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As filed with the Securities and Exchange Commission on June 1, 1998.
Commission File No. 333-52709
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT
NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NHANCEMENT TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
(State or other jurisdiction of incorporation or organization)
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84-1360852
(I.R.S. Employer Identification Number)
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39420 LIBERTY STREET, SUITE 250
FREMONT, CALIFORNIA 94538
(510) 744-3333
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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CORPORATION SERVICE COMPANY
1013 CENTRE ROAD
WILMINGTON, DELAWARE, 19805
(800) 927-9800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
CYNTHIA M. LOE, ESQ.
TOMLINSON ZISKO MOROSOLI & MASER LLP
200 PAGE MILL ROAD, SUITE 200
PALO ALTO, CALIFORNIA 94306
(650) 325-8666
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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 the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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.
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THE 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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
SUBJECT TO COMPLETION,
DATED JUNE 1, 1998
PROSPECTUS
1,638,375 SHARES
NHANCEMENT TECHNOLOGIES INC.
COMMON STOCK
All of the shares of Common Stock, $0.01 par value ("Common Stock"), of
NHancement Technologies Inc., a Delaware corporation (the "Company" or
"NHancement"), offered hereby are being sold by certain stockholders of the
Company named herein under "Selling Stockholders" and may be offered for sale
from time to time by and for the account of such stockholders (collectively, the
"Selling Stockholders") as more fully described herein. See "Selling
Stockholders." Up to 150,000 of the shares offered for sale hereby are held by a
Selling Stockholder who is an affiliate of the Company; such Selling Stockholder
presently holds approximately 17.75% of the issued and outstanding shares of the
Common Stock of the Company. Such shares are being registered pursuant to the
terms of a registration rights agreement entered into between the Company and
such Selling Stockholder in connection with the initial public offering ("IPO")
of the Company's Common Stock in February 1997. The balance of the shares
offered for sale hereby are issuable upon conversion of the Series A Convertible
Preferred Stock of the Company currently held by or to be issued to certain of
the Selling Stockholders. Based on a conversion price equal to 75% of the
average closing bid price of the Common Stock for the five trading days ending
on May 12, 1998, the Series A Convertible Preferred Stock would convert into
1,488,375 shares of Common Stock. The foregoing estimate is for illustrative
purposes only. The actual number of shares of Common Stock issued or issuable
upon conversion of the Series A Convertible Preferred Stock is subject to
adjustment and could be materially more or less than such estimated amount,
depending upon factors that cannot be predicted by the Company at this time,
including, among others, the future market price of the Common Stock. See "Risk
Factors -- Prior Losses; Uncertainty of Future Profitability" and "--Potential
Volatility of Stock Price." There is also a limitation on the number of shares
of Common Stock that can be issued upon conversion of the Preferred Stock at any
particular time; generally, the Selling Stockholders holding Series A
Convertible Preferred Stock have contractually agreed with the Company not to
convert the Series A Convertible Preferred Stock to the extent that such
conversion would result in a Selling Stockholder beneficially owning more than
9.99% of the then-outstanding Common Stock. In addition, the issuance of shares
of Series A Convertible Preferred Stock convertible into Common Stock
representing more than 20% of the then-outstanding Common Stock of the Company
requires the approval of the Company's stockholders, which approval has not yet
been solicited or obtained. For a further description of the terms of the Series
A Convertible Preferred Stock financing, see "Recent Developments."
The Company will not receive any proceeds from the sale of shares
offered hereby by the Selling Stockholders. See "Use of Proceeds," "Selling
Stockholders" and "Plan of Distribution." The shares are being offered on a
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Securities Act"), during a period of time commencing on the
effective date of the Registration Statement of which this Prospectus forms a
part and ending no later than April 13, 2000 or the earlier sale of all of the
shares offered hereby.
The Common Stock is currently listed on the Nasdaq SmallCap Market
System Market under the symbol "NHAN." On May 12, 1998, the closing bid price
per share of the Common Stock on the Nasdaq SmallCap Market System was $3.00.
The closing bid price per share of the Company's Common Stock, as reported on
the Nasdaq SmallCap Market System, has fluctuated since the time of the IPO,
ranging from a high of $4.3125 per share to a low of $2.00 per share.
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The shares may be offered by the Selling Stockholders from time to time
in transactions (which may include block transactions) on the Nasdaq SmallCap
Market System, in negotiated transactions, through a combination of such methods
of sale, or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the shares to or through
broker-dealers, who may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of the shares for whom such broker-dealers may act as agents or to whom they may
sell as principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). As of the date of this Prospectus,
no agreements had been reached for the sale of the shares or the amount of any
compensation to be paid to underwriters, brokers or dealers in connection
therewith. The Company has agreed to bear all expenses in connection with the
registration and sale of the shares being offered hereby by the Selling
Stockholders, other than commissions, concessions or discounts to underwriters,
brokers or dealers and certain fees and expenses of counsel and other advisors
to certain of the Selling Stockholders. See "Selling Stockholders" and "Plan of
Distribution." Each of the Selling Stockholders, individually, reserves the sole
right to accept or reject, in whole or in part, any proposed purchase of the
shares to be made in the manner set forth above.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
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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.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SELLING STOCKHOLDER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
The date of this Prospectus is June __, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can also be
obtained from the Commissioner's Web site at "http://www.sec.gov" and at
prescribed rates from the Public Reference Section of the Commission, at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Company's
Common Stock is currently quoted for trading on the Nasdaq SmallCap Market
System, and reports, proxy statements and other information concerning the
Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, and to the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to herein are not necessarily
complete, and, in each instance, are qualified in all respects by reference to
the applicable documents filed with the Commission. The Registration Statement
and the exhibits and schedules thereto filed by the Company with the Commission
may be inspected and copied at the locations described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the
Company pursuant to the Exchange Act are hereby incorporated herein by reference
to this Prospectus:
(a) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997, as filed with the Commission on April 15, 1998.
(b) The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998, as filed with the Commission on May 15, 1998, as amended by the
Company's Report on Form 10-QSB/A, as filed with the Commission on June 1, 1998.
(c) The Company's Current Report on Form 8-K dated as of April 13, 1998,
as filed with the Commission on May 21, 1998.
(d) All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering contemplated hereby.
(e) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (Registration No. 0-21999), filed
with the Commission under Section 12 of the Exchange Act, including any
amendments or reports filed for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering covered by this Prospectus shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement 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 (solely with
respect to statements incorporated by reference herein from a document that was
filed prior to the date of this Prospectus), or in any other subsequently filed
document which 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,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of any and all of the information
that has been incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Requests for copies of such information should be
directed to
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Douglas S. Zorn, Executive Vice President and Chief Financial Officer,
NHancement Technologies Inc., 39420 Liberty Street, Suite 250, Fremont,
California; Telephone Number: (510) 744-3333.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in or incorporated by reference into this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, which
will, among other things, impact the demand for the Company's products and
services; market demand, which generally tends to increase during strong years
of the business cycle and generally tends to decrease during weak years of the
business cycle, although the Company's historical and future financial
performance may not necessarily conform to these stated trends; product
performance and technological developments, which may affect the Company's
ability to compete with other companies marketing products or performing
services similar to those marketed or performed by the Company, thereby
affecting the Company's ability, among other things, to generate revenues;
changes in the Company's business strategy or development plans, which may,
among other things, prolong the time it takes to achieve the Company's
objectives described herein; the loss of any significant suppliers or customers;
the Company's dependence on key personnel; the quality, judgment and strategic
decisions of management and other personnel; and other factors referenced in
this Prospectus.
SPECIAL NOTE REGARDING CERTAIN TRANSACTIONS
In January 1998, the Company entered into a definitive agreement to
acquire Infotel Technologies (Pte) Ltd ("Infotel"), a communications systems
integrator located in Singapore. Closing of the transaction is contingent upon
the Company obtaining the financing necessary to complete the acquisition. In
the event that the Company is unable to complete the transaction by June 24,
1998, the Company is obligated to pay to the Infotel stockholders a termination
fee in the amount of approximately $300,000, together with interest at 3% above
the prime rate. See "Recent Developments" for a more complete description of the
terms of the proposed acquisition. See also the audited and unaudited financial
statements of Infotel and the pro forma financial statements of the Company
included in this Prospectus in accordance with the rules and regulations
promulgated by the Securities and Exchange Commission. There is no assurance
that the pending acquisition of Infotel will be completed by the Company,
notwithstanding the inclusion in this Prospectus of the Company's pro forma
financial information and the audited and unaudited financial statements of
Infotel.
In April 1998, the Company entered into a financing transaction with
certain of the Selling Stockholders pursuant to which the Company agreed to sell
shares of the Series A Convertible Preferred Stock of the Company that are
convertible into shares of the Common Stock offered hereby. The maximum
aggregate proceeds of the offering of Preferred Stock are $3.0 million, of which
$1,250,000 (less certain costs and expenses in the amount of approximately
$162,500) had been paid to the Company as of the date of the filing of the
Registration Statement on Form S-3 of which this Prospectus is a part. Payments
for additional installments of Preferred Stock are payable to the Company in
accordance with, and are subject to the terms of, the Preferred Stock financing.
See "Recent Developments" for a more complete description of the terms of the
Preferred Stock financing.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, appearing elsewhere in or
incorporated by reference into this Prospectus. Each prospective investor is
urged to read this Prospectus in its entirety. This Prospectus includes certain
trademarks of NHancement and its subsidiaries.
The Company
NHancement Technologies Inc. is a multimedia communications systems
integrator, headquartered in Fremont, California. Its objective is to become a
leading global systems integrator of communications-centric products. The
Company, through its two operating subsidiaries, Voice Plus, Inc., a California
corporation ("Voice Plus" or "VPI"), also headquartered in Fremont, California,
and Advantis Network & System Sdn Bhd, a Malaysian corporation headquartered in
Kuala Lumpur ("Advantis"), provides businesses with communications products and
technological innovations designed to enhance efficiency. Services currently
provided by the Company include voice messaging, e-mail, paging and multimedia
systems, network servers, local area networks, wide area networks, routers,
transmission systems and network security systems.
The Company was incorporated in 1996 to pursue a business combination
opportunity with Voice Plus(R), a company engaged in the business of integrating
voice processing systems with telecommunications equipment, and BioFactors, Inc.
("BioFactors" or "BFI"), a development stage company incorporated in Delaware
that offered the FACTOR 1000(R) system, a proprietary computerized human
impairment testing system. These two companies were acquired by NHancement on
February 3, 1997 pursuant to two separate merger transactions whereby each of
Voice Plus and BioFactors became wholly-owned subsidiaries of the Company.
Immediately following these acquisitions, the Company completed an initial
public offering ("IPO") of shares of its Common Stock.
Subsequent to the completion of the IPO, management decided to combine
the operations of Voice Plus and BioFactors into a single entity. Effective as
of November 12, 1997, BioFactors was merged with and into Voice Plus in a
statutory merger intended to qualify, for federal income tax purposes, as a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended. Voice Plus was the surviving corporation in the merger transaction with
BioFactors, and the separate existence of BioFactors ceased on the effective
date of the merger. The operations of the combined entity are currently being
conducted under the name of "Voice Plus."
Prior to its merger with Voice Plus, BioFactors had concentrated on
developing a market for the FACTOR 1000 system, which is used for detecting
worker impairment. The Company has since determined that such effort is no
longer justified, given the resources required to develop such a market, as well
as the need to dedicate its financial resources to its other core businesses,
and plans to seek a buyer for the Factor 1000 technology in 1998.
The acquisition of Advantis was completed by the Company on December
15, 1997. Advantis, now a wholly-owned subsidiary of NHancement, is a
communications systems integrator formed to address the growing communications
infrastructure needs of Malaysia.
On January 16, 1998, the Company entered into a definitive agreement to
acquire all of the issued and outstanding shares of the capital stock of Infotel
Technologies (Pte) Ltd ("Infotel"), a company organized under the laws of
Singapore. The terms of the agreement require a cash payment of approximately
$2.3 million, notes payable by NHancement to the Infotel stockholders of
approximately $2.0 million (with payment subject to Infotel achieving certain
1998 and 1999 profitability targets), and the issuance of 431,000 shares of
NHancement Common Stock, which number of shares may increase based on certain
price protections afforded the Infotel stockholders. Consummation of the
transaction is contingent upon the Company obtaining the financing necessary to
complete the acquisition, the closing of which must occur, if at all, by no
later than June 24, 1998.
The Company recently entered into a securities purchase agreement
providing for the sale to certain of the Selling Stockholders of shares of
Series A Convertible Preferred Stock, all or a portion of the proceeds of which
will be applied toward the purchase price of Infotel. The maximum aggregate
amount of the Preferred
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Stock financing is $3.0 million, of which $1,250,000 (less certain costs and
expenses in the amount of approximately $162,500) had been paid to the Company
as of the date of the filing of the Registration Statement on Form S-3 of which
this Prospectus is a part; and additional installments are payable to the
Company provided certain conditions are satisfied (see "Recent Developments" for
a more complete description of the terms of the Preferred Stock financing).
