As Filed with the Securities and Exchange Commission on November 12, 1997
Registration No. 333-27093
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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IntelliSys Automotive Systems, Inc.
(Name of small business issuer in its charter)
Delaware 13-3841920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27777 Franklin Road - Suite 1420
Southfield, Michigan 48034
(810) 213-0284
(Address and telephone number of
principal executive offices and place of business)
Douglas Dick, President
IntelliSys Automotive Systems, Inc.
24409 Halsted Road
Farmington, Michigan 48331
(248) 888-9255
(Name, address and telephone
number of agent for service)
Copies to:
Frederick M. Mintz, Esq. Neil S. Baritz, Esq.
Mintz & Fraade, P.C. Dreier & Baritz
488 Madison Avenue 1515 No. Federal Highway, Suite 300
New York, New York 10022 Boca Raton, FL 33432
Telephone No.: (212) 486-2500 Telephone No.: (561) 750-0910
Facsimile No.: (212) 486-0701 Facsimile No.: (561) 750-5045
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
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, check the following box. |_|
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. o _____________________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. o
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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
maximum offering maximum
Title of each class of Amount to be price aggregate Amount of
securities to be registered registered per unit (1) offering price (1) registration fee
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<S> <C> <C> <C> <C>
Units, each consisting of (2) ..... 345,000 $ 10.0 $3,450,000 $ 1,045.4
(a) 2 shares of Common Stock,
$.001 par value ........... 690,000
(b) 1 Redeemable Common Stock
Purchase Warrant .......... 345,000
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Common Stock, issuable upon
exercise of the Redeemable
Warrants (3)(4) ............... 345,000 $ 7.50 $2,587,500 $ 784.09
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Underwriter's Warrants (5) ......... 30,000 $ .001 $ 30 --
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Units, issuable upon exercise of the
Underwriter's Warrants, each
consisting of ............... 30,000 $ 12.0 $ 360,000 $ 109.09
(a) 2 shares of Common Stock
(4) ..... 60,000
(b) 1 Redeemable
Common Stock Purchase
Warrant (4) ................. 30,000
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Common Stock, issuable upon
exercise of the Redeemable
Warrants underlying the
Underwriter's Warrants (4) .. 30,000 $ 7.50 $ 225,000 $ 68.18
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Total Registration Fee ......................................................................... $ 2,006.83
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) Includes 45,000 Units and 90,000 shares of Common Stock and 45,000
Redeemable Warrants included in such Units subject to the over-allotment
option granted by the Company to the Underwriter.
(3) Includes 45,000 shares of Common Stock issuable upon exercise of
Redeemable Warrants subject to the over- allotment option granted by the
Company to the Underwriter.
(4) Pursuant to Rule 416, there are also being registered such indeterminable
additional shares of Common Stock and Redeemable Warrants as may become
issuable pursuant to anti-dilutive provisions contained in the Redeemable
Warrants and the Underwriter's Warrants.
(5) To be sold to the Underwriter. Pursuant to Rule 457(g), no separate
registration fee is required for the Underwriter's Warrants.
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, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
300,000 UNITS
Each Unit Consisting of Two Shares of Common Stock
and One Redeemable Common Stock Purchase Warrant
IntelliSys Automotive Systems, Inc. (the "Company") hereby offers (the
"Offering") 300,000 units (each, a "Unit"). Each Unit consists of two shares
(the "Shares") of common stock, par value $.001 per share (the "Common Stock"),
and one Redeemable Common Stock Purchase Warrant (each, a "Warrant"). The Shares
and Warrants are sometimes hereinafter collectively referred to as the
"Securities." The Shares and Warrants shall initially trade as a unit and the
Warrants shall not be detachable nor separately transferable from the Units
until determined by the Underwriter, in its sole and absolute discretion. The
Warrants shall be exercisable commencing one year after the Effective Date of
this Offering. Each Warrant entitles the registered holder thereof to purchase
one share of Common Stock at an exercise price of $7.50 per share, at any time
during the five year period commencing on the date of this Prospectus. The
Warrant exercise price is subject to adjustment under certain circumstances.
Commencing 18 months after the date of this Prospectus, the Warrants are subject
to redemption by the Company, in whole but not in part, at $.10 per Warrant, on
30 days prior written notice provided that the per share closing bid quotation
of the Common Stock as reported on the Nasdaq SmallCap Market ("Nasdaq") equals
or exceeds $ 10 per share (subject to adjustment under certain circumstances)
for any twenty trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date of the notice of redemption.
See "Description of Securities - Warrants."
Prior to this Offering, there has been no public market for the
Securities, and there can be no assurance that any such market will develop
after the consummation of this Offering, or, if developed, that it will be
sustained. It is currently contemplated that the initial public offering price
will be $10.00 per Unit. For information regarding the factors considered in
determining the initial public offering price of the Units and the terms of the
Warrants, see "Risk Factors" and "Underwriting." Application has been made to
include the Common Stock and Warrants on Nasdaq SmallCap under the symbols
"ITAA" and "ITAAW", respectively. The Company's Class A Stock currently trades
on the NASD Bulletin Board under the symbol "ITAAA". See "Description of the
Securities - Class A Stock."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 8, AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public (1) Discount (1) Company (2)
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Per Unit................ $ 10.00 $ 1.00 $ 9.00
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Total Offering(3)....... $3,000,000 $300,000 $2,700,000
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See inside front cover for footnotes.
THE AGEAN GROUP, INC.
The date of this Prospectus is _______, 1997.
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(1) Does not include additional compensation payable to The Agean Group, Inc.
(the "Underwriter"), in the form of a non-accountable expense allowance
See "Underwriting". In addition, see "Underwriting" for information
concerning indemnification and contribution arrangements with the
Underwriter and other compensation payable to the Underwriter.
(2) Before deducting estimated expenses of the Offering of $350,000, excluding
the Underwriter's non-accountable expense allowance.
(3) The Company has granted to the Underwriter an option exercisable within 45
days after the date of this Prospectus, to purchase up to an aggregate of
45,000 additional Units on the same terms and conditions as set forth
above, solely for the purpose of covering over-allotments, if any (the
"Over-Allotment Option"). If the Over-Allotment Option is exercised in
full, the total Price to Public, Underwriting Discounts and Proceeds to
the Company will be $3,450,000, $345,000 and $2,665,000, respectively. See
"Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ SMALLCAP. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other reports as the Company
may deem appropriate or as may be required by law.
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[PHOTOGRAPHS AND CAPTIONS]
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise noted, the information
in this Prospectus (i) assumes that none of the Warrants included in the Units
being offered hereby, the Over-Allotment Option, Underwriter's Warrants or
Warrants issuable upon exercise of the Underwriter's Warrants will be exercised,
(ii) does not include any of the 400,000 shares of Common Stock reserved for
issuance upon the exercise of options for grant under the Company's 1997 Stock
Option Plan (the "Stock Option Plan"), of which no options have been granted as
of the date of this Prospectus, and (iii) does not include the 7,500 shares of
Common Stock issuable upon exercise of options granted to Mintz & Fraade, P.C.,
counsel to the Company, previously issued and presently outstanding. This
Prospectus contains certain forward looking statements concerning the Company's
operations, economic performance and financial condition. Such statements are
subject to a number of risks and uncertainties. The Company's actual results
could differ materially from those currently anticipated due to a number of
factors including those identified under "Risk Factors" and elsewhere in this
Prospectus.
The Company
The Company is engaged in marketing and servicing RT/AI(R) Agentware
computer software, which utilize Real Time Artificial Intelligence ("RT/AI"),
and related computer hardware, for automated manufacturing and control systems.
The Company sells its products directly to manufacturers of automotive vehicles
including, but not limited to, automobiles, buses, trucks and vans and
manufacturers of automotive vehicles (the "Automotive Industry") and to entities
that supply manufacturing and other equipment and software to the Automotive
Industry; provided, however that such entities can only utilize the RT/AI in
connection with the portion of their business which is engaged in the Automotive
Industry. In general, "Real Time" refers to the ability of a computer to process
and respond to current information and data input contemporaneously with the
receipt of such information and data, while "Artificial Intelligence" refers to
computer software programmed to mimic the human decision-making process. In
addition to providing RT/AI software and hardware, the Company enhances
production and control machinery manufactured by third parties with its RT/AI
products and installs the enhanced machinery in the manufacturing plants of its
Automotive Industry customers.
The Automotive Industry is experiencing a substantial shift in its
manufacturing process and control systems as automated machinery and the entire
manufacturing and administrative process becomes increasingly computerized. The
present Automotive Industry environment of "just-in-time" manufacturing, with
the typical production line handling numerous installation functions involving a
multitude of exterior and interior colors, interior fabrics, individual options
and option packages, engines and transmissions types and other features and,
possibly, different automobile models, has created a demand for computer
software application programs capable of controlling the complexity of
machinery, process and quality control systems and planning and scheduling
systems in a manner that reduces response time and costs. There are in excess of
350 Automotive Industry manufacturing plants located in North America, with the
typical plant having an average of 500 automated machines involved in the
production and inspection processes. The Company has targeted each manufacturing
plant within the Automotive Industry in North America as a potential customer,
with the control systems of each automated machine in such manufacturing plants
as capable of being enhanced by one or more of the Company's products. In
addition, each manufacturing plant has one or more management information system
("MIS"), overseeing the maintenance, supply acquisition, order fulfilment and
other administrative functions within the plant. Such MIS systems can also be
augmented by the Company's line of RT/AI products.
The RT/AI computer software being licensed by the Company was developed by
ISI Technology Corp., formerly known as IntelliSys Systems, Inc. ("ISI"). In
August 1995, the Company acquired from ISI the exclusive license in perpetuity
(the "License") to sell RT/AI computer software and related technology (the
"Products") to the Automotive
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<PAGE>
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Industry in North America. In addition, the Company acquired all of ISI's rights
under various purchase orders (each, a "Purchase Order") and, perhaps more
importantly, certain blanket purchase orders (each, a "Blanket Purchase Order"
or "BPO"), including a BPO with the purchasing agent of The Ford Motor Company
("Ford"), SNAPP. In the automotive manufacturing business, a BPO operates as a
pre-approval of the vendor as a provider to the BPO issuer of the items listed
in the BPO. Although issuing a BPO does not constitute a firm commitment, and
the issuer of the BPO is under no obligation to purchase the items listed
thereon from such vendor, a BPO increases the probability that such vendor will
be chosen to supply those items listed in the BPO if and when such items are
ordered. Although the BPO with Ford has expired, Management believes that as a
practical matter no replacement is required in view of the fact that the Company
has been approved as a direct vendor to Ford and has received a vendor number
which facilitates its sales. There can be no assurance that sales to Ford will
continue to occur. See "Risk Factors: Risk of Loss of Material Customers, Lack
of Firm Contracts." See "Business - License Agreement with ISI Technology Corp."
ISI is an artificial intelligence software and engineering firm
headquartered in Syracuse, New York. Certain of the Company's employees
including, but not limited to, Douglas Dick, the President and a director of the
Company were previously employed by ISI and/or its subsidiaries. Mr. Dick was
previously an officer and director of ISI and currently owns, directly or
through his family, shares in ISI. See "Management." In 1987, ISI developed a
"knowledged based" computer software program called "RT/AI(R) Agentware(TM)"
("Agentware"), a computer aided software engineering ("CASE") tool which is used
to develop knowledged based software applications in the form of "intelligent
agents." In general, "knowledge based" means that the software has certain
attributes normally associated with human knowledge, while "intelligent agent"
refers to software in which the "knowledge" is organized and placed in modules
call "agents." Management believes that, when incorporated into computer
software used in connection with manufacturing, process and quality control and
MIS systems, these attributes can increase the productivity and lower the costs
of manufacture within the Automotive Industry. Pursuant to the terms of the
License, ISI is required to provide all innovations, improvements, upgrades,
modifications, substitutions, replacements and enhancements to the Products and
to correct any errors to the Products. ISI has informed the Company that it
intends to continue to develop and produce upgrades, enhancements and additions
to the Products for the foreseeable future, although it is not obligated to do
so. The Company has received regular updates to the Products since it first
acquired the License. See "Business - License Agreement with ISI Technology
Corp." and "- Products."
The Offering
Securities Offered.......... 300,000 Units are being offered hereby. Each Unit
consists of two Shares and one Warrant. The Shares
and Warrants shall not be detachable nor separately
transferable from the Units until determined by the
Underwriter, in its sole and absolute discretion.
The Warrants will be exercisable commencing one
year after the Effective Date of this Offering.
Terms of Warrants........... Each Warrant entitles the registered holder thereof
to purchase, at any time commencing on the date of
this Prospectus and until , 2002 [five years from
the date of this Prospectus], one share of Common
Stock at a price of $ 7.50 per share, subject to
adjustment in certain circumstances. Commencing
eighteen months after the date of this Prospectus,
the Warrants are subject to redemption by the
Company, in whole but not in part, at $.10 per
Warrant, on 30 days' prior written notice provided
that the per share closing bid quotation of the
Common Stock as reported on Nasdaq equals or
exceeds $ 10 per share, subject to adjustment, for
any twenty trading days within a period of 30
consecutive trading days ending on the fifth
trading day prior to the date of the notice of
redemption. See "Description of Securities -
Warrants."
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<PAGE>
Unit Offering Price......... $ 10 per Unit.
Common Stock and Warrants
Outstanding:
Prior to the Offering. 4,000,000 shares of Common Stock and -0- Warrants.
After the Offering.... 4,600,000 shares of Common Stock and 300,000
Warrants.
Use of Proceeds............. For sales and marketing, enhancement of
productivity, increase in capacity and general
corporate purposes.
Risk Factors................ The securities offered hereby involve a high degree
of risk and immediate and substantial dilution. See
"Risk Factors" and "Dilution."
Proposed Nasdaq Symbols (1):
Unit.................. ITAAU
Common Stock.......... ITAA
Warrants.............. ITAAW
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(1) Application has been made for quotation of the Units, Common Stock and
Warrants on Nasdaq SmallCap.
Summary Financial Data
The following table presents summary financial data of the Company. The
summary consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, and notes thereto,
included elsewhere in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
July 14, 1995
(Date of Inception) 9 Months 9 Months
Through Year Ended Ended Ended
September 30, September 30, June June
1995 1996 30, 1996 30, 1997
------------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues .......................... $ 41,826 $ 793,457 $ 522,858 $ 802,717
Costs and expenses ................ 143,171 1,125,250 730,005 1,426,158
(Loss) from operations ............ (101,345) (331,793) (207,147) (623,441)
Net (loss) ........................ (100,707) (331,846) (207,304) (623,026)
Net (loss) per share .............. (.05) (.17) (.03) (.10)
Weighted average shares outstanding 2,000,000 2,005,479 6,000,000 6,000,000
(Common and Class A Shares)
</TABLE>
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Balance Sheet Data:
June 30, 1997
September ----------------------------
30, 1996 Actual Pro Forma (1)
---------- ---------- -------------
Working capital (deficit) $ 359,422 $1,064,042 $3,324,042
Total assets ............ 1,509,897 2,549,338 4,809,338
Total liabilities ....... 141,450 1,053,917 1,053,917
Stockholders' Equity .... 1,368,447 1,495,421 3,755,421
(1) Assumes the sale of the minimum 300,000 Units being offered for sale by
the Company in the Offering and the initial application of the estimated
net proceeds therefrom. See "Use of Proceeds," "Description of Securities"
and "Underwriting."
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RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information contained in this Prospectus, in evaluating an
investment in the Securities offered hereby. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these forward
looking statements as a result of certain factors, including those set forth in
the following risk factors and elsewhere in this Prospectus.
Limited Operating History; History of Losses; No Assurance of Profitability;
Going Concern Disclosure in Independent Auditors' Report. The Company was
incorporated in July 1995. Accordingly, it has a relatively short operating
history upon which an evaluation of its prospects and performance can be made.
Further, the Company's operations are subject to all of the risks inherent in a
new business enterprise including, but not limited to, high expense levels
relative to revenues, complications and delays frequently encountered in
connection with the development and introduction of new products and services,
the ability to recruit and retain accomplished management and support personnel,
competition from established businesses, lack of capital, lack of experience in
the marketing of products, the ability to establish and sustain product and
service quality and unanticipated costs and expenses. The Company has incurred
net losses in each of its fiscal years since inception and, as of June 30, 1997,
had an accumulated deficit of $1,055,579. The Company has recently reduced the
salaries of many of its employees and terminated one technical employee as a
result of its continued losses and limited cash flow. In addition, the Company
has been advised by ISI that ISI expended in excess of $5,300,000 to develop the
technology which, with respect to the Automotive Industry, is the subject of the
License and in its efforts in marketing the RT/AI technology to the North
American Automotive Industry prior to the granting of the License to the Company
which resulted in aggregate losses of $ . The Company pays to ISI as on-going
royalty equal to 30% of the "gross revenues" received by the Company. See
"License Agreement with ISI Technology Corp". Accordingly, there can be no
assurance that the Company will ever achieve or be able to sustain
profitability. In addition, unfavorable general economic conditions including,
but not limited to, any possible future downturn in the Automotive Industry or
the domestic or international economies in general, could materially and
adversely affect the Company's future operating results. The report of the
independent auditors with respect to the Company's financial statements included
in this Prospectus includes a "going concern" qualification, indicating that the
Company's substantial losses from operations and negative cash flow raise
substantial doubt about its ability to continue as a going concern. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto, included elsewhere
in this Prospectus.
Reliance upon ISI. The success of the Company will depend upon many
factors beyond the Company's control, including its contractual and working
relationship with ISI. The Company relies and will rely upon ISI to correct any
errors in the RT/AI technology forming the basis of the Company's products and
to provide substantially all of the research and development with respect to
innovations, upgrades, modifications, substitutions, replacements and
enhancements to the RT/AI technology. In addition, as a licensee of ISI, the
Company will benefit from any positive publicity regarding ISI and ISI's
standing as a developer and provider of artificial intelligence technology for
industrial applications, and will be harmed by any negative reports concerning
ISI. Accordingly, the long term viability of the Company is, to a material
extent, dependent upon the continued existence and success of ISI. Currently,
the Company does not have the internal capabilities to develop the technology
which it obtains from ISI. The cessation of operations by ISI or the
discontinuance of ISI research and development of artificial intelligence
technology as it may benefit the marketability of the Company's products, could
have a material adverse effect on the Company. The Company has been informed
that ISI has expended in excess of $5,300,000 to develop the technology which,
with respect to the Automotive Industry, is the subject of the license and
incurred incurred losses of $______ as of December 31, 1996. In addition, ISI
has recently reduced its administrative staff and closed its main offices in
Syracuse, New York as a result of its continued losses and limited cash flow. As
a result, there can be no assurance of (A) ISI's ability to fulfill its
obligations pursuant to the License Agreement with ISI and (B) the future
viability of ISI and, accordingly, the Company's ability to access the
technology. See "Business - General," "- RT/AI Technology," "- License Agreement
with ISI Technology Corp." and "- Business Strategy."
Settlement with United States Government. A criminal indictment has been
brought against Intelligent Military Systems (the "Subsidiary") an 81% owned
subsidiary of ISI (the licensor of the technology), and Harold Popplewell, the
former president of IS, who is the co-inventor of an important aspect of the
RT/AI(R) technology and ISI's former attorney (together, the "Defendants")
alleging many other claims, various misrepresentations with respect to obtaining
loans, mail
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<PAGE>
fraud and money laundering. The Defendants have advised Management that they
believe that the indictment was the result of a lawsuit seeking damages for
breach of contract brought by the Subsidiary against the United States Navy. The
United States Navy recently paid $2,000,000 to settle such claim. Although the
Defendants have advised Management that they have not engaged in any illegal
activities and for a substantial period of time they vigorously defended the
allegations contained in the indictment, Mr. Popplewell recently pled guilty to
certain of the charges against him (money laundering, as a result of money being
invested in ISI which was utilized for ISI business purposes being paid to a
third party entity controlled by Mr. Popplewell to avoid creditors of the
subsidiary) in order to avoid a trial with respect to the subject charges due to
the expense, uncertainty and disruption of ISI's business that would result from
a trial.
Although Mr. Popplewell (who will be incarcerated for up to eight months)
has made past contributions to ISI, including, but not limited to, the
development of the technology and of the relationships established by ISI in the
Automotive Industry, Management does not believe that there will be any material
adverse effect upon the Company due to the fact that other key employees of ISI
are still available. There can be no assurance that Management's opinion is
correct.
Possibility of Undetected Errors. One or more of the products offered by
the Company when installed within or for a manufacturing production line may
contain undetected errors or defects. Products with reliability, quality or
compatibility problems could result in returns, reduced orders, uncollectible
accounts receivable; expenses in correcting any such errors or defects under
warranty, product redevelopment costs, and loss of, or delay in, product
acceptance. Any such event could have a material adverse effect upon the
Company's business and financial condition.
