The
Common Shares of Copernic Inc. (“Copernic”) trade in the United States on The
Nasdaq Stock Exchange® under the symbol “CNIC.” On September 12,
2007,
the last reported sale price of a Common Share, as reported by The Nasdaq Stock
Exchange®, was $1.73.
This
prospectus relates to the resale by the selling shareholders of 646,392 Common
Shares, all of which may be issued and sold in connection with the exercise
of
warrants we issued to the selling shareholders named in this prospectus. We
are
registering the resale of the 646,392 Common Shares pursuant to commitments
with
the selling shareholders. We will not receive any proceeds from the sale of
the
Common Shares offered by this prospectus.
See
“Summary of Risks” beginning on page 4 to
read
about certain risks you should consider before buying the Common Shares.
Neither
the SEC nor any other regulatory body has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The
date of this prospectus is September 20,
2007
|
1
|
||||
|
1
|
||||
|
2
|
||||
|
2
|
||||
|
3
|
||||
|
4
|
||||
|
4
|
||||
|
4
|
||||
|
5
|
||||
|
13
|
||||
|
13
|
||||
|
15
|
||||
|
15
|
||||
|
15
|
||||
|
16
|
||||
|
19
|
||||
|
21
|
||||
|
22
|
||||
|
22
|
||||
|
22
|
||||
|
22
|
You
should read the following summary together with the more detailed information
about us, the Common Shares that may be sold from time to time, and our
financial statements and the notes to them, all of which appear elsewhere in
this prospectus or in the documents incorporated by reference in this
prospectus.
RECENT
EVENTS
Settlement
of Class Action
On
July
16, 2007, the Company announced that the United
States District Court, Southern District of New York
(the
“Court”) had approved the settlement of the class action following a hearing on
July 9, 2007, at which time the Court heard from all parties before concluding
that the settlement was fair and all procedural requisites were met. As a
result, all claims asserted in the class actions against the Company and the
individual officer defendants have been resolved, with
the
exception of three shareholders who have
indicated they will exclude themselves
from the
settlement so as to preserve rights to maintain separate actions should they
elect to do so.
The
amount
paid into escrow, along with any interest earned, will be distributed as
provided under the settlement to pay class members, plaintiffs' attorney fee,
and the costs of claims administration.
Name
Change
Effective
June 14, 2007, the Company changed its name from Mamma.com Inc. to Copernic
Inc.
Agreement
for Financial Advisory Services
On
June
7, 2007, the Company retained ThomasLloyd Capital LLC (“ThomasLloyd Capital”) as
its financial and investment banking advisor. In consideration for these
services, the Company has committed to pay ThomasLloyd Capital a monthly
fee of $5,000 for seven months beginning June 1, 2007 plus a success fee of
the greater of $1,000,000 (but in no event shall such amount exceed 3% of
the
transaction value) or 2% of the transaction value but in no event to exceed
$2,000,000 (less any amounts previously paid as monthly fees) plus an additional
$200,000, credited against the above fees payable upon delivery of a fairness
opinion, in the event of a private placement, acquisition, sale or other
capital
market transaction.
Resignation
of Two Officers
In
January 2007, two officers resigned from their positions. In connection with
these resignations, the Company paid and recorded termination costs of CDN
$510,000 in the First Quarter of 2007, changed the duration of their option
agreements and allowed acceleration of the options for one of the officers.
These changes represented an additional non-cash item expense of $253,236 which
was recorded in the First Quarter of 2007.
Business
Overview
Copernic
Inc. is a leading provider of award winning search technology for both the
Web
and desktop space delivered through its properties, such as www.mamma.com and
www.copernic.com.
Through
its award winning Copernic Desktop Search®
product,
the Company develops cutting edge search solutions bringing the power of a
sophisticated, yet easy-to-use search engine to the user’s PC. It allows for
instant searching of files, emails, and email attachments stored anywhere on
a
PC hard drive. Its desktop search application won the CNET Editors' Choice
Award
as well as the PC World World Class award in 2005. In 2007, PC Pro, the
UK’s most respected IT magazine for professionals and Micro Hebdo, one of
France’s most read IT magazines, each selected Copernic Desktop
Search®
2.0 as
the top desktop search tool.
Through
its well established media placement channels, Copernic Inc. provides both
online advertising as well as pure content to its vast array of partnerships
worldwide. Copernic Inc. handles search requests and has media placement
partnerships established mainly in North America, in Europe and in Australia.
The
revenue models of the Company are based on:
Pay-Per-Click
search listing placement - advertisers bid or pay a fixed price for position
on
search listing advertisements on www.mamma.com and within the Copernic Media
Solutions™
Publisher Network.
Graphic
Ad Units - priced on a CPM (Cost-Per-Thousand) basis and are distributed through
the Copernic Media Solutions™
Publisher Network.
Copernic
Media Solutions™
Publisher Network has over 97 active publishers (combined search and graphic
ad
publishers).
Copernic
Agent®
and
Copernic Desktop Search®
users
generate Web searches and clicks from pay-per-click advertising listings.
Copernic
Desktop Search®
licensing to ISPs, portals and E-commerce site generates license, maintenance
and customization revenues.
Copernic
Agent®
Personal
Pro, Copernic Summarizer®
and
Copernic Tracker®
software
are sold from our E-commerce store.
1
This
prospectus registers the resale by the selling shareholders of 646,392 Common
Shares, all of which may be issued and sold in connection with the exercise
of
warrants we issued to the selling shareholders named in this prospectus. We
are
registering the resale of the 646,392 Common
Shares pursuant to commitments with the selling shareholders. We will not
receive any proceeds from the sale of the Common Shares offered by this
prospectus. Our Common Shares are listed for quotation on The Nasdaq Stock
Exchange®, and reports and other information filed by us can be inspected at the
offices of The Nasdaq Stock Exchange®, on its website at www.nasdaq.com
and on
our website at www.copernic.com.
As
a
foreign private issuer, we file annual and special reports and other information
with the SEC pursuant to the Securities Exchange Act of 1934, as amended. You
may obtain these filings over the internet at the SEC’s Web site at
http://www.sec.gov. You may also read and copy these filings at the SEC’s public
reference room at Securities and Exchange Commission, Public Reference Room,
100
F Street, N.E., Washington DC 20549. You may obtain copies of our SEC filings
at
no cost, by telephone at (514) 844-2700, or by mail at Copernic Inc., 388 St.
Jacques Street West, 9th
Floor,
Montreal, Quebec, Canada H2Y 1S1.
The
SEC
allows us to “incorporate by reference” information we file with them. This
means that we can disclose important information to you by referring you to
another document filed by us with the SEC. The information incorporated by
reference is considered to be part of this prospectus, except for any
information superseded by this prospectus, and later information that we file
with the SEC which will automatically update and supersede this information.
We
incorporate by reference the documents listed below and any future filings
made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) until the selling
shareholders sell all the Common Shares. This prospectus is part of a
registration statement we filed with the SEC (Registration No 333-117794).
Annual
Report on Form 20-F for the year ended December 31, 2006, filed on March 29,
2007;
Report
on
Form 6-K, filed on May 11, 2007;
Amended
Annual Report on Form 20-F/A for the year ended December 31, 2006, filed on
May
14, 2007;
Report
on
Form 6-K, filed on May 14, 2007;
Report
on
Form 6-K, filed on May 15, 2007;
Report
on
Form 6-K, filed on June 18, 2007;
Report
on
Form 6-K, filed June 21, 2007;
Report
on
Form 6-K, filed June 27, 2007;
Report
on
Form 6-K, filed July 16, 2007;
Report
on
Form 6-K, filed on July 17, 2007;
Report
on
Form 6-K, filed on July 23, 2007;
Report
on
Form 6-K, filed on July 25, 2007;
Report
on
Form 6-K, filed on August 10, 2007; and
Report
on
Form 6-K, filed on August 10, 2007.
You
may
request a copy of these filings, at no cost, by writing or telephoning us at
the
following address:
Copernic
Inc.
388
St.
Jacques Street West
9th
Floor
Montreal,
Quebec
Canada
H2Y 1S1
Tel:
(514) 844-2700
You
should rely only on the information incorporated by reference or provided in
this prospectus or any supplement. We have not authorized anyone else to provide
you with different information. You should not assume that the information
in
this prospectus or any supplement is accurate as of any date other than the
date
on the front of those documents.
We
are a
“foreign private issuer” as defined in Rule 3b-4 under the Exchange Act. As a
result, (1) our proxy solicitations are not subject to the disclosure and
procedural requirements of Regulation 14A under the Exchange Act, (2)
transactions in our equity securities by our officers and directors are exempt
from Section 16 of the Exchange Act, and (3) until November 4, 2002, we were
not
required to make, and did not make, our SEC filings electronically, so that
filings before that date are not available on the SEC’s website. In addition, we
are not required under the Exchange Act to file periodic reports and financial
statements as frequently or as promptly as U.S. companies whose securities
are
registered under the Exchange Act, although we also file material change reports
and other information with the Ontario Securities Commission (“OSC”), which
requires that we file interim, quarterly financial statements together with
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
3
We
are a
corporation organized under the laws of Ontario, Canada. All of our directors
and officers and certain experts named in the registration statement are
residents of Canada or other non-U.S. jurisdictions. Substantial portions of
the
assets of these persons and of the Company are located in Canada or other
non-U.S. jurisdictions.
We
have
appointed Michael E. Storck, Esq. of Lippes Mathias Wexler Friedman LLP as
our
agent to receive service of process in any legal action against us. However,
it
may not be possible for investors to effect service of process upon us or our
non-U.S. directors, officers or experts named in the registration statement
or
to enforce any judgment obtained against these persons in U.S. courts. Also,
it
may not be possible to enforce U.S. securities laws or judgments obtained in
U.S. courts against these persons in a non-U.S. jurisdiction.
Copernic
publishes its financial statements in United States dollars. Unless otherwise
specified, all references to “U.S. dollars”, “dollars”, “$” or “U.S. $” are to
United States dollars. No representation is made that the U.S. dollar amounts
shown in this prospectus could have been or could be converted into Canadian
dollars, as the case may be, at any particular rate or at all.
Copernic’s
consolidated financial statements are reported in U.S. dollars and have been
prepared in accordance with generally accepted accounting principles as applied
in Canada (“Canadian GAAP”). As a registrant with the SEC in the United States,
Copernic is required to reconcile its financial results for significant
measurement differences between Canadian GAAP and generally accepted accounting
principles as applied in the United States (“U.S. GAAP”) as they specifically
relate to Copernic as described in note 27 to its consolidated financial
statements included in the Company’s Form 20-F for the year ended December 31,
2006.
