Filed Pursuant to Rule 424(b)(3)
File No. 333-91679
PROSPECTUS
GUM TECH INTERNATIONAL, INC.
Common Stock
550,000 Shares
John W. Frasco, Robert Wood, F, G & G Management Group, Inc., Andrew
Lessman, Next Millenium Capital Holdings, LLC, and CJB Consulting, Inc. are
offering to sell up to 550,000 shares of our common stock issuable upon exercise
of warrants and options that we issued to the selling stockholders. The selling
stockholders may sell some or all of the common stock to new purchasers through
ordinary brokerage transactions, directly to market makers of our common stock,
or through any of the other means described in the section entitled "Plan of
Distribution" beginning on page 13.
The selling stockholders will receive all of the proceeds from the sale of
the common stock, less any brokerage or other expenses of sale incurred by them.
We will receive up to $3,181,000 if the selling stockholders fully exercise
their options and warrants. We are paying for the costs of registering the
resale of the shares underlying the options and warrants held by the selling
stockholders.
Our common stock is traded on the Nasdaq National Market under the symbol
"GUMM."
---------------------------------
BEFORE PURCHASING ANY OF THE SHARES COVERED BY THIS PROSPECTUS, CAREFULLY
READ AND CONSIDER THE RISK FACTORS INCLUDED IN THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 5. YOU SHOULD BE PREPARED TO ACCEPT ANY AND ALL OF
THE RISKS ASSOCIATED WITH PURCHASING THE SHARES, INCLUDING A LOSS OF YOUR ENTIRE
INVESTMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SALE OF THE COMMON STOCK OR DETERMINED THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS ILLEGAL FOR ANY
PERSON TO TELL YOU OTHERWISE.
The date of this prospectus is December 14, 1999.
<PAGE>
TABLE OF CONTENTS
PAGE
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Business.................................................................... 1
Risk Factors................................................................ 5
Use of Proceeds............................................................. 10
Selling Stockholders........................................................ 10
Description of Securities................................................... 11
Plan of Distribution........................................................ 13
Legal Matters............................................................... 14
Experts..................................................................... 14
Where You Can Find More Information......................................... 14
You should rely only on the information contained or incorporated by
reference in this prospectus and in any accompanying prospectus supplement. No
one has been authorized to provide you with different information.
The common stock is not being offered in any jurisdiction where the offer
is not permitted.
You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of the documents.
ii
<PAGE>
BUSINESS
SUMMARY
Gum Tech develops and manufactures specialty chewing gum products for
branded and private label customers, as well as products marketed under its own
brand. Specialty chewing gums include vitamins, herbals, and active
over-the-counter drug ingredients formulated to provide specific health-related
benefits to the user. Gum Tech manufactures and continues to develop specialty
chewing gums that are formulated to:
* promote oral hygiene and breath freshness;
* promote weight management;
* reduce pain;
* relieve indigestion;
* contribute to energy and endurance;
* reduce the risk of osteoporosis;
* reduce tobacco cravings; and
* relieve cold and flu symptoms.
A substantial majority of Gum Tech's sales currently are attributable to
products developed, manufactured and packaged by Gum Tech for marketing and sale
by major branded and private label consumer products companies such as Breath
Asure, Inc., Ranir/DCP, Inc., Heritage Consumer Products, Herbalife
International, Inc., and Pharma-Green Ltd. Gum Tech also is actively involved in
discussions with other major consumer product companies regarding the
development and formulation of a variety of additional specialty chewing gum
products.
In 1998, following a significant management restructuring, Gum Tech changed
its principal strategy from developing, manufacturing, and distributing its own
branded and private label gum products to developing, manufacturing, and
packaging specialty gum products for sale and distribution by major branded and
private label customers that have the capital resources and distribution
capability to promote and market specialty chewing gums on a large national and
international scale. Gum Tech adopted this change in strategy primarily because
it did not have the financial resources, name recognition, and distribution
capability to successfully market and distribute its gums on a wide scale basis.
Gum Tech operates the only stainless steel gum manufacturing facility in
the United States registered with the Food and Drug Administration to produce
over-the-counter (OTC) chewing gum products. Completed in 1996, Gum Tech
believes this facility is the only facility in the United States that currently
is capable of producing over-the-counter drugs in chewing gum form.
Through a joint venture with BioDelivery Technologies, Inc. (formerly Gel
Tech, Inc.), a California corporation, Gum Tech also is engaged in the
manufacture, marketing and distribution of health-related products using a
patent-pending, nasal gel technology. The initial product being developed and
marketed by this joint venture is Zicam(TM), a nasal gel formula that has been
formulated to reduce the severity and duration of the common cold.
<PAGE>
An initial internal study of Zicam(TM) has indicated that use of Zicam(TM)
reduced the duration of the common cold from an average of 10-14 days to 1-3
days. To conduct additional clinical studies and further develop, manufacture,
and market Zicam(TM), Gum Tech and BioDelivery Technologies entered into an
operating agreement under which both parties transferred their respective
interests in the patent rights to the nasal gel technology in exchange for
membership interests in Gel Tech LLC, an Arizona limited liability company. Gum
Tech has a 60% interest in the capital and profits of the joint venture and
parties affiliated with BioDelivery Technologies collectively own a 40% interest
in the capital and profits of the joint venture. In addition, as contemplated by
the operating agreement, Gum Tech contributed $3.5 million dollars to the joint
venture, which will be repaid to Gum Tech prior to any distributions to other
holders if Gel Tech is sold or otherwise liquidated. Because Zicam(TM) is in the
initial stages of production and distribution, there can be no assurance that
this product will be successful.
