<PAGE>
Filed Pursuant to Rule 424B1
File No: 333-3589
PROSPECTUS
IMATEC, LTD.
1,000,000 SHARES OF COMMON STOCK [LOGO]
AND
4,000,000 REDEEMABLE WARRANTS
Imatec, Ltd. (the "Company") hereby offers 1,000,000 shares (the "Shares")
of common stock, par value $.0001 per share (the "Common Stock") and
4,000,000 redeemable Common Stock purchase warrants (the "Redeemable
Warrants"). The Shares and the Redeemable Warrants (collectively, the
"Securities") may be purchased separately and will be separately tradeable
immediately upon issuance. Each Redeemable Warrant entitles the registered
holder thereof to purchase one share of Common Stock at an exercise price of
$6.50, subject to adjustment, commencing on the date of this Prospectus until
October 28, 1999, at which time the Redeemable Warrants shall expire. Upon
the prior written consent of A.S. Goldmen & Co., Inc. (the "Underwriter"),
each Redeemable Warrant is redeemable by the Company at any time commencing
July 29, 1997, at a redemption price of $.10 per Redeemable Warrant, on 30
days' prior written notice, provided that the average closing bid price of
the Common Stock as reported on the Nasdaq SmallCap Market ("Nasdaq") equals
or exceeds $7.50 for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of notice of
redemption. See "Risk Factors" and "Description of Securities."
(Cover continued on next page)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===============================================================================
Price Underwriting Proceeds to
to Public Discount (1) Company (2)
- -------------------------------------------------------------------------------
Per share of Common Stock $5.00 $0.50 $4.50
- -------------------------------------------------------------------------------
Per Redeemable Warrant .. $0.25 $0.025 $0.225
- -------------------------------------------------------------------------------
Total (3) ............... $6,000,000 $600,000 $5,400,000
===============================================================================
(1) Does not include additional compensation to the Underwriter in the form
of a non-accountable expense allowance equal to 3% of the gross proceeds
of this offering (this "Offering"). For indemnification and contribution
arrangements with, and additional compensation payable to, the
Underwriter, see "Underwriting."
(2) Before deducting estimated expenses of this Offering payable by the
Company of $680,000, including the non-accountable expense allowance
payable to the Underwriter.
(3) The Company has granted to the Underwriter a 45 day option, to purchase
up to an additional 150,000 shares of Common Stock and/or 600,000
Redeemable Warrants on the same terms and conditions as set forth above
solely to cover over-allotments, if any. If such over- allotment option
is exercised in full, the total Price to Public, Underwriting Discount
and Proceeds to Company will be $6,900,000, $690,000 and $6,210,000,
respectively. See "Underwriting."
------
The Securities are being offered by the Underwriter, subject to prior sale
when, as and if delivered to and accepted by the Underwriter, and subject to
the approval of certain legal matters by its counsel and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected
that the delivery of the certificates representing the Securities and payment
therefor will be made at the offices of A.S. Goldmen & Co., Inc., Iselin, New
Jersey, or its counsel on or about November 1, 1996.
A.S. GOLDMEN & CO., INC.
The date of this Prospectus is October 29, 1996
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(cover continued from previous page)
Prior to this Offering, there has been no public market for the
Securities, and no assurance can be given that such a market will develop
upon completion of this Offering, or if developed, that it will be sustained.
The initial public offering prices of the Securities and the exercise price
and other terms and conditions of the Redeemable Warrants have been
arbitrarily determined by negotiations between the Company and the
Underwriter and do not necessarily bear any relationship to the Company's
assets, book value, results of operations or other generally accepted
criteria of value. The Common Stock and the Redeemable Warrants have been
approved for listing on Nasdaq under the symbols IMEC and IMECW,
respectively. See "Risk Factors" and "Underwriting."
This Prospectus also relates to the registration by the Company, at its
expense, (a) for the account of the Company of 4,000,000 shares of Common
Stock issuable by the Company upon the exercise of 4,000,000 Redeemable
Warrants to be issued in this Offering, (b) for the account of various
security holders who provided interim bridge financing (the "Bridge
Financing") to the Company (collectively, the "Bridge Selling Security
Holders") of an aggregate of (i) 525,201 shares of Common Stock after giving
effect to the "Bridge Financing Restructuring," as such term is defined in
"Plan of Operations -- Liquidity and Capital Resources", (ii) 1,950,000
Redeemable Warrants, and (iii) 1,950,000 shares of Common Stock issuable by
the Company upon the exercise of such 1,950,000 Redeemable Warrants issued to
the Bridge Selling Security Holders, and (c) for the account of the founding
stockholders of the Company (the "Founding Selling Security Holders") of an
aggregate of 2,210,000 shares of Common Stock. Except with respect to 150,000
shares of Common Stock being registered on behalf of certain of the Founding
Selling Security Holders (including 72,093 shares for Dr. Hanoch Shalit, the
Company's President and Chief Executive Officer) and any open market
purchases on or after the effective date of this Offering, the Founding
Selling Security Holders have agreed with the Underwriter not to effect any
sales of their Common Stock or any other securities of the Company, whether
or not beneficially owned, until 18 months after the date of this Prospectus
without the prior written consent of the Underwriter. The Bridge Selling
Security Holders have agreed with the Company not to effect any sales of
their Common Stock and Redeemable Warrants (or any shares of Common Stock
issuable upon exercise of the Redeemable Warrants) until 24 months and 18
months, respectively, after the date of this Prospectus. The Company will not
receive any proceeds from any of the securities offered for sale by either
the Bridge Selling Security Holders or the Founding Selling Security Holders,
although it will receive proceeds from the exercise of the Redeemable
Warrants by the Bridge Selling Security Holders. The Bridge Selling Security
Holders and the Founding Selling Security Holders are sometimes hereinafter
referred to collectively as the "Selling Security Holders," and all of the
securities offered for sale by the Selling Security Holders are hereinafter
referred to as the "Selling Security Holders' Securities." See "Selling
Security Holders," and "Description of Securities."
The sale of the Selling Security Holders' Securities may be effected from
time to time in transactions (which may include block transactions by or for
the account of the Selling Security Holders) in the over-the-counter market
or in negotiated transactions, through the writing of options on the Selling
Security Holders' Securities, through a combination of such methods of sale,
or otherwise. Sales may be made at fixed prices which may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. If any
Selling Security Holder sells his, her or its Securities, or options thereon,
pursuant to this Prospectus at a fixed price or at a negotiated price which
is, in either case, other than the prevailing market price or in a block
transaction to a purchaser who resells, or if any Selling Security Holder
pays compensation to a broker-dealer that is other than the usual and
customary discounts, concessions or commissions, or if there are any
arrangements either individually or in the aggregate that would constitute a
distribution of the Selling Security Holders' Securities, a post-effective
amendment to the Registration Statement of which this Prospectus is a part,
would need to be filed and declared effective by the Securities and Exchange
Commission before such Selling Security Holders could make such sale, pay
such compensation or make such a distribution. The Company is under no
obligation to file a post-effective amendment to the Registration Statement
of which this Prospectus is a part under such circumstances.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements after the close of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR THE REDEEMABLE WARRANTS OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by, and must be read in conjunction
with, the more detailed information and financial statements set forth
elsewhere in this Prospectus. Unless otherwise indicated herein, all share
and per share information does not give effect to (i) the exercise of the
Underwriter's over-allotment option to purchase up to an additional 150,000
shares of Common Stock and/or 600,000 Redeemable Warrants and the issuance of
up to 600,000 shares of Common Stock upon exercise of the Redeemable Warrants
included in the Underwriter's over-allotment option; (ii) the issuance of
5,950,000 shares of Common Stock issuable upon exercise of the Redeemable
Warrants, including the Redeemable Warrants offered by the Bridge Selling
Security Holders; (iii) the issuance upon exercise of warrants granted to the
Underwriter (the "Underwriter's Warrants") of up to 100,000 shares of Common
Stock and 400,000 Redeemable Warrants, and the underlying 400,000 shares of
Common Stock issuable upon exercise of the Redeemable Warrants contained in
the Underwriter's Warrants; and (iv) 500,000 shares of Common Stock reserved
for issuance upon the exercise of stock options that may be granted pursuant
to the Company's stock option plan. See "Management -- Stock Option Plan" and
"Underwriting." Unless otherwise indicated herein, all share and per share
information gives effect to (i) a 1-for-4 reverse stock split effected in May
1995 and (ii) a 22,100-for-1 stock split effected in October 1995.
THE COMPANY
Imatec, Ltd. (the "Company") was formed in 1988 to develop, design, market
and license its proprietary technology, which enhances image reproduction by
reducing distortion that normally occurs in the imaging process, for
application in such markets as medical imaging, graphic arts, computers,
cinematography and TV/video. Each application will be a system (an "Imatec
20/20(TR) System") of hardware and software components expressly designed for
a specific market. Based on the results of extensive testing, the Company has
developed an Imatec 20/20(TR) System for medical diagnostic imaging devices
which is capable of improving the quality of film reproduction of images
taken by medical diagnostic imaging devices such as Magnetic Resonance
Imaging scanners ("MRI"), computer tomography scanners ("CT") and Ultrasound
scanners. The Imatec 20/20 System for medical diagnostic imaging devices
achieves this goal regardless of the type of medical imaging film used and as
a consequence, may result in cost savings to the user. The Company has also
developed an Imatec 20/20 System for the medical imaging field of
teleradiology; which is the viewing of the same medical image on different
monitor screens in separate locations. Although the first applications of the
Company's technology have been for the medical diagnostic imaging field,
which only require black and white reproduction, the Company recently began
developing an Imatec 20/20 System designed to reduce distortions of
reproduction of color images and which is intended to facilitate the
Company's development of Imatec 20/20 Systems for non-medical imaging fields.
The Company's technology is designed to objectively measure the image
characteristics of an original image and compare it to its reproduced image,
computing the existing tone and color distortions between the two images and
correcting such distortions. Current imaging systems create reproductions
that have distortions and are usually adjusted subjectively during the
reproduction process. Aspects of the Company's technology are set forth in
three United States patents and one European patent (the "Patents") which
have been licensed to the Company from Dr. Hanoch Shalit, the Company's
President and Chief Executive Officer. The Company has designed, built and
tested a prototype of an Imatec 20/20 System that can be used with MRI, CT
and Ultrasound scanners.
In 1995, U.S. sales of MRI, CT and Ultrasound machines were approximately
$1.59 billion, representing sales of approximately 9,775 units. In addition,
approximately $235 million was spent in 1994 in connection with upgrading and
improving these medical imaging devices either to extend the life of the
machines or to add on technical improvements. At the end of 1995, there were
approximately 96,680 MRI, CT and Ultrasound machines operating in the United
States. Based on industry statistics, the U.S. market for medical imaging
devices represents approximately 40% of the worldwide market. See "Business
- -- The Company -- The Medical Imaging Market."
3
<PAGE>
The Company's strategy is to (i) license the Company's technology and the
Imatec 20/20 System developed for the medical diagnostic imaging field to
manufacturers of medical imaging products such as scanners, cameras and image
reproduction systems, (ii) engage in marketing activities to facilitate the
licensing of the Company's technology and its Imatec 20/20 Systems and (iii)
continue its research and development activities with respect to other
applications of the Company's technology in the medical imaging field and in
other imaging fields, such as graphic arts, cinematography, computers and
TV/video. The Company does not presently intend to engage in any
manufacturing, sales, distribution or service activities with respect to its
Imatec 20/20 Systems or products that incorporate the Company's technology.
The Company is a development stage company and was incorporated in the
State of New York on November 17, 1988 and reincorporated in the State of
Delaware on October 19, 1995. The Company maintains its offices at 150 E.
58th Street, New York, NY 10155 and its telephone number is (212) 826-0440.
4
<PAGE>
THE OFFERING
Securities Offered............. 1,000,000 shares of Common Stock and
4,000,000 Redeemable Warrants. See
"Description of Securities."
Securities Registered for the
Selling Security Holders..... An aggregate of 525,201 shares of Common
Stock and 1,950,000 Redeemable Warrants (and
the shares of Common Stock issuable upon
exercise of the Redeemable Warrants) are
being registered hereby and may be sold by
the Bridge Selling Security Holders,
although the Bridge Selling Security Holders
have agreed with the Company not to effect
any sales of their Common Stock and
Redeemable Warrants (or any shares of Common
Stock issuable upon exercise of the
Redeemable Warrants) until 24 months and 18
months, respectively, from the date of this
Prospectus. An additional 2,210,000 shares
of Common Stock are being registered and may
be sold by the Founding Selling Security
Holders, although except with respect to
150,000 shares of Common Stock and any open
market purchases on or after the effective
date of this Offering, the Founding Selling
Security Holders have agreed with the
Underwriter not to effect any sales of their
shares of Common Stock or any other
securities of the Company, whether or not
beneficially owned, until 18 months after
the date of this Prospectus without the
prior written consent of the Underwriter.
None of the Selling Security Holders'
Securities are being underwritten in this
Offering and the Company will not receive
any proceeds from their sale although it
will receive the exercise price of $6.50 per
share in the event that any Redeemable
Warrants are exercised. See "Plan of
Operations -- Liquidity and Capital
Resources" and "Selling Security Holders".
Terms of Redeemable Warrants... Each Redeemable Warrant entitles the holder
thereof to purchase one share of Common
Stock at an exercise price of $6.50 per
share at any time commencing on the date of
this Prospectus until October 28, 1999,
subject to adjustment in certain
circumstances. Each Redeemable Warrant, is
redeemable by the Company commencing July
29, 1997. The Redeemable Warrants are
redeemable by the Company with the consent
of the Underwriter and will be subject to
redemption at a redemption price of $.10 per
Redeemable Warrant, on 30 days prior written
notice, provided that the average closing
bid price of the Common Stock as reported by
Nasdaq equals or exceeds $7.50 per share,
for any 20 trading days within a period of
30 consecutive trading days ending on the
fifth trading day prior to the date of the
notice of redemption. See "Description of
Securities."
Common Stock Outstanding:
Prior to the closing of this
Offering..................... 2,761,785 shares
After the closing of this
Offering..................... 3,735,201(1) shares
5
<PAGE>
Use of Proceeds................ Research and development, repayment of
indebtedness, marketing and licensing and
working capital purposes. See "Use of
Proceeds."
Risk Factors................... The Securities offered hereby involve a high
degree of risk and immediate and substantial
dilution. See "Risk Factors" and "Dilution."
Nasdaq Symbols:
Common Stock................ IMEC
Redeemable Warrants......... IMECW
- ------
(1) Gives effect to the Bridge Financing Restructuring in which, among other
things, (i) 551,785 outstanding shares of Common Stock issued in the
Bridge Financing were returned by the Bridge Selling Security Holders to
the Company for cancellation, and (ii) 525,201 shares of Common Stock
were issued to the Bridge Selling Security Holders in connection with the
conversion of Notes issued in the Bridge Financing. See "Plan of
Operations -- Liquidity and Capital Resources."
6
<PAGE>
RISK FACTORS
Development Stage Company; Lack of Revenues; Accumulated Deficit;
Continued Losses for the Foreseeable Future; No Assurance of
Profitability. The Company is in the development stage and, to date, has
earned nominal revenues from operations. Since inception in November 1988,
the Company's principal activities have been (i) research and development
related to the Company's technology and the Imatec 20/20 System for the
medical diagnostic imaging field, (ii) testing of the Imatec 20/20 System
designed for the medical diagnostic imaging field, and (iii) the filing of,
and other activities related to obtaining, the Patents. Primarily as a result
of expenses incurred in connection with research and development and related
activities, as of December 31, 1995 and August 31, 1996 the Company had an
accumulated deficit of $1,280,109 and $2,837,005, respectively. The Company
has continued to incur losses since August 31, 1996. Potential investors
should be aware of the problems, delays, expenses, difficulties and risks
encountered by a company in the development stage, many of which may be
beyond the Company's control. Such risks may include, but are not limited to,
unanticipated problems relating to the continued developing, testing and
marketing of the Company's technology. In addition, the Company will also
face a number of risks specific to entities attempting to introduce new
technologies, including, but not limited to, the existence or development of
competing technologies, the existence or development of new technologies that
are incompatible with the Company's technology, the inability of the Company
to respond in a timely manner to changing technologies, the potential
obsolescence of the Company's technology as a result of changing
technologies, and the failure of a market to develop for Imatec 20/20
Systems. The Company expects to continue to incur losses until such time, if
ever, as the Company's revenues exceed its expenses. There can be no
assurance that the application of the Company's technology to the medical
diagnostic imaging field, or to any other fields, will be successful, or that
the Company will be able to successfully license or otherwise exploit its
technology or any of its Imatec 20/20 Systems. There can be no assurance that
the Company will ever achieve profitability. See "Business," "Plan of
Operations" and Financial Statements.
Significant Capital Requirements; Dependence on Proceeds of this
Offering. The Company's cash requirements are significant. The Company is
dependent on the net proceeds of this Offering to implement its current
business plan. The Company intends to substantially increase its level of
business activities following the consummation of this Offering and, in
connection therewith, will incur significant expenses without the guarantee
of any revenues. See "Plan of Operations" and "Use of Proceeds."
Possible Need For Additional Financings. Although the Company anticipates
that the net proceeds of this Offering will be sufficient to finance its
activities for at least the 12 months following the date of this Prospectus,
there is no assurance that the Company will not require additional financing
and if required, that such additional financing will be available to the
Company on acceptable terms, or at all. Factors that may lead to a need for
additional financing include delays in market acceptance, changes in
technologies or the need for the Company to directly engage in the
manufacture, sales, distribution and service of products based on the
Company's technology. There can be no assurance that the Company will not
suffer from these or any other problems, any of which may have a material
adverse effect on the Company See "Plan of Operations."
Uncertainty of Market Acceptance of the Company's Technology. Although the
Company has successfully tested the Imatec 20/20 System with respect to the
medical diagnostic imaging field, the Company is unknown in the marketplace
and there can be no assurance that a market for products that incorporate the
Company's technology will develop. Consequently, although the Company will
seek to license the Company's technology and Imatec 20/20 System to third
parties in the medical diagnostic imaging field, there can be no assurance
that the Company will be successful in generating any licensing income. In
addition, part of the Company's strategy is to continue its research and
development activities with respect to the Company's technology for other
applications in the medical imaging field and in other imaging fields, such
as graphic arts, computer, cinematography and TV/video. The Company has
recently began developing an Imatec 20/20 System designed to reduce
distortion of reproduction of color images, and which is intended to
facilitate the Company's application of an Imatec 20/20 System to non-medical
imaging fields. There can be no assurance, however, that the Company will be
able to apply its technology to any other markets or that a market will
develop for the Imatec 20/20 System in the medical diagnostic imaging field
or any other field, or that the Company's technology or Imatec 20/20 Systems
will ever receive acceptance from any intended users. See "Business -- The
Company's Business Strategy."
