As filed with the Securities and Exchange Commission on December 31, 1997
Registration No. 333-38555
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM S-3
Registration Statement
Under
The Securities Act of 1933
--------------------------
GUM TECH INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Utah 87-0842806
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
----------------------------
4205 North 7th Avenue, Suite 300
Phoenix, Arizona 85013
(602) 277-0606
(Address, Including Zip Code and Telephone Number of
Principal Executive Offices)
Gerald N. Kern
Chairman of the Board, President
and Chief Executive Officer
4205 North 7th Avenue, Suite 300
Phoenix, Arizona 85013
(602) 277-0606
(Name, Address and Telephone Number
of Agent for Service)
Copies to:
Gerald M. Chizever, Esq.
Madge S. Beletsky, Esq.
Richman, Lawrence, Mann, Chizever,
Friedman & Phillips
9601 Wilshire Boulevard
Penthouse
Beverly Hills, California 90210
(310) 274-8300
(310) 274-2831(fax)
<PAGE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.|_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.|_|
If delivery of a prospectus is expected to be made pursuant to Rule 434,
please check the following box.|_|
--------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 31, 1997
PROSPECTUS
GUM TECH INTERNATIONAL, INC.
200,000 Shares of Common Stock
This Prospectus covers the sale of an aggregate of 200,000 shares (the
"Shares") of the no par value common stock ("Common Stock") of Gum Tech
International, Inc. (the "Company") comprised of (i) 100,000 shares of Common
Stock underlying a Common Stock purchase warrant with an exercise price of $2.00
per share (the "Warrant"), and (ii) 100,000 shares of Common Stock underlying
Common Stock purchase options with exercise prices ranging from $4.50 to $5.00
per share (the "Options"). The Shares are held by certain selling stockholders
(the "Selling Stockholders"). See "Selling Stockholders." The Company will not
receive any part of the proceeds from the sale of securities by the Selling
Stockholders, although it will receive any funds tendered upon exercise of the
Warrant and the Options. See "Use of Proceeds."
The Selling Stockholders may sell the Common Stock from time to time
directly or indirectly through designated agents in open market transactions,
including block trades, on the NASDAQ National Market (the "National Market"),
in negotiated public or private transactions or in a combination of any such
methods of sale or through dealers or underwriters to be determined at the time
of sale. The aggregate proceeds to the Selling Stockholders from sales of the
Shares will be the purchase price of the Shares sold less the aggregate agents'
commissions and underwriters' discounts, if any. All other distribution expenses
of the offering will be paid for by the Company. See "Plan of Distribution."
The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Common
Stock may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), and any commission received by
them and any profit on the resale of the Common Stock purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act. See
"Plan of Distribution."
The Common Stock is listed on the National Market under the symbol "GUMM."
On December 29, 1997, the closing sales price of the Common Stock as reported on
the National Market was $6.88 per share.
PURCHASE OF THE COMMON STOCK IS SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" ON PAGE 2 OF THIS PROSPECTUS, FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES OFFERED HEREBY.
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.
---------------------------
The date of this Prospectus is December 31, 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE SELLING STOCKHOLDERS. 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 THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT.
TABLE OF CONTENTS
AVAILABLE INFORMATION.......................................................ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ...........................iii
BUSINESS OF THE COMPANY......................................................2
RISK FACTORS.................................................................2
USE OF PROCEEDS..............................................................6
PLAN OF DISTRIBUTION.........................................................6
SELLING STOCKHOLDERS.........................................................7
LEGAL MATTERS................................................................7
EXPERTS ....................................................................7
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-3 (the
"Registration Statement") under the 1933 Act with respect to the securities
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain items 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 by this Prospectus, reference
is made to such Registration Statement and the exhibits thereto. Statements
contained in this Prospectus as to the contents of any contract or other
documents are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement for a full statement of the provisions thereof; each such
statement contained herein is qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act") and, in accordance therewith, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected and copied at
public reference facilities of the Commission at 450 Fifth Street N.W.,
Washington, D.C. 20549; Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; 7 World Trade Center, New York, New York 10048;
and 5670 Wilshire Boulevard, Los Angeles, California 90036. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates or may be
examined without charge at the offices of the Commission or at the Commission's
Web site located at "http://www.sec.gov."