Gum Tech was incorporated in Utah in 1991. Gum Tech's principal executive
offices are located at 246 E. Watkins Street, Phoenix, Arizona and its telephone
number is (602) 252-1617.
STRATEGY
Gum Tech is pursuing the following business strategies:
* CONTINUE TO RESEARCH AND DEVELOP NEW SPECIALTY GUM PRODUCTS. Gum Tech
possesses considerable gum formulation expertise, and together with
its existing and potential customers, is developing new products in
the specialty chewing gum market. Gum Tech is uniquely positioned to
manufacture over-the-counter gum products because it possesses the
only stainless steel gum making facility in the United States
registered with the FDA to produce over-the-counter chewing gum
products.
* PARTNER WITH MAJOR CONSUMER PRODUCT COMPANIES TO INCREASE SALES. Since
early 1998, Gum Tech has pursued a strategy of partnering with major
consumer products companies that have the financial resources and
distribution capability to market and distribute specialty chewing gum
products on a national scale. Gum Tech expanded these relationships
significantly during 1998 with the addition of Breath Asure,
Ranir/DCP, Heritage Consumer Products, Pharma-Green Ltd. (an Israeli
company), and EcoDenT, among others.
* IMPROVE MANUFACTURING OPERATIONS TO ENHANCE EFFICIENCY AND INCREASE
PROFIT MARGINS. Gum Tech has recently expanded its operations,
including adding personnel and additional packaging and coating
equipment, to meet an expected increase in demand for several
products. Following this expansion of operations, Gum Tech is
continuing to take steps to increase its business and to lower the
costs of manufacturing its gum products.
* CONTINUE TO EFFECTIVELY MARKET GUM TECH BRANDED PRODUCTS. While Gum
Tech has changed its principal strategy to focus on contract
manufacturing for others, Gum Tech continues to support several of its
own branded products and believes that these products and related
marketing efforts provide a showcase for new product concepts and
demonstrate Gum Tech's expertise in developing new gum formulations.
* EFFECTIVELY MANAGE THE DEVELOPMENT AND GROWTH OF THE GEL TECH LLC
JOINT VENTURE AND THE MANUFACTURING AND MARKETING OF ZICAM(TM).
Zicam(TM) is a new product that Gum Tech believes represents an
opportunity for substantial growth in its revenues. In order to
realize this growth in revenues, however, Gum Tech must effectively
manage the development and growth of its joint venture with
BioDelivery Technologies and Zicam(TM) must achieve significant market
acceptance. In addition, Gum Tech has contributed $3.5 million to Gel
Tech LLC to fund its initial capital requirements to develop,
manufacture, and market Zicam(TM), including the costs necessary to
conduct an independent clinical study.
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PRODUCT INFORMATION
The table below describes certain information related to specific chewing
gum products currently manufactured by Gum Tech for other consumer products
companies.
<TABLE>
<CAPTION>
PRODUCT BENEFITS TO USER MARKET DISTRIBUTED BY
------- ---------------- ------ --------------
<S> <C> <C> <C>
Breath Asure Dental Gum(TM) Promotes oral hygiene and breath freshness Oral Care Breath Asure
Private label dental gums Promotes oral hygiene and breath freshness Oral Care Ranir/DCP
AcuTrim(R) Promotes weight management OTC drug Heritage Consumer Products
Aspergum(R) Pain relief OTC drug Heritage Consumer Products
Chooz(R) Antacid and prevents osteoporiasis OTC drug Heritage Consumer Products
Herbalife NRG(R) Improves energy & endurance Dietary supplement Herbalife
Herbalife Chew Slim(R) Promotes weight management Dietary supplement Herbalife
Pharma-Green seven varieties Various Dietary supplement Pharma-Green Ltd.
Brain Gum(R) Improves brain function Dietary supplement KR Research, Inc.
</TABLE>
Gum Tech also markets the following products under the Gum Tech brand: Ginseng,
Chew & Soothe(R), CitrusSlim(R), Chromatrim(R), Calcium, Zone(TM),
DentaHealth(R), and Love Gum(R).
MANUFACTURING AND PACKAGING
The manufacture of specialty chewing gums involves:
* storing bulk raw materials and "fine" raw materials, such as flavor,
colors and active ingredients;
* producing and mixing the gum base in large stainless steel mixers;
* extruding the gum into selected sizes and shapes;
* coating the gum, generally with a sugarless coating solution;
* branding the product if required;
* packaging the gum in blister packages; and
* packaging the blisters, according to customer specifications, for
shipment.
All of Gum Tech's gum products contain one or more active ingredients which
are added either to the gum center in the mixing stage or included in the
coating solution.
Prior to commencing production of the chewing gum, Gum Tech records lot
numbers for all ingredients, examines and files certificates of ingredients,
performs quality control tests, and sanitizes equipment and utensils. Gum Tech
personnel conduct additional quality control tests throughout the manufacturing
process. Gum Tech manufactures its products in compliance with good
manufacturing procedures requiring written standard operating procedures.
Gum Tech manufactures all of its gum products, including those marketed and
distributed by others. In 1998, Gum Tech added significantly to its coating and
packaging capability and secured an additional gum rolling line to meet an
anticipated increase in demand for its gums.