Equity
Transfer & Trust Company acts as the registrar and transfer agent for our
Common Shares. Equity Transfer & Trust Company’s offices are located at 200
University Ave, Suite 400, Toronto, Ontario, Canada M5H 4H1.
The
Common Shares offered by this prospectus are speculative and subject to a high
degree of risk. You should consider carefully the risks set forth below,
together with all of the other information included in this prospectus (and
any
supplement hereto), as well as in the reports and other information we file
with
the SEC, before you decide to purchase our Common Shares.
RISK
FACTORS
Our
revenues depend to a high degree on our relationship with two customers, the
loss of which would adversely affect our business and results of operations.
For
the
six-month period ended June 30, 2007, approximately 22% and 13% respectively
of
our revenues were derived from agreements with our two largest customers.
Revenues from these customers represented 21% and 11% of our revenues for the
same period last year. In addition, as at June 30, 2007, these customers
comprise approximately 42% of net trade accounts receivable as compared to
40%
for the corresponding period the previous year. Although we monitor our accounts
receivable for credit risk deterioration and these customers have been paying
their payables to Copernic in accordance with the terms of their agreements
with
the Company, there can be no assurance that they will continue to do so or
that
they will continue to do so at the volume of business they have done
historically. Our loss of these customers’ business would adversely affect our
business and results of operations.
Our
operating results may fluctuate, which makes our results difficult to predict
and could cause our results to fall short of expectations.
Our
operating results may fluctuate as a result of a number of factors, many of
which are outside of our control. For these reasons, comparing our operating
results on a period-to-period basis may not be meaningful, and you should not
rely on our past results as an indication of our future performance. Our
quarterly and annual expenses as a percentage of our revenues may be
significantly different from our historical or projected rates. Our operating
results in future quarters may fall below expectations. Any of these events
could cause our stock price to fall. Each of the risk factors listed in this
“Risk Factors” section, and the following factors, may affect our operating
results:
| • |
Our
ability to continue to attract users to our Web sites.
|
| • |
Our
ability to monetize (or generate revenue from) traffic on our Web
sites
and our network of advertisers’ Web sites.
|
| • |
Our
ability to attract advertisers.
|
| • |
The
amount and timing of operating costs and capital expenditures related
to
the maintenance and expansion of our businesses, operations and
infrastructure.
|
| • |
Our
focus on long term goals over short term results.
|
| • |
The
results of any investments in risky projects.
|
| • |
Payments
that may be made in connection with the resolution of litigation
matters.
|
| • |
General
economic conditions and those economic conditions specific to the
Internet
and Internet advertising.
|
| • |
Our
ability to keep our Web sites operational at a reasonable cost and
without
service interruptions.
|
| • |
Geopolitical
events such as war, threat of war or terrorist actions.
|
| • |
Our
ability to generate Copernic Desktop Search®
(“CDS”) revenues through licensing and revenue share.
|
Because
our business is changing and evolving, our historical operating results may
not
be useful to you in predicting our future operating results. In addition,
advertising spending has historically been cyclical in nature, reflecting
overall economic conditions as well as budgeting and buying patterns. Also,
user
traffic tends to be seasonal.
We
are the subject of a SEC investigation which may depress the market price for
shares of our Common Stock, reduce the liquidity of the trading market for
our
shares and negatively affect our results of operations.
On
March 18, 2004, the SEC notified the Company that the SEC had begun an
investigation relating to trading activity in the Company’s securities. During
March of 2004, trading in the Company’s common stock had been intense and the
market price of the common stock had risen sharply. As a part of its
investigation, the Company believes the SEC has considered matters related
to
trading in the Company’s securities and whether Irving Kott and persons acting
jointly or in concert with him may have had a significant influence on the
Company in the past as a result of undisclosed shareholdings. The Company also
believes that the SEC staff has considered matters relating to the Company’s
financial reporting and internal controls. The scope, focus and subject matter
of the SEC investigation may change from time to time. Adverse developments
in
connection with the investigation could have a negative impact on the Company
and on how it is perceived by investors and potential investors and negatively
impact our results of operations. While we are not able to estimate, at this
time, the amount of the additional expenses that we will incur in the future
in
connection with the investigation, we expect that further expenses could
continue to negatively affect our results of operations. In addition, the
management effort and attention required to respond to the investigation and
any
such developments could have a negative impact on our business operations.
An
adverse determination by the SEC in its investigation could result in negative
consequences for the Company, including initiation of enforcement proceedings,
fines, penalties and possibly other sanctions that could harm the Company’s
business, reduce the market value of the shares of our common stock and
negatively affect its results of operations.
The
Company’s Board of Directors initiated an investigation under the supervision of
a Special Independent Committee (the “Special Committee”) consisting of
independent directors of the Audit Committee with independent legal counsel
to
investigate whether Irving Kott and persons acting jointly or in concert with
him may have had a controlling influence on the Company in the past as a result
of undisclosed shareholdings. The Special Committee and its independent counsel
have reviewed the relevant information available at the time of the SEC
investigation relating to the period from January 1, 1999 to
December 31, 2004. While the Special Committee did note some evidence of
contacts with and involvement by Mr. Kott and persons with whom he may have
had an association, based on its review, the Special Committee has not found
evidence establishing that Mr. Kott had a controlling influence on the
Company during such period.
On
July 16, 2007, the Company announced that the Court had approved the settlement
of the securities class action filed against it; however, three shareholders
have indicated that they will exclude themselves from the settlement and if
any
of these shareholders decide to maintain separate actions against the Company,
a
finding of liability in any such action could result in the payment of damages
and materially adversely affect the Company’s financial position.
On
February 22, 2005, the first of several purported securities class action
lawsuits was filed in the Court against the Company, and certain of the
Company’s current officers and directors. The plaintiffs allege, among other
things, violations of the Exchange Act for purportedly failing to disclose
and
misrepresenting certain allegedly material facts relative to the market for
and
trading in the Company’s stock, and seek unspecified damages. The purported
class actions appear to be based on unsubstantiated rumours, purported
statements from unidentified individuals and newspaper reports. All of these
lawsuits have been consolidated and the lead plaintiff has filed an amended
complaint in the case.
On
November 9, 2006, the Company announced that it had entered into an
agreement to settle the class action currently pending in the Court. Following
a
hearing held on July 9, 2007, the
Court
approved the settlement. As a result, all claims asserted in the class actions
against the Company and the individual officer defendants have been resolved,
with
the
exception of three shareholders who have
indicated they will exclude themselves
from the
settlement so as to preserve rights to maintain separate actions should they
elect to do so.
The
amount
paid into escrow, along with any interest earned, will be distributed as
provided under the settlement to pay class members, plaintiffs' attorney fee,
and the costs of claims administration.
Nevertheless,
if the shareholders that opted out of the settlement decide to maintain separate
actions against the Company, a finding of liability of the Company in any such
lawsuits could result in the payment of damages and materially adversely affect
the Company’s financial condition and results of operations.
We
rely on our Web site partners for a significant portion of our net revenues,
and
otherwise benefit from our association with them. The loss of these Web site
partners could prevent us from receiving the benefits we receive from our
association with them, which could adversely affect our business.
We
provide advertising, Web search and other services to members of our partner
Web
sites. We expect the percentage of our revenues generated from this network
to
increase in the future. We consider this network to be critical in the future
growth of our revenues. However, some of the participants in this network may
compete with us in one or more areas. Therefore, they may decide in the future
to terminate their agreements with us. If our Web site partners decide to use
a
competitor’s or their own Web search or advertising services, our revenues would
decline.
We
face significant competition from Microsoft, Yahoo!, Google and Ask.com.
We
face
formidable competition in every aspect of our business, and particularly from
other companies that seek to connect people with information on the Web and
provide them with relevant advertising. Currently, we consider our primary
competitors to be Microsoft, Yahoo!, Google and Ask.com. We expect that
Microsoft will increasingly use its financial and engineering resources to
compete with us. Yahoo! has become an increasingly significant competitor,
having acquired Overture Services, which offers Internet advertising solutions
that compete with our advertising programs.
Microsoft,
Yahoo!, Google and Ask.com have more employees and cash resources than we do.
These companies also have longer histories operating search engines and more
established relationships with customers. They can use their experience and
resources against us in a variety of competitive ways, including by making
acquisitions, investing more aggressively in research and development and
competing more aggressively for advertisers and Web sites. Microsoft and Yahoo!
also may have a greater ability to attract and retain users than we do because
they operate Internet portals with a broad range of products and services.
If
Microsoft, Yahoo!, Google or Ask.com are successful in providing similar or
better Web search results compared to ours or leverage their platforms to make
their Web search services easier to access than ours, we could experience a
significant decline in user traffic. Any such decline in user traffic could
negatively affect our net revenues.
We
face competition from other Internet companies, including Web search providers,
Internet advertising companies and destination Web sites that may also bundle
their services with Internet access.
In
addition to Microsoft, Yahoo!, Google and Ask.com, we face competition from
other Web search providers, including companies that are not yet known to us.
We
compete with Internet advertising companies, particularly in the areas of
pay-for-performance and keyword-targeted Internet advertising. Also, we may
compete with companies that sell products and services online because these
companies, like us, are trying to attract users to their Web sites to search
for
information about products and services.
We
also
compete with destination Web sites that seek to increase their search-related
traffic. These destination Web sites may include those operated by Internet
access providers, such as cable and DSL service providers. Because our users
need to access our services through Internet access providers, they have direct
relationships with these providers. If an access provider or a computer or
computing device manufacturer offers online services that compete with ours,
the
user may find it more convenient to use the services of the access provider
or
manufacturer. In addition, the access provider or manufacturer may make it
hard
to access our services by not listing them in the access provider’s or
manufacturer’s own menu of offerings. Also, because the access provider gathers
information from the user in connection with the establishment of a billing
relationship, the access provider may be more effective than we are in tailoring
services and advertisements to the specific tastes of the user.
There
has
been a trend toward industry consolidation among our competitors, and so smaller
competitors today may become larger competitors in the future. If our
competitors are more successful than we are at generating traffic and
advertising, our revenues may decline.
We
face competition from traditional media companies, and we may not be included
in
the advertising budgets of large advertisers, which could harm our operating
results.
In
addition to Internet companies, we face competition from companies that offer
traditional media advertising opportunities. Most large advertisers have set
advertising budgets, a very 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 operating
results would be harmed.