The Company furnishes annual reports to its stockholders which include
audited financial statements. The Company may also furnish quarterly financial
statements to its stockholders and such other reports as may be authorized by
its Board of Directors.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed or will be filed with the
Commission are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996;
(2) The Company's Quarterly Reports on Form 10-QSB for the three months
ended March 31, 1997, June 30, 1997 and September 30, 1997;
(3) Proxy Statement for the Annual Meeting of Stockholders of the Company
held on June 13, 1997;
(4) Description of the Common Stock contained in the Company's
Registration Statement on Form SB-2 declared effective under the
Securities Act, on November 8, 1996; File Number 333-14667;
(5) All other documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the 1934 Act.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of the
filing of such documents. Any statement contained in this Prospectus, in a
supplement to this Prospectus or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed supplement to this Prospectus or in any document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents. Written or oral requests for such
copies should be directed to Jeffrey L. Bouchy, Senior Vice President and Chief
Financial Officer, Gum Tech International, Inc., 4205 North 7th Avenue, Suite
300, Phoenix, Arizona 85013, telephone (602) 277-0606.
iii
<PAGE>
BUSINESS OF THE COMPANY
The Company was organized in 1991 to develop, market and distribute
specialty chewing gum products under its own brand names and on a private label
basis for other chewing gum marketers. The Company's current chewing gum
products contain ingredients which it claims (i) promote weight loss (under the
"ChromaTrim" and "CitrusSlim" brand names), (ii) prevent smoking (under the
"CigArrest" brand name), (iii) sooth sore throats (under the "Chew and Sooth
Zinc Gum" brand name), (iv) contribute to energy and endurance (under the "High
Gear" , "Buzz Gum" and "Love Gum" brand names), (v) provide antioxidant vitamins
(under the "Vita A-C-E-S" brand name), (vi) promote oral hygiene and breath
freshness (under the "DentaHealth" brand name), and (vii) may reduce the risk of
osteoporosis (under the "Calcium Gum" brand name). The Company manufactures its
chewing gum products in a 28,000 square foot leased facility in Phoenix,
Arizona.
The Company's business strategy is to (i) manufacture its own chewing gum
products and the private label chewing gum products of other chewing gum
marketers in greater quantities and at lower costs; (ii) increase revenues by
(a) expanding its marketing efforts for existing chewing gum products, (b)
developing new chewing gum products through its own research and development
facilities, (c) further developing its private label business, and (d) entering
into strategic partnerships with larger entities to jointly develop and market
new gum products; and (iii) expand its distribution and customer base by adding
over-the-counter ("OTC") non-prescription medications (such as antacids, cough
suppressants, pain relievers and the like) to its chewing gum products. The
Company has not yet commenced the distribution or marketing of any OTC chewing
gum products but expects (but cannot assure) that it will do so in the next
twelve months. At September 30, 1997, private label sales represented $882,000
or 14.2% of the total sales for the nine month period ended September 30, 1997.
The Company markets its chewing gum products through wholesale distributors
who distribute primarily to natural food stores and through other brokers,
marketers and distributors to convenience stores and independent grocery and
drug stores. The Company also markets to chain grocery, drug and club stores and
to larger private label customers who market under their own brand names.
Some of the Company's specialty chewing gum products are subject to
regulation by the United States Food and Drug Administration ("FDA"). If the FDA
concludes that certain chewing gum products are "drugs" under applicable FDA
regulations or if the Company commences marketing of OTC chewing gum products,
the FDA may restrict or remove any or all of the Company's chewing gum products
from the market if such products violate FDA rules or regulations.
The Company was incorporated in Utah in February 1991 as a specialty
chewing gum products marketer under the name Nekros International Marketing,
Inc. with office and warehouse facilities initially located in Ogden, Utah. In
November 1994, control of the Company changed and between May 1995 and November
1995, the Company raised funds to establish a new management team, develop
additional chewing gum products, build inventories and purchase chewing gum
manufacturing equipment. In April 1996 the Company sold to the public 460,000
Units of its securities at $18.00 per Unit in the IPO Offering, each Unit
consisting of three shares of Common Stock and one Common Stock Purchase Warrant
(the "IPO Warrants") to purchase an additional share of Common Stock at any time
until April 24, 2001 at $7.50 per share. All of the IPO Warrants were called for
redemption by the Company in June 1997 at the redemption price of $.01 per
share. However, prior to the July 21, 1997 redemption date, in excess of 99% of
the IPO Warrants were exercised at $7.50 per share. In connection with the IPO
Offering, the Company issued to the Representative of its underwriters (the "IPO
Representative") Unit Warrants to purchase an aggregate of 40,000 Units,
consisting of 120,000 shares of Common Stock and 40,000 Warrants identical to
the IPO Warrants. The Common Stock underlying the 460,000 IPO Warrants, together
with the 160,000 shares issuable upon exercise of the Unit Warrants
(collectively the "Purchase Warrants") issued to the IPO Representative were
previously registered.