7
<PAGE>
Risks of Technological Change; Competition. The image enhancement field is
subject to rapid and significant technological change that may render the
Company's technology or an Imatec 20/20 System obsolete or products that
incorporate the Company's technology obsolete or incompatible with the
machines they are intended to complement. In addition, such rapid changes may
impose additional, unforeseen costs on the Company in that the Company may be
required to modify its technology and Imatec 20/20 Systems to adapt to such
changes. There can be no assurance that the Company will be able to
successfully modify or upgrade its technology and Imatec 20/20 Systems as may
be necessary in a timely manner, or at all.
While the Company is not aware of any entities that build image
enhancement devices that compete with the Company's technology or its Imatec
20/20 Systems, there are a number of entities that are engaged in the
research and development of image enhancement products. These entities may in
the future develop technologies or products that compete with the Company's
technology or its Imatec 20/20 Systems. Potential competitors of the Company
include independent companies, universities and public and private research
organizations, most of which are well established and have substantially
greater marketing, financial, technological and other resources than the
Company. In addition, the medical imaging field in particular is dominated by
large, well established corporations. There can be no assurance that
competitors will not succeed in securing patents and/or developing
technologies or products that are more effective than the Company's
technology or its Imatec 20/20 Systems, as a result of which the Company's
technology and Imatec 20/20 Systems may become obsolete or non-competitive.
See "Business -- Competition".
No Manufacturing, Sales, Distribution and Technical Services Support
Capabilities; Limited Marketing Capabilities. The Company does not presently
intend to engage in the manufacturing process or the accompanying sales,
distribution and technical services support functions. The Company will be
dependent on licensees of its technology or Imatec 20/20 Systems and other
third parties with which it will attempt to establish commercial
relationships in connection with the manufacturing, distribution and service
of products that incorporate its technology or Imatec 20/20 Systems. The
manufacturing, sales, distribution and service of products are capital and
labor intensive, and beyond the Company's current capabilities. Similarly,
the Company has, and will continue to have for the foreseeable future,
limited marketing and licensing capabilities. The Company's marketing and
licensing strategy will rely on unaffiliated licensees and other third
parties to successfully manufacture and effect sales of products which
incorporate the Company's technology or its Imatec 20/20 Systems as well as
provide the necessary service, repair and technical support. There can be no
assurance that the Company will be able to rely on unaffiliated licensees and
third parties to successfully effect the manufacture, sales and service of
products incorporating the Company's technology or its Imatec 20/20 Systems,
or that the Company will not have to make significant additional capital
expenditures in the event that it cannot rely on such licensees and third
parties. Moreover, any such additional capital expenditures are beyond the
Company's current means, and may also include the employment of additional
personnel, in order to successfully effect the manufacture, sales,
distribution or service of products incorporating the Company's technology or
its Imatec 20/20 Systems. See "Business -- The Company's Business Strategy"
"--Manufacturing and Distribution."
No Assurance as to Validity or Enforceability of Intellectual Property
Rights. The Company is the exclusive licensee of the Patents. The owner and
licensor of the Patents is Dr. Hanoch Shalit, the Company's President and
Chief Executive Officer. Notwithstanding the Company's exclusive license with
respect to the Patents, there can be no assurance that others will not
independently develop similar technologies, or design around the Patents. If
others are able to design around the Patents, the Company's business will be
materially adversely affected. Further, the Company will have very limited,
if any, protection of its proprietary rights in those jurisdictions where it
has not effected any patent filings or where it fails to obtain patent
protection despite filing therefor.
Even though the Patents have been issued by the United States Patent and
Trademark Office and the European Patent Office, challenges may be instituted
by third parties as to the validity and enforceability of the Patents. There
also can be no assurance that third parties will not be able to successfully
assert a claim with regard to the Patents and/or the Company's technology or
its Imatec 20/20 Systems under their own intellectual property rights. The
Company is not presently aware of any challenges to the Patents. Similarly,
the Company may also have to institute legal actions in order to protect
infringement of its Patents by third parties. The Company is not presently
aware of any such infringements. The costs of litigation or settlement in
connection with the
8
<PAGE>
defense of any third party challenges relative to the validity and
enforceability of its Patents and/or to prevent any infringement of the
Patents by third parties, which pursuant to the License Agreement are the
Company's responsibilities, could be substantial. Moreover, in the event that
the Company was unsuccessful in any such litigation, the Company could be
materially adversely affected.
In certain instances, for business reasons, the Company may choose not to
seek patent protection for all of its innovations. In such instances, the
Company may rely on trade secrets and know-how to protect its innovations.
There can be no assurance that protectable trade secrets or know-how will be
established or, if established, that they will remain protected, or that
others will not independently and lawfully develop similar or superior
innovations. The Company requires all employees to sign non-disclosure,
non-competition, confidentiality and invention assignment agreements.
Similarly, all directors, consultants and other parties to whom confidential
information has been or will be disclosed have agreements containing
confidentiality provisions and covenants not to compete. There can be no
assurance, however, that any such confidentiality or non-compete provisions
will be complied with or will be enforceable. See "Business -- Intellectual
Property" and "Management -- Executive Compensation."
Possible Need for FDA Clearance. The Company is presently uncertain
whether the Company, or a potential licensee of the Company's technology or
the Imatec 20/20 System for medical imaging applications, will obtain any
required clearances for medical devices from the United States Food and Drug
Administration ("FDA") for the Imatec 20/20 System for medical imaging
applications. The clearance process is expensive and time consuming. In order
to clinically test, produce, and market a medical device that requires FDA
clearance, the Company or a licensee, as the case may be, must satisfy
numerous mandatory procedures, regulations, and safety standards established
by the FDA, and comparable state and foreign regulatory agencies. Typically,
such standards require that the products be cleared by the FDA as safe and
effective for their intended use prior to being marketed for human
applications. In the event that any FDA clearances are required, there can be
no assurance that any such clearances will be granted, or that the length of
time for clearance will not be extensive, or that the cost of attempting to
obtain any such clearances will not be prohibitive.
The FDA employs a rigorous system of regulations and requirements
governing the clearance processes for medical devices, requiring, among other
things, the presentation of substantial evidence, including clinical studies,
establishing the safety and efficacy of new medical devices. The principal
methods by which FDA clearance is obtained are pre-market approval ("PMA"),
which is for products that are not comparable to any other product in the
market, or filing a pre-market notification under Section 510(k) of the
Federal Food, Drug and Cosmetic Act (a "510(k)") which is for products that
are substantially equivalent to products that have already received FDA
clearance. Although both methods may require clinical testing of the products
in question under an approved protocol, because PMA clearance relates to more
unique, invasive and/or potentially higher risk products, the PMA procedure
is more complex and time consuming. Applicants under the 510(k) procedure
must prove that the products for which clearance is sought are substantially
equivalent to products on the market prior to the Medical Device Amendments
of 1976, or products approved thereafter pursuant to the 510(k). The review
period for a 510(k) application is approximately ninety (90) days from the
date of filing the application, although there can be no assurance that the
review period will not extend beyond such a period.
Under the PMA procedure, the applicant is required to conduct substantial
clinical testing to determine the safety, efficacy and potential hazards of
the product. The review period under a PMA application is one hundred eighty
(180) days from the date of filing, and the application is not automatically
deemed cleared if not rejected during that period. The preparation of a PMA
application is significantly more complex, expensive and time consuming than
the 510(k) procedure. Further, the FDA can request additional information,
which can prolong the clearance process.
The Company is of the belief, based upon the non-invasive nature of the
Company's technology, the Imatec 20/20 System for medical imaging
applications and other factors, that only a 510(k) application and approval
will be required for the Imatec 20/20 System for medical imaging
applications, although there can be no assurance that a PMA will not be
required.
In order to conduct human clinical studies for any medical procedure
proposed for the Company's products, the Company or a licensee, as the case
may be, could also be required to obtain an Investigational Device
9
<PAGE>
Exemption ("IDE") from the FDA or clearance of an Institutional Review Board
("IRB"), which would further increase the time before potential FDA
clearance. In order to obtain an IDE, the Company or a licensee, as the case
may be, may be required to submit an application to the FDA or an IRB,
including a complete description of the product, and detailed medical
protocols that would be used to evaluate the product. In the event an
application were found to be in order, an IDE would ordinarily be granted
promptly thereafter.
The FDA also imposes various requirements on manufacturers and sellers of
medical devices under its jurisdiction, such as medical device listing,
labeling, manufacturing practices, record keeping and reporting requirements.
The FDA may also require post-market testing and surveillance programs to
monitor a product's effect. In the event that the Company or a licensee, as
the case may be, is required to obtain clearance for the Imatec 20/20
Systems, there can be no assurance that the appropriate clearance from the
FDA will be obtained, that the process to obtain such clearance will not be
excessively expensive or lengthy, or that the Company or a licensee, as the
case may be, will have sufficient funds to pursue such clearances.
Accordingly, the inability of the Company or potential licensees, as the case
may be, to receive requisite clearance for the Imatec 20/20 Systems would
prevent the Company from commercializing its technologies as intended, and
would have a material adverse effect on the business of the Company.
Even after regulatory clearance is obtained, any such clearance may
include significant limitations on indicated uses. Further, regulatory
clearances are subject to continued review, and later discovery of previously
unknown problems may result in restrictions with respect to a particular
product or manufacturer, including withdrawal of the product from the market,
or sanctions or fines being imposed on the Company or licensee, as the case
may be.
Distribution of the Imatec 20/20 Systems or licensing of the Company's
technology in countries other than the United States may be subject to
regulation in those countries. There can be no assurance that the Company or
licensee, as the case may be will be able to obtain the approvals necessary
outside of the United States. See "Business -- FDA Clearance."
Management's Broad Discretion in Application of Proceeds. Although the
Company intends to apply the net proceeds from the sale of the Common Stock
and Redeemable Warrants in the manner described under "Use of Proceeds," it
has broad discretion within such proposed uses as to the precise allocation
of the net proceeds, the timing of expenditures and all other aspects of the
use thereof. Further, approximately 41.2% of the net proceeds of this
Offering are allocated to working capital, which is a general category that
gives management a significant degree of latitude as to the expenditure
thereof. See "Use of Proceeds."
Company's Obligation to Make Substantial Payments to Principal
Stockholder. The Company will be obligated to make substantial payments to
Dr. Hanoch Shalit, its President, Chief Executive Officer and Chairman of the
Board of Directors and a principal stockholder of the Company, regardless of
whether the Company ever achieves any revenues. Pursuant to the terms of his
five-year exclusive employment agreement, the Company is obligated to pay to
Dr. Shalit a base salary of $60,000 per annum, which shall increase at the
rate of 5% per annum, plus benefits. Dr. Shalit is also entitled to receive a
bonus of $10,000 for every $1,000,000 of gross annual sales received by the
Company. In addition, pursuant to the terms of the License Agreement, Dr.
Shalit is entitled to receive an annual flat royalty fee of $140,000 for so
long as the Company or any successor of the Company is in existence. However,
in the event that Dr. Shalit is no longer President, Chief Executive Officer
and Chairman of the Board of the Company for any reason whatsoever, but the
Company, or any successor of the Company, continues in existence, the annual
flat royalty fee shall increase to $250,000. The annual flat royalty fee
increases at the rate of 5% per annum so long as the Company or any successor
of the Company continues to be in existence.
Dependence Upon Key Personnel. The Company's success depends upon the
continued involvement of Dr. Hanoch Shalit, the Company's President and Chief
Executive Officer. The loss or unavailability of Dr. Shalit could materially
adversely affect the Company. On July 1, 1995, the Company entered into a
five-year employment agreement with Dr. Shalit. The Company is the sole
beneficiary of a "key man" life insurance policy on the life of Dr. Shalit in
the principal amount of $1,000,000. See "Management" and "Certain
Transactions."
Limited Business Experience of Management; Need for Additional
Personnel. Since its inception in 1988, the Company has primarily engaged in
research and development activities and the manufacture of test and pre-
10
<PAGE>
production prototypes of an Imatec 20/20 System for the medical diagnostic
imaging field. Presently, the Company has only three executive officers; Dr.
Hanoch Shalit, Lawrence P. Kollender and James A. Smith. Dr. Hanoch Shalit,
the Company's President and Chief Executive Officer does not have any
experience in operating a business engaged in the licensing of intellectual
property. Mr. Kollender, the Company's Vice President of Marketing and Sales,
is primarily responsible for the marketing and sales activities of the
Company. Mr. Smith, the Company's Chief Financial Officer, is primarily
responsible for the Company's financial matters. The Company's ability to
implement its business plan, the essential elements of which are licensing,
marketing and research and development activities, will depend upon the
Company's ability to hire and retain senior level, highly-skilled personnel
experienced in the operation of certain aspects of the Company's business,
such as accounting, management, licensing and marketing. Competition for such
personnel is intense and there can be no assurance that the Company will be
successful in attracting and retaining personnel. The Company's failure to
attract and retain such additional personnel would have a material adverse
effect on the Company. See "Management."
No Product Liability Insurance. The Company's business could expose the
Company to product liability claims. The Company currently has no product
liability insurance, although it intends to attempt to obtain such insurance
before any of its products are sold commercially. There can be no assurance
that the Company will be able to obtain such insurance on acceptable terms or
that such insurance, if obtained, will provide adequate coverage against
potential liabilities.
Control by Officers and Directors. Upon the closing date of this Offering,
the Company's current officers and directors will own approximately 26.1% of
the issued and outstanding shares of Common Stock. Accordingly, although not
representing a majority of the Company's voting securities, the current
management of the Company will nevertheless be able to significantly
influence the election of the Company's directors and generally direct the
affairs of the Company. See "Management," "Principal Stockholders" and
"Description of Securities-Common Stock."
Immediate Substantial Dilution. Upon the closing date of this Offering,
purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution of the net tangible book value of their investment in
the Company of $3.43 per share, or approximately 69% per share. See
"Dilution."
Absence of Dividends. The Company has never paid any dividends with
respect to its Common Stock and does not anticipate paying dividends on its
Common Stock in the foreseeable future. Any earnings which the Company may
realize in the foreseeable future will be retained to finance the growth of
the Company. See "Description of Securities" and "Dividend Policy."
Potential Litigation. In connection with its Bridge Financing
Restructuring one of the investors in the Company's Bridge Financing,
representing one "Unit" (as that term is defined in Plan of Operations --
Liquidity and Capital Resources"), has not, to date, advised the Company
whether he will choose "Option A" or "Option B" (as those terms are defined
in "Plan of Operations -- Liquidity and Capital Resources") and thus was
deemed to have chosen Option A by the Company. Such investor may thereafter
institute litigation against the Company seeking equitable relief, which may
include enjoining the closing of this Offering, disputing the Option he is
deemed to have chosen and/or seeking to enforce the original terms and
conditions of his investment in the Company. The Company intends to
vigorously defend any such litigation. See "Plan of Operations -- Liquidity
and Capital Resources".
Anti-Takeover Provisions; Issuance of Preferred Stock. The Company's Board
of Directors has the authority to issue up to 2,000,000 shares of preferred
stock in one or more series and to determine the number of shares in each
series, as well as the designations, preferences, rights and qualifications
or restrictions of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue shares of preferred stock. In addition, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. See "Description of
Securities -- Preferred Stock."
11
<PAGE>
Speculative Nature of Redeemable Warrants; Adverse Effect of Possible
Redemption of Redeemable Warrants. The Redeemable Warrants do not confer any
rights of Common Stock ownership on its holders, such as voting rights or the
right to receive dividends, but rather, merely represent the right to acquire
shares of Common Stock at a fixed price for a limited period of time.
Specifically, commencing on the date of this Prospectus, holders of the
Redeemable Warrants may exercise their right to acquire the Common Stock and
pay an exercise price of $6.50 per share, subject to adjustment, until
October 28, 1999 after which date any unexercised Redeemable Warrants will
expire and have no further value. Moreover, following this Offering, the
market value of the Redeemable Warrants is uncertain and there can be no
assurance that the market value of the Redeemable Warrants will equal or
exceed their initial public offering prices. There can be no assurance that
the market price of the Common Stock will ever equal or exceed the exercise
price of the Redeemable Warrants, and consequently, whether it will ever be
profitable for the holders of the Redeemable Warrants to exercise their
Redeemable Warrants.
In addition, the Redeemable Warrants are subject to redemption by the
Company, subject to the approval of the Underwriter, commencing July 29,
1997, on 30 days' prior written notice, at a price of $.10 per Redeemable
Warrant if the average closing bid price for the Common Stock as reported on
Nasdaq, equals or exceeds $7.50 per share, for any 20 trading days within a
period of 30 consecutive trading days ending on the fifth trading day prior
to the date of the notice of redemption. In the event that the Redeemable
Warrants are redeemed by the Company, holders of the Redeemable Warrants will
lose their right to exercise their Redeemable Warrants after the 30 day
notice period. Upon receipt of notice of redemption, holders of Redeemable
Warrants would be required to: (i) exercise the Redeemable Warrants and pay
the exercise price at a time when it may be disadvantageous for them to do
so; (ii) sell the Redeemable Warrants at the then market price, if any, when
they might otherwise wish to hold the Redeemable Warrants; or (iii) accept
the redemption price, which is likely to be substantially less than the
market value of the Redeemable Warrants at the time of redemption. In the
event that holders of the Redeemable Warrants elect not to exercise their
Redeemable Warrants upon notice of redemption, the unexercised Redeemable
Warrants will be redeemed prior to exercise, and the holders thereof will
lose the benefit of the appreciated market price of the Redeemable Warrants,
if any, and/or the difference between the market price of the underlying
Common Stock as of such date and the exercise price of such Warrants, as well
as any possible future price appreciation in the Common Stock. See
"Description of Securities--Redeemable Warrants."