Some
of our operating margins declined in 2006 and for the six-month period ended
June 30, 2007 and we anticipate downward pressure on our operating margins
in
the future.
We
believe our operating margin may decline as a result of increasing competition
and increased expenditures for all aspects of our business as a percentage
of
our revenues, including product development and sales and marketing expenses.
We
also expect that our operating margin may decline as a result of increases
in
the proportion of our revenues generated from our partner Web sites. The margin
on revenues we generate from our partner Web sites is generally significantly
less than the margin on revenues we generate from advertising on our Web sites.
Additionally, the margin we earn on revenues generated from our partner Web
sites could decrease in the future if our partners require a greater portion
of
the advertising fees.
If
we do not continue to innovate and provide products and services that are useful
to users, we may not remain competitive, and our revenues and operating results
could suffer.
Our
success depends on providing products and services that people use for a high
quality Internet experience. Our competitors are constantly developing
innovations in Web search, online advertising and providing information to
people. As a result, we must continue to invest significant resources in
research and development in order to enhance our Web search technology and
our
existing products and services and introduce new high-quality products and
services that people will use. If we are unable to predict user preferences
or
industry changes, or if we are unable to modify our products and services on
a
timely basis, we may lose users, advertisers and Web site partners. Our
operating results would also suffer if our innovations were not responsive
to
the needs of our users, advertisers and Web site partners, are not appropriately
timed with market opportunity, effectively brought to market or well received
in
the market place. As search technology continues to develop, our competitors
may
be able to offer search results that are, or that are perceived to be,
substantially similar or better than those generated by our search services.
This may force us to compete on bases in addition to quality of search results
and to expend significant resources in order to remain competitive.
Our
business depends on strong brands, and if we are not able to maintain and
enhance our brands, our ability to expand our base of users and advertisers
will
be impaired and our business and operating results will be harmed.
We
believe that the brand identities that we have developed have significantly
contributed to the success of our business. We also believe that maintaining
and
enhancing the Company’s brands are critical to expanding our base of users and
advertisers. Maintaining and enhancing our brands may require us to make
substantial investments and these investments may not be successful. If we
fail
to promote and maintain the Mamma®
and
Copernic®
brands,
or if we incur excessive expenses in this effort, our business, operating
results and financial condition will be materially and adversely affected.
We
anticipate that, as our market becomes increasingly competitive, maintaining
and
enhancing our brands may become increasingly difficult and expensive.
Maintaining and enhancing our brands will depend largely on our ability to
continue to provide high quality products and services, which we may not do
successfully.
New
technologies could block our ads, which would harm our business.
Technologies
may be developed that can block the display of our ads. Most of our revenues
are
derived from fees paid to us by advertisers in connection with the display
of
ads on Web pages. As a result, ad-blocking technology could, in the future,
adversely affect our operating results.
We
generate all of our revenue from advertising and software licensing, and the
reduction of spending by or loss of customers could seriously harm our business.
We
generated a significant portion of our revenues for the six month period ended
June 30, 2007 from our advertisers. Our advertisers can generally terminate
their contracts with us at any time. Advertisers will not continue to do
business with us if their investment in advertising with us does not generate
sales leads, and ultimately customers, or if we do not deliver their
advertisements in an appropriate and effective manner. If we are unable to
remain competitive and provide value to our advertisers, they may stop placing
ads with us, which could negatively affect our net revenues and business. The
Company has on-going efforts to maintain a high quality network of publishers
in
order to offer advertisers high quality users that will provide for a
satisfactory ROI. Therefore, from time to time we cease sending advertisements
to what we determine are low quality publishers. This can reduce our revenues
in
the short term in order to create advertiser retention in the long term. For
the
second quarter of 2007, we also generated revenues from licensing software.
Our
competitors are constantly improving their competing software, and if we fail
to
innovate and remain competitive our revenues from software licensing will
decline.
Our
operating results may be subject to fluctuations.
Our
operating results may fluctuate as a result of many factors related to our
business, including the competitive conditions in the industry, loss of
significant customers, delays in the development of new services and usage
of
the Internet, as described in more detail below, and general factors such as
size and timing of orders and general economic conditions.
Volatility
of stock price and trading volume could adversely affect the market price and
liquidity of the market for our Common Stock.
Shares
of
our common stock are subject to significant price and volume fluctuations,
some
of which result from various factors including (a) changes in our business,
operations, and future prospects, (b) general market and economic
conditions, and (c) other factors affecting the perceived value of our
common stock. Significant price and volume fluctuations have particularly
impacted the market prices of equity securities of many technology companies
including without limitation those providing communications software or
Internet-related products and services. Some of these fluctuations appear to
be
unrelated or disproportionate to the operating performance of such companies.
The market price and trading volume of shares of our common stock has been,
and
may likely continue to be, volatile, experiencing wide fluctuations. During
the
six-month period ended June 30, 2007, the closing per share price of shares
of
our common stock has waned from $2.62 to $5.90 and during that same period,
the
daily trading volume of shares of our common stock has varied between 101,000
and 19,536,400 with an average daily trading volume of 2,074,095. Future market
conditions may adversely affect the market price and trading volume of shares
of
our common stock. Furthermore, should the market price of our common stock
drop
below the $1.00 per share minimum bid price requirement, shares of our common
stock risk being delisted from The NASDAQ Stock Exchange®,
which
would have an adverse effect on our business and liquidity of shares of our
common stock. Brokerage firms may not provide a market for low-priced stock,
may
not recommend low-priced stock to their clients and may charge a greater
percentage commission on low-priced stock than that which they would charge
on a
transaction of a similar dollar amount but fewer shares. These circumstances
may
adversely impact trading in our common stock and may also adversely affect
our
ability to access capital.
Infringement
and liability claims could damage our business.
Companies
in the Internet, technology and media industries own large numbers of patents,
copyrights, trademarks and trade secrets and frequently enter into litigation
based on allegations of infringement or other violations of intellectual
property rights. As we face increasing competition and become increasingly
high
profile, the possibility of intellectual property rights claims against us
grows. Our technologies may not be able to withstand any third-party claims
or
rights against their use. Any intellectual property claims, with or without
merit, could be time-consuming, expensive to litigate or settle and could divert
resources and attention. In addition, many of our agreements with our
advertisers require us to indemnify certain third-party intellectual property
infringement claims, which would increase our costs as a result of defending
such claims and may require that we pay damages if there were an adverse ruling
in any such claims. An adverse determination also could prevent us from offering
our services to others and may require that we procure substitute services
for
these members.
With
respect to any intellectual property rights claim, we may have to pay damages
or
stop using technology or content found to be in violation of a third party’s
rights. We may have to seek a license for the technology or content, which
may
not be available on reasonable terms and may significantly increase our
operating expenses. The technology or content also may not be available for
license to us at all. As a result, we may also be required to develop
alternative non-infringing technology, which could require significant effort
and expense, or stop using the content. If we cannot license or develop
technology or content for the infringing aspects of our business, we may be
forced to limit our product and service offerings and may be unable to compete
effectively. Any of these results could harm our brand and operating results.
In
addition, we may be liable to third-parties for content in the advertising
we
deliver if the artwork, text or other content involved violates copyright,
trademark, or other intellectual property rights of third-parties or if the
content is defamatory. Any claims or counterclaims could be time-consuming,
could result in costly litigation and could divert management’s attention.
Additionally,
we may be subject to legal actions alleging patent infringement, unfair
competition or similar claims. Others may apply for or be awarded patents or
have other intellectual property rights covering aspects of our technology
or
business. For example, we understand that Overture Services, Inc. (acquired
by
Yahoo!) purports to be the owner of U.S. Patent No. 6,269,361, which was
issued on July 31, 2001 and is entitled “System and method for influencing
a position on a search result list generated by a computer network search
engine.” Overture has aggressively pursued its alleged patent rights by filing
lawsuits against other pay-per-click search engine companies such as MIVA
(formerly known as FindWhat.com) and Google. MIVA and Google have asserted
counter-claims against Overture including, but not limited to, invalidity,
unenforceability and non-infringement. While it is our understanding that the
lawsuits against MIVA and Google have been settled, there is no guarantee
Overture will not pursue its alleged patent rights against other companies.
Historical
net results include net losses for the years ended December 31, 1999 to
December 31, 2003 and for the years ended December 31, 2005, 2006 and
for the six-month period ended June 30, 2007. Working capital may be inadequate.
For
the
year ended December 31, 1999 through the year ended December 31, 2003 and
for the years ended December 31, 2005, 2006, and for the six-month period
ended June 30, 2007, we have reported net losses and net losses per share.
We
have been financing operations mainly from funds obtained in several private
placements, and from exercised warrants and options. Management considers that
cash and cash equivalents as at June 30, 2007 will be sufficient to meet normal
operating requirements throughout Q2 2008. In the long term, we may require
additional liquidity to fund growth, which could include additional equity
offerings or debt finance. No assurance can be given that we will be successful
in getting required financing in the future.
Goodwill
may be written-down in the future.
Goodwill
is evaluated for impairment annually, or when events or changed circumstances
indicate impairment may have occurred. Management monitors goodwill for
impairment by considering estimates including discount rates, future growth
rates, amounts and timing of estimated future cash flows, general economic,
industry conditions and competition. Future adverse changes in these factors
could result in losses or inability to recover the carrying value of the
goodwill. Consequently, our goodwill, which amounts to approximately $15.4M
as
at June 30, 2007, may be written-down in the future which could adversely effect
our financial position.
Long-lived
assets may be written-down in the future.
The
Company assesses the carrying value of its long-lived assets, which include
property and equipment and intangible assets, for future recoverability when
events or changed circumstances indicate that the carrying value may not be
recoverable. Management monitors long-lived assets for impairment by considering
estimates including discount rates, future growth rates, general economic,
industry conditions and competition. Future adverse changes in these factors
could result in losses or inability to recover the carrying value of the
long-lived assets. Consequently, our long-lived assets, which amounts to
approximately $5.9M as at June 30, 2007, may be written-down in the future.
Investment
in LTRIM Technologies Inc. may be written-down in the future.
We
have
an investment in LTRIM Technologies Inc. (“LTRIM”). LTRIM is a corporation which
has started its commercialization phase and there is no assurance that it will
become profitable in the future or that we will be able to recover the cost
of
this investment. Consequently, our investment in LTRIM, which has been
written-down to $150,000, may be written-down again in the future.
Reduced
Internet use may adversely affect our results.
