As filed with the Securities and Exchange Commission on December 10, 2002
Registration No. 333-100052
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------------------------
FORM S-3
AMENDMENT NO. 2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------------
DIGITAL FUSION, INC.
(Exact name of Registrant as Specified in Its Charter)
DELAWARE 13-3817344
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer)
of Incorporation or Identification Number)
Organization)
400 N. ASHLEY DRIVE, SUITE 2600
TAMPA, FLORIDA 33602
(813) 221-0024
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
-----------------------------------------------------
ROY E. CRIPPEN, III
President and Chief Executive Officer
DIGITAL FUSION, INC.
400 N. ASHLEY DRIVE, SUITE 2600
TAMPA, FLORIDA 33602
(813) 221-0024
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent For Service)
Please send a copy of all communications to:
MINDY L. CARREJA, ESQUIRE
Bush Ross Gardner Warren & Rudy, P.A.
220 South Franklin Street
Tampa, Florida 33602
(813) 224-9255
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 pursuant to the Securities
Act of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
Calculation of Registration Fee
==================================================================================================================================
Proposed Maximum
Amount Proposed Maximum Aggregate Amount of
Title of Each Class of Securities To Be Aggregate Price Offering Price Registration Fee
To Be Registered Registered (1) per Unit (2) (3)
- ------------------------------------------------------------------------- ------------------ ------------------ ------------------
Common Stock, $0.01 par value per share 75,000 $1.15 (4) $86,250 $7.94
- ------------------------------------------------------------------------- ------------------ ------------------ ------------------
Common Stock, $0.01 Par value per share 951,153 $.922(5) $876,963 $80.68
- ------------------------------------------------------------------------- ------------------ ------------------ ------------------
TOTAL $88.62
========================================================================= ================== ================== ==================
(1)This registration statement also covers any additional shares of our common
stock which become issuable under the rights to purchase common stock by
reason of any stock dividend, stock split, recapitalization or other similar
transaction that results in an increase in the number of outstanding shares
of our common stock.
(2)Estimated solely for calculating the registration fee.
(3)Calculated pursuant to Rule 457(g) of the Securities Act of 1933, as amended.
(4)The Maximum Aggregate Price per Unit is calculated based on the warrant
exercise price of $1.15 per share.
(5)The Maximum Aggregate Price per Unit is calculated based on the convertible
note conversion price of $.922 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS 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. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT 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.
Prospectus
Subject to Completion, December 10, 2002
DIGITAL FUSION, INC.
1,026,153 Shares of Common Stock
Underlying Interest Bearing Convertible Note
and Common Stock Purchase Warrant
This prospectus relates to the public offering, which is not being
underwritten, of 1,026,153 shares of our common stock of which 951,153 shares
are being registered for issuance upon conversion of a convertible note and the
remaining 75,000 shares are being registered for issuance upon exercise of a
common stock purchase warrant. We are registering the shares of common stock
underlying the convertible note and warrant pursuant to certain registration
rights granted to the holder, Laurus Master Fund, Ltd, a Cayman Islands company.
Our common stock is traded under the symbol "DIGF" on the NASDAQ SmallCap
Market. The common stock traded at $0.55 as of December 3, 2002.
AN INVESTMENT IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS. See "Risk
Factors" commencing on page 6.
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.
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ITEM 2. TABLE OF CONTENTS
Page
The Company.......................................................5
The Offering......................................................5
Cautionary Note Regarding Forward-Looking Statements..............5
Risk Factors......................................................6
Use of Proceeds..................................................14
Determination of Offering Price..................................14
Dilution.........................................................14
Selling Security Holders.........................................14
Plan of Distribution.............................................15
Description of Securities to be Registered.......................17
Interests of Named Experts and Counsel...........................17
Material Changes.................................................17
Where You Can Find Additional Information........................17
Incorporation of Certain Information by Reference................18
Disclosure of Commission Position on Indemnification.............18
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ITEM 3. SUMMARY INFORMATION AND RISK FACTORS
THE COMPANY
We were incorporated in February 1995 under the laws of the state of
Delaware and are engaged in the business of providing information technology
("IT") consulting services. We provide the following services to our customers:
(i) IT support and integration; (ii) IT Consulting; and (iii) Business
application development. We market our services to mid-sized business (including
mid-sized departments of larger enterprises) and public sector institutions. Our
stock trades on the NASDAQ SmallCap market under the symbol DIGF. The mailing
address of our principal executive office is 400 N. Ashley Drive, Suite 2600,
Tampa, Florida 33602. Our telephone number is (813) 221-0024.