Possibility of Need For Design Change. There can be no assurance that the
technology incorporated into the Company's products or new products will be
operational as expected for all potential customer needs. As the products are
tested in the marketplace, the Company may discover that design changes are
necessary to achieve the expected performance. There can be no assurance that
any design changes required will be developed and incorporated in a timely or
economical manner, or at all.
Need to Develop Product Enhancements and New Products; Risk of
Obsolescence. The markets for the Company's products are characterized by rapid
technological change, evolving industry standards and customer demands, and
frequent new product introductions and enhancements. As a result, the Company's
ability to remain competitive will depend in significant part upon ISI's and the
Company's ability to continually develop and introduce, in a timely and
cost-effective manner, enhancements for its existing products in response to
both evolving demands of the marketplace and competitive product offerings. In
addition, over the longer term, the Company's ability to remain competitive will
depend in significant part upon ISI's and the Company's ability to develop and
introduce, in a timely and cost-effective manner, enhancements to its present
line of products and new products to expand and diversify the Company's product
offerings. ISI is not obligated to development of new products and enhancements.
Under the terms of the License Agreement, ISI is required to provide all
innovations, improvements, upgrades, modifications, substitutions, replacements
and enhancements to its RT/AI technology and to correct any errors to the
technology. Although ISI is not obligated to provide services, the Company has
been advised by ISI that ISI intends to continue to develop and produce
upgrades, enhancements and additions to its RT/AI technology, software
application programs and devices for the foreseeable future. The Company has
received regular updates from ISI since it first acquired the License. In
addition, ISI is entitled to be paid such amounts as may be mutually agreed upon
in good faith for all support, consultation or educational services provided by
ISI at the Company's request. The Company has the right to make modifications,
enhancements or other changes to the RT/AI technology or develops additional
devices utilizing the RT/AI technology; provided however, that the Company is
required by the License Agreement to provide any such modifications,
enhancements or other changes or new products to ISI upon ISI's payment of 50%
of the Company's development costs incurred in connection with such
modifications, enhancements or other changes or new products. Management views
this arrangement as beneficial to the Company in view of the of the fact that it
will both obtain the benefit of ISI's improvements and have ISI share the cost
of improvements the Company makes.
There can be no assurance that ISI or the Company will be successful in
developing and introducing, in a timely and cost-effective manner, any
enhancements or extensions for its existing products or any new products. In
addition, there can be no assurance that competitors of the Company will not
achieve technological advances that provide a competitive advantage over the
Company's products or that make such products obsolete.
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Risk of Loss of Material Customers; Lack of Firm Contracts. The Company is
dependent upon a limited number of customers for a substantial portion of its
revenues. Revenues derived from two customers accounted for all of the Company's
revenues for the fiscal year ended September 30, 1996 (the "1996 Fiscal Year").
Those same two customers also represented over 60% of the value of all orders on
hand at November 30, 1996. An unexpected decline in sales to either of such
customers could have a material adverse effect upon the Company. In addition,
there are no firm contracts governing the Company's relationship with any of its
customers. Accordingly, such business relationships could be terminated or
curtailed at any time. Although the Company has no firm contracts, it does have
Purchase Orders (each, a "PO") and, more importantly, it previously had a
Blanket Purchase Order (each, a "BPO") with Ford. In the business of Automotive
Industry manufacturing, a BPO operates as a pre-approval of a vendor as a
provider of the items listed in the BPO and increases the probability that the
Company will be chosen to supply those items listed in a given BPO. However,
because the issuer of a BPO is under no obligation to purchase the items listed
therein, and because a BPO does not contain a firm commitment for the purchase
of any of the items listed therein, there can be no assurance that the Company
will continue to benefit from BPOs it has received to date. The Company's BPO
from the Ford purchasing agent, which generated 11% of the Company's total
revenues from inception through December 31, 1996, terminated in February, 1997.
Subsequently, the Company has been approved as a direct vendor to Ford and has
received a vendor number which facilitate its sales. There can be no assurance
that sales to Ford will continue to occur. The Company does not presently have
any BPOs The lack of firm contracts between the Company and its customers could
have a material adverse impact on the Company. See "Business License Agreement
with ISI Technology Corp." and "- Key Customers."
Competition. The Company competes in the highly competitive automation and
control systems software market and, in particular, in providing control systems
using RT/AI technology to the Automotive Industry in North America. Other
companies offer products and services similar to those of the Company and target
the same customers as the Company. The Company believes its ability to compete
effectively depends upon many factors both within and outside its control,
including, but not limited to, the quantities of such products required by the
market, the timing of such requirements, the continued ability of ISI to provide
innovative and competitive RT/AI technology, the ability of the Company to
retain and increase its customer base and market share, changes and innovations
in the RT/AI technology and in the Automotive Industry, and the financial health
of the Company, ISI and certain of the Company's customers. Many of the
Company's competitors are substantially larger than the Company and have
significantly greater financial resources and marketing capabilities than the
Company, together with better name recognition. It is also possible that new
competitors may emerge and acquire significant market share. Competitors with
superior resources and capabilities may be able to utilize such advantages to
market their products and services better, faster and/or cheaper than the
Company. Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share, any one of which could have a material
adverse effect upon the Company's business, results of operations and financial
condition. In addition, there can be no assurance that the Company will be able
to compete successfully against its present or future competitors. See "Business
- - Competition."
Dependence Upon Key Personnel. The Company is substantially dependent upon
the continued services of its executive management and certain key personnel
including, but not limited to, Douglas Dick and Fred Shadko. The loss of the
services of Messrs. Dick or Shadko or any other key personnel could have a
material adverse effect upon the Company. The Company has no employment
agreements with any of its employees, nor does it maintain "key man" life
insurance on the lives of any of them. To the extent that the services of any
key employee of the Company become unavailable, the Company will be required to
retain other qualified persons; however, there can be no assurance that it will
be able to employ qualified persons upon acceptable terms. The success of the
Company also is dependent upon its ability to identify, hire and retain
additional qualified personnel, for whose services the Company will be in
competition with other prospective employers, many of which may have
significantly greater resources than the Company. There can be no assurance that
the Company will be able to hire and, if so, retain, such additional qualified
personnel. See "Management."
No Assurance of Public Market; Arbitrary Determination of Offering Price;
Possible Volatility of Market Price of Common Stock and Warrants. Prior to this
Offering, there has been no public trading market for the Units, Common Stock or
Warrants although the Company's Class A Stock currently trades on the NASD
Bulletin Board. There can be no assurance that a regular trading market for
either the Units, Common Stock or Warrants will develop or that, if developed,
it will be sustained. In addition, the prior and potential future trading of the
Company's Class A Stock could result in confusion to brokers and investors. The
initial public offering prices of the Units and exercise prices of the Warrants
have been determined arbitrarily by negotiations between the Company and the
Underwriter and are not necessarily related to the
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Company's book value, net worth, results of operations or any other established
criteria of value and may not be indicative of prices that may prevail in the
public market. In addition, the market prices of the Company's securities
following this Offering may be highly volatile, as has been usual with the
securities of other small capitalization companies. Factors such as the
Company's operating results, announcements as to technological developments in
the industry and various factors affecting the automation and control systems
software market and the Automotive Industry in general, may have a significant
impact on the market price of the Company's securities. In addition, in recent
years, the stock market has experienced a high level of price and volume
volatility and the market prices for the securities of many companies
(particularly of small and emerging growth companies) which trade in the
over-the-counter market have experienced wide price fluctuations which have not
necessarily been related to the operating performance of such companies. See
"Description of Securities" and "Underwriting."
Product Liability Exposure. Although the nature of the Company's business
exposes it to some risk from product liability claims, the Company does not
currently maintain product liability insurance. Although ISI has certain
liability to the Company for product liability claims pursuant to the License
Agreement, there can be no assurance that ISI will be able to financially
fulfill its obligations. While the Company has taken and will continue to take
precautions to minimize exposure to product liability claims, there can be no
assurance that it will be able avoid product liability claims. A successful
product liability claim brought against the Company could have a material
adverse effect upon the Company. See "Business - License Agreement with ISI
Technology Corp."
Uncertain Ability to Manage Growth. The Company's ability to achieve its
planned growth is dependent upon a number of factors including, but not limited
to, its ability to hire, train and assimilate management and other employees,
the adequacy of the Company's financial resources, the Company's ability to
identify and efficiently provide and perform such new products and services as
the Company's customers may require in the future and its ability to adapt its
own systems to accommodate its expanded operations. In addition, there can be no
assurance that the Company will be able to achieve its planned expansion or that
it will be able to manage successfully such expanded operations. Failure to
manage anticipated growth effectively and efficiently could have a material
adverse effect on the Company. See "Business - Business Strategy."
Broad Discretion in Application of Proceeds. Approximately $360,000, or
15.9% of the Company's estimated net proceeds of this Offering has been
allocated to working capital and general corporate purposes. Accordingly,
Management will have broad discretion as to the application of such proceeds.
Additionally, although the Company intends to apply the net proceeds of this
Offering in the manner described elsewhere in this Prospectus, it has broad
discretion of the use thereof. Further, the Company reserves the right to
reallocate the net proceeds of this Offering among the various categories set
forth under "Use of Proceeds" as it, in its sole discretion, deems necessary or
advisable. See "Use of Proceeds"and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Possible Need for Additional Financing. Management believes that the net
proceeds to the Company from the Offering and cash from operations will be
sufficient to finance the Company's operations for at least the twelve months
following the date of this Prospectus. However, to the extent that the net
proceeds from this Offering and cash flow from operations prove to be
insufficient to fund the Company's activities, the Company may be required to
raise additional funds through the sale of additional equity or debt securities
and/or to obtain bank financing. If this additional capital were raised through
borrowing or other debt financing, the Company would incur substantial
additional interest expense. Sales of additional equity securities would dilute,
on a pro-rata basis, the percentage ownership of all holders of Common Stock.
There can be no assurance that any such financing would be available upon terms
and conditions acceptable to the Company, if at all. The inability to obtain
additional financing in a sufficient amount when needed and upon acceptable
terms and conditions could have a material adverse effect upon the Company. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
Protection of Proprietary Technology and Rights; Infringement. The
Company's commercial success depends materially upon the proprietary technology
licensed by it from ISI and the ability of ISI to protect such proprietary
technology. In addition, all trademarks to the Products are held by ISI.
Furthermore, neither ISI nor the Company holds any patents or copyrights to the
Products or the artificial intelligence technology related to the Products. ISI
has advised the Company that it relies and will rely, as it deems appropriate,
upon a combination of contractual rights, trade secrets,
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proprietary knowledge, copyrights, trademarks, non-competition, confidentiality
and non-disclosure agreements and technical resources to protect its proprietary
rights. There can be no assurance that the measures used and to be used by ISI
to protect the proprietary technology licensed to the Company will be sufficient
to prevent misappropriation of the proprietary technology or the independent
development by others of products with features derived from or otherwise
similar to those of the Products. In addition, although Management believes that
the proprietary technology licensed to the Company has been developed by ISI
independently and does not infringe upon the proprietary rights of others, there
can be no assurance that the Products do not and will not so infringe, that
third parties will not successfully assert infringement claims against ISI and
the Company in the future or that ISI and/or the Company will have the resources
to defend against an infringement claim. If a third party infringement claim was
upheld, the Company could be liable for damages, be required to modify the
Products so that they no longer infringe upon the rights of third parties, be
required to license such infringed-upon rights on terms not favorable to the
Company and/or be prohibited from marketing the Products utilizing such
infringed-upon rights. In such an event, there can be no assurance that ISI
and/or the Company would be able to pay such damages or sufficiently modify the
Products or to obtain licenses upon acceptable terms and conditions, if at all.
The imposition of damage awards, a requirement to license third parties
proprietary rights or the inability to adequately modify the Products so as to
avoid infringement on the proprietary rights of others could have a material
adverse effect upon the Company. See "Business Intellectual Property."
Control by Existing Stockholders. Upon consummation of this Offering, the
four founders of the Company, one of which is an affiliate of a director of the
Company, will beneficially own, in the aggregate approximately 48.9% of the
outstanding Common Stock. Accordingly, such stockholders, if they choose to act
together, will likely be in a position to effectively control the Company, the
election of all of the directors of the Company and the approval of major
transactions such as a merger or a sale of all or substantially all of the
assets of the Company. Although no agreement to act together currently exists,
there can be no assurance that such an agreement will not be reached in the
future. See "Principal Stockholders."
Shares Eligible for Future Sale. The Shares and Warrants (after detached
from the Units) comprising the Units being offered hereby will be freely
tradeable unless acquired by affiliates of the Company. The market price of the
Common Stock and/or Warrants could be adversely affected by the sale of
substantial amounts of Common Stock in the public market following this
Offering. No prediction can be made as to the effect that future sales of
substantial amounts of Common Stock and the availability of the shares of Common
Stock for future sale will have on the market prices of the Common Stock and/or
Warrants prevailing from time to time. The officers and directors of the Company
and all beneficial owners of 5% or more of the outstanding Common Stock have
agreed not to, directly or indirectly, issue, offer, agree or offer to sell,
sell, transfer, assign, encumber, grant an option for purchase or sale of,
pledge, hypothecate or otherwise dispose of any beneficial interest in such
securities for a period of 12 months from ___________, 1997 [the date of this
Prospectus], without the prior written consent of the Company and the
Underwriter. The sale or issuance of Common Stock after such 12 month period
could have an adverse impact on the market prices of Common Stock and/or
Warrants. Upon expiration of such 12 month period, all such shares may be sold
subject to the limitations of, and in accordance with, Rule 144 under the
Securities Act of 1933 (the "Securities Act"). Additional shares of Common
Stock, including shares underlying the Warrants and Underwriter's Warrants, will
also become eligible for sale in the public market from time to time in the
future. See "Certain Transactions," "Description of Securities," "Shares
Eligible for Future Sale" and "Underwriting."
Conflicts of Interest of Counsel. The law firm of Mintz & Fraade, P.C.
("Mintz & Fraade") has been retained as counsel to the Company in connection
with this Offering. Mintz & Fraade has been granted options to purchase 7,500
shares of Common Stock at $.001 per share, which are presently exercisable. In
addition, Mintz & Fraade has previously represented and may in the future
represent ISI, the licensor of the Company, and FMC Group, Inc., a Florida
corporation ("FMC") which is a stockholder of and consultant to the Company, as
well as officers and principals of FMC, including, but not limited to, Paul
Michelin, President of FMC and the husband of the sole shareholder of FMC, in
transactions unrelated to the Company. Mintz & Fraade owns no securities in ISI.
In the past, Mintz & Fraade has represented certain other companies which have
some of the same stockholders as those of the Company and for which FMC is a
consultant in transactions unrelated to the Company. Mintz & Fraade also owns
shares in other companies which have some of the same stockholders as those of
the Company and for which FMC is a consultant. See "Principal Stockholders" and
"Legal Matters."
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Conflicts of Interest of Directors. Two of the Company's directors, Paul
Michelin and James Perretty, are employed by FMC, which is a stockholder of, and
provides management services, to the Company. FMC also provides management
services to ISI. In addition, Mr. Douglas Dick, the President and a director of
the Company, is a former officer and employee of ISI and certain of its
subsidiaries, and directly or through his family owns shares of ISI (less than
1%). Certain conflicts of interest may arise as a result of such relationships.
See "Management."
Authorization and Discretionary Issuance of Preferred Stock. The Company's
Certificate of Incorporation authorizes the issuance of up to 2,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), with such
designations, rights and preferences as may be determined from time to time by
its Board of Directors. Accordingly, the Company's Board of Directors is
empowered, without stockholder approval, to issue Preferred Stock with dividend,
liquidation, conversion or other rights which could adversely affect the rights
of the holders of Common Stock. The issuance of shares of Preferred Stock could,
among other things, adversely affect the voting power of the holders of Common
Stock and, under certain circumstances, make it more difficult for a third party
to gain control of the Company, discourage bids for the Company's Common Stock
at a premium or otherwise adversely affect the market price for shares of Common
Stock. See "Description of Securities - Preferred Stock."
Delaware's Limited Liability Provision. Section 145 of the Delaware
General Corporation Law contains provisions entitling the Company's directors
and officers to indemnification from judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys fees, as a result of an
action or proceeding in which they may be involved by reason of being or having
been a director or officer of the Company. The Company has authorized the
indemnification of its officers and directors to the fullest extent available to
them under the Delaware General Corporation Law, which may reduce the likelihood
of derivative litigation against directors and officers and may discourage or
deter stockholders from suing directors or officers for breaches of their duties
to the Company, though such an action, if successful, might otherwise benefit
the Company and its stockholders. See "Management - Indemnification of Directors
and Officers and Related Matters."
Potential Expenses Arising from Indemnification of Officers and Directors.
The Company's By-Laws provides for the indemnification of directors and officers
of the Company from judgments, fines, amounts paid in settlement and reasonable
expenses as a result of an action or proceeding in which they may be involved by
reason of being or having been a director or officer of the Company as long as
the acts were done in good faith. The Company is not presently aware of any
claims which would result in its indemnification of its directors and officers.
Such provisions do not eliminate the personal liability of the Company's
directors and officers for monetary damages as a result of a breach of fiduciary
duty. The Company will indemnify against reasonable costs and expenses incurred
in connection with any action, suit or proceeding to which any of such
individuals were made a party by reason of his or her being or having been such
a director of officer, unless such person has been adjudicated to have been
liable for negligence or misconduct in his or her corporate duties. As of the
date of this Prospectus, the Company is not aware of any pending or threatened
litigation involving a current director or officer. Although the Company may
obtain an insurance policy which will cover such indemnity, there can be no
assurance that such a policy will be available or that, if available, it will be
adequate. To the extent that the Company is required to expend funds to
indemnify officers and directors, there could be a material adverse effect on
the financial condition of the Company. See "Management - Indemnification of
Directors and Officer and Related Matters."
Indemnification of Underwriter. The Company and the Underwriters have
agreed to indemnify each other against certain liabilities which may be incurred
by reason of misstatements or omissions of material facts in connection with the
statements which are made in this Prospectus and the Registration Statement of
which it forms a part. See "Underwriting."
No Dividends. The Company has never paid any cash or stock dividends on
its Common Stock and has no plans to pay cash or stock dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."
Dilution. Purchasers of shares of Common Stock offered hereby will
experience immediate and substantial dilution in net tangible book value of
$4.85 per share of Common Stock from the assumed initial public offering price
of $10.00 per Unit and attributing (for this purpose only) no value to the
Warrants included in the Units. The current stockholders of the Company,
including an affiliate of one of the Company's directors, acquired their shares
of Common Stock for consideration substantially less than the public offering
price of the shares of Common Stock offered hereby. As a result, new investors
will bear substantially all of the risks inherent in an investment in the
Company. See "Dilution."
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Limited Underwriting History. The Underwriter has not previously
participated in any public offerings as an underwriter. In evaluating an
investment in the Company, prospective investors in the Securities offered
hereby should consider the Underwriter's lack of experience as an underwriter of
public offerings. See "Underwriting."
Effect of Outstanding Options and Warrants. Upon the consummation of this
Offering, the Company will have outstanding: (i) 300,000 Warrants, (ii) the
Underwriter's Warrants exercisable to purchase an aggregate of 90,000 shares of
Common Stock (including the 30,000 shares of Common Stock underlying the
Warrants issuable upon exercise of the Underwriter's Warrants) and (iii) options
held by Mintz & Fraade to purchase 7,500 shares of Common Stock . In addition,
the Company has reserved 400,000 shares of Common Stock for issuance upon
exercise of options granted or available for grant under the Stock Option Plan,
none of which have been granted as of the date of this Prospectus. To the extent
that such warrants and options are exercised, dilution of the percentage
ownership of the Company's stockholders will occur, and any sales in the public
market of the Common Stock underlying such outstanding warrants and options
and/or warrants and options issued and granted in the future may adversely
affect prevailing market prices for the Common Stock. Holders of such warrants
and options are likely to exercise such securities when, in all likelihood, the
Company could obtain additional capital on terms more favorable than those
provided by such warrants and options. Furthermore, while such warrants and
options are outstanding, the Company's ability to obtain additional financing on
favorable terms may be affected adversely. The holders of the Underwriter's
Warrants have been granted certain registration rights with respect to
Underwriter's Warrants and the securities underlying the Underwriter's Warrants.
Exercise of such registration rights could require substantial expenditure by
the Company at a time when funds could be devoted to other applications for the
benefit of the Company. See "Certain Transactions," "Description of Securities"
and "Underwriting."
Underwriter's Influence on the Market. A significant number of the Units
offered hereby may be sold to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of Common Stock
or Warrants through or with the Underwriter. Although it has no obligation to do
so, the Underwriter has indicated to the Company the Underwriter's intent to
make a market in the Common Stock and Warrants and may otherwise effect
transactions in such securities following consummation of this Offering. If it
participates in such markets, the Underwriter may exert a dominating influence
on the markets, if they develop, for the Common Stock and Warrants. Such market
activity may be discontinued at any time. The price and liquidity of the Units,
Common Stock and Warrants may be significantly affected by the degree, if any,
of the Underwriter's participation in such markets. See "Underwriting."
