Exhibit 99
Excerpt from the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999.
CERTAIN TRENDS AND UNCERTAINTIES
In addition to the other information contained in this Report on Form
10-KSB, the following factors should be considered carefully.
RISKS RELATING TO THE COMPANY'S NEED FOR ADDITIONAL
FINANCIAL RESOURCES
NEED FOR ADDITIONAL FUNDS
We believe our existing capital is sufficient to finalize the development
of the Client Hardware, to complete installation of the Server Systems to run
the TVemail-TM- network, to complete the GUI, to complete pilot testing and
initially launch the TVemail-TM- System in the United States. We expect to
complete such endeavors by the second quarter of 2000. However, in order for us
to begin continued mass production of the Client Hardware or to initiate
widespread sales and marketing efforts relating to the TVemail-TM- service, we
anticipate that we will have to raise substantial additional funds. We currently
intend to seek additional funding through public or private financings, which
may include debt or equity financings. Adequate funds for these purposes,
whether obtained through financial markets or collaborative or other
arrangements with corporate partners or from other sources, may not be available
when needed or on terms acceptable to the Company. Insufficient funds may
require us to: delay, scale back or eliminate some or all of our research and
product development programs; license to third parties our technology to
commercialize products or technologies that the Company would otherwise seek to
develop itself; to sell ourselves to a third party; to cease operations; or to
declare bankruptcy.
If we raise additional funds through the issuance of debt securities, the
holders of the debt securities will have a claim to the Company's assets that
will be prior to any claim of the stockholders. Interest on any debt securities
could increase our costs and negatively impact our operating results. If we
raise additional funds through the issuance of preferred stock, the terms of
such preferred stock may provide that the holders of such preferred stock are
entitled to receive dividends and/or distributions upon liquidation prior to the
holders of Common Stock. Furthermore, any such preferred stock may have class
voting rights, conversion features and/or antidilution protections of which the
Common Stock does not have the benefit. If we raise additional funds through the
issuance of Common Stock or securities convertible into or exchangeable for
Common Stock, the percentage ownership of the Company's then-existing
stockholders will decrease. In addition, any such convertible or exchangeable
securities may have rights, preferences and privileges more favorable to the
holders than those of the Common Stock.
SUBORDINATION OF COMMON STOCK TO PREFERRED STOCK; RISK OF DILUTION;
ANTI-DILUTION ADJUSTMENTS.
In the event of the liquidation, dissolution or winding up of the Company,
the Common Stock is expressly subordinate to the $5 million preference of the 5
million outstanding shares of Preferred Stock. The conversion rate of the
Preferred Stock is subject to adjustment, among other things, upon issuances of
Common Stock or securities
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convertible into Common Stock or rights to purchase Common Stock that have not
been expressly approved in writing by a majority in interest of the holders of
Preferred Stock or their elected representatives. As of December 31, 1999, each
share of Preferred Stock was convertible into 1 share of Common Stock.
NEED FOR AND DEPENDENCE ON QUALIFIED PERSONNEL.
Our success is highly dependent on the hiring and retention of key
personnel and technical staff. The loss of key personnel or the failure to
recruit necessary additional personnel or both could impede the achievement of
development objectives. There is intense competition for qualified personnel in
the areas of the Company's activities, and there can be no assurance that the we
will be able to attract and retain the qualified personnel necessary for the
development of our business. Many of our competitors have significantly greater
financial and other resources than we do and may be able to offer more lucrative
compensation packages which include stock options and other stock-based
compensation and higher-profile employment opportunities.
RISKS RELATING TO THE COMPANY'S OPERATIONS AND TECHNOLOGIES
LIMITED OPERATING HISTORY; RECENT SHIFT IN BUSINESS STRATEGY.
Immediately prior to the acquisition of Navis on April 5, 1999, the Company
had no business operations. Navis itself was founded in June 1996 and until the
fourth quarter of 1998 supplied infrared protocol and advanced input devices to
NC manufacturers and provided contract engineering and consulting services.
However, Navis' revenues from operations never exceeded $703,000 in any given
year. During 1998, Navis shifted its business emphasis to focus entirely on the
development of the TVemail-TM- service. We have yet to launch the TVemail-TM-
service commercially or to receive any revenue from such service. As a result,
we have only a limited operating history and there is little historical
information on which to evaluate our business and prospects. Our revenue, if
any, for the foreseeable future is almost entirely dependent on successfully
bringing the TVemail-TM- service to market and on the number of customers, if
any, who subscribe to the TVemail-TM- service after the launch of the service.
There can be no assurance that we will be successful in implementing any of our
business strategies.
Once the basic TVemail-TM- service is marketed, if ever, we intend to
expand our operations by developing and marketing new or complementary services
or systems. However, there can be no assurance that we will be able to do so
effectively. Although we believe that, in the future, we will be able to use the
TVemail-TM- service as a platform to provide e-mail related and other services,
there can be no assurances that we will be able to do so.