Should the Infotel acquisition be consummated, in addition to the Company's
existing portfolio of infrastructure communications equipment products, it will
provide radar system integration, turnkey project management services and test
instrumentation, as well as a wider portfolio of communications equipment. There
is no assurance that the Company will be able to consummate the Infotel
transaction or to obtain the financing necessary to complete the Infotel
acquisition. For a more complete description of the terms of the Infotel
transaction and the Series A Convertible Preferred Stock offering, as well as
the shares of Common Stock being offered hereby, see "Selling Stockholders" and
"Recent Developments."
The Offering
Securities offered by
the Selling Stockholders 1,638,375 shares of Common Stock(1)
Common Stock outstanding
prior to the offering 4,436,500 shares of Common Stock(2)
Common Stock to be outstanding
after the offering 5,924,875 shares of Common Stock(3)
Risk Factors The Common Stock offered hereby
involves a high degree of risk. See
"Risk Factors."
Use of Proceeds The Company will not receive any
proceeds from sales of the Common
Stock by the Selling Stockholders
but will bear the expenses of
registration of such Common Stock.
See "Use of Proceeds," "Selling
Stockholders" and "Plan of
Distribution."
Selling Stockholders Certain of the Selling Stockholders
are affiliates of the Company. See
"Selling Stockholders."
Recent Developments The Company has engaged in
transactions material to the Company
since the date of its Annual Report
on Form 10-KSB for the fiscal year
ended December 31, 1977. See "Recent
Developments."
Nasdaq Symbol Common Stock "NHAN."
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(1) Estimated based in part on the aggregate number of shares of Common Stock
that may be issued upon conversion of shares of Series A Convertible Preferred
Stock issued or issuable to the Selling Stockholders, based on a conversion
price equal to 75% of the average closing bid price of the Common Stock for the
five (5) trading days ending on May 12, 1998. A greater or lesser number of
shares of Common Stock may be offered hereby in the event that (i) certain of
the Selling Stockholders do not acquire the maximum aggregate number of shares
of Preferred Stock that are convertible into the Common Stock offered hereby;
(ii) certain of the Selling Stockholders convert less than all shares of
Preferred Stock held by such Selling Stockholders into shares of Common Stock;
or
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(iii) the conversion price of the Preferred Stock is more or less than the
conversion price in effect on or about May 12, 1998. Any increase in the number
of shares issuable upon conversion of the Series A Convertible Preferred Stock
by reason of the floating rate conversion price, issuable as a result of accrued
but unpaid dividends on the Series A Convertible Preferred Stock, or issuable by
operation of certain antidilution provisions, automatically will result in an
increase in the number of shares covered by the Registration Statement on Form
S-3 of which this Prospectus is a part. Number of shares also includes 150,000
shares offered for sale hereby by James Gillespie, an affiliate of the Company.
See "Risk Factors," "Selling Stockholders" and "Recent Developments."
(2) Based on shares of Common Stock outstanding on the date of this Prospectus.
Does not include (i) shares of Common Stock issuable upon conversion of the
Preferred Stock outstanding on the date of this Prospectus; (ii) shares of
Common Stock issuable to the former stockholders of Advantis upon satisfaction
of certain conditions precedent to issuance of such shares; (iii) shares of
Common Stock issuable to the current stockholders of Infotel, if, and in the
event that, the Company acquires Infotel; (iv) outstanding options and options
available for grant under the Company's Equity Incentive Plan, as amended
through the date of this Prospectus; or (v) other outstanding options or
warrants.
(3) Assumes issuance of all shares of Series A Convertible Preferred Stock and
conversion of all such shares into Common Stock at the conversion rate described
in footnote 1 above. The actual number of shares of Common Stock outstanding may
be more or less, as described in footnote 1 above. Does not include exercise of
any outstanding options, warrants or other convertible securities.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk relating to the Company, the markets in which the Company
operates and the securities markets, particularly the markets for securities of
smaller issuers such as the Company. Prospective purchasers of Common Stock
should consider carefully the information set forth below, as well as the other
information in this Prospectus, in determining whether to purchase the shares of
Common Stock offered hereby.
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully before purchasing the
Common Stock offered hereby. The discussion in this Prospectus, and in the
Company's annual, quarterly and other periodic reports incorporated in this
Prospectus, contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. See "Special Note Regarding Forward-Looking
Statements" on page 3. Such factors include, among others, the risk factors
set forth below.
Risks Associated with Delisting of Common Stock; Penny Stock Rules.
Although the Common Stock was approved for quotation on the Nasdaq
SmallCap Market System in connection with the Company's IPO, there can be no
assurance that it will remain eligible to be included on the Nasdaq SmallCap
Market System. In this regard, the Company has in the past failed to meet the
requirements of Nasdaq Marketplace Rule 4310(c)(2) which requires that an issuer
maintain (i) net tangible assets of Two Million Dollars ($2,000,000); (ii)
market capitalization of Thirty-Five Million Dollars ($35,000,000); or (iii) net
income of Five Hundred Thousand Dollars ($500,000) in the most recently
completed fiscal year or in two of the last three most recently completed fiscal
years. This deficiency was remedied by the Company in April 1998 as a result of
the initial closing in April 1998 of the Series A Convertible Preferred Stock
offering (see "Recent Developments"), as reflected in the Company's unaudited
financial statements as of April 30, 1998, as filed with the Commission under a
Form 8-K on May 21, 1998. While the Company presently meets and believes that in
the future it will be in a position to continue to meet these listing
requirements, such belief is dependent in part upon the Company completing the
Infotel acquisition, the financing for which had not been completed as of the
date of this Prospectus. There can be no assurance that the Company will in fact
meet these requirements in any future period.
If the Company is otherwise unable to meet the Nasdaq SmallCap Market
System's continuing listing requirements described above, Nasdaq may take
appropriate action against the Company, including placing
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restrictions on or additional requirements for listing of its Common Stock or
the denial of listing of its Common Stock. If the Company's Common Stock is
delisted from the Nasdaq SmallCap Market System, the Company will become subject
to the Securities and Exchange Commission's "penny stock" rules, and as a
result, an investor will find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's Common Stock.
The "penny stock" rules under the Exchange Act impose additional sales
practice and market-making requirements on broker-dealers who sell and/or make a
market in such securities. For transactions covered by the penny stock rules, a
broker-dealer must make special suitability determinations for purchasers and
must have received the purchaser's written consent to the transaction prior to
sale. In addition, for any transaction involving a penny stock, unless exempt,
the rules require delivery prior to any transaction in a penny stock of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market and penny stocks. As a result, the Company's delisting
from the Nasdaq SmallCap Market System and its becoming subject to the rules on
penny stocks would negatively affect the ability or willingness of
broker-dealers to sell or make a market in the Company's securities and,
therefore, would severely and adversely affect the market liquidity for the
Company's Common Stock.
Prior Losses; Uncertainty of Future Profitability.
For the year ended December 31, 1997, the Company incurred a net loss
in the amount of $4.6 million on net revenues of $9.0 million. The loss resulted
primarily from a combined charge of a $4.7 million impairment write-off and
amortization of goodwill associated with the Company's acquisition of Voice Plus
in February 1997. Net revenues for the first quarter of 1998 were $1.2 million
with a net loss for the quarter of approximately $.8 million. VPI revenues were
significantly below historical levels for the same period in 1997, due in part
to the uncertainty surrounding the sale of the customer premises equipment
("CPE") business of Centigram Communications Corporation ("Centigram"), which
management of the Company believes caused VPI customers to delay their buying
decisions. Although management of the Company believes that a great deal of this
uncertainty has now been eliminated due to the recent completion of the sale to
Mitel Corporation of Centigram's CPE business, there can be no assurance that
the Company will be able to negotiate favorable distributor terms with Mitel
Corporation (see "Risk Factors -- VPI's Strategic Relationship with Centigram
Communications Corporation"). In addition, the weakness of the Malaysian
currency caused Advantis customers to delay implementation of planned projects.
Also, the issuance of the Series A Convertible Preferred Stock that is
convertible into shares of Common Stock at a 25% discount, which will be
reflected as a preferred stock dividend, will result in a $1.0 million decrease
in the income or increase in the loss applicable to Common Stock in computing
the net income/loss per share.
The failure of the Company to produce positive operating results may
affect the future value of the Common Stock sold hereunder, may contribute to
the Company losing its eligibility for listing of the Common Stock on the Nasdaq
SmallCap Market System, may adversely affect the Company's ability to obtain
debt or equity financing on terms acceptable to the Company, and may prevent the
Company from completing future acquisitions, including the Infotel acquisition.
See generally "Risk Factors -- Possible Volatility of Stock Prices," "-- Risks
Associated with Delisting of Common Stock; Penny Stock Rules," "-- Financing
Risks," and other risks described under "Risk Factors," as well as "Recent
Developments."
Possible Volatility of Stock Prices.
The over-the-counter markets for securities such as the Common Stock
historically have experienced extreme price and volume fluctuations during
certain periods. These broad market fluctuations and other factors, such as new
product developments and trends in the Company's industry and the investment
markets generally, as well as economic conditions and quarterly variations in
the Company's results of operations, may adversely affect the market price of
the Common Stock. In addition, there can be no assurance that the Company's
Common Stock will remain eligible for listing on the Nasdaq SmallCap Market
System. See "Risk Factors--Risks Associated with Delisting of Common Stock;
Penny Stock Rules."
Financing Risks.
The acquisition of complementary businesses and products is a
significant element of the Company's business strategy. If a cash payment in
excess of available working capital is required to make an acquisition, the
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Company will need to obtain additional debt or equity financing. Debt financing
may require the Company to pay significant amounts as interest and principal
payments, thus reducing the resources available to expand its existing
businesses. Equity financing may be dilutive to the Company's existing
stockholders' interest in the assets or earnings of the Company. There can be no
assurance that the Company will be able to obtain either debt or equity
financing if and when it is needed for acquisitions or that, if available, such
financing will be available on terms the Company deems acceptable. The inability
of the Company to obtain such financing would have a material adverse effect on
the Company's acquisition strategy. Further, the refusal of potential
acquisition candidates to accept Common Stock in payment of the Company's
purchase price obligations, in whole or in part, could require the Company to
reduce or curtail its acquisition strategy. To the extent that Common Stock is
used as consideration in an acquisition transaction, such stock issuance may be
dilutive to the Company's existing stockholders. Even if the Company is able to
obtain financing needed for an acquisition, the terms of such financing may
involve considerable costs to the Company.
VPI's Strategic Relationship with Centigram Communications Corporation.
VPI's business is based upon the integration of hardware and software
and telecommunications and data processing equipment manufactured by others into
integrated systems designed to meet the needs of its customers. Although VPI has
distributor agreements with a number of equipment manufacturers, substantially
all of its revenue historically has been based upon products manufactured by
Centigram Communications Corporation ("Centigram"). The Company depends upon
Centigram to offer products that are competitive with products offered by other
manufacturers as to technological advancement, reliability and price. If
Centigram's competitors should surpass Centigram in any of these qualities, the
Company may be required to establish alternative strategic relationships. Any
such development, or any other adverse change in the Company's distributor
relationship with Centigram, would adversely affect the Company's business for
an indeterminate period of time until new supplier relationships could be
established. In this regard, Centigram recently announced to the public the sale
to Mitel Corporation ("Mitel") of its customer premises equipment ("CPE")
business. The distributor agreement entered into with Centigram may be canceled
by either party upon ninety (90) days' notice and is subject to termination in
the event that the Company defaults on or is otherwise in breach of various of
its obligations under the agreement. The Company has begun negotiations with
Mitel to insure that its access to Centigram products will continue
uninterrupted. Mitel has indicated its intention to maintain the Centigram CPE
distribution, including the VPI distributor agreement. However, an agreement has
not yet been signed with Mitel and no assurances can be made that an agreement
with terms acceptable to the Company will be successfully consummated. If Mitel
does not permit third parties such as the Company to continue to distribute the
CPE products, there would be a significant adverse impact upon the Company's
business for an indeterminate period of time until new supplier relationships
could be established.
Reliance upon Distributor and Supplier Relationships; Dependence on Significant
Customers.
VPI has distributor agreements with a number of equipment manufacturers
in addition to Centigram. Also, Advantis has distributor agreements with a
number of equipment manufacturers. In accordance with the terms of these
distributor agreements, a manufacturer may discontinue the distributor
relationship because of factors related to a particular distributor or because
of a manufacturer's decision to change its method of distributing its products
to all or parts of its markets. In making such a change, a manufacturer of key
products sold by a distributor may effectively become a direct competitor of its
former distributor. Moreover, a manufacturer may reduce its dealer discounts,
eliminate any exclusive distribution rights, and/or reduce the manufacturer's
support of a distributor or otherwise adversely affect the competitive
environment in which the distributor sells the manufacturer's products. Any
material change in VPI's or Advantis' distributor relationships with their key
suppliers or any interruption of the delivery of equipment to VPI or Advantis by
any of their key suppliers would have a material adverse effect upon the
Company. The same would be true for Infotel, in the event that Infotel is
acquired by the Company, were there to be any material change in Infotel's
distribution relationships with its key suppliers or any interruption of the
delivery of equipment to Infotel by its suppliers.
For the fiscal year ended December 31, 1997, revenues from sales to two
of the Company's customers accounted for approximately 19% and 7% of the total
net revenues for the year. The loss of one or more significant customers of the
Company would have a material adverse effect upon the Company's financial
condition. In addition, while Infotel's business is diversified over several
business segments and customer groups, its systems and networking business is
characterized by very large contracts and projects directed at a
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<PAGE> 12
limited number of customers in any one period. The loss or rescheduling of one
or more such contracts would affect the timing of Infotel's revenues and cash
flow, and, if Infotel is acquired by the Company, could result in a material
adverse effect upon the Company's financial condition.
