Securities and Exchange Commission on
June 9, 2008 (File No. 333-131651).
|
|
|
|
|
|
10.16
|
|
Independent
Contractor Agreement dated as of June 4, 2008, by and between the
Registrant and Michael Downing.
|
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
dated June 4, 2008 filed with the Securities and Exchange Commission on
June 9, 2008 (File No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
10.17
|
|
First
Amendment to Strategic Alliance Agreement, dated as of June 29, 2007, by
and between GoFish Technologies, Inc., the Registrant and Kaleidoscope,
Inc. (acting through its wholly-owned subsidiary, Kaleidoscope Sports and
Entertainment LLC).
|
|
Incorporated
by reference to Exhibit 10.22 to Registrant’s Amendment No. 1 to
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission on July 11, 2007 (File No. 333-142460).
|
|
|
|
|
|
10.18
|
|
Second
Amendment to Strategic Alliance Agreement, dated as of July 31, 2007, by
and between GoFish Technologies, Inc., the Registrant and Kaleidoscope,
Inc. (acting through its wholly-owned subsidiary, Kaleidoscope Sports and
Entertainment LLC).
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on August 13,
2007 (File No. 333-145406).
|
|
|
|
|
|
10.19
|
|
Amended
and Restated Strategic Alliance Agreement, dated as of August 10, 2007, by
and among GoFish Technologies, Inc., the Registrant and Kaleidoscope, Inc.
(acting through its wholly-owned subsidiary, Kaleidoscope Sports and
Entertainment LLC).
|
|
Incorporated
by reference to Exhibit 10.24 to Registrant’s Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on August 13,
2007 (File No. 333-145406).
|
|
|
|
|
|
10.20
|
|
Amendment
to Employment Agreement dated as of July 11, 2007, by and between the
Registrant and Greg Schroeder.
|
|
Incorporated
by reference to Exhibit 10.25 to Amendment No. 2 to Registrant’s
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission on August 24, 2007 (File No. 333-142460)
|
|
|
|
|
|
10.21
|
|
2007
Non-Qualified Stock Option Plan (as amended through February 5,
2008).
|
|
Incorporated
by reference to Exhibit 10.29 to Registrant’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2007 filed with the Securities and
Exchange Commission on March 31, 2008 (File No.
333-131651).
|
|
|
|
|
|
10.22*
|
|
Advertising
Representation Agreement, dated
as
of December 10, 2007, by and between the
Registrant
and MiniClip.
|
|
Incorporated
by reference to Exhibit 10.30 to Registrant’s Annual Report on Form
10-KSB
for
the fiscal year ended December 31, 2007 filed with the Securities and
Exchange Commission on March 31, 2008 (File No.
333-131651)
|
|
|
|
|
|
10.23*
|
|
Amendment
to Advertising Representation
Agreement,
dated as of November 12, 2008,
by
and between the Registrant and MiniClip.
|
|
Incorporated
by reference to Exhibit 10.12 to Registrant’s Annual Report on Form
10-KSB
for
the fiscal year ended December 31, 2008 filed with the Securities and
Exchange Commission on March 31, 2009 (File No.
333-131651)
|
Exhibit No.
|
|
Description
|
|
Reference
|
10.24
|
|
Stock
and Warrant Issuance Agreement,
dated
as of December 10, 2007, by and between MiniClip Limited and the
Registrant.
|
|
Incorporated
by reference to Exhibit 10.31 to Registrant’s Amendment to Annual Report
on
Form
10-KSB/A for the fiscal year ended December 31, 2007 filed with the
Securities and Exchange Commission on April 1, 2008
(File
No. 333-131651)
|
|
|
|
|
|
10.25
|
|
Stock
Issuance and Participation Rights
Agreement,
dated as of December 12, 2007, by and between MTV Networks, a division of
Viacom International Inc. and the Registrant.
|
|
Incorporated
by reference to Exhibit 10.31 to Registrant’s Amendment to Annual Report
on
Form
10-KSB/A for the fiscal year ended December 31, 2007 filed with the
Securities and Exchange Commission on April 1, 2008
(File
No. 333-131651)
|
|
|
|
|
|
10.26
|
|
Consulting
Agreement, dated as of December
18,
2007, by and between the Registrant and James Moloshok.
|
|
Incorporated
by reference to Exhibit 10.33 to Registrant’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2007 filed with the Securities and
Exchange Commission on March 31, 2008 (File No.