Current Prospectus and State Registration Required to Exercise
Warrants. The Redeemable Warrants are not exercisable unless, at the time of
exercise, the Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Redeemable Warrants and such shares have
been registered, qualified or deemed to be exempt under the securities or
"blue sky" laws of the state or residence of the exercising holder of the
Redeemable Warrants. In addition, in the event that any holder of the
Redeemable Warrants attempts to exercise any Redeemable Warrants at any time
after nine months from the date of this Prospectus, the Company will be
required to file a post-effective amendment to the Registration Statement of
which this Prospectus is a part and deliver a current prospectus before the
Redeemable Warrants may be exercised. Although the Company has undertaken to
use its best efforts to have all of the shares of Common Stock issuable upon
exercise of the Redeemable Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Redeemable Warrants, there is no assurance that it will be
able to do so. The value of the Redeemable Warrants may be greatly reduced if
a current prospectus covering the Common Stock issuable upon the exercise of
the Redeemable Warrants is not kept effective or if such Common Stock is not
qualified or exempt from qualification in the States in which the holders of
the Redeemable Warrants then reside. The Redeemable Warrants will be
separately tradeable immediately upon issuance and may be purchased
separately from the Common Stock. Although the Redeemable Warrants will not
knowingly be sold to purchasers in jurisdictions in which the Redeemable
Warrants are not registered or otherwise qualified for sale, investors may
purchase the Redeemable Warrants in the secondary market or may move to
jurisdictions in which the shares underlying the Redeemable Warrants are not
registered or qualified during the period that the Redeemable Warrants are
exercisable. In such event, the Company will be unable to issue shares to
those persons desiring to exercise their Redeemable Warrants unless and until
the shares are qualified for sale in jurisdictions in which such purchasers
reside, or an exemption from such qualification exists in such jurisdictions,
and holders of the Redeemable Warrants would have no choice but to attempt to
sell the Redeemable Warrants in a jurisdiction where such sale is permissible
or allow them to expire unexercised. See "Description of
Securities--Redeemable Warrants."
12
<PAGE>
Shares Eligible for Future Sale. Upon the closing date of this Offering,
there will be 3,735,201 shares of Common Stock outstanding after giving
effect to the Bridge Financing Restructuring and the Company's sale of the
Securities offered hereby. (3,885,201 if the Underwriter's over-allotment
option is exercised in full) all of which will be registered. Of such shares,
525,201 are being registered on behalf of the Bridge Selling Security Holders
and 2,210,000 shares of Common Stock are being registered on behalf of the
Founding Selling Security Holders pursuant to the registration statement of
which this Prospectus is a part. Except with respect to 150,000 shares of
Common Stock being registered on behalf of certain of the Founding Selling
Security Holders (including 72,093 shares for Dr. Hanoch Shalit, the Chief
Executive Officer and President of the Company) and any open market purchases
on or after the effective date of this Offering, the Founding Selling
Security Holders, have agreed with the Underwriter, not to directly or
indirectly offer, sell, transfer, or otherwise encumber or dispose of any of
the Company's securities, whether or not beneficially owned, for a period of
18 months after the date of this Prospectus unless otherwise permitted by the
Underwriter. The Bridge Selling Security Holders have agreed with the Company
not to effect any sales of their Common Stock and Redeemable Warrants (or any
shares of Common Stock issuable upon exercise of the Redeemable Warrants)
until 24 months and 18 months, respectively, after the date of this
Prospectus. Possible or actual sales of the Company's outstanding Common
Stock by certain of the present stockholders may, in the future, have a
depressive effect on the price of the Common Stock should a public market
develop for such shares. See "Shares Available for Future Sale,"
"Management--Stock Option Plan," "Principal Stockholders," and
"Underwriting."
The 4,000,000 Redeemable Warrants being offered by the Company and the
1,950,000 Redeemable Warrants being registered for the account of the Bridge
Selling Security Holders entitle the holders thereof to purchase up to an
aggregate of 5,950,000 shares of Common Stock any time during the period
commencing on the date of this Prospectus and expiring 36 months from the
date of this Prospectus. Sales of either the Redeemable Warrants or the
underlying shares of Common Stock, or even the existence of the Redeemable
Warrants, may depress the price of the Common Stock or the Redeemable
Warrants in any markets that may develop for such Securities. See "Selling
Security Holders," "Plan of Operations--Liquidity and Capital Resources,"
"Shares Eligible for Future Sale" and "Underwriting."
No Assurance of Public Trading Market or Continued Nasdaq Inclusion; Risk
of Low-Priced Securities. Prior to this Offering, there has been no public
market for the Securities, and there can be no assurance that an active
public market for the Common Stock or Redeemable Warrants will develop after
the completion of this Offering, or if developed, be sustained. In order to
qualify for continued listing on Nasdaq, a company, among other things, must
have $2,000,000 in total assets, $1,000,000 in capital and surplus and a
minimum bid price of $1.00 per share. If the Company is unable to satisfy the
maintenance requirements for quotation on Nasdaq, of which there can be no
assurance, it is anticipated that the Securities would be quoted in the
over-the-counter market National Quotation Bureau ("NQB") "pink sheets" or on
the NASD OTC Electronic Bulletin Board. As a result, an investor may find it
more difficult to dispose of, or obtain, accurate quotations as to the market
price of the Securities, which may materially adversely affect the liquidity
of the market for the Securities. In addition, if the Securities are delisted
from Nasdaq they might be subject to the low-priced security or so-called
"penny stock" rules that impose additional sales practice requirements on
broker-dealers who sell such securities. For any transaction involving a
penny stock the rules require, among other things, the delivery, prior to the
transaction, of a disclosure schedule required by the Securities and Exchange
Commission (the "Commission") relating to the penny stock market. The
broker-dealer also must disclose the commission payable to both the
broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements must be sent disclosing recent
price information for the penny stocks held in the customer's account. It is
presently expected that the Underwriter will be the principal market maker in
the Securities. Such market making activity may be discontinued at any time.
The prices and liquidity of the Securities may be materially adversely
affected if such market making activity were discontinued for any reason.
Although the Company believes that the Securities will not be defined as a
penny stock due to their anticipated listing on Nasdaq, in the event the
Securities subsequently become characterized as a penny stock, the market for
and liquidity of the Securities could be severely affected. In such an event,
the regulations relating to penny stocks could limit the ability of
broker-dealers to sell the Securities and, thus, the ability of purchasers in
the Offering to sell their Securities in the secondary market.
13
<PAGE>
USE OF PROCEEDS
The estimated net proceeds to the Company from the sale of the Securities
offered hereby, after deducting the underwriting discount and estimated
offering expenses, will be approximately $4,720,000, (or approximately
$5,503,000 if the Underwriter's over-allotment option is exercised in full).
The Company intends to allocate the net proceeds of the Offering
approximately as follows:
Approximate Approximate
Amount Percentage
------------- -------------
Research and development(1) . $1,000,000 21.2%
Repayment of indebtedness(2) 1,025,000 21.7%
Marketing and licensing(3) .. 750,000 15.9%
Working capital ............. 1,945,000 41.2%
------------- -------------
Total ..................... $4,720,000 100.0%
============= =============
- ------
(1) Consists of expenditures for equipment, materials and outside consultants
and in connection with research and development activities with respect
to the application of the Imatec 20/20 System designed for the medical
diagnostic imaging field to other medical imaging fields and developing
an Imatec 20/20 System for non-medical imaging fields. In addition, the
Company may also from time to time purchase technologies which may
enhance or further the application of the Company's technology, although
the Company has no understandings or arrangements to do so at this time.
(2) Reflects repayment of principal amount of $1,025,000 of Notes, pursuant
to the Bridge Financing Restructuring. See "Plan of Operations --
Liquidity and Capital Resources."
(3) Consists of expenditures in connection with participating in trade shows
(which includes constructing a booth for, and renting space at, trade
shows, preparation of special marketing materials, and travel to and
attendance at trade shows), preparation of marketing materials, hiring of
sales and marketing personnel and consultants, advertising and general
marketing and licensing activities.
The initial application for the use of proceeds represents management's
estimates based upon current business and economic conditions. Although the
Company does not contemplate material changes in the proposed use of
proceeds, to the extent the Company finds that adjustment is required by
reason of existing business conditions, the amounts shown may be adjusted
among the uses indicated above.
The Company believes that the net proceeds of this Offering will be
sufficient for the Company to sustain its operations and implement its
business plan for at least twelve (12) months after the date of this
Prospectus, although there can be no assurance that such net proceeds will be
sufficient to finance the Company's operations for such period.
To the extent that the Company's expenditures are less than projected
and/or the net proceeds of this Offering increase as a result of the exercise
by the Underwriter of its over-allotment option, the resulting balance will
be retained and used for general working capital purposes. The net proceeds
of this Offering that are not expended immediately shall be deposited in
interest bearing accounts, or invested in government obligations,
certificates of deposit or similar short-term, low risk investments.
DIVIDEND POLICY
The Company has never paid cash or other dividends and does not expect to
pay any cash or other dividends in the foreseeable future with respect to its
Common Stock. The Company's future dividend policy will depend upon the
Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Company's Board of Directors. The Company
presently intends to retain any earnings which the Company may realize in the
foreseeable future to finance the growth of the Company.
14
<PAGE>
DILUTION
The Company had a pro forma net tangible book value of $1,053,190 or $.39
per share of Common Stock as of August 31, 1996, after giving pro forma
effect to the Bridge Financing Restructuring. Net tangible book value per
share is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities) by the number of outstanding
shares of Common Stock. After giving effect to the receipt of the net
proceeds from the sale of the Common Stock and Redeemable Warrants by the
Company and the initial application of the net proceeds therefrom, the net
tangible book value of the Company at August 31, 1996 would have been
$5,876,277 or $1.57 per share, representing an immediate dilution of $3.43
(or approximately 69%) per share to the public investors as illustrated by
the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share of Common Stock .......... $5.00
Pro forma net tangible book value per share before Offering ...... $ .39
Increase in net tangible book value per share of Common Stock
attributable to public investors ................................ 1.18
------
Adjusted net tangible book value per share upon the Offering ..... 1.57
-------
Dilution per share to public investors (1) ....................... $3.43
=======
</TABLE>
- ------
(1) In the event that the Underwriter exercises its over-allotment option in
full, the adjusted net tangible book value after this Offering would be
approximately $1.71 per share, which would result in immediate dilution
in net tangible book value to public investors of approximately $3.29 per
share.
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased, the percentage of Common Stock
purchased, the total consideration paid, the percentage of total
consideration paid, and the average price per share paid, by the existing
stockholders of the Company and the investors in the Offering.
<TABLE>
<CAPTION>
Number of Percent Percent of
Shares of Total Total Consid- Total Consid- Average Price
Purchased Shares eration Paid eration Paid Per Share
----------- ---------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Present Stockholders(1). 2,735,201 73% 43% $ 3,819,575 $1.40
Public Investors ....... 1,000,000 27% 57% 5,000,000(2) $5.00
----------- ---------- --------------- ---------------
Total .................. 3,735,201 100% 100% $ 8,819,575
=========== ========== =============== ===============
</TABLE>
- ------
(1) Adjusted to give pro forma effect to the Bridge Financing Restructuring.
See "Plan of Operations -- Liquidity and Capital Resources."
(2) Allocates no value to the Redeemable Warrants offered hereby.
The foregoing table assumes no exercise of the Redeemable Warrants or any
stock options, of which none are currently issued. To the extent that any
options issued by the Company in the future or the Redeemable Warrants are
exercised, there may be further dilution to the new investors in this
Offering.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at August
31, 1996. This information should be read in conjunction with the financial
statements and the notes thereto which are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
August 31, 1996
---------------------------------
Actual As Adjusted(1)
--------------- --------------
<S> <C> <C>
Bridge notes payable ....................................... $ 3,084,284(2) $ 0
--------------- --------------
Stockholders' (Deficit) Equity:
Preferred Stock, par value $.0001 per share, 2,000,000
shares authorized, no shares issued and outstanding . 0 0
Common Stock, par value $.0001, 20,000,000 shares
authorized, 2,761,785 shares issued and outstanding
actual, and 3,735,201 as adjusted ................... 276 374
Additional paid-in capital ............................ 1,865,725 8,686,298
Deficit accumulated during the development stage ...... (2,837,005) (2,810,395)
--------------- --------------
Total stockholders' (deficit) equity ....................... $ (971,004) $ 5,876,277
=============== ==============
Total capitalization ....................................... $ 2,113,280 $ 5,876,277
=============== ==============
</TABLE>
- ------
(1) As adjusted to give effect to (i) the conversion of $1,950,000 of
principal indebtedness and $150,671 of accrued interest thereon into
525,201 shares of Common Stock, (ii) the forgiveness of $1,025,000 of
principal indebtedness and $139,712 of accrued interest thereon, (iii)
the cancellation of 2,050,000 Bridge Warrants, (iv) the write-off of
unamortized loan discount of $915,716 and deferred loan costs of
$222,386, all being deemed to occur as of November 1, 1996,and (v) the
sale of 1,000,000 shares of Common Stock and 4,000,000 Redeemable
Warrants in connection with this Offering and the initial application of
the net proceeds therefrom. See "Plan of Operations -- Liquidity and
Capital Resources" and "Use of Proceeds."
(2) Net of $915,716 of unamortized original issue discount.
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the historical
financial statements of the Company. In the opinion of the Company's
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the information set forth therein have been made.
The selected financial data should be read in conjunction with the Financial
Statements and related notes thereto, which are included elsewhere in this
Prospectu.
<TABLE>
<CAPTION>
November 17, 1988
(inception) to
December 31, 1995 Eight months
Year Ended December 31 (Cumulative) Ended August 31,
---------------------------- ----------------- ------------------------------
1994 1995 1995 1996
------------ ------------ ----------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Income ...................................... $1,960 -- $133,973 -- --
------------ ------------ ----------------- ------------ --------------
Royalties ................................... -- $420,000 $420,000 $373,334 $95,083
Research and development .................... $17,881 $11,773 $337,389 -- $46,991
General and administrative .................. $99,243 $163,682 $598,613 $51,631 $531,518
Interest expense (net) ...................... -- $67,139 $58,080 -- $883,304
------------ ------------ ----------------- ------------ --------------
Net loss .................................... $(115,164) $(662,594) $(1,280,109) $(424,965) $(1,556,896)
============ ============ ================= ============ ==============
Net loss per share .......................... $(.02) $(.12) $(.22) $(.07) $(.26)
============ ============ ================= ============ ==============
Weighted average number of shares outstanding . 5,741,072 5,749,976 5,742,329 5,738,313 5,893,715
============ ============ ================= ============ ==============
</TABLE>
August 31, 1996
------------------------------
As
Balance Sheet Data: Actual adjusted (1)
-------------- ------------
Working capital .............. $1,667,858 $5,756,328
Total assets ................. $2,369,215 $5,912,174
Total liabilities ............ $3,340,219(2) $ 35,897
Stockholders' equity (deficit) . $ (971,004) $5,876,277
- ------
(1) As adjusted to give effect to (i) the conversion of $1,950,000 of
principal indebtedness and $150,671 of accrued interest thereon into
525,201 shares of Common Stock, (ii) the forgiveness of $1,025,000 of
principal indebtedness and $139,712 of accrued interest thereon, (iii)
the cancellation of 2,050,000 Bridge Warrants, (iv) the write-off of
unamortized loan discount of $915,716 and deferred loan costs of
$222,386, all being deemed to occur as of November 1, 1996, and (v) the
sale of 1,000,000 shares of Common Stock and 4,000,000 Redeemable
Warrants in connection with this Offering and the initial application of
the net proceeds therefrom. See "Plan of Operations -- Liquidity and
Capital Resources" and "Use of Proceeds."
(2) Net of $915,716 of unamortized original issue discount.
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PLAN OF OPERATIONS
The Company was organized on November 17, 1988 and is in the development
stage. To date, the Company's activities have primarily consisted of research
and development activities with respect to the development of the Company's
technology and an Imatec 20/20 System for the medical diagnostic imaging
field. During this time, the Company has received only minimal revenues from
limited non-recurring consulting activities. The Company believes, based upon
its internal budgets, that the net proceeds of this Offering will be
sufficient for the Company to (i) engage in licensing the Company's
technology and Imatec 20/20 System developed for the medical diagnostic
imaging field to manufacturers of medical diagnostic imaging products such as
scanners, cameras and image reproduction systems, (ii) engage in marketing
activities to facilitate the licensing of the Company's technology and its
Imatec 20/20 Systems, (iii) continue research and development activities with
respect to other applications of the Company's technology in the medical
imaging field and in other imaging fields, such as graphic arts, computer,
cinematography and TV/video and (iv) otherwise conduct its operations for at
least the twelve (12) month period following the date of this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
The Company is in the development stage, and primarily as a consequence of
expenses incurred in connection with research and development activities, at
December 31, 1995 and August 31, 1996 the Company had an accumulated
stockholders' deficit of $1,280,109 and $2,837,005, respectively. The Company
has continued to incur losses since August 31, 1996.
To date, the Company has financed its operations principally from the sale
of securities and loans. In 1991, the Company issued an aggregate of 55,250
shares of Common Stock to an investor for aggregate gross proceeds of
$500,000. In 1994, the Company issued an aggregate of 12,615 shares of Common
Stock to two investors for aggregate gross proceeds of $114,224.
In the second and third quarters of 1995 the Company borrowed an aggregate
of $175,000 from five non-affiliated, accredited investors pursuant to one
(1) year promissory notes. All of these investors converted their respective
loans into Units in the Bridge Financing described immediately below.
On November 30, 1995, the Company effected the initial closing (the "First
Closing") of a private placement (the "Bridge Financing") pursuant to which
it sold an aggregate of 37 units (the "Units") to non-affiliated, accredited
investors, each Unit consisting of (a) a $50,000 10% promissory note due the
earlier of (i) fifteen (15) months from the date of issuance, (ii) the
Company's receipt of gross proceeds of at least $8,000,000 from a public or
private sale of its securities in which the Underwriter acted as the
underwriter or placement agent, respectively, or (iii) the Company's receipt
of gross proceeds of at least $4,500,000 from a public or private sale of its
securities in which the Underwriter did not act as the underwriter or
placement agent, respectively (the "Note"), (b) 6,897 shares of Common Stock,
and (c) 50,000 warrants (the "Bridge Warrants") exercisable at $1.00 per
share. See "Description of Securities." The Company received gross proceeds
from the sale of the 37 Units in the First Closing of $1,850,000, pursuant to
which it issued an aggregate of 255,194 shares of Common Stock and 1,850,000
Bridge Warrants. The investors in the First Closing received financial
statements from the Company which did not properly account for the Company's
research and development costs. As a result thereof, the Company circulated
revised financial statements and gave recission offers to all of the
investors in the First Closing, only one of whom accepted such recission
offer. All of the other investors in the First Closing affirmatively chose
not to rescind. On April 12, 1996 the Company effected a second closing of
the Bridge Financing (the "Second Closing") pursuant to which it received an
additional $2,150,000 in gross proceeds for which it issued an aggregate of
43 Units, 296,591 shares of Common Stock and 2,150,000 Bridge Warrants. The
net proceeds from the Bridge Financing were approximately $3,230,000 (after
commissions and expenses) and in connection therewith the Company issued
551,785 shares of Common Stock (including 25 shares of Common Stock which
resulted from rounding to the nearest whole share in connection with the
purchase of fractional units) and 4,000,000 Bridge Warrants. The Company used
the net proceeds from the Bridge Financing (i) to make a one-time payment of
$350,000 to the Company's President and Chief Executive Officer, Dr. Hanoch
Shalit, pursuant to the License Agreement and (ii) for marketing and working
capital purposes.