Competition in VPI's Voice Processing and Customer Premises Equipment
Businesses.
The voice processing and customer premises equipment markets are highly
competitive and competition in this industry is expected to intensify with the
introduction of new product enhancements and new competitors. VPI competes with
a number of larger integrated companies that provide competitive voice
processing products and services as subsets of larger product offerings,
including all the former regional Bell operating companies and major PBX
equipment manufacturers, such as Fujitsu Limited and Lucent Technologies Inc.
("Lucent"), formerly a division of AT&T. These integrated public company
competitors are substantially larger than the Company and have substantially
greater revenues than the Company, and, as a result, may encroach on the
Company's voice processing equipment and service markets. Additionally, in the
customer premises equipment markets, VPI competes with two types of equipment
companies: (i) interconnects (PBX providers), including Lucent, Northern Telecom
Limited, Fujitsu Limited and NEC Corporation, and (ii) independent voice
processing manufacturers, such as Octel Communications Corporation (now owned by
Lucent), Digital Sound Corporation, Active Voice Corporation, Applied Voice
Technology, Inc., Glenayre Technologies, Inc. and Comverse Technology, Inc.,
among others, which also compete with the Company in the service provider
market. VPI's competitors have better name recognition in the market, a larger
installed base of customers and greater financial, marketing and technical
resources than the Company.
Competition in Advantis' and Infotel's Infrastructure Communications Equipment
Businesses.
The infrastructure communications market in Malaysia is largely driven
by the growth of the country's manufacturing and industrial sectors as well as
the country's urbanization. Consequently, much of the market opportunity is
controlled by either the government or the general construction contractors.
Both market sectors are addressed by several local Malaysian companies that are
larger than Advantis. In addition, while Advantis currently does not compete
directly with other large systems integrators in the market, since it acts as a
sub-contractor to another larger systems integrator with whom it has aligned
itself, the Company expects that Advantis will face such competitors directly in
the future when it has better established its installed base. Further, continued
growth of Malaysia's manufacturing and industrial sectors will likely fuel
competition in the country's infrastructure communications market.
Infotel competes against several large companies in Singapore that are
better capitalized. Although Infotel has in the past managed to compete
successfully against such larger companies on the basis of its engineering and
project management expertise, there can be no assurance that such expertise will
permit Infotel to compete effectively with such larger companies in the future.
Further, various large manufacturers have established their own branch offices
in Singapore and compete against Infotel.
Risks in Integrating Acquired Companies.
Acquisitions may involve a number of special risks, including adverse
short-term effects on the Company's operating results, diversion of management's
attention from the operations of the Company, dependence on retention, hiring
and training of key personnel, risks associated with unanticipated problems or
legal liabilities and amortization of acquired intangible assets, some or all of
which could have a material adverse effect on the Company's operations and
financial performance. Successfully integrating the operations of additional
companies into those of the Company will require the cooperative efforts of the
managers and employees of the respective business entities, including the
integration of the owners or managers of smaller companies into roles that
require them to report to supervisors. Significant costs and management time may
be required to integrate management control systems. Furthermore, to manage its
growth effectively, the Company must continue to improve its operational,
financial and management controls and information systems, to accurately
forecast sales demand, to control its overhead and to manage its marketing
programs. There can be no assurance of accomplishing these results without
encountering substantial costs, delays or other problems. In this regard, the
Company experienced a net loss of $4.6 million on net revenues of $9.0 million
for the fiscal year ended December 31, 1997, primarily due to a combined charge
of a $4.7 million impairment write-off and amortization
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<PAGE> 13
of goodwill associated with the Company's acquisition of Voice Plus in February
1997. Other acquisitions, such as the recently completed acquisition of Advantis
or the pending acquisition of Infotel, if consummated, may result in impairment
charges in the future. See "Risk Factors -- Prior Losses; Uncertainty of Future
Profitability." Accordingly, no assurance can be given that the future
performance of the Company's subsidiaries will be commensurate with the
consideration paid to acquire such companies. If management fails to establish
the needed controls and to manage growth effectively, the Company's operating
results, cash flows and overall financial condition will be adversely affected.
Pro Forma Financial Statements
This Prospectus incorporates by reference certain historical financial
statements of the Company and contains pro forma financial statements. The pro
forma financial statements reflect the Company's best estimate of the impact of
the Infotel acquisition and the Series A Convertible Preferred Stock offering on
the historical financial statements of the Company. Since the acquisition of
Infotel has not closed and only $1,250,000 of the Series A Convertible Preferred
Stock has been purchased to date, the actual impact of the transaction on the
Company's future financial statements could be materially different than as
presented.
Foreign Market and Currency Risks.
The Company's global business strategy subjects it to foreign market
and currency risks. In particular, the devaluation of the Malaysian currency
(Ringgit) in relation to the United States Dollar has affected the short and
medium term revenues of the Company's Advantis subsidiary in Malaysia. Although
the Company believes that the long term effects of the currency problems in
Malaysia and the Asian region will be manageable, the short term uncertainty
related to fluctuations in the Ringgit has caused Advantis' customers to
postpone the deployment of communications equipment. In addition to the short
term effects of the Ringgit devaluation described above, which weakened
substantially in 1997, any prolonged devaluation of the Ringgit can be expected
to materially and adversely affect the operations and financial condition of
Advantis, and may result in a material adverse effect on the business and
financial condition of the Company. The revenue performance of Advantis in the
first calendar quarter of 1998 was significantly below historical levels and
this trend is expected to continue through 1998, as customers defer purchases
due to the weakness of the Malaysian currency. The Company's proposed
acquisition of Infotel may also subject the Company to foreign market and
currency risks in Singapore, particularly given the current financial
uncertainty in the Asia Pacific region and the political turmoil in countries
such as Indonesia and Korea.
Risks Associated with Future Unspecified Acquisitions.
With the exception of the proposed acquisition of Infotel, the Company
has not entered into any agreements, understandings or arrangements with respect
to any future acquisitions, although it is pursuing various acquisition
opportunities. The Company does not intend to submit a proposed acquisition or
other business transaction to the review and vote of its stockholders, except as
required by Delaware law. Even if submitted to a vote of stockholders, the
Company's management and non-management directors own a substantial portion of
the Company's outstanding voting securities and may be able to control the
outcome of any such proposal. The Company's growth strategy is highly dependent
on the Company's ability to make future acquisitions.
Subordination of Claims of Stockholders.
The Company is a holding company and its assets consist of its
investments in its subsidiaries, namely VPI and Advantis, and, if the proposed
acquisition of Infotel is consummated, Infotel. The Company's rights, and,
therefore, the extent to which holders of Common Stock will be able to
participate in the distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization, will be subject to prior claims of
the subsidiary's creditors, including trade creditors, except to the extent that
the Company may itself be a creditor with recognized claims against such
subsidiary (in which case the claims of the Company would still be subject to
the prior claims of any secured creditor of such subsidiary and of any holder of
more senior indebtedness).
Dependence Upon Key Personnel.
The Company believes its success will depend to a significant extent on
the efforts and abilities of certain of its and its subsidiaries' senior
management, in particular, those of Esmond T. Goei, the Company's Chairman
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of the Board of Directors, Chief Executive Officer and President, and Douglas S.
Zorn, the Company's Executive Vice President, Chief Financial Officer and
Treasurer, who is also a director of the Company. The Company has purchased key
personnel insurance policies in the amount of $1.0 million on the lives of each
of Messrs. Goei and Zorn, which policies name the Company as the sole
beneficiary. The Company intends to purchase additional key personnel insurance
policies on other key employees. There can be no assurance that the Company will
be able to maintain existing key personnel insurance policies or obtain key
personnel insurance policies on additional individuals at an acceptable cost.
The loss of the services of any of the Company's key employees would have a
material adverse effect on the Company.
Risks Related to Intellectual Property.
The Company intends to protect vigorously the Company's intellectual
property against infringement or misappropriation by others. There can be no
assurance, however, that steps taken by the Company will prevent
misappropriation of its intellectual property or that competitors will not
develop products similar to the Company's products. Further, the enforcement of
proprietary rights of the Company through litigation could result in costs to
the Company that could have a material adverse effect on its financial
condition. In addition, although the Company believes that its intellectual
property, including its Critical Tracking Task/Test and FACTOR 1000(R)
technology, does not infringe on the proprietary rights of third parties, there
can be no assurance that infringement or invalidity claims will not be asserted
against the Company in the future. An adverse determination or the costs of
defending litigation based on such claims could have a material adverse effect
on the Company's business and financial condition.
Product Liability Exposure; Litigation Risk; Limited Insurance.
The Company's human impairment testing business, which it plans to
dispose of in 1998, exposes it to potential litigation by employees of companies
using FACTOR 1000(R) testing if the employee's employment relationship is
affected thereby. Product and service liability insurance is expensive, to the
extent it is available at all. The Company currently maintains general liability
insurance, including products liability insurance, in the amount of $2.0 million
per occurrence and $2.0 million in the aggregate per policy year. There can be
no assurance, however, that the Company will be able to maintain such insurance
on acceptable terms, that the Company will be able to secure increased coverage
if needed or that any insurance policy will provide adequate protection against
successful claims. A successful claim brought against the Company in excess of
the Company's insurance coverage could have a material adverse effect upon the
Company.
Governmental Regulation.
The Telecommunications Act of 1996 eliminated government mandated
barriers between local and long distance calling, cable television, broadcasting
and wireless service/service providers. Consequently, local telephone companies,
the traditional long distance carriers and cable television companies may now
provide both local telephone and long distance service, as well as television
programming. Such increased competition likely will change the infrastructure
for implementing communications applications, such as voice and electronic
messaging. Such changes could have a material adverse impact on VPI's voice
processing business.
The acquisition of Advantis required the approval of the Foreign
Investment Committee of the Malaysian government, which approval was obtained
subject to the Company agreeing to apply for certification as a Multimedia Super
Corridor ("MSC") company in Malaysia, although no time limit was specified for
obtaining such certification. The MSC is an economic development zone
established by the Malaysian government to stimulate the indigenous development
of information technology. To encourage the participation of businesses in the
zone, MSC status provides certain corporate benefits including access to
government grants, preferred vendor status within the MSC and tax-free status
for ten years. MSC status is dependent on an applicant's contribution to the
betterment of the Malaysian people through the application of certain technology
of which communications technology is a prime component. The Company has
undertaken certain efforts to obtain MSC certification, including the hiring of
a consultant knowledgeable in such processes. The Company believes that it has
the necessary merits for certification, but there is no assurance that the
Company will be able to obtain such certification.
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Shares Eligible for Future Sale.
The market price for the Common Stock could be adversely affected by
the availability of shares of Common Stock for sale or actual sales of
substantial amounts of Common Stock by existing or future stockholders. At April
30, 1998, approximately 3,406,825 shares of Common Stock were freely tradeable
without restriction or further registration under the Securities Act, by persons
other than "affiliates" of the Company. Upon registration of the shares offered
for sale hereby, and receipt of certain approvals required to be obtained by the
Company in connection with the Series A Convertible Preferred Stock offering, a
minimum of an additional 1,638,375 shares (including 150,000 outstanding shares
that are held by a Selling Stockholder who is an affiliate of the Company) will
be available for sale on the open market, subject to restrictions on transfer
affecting sales of securities held by affiliates. The actual number of shares
offered for sale hereby may, in fact, be significantly greater since the Company
is obligated to issue a currently indeterminate number of shares of Common Stock
upon conversion of the Series A Convertible Preferred Stock. The exact number of
shares of Common Stock issuable pursuant to such conversion cannot be estimated
with certainty because, generally, such issuances of Common Stock will vary
inversely with the market price of the Common Stock at the time of such
conversion. The Series A Convertible Preferred Stock is also subject to various
adjustments to prevent dilution resulting from stock splits, stock dividends or
similar transactions, and additional shares of Common Stock are issuable as a
result of accrued but unpaid dividends.
Approximately 1,029,675 shares of Common Stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act ("Rule 144")
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including the exemption
afforded by Rule 144. Any Common Stock issued in the future to the former
stockholders of Advantis, pursuant to the terms of the Advantis acquisition
agreement, and any Common Stock issued to the stockholders of Infotel, in the
event that the Infotel transaction is consummated, will be "restricted
securities" within the meaning of Rule 144. A number of the holders of
"restricted securities" possess registration rights with respect to such shares.
In addition, following the expiration in August 1998 of certain lock-up
agreements restricting the transfer of certain of the shares held by the
Company's Chairman of the Board and Chief Executive Officer and affiliates and
other officers, directors and key employees, approximately 410,588 shares of
Common Stock will become available for resale in the public market, subject to
the volume limitations, holding periods and other restrictions of Rule 144
affecting the transfer of such shares. At April 30, 1998, 1,476,500 shares of
Common Stock had been reserved for issuance under the Company's Equity Incentive
Plan, as amended to date. The Company also has granted warrants to third parties
to purchase 846,796 shares of Common Stock at prices ranging from $4.80 to
$188.80, together with certain registration rights relating to certain of such
shares. Future sales of shares of Common Stock, or the perception that such
sales could occur, could have a material adverse effect on the market price of
the Common Stock.