THE COMPANY DEPENDS ON ITS INTELLECTUAL PROPERTY, WHICH MAY BE DIFFICULT AND
COSTLY TO PROTECT.
Our intellectual property includes proprietary and confidential information
that is not currently subject to patent, trademark or similar protection. The
Company has filed federal trademark applications to register the trademarks
"TVemail," "eNote.com," "PCemail," "WebATM," "Browserless Internet," "BuyMail,"
"TVewriter," "EZ Color," "eNote International.com," "Get Connected.. Simply,"
"Simply Communicate," and "TVemail.. The Answering Machine for the Internet,"
however, the Company may not be able to secure significant protection for these
trademarks. If our competitors or others adopt product or service names similar
to the names listed above that we anticipate using, it may impede our ability to
build brand identity and customer loyalty. We rely primarily on secrecy to
protect technology, especially where patent protection is not believed to be
appropriate or obtainable. No assurance can be given that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain
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access to the our trade secrets, or that the we can effectively protect its
rights to its unpatented trade secrets.
The validity, enforceability and scope of protection of certain proprietary
rights in Internet-related businesses are uncertain and still evolving. If
unauthorized third parties are able to copy our service or our business model or
to use our confidential information to develop competing services, we could lose
customers and our business could be negatively impacted. We may not be able to
effectively police unauthorized use of our technology because such policing is
difficult and expensive. In particular, the global nature of the Internet makes
it difficult to control the ultimate destination or security of software or
other data transmitted. Furthermore, the laws of other countries may not
adequately protect our intellectual property.
Our business activities and the TVemail-TM- service may infringe upon the
proprietary rights of others. In addition, other parties may assert infringement
claims against the Company. Any such claims and any resulting litigation could
subject us to significant liability for damages and could also result in
invalidation of our proprietary rights. We could be required to enter into
costly and burdensome royalty and licensing agreements. These agreements may not
be available on acceptable terms, or may not be available at all. We may also
need to file lawsuits to defend the validity of our intellectual property rights
and trade secrets, or to determine the validity and scope of the proprietary
rights of others. Litigation is expensive and time-consuming and could divert
management's attention away from our business.
TECHNOLOGY LICENSED FROM THIRD PARTIES.
We have entered into agreements with, and have licensed certain technology
from, third parties. The Company has relied on scientific, technical, commercial
and other data supplied and disclosed by others in entering into these
agreements and will rely on such data in support of development of certain
products. Furthermore, we believe that we will license additional technologies
from third parties in the future. Although we have no reason to believe that
this information contains errors of omission or fact, there can be no assurance
that there are no errors of omission or fact that would materially affect the
commercial viability of these products.
RAPID TECHNOLOGICAL CHANGE, CUSTOMER DEMANDS AND INTENSE COMPETITION.
The e-mail service market is characterized by rapidly changing technology,
customer demands and intense competition. If we cannot keep pace with these
changes, our TVemail-TM- service could become uncompetitive and its business
could suffer. If we are not successful in developing and marketing enhancements
to the TVemail-TM- service or new services that respond to technological change
or customer demands, our business may be materially and adversely effected.
The competitive market for e-mail and online service access may limit
demand or pricing for the TVemail-TM-system. We expect to experience intense
competition from established online service providers such as America Online,
Inc., Prodigy Communications Corporation and Microsoft Corporation's WebTV-TM-
as well as competition from Internet appliance manufactures such as Sony and
Netpliance. Many companies provide e-mail and online service access and other
services, which provide functionality superior to those included in the
TVemail-TM- system. As a result of this competition, demand for the TVemail-TM-
system may suffer, we may be restricted in the service rates we can charge for
the TVemail-TM- system and our business, financial condition and results of
operations may be adversely affected. Many of our competitors have significantly
greater financial, technical, marketing, distribution, customer support and
other resources than we does. Furthermore, many of our competitors have
significantly greater experience, better name recognition, more compelling
content and easier access to consumers, advertisers and online service providers
than do.
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MANAGEMENT OF GROWTH.
Our ability to implement our business plan successfully in a new and
rapidly-evolving market will require effective planning and growth management.
If we cannot manage our anticipated growth effectively, our business and
financial results may suffer. We plan on expanding our existing operations
substantially. Although we anticipate out sourcing manufacturing and procurement
and limited components of marketing and technical services, we may be forced to
expand our manufacturing, sales and marketing and technical support. We expect
that we will need to manage and broaden multiple relationships with customers,
on line providers and other third parties. We also expect that we will need to
expand our financial systems, procedures and controls and will need to augment,
train and manage our workforce, particularly our information technology staff.