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<PAGE>
COMPETITION
Although the specialty gum market is emerging as a market category distinct
from the traditional, established chewing gum market, Gum Tech and the companies
to whom it sells face significant competition in each of the four categories in
which they operate. These categories include oral care products, OTC drugs,
smoking cessation products, and dietary supplements. In the oral care products
market, Gum Tech manufactures products for Breath Asure and Ranir/DCP, which
compete directly with Arm & Hammer dental gum, Trident Advantage and V-6 dental
gum. Gum Tech manufactures OTC drug-related gum products, including Aspergum, an
analgesic, Chooz, an antacid/calcium supplement, and AcuTrim, a dietary gum.
Each of these products competes generally with analgesics, antacids, and dietary
products produced and marketed by major consumer products companies. Gum Tech is
evaluating opportunities in the smoking cessation market, which is currently
dominated by the Nicorette product marketed by Pharmacia and Upjohn. In the
dietary supplement market, Gum Tech's various gum products compete with a large
number of non-gum dietary supplement products.
Competitive factors in the chewing gum industry include price, flavor, and
name recognition resulting from media advertising. Gum Tech currently does not
have the capital resources, marketing and distribution networks, product name
recognition, and advertising budget to produce or introduce chewing gum brands
that could compete effectively with the multi-national chewing gum manufacturers
and large specialty chewing gum marketers. Accordingly, Gum Tech has adopted a
strategy of partnering with major branded and private label customers that
possess the resources and capabilities needed to market and distribute gum
products on a wide scale basis.
Gum Tech also faces significant competition from a large number of major
drug companies involved in selling cold and flu products that will compete
directly with Zicam(TM). Most of these competitors have greater name
recognition, more established brands, wider distribution capabilities and
greater financial and marketing resources than Gum Tech.
FDA AND OTHER GOVERNMENT REGULATION
Gum Tech is subject to various Federal, state and local laws affecting its
business. All of Gum Tech's products are subject to regulation by the FDA,
including regulations with respect to labeling of products, approval of
ingredients in products, claims made regarding the products, and disclosure of
product ingredients. In addition, some of Gum Tech's products are considered
"drugs," which require that the manufacture of such products comply with "good
manufacturing practices" mandated by the FDA, which prescribes specific
requirements and procedures for the manufacture of FDA-regulated drug products.
If Gum Tech fails to comply with these requirements and procedures, the FDA has
the right to restrict the sale of or remove such products from the market. Gum
Tech believes that all of its products comply with all regulatory requirements
including the FDA manufacturing standards and practices for drug products.
Advertising claims made by Gum Tech with respect to its products also are
subject to the jurisdiction of the FDA and the Federal Trade Commission. In both
cases, Gum Tech is required to obtain scientific data to support any advertising
or labeling of health claims it makes concerning its products.
In addition, Gum Tech's chewing gum manufacturing facility is 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 Gum Tech's manufacturing operations. Gum Tech also is subject to
federal and state laws establishing minimum wages and regulating overtime and
working conditions.
4
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TRADEMARKS, TRADE NAMES, AND PROPRIETARY RIGHTS
Gum Tech owns a perpetual non-exclusive license to use Microdent(TM), a
plaque-reducing agent, in its coated chewing gum products. Microdent is the
critical ingredient in the chewing gums manufactured and packaged by Gum Tech
for Breath Asure and Ranir/DCP.
Gum Tech routinely seeks trademark protection from the United States Patent
Office ("USPO") and from similar agencies in foreign countries for chewing gum
brands. Despite these protections, Gum Tech may not be able to successfully
defend any trademarks granted to it against claims from or use by competitors.
In addition, trademark applications may not be approved by the USPO or any
similar foreign agency.
Gum Tech considers some of its chewing gum formulations and processes to be
proprietary in nature and relies upon a combination of nondisclosure agreements,
other contractual restrictions and trade secrecy laws to protect this
proprietary information. Despite these precautions, these steps may not be
adequate to prevent misappropriation of Gum Tech's proprietary information and
Gum Tech's competitors could independently develop chewing gum formulations and
processes that are substantially equivalent or superior to those developed by
Gum Tech.
EMPLOYEES
As of October 31, 1999, Gum Tech's gum operations employed 73 individuals,
including 3 executive officers, 54 manufacturing and warehouse personnel, 4
research and development personnel, and 12 administrative/sales personnel. As of
October 31, 1999 Gel Tech employed 6 executive and administrative personnel.
RISK FACTORS
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS AND FINANCIAL CONDITION
Our future operating results and financial condition depend on a number of
factors that we must successfully manage in order to achieve favorable future
operating results. The following potential risks and uncertainties, together
with those mentioned elsewhere in this report, could affect our future operating
results, financial condition and the market price of our common stock.
WE HAVE INCURRED SIGNIFICANT LOSSES AND MAY NOT BECOME PROFITABLE
We began operations in February 1991 and have a limited operating history
upon which potential investors may evaluate our performance. We reported
significant losses for the last three years and for the first three quarters of
1999. We can give no assurance that future operations will be profitable. The
likelihood of our 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, the significant change in
strategy in early 1998, and the development and marketing of Zicam(TM), a new
product.
OUR RELIANCE ON A FEW CUSTOMERS MAY NEGATIVELY IMPACT OUR FINANCIAL RESULTS
The shift in our chewing gum strategy in early 1998 to a focus on contract
manufacturing has made our chewing gum operations dependent for sales and future
growth on a few customers. These customers include Herbalife, Breath Asure,
Ranir, Heritage Consumer Products and PharmaGreen. While the decision to partner
with these firms relieves Gum Tech of the direct responsibility of marketing
products, it does introduce a dependability on these customers to market their
products. Further, we are at risk for their non-payment or late payment for
amounts owed us. While Gum Tech intends to add to this portfolio of customers to
reduce the risk of non-performance by any single customer, there can be no
assurance that we will be successful in that effort.