No Dividends.
To date, the Company has not paid any cash dividends on its Common
Stock and does not expect to declare or pay any cash or other dividends in the
foreseeable future. In addition, the Preferred Stock financing documents
restrict the Company from paying dividends on its Common Stock.
Control by Management.
The Company's current officers and directors own over 25% of the issued
and outstanding shares of Common Stock and, thus, may be able to influence the
election of a majority of the Company's directors and thereby direct the
policies of the Company.
Anti-Takeover Provisions.
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation, as amended to date (the "Certificate of Incorporation"), and
certain provisions of the Delaware General Corporation Law may make it difficult
to change control of the Company. For example, the Certificate of Incorporation
permits the Board of Directors, without stockholder approval, to issue one or
more classes or series of Preferred Stock having the number of shares,
designations, relative voting rights, dividend rates, liquidation and other
powers, rights,
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preferences and limitations that the Board of Directors establishes. The
issuance of Preferred Stock, including the Series A Convertible Preferred Stock
described in this Prospectus, while providing flexibility in connection with
possible financings, acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of Common Stock.
In addition, under certain circumstances, the issuance by the Company of
Preferred Stock, including the Series A Convertible Preferred Stock, the shares
of which are convertible into the Common Stock offered hereby and described
herein, may make it more difficult for a third party to gain control of the
Company, may discourage bids for the Common Stock at a premium and may otherwise
adversely affect the market price of the Common Stock. Employment agreements
with the Company's Chief Executive Officer and Chief Financial Officer provide
for substantial severance pay in the event of a "change of control" of the
Company, as such term is defined in such agreements. In addition, in the event
of a change of control of the Company, certain outstanding stock options will
vest and become immediately exercisable and certain restricted stock awards will
become nonforfeitable.
Conflicts of Interest.
Certain officers, directors and stockholders of the Company have
entered into loan transactions with the Company, have purchased and sold
securities of the Company and have engaged or may engage in other businesses for
their own account, which may be in competition with the Company, all of which
could give rise to conflicts of interest. The Company does not intend to enter
into business transactions or arrangements with officers, directors or
stockholders unless they are on terms at least as favorable to the Company as
could be obtained from unrelated third parties. However, there can be no
assurance that any transaction or arrangement between the Company and an
officer, director or stockholder will be advantageous to the Company, that
conflicts of interest will not arise with respect to such transactions or
arrangements, or that if such conflicts arise, they will be resolved in a manner
favorable to the Company.
Indemnification of Directors and Officers by the Company; Limitations on
Liability.
The Certificate of Incorporation limits the liability of directors of
the Company for monetary damages for breaches of directors' fiduciary duty of
care. In addition, the Delaware General Corporation Law and the Certificate of
Incorporation contain provisions for indemnification of officers and directors
of the Company. The Certificate of Incorporation requires the Company to
indemnify such persons to the full extent permitted by Delaware law. Each
officer and director will be indemnified in any proceeding alleging breaches of
fiduciary duty to the Company and similar wrongful conduct if he or she acted in
good faith and in a manner which he or she reasonably believed to be in, or not
opposed to, the best interests of the Company. Indemnification would cover
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement.
The Company's Bylaws also provide that the Board of Directors may cause
the Company to purchase and maintain insurance on behalf of any present or past
director, officer, employee, fiduciary or agent of the Company insuring against
any liability asserted against such person arising out of such person's
position, whether or not the Company would have the power to indemnify such
person. The Company currently maintains director and officer liability insurance
of $5.0 million per occurrence and $5.0 million in the aggregate per policy
year.
Year 2000 Potential Impact.
The Company has begun to conduct a review of its internal computer
systems to identify the systems that could be affected by the "Year 2000" issue
and is developing an implementation plan to resolve any such problems. The Year
2000 problem is the result of computer programs being written using two digits
(rather than four) to define the applicable year. Software programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to or
replacement of existing software, the Year 2000 problems will not pose
significant operational problems for the Company's domestic computer systems.
The Company believes that the costs associated with any such upgrade or
replacement of software will not be material, and that all such changes will be
implemented by the end of calendar year 1998. However, if such modifications are
not made in a timely manner, or are not made properly, the Company may be unable
to implement appropriate Year 2000 solutions, which could have a material
adverse effect on the Company's business, financial condition, results of
operations and cash flows.
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The Company distributes products from third party product equipment
manufacturers, some of which are susceptible to Year 2000 problems. During
fiscal year 1997, the Company initiated a review of the products its domestic
subsidiary, VPI, distributes to determine which, if any, are not capable of
recognizing the year 2000. Communications were initiated with all of the
manufacturers of such products to determine the nature and extent of any Year
2000 problems. Where potential computer problems of the Year 2000 products used
or distributed by the Company have been identified, these manufacturers have
stated that they have committed resources to resolving such problems prior to
year 2000. However, there can be no assurance that these manufacturers will, in
fact, timely complete the resolution of their Year 2000 problems or, even if
timely completed, that those solutions will be acceptable in the marketplace.
The solution to be provided by some manufacturers will involve a significant
upgrade cost to the end user, which may give rise to disputes and/or litigation
between the end user and the manufacturer, which may also involve the Company.
The costs of such possible disputes or litigation could be significant, thereby
resulting in a material adverse effect on the Company's business, financial
condition, results of operations and cash flows.
The Company acquired Advantis Network & Systems Sdn Bhd, a Malaysian
company, on December 15, 1997. Additionally, the Company signed a definitive
agreement on January 16, 1998 to acquire Infotel Technologies (Pte) Ltd
("Infotel"), a company organized under the laws of Singapore. The Company has
begun, but has not yet completed, its review of the internal computer systems of
Advantis and Infotel to identify the systems in each company that are not Year
2000 compliant; thus, at this time the Company has not been able to determine
whether Year 2000 problems (if any) will pose a significant operational problem
for the computer systems of either of these two companies, and whether those
operational problems, if any, would result in a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
Similarly, the Company has not yet begun its review of third-party products
distributed by Advantis or Infotel to determine the nature and extent of Year
2000 problems, if any, with such products. As a result, the Company is currently
unable to determine whether there are any Year 2000 problems associated with
such third-party products and, if so, whether the manufacturers will be able to
timely resolve any such problems. The Company also has not been able to
determine whether the legal systems of Malaysia and Singapore would result in
more or less litigation exposure to the Company and its subsidiaries if there
are disputes between the end user of a product installed by either Advantis or
Infotel, and the manufacturer.
RECENT DEVELOPMENTS
On January 16, 1998, the Company entered into a definitive agreement to
acquire all of the issued and outstanding shares of the capital stock of Infotel
Technologies (Pte) Ltd ("Infotel"), a company organized under the laws of
Singapore which provides radar system integration, turnkey project management
services, and test instrumentation, as well as a wide portfolio of
communications equipment. Consummation of the transaction is contingent upon the
Company obtaining third party financing on terms satisfactory to the Company by
no later than June 24, 1998. The extension of the closing date from April 1998
to June 1998 was agreed to by Infotel's stockholders, conditioned upon the
Company making certain concessions. These concessions included a deposit in
escrow of funds in the amount of approximately $937,500, approximately $300,000
of which, together with interest at the rate of 3% above the prime rate for the
period from April 14, 1998 through June 24, 1998, is payable to the Infotel
stockholders in the event that the transaction fails to close on or before June
24, 1998. The funds in escrow will be credited toward the purchase price in the
event that closing of the transaction occurs on or before June 24, 1998; any
interest earned on the escrowed funds is payable to the Infotel stockholders as
additional consideration. The basic terms of the acquisition agreement require
an initial cash payment of approximately $2.3 million, notes payable by
NHancement to the Infotel stockholders of approximately $2.0 million (with
payment subject to Infotel achieving certain 1998 and 1999 profitability
targets), and the issuance of 431,000 shares of NHancement's Common Stock, which
number of shares may increase based on certain price protections afforded the
Infotel stockholders. There is no assurance that this transaction will close as
scheduled or that the Company will be able to secure the financing necessary to
complete the acquisition.
On April 13, 1998, the Company signed a $3.0 million Series A
Convertible Preferred Stock financing agreement. Under the terms of the
agreement, the Company had been paid $1,250,000 (less commissions and certain
other costs and expenses of approximately $162,500) as of the date of filing of
the Registration Statement on Form S-3 of which this Prospectus is a part.
Subject to satisfaction of certain conditions specified in the
14
<PAGE> 18
stock purchase agreement documentation, the Company will receive $500,000 sixty
days after the effective date of the Registration Statement of which this
Prospectus is a part, $500,000 thirty days thereafter and the final $750,000
thirty days thereafter. The failure by the Company to comply with certain of the
provisions of the agreement may result in the Company being assessed amounts
payable to the Preferred Stock investors. Further, the issuance of shares of
Preferred Stock, convertible into shares of Common Stock in excess of 20% of the
issued and outstanding shares of Common Stock of the Company, requires
stockholder approval under applicable rules and regulations promulgated by
Nasdaq. The Company plans to seek such approval at a special meeting of
stockholders to be held in June 1998 or such later date as is determined by the
Board of Directors of the Company.
The Preferred Stock bears a 5% cumulative dividend and has a
liquidation preference equal to the original purchase price plus cumulative but
unpaid dividends. If the Company's Common Stock trades for a thirty day average
below $2.00 or the average daily volume for a thirty day period falls below
20,000 shares, the investors are not required to fund any remaining portion of
the $3.0 million in excess of the first $1,250,000 investment. Further, if the
five day average closing bid price of the Company's Common Stock falls below
$2.00 per share, the Company has the option to redeem the Preferred Stock at
118% of the original purchase price plus cumulative but unpaid dividends. Any
shares of Preferred Stock tendered for conversion prior to delivery of the
Company's notice of redemption shall not be affected by the redemption notice
and shall be converted into shares of Common Stock. As to any shares with
respect to which such conversion rights have not been timely exercised, such
conversion rights shall terminate upon delivery by the Company of its notice of
redemption. The Preferred Stock is convertible into Common Stock at the lesser
of the five day average closing bid price as of the April 13, 1998 initial
closing date or 75% of the five day average closing bid price at the time of
each conversion.
The Common Stock offered hereby by certain of the Selling Stockholders
is issuable upon conversion of the Preferred Stock. The Company intends to
utilize all or a portion of the proceeds of this financing to pay a portion of
the initial cash payment on the pending Infotel acquisition. The balance
remaining, if any, will be used to pay amounts owing to certain creditors of the
Company and for working capital.
USE OF PROCEEDS
The proceeds from the sale of the shares offered hereby will be solely
for the account of the Selling Stockholders. Accordingly, the Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
SELLING STOCKHOLDERS
Of the shares of Common Stock offered hereby, 1,488,375 shares may be
issued upon the conversion of the 30,000 shares of Series A Preferred
Convertible Stock issued or proposed to be issued to The Endeavour Capital Fund
S.A. and AMRO INTERNATIONAL S.A. in the securities purchase transaction entered
into with the Company on April 13, 1998. Such number of shares may be higher or
lower due to the floating rate conversion price at which the Series A
Convertible Preferred Stock is convertible into Common Stock and the other
factors described on the cover page of this Prospectus and under the heading
"Prospectus Summary--The Offering." Pursuant to the terms of the securities
purchase agreement, the Company has agreed to sell to such investors up to
30,000 shares of Series A Convertible Preferred Stock for $3.0 million, net of
certain costs and expenses currently in the amount of approximately $162,500
paid by the Company to counsel and other advisors to the investors, as well as
to certain finders. In addition, the securities purchase agreement provides for
certain additional payments to be made by the Company to counsel for the
investors in connection with the Form S-3 Registration Statement of which this
Prospectus is a part. The shares of Preferred Stock issued or issuable to the
investors pursuant to the
15
<PAGE> 19
Preferred Stock purchase agreement have been and will be issued by the Company
in reliance upon the exemption afforded by Section 4(2) of the Securities Act
and/or Regulation D promulgated by the Commission thereunder. The issuance to
the investors of additional shares of Preferred Stock is contingent upon
satisfaction by the Company of the conditions described under "Recent
Developments" and the Company's obtaining stockholder approval of certain of
such issuances. The Endeavour Capital Fund S.A. and AMRO INTERNATIONAL S.A. are
headquartered in Tortola, British Virgin Islands and Zurich, Switzerland,
respectively.
Up to an additional 150,000 shares are being offered hereby by James S.
Gillespie, the founder of Voice Plus and currently a director of the Company.
Until recently, Mr. Gillespie served as the President of Voice Plus and the Vice
President of Sales of the Company. The shares being offered hereby by Mr.
Gillespie are being registered pursuant to the terms of a registration rights
agreement entered into with Mr. Gillespie in connection with the Company's IPO
in February 1997.
The following table sets forth, to the knowledge of the Company, the
number of shares of Common Stock and the percentage of the outstanding shares of
Common Stock beneficially owned by each Selling Stockholder, the number of
shares to be offered and sold by such Selling Stockholder, and the number of
shares and percentage of outstanding shares to be beneficially owned by such
Selling Stockholder after such offering and sale, assuming that all the shares
offered by such Selling Stockholder are in fact sold. Unless otherwise
indicated, each person has sole investment and voting power with respect to the
shares set forth in the following table. As of April 30, 1998, the Company had
4,436,500 shares of Common Stock issued and outstanding, and 12,500 shares of
Series A Convertible Preferred Stock issued and outstanding.