The Company's executive offices are located at 4205 North 7th Avenue, Suite
300, Phoenix, Arizona 85013, telephone (602) 277-0606, and its warehouse and
manufacturing facility is located at 246 East Watkins, Phoenix, Arizona 85004.
RISK FACTORS
Prospective purchasers of the Shares should carefully consider the
following risk factors and other information contained in this Prospectus before
making an investment in the Shares. Information contained in this Prospectus
includes "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "should" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. No assurance can be given that the
future results addressed by the forward-looking statements will be achieved. The
following matters constitute cautionary statements identifying important factors
with respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results addressed in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results addressed
in such forward-looking statements.
2
<PAGE>
Limited Operating History; Recent Losses. The Company began operations in
February 1991, and has a limited operating history upon which potential
investors may evaluate its performance. Although the Company reported net income
of $716,925 for the nine months ended September 30, 1997, it reported a
significant loss for the year ended December 31, 1996 of $2,635,895 and can give
no assurance that future operations will be profitable. The likelihood of the
Company's success must be considered relative to the problems, difficulties,
complications and delays frequently encountered in connection with the
development and operation of a new business and the competitive environment in
which the Company intends to operate.
Significant Number of Shares Eligible for Immediate and Future Sales. Sales
of substantial amounts of Common Stock in the open market or the availability of
such shares for sale could adversely affect the market price for the Common
Stock. All 5,682,460 shares of the Company's Common Stock outstanding have
either been registered for public sale or are salable under Rule 144 promulgated
under the Securities Act and therefore, all such shares may be immediately sold
by the holders, subject only to an April 24, 1996 agreement between the holders
of approximately 2,000,000 shares (all of which shares are eligible for resale
under Rule 144 of the Securities Act) and the IPO Representative in which the
holders agreed not to sell or otherwise dispose of their shares of Common Stock
until April 24, 1998 without the prior written consent of the IPO
Representative. The IPO Representative may release these shares without notice
at any time. Moreover, 1,152,632 shares underlying the Purchase Warrants,
Convertible Notes and Warrants and 2,000,000 shares underlying the Company's
1995 Stock Option Plan have been previously registered. Following exercise or
conversion, as the case may be, all of the 1,152,632 shares may be sold by the
holders at any time subject to the Company's right through January 1998 to
restrict public sale of the 532,632 shares issuable upon conversion of the
Convertible Notes.
Unproven Markets for Certain of the Company's New Products; No Assurance of
Consumer Acceptance. The Company recently introduced a number of new chewing gum
products including CigArrest, Chew and Sooth Zinc Gum, High Gear, Vita A-C-E-S
and Calcium Gum which the Company claims prevent smoking, soothes sore throats,
contributes to energy and endurance, provides antioxidant vitamins and reduces
the risk of osteoporosis, respectively. There can be no assurance that a market
exists for any of these chewing gum products, or that consumers will purchase
these or any other new product offerings of the Company in sufficient amounts to
justify continued production.
Significant Fixed Costs for and Underutilization of Manufacturing Facility.
The Company estimates that the fixed costs associated with its Phoenix, Arizona
manufacturing facility approximate $150,000 per month and that only 10% of the
facility's total capacity is currently being utilized. These fixed costs
contributed to significant losses reported by the Company for the year ended
December 31, 1996 and will continue to significantly contribute to losses until
the Company increases utilization of the facility.