THE OFFERING
This prospectus relates to the public offering, which is not being
underwritten, of 1,026,153 shares of our common stock, par value $.01 per share,
of which 951,153 shares are being registered for issuance upon conversion of a
convertible note and the remaining 75,000 shares are being registered for
issuance upon exercise of a common stock purchase warrant. The convertible note
and warrant were issued on July 26, 2002 pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended, provided
under its section 4(2). We are registering the shares of common stock underlying
the convertible note and warrant pursuant to certain registration rights granted
to the holder of the convertible note and warrant. The warrant may be exercised,
in whole or in part, at a price of $1.15 per share until its expiration on July
26, 2007. The convertible note is in the original principal amount of $800,000
and bears interest at the simple annual rate of 6%. An additional fee payable on
the convertible note accrues at the simple annual interest rate of 4%. The
convertible note is convertible into shares of our common stock at the fixed
conversion price of $.922 per share provided that the average closing price of
the common stock for the 10 trading days prior to conversion is equal to or
greater than $1.15.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Throughout this prospectus, and throughout the documents incorporated
herein by reference, we make forward-looking statements, as that term is defined
in Section 27A of the Securities Act of 1933, as amended. In some cases you can
identify these statements by forward-looking words such as "anticipate"
"believe" "could" "estimate" "expect" "intend" "may" "should" "will" "would" or
similar words. You should read statements that contain these words carefully
because they discuss our future expectations, contain projections of our future
results of operations or of our financial position or state other
forward-looking information. There may be events in our future that we cannot
accurately predict or control. The factors listed below in the section entitled
"Risk Factors," as well as other cautionary language, identify examples of
risks, uncertainties and events that may cause actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our securities, you should be aware that the occurrence of
the events described in the Risk Factors below and elsewhere in this prospectus
and in the documents that we incorporate by reference could have an adverse
effect on our business, results of operations and financial position.
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You should also make special note of the following:
1. Competition within the technology services industry is
intense and may get stronger;
2. General economic or business conditions, including the
loss of major customers, may be worse than we expect;
3. We have experienced significant losses in our operations
and may continue to incur losses for the foreseeable
future;
4. We may require additional capital that may not be
available on terms acceptable to us, or at all; and
5. We have received a delisting notice from NASDAQ SmallCap
Market due to our common stock price being below $1.00 for
30 consecutive trading days pursuant to Marketplace Rule
4310(c)(4). We have until April 28, 2003 to regain
compliance. Following this initial 180-calendar day grace
period, if we have net income of at least $750,000 in our
latest fiscal year, we would have an additional 180-day
grace period through October 25, 2003 to regain
compliance. The stock bid price must be above $1.00 for at
least 10 consecutive trading days to regain compliance.
We undertake no obligation to release publicly the results of any
future revisions we make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RISK FACTORS
Prospective purchasers should carefully consider the following
information in addition to the other information contained in this prospectus in
evaluating an investment in our common stock.
WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS.
We have been in operation since 1995 and many of our services have
only been offered since 1997 or later. In 1999 and 2000, we acquired multiple
companies. In 2000 and 2001, we sold off multiple divisions and underwent
significant restructurings. In 2001, there was a significant change in our
management. As a result of the change in management and our business units, our
prior operating history may not be representative of our current operations,
which makes it difficult to forecast future results and for you to evaluate us.
WE HAVE EXPERIENCED SIGNIFICANT PRIOR OPERATING LOSSES. IF WE DO NOT GENERATE
SUFFICIENT CASH FLOW FROM OPERATIONS OR IF WE ARE UNABLE TO RAISE CAPITAL IN
SUFFICIENT AMOUNTS, WE MAY BE UNABLE TO CONTINUE TO OPERATE OUR BUSINESS.
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We have recently experienced significant losses in our operations. We
may continue to incur losses for the foreseeable future. For the year ended
December 31, 2001 our loss from continuing operations was $12.0 million. Our
expenses may increase as we seek to grow our business and as our business
expands. Even if we become profitable, we may be unable to sustain our
profitability. We may not generate sufficient cash flow from operations or be
able to raise capital in sufficient amounts to enable us to continue to operate
our business. An inability to sustain profitability may also result in an
impairment loss in the value of our long-lived assets, principally goodwill,
property and equipment, and other tangible and intangible assets. If we are
unable to generate sufficient cash flow from operations or raise capital in
sufficient amounts, we may be unable to continue as a going concern.
A LOSS OF A SIGNIFICANT CUSTOMER COULD ADVERSELY DECREASE OUR REVENUES.
We have a customer that accounted for 18% of our revenue at December
31, 2001. Our contract with this customer is up for renewal on December 31,
2002. There can be no assurance that we will be able to renew this contract. A
termination by a major customer could adversely decrease our revenues.
OUR REVENUES ARE DIFFICULT TO FORECAST, WHICH MAY HAVE AN ADVERSE EFFECT ON OUR
FINANCIAL CONDITION, AND OUR RESULTS OF OPERATIONS COULD SUFFER MATERIAL LOSSES.