In connection with the issuance of Notes with an aggregate principal
amount of $4,000,000, 551,785 shares of Common Stock and 4,000,000 Bridge
Warrants in the Bridge Financing, the Company recorded an original issue
discount of $1,503,570 based upon the allocation of the relative fair market
value of the Notes, Bridge
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Warrants and the Common Stock on the date of issuance. The Company incurred
approximately $664,000 of offering costs related to the Bridge Financing, of
which approximately $415,000 was allocated to deferred debt issuance costs
with the remainder allocated to paid-in capital of the Common Stock and
Bridge Warrants issued therewith. The original issue discount is being
amortized over the term of the Notes as interest expense.
In October 1996, the Company restructured the Bridge Financing (the
"Bridge Financing Restructuring"). Accordingly, all of the investors in the
Bridge Financing (the "Bridge Investors") were given the choice to either (i)
convert on the closing date of this Offering, their entire principal and
accrued interest into shares of Common Stock at the rate of $4.00 per share,
retain the Bridge Warrants, and return all of the shares of Common Stock that
they received in the Bridge Financing ("Option A"), or (ii) upon the closing
of this Offering receive a one time payment equal to fifty percent (50%) of
the principal amount of their Note, not receive any accrued interest
whatsoever, and return all of the Bridge Warrants and Common Stock that they
received in the Bridge Financing ("Option B"). Bridge Investors owning an
aggregate of 38 Units elected Option A and Bridge Investors owning an
aggregate of 41 Units elected Option B. The Bridge Investor representing the
remaining one (1) Unit who failed to choose either Option A or Option B as of
the date of this Prospectus was deemed to have chosen Option A by the Company
and the Company will cancel on its books and records the Common Stock issued
to him in the Bridge Financing. Consequently, the Bridge Financing has been
restructured such that, upon the closing of this Offering the Company will
repay an aggregate of $1,025,000 of principal amount of Notes with respect to
those investors who chose Option B. The balance of the principal amount of
the Notes issued in the Bridge Financing, and all accrued interest thereon,
is being forgiven and will not be repaid. In addition, the Company will
issue, upon the closing date of this Offering an aggregate of 525,201 shares
of Common Stock and 1,950,000 Bridge Warrants to those Bridge Investors who
chose Option A. The balance of 2,050,000 Bridge Warrants and all 551,785
shares of Common Stock issued in the Bridge Financing will be returned to the
Company upon the closing of this Offering.
In connection with the Bridge Financing Restructuring, which is contingent
on the closing of this Offering, the Company will (i) write-off $915,716 of
unamortized loan discount and $222,386 of deferred loan costs, and, (ii) will
recognize income of $1,164,712 from the forgiveness of indebtedness. See
"Risk Factors--Potential Litigation."
The Company believes that the net proceeds of this Offering will be
sufficient for the Company to sustain its operations and implement its
business plan for at least twelve (12) months after the date of this
Prospectus, although there can be no assurance that such net proceeds will be
sufficient to finance the Company's operations for such period.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1995, the Company had net operating loss carryforwards
under Section 172 of the Internal Revenue Code, as amended (the "Code"), of
approximately $900,000 for Federal income tax purposes which may be used to
offset future taxable income. The Federal income tax carryforward will expire
as follows: $130,000 in the year 2008; $75,000 in the year 2009; $94,000 in
the year 2010; and $601,000 in the year 2011.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December
15, 1995. The new standard establishes guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment
losses should be measured. The Company adopted SFAS No. 121 as of January 1,
1996 and such adoption did not have a material effect on its financial
position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) recently issued by FASB is effective
for specific transactions entered into after December 15, 1995, while the
disclosure requirements of SFAS No. 123 are effective for financial
statements for fiscal years beginning no later than December 15, 1995. The
new standard establishes a fair value method of accounting for stock-based
compensation plans and for transactions in which an entity acquires goods or
services from nonemployees in exchange for equity instruments. At the present
time, the Company has not adopted SFAS No. 123 because the Company has not
engaged in any transactions involving stock-based compensation subsequent to
December 15, 1995.
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BUSINESS
GENERAL
The Company was formed in 1988 to develop, design, market and license its
proprietary technology, which enhances image reproduction by reducing
distortion that normally occurs in the imaging process, for application in
such markets as medical imaging, graphic arts, computers, cinematography and
TV/video. Each application will be a system of hardware and software
components (an "Imatec 20/20 System"), expressly developed for a specific
market. Based on the results of extensive testing, the Company has developed
an Imatec 20/20 System for medical diagnostic imaging devices which is
capable of improving the quality of film reproduction of images taken by
medical diagnostic imaging devices such as MRI, CT and Ultrasound scanners.
The Imatec 20/20 System for medical diagnostic imaging devices achieves this
goal regardless of the type of medical imaging film used which may result in
cost savings to the user. The Company has also developed an Imatec 20/20
System for the medical field of teleradiology, which is the viewing of the
same medical image on different monitor screens in separate locations.
Although the first applications of the Company's technology have been for the
medical diagnostic imaging field, which only require black and white
reproduction, the Company recently began developing an Imatec 20/20 System
designed to reduce distortions of reproduction of color images and which is
intended to facilitate the Company's development of Imatec 20/20 Systems for
non-medical imaging fields.
The Company's technology is designed to objectively measure the image
characteristics of an original image and compare it to its reproduced image,
computing the existing tone and color distortions between the two images and
correcting such distortions. Current imaging systems create reproductions
that have distortions and are usually adjusted subjectively during the
reproduction process. Aspects of the Company's technology are set forth in
its Patents which have been licensed by the Company from Dr. Hanoch Shalit,
the Company's President and Chief Executive Officer. The Company has
designed, built and tested a prototype of a device incorporating the Imatec
20/20 System which can be used with MRI, CT and Ultrasound scanners.
THE MEDICAL IMAGING MARKET
In 1995, U.S. sales of MRI, CT and Ultrasound machines were approximately
$1.59 billion, representing sales of approximately 9,775 units. In addition,
approximately $235 million was spent in 1994 in connection with the upgrading
and improving these medical imaging devices either to extend the life of the
machines or to add on technical improvements. At the end of 1995, there were
approximately 96,680 MRI, CT and Ultrasound machines operating in the United
States. Based on industry statistics, the U.S. market for medical imaging
devices represents approximately 40% of the worldwide market.
IMATEC 20/20 SYSTEMS
Imatec 20/20 Systems are designed to improve a reproduced image so that it
more closely resembles the original image in terms of tone and color.
Presently, many image reproduction applications employ manual adjustments
based on subjecive assessment. The individual taking the image adjusts the
imaging taking device (i.e. the camera) by adjusting the light intensity,
exposure time, etc. The adjusting of these variables is based on the
operator's subjective perceptions. In the medical imaging process, however, a
number of variables, in addition to the subjective perceptions of the
operator, influence the fidelity of the final image as compared to the
original image. Such variables include lighting conditions, photographic
materials used, particular equipment characteristics, calibration, and
equipment age. Imatec 20/20 Systems employ an objective measurement of image
and tone rather than subjective assessments of image and tone to reduce the
distortion in the imaging process caused by these variables.
When used in connection with an MRI, CT or Ultrasound scanner, the Imatec
20/20 System uses a photometer (an instrument that measures properties
relating to light, especially luminous intensity) to measure the image tone
characteristics that appear on the screen of the medical imaging device via a
test pattern representing the tone of such images. Thereafter, a densitometer
(an instrument that measures the optical density of a film) measures the
image tone characteristics of the same image as reproduced on film via a test
pattern that represents the image as it appears on the film. Thereafter, the
characteristic of the screen image and the film image are transferred to a
computer which calculates the distortion function between the two images and
the required
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correction function. This computed correction function is automatically
transferred to a digital signal processor system that modifies the film image
reproduction signal on a pixel-by-pixel basis to create an image reproduced
on the film that more closely resembles the image and tone characteristics as
set forth on the screen.
This so-called closed loop system, which measures and compares the image
tone characteristics set forth on the screen and the image tone
characteristics reproduced on the film, adjusting for those variables that
influence the reproduced image, can take one of two forms. The Imatec 20/20
System can be an add-on to MRI, CT and Ultrasound scanners. In such
instances, the operator of the medical imaging device will be required to
make adjustments each time a variable that influences the final picture is
altered, such as a change in lighting conditions or the changing of the film.
Alternatively, the Imatec 20/20 System can also be incorporated inside MRI,
CT and Ultrasound scanners, in which event the Imatec 20/20 System can
automatically adjust for any change in these variables.
THE COMPANY'S BUSINESS STRATEGY
The Company's strategy is to (i) license the Company's technology and
Imatec 20/20 System developed for the medical diagnostic imaging field to
manufacturers of medical imaging products such as scanners, cameras and image
reproduction systems, (ii) engage in marketing activities to facilitate the
licensing of the Company's technology and its Imatec 20/20 Systems, and (iii)
continue its research and development activities with respect to other
applications of the Company's technology in the medical imaging field and for
other imaging fields, such as graphic arts, computer, cinematography, and
TV/video. The precise scope and length of any license granted by the Company
will be dependent upon the overall nature of the license agreement and the
remuneration to be received by the Company. The Company will simultaneously
seek to license Imatec 20/20 Systems both as an add-on device for new and
existing MRI, CT and Ultrasound scanners and as an enhancement to be included
inside new MRI, CT and Ultrasound scanners. The Company does not presently
intend to engage in any manufacturing, sales, distribution or service
activities with respect to its Imatec 20/20 Systems or products that
incorporate the Company's technology, or provide technical service in
connection therewith. The Company may assist a licensee in adapting the
Company's technology or an Imatec 20/20 System and preparing a technical
manual for any product that incorporates the Company's technology or Imatec
20/20 system, but will not engage in providing the actual technical
assistance to end-users of any such product. In the event that the Company is
unable to effectively license its technology or the Imatec 20/20 System the
Company may have to engage in manufacturing of products incorporating its
technology or the Imatec 20/20 System. See "Risk Factors -- No Manufacturing,
Sales, Distribution and Technical Services Support Capabilities; Limited
Marketing Capabilities."
MANUFACTURING, SALES AND DISTRIBUTION
As noted above, the Company has no present intention to engage in the
manufacturing, sales or distribution process. In the event that due to the
Company's inability to successfully license its technology or any Imatec
20/20 System the Company determined that it was necessary to manufacture,
sell and distribute imaging products incorporating the Company's technology
or Imatec 20/20 Systems, the Company would manufacture such products on a
contract manufacturing or original equipment manufacturer (OEM) basis and
have such products distributed by a network of independent regional
distributors. The Company presently has an arrangement with an independent
third party company that provides research and development services to the
Company from time to time. Such third party also has pre-production and
production capabilities. Consequently, since such third party is already
familiar with the Company's technology, the Company would engage such third
party on an OEM basis in the event that the Company was required to
manufacture products. The Company presently does not have any relationship
with any independent retail distributors.
MARKETING
The Company intends to market its technology and Imatec 20/20 Systems in a
number of ways, all of which are intended to facilitate the licensing of its
technology and Imatec 20/20 Systems. The Company will attend industry trade
shows in the United States where it believes it will gain additional exposure
to potential licensees for its technology and Imatec 20/20 Systems. The
Company also will seek to obtain awareness of Imatec 20/20 Systems through
the publishing of articles by Dr. Shalit, the first of which is expected to
be a series of
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articles commencing in November of 1996 in Medical Imaging, a trade magazine.
The Company also intends to gain exposure as well as keep current of emerging
and changing imaging standards by joining certain industry trade associations
and where feasible, having representatives of the Company serve on various
standards committees in the imaging field. The Company recently became a
member of the National Electronic Manufacturers Association ("NEMA") which is
an industry trade association for the medical imaging industry. In addition,
Dr. Shalit is currently a full voting member of the Digital Imaging
Communication in Medicine Committee ("DICOM"), a committee under the auspices
of NEMA and the American College of Radiology that is responsible for
creating standards in the image communication business. The Company also
intends to engage in general advertising in trade publications in order to
gain recognition of the Company and its Imatec 20/20 Systems. The Company has
a vice president of marketing to coordinate all of the Company's marketing
activities and intends to hire additional marketing personnel and consultants
subsequent to this Offering.
RESEARCH AND DEVELOPMENT
In applying the Imatec 20/20 System designed for the medical diagnostic
imaging field to other aspects of the medical imaging field, as well as in
connection with developing Imatec 20/20 Systems for other fields, the Company
intends to engage consultants and independent contractors from to time to
conduct research and development activities. The Company, in discreet
instances, may acquire certain technologies that the Company believes enhance
or further the application of the Company's technology or its Imatec 20/20
Systems to other imaging fields, although it will only effect such
acquisitions in those instances where the Company believes that acquisition
of such technologies is more economical and efficient than engaging in the
research and development itself. The Company does not have any current
arrangements or understandings at the present time to acquire any such
technologies.
The Company incurred $17,881, $11,773 and $46,991 in research and
development activities in 1994, 1995 and the eight months ended August 31,
1996, respectively. The Company presently intends to expend no more than
approximately $350,000 on research and development during the last four (4)
months of 1996.
COMPETITION
The image enhancement field is subject to rapid and significant
technological change that may render an Imatec 20/20 System obsolete or
products that incorporate the Company's technology obsolete or incompatible
with the machines they are intended to complement. In addition, such rapid
changes may impose additional, unforeseen costs on the Company in that the
Company may be required to modify its technology and Imatec 20/20 Systems to
adapt to such changes. There can be no assurance that the Company will be
able to successfully modify or upgrade its technology and Imatec 20/20
Systems as may be necessary in a timely fashion, or at all.
While the Company is not aware of any entities that build image
enhancement devices that compete with the Company's technology or Imatec
20/20 Systems, there are a number of entities that are engaged in the
research and development of image enhancement products. These entities may in
the future develop technologies or products that compete with the Company's
technology or Imatec 20/20 Systems. Potential competitors of the Company
include independent companies, universities and public and private research
organizations, most of which are well established and have substantially
greater marketing, financial, technological and other resources than the
Company. In addition, the medical imaging field in particular is dominated by
large, well established corporations. There can be no assurance that
competitors will not succeed in securing patents and/or developing
technologies or products that are more effective than the Company's
technology or Imatec 20/20 Systems, as a result of which the Company's
technology or Imatec 20/20 Systems may become obsolete or noncompetitive.
THE LICENSE AGREEMENT
The Company entered into a license agreement as of June 25, 1995 with Dr.
Hanoch Shalit, the Company's President and Chief Executive Officer (the
"License Agreement"). The License Agreement grants the Company the exclusive
right to make, use, sell and sublicense "Patentable Image Technology," which
is defined in the License Agreement as the three United States Patents and
certain foreign patent applications. Under the terms of
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the License Agreement, Dr. Shalit received from the Company a one-time
$350,000 payment in January 1996 subsequent to the First Closing of the
Bridge Financing. Dr. Shalit is also entitled to receive a flat royalty fee
of $140,000 per annum, payable in monthly installments of $11,667, for so
long as the Company and any successor of the Company is in existence (the
"Annual Royalty"); provided, however, that in the event that Dr. Shalit is no
longer President, Chief Executive Officer and Chairman of the Company for any
reason whatsoever, but the Company or any successor of the Company continues
in existence, the Annual Royalty shall automatically be increased to $250,000
per annum. Pursuant to the terms of the License Agreement, the Annual Royalty
shall increase by 5% every year as long as the Company or any successor of
the Company is in existence. The License Agreement also grants to the Company
the exclusive right as to inventions made by Dr. Shalit in the course of his
employment under his employment agreement with the Company. The Company's
obligations to pay the Annual Royalty shall continue until the expiration of
the License Agreement. The term of the License Agreement expires when the
last licensed patent expires, whether in the United States or abroad. Under
the License Agreement, the Company is obligated to use its reasonable best
efforts to make, use, sell and sublicense to others the Patentable Image
Technology.
INTELLECTUAL PROPERTY
The Company presently intends to make all appropriate filings and
registrations, or take all other actions the Company believes to be
necessary, to obtain and protect all patents, trademarks, copyrights,
tradenames, trade dress and all other intellectual property rights, if any,
relating to the Company, although there can be no assurances that the Company
will be able to effectively do so. In the event the Company is able to fully
establish intellectual property rights with respect to the technology used by
the Company, of which there can be no assurance, third parties may attempt to
exercise alleged rights in any of their patents, trademarks, copyrights or
other intellectual property or appropriate any patents, trademarks,
copyrights, or other intellectual property rights obtained by the Company,
and the Company's failure or inability to adequately protect any of its
intellectual property rights may have a material adverse effect on the
Company. In addition, there can be no assurance that third parties will not
be able to successfully assert a claim with regard to the Patents and/or the
Imatec 20/20 Systems under their own intellectual property rights.
The Company also requires all employees to sign non-disclosure,
non-competition, confidentiality and invention assignment agreements.
Under the License Agreement, the Company has an exclusive, worldwide
license from Dr. Hanoch Shalit, the Company's founder, principal stockholder
and Chief Executive Officer, to make, use, sell and sublicense to others the
Patentable Image Technology.
Subsequent to this Offering, the Company will seek to broaden its patent
protection and the application of the Company's technology and Imatec 20/20
Systems to other markets. When seeking to apply the Company's technology to
other markets, the Company most likely will first design a research prototype
of an Imatec 20/20 System for such market to test the technology in the
laboratory. Thereafter, a production prototype of such Imatec 20/20 System
will be constructed for testing at a beta, or third party, site. After
successful beta testing, the Company will then seek to market the Imatec
20/20 System and/or license the underlying technology.