Competition. The distribution and sale of chewing gum products are highly
competitive. The Company's competitors consist primarily of three multi-billion
dollar United States-based multinational companies (Wm. Wrigley Jr. Company,
Warner Lambert Company and Nabisco Food Group, Inc.) which own most of the
chewing gum brands, large specialty chewing gum manufacturers, such as The Topps
Company ("Bazooka" brand chewing gum) and Marvel Holdings, Inc. ("Double Bubble"
brand chewing gum), and small specialty chewing gum marketers. The Company does
not have the capital resources, marketing and distribution networks,
manufacturing facilities, personnel, product name recognition or advertising
budget to introduce chewing gum brands intended to compete with the
multinational chewing gum manufacturers or the large specialty chewing gum
marketers.
FDA and Other Government Regulation. The Company's chewing gum products
manufactured by it or by others for it are subject to regulation by the FDA
including regulations with respect to labeling of products, approval of
ingredients in products, claims made regarding products and disclosure of
product ingredients. In addition, the Federal Trade Commission ("FTC") has
jurisdiction over advertising of the Company's products. Moreover, if the FDA
concludes that any of the Company's chewing gum products are "drugs" under
applicable FDA regulations or otherwise violate FDA rules or regulations, the
FDA may (i) require that manufacture of such products be in accordance with FDA
"good manufacturing practices" (which prescribe specific requirements and
procedures for the manufacture of FDA regulated products), or (ii) restrict or
remove such products from the market. Such action may be taken against the
Company and any entity which manufactures products for the Company. Any OTC
chewing gum products offered by the Company will be subject to marketing
permission and ongoing intensive regulation by the FDA.
On April 1, 1994 the Company received a Warning Letter from the FDA
indicating that the Company's Buzz Gum chewing gum products were mislabeled. In
June 1994 the Company revised its labeling and so notified the FDA. No further
action was taken by the FDA.
3
<PAGE>
The Company's chewing gum manufacturing facilities are subject to
regulation by various governmental agencies, including state and local
licensing, zoning, land use, construction and environmental regulations and
various health, sanitation, safety and fire codes and standards. Suspension of
certain licenses or approvals, due to failure to comply with applicable
regulations or otherwise, could interrupt the Company's manufacturing
operations. Should the Company elect to manufacture OTC chewing gum products,
its manufacturing facilities will also be subject to inspection and regulation
by the FDA.
No Assurance of Scientific Proof. Under FDA and FTC rules, the Company is
required to obtain scientific data to support any health claims it makes
concerning its products, although no pre-clearance or filing is required to
market the products. The Company has obtained such scientific data for all its
products and employs two individuals to gather and organize the scientific data
when required. The Company has not provided nor been requested to provide any
scientific data to the FDA. The marketing of certain of the Company's chewing
gum products involves claims that such products assist in weight loss, promote
dental hygiene, promote cessation of cigarette smoking and the like. There can
be no assurance that the scientific data obtained by the Company in support of
such claims will be deemed acceptable by the FDA or FTC, should either agency
request any such data in the future.
No Assurance of Proprietary Protection. The Company considers some of its
chewing gum formulations and processes to be proprietary in nature and relies
upon a combination of non-disclosure agreements, other contractual restrictions
and trade secrecy laws to protect such proprietary information. There can be no
assurance that these steps will be adequate to prevent misappropriation of the
Company's proprietary information or that the Company's competitors will not
independently develop chewing gum formulations and processes that are
substantially equivalent or superior to the Company's. The Company holds certain
trademark and trade name protection for some of its chewing gum products and has
applied for trademark and trade name protection on other products. There can be
no assurance that the Company will be able to successfully defend its trademarks
or trade names against claims from or use by competitors or obtain trademark or
trade name protection for new products.
Risks of New Product Development. The Company may experience difficulties
that could delay or prevent the introduction of new chewing gum products. The
Company may be dependent in the near future upon chewing gum products that are
currently being developed by it. If the Company is unable to develop new chewing
gum products on a timely basis, the Company's business, operating results and
financial condition could be materially adversely affected.
Risks Associated with Expansion. The Company intends to continue to expand
its manufacturing and marketing operations. Expansion will place substantial
strains on the Company's management and its operational, accounting and
information systems. Successful management of growth will require the Company to
improve its financial controls, operating procedures and management information
systems, and to train, motivate and manage its employees. The Company's failure
to manage growth effectively would have a material adverse effect on its results
of operations and its ability to execute its business strategy.