16
<PAGE> 20
<TABLE>
<CAPTION>
Shares of Common
Name Shares of Common Stock Shares of Common Stock Beneficially
---- Beneficially Owned Stock Offered for Owned After
Before Offering (1)(2) Sale Offering(2)(3)
---------------------- ----------------- --------------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
The Endeavour Capital Fund S.A. 310,078 6.53% 744,187(4) 0 0%
AMRO INTERNATIONAL S.A. 310,078 6.53% 744,187(4) 0 0%
James S. Gillespie 815,000(5) 18.26%(5) 150,000 665,000(5) 11.22%(5)
</TABLE>
- --------------------
(1) For The Endeavour Capital Fund S.A. and AMRO INTERNATIONAL S.A., includes
shares of Common Stock issuable on conversion of shares of Series A
Convertible Preferred Stock issued to date (assuming a conversion rate
based on 75% of the average closing bid price of the Common Stock for the
five trading days ending on May 12, 1998).
(2) Excludes from outstanding shares any shares issuable to Advantis or
Infotel, respectively, upon satisfaction of certain conditions precedent
set forth in the Advantis stock purchase agreement and in the definitive
Infotel stock purchase agreement (closing of the transaction of which has
not yet occurred). For each of The Endeavour Capital Fund S.A. and AMRO
INTERNATIONAL S.A., also excludes from outstanding shares, any shares of
Common Stock issuable on conversion of shares of Series A Convertible
Preferred Stock held by the other.
(3) Assumes sale of all shares of Common Stock offered hereby by the Selling
Stockholders.
(4) Assumes issuance of 15,000 shares of Series A Preferred Convertible Stock
and conversion of such shares into Common Stock based on the conversion
rate described in footnote 1 above, which amount may be higher or lower
depending upon the actual conversion rate in effect on the date of any
conversion of Preferred Stock into Common Stock. Shares of Common Stock
issuable upon conversion of Preferred Stock, based on such conversion
rate, equal 744,187 1/2 shares; fractional shares are not available for
sale hereunder. The actual number of shares of Common Stock offered for
sale may be higher or lower based on a number of factors that cannot be
predicted by the Company at this time. These factors include issuances of
additional shares of Common Stock as a result of accrued but unpaid
dividends, as well as issuances of additional shares in the event of any
future stock dividends, stock distributions, stock splits or similar
capital readjustments. There are also limitations on the number of shares
of Common Stock that may be converted at any time. See the cover page of
this Prospectus, "Prospectus Summary--The Offering" and "Recent
Developments."
(5) Includes shares of Common Stock issuable upon exercise of options,
warrants and other securities which are exercisable by Mr. Gillespie
within sixty days as of the date hereof. Excludes from outstanding
shares, any shares of Common Stock issuable upon exercise of options,
warrants and other securities which are exercisable by persons other than
Mr. Gillespie as of the date of this Prospectus, including shares of
Common Stock issuable on conversion of shares of Series A Convertible
Preferred Stock.
PLAN OF DISTRIBUTION
The shares may be offered and sold from time to time by the Selling
Stockholders. No Selling Stockholder is required to offer or sell any of its or
his shares. Any such sales may be made on the Nasdaq SmallCap Market System or
such other national securities exchange on which shares of Common Stock are then
listed, through negotiated transactions or otherwise at prices and at terms then
prevailing or at prices related to the then-current market price or in
negotiated transactions. The Selling Stockholders directly, or through agents
designated from time to time, or through underwriters, brokers or dealers also
to be designated, may sell the shares from time to time on terms to be
determined at the time of sale. Any such underwriters, brokers or dealers may
receive compensation in the form of commissions or otherwise in such amounts as
may be negotiated by them. As of the date of this Prospectus, no agreements had
been reached for the sale of the shares or the amount of any compensation to be
paid to underwriters, brokers or dealers in connection therewith.
17
<PAGE> 21
The Company will bear all expenses in connection with the registration
and sale of the shares, other than commissions, concessions or discounts to
underwriters, brokers or dealers and certain of the fees and expenses of counsel
and other advisors to the Selling Stockholders.
The Company has agreed to indemnify the Selling Stockholders and the
Selling Stockholders have agreed to indemnify the Company, its officers,
directors, employees, agents and controlling persons from certain damages or
liabilities arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in or material omission or alleged
omission from the Registration Statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement thereto, to the
extent such untrue statement or omission was made in the Registration Statement
or other document in reliance upon information furnished by the indemnifying
party.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, the Company 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 of such liabilities
(other than the payment by the Company of expenses incurred by a director,
officer or controlling person of the Company 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 hereby, the Company
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.
The Selling Stockholders and any underwriter, broker or dealer who acts
in connection with the sale of the shares hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any compensation received by them and any profit on any resale of the shares as
principals might be deemed to be underwriting discounts and commissions under
the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Tomlinson Zisko Morosoli & Maser LLP, 200 Page Mill Road, Suite
200, Palo Alto, California 94306.
EXPERTS
The consolidated financial statements of NHancement Technologies Inc.
incorporated by reference in this Prospectus have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the periods
set forth in their report incorporated herein by reference, and are incorporated
herein in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting. The report of NHancement Technologies Inc.
contains an emphasis paragraph regarding the fact that the Company purchases
substantially all of its inventory requirements from one vendor and that such
vendor has announced its intentions to sell its customer premise equipment
business which services the largest portion of the Company's current business.
The financial statements of Infotel Technologies (Pte) Ltd included in
this Prospectus have been audited by Ernst & Young, Singapore, independent
certified public accountants, to the extent and for the periods set forth in
their report appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.
18
<PAGE> 22
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Combined Condensed PF-1
Financial Statements (Unaudited)
of Infotel Technologies (Pte) Ltd
and NHancement Technologies Inc.
Financial Statements (Unaudited) F-1
of Infotel Technologies (Pte)
Ltd as of March 31, 1998 and 1997
Report of Independent Auditors F-8
Financial Statements of Infotel F-9
Technologies (Pte) Ltd as
of June 30, 1997 and 1996
</TABLE>
<PAGE> 23
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
OF INFOTEL TECHNOLOGIES (PTE) LTD AND
NHANCEMENT TECHNOLOGIES INC.
The following unaudited pro forma combined condensed financial statements assume
a business combination between NHancement Technologies Inc. ("NHancement")
including its wholly-owned subsidiaries, Voice Plus, Inc. ("Voice Plus"), which
was acquired in February 1997 immediately prior to the NHancement initial public
offering, Advantis Network & System Sdn Bhd ("Advantis"), which was acquired in
December 1997, and Infotel Technologies (Pte) Ltd ("Infotel"), to be accounted
for as a purchase (the "Acquisition"). The pro forma combined condensed
financial statements are based on the historical financial statements and the
notes thereto of NHancement included in the quarterly report on Form 10-QSB as
of March 31, 1998 and for the three months then-ended, the historical financial
statements of Infotel as of March 31, 1998 and for the three months then-ended,
the NHancement annual report on Form 10-KSB for the year ended December 31, 1997
and the historical financial statements of Voice Plus(R), Advantis and Infotel
for the year ended December 31, 1997. The NHancement historical financial
statement data for the three months ended March 31, 1998 and the Infotel
historical financial statement data for the three months ended March 31, 1998
have been prepared on the same basis as the audited financial statements of
NHancement and, in the opinion of management, contain all adjustments necessary
for the fair presentation of the results of operations for such period.
The pro forma combined condensed balance sheet combines NHancement's unaudited
March 31, 1998 condensed consolidated balance sheet with Infotel's unaudited
March 31, 1998 condensed balance sheet, giving effect to the Acquisition and a
Preferred Stock financing as if they had occurred on March 31, 1998. The pro
forma combined condensed statement of operations for the three months ended
March 31, 1998 combines NHancement's unaudited consolidated condensed statements
of operations with the Infotel unaudited condensed statement of operations for
the corresponding period, giving effect to the acquisition of Infotel, and a
Preferred Stock financing, as if they occurred as of January 1, 1998. The pro
forma combined condensed statement of operations for the year ended December 31,
1997 combines NHancement's historical, Voice Plus' pro forma and Advantis' pro
forma condensed statements of operations with the Infotel condensed statement of
operations for the year ended December 31, 1997, giving effect to the
acquisitions of Infotel, Advantis and Voice Plus, and a Preferred Stock
financing, as if they occurred as of January 1, 1997.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred if the acquisition of Infotel had been consummated at the
beginning of the periods presented, nor is it necessarily indicative of future
operating results or financial position. The unaudited pro forma combined
condensed financial statements do not incorporate any benefits from potential
cost savings or synergies of operations of the combined company.
NHancement estimates that it will incur direct transaction costs of
approximately $61,100 associated with the Acquisition which have been reflected
as a component of the purchase consideration for Infotel. There can be no
assurance that NHancement will not incur additional direct transaction costs
associated with this acquisition in subsequent periods or that management will
be successful in their efforts to integrate the operations of the two companies.
These pro forma combined condensed financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of NHancement incorporated into this Prospectus by reference to
NHancement's annual report on Form 10-KSB for the fiscal year ended December 31,
1997 and Nhancement's quarterly report on Form 10-QSB for the quarter ended
March 31, 1998, and the financial statements and the notes thereto of Infotel
included herein.
PF-1
<PAGE> 24
NHANCEMENT TECHNOLOGIES INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
======================================================================================================================
Pro Forma
NHancement Infotel Adjustments Combined
======================================================================================================================
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 935,900 $1,487,000(1) $(2,314,800) $2,618,100
(2) 2,510,000
Accounts receivable, net 1,601,500 1,903,000 3,504,500
Inventory 526,400 913,000 1,439,400
Costs and estimated earnings in excess of
billings on uncompleted contracts -- 368,000 368,000
Notes receivable from stockholders 112,000 -- 112,000
Income tax receivable 225,600 -- 225,600
Prepaid expenses and other 330,700 92,000 422,700
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 3,732,100 4,763,000 8,690,300
- ----------------------------------------------------------------------------------------------------------------------
Furniture and equipment, net 658,200 429,000 1,087,200
Excess of cost over net assets acquired 2,387,300 --(1) 1,631,600 4,018,900
Long-term portion of notes receivable from
stockholders 162,600 -- 162,600
Deferred acquisition costs 119,400 --(1) (61,100) 58,300
Other assets 131,200 -- 131,200
- ----------------------------------------------------------------------------------------------------------------------
$7,190,800 $5,192,000 $14,148,500
======================================================================================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements.
PF-2
<PAGE> 25
NHANCEMENT TECHNOLOGIES INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
continued
<TABLE>
<CAPTION>
====================================================================================================================
Pro Forma
NHancement Infotel Adjustments Combined
====================================================================================================================
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit $311,000 -- $311,000
Current portion of long-term obligations 298,000 -- 298,000
Deferred revenues 1,032,800 -- 1,032,800
Billings in excess of costs and estimated
earnings on uncompleted contracts $257,000 257,000
Accounts payable 839,800 1,165,000 2,004,800
Accrued liabilities 436,700 170,000 606,700
Accounts payable, affiliated companies 440,600 -- 440,600
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,358,900 1,592,000 4,950,900
- --------------------------------------------------------------------------------------------------------------------
Deferred income tax -- 40,000 40,000
Long-term debt, net of current portion 162,500 --(1) 1,975,300 2,137,800
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 3,521,400 1,632,000 7,128,700
- --------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $0.01 par value, 2,000,000
shares authorized, 30,000 shares issued and
outstanding after financing -- --(2) 2,510,000 2,510,000
Common stock, $0.01 par value, 20,000,000 shares
authorized, 4,959,500 shares issued and
outstanding after Infotel acquisition 44,400 310,000(1) (305,700) 48,700
Additional paid-in capital 18,020,600 --(1) 836,100 18,856,700
Accumulated (deficit) surplus (14,387,500) 3,250,000(1) (3,250,000) (14,387,500)
Cumulative translation gain (8,100) -- (8,100)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,669,400 3,560,000 7,019,800
- --------------------------------------------------------------------------------------------------------------------
$7,190,800 $5,192,000 $14,148,500
====================================================================================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements.
PF-3
<PAGE> 26
NHANCEMENT TECHNOLOGIES INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
==============================================================================================
Pro Forma
NHancement Infotel Adjustments Combined
==============================================================================================
<S> <C> <C> <C> <C>
Revenues $1,216,500 $3,264,000 $4,480,500
Cost of goods sold 850,000 2,385,000 3,235,000
- ----------------------------------------------------------------------------------------------
Gross profit 366,500 879,000 1,245,500
- ----------------------------------------------------------------------------------------------
Operating expenses:
Sales, marketing, general and
administrative 1,089,300 653,000 1,742,300
Amortization of excess of cost
over assets acquired 99,800 --(1) 40,800 140,600
- ----------------------------------------------------------------------------------------------
Total operating expenses 1,189,100 653,000 1,882,900
- ----------------------------------------------------------------------------------------------
Operating income (loss) (822,600) 226,000 (637,400)
Net other income (expense) 36,300 225,000(2) (44,400) 216,900
- ----------------------------------------------------------------------------------------------
Net income (loss) before taxes (786,300) 451,000 (420,500)
Income taxes --- 105,000 105,000
- ----------------------------------------------------------------------------------------------
Net income (loss) $(786,300) $346,000 $ (525,500)
==============================================================================================
Preferred Stock dividends(3) (1,000,000)
- ----------------------------------------------------------------------------------------------
Net loss applicable to Common Stock $(1,525,500)
==============================================================================================
Basic and diluted net loss per common share $ (0.31)
==============================================================================================
Weighted average shares used in computing
net loss per common share (4) 4,867,500
==============================================================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements.