Our
business is based on Internet driven products and services including direct
online Internet marketing. The emerging nature of the commercial uses of the
Internet makes predictions concerning a significant portion of our future
revenues difficult. As the industry is subject to rapid changes, we believe
that
period-to-period comparisons of its results of operations will not necessarily
be meaningful and should not be relied upon as indicative of our future
performance. It is also possible that in some fiscal quarters, our operating
results will be below the expectations of securities analysts and investors.
In
such circumstances, the price of shares of our common stock may decline. The
success of a significant portion of our operations depends greatly on increased
use of the Internet by businesses and individuals as well as increased use
of
the Internet for sales, advertising and marketing. It is not clear how effective
Internet related advertising is or will be, or how successful Internet-based
sales will be. Our results will suffer if commercial use of the Internet,
including the areas of sales, advertising and marketing, fails to grow in the
future.
Our
long-term success may be materially adversely affected if the market for
E-commerce does not grow or grows slower than expected.
Because
many of our customers’ advertisements encourage online purchasing and/or
Internet use, our long-term success may depend in part on the growth and market
acceptance of E-commerce. Our business will be adversely affected if the market
for E-commerce does not continue to grow or grows slower than expected. A number
of factors outside of our control could hinder the future growth of E-commerce,
including the following:
| • |
the
network infrastructure necessary for substantial growth in Internet
usage
may not develop adequately or our performance and reliability may
decline;
|
| • |
insufficient
availability of telecommunication services or changes in telecommunication
services could result in inconsistent quality of service or slower
response times on the Internet;
|
| • |
negative
publicity and consumer concern surrounding the security of E-commerce
could impede our growth; and
|
| • |
financial
instability of E-commerce customers.
|
Security
breaches and privacy concerns may negatively impact our business.
Consumer
concerns about the security of transmissions of confidential information over
public telecommunications facilities is a significant barrier to increased
electronic commerce and communications on the Internet that are necessary for
growth of the Company’s business. Many factors may cause compromises or breaches
of the security systems we use or other Internet sites use to protect
proprietary information, including advances in computer and software
functionality and new discoveries in the fields of cryptography and processor
design. A compromise of security on the Internet would have a negative effect
on
the use of the Internet for commerce and communications and negatively impact
our business. Security breaches of our advertisers’ activities or the activities
of their customers and sponsors involving the storage and transmission of
proprietary information, such as credit card numbers, may expose our operating
business to a risk of loss or litigation and possible liability. We cannot
assure that the measures in place are adequate to prevent security breaches.
If
we fail to detect click fraud, we could lose the confidence of our advertisers,
thereby causing our business to suffer.
We
are
exposed to the risk of fraudulent clicks on our ads from a variety of potential
sources. We have regularly refunded revenues that our advertisers have paid
to
us that were later attributed to click fraud, and we expect to do so in the
future. Click fraud occurs when a person clicks on an ad displayed on a Web
site
for a reason other than to view the underlying content. If we are unable to
stop
this fraudulent activity, these refunds may increase. If we find new evidence
of
past fraudulent clicks we may issue refunds retroactively of amounts previously
paid to our network of advertisers. This would negatively affect our
profitability, and these types of fraudulent activities could hurt our brands.
If fraudulent clicks are not detected, the affected advertisers may experience
a
reduced return on their investment in our advertising programs because the
fraudulent clicks will not lead to potential revenue for the advertisers. This
could lead the advertisers to become dissatisfied with our advertising programs,
which could lead to a loss of advertisers and revenues and potentially
litigation.
Index
spammers could harm the integrity of our Web search results, which could damage
our reputation and cause our users to be dissatisfied with our products and
services.
There
is
an ongoing and increasing effort by “index spammers” to develop ways to
manipulate Web search results. Although they cannot manipulate our results
directly, “index spammers” can manipulate our suppliers like Ask.com,
Gigablast.com or Wisenut.com, which can result in our search engine pages
producing poor results. We take this problem very seriously because providing
relevant information to users is critical to our success. If our efforts to
combat these and other types of manipulation are unsuccessful, our reputation
for delivering relevant information could be diminished. This could result
in a
decline in user traffic, which would damage our business.
Our
business is subject to a variety of U.S. and foreign laws that could subject
us
to claims or other remedies based on the nature and content of the information
searched or displayed by our products and services, and could limit our ability
to provide information regarding regulated industries and products.
The
laws
relating to the liability of providers of online services for activities of
their users are currently unsettled both within the U.S. and abroad. Claims
have
been threatened and filed under both U.S. and foreign law for defamation, libel,
invasion of privacy and other data protection claims, tort, unlawful activity,
copyright or trademark infringement, or other theories based on the nature
and
content of the materials searched and the ads posted or the content generated
by
our users. Increased attention focused on these issues and legislative proposals
could harm our reputation or otherwise affect the growth of our business.
The
application to us of existing laws regulating or requiring licenses for certain
businesses of our advertisers, including, for example, distribution of
pharmaceuticals, adult content, financial services, alcohol or firearms and
online gambling, can be unclear. Existing or new legislation could expose us
to
substantial liability, restrict our ability to deliver services to our users,
limit our ability to grow and cause us to incur significant expenses in order
to
comply with such laws and regulations.
Several
other U.S. laws could have an impact on our business. Compliance with these
laws
and regulations is complex and may impose significant additional costs on us.
For example, the Digital Millennium Copyright Act has provisions that limit,
but
do not eliminate, our liability for listing or linking to third-party Web sites
that include materials that infringe copyrights or other rights, so long as
we
comply with the statutory requirements of this act. The Children’s Online
Protection Act and the Children’s Online Privacy Protection Act restrict the
distribution of materials considered harmful to children and impose additional
restrictions on the ability of online services to collect information from
minors. In addition, the Protection of Children from Sexual Predators Act of
1998 requires online service providers to report evidence of violations of
federal child pornography laws under certain circumstances. Any failure on
our
part to comply with these regulations may subject us to additional liabilities.
If
the technology that we currently use to target the delivery of online
advertisements and to prevent fraud on our networks is restricted or becomes
subject to regulation, our expenses could increase and we could lose customers
or advertising inventory.
Web
sites
typically place small files of non-personalized (or “anonymous”) information,
commonly known as “cookies,” on an Internet user’s hard drive, generally without
the user’s knowledge or consent. Cookies generally collect information about
users on a non-personalized basis to enable Web sites to provide users with
a
more customized experience. Cookie information is passed to the Web site through
an Internet user’s browser software. We currently use cookies to track an
Internet user’s movement through the advertiser’s Web site and to monitor and
prevent potentially fraudulent activity on our network. Most currently available
Internet browsers allow Internet users to modify their browser settings to
prevent cookies from being stored on their hard drive, and some users currently
do so. Internet users can also delete cookies from their hard drives at any
time. Some Internet commentators and privacy advocates have suggested limiting
or eliminating the use of cookies, and legislation (including, but not limited
to, Spyware legislation such as U.S. House of Representatives Bill HR 29 the
“Spy Act”) has been introduced in some jurisdictions to regulate the use of
cookie technology. The effectiveness of our technology could be limited by
any
reduction or limitation in the use of cookies. If the use or effectiveness
of
cookies were limited, we would have to switch to other technologies to gather
demographic and behavioural information. While such technologies currently
exist, they are substantially less effective than cookies. We would also have
to
develop or acquire other technology to prevent fraud. Replacement of cookies
could require significant reengineering time and resources, might not be
completed in time to avoid losing customers or advertising inventory, and might
not be commercially feasible. Our use of cookie technology or any other
technologies designed to collect Internet usage information may subject us
to
litigation or investigations in the future. Any litigation or government action
against us could be costly and time-consuming, could require us to change our
business practices and could divert management’s attention.
Increased
regulation of the Internet may adversely affect our business.
If
the
Internet becomes more strongly regulated, a significant portion of our operating
business may be adversely affected. For example, there is increased pressure
to
adopt laws and regulations relating to Internet unsolicited advertisements,
privacy, pricing, taxation and content. The enactment of any additional laws
or
regulations in Canada, Europe, Asia or the United States, or any state of the
United States or province of Canada may impede the growth of the Internet and
our Internet-related business, and could place additional financial burdens
on
us and our Internet-related business.
Changes
in key personnel, labour availability and employee relations could disrupt
our
business.
Our
success is dependent upon the experience and abilities of our senior management
and our ability to attract, train, retain and motivate other high-quality
personnel, in particular for our technical and sales teams. There is significant
competition in our industries for qualified personnel. Labour market conditions
generally and additional companies entering industries which require similar
labour pools could significantly affect the availability and cost of qualified
personnel required to meet our business objectives and plans. There can be
no
assurance that we will be able to retain our existing personnel or that we
will
be able to recruit new personnel to support our business objectives and plans.
We believe our employee relations are good. Currently, none of our employees
are
unionized. There can be no assurance, however, that a collective bargaining
unit
will not be organized and certified in the future. If certified in the future,
any work stoppage authorized by such collective bargaining unit could be
disruptive and have a material adverse effect on us until normal operations
resume.
Possible
future exercise of warrants and options could dilute existing and future
shareholders.
As
at
June 30, 2007, we had 646,392 warrants and 544,230 stock options outstanding.
As
at June 30, 2007, the exercise prices of a portion of our outstanding options
but none of our outstanding warrants issued were lower than the market price
of
shares of our common stock. When the market value of shares of our common stock
is above the respective exercise prices of all options and warrants, their
exercise could result in the issuance of up to an additional 1,190,622 shares
of
our common stock. To the extent such shares are issued, the percentage of shares
of our common stock held by our existing stockholders will be reduced. Under
certain circumstances the conversion or exercise of any or all of the warrants
or stock options might result in dilution of the net tangible book value of
the
shares held by existing stockholders. For the life of the warrants and stock
options, the holders are given, at prices that may be less than fair market
value, the opportunity to profit from a rise in the market price of shares
of
our common stock, if any. The holders of the warrants and stock options may
be
expected to exercise them at a time when the Company may be able to obtain
needed capital on more favourable terms. In addition, we reserve the right
to
issue additional shares of common stock or securities convertible into or
exercisable for shares of our common stock, at prices, or subject to conversion
and exercise terms, resulting in reduction of the percentage of outstanding
shares of our common stock held by existing stockholders and, under certain
circumstances, a reduction in the net tangible book value of existing
stockholders’ shares of our common stock.
Strategic
acquisitions and market expansion present special risks.