No Assurance of Continued Nasdaq SmallCap Inclusion; Risk of Low-Priced
Stocks. The Company anticipates that the Common Stock and Warrants will be
eligible for quotation on Nasdaq SmallCap. In order to qualify for continued
quotation on Nasdaq SmallCap, a company, among other things, must have
$2,000,000 in net tangible assets, $1,000,000 in total market value of public
float and a minimum bid price of $1.00 per share. If the Company is unable to
satisfy the maintenance requirements for quotation on Nasdaq Small Cap, of which
there can be no assurance, it is anticipated that the Securities would be quoted
in the over-the counter market National Quotation Bureau "pink sheets" or on the
NASD OTC Electronic Bulletin Board. As a result, an investor could find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Securities. In addition, if the Securities were to become delisted from
Nasdaq SmallCap and the trading price of the Common Stock were to fall below
$5.00 per share, trading in the Securities would also be subject to the
requirements of the "penny stock" rules promulgated by the Securities and
Exchange Commission (the "Commission") under the Exchange Act. Such rules
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith,
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally defined as institutions or an investor with a net worth in excess of
$1,000,000 or annual income exceeding $200,000, $300,000 together with spouse).
For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. The additional burdens imposed
upon broker-dealers by such requirements may discourage broker-dealers from
effecting transactions in the Common Stock, which could severely limit the
market price and liquidity of the Common Stock and the ability of purchasers in
this Offering to sell the Common Stock in the secondary market.
Current Prospectus and State Registration Required to Exercise Warrants.
The Warrants are not exercisable unless, at the time of exercise, the Company
has in effect a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants and such shares have been registered, qualified
under or deemed to be exempt securities under
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the "blue sky" laws of the state of residence of the exercising holder of the
Warrants. In addition, in the event that any holder of the Warrants attempts to
exercise any Warrants at any time after nine months from the date of this
Prospectus, the Company will be required to file a post-effective amendment to
the Registration Statement of which this Prospectus is a part and deliver a
current prospectus before the Warrants may be exercised. Although the Company
has undertaken to use its best efforts to have all of the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there is no assurance that it will be able to do so.
The value of the Warrants may be greatly reduced if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if such Common Stock is not qualified or exempt from qualification
in the states in which the holders of the Warrants then reside. The Warrants
will be separately tradeable immediately upon issuance. Although the Securities
will not knowingly be sold to purchasers in jurisdictions in which the
Securities are not registered or otherwise qualified for sale, investors may
purchase the Warrants in the secondary market or may move to jurisdictions in
which the shares underlying the Warrants are not registered or qualified during
the period that the Warrants are exercisable. In such event, the Company will be
unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares are qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in such
jurisdictions, and holders of the Warrants would have no choice but to attempt
to sell the Warrants in a jurisdiction where such sale is permissible or allow
them to expire unexercised. See "Description of Securities-Warrants."
Speculative Nature of Warrants; Possible Redemption of Warrants. The
Warrants do not confer any rights of Common Stock ownership on the holders
thereof, such as voting rights or the right to receive dividends, but rather
merely represent the right to acquire shares of Common Stock at a fixed price
for a limited period of time. Specifically, holders of the Warrants may,
immediately upon issuance, exercise their right to acquire Common Stock and pay
an exercise price of $7.50 per share, subject to adjustment in the event of
certain dilutive events, prior to five years from the date of this Prospectus,
after which date any unexercised Warrants will expire and have no further value.
There can be no assurance that the market price of the Common Stock will ever
equal or exceed the exercise price of the Warrants and, consequently, whether it
will ever be profitable for holders of the Warrants to exercise the Warrants.
Commencing 18 months after the date of this Prospectus, the Warrants are
subject to redemption by the Company, in whole but not in part, at $.10 per
Warrant on 30 days' prior written notice, provided that the per share closing
bid quotation of the Common Stock as reported on Nasdaq equals or exceeds $10
per share (subject to certain adjustments) for any 20 trading days within a
period of 30 consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption. If the Warrants are called for redemption,
holders of the Warrants will lose their right to exercise the Warrants after the
expiration of the 30 day notice period. Upon receipt of a notice of redemption,
holders would be required to: (i) exercise the Warrants and pay the exercise
price at a time when it may be disadvantageous for them to do so, (ii) sell the
Warrants at the then-prevailing market price, if any, when they might otherwise
wish to hold the Warrants or (iii) accept the redemption price which is likely
to be substantially less than the market value of the Warrants at the time of
redemption. In the event that holders of the Warrants elect not to exercise
their Warrants upon notice of redemption, the unexercised Warrants will be
redeemed and the holders thereof will lose the benefit of the appreciated market
price of the Warrants, if any, and/or the difference between the market price of
the underlying Common Stock as of such date and the exercise price of such
Warrants, as well as any possible future price appreciation in the Common Stock.
See "Description of Securities Warrants."
Possible Restrictions on Market-Making Activities in the Company's
Securities. The Underwriter has advised the Company that it may make a market in
the Company's securities. Regulation M under the Exchange Act may prohibit the
Underwriter from engaging in any market-making activities with regard to the
Company's securities from (i) the period from five business days (or such other
applicable period as Regulation M may provide) prior to any solicitation by the
Underwriter of the exercise of outstanding Warrants until the termination (by
waiver or otherwise) of any right that the Underwriter may have to receive a fee
for the exercise of the Warrants following such solicitation, and (ii) any
period during which the Underwriter, or any affiliated parties, participate in a
distribution of any securities of the Company for the account of the Underwriter
or any such affiliate. As a result, the Underwriter may be unable to provide a
market for the Company's securities during certain periods, including while the
Warrants are exercisable. Any temporary cessation of such market-making
activities could have an adverse effect on the liquidity for the Company's
securities. See "Underwriting."
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Forward Looking Statements. This Prospectus contains certain forward
looking statements concerning the Company's operations, economic performance and
financial condition. Such statements are subject to a number of risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors including those identified under "Risk
Factors" and elsewhere in this Prospectus.
THE COMPANY
The Company was incorporated in Delaware on July 17, 1995, and is engaged
in providing intelligent manufacturing systems based upon proprietary RT/AI
technology to the Automotive Industry in North America. The Company markets its
products directly to automotive manufacturers, including the Big Three auto
makers and the North American manufacturing plants of European and Japanese
automotive manufacturers and to suppliers of automotive manufacturing machinery.
The Company's executive offices are located at ___________ Halsted Road,
Suite________, Farmington, Michigan 48331, and its telephone number is (810)
__________.
DIVIDEND POLICY
The Company has never declared or paid any dividends or distributions to
its stockholders since its inception. The Company intends to retain all earnings
for the foreseeable future for use in the operation and expansion of its
business and, accordingly, the Company currently has no plans to declare or pay
any dividends on its Common Stock. Future declaration and payment of dividends,
if any, will be determined by the Board of Directors after consideration of the
then current circumstances of the Company including, but not limited to, its
operations, earnings, prospects, financial condition, capital requirements,
restrictions in order to comply with credit facilities and any other factors
deemed relevant from time to time.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Units
offered hereby, after deducting underwriting discounts and estimated offering
expenses, are estimated to be approximately $2,260,000, assuming an initial
public offering price of $10.00 per Unit. The Company intends to use the net
proceeds as follows:
Percentage of
Application Amount Net Proceeds
- ----------- ------ ------------
Sales and marketing (1) ................ $ 800,000 35.4
Enhancement of productivity (2) ........ 750,000 33.2
Increase in capacity (3) ............... 350,000 15.5
Working capital (4) .................... 360,000 15.9
---------- -----
$2,260,000 100%
(1) Represents the estimated costs to establish a demonstration system and
center and Internet web site, production of marketing materials, conduct a
telemarketing campaign and hire additional sales personnel.
16
<PAGE>
(2) Represents costs to enhance certain of the Company's products and create
the infrastructure for network capabilities with customers.
(3) Represents the costs to increase integration capacity, customer site
monitoring, the Company's MIS capabilities and network.
(4) Working capital will be used to pay salaries, to purchase furniture,
fixtures and equipment, and to pay rent, office and telecommunications
expenses, professional fees, trade payables and other general operating
expenses.
The allocation of the net proceeds to the Company from this Offering set
forth above represents the Company's best estimate based upon its present plans
and certain assumptions regarding general economic and industry conditions and
the Company's future revenues and expenditures. If any of these factors change,
the Company may find it necessary or advisable to reallocate some of the
proceeds within the above described categories or to other purposes.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the net proceeds from this
Offering, together with projected cash flow generated by operations, will be
sufficient to finance the Company's contemplated cash requirements for at least
twelve months following date of this Prospectus. In the event the Company's
plans change or its assumptions change or prove to be inaccurate or the
Company's net proceeds from this Offering prove to be insufficient to fund
operations (due to unanticipated expenses, delays, problems or otherwise), the
Company would be required to seek additional financing. The Company has no
current arrangements with respect to, or sources for additional financing and it
is not anticipated that any of the Company's current stockholders will provide
any portion of the Company's future financing requirements. There can be no
assurance that additional financing will be available to the Company on
commercially reasonable terms, or at all. The inability to obtain additional
financing when needed could have a material adverse effect on the Company,
including possibly requiring the Company to curtail or cease operations.
Proceeds not immediately required for the purposes described above will be
invested in interest-bearing, government securities and/or other short-term,
interest-bearing securities.
17
<PAGE>
DILUTION
The Company had a net tangible book value of $1,495,421 or approximately
$.25 per share of Common Stock, as of June 30, 1997. Net tangible book value per
share is equal to the total tangible assets of the Company less total
liabilities, divided by the number of shares of Common Stock and Class A Shares
outstanding. After giving effect to the receipt of the net proceeds from the
sale of the Units offered hereby (after deducting the underwriting discount and
estimated expenses of the Offering and attributing, for this purpose only, no
value to the Warrants included in the Units) and the initial application of the
net proceeds therefrom, the adjusted pro forma net tangible book value of the
Company at June 30, 1997, would have been approximately $3,755,421 or $.57 per
share of Common Stock, representing an immediate dilution of $4.43 (or
approximately 88.6%) per share to the public investors, as illustrated by the
following table:
Assumed initial public offering price per share of Common Stock .......... $5.00
Net tangible book value per share of Common Stock before this Offering ... .25
Increase in pro forma net tangible book value per share of Common Stock
attributable to public investors ...................................... .32
Adjusted pro forma net tangible book value per share of Common Stock
after Offering ........................................................ .57
-----
Dilution to investors in this Offering ................................... 4.43
=====
The following table sets forth, with respect to existing stockholders and
new investors purchasing the Units offered by the Company hereby, a comparison
of the number of shares of Common Stock acquired from the Company, the
percentage ownership of such shares, the total consideration paid and the
average price paid per share (assuming an initial public offering price of
$10.00 per Unit and attributing, for this purpose only, no value to the Warrants
included in the Units). The table does not give effect to the 300,000 Warrants
that will be issued by the Company pursuant to this Prospectus.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ---------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders 4,000,000 87 $1,801,000 37.5 $0.45
New investors........ 600,000 13 3,000,000 62.5 $5.00
--------- ----- ---------- -----
Total.......... 4,600,000 100.0% $4,801,000 100.0%
========= ===== ========== =====
</TABLE>
The new investors will have paid $3,000,000 for 600,000 shares of Common
Stock, representing approximately 62.5% of the total consideration paid to date
for 13% of the total number of shares to then be outstanding. In addition, the
above table also assumes no exercise of the Over-Allotment Option, no exercise
of outstanding warrants and stock options, the Warrants or the Underwriter's
Warrants. Upon consummation of this Offering, there will be outstanding options
to purchase an aggregate 7,500 shares of Common Stock, the 300,000 Warrants and
the Underwriter's Warrants, which would entitle the holders thereof to purchase
an aggregate of 90,000 shares of Common Stock (including the shares issuable
upon exercise of the Warrants underlying the Underwriter's Warrants), as well as
the Company's Stock Option Plan pursuant to which the Company has reserved
400,000 shares for issuance upon exercise of options granted and available for
grant thereunder. See "Certain Transactions," "Description of Securities,"
"Shares Eligible for Future Sale" and "Underwriting."
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1997, the Company's
capitalization, on (i) a historical basis, and (ii) on an adjusted basis, giving
effect to the sale of the 300,000 Units being offered by the Company hereby and
the initial application of the net proceeds therefrom.
June 30, 1997
-------------
Actual As Adjusted
------ -----------
Stockholders' equity:
Preferred Stock, $.01 par value, 2,000,000 $ -0- $ -0-
shares authorized, no shares issued or
outstanding
Common Stock, par value $.0001 per share,
15,000,000 shares authorized;
4,000,000 issued and outstanding
(actual and pro forma); and 4,600,000
shares issued and outstanding 4,000 4,600
Class A Stock, par value $.01 per share,
3,000,000 shares authorized, no shares
issued or outstanding (actual); 2,000,000
shares issued and outstanding (actual
and as adjusted)* 20,000 20,000
Additional paid-in capital 2,527,700 4,786,400
Accumulated (deficit) 1,055,579 1,055,579
Total stockholders' equity 1,495,421 3,755,421
Total capitalization 2,551,000 4,811,000
* For the rights and description of the Class A Stock, See "Description of the
Securities - Class A Stock."
SELECTED FINANCIAL DATA
The balance sheet data presented below as of June 30, 1996, and 1997 and the
income statement data presented below for the period of July 14, 1995 (date of
inception) through September 30, 1995 and the fiscal year ended September 30,
1996 have been derived from the financial statements of the Company which have
been audited by Daszkal, Bolton & Manela, independent certified public
accountants. The interim financial statements of the Company for the nine month
periods ended June 30, 1996 and 1997 are unaudited. The interim financial
statements for the nine month periods ended June 30, 1996 and 1997 include all
adjustments which, in the opinion of management, are necessary for a fair
presentation of financial position and results of operation for the periods then
ended. The selected financial data should be read in conjunction with the
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
19
<PAGE>
Statement of Operations Data:
<TABLE>
<CAPTION>
July 14, 1995
(Date of Inception) 9 Months Ended
Through Year Ended June 30
September 30 September 30, -----------------------------
1995 1996 1996 1997
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 41,826 793,457 $ 522,858 $ 802,717
Cost and expenses 143,171 1,125,250 730,005 1,426,158
(Loss) from operations (101,345) (331,793) (207,147) (623,441)
Net(loss) (100,707) (331,846) (207,304) (623,026)
Net(loss) per share (.05) (.17) (.03) (.10)
Weighted average shares
outstanding 2,000,000 2,005,479 6,000,000 6,000,000
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
June 30, 1997
September September ----------------------------
30, 1995 30, 1996 Actual Pro Forma(1)
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Working capital (deficit) $ (829,909) $ 359,422 $1,064,042 $3,324,042
Total assets 1,265,820 1,509,897 2,549,338 4,809,338
Total liabilities 1,065,527 141,450 1,053,917 1,053,917
Stockholders' equity 200,293 1,368,447 1,495,421 3,755,421
</TABLE>
(1) Assumes the sale of 300,000 Units being offered for sale by the Company in
the Offering and the initial application of the estimated net proceeds
therefrom. See "Use of Proceeds," "Description of Securities" and
"Underwriting."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -
The following table sets forth the Company's operating results as a
percentage of revenue for the periods indicated:
% For the
Period from
% For the July 14, 1995
Year Ended (Inception) to
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
Statement of Operations Data:
Revenue 100.0 100.0
---------- ----------
Cost of revenue 58.7 120.5
Marketing 11.0 75.2
General and administrative 32.4 91.7
Amortization - license costs 3.1 10.0
Royalties 33.5 25.6
Research and Development 3.1 19.3
---------- ----------
Total Costs and Expenses 141.8 342.3
---------- ----------
Loss from Operations (41.8) (242.3)
---------- ----------
Interest Income 0.1 1.5
Interest expense 0.1
---------- ----------
Net Loss (41.8) (240.8)
========== ==========
REVENUES
Revenues increased to $793,457 for the year ended September 30, 1996 from
$41,826 for the period from July 14, 1995 (inception) to September 30, 1995. The
increase was attributable to favorable consumer acceptance of the Company's
product, limited operations in 1995, and the proven success of the product in
the industry.
Cost of Revenues
Cost of revenues as a percentage of Revenue decreased to 58.7% for the
year ended September 30, 1996, compared to 120.5% for the period from inception
to September 30, 1995. The decrease for the year ended September 30, 1996 was
due to product installation and modification efficiencies gained through
experience. The newly engineered technology required the development of an
entirely new production process and resulted in inefficiencies during the
initial period from inception to September 30, 1995, that were later refined.
Marketing
Marketing expense increased to $87,175 for the year ended September 30,
1996 from $31,439 for the period from inception to September 30, 1995. As a
percentage of revenue, marketing expense was 11.0% for the year ended September
30, 1996, compared to 75.2% for the period from inception to September 30, 1995.
This decrease as a percentage of revenue is attributable to limited operations
and greater emphasis on fixed marketing salaries in 1995.
21
<PAGE>
General and Administrative
General and administrative expenses increased to $256,947 for the year
ended September 30, 1996 from $38,368 for the period from inception to September
30, 1995. As a percentage of revenue, however, these expenses decreased to 32.4%
from 91.7% for the year ended September 30, 1996 and for the period from
inception to September 30, 1995, respectively. This decrease as a percentage of
revenue is due to limited operations in 1995, causing fixed expenses to
represent a larger proportion of total general and administrative expenses. The
primary components allocated to general and administrative expenses were
salaries, consulting fees, rent and travel expenditures.
Amortization
Amortization expense is comprised of amortization of the license agreement
costs using the straight line method over forty years. Amortization expense
increased to $25,000 for the year ended September 30, 1996 from $4,167 for the
period from inception to September 30, 1995.
Royalties
Royalty expense increased to $265,420 for the year ended September 30,
1996 from $10,712 for the period from inception to September 30, 1995. The
royalty agreement calls for thirty percent of the Company's revenues, net of
direct material costs, to be paid on a monthly basis. Due tot the nature of the
initial installations, royalties were not charged to the first two product
sales.
Research and Development
Research and development expenses increased to $24,978 for the year ended
September 30, 1996 from $8,088 for the period from inception to September 30,
1995. As a percentage of sales, research and development was 3.1% and 19.3%% for
the year ended September 30, 1996 and the period from inception to September 30,
1995, respectively. The decrease as a percentage of sales from 1995 to 1996 was
due to the limited operations in 1995. The Company believes that research and
development expenditures are necessary, given the nature of its business, and
expects them to continue.
Income Taxes
At September 30, 1996, the Company had a net operating loss carry forward
of $403,386 for federal income tax purposes. At this time, the Company does not
anticipate utilizing this carry forward during fiscal year 1997.
LIQUIDITY AND CAPITAL RESOURCES
The cash balance increased to $90,881 at September 30, 1996 from its
balance of $51,753 at September 30, 1995. Also, working capital increased to
$359,422 at September 30, 1996 from a negative $829,909 at September 30, 1995.
During 1996 the Company financed its operations principally through private
sales of common stock and during 1995 through short-term borrowing. Cash used in
operations increased to $640,817 in 1996 from $115,041 during the period from
July 14, 1995 (inception) to September 30, 1995.
During the year ended September 30, 1996, the Company invested $16,713 in
capital expenditures, down from $30,990 during the period from inception to
September 30, 1995. Capital expenditures consist principally of computer
equipment used in the office facility and in the production process.
During the year ended September 30, 1996, the Company extinguished the
liability owed for its license agreement in the amount of $900,000 with a
portion of its funds raised in the stock issuance for $1,500,000.
INFLATION
The rate of inflation has not had a material affect on the Company's
revenues and expenses since its inception, and it is not anticipated that
inflation will have a material effect on the Company in the near term.
BACKLOG
The backlog at June 30, 1997 was approximately $2,000,000.
22
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 1997
The following table sets forth the Company's operating results as a
percentage of revenue for the periods indicated:
% For the % For the
Nine Months Nine Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
Statement of Operations Data:
Revenue 100.00 100.00
------ ------
Cost of Revenue 93.5 56.6
Marketing 16.5 9.8
General and Administrative 45.5 34.1
Amortization - license costs 2.3 3.6
Royalties 19.9 31.9
Research and development -- 3.6
------ ------
Total Costs and Expenses 177.7 139.6
------ ------
Loss from Operations (77.7) (39.6)
------ ------
Interest Income 0.1 0.1
Interest Expense -- (0.1)
------ ------
Net Loss (77.6) (39.6)
====== ======
Revenues
Revenues increased from $552,858 for the nine months ended June 30, 1996
to $802,717 for the nine months ended June 30,. 1997, representing a 54%
increase. This increase was due to the Company's aggressive new marketing
strategy and the growing favorable recognition of the product in the automotive
industry. More specifically the Company has made significant inroads to the Ford
Motor Company engine and transmission plants in the Metro Detroit area, Windsor
(Canada), Sharonville and Batavia Ohio, as well as specific Chrysler Engine
plants. Based on the Company's current and projected backlog, this growth is
expected to continue at an increasing rate over the foreseeable future.