5
<PAGE>
OUR INABILITY TO PROVIDE SCIENTIFIC PROOF FOR PRODUCT CLAIMS MAY ADVERSELY
AFFECT OUR SALES
The marketing of certain of our chewing gum and nasal gel products,
including Zicam(TM), involves claims that such products assist in weight loss,
promote dental hygiene, and reduce the duration of the common cold, among
others. Under FDA and FTC rules, we are required to obtain scientific data to
support any health claims we make concerning our products. Although we have not
provided nor been requested to provide any scientific data to the FDA, we have
obtained such scientific data for all of our products. There can be no assurance
that the scientific data we have obtained in support of such claims will be
deemed acceptable by the FDA or FTC, should either agency request any such data
in the future. If we are unable to provide support that is acceptable by the FDA
or the FTC, either agency could force us to stop making the claims in question
or restrict us from selling the affected products.
FDA AND OTHER GOVERNMENT REGULATION MAY RESTRICT OUR ABILITY TO SELL OUR
PRODUCTS
We are subject to various federal, state and local laws affecting our
business. Our chewing gum and nasal gel products are subject to regulation by
the FDA, including regulations with respect to labeling of products, approval of
ingredients in products, claims made regarding the products, and disclosure of
product ingredients. If we do not comply with these regulations, the FDA could
force us to stop selling the affected products or incur substantial costs in
adopting measures to maintain compliance with these regulations.
Our advertising claims regarding our products are subject to the
jurisdiction of the FTC as well as the FDA. In both cases we are required to
obtain scientific data to support any advertising or labeling health claims we
make concerning our products, although no pre-clearance or filing is required to
be made with either agency. If we are unable to provide the required support for
such claims, the FTC may stop us from making such claims or require us to stop
selling the related product.
WE CANNOT INSURE THAT ZICAM(TM) WILL BE A SUCCESSFUL PRODUCT
In 1999, Gel Tech LLC, a joint venture in which we hold a 60% interest in
profits and capital, launched a new homeopathic cold remedy known as Zicam(TM).
Although initial internal studies have indicated that Zicam(TM) can
significantly reduce the duration and severity of the common cold, no
independent study has yet been completed supporting this claim. In addition,
even if an independent study is eventually published that supports the efficacy
of Zicam(TM), there is no guarantee that the product will achieve widespread
acceptance by the market. If any unanticipated problem arises concerning the
efficacy of Zicam(TM) or the product fails to achieve widespread market
acceptance for any reason , our prospects for our future operating results would
be adversely affected.
WE MAY BE UNABLE TO MEET DEMAND FOR OUR NEW PRODUCTS
To the extent Zicam(TM) or any other new product we introduce achieves
widespread market acceptance and generates significant demand, we may be unable
to produce and deliver sufficient quantities of the product to meet our
customers' demands on a timely basis. If so, we could lose opportunities to sell
larger quantities of the product and damage relationships with distributors
whose orders could not be timely filled. This problem, if encountered, could be
particularly damaging if we are not able to meet customer demand during the cold
season, when we expect demand for sales of Zicam(TM) to peak.
6
<PAGE>
UNANTICIPATED PROBLEMS ASSOCIATED WITH PRODUCT DEVELOPMENT COULD DELAY OR HINDER
INTRODUCTION OF NEW PRODUCTS
We may experience unanticipated difficulties in developing new products
that could delay or prevent the introduction of those products. We may be
dependent in the near future upon chewing gum products that are currently being
developed. If we are unable to develop new chewing gum products on a timely
basis, our business, operating results, and financial condition could be
materially adversely affected.
WE MAY BE UNABLE TO SUCCESSFULLY EXPAND OUR OPERATIONS
We intend to continue expanding our manufacturing and marketing operations.
Expansion will place substantial strains on our newly retained management and
our operational, accounting, and information systems. Successful management of
growth will require us to improve our financial controls, operating procedures,
and management information systems, and to train, motivate, and manage our
employees.
In addition, to the extent that actual demand for our products in the
future is less than anticipated, we may incur higher than necessary costs in
preparing for an anticipated growth in sales that does not materialize or
materializes more slowly than expected.
Failure to manage growth effectively would have a material adverse effect
on the results of our operations and our ability to execute our business
strategy.
TERMS OF SERIES A PREFERRED STOCK AND SENIOR SECURED NOTES COULD DEPRESS THE
PRICE OF OUR STOCK OR LEAD TO FORECLOSURE
The terms of the Series A Preferred Stock and Senior Secured Notes issued
in June 1999 contain a number of restrictive covenants that we must satisfy and
that require repayment of the Series A Preferred Stock and Senior Secured Notes
at various times during the two year period following the closing of that
offering. We generally have the ability to make these payments in shares of
stock rather than cash, which could depress the price of our common stock if
demand for our shares does not meet the increased number of shares being sold
into the market. In addition, failure to meet any of the restrictive covenants
or failure or inability to pay the required amounts under the Series A Preferred
Stock or the Senior Secured Notes when due will enable the holders of the Notes
to exercise a variety of remedies, including foreclosure of its security
interests in substantially all the assets of Gum Tech. In that event, Gum Tech's
operations and financial results will be severely and adversely affected and the
price of our common stock could decline significantly.