A
future
decision to expand our business through acquisitions of other businesses and
technologies presents special risks. Acquisitions entail a number of particular
problems, including: (a) difficulty integrating acquired technologies,
operations, and personnel with the existing businesses; (b) diversion of
management’s attention in connection with both negotiating the acquisition and
integrating the assets as well as the strain on managerial and operational
resources as management tries to oversee larger operations; (c) exposure to
unforeseen liabilities relating to acquired assets; and (d) potential
issuance of debt instruments or securities in connection with an acquisition
possessing rights that are superior to the rights of holders of our currently
outstanding securities, any one of which would reduce the benefits expected
from
such acquisition and/or might negatively affect our results of operations.
We
may not be able to successfully address these problems. We also face competition
from other acquirers, which may prevent us from realizing certain desirable
strategic opportunities.
We
do not plan to pay dividends on shares of our Common Stock.
The
Company has never declared or paid dividends on shares of its common stock.
The
Company currently intends to retain any earnings to support its working capital
requirements and growth strategy and does not anticipate paying dividends in
the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company’s Board of Directors after taking into account various
factors, including the Company’s financial condition, operating results, current
and anticipated cash needs and plans for expansion.
Rapidly
evolving marketplace and competition may adversely impact our business.
The
markets for our products and services are characterized by: (a) rapidly
changing technology; (b) evolving industry standards; (c) frequent new
product and service introductions; (d) shifting distribution channels; and
(e) changing customer demands. The success of the Company will depend on
its ability to adapt to its rapidly evolving marketplaces. There can be no
assurance that the introduction of new products and services by others will
not
render our products and services less competitive or obsolete. We expect to
continue spending funds in an effort to enhance already technologically complex
products and services and develop or acquire new products and services. Failure
to develop and introduce new or enhanced products and services on a timely
basis
might have an adverse impact on our results of operations, financial condition
and cash flows. Unexpected costs and delays are often associated with the
process of designing, developing and marketing enhanced versions of existing
products and services and new products and services. The market for our products
and services is highly competitive, particularly the market for Internet
products and services which lacks significant barriers to entry, enabling new
businesses to enter this market relatively easily. Competition in our markets
may intensify in the future. Numerous well-established companies and smaller
entrepreneurial companies are focusing significant resources on developing
and
marketing products and services that will compete with the Company’s products
and services. Many of our current and potential competitors have greater
financial, technical, operational and marketing resources. We may not be able
to
compete successfully against these competitors. Competitive pressures may also
force prices for products and services down and such price reductions may reduce
our revenues.
An
inability to protect our intellectual property rights could damage our business.
We
rely
upon a combination of trade secret, copyright, trademark, patents and other
laws
to protect our intellectual property assets. We have entered into
confidentiality agreements with our management and key employees with respect
to
such assets and limit access to, and distribution of, these and other
proprietary information. However, the steps we take to protect our intellectual
property assets may not be adequate to deter or prevent misappropriation. We
may
be unable to detect unauthorized uses of and take appropriate steps to enforce
and protect our intellectual property rights. Although senior management
believes that our services and products do not infringe on the intellectual
property rights of others, we nevertheless are subject to the risk that such
a
claim may be asserted in the future. Any such claims could damage our business.
To
the extent our net revenues are paid in foreign currencies, and currency
exchange rates become unfavourable, we may lose some of the economic value
of
the net revenues in U.S. dollar terms.
Although
we currently transact a majority of our business in U.S. dollars, as we expand
our operations more of our customers may pay us in foreign currencies.
Conducting business in currencies other than U.S. dollars subjects us to
fluctuations in currency exchange rates. If the currency exchange rates were
to
change unfavourably, the value of net receivables we receive in foreign
currencies and later convert to U.S. dollars after the unfavourable change
would
be diminished. This could have a negative impact on our reported operating
results. We do not currently engage in hedging strategies, such as forward
contracts, options and foreign exchange swaps related to transaction exposures
to mitigate this risk. If we determine to initiate such hedging activities
in
the future, there is no assurance these activities will effectively mitigate
or
eliminate our exposure to foreign exchange fluctuations. Additionally, such
hedging programs would expose us to risks that could adversely affect our
operating results, because we have limited experience in implementing or
operating hedging programs. Hedging programs are inherently risky and we could
lose money as a result of poor trades.
Higher
inflation could adversely affect our results of operations and financial
condition.
We
do not
believe that the relatively moderate rates of inflation experienced in the
United States and Canada in recent years have had a significant effect on our
revenues or profitability. Although higher rates of inflation have been
experienced in a number of foreign countries in which we might transact
business, we do not believe that such rates have had a material effect on our
results of operations, financial condition and cash flows. Nevertheless, in
the
future, high inflation could have a material, adverse effect on the Company’s
results of operations, financial condition and cash flows.
Our
future growth significantly depends to a high degree on our ability to
successfully commercialize the Copernic Desktop Search®
product, and any failure or delays in that commercialization would adversely
affect our business and results of operations.
On
December 22, 2005, we completed our acquisition of Copernic which we
believe positioned the Company as a leader in search technologies and
applications and as a multi-channel online marketing services provider. We
have
high expectations for the CDS award-winning product. Any failure or significant
delay in successfully commercializing the CDS product could adversely affect
our
business and results of operations.
The
following tables set forth the consolidated cash and consolidated capitalization
of the Company as at June 30, 2007 prepared in accordance with Canadian GAAP
and
United States GAAP, respectively.
Capitalization
(Prepared
in accordance with Canadian GAAP)
|
As
at June 30,
2007
|
||||
|
(unaudited)
|
||||
|
$
|
||||
|
Cash
and cash equivalents
|
6,319,535
|
|||
|
Temporary
investments
|
1,520,712
|
|||
|
Indebtedness
|
||||
|
Current
liabilities
|
1,930,889
|
|||
|
Capital
lease obligations
|
116,491
|
|||
|
Future
income taxes
|
1,600,869
|
|||
|
Shareholders’
Equity
|
||||
|
Capital
stock
|
96,556,485
|
|||
|
Additional
paid-in capital
|
5,499,450
|
|||
|
Accumulated
other comprehensive income
|
561,137
|
|||
|
Accumulated
deficit
|
(75,136,932
|
)
|
||
|
Total
shareholders’ equity
|
27,480,140
|
|||
|
Total
capitalization
|
31,128,389
|
|||
Capitalization
(Prepared
in accordance with US GAAP)
|
As
at June 30,
2007
|
||||
|
(unaudited)
|
||||
|
$
|
||||
|
Cash
and cash equivalents
|
6,319,535
|
|||
|
Temporary
investments
|
1,520,712
|
|||
|
Indebtedness
|
||||
|
Current
liabilities
|
1,930,889
|
|||
|
Capital
lease obligations
|
116,491
|
|||
|
Future
income taxes
|
1,600,869
|
|||
|
Shareholders’
Equity
|
||||
|
Capital
stock
|
113,326,055
|
|||
|
Additional
paid-in capital
|
6,537,140
|
|||
|
Accumulated
other comprehensive income
|
561,137
|
|||
|
Accumulated
deficit
|
(92,944,192
|
)
|
||
|
Total
shareholders’ equity
|
27,480,140
|
|||
|
Total
capitalization
|
31,128,389
|
|||
Shares
of
the Company’s common stock are quoted on The NASDAQ Stock Exchange® under
the symbol “CNIC” and on the Third Market Segment of the Frankfurt and Berlin
stock exchanges in Germany under the symbol “IYS1”. Prior to April 1999, the
Company’s shares were quoted under various other trading symbols. With a
corporate name change taking effect in August 1996 the Company’s common share
trading symbol was changed to “INTAF”, in April 1999 the symbol was changed to
“INTA”, in January, 2004, following the approval of the change of name of the
Company to Mamma.com Inc. the symbol was changed to “MAMA” and on June 21, 2007,
following approval of the change of the Company’s name to Copernic Inc. the
symbol was changed to “CNIC”. On July 11, 2001, the Company filed articles of
amendment consolidating its issued and outstanding shares of common stock on
the
basis of one post-consolidation common share for every ten pre-consolidation
shares of common stock. Shares of the Company’s common stock started trading on
the NASDAQ Capital Market® on a consolidated basis at the opening of the markets
on July 13, 2001.
The
following table sets forth the price history of shares of the Company’s common
stock reported on the NASDAQ Capital Market® and on the Third Market Segment of
the Frankfurt and Berlin stock exchanges in Germany, which reflect inter-dealer
prices without retail mark-ups or commissions and may not represent actual
transactions. As per the Explanatory Notes included in the Company’s
Form 20-F for the year ended December 31, 2006, all prices referred to
below are adjusted to take into account the July 2001 consolidation of shares
of
the Company’s common stock on the basis of 1 post-consolidation common share for
every 10 pre-consolidation shares.
The
NASDAQ Capital Market® Annual
High and Low Market Prices - 5 Years Ended December 31,
2006
(based on closing prices)
|
Year
|
High
|
Low
|
||
|
2006
|
7.95
|
0.97
|
||
|
2005
|
6.28
|
2.12
|
||
|
2004
|
15.90
|
3.26
|
||
|
2003
|
4.51
|
1.25
|
||
|
2002
|
2.70
|
0.92
|
The
NASDAQ Capital Market® Quarterly
High and Low Market Prices - 2 Years Ended June 30, 2007 (based on closing
prices)
|
Quarter End
|
High
|
Low
|
||
|
6/30/07
|
5.55
|
2.62
|
||
|
3/31/07
|
5.90
|
4.07
|
||
|
12/31/06
|
7.95
|
1.11
|
||
|
9/30/06
|
1.34
|
0.97
|
||
|
6/30/06
|
2.07
|
1.13
|
||
|
03/31/06
|
3.54
|
2.03
|
||
|
12/31/05
|
2.75
|
2.12
|
||
|
09/30/05
|
3.27
|
2.61
|
||
|
06/30/05
|
3.83
|
2.56
|
The
NASDAQ Capital Market®
Monthly High and Low Market Prices - 6 Months Ended August 31, 2007
(based on closing prices)
|
Month
|
High
|
Low
|
|||||
|
August
2007
|
2.27
|
1.45
|
|||||
|
July
2007
|
3.17
|
2.11
|
|||||
|
June
2007
|
4.50
|
2.62 | |||||
|
May
2007
|
5.55
|
4.07
|
|||||
|
April
2007
|
5.60
|
4.64
|
|||||
|
March
2007
|
5.37
|
4.07
|
|||||
Frankfurt
Exchange (based on closing prices) - High and Low Market Prices - 4
Years Ended December 31, 2006 (in Euros)
|
Year
|
High
|
Low
|
|||||
|
2006
|
5.94
|
0.70
|
|||||
|
2005
|
4.80
|
1.77
|
|||||
|
2004
|
13.80
|
2.58
|
|||||
|
2003
|
4.10
|
1.00
|
|||||
Frankfurt
Exchange (based on closing prices) Quarterly High and Low Market Prices - 2
Years Ended December 31, 2006 and Latest Quarters (in euros)
|
Quarter
|
High
|
Low
|
|||||
|
06/30/07
|
4.12
|
1.91
|
|||||
|
03/31/07
|
4.13
|
3.19
|
|||||
|
12/31/06
|
5.94
|
0.89
|
|||||
|
09/30/06
|
1.13
|
0.70
|
|||||
|
06/30/06
|
1.73
|
0.91
|
|||||
|
03/31/06
|
2.65
|
1.70
|
|||||
|
12/31/05
|
2.22
|
1.77
|
|||||
|
09/30/05
|
2.75
|
2.15
|
|||||
|
06/30/05
|
3.01
|
2.06
|
|||||
Frankfurt
Exchange (based on closing prices) Monthly High and Low Market Prices - 6 Months
Ended August
31, 2007 (in euros)
|
Month
|
High
|
Low
|
|||||
|
August 2007
|
1.66
|
0.97
|
|||||
|
July
2007
|
2.32
|
1.59
|
|||||
|
June
2007
|
3.29
|
1.91
|
|||||
|
May
2007
|
4.03
|
3.03
|
|||||
|
April
2007
|
4.12
|
3.48
|
|||||
|
March
2007
|
4.68
|
3.17
|
|||||
Equity
Transfer & Trust Company of Toronto, Ontario, Canada acts as registrar and
transfer agent for the Company’s common shares.