The Company's backlog as of June 30, 1997 was approximately $2 million, as
of August 20, 1997 it was $2.2 million, and management believes with the
availability of proper financing and additional revenues, such backlog could be
as high as $6 million by December 31, 1998.
Cost of Revenues
Cost of revenues as a percentage of revenues increased to 93.5% for the
nine months ended June 30, 1997 from 56.6% for the nine months ended June 30,
1996. This increase was mainly due to the early inefficiencies in the
installation process and to the new support positions the Company has created,
such as production management, control and documentation. The major problems
encountered in the installation process were: (1) Changes in specification of
various hardware components which resulted in additional labor and equipment
costs and (2) Modifications to the software were required to correct various
deficiencies in the original design. These problems related to the fact that
these complex systems have never been installed in actual production facilities.
Management believes that the knowledge gained and the corrections made during
these initial installations will allow the Company to be profitable on future
installations.
The new support positions are fixed costs that should allow the Company to
take advantage of its increasing backlog. Early on the Company realized that in
order to sustain the rapid growth it is going through, it would need to
strengthen its support services associated with the production cycle. These
services represent the base with which the Company will respond to the
automobile industry's increasing demand for the product. While additional
engineers will be needed to fulfil the Company's increasing backlog, Management
expects cost of revenues to represent a smaller and smaller percentage of sales
as the additional fixed costs become smaller and smaller proportion of total
costs.
23
<PAGE>
During the year, the Company leased several facilities for its
engineering, integration, development and testing work. This attributed to
increased overhead costs of rent, travel, telephone and freight, as well as the
cost of unproductive labor during travel periods. The Company has recently
entered into a lease for a centralized facility for its headquarters. This will
enable the Company to combine its marketing, engineering, integration, and
development and test facilities in one location, allowing the Company to reduce
many of the expenses previously incurred to fulfill contractual commitments.
Only very specialized work will need to occur at the customer location during
final installation. Also, having one centralized location will allow the Company
to build an effective inventory of product materials. This inventory will reduce
lead time waiting for equipment delivery to complete a job. The Company has also
relocated key personnel into the Detroit area which will reduce travel time and
related expenses and will relocate additional personnel by the end of 1997, to
further reduce travel and living expenses.
The Company has reorganized certain elements of its operations under a new
position "Manager-on-Site Engineering and Procurement". This position has the
directive to streamline procurement, integration, and testing recesses and
procedures. This directive also includes negotiating a more competitive pricing
from various vendors, so the Company can continue to reduce the cost of the jobs
by merging integration and testing processes inn the new facility. This will not
only reduce costs, but will also increase the quality of production.
The "Big-three" automotive companies require their first-tier vendors to
be certified by an independent registration authority as having quality
processes and procedures in place by the end of 1998. The standard they require
is IS 9001 (International Standard Organization Quality System Requirement 9001,
with additional quality standards that are required by the big Three: Q.S.
9000). The qualification process will take approximately one year, and will
incur costs for internal labor to develop and document processes and procedures,
as well as the costs associated with outside professional services from
consultants and registrars. This certification is necessary for the Company to
continue to do business in the automotive sector.
Marketing
Marketing expense increased to $132,674 for the nine months ended June 30,
1997 up over 150% from the nine months ended June 30, 1996. This increase was
due to the Company's new aggressive marketing strategy which has targeted new
products in plant process information and Virtual Machine technologies. This
strategy also included adding a new full time sales position. This new position
is in charge of an increased marketing budget as well as the new and more
vigorous marketing strategy.
General and Administrative
General and administrative expenses increased from $178,543 during the
nine months ended June 30, 1996 to $364,735 for the nine months ended June 30,
1997. This increase of over 100% was partly due to an increase in professional
services such as legal, accounting, financial and management. These costs were
necessary to realign the Company for anticipated growth and funding
requirements. General and administrative costs also increased due to the need
for office expenses and office personnel which were handled through outside
resources. The increase in professional fees accounted for 60% of the increase
and additional office expenditures for the other 40%.
Royalties
Royalties expense decreased from $166,543 during the nine month ended June
30, 1996 to $160,141 for the nine months ended June 30, 1997. This decrease was
attributable to a renegotiation of the license agreement with ISI Technology
Corp. down from 40% of sales less direct materials to 30% of sales less direct
materials. This new percentage is expected to significantly reduce royalty costs
and is expected to remain unchanged into the foreseeable future.
Income Taxes
At June 30, 1997, the Company had a net operating loss carry forward of
$1,026,412 for federal income tax purposes. The net operating loss is available
to offset future income.
LIQUIDITY AND CAPITAL RESOURCES
The cash balance decreased to $5,063 at June 30, 1997 from its balance of
$15,884 at June 30, 1996. The working capital increased to $673,730 at June 30,
1997 from $319,144 at June 30, 1996. During the nine months ended June 30, 1997,
the Company was partially able to finance its $465,851 accounts receivable with
$303,067 of accounts payable. Also, during the nine months ended June 30, 1997,
the Company principally financed its operations through stockholder loans and a
private sale of common stock.
24
<PAGE>
Cash used in operations increased to $801,948 in 1997 from $471,207 during
1996. This deficit was created by the increased expenditures in cost of
revenues, marketing and general and administrative expenses without a
proportional increase in revenues. This continued deficit along with continued
losses from operations has concerned the Company greatly and has fueled the
actions mentioned earlier. These problems resulted in Management's earlier
projections for profitability for February and June of 1997 to be inaccurate.
These changes have caused the Company to reanalyze its future cash flow and to
revise its cash flow projections to project that the Company will become
profitable by the third quarter of the year ended September 30, 1998. This
analysis included projecting future sales through the existing and projected
backlog and projecting expenses based on variable as well as fixed costs; and
then factoring in the timing of cash flows from accounts payable. Management
projects profitable operations by third quarter of the year ended September 30,
1998 but plans to rely on the Company's ability to successfully complete a
proposed initial public offering in the near term.
During the nine months ended June 30, 1997 the Company borrowed $458,910
from its shareholders and loaned $390,312 to its Licensor, ISI Technology Corp.
During the nine months ended June 30, 1997, the Company invested $2,468 in
capital expenditures, down from $13,504 during the nine months ended June 30,
1996. Capital Expenditures consist principally of computer equipment used in the
office facility and in the production process.
The Company intends to invest in certain specific capital equipment to
support document production and configuration control, as well as increasing
inventory to improve product preparation and production by lowering equipment
lead time for delivery and reducing over product cost by obtaining better
material terms by negotiating quantity discounts.
INFLATION
The rate of inflation has not had a material affect on the Company's
revenues and expenses since its inception, and it is not anticipated that
inflation will have a material effect on the Company in the near term.
25
<PAGE>
BUSINESS
General
The Company is engaged in marketing intelligent manufacturing and control
systems, which utilize Real Time Artificial Intelligence ("RT/AI"), and related
maintenance, service and consulting services. The Company sells its products
directly to manufacturers of automotive vehicles including, but not limited to,
automobiles, buses, trucks, and vans and manufacturers of parts for automotive
vehicles (the "Automotive Industry") and to entities which supply manufacturing
and other equipment and systems to the Automotive Industry; provided, however,
that such entities, pursuant to the terms of the License Agreement, utilize the
RT/AI in connection with the portion of their business which is engaged in the
Automotive Industry. The Company's products are a complete line of industrial
productivity enhancing systems, each of which is capable of performing
independently or in tandem with any or all of the Company's other products. Each
of the Company's products has been designed to add further value to the typical
manufacturing production line, beginning at the machine sensor level (industrial
vision system level) through machine control, machine diagnostics, process
control devices and department and plant scheduling. The Company is currently a
direct supplier to Ford Motor Company ("Ford") and Chrysler Corporation
("Chrysler") and has targeted General Motors Corporation ("GMC") and the North
American manufacturing plants of the major European and Japanese automotive
manufacturers for future sales. The Company's sales personnel provide regular
briefings on and demonstrations of the capabilities of RT/AI technology and
Company products to plant and project managers. Such briefings have resulted in
agreements to begin "pilot programs" involving one or more of the products being
placed into service with the customer, in which the customer is obligated to pay
for the products upon the products performing in accordance with the
specifications. If the products do not perform in accordance with the
specifications, the customer is not obligated to purchase the products.
All of the Company's products utilize proprietary RT/AI technology
licensed to the Company. Management believes that the use of RT/AI technology
allows the Company's Products to perform more demanding and complex functions
and to provide more flexibility and adaptability than is possible from products
which cannot offer this technology. In general, "Real Time" refers to the
ability of a computer or machine control device to process and respond to
current information and data input contemporaneously with the receipt of such
information and data, while "Artificial Intelligence" refers to software or
control process being programmed to mimic the human decision-making process. In
addition to providing RT/AI technology directly to automotive manufacturers, the
Company's RT/AI products enhance production and control machinery manufactured
by third parties. The Company is seeking to install the enhanced machinery in
the manufacturing plants of its Automotive Industry customers.
The Automotive Industry is experiencing a substantial shift in its
manufacturing process and control systems as automated machinery and the entire
manufacturing and administrative process becomes increasingly computerized. The
present Automotive Industry environment of "just-in-time" manufacturing, with
the typical production line handling numerous installation functions involving a
multitude of exterior and interior colors, interior fabrics, individual options
and option packages, engines and transmissions types and other features and,
possibly, different automobile models, has created a demand for the Company's
products which Management believes have the ability to aid in controlling the
complexity of machinery, process and quality control systems and planning and
scheduling systems in a manner that reduces response time and costs. There are
in excess 350 Automotive Industry manufacturing plants located in North America,
with the typical plant having an average of 500 automated machines involved in
the production and inspection processes. The Company has targeted each
manufacturing plant within the Automotive Industry in North America as a
potential customer. The control systems of each automated machine in such
manufacturing plants, and the entire operating process of each plant, is capable
of being enhanced by one or more of the Company's products.
The RT/AI technology licensed by the Company for use in creating the
Company's products was developed by ISI Technology Corp. ("ISI"). In August
1995, the Company acquired from ISI the exclusive license in perpetuity (the
"License") to sell the RT/AI technology to the Automotive Industry in North
America. In addition, the Company acquired all of ISI's rights under various
purchase orders (each, a "Purchase Order") and, perhaps more importantly,
certain blanket purchase orders (each, a "Blanket Purchase Order" or "BPO"),
including a BPO issued by the purchasing agent for Ford. In the automotive
manufacturing business, a BPO operates as a pre-approval of the vendor as a
provider to the BPO issuer of the items listed in the BPO. Although issuing a
BPO does not constitute a firm commitment, and the issuer of the BPO is under no
obligation to purchase the items listed thereon from such vendor, a BPO
increases the probability that such vendor will be chosen to supply those items
listed in the BPO if and when such items are ordered. Although the BPO with Ford
has expired, Management believes that as a practical matter no replacement is
required in view of the relationship between the Company and Ford. See "Risk
Factors - Risk of Loss of Material Customers, Lack of Firm Contracts"and
"Business-License Agreement with ISI Technology Corp."
26
<PAGE>
Industry Overview
Managing Automation, a trade journal, reported that it anticipated that
the overall market for intelligent industrial systems would grow to
approximately $98.8 Billion, by the end of 1994. In fact, Managing Automation
reported in 1995 that the market for intelligent industrial systems had grown to
$99.3 Billion by the end of 1994, and has continued to grow at annual rate of
6%. Further, according to the most recent information available to the Company,
Ford spent approximately $2.1 Billion through 1994 on intelligent industrial
systems, and GM, Ford and Chrysler (collectively, the "Big Three") together
spent an aggregate $8.7 Billion on such systems through 1994.
Webster's Dictionary defines artificial intelligence as "The
characteristics of a machine programmed to imitate human intelligence functions"
and "Research in methods of such programming (to imitate human intelligence
functions) designed to supplement human intellectual abilities." In general,
artificial intelligence is any technology which emulates the analysis and
decision making capability of a human expert or organization in a specific area
of expertise. This will typically include the ability to reason with
uncertainty, with vague or "fuzzy" values (as opposed to only absolutes); the
ability to learn from experience; the ability to adapt the processing to the
environment or situation presented; to use multiple types of reasoning (e.g.,
inductive, deductive, forward decision trees, search for evidence of, etc.) to
reach a conclusion, decision or recommendation; and the ability to "explain" the
facts used and the deductions, results, conclusions or recommendations reached,
made in arriving at a particular action or recommendation. In addition,
artificial intelligence has the attribute, like the human mind, to be able to
learn and automatically (without reprogramming) alter or adopt its behavior
and/or decision making process based upon the difference between a desired
outcome and the actual outcome of a prior decision, conclusion or
recommendation. Artificial intelligent computers can learn in one or more ways,
such as: (i) a human can teach the computer (program/write the software),
correcting the computer's errors while it is running (reprogramming or
supplementing the software); (ii) the computer can learn through actually
manipulating the objects and processes it is designed to manipulate or control;
(iii) the computer can learn by example; and (iv) the computer can conduct a
simulation of the processes or objects and use this model to introspect, or
reflect upon, what decisions will affect what variables and achieve what
possible outcomes.
Within the computer software industry, the term "knowledge based" means
that the resulting software has certain attributes which are normally associated
with human knowledge, while "intelligent agent" indicates a special type of
computer software architecture in which the "knowledge" is organized and placed
in modules called "agents." Typically, each agent contains fairly specialized
knowledge, such as factory machine control, financial analysis, inventory
management, etc. These agents interconnect with and communicate with other
agents, reasoning together about a particular problem or situation, similar to a
committee or group of individual human experts meeting together on a specific
matter. Numerous industry reports support the proposition that adding
intelligent agents to a conventional software program typically makes that
program more flexible and adaptive, easier to use and more powerful than its
"non-intelligent" alternatives.
Critical to intelligent agent software application programs is the speed
at which the agents process data input (throughput) and the volume of
information and knowledge within each agent. The faster the intelligent agents
and the larger their data capacity throughput, the more powerful, useful and
practical the program is. Accordingly, the power of the artificial intelligence
software application program is a result of the capabilities of the CASE tool
which is used to codify the knowledge and information within the program's
intelligent agents. Management believes that Agentware is the most advanced CASE
tool presently available to create RT/AI application programs.
According to many management and technology analysts, intelligent
agent/knowledge based technology is the most important innovation since the
invention of the computer. As reported in the April 1995 issue of DBMS Magazine
"[N]o software application in the future can be competitive without Intelligent
Agents." Intelligent Manufacturing Newsletter stated that "knowledge-based
systems such as autonomous agents will dominate the manufacturing landscape of
the late 1990's."
RT/AI Technology
All of the Company's products were developed with the use of the Agentware
CASE tool, a form of technology. This manner of application software and control
system development has permitted the RT/AI technology to be incorporated into
each of the products. Management believes that Agentware is the only CASE tool
capable of inserting knowledge based intelligent agents directly into
application software programs and machinery control systems.
Most knowledge based software programs can process approximately 300
analytical pieces of knowledge (called "rules") per second with 100 changing
facts per second. Software developed with Agentware, however, is capable of
running approximately 2,500,000 such rules and 1,200,000 changing facts per
second. Intelligent agent systems developed using Agentware were independently
benchmarked by the Northeast Parallel Architecture Center of Syracuse University
in June 1992 as being approximately 1,000 times more powerful (higher amount of
information processed in a given unit of time) than any competing system.
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License Agreement with ISI Technology Corp.
In order to capitalize upon what Management believes to be a substantial,
growing market for RT/AI systems within the Automotive Industry due to the
increase in the complexity and demands of the manufacture process and the
machinery, process and quality control systems employed in the current
competitive automotive market, on August 1, 1995, the Company entered into a
License Agreement (the "License Agreement") with ISI for the exclusive right, in
perpetuity, to market ISI's RT/AI technology to the Automotive Industry within
North America; provided, however, that such entities can only utilize the RT/AI
in connection with the portion of their business which is engaged in the
Automotive Industry. It is possible that in the future, the Company will seek
the license for other geographic areas. Besides Agentware, ISI developed
products which the Company markets to the North American Automotive Industry.
In addition to the right to utilize the RT/AI technology, pursuant to the
License Agreement, the Company acquired all of ISI's rights under various
contracts and Purchase Orders and, more importantly, Blanket Purchase Orders,
including a BPO with the purchasing agent for Ford which expired in February,
1997. See "Risk Factors-Risk of Loss of Material Customers; Lack of Firm
Contracts." In the Automotive Industry, a BPO operates as a pre-approval of the
vendor as a provider of the items listed in the BPO. Although issuing a BPO does
not constitute a firm commitment, and the issuer of the BPO is under no
obligation to purchase the items listed therein from such vendor, a BPO
increases the probability that such vendor will be chosen to supply those items
listed in the BPO if or when such items are ordered. The Company reserved the
right pursuant to the License Agreement to engage in other businesses although
at this time there are no plans to do so.
As consideration for the License and rights the Company acquired pursuant
to the License Agreement, the Company paid ISI an up front royalty of $1,000,000
and agreed to pay ISI, for as long as the License remains in effect, royalties
of 30% of the Company's "gross revenues" derived from the Company products which
are based upon the technology subject to the License. For purposes of the
License Agreement, gross revenues means monies actually received by the Company
from the use of the products with respect to the use and operation of the
licensed software and does not include revenues derived from the sale,
installation or servicing of computer hardware or other equipment that may be
used in connection with the Company's products subject to the License. Moreover,
the Company is required to make royalty payments on revenues generated from
maintenance and support services on the products subject to the License. The
Company's continuing royalty obligations are payable on a monthly basis based
upon monies actually received by the Company from its customers. Through June
1997, the Company has paid ISI an aggregate $436,273 in royalties, in addition
to the up front royalty of $1,000,000.
Under the terms of the License Agreement, ISI is required to provide all
innovations, improvements, upgrades, modifications, substitutions, replacements
and enhancements to its RT/AI technology and to correct any errors to the
technology. Although ISI is not obligated to provide services, the Company has
been advised by ISI that ISI intends to continue to develop and produce
upgrades, enhancements and additions to its RT/AI technology, software
application programs and devices for the foreseeable future. The Company has
received regular updates from ISI since it first acquired the License. In
addition, ISI is entitled to be paid such amounts as may be mutually agreed upon
in good faith for all support, consultation or educational services provided by
ISI at the Company's request. The Company has the right to make modifications,
enhancements or other changes to the RT/AI technology or develops additional
devices utilizing the RT/AI technology; provided however, that the Company is
required by the License Agreement to provide any such modifications,
enhancements or other changes or new products to ISI upon ISI's payment of 50%
of the Company's development costs incurred in connection with such
modifications, enhancements or other changes or new products. Management views
this arrangement as beneficial to the Company in view of the fact that it will
both obtain the benefit of ISI's improvements and have ISI share the cost of
improvements the Company makes.
ISI has the right to terminate the License Agreement if the Company fails
to make a required payment and such payment is not made within ten business days
after notice. In addition, in the event of certain other defaults in the
Company's obligations, the License Agreement can be terminated if the Company
fails to cure such default within 60 days after notice.
Business Strategy
In order to take advantage of the opportunities available in the expanding
market for artificial intelligence technology applications within the North
American Automotive Industry, the Company's strategy is to emphasize the RT/AI
CASE tool capabilities of Agentware in creating software applications and
control devices and the RT/AI qualities and capabilities of the Company's
product line. Key elements of the Company's strategy include:
Continuing to Target the Big Three and their Vendors. The Company now
targets, and intends to continue to target, Ford and Chrysler, and their major
vendors in North America for additional sales, and intends to conduct future
sales and marketing campaigns directed at GM and the North American Automotive
Industry plants of Japanese and European manufacturers and their vendors. Prior
to granting the License to the Company, ISI established relationships at the
Vice President, General Manager and Plant Manager levels
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of the Big Three automotive manufacturers, and up to the level of President at
some of the major vendors to the Big Three. In addition to the Company's
position as the only source for RT/AI technology, and the real and perceived
value of the RT/AI capabilities of the Company's products to the Automotive
Industry, the Company's relationship with ISI and the relationships initially
established by ISI have aided the Company in gaining access to and achieving
credibility with high-level personnel at the Big Three and their major vendors.
Relationships initially established by ISI have, Management believes, played a
part in the Company being awarded business with other manufacturers. Management
intends to further develop such relationships, as well as seek to establish
additional relationships with their associates within their companies and their
counterparts at other North American Automotive Industry manufacturers and their
vendors.
The Company treats each department within each automotive manufacturing
plant as a separate potential customer. In fact, within the Automotive Industry,
a significant number of departments operate as semi-autonomous companies, with
departments having separate budgets and the authority to make many independent
equipment purchase. However, department heads, product managers and plant
managers do consult with each other and the reputation of suppliers is typically
disseminated throughout a manufacturing plant and to a manufacturer's other
facilities. The Company attempts to use the positive satisfaction of a
department head, product manager or plant manager as a steppingstone for further
sales to each manufacturer.