As a result, our management and operating systems may be strained by any growth
and the Company may be unable to timely complete necessary improvements to its
operating systems, procedures and controls to support future operations.
CAPACITY CONSTRAINTS MAY IMPEDE REVENUE GROWTH AND PROFITABILITY.
We believe that satisfactory performance, reliability and availability of
our TVemail-TM- appliances and Server Systems infrastructure will be critical to
the Company's reputation and ability to attract customers and maintain adequate
customer service levels. Any significant or prolonged capacity constraints could
delay or prevent customers from sending or gaining access to their documents or
other data or services. Such constraints could decrease our ability to acquire
and retain customers and prevent us from achieving the necessary growth in
revenue to achieve profitability. If the amount of traffic increases
substantially and we experience capacity constraints, we may need to spend
significant amounts to expand and upgrade our technology and network
infrastructure. Furthermore, we may be unable to predict the rate or timing of
any increases in the use of its services in order to respond in a timely manner.
SYSTEMS FAILURES AND BUSINESS INTERRUPTIONS WHICH WOULD HARM OUR BUSINESS.
Our success will depend in part on the efficient and reliable operation of
TVemail-TM- service sufficient to accommodate a large number of subscribers. We
intend to locate our Server Systems at multiple sites with redundant functions
in order to reduce the risks of system failure, however, the Server Systems are
vulnerable to damage from fire, power loss, telecommunications failures,
break-ins and other events, which could lead to: interruptions or delays in our
service; loss of data; or the inability to accept, transmit and confirm customer
documents and data. Our business may be materially adversely effected if its
service is interrupted. Although we intend to implement network security
measures, our systems may be vulnerable to computer viruses, electronic
break-ins, attempts by third parties deliberately to exceed the capacity of the
systems and similar disruptions, any of which could have a material adverse
effect on our business.
RISKS RELATING TO THE INTERNET AND ONLINE COMMERCE
PRIVACY CONCERNS MAY DISCOURAGE CUSTOMERS FROM USING THE COMPANY'S SERVICES.
Concerns over the security of online transactions and the privacy of users
may inhibit the growth of the Internet as a means of delivering documents and
data. We may need to incur significant expenses and use significant resources to
protect against the threat of security breaches or to alleviate problems caused
by such breaches. We plan to rely on encryption and authentication technology to
provide secure transmission of confidential information. If our security
measures do not prevent security breaches, we could suffer operating losses,
damage to its reputation, litigation and possible liability. Advances in
computer capabilities, new discoveries in the field of cryptography or other
developments may result in a compromise or breach of our encryption and
authentication technology and could enable an outside party to steal proprietary
information or interrupt its operations.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET COULD
HARM OUR BUSINESS.
Changes in the regulatory environment could negatively impact our ability
to generate revenues and increase our expenses. The Internet is largely
unregulated and the laws governing the Internet remain unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy and taxation apply to the Internet. In addition, because of increasing
popularity and use of the internet, any number of laws and regulations may be
adopted with respect to the internet or other online services covering issues
such as: user privacy; security; pricing; content; copyrights; distribution;
taxation; and characteristics and quality of services. Such regulations could
impose additional costs or interdicts on our activities, which could have a
material adverse effect.
IF THE INTERNET INFRASTRUCTURE FAILS, OUR BUSINESS MAY SUFFER.
We cannot be certain that the infrastructure or complementary services
necessary to maintain the Internet as a useful, convenient or secure means of
transferring documents and data will continue to develop. The Internet
infrastructure may not support the demands that growth may place on it, and the
performance and reliability of the Internet may decline, which could have a
material adverse effect on our business.
THE COMPANY DEPENDS ON THIRD-PARTY PROVIDERS OF INTERNET AND TELECOMMUNICATIONS
SERVICE.
Our operations depend on third parties for Internet access and
telecommunications. Frequent or prolonged interruptions of these services could
result in significant losses of revenues. These types of occurrences could also
cause users to perceive our products as not functioning properly and therefore
encourage them to use other methods to deliver and receive information. We have
limited control over these third parties and there can be no assurance that we
will be able to maintain relationships with them on acceptable commercial terms.
Nor can there be any assurance that the quality of services that they provide
will remain at the levels needed to enable us to conduct our business
effectively. Each of these third parties has likely experienced outages in the
past, and could experience outages, delays and other difficulties due to system
failures unrelated to the Company's systems.
COSTS OF TRANSMITTING DOCUMENTS AND DATA COULD INCREASE.
The cost of transmitting documents and data over the Internet could
increase, and the Company may not be able to increase its prices to cover such
rising costs. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet and on-line service providers in
a manner similar to long distance telephone carriers and to impose access fees
on such providers. Also, foreign laws and state tax laws and regulations
relating to the provision of services over the Internet are still developing. If
individual states impose taxes on services provided over the Internet, our cost
of providing TVemail-TM- and other services may increase.
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