FAILURE TO SATISFY FINANCIAL COVENANTS WOULD TRIGGER ADVANCE REMEDIES
The terms of the Series A Preferred Stock and the Notes issued in June 1999
require us to meet a number of financial covenants on a quarterly basis while
the Notes remain outstanding, including cash, revenue, and EBITDA. If we fail to
satisfy any of these financial covenants, or otherwise breach any of the
negative covenants included in this financing, the applicable interest rate will
increase to 15% and the holders of the Notes may exercise a number of remedies,
including accelerating the principal and interest due on the Notes, or closing
on the collateral pledged to secure the Notes, and forcing conversion of the
Notes into common stock. There can be no assurance that we will be able to
satisfy the financial covenants contained in this agreement on an ongoing basis.
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THE LARGE NUMBER OF SHARES ELIGIBLE FOR IMMEDIATE AND FUTURE SALES MAY DEPRESS
THE PRICE OF OUR STOCK
Sales of substantial amounts of common stock in the open market or the
availability of a large number of additional shares for sale could adversely
affect the market price for the common stock. Substantially all of our
outstanding shares of common stock, as well as the shares underlying vested but
unexercised warrants and options, have either been registered for public sale or
may be sold under Rule 144 promulgated under the Securities Act. Therefore, all
of these shares may be immediately sold by the holders. A substantial increase
in the volume of trading in our stock may depress the price of our common stock.
WE MAY BE UNABLE TO PREVENT OTHERS FROM DEVELOPING SIMILAR PRODUCTS
We routinely seek trademark and patent protection from the United States
Patent Office ("USPO") and from similar agencies in foreign countries for
chewing gum brands and have done so for Zicam(TM). There can be no assurance
that we will be able to successfully defend any trademarks, trade names or
patents against claims from or use by competitors or that trademark, trade name
or patent applications will be approved by the USPO or any similar foreign
agency.
We consider some of our chewing gum formulations and processes to be
proprietary in nature and rely 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 our proprietary information or that our
competitors will not independently develop chewing gum formulations and
processes that are substantially equivalent or superior to our own.
THE PRICE OF OUR STOCK MAY CONTINUE TO BE VOLATILE
The market price of our common stock has been highly volatile and may
continue to be volatile in the future. Factors such as our operating results or
public announcements may cause the market price of our stock to decline quickly.
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 our control.
WE MAY INCUR SIGNIFICANT COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS
We are subject to significant liability should use or consumption of our
products cause injury, illness or death. Although we carry product liability
insurance, there can be no assurance that our insurance will be adequate to
protect us against product liability claims or that insurance coverage will
continue to be available on reasonable terms.
WE MAY REQUIRE ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE ON ACCEPTABLE
TERMS
We may be required to seek additional debt or equity financing in the
future in order to fund anticipated expansion of our manufacturing activities.
There can be no assurance that such additional financing will be available on
acceptable terms or at all. Any future equity financing may involve substantial
dilution to the interests of our stockholders.
INABILITY TO RETAIN CURRENT MANAGEMENT COULD NEGATIVELY IMPACT OUR OPERATIONS
Our operations are dependent upon our ability to hire and retain qualified
management personnel and upon the continued services of our executive officers.
The loss of the services of any of our executive officers, whether as a result
of death, disability, or otherwise, could have a material adverse effect upon
our business.
8
<PAGE>
We experienced significant management and Board changes in 1998, including
the appointment of a new President and a new Chief Financial Officer. We have
entered into employment agreements with our current executive officers and have
applied for key man life insurance upon certain of their lives.
YEAR 2000 PROBLEMS MAY ADVERSELY AFFECT OUR OPERATIONS
We recognize the potential business impacts related to the Year 2000
computer system issue. The Year 2000 issue is one where computer systems may
recognize the designation "00" as 1900 when it means 2000, resulting in system
failure or miscalculations.
In recognition of the Year 2000 issue, we have been conducting a
comprehensive review of all information technology and non-information
technology systems that we use. This review includes testing and analysis, and
inquiries of third parties supplying information technology and non-information
technology systems, computer hardware and software products and components, and
other equipment.
As a result of our review to date, we have made modifications to our
software systems, including upgrades required of our principal
manufacturing/financial software system. In addition, we have identified
modifications that are required of our computer hardware system and other
information technology systems, including telecommunications systems. We expect
the necessary modifications to be completed by the end of 1999. Also, we will
have modifications to our non-information technology equipment, including our
manufacturing equipment, completed by year-end. Finally, we continue to review
our exposure from critical suppliers and customers to ascertain whether those
entities are taking the necessary steps to address their Year 2000 issues.
The cost of modifications to Gum Tech's systems and equipment have not had,
and are not expected to have, a material impact on our financial position or
results of operations.
At this time, we have not developed Year 2000 contingency plans, other than
the review and remedial actions described above, and do not intend to do so
unless we believe such plans are merited by the results of our continuing Year
2000 review.
If we or the third parties with which we have relationships were to cease
or not successfully complete Year 2000 remediation efforts, we could encounter
disruptions to our operations that could have a material adverse effect on our
business, financial condition, and results of operations. We also could be
materially and adversely impacted by widespread economic or financial market
disruption caused by Year 2000 computer system failures.