Dependence Upon Management Personnel and Executive Officers; Management
Changes. The Company's operations are dependent upon its ability to hire and
retain qualified management personnel and upon the continued services of its
executive officers. The loss of services of any of the Company's executive
officers, whether as a result of death, disability or otherwise, could have a
material adverse effect upon the business of the Company. The Company has
experienced significant management changes in 1995 and 1996 including the
appointment of a new Chief Executive Officer and President in August 1996 and
Chairman in June 1997. The Company has entered into employment agreements with
its current executive officers and has applied for key man life insurance upon
certain of their lives.
Fluctuations in Operating Results; Inability to Fully Utilize Barter
Credits. The Company's operating results have varied and will continue to vary
from period to period as a result of the amount its manufacturing facilities are
utilized, the purchasing patterns of consumers, the timing of new product
introductions by the Company and its competitors and variations in sales and
competitive pricing. Unanticipated events, including delays in developing,
manufacturing or marketing new chewing gum products, and/or not fully utilizing
its barter credits, which at September 30, 1997, entitle the Company to
approximately $4,295,000 of advertising and promotional credits, $3,499,000 of
which must be used by December 31, 1999, and the balance of which must be used
by May 27, 2001, could have a material adverse effect on the Company's operating
results and could also result in significant fluctuations in operating results
in future periods.
Need for Additional Financing. The Company will be required to seek
additional debt or equity financing in the future in order to fund anticipated
expansion of its manufacturing and marketing activities. There can be no
assurance that such additional financing will be available to the Company on
acceptable terms, or at all. Any future equity financing may involve substantial
dilution to the interests of the Company's stockholders.
4
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Product Liability. The Company is subject to significant liability should
use or consumption of its products cause injury, illness or death. Although the
Company carries product liability insurance, there can be no assurance that its
insurance will be adequate to protect the Company against product liability
claims or that insurance coverage will continue to be available to the Company
on reasonable terms.
No Dividends. The Company does not intend to pay any cash dividends on its
Common Stock in the foreseeable future. Earnings, if any, will be used to
finance growth.
Possible Volatility of Securities Prices. The market price of the Common
Stock has been highly volatile and may continue to be volatile in the future.
Factors such as the Company's operating results or public announcements by the
Company or its competitors may have a significant effect on the market price of
the Company's securities. In addition, market prices for securities of many
small capitalization companies have experienced wide fluctuations in response to
variations in quarterly operating results, general economic indicators and other
factors beyond the control of the Company. The registration of the securities
offered hereby could increase the volatility of the Common Stock by increasing
the number of shares of publicly traded Common Stock outstanding.
Control by Management; Authorization and issuance of Preferred Stock;
Prevention of Changes in Control. The Company's officers and directors own
approximately 21% of the issued and outstanding shares of Common Stock (assuming
exercise by them of outstanding stock options and common stock purchase
warrants), and can as a practical matter continue to elect all of the Company's
directors and control the affairs of the Company. The Company's Certificate of
Incorporation authorizes the issuance of up to 1,000,000 shares of Preferred
Stock with such rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, under the Certificate of Incorporation, the
Board of Directors may, without shareholder approval, issue Preferred Stock with
dividend, liquidation, conversion, voting, redemption or other rights which
could adversely affect the voting power or other rights of the holders of the
Common Stock. The issuance of any shares of Preferred Stock having rights
superior to those of the Common Stock may result in a decrease in the value or
market price of the Common Stock and could be used by the Board of Directors as
a device to prevent a change in control of the Company. The Company has no other
anti-takeover provisions in its Certificate of Incorporation or Bylaws. Holders
of the Preferred Stock may have the right to receive dividends, certain
preferences in liquidation, and conversion rights.
Elimination of Director Liability. The Company's Certificate of
Incorporation contains a provision eliminating a director's liability to the
Company or its stockholders for monetary damages for a breach of fiduciary duty,
except in circumstances involving a financial benefit to a director, the
intentional infliction of harm to the Company or certain wrongful acts, such as
the breach of a director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of criminal law. The Company's
Bylaws contain provisions obligating the Company to indemnify its directors and
officers to the fullest extent permitted under Utah law. These provisions could
serve to insulate officers and directors of the Company against liability for
actions which damage the Company or its stockholders.