New Plant Pilot Programs. Management currently intends to continue to
promote plant pilot programs. Plant pilot programs are on-site trial uses of the
RT/AI technology and Company products, enabling the customer to judge firsthand
the benefits of the RT/AI technology and Company products. When the RT/AI
technology and products perform in accordance with the specifications for the
pilot program results, the customer is obligated to purchase the products and
the Company receives payment. If the products do not perform in accordance with
the specifications, the customer is not obligated to purchase the products.
Aggressive Sales and Marketing Program. The Company intends to implement
an aggressive sales and marketing program to take advantage of what management
believes are significant opportunities for the RT/AI technology and Company
products within the North American Automotive Industry. It is the Company's plan
to increase its marketing efforts primarily focusing on the Big Three and their
major vendors, and to the North American plants of Japanese and European
manufacturers and, to the extent located in North America, their major vendors.
Management intends to utilize $800,000 of the net proceeds from the Offering to
increase its sales, marketing and public relations efforts including the
engagement of additional sales, marketing and public relations personnel, the
creation of additional sales materials, the creation of an advertising campaign
for trade publications and the attendance at trade shows.
Products
Management believes that the Company's products which were developed by
ISI have the capacity to gather and process significantly more data, and to do
so faster and more accurately, than the products presently available from
others, and to utilize such processed information to give operating directions,
reports and recommendations for the efficient and cost-conscious control of the
production process within an Automotive Industry manufacturing plant. The
Company's products were initially developed by ISI. The major products currently
offered by the Company for installation in Automotive Industry manufacturing
plants are:
NexGen(TM) is a small, yet powerful, personal computer with RT/AI
technology embedded in proprietary computer processing chips installed on
the computer's circuit cards. This intelligent next generation controller
is designed for manufacturing and process control. NexGen open systems
hardware is manufactured by Motorola according to specifications supplied
by ISI. The main computer processing unit ("CPU") in the NexGen is the
Power PC(R) chip manufactured by Motorola in partnership with
International Business Machines Corporation ("IBM") and the Apple Computer
Company ("Apple").
IVIS(TM), an acronym for Intelligent Vision System, is an
intelligent machine vision device whose performance functions are
programmed with the use of Agentware software. IVIS is installed as part
of the Automotive Industry manufacturer's product line as an in-line
inspection and control device. IVIS is capable of recognizing colors,
patterns, shapes, textures, sizes and positioning of parts, as well as
characters stamped on the parts. IVIS performs its inspections in less
than one second in most cases. The device then combines these various
recognition methods to perform more complex, integrated inspections on the
work pieces and provides commands to machines and/or recommendations to
operator personnel regarding how to act upon the interpreted data. IVIS is
not just one product, but can be utilized in a number of different
products which can perform different functions. The Company's internal
documentation of studies done cooperatively with Ford demonstrates
that, in automotive manufacturing plant installations, IVIS pays for
itself in a matter of days, that it makes less than 1 error in 1,000
recognition cycles, which ensures consistently better quality products
than formerly possible, and that, in applications where there are only two
sources of information to interpret, the error rate drops to about 1 error
in 10,000 recognition cycles. Management believes that it is unique in the
automotive industry in its combination of recognition methods, its ability
to reliably recognize colors and the fact that the plant need not be
stopped for the inspections to be performed. In addition, tests on IVIS
establish that:
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o IVIS, which produced 78% of the Company's gross revenues for the
1996 Fiscal Year, is fast enough to detect data and "capture" an
image in real time without stopping, lifting or locating a part;
o Unlike other systems, does not need to use strobe lights to "freeze"
the images;
o IVIS cameras are stationary; their speed is such that they do not
require motion to catch the full image required for IVIS to perform
its recognition and inspection duties; and
o IVIS sees the image's true colors (not just gray scale), recognizes
color changes and adjusts itself when color varies.
In addition, cooperative studies and tests performed with Ford have
established that IVIS has features not found in other visions systems,
such as:
o IVIS provides information on part counts and machine cycle times;
o IVIS is fully network ready and can communicate with other IVIS
installations, MRP (Manufacturing Resource Planning) systems and MIS
systems, as well as with the Company's central facilities for
automatic upgrading and assistance;
o User documentation and training can be provided on-line, which means
on-the-job training and no more lost manuals;
o IVIS can use multiple cameras, can be integrated using commercial,
"off-the-shelf" components, can be easily reconfigurable for new
applications and is easily upgrade able to increase speed or add
other enhancements; and
o IVIS systems are easy to install -- one system was designed,
developed, installed and operating at a Ford plant within five days
of initial order (and this system has an error rate of less than
0.0001 percent).
IVIS functions in a capacity beyond a mere machine vision system. Beyond
its basic function of recognizing colors, patterns, shapes and characters
in multitude of varying environments, IVIS is a high speed artificial
intelligence data processor which can provide process control feedback and
recommendations for improving overall plant efficiency and productivity.
It thus becomes part of the plant's "team network."
Based upon the results of systems already in use, both in the Automotive
Industry and elsewhere, management believes that the benefits from
installation of IVIS include increased throughput, improved quality and
greater overall productivity. Management also believes that working
conditions are improved and work related environment stress is reduced
because IVIS allows people to make better, faster and more accurate
decisions due to its ability to process and report on greater levels of
data at faster speeds than would otherwise be possible with conventional
equipment.
Virtual Machine is a computerized machine control system capable of
providing faster and more thorough controls with greater flexibility, in terms
of the number of part types it can process, than conventional, non-intelligent
machine control systems. The Virtual Machine can also process a greater number
of part types than competing control systems. The Company believes that
installation of the Virtual Machine will provide the following customer
benefits:
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Product Feature Customer Benefit
Reduced cycle time, higher throughput............ Productivity increases
More reliable machine controls................... Recurring cost reduction
Reduced maintenance costs........................ Recurring cost reduction
Simultaneous development of control systems
with machine designing..................... Investment cost reduction
and faster product development
AddA(TM), an acronym for Advanced Diagnostic Acquisition, which is
available as a stand alone product or as a module within a Virtual Machine
and/or IVIS product, provides exhaustive diagnostics for finding and correcting
machine component failures. AddA operates in parallel with either conventional
machine controls or a Virtual Machine RT/AI controls. AddA is included within
all Company products and is also available as a stand alone product. The product
also provides in-depth recording of machine subsystem productivity, cycle time,
throughput and other data. In industrial applications, due to its intelligence
and ability to learn, AddA can further provide direct control or back-up control
of both machines and processes. AddA can lead maintenance personnel through
diagnostic and repair procedures and learns new knowledge from its "experience"
of monitoring and/or controlling the process. The time needed to repair a failed
machine or process shrinks by 50% to 90% with the installation of AddA and, in
many instances, failures can be anticipated. In this manner, repairs can be made
prior to, and can prevent, the actual failures.
Agility(TM) is a process control product which is used to integrate the
controls of multiple machines or whole assembly lines so that the productivity
of the whole, rather than just each part, is optimized. Often, a manufacturing
plant productivity problem will derive not from the failure of one machine, but
from the lack of coordination among the various machines within the plant.
Agility was designed to solve this problem by having the intelligence to observe
the entire manufacturing process, and utilize its knowledge and experience to
produce recommendations to better coordinate the plant machine to act together.
Beyond coordination of the machinery on the plant floor, Agility is designed to
serve as the "bridge" between plant floor controls and MIS systems, so that
scheduling of personnel and supplies is optimized.
Adapt(TM) is a department and plant-wide planning and execution system
that provides real time, optimum scheduling and performance of complex
operations to maximize the department's or plant's throughput. Beyond
traditional scheduling, Adapt monitors the real time status of work and
resources and provides moment-by-moment directions to plant machinery and
stations to adapt their actions to the overall condition of the production
process in order to minimize disruptions and maximize output.
InfoView(R) is a comprehensive decision support system, gathering data
through local area networks ("LANs"), telephone modems and myriad other sources
and converts the data to information "maps" through which the user "navigates."
InfoView also applies knowledge to the information gathered; it analyzes the
information, finds trends and makes recommendations as to specific actions for
the user to meet the user's own goals and objectives. Infoview is included
within all Company products.
Installations
As of August 31, 1997, the Products were in use at the following
installation :
Ford Romeo: This Ford manufacturing plant has two AddA modules and
four IVIS units in operation. Both AddA are designed to diagnose faults
and failures in complex, multi-robot production line machines. The IVIS
systems are utilized in the following functions -
o Two systems perform color detection/identification for the
"select fit" of various sized pistons to various size bores in
engine blocks. This detection occurs every eighteen seconds,
eighteen hours per day, six days per week.
o One system reads pin stamped characters on engine blocks for
the "select fit" of various sized pistons to various size
bores in engine blocks. The system reads the characters at an
eighteen second cycle rate, eighteen hours per day, six days
per week.
o The final system reads both colors and characters on pistons.
This occurs every two and one-quarter seconds, sixteen hours
per day, seven days per week.
Ford Sterling. This Ford plant has eight IVIS systems, three of
which are also equipped with AddA modules. The modules perform trend
analyses and process diagnostics. The IVIS systems, listed by function,
are:
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o Reads colored tapes indicating axle type.
o Reads colored marks for brake types.
o Gauges gear ratios.
o Reads colored marks for brake types.
o Recognizes several complex bracket shapes of differential
types.
o Measures lubrication levels.
o Detects unlubricated axles.
o Recognizes and measures various suspension parts and machined
slots in such parts.
Chrysler Kenosha. This plant has three IVIS systems and one AddA module.
The AddA module manages the IVIS units via a network, performs trend analyses
and process diagnostics. The IVIS units perform the following functions:
o Reads painted pallet numbers.
o Gathers information for "select fit" operations.
o Recognizes crank shaft size/type for main bearing "select fit"
operation.
Product Development
Under the License Agreement, ISI is not obligated to update the licensed
technology. However, ISI is required to provide the Company with all
innovations, improvements, upgrades, modifications, substitutions or replacement
for, or enhanced versions of the RT/AI technology and products previously
developed or subsequently developed by ISI.
Pricing
The Company attempts, with respect to each potential and current job, to
be completely aware of all pertinent costs. Company personnel evaluate each job
to meet the customer's specifications. They determine the materials (hardware)
required for the particular job, calculate the cost of all materials required
and add a multiplier when developing the quotation for the customer. Next, the
Company personnel evaluate the man hours required to complete the job and the
various types of engineering staff needed. Here, too, a reasonable multiplier is
applied to account for general and administrative expenses incurred for that
job. After amounts for both materials and personnel are determined, an overall
quotation is submitted to the potential client for review.
The demands of each particular job affect the length of time until
completion and installation. Jobs are not billed, nor is any revenue recognized,
until the job is completed and installed at the customer's required location.
The Company's administrative team then takes over and insures that billing of
completed jobs is performed in a timely fashion so that cash flow remains
consistent and supports the growth of the Company. The administrative team
constantly evaluates the multipliers that the Company uses for quotation
development purposes in order to insure that the most accurate and current
figures are being applied.
Production and Service
The Company's NexGen open systems hardware is manufactured by Motorola
pursuant to specifications provided by ISI. However, ISI has advised the Company
that ISI has the proprietary rights to the key components of NexGen and that
NexGen can be manufactured by any of a number of other computer manufacturers.
Accordingly, management does not believe that the Company is dependent upon
Motorola or any other manufacturer for NexGen. In addition, neither Motorola or
any other manufacturer can produce the proprietary aspects of the hardware
except by virtue of a license from ISI.
The Company currently purchases hardware for its other products from
various computer hardware and machinery manufacturers. Management believes the
Company is not dependent upon any manufacturer for hardware or machinery due to
the fact that adequate alternative sources are available. All software
application programs licenced to customers are written by the Company's in-house
staff utilizing the Agentware CASE tool and basic programs previously developed
by ISI.
The Company's products carry a two-year warranty against defects in
workmanship, which is the standard requirement of manufacturers in the
Automotive Industry. In addition, the Company provides free maintenance services
for one year. Installation of the Company's products are made by the customer,
under the supervision of the Company. In fact, the Company has found that some
customers, including Ford, have sufficient experience with installing the
Company's products that the installation process can be completed with limited
Company supervision. Service is performed by the Company's field engineers. The
Company also provides maintenance, support and training services, either
pursuant to annual contracts or on a time billing basis. At present, the Company
does not have any maintenance or service agreements in effect with any of its
customers. The Company anticipates that maintenance, service and support
services will not generate significant revenues for the
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foreseeable future.
ISI is obligated to correct any errors in the RT/AI technology and
products and, where correction may take some time to accomplish, to work with
the Company in determining ways to use the Products pending correction of such
error. ISI is entitled to charge reasonable rates for consultation, education
and support services.
Research and Development
Pursuant to the License Agreement, the Company has the right to complete
and prompt access to all of the results of research and development conducted by
ISI. In addition, if the Company develops any modifications, enhancements or
other changes to the RT/AI technology or any of the products previously
developed by ISI, the Company is entitled to make full use of such
modifications, enhancements or other changes. All such Company developed
modifications, enhancements or other changes must be offered to ISI for ISI's
use, subject to ISI reimbursing the Company one-half of the Company's research
and development costs related to such modifications, enhancements or other
changes. In it's 1995 and 1996 fiscal years, the Company spent a de minimus
amount for research and development in view of the fact that the products were
primarily developed by ISI.
Intellectual Property
The Company is not the owner of any trademarks, copyrights, patents or
similar intellectual property with respect to the RT/AI technology, the
Company's products or otherwise. ISI represented to the Company in the License
Agreement that all of the intellectual property rights with respect to the RT/AI
technology and Company products are owned by ISI. Accordingly, all of the
Company's rights or interests in the RT/AI technology used in the Company's
products are based upon the Company's status as the licensee of ISI for the
North American Automotive Industry. ISI has agreed in the License Agreement to
indemnify and hold the Company harmless with respect to the validity of ISI's
representations contained in the License Agreement and to defend any claims of
unauthorized use by third parties.
Sales and Marketing
The Company's marketing strategy seeks to increase sales by (i) continuing
to target the Big Three and their major vendors in North America (ii) targeting
other Automotive Industry manufacturers, particularly the North American plants
of Japanese and European manufacturers, and their vendors and (iii) continuing
to promote plant pilot programs as a means to demonstrate the benefits of the
Company's products.
The Company presently targets, and intends to continue to target, Ford and
Chrysler, and their major vendors in North America for additional sales, and
intends to conduct future sales and marketing campaigns directed at GM and the
North American Automotive Industry plants of Japanese and European manufacturers
and their vendors. Prior to granting the License to the Company, ISI established
relationships at the Vice President, General Manager and Plant Manager levels of
the Big Three automotive manufacturers, and up to the level of President at some
of the major vendors to the Big Three. In addition to the Company's position as
the only source for RT/AI technology, and the real and perceived value of the
RT/AI capabilities of the Company's products to the Automotive Industry, the
Company's relationship with ISI and the relationships initially established by
ISI have aided the Company in gaining access to and achieve credibility with
high-level personnel at the Big Three and their major vendors. The Company has
found that Automotive Industry manufacturers regularly contact the Company to
learn of the latest RT/AI technology enhancements available through the Company
and to ascertain how the Company's products can improve their plant
productivity. Relationships initially established by ISI have, management
believes, played a part in the Company being approved as a direct vendor to Ford
and receiving a vendor number. Management intends to further develop such
relationships, as well as seek to establish additional relationships with their
associates within their companies and their counterparts at other North American
Automotive Industry manufacturers and their vendors.
The Company treats each department within each automotive manufacturing
plant as a separate potential customer. In fact, within the Automotive Industry,
a significant number of departments operate as semi-autonomous companies, with
departments having separate budgets and the authority to make independent supply
and machinery acquisition decisions (within the overall company's approved
vendors, such as those receiving BPOs). However, department heads, product
managers and plant managers do consult with each other and the reputation of
suppliers is typically disseminated throughout a manufacturing plant and to a
manufacturer's other facilities. The Company attempts to use the positive
satisfaction of a department head, product manager or plant manager as a
steppingstone for further sales to each manufacturer.
The Company's sales personnel provide regular briefings on and
demonstrations of the capabilities of RT/AI technology and Company products to
plant and project managers. Generally, one or more of the Company's engineers
will accompany business development salespersons to each sales presentation, at
which one member of the customer's management and appropriate engineers are
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in attendance. The number of engineers and their specialties will depend upon
the product being presented and the customer's needs. Such briefings have
resulted in agreements to begin "pilot programs" involving one or more of the
products being placed into service with the customer. Plant pilot programs are
on-site trial uses of the RT/AI technology and Company products, enabling the
customer to judge firsthand the benefits of the RT/AI technology and Company
products. If the products do not perform in accordance with the specifications,
the customer is not obligated to purchase the products.
The Company has implemented an aggressive sales and marketing program to
take advantage of what Management believes are significant opportunities for the
RT/AI technology and Company products within the North American Automotive
Industry and supplement the Company's present practice of periodic exhibitions
at the annual Detroit Automotive Trade Show and direct mail promotions. It is
the Company's plan to increase its marketing efforts primarily focusing on the
Big Three and their major vendors, and to the North American plants of Japanese
and European manufacturers and their major vendors located in North America.
Management intends to utilize $800,000 of the net proceeds from the Offering to
increase its sales, marketing and public relations efforts including the
engagement of additional sales, marketing and public relations personnel, the
creation of additional sales materials, the creation of an advertising campaign
for trade publications and expansion of the Company's attendance at trade shows.
Key Customers
For the 1996 and 1997 Fiscal Years, Ford accounted for approximately 69%
and 90% respectively, of the Company's revenues and Chrysler for the remaining
31% and 10%, respectively, of revenues. In its effort to broaden its customer
base, the Company is continuing to target the Big Three and their major vendors
in North America, as well as other Automotive Industry manufacturers,
particularly the North American plants of Japanese and European manufacturers.
On November 30, 1996, 39% of the orders on hand were from customers which had
not contributed to the Company's 1996 Fiscal Year revenues. An additional 36% of
the orders on hand were from Ford and Chrysler plants which had not contributed
to 1996 Fiscal Year revenues.
Although there are other Automotive Industry manufacturers having similar
needs for the Company's RT/AI technology and products as those of Ford and
Chrysler, and although the Company believes that its relations with both Ford
and Chrysler are satisfactory, the Company lacks any firm contracts for the
purchase of the Company's products. There can be no assurance that the Company
will be able to sustain its level of business with Ford and/or Chrysler, that
Ford and/or Chrysler will place new orders with the Company, or that the Company
will be able to generate additional alternative customer demand for the RT/AI
technology and products to replace the revenues derived from Ford and/or
Chrysler in the event that the Company's relationships with either or both of
them is or are terminated. The Company's BPO from the Ford purchasing agent,
which generated 11% of the Company's total revenues from inception through
December 31, 1996, terminated in February, 1997. Although the BPO with Ford has
expired, Management believes that as a practical matter no replacement is
required in view of the relationship between the Company and Ford. The Company
has been approved as a direct vendor to Ford and has received a vendor number
which facilitate its sales. There can be no assurance that sales will continue
to occur. The loss of, or any material reduction in, the Company's business
relationship with Ford and/or Chrysler could have a material adverse affect upon
the Company. Although the Company expects to continue to expand its customer
base, sales to its key customers will continue to have a significant impact on
the Company's overall level of revenues for the foreseeable future.
Competition
The Company competes in the highly competitive automation and control
systems software market and, in particular, in providing control systems using
RT/AI technology to the North American Automotive Industry. Other companies
offer products and services similar to those of the Company and target the same
customers as the Company. The Company believes its ability to compete
effectively depends upon many factors both within and outside its control,
including, but not limited to, the timing and quantities of such products
required by the market, the continued ability of ISI to provide innovative and
competitive RT/AI technology, the ability of the Company to retain and increase
its customer base and market share, changes and innovations in the RT/AI
technology and in the Automotive Industry, and the financial health of the
Company, ISI and certain of the Company's customers. Many of the Company's
competitors are substantially larger than the Company and have significantly
greater financial resources and marketing capabilities than the Company,
together with better name recognition. It is also possible that new competitors
may emerge and acquire significant market share. Competitors with superior
resources and capabilities may be able to utilize such advantages to market
their products and services better, faster and/or cheaper than the Company.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any one of which could have a material adverse
effect upon the Company's business, results of operations and financial
condition. In addition, there can be no assurance that the Company will be able
to compete successfully against its present or future competitors.
The most significant of the Company's competitors, and the only truly
industry-wide artificial intelligent manufacturing systems competitor, is GenSym
Corp. ("GenSym"), a Cambridge, Massachusetts company which has achieved
recognition in the artificial intelligent industrial systems market in general
and the Automotive Industry manufacturing market in particular. GenSym offers a
product
34
<PAGE>
to the Automotive Industry called "G2," an "expert system shell," or tool,
which, according to GenSym, offers "real time" capabilities. However, management
believes that GenSym has no application software or products as such. Rather,
GenSym provides specialized installation of artificial intelligent industrial
systems based upon customer specifications. GenSym is much larger and better
capitalized than the Company, has a history of reasonable growth and
profitability, and has a much larger number of installations than the Company.