333-131651)
|
|
|
|
|
|
10.27
|
|
2008
Stock Incentive Plan.
|
|
Incorporated
by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 9, 2008. (File
No. 333-131651).
|
|
|
|
|
|
10.28
|
|
Form
of Option Agreement by and between Betawave Corporation and the
participants under the 2008 Stock Incentive Plan
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No. 333-157352)
|
|
|
|
|
|
10.29
|
|
Employment
Agreement dated as of June 5, 2008, by and between the Registrant and Matt
Freeman.
|
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 9, 2008. (File
No. 333-131651).
|
|
|
|
|
|
10.30
|
|
Securities
Purchase Agreement, dated as of December 3, 2008, by and among the
Registrant and the investors listed on Schedules A-1, A-2 and A-3
thereto.
|
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated December 3, 2008 filed with the Securities and Exchange
Commission on December 9, 2008 (File No.
333-131651).
|
Exhibit No.
|
|
Description
|
|
Reference
|
10.31
|
|
Form
of Warrant to Purchase Common Stock issued in private offering completed
December 12, 2008.
|
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
dated December 3, 2008 filed with the Securities and Exchange
Commission on December 9, 2008 (File No.
333-131651).
|
|
|
|
|
|
10.32
|
|
Investors’
Rights Agreement, dated as of December 3, 2008, by and among the
Registrant and the investors listed on Schedule A thereto.
|
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K
dated December 3, 2008 filed with the Securities and Exchange
Commission on December 9, 2008 (File No.
333-131651).
|
|
|
|
|
|
10.33
|
|
Form
of Lock-Up Agreement entered into by the Company pursuant to the
Securities Purchase Agreement dated as of December 3, 2008, by and
among the Registrant and the investors listed on Schedule A
thereto.
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No. 333-157352)
|
|
|
|
|
|
10.34
|
|
Employment
Agreement dated as of December 3, 2008, by and between the Registrant
and Matt Freeman.
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No. 333-157352)
|
|
|
|
|
|
10.35
|
|
Amended
and Restated Employment Agreement dated as of December 3, 2008, by
and between the Registrant and Tabreez Verjee.
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No. 333-157352)
|
|
|
|
|
|
10.36
|
|
Amended
and Restated Employment Agreement dated as of December 10, 2008, by
and between the Registrant and Lennox L. Vernon.
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No. 333-157352)
|
|
|
|
|
|
10.37
|
|
Employment
Agreement dated as of December 10, 2008, by and between the
Registrant and James Moloshok.
|
|
Incorporated
by reference to Exhibit 10.23 to Registrant’s Registration Statement on
Form
S-1
filed with the Securities and Exchange Commission on February 13, 2009
(File No.
333-157352)
|
Exhibit No.
|
|
Description
|
|
Reference
|
10.38
|
|
Loan
and Security Agreement dated as of March 27, 2009, by and between the
Registrant and Silicon Valley Bank.
|
|
Incorporated
by referenced to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
dated March 27, 2009 filed with the Securities and Exchange
Commission on April 1, 2009 (File No. 333-131651).
|
|
|
|
|
|
21.1
|
|
Subsidiaries
of the Registrant.
|
|
Incorporated
by reference to Exhibit 21.1 to Amendment No. 2 to Registrant’s
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission on August 24, 2007 (File No. 333-142460)
|
|
|
|
|
|
23.1
|
|
Consent
of Rowbotham and Company LLP.
|
|
Filed
herewith.
|
|
|
|
|
|
23.2
|
|
Consent
of McDonald Carano Wilson, LLP (included in Exhibit
5.1).
|
|
Previously
filed.
|
|
|
|
|
|
24.1
|
|
Power
of Attorney (included on signature page).
|
|
Previously
filed.
|
*
|
Confidential
treatment requested for certain portions of this exhibit, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
|
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