Maintenance Criteria for NASDAQ Securities. The National Association of
Securities Dealers, Inc. (the "NASD"), which administers NASDAQ, recently made
changes in the criteria for continued NASDAQ eligibility. In order to continue
to be included in NASDAQ, a company must maintain $4 million in net tangible
assets and a $5,000,000 market value of its public float. In addition, continued
inclusion requires two market-makers and at least 400 public holders of the
Common Stock and a minimum bid price of $1 per share. The Company's failure to
meet these maintenance criteria in the future may result in the discontinuance
of the inclusion of its securities in NASDAQ. In such event, trading, if any, in
the securities may then continue to be conducted in the non-NASDAQ
over-the-counter market in what are commonly referred to as the electronic
bulletin board and the "pink sheets." As a result, an investor may find it more
difficult to dispose of or to obtain accurate quotations as to the market value
of the securities. In addition, the Company would be subject to a rule
promulgated by the Commission that, if the Company fails to meet criteria set
forth in such rule, imposes various sales practice requirements on
broker-dealers who sell securities governed by the rule to persons other than
established customers and accredited investors. For these types of transactions,
the broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transactions
prior to sale. Consequently, the rule may have an adverse effect on the ability
of broker-dealers to sell the securities, which may affect the ability of
purchasers to sell any Shares purchased in the secondary market.
5
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"Penny Stock" Regulations. The Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price (as defined) of less than $5.00 per share or an exercise price of less
than $5.00 per share, subject to certain exceptions. If the securities offered
hereby are removed from the NASDAQ, the Company's securities may be considered
"penny stock" and thereby become subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and must have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a disclosure schedule prepared by 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, current quotations
for the securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers to sell any Shares purchased in the secondary
market.
USE OF PROCEEDS
The Company will not receive any part of the proceeds from the sale of
Common Stock by the Selling Stockholders, although it will receive any funds
tendered upon exercise price of the Warrant and the Options (amounting to up to
$675,000), which will be added to the Company's working capital.
PLAN OF DISTRIBUTION
The shares of Common Stock are being sold for the Selling Stockholders' own
accounts. The Company will not receive any of the proceeds from such sales of
Common Stock, except proceeds received by the Company upon the exercise of the
Warrant and the Options. See "Use of Proceeds."
The Selling Stockholders may sell the shares of Common Stock from time to
time through dealers or brokers in transactions on the NASDAQ at prices then
prevailing, or directly to one or more purchasers in negotiated transactions at
negotiated prices, or in a combination thereof. The Selling Stockholders and any
dealers or brokers that participate in such distribution may be deemed
"underwriters" within the meaning of the Securities Act any and commissions or
discounts received by any such dealer or broker may be deemed "underwriting
compensation."
The Common Stock of the Company is traded on the NASDAQ National Market
under the symbol "GUMM."
The costs of registering the Shares will be paid by the Company.
There can be no assurances that the Selling Stockholders will sell any or
all of the Shares offered hereunder. The 200,000 shares of Common Stock
underlying the Warrant and the Options are subject to lock-up agreements between
the Company and the Selling Stockholders. The lock-up agreement affecting the
Warrant prohibits the sale or other disposition of the Common Stock by the
Selling Stockholder until July 16, 1998 without the prior written consent of the
Company. The lock-up agreements affecting the Options prohibit the sale or other
disposition of the Common Stock by the Selling Stockholders until six months
following the effective date of the Registration Statement of which this
Prospectus forms a part without the prior written consent of the Company.
6
<PAGE>
<TABLE>
<CAPTION>
SELLING STOCKHOLDERS
The following table sets forth the names of the Selling Stockholders, the
number of shares of the Company's Common Stock beneficially owned by the Selling
Stockholders, the number of shares that may be sold by the Selling Stockholders
in this Offering, the number of shares of Common Stock to be owned by the
Selling Stockholders, and the percentage of Common Stock to be owned by the
Selling Stockholders, assuming all of the shares of Common Stock are sold in
this Offering.
Before Offering After Offering
--------------- --------------
Number of Shares Number of Shares Number of Shares Percent of
Beneficially to Be Sold in Beneficially Outstanding
Owned(1) Offering Owned Shares
-------- -------- ----- ------
<S> <C> <C> <C> <C>
Andrew Lessman 100,000(2) 100,000 0 *
Blazo Donev 50,000(3) 50,000 0 *
FG&G Management Group, Inc. 50,000(3) 50,000 0 *
- --------------------------
* Less than 1%
(1) As of September 30, 1997 there were 5,682,460 shares of Common Stock
outstanding.