This
prospectus and the documents incorporated in it by reference contain
forward-looking statements that involve known and unknown risks and
uncertainties. We include this notice for the express purpose of permitting
the
Company to avail itself of the protections of the safe harbor provided by the
Private Securities Litigation Reform Act of 1995 for all such forward looking
statements. Examples of forward-looking statements include: (1) projections
of
capital expenditures, revenues, growth, prospects, financial resources and
other
financial matters; (2) statements of our plans or objectives; and (3) statements
using the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “intend,”
“plan,” “project,” “understand” and other verbs suggesting uncertainty.
Our
ability to predict results of our operations or the effects of certain events
on
our operating results is inherently uncertain. Therefore, we caution you to
consider carefully the matters described under the caption “Summary of Risks”
and certain other matters discussed in this prospectus, the documents
incorporated by reference in this prospectus, and other publicly available
sources such as our Form 20-F Annual Report we filed with the SEC respecting
the
2006 fiscal year. Such risks and many other factors beyond the control of our
management could cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements that may be expressed or implied by the forward-looking statements.
On
July
16, 2007, the Company announced that the Court
had
approved the settlement of the class action following a hearing on July 9,
2007,
at which time the Court heard from all parties before concluding that the
settlement was fair and all procedural requisites were met. As a result, all
claims asserted in the class actions against the Company and the individual
officer defendants have been resolved, with
the
exception of three shareholders who have
indicated they will exclude themselves
from the
settlement so as to preserve rights to maintain separate actions should they
elect to do so.
The
amount
paid into escrow, along with any interest earned, will be distributed as
provided under the settlement to pay class members, plaintiffs' attorney fee,
and the costs of claims administration.
Name
Change
Effective
June 14, 2007, the Company changed its name from Mamma.com Inc. to Copernic
Inc.
Agreement
for Financial Advisory Services
On
June
7, 2007, the Company retained ThomasLloyd Capital LLC (“ThomasLloyd Capital”) as
its financial and investment banking advisor. In consideration for these
services, the Company has committed to pay ThomasLloyd Capital a monthly
fee of $5,000 for seven months beginning June 1, 2007 plus a success fee of
the greater of $1,000,000 (but in no event shall such amount exceed 3% of
the
transaction value) or 2% of the transaction value but in no event to exceed
$2,000,000 (less any amounts previously paid as monthly fees) plus an additional
$200,000, credited against the above fees payable upon delivery of a fairness
opinion, in the event of a private placement, acquisition, sale or other
capital
market transaction.
Resignation
of Two Officers
In
January 2007, two officers resigned from their positions. In connection with
these resignations, the Company paid and recorded termination costs of CDN
$510,000 in the First Quarter of 2007, changed the duration of their option
agreements and allowed acceleration of the options for one of the officers.
These changes represented an additional non-cash item expense of $253,236 which
was recorded in the First Quarter of 2007.
The
Company will not receive any additional proceeds from the resale by our selling
shareholders of the Common Shares offered by this prospectus. The selling
shareholders will pay any underwriting discounts and commissions and expenses
incurred by the selling shareholders for brokerage, accounting, tax or any
other
expenses incurred by the selling shareholders in disposing of the Common Shares
in this offering. We will bear some of the legal expenses incurred by the
selling shareholders and all other costs, fees and expenses incurred in
effecting the registration of the shares covered by this prospectus, including,
without limitation, all registration and filing fees, listing fees of The Nasdaq
Stock Exchange® and fees and expenses of our counsel and our accountants.
The
following discussion is based on US federal and Canadian tax law, statutes,
treaties, regulations, rulings and decisions now in effect, all of which are
subject to change. No representation is or can be made as to whether such laws,
statutes, treaties, regulations, rulings and decisions will change, or as to
the
impact any such change might have on the statements contained in this summary.
This summary does not discuss all aspects of Canadian and US federal income
taxation that may be relevant to a particular holder of our Common Shares in
light of the holder’s own circumstances or to certain types of investors subject
to special treatment under applicable tax laws (for example, financial
institutions, life insurance companies, tax-exempt organizations, and non-US
taxpayers) and it does not discuss any tax consequences arising under the laws
of taxing jurisdictions other than the Canada and the US federal government.
The
tax treatment of holders of our Common Shares may vary depending upon each
holder’s own particular situation. Prospective purchasers of the Company’s
Common Shares are advised to consult their own tax advisors as to the U.S.,
Canadian or other tax consequences of the purchase, ownership and disposition
of
such Common Shares.
The
following is a summary of the material US federal income tax consequences that
generally would apply with respect to the ownership and disposition of Common
Shares, in the case of a purchaser of such Common Shares who is a US Holder
(as
defined below) and who holds the Common Shares as capital property. This summary
is based on the US Internal Revenue Code of 1986, as amended (the “Code”),
Treasury Regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change either prospectively or retroactively. For purposes of
this summary, a US Holder is: an individual who is a citizen or a resident
of
the United States; a corporation created or organized in or under the laws
of
the United States or any political subdivision thereof; an estate whose income
is subject to US federal income tax regardless of its source; or a trust that
(a) is subject to the primary supervision of a court within the United States
and the control of one or more US persons or (b) has a valid election in effect
under applicable US Treasury Regulations to be treated as a US person.
For
US
federal income tax purposes, the gross amount of any distribution made by the
Company to US Holders with respect to the Common Shares held by them, including
the amount of any Canadian taxes withheld from such distribution, will be
treated for US federal income tax purposes as a dividend, to the extent of
our
current and accumulated earnings and profits as determined for US federal income
tax purposes. The amount of any such distribution that exceeds the Company’s
current and accumulated earnings and profits will be applied against and reduce
a US Holder’s tax basis in the holder’s Common Shares, and any amount of the
distribution remaining after the holder’s tax basis has been reduced to zero
will constitute capital gain. The capital gain will be treated as long-term,
or
short-term, capital gain depending on whether or not the holder’s Common Shares
have been held for more than one year as of the date of the distribution.
Dividends
paid by the Company generally will not qualify for the dividends received
deduction otherwise available to US corporate shareholders.
Canadian
withholding tax imposed on any dividends paid by the Company will constitute
a
foreign income tax eligible for credit against a US Holder’s US federal income
tax liability, subject to certain limitations set out in the Code.
Alternatively, the Canadian withholding tax may be claimed by the US Holder
as a
deduction against income in determining such tax liability. The rules relating
to the determination of the allowable foreign tax credit are complex, and US
Holders should consult with their own tax advisors to determine whether and
to
what extent they may be entitled to this credit.
Upon
a
sale or exchange of Common Shares, a US Holder will recognize gain or loss
for
US federal income tax purposes in an amount equal to the difference between
the
amount realized on the sale or exchange and the holder’s adjusted tax basis in
the Common Shares sold or exchanged. Such gain or loss generally will be capital
gain or loss and will be long-term or short-term capital gain or loss depending
on whether the US Holder has held the Common Shares sold or exchanged for more
(long-term) or less (short term) than one year at the time of the sale or
exchange.
Dividends
received by individuals from domestic and certain foreign corporations, and
long-term capital gain realized by individuals, generally are subject to US
federal income tax at a reduced maximum tax rate of 15 percent. Dividends
received by a US Holder with respect to the Common Shares should qualify for
the
15 percent rate. The reduced tax rate on capital gains applies to sales and
exchanges occurring before January 1, 2009. The reduced tax rate on dividend
income applies to dividends received before January 1, 2009. The reduced tax
rate will not apply to dividends received from PFICs, see discussion below,
or
in respect of certain short-term or hedged positions in common stock or in
certain other situations. The Code contains special rules for computing the
foreign tax credit limitation of a taxpayer who receives dividends subject
to
the reduced tax rate. US Holders of Common Shares should consult their own
tax
advisors regarding the effect of these rules in their particular circumstances.
For
US
federal income tax purposes, a foreign corporation is treated as a “passive
foreign investment company” (or PFIC) in any taxable year in which, after taking
into account the income and assets of the corporation and certain of its
subsidiaries pursuant to the applicable “look through” rules, either (1) at
least 75 percent of the corporation’s gross income is passive income or (2) at
least 50 percent of the average value of the corporation’s assets is
attributable to assets that produce passive income or are held for the
production of passive income. Based on the nature of its present business
operations, assets and income, the Company believes that it is not currently
subject to treatment as a PFIC. However, no assurance can be given that there
will not occur changes in the Company’s business operations, assets and income
that might cause it to be treated as a PFIC at some future time.