A large portion of our revenues derived from our consulting is
generally non-recurring in nature. There can be no assurance that we will obtain
additional contracts for projects similar in scope to those previously obtained
from any of our customers, that we will be able to retain existing customers or
attract new customers or that we will not remain largely dependent on a limited
customer base, which may continue to account for a substantial portion of our
revenues. In addition, we generally will be subject to delays in customer
funding; lengthy customer review processes for awarding contracts; non-renewal;
delay, termination, reduction or modification of contracts in the event of
changes in customer policies or as a result of budgetary constraints; and
increased or unexpected costs resulting in losses in the event of "fixed-price"
contracts.
We may increase our operating expenses to increase the number of our
sales, marketing and technical personnel to sell, provide and support our
products and services. We may not be able to adjust our spending quickly enough
to offset any unexpected revenue shortfall. In addition, at any given point in
time, we may have significant accounts receivable balances with customers that
expose us to credit risks if such customers are unable to settle such
obligations. If we have an unexpected shortfall in revenues in relation to our
expenses, or significant bad debt experience, this could have a material and
adverse effect on our financial condition, and our results of operations could
suffer material losses.
IF WE FAIL TO ADEQUATELY KEEP UP WITH THE RAPIDLY CHANGING, EVOLVING INFORMATION
TECHNOLOGY MARKET, WE MAY NOT BE ABLE TO ATTAIN PROFITABILITY.
The markets for some of our services are changing rapidly and
evolving, and therefore the ultimate level of demand for our services is subject
to a high degree of uncertainty. Any significant decline in demand for
programming and applications development and IT support and integration
consulting services could materially adversely affect our business and prospects
and we may not be able to attain profitability.
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Our success is dependent on our ability to continually attract and
retain new customers as well as to replace customers who have not renewed their
contracts. Achieving significant market acceptance will require substantial
efforts and expenditures on our part to create awareness of our services.
WE MAY NOT HAVE THE RESOURCES TO COMPETE EFFECTIVELY WITH OUR LARGER
COMPETITORS, WHICH COULD RESULT IN LOST MARKET SHARE AND DECREASED PRICING.
Competition for the Internet and IT consulting services that we
provide is significant, and we expect that competition will continue to
intensify due to the low barriers to entry. We may not have the financial
resources, technical expertise, sales and marketing or support capabilities to
successfully meet this competition. If we are unable to compete successfully
against such competitors, we may lose market share. We compete against numerous
large companies that have substantially greater market presence, longer
operating histories, more significant customer bases, and financial, technical,
facilities, marketing, capital and other resources than we have.
Our competitors may respond more quickly than we can to new or
emerging technologies and changes in customer requirements. Our competitors may
also devote greater resources than we can to the development, promotion and sale
of their products and services. They may develop Internet products and services
that are superior to or have greater market acceptance than ours. Competitors
may also engage in more extensive research and development, undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and make
more attractive offers to our existing and potential employees and strategic
partners.
New competitors, including large computer software, professional
services and other technology and telecommunications companies, may enter our
markets and rapidly acquire significant market share. As a result of increased
competition and vertical and horizontal integration in the industry, we could
encounter significant pricing pressures. These pricing pressures could result in
significantly lower average selling prices for our products and services. We may
not be able to offset the effects of any price reductions with an increase in
the number of customers, higher revenue from consulting services, cost
reductions or otherwise. In addition, professional services businesses are
likely to encounter consolidation in the near future, which could result in
decreased pricing and other competition.
WE MAY NOT BE ABLE TO KEEP PACE WITH THE RAPIDLY EVOLVING TECHNOLOGICAL CHANGES
IN THE INFORMATION TECHNOLOGY INDUSTRY AND THIS COULD RENDER OUR SERVICE
OFFERINGS OBSOLETE.
The technology required to provide Internet and IT professional
services is rapidly evolving. Significant technological changes could render our
existing products and services obsolete. To be successful, we must adapt to this
rapidly changing technology environment by continually improving the
responsiveness, functionality and features of our products and services to meet
customers' needs. If we are unable to respond to technological advances and
conform to emerging industry standards in a cost-effective and timely basis, it
may render our existing products and services obsolete which could have a
material and adverse affect on our financial position and results of operation.
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IF WE ARE UNABLE TO MAINTAIN AN EFFICIENT AND UNINTERRUPTED OPERATION OF OUR
COMPUTER SYSTEMS, THIS COULD CAUSE US TO LOSE SOME OF OUR CUSTOMERS.
Some of our business depends on the efficient and uninterrupted
operation of our computer and communications hardware systems and
infrastructure. We currently maintain most of our computer systems in our
facilities in Tampa, Florida. While we have taken precautions against systems
failure, interruptions could result from natural disasters as well as power
loss, telecommunications failure and similar events. We also lease
telecommunications lines from local and regional carriers, whose service may be
interrupted. Any damage or failure that interrupts or delays our network
operations could cause us to provide an unacceptable level of service to our
customers which might result in losing some of our customers.