(2) Consists of 100,000 shares of Common Stock issuable upon exercise of the
Warrant. In July 1997, Mr. Lessman acquired the Warrant from Gary S. Kehoe,
an officer and director of the Company, for $687,500 or $6.875 per share.
The Common Stock underlying the Warrant is subject to a lock-up agreement
between the Company and Mr. Lessman. The lock-up agreement prohibits the
sale or other disposition of the Common Stock by Mr. Lessman until July 16,
1998 without the prior written consent of the Company.
(3) Consists of 50,000 shares of Common Stock issuable upon exercise of a
Common Stock purchase option. The Selling Stockholder can purchase 25,000
shares of Common Stock upon payment of the exercise price of $4.50 per
share and the remaining 25,000 shares of Common Stock upon payment of the
exercise price of $5.00 per share. The Common Stock underlying the Option
is subject to a lock-up agreement between the Company and the Selling
Stockholder. The lock-up agreement prohibits the sale or other disposition
of the Common Stock by the Selling Stockholder until six months following
the effective date of the Registration Statement of which this Prospectus
forms a part without the prior written consent of the Company.
LEGAL MATTERS
The validity of the shares of Securities offered hereby will be passed upon
for the Company by Richman, Lawrence, Mann, Greene, Chizever, Friedman &
Phillips, Beverly Hills, California.
EXPERTS
The financial statements of the Company included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996 which are
incorporated by reference in the Registration Statement of which this Prospectus
forms a part, have been audited by Angell & Deering, independent auditors, as
stated in their report appearing therein, and have been so included herein in
reliance upon such report given upon the authority of that firm as experts in
accounting and auditing.
7
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is a schedule of the estimated expenses (all of which will be
borne by the Company) incurred in connection with the offering of the securities
registered hereby, other than underwriting discounts and commissions, if any.
All of the amounts shown are estimates, except the SEC Registration Fee.
SEC registration fee................................ $ 675.00
Blue Sky fees and expenses.......................... 2,000.00*
Accounting fees and expenses........................ 6,500.00*
Legal fees and expenses............................. 10,000.00*
Miscellaneous....................................... 2,500.00*
----------------
Total............................................... $ 21,675.00*
================
-----------------
* estimated
Item 15. Indemnification of Directors and Officers.
Article 5 of the Registrant's Bylaws provides as follows:
"ARTICLE 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES
5.1 Indemnification of Directors and Officers. The corporation shall
indemnify any individual made a party to a proceeding because the individual is
or was a director or officer of the corporation, against liability incurred in
the proceeding, but only if such indemnification is both (i) determined
permissible and (ii) authorized, as such are defined in subsection (a) of this
section 5.1 (Such indemnification is further subject to the limitation specified
in subsection 5.1(c).)
5.1(a) Determination and Authorization. The corporation shall not indemnify
a director or officer under this section unless:
(1) a determination has been made in accordance with the procedures set
forth in section 16-10a-906(2) of the Act that the director or officer met the
standard of conduct set forth in subsection (b) below; and
(2) payment has been authorized in accordance with the procedures set forth
in section 16-10a-906(4) of the Act based on a conclusion that the expenses are
reasonable, the corporation has the financial ability to make the payment, and
the financial resources of the corporation should be devoted to this use rather
than some other use by the corporation.
5.1(b) Standard of Conduct. The individual shall demonstrate that:
(1) his or her conduct was in good faith; and
(2) he or she reasonably believed that his or her conduct was in, or not
opposed to, the corporation's best interests; and
(3) in the case of any criminal proceeding, he or she had no reasonable
cause to believe his or her conduct was unlawful.
5.1(c) No Indemnification in Certain Circumstances. The corporation shall
not indemnify a director or officer under this Section 5.1 of Article 5:
(1) in connection with a proceeding by or in the right of the corporation
in which the director or officer was adjudged liable to the corporation; or
(2) in connection with any other proceeding charging that the director or
officer derived an improper personal benefit, whether or not involving action in
his or her official capacity, in which proceeding he or she was adjudged liable
on the basis that he or she derived an improper personal benefit.