If
the
Company were to become a PFIC, a US Holder of the Company’s Common Shares would
be required to allocate to each day in the holding period for such holder’s
Common Shares a pro rata portion of any distribution received (or deemed to
be
received) by the holder from the Company, to the extent the distribution so
received constitutes an “excess distribution,” as defined under US federal
income tax law. Generally, a distribution received during a taxable year by
a US
Holder with respect to the Common Shares would be treated as an “excess
distribution” to the extent that the distribution so received, plus all other
distributions received (or deemed to be received) by the US Holder during the
taxable year with respect to such Common Shares, is greater than 125% of the
average annual distributions received by the US Holder with respect to such
Common Shares during the three preceding years (or during such shorter period
as
the US Holder may have held the Common Shares ). Any portion of an excess
distribution that is treated as allocable to one or more taxable years prior
to
the year of distribution would be subject to US federal income tax in the year
in which the excess distribution is made, but it would be subject to tax at
the
highest tax rate applicable to the US Holder in the prior tax year or years.
The
holder also would be subject to an interest charge, in the year in which the
excess distribution is made, on the amount of taxes deemed to have been deferred
with respect to the excess distribution. In addition, any gain recognized on
a
sale or other disposition of a US Holder’s Common Shares, including any gain
recognized on a liquidation of the Company’s would be treated in the same manner
as an excess distribution. Any such gain would be treated as ordinary income
rather than as capital gain. Finally, the 15 percent reduced US federal income
tax rate otherwise applicable to dividend income, as discussed above, will
not
apply to any distribution made by the Company in any taxable year in which
it is
a PFIC (or made in the taxable year following any such year), whether or not
the
distribution is an “excess distribution”.
For
US
federal income tax purposes, a foreign corporation is treated as a “foreign
personal holding company” (or FPHC) in any taxable year in which (i) five or
fewer individuals who are citizens or residents of the United States own
directly or by attribution more than 50%, by vote or value, of the shares of
the
corporation and (ii) at least 60 percent of the corporation’s gross income
consists of foreign personal holding company income. Based on the composition
of
its share ownership and the nature of its business operations and gross income
at the present time, the Company believes that it is not currently subject
to
treatment as an FPHC. However, no assurance can be given that there will not
occur changes in the composition of its share ownership and in the nature of
its
business operations and gross income that might cause the Company to be treated
as an FPHC at some future time.
If
the
Company were to become a FPHC, each US Holder of Common Shares on the last
day
of any taxable year in which the Company is a FPHC would have to include in
the
holder’s gross income for that year the holder’s pro rata share of the Company’s
“undistributed foreign personal holding company income.” The amount so included
would not qualify for taxation at the 15 percent reduced tax rate applicable
to
dividend income, and thus would be subject to US federal income tax at regular
ordinary income rates. If the Company were to distribute in a subsequent tax
year any undistributed foreign person holding company income so taxed, the
amount so distributed would not be counted as part of an “excess distribution”
under the PFIC rules discussed above.
For
US
federal income tax purposes, a foreign corporation is treated as a “controlled
foreign corporation” (or CFC) in any taxable year in which one or more US
Shareholders, each of whom owns (directly or by attribution) at least 10% of
the
voting power of all classes of the corporation’s stock (a “US Ten-Percent
Shareholder”), own, in the aggregate, more than 50% of the corporation’s stock,
by vote or value. Based on the composition of its share ownership and the nature
of its business operations and gross income at the present time, the Company
believes that it is not currently subject to treatment as a CFC
If
the
Company were to become a CFC, each US Holder treated as a US Ten-percent
Shareholder would be required to include in income each year such US Ten-percent
Shareholder’s pro rata share of our undistributed “Subpart F income.” For this
purpose, Subpart F income generally would include interest, original issue
discount, dividends, net gains from the disposition of stocks or securities,
net
gains on forward and option contracts, receipts with respect to securities
loans
and net payments received with respect to equity swaps and similar derivatives.
Any
undistributed Subpart F income included in a US Holder’s income for any year
would be added to the tax basis of the US Holder’s Common Shares. Amounts
distributed by the Company to the US Holder in any subsequent year would not
be
subject to further US federal income tax in the year of distribution, to the
extent attributable to amounts so included in the US Holder’s income in prior
years under the CFC rules but would be treated, instead, as a reduction in
the
tax basis of the US Holder’s Common Shares. The FPHC rules and PFIC rules
discussed above would not apply to any undistributed Subpart F income required
to be included in a US Holder’s income under the CFC rules, or to the amount of
any distributions received from the Company that were attributable to amounts
so
included.
Distributions
made with respect to Common Shares may be subject to information reporting
to
the US Internal Revenue Service and to US backup withholding tax at a rate
equal
to the fourth lowest income tax rate applicable to individuals (which, under
current law, is 28%). Backup withholding will not apply, however, if the holder
(i) is a corporation or comes within certain exempt categories, and demonstrates
its eligibility for exemption when so required, or (ii) furnishes a correct
taxpayer identification number and makes any other required certification.
Backup
withholding is not an additional tax. Amounts withheld under the backup
withholding rules may be credited against a US Holder’s US tax liability, and a
US Holder may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the Internal
Revenue Service.
Any
holder who holds 10% or more in vote or value of the Company will be subject
to
certain additional United States information reporting requirements for
non-corporate taxpayers, the maximum tax rates imposed are 15% on net capital
gains and 35% on ordinary income. US capital gains may result in additional
taxes by application of the Alternative Minimum Tax. As a taxpayer’s income
rises, US federal income tax law phases-out US personal exemptions and
increasingly limits the availability of itemized deductions the effects of
which
may be to increase the effective tax rates. The deduction of net capital losses
against ordinary income currently is severely limited under US federal income
tax law. US Holders of Common Shares must consult their own tax advisors to
determine the effect of federal, state and local income taxes upon a sale or
exchange of Common Shares.
US
Holders’ dividends or distributions received may be subject to state or local
income and other taxes with respect to their ownership and disposition of Common
Shares. US Holders of Common Shares should consult their own tax advisors as
to
the applicability and effect of any such taxes.
Certain
Canadian Federal Income Tax Considerations
The
following is a summary of the material Canadian federal income tax consequences
that generally would apply with respect to the ownership and disposition of
the
Company’s Common Shares, in the case of a purchaser of such Common Shares who is
a US Holder, who is not a resident of Canada for the purposes of the ITA (as
defined below), who deals at arm’s length with the Company and who does not use
or hold and is not deemed to use or hold Common Shares in carrying on business
in Canada. This summary is based on the current provisions of the Income Tax
Act
(Canada) as amended (the “ITA”), Regulations promulgated thereunder, and
judicial and administrative interpretations thereof, all as in effect on the
date hereof and all of which are subject to change either prospectively or
retroactively.
The
summary is for general information only and does not take into account the
individual circumstances of any particular investor. Therefore, investors are
urged to consult their own tax advisors with respect to the tax consequences
of
an investment in the Common Shares based on their specific circumstances,
including any consequences of an investment in the Common Shares arising under
state, local or provincial laws of other jurisdictions, including the United
States.
Dividends,
including deemed dividends, paid or credited on Common Shares will be subject
to
25% Canadian non-resident withholding tax, which is generally applicable to
dividends paid by a corporation resident in Canada to a non-resident. Under
the
terms of the Canada-United States Tax Convention (1980) (the “Treaty”), the
non-resident withholding tax is reduced to a rate of 15%. If, however, the
beneficial owner of the dividends is a company resident in the United States
for
the purposes of the Treaty that owns at least 10% of the voting stock of the
Company paying the dividends, the rate of withholding tax under the Treaty
is
further reduced to 5%.
The
Canada Revenue Agency (“CRA”) is currently of the view that certain U.S.
corporations are not residents of the United States for the purposes of the
Treaty, and accordingly would not benefit from the provisions thereof. A limited
liability company (LLC) that is viewed as a disregarded entity for U.S. taxation
purposes is one such entity. US Holders of Common Shares should consult their
own tax advisors to determine whether they would be considered residents of
the
United States for Treaty purposes and accordingly entitled to Treaty benefits.
Capital
gains realized on the disposition of Common Shares by a US holder will not
be
subject to tax under the ITA unless such Common Shares constitute taxable
Canadian property.
The
Common Shares will generally not be taxable Canadian property of a US Holder
unless, at any time during the five-year period immediately preceding a
disposition, the US Holder, persons with whom the US Holder did not deal at
arm’s length or the US holder and persons with whom the US Holder did not deal
at arm’s length owned 25% or more of the issued shares of any class or series of
the capital stock of the Company. Even if the Common Shares constitute taxable
Canadian property to a particular US Holder, an exemption from tax under the
ITA
may be available under the provisions of the Treaty. US Holders of Common Shares
must consult their own tax advisors to determine if any such Canadian income
tax
must be paid.
The
registration statement of which this prospectus forms a part covers an aggregate
of up to 646,392 Common
Shares all of which are issuable upon exercise of warrants held by the selling
shareholders. We have registered the Common Shares to permit the selling
shareholders to resell the Common Shares when they deem appropriate, including
after any exercise of the warrants.
The
table
below identifies the selling shareholders and other information regarding the
beneficial ownership of the Common Shares by each of the selling shareholders.
The first and second columns list the number and percentage, respectively,
of
Common Shares beneficially owned by each selling shareholder prior to the
offering covered by this prospectus. Beneficial ownership is determined in
accordance with Rule 13d-3(d) promulgated by the SEC under the Securities
Exchange Act of 1934. The denominator of the formula used to determine the
percentage of shares beneficially owned prior to the offering by each respective
selling stockholder includes (a) 14,589,000 shares of our common stock
outstanding as of September 12, 2007 and (b) the shares of common stock
issuable upon exercise of the warrants for common stock held by such selling
shareholder.
The
third
column lists each selling shareholder’s portion, based on agreements with us, of
the Common Shares being offered by this prospectus. The number of Common Shares
being offered by this prospectus was determined by the selling shareholder.
The
fourth and fifth columns assume the sale of all of the Common Shares issuable
to
the selling shareholders under such agreement. The fourth and fifth columns
assume the sale of all the Common Shares offered by each of the selling
shareholders. The selling shareholders may sell all, some or none of their
Common Shares in this offering. See “Plan of Distribution” below.
|
Name
|
Percentage of
Common
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of Shares Beneficially Owned Before Offering (1)
|
Number
of Shares Being Offered Pursuant to this Prospectus
|
Percentage
of Common Shares Owned After Offering
|
Number
of Common Shares Owned After Offering
|
|||||||||||
|
Merriman
Curhan Ford & Co.
|
*
|
40,000
|
40,000
|
*
|
0
|
|||||||||||
|
601
Montgomery Street
|
||||||||||||||||
|
Suite
1800
|
||||||||||||||||
|
San
Francisco,
CA
94111 (2)
|
||||||||||||||||
|
Mainfield
Enterprises Inc.
|
||||||||||||||||
|
c/o
Sage Capital Growth Inc.