9
<PAGE>
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale of
the common stock offered under this prospectus. If the selling stockholders
exercise all of their warrants and options, Gum Tech will receive gross proceeds
of approximately $3,181,000, which we anticipate would be used for general
corporate purposes. The selling stockholders may or may not exercise any or all
of the warrants and options.
SELLING STOCKHOLDERS
The table below lists the selling stockholders and other information
regarding the beneficial ownership of our common stock by each of the selling
stockholders. The second column lists the number of shares of common stock
beneficially owned by each stockholder or issuable to each selling stockholder
on August 16, 1999, assuming exercise of their warrants and options to acquire
shares of Gum Tech common stock. The selling stockholders are offering only the
shares of common stock that they may acquire upon exercise of all of their
warrants and options to acquire Gum Tech common stock, as indicated in the third
column. As each selling stockholder resells shares of common stock, we will file
prospectus supplements as necessary to update the number of shares of common
stock that each selling stockholder intends to sell, reflecting prior resales.
The fourth column assumes the sale of all of the shares offered by this
prospectus by each selling stockholder.
The information provided in the table below has been obtained from the
selling stockholders. The selling stockholders may sell all, some or none of
their shares in this offering. See "Plan of Distribution."
SHARES OWNED
AFTER OFFERING
NAME OF SELLING SHARES OWNED MAXIMUM NUMBER ------------------
STOCKHOLDER BEFORE OFFERING OF SHARES OFFERED NUMBER PERCENTAGE
----------- --------------- ----------------- ------ ----------
John W. Frasco 75,000 75,000 0 0
Robert Wood 185,000 65,000 120,000 1.53
F, G & G Management Group 150,000 150,000 0 0
Andrew Lessman 300,000 200,000 100,000 1.28
Next Millennium Capital
Holdings, LLC 30,000 30,000 0 0
CJB Consulting, Inc. 30,000 30,000 0 0
We are registering the shares for resale by the selling stockholders in
accordance with registration rights granted or offered to the selling
stockholders. We will pay the registration and filing fees, printing expenses,
listing fees, blue sky fees, if any, and fees and disbursements of our counsel,
but the selling stockholders will pay any underwriting discounts, selling
commissions and similar expenses relating to the sale of the shares. In
addition, we have agreed to indemnify the selling stockholders, and certain
affiliated parties against certain liabilities, including liabilities under the
Securities Act, in connection with this offering. The selling stockholders have
agreed to indemnify Gum Tech and our directors and officers, as well as any
person that controls us, against certain liabilities, including certain
liabilities under the Securities Act.
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DESCRIPTION OF SECURITIES
We are authorized to issue up to 20,000,000 shares of common stock and
1,000,000 preferred shares. As of November 19, 1999, we had 7,826,631 shares of
outstanding common stock and 1,200 shares of outstanding Series A Preferred
Stock.
Our Board of Directors has the authority, without further action by the
shareholders, to issue up to 1,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any series of unissued shares of preferred stock and to
determine the number of shares constituting any series and the designation of
the series, without any further vote or action by the shareholders.
The following summary of terms of the common stock and Series A Preferred
Stock is not complete and is subject to and qualified by reference to our
amended Articles of Incorporation, Restated Code of Bylaws, and by the
provisions of applicable law.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters on which shareholders are entitled to vote. Subject to the rights of
holders of any class or series of shares, including preferred stock, having a
preference over the common stock as to dividends or upon liquidation, the
holders of our common stock are also entitled to dividends as may be declared by
our Board of Directors out of funds that are lawfully available, and are
entitled upon liquidation to receive pro rata the assets that are available for
distribution to holders of common stock. Holders of the common stock have no
preemptive, subscription, or conversion rights. The common stock is not subject
to assessment and have no redemption provisions.
SERIES A PREFERRED STOCK
We have authorized, issued, and outstanding 1,200 shares of our Series A
Preferred Stock. These shares have no par value per share and are automatically
convertible on June 2, 2001 into common stock at a conversion price equal to 80%
of the average trading price of the common stock during the 20 trading days
prior to the maturity date. The conversion provisions are subject to adjustment
if there is a stock split, dividend, distribution, reorganization,
reclassification, merger, consolidation, share exchange, or other similar
corporate transaction. Cumulative dividends on the shares accrue at the rate of
14% per annum and are payable in cash on June 30, September 30, December 31, and
March 31 for each period during which the shares are outstanding. We may not pay
dividends on the common stock or other series junior to these preferred shares
unless all accrued dividends have been paid on the preferred shares. On
liquidation, the holder of the preferred shares will be entitled to receive,
before any distribution to holders of our common stock or other series junior to
the preferred shares, liquidation distributions equal to the stated value of
$1,000 per preferred share, accrued and unpaid dividends, and default interest
on these unpaid dividends. We may redeem the Series A Preferred Stock at any
time and must redeem at least 16.7% of the current shares outstanding by March
31, 2000, on at least 2 days written notice, at a redemption price equal to 110%
of the stated value of the preferred shares plus accrued and unpaid dividends
being redeemed. If we choose to effect any redemption in shares of common stock
as opposed to cash, the price of the common stock will be based upon 95% of the
average trading price during the 20 trading days prior to the date of
redemption. The holders of the preferred shares have the right to call for a
mandatory redemption of up to all of the outstanding preferred shares upon an
event of default as described in our Certificate of Designations dated June 2,
1999 at a price of either $1,000 or $1,100 per share, depending on the nature of
the event of default. The preferred shares have no voting rights except as
otherwise provided by law or the Articles of Incorporation. Fisher Capital and
Wingate Capital own all of the Series A Preferred Shares.