5.1(d) Indemnification in Derivative Actions Limited. Indemnification
permitted under this section 5.1 in connection with a proceeding by or in the
right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding.
ii-1
<PAGE>
5.2 Advance of Expenses for Directors and Officer. If a determination is
made, following the procedures of section 16-10a-906(2) of the Act, that the
director or officer has met the following requirements and if an authorization
of payment is made following the procedures and standards set forth in section
16-10a-906(4) of the Act, then the corporation shall pay for or reimburse the
reasonable expenses incurred by a director or officer who is a party to a
proceeding in advance of final disposition of the proceeding, if:
5.2(a) the director or officer furnishes the corporation a written
affirmation of his or her good faith belief that he or she has met the standard
of conduct described in section 5.1;
5.2(b) the director or officer furnishes the corporation a written
undertaking, executed personally or on his or her behalf, to repay the advance
if it is ultimately determined that he or she did not meet the standard of
conduct; and
5.2(c) a determination is made that the facts then known to those making
the determination would not preclude indemnification under section 5.1 of these
bylaws or Part 9 of the Act.
5.3 Indemnification of Agents and Employees Who Are Not Directors or
Officers. The board of directors may indemnify and advance expenses to any
employee or agent of the corporation who is not a director or officer of the
corporation to any extent consistent with public policy, as determined by the
general or specific actions of the board of directors.
5.4 Insurance. By action of the board of directors, notwithstanding any
interest of the directors in such action, the corporation may purchase and
maintain liability insurance on behalf of a person who is or was a director,
officer, employee, fiduciary or agent of the corporation, against any liability
asserted against or incurred by such person in that capacity or arising from
such person's status as a director, officer, employee, fiduciary or agent,
whether or not the corporation would have the power to indemnify such person
under the applicable provisions of the Act."
Item 16. Exhibits.
See the Exhibit Index which is incorporated herein by reference.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act"):
(ii) To reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any additional or changed material information
on the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in
the Registration Statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
section 13 or 15(d) of the Exchange Act that are incorporated by reference in
this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
ii-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Articles of Incorporation, By-Laws or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
ii-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Scottsdale, State of Arizona, on this 31st day of
December, 1997.
GUM TECH INTERNATIONAL, INC.
By /s/ Jeffrey L. Bouchy
---------------------------------------------
Jeffrey L. Bouchy
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on this 31st day of December, 1997.
Signature Title Date
/s/ Gerald N. Kern Chairman, President and December 31, 1997
- ------------------------ Chief Executive Officer
Gerald N. Kern (Principal Executive Officer)
/s/ Jeffrey L. Bouchy Senior Vice President-- December 31, 1997
- ------------------------ Chief Financial Officer
Jeffrey L. Bouchy (Principal Financial and
Accounting Officer)
* Vice President of Business December 31, 1997
- ------------------------ Development and Director
Richard Bernstein
- ------------------------ Director
Bruce Jorgensen
* Executive Vice President-- December 31, 1997
- ------------------------ Chief Operating Officer and
Gary S. Kehoe and Director
*
- ------------------------ Director December 31, 1997
Jack Kessler
*
- ------------------------ Director December 31, 1997
Robert Kwait
*
- ------------------------ Director December 31, 1997
William Meris
*
- ------------------------ Director December 31, 1997
Paul Peckman
*
- ------------------------ Director December 31, 1997
Richard Ratcliff
* By: /s/ Jeffrey L. Bouchy
------------------------
Jeffrey L. Bouchy
Attorney-in-Fact
ii-4
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Description No.
(5) Opinion of Richman, Lawrence, Mann, Greene, Chizever, Friedman
& Phillips. (1)
(23)-1 Consent of Richman, Lawrence, Mann, Greene, Chizever,
Friedman & Phillips (included in Exhibit 5).
(23)-2 Consent of Angell & Deering, independent public accountants.(2)
(24) Powers of Attorney (1)
- ----------------
(1) Previously Filed.
(2) Filed herewith
ii-5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in Amendment No. 1 to the Registration Statement on Form S-3 of Gum
Tech International, Inc. ("Registration Statement") of our report dated January
24, 1997, except for Note 12 as to which the date is March 6, 1997, which
appears on page F-2 of Gum Tech International, Inc.'s Annual Report on Form
10-KSB for the year ended December 31, 1996 and the the reference to our firm
under the caption "Experts" in the Prospectus contained in said Registration
Statement.
ANGELL & DEERING
Certified Public Accountants
Denver, Colorado
December 31, 1997