FDA CLEARANCE
The FDA employs a rigorous system of regulations and requirements
governing the clearance processes for medical devices, requiring, among other
things, the presentation of substantial evidence, including clinical studies,
establishing the safety and efficacy of new medical devices. The principal
methods by which FDA clearance is obtained are pre-market approval, which is
for products that are not comparable to any other product in the market, or
filing a pre-market notification under Section 510(k) of the Federal Food,
Drug and Cosmetic Act which is for products that are substantially equivalent
to products that have already received FDA clearance. Although both methods
may require clinical testing of the products in question under an approved
protocol, because PMA clearance relates to more unique, invasive and/or
potentially higher risk products, the PMA procedure is more complex and time
consuming. Applicants under the 510(k) procedure must prove that the products
for which clearance is sought are substantially equivalent to products on the
market prior to the Medical Device Amendments of 1976, or products approved
thereafter pursuant to the 510(k). The review period for a 510(k) application
is approximately ninety (90) days from the date of filing the application,
although there can be no assurance that the review period will not extend
beyond such a period.
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Under the PMA procedure, the applicant is required to conduct substantial
clinical testing to determine the safety, efficacy and potential hazards of
the product. The review period under a PMA application is one hundred eighty
(180) days from the date of filing, and the application is not automatically
deemed cleared if not rejected during that period. The preparation of a PMA
application is significantly more complex, expensive and time consuming than
the 510(k) procedure. Further, the FDA can request additional information,
which can prolong the clearance process.
In order to conduct human clinical studies for any medical procedure
proposed for the Company's products, the Company, or a licensee of the
Company's technology or Imatec 20/20 System for medical imaging applications,
as the case may be, could also be required to obtain an Investigational
Device Exemption ("IDE") from the FDA or IRB, which would further increase
the time before potential FDA clearance. In order to obtain an IDE, the
Company or a licensee, as the case may be, may be required to submit an
application to the FDA or IRB, including a complete description of the
product, and detailed medical protocols that would be used to evaluate the
product. In the event an application were found to be in order, an IDE would
ordinarily be granted promptly thereafter.
EMPLOYEES
As of September 30, 1996, the Company had 4 full-time employees, Dr.
Hanoch Shalit, who serves as the Company's President and Chief Executive
Officer, Lawrence P. Kollender, who serves as the Company's Vice President of
Sales and Marketing, James A. Smith, who serves as the Company's Chief
Financial Officer, and one administrative assistant. The Company also employs
2 part-time consultants, consisting of 1 computer programmer and 1 electronic
engineer. The Company believes that its relations with its employees are
good.
PROPERTIES
On January 31, 1996, the Company entered into a three (3) year lease for
approximately 2,048 square feet for its principal executive offices at 150
East 58th Street, NY, NY 10155 pursuant to which the Company pays rent of
approximately $5,600 per month. Dr. Hanoch Shalit, the Company's President
and Chief Executive Officer, has personally guaranteed the payments to be
made under such lease.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Company is a party.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of the directors and executive officers of the Company
are set forth below.
Name Age Position Held
- ---------------------- ----- --------------------------------------------
Dr. Hanoch Shalit .... 43 President, Chief Executive Officer, Chairman
of the Board of Directors, Principal
Accounting Officer and Secretary
Steven Ai ............ 42 Director
Neal Factor .......... 45 Director
Simon Cross .......... 45 Director
James A. Smith ....... 44 Chief Financial Officer
Lawrence P. Kollender 56 Vice President -- Marketing and Sales
The Company has agreed with Dr. Shalit that he shall be entitled to a
nominee on the Board of Directors until the expiration date of the last of
the three Patents. The Company has also agreed with the Underwriter that, for
a period of five years after the date of this Prospectus that it will use its
best efforts to cause one individual designated by the Underwriter and
acceptable to the Company to be elected to the Board of Directors, which
individual may be a director, officer, employee or affiliate of the
Underwriter. See "Underwriting." Directors serve until the next annual
meeting of stockholders and the election and qualification of their
successors. Directors will not receive any compensation for serving on the
Board of Directors. The officers are elected by the directors and serve,
subject to existing employment agreements, at the discretion of the Board of
Directors.
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
Dr. Hanoch Shalit founded the Company in November 1988 and has been its
Chief Executive Officer, President, Chairman of the Board and Secretary since
inception. From September 1982 until June 1987 Dr. Shalit was employed as a
senior chemist with Chemco Photo Products, a private imaging company. From
June 1987 until the beginning of November 1988, Dr. Shalit was employed by
the FONAR Corporation, a public imaging company where he was the President of
the Photographic Sciences Division in charge of production, sales and service
for the FONAR Corporation's photographic products. Dr. Shalit earned a B.S.
(Honors) in the Sciences of Photography from the Polytechnic of Central
London (now know as University of Westminster) in Great Britain in 1978 and a
PhD in Physics from the University of London in 1981.
Mr. Steven Ai has been a director of the Company since November 30, 1995.
Since 1992, Mr. Ai has been the President of City Mill Co., Ltd., a private
company located in Honolulu, Hawaii, which owns and operates a chain of
retail home product stores. Prior to 1992, Mr. Ai was a manager with the
public accounting firm of KPMG Peat Marwick.
Mr. Neal Factor, who has been a director of the Company since November 30,
1995, has maintained a private law practice in New York City principally in
the areas of corporate and commercial law since 1979. Mr. Factor has
represented the Company since inception and receives compensation from the
Company for his legal services. See "Certain Transactions."
Mr. Simon Cross has been a director of the Company since July 15, 1996.
Since February 1993, Mr. Cross has been the general manager of Shackman
Instruments, a private company located in the United Kingdom which designs
and manufactures identification cameras and associated security systems. From
May 1992 to February 1993, Mr. Cross was the sales and marketing manager of
Techspan Systems plc, a private company located in the United Kingdom which
specializes in computer controlled large scale electronic displays. From June
1990 to May 1992, Mr. Cross was the director of X-Tek Systems Ltd., a private
company located in the United Kingdom which develops and manufactures high
definition microfocus x-ray systems for industrial inspection.
Mr. James A. Smith has been the Company's Chief Financial Officer since
September 24, 1996. From November 1992 until September 1996, Mr. Smith was
the controller of Ferrara Food Company, a public
25
<PAGE>
wholesale food company located in East Brunswick, New Jersey. From June 1995
until November 1995, Mr. Smith also served as a financial consultant to
William Greenberg Desserts & Cafes, Inc., a public company located in New
York City. From September 1990 to August 1992, Mr. Smith was the Vice
President of Finance and Chief Financial Officer of Ambico, Inc., a private
wholesale electronics distribution company located in Norwood, New Jersey.
Mr. Lawrence P. Kollender has been the Company's Vice President --
Marketing and Sales since January 3, 1996. Since January 1995, Mr. Kollender
has also been the President of LPK Unlimited, a private consulting firm to
companies in the software, electronics and service industries. From 1989
through December 1994, Mr. Kollender was the director of international
defense programs at the Grumman Corporation, which was a public company until
it was acquired by the Northrop Corporation.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to executive officers of the Company for the years ended December 31, 1993,
1994 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------
Annual Compensation Awards Payouts
------------------------------------------ ------------------------------- ----------
Name and Other Annual
Principal Stock Restricted LTIP All Other
Position Year Salary($) Bonus($) Compensation $) Awards($) Options/SARs(#) Payouts($) Compensation ($)
--------------- ------ ------------ ---------- --------------- ------------ --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Hanoch Shalit, 1995 $ 60,000(1) $ -0-(2) $ -0- $ -0- -0- $ -0- $ -0-
Chief Executive
Officer, 1994 $ 24,258 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
President,
Director and 1993 $ 42,000 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Principal
Accounting
Officer
</TABLE>
- ------
(1) Pursuant to his employment agreement, Dr. Shalit's salary is payable at
the rate of $60,000 per calendar year. However, for the calendar year
ending 1995, Dr. Shalit received less than $60,000 because his employment
agreement did not become effective until July 1, 1995. See "Management --
Employment Agreements."
(2) Pursuant to his employment agreement, Dr. Shalit is entitled to receive a
bonus equal to $10,000 for every $1,000,000 of gross annual sales
received by the Company. See "Management -- Employment Agreements."
EMPLOYMENT AGREEMENTS
Effective July 1, 1995, the Company entered into a five-year employment
agreement with Dr. Hanoch Shalit. Under his employment agreement, Dr. Shalit
is to serve as the Company's President, Chief Executive Officer and Chairman
of the Board of Directors and receive an annual base salary of $60,000, which
shall increase at the rate of 5% per annum, plus benefits. Dr. Shalit is also
entitled to receive a bonus of $10,000 for every $1,000,000 of gross annual
sales received by the Company. In addition, Dr. Shalit's employment agreement
provides that, during the term of such employment agreement, he shall not
compete with the Company in the United States or Canada or disclose, without
the Company's consent, confidential information that has been or will be
disclosed to him by the Company. Dr. Shalit's employment with the Company
shall terminate upon his death or disability, the Company no longer being
involved in the imaging technology business, the bankruptcy of the Company or
the Company having been merged into or acquired by another company.
Furthermore, Dr. Shalit's employment may be terminated by the Company for
"cause," which is defined as either dishonesty detrimental to the best
interests of the Company or wilful disloyalty to the Company.
Effective September 24, 1996, the Company entered into a five-year
employment agreement with Mr. James A. Smith. Under his employment agreement,
Mr. Smith is to serve as the Company's Chief Financial Officer and receive an
annual salary of $95,000, plus benefits. In addition, Mr. Smith's employment
agreement provides that,
26
<PAGE>
during the term of his employment agreement and for three years thereafter,
he shall not compete with the Company or disclose, without the Company's
consent, confidential information that has been or will be disclosed to him
by the Company. Mr. Smith's employment agreement may be terminated by the
Company for any cause or no cause.
Effective January 3, 1996, the Company entered into a one-year employment
agreement with Mr. Lawrence P. Kollender. Under his employment agreement, Mr.
Kollender is to serve as the Company's Vice President of Marketing and Sales
and receive an annual base salary of $100,000, plus benefits. Mr. Kollender
is also entitled to receive a commission equal to 4% of the Company's annual
gross revenues in excess of $2.5 million. In addition, Mr. Kollender's
employment agreement provides that, during the term of such employment
agreement and for three years thereafter, he shall not compete with the
Company or disclose, without the Company's consent, confidential information
that has been or will be disclosed to him by the Company. Mr. Kollender's
employment agreement shall terminate if he suffers a disability, the Company
is no longer involved in the imaging technology business, or may be
terminated by the Company for any cause.
The Company is the sole beneficiary of a "key man" life insurance policy
on the life of Dr. Hanoch Shalit in the amount of $1 million.
There are no family relationships among any Directors or executive
officers.
DIRECTORS COMMITTEES
Subsequent to this Offering, the Company intends to seek to add at least
two (2) individuals to the Board of Directors to form an Audit Committee and
Compensation Committee. The Audit Committee will review the engagement of the
independent accountants, review and approve the scope of the annual audit
undertaken by the independent accountants and review the independence of the
accounting firm. The Audit Committee will also review the audit and non-audit
fees of the independent accountants and the adequacy of the Company's
internal control procedures. The Compensation Committee will review executive
compensation issues.
INDEMNIFICATION AGREEMENTS
The Company intends to enter into an Indemnification Agreement with each
of its Directors and any officer, employee, agent or fiduciary designated by
the Board of Directors (the "Indemnified Party") which provides that the
Company indemnify the Director or other party thereto to the fullest extent
permitted by applicable law. The agreement includes indemnification, to the
extent permitted by applicable law, against expenses, including reasonable
attorneys' fees, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by the Indemnified Party in connection with
any civil or criminal action or administrative proceeding arising out of the
Indemnified Party's performance of his duties as a Director or officer of the
Company. Such indemnification is available if the Indemnified Party acted in
good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Company, and, with respect to any criminal
action, had no reasonable cause to believe his conduct was unlawful.
Under the Indemnification Agreement, the entitlement of an Indemnified
Party to indemnification will be determined by a majority vote of a quorum of
disinterested Directors, or if such quorum is not obtainable, either by
independent counsel or by the stockholders of the Company, as determined by
such disinterested Directors. If a change of control of the Company has
occurred, the entitlement of such Indemnified Party shall be determined by
independent counsel to the Company, unless such Indemnified Party requests
that either the Board or the stockholders make such determination.
Each Indemnification Agreement will require the Company to advance
litigation expenses at the request of the Indemnified Party who is a party
thereto whether prior to or after final resolution of a proceeding, provided
that he undertakes to repay such advances if it is ultimately determined that
he is not entitled to indemnification for his expense. The advance of
litigation expenses will therefore be mandatory upon satisfaction of certain
conditions by the Indemnified Party.
Provided that it can do so at a reasonable expense, the Company intends to
obtain officers' and directors' liability insurance from the net proceeds
hereof allocated to working capital which insurance would provide for
27
<PAGE>
a maximum of $10,000,000 of coverage, subject to a $100,000 corporate
reimbursement per occurrence payable by the Company. There can be no
assurance, however, that such insurance, or any similar coverage, will be
available to the Company, or if available, will be on terms and conditions
acceptable to the Company. Any payments made by the Company under an
Indemnification Agreement which are not covered by the insurance policy may
have an adverse impact on the Company's earnings. See "Description of
Securities -- Limitation on Liability of Directors."
STOCK OPTION PLAN
Incentive Stock Option Plan -- In February 1996, the Board of Directors of
the Company adopted and the stockholders of the Company subsequently
approved, the adoption of the Company's 1996 Stock Option Plan ("Stock Option
Plan"). The purpose of the Stock Option Plan is to enable the Company to
encourage key employees, officers, Directors and consultants to contribute to
the success of the Company by granting such individuals and Directors
nonqualified "stock options" within the meaning of Section 422 of The
Internal Revenue Code of 1986, as amended ("ISOs").
The Stock Option Plan will be administered by the Board of Directors or a
committee appointed by the Board of Directors (the "Committee") which will
determine, in its discretion, among other things, the recipients and vesting
of grants and the number of shares to be subject to such options.
The Stock Option Plan provides for the granting of options to purchase
Common Stock at an exercise price to be determined by the Board of Directors
or the Committee. Notwithstanding the foregoing, the Company has agreed with
the Underwriter that for a period of 18 months after the date of this
Prospectus, the Company will not grant any stock option having an exercise
price less than the greater of the fair market value of the Common Stock on
the date of the grant or the initial public offering price per share of
Common Stock.
The total number of shares with respect to which options may be granted
under the Stock Option Plan is 500,000.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common
Stock, or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations.
The Stock Option Plan may be terminated or amended at any time by the
Board of Directors, except that, without stockholder approval, the Stock
Option Plan may not be amended to increase the number of shares subject to
the Stock Option Plan, change the class of persons eligible to receive
options under the Stock Option Plan or materially increase the benefits of
participants.
As of the date of this Prospectus, no options have been granted under the
Stock Option Plan. No determinations have been made regarding the persons to
whom options will be granted in the future, the number of shares which will
be subject to such options or the exercise prices to be fixed with respect to
any option.
28
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of October 9, 1996, with
respect to the beneficial ownership of shares of Common Stock by (i) each
person known by the Company to be the owner of more than 5% of the
outstanding shares of Common Stock, (ii) each officer and director, and (iii)
all officers and directors as a group.
<TABLE>
<CAPTION>
Percentage
Amount and Percentage of Shares
Nature of of Shares Owned
Name and Address of Beneficial Currently After the
Beneficial Owner Ownership(1)(2) Owned Offering(3)
----------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Dr. Hanoch Shalit 919,825(4) 33.3% 24.6%(5)
c/o Imatec, Ltd.
150 E. 58th Street
New York, NY 10155
James A. Smith -0- -0- -0-
c/o Imatec, Ltd.
150 E. 58th Street
New York, NY 10155
Lawrence P. Kollender -0- -0- -0-
c/o Imatec, Ltd.
150 E. 58th Street
New York, NY 10155
Carmello Cotrino 663,000 24.0% 17.8%
8 Homsted Circle
Marlboro, NJ 07746
Louis Raneri 171,000 6.2% 4.6%
1266 41st Street
Brooklyn, NY 11218
Thomas Dunn 171,000 6.2% 4.6%
600 Hylan Boulevard
Staten Island, NY
10305
Steven Ai 55,250(6) 2.0% 1.5%
c/o City Mill Co.,
Ltd.
600 Nimits Highway
Honolulu, HI 96817
Neal Factor -0- -0- -0-
36 W. 44th Street,
Suite 1111
New York, NY 10036
Simon Cross -0- -0- -0-
c/o Imatec, Ltd.
150 E. 58th Street
New York, NY 10155
Officers and 975,075 35.3% 26.1%
directors as a group
(6 persons)
</TABLE>
- ------
(1) The shares of Common Stock owned by each person or by the group, and the
shares included in the total number of shares of Common Stock
outstanding, have been adjusted in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, to reflect the ownership of
shares issuable upon exercise of outstanding options, warrants or other
common stock equivalents which are exercisable within 60 days. As
provided in such Rule, such shares issuable to any holder are deemed
outstanding for the purpose of calculating such holder's beneficial
ownership but not any other holder's beneficial ownership.
(2) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of stock beneficially owned by them.
29
<PAGE>
(3) The shares of Common Stock included in the total number of shares of
Common Stock outstanding after the offering give effect to the Bridge
Financing Restructuring. See "Plan of Operations -- Liquidity and Capital
Resources."
(4) The share ownership of Dr. Hanoch Shalit includes 12,615 shares of Common
Stock, consisting of 2,818 shares of Common Stock held by Richard Carey
and 9,797 shares of Common Stock held by Mr. Jim Jaeger, each a founding
stockholder of the Company, pursuant to an agreement dated November 9,
1993 among Dr. Shalit and Messrs. Carey and Jaeger in which Messrs. Carey
and Jaeger assigned the voting rights of such 12,615 shares of Common
Stock to Dr. Shalit. Accordingly, Dr. Shalit may be deemed to
beneficially own such 12,615 shares of Common Stock, although Dr. Shalit
is not entitled to receive any dividends with respect to such shares of
Common Stock and has no power of disposition over such shares of Common
Stock, or the right to any proceeds from any disposition of such shares
of Common Stock.
(5) Does not give effect to the registration and sale of 72,093 shares of
Common Stock by Dr. Shalit or the registration and sale of an aggregate
of 12,615 shares of Common Stock held by Messrs. Richard Carey and Jim
Jaeger which may be deemed to be beneficially owned by Dr. Shalit. See
"Selling Security Holders."
(6) All 55,250 shares of Common Stock beneficially owned by Steven Ai are
held by The Revocable Trust of David C. Ai, dated July 24, 1985, as
restated, of which Steven Ai serves as Chairman and, along with two other
individuals, is a trustee.