IF WE ARE UNABLE TO MAINTAIN THE SECURITY INTEGRITY OF OUR SYSTEMS, THIS MAY
RESULT IN A LIABILITY TO US OR A LOSS OF CUSTOMERS.
We have taken measures to protect the integrity of our infrastructure
and the privacy of confidential information. Nonetheless, our infrastructure is
potentially vulnerable to physical or electronic break-ins, viruses or similar
problems. If a person circumvents our security measures, he or she could
jeopardize the security of confidential information stored on our systems,
misappropriate proprietary information or cause interruptions in our operations.
We may be required to make significant additional investments and efforts to
protect against or remedy security breaches. Security breaches that result in
access to confidential information could damage our reputation and expose us to
a risk of loss or liability.
The security services that we offer in connection with customers' use
of the networks cannot insure complete protection from computer viruses,
break-ins and other disruptive problems. Although we attempt to limit
contractually our liability in such instances, the occurrence of these problems
may result in claims against us or liability on our part. These claims,
regardless of their ultimate outcome, could result in costly litigation and
could have a material adverse effect on our financial position and reputation
and on our ability to attract and retain customers.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE ACQUISITIONS INTO OUR EXISTING
BUSINESS, WHICH MAY RESULT IN SUBSTANTIAL COSTS, NEGATIVE CASH FLOW AND REDUCED
EARNINGS.
A key element of our expansion strategy has been to grow through
acquisitions. We may acquire and integrate complementary businesses, products,
services or technologies, but we may not be able to successfully integrate these
acquired businesses into our business. This may result in substantial costs,
negative cash flow and reduced earnings.
9
Some specific issues related to integrating the acquired businesses
are as follows:
o The difficulty of assimilating the operations and personnel of
acquired companies.
o The potential disruption of our business.
o The inability of our management to maximize our financial and
strategic position by the incorporation of an acquired technology or
business into our service offerings.
o The difficulty of maintaining uniform standards, controls, procedures
and policies.
o The potential loss of key employees of acquired businesses, and the
impairment of relationships with employees and customers as a result
of changes in management.
AN ACQUISITION MAY DILUTE THE INTEREST OF OUR STOCKHOLDERS AND MAY NOT BE
SUCCESSFUL, WHICH COULD RESULT IN AN INABILITY TO SUSTAIN PROFITABILITY AND AN
IMPAIRMENT OF ASSET VALUES.
We cannot assure you that any completed acquisition will enhance our
business. If we proceed with one or more significant acquisitions in which the
consideration consists of cash, a substantial portion of our available cash
could be used to consummate the acquisitions. If we were to consummate one or
more acquisitions in which the consideration consisted of stock, our
stockholders could suffer significant dilution of their interest in us. In
addition, we could incur or assume significant amounts of indebtedness in
connection with acquisitions. If one or more acquisitions were not successful,
this could result in an inability to sustain profitability and an impairment
loss in the value of our long-lived assets, principally goodwill, property and
equipment, and other tangible and intangible assets.
IF WE ARE UNABLE TO FULFILL THE CONDITIONS NECESSARY TO MAINTAIN A LISTING ON
THE NASDAQ SMALLCAP MARKET, THIS COULD REDUCE THE LIQUIDITY AND PRICE OF OUR
COMMON STOCK.
We have received a delisting notice from NASDAQ SmallCap Market due
to our common stock price being below $1.00 for 30 consecutive trading days. We
have until April 28, 2003 to regain compliance. Following this initial
180-calendar day grace period, if we have net income of at least $750,000 in our
latest fiscal year, we would have an additional 180-day grace period through
October 25, 2003 to regain compliance. The stock bid price must be above $1.00
for at least 10 consecutive trading days to regain compliance.
In the event our common stock is delisted, the liquidity of our stock
would be reduced, making it more difficult for an investor to dispose of our
common stock or to obtain accurate quotations of the market value of our common
stock. A delisting could also result in a reduction in the price of our common
stock.
IF WE ARE UNABLE TO RETAIN THE SERVICES OF KEY PERSONNEL, OUR BUSINESS
OPERATIONS MAY BE ADVERSELY DISRUPTED.
The loss of existing personnel or the failure to recruit additional
qualified technical, managerial and sales personnel, could adversely disrupt our
business operations as well as increase the expenses in connection with hiring
replacement personnel. We also depend on the performance of our executive
officers and key employees, some of whom have not entered into employment
agreements with us. The loss of these executives or key employees could
adversely disrupt our business operations.
10
WE MAY NEED ADDITIONAL CAPITAL AND MAY NOT BE ABLE TO OBTAIN IT, WHICH COULD
AFFECT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Our future capital uses and requirements will depend on numerous
factors, including:
o The extent to which our solutions and services gain market
acceptance.
o The level of revenues from our present and future solutions
and services.
o The expansion of operations.
o The costs and timing of product and service developments and
sales and marketing activities.
o Costs related to acquisitions of technology or businesses.
o Competitive developments.
o Costs related to downsizing and discontinuation or sale of
business units.
o Need for working capital
o Timing of Accounts Receivable Collections.
o Timing of debt payments.