660
Madison Ave., 18th Floor
|
1.37
|
%
|
200,000
|
(4)
|
200,000
|
*
|
0
|
|||||||||
|
New
York, NY
10021(3)
|
||||||||||||||||
|
Cranshire
Capital, L.P.
|
||||||||||||||||
|
3100
Dundee Rd., Suite 703
|
*
|
|
100,000
|
100,000
|
*
|
0
|
||||||||||
|
Northbrook,
IL
60062
(4)
|
||||||||||||||||
|
Smithfield
Fiduciary LLC
c/o
Highbridge Capital Management
|
||||||||||||||||
|
9
West 57th Street, 27th Floor
|
*
|
|
36,530
|
36,530
|
*
|
0
|
||||||||||
|
New
York, NY
10019
(5)
|
||||||||||||||||
|
Isotope
Limited
|
||||||||||||||||
|
c/o
Amaranth Advisors L.L.C.
|
||||||||||||||||
|
One
American Lane
|
||||||||||||||||
|
Greenwich,
CT
06831(6)
|
*
|
|
58,904
|
58,904
|
*
|
0
|
||||||||||
|
Enable
Growth Partners
|
*
|
10,958
|
10,958
|
*
|
0
|
|||||||||||
|
One
Ferry Building, Suite 255
|
||||||||||||||||
|
San
Francisco, CA
94111
(7)
|
||||||||||||||||
|
Crestview
Capital Master LLC
|
||||||||||||||||
|
95
Revere Drive, Suite A
|
1.37
|
%
|
200,000
|
(9)
|
200,000
|
*
|
0
|
|||||||||
|
Northbrook,
Illinois
60062(8)
|
*
Less than 1%.
|
(1)
|
|
Assumes
the exercise by each respective selling shareholder of all outstanding
warrants issued to such selling shareholder (but not the other selling
shareholders), except as otherwise indicated.
|
|
(2)
|
|
John
Hiestand is the Chief Financial Officer of Merriman Curhan Ford & Co.,
and may be deemed directly or indirectly alone or with others to
have the
power to vote or dispose of the shares held by Merriman Curhan & Ford.
Mr. Hiestand disclaims beneficial ownership of such shares.
|
|
(3)
|
|
Includes
200,000 shares issuable upon exercise of a warrant issued to Mainfield
on
June 30, 2004. Pursuant to an investment management agreement, Avi
Vigder
has voting discretion and investment control over the shares held
by
Mainfield. Avi Vigder disclaims beneficial ownership of such shares.
|
|
(4)
|
|
Mitchell
P. Kopin, President of Downsview Capital Inc., the General Partner
or
Cranshire Capital, L.P. has sole voting powers and investment discretion
over securities held by Cranshire Capital, L.P. Each of Downsview
Capital
Inc. and Mitchell P. Kopin disclaims beneficial ownership of securities
held by Cranshire Capital, L.P.
|
|
(5)
|
|
Highbridge
Capital Management, LLC is the trading manager of Smithfield Fiduciary
LLC
and consequently has voting control and investment discretion over
securities held by Smithfield Fiduciary LLC. Glen Dubin and Henry
Swieca
control Highbridge. Each of Highbridge, Glen Dubin and Henry Swieca
disclaims beneficial ownership of the securities held by Smithfield
Fiduciary LLC.
|
|
(6)
|
|
Amaranth
Advisors L.L.C. is the trading advisor of Isotope Limited and consequently
has voting control and investment discretion over securities held
by
Isotope Limited. James Rosecrans is the managing member of Amaranth
Advisors L.L.C. Each of Amaranth Advisors L.L.C. and James Rosecrans
disclaims beneficial ownership of the securities held by Isotope
Limited.
|
|
(7)
|
|
Mitchell
S. Levine may be deemed directly or indirectly alone or with others
to
have the power to vote or dispose of the shares held by Enable Growth
Partners. Mr. Levine disclaims beneficial ownership of such shares.
|
|
(8)
|
Crestview
Capital Partners, LLC (“CCP”) is the sole managing member of Crestview
Capital Master, LLC (“CCM”) and may be deemed to have sole voting and
investment power with respect to the securities beneficially owned
by CCM.
CCP disclaims beneficial ownership of these securities. The Managing
Members of CCP are Stewart Flink, Robert Hoyt and Daniel Warsh, each
of
whom may be deemed to having voting and dispositive power over securities
beneficially owned by CCM, and each of whom also disclaims beneficial
ownership of these securities. Mr. Flink is an affiliate of a
broker-dealer and it has been confirmed to us that the securities
were
acquired by CCM to be resold in the ordinary course of business and
that
there are no arrangements with any other persons, whether directly
or
indirectly, to dispose of the securities.
|
|
|
(9)
|
Includes
200,000 shares issuable upon exercise of a warrant sold to Crestview
Capital Master LLC by Heimdall Investments Ltd. on January 3,
2007.
|
The
selling shareholders may, from time to time, sell any or all of their Common
Shares on any stock exchange, market or trading facility on which the Common
Shares are traded or in private transactions exempt from the registration
requirements of the Securities Act. These sales may be at fixed or negotiated
prices. The selling shareholders may use any one or more of the following
methods when selling shares:
|
•
|
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
•
|
|
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 sale in accordance with the rules of the applicable exchange;
|
|
•
|
|
privately
negotiated transactions;
|
|
•
|
|
distribution
to a selling shareholder's partners, members or shareholders;
|
|
•
|
|
short
sales;
|
|
•
|
|
written
options whether or not listed;
|
|
•
|
|
broker-dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per share;
|
|
•
|
|
a
combination of any such methods of sale; and
|
|
•
|
|
any
other method permitted pursuant to applicable law.
|
The
selling shareholders may also sell Common Shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The
selling shareholders may also engage in short sales against the box, puts and
calls and other transactions in our securities or derivatives of our securities
and may sell or deliver shares in connection with these trades.
Broker-dealers
engaged by the selling shareholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling shareholders (or, if any broker-dealer acts as agent for the
purchaser of Common Shares, from the purchaser) in amounts to be negotiated.
The
selling shareholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved. Any profits on the
resale of Common Shares by a broker-dealer acting as principal might be deemed
to be underwriting discounts or commissions under the Securities Act. Discounts,
concessions, commissions and similar selling expenses, if any, attributable
to
the sale of Common Shares will be borne by a selling shareholder. The selling
shareholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares if liabilities are
imposed on that person under the Securities Act.
The
selling shareholders may from time to time pledge or grant a security interest
in some or all of the Common Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the Common Shares from time to time under this prospectus after
we have filed an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending the list of selling
shareholders to include the pledgee, transferee or other successors in interest
as selling shareholders under this prospectus.
The
selling shareholders also may transfer the Common Shares in other circumstances,
in which case the transferees, pledgees or other successors in interest will
be
the selling beneficial owners for purposes of this prospectus and may sell
the
Common Shares from time to time under this prospectus after we have filed an
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act of 1933 amending the list of selling shareholders to
include the pledgee, transferee or other successors in interest as selling
shareholders under this prospectus.
The
selling shareholders and any broker-dealers or agents that participate in the
distribution of the Common Shares may 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 Common Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
A
selling
shareholder may enter into hedging transactions with broker-dealers and the
broker-dealers may engage in short sales of the Common Shares in the course
of
hedging positions they assume with that selling shareholder, including, without
limitation, in connection with distributions of the Common Shares by those
broker-dealers. A selling shareholder may enter into option or other
transactions with broker-dealers that involve the delivery of the Common Shares
offered by the broker-dealers, who may then resell or otherwise transfer those
Common Shares. A selling shareholder may also loan or pledge the Common Shares
offered hereby to a broker-dealer and the broker-dealer may sell the Common
Shares so loaned or upon a default may sell or otherwise transfer the pledged
Common Shares offered by this prospectus.
We
are
required to pay all fees and expenses incident to the registration of the Common
Shares. We have agreed to indemnify the selling shareholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
The
selling shareholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their Common Shares, nor is there an
underwriter or coordinating broker acting in connection with a proposed sale
of
Common Shares by any selling shareholder. If we are notified by any selling
shareholder that any material arrangement has been entered into with a
broker-dealer for the sale of Common Shares, if required, we will file a
supplement to this prospectus. If the selling shareholders use this prospectus
for any sale of the Common Shares, they will be subject to the prospectus
delivery requirements of the Securities Act.
The
anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of our common stock and activities of the selling shareholders.
We
have
agreed to bear all expenses relating to the registration of the Common Shares
registered pursuant to the registration statement of which this prospectus
is a
part. We estimate these expenses to be approximately US$ 31,700, which include
the following categories of expenses:
|
SEC
registration fee
|
US$
|
—
|
|
|
Printing
and photocopying
|
2,000
|
||
|
Legal
fees and expenses
|
19,200
|
||
|
Accounting
fees and expenses
|
3,500
|
||
|
Transfer
agent and registrar
|
|||
|
fees
and expenses
|
2,000
|
||
|
Miscellaneous
expenses
|
5,000
|
||
|
Total
Expenses
|
US$
|
31,700
|
The
validity of our shares will be passed upon by Fasken Martineau DuMoulin LLP,
Montreal, Quebec, Canada.
The
consolidated financial statements of the Company as of December 31, 2006 and
2005 and for each of the three years in the period ended December 31, 2006
incorporated by reference into this Registration Statement have been so
incorporated in reliance on the audit report of RSM Richter LLP, independent
auditors, given on the authority of said firm as experts in auditing and
accounting. RSM Richter LLP is a member of the Canadian Institute of
Chartered Accountants.
As
described in the registration statement of which this prospectus forms a part,
our Articles of Association and certain provisions of Canadian law contain
provisions relating to the ability of our officers and directors to be
indemnified by us against any liability incurred in defending proceedings,
whether civil or criminal. Our Articles of Association provide that our
directors and officers are entitled to be indemnified out of our assets and
shall, from time to time, be indemnified and saved harmless by the Company
from
and against all costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him in respect of any
civil, criminal or administrative action or proceeding to which he is made
a
party by reason of being or having been a director or officer of such
corporation or body corporate if (a) he acted honestly and in good faith with
a
view to our best interests; and (b) in the case of a criminal or administrative
action or proceeding that is enforced by a monetary penalty, he had reasonable
grounds for believing that his conduct was lawful.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or controlling persons pursuant to charter
provision, by-law, contract, arrangement, statute or otherwise, we have been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
22