PF-4
<PAGE> 27
NHANCEMENT TECHNOLOGIES INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
===================================================================================================================
NHancement Pro Forma
NHancement Voice Plus Advantis Pro Forma Infotel Adjustments Combined
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $23,000 $9,565,900 $4,620,800 $14,209,700 $9,195,700 $23,405,400
Cost of goods sold 86,400 5,473,100 3,871,700 9,431,200 6,930,500 16,361,700
- -------------------------------------------------------------------------------------------------------------------
Gross profit (63,400) 4,092,800 749,100 4,778,500 2,265,200 7,043,700
- -------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 87,900 -- -- 87,900 -- 87,900
Sales, marketing,
general and
administrative 813,900 3,129,300 754,600 4,697,800 2,549,700 7,247,500
Amortization of excess
of cost over assets
acquired -- 4,687,600 99,100 4,786,700 --(5) 163,200 4,949,900
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 901,800 7,816,900 853,700 9,572,400 2,549,700 12,285,300
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) (965,200) (3,724,100) (104,600) (4,793,900) (284,500) (5,241,600)
Net other income 65,200 (2,600) (182,500) (119,900) 678,900(6) (177,800) 381,200
(expense)
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) before
taxes (900,000) (3,726,700) (287,100) (4,913,800) 394,400 (4,860,400)
Income taxes -- (600) 1,200 600 91,300 91,900
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $(900,000) $(3,726,100) $(288,300) $(4,914,400) $303,100 $(4,952,300)
===================================================================================================================
Preferred Stock dividends(7) (1,000,000)
- -------------------------------------------------------------------------------------------------------------------
Net loss applicable to Common Stock $(5,952,300)
===================================================================================================================
Basic and diluted net loss per common share $(1.31)
===================================================================================================================
Weighted average shares used in computing net
loss per common share (8) 4,560,493
===================================================================================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements.
PF-5
<PAGE> 28
NHANCEMENT TECHNOLOGIES INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
PERIODS COMBINED
The NHancement unaudited consolidated condensed balance sheet as of March 31,
1998 has been combined with the Infotel unaudited condensed balance sheet as of
the same date giving effect to the Acquisition, and a Preferred Stock financing,
as if they had occurred on March 31, 1998.
The NHancement unaudited pro forma consolidated condensed statement of
operations for the three months ended March 31, 1998 have been combined with the
Infotel unaudited condensed statement of operations for the three months ended
March 31, 1998 giving effect to the acquisition of Infotel, and a Preferred
Stock financing, as if they had occurred on January 1, 1998.
The NHancement, Voice Plus and Advantis columns of the unaudited pro forma
condensed statement of operations for the year ended December 31, 1997 have been
combined with the Infotel unaudited condensed statement of operations for the
year ended December 31, 1997 giving effect to the acquisitions of Infotel,
Advantis and Voice Plus, and a Preferred Stock financing, as if they had
occurred on January 1, 1997.
BASIS OF PRESENTATION
Pro Forma Basis of Presentation
The pro forma combined condensed financial statements reflect (i) the
Acquisition and (ii) the completion of a Preferred Stock financing, the proceeds
of which are being used in large part for the acquisition of Infotel.
Pro Forma Combined Condensed Balance Sheet Adjustments:
(1) To reflect an adjustment, under the terms of purchase accounting, for the
acquisition of all the shares of Infotel's common stock and the recording
of the excess of cost over net assets acquired of $1,631,600 including
estimated transaction costs of approximately $61,100 associated with the
Acquisition. The components of the purchase price and calculation of the
excess of cost over net assets acquired are as follows:
<TABLE>
<CAPTION>
INFOTEL(a)
-----------
<S> <C>
CONSIDERATION:
Cash .................................................. $ 2,314,800
Notes Payable ......................................... 1,975,300
Common Stock(b) ....................................... 840,400
-----------
5,130,500
-----------
CALCULATION OF GOODWILL:
Net assets acquired (c) ............................... 3,560,000
Cost related to Acquisition ........................... (61,100)
-----------
Sub-total ............................................. 3,498,900
-----------
Excess of cost over net assets acquired ............... $ 1,631,600
===========
</TABLE>
- ----------
(a) Accounted for as purchase with the assets and liabilities assumed recorded
at estimated fair values with Singapore dollars converted into US dollars
at 1.61.
(b) 431,000 shares subject to lock-up agreements.
(c) Fair value approximates book value.
PF-6
<PAGE> 29
(2) To reflect an adjustment for the recording of a $3.0 million Preferred
Stock financing net of $490,000 of fees and expenses. The proceeds of the
financing are being used in large part for the purchase of Infotel.
Pro Forma Combined Condensed Statement of Operations Adjustments for the Three
Months Ended March 31, 1998:
(1) To reflect an adjustment for the amortization of the excess of cost over
net assets acquired of $40,800 for the three months ended March 31, 1998,
based on a ten-year amortization period.
(2) To reflect an adjustment for the recording of three months of interest on
notes payable at 9% per annum.
(3) The issuance of the Series A Convertible Preferred Stock that is
convertible into shares of Common Stock at a 25% discount has been
reflected as a preferred stock dividend and results in a $1 million
increase in the loss applicable to Common Stock in computing the net loss
per share.
(4) The weighted average outstanding shares is based on the estimated number
of shares of Common Stock of NHancement (after giving effect to the
acquisition of Infotel as if it occurred January 1, 1998) outstanding
during the year calculated as follows:
<TABLE>
<S> <C>
Shares outstanding at beginning of period 4,436,500
Shares issued in connection with the Infotel acquisition 431,000
---------
Total for combined companies, as adjusted 4,867,500
=========
</TABLE>
Pro Forma Combined Condensed Statement of Operations Adjustments for the Year
Ended December 31, 1997:
(5) To reflect an adjustment for the amortization of the excess of cost over
net assets acquired of $163,200 for the year ended December 31, 1997,
based on a ten-year amortization period.
(6) To reflect an adjustment for the recording of one year of interest on
notes payable at 9% per annum.
(7) The issuance of the Series A Convertible Preferred Stock that is
convertible into shares of Common Stock at a 25% discount has been
reflected as a preferred stock dividend and results in a $1 million
increase in the loss applicable to Common Stock in computing the net loss
per share.
(8) The weighted average outstanding shares is based on the estimated number
of shares of Common Stock of NHancement (after giving effect to the
acquisitions of Voice Plus and Advantis and the pending Acquisition of
Infotel as if they occurred January 1, 1997) outstanding during the year
calculated as follows:
<TABLE>
<S> <C> <C>
Shares outstanding at beginning of period 612,800
Shares issued in connection with the Voice Plus acquisition 1,312,500
Shares issued in IPO, including over allotment 1,770,963
Shares issued to effect the conversion and repayment of debt and
accrued interest 224,730
Shares issued in connection with the Advantis acquisition 208,500
Shares issued in connection with the Infotel acquisition 431,000 3,947,693
---------
Total for combined companies, as adjusted 4,560,493
=========
</TABLE>
Acquisition Transaction Costs
As of March 31, 1998, NHancement's direct transaction costs of approximately
$61,100 associated with the Acquisition were recorded in excess of cost over net
assets acquired, consisting of legal fees, accountants' fees and other related
charges.
PF-7
<PAGE> 30
CONFORMING ADJUSTMENTS AND RECLASSIFICATIONS
There were no adjustments required to conform the accounting policies of
NHancement and Infotel. Certain amounts for Infotel have been reclassified to
conform to NHancement's financial statement presentation. All significant
intercompany transactions have been eliminated.
PF-8
<PAGE> 31
INFOTEL TECHNOLOGIES (PTE) LTD
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine-month period ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Company's audited
financial statements for the year ended June 30, 1997.
The financial statements are stated in Singapore dollars (S$).
Translation of S$ amounts into United States dollars (US$) amounts is included
solely for the convenience of the readers outside Singapore and has been made at
the rate of S$1.61 to US$1.00, the approximate exchange rate at March 31, 1998.
No representation is made that the S$ amounts could have been, or could be,
converted into US dollars at that or any other rate.
F-1
<PAGE> 32
INFOTEL TECHNOLOGIES (PTE) LTD
UNAUDITED CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------
S$'000 US$'000
------ -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 2,394 1,487
Fixed deposits 76 47
Accounts receivable, net of allowance for
doubtful accounts of S$261,000 at March
31, 1998 3,064 1,903
Short term investments -- --
Inventories 1,470 913
Costs and estimated earnings in excess of
billings on uncompleted contracts 592 368
Other debtors 72 45
Deferred income taxes -- --
------ ------
Total current assets 7,668 4,763
------ ------
FIXED ASSETS:
Office equipment 453 281
Workshop equipment 684 425
Furniture and fixtures 195 121
Electrical installation 40 25
Renovation 53 33
Equipment for rental 196 122
Motor vehicles 681 423
------ ------
2,302 1,430
Accumulated depreciation (1,611) (1,001)
------ ------
Net fixed assets 691 429
------ ------
TOTAL ASSETS 8,359 5,192
====== ======
</TABLE>
See notes to unaudited condensed financial statements.
F-2
<PAGE> 33
INFOTEL TECHNOLOGIES (PTE) LTD
UNAUDITED CONDENSED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------
S$'000 US$'000
------ -------
<S> <C> <C>
CURRENT LIABILITIES
Billings in excess of costs and estimated
earnings on uncompleted contracts 414 257
Trade creditors 1,661 1,032
Accrued expenses 273 170
Income taxes payable 215 133
Total current liabilities -- --
2,563 1,592
------ ------
NON-CURRENT LIABILITY
Deferred income tax 64 40
------ ------
Total non-current liabilities 64 40
------ ------
SHAREHOLDERS' EQUITY Ordinary Shares, S$1 par value:
Authorized - 500,000 shares at March 31,1998
Issued and fully paid - 500,000 shares
at March 31, 1998 500 310
Retained earnings 5,232 3,250
------ ------
8,359 5,192
====== ======
</TABLE>
See notes to unaudited condensed financial statements.
F-3
<PAGE> 34
INFOTEL TECHNOLOGIES (PTE) LTD
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
THREE MONTHS ENDED
ENDED MARCH 31, MARCH 31, 1998
1997 -----------------------
S$'000 S$'000 US$'000
-------------- ------ -------
<S> <C> <C> <C>
Operating revenues:
Product sales, net 3,315 3,137 1,949
Contract revenues 851 1,609 999
Service fees 360 509 316
------ ------ ------
Total operating revenues 4,526 5,255 3,264
------ ------ ------
Costs and operating expenses
Selling, general and administrative expenses 910 938 582
Cost of products sold 2,531 2,247 1,396
Cost of contract revenues 720 1,443 896
Service costs 107 149 93
Depreciation 66 114 71
------ ------ ------
Total costs and operating expenses 4,334 4,891 3,038
------ ------ ------
Operating income 192 364 226
------ ------ ------
Other income
Net foreign exchange gains 112 280 174
Net unrealized holding gains 255 0 0
Agency commission 149 5 3
Gain on disposal of fixed assets 65 78 48
Miscellaneous income 5 0 0
------ ------ ------
Total other income 586 363 225
------ ------ ------
Income before income taxes 778 727 451
Provision for income taxes (185) (169) (105)
------ ------ ------
Net income 593 558 346
====== ====== ======
</TABLE>
See notes to unaudited condensed financial statements.
F-4
<PAGE> 35
INFOTEL TECHNOLOGIES (PTE) LTD
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
NINE MONTHS ENDED
ENDED MARCH 31, MARCH 31, 1998
1997 ---------------------------
S$'000 S$'000 US$'000
--------------- -------- --------
<S> <C> <C> <C>
Operating revenues:
Product sales, net 10,899 7,618 4,732
Contract revenues 938 1,669 1,037
Service fees 1,025 1,622 1,007
-------- -------- --------
Total operating revenues 12,862 10,909 6,776
-------- -------- --------
Costs and operating expenses
Selling, general and administrative expenses 2,780 2,659 1,652
Cost of products sold 8,383 5,898 3,663
Cost of contract revenues 773 1,478 918
Service costs 305 545 339
Depreciation 194 226 140
-------- -------- --------
Total costs and operating expenses 12,435 10,806 6,712
-------- -------- --------
Operating income 427 103 64
-------- -------- --------
Other income
Net foreign exchange gains 205 367 228
Net unrealized holding gains 255 0 0
Agency commission 312 45 28
Gain on disposal of fixed assets 65 78 48
Miscellaneous income 67 0 0
-------- -------- --------
Total other income 904 490 304
-------- -------- --------
Income before income taxes 1,331 593 368
Provision for income taxes (329) (134) (83)
-------- -------- --------
Net income 1,002 459 285
======== ======== ========
</TABLE>
See notes to unaudited condensed financial statements.