In order to continue to increase sales and marketing efforts,
continue to expand and enhance the solutions and services we are able to offer
to present and future customers and fund potential acquisitions, we may require
additional capital that may not be available on terms acceptable to us, or at
all. In addition, if unforeseen difficulties arise in the course of these or
other aspects of our business, we may be required to spend
greater-than-anticipated funds. As a consequence, we will be required to raise
additional capital through public or private equity or debt financings,
collaborative relationships, bank facilities or other arrangements. There can be
no assurances that such additional capital will be available on terms acceptable
to us, or at all. Any additional equity financing is expected to be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants and increased interest costs. We have financed our operations to date
primarily through private sales of equity securities, proceeds from our initial
public offering in May 1998 and debt facilities.
We cannot assure you that additional funding will be available for us
to finance our ongoing operations when needed or that adequate funds for our
operations, whether from financial markets, collaborative or other arrangements
with corporate partners or from other sources, will be available when needed, if
at all, or on terms acceptable to us. Our inability to obtain sufficient funds
may require us to delay, scale back or eliminate some or all of our expansion
programs, to limit the marketing of our products, or to license to third parties
the rights to commercialize products or technologies that we would otherwise
seek to develop and market ourselves. It may also not allow us to have
sufficient working capital to continue our business. This could affect our
ability to continue as a going concern.
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THE UNPREDICTABILITY OF OUR QUARTERLY OPERATING RESULTS MAY CAUSE THE PRICE OF
OUR COMMON STOCK TO FLUCTUATE.
Our revenues and operating results vary significantly from
quarter-to-quarter due to a number of factors, not all of which are in our
control. You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our results of operations may be below the expectations of public
market analysts and investors. In that event, the market price of our common
stock may fall.
Factors that could cause quarterly results to fluctuate include:
o Change in customer demand for products and services.
o Timing of the expansion of operations.
o Seasonality in revenues, principally during the summer and
year-end holidays.
o The mix of products and services revenues from our operating
divisions.
o Changes in pricing by competitors or us.
o Introduction of new products or services by competitors or
us.
o Costs related to acquisitions of technology or businesses.
o Recession or slow-down in economy.
o Termination of customer contracts.
WE HAVE LIMITED INTELLECTUAL PROPERTY PROTECTION AND WE MAY NOT BE ABLE TO
SUCCESSFULLY PROTECT OUR PROPRIETARY INFORMATION, WHICH COULD RESULT IN LOST
SALES AND LOST COMPETITIVE ADVANTAGE.
We rely on a combination of copyright and trademark laws, trade
secrets laws and license and nondisclosure agreements to protect our proprietary
information, particularly the computer software applications that we have
developed. We currently have no registered copyrights or patents or patent
applications pending. It may be possible for unauthorized third parties to copy
aspects of, or otherwise obtain and use, our proprietary information without
authorization. The majority of our current contracts with our customers contain
provisions granting to the customer intellectual property rights to certain of
our work product, including the customized programming that we create for such
customer. We anticipate that contracts with future customers will contain
similar provisions. Other existing agreements to which we are a party are, and
future agreements may be, silent as to the ownership of such rights. To the
extent that the ownership of such intellectual property rights is expressly
granted to a customer or is ambiguous, our ability to reuse or resell such
rights will or may be limited.
Our policy is to execute confidentiality agreements with our
employees and consultants upon the commencement of an employment or consulting
relationship with us. These agreements generally require that all confidential
information developed or made known to the individual by us during the course of
the individual's relationship with us be kept confidential and not disclosed to
third parties. These agreements also generally provide that inventions conceived
by the individual in the course of rendering services to us shall be our
exclusive property. There can be no assurance that such agreements will not be
breached, that we would have adequate remedies for any breach or that our trade
secrets will not otherwise become known to or be independently developed by
competitors which may result in lost sales and lost competitive advantage.
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IF WE FAIL TO PERFORM TO CUSTOMERS' EXPECTATIONS THIS COULD RESULT IN CLAIMS
AGAINST US, WHICH COULD ADVERSELY REDUCE OUR EARNINGS.
Our services involve development, implementation and maintenance of
computer systems and computer software that are critical to the operations of
our customers' businesses. Our failure or inability to meet a customer's
expectations in the performance of our services could harm our business
reputation or result in a claim for substantial damages against us, regardless
of our responsibility for such failure or inability. In addition, in the course
of performing services, our personnel often gain access to technologies and
content that includes confidential or proprietary customer information. Although
we have implemented policies to prevent such customer information from being
disclosed to unauthorized parties or used inappropriately, any such unauthorized
disclosure or use could result in a claim for substantial damages. We attempt to
limit contractually our damages arising from negligent acts, errors, mistakes or
omissions in rendering services and, although we maintain general liability
insurance coverage, including coverage for errors and omissions, there can be no
assurance that such coverage will continue to be available on reasonable terms
or will be available in sufficient amounts to cover one or more large claims.