Notwithstanding GenSym's G2 product, Management believes that the Company
has a technology-based competitive advantage over its competitors because no
other company has a product with the capabilities and attributes of Agentware.
According to two independent studies, the Products are currently at the
cutting-edge of RT/AI technology. The June 1992 study by Syracuse University
showed that approximately 650,000 rules were capable of being processed by
Agentware, a significantly greater number of rules than could be produced by any
other known competitor. In 1993, Ford performed a detailed study of Agentware
finding, among other matters, that:
o Agentware ran over 650,000 rules analyzing over 238,000
constantly-changing facts in a single second when running on a
single Motorola 88110 CPU, with the nearest competitor running
just over 300 rules with less than 90 changing facts on the
same CPU;
o Agentware, coupled with ISI's open architecture control
hardware, was 40% less expensive (this does not take into
account resulting labor savings);
o Agentware logic in a machine control and diagnostic
application was 1/13th as lengthy/complex as traditional
control logic written by an experienced controls engineer; and
o Agentware logic contained more functionality than the
traditional control program and was developed in 80% less time
than the traditional control program.
The Ford study, along with the experiences of ISI and the Company to date,
lead Management to believe that ISI can continue to market products that are
1,000 times more powerful than competing expert systems, quicker and cheaper to
produce and are less difficult to maintain than competing conventional products.
There can be no assurance that the Company can maintain any competitive
advantage that it may have as a result of the power and productivity advantages
of Agentware. Increased competition from the Company's competitors may result in
price reductions, reduced gross margins and loss of market share, any one of
which could have a material adverse effect on the Company.
Government Regulation
The technology forming the basis of Agentware, and thereby the Company's
products, is on the U.S. Critical Technology List and, accordingly, cannot be
exported or disclosed to any foreign national although the Company is permitted
to sell to the US plants of foreign manufacturers. Although the subject
technology is limited, the Company's products themselves are approved for export
licensing in view of the fact that the technology is encoded in the products and
is not made known to purchasers. However, the Company's license is limited to
North America.
Employees
The Company currently has nine full-time staff members and one part-time
staff member, performing executive, administrative, sales and software, control
and electrical engineering functions. The Company's employees are supplemented
by nine consultants engaged on an as-needed, task-by-task basis. The Company's
in-house and consultant engineers perform field work and provide engineering
analysis at the Company's offices. In addition, the engineers work with the
Company's business development staff in the preparation of customer proposals.
The Company does not have any employment agreements in effect. The Company is
not a party to any collective bargaining agreement and believes relations with
its employees are good.
Facilities
The Company recently entered into a five-year lease for new executive
office space in Farmington Hills, Michigan, which lease extends from September
15, 1997 until September 30, 2002. The new executive office space comprises
5,475 square feet, for which the Company pays a monthly base rent of $3,292,71,
with such amount to increase to $4,020.83 per month for the period from
September 15, 2000 until September 30, 2002. The new office facilities house
administration, sales demonstrations, product application development, systems
integration and customer and staff training. All engineering, inventory storage,
systems integration and customer and staff training are conducted in one
facility instead of outlying workshops, and all personnel are centralized for
smoother, more efficient operations. Management intends for these facilities to
incorporate all necessary capabilities, including the ability to network and
interface with its customers' computers for data transfer, product monitoring
and support. In addition to standard telephone, facsimile and e-mail
35
<PAGE>
communication, management intends to install video-conferencing capabilities in
the premises, which are expected to dramatically reduce the need for travel and,
accordingly, reduce response time in order to better serve the Company's
customers. In addition, the new facilities are centrally located to automotive
manufacturing plants of the Big Three and the facilities of their major vendors
in the metropolitan Detroit area.
Litigation
In the ordinary course of its business, the Company may become involved in
legal proceedings from time to time. As of the date of this Prospectus, the
Company is not a party to any material pending legal proceeding, nor any
govermental or regulatory investigation or proceeding.
36
<PAGE>
MANAGEMENT
Executive Officers and Directors
Upon completion of the Offering the executive officers and directors of
the Company will be as follows:
Name Age Position
- ---- --- --------
Douglas Dick 53 President, Chief Executive Officer and
Director
Fred Shadko 50 Vice President and Director
James Perretty 33 Chief Financial Officer, Corporate Secretary
and Director
Paul Michelin 58 Director
Douglas Dick has been a Director of the Company since 1995. Mr. Dick was a
career Royal Navy officer who brings leadership, management, and vital training
skills to the Company. Mr. Dick's 20 years' experience in the Royal Navy
includes the training of multiple specialists for entire ships crews of over 400
individuals. He spent his last four years service training over 1,200 U.S. Navy
Surface Warfare Officers at Newport, Rhode Island. During the mid 1980s, Mr.
Dick was a training systems development manager for General Electric, where he
coordinated the efforts of a large instructional design and software development
team for the development of high technology training simulators. He co-founded
ISI Technology Corp. in 1987 and has served as the Program Manager and Chief
Operating Officer for that Company.
Fred Shadko has been a Director of the Company since 1995. Mr. Shadko is a
former President and General Manager of IntelliSys Automotive Company which is
headquartered in Detroit, Michigan. Mr. Shadko is a former Vice-President of
Coma, the fifth largest tool manufacturer in the world and the largest in
Europe. Mr. Shadko has in-depth experience in all aspects of automotive
manufacturing and has developed business relationships within the automotive
community.
James Perretty has been a Director of the Company since 1995. From 1984 to
1994, Mr. Perretty served as Public Relations Consultant for the Communications
Group, a public relations marketing firm. From 1994 to 1995, Mr. Perretty was an
Advertising Account Executive and Vice President of Finance for Creative
Communications Advantage, an advertising agency. Mr. Perretty has served since
1995 as Vice President of FMC Group, Inc., a financial consulting firm of which
Mr. Michelin is president and director. Mr. Perretty has also served since 1996
as President and a director of Nationwide Resources, Inc., which, through its
ownership of ETi International, Ltd., a United Kingdom Corporation, develops and
markets computer software. Mr. Perretty has also served since 1995 as Vice
President and a Director of Stratosphere Multimedia Corp., which markets
tele-conferencing equipment and has facilities for tele- conferencing. Mr.
Perretty received a B.A.A. degree in Business Administration from Broward
Community College.
Paul Michelin has been a Director of the Company since inception. Since
1992, Mr. Michelin has been the President and a Director of FMC Group, Inc., a
financial consulting firm and a principal shareholder of the Company see
"Principal Stockholders". Mr. Michelin has also served since 1995 as the
Secretary and a Director of TL Industries, Corp., a publicly traded corporation
which is traded on the NASD Bulletin Board, which makes investments in other
companies and holds certain licensing rights for computer training schools in
Europe. Mr. Michelin has also served since 1995 as the Secretary and a Director
of Stratosphere Multimedia Corp., which markets tele-conferencing equipment and
has facilities for tele-conferencing. Mr. Michelin has also served since 1995 as
the Secretary and a Director of Stratosphere Communications Corp., a publicly
traded corporation which is traded on the NASD Bulletin Board, which has a
majority interest in Stratosphere Multimedia Corp. Mr. Michelin has also served
since 1994 as a Director of On Track Computer Training Corp., which owns and
operates computer training schools in the United States. Mr. Michelin has also
served since 1996 as a director of ETi International, Ltd., a United Kingdom
corporation which develops and markets computer software. Mr. Michelin has also
served since 1996 as Secretary and a Director of Nationwide Resources, Inc.,
which owns of 50% of ETi International, Ltd. Mr. Michelin has also served since
1990 as a Director of Your Travel Connections, Inc., a travel agency. Mr.
Michelin attended McGill University in Montreal, Canada. (See "PRINCIPAL
SHAREHOLDERS" for a discussion of the stock interest in the Company of FMC
Group, Inc.)
From 1983 to 1987, Mr. Michelin was a Principal of Michelin & Company,
Inc., a brokerage firm. In 1986 and 1987, certain allegations were made against
Mr. Michelin and Michelin & Company, Inc. by the Florida and Wisconsin State
Securities Authorities and the National Association of Securities Dealers, Inc.
(the "NASD") to wit: unsuitability of securities, the sale of unregistered
securities,
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<PAGE>
misrepresentations with respect to the sale of certain securities, failure to
make full disclosure and allegations with respect to state and NASD
administrative regulations. Mr. Michelin has advised Management that the
foregoing allegations were totally without merit. Nevertheless, he chose not to
litigate such claims in order to avoid the expenditure of substantial time and
money and in lieu of litigation, he chose to do the following: (1) Michelin &
Company, Inc. withdrew from doing business in Florida and such state withdrew
its charges, (2) Michelin & Company, Inc. paid a fine to the State of Wisconsin
and such state withdrew its charges, (3) Mr. Michelin and Michelin & Company,
Inc. settled the claims made by the NASD, received a two week suspension and a
fine of $20,000, and (4) sell certain assets of Michelin & Company, Inc. As a
result of their failure to pay the fine to the NASD, the NASD suspended Mr.
Michelin and Michelin & Company, Inc. in March, 1988. In connection with an
unrelated complaint by the NASD alleging sales of securities at prices which
were not fair and reasonable in 1986, Mr. Michelin and Michelin & Company, Inc.
paid $8,500 to customers and paid a fine of $2,500 to the NASD.
Board of Directors
All directors hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified. The Company
reimburses directors for their reasonable expenses incurred in connection with
their activities on behalf of the Company. None of the directors of the Company
currently receive any compensation for serving in their capacities as directors.
However, the Company reserves the right to compensate its directors in the
future.
Audit Committee. Upon the consummation of the Offering, the Company will
establish an Audit Committee of the Board of Directors consisting of at least
two directors, a majority of which shall not be employees of the Company. It is
currently anticipated that Messrs. Michelin and Perretty will comprise the
initial Audit Committee. Audit Committee members will meet regularly, both
separately and with the Company's management and independent auditors, to review
the results of the auditors' examination, the scope of audits, the auditors'
opinions on the adequacy of internal controls and quality of financial
reporting, and the Company's accounting and reporting principles, policies and
practices, as well as the Company's accounting, financial and operating controls
and staff.
Compensation Committee. Upon the consummation of the Offering, the Company
will establish a Compensation Committee of the Board of Directors consisting of
at least two directors, each of whom shall not be employees of the Company. It
is currently anticipated that Messrs. Michelin and Perretty will comprise the
initial Compensation Committee. The Committee will make recommendations to the
Board of Directors concerning the salaries of all executive officers. In
addition, the Compensation Committee will administer the Company's Stock Option
Plan and determine the amounts of, and the individuals to whom, awards shall be
made thereunder. See "Management - Stock Option Plan."
Executive Compensation
The following table sets forth information concerning the compensation
paid or accrued by the Company during the two years ended September 30, 1996 to
those individuals who served as Chief Executive Officer of the Company during
the 1996 Fiscal Year and all other executive officers of the Company at
September 30, 1996 who received total annual salary and bonuses in excess of
$100,000 during the 1996 Fiscal Year (collectively, the "Named Executive
Officers").
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
----------------------- ---------------
Securities
Name and Principal Other Annual Underlying
Positions Year Salary ($) Bonus ($) Compensation ($) Options/SARs (#)
--------- ---- ---------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Douglas Dick, President 1996 $ 58,413 $-0- $-0- -0-
(1) 1995 -0- -0- -0- -0-
Fred Shadko, Vice- 1996 117,308 -0- -0- -0-
President 1995 20,768 -0- -0- -0-
</TABLE>
- ----------
(1) Mr. Dick also received $22,499 and $79,888 from ISI for services rendered
to ISI during the Company's fiscal years ended September 30, 1996 and
1995, respectively.
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<PAGE>
Stock Option Plan
In _____ 1997, the Board of Directors and the Company's stockholders
approved the Company's 1997 Stock Option Plan (the "Stock Option Plan"). The
purpose of the Stock Option Plan is to provide directors, officers and key
employees of, and consultants to, the Company with additional incentives by
increasing their ownership interests in the Company. Directors, officers and
other key employees of the Company are eligible to participate in the Stock
Option Plan. Awards may also be granted to consultants providing valuable
services to the Company. In addition, individuals who have agreed to become a
key employee of, or a consultant to, the Company are eligible for option grants,
conditional in each case on actual employment or consultant status. Awards of
options to purchase Common Stock may include incentive stock options ("ISOs")
and/or non-qualified stock options ("NQSOs").
The maximum number of shares of Common Stock that may be subject to
outstanding options, determined immediately after the grant of any option, shall
be no greater than 400,000 shares, any portion of which may be granted as ISOs.
The Board of Directors intends, upon consummation of the Offering, to
establish a Compensation Committee, consisting of two or more directors who
qualify as "non-employee directors" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to administer
the Stock Option Plan. The Compensation Committee will generally have discretion
to determine the terms of an option grant, including the number of option
shares, option price, term, vesting schedule, the post-termination exercise
period, and whether the grant will be as ISO or NQSO. Notwithstanding this
discretion, (i) the number of shares subject to options granted to any
individual in any calendar year may not exceed ______, (ii) the option price per
share of Common Stock may not be less than 100% of the market value of such
share at the time of grant (or 110% if granted as an ISO to a holder of 10% or
more of the then outstanding shares of Common Stock), (iii) the term of any
option may not exceed ten years (unless granted as an ISO to a 10% or more
stockholder, which term may not exceed five years), and (iv) an option shall
automatically become void upon the termination of employment of the grantee for
cause. In addition, unless otherwise specified by the Compensation Committee,
all outstanding options vest upon a "change of control" of the Company (as
defined in the Stock Option Plan), and all options will no longer be exercisable
three months following any termination of employment (except in the event of the
death or permanent disability of a holder of an ISO, where such ISO may be
exercised for a period of up to one year from the date of death or permanent
disability).
The Stock Option Plan also provides for automatic option grants to
directors who are not otherwise employed by the Company. Upon commencement of
service (or upon agreeing to serve in the case of the initial non-employee
directors), a non-employee director will receive a NQSO to purchase __,000
shares of Common Stock, and continuing non-employee directors will receive
annual NQSO grants to purchase __,000 shares of Common Stock. NQSOs granted to
non-employee directors become exercisable one-third on the date of grant and
one-third on each of the next two anniversaries of the date of the grant.
Non-employee directors' NQSOs have a term of five years from the date of the
grant.
The Stock Option Plan will remain in effect until terminated by the Board
of Directors (except that ISOs may only be granted through _______, 2007) or
until all shares issuable under the Stock Option Plan have been so issued. The
Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any Federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted. In
addition, the Stock Option Plan may not be amended more than once every six
months, other than to comport with changes to the Internal Revenue Code,
Employee Retirement Income Security Act, or the rules and regulations
promulgated thereunder.
Indemnification of Directors and Officers and Related Matters
Section 145 of the Delaware General Corporation Law contains provisions
entitling directors and officers of the Company to indemnification from
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, as the result of an action or proceeding in which they may be
involved by reason of being or having been a director or officer of the Company
provided said officers or directors acted in good faith. This provision does not
eliminate or limit the liability of a director for violating his duty of loyalty
(which includes the obligation of a director of the Company to refrain from self
dealing with respect to the Company, improperly competing with the Company or
usurping Company opportunities), failing to act in good faith, engaging in
intentional misconduct or knowingly violating a law or participating in the
payment of a dividend or a stock repurchase or redemption for himself. This
provision also does not affect any director's liability under federal securities
laws or the availability of equitable remedies such as an injunction or
rescission for breach of fiduciary duty.
In addition, the Company's Bylaws provide that, with respect to third
party actions, the Company shall indemnify any person who was or is a party to
any threatened, pending or completed action (other than a derivative action by
or in the right of the corporation) by reason of the fact that such person is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request
39
<PAGE>
of the Company in such capacity for another entity, if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful.
Indemnification is not to be made for acts or failures to act which constitute
willful misconduct or recklessness.
The Company's Bylaws also provide that, with respect to derivative
actions, the Company shall indemnify any person who was or is now a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of the Company, or is or was so serving at the request of the Company in
such capacity for another entity, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Company. Indemnification is not to be made for acts or failures
to act which constitute willful misconduct or recklessness.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus regarding the beneficial ownership of the Common Stock and Class A
Stock , and as adjusted to give effect to the sale by the Company of the
securities offered hereby, by: (i) each director; (ii) each executive officer
named in the "Management" section; (iii) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock and Class A Stock ;
and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Common Stock Class A Stock
------------ -------------
Shares Percentage Owned Shares
Name and Address Beneficially --------------------------------- Beneficially
of Beneficial Owner (2) Owned (1) Prior to Offering After Offering Owned (1) Percentage
- ----------------------- ------------ ----------------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Douglas Dick -0- -0- -0- -0- -0-
Fred Shadko -0- -0- -0- -0- -0-
Marcel Brun (3) 600,000 15.0 13.3 3,500 .002
Paul Michelin (4)(5) 500,000 12.5 11.1 -0- -0-
FMC Group, Inc. (5) 500,000 12.5 11.1 -0- -0-
Louisa P. Michelin -0- -0- -0- 214,987 10.7
James Perretty(5) -0- -0- -0- -0- -0-
Victoria Paez -0- -0- -0- 116,666 5.8
Paul Ulli, Jr. (3) 600,000 15.0 13.3 100,000 5.0
Suzanne Wolf (3) 500,000 12.5 11.1 -0- -0-
All Officers and
Directors as a
Group (4 Persons) 500,000(4) 12.5 11.1 -0- -0-
</TABLE>
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities which may be acquired by such person within 60 days from the
date on which beneficial ownership is to be determined, upon the exercise of
options, warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options that are held by such person
(but not those held by any other person) and which are exercisable within such
60 day period, have been exercised.
(2) Unless otherwise indicated, the address for each named individual is
IntelliSys Automotive Systems, Inc., 24409 Halsted Road, Farmington, Michigan
48335.
(3) The address for Messrs. Brun and Ulli and Ms. Wolf is c/o Investa, A.G.,
Hardstrasse 4, CH-4127, Birsfelden, Switzerland.
(4) Represents the 500,000 shares of Common Stock owned of record by FMC Group,
Inc., of which Mr. Michelin is President and a director and Louisa P. Michelin,
his wife, is the sole shareholder thereof.
(5) The address for Paul Michelin, James Perretty and FMC Group, Inc. is 2255
Glades Road - Suite 124A, Boca Raton, Florida 33431.
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<PAGE>
CERTAIN TRANSACTIONS
Effective July 14, 1995, the Company issued and delivered shares of Common Stock
to the individuals and entities listed below for the consideration set forth
opposite their respective names.
Name Number of Shares Aggregate Consideration
- ---- ---------------- -----------------------
Marcel Brun..................... 500,000 $ 75,250
FMC Group, Inc. (1)............. 500,000 75,250
Paul Ulli, Jr. 500,000 75,250
Suzanne Wolf 500,000 75,250
---------- ----------
Totals................. 2,000,000 $301,000
As of August 1, 1995, the Company entered into the License Agreement
with ISI. For a discussion of the License Agreement, See "Business - License
Agreement with ISI Technology Corp."
In the 1996 Fiscal Year, FMC, a principal stockholder whose President
is a director of the Company, advanced the Company funds totaling $93,442 as of
September 30, 1996. The advances have been treated as a demand loan bearing
interest at four (4%) percent per annum, interest payable at maturity.
Subsequent to September 30, 1996, FMC made further advances to the Company on
the same terms as the prior advances, to the effect that the aggregate principal
amount due FMC was $436,809, as of January 31, 1997.
During the 1996 Fiscal Year, the Company paid FMC, a principal
stockholder, fees totaling $39,000 for management services rendered to the
Company. Pursuant to a written agreement, FMC provides the Company with
financial and management services, including, but not limited to, arranging
financing, budgeting, financial record keeping, bookkeeping and bill paying.
Commencing April, 1996 the Company has been paying FMC $5,000 per month for
management services.
Effective September 30, 1996, Marcel Brun and Paul Ulli, Jr., principal
stockholders of the Company, each purchased an additional 100,000 shares of
Common Stock for $75,000 ($.75 per share) in connection with the Company's
off-shore private placement of an aggregate 2,000,000 shares of Common Stock.
- ----------
(1) Paul Michelin, a director of the Company, is the President and a
director of FMC, and Louisa P. Michelin, his wife, is the sole
shareholder.
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<PAGE>
DESCRIPTION OF THE SECURITIES
General
The Company is authorized by its Certificate of Incorporation to issue
an aggregate 15,000,000 shares of Common Stock, par value $.01 per share,
3,000,000 shares of Class A Stock, par value $.01 per share, and 2,000,000
shares of Preferred Stock
Common Stock
The Company is authorized by its Certificate of Incorporation to issue
15,000,000 shares of Common Stock, of which 4,000,000 Shares are issued and
outstanding. Holders of Common Stock are entitled to one vote per share and,
subject to the rights of the holders of the Preferred Stock (discussed below),
to receive dividends (together with holders of Class A Stock) when and as
declared by the Board of Directors and to share ratably (with the holders of
Class A Stock) in the assets of the Company legally available for distribution
in the event of the liquidation, dissolution or winding up of the Company.