F-5
<PAGE> 36
INFOTEL TECHNOLOGIES (PTE) LTD
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
----------------------------------------
1997 1998 1998
S$'000 S$'000 US$'000
------ ------ -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 593 558 346
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 66 114 71
Gain on disposal of fixed assets (65) (78) (48)
Changes in assets and liabilities
Fixed deposits 976 571 355
Short term investments 58 752 467
Contract work-in-progress (998) 1,321 820
Inventories (476) 180 112
Accounts receivable 54 (373) (232)
Other debtors (13) 104 65
Accounts payable 191 (372) (231)
Accrued expenses (155) (53) (33)
Income taxes payable 39 90 56
------ ------ ------
Net cash provided by operating activities 270 2,814 1,748
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (14) (306) (190)
Proceeds from the disposal of fixed assets 65 78 48
------ ------ ------
Net cash provided by / (used in) investing
activities 51 (228) (142)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends 0 (3,000) (1,863)
------ ------ ------
Net cash used in financing activities 0 (3,000) (1,863)
------ ------ ------
Net increase / (decrease) in cash and cash
equivalents 321 (414) (257)
Cash and cash equivalents at beginning of
period 2,511 2,808 1,744
------ ------ ------
Cash and cash equivalents at end of period 2,832 2,394 1,487
====== ====== ======
</TABLE>
See notes to unaudited condensed financial statements.
F-6
<PAGE> 37
INFOTEL TECHNOLOGIES (PTE) LTD
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31
----------------------------------------------
1997 1998 1998
S$'000 S$'000 US$'000
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 1,002 459 285
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 194 226 140
Gain on disposal of fixed assets (65) (78) (48)
Changes in assets and liabilities
Fixed deposits 778 1,427 887
Short term investments (162) 1,925 1,196
Contract work-in-progress (244) 1,213 753
Inventories (84) 507 315
Accounts receivable 969 107 66
Other debtors (89) 36 22
Accounts payable 195 (1,351) (839)
Accrued expenses (342) (159) (99)
Income taxes payable (137) (114) (71)
-------- -------- --------
Net cash provided by operating activities 2,015 4,198 2,607
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (423) (398) (246)
Proceeds from disposal of fixed assets 65 78 48
-------- -------- --------
Net cash used in investing activities (358) (320) (198)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (185) (3,185) (1,978)
-------- -------- --------
Net cash used in financing activities (185) (3,185) (1,978)
-------- -------- --------
Net increase in cash and cash equivalents 1,472 693 431
Cash and cash equivalents at beginning of
period 1,360 1,701 1,056
-------- -------- --------
Cash and cash equivalents at end of period 2,832 2,394 1,487
======== ======== ========
</TABLE>
See notes to unaudited condensed financial statements.
F-7
<PAGE> 38
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Infotel Technologies (Pte) Ltd
We have audited the accompanying balance sheets of Infotel Technologies
(Pte) Ltd as of June 30, 1996 and 1997, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Infotel Technologies (Pte)
Ltd at June 30, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 1997, in
conformity with United States generally accepted accounting principles.
/s/ Ernst & Young
- ------------------------
ERNST & YOUNG
Singapore
May 12, 1998
F-8
<PAGE> 39
INFOTEL TECHNOLOGIES (PTE) LTD
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30
-------------------------------------------
1996 1997 1997
NOTES S$'000 S$'000 US$'000
------ ------ ------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 1,360 1,701 1,056
Fixed deposits 1,299 1,503 934
Accounts receivable, net of allowance for
doubtful accounts of S$111,977 and
S$288,642 at June 30, 1996 and 1997
respectively 4,502 3,171 1,970
Short term investments 2 1,736 1,925 1,196
Inventories 2,312 1,977 1,228
Costs and estimated earnings in excess of
billings on uncompleted contracts 4 0 1,391 864
Other debtors 83 108 67
Deferred income taxes 5 0 20 12
------ ------ ------
Total current assets 11,292 11,796 7,327
------ ------ ------
FIXED ASSETS:
Office equipment 383 418 260
Workshop equipment 548 685 425
Furniture and fixtures 184 193 120
Electrical installation 40 40 25
Renovation 53 53 33
Equipment for rental 196 196 122
Motor vehicles 485 572 355
------ ------ ------
1,889 2,157 1,340
Accumulated depreciation (1,554) (1,638) (1,018)
------ ------ ------
Net fixed assets 335 519 322
------ ------ ------
TOTAL ASSETS 11,627 12,315 7,649
====== ====== ======
</TABLE>
See accompanying notes
F-9
<PAGE> 40
INFOTEL TECHNOLOGIES (PTE) LTD
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30
-------------------------------------------
1996 1997 1997
NOTES S$'000 S$'000 US$'000
------ ------ -----
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Billings in excess of costs and estimated
earnings on uncompleted contracts 4 248 - -
Trade creditors 2,601 3,012 1,871
Accrued expenses 595 432 268
Income taxes payable 468 336 209
------ ------ -----
Total current liabilities 3,912 3,780 2,348
------ ------ -----
NON-CURRENT LIABILITY
------ ------ -----
Deferred income tax 5 68 77 48
------ ------ -----
Total non-current liabilities 68 77 48
------ ------ -----
SHAREHOLDERS' EQUITY Ordinary Shares,
S$1 par value: Authorized - 500,000
shares at June 30, 1996 and 1997
Issued and fully paid - 500,000 shares
at June 30, 1996 and 1997 500 500 310
Retained earnings 7,147 7,958 4,943
====== ====== =====
11,627 12,315 7,649
====== ====== =====
</TABLE>
See accompanying notes
F-10
<PAGE> 41
INFOTEL TECHNOLOGIES (PTE) LTD
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JUNE 30
-----------------------------------------------------
1995 1996 1997 1997
NOTE S$'000 S$'000 S$'000 US$'000
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Product sales, net 13,579 15,544 13,616 8,457
Contract revenues 2,937 2,256 2,420 1,503
Service fees 709 970 1,450 901
-------- -------- -------- --------
Total operating revenues 17,225 18,770 17,486 10,861
Costs and operating expenses
Selling, general and administrative expenses 3,175 3,764 3,626 2,252
Cost of products sold 10,321 11,775 10,920 6,783
Cost of contract revenues 2,440 1,596 1,940 1,205
Service costs 246 353 454 282
Bad debts written off 1 4 0 0
Depreciation 227 166 241 150
Provision for doubtful debts 17 0 177 110
-------- -------- -------- --------
Total costs and operating expenses 16,427 17,658 17,358 10,782
Operating income 798 1,112 128 79
Other income
Net foreign exchange gains 295 308 226 140
Interest income 60 23 46 29
Profit on sale of short term investments 0 0 157 98
Profit on redemption of short term investments 0 0 71 44
Net unrealized holding gains 0 0 262 163
Dividend income from quoted equity investments 0 0 7 4
Agency commission 283 167 340 211
Equipment rental 73 80 5 3
Gain on disposal of fixed assets 3 9 65 40
Miscellaneous income 0 119 15 9
-------- -------- -------- --------
Total other income 714 706 1,194 741
-------- -------- -------- --------
Income before income taxes 1,512 1,818 1,322 820
Provision for income taxes 5 (408) (473) (326) (202)
-------- -------- -------- --------
Net income 1,104 1,345 996 618
======== ======== ======== ========
</TABLE>
See accompanying notes
F-11
<PAGE> 42
NFOTEL TECHNOLOGIES (PTE) LTD
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JUNE 30
-----------------------------------------------------
1995 1996 1997 1997
S$'000 S$'000 S$'000 US$'000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 1,104 1,345 996 618
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 227 166 241 150
Gain on disposal of fixed assets (3) (9) (65) (40)
Provision for doubtful debts 17 0 177 110
Deferred income taxes (3) 12 (11) (7)
Changes in assets and liabilities
Fixed deposits 535 (1,231) (204) (127)
Short term investments 0 (1,736) (189) (117)
Contract work-in-progress 39 355 (1,639) (1,018)
Inventories 187 (799) 335 208
Accounts receivable (1,692) 1,252 1,154 717
Other debtors (34) 12 (25) (16)
Accounts payable 349 (66) 411 255
Accrued expenses 251 (17) (163) (101)
Income taxes payable 76 24 (132) (82)
-------- -------- -------- --------
Net cash provided by / (used in)
operating activities 1,053 (692) 886 550
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (89) (181) (425) (264)
Proceeds from disposal of fixed
assets 10 21 65 40
-------- -------- -------- --------
Net cash used in investing activities (79) (160) (360) (224)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (137) (137) (185) (115)
-------- -------- -------- --------
Net cash used in financing activities (137) (137) (185) (115)
-------- -------- -------- --------
Net increase in cash and cash 837 (989) 341 211
equivalents
Cash and cash equivalents at
beginning of year 1,512 2,349 1,360 845
-------- -------- -------- --------
Cash and cash equivalents at end of
period 2,349 1,360 1,701 1,056
======== ======== ======== ========
</TABLE>
See accompanying notes
F-12
<PAGE> 43
INFOTEL TECHNOLOGIES (PTE) LTD
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL TOTAL
ORDINARY RETAINED SHAREHOLDERS ORDINARY RETAINED SHAREHOLDERS
SHARES EARNINGS EQUITY SHARES EARNINGS EQUITY
-------- -------- ----------- -------- -------- ------------
S$'000 US$'000
<S> > <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 500 4,972 5,472
Net income for the year -- 1,104 1,104
Dividend paid -- (137) (137)
---- ------- -------
BALANCE AT JUNE 30, 1995 500 5,939 6,439
Net income for the year -- 1,345 1,345
Dividend paid -- (137) (137)
---- ------- -------
BALANCE AT JUNE 30, 1996 500 7,147 7,647 310 4,440 4,750
Net income for the year -- 996 996 -- 618 618
Dividend paid -- (185) (185) -- (115) (115)
---- ------- ------- ---- ------- -------
BALANCE AT JUNE 30, 1997 500 7,958 8,458 310 4,943 5,253
==== ======= ======= ==== ======= =======
</TABLE>
See accompanying notes
F-13
<PAGE> 44
INFOTEL TECHNOLOGIES (PTE) LTD
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997
(BALANCES PRESENTED ARE IN THOUSANDS OF DOLLARS UNLESS OTHERWISE INDICATED)
1. ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company was incorporated in Singapore on October 21, 1983 as a private
company limited by shares under the name of Green Trading Pte Ltd and changed
its name to Infotel Technologies (Pte) Ltd ("Infotel") on March 27, 1984.
Revenues are earned by supplying equipment, systems, and services in the
telecommunications and information technology markets. The Company also provide
technical services in a range of coordinated multidisciplinary services, from
radio communications to computer networking applications; and from electronic
test and measuring equipment to turn-key projects.
Basis of presentation
The Company maintains its records and prepares its statutory financial
statements in accordance with the provisions of Singapore Companies Act, Cap. 50
and Singapore Statements of Accounting Standard. The accompanying financial
statements differ from the financial statements issued for statutory purposes in
Singapore in that they reflect certain adjustments, not recorded in Infotel's
books, which are appropriate to present the financial position, results of
operations and cash flows in accordance with United States generally accepted
accounting principles ("US GAAP"). The principal adjustments relate to: (1)
foreign currency translation; (2) deferred income taxes; (3) accounting for
marketable securities held for trading; and (4) proposed/paid dividends.
Foreign Currency Translation
Infotel considers Singapore dollar as its functional currency. Foreign
currency transactions are converted into Singapore dollars at rates of exchange
approximating those ruling at transaction dates. Foreign currency assets and
liabilities are translated into Singapore dollars at the rates ruling at the
balance sheet date. All profits and losses on exchange are dealt with through
the profit and loss account.
The financial statements are stated in Singapore dollars (S$).
Translation of S$ amounts into United States dollars (US$) amounts is included
solely for the convenience of the readers outside Singapore and has been made at
the rate of S$1.61 to US$1.00, the approximate exchange rate at March 31, 1998.
No representation is made that the S$ amounts could have been, or could be,
converted into US dollars at that or any other rate.
F-14
<PAGE> 45
INFOTEL TECHNOLOGIES (PTE) LTD
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
1. ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES -
(CONTINUED)
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventory
Inventory consists of parts and equipment for resale and is stated at the
lower of cost or net realizable value which approximates market value. Cost is
determined on a first-in-first-out basis. Net realizable value is arrived at
after due allowance is made for damaged, obsolete and slow-moving inventories.
Fixed assets and depreciation
Fixed assets are stated at historical cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the fixed assets ranging
from 3 to 5 years.
Revenue recognition
Sales under fixed price contracts in progress is recognized under the
percentage-of-completion method of accounting in which the estimated sales value
is determined on the basis of physical completion to date (the total contract
amount multiplied by percent of performance to date less sales value recognized
in previous periods). Claims for extra work are included in revenues when
collection is probable.
Costs comprise material, sub-contracting fee and other directly related
expenses. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Provisions are made to cover
contingency and remedial work that may be necessary.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents amounts billed in excess of
revenues recognized.
Revenue from the sale of products comprising parts and equipment are
recognized upon passage of titles to the customers which generally coincides
with their delivery and acceptance.
F-15
<PAGE> 46
INFOTEL TECHNOLOGIES (PTE) LTD
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
1. ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES -
(CONTINUED)
Cash and cash equivalents
For purposes of statement of cash flows, the Company considers highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents.