The successful assertion of one or more large claims against us that are
uninsured, exceed available insurance coverage or result in changes to our
insurance policies, including premium increases or the imposition of a large
deductible or co-insurance requirements, may adversely reduce our earnings.
WE MAY BECOME SUBJECT TO LEGAL CLAIMS RELATING TO THE CONTENT IN THE WEB SITES
WE BUILD OR HOST, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL POSITION.
There are an increasing number of laws and regulations pertaining to
the Internet. These laws and regulations relate to liability for information
received from or transmitted over the Internet, online content regulation, user
privacy, taxation and quality of products and services. Moreover, the
applicability to the Internet of existing laws governing intellectual property
ownership and infringement, copyright, trademark, trade secret, obscenity,
libel, employment, personal privacy and other issues is uncertain and
developing. We cannot predict the impact, if any, that future regulation or
regulatory changes may have on our business. The law relating to the liability
of online service providers, private network operators and Internet service
providers for information carried on or disseminated through their networks is
currently unsettled. We may become subject to legal claims relating to the
content in the web sites we host or in email messages that we transmit. For
example, lawsuits may be brought against us claiming that material inappropriate
for viewing by young children can be accessed from the web sites we host. Claims
could also involve matters such as defamation, invasion of privacy and copyright
infringement. Providers of Internet products and services have been sued in the
past, sometimes successfully, based on the content of material. If we have to
take costly measures to reduce our exposure to these risks, or are required to
defend ourselves against such claims, our financial position may be materially
adversely affected.
13
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE OUR COMMON
STOCK PRICE TO DECREASE.
The market price of our common stock could decline as a result of
sales of a large number of shares of our common stock in the market or the
perception that these sales may occur. These sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate.
We have holders of options and warrants that if they were to exercise
their rights and sell the shares issued to them, it could have an adverse effect
on the market price of our common stock as well.
ITEM 4. USE OF PROCEEDS
The public offering related to this prospectus could result in
proceeds to us of $86,250. This is based upon the warrant per share price of
$1.15. The expenses related to this offering are estimated at $15,088.62. We
intend to use any net proceeds from the exercise of the warrant for general
working capital purposes. We will not receive any proceeds from the conversion
of the convertible note into shares of our common stock.
ITEM 5. DETERMINATION OF OFFERING PRICE.
Not applicable.
ITEM 6. DILUTION.
Not applicable.
ITEM 7. SELLING SECURITY HOLDERS.
On July 26, 2002, in connection with a securities purchase agreement
that we entered into with Laurus Master Fund, Ltd., a Cayman Islands company, we
issued a convertible note and warrant to Laurus Master Fund, Ltd. We are
registering the shares of common stock underlying the convertible note and
warrant pursuant to certain registration rights we granted to Laurus Master
Fund, Ltd. at that time. Except for negotiating at arm's length and entering
into the securities purchase agreement with Laurus Master Fund, Ltd., through
which we obtained financing for our business operations, we have not had, and we
currently do not have a material relationship with Laurus Master Fund, Ltd. Our
relationship with Laurus Master Fund, Ltd. continues to be an arm's length
relationship.
In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, Laurus Capital Management, L.L.C., a Delaware limited liability company,
may be deemed a control person of the shares owned by Laurus Master Fund, Ltd.
David Grin and Eugene Grin are the principals of Laurus Capital Management,
L.L.C.
Laurus Master Fund, Ltd. is neither a broker-dealer nor an affiliate
of a broker-dealer.
14
Laurus Master Fund, Ltd. currently does not own any shares of our
common stock. Assuming the maximum conversion under the convertible note and the
full exercise of the warrant, Laurus Master Fund, Ltd. would own 1,026,153
shares of our common stock, or approximately 12.53% of the issued and
outstanding shares of our common stock. However, assuming no default has
occurred under the terms of the convertible note, Laurus Master Fund, Ltd. is
only permitted to exercise that number of shares of common stock underlying the
warrant and convert into shares of our common stock a portion of the principal
of the convertible note, which, once converted or exercised, as the case may be,
and together with any shares of our common stock already owned by Laurus Master
Fund, Ltd. on the conversion or exercise date, would be equal to or less than
4.9% of our issued and outstanding shares of common stock.
ITEM 8. PLAN OF DISTRIBUTION.