30
<PAGE>
SELLING SECURITY HOLDERS
The registration statement, of which this Prospectus forms a part, also
relates to the registration by the Company of (a) for the account of the
Bridge Selling Security Holders, an aggregate of (i) 525,201 shares of Common
Stock after giving effect to the Bridge Financing Restructuring, (ii)
1,950,000 Redeemable Warrants, and (iii) 1,950,000 shares of Common Stock
issuable by the Company upon the exercise of such 1,950,000 Warrants, and (b)
an aggregate of 2,210,000 shares of Common Stock for the account of the
Founding Selling Security Holders. The Selling Security Holders' Securities
are not being underwritten by the Underwriter in connection with this
Offering. Except with respect to 150,000 shares of Common Stock being
registered on behalf of certain of the Founding Selling Security Holders
(including 72,093 shares of Common Stock owned by Dr. Hanoch Shalit, the
Chief Executive Officer and President of the Company) and any open market
purchases on or after the effective date of this Offering, the Founding
Selling Security Holders have agreed with the Underwriter, not to directly or
indirectly offer, sell, transfer or otherwise encumber or dispose of their
Common Stock or any other securities of the Company, whether or not
beneficially owned, for a period of eighteen (18) months after the date of
this Prospectus unless otherwise permitted by the Underwriter and the
Company. The Bridge Selling Security Holders have agreed with the Company not
to directly or indirectly offer, sell, transfer or otherwise encumber or
dispose of any of their Common Stock and Redeemable Warrants (or any shares
of Common Stock issuable upon exercise of the Redeemable Warrants) for a
period of 24 months, and 18 months, respectively, after the date of this
Prospectus. See "Principal Stockholders" and "Underwriting."
The sale of the Selling Security Holders' Securities by the Selling
Security Holders may be effected from time to time in transactions (which may
include block transactions by or for the account of the Selling Security
Holders) in the over-the-counter market or in negotiated transactions, or
through the writing of options on the Selling Security Holders' Securities, a
combination of such methods of sale, or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale,
or at negotiated prices.
The Selling Security Holders may effect such transactions by selling the
Selling Security Holders' Securities directly to purchasers, through
broker-dealers acting as agents for the Selling Security Holders or to
broker- dealers who may purchase shares as principals and thereafter sell the
Selling Security Holders' Securities from time to time in the
over-the-counter market, in negotiated transactions, or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Security Holders and/or the
purchasers for whom such broker-dealers may act as agents or to whom they may
sell as principals or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions).
The Selling Security Holders and broker-dealers, if any, acting in
connection with such sales, might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit upon the resale of such securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
Sales of any shares of Common Stock or Redeemable Warrants by the Selling
Security Holders, or even the existence of the right to exercise the
Redeemable Warrants, may depress the price of the Common Stock or the
Redeemable Warrants in any market that may develop for the Securities.
The following table sets forth certain information with respect to Selling
Security Holders for whom the Company is registering shares of Common Stock
and Redeemable Warrants for resale to the public. Other than Dr. Hanoch
Shalit, who is the President and Chief Executive Officer of the Company, and
Mr. Steven Ai who is a member of the Board of Directors of the Company, none
of the Selling Security Holders has had any position with, held any office,
or had any other material relationship with the Company.
Certain Founding Selling Security Holders in the table below may not sell
or otherwise transfer their Securities, whether or not beneficially owned,
for a period of 18 months from the date of this Prospectus without the
consent of the Underwriter. In the event such Selling Security Holder
received such consent, the sale shall be effected through the Underwriter who
shall be compensated in accordance with its customary practices for such
transactions. Unless otherwise indicated, ownership refers to ownership of
shares of Common Stock. See "Shares Eligible for Future Sale" and
"Underwriting."
31
<PAGE>
<TABLE>
<CAPTION>
Amount of Amount of Percent of
Amount of Securities Securities Securities
Securities Being Owned After Owned After
Name Owned Registered Offering(1) Offering(1)
- ---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Richard W. Ahrens*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Jay Bernath*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants. .................................. 25,000 25,000 -0- -0-
Robert H. Binns*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
John Bogin*
Common Stock .......................................... 6,828 6,828 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Edward C. Brookins*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Joel Brownstein****
Common Stock .......................................... 5,525 5,525 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Richard Carey***
Common Stock .......................................... 2,818 2,818 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Nicole Cassino*
Common Stock .......................................... 27,309 27,309 -0- -0-
Redeemable Warrants ................................... 100,000 100,000 -0- -0-
John Catania*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Maria Cid*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Bruce Cohen*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Craig Cohen*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants. .................................. 50,000 50,000 -0- -0-
Carmello Cotrino****
Common Stock .......................................... 663,000 663,000 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Amelia DiDomenico*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Thomas Dunn****
Common Stock .......................................... 171,000 171,000 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Dolores Esposito*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
32
<PAGE>
Amount of Amount of Percent of
Amount of Securities Securities Securities
Securities Being Owned After Owned After
Name Owned Registered Offering(1) Offering(1)
- ---- ------------ ------------ ------------- -------------
Walter S. Farr*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Edward J. Farrell, Jr.*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Ivan Feng**
Common Stock .......................................... 22,100 22,100 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Richard Forte*
Common Stock .......................................... 13,196 13,196 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Marc Foscolo*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Ian Freeman*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Kenneth Gantz*
Common Stock .......................................... 13,196 13,196 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Andrew P. Geiss*
Common Stock .......................................... 6,828 6,828 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Barry J. Gordon*
Common Stock .......................................... 13,196 13,196 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Stacy Gozlan*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Richard Guerriero*
Common Stock .......................................... 6,828 6,828 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Douglas R. Hellstrom*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Logan L. Hurst*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Jim Jaeger***
Common Stock .......................................... 9,797 9,797 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Emma M. Job*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Paul E. Judd*
Common Stock .......................................... 27,309 27,309 -0- -0-
Redeemable Warrants ................................... 100,000 100,000 -0- -0-
33
<PAGE>
Amount of Amount of Percent of
Amount of Securities Securities Securities
Securities Being Owned After Owned After
Name Owned Registered Offering(1) Offering(1)
- ---- ------------ ------------ ------------- -------------
Marc H. Klee*
Common Stock .......................................... 13,196 13,196 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Robert C. Lannert*(2)
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Donald L. Leonard*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Angela LoPresto*****
Common Stock .......................................... 106,828 106,828 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Frances LoPresto*
Common Stock .......................................... 6,828 6,828 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Kathleen F. & Arthur R. Medici, Joint Tenants with Right
of Survivorship*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Jeffrey Michelson*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Mohamed Omar Nawar*
Common Stock .......................................... 20,482 20,482 -0- -0-
Redeemable Warrants ................................... 75,000 75,000 -0- -0-
Arnold H. Neustadt and Francene Neustadt, JTWROS*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
S. Edwin Noffel, IRA*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Provence Business* Consultants, Inc.
Common Stock .......................................... 26,391 26,391 -0- -0-
Redeemable Warrants ................................... 100,000 100,000 -0- -0-
Louis Raneri****
Common Stock .......................................... 171,000 171,000 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Jack Schnitzer*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Dr. Hanoch Shalit**
Common Stock .......................................... 907,210 907,210 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Stephen Silverberg****
Common Stock .......................................... 72,000 72,000 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
34
<PAGE>
Amount of Amount of Percent of
Amount of Securities Securities Securities
Securities Being Owned After Owned After
Name Owned Registered Offering(1) Offering(1)
- ---- ------------ ------------ ------------- -------------
David Smith*
Common Stock .......................................... 6,828 6,828 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Anthony Stropoli*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Lorenzo Don Starling and Virginia Starling, Joint Tenants
with Right of Survivorship*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
The Revocable Trust of David C. Ai,
dated July 24, 1985, as restated**
Common Stock .......................................... 55,250 55,250 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
John M. Thompson*
Common Stock .......................................... 13,655 13,655 -0- -0-
Class A Redeemable Warrants ........................... 50,000 50,000 -0- -0-
William M. Thompson*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
James W. Venezia*
Common Stock .......................................... 13,655 13,655 -0- -0-
Redeemable Warrants ................................... 50,000 50,000 -0- -0-
Robert and Christine Vitamante, JTWROS*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Samir R. Wahby*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Donald R. Waldrip*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Frederick B. Winston*
Common Stock .......................................... 6,598 6,598 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
Yoram Yosifov***
Common Stock .......................................... 30,300 30,300 -0- -0-
Redeemable Warrants ................................... -0- -0- -0- -0-
Joseph and Jacqueline Zambito, Joint Tenants with Right
of Survivorship*
Common Stock .......................................... 6,828 6,828 -0- -0-
Redeemable Warrants ................................... 25,000 25,000 -0- -0-
</TABLE>
- ------
* Holder has agreed with the Company not to sell or otherwise transfer
their Common Stock or Redeemable Warrants (or shares of Common Stock
issuable upon exercise of the Redeemable Warrants) for 24 months and 18
months, respectively, from the date of this Prospectus. The amount of
Common Stock owned and registered by the holder gives effect to the
Bridge Financing Restructuring as of October 31, 1996.
35
<PAGE>
** Holder has agreed not to sell or otherwise transfer only a portion of
their Securities for 18 months from the date of this Prospectus without
the consent of the Underwriter.
*** Holder may sell or otherwise transfer all of their Securities from the
date of this Prospectus without the consent of the Underwriter.
**** Holder has agreed not to sell or otherwise transfer any of their
Securities for 18 months from the date of this Prospectus without the
consent of the Underwriter.
***** Holder has agreed with the Company not to sell or otherwise transfer
6,828 shares of Common Stock and 25,000 Redeemable Warrants for 24
months and 18 months, respectively, from the date of this Prospectus
and has agreed not to sell or otherwise transfer 100,000 shares of
Common Stock for 18 months from the date of this Prospectus without the
consent of the Underwriter.
(1) Assumes sale of all securities registered hereby.
(2) Holder deemed to have chosen Option A by the Company. See "Plan of
Operations -- Liquidity and Capital Resources" and "Risk Factors --
Potential Litigation."
36
<PAGE>
CERTAIN TRANSACTIONS
Mr. Neal Factor, a director of the Company and an attorney who has
represented the Company since inception, charged the Company legal fees of
approximately $31,000 in 1995.
The Company entered into the License Agreement as of June 25, 1995 with
Dr. Hanoch Shalit, the Company's President and Chief Executive Officer. The
License Agreement grants the Company the exclusive right to make, use, sell
and sublicense "Patentable Image Technology," which is defined in the License
Agreement as the three United States Patents and certain foreign patent
applications. Under the terms of the License Agreement, Dr. Shalit received
from the Company a one-time $350,000 payment in January 1996 subsequent to
the First Closing of the Bridge Financing. Dr. Shalit is also entitled to
receive a flat royalty fee of $140,000 per annum, payable in monthly
installments of $11,667, for so long as the Company and any successor of the
Company is in existence (the "Annual Royalty"); provided, however, that in
the event that Dr. Shalit is no longer President, Chief Executive Officer and
Chairman of the Company for any reason whatsoever, but the Company or any
successor of the Company continues in existence, the Annual Royalty shall
automatically be increased to $250,000 per annum. Pursuant to the terms of
the License Agreement, the Annual Royalty shall increase by 5% every year as
long as the Company or any successor of the Company is in existence. The
License Agreement also grants to the Company the exclusive right as to
inventions made by Dr. Shalit in the course of his employment under his
employment agreement with the Company. The Company's obligations to pay the
Annual Royalty shall continue until the expiration of the License Agreement.
The term of the License Agreement expires when the last licensed patent
expires, whether in the United States or abroad. Under the License Agreement,
the Company is obligated to use its reasonable best efforts to make, use,
sell and sublicense to others the Patentable Image Technology.
Each of the transactions between the Company and Mr. Neal Factor and
between the Company and Dr. Hanoch Shalit was made on terms no less favorable
to the Company than those that were available from unaffiliated third
parties. All future transactions, including loans, between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors,
and will be on terms no less favorable to the Company than those that could
be obtained from unaffiliated third parties.
DESCRIPTION OF SECURITIES
The authorized capital of the Company consists of (i) 20,000,000 shares of
Common Stock, par value $.0001 per share, 2,761,785 of which are currently
issued and outstanding and (ii) 2,000,000 shares of preferred stock, par
value $.0001 per share ("Preferred Stock"), none of which are currently
issued and outstanding. There will be 3,735,201 shares of Common Stock issued
and outstanding upon the closing date of this Offering after giving effect to
the Bridge Financing Restructuring and the Company's sale of Securities
offered hereby.
COMMON STOCK
Each share of Common Stock is entitled to one vote, either in person or by
proxy, on all matters that may be voted upon by the owners thereof at a
meeting of the stockholders, including the election of directors. The holders
of Common Stock (i) have equal, ratable rights to dividends from funds
legally available therefor, when as and if declared by the Board of Directors
of the Company; (ii) are entitled to share ratably in all of the assets of
the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii)
do not have pre-emptive or redemption provisions applicable thereto; and (iv)
are entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of stockholders.
All shares of Common Stock issued and outstanding are, and those offered
hereby, when issued, will be fully-paid and non-assessable, with no personal
liability attaching to the ownership thereof.
37
<PAGE>
REDEEMABLE WARRANTS
The Redeemable Warrants will be issued pursuant to a Warrant Agreement
(the "Warrant Agreement") between the Company and Continental Stock Transfer
& Trust Company, as Warrant Agent (the "Warrant Agent"). The following
discussion of certain terms and provisions of the Redeemable Warrants is
qualified in its entirety by reference to the detailed provisions of the
Redeemable Warrants and of the Warrant Agreement, the forms of which have
been filed as exhibits to the Registration Statement, of which this
Prospectus forms a part. See "Additional Information."
Each Redeemable Warrant entitles the holder thereof to purchase one share
of Common Stock at an exercise price of $6.50 per share at any time
commencing on the date of this Prospectus until October 28, 1999, subject to
adjustment in certain circumstances. Each Redeemable Warrant is redeemable by
the Company at any time commencing July 29, 1997. Each Redeemable Warrant is
redeemable by the Company with the consent of the Underwriter, upon 30 days
prior written notice, and will be subject to redemption at a redemption price
of $.10 per Redeemable Warrant provided that the average closing bid price of
the Common Stock as reported by Nasdaq, or if not quoted on Nasdaq, the
average closing bid price of the Common Stock as reported by any other
recognized quotation system on which the price of the Common Stock is quoted,
or if not quoted on Nasdaq or any other recognized quotation system, the
average closing sales price of the Common Stock on the primary exchange on
which the Common Stock is traded equals or exceeds $7.50 per share, for any
20 trading days within a period of 30 consecutive trading days ending on the
fifth trading day prior to the date of the notice of redemption. The Company,
at its sole discretion, may elect, at any time, to decrease the exercise
price of the Redeemable Warrants or change the consideration payable upon
redemption of the Redeemable Warrants; provided, however, that in no event
shall the consideration payable upon redemption of the Redeemable Warrants be
less than the equivalent of $.10 per Redeemable Warrant.
To exercise a Redeemable Warrant, the holder must send the certificate
evidencing the Redeemable Warrant (the "Warrant Certificate") to the Warrant
Agent, together with an election to exercise, setting forth the number of
shares to be purchased and payment by certified check or money order for the
total exercise price of the shares to be purchased. The Warrant Agent will
return a certificate evidencing the number of shares of Common Stock issued
upon exercise of the Redeemable Warrant.
The Redeemable Warrants contain anti-dilution provisions regarding certain
events, including but not limited to, stock dividends, stock splits, and
reclassifications. The holders of Redeemable Warrants, as such, have no right
to vote on matters submitted to the stockholders of the Company or to receive
dividends and are not entitled to share in the assets of the Company in the
event of liquidation, dissolution or the winding-up of the Company's affairs.
However, upon the exercise of the Redeemable Warrants and issuance of shares
of Common Stock to the holder, such shares of Common Stock shall have rights
identical to all other shares of Common Stock.
The Company is required to have a current Registration Statement on file
with the Commission and to effect appropriate qualifications under the laws
and regulations of the states in which the holders of the Redeemable Warrants
reside in order to comply with applicable laws in connection with such
exercise. The Company has agreed to register and to qualify such issuable
shares of Common Stock. There can be no assurance that the Company will be
able to cause such registration statement to become effective and remain
current or to effect appropriate qualification under applicable state
securities laws, the failure of which may result in the exercise of the
Redeemable Warrants and the resale or other disposition of Common Stock
issued upon such exercise becoming unlawful.
The exercise prices of the Redeemable Warrants bear no relation to any
objective criteria of value and should in no event be regarded as an
indication of any future market price of the securities offered thereby.
PREFERRED STOCK
The Company's Certificate of Incorporation provides for 2,000,000 shares
of Preferred Stock, whereby the Board of Directors of the Company shall have
the authority, without further action by the holders of the out-
38
<PAGE>
standing Common Stock, to issue up to 2,000,000 shares of Preferred Stock
from time to time in one or more classes or series, to fix the number of
shares constituting any class or series and the stated value thereof, if
different from the par value, and to fix the terms of any such series or
class, including dividend rights, dividend rates, conversion or exchange
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price and the liquidation preference of such
class or series. Consequently, the issuance of Preferred Stock may be used as
an "anti-takeover" device without further action on the part of the
stockholders. See "Risk Factors -- Anti-Takeover Provisions; Issuance of
Preferred Stock." Issuance of Preferred Stock, which may be accomplished
through a public offering or a private placement to parties favorable to
current management, may dilute the voting power of holders of Common Stock
(such as by issuing Preferred Stock with super voting rights) and may render
more difficult the removal of current management, even if such removal may be
in the stockholders' best interests. Further, the Company's stock option
plans provide for the immediate acceleration of, and removal of restrictions
from, options and other awards under the plans upon a "change of control" (as
defined therein). Such provisions may also have the result of discouraging
acquisitions of the Company. The Company presently has no shares of Preferred
Stock outstanding and has no present intention to issue any Preferred Stock.
The designations, rights and preferences of any Preferred Stock would be set
forth in a Certificate of Designation which would be filed with the Secretary
of State of Delaware.
LIMITATION ON LIABILITY OF DIRECTORS
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty of care as a director,
including breaches which constitute gross negligence. By its terms and in
accordance with the Delaware General Corporation Law, however, this provision
does not eliminate or limit the liability of a director of the Company (i)
for breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law (relating to unlawful payments or
dividends or unlawful stock repurchases or redemptions), (iv) for any
improper benefit or (v) for breaches of a director's responsibilities under
the Federal securities laws. The Company also intends to enter into an
Indemnification Agreement with each of its Directors and any officer,
employee, agent or fiduciary designated by the Board of Directors which
provides that the Company indemnify the Director or other parties thereto to
the fullest extent permitted by applicable law. See "Business --
Indemnification Agreements."