Marketable securities
Effective July 1, 1995, the Company adopted Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under Statement No. 115, debt and marketable securities are
required to be classified in one of the three categories: trading,
available-for-sale, or held to maturity. The Company's debt and equity
securities qualify under the provisions of Statement No. 115 as trading
securities. Such securities are recorded at fair value, and unrealized holding
gains and losses are included in earnings.
Dividend income is accrued on the basis of the date dividend is declared by
the investee company. Interest income is taken up on an accrual basis.
Income taxes
The Company computes and records income tax in accordance with the
liability method of Statement of Financial Accounting Standard No.109
"Accounting for Income Taxes."
Deferred income taxes are provided for temporary differences between the
financial reporting and tax basis of the Company's assets and liabilities at
enacted tax rates in effect when the temporary differences will reverse.
2. SHORT TERM INVESTMENTS
<TABLE>
<CAPTION>
1996 1997 1997
------ ------ ------
<S> <C> <C> <C>
S$ S$ US$
Quoted shares in corporations 1,736 1,925 1,196
====== ====== ======
</TABLE>
Included in the Company's earnings for 1997 and 1996 were changes in net
unrealized holding gains of S$262,000 and S$nil respectively.
F-16
<PAGE> 47
INFOTEL TECHNOLOGIES (PTE) LTD
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes for the period ended June 30, 1997, was as
follows:
<TABLE>
<CAPTION>
JUNE 30
--------------------------------------------
1995 1996 1997 1997
S$ S$ S$ US$
------ ------ ------ ----
<S> <C> <C> <C> <C>
Income taxes 335 437 468 291
</TABLE>
4. CONTRACT WORK-IN-PROGRESS
<TABLE>
<CAPTION>
1996 1997 1997
S$ S$ US$
------ ------ ------
<S> <C> <C> <C> <C>
Contract work-in-progress comprises:-
Costs incurred on uncompleted contracts 268 3,079 1,912
Estimated earnings -- 169 105
------ ------ ------
268 3,248 2,017
Contract revenues recognized to date on
contracts in progress -- -- --
Less: Billings to date (516) (1,857) (1,153)
------ ------ ------
Net contract work-in-progress (248) 1,391 864
====== ====== ======
Included in the accompanying balance sheet
under the following captions-
Costs and estimated earnings in excess of
billings on uncompleted contracts -- 1,391 864
Billings in excess of costs and estimated
earnings on uncompleted contracts (248) -- --
------ ------ ------
(248) 1,391 864
====== ====== ======
</TABLE>
F-17
<PAGE> 48
INFOTEL TECHNOLOGIES (PTE) LTD
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
5. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
JUNE 30
------------------------------
1995 1996 1997 1997
S$ S$ S$ US$
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current 411 461 337 209
Deferred (3) 12 (11) (7)
---- ---- ---- ----
408 473 326 202
==== ==== ==== ====
</TABLE>
Total income tax expense differs from the amount computed by applying the
Singapore statutory income tax rate of 26% (1996: 26%; 1995: 27%) to income
before taxes as follows:
<TABLE>
<CAPTION>
JUNE 30
------------------------------
1995 1996 1997 1997
S$ S$ S$ US$
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computed expected income taxes 408 473 343 213
Non-taxable item - gain on disposal of
private car - - (17) (11)
---- ---- ---- ----
408 473 326 202
==== ==== ==== ====
</TABLE>
The Company had no tax credit carryforwards in Singapore as at June 30,
1997.
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
JUNE 30
--------------------------
1996 1997 1997
S$ S$ US$
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Unrealized exchange loss -- 20 12
Deferred tax liabilities
Depreciation and fixed assets (68) (77) (48)
---- ---- ----
Net deferred liability (68) (57) (36)
==== ==== ====
</TABLE>
F-18
<PAGE> 49
INFOTEL TECHNOLOGIES (PTE) LTD
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
5. INCOME TAXES (CONTINUED)
The net deferred tax asset is classified as follows:
<TABLE>
<CAPTION>
JUNE 30
--------------------------
1996 1997 1997
S$ S$ US$
---- ---- ----
<S> <C> <C> <C>
Non-current liability (68) (77) (48)
Current assets -- 20 12
---- ---- ----
(68) (57) (36)
==== ==== ====
</TABLE>
The deferred tax provision for 1996 and 1997 resulted primarily from the
timing differences between financial and income tax reporting for depreciation
of fixed assets and realization of foreign exchange differences.
6. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1997, the Company sold a motor vehicle (with
net book value of $0) to a director of the Company, Mr James Han, for S$65,000
and realized a gain on disposal of fixed asset for the same amount.
7. SUBSEQUENT EVENTS
In January 1998, the Company entered into a definitive agreement with
NHancement Technologies Inc. ("NHancement"), a company currently listed on the
Nasdaq SmallCap Market System for the acquisition of the Company by NHancement.
Closing of the transaction is contingent upon NHancement obtaining the financing
necessary to complete the acquisition.
On January 5, 1998, the Company paid an interim dividend of 810.81%, less
26% tax, amounting to S$3 million for the year ending June 30, 1998.
F-19
<PAGE> 50
INFOTEL TECHNOLOGIES (PTE) LTD
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
8. SALES TO MAJOR CUSTOMERS
The Company operates in one primary business segment - supplying equipment,
systems, and services in the telecommunications and information technology
markets and related technical services. The Company's main source of revenue is
derived from product sales and contract revenues.
Product sales to customers outside Singapore represent less than 15 percent
of total sales.
Product sales comprise mainly sales of equipment and related parts and
accessories:
<TABLE>
<CAPTION>
1995 1996 1997 1997
S$ S$ S$ US$
------ ------ ------ -----
<S> <C> <C> <C> <C>
Data communication 4,558 8,230 6,902 4,287
Telecommunication / Radio equipment 2,867 2,382 2,418 1,502
Test instruments 5,981 4,800 4,274 2,654
Others 173 132 22 14
------ ------ ------ -----
Total product sales 13,579 15,544 13,616 8,457
====== ====== ====== =====
</TABLE>
Contracts with government agencies and customer A make up more than 90% of
the total contract revenue generated by the Company.
Operating revenues from major customers are presented below:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
% OF TOTAL SALES
<S> <C> <C> <C>
Government agencies n/a 11 21
Customer A n/a 27 9
Customer B n/a 7 9
</TABLE>
n/a Information is not available.
In view of the size and strong financial position of the major customers,
the management does not believe significant credit risk exists at June 30, 1997.
Historically, the Company has not experienced significant losses related to
receivables from individual customers or groups of customers in any industry.
F-20
<PAGE> 51
1,638,375 SHARES OF COMMON STOCK
NHANCEMENT TECHNOLOGIES INC.
--------------
PROSPECTUS
--------------
June __, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information
Incorporation of Certain
Documents by Reference
Special Note Regarding Forward-Looking Statements
Special Note Regarding Certain Transactions
Prospectus Summary
Risk Factors
Recent Developments
Use of Proceeds
Selling Stockholders
Plan of Distribution
Legal Matters
Experts
Index to Financial Statements
</TABLE>
<PAGE> 52
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses payable in connection with the issuance and distribution of
the securities being registered hereby (estimated, including the registration
fees) are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Registration Fee $ 1,405(1)
Legal Fees and Expenses 35,000(2)
Accounting Fees and Expenses 40,000(3)
Printing 300
Transfer Agent and Registrar Fees 1,000
Miscellaneous 1,870
----------
TOTAL $ 79,575
</TABLE>
- ----------------------
(1) Pursuant to Rule 457 promulgated by the Commission under the Securities
Act, the registration fee was calculated based upon the average of the
bid and asked price per share of the Company's Common Stock, as reported
on the Nasdaq SmallCap Market System, on May 11, 1998.
(2) Excludes legal fees incurred in connection with Series A Convertible
Preferred Stock offering. Also excludes legal fees related to the proxy
solicitation required in connection with the special meeting of
stockholders to approve of the issuance of certain shares of Common Stock
into which shares of the Series A Convertible Preferred Stock are
convertible.
(3) Includes an estimate of accounting fees related to the preparation of
financial statements of Infotel Technologies (Pte) Ltd, a Singapore
corporation, included in the Prospectus which is a part of this Form S-3
Registration Statement.
Item 15. Indemnification of Officers and Directors.
The Company has included in its Certificate of Incorporation and in its
Bylaws provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by the General Corporation Law of Delaware and (ii) indemnify its
directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
The Company has purchased a directors' and officers' insurance policy
with a $5.0 million coverage limit per occurrence and $5.0 million in the
aggregate per policy year.
II-1
<PAGE> 53
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit Number Title of Exhibit
- -------------- ----------------
<S> <C>
2.1 Agreement relating to the sale and purchase of 500,000
ordinary shares in the capital of Infotel Technologies
(Pte) Ltd ("Infotel"), dated as of January 16, 1998, by
and between the Registrant and the stockholders of
Infotel (the "Sale Agreement")*
2.2 Letter agreement amending the Sale Agreement, dated as
of April 2, 1998, by and between the Registrant and the
stockholders of Infotel (the "First Amendment")*
2.3 Form of letter agreement amending the Sale Agreement, as
amended by the First Amendment, by and between the
Registrant and the stockholders of Infotel*
4.1 Form of certificate evidencing Common Stock, $.01 par
value, of the Company*
5 Opinion of Tomlinson Zisko Morosoli & Maser LLP,
regarding legality of securities being registered*
23.4 Consent of BDO Seidman, LLP
23.5 Consent of Ernst & Young, Singapore
23.6 Consent of Tomlinson Zisko Morosoli & Maser LLP
24 Power of Attorney*
</TABLE>
* Previously filed
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sell securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the
most recent post-effective amendments thereto) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be
reflected in the form of
II-2
<PAGE> 54
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement; and
(iii) Include any material information with respect to 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 filed with a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That for determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities that remain unsold at the termination of the
offering.
The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE> 55
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fremont, State of California, on the 29th day of
May, 1998.
NHANCEMENT TECHNOLOGIES INC.
By: /s/ Esmond T. Goei
--------------------------------------
Esmond T. Goei
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ Esmond T. Goei Chairman of the Board, President, May 29, 1998
- ------------------------------------ Chief Executive Officer and Director
Esmond T. Goei
Principal Financial and Accounting Officer:
/s/ Douglas S. Zorn Executive Vice President, Chief May 29, 1998
- ------------------------------------ Financial Officer, Treasurer and
Douglas S. Zorn Secretary
Additional Directors:
/s/ James S. Gillespie Director May 28, 1998
- ------------------------------------
James S. Gillespie
/s/ Gary L. Nemetz Director May 29, 1998
- ------------------------------------
Gary L. Nemetz
/s/ Santanu Das Director May 28, 1998
- ------------------------------------
Santanu Das
/s/ James H. Boyle Director May 29, 1998
- ------------------------------------
James H. Boyle
</TABLE>
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Title of Exhibit
- -------------- ----------------
<S> <C>
2.1 Agreement relating to the sale and purchase of 500,000
ordinary shares in the capital of Infotel Technologies
(Pte) Ltd ("Infotel"), dated as of January 16, 1998, by
and between the Registrant and the stockholders of
Infotel (the "Sale Agreement")*
2.2 Letter agreement amending the Sale Agreement, dated as
of April 2, 1998, by and between the Registrant and the
stockholders of Infotel (the "First Amendment")*
2.3 Form of letter agreement amending the Sale Agreement, as
amended by the First Amendment, by and between the
Registrant and the stockholders of Infotel*
4.1 Form of certificate evidencing Common Stock, $.01 par
value, of the Company*
5 Opinion of Tomlinson Zisko Morosoli & Maser LLP,
regarding legality of securities being registered*
23.4 Consent of BDO Seidman, LLP
23.5 Consent of Ernst & Young, Singapore
23.6 Consent of Tomlinson Zisko Morosoli & Maser LLP
24 Power of Attorney*
</TABLE>
*Previously filed
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
NHancement Technologies Inc.
Fremont, California
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated April 13,
1998, relating to the consolidated financial statements of NHancement
Technologies Inc. appearing in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997. Our report contains an emphasis paragraph
regarding the fact that the Company purchases substantially all of its inventory
requirements from one vendor and that such vendor has announced its intentions
to sell its customer premise equipment business which services the largest
portion of the Company's current business.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
--------------------------
BDO SEIDMAN, LLP
San Francisco, California
May 29, 1998
<PAGE> 1
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of NHancement
Technologies Inc. for the Registration of shares of its common stock and to
the inclusion therein of our report dated May 12, 1998, with respect to the
financial statements of Infotel Technologies (Pte) Ltd for the year ended June
30, 1997.
/s/ Ernst & Young
- -----------------------
Ernst & Young
Singapore
May 29, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF TOMLINSON ZISKO MOROSOLI & MASER LLP
We consent to the reference to our firm under the caption "Legal Matters"
in the Prospectus which is a part of Amendment No. 1 to the Registration
Statement on Form S-3 (File No. 333-52709) of NHancement Technologies Inc.
/s/ Tomlinson Zisko Morosoli & Maser LLP
----------------------------------------
Tomlinson Zisko Morosoli & Maser LLP
Palo Alto, California
May 29, 1998