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DESCRIPTION OF NOTES
On June 2, 1999, we issued $4,000,000 in aggregate principal amount of 8%
Senior Secured Redeemable Notes to Fisher Capital Ltd. and Wingate Capital Ltd.
Pursuant to the terms of these notes, we must repay the principal amount on June
2, 2001, and pay interest on the unpaid balance at 8% per annum from June 2,
1999, payable quarterly on June 30, September 30, December 31, and March 31 of
each year, commencing June 30, 1999 until the principal becomes due and payable.
To the extent permitted by applicable law, upon the occurrence of an event of
default, for the period from the date of the event of default to the date the
event of default is either cured or waived, the interest on the unpaid balance
of the notes will be increased to a rate of 15% per annum. We may prepay all or
any part of the notes at any time, and must prepay at least 16.7% of the current
outstanding balance of the notes by March 31, 2000 on a pro-rata basis at a
price equal to 110% of the principal amount so prepaid, plus accrued interest to
the date of prepayment. Prepayment may be made in cash or by issuance of a
number of shares of common stock determined by dividing the prepayment amount by
the average of the closing bid prices of the Common Stock for the 20 consecutive
trading days immediately preceding the date of the notice of prepayment. On
September 9, 1999, we redeemed $800,000 in aggregate principal amount of these
notes for Common Stock and on November 16, 1999, we redeemed an additional
$800,000 in aggregate principal amount of these notes for Common Stock.
Consequently, $2,400,000 in aggregate principal amount of these notes remains
outstanding.
OPTIONS
STOCK OPTION PLAN
Pursuant to our stock option plan, we have granted to our employees,
officers, directors, and an outside consultant or reserved for issuance options
to acquire 912,250 shares of our common stock. All of the options granted to
date have exercise prices equal to the market price of the underlying common
stock on the date the respective options were granted.
WHITEHILL ORAL TECHNOLOGIES
Gum Tech has or will grant options to acquire up to 70,000 shares of common
stock to the principals of Whitehill Oral Technologies. We granted options to
acquire 25,000 shares in June 1998 at the then market price of $11.44 per share.
We granted options to acquire an additional 25,000 shares in June 1999 at the
then current market price of $9.75 per share. We will grant options to acquire
an additional 20,000 shares in June 2000 at the then current market price.
LESSMAN OPTIONS
We granted options to purchase 200,000 shares of common stock to Andrew
Lessman on October 30, 1997 in connection with a joint marketing arrangement.
These options have an exercise price of $9.00 per share.
GEL TECH OPTIONS
We granted options to purchase 190,000 shares of common stock to the
officers of Gel Tech, L.L.C. in May 1999 in conjunction with their employment
agreements. These options have an exercise price of $9.61 per share.
WARRANTS
We have issued various warrants, including the following that are still
outstanding:
1995 BRIDGE LOAN FINANCING
In 1995, we issued warrants to acquire 290,000 shares of common stock at a
purchase price of $2.00 per share in connection with our bridge loan financing.
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1996 INITIAL PUBLIC OFFERING
In 1996, in connection with our initial public offering, we issued warrants
to acquire shares of common stock to the underwriters at a purchase price of
$8.0625 per share. Of the initial amount issued, warrants to acquire 75,668
shares of our common stock remain outstanding.
INTERCONTINENTAL CAPITAL CORPORATION
In connection with the financing by the selling stockholders, we issued
warrants to acquire an aggregate of 60,000 shares of our common stock to Next
Millennium Capital Holdings, LLC and CJB Consulting, Inc., (collectively,
"Intercontinental Capital Corporation") as partial payment of a finder's fee.
Pursuant to these warrants, 30,000 shares may be purchased at $11.70 per share
and 30,000 shares may be purchased at $15.00 per share.
1999 FINANCING
On June 2, 1999, we issued Fisher Capital Ltd. and Wingate Capital Ltd.
warrants to acquire a total of 300,000 shares of our common stock at an initial
price of $12.44 per share. The warrant exercise price and the number of shares
of common stock issuable upon exercise of these warrants will be adjusted if we
issue or sell any shares of common stock for a consideration per share less than
the market price of the common stock for the five consecutive trading days
immediately preceding the date of issue or sale. The holders of these warrants
have a right to participate in any pro rata distribution of rights to purchase
stock, warrants, securities, or other property to record holders of any class of
our common stock.
ANTI-DILUTION OF OPTIONS AND WARRANTS
The exercise price and number of shares purchasable upon exercise of our
options and warrants are subject to adjustment upon the occurrence of a stock
split, reverse stock split, or distribution to stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer Agent and Registrar for our common stock is Corporate Stock
Transfer, Inc.
PLAN OF DISTRIBUTION
The selling stockholders (or, subject to applicable law, their pledgees,
donees, distributees, transferees or other successors in interest) may sell
shares from time to time in public transactions, on or off the Nasdaq National
Market, or in private transactions, at prevailing market prices or at privately
negotiated prices, including but not limited to, one or any combination of the
following types of transactions:
* ordinary brokers' transactions;
* transactions involving cross or block trades or otherwise on the
Nasdaq National Market;
* purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this prospectus;
* "at the market" to or through market makers or into an existing market
for the common stock;
* in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
* through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise); or
* in privately negotiated transactions.