TRANSFER AGENT AND WARRANT AGENT
The transfer agent and registrar for the Common Stock and warrant agent
for the Redeemable Warrants is Continental Stock Transfer & Trust Company,
located at 2 Broadway, New York, New York 10004.
SHARES AVAILABLE FOR FUTURE SALE
Upon the closing date of this Offering, there will be 3,735,201 shares of
Common Stock outstanding after giving effect to the Bridge Financing
Restructuring and the Company's sale of the Securities offered hereby
(3,885,201 shares of Common Stock if the Underwriter's over-allotment option
is exercised in full) all of which will be registered. Except for 150,000
shares of Common Stock being registered on behalf of certain of the Founding
Selling Security Holders (including 72,093 shares for Dr. Hanoch Shalit, the
Chief Executive Officer President and Chairman of the Board of Directors of
the Company) and any open market purchases on or after the effective date of
this Offering, the Founding Selling Security Holders have agreed with the
Underwriter not to directly or indirectly offer, sell, transfer or otherwise
encumber or dispose of their Common Stock or any other securities of the
Company, whether or not beneficially owned, for a period of eighteen (18
months from the date of this Prospectus unless otherwise permitted by the
Underwriter. The Bridge Selling Security Holders have agreed with the Company
not to effect any sales of their Common Stock and Redeemable Warrants (or
shares of Common Stock issuable upon exercise of the Redeemable Warrants)
until 24 months and 18 months, respectively, after the date of this
Prospectus.
Since all of the shares of Common Stock outstanding will be registered
upon completion of this Offering, none of the shares of Common Stock will be
"restricted securities" as that term is defined by Rule 144 of the
39
<PAGE>
Securities Act, as amended. Ordinarily, under Rule 144, a person who is an
affiliate of the Company (as that term is defined in Rule 144) and has
beneficially owned restricted securities for a period of two (2) years may,
every three (3) months, sell in brokerage transactions an amount that does
not exceed the greater of (i) 1% of the outstanding class of such securities
or (ii) the average weekly trading volume of trading in such securities on
all national exchanges and/or reported through the automated quotation system
of a registered securities association during the four weeks prior to the
filing of a notice of sale by a securities holder. A person who is not an
affiliate of the Company who beneficially owns restricted securities is also
subject to the foregoing volume limitations but may, after the expiration of
three (3) years, sell unlimited amounts of such securities under certain
circumstances.
Prior to this Offering, there has been no market for the Securities. The
Underwriter intends to make a market in the shares of Common Stock and
Redeemable Warrants after completion of this Offering. No predictions can be
made as to the effect, if any, that the availability of shares for sale will
have on the market, if any, prevailing from time to time. Sales of
substantial amounts of the Common Stock that are subject to the prior
approval of the Underwriter may adversely affect the market price of the
Common Stock or the Redeemable Warrants offered hereby.
UNDERWRITING
A.S. Goldmen & Co., Inc. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which, and subject to the
terms and conditions thereof, it has agreed to purchase all of the shares of
Common Stock and Redeemable Warrants offered by the Company hereby.
The Underwriter has advised the Company that it proposes to offer the
shares of Common Stock and Redeemable Warrants to the public at the public
offering prices set forth on the cover page of this Prospectus and that the
Underwriter may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc (the "NASD") concessions of not in
excess of $0.125 per share of Common Stock of which amount a sum not in
excess of $0.0625 per share of Common Stock may in turn be reallowed by such
dealers to other dealers. After the commencement of this Offering, the public
offering price, the concessions and the reallowances may be changed. The
Underwriter has informed the Company that it does not expect sales to
discretionary accounts by the Underwriter to exceed 5% of the total number of
securities offered by the Company hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Act. The Company has agreed to
pay to the Underwriter a non-accountable expense allowance equal to 3%
percent of the gross proceeds derived from the sale of the shares of Common
Stock and Redeemable Warrants underwritten, $25,000 of which has been paid to
date.
The Company has also agreed to retain the Underwriter as the Company's
financial consultant for a period of 24 months from the date of this
Prospectus and to pay the Underwriter $2,000 per month in connection
therewith, the total amount of which ($48,000) is due upon consummation of
this Offering. The Company has agreed that, at the request of the
Underwriter, for five years after the date of this Prospectus, that it will
use its best efforts to cause one individual designated by the Underwriter
and acceptable to the Company to be elected to the Company's Board of
Directors, which individual may be a director, officer, employee or affiliate
of the Underwriter. As of the date of this Prospectus, the Underwriter has
not determined if it will designate an individual to the Company's Board of
Directors.
Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Underwriter, and
to the extent not inconsistent with the guidelines of the NASD and the Rules
and Regulations of the Commission, the Company has agreed to pay the
Underwriter a commission of four percent of the aggregate exercise price of
such Redeemable Warrants. However, no compensation will be paid to the
Underwriter in connection with the exercise of the Redeemable Warrants if (a)
the market price of the Common Stock is lower than the exercise price, (b)
the Redeemable Warrants are held in a discretionary account, or (c) the
Redeemable Warrants are exercised in an unsolicited transaction where the
holder of the Redeemable Warrants has not stated in writing that the
transaction was solicited and has not designated in writing the Underwriter
as the soliciting agent. Unless granted an exemption by the Commission from
Rule
40
<PAGE>
10b-6 under the Securities Exchange Act of 1934, as amended, the Underwriter
and any soliciting broker-dealers are prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities during the periods prescribed by exemption (xi) to Rule
10b-6 before the solicitation of the exercise of any Warrants until the later
of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that the Underwriter and any soliciting
broker-dealers may have to receive a fee for the exercise of the Redeemable
Warrants following such solicitation. As a result, the Underwriter and any
soliciting broker-dealers will be required to continue to provide a market
for the Company's Securities during certain periods while the Redeemable
Warrants are exercisable. If the Underwriter has engaged in any of the
activities prohibited by Rule 10b-6 during the periods described above, the
Underwriter undertakes to waive unconditionally its right to receive a
commission on the exercise of such Redeemable Warrants.
Each director and officer of the Company and the Founding Selling Security
Holders (except with respect to 150,000 shares of Common Stock and any open
market purchases on or after the effective date of this Offering), have
agreed with the Underwriter, not to, directly or indirectly, offer, sell,
transfer, pledge, assign, hypothecate or otherwise encumber or dispose of any
of the Company's securities, whether or not beneficially owned, for a period
of eighteen (18) months after the date of this Prospectus without the prior
consent of the Underwriter. An appropriate legend shall be marked on the back
of stock certificates representing all such securities.
The Company has granted to the Underwriter an option exercisable during
the forty-five (45) day period commencing on the date of this Prospectus to
purchase from the Company, at the offering price less underwriting discount
and expense allowance, up to an aggregate of 150,000 additional shares of
Common Stock and/or an additional 600,000 Redeemable Warrants for the sole
purpose of covering over-allotments, if any.
In connection with this Offering, the Company has agreed to sell to the
Underwriter or its designees, for nominal consideration, warrants to purchase
from the Company 100,000 shares of Common Stock and 400,000 Redeemable
Warrants (the "Underwriter's Warrants"). The Underwriter's Warrants are
initially exercisable at a price of $6.00 per share of Common Stock and $0.30
per Redeemable Warrant for a period of one (1) year commencing one (1) year
from the date of this Prospectus for a period of four (4) years commencing
one (1) year from the date of this Prospectus. The Redeemable Warrants
underlying the Underwriter's Warrants are exercisable at a price of $8.125
per share of Common Stock. The Underwriter's Warrants provide for adjustment
of the type of securities issuable upon exercise of the Underwriter's
Warrants to reflect certain subdivisions and combinations of the Common
Stock. The Underwriter's Warrants grant to the holders thereof certain rights
of registration for the securities issuable upon exercise of the
Underwriter's Warrants.
In connection with the Bridge Financing, the Company paid the Underwriter,
as placement agent, $400,000 in cash as a commission and a nonaccountable
expense allowance of $120,000. The Company also agreed in connection with the
Bridge Financing to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act, or to contribute to related
payments that the Underwriter may be required to make.
Prior to this Offering, there has been no public market for any of the
Company's securities. Accordingly, the offering prices of the Shares and the
Redeemable Warrants and the terms of the Redeemable Warrants were determined
by negotiation between the Company and the Underwriter. Factors considered in
determining such price and terms, in addition to prevailing market
conditions, included the prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure and such other factors which were deemed
relevant.
The foregoing is a summary of certain terms of the Underwriting Agreement,
copies of which were filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus is a part. Reference is
hereby made to such exhibit for a detailed description of the provisions
thereof as summarized above. See "Additional Information."
41
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock and Redeemable Warrants offered
hereby will be passed upon for the Company by Zukerman Gore & Brandeis, LLP,
New York, New York. Certain matters regarding intellectual property rights
shall be passed upon for the Company by Wyatt, Gerber, Burke & Badie, LLP,
New York, New York. Orrick, Herrington & Sutcliffe LLP, New York, New York
has acted as counsel for the Underwriter in connection with this Offering.
EXPERTS
The financial statements of the Company included in this Prospectus and
elsewhere in the Registration Statement, to the extent and for the periods
indicated in their reports, have been examined by Most Horowitz & Company,
LLP, independent certified public accountants, whose reports thereon appear
elsewhere herein and in the Registration Statement. Such financial statements
have been included in reliance upon the reports of Most Horowitz & Company,
LLP, given upon their authority as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
On March 14, 1996, the Company replaced its independent accountants,
Present, Cohen, Smallowitz & Glassman ("Present, Cohen") with Most Horowitz &
Company, LLP ("Most Horowitz") to act as its independent accountants from and
after March 14, 1996. All of the financial statements of the Company included
in the prospectus and registration statement of which this Prospectus forms a
part were examined by Most Horowitz. None of Present, Cohen's reports for
either of the past two years contained an adverse opinion or disclaimer of
opinion, or was modified as to uncertainity, audit scope, or accounting
principles. Further, during the Company's two most recent fiscal years and
any subsequent interim period preceding the Company replacing Present, Cohen
there were no disagreements with Present, Cohen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures.
The decision to replace Present, Cohen with Most Horowitz was approved by
the Company's Board of Directors and was made as a result of the Company's
desire to engage an accounting firm more experienced in auditing public
companies.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
of 1933, as amended (the "Securities Act") with respect to the Securities
offered hereby. This Prospectus filed as a part of the Registration Statement
does not contain certain information set forth in or annexed as exhibits to
the Registration Statement certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information
with respect to the Company and the Securities offered hereby, reference is
made to the Registration Statement and to the exhibits filed as part thereof,
which may be inspected at the office of the Commission without charge, or
copies thereof may be obtained therefrom upon payment of a fee prescribed by
the Commission. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and where the
contract or other document has been filed as an exhibit to the Registration
Statement, each statement is qualified in all respects by reference to the
applicable document filed with the Commission.
The Registration Statement and such exhibits and schedules may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, and
at the Regional Offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1025, Washington, D.C. 20549, at prescribed rates. Such
material may also be accessed electronically by means of the Commission's
home page on the Internet at http:/www.sec.gov.
42
<PAGE>
IMATEC, LTD
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT ............................................................ F-2
BALANCE SHEET -- December 31, 1994 and 1995 and August 31, 1996 ......................... F-3
STATEMENT OF OPERATIONS -- November 17, 1988 (Inception) to December 31, 1995
(Cumulative), years ended December 31, 1994 and 1995 and eight months ended August 31,
1995 and 1996 (Unaudited) .............................................................. F-4
STATEMENT OF STOCKHOLDERS' (DEFICIT) -- November 17, 1988 (Inception) to December 31,
1995 and eight months ended August 31, 1996 (Unaudited) ................................ F-5
STATEMENT OF CASH FLOWS -- November 17, 1988 (Inception) to December 31, 1995
(Cumulative), years ended December 31, 1994 and 1995 and eight months ended August 31,
1995 and 1996 (Unaudited) .............................................................. F-6
NOTES TO FINANCIAL STATEMENTS ........................................................... F-7 - F-11
</TABLE>
F-1
<PAGE>
April 29, 1996
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Imatec, Ltd.
New York, New York
We have audited the accompanying balance sheet of Imatec, Ltd. (A
Development Stage Enterprise) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' (deficit) and cash flows for
the years ended December 31, 1994 and 1995 and November 17, 1988 (Inception)
to December 31, 1995 (Cumulative). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Imatec, Ltd., as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1994 and 1995 and November 17, 1988
(Inception) to December 31, 1995 (Cumulative) in conformity with generally
accepted accounting principles.
/s/ Most Horowitz & Company, LLP
----------------------------------
Most Horowitz & Company, LLP
New York, New York
F-2
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
December 31 August 31, 1996
------------------------ ----------------------------
1994 1995 (Unaudited)
-------- ------------ ----------------------------
Pro Forma
Historical (Note 11)
------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash ................................. $1,897 $ 31,151 $ 71,061 $ 71,061
Marketable securities (Note 3) ....... 1,350,852 1,843,782 1,843,782
Other current assets ................. 9,715 8,950 79,295
-------- ------------ ------------ ------------
TOTAL CURRENT ASSETS ............ 1,897 1,391,718 1,923,793 1,994,138
OFFICE EQUIPMENT (net of accumulated
depreciation of $8,030) .............. 101,275 101,275
DEFERRED DEBT ISSUANCE COSTS (Note 2) .. 204,999 222,386
DEFERRED COSTS OF PROPOSED PUBLIC
OFFERING (Note 9) .................... 103,087 103,087
DEPOSIT ................................ 18,674 18,674
-------- ------------ ------------ ------------
TOTAL ASSETS .................... $1,897 $1,596,717 $2,369,215 $2,217,174
======== ============ ============ ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
<TABLE>
<CAPTION>
December 31 August 31, 1996
---------------------------- ------------------------------
1994 1995 (Unaudited)
----------- ------------- ------------------------------
Pro Forma
Historical (Note 11)
------------- -------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accrued expenses (Note 7) .................... $ 4,188 $ 412,735 $ 255,935 $ 35,897
Due to former bridge shareholders (Note 2) ... 1,025,000
----------- ------------- ------------- -------------
TOTAL CURRENT LIABILITIES ............... 4,188 412,735 255,935 1,060,897
BRIDGE NOTES PAYABLE (Note 2) .................. 1,220,763 3,084,284
OTHER NOTES PAYABLE (Note 4) ................... 50,000
----------- ------------- ------------- -------------
TOTAL LIABILITIES ....................... 4,188 1,683,498 3,340,219 1,060,897
----------- ------------- ------------- -------------
COMMITMENTS AND CONTINGENCY (Notes 2, 7, 8 and 9)
STOCKHOLDERS' (DEFICIT) (Notes 2 and 9)
Preferred stock, $.0001 par value; authorized --
2,000,000 shares; issued and outstanding -- none
Common stock, $.0001 par value; authorized --
20,000,000 shares; issued and outstanding --
1,105,000, 2,472,091, 2,761,785 and 2,735,201
in 1994, 1995, 1996 Historical and 1996 Pro Forma,
respectively .............................. 111 247 276 274
Additional paid-in capital ................... 615,113 1,193,081 1,865,725 3,966,398
Deficit accumulated during the development stage (617,515) (1,280,109) (2,837,005) (2,810,395)
----------- ------------- ------------- -------------
TOTAL STOCKHOLDERS' (DEFICIT) ........... (2,291) (86,781) (971,004) 1,156,277
----------- ------------- ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS (DEFICIT) ............... $ 1,897 $ 1,596,717 $ 2,369,215 $ 2,217,174
=========== ============= ============= =============
</TABLE>
See notes to financial statements
F-3
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
November 17,
1988
(Inception)
Years Ended to Eight months
December 31, December 31, Ended August 31,
---------------------------- 1995 ------------------------------
1994 1995 (Cumulative) 1995 1996
------------ ------------ --------------- ------------ --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCOME -- consulting fees . $ 1,960 $ 133,973
------------ ---------------
EXPENSES
Royalties (Note 7) ...... $ 420,000 420,000 $ 373,334 $ 95,083
Research and development 17,881 11,773 337,389 46,991
General and
administrative ....... 99,243 163,682 598,613 51,631 531,518
------------ ------------ --------------- ------------ --------------
TOTAL EXPENSES ..... 117,124 595,455 1,356,002 424,965 673,592
------------ ------------ --------------- ------------ --------------
LOSS FROM OPERATIONS (115,164) (595,455) (1,222,029) (424,965) (673,592)
INTEREST EXPENSE AND
AMORTIZATION OF DEBT
ISSUANCE COSTS .......... (72,596) (72,596) (930,772)
INTEREST INCOME ........... 5,457 14,516 47,468
------------ ------------ --------------- ------------ --------------
NET LOSS ........... ($ 115,164) ($ 662,594) ($ 1,280,109) ($ 424,965) ($1,556,896)
============ ============ =============== ============ ==============
AVERAGE NUMBER OF SHARES
OUTSTANDING (Note 2) .... 5,741,072 5,749,976 5,742,329 5,738,313 5,893,715
============ ============ =============== ============ ==============
NET LOSS PER COMMON SHARE . ($.02) ($.12) ($.22) ($.07) ($.26)
============ ============ =============== ============ ==============
</TABLE>
See notes to financial statements
F-4
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' (DEFICIT)
NOVEMBER 17, 1988 (INCEPTION) TO AUGUST 31, 1996
(NOTE 2)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock (Note 9) Aditional During the
----------------------- Paid-In Development
Shares Amount Capital Stage Total
----------- -------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of shares ....................... 1,105,000 $111 $ 889 $ 1,000
Contribution of shares ................... (82,875) (8) 8
Issuance of shares ....................... 55,250 5 499,995 500,000
Issuance of shares ....................... 27,625 3 (3)
Net loss for the period inception to
December 31, 1993 ....................... ($ 502,351) (502,351)
----------- -------- ------------ -------------- -------------
Balance -- December 31, 1993 ......... 1,105,000 111 500,889 (502,351) (1,351)
Contribution of shares ................... (12,615) (1) 1
Issuance of shares ....................... 12,615 1 114,223 114,224
Net loss for the year ended December 31,
1994 .................................... (115,164) (115,164)
----------- -------- ------------ -------------- -------------
Balance -- December 31, 1994 ......... 1,105,000 111 615,113 (617,515) (2,291)
Issuance of shares ....................... 1,105,000 110 110
Issuance of shares and warrants under
private placement ....................... 262,091 26 714,156 714,182
Expenses of private placement ............ (136,188) (136,188)
Net loss for the year ended December 31,
1995 .................................... (662,594) (662,594)
----------- -------- ------------ -------------- -------------
Balance -- December 31, 1995 ......... 2,472,091 247 1,193,081 (1,280,109) (86,781)
Cancellation of shares of private
placement (net of expenses of $1,820) ... (6,897) (1) (16,973) (16,974)
Issuance of shares and warrants in private
placement ............................... 296,591 30 808,152 808,182
Expenses of private placement ............ (118,535) (118,535)
Net loss for the eight months ended August
31, 1996 (Unaudited) .................... (1,556,896) (1,556,896)
----------- -------- ------------ -------------- -------------
Balance -- August 31, 1996
(Unaudited) ....................... 2,761,785 $276 $1,865,725 ($2,837,005) ($ 971,004)
=========== ======== ============ ============== =============
</TABLE>
See notes to financial statements
F-5
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended November 17, 1988 Eight months ended
December 31, (Inception) to August 31,
----------------------------- December 31, -----------------------
1994 1995 1995 (Cumulative) 1995 1996
------------ ------------- ----------------- ------------ ----------
(Unaudited)
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................... ($ 115,164) ($ 662,594) ($ 1,280,109) ($424,965) ($1,556,896)
Adjustments to reconcile net loss to net cash used
in operating activities
Amortization of discount and debt issuance costs 52,147 52,147 724,241
Depreciation and other amortization ......... 857 8,030
Increase (decrease) in cash flows from
Other current assets ..................... (9,715) (9,715) 765
Deposit ................................... (18,674)
Accrued expenses ......................... 1,948 408,547 412,735 375,854 (150,300)
======= ========= ========= ========= ==========
NET CASH USED IN OPERATING
ACTIVITIES ............................. (113,216) (211,615) (824,085) (49,111) (992,834)
-------- --------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities ...... 50,000 50,000 1,749,098
Investment in marketable securities .............. (1,400,852) (1,400,852) (2,242,028)
Purchases of fixed assets ........................ (612) (109,305)
--------- ---------- ---------- ---------
NET CASH USED IN INVESTING
ACTIVITIES ............................. (1,350,852) (1,351,464) (602,235)
--------- ---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Bridge Financing (net of expenses of
$358,389 and $311,934 and exchanges of notes
payable of $125,000 and $50,000 in 1995 and 1996,
respectively) ................................. 1,416,611 1,416,611 1,788,066
Proceeds from issuance of common stock ........... 94,224 110 615,334
Increase in costs of proposed public offering .... (103,087)
Decrease in due to/from stockholder .............. 15,971 21,152
Proceeds from other notes payable ................ 175,000 175,000 75,000
Payment of other notes payable ................... (50,000)
Payments of organization costs ................... (245)
-------- -------- ---------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES . 110,195 1,591,721 2,206,700 96,152 1,634,979
INCREASE (DECREASE) IN CASH .............. (3,021) 29,254 31,151 47,041 39,910
CASH -- beginning .................................. 4,918 1,897 1,897 31,151
-------- -------- ---------- --------- ---------
CASH -- ending ..................................... $ 1,897 $ 31,151 $ 31,151 $ 48,938 $ 71,061
======= ========= ========= ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes ....................... $ 812 $ 1,000 $ 3,744 -- $ 808
======= ========= ========= ========= ==========
Cash paid for interest ........................... -- $ 3,315 $ 3,315 -- $ 3,534
======= ========= ========= ========= ==========
NONCASH TRANSACTIONS
In 1994, a loan payable was capitalized (Note 2).