The common stock covered by this prospectus, (the shares of common stock
that will be issued by Digital Fusion, Inc. upon the conversion of the
convertible note and the exercise by the holders of the warrant), may be offered
and sold from time to time by the selling security holders, and pledgees,
donees, transferees or other successors in interest selling shares received
after the date of this prospectus from the selling security holders as a pledge,
gift or other non-sale related transfer. The shares of common stock covered by
this prospectus may be sold from time to time directly by any selling security
holder or any transferees, or alternatively, through underwriters,
broker-dealers or agents, including in one or more of the following
transactions:
- on the Nasdaq Stock Market;
- on the over the counter market;
- in transactions other than on the Nasdaq Stock Market or over the
counter market, such as private resales;
- in connection with short sales;
- by pledge to secure debts and other obligations;
- in connection with the writing of options, in hedge transactions, and
in settlement of other transactions in standardized or
over-the-counter options;
- in a combination of any of the above transactions; or
- pursuant to Rule 144 under the Securities Act of 1933.
The selling security holders may sell their shares at market prices
prevailing at the time of sale, at prices related to prevailing market prices,
at negotiated prices, or at fixed prices. In addition, such sales may be
effected in transactions which may involve block trades or transactions in which
the broker acts as agent for the seller and the buyer.
15
In connection with sales of the shares of common stock, any selling
security holder may:
- enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock issuable upon the
conversion of the convertible note or the exercise of the warrant in
the course of hedging the positions they assume;
- sell short and deliver shares of common stock issuable upon the
conversion of the convertible note or the exercise of the warrant to
close out the short positions; or
- loan or pledge shares of common stock issuable upon the conversion of
the convertible note or the exercise of the warrant to broker-dealers
that in turn may sell the securities.
The selling security holders and any broker-dealers, agents or
underwriters that participate with the selling security holders in the
distribution of the shares of common stock covered by this prospectus may be
deemed to be "underwriters" within the meaning of the Securities Act, in which
event any commissions received by these broker-dealers, agents or underwriters
and any profits realized by the selling security holders on the resales of the
shares may be deemed to be underwriting commissions or discounts under the
Securities Act. Broker-dealers that are used to sell shares will either receive
discounts or commissions from the selling security holders, or will receive
commissions from the purchasers for whom they acted as agents. The selling
security holders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.
In addition, each selling security holder will be subject to applicable
provisions of the Exchange Act of 1934 and the associated rules and regulations
under the Exchange Act of 1934, including Regulation M, which provisions may
limit the timing of purchases and sales of shares of our common stock by the
selling security holders.
We will make copies of this prospectus available to the selling security
holders and have informed them of the need for delivery of copies of this
prospectus to purchasers at or prior to the time of any sale of the shares. We
will file a supplement to this prospectus, if required, pursuant to Rule 424(b)
under the Securities Act of 1933 upon being notified by a selling security
holder that any material arrangement has been entered into with a broker-dealer
for the sale of shares through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer.
There can be no assurance that the selling security holders will sell all
or any of the common stock.
The selling security holders and us have agreed to customary
indemnification obligations with respect to the sale of common stock by use of
this prospectus.
Pursuant to the securities purchase agreement dated July 26, 2002 that we
entered into with the note holder, Laurus Master Fund, Ltd., we agreed to file a
registration statement with the Securities and Exchange Commission to register
the shares of common stock underlying the convertible note and warrant by 60
days after the closing and to use our reasonable commercial effort to cause such
registration statement to be declared effective within 90 days after filed.
In the event that we do not timely file the registration statement, or it is
not timely declared effective, the note holder may notify us the convertible
note is in default. At that time, we would have 30 days to get the registration
declared effective to "cure" the default notice.
16
ITEM 9. DESCRIPTION OF SECURITIES TO BE REGISTERED.
Not applicable.
ITEM 10. INTERESTS OF NAMED EXPERTS AND COUNSEL.
The balance sheet of Digital Fusion as of December 31, 2000, and the
related statements of operations, stock holder's equity and cash flows for the
year then ended have been incorporated in this prospectus by reference to our
Annual Report on Form 10-KSB in reliance on the report of BDO Seidman, LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The balance sheet of Digital Fusion as of December 31, 2001, and the
related statements of operations, stock holder's equity and cash flows for the
year then ended have been incorporated in this prospectus by reference to our
Annual Report on Form 10-KSB in reliance on the report of Pender Newkirk &
Company, independent auditors, given upon the authority of said firm as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for us by Bush, Ross, Gardner, Warren & Rudy, P.A., Tampa, Florida.
ITEM 11. MATERIAL CHANGES.
Not applicable.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file reports, proxy statements and other information with the SEC
under the Exchange Act. The public may read and copy any materials that we file
with the SEC at the SEC's Public Reference Room located at 450 Fifth Street,
N.W., Washington, D.C., 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an internet site at that contains our reports, proxy and
information statements and other information regarding our business.
17
ITEM 12. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.