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In effecting sales, brokers or dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate in the resales. The
selling stockholders may enter into hedging transactions with broker-dealers,
and in connection with those transactions, broker-dealers may engage in short
sales of the shares. The selling stockholders also may sell shares short and
deliver the shares to close out such short positions. The selling stockholders
also may enter into option or other transactions with broker-dealers that
require the delivery to the broker-dealer of the shares, which the broker-dealer
may resell pursuant to this prospectus. The selling stockholders also may pledge
the shares to a broker or dealer, and upon a default, the broker or dealer may
effect sales of the pledged shares pursuant to this prospectus.
Brokers, dealers, or agents may receive compensation in the form of
commissions, discounts, or concessions from selling stockholders in amounts to
be negotiated in connection with the sale. The selling stockholders and any
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting
compensation.
Information as to whether any underwriter that the selling stockholders may
select, or any other broker-dealer, is acting as principal or agent for the
selling stockholders, the compensation to be received by any underwriter that
the selling stockholders may select or by any broker-dealer acting as principal
or agent for the selling stockholders, and the compensation to be paid to other
broker-dealers, in the event the compensation of such other broker-dealers is in
excess of usual and customary commissions, will, to the extent required, be set
forth in a supplement to this prospectus. Any dealer or broker participating in
any distribution of the shares may be required to deliver a copy of this
prospectus, including a prospectus supplement, if any, to any person who
purchases any of the shares from or through such dealer or broker.
We have advised the selling stockholders that during such time as they may
be engaged in a distribution of the shares they are required to comply with
Regulation M promulgated under the Securities Exchange Act. With certain
exceptions, Regulation M precludes any selling stockholder, any affiliated
purchasers and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security that is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the common stock.
We will not receive any of the proceeds from the selling stockholders' sale
of their common stock.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Snell & Wilmer, L.L.P., Salt Lake City, Utah.
EXPERTS
The financial statements included in our Annual Report on Form 10-KSB for
the year ended December 31, 1998 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, and have
been included in reliance upon their expertise in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
GOVERNMENT FILINGS: We file annual, quarterly and special reports and other
information with the Securities and Exchange Commission. You may read and copy
any document that we file at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and at
14
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Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the Commission at 1-800-SEC-0330 for more
information about the Public Reference Rooms. Most of our filings are also
available to you free of charge at the Commission's web site at
http://www.sec.gov.
STOCK MARKET: Our common stock is listed on the Nasdaq National Market and
similar information can be inspected and copied at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
REGISTRATION STATEMENT: We have filed a registration statement under the
Securities Act with the Commission with respect to the common stock offered
under this prospectus. This prospectus is a part of the registration statement.
However, it does not contain all of the information contained in the
registration statement and its exhibits. You should refer to the registration
statement and its exhibits for further information about Gum Tech and the common
stock offered under this prospectus.
INFORMATION INCORPORATED BY REFERENCE: The Commission allows us to
"incorporate by reference" the information we file with it, which means that we
can disclose important information to you by referring you to those documents.
The information incorporated by reference is an important part of this
prospectus, and information that we file later with the Commission will
automatically update and supersede this information. We have filed the following
documents with the Commission and they are incorporated by reference into this
prospectus:
* Our Annual Report on Form 10-KSB for the fiscal year ended December
31, 1998;
* Our Quarterly Report on Form 10-QSB for the three months ended March
31, 1999;
* Our Quarterly Report on Form 10-QSB for the six months ended June 30,
1999;
* Our Quarterly Report on Form 10-QSB for the nine months ended
September 30, 1999;
* Proxy Statement for our Annual Meeting of Stockholders held on August
11, 1999;
* Description of common stock contained in our Registration Statement on
Form SB-2 declared effective under the Securities Act on November 8,
1996 (File Number 333-14667);
* Description of Series A Preferred Stock contained in our Form 8-K
filed on June 9, 1999; (File Number 000-27646).
* All other documents subsequently filed by Gum Tech International, Inc.
pursuant to Sections 12, 13(a), 13(c), 14 and 15(d) of the Exchange
Act.
Please note that all other documents and reports filed under Sections 13(a),
13(c), and 14 or 15(d) of the Exchange Act following the date of this prospectus
and prior to the termination of this offering will be deemed to be incorporated
by reference into this prospectus and to be made a part of it from the date of
the filing of our reports and
documents.
You may request free copies of these filings by writing or telephoning us
at the following address:
William J. Hemelt
Gum Tech International, Inc.
246 E. Watkins Street
Phoenix, Arizona 85004
(602) 252-1617
15
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====================================== ======================================
WE HAVE NOT AUTHORIZED ANY DEALER,
SALES REPRESENTATIVE, OR OTHER PERSON
TO GIVE ANY INFORMATION OR REPRESENT
ANYTHING NOT CONTAINED IN THIS
PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION. THIS
PROSPECTUS DOES NOT OFFER TO SELL OR GUM TECH INTERNATIONAL, INC.
BUY ANY COMMON STOCK IN ANY
JURISDICTION WHERE IT WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
IMPLIES, UNDER ANY CIRCUMSTANCES, THAT
THE INFORMATION PRESENTED IS CORRECT
AFTER THE DATE OF THIS PROSPECTUS.
---------------
PROSPECTUS
---------------
-----------------
TABLE OF CONTENTS
Page
----
Business.............................1
Risk Factors.........................5
Use of Proceeds.....................10
Selling Stockholders................10
Description of Securities...........11
Plan of Distribution................13
Legal Matters.......................14
Experts.............................14
Where You Can Find More
Information.......................14 December 14, 1999
====================================== ======================================