</TABLE>
See notes to financial statements
F-6
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS
Imatec, Ltd. (Company) was incorporated on November 17, 1988 to develop,
design, market and license image reproduction and enhancement products. The
Company has been in the development stage since its inception.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
MARKETABLE SECURITIES
Marketable securities have been classified as available-for-sale and
recorded at fair value.
FIXED ASSETS
Office equipment was stated at cost and is being depreciated on the
straight-line method over the estimated useful lives of the assets of five to
seven years.
DEBT ISSUANCE COSTS AND DISCOUNTS
Debt issuance costs on the Bridge Notes (Note 2) have been capitalized and
are being amortized on the straight-line method over the term of the notes
payable.
Discounts on the Bridge Notes are being amortized on the interest method
over the term of the notes payable.
PATENTS
Patent costs have been charged to operations as incurred as their
realizability was uncertain and were included in research and development
expenses. Effective January 1, 1996, the Company adopted SFAS No. 121
(Accounting for the Impairment of Long-Lived Assets), without material
effect.
RESEARCH AND DEVELOPMENT COSTS AND ROYALTY EXPENSES
Research and development costs and royalty expenses (Note 7) have been
charged to operations as incurred.
LOSS PER SHARE
Loss per share was computed based on the weighted average number of common
shares and common share equivalents outstanding during the year. All shares
and per share amounts have been retroactively restated to reflect the reverse
stock split on May 2, 1995, and the stock split on October 19, 1995. The
1,105,000 shares issued in May 1995 and the shares and warrants issued in the
Bridge Financing have been treated as outstanding for all periods in
calculating loss per common share because such shares were issued at prices
below the proposed public offering price (Notes 2 and 9).
Fully-dilutive loss per common share has not been presented because it was
anti-dilutive.
2. CAPITALIZATION
ISSUANCE OF COMMON STOCK
On December 1, 1988, the Company issued 1,105,000 shares for $1,000. On
September 20, 1991, a stockholder contributed 82,875 shares to the Company
and the Company reissued 55,250 shares of common stock for $500,000 and
27,625 shares in exchange for assistance with raising equity. Also in 1991,
the stockholder gave 102,300 shares of common stock of the Company for
assistance with raising equity for the Company. The Company valued the 27,625
and 102,300 shares at $25,000 and $92,580, respectively, the values of the
consulting services and charged additional paid-in-capital.
F-7
<PAGE>
During 1994, a stockholder contributed 12,615 shares to the Company and
the Company reissued the shares for $114,224, including the capitalization of
a loan payable.
On May 30, 1995, the Company issued 1,105,000 shares of common stock in
exchange for $110. Had the private placement not been fully sold, the Company
could have reacquired up to the total of these shares for $110.
REVERSE STOCK SPLIT
On May 2, 1995, the Company had a one-for-four reverse stock split. All
shares and per share amounts have been retroactively restated to reflect the
reverse stock split.
REINCORPORATION
On September 20, 1995, the Company reincorporated in Delaware, authorizing
20,000,000 shares of $.0001 par value common stock and 2,000,000 shares of
$.0001 par value preferred stock.
STOCK SPLIT
On October 19, 1995, the Company authorized a 22,100 for 1 stock split and
issued 2,210,000 shares of new common stock in exchange for 100 shares of old
common stock. All shares and per share amounts have been retroactively
restated to reflect the stock split.
BRIDGE FINANCING
On November 30, 1995 and April 12, 1996, the Company had closings under a
private placement. Under the private placement, the Company issued 10%
promissory notes in the aggregate principal amount of $1,900,000 and
$2,100,000 (Bridge Notes), 262,091 and 289,694 shares of common stock and
warrants to purchase 1,900,000 and 2,100,000 shares of common stock (Bridge
Warrants), respectively. The Company has allocated $2, per share, and $.10,
per warrant, of the proceeds of the private placement to the common stock and
warrants, the values of the shares and warrants at the dates of issuance.
In February, 1996, an investor in one unit of the first closing was
refunded $50,000, the notes, shares and warrants were canceled and then all
were resold in the second closing. The cancellation has been included net in
the second closing amounts.
The Company received net proceeds from the private placement of $1,517,834
and $1,811,635, respectively, after disbursements of:
<TABLE>
<CAPTION>
November 30, April 12,
1995 1996
-------------- -----------
<S> <C> <C>
Commission ....................... $190,000 $210,000
Non-accountable expense allowance 57,000 63,000
Other expenses of placement agent 10,166 15,365
Exchanges of notes payable ....... 125,000 50,000
-------------- -----------
$382,166 $338,365
============== ===========
</TABLE>
In addition, the Company incurred additional expenses of $101,223 under
the first closing and $23,569 under the second closing (Unaudited). Total
expenses of the private placement have been allocated between the Bridge
Notes and common stock.
The Bridge Notes are payable upon the earlier of: (1) a public or other
private financing by the placement agent of $8,000,000, (2) any other public
or private placement of $4,500,000 or (3) 15 months from issuance.
Each Bridge Warrant is exercisable at $1, per warrant, commencing a year
from closing for a period of five years. However, upon the effective date of
the Company's proposed initial public offering (Note 9), each Bridge Warrant
will automatically convert into a Redeemable Warrant (Note 9), subject to all
of the terms and conditions of the Redeemable Warrants.
F-8
<PAGE>
BRIDGE FINANCING RESTRUCTURING (UNAUDITED)
In October 1996, the Company restructured the Bridge Financing.
Accordingly, all investors in the Bridge Financing were given the choice to
either: (A) convert, on the closing date of the proposed public offering, the
principal amount of their Bridge Note plus all accrued interest into shares
of common stock, at $4, per share, return all the common stock received in
the Bridge Financing and retain their Bridge Warrants or (B) upon the closing
of the proposed public offering receive a one-time cash payment equal to 50%
of the principal amount of their Bridge Notes, not receive any accrued
interest and return all the shares of common stock and Bridge Warrants that
they received in the Bridge Financing. The Bridge Restructuring is contingent
on the closing of the proposed public offering.
As of October 29, 1996, one investor representing $50,000 of the Bridge
Notes, 6,897 of the Bridge shares and 50,000 of the Bridge Warrants, did not
advise the Company whether he will choose option A or option B. This investor
was deemed to have chosen option A by the Company. Consequently, assuming a
closing date of the proposed public offering of November 1, 1996, the Company
anticipates converting $1,950,000 principal amount of Bridge Notes and
$150,671 of accrued interest thereon into 525,201 shares of common stock and
repaying $1,025,000 of principal amount of Bridge Notes. In addition, all
551,785 shares of common stock and the balance of 2,050,000 Bridge Warrants
issued in the Bridge Financing will be returned to the Company and 1,950,000
of Bridge Warrants will be exchanged for Redeemable Warrants upon the closing
of the proposed public offering (Note 9). The Company also anticipates the
write-off of unamortized loan discount of $915,716 and deferred loan costs of
$222,386 and the recognition of income of $1,164,712 from the forgiveness of
indebtedness.
The investor that failed to choose either option A or option B as of
October 29, 1996 may, thereafter, institute litigation against the Company
disputing the option he was deemed to have chosen and/or seek to enforce the
original terms and condition of his Bridge investment in the Company. The
Company intends to vigorously defend any such litigation.
RESERVED SHARES
As of December 31, 1995 and August 31, 1996 (Unaudited), the Company has
reserved the following shares of common stock:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Bridge warrants . 4,000,000 4,000,000
Stock option plan . 500,000
----------- -----------
4,000,000 4,500,000
=========== ===========
</TABLE>
Does not include the cancellation of 1,850,000 of Bridge Warrants or the
shares to be reserved for issuance upon the conversion of the Bridge Notes
under the Bridge Financing restructuring.
3. MARKETABLE SECURITIES
As of December 31, 1995 and August 31, 1996 (Unaudited), the fair value of
marketable securities, which approximated unamortized cost, were as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
U.S. Treasury Bill ............... $ 494,800
U.S. Government Money Market Fund 856,052 $1,843,782
------------ ------------
$1,350,852 $1,843,782
============ ============
</TABLE>
4. OTHER NOTES PAYABLE
During August, September and October 1995, the Company borrowed, with
interest at 10%, per annum, $175,000 from customers of the placement agent,
which were exchanged for units under the closings of the private placement
(Note 2).
F-9
<PAGE>
5. INCOME TAXES
As of December 31, 1995 and 1994, the tax effects of timing differences
between financial statement and income tax reporting were as follows:
<TABLE>
<CAPTION>
December 31, August 31,
-------------------------- ----------------------------
1994 1995 1995 1996
----------- ----------- ----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Research and development expenses $ 130,000 $ 130,000 $ 130,000 $ 150,000
Net operating loss carryforward .. 120,000 360,000 290,000 960,000
----------- ----------- ----------- -------------
250,000 490,000 420,000 1,110,000
Valuation allowance .............. (250,000) (490,000) (420,000) (1,110,000)
----------- ----------- ----------- -------------
-- -- -- --
=========== =========== =========== =============
</TABLE>
As of December 31, 1995 and August 31, 1996 (Unaudited), the Company has
net operating loss carryforwards available to reduce future taxable income of
approximately $900,000, expiring through 2011 and $2,400,000, expiring
through 2012.
6. RELATED PARTY TRANSACTIONS
During 1995, the Company borrowed $21,152 from a stockholder/officer on
demand, without interest, and it was repaid in December 1995.
During the years ended December 31, 1994 and 1995 and the eight months
ended August 31, 1996 (Unaudited), a director was paid attorney's fees of
$1,000, $31,000 and $49,423, respectively.
7. LICENSE AGREEMENT
On June 25, 1995, the Company was granted a license from a stockholder/
officer (President, Chief Executive Officer and Chairman of the Board) of the
Company to make, use, sell and otherwise exploit certain technologies under
patents, including future technologies. The Company is required to pay the
stockholder/officer a non-refundable advance royalty of $350,000, which was
paid in January 1996, and, commencing July 1, 1995, an annual royalty of
$140,000. If the stockholder/officer ceases to be employed by the Company,
the annual royalty increases to $250,000. The annual royalty shall increase
at the rate of 5%, per annum. The license agreement shall end when the last
patent expires.
8. EMPLOYMENT AGREEMENT
On July 1, 1995, the Company entered into an employment agreement with a
stockholder to be President, Chief Executive Officer and Chairman of the
Board of Directors expiring on the earlier of July 1, 2000, the Company being
no longer involved in the technology business or a bankruptcy, merger or
reorganization of the Company. Compensation under the agreement shall be
$60,000, per year, 5% annual increases and a bonus equal to 1% of annual
sales. In addition, the employee shall receive director's and officer's
insurance, an automobile lease up to $8,400, per year, disability insurance
for 60% of salary through age 65, Company paid disability of 40% of salary
for one year and a life insurance policy of $1,000,000.
9. SUBSEQUENT EVENTS
EMPLOYMENT AGREEMENTS (UNAUDITED)
Effective January 1, 1996, the Company entered into an employment
agreement with a vice president of marketing and sales expiring in one year.
The agreement provides for an annual compensation of $100,000, plus a
commission equal to 4% of revenues, as defined, in excess of $2,500,000.
Effective September 24, 1996, the Company entered into an employment
agreement with a chief financial officer expiring September 23, 2001. The
agreement provides for annual compensation of $95,000.
F-10
<PAGE>
LEASE
Effective February 1996, the Company entered into a noncancellable lease
for office space through January 1999. The lease requires minimum annual rent
ranging from $67,584 to $71,680 and additional rent for increases in real
estate taxes and operating expenses.
As of August 31, 1996 (Unaudited), the future minimum aggregate annual
payments under the lease were as follows:
Years Ending
August 31,
-------------
1997 $ 68,779
1998 70,826
1999 29,867
---------
$169,472
=========
STOCK OPTION PLAN
In February, 1996, the Company adopted a nonqualified stock option plan
under which it may grant up to 500,000 shares of common stock. The Company
may not grant any options with a purchase price of less than fair market
value of the common stock as of the date of the grant. Through April 29, 1996
and August 31, 1996 (Unaudited), the Company had not granted any options
under the Plan.
PROPOSED PUBLIC OFFERING (UNAUDITED)
The Company anticipates a public offering in the fourth quarter of 1996 of
1,000,000 shares of common stock, at $5 per share and 4,000,000 redeemable
warrants, at $.25, per warrant (Redeemable Warrant). Each warrantholder will
be entitled to purchase one share of common stock at $6.50, per share, and
will be exercisable for period of three years from the date of the offering.
The warrants will be redeemable by the Company, under certain circumstances,
at $.10, per warrant, commencing nine months from the date of offering. The
Company will also grant the underwriter an overallotment option for 45 days
from the date of the offering to purchase up to an additional 150,000 shares
of common stock and an additional 600,000 Redeemable Warrants.
The underwriter of the public offering will receive a discount of 10% and
a non-accountable expense allowance equal to 3% of the gross proceeds of the
public offering. The Company will also retain the underwriter as a financial
consultant for a period of two years for $48,000, payable upon closing of the
public offering. In addition, the Company has agreed to sell to the
underwriter, for nominal consideration, warrants (Underwriter's Warrants) to
purchase 100,000 shares of common stock and 400,000 Redeemable Warrants. The
Underwriter's Warrants are exercisable at a price of $6.00 and $.30 per share
of common stock and per Redeemable Warrant, respectively, for a period of
four years commencing one year from the date of the offering. The Redeemable
Warrants underlying the Underwriter's Warrants are exercisable at a price of
$8.125, per share of common stock.
10. INTERIM FINANCIAL STATEMENT (UNAUDITED)
In the opinion of management, the interim unaudited financial statements
as of August 31, 1995 and 1996, reflect all material adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
the financial position, the results of operations and cash flows. Interim
results are not necessarily indicative of the results of the entire year.
11. PRO FORMA BALANCE SHEET (UNAUDITED)
The pro forma balance sheet of Imatec, Ltd., as of August 31, 1996,
reflects the Bridge Financing Restructuring (Note 2) as if it had occurred on
August 31, 1996 and does not include any adjustments related to the proposed
public offering (Note 9).
F-11
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No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances create any implication that there has been no change
in the affairs of the Company since the date hereof or that information
contained herein is correct as of any date subsequent to the date hereof.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in
which the persons making such offer or solicitation are not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
--------
Prospectus Summary ............................................. 3
The Offering ................................................... 5
Risk Factors ................................................... 7
Use of Proceeds ................................................ 14
Dividend Policy ................................................ 14
Dilution ....................................................... 15
Capitalization ................................................. 16
Selected Financial Data ........................................ 17
Plan of Operations ............................................. 18
Business ....................................................... 20
Management ..................................................... 25
Principal Stockholders ......................................... 29
Selling Security Holders ....................................... 31
Certain Transactions ........................................... 37
Description of Securities ...................................... 37
Shares Available for Future Sale ............................... 39
Underwriting ................................................... 40
Legal Matters .................................................. 42
Experts ........................................................ 42
Change in Accountants .......................................... 42
Additional Information ......................................... 42
Index to Financial Statements .................................. F-1
Until November 23, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
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IMATEC, LTD.
[LOGO]
1,000,000 SHARES OF
COMMON STOCK
AND
4,000,000 REDEEMABLE
WARRANTS
------
PROSPECTUS
------
A.S. GOLDMEN & CO., INC.
October 29, 1996
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