The Securities and Exchange Commission allows us to incorporate by
reference the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference below is considered to be part of this
prospectus. All future filings made with the Securities and Exchange Commission
under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this prospectus and prior to the termination of this offering shall be deemed to
be incorporated by reference into this prospectus and shall be deemed to be a
part hereof from the respective dates of the filing of such reports and other
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained in this prospectus or
in any other subsequently filed document that is also incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus. We incorporate by reference the documents
listed below:
(1) Our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2001, filed on February 28, 2002;
(2) Our Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 2002, filed on June 7, 2002;
(3) Our Quarterly Report on Form 10-QSB for the fiscal quarter ended
June 30, 2002, filed on August 8, 2002;
(4) Our Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 2002, filed on November 14, 2002;
(5) Our Form 8-K filed on October 30, 2002 regarding the notification
from The Nasdaq Stock Market that our Common Stock had failed to
maintain a minimum closing bid price of $1.00 per share over the
last 30 consecutive trading days;
(6) The description of our common stock set forth in our Registration
Statement on Form 8-A/A, filed on April 30, 1998, including any
amendment thereto or report filed for the purpose of updating
such description.
We will furnish without charge to each person to whom this prospectus
is delivered, upon written or oral request, a copy of any and all documents
incorporated by reference in this prospectus, (other than exhibits to such
documents unless such exhibits are incorporated by reference therein). Requests
for such copies should be directed to Digital Fusion, Inc. 400 N. Ashley Drive,
Suite 2600, Tampa, Florida 33602, Attention: Karen Surplus, Chief Financial
Officer, Telephone (813) 221-0024.
ITEM 13. DISCLOSURE ON COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Included as part of Item 15.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses payable by us in
connection with the issuance and distribution of the securities being registered
hereunder. Except for the SEC registration fee, all amounts are estimates.
Registration Fee $88.62
Legal Fees and Expenses $7,000.00
Accounting Fees and Expenses $7,000.00
Miscellaneous $1,000.00
---------
Total $15,088.62
----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted under Section 145 of the General Corporation Law of the
State of Delaware, our Restated Certificate of Incorporation (the "Certificate")
provides that to the extent permitted by Delaware law, no director shall be
personally liable to any stockholder for monetary damages for breach of
fiduciary duty as a director, except for liability (1) arising from payment of
dividends or approval of a stock purchase in violation of Section 174 of the
General Corporation Law of the State of Delaware, (2) for any breach of their
duty of loyalty to Digital Fusion or Digital Fusion stockholders, (3) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law or (4) for any action from which the director derived
an improper personal benefit. While the Certificate provides protection from
awards for monetary damages for breaches of the duty of care, it does not
eliminate a director's duty of care. The provisions of the Certificate described
above apply to officers of Digital Fusion only if they are directors of Digital
Fusion and are acting in their capacity as directors, and does not apply to
officers of Digital Fusion who are not directors.
In addition, Digital Fusion's By-Laws provide that Digital Fusion
will indemnify its officers, directors, employees and agents to the fullest
extent permitted by Delaware law. Under Section 145(a) of the General
Corporation Law of the State of Delaware, directors and officers, as well as
employees and individuals, may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation as a derivative action) if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to Digital Fusion's best
interests, and with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of Digital Fusion
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.
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ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
2.1 Securities Purchase Agreement, dated July 26, 2002, between
the Company and Laurus Master Fund, Ltd., filed as exhibit
10.30 to the Company's Form 10-QSB for the period ended June
30, 2002, and incorporated herein by reference
2.2 Convertible note, dated July 26, 2002, between the Company
and Laurus Master Fund, Ltd., filed as exhibit 10.31 to the
Company's Form 10-QSB for the period ended June 30, 2002,
and incorporated herein by reference
*5.1 Opinion of Bush, Ross, Gardner, Warren & Rudy, P.A.
*23.1 Consent of BDO Seidman, LLP
*23.2 Consent of Pender Newkirk & Company
*24.1 Power of Attorney
* Previously filed with the registration statement filed on September 24, 2002.
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 to include any
additional or changed material information relative to the plan of distribution.
(2) That, for the purposes of determining liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement of the securities offered, 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 hereunder that remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
20
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding), is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Tampa, State of Florida, on December 10, 2002.
DIGITAL FUSION, INC.
By: /s/ Roy E. Crippen, III
-----------------------
Roy E. Crippen, III,
President and Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons in
the capacities and on the dates indicated.
Date: December 10, 2002 By: /s/ Roy E. Crippen, III
-----------------------
Name: Roy E. Crippen, III
Title: President and Chief Executive Officer
and Director
(Principal Executive Officer)
Date: December 10, 2002 By: /s/ Karen L. Surplus
--------------------
Name: Karen L. Surplus
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
22
Date: December 10, 2002 By: /s/ **
-------------------------------------------------
Name: Nicholas R. Loglisci, Jr.
Title: Chairman of the Board of Directors
Date: December 10, 2002 By: /s/ **
-------------------------------------------------
Name: Bruce E. Fike
Title: Director
Date: December 10, 2002 By: /s/ **
-------------------------------------------------
Name: O.G. Greene
Title: Director
**Executed by Roy E. Crippen, III under previously granted power of attorney.
23