Except as specifically provided by the GCL with respect to the voting by all
classes of stock, the Common Stock is the only class of the Company's securities
having voting rights. Holders of the Common Stock do not have subscription,
redemption or conversion rights, nor do they have any preemptive rights.
Accordingly, in the event the Company were to elect to sell additional shares of
its Common Stock following this Offering, investors in this Offering would have
no right to purchase such additional shares, as a result of such a sale, their
percentage equity interest in the Company would be diluted. The shares of Common
Stock offered hereby will be, when issued and paid for, fully-paid and not
liable for further call or assessment. Holders of the Common Stock do not have
cumulative voting rights, which means that the holders of more than half of the
outstanding shares of Common Stock (subject to the rights of the holders of the
Preferred Stock) can elect all of the Company's directors, if they choose to do
so. In such event, the holders of the remaining shares would not be able to
elect any directors. The Board of Directors is empowered to fill any vacancies
on the Board. Except as otherwise required by the GCL, all stockholder action is
taken by vote of a majority of the outstanding shares of Common Stock voting as
a single class present at a meeting of stockholders at which a quorum
(consisting of a majority of the outstanding shares of Common Stock) is present
in person or by proxy.
Class A Stock
The Company is authorized by its Certificate of Incorporation to issue
3,000,000 Shares of Class A Stock, of which 2,000,000 Shares are issued and
outstanding. Holders of Class A stock are entitled to receive dividends
(together with holders of Common Stock) when and as declared by the Board of
Directors and to share ratably (with the holders of Common Stock) in the assets
of the Company legally available for distribution in the event of the
liquidation, dissolution or winding up of the Company. Except as specifically
provided by the GCL with respect to the voting by all classes of stock, the
holders of Class A Stock have no voting rights. In addition, holders of Class A
Stock do not have subscription, redemption or conversion rights, nor do they
have any preemptive rights. The Class A Stock is presently traded on the NASD
Electronic Bulletin Board under the symbol ITAAA. See "Principal Shareholders."
Preferred Stock
The Company is authorized by its Certificate of Incorporation to issue
a maximum of 2,000,000 shares of Preferred Stock, in one or more series and
containing such rights, privileges and limitations, including conversion
privileges and/or redemption rights, as may, from time to time, be determined by
the Board of Directors of the Company. Except as specifically provided by the
GCL with respect to the voting by all classes of stock, the holders of Preferred
Stock will have no voting rights. Preferred Stock may be issued in the future in
connection with acquisitions, financings or such other matters as the Board of
Directors deems to be appropriate. In the event that any such shares of
Preferred Stock shall be issued, a Certificate of Designation, setting forth the
series of such Preferred Stock and the relative rights, privileges and
limitations with respect thereto, shall be filed with the Secretary of State of
the State of Delaware. The effect of such Preferred Stock is that the Company's
Board of Directors alone, within the bounds and subject to the federal
securities laws and the Delaware law, may be able to authorize the issuance of
Preferred Stock which could have the effect of delaying, deferring or preventing
a change in control of the Company without further action by the stockholders
and may adversely affect the rights of holders of Common Stock.
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<PAGE>
Warrants
The following is a brief summary of certain provisions of the Warrants,
but such summary does not purport to be complete and is qualified in all
respects by reference to the actual text of the Warrant Agreement between the
Company and Liberty Transfer Co. (the "Warrant Agent"). A copy of the Warrant
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. See "Additional Information."
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time during the five year period commencing on the
date of this Prospectus, one share of Common Stock at a price of $ 7.50 per
share, subject to adjustment in accordance with the anti-dilution and other
provisions referred to below. The holder of any Warrant may exercise such
Warrant by surrendering the certificate representing the Warrant to the Warrant
Agent, with the subscription form thereon properly completed and executed,
together with payment of the exercise price. Commencing on the date of this
Prospectus, the Warrants may be exercised at any time in whole or in part at the
applicable exercise price until expiration of the Warrants. No fractional shares
will be issued upon the exercise of the Warrants.
Adjustments. The exercise price and the number of shares of Common
Stock purchasable upon the exercise of the Warrants are subject to adjustment
upon the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock, or sale by the Company of
shares of its Common Stock or other securities convertible into Common Stock
(exclusive of options and shares under the Stock Option Plan, and other limited
exceptions) at a price below the then applicable exercise price of the Warrants.
Additionally, an adjustment would be made in the case of a reclassification or
exchange of Common Stock, consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the surviving corporation) or sale of all or substantially all of the assets
of the Company, in order to enable warrant holders to acquire the kind and
number of shares of stock or other securities or property receivable in such
event by a holder of the number of shares of Common Stock that might have been
purchased upon the exercise of the Warrant.
Redemption Provisions. Commencing eighteen months after the date of
this Prospectus, the Warrants are subject to redemption by the Company, in whole
but not in part, at $.10 per Warrant on 30 days' prior written notice, provided
that the per share closing bid quotation of the Common Stock as reported on
Nasdaq equals or exceeds $ 10 per share (subject to adjustment for stock
dividends, stock splits, combinations or reclassification of the Common Stock)
for any twenty trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date of the notice of redemption.
In the event the Company exercises the right to redeem the Warrants, such
Warrants will be exercisable until the close of business on the business day
immediately preceding the date for redemption fixed in such notice. If any
Warrant called for redemption is not exercised by such time, it will cease to be
exercisable and the holder will be entitled only to the redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form
and may be presented to the Warrant Agent for transfer, exchange or exercise at
any time on or prior to their expiration date five years from the date of this
Prospectus, at which time the Warrants become wholly void and of no value. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
Modification of Warrants. The Company and the Warrant Agent may make
such modifications to the Warrants as they deem necessary and desirable that do
not adversely affect the interests of the warrant holders. The Company may, in
its sole discretion, lower the exercise price of the Warrants for a period of
not less than 30 days on not less than 30 days' prior written notice to the
warrant holders and the Underwriter. Modification of the number of securities
purchasable upon the exercise of any Warrant, the exercise price and the
expiration date with respect to any Warrant requires the consent of two-thirds
of the warrant holders. No other modifications may be made to the Warrants,
without the consent of two-thirds of the warrant holders.
The Warrants are not exercisable unless, at the time of the exercise,
the Company has a current prospectus covering the shares of Common Stock
issuable upon exercise of the Warrants, and such shares have been registered,
qualified or deemed to be exempt under the securities laws of the state of
residence of the
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exercising holder of the Warrants. Although the Company will use its best
efforts to have all of the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.
The Warrants will not be separately transferable until determined by
the Underwriter, in its sole and absolute discretion. Although the Securities
will not knowingly be sold to purchasers in jurisdictions in which the
Securities are not registered or otherwise qualified for sale, purchasers may
buy Warrants in the aftermarket or may move to jurisdictions in which the shares
underlying the Warrants are not so registered or qualified during the period
that the Warrants are exercisable. In this event, the Company would be unable to
issue shares to those persons desiring to exercise their Warrants, and holders
of Warrants would have no choice but to attempt to sell the Warrants in a
jurisdiction where such sale is permissible or allow them to expire unexercised.
Certain Federal Income Tax Consideration
The following discussion sets forth certain federal income tax
consequences, under current law, relating to the purchase and ownership of the
Units, and the Common Stock and Warrants constituting the Units. The Company has
not requested and does not intend to request a ruling from the Internal Revenue
Service or a tax opinion from its counsel on any tax aspect of the Offering.
This tax discussion does not purport to be a complete analysis or list of all
potential federal income tax consequences of the purchase, ownership and sale of
the Common Stock or Warrants. The discussion does not address the tax treatment
for certain unique taxpayers, such as insurance companies, tax exempt
organizations, financial institutions and dealers in securities which may be
subject to special rules not discussed herein. This discussion presents no
analysis of the tax attributes of the Company either before or after this
Offering. PROSPECTIVE PURCHASERS OF THE UNITS SHOULD CONSULT THEIR OWN TAX
ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND SALE OF SUCH SECURITIES AND THE APPLICABILITY OF FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
An investor must allocate the cost of each Unit among its three
elements (two Shares and one Warrant) in accordance with their relative fair
market values at the time of issuance. The portion of the aggregate cost
allocated to each element will constitute the investor's initial federal income
tax basis for that element.
No gain or loss will be recognized by a holder of a Warrant held for
investment on the holder's purchase of Common Stock for cash upon exercise of
the Warrant. The adjusted tax basis of the Common Stock so acquired will be
equal to the tax basis of the Warrant plus the exercise price. The holding
period of the Common Stock acquired upon the exercise of the Warrant will begin
on the date the Warrant is exercised and the Common Stock is purchased.
The sale of a share of Common Stock or the sale of a Warrant will
result in the recognition of gain or loss to the holder in an amount equal to
the difference between the amount realized (generally the cash and the fair
market value of any other property received) and the holder's adjusted tax basis
for the property sold. The sale of Common Stock will result in capital gain or
loss, provided the Common Stock is a capital asset in the hands of the holder.
The sale of a Warrant (other than a sale to the Company) will also result in a
capital gain or loss, provided the Warrant is a capital asset in the hands of
the holder and the Common Stock underlying the Warrant would be a capital asset
to the holder if acquired by the holder. Such capital gain or loss will be short
term gain or loss if the Common Stock or Warrants sold or exchanged have been
held one year or less, mid-term gain or loss if the Common Stock or Warrants
have been held for more than 12 months and less than 18 months, and will be
long-term capital gain or loss if the Common Stock or Warrant being sold or
exchanged has been held for more than eighteen months at the time of such sale
or exchange.
If the repurchase of a Warrant by the Company is treated as a sale or
exchange of a capital asset, any gain or loss recognized on the transaction will
be short term gain or loss if the holding period of the Warrants is one year or
less, mid-term gain or loss of the holding period of the Warrants is more than
12 months and less than 18 months and will be long-term capital gain or loss if
the holding period of the Warrant exceeds eighteen months at the time of
repurchase. However, it is unclear whether the repurchase of a Warrant by the
Company will be treated as the sale or exchange of a capital asset, and if such
repurchase is not treated as the sale or exchange of
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a capital asset, the holder of a Warrant could potentially recognize ordinary
income on such repurchase because of a constructive distribution
recharacterization.
Mid-term capital gains of individuals, trusts and estates are taxed at
a maximum rate of 28% and long term capital gains are taxed at a maximum rate of
20%, while short term capital gains are taxed at the same rates as ordinary
income, which is currently taxed at a maximum rate of 39.6%. In additon, a
maximum long term capital gains rate of 18% will apply to capital assets
acquired after December 31, 2000, and held for more than 5 years, as well as to
certain assets acquired prior to that date and held for the requisite period.
Prosepctive purchasers should consult with their personal tax advisors to
determine if this lowest long term capital gains rate may be applicable in 2001.
Section 1202 of the Code in certain circumstances allows certain
noncorporate taxpayers to exclude from income one-half of the gain (up to
certain limits) from the sale or exchange of "qualified small business stock"
held for more than five years. In addition, in calculating the alternative
premium tax, 42% of the excluded gain (21% of the total gain) is treated as an
item of tax preference. An individual may elect to roll over the capital gain
from the sale of qualified small business stock held more than 6 months if other
small business stock is purchased by the individual during the 60-day period
beginning on the date of the sale. Gain is recognized only to the extent the
amount realized on the sale exceeds the cost of the replacement stock purchased
during the 60 day period. Any gain which is not recognized reduces the
individual's cost basis in the replacement stock purchase. The holding period
for the replacement small business stock includes the holding period of the
small business tock sold for purposes of meeting the 5 year ownership test for
excluding gain. In order for stock to be "qualified small business stock," the
issuer of the stock must meet certain requirement, some of which apply to the
period after the stock is issued. Consequently, it is unclear whether the Common
Stock acquired upon exercise of a Warrant will qualify as qualified small
business stock.
Under Section 305 of the Code, certain actual or constructive
distributions of stock (including warrants to purchase stock) with respect to
such stock (or warrants) may be taxable to the stockholders (or Warrant holders)
of the Company. Adjustments in the exercise price of the Warrants, or the number
of shares purchasable upon exercise of the Warrants, in each case made pursuant
to the anti-dilution provisions of the Warrants, among other things, may result
in a distribution which is taxable as a dividend to the holders of Warrants.
Distributions may be taxed as ordinary dividend income, return of capital, or
gain from the sale or exchange of stock, depending on the earnings and profits
of the Company and the tax basis of each of its stockholders or Warrant holders.
A Warrant that expires unexercised will be deemed to have been sold or
exchanged for no consideration on the expiration date. The holder of an expired
Warrant would recognize loss to the extent of the holder's basis in that
Warrant. Any loss to the holder of any expired Warrant will be a capital loss if
the Warrant was held as a capital asset and if the Common Stock underlying the
Warrant would have been a capital asset had such Warrant been exercised. Any
loss will be short, mid or long-term capital loss depending upon the holder's
holding period for the Warrant at the time the Warrant expires. The use of
capital losses to offset ordinary income is strictly limited for noncorporate
stockholders and prohibited for corporate stockholders.
No gain or loss will be recognized by the Company upon the acquisition,
exercise or expiration of any Warrants.
Section 203 of the Delaware Law
Section 203 of the GCL prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to the date of the business
combination, the transaction is approved by the board of directors of the
corporation, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock, or (iii) on or after such date,
the business combination is approved by the board of directors and by the
affirmative vote of at least 66-2/3% of the outstanding voting stock that is not
owned by the interested stockholder. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person, who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock.
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Transfer Agent
The Transfer Agent for the Common Stock and Warrant Agent for the
Warrants is Liberty Transfer Co., Box 558, Huntington, NY 11743-0588.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have outstanding
4,600,000 shares of Common Stock and 300,000 Warrants. Of these securities,
600,000 shares of Common Stock and 300,000 Warrants maximum being sold in the
Offering (along with 2,000,000 shares of Common Stock presently outstanding)
will be freely transferable by persons other than "affiliates" of the Company
(as that term is defined under the Securities Act) without restriction or
further registration under the Securities Act. In addition, the 300,000 shares
of Common Stock issuable upon exercise of the Warrants being sold in the
Offering will also be freely tradeable without restrictions or further
registration.
All of the remaining 2,000,000 shares of Common Stock outstanding are
"restricted securities," as that term is defined in Rule 144 promulgated under
the Securities Act, and may only be sold pursuant to an effective registration
statement under the Securities Act, in compliance with the exemption provisions
of Rule 144 or pursuant to another exemption under the Securities Act. The
2,000,000 restricted shares are eligible for sale, without registration, under
Rule 144 (subject to certain volume limitations prescribed by such rule and to
the contractual restrictions described below).
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated) who has beneficially owned restricted
securities for at least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of 1% of the then
outstanding shares of the issuer's common stock or the average weekly trading
volume during the four calendar weeks preceding such sale, provided that certain
public information about the issuer as required by Rule 144 is then available
and the seller complies with certain other requirements. Affiliates may sell
unrestricted securities in compliance with Rule 144, other than the holding
period requirement. A person who is not an affiliate, has not been affiliate
within two months prior to sale, and has beneficially owned the restricted
securities for at least two years, is entitled to sell such shares under Rule
144 without regard to any of the limitations described above.
The Company's officers, directors [and certain other stockholders]
beneficially owning in aggregate ______________ shares of Common Stock have
agreed not to sell or dispose of any of their securities of the Company prior
to, 1998 [twelve months from the date of this Prospectus], without the
Underwriter's prior written consent.
In addition to the shares of Common Stock that are currently
outstanding, the Company has reserved (i) 7,500 shares for issuance upon
exercise of warrants and stock options presently outstanding and (ii) 400,000
shares for issuance upon the exercise of options granted and available for
future grant under the 1997 Stock Option Plan, none of which have been granted
as of the date of this Prospectus.
Prior to this Offering, there has been no public trading market for the
Common Stock and no prediction can be made as to the effect, if any, that public
sales of shares of Common Stock or the availability of shares for sale will have
on the market prices of the Common Stock and Warrants prevailing from time to
time. Nevertheless, the possibility that a substantial amount of Common Stock
and/or Warrants may be sold in the public market may adversely effect prevailing
market prices and could impair the Company's ability to raise capital through
the sale of its equity securities in the future.
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UNDERWRITING
The Underwriters named below (the "Underwriters") , for whom Agean
Group, Inc. is acting as representative (in such capacity, the
"Representative"), have agreed, subject to the terms and conditions of the
Underwriting Agreement (the "Underwriting Agreement"), to purchase from the
Company, and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective number of shares of Units set forth opposite
their names:
Underwriters Number of Units
- ------------ ---------------
Agean Group Inc.
Total 300,000
=======
The Underwriters are committed to purchase all of the Units offered
hereby, if any of such Units are purchased. The Underwriting Agreement provides
that the obligations of the several Underwriters are subject to conditions
precedent specified therein.
The Underwriting Agreement between the Company and the Representative
(the "Underwriting Agreement") provides that the obligations of the Underwriter
are subject to the approval of certain legal matters by its counsel and various
other conditions. The Underwriter has advised the Company that it proposes to
offer the Units to the public at the public offering prices set forth on the
cover page of this Prospectus. The Underwriter may allow certain dealers who are
members of the National Association of Securities Dealers, Inc. (the "NASD")
concessions, not in excess of $____ per Unit, of which not in excess of $___ per
Unit may be reallowed to other dealers which are members of the NASD.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Underwriter an expense allowance on a non-accountable basis
equal to 3% of the gross proceeds derived from the sales of the Units
underwritten, of which the full amount of $90,000 has been paid to date.
The Underwriter has informed the Company that it does not expect sales
to discretionary accounts by the Underwriter to exceed 5% of the Units offered
hereby.
The Company has granted to the Underwriters an Over-Allotment Option,
exercisable within 45 days of the date of this Prospectus, to purchase up to an
additional 45,000 Units at the public offering price per Unit offered hereby,
less underwriting discounts and the non-accountable expense allowance. Such
Over-Allotment Option may be exercised only for the purpose of covering
over-allotments, if any, incurred in the sale of the Securities offered hereby.
To the extent the Over-Allotment Option is exercised, in whole or in part, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase the number of the additional Units proportionate to its initial
commitment.
In connection with the Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, Underwriter's Warrants to purchase from
the Company such number of Units equal to 10% of the Units actually sold by the
Company in the Offering. The Underwriter's Warrants are initially exercisable at
a price of $14 per Unit for a four-year period commencing on the first
anniversary of the issuance of the Underwriter's Warrants. The Underwriter's
Warrants provide for adjustments in the number of Units issuable upon the
exercise thereof and in the exercise price of the Underwriter's Warrants as a
result of certain events, including subdivisions and combinations of the Common
Stock.
The Company has agreed to retain the Underwriter as a financial
consultant for a period of two years following the consummation of this offering
at an annual fee of $30,000, the entire $60,000 payable in full, in advance. The
consulting agreement with the Underwriter will not require it to devote a
specific amount of time to the performance of its duties thereunder.
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The Underwriter has not previously participated in any public offerings
as an underwriter. In evaluating an investment in the Company, prospective
investors in the Units offered hereby should consider the Underwriter's lack of
experience as an underwriter of public offerings.
Upon the exercise of any Warrants more than one year after the date of
this Prospectus, which exercise was solicited by the Underwriter, and to the
extent not inconsistent with the guidelines of the National Association of
Securities Dealers, Inc. ("NASD") and the Rules and Regulations of the
Commission, the Company has agreed to pay the Underwriter a commission which
shall not exceed five percent (5%) of the aggregate exercise price of such
Warrants in connection with bona fide services provided by the Underwriter
relating to any warrant solicitation undertaken by the Underwriter. In addition,
the individual must designate the firm entitled to payment of such warrant
solicitation fee. A warrant solicitation fee will only be paid to the
Underwriter or another NASD member when such NASD member is specifically
designated in writing as the soliciting broker. However, no compensation will be
paid to the Underwriter in connection with the exercise of the Warrants if (a)
the market price of the Common Stock is lower than the exercise price, (b) the
Warrants were held in a discretionary account, or (c) the exercise of the
Warrants is not solicited by the Underwriter.
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate short covering transactions and penalty bids in
accordance with Regulation M under the Exchange Act. Over-allotment involves
sales by the underwriting syndicate in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the Securities as long as the stabilizing bids do not exceed a
specified maximum. Syndicate short covering transactions involve purchases of
the Units in the open market after the distribution has been completed in order
to cover syndicate short positions. Penalty bids permit the Underwriters to
reclaim a selling concession from a selling group member when the Units
originally sold by such selling group member are repurchased in the open market
by the Underwriters. Such stabilizing transactions, syndicate short covering
transactions and penalty bids may cause the price of the Units to be higher than
it would otherwise be in the absence of such transactions. These transactions
may be effected on the Nasdaq SmallCap Market or otherwise and, if commenced,
may be discontinued at any time.
In general, the rules of the Commission will prohibit the Underwriters
from making a market in the Securities during a "restricted period" commencing
up to five days prior to the pricing of the offering of Units offered hereby and
extending until completion of the Offering. The Commission has, however, adopted
exceptions from these rules that permit passive market making under certain
conditions. These rules permit an underwriter to continue to make a market
subject to the conditions, among others, that its bid not exceed the highest bid
by a market maker not connected with the Offering and that its net purchases on
any one trading day not exceed prescribed limits. Pursuant to these exemptions,
the Underwriters, selling group members (if any) or their respective affiliates
may engage in passive market making in the Company's Securities during the
restricted period.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Consequently, the initial public offering price of the
Units has been determined by negotiation between the Company and Underwriter and
does not necessarily bear any relationship to the Company's asset value, net
worth, or other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, included the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, its capital
structure, the market for initial public offerings and certain other factors as
were deemed relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."
LEGAL MATTERS
The validity of the Securities comprising the Units offered hereby will
be passed upon for the Company by Mintz & Fraade, P.C., New York, New York,
counsel to the Company in connection with this Offering. Dreier & Baritz, Boca
Raton, Florida has acted as counsel to the Underwriter in connection with this
Offering. Mintz & Fraade, P.C. has been granted options to purchase 7,500 shares
of Common Stock at $.001 per share. In addition, Mintz & Fraade, P.C. has
previously represented and may in the future represent ISI, which is
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the licensor of the Company, and FMC which is a stockholder of and provides
management services to the Company, as well as officers and principals of FMC,
including, but not limited to, Paul Michelin, President of FMC and the husband
of the sole shareholder of FMC, in transactions unrelated to the Company. In the
past, Mintz & Fraade, P.C. has represented certain other companies which have
some of the same stockholders as those of the Company and for which FMC is a
consultant in transactions unrelated to the Company. Mintz & Fraade, P.C. also
owns shares in other companies which have some of the same stockholders as those
of the Company and for which FMC is a consultant. See "Risk Factors - Conflicts
of Interest".
EXPERTS
The financial statements of the Company as of September 30, 1995 and
1996, and for the periods ended September 30, 1995 and 1996, have been included
in this Prospectus in reliance upon the report of Daszkal, Bolton & Manela, Boca
Raton, Florida 33433, independent certified public accountants, given upon the
authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on
Form SB-2 under the Securities Act (together with all amendments and exhibits
thereto, the "Registration Statement") with respect to the securities offered
hereby. This Prospectus, filed as a part of such Registration Statement, does
not contain all of the information set forth in, or annexed as exhibits to, the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and this Offering, reference is made to the Registration
Statement, including the exhibits and schedules filed therewith, which may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, NW, Washington, D.C. 20549, or at the following regional offices of the
Commission: Midwest Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and Northeast Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10007. Copies of such material may
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, NW, Washington, D.C. 20549, at prescribed rates. Such material may
also be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. Statements contained in this Prospectus as to
the contents of any contract, agreement or other document are not necessarily
complete and, where the contract, agreement or other document referred to has
been filed as an exhibit to the Registration Statement, each such statement is
qualified in all respects by reference to the applicable document filed with the
Commission.
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INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report .............................................. F-2
Balance sheets as of September 30, 1996 ................................... F-3
Statements of Operations, for the Period of Inception Through
September 30, 1995 and the Fiscal Year Ended September 30, 1996 ........... F-4
Statements of Shareholders' Equity (Deficit), for the Period of Inception
Through September 30, 1995 and the Fiscal Year Ended September 30, 1996 ... F-5
Statements of Cash Flows, for the Period of Inception Through
September 30, 1995 and the Fiscal Year Ended September 30, 1996 ........... F-6
Notes to Financial Statements ............................................. F-7
Condensed Consolidated Balance Sheets - June 30, 1997 (unaudited) ......... F-8
Condensed Consolidated Statements of Operations -
Nine months ended June 30, 1997 and 1996 (unaudited) .................... F-10
Condensed Consolidated Statements of Cash Flows -
Nine months ended June 30, 1997 and 1996 (unaudited) .................... F-11
Notes to Condensed Consolidated Financial Statements -
June 30, 1997 ........................................................... F-12
F - 1
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1996 AND
PERIOD FROM JULY 14, 1995 (INCEPTION)
TO SEPTEMBER 30, 1995
<PAGE>
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT.................................................1
FINANCIAL STATEMENTS:
BALANCE SHEETS..........................................................2-3
STATEMENTS OF OPERATIONS .................................................4
STATEMENT OF STOCKHOLDERS' EQUITY.........................................5
STATEMENT OF CASH FLOWS.................................................6-7
NOTES TO FINANCIAL STATEMENTS..........................................8-14
<PAGE>
DASZKAL, BOLTON & MANELA
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
240 W. PALMETTO PARK ROAD, SUITE 300 o BOCA RATON, FLORIDA 33432
TELEPHONE (561)367-1040 FAX (561)750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN, CPA, P.A.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Intellisys Automotive Systems, Inc.
We have audited the accompanying balance sheets of Intellisys Automotive
Systems, Inc. as of September 30, 1996 and 1995, the related statements of
operations, stockholders' equity and cash flows for the year ended September 30,
1996 and for the period from July 14, 1995 (Inception) to September 30, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Intellisys Automotive System,
Inc. as of September 30, 1996 and 1995, and the results of its operations and
its cash flows for the year ended September 30, 1996 and for the period from
July 14, 1995 (Inception) to September 30, 1995 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has experienced substantial losses from
operations since its inception as well as negative cash flows from operation.
The Company has a negative cash position at December 31, 1996. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might result from the
resolution of these uncertainties.
/s/ Daszkal, Bolton & Manela
Boca Raton, Florida
January 13, 1997, except as to the information
in the last paragraph in Note 12, for which the
date is January 30, 1997, and except for Notes 1
and 4 for which the date is April 23, 1997.
-1-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
ASSETS
1996 1995
----------- -----------
CURRENT ASSETS
Cash $ 90,881 $ 51,753
Contract receivables 12,933 --
Costs and estimated earnings in excess of billings
on uncompleted contracts 367,146 30,170
Loan receivable - stockholders -- 151,000
Prepaid expenses 29,912 --
Rent deposit -- 2,695
----------- -----------
Total Current Assets 500,872 235,618
----------- -----------
PROPERTY AND EQUIPMENT
Office furniture and equipment 4,922 4,922
Computer equipment 42,781 26,068
Less: Accumulated depreciation (13,675) (785)
----------- -----------
Property and Equipment, net 34,028 30,205
----------- -----------
OTHER ASSETS
License Agreement, net of amortization 970,833 995,833
Deposits 4,164 4,164
----------- -----------
Total Other Assets 974,997 999,997
----------- -----------
TOTAL ASSETS $ 1,509,897 $ 1,265,820
=========== ===========
See accompanying notes to financial statements.
-2-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
----------- -----------
CURRENT LIABILITIES
Accounts payable $ 24,054 $ 151
Accrued expenses 23,954 16,648
Billings in excess of costs and estimated earnings
on uncompleted contracts -- 944
Contract payable - license -- 900,000
Loan payable - stockholders 93,442 --
Loan payable - Licensor -- 147,784
----------- -----------
Total Current Liabilities 141,450 1,065,527
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $.001 par value - 20,000,000
shares authorized; shares issued and
outstanding: 1996 - 4,000,000 and
1995 - 2,000,000 4,000 2,000
Additional paid-in-capital 1,797,000 299,000
Accumulated deficit (432,553) (100,707)
----------- -----------
Total Stockholders' Equity 1,368,447 200,293
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,509,897 $ 1,265,820
=========== ===========
See accompanying notes to financial statements.
-3-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996 AND
PERIOD FROM JULY 14, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
For the For the
Year Ended Period Ended
September September
30, 1996 30, 1995
----------- -----------
Revenues $ 793,457 $ 41,826
----------- -----------
Costs and Expenses
Cost of revenues 330,727 50,397
Marketing 87,175 31,439
General and administrative 256,947 38,368
Amortization - license costs 25,000 4,167
Royalties 265,420 10,712
Research and development 24,978 8,088
----------- -----------
Total Costs and Expenses 1,125,250 143,171
----------- -----------
Loss from Operations (331,793) (101,345)
----------- -----------
Other Income (Expense)
Interest Income 780 638
Interest Expense (833) --
----------- -----------
Total Other Income (Expense) (53) 638
----------- -----------
Net Loss Before Income Tax Benefit (331,846) (100,707)
Income Tax Benefit -- --
----------- -----------
Net Loss $ (331,846) $ (100,707)
=========== ===========
Weighted Average Common
Shares Outstanding 2,005,479 2,000,000
=========== ===========
Net Loss per Common Share $ (.17) $ (.05)
=========== ===========
See accompanying notes to financial statements.
-4-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1996 AND
PERIOD FROM JULY 14, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
Additional
COMMON STOCK Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
Balance at July 14,
1995 -- $ -- $ -- $ -- $ --
Stock issued 1,000,000 1,000 -- -- 1,000
Stock issued 1,000,000 1,000 299,000 -- 300,000
Net Loss for the
Period -- -- -- (100,707) (100,707)
--------- ------ ---------- --------- -----------
Balance at September
30, 1995 2,000,000 2,000 299,000 (100,707) 200,293
Stock issued 2,000,000 2,000 1,498,000 -- 1,500,000
Net Loss for the Year -- -- -- (331,846) (331,846)
--------- ------ ---------- --------- -----------
Balance at September
30, 1996 4,000,000 $4,000 $1,797,000 $(432,553) $ 1,368,447
========= ====== ========== ========= ===========
See accompanying notes to financial statements.
-5-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996 AND
PERIOD FROM JULY 14, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
For the For the
Year Period
Ended Ended
September September
30, 1996 30, 1995
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (331,846) $(100,707)
----------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 12,890 785
Amortization 25,000 4,167
Changes in Assets and Liabilities:
(Increase) Decrease in:
Contract receivables (12,933) --
Prepaid expenses (29,912) --
Costs and estimated earnings in excess of billings
on uncompleted contracts (336,976) (30,170)
Other assets 2,695 (6,859)
Increase (Decrease) in:
Accounts payable 23,903 151
Billings in excess of costs and estimated earnings
on uncompleted contracts (944) 944
Accrued expenses 7,306 16,648
----------- ---------
Total Adjustments (308,971) (14,334)
----------- ---------
Net Cash Used in Operations (640,817) (115,041)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (16,713) (30,990)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuance 1,500,000 300,000
Proceeds from stockholder loan 244,442 --
Proceeds from other loans - ISI -- 147,784
Payment of contract payable - license (900,000) (100,000)
Increase in stockholder loan -- (150,000)
Payment on other loans - ISI (147,784) --
----------- ---------
Net Cash Provided by Financing Activity 696,658 197,784
----------- ---------
</TABLE>
(Continued on next page)
See accompanying notes to financial statements.
-6-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996 AND
PERIOD FROM JULY 14, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
Statement of Cash Flows (Continued)
For the For the
Year Period
Ended Ended
September September
30, 1996 30, 1995
---------------- ----------
NET INCREASE IN CASH 39,128 51,753
CASH, BEGINNING OF PERIOD 51,753 --
---------------- ----------
CASH, END OF PERIOD $ 90,881 $ 51,753
================ ==========
Supplemental Disclosure of Cash flow Information
Cash Paid During the Period for:
Interest $ 833 $ --
================ ==========
Income taxes $ -- $ --
================ ==========
Supplemental Disclosure of Non-cash Transactions
License agreement acquired for contract $ -- $1,000,000
================ ==========
Stock Acquired for Stockholder Loan $ -- $ 1,000
================ ==========
See accompanying notes to financial statements.
-7-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Intellisys Automotive Systems, Inc. (the Company) was incorporated on July 14,
1995 in the State of Delaware. The Company began operations after acquiring
significant assets from Intellisys Systems, Inc. The Company supplies diagnostic
and control systems to the automotive industry using advanced engineering. The
Company's customers are two of the big three in the automotive industry.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced
substantial operating losses and negative cash flows from operation since its
inception. The Company has a negative cash balance at December 31, 1996. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. The Company's ability to continue in existence as a going
concern, is dependent upon its ability to attain profitable operations and to
obtain equity and/or debt financing. Management projects profitable operations
over the next year but plans to rely on the Company's ability to successfully
complete a proposed initial public offering in the near term.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Revenue and Cost Recognition
Revenues from fixed-price contracts are recognized on the
percentage-of-completion method, measured by the percentage of cost incurred to
date to estimated total cost for each contract. This method is used because
management considers total cost to be the best available measure of progress on
the contracts. Because of inherent uncertainties in estimating costs, it is at
least reasonably possible that the estimates used will change within the near
term.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance such as indirect labor, supplies, tools,
repairs, and depreciation. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts," represents billings in excess of revenues recognized.
-8-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment is recorded at cost and is depreciated using accelerated
methods over their estimated useful lives. Expenditures for major renewals and
betterments that extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation expense was $12,890 for 1996 and $785 for 1995.
Amortization
The license agreement represents the amount paid for the North American rights
to certain computer technology. The license agreement costs are being amortized
using the straight-line method over forty years. The Company periodically
evaluates the realizability of intangible assets to determine whether any
impairment has occurred in the value of such assets based on the provisions of
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(Statement No. 121). The initial adoption of Statement No. 121 in 1996 did not
have a material impact on the Company's financial condition or results of
operations.
The license agreement is net of accumulated amortization of $29,167 and $4,167
at September 30, 1996 and 1995, respectively. For the years ended September 30,
1996 and the period ended September 30, 1995, the amortization expense was
$25,000 and $4,167, respectively.
Research and Development Expenses
Research and development expenditures are expended as incurred and totaled
$24,978 for the year ended September 30, 1996 and $8,088 for the period ended
September 30, 1995.
Income Taxes
The Company has adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes". This standard requires, among other things,
recognition of future tax benefits, measured by enacted tax rates, attributable
to deductible temporary differences between financial statement and income tax
basis of assets and liabilities, and available net operating losses to the
extent that the realization of such benefit is more likely than not. SFAS 109
requires a valuation allowance against deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Use of Estimates
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
-9-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Standards
During 1995, the Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock Based Compensation", which is effective for fiscal years
beginning after December 15, 1995. During 1997, the Financial Accounting
Standards Board issued Statement NO. 128, "Earnings Per Share". Statement No.
123 is effective for years beginning after December 15, 1995 and Statement No.
128 is effective for years ending after December 15, 1997. The Company believes
that the adoption of these standards will not have a material effect of the
Company's results of operations or financial position.
NOTE 3 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The following schedule presents the status of costs and estimated earnings on
uncompleted contracts:
1996 1995
--------- --------
Costs incurred on uncompleted contracts $ 344,386 $ 14,888
Estimated earnings 490,899 26,938
--------- --------
835,285 41,826
Less: Billings to date (468,138) 12,600
--------- --------
$ 367,147 $ 29,226
========= ========
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 367,147 $ 30,170
Billings in excess of costs and estimated
earnings on uncompleted contracts -- (944)
--------- --------
$ 367,147 $ 29,226
========= ========
NOTE 4 - RELATED PARTY TRANSACTIONS
The following transactions occurred during the periods:
License Agreement
The Company entered into a license agreement with Intellisys Systems, Inc.,
("Licensor"), for the North American rights to use certain computer technology,
knowledge, and documentation associated with the sale of computer products to
the automotive industry, as defined in the license agreement. Under the
agreement, the Licensor will provide certain maintenance and support services to
the Company. In addition, the Licensor provides certain marketing and management
services to the Company. The agreement remains in force in perpetuity unless
terminated by reason of the non-payment of royalties or other factors of the
agreement including bankruptcy of the Company.
-10-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
The agreement calls for the initial payment of $1,000,000, plus royalties of
forty percent (40%) of the Company's gross revenue less the cost of direct
materials. The payment of the $1,000,000 was to be made by paying $100,000 upon
execution of the agreement and then ten percent (10%) of the Company's monthly
revenue until the $900,000 balance had been paid. The Company subsequently paid
the remaining $900,000 balance from the $1,500,000 proceeds from the common
stock issued during the year.
The royalties paid to ISI are paid monthly. During the year ended September 30,
1996 and the period ended September 1995, the Company paid $265,420 and $10,712,
respectively.
Transaction Involving Stockholders
Activity with the Company's stockholders during the year ended September 30,
1996 and the period ended September 30, 1995 is summarized as follows:
September September
30, 1996 30, 1995
--------- --------
Due from stockholders - Beginning of Period $ 151,000 $ --
Cash receipts (244,442) --
Cash disbursements -- 150,000
Debt incurred for common stock -- 1,000
--------- --------
Due from (due to) stockholders - End of Period $ (93,442) $151,000
========= ========
Also, during the year ended September 30, 1996, the Company paid a stockholder
$39,000 in consulting fees.
Advance Payable Licensor
The Company borrowed $147,700 from Licensor during the period ended September
30, 1995. This advance was repaid during the year ended September 30, 1996.
NOTE 5 - ISSUANCE OF COMMON STOCK
On July 14, 1995, the Company issued 1,000,000 shares of common stock at a price
of .001 cents a share. On July 14, 1995, the Company issued an additional
1,000,000 shares of common stock which increased the total shares outstanding
from 1,000,000 to 2,000,000 and raised $300,000.
During the year ended September 30, 1996, the Company issued 2,000,000 shares
for $1,500,000.
-11-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - LEASE AGREEMENT
The Company leases office space under an operating lease agreement. The lease
was executed July 14, 1995 and covers office space located in Southfield,
Michigan. The lease has a one-year term from its commencement date and provides
for a monthly rent of $2,664.
The Company also leases an apartment under an operating lease agreement. The
lease agreement provides for a one-year term with monthly payments of $1,800.
Rent expenses for the year ended September 30, 1996 and the period ended
September 30, 1995 were $53,568 and $8,928, respectively.
NOTE 7 - INCOME TAXES
Temporary differences between the financial statement carrying amounts and tax
basis of assets and liabilities did not give rise to significant portions of
deferred taxes at September 30, 1996 and 1995. There is a permanent difference
between pretax income and taxable income due to the amortization of the license
agreement. This amount was $25,000 for 1996 and $4,167 for 1995.
As of September 30, 1996, the Company had an unused net operating loss carry
forward of $403,386 available for use on its future corporate federal tax
returns. The Company's evaluation of the tax benefit of its net operating loss
carry forward is presented in the following table. The tax amounts have been
calculated using the 34% tax rate resulting from the use of graduated rates.
Deferred Tax Asset:
Tax Benefit of Net Operating Loss $ 137,151
Less: Evaluation allowance (137,151)
Deferred Tax Asset $ --
=========
The net operating loss carryover is summarized below:
Year Loss Originated Year Expiring Amount
- -------------------- ------------- ------
September 30, 1995 2010 $ 96,540
September 30, 1996 2011 306,846
---------
Total Available Net Operating Loss $ 403,386
=========
-12-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - NET (LOSS) PER SHARE
Net loss per share for fiscal years ended 1996 and 1995 has been computed in
accordance with Securities and Exchange Commission Staff Accounting Bulletin
(SAB) No. 83. SAB No. 83 requires that common stock issued by the Comany in
contemplation of the IPO at prices substantially below the initial public
offering price be included in the calculation of common stock as if they were
outstanding for all periods presented. Net loss per share was calculated by
dividing the net loss by the weighted average number of common shares
outstanding during the periods, computed in accordance with the treasury stock
method. The weighted average common shares outstanding at September 30, 1996 and
1995 was $3,850.00
NOTE 9 - CONCENTRATION OF CREDIT RISK
The Company's financial instruments which are exposed to concentrations of
credit risk consist primarily of cash and trade accounts receivable. The Company
places its cash and temporary investments with high credit quality financial
institutions. At times, such investments may be in excess of the FDIC insurance
limit. The Company sells its products to two of the big three in the automotive
industry and, as a consequence, believes that its trade accounts receivable
credit risk exposure is limited.
NOTE 10 - MAJOR CUSTOMERS
As described in Note 1, the Company is involved in the business of creating and
selling computer systems to the automotive industry. Specifically, the majority
of the Company's sales have been to members of the big three auto manufacturers.
During the year end, September 30, 1996 and the period from July 14, 1995
(Inception) to September 30, 1995, one hundred percent of the Company's
contracts were with two members of the big three auto manufacturers.
NOTE 11 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at September 30, 1996 does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheet.
NOTE 12 - CONTINGENCIES
The Company is involved in various legal proceedings incident to the character
of its business. Although it is not possible to predict the outcome of these
proceedings, or any claims against the Company related thereto, the Company
believes that such proceedings will not, individually or in the aggregate, have
a material adverse effect on its financial condition or results of operations.
-13-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENTS
On January 6, 1997, the capital structure of the Company was changed so that the
originally authorized 20,000,000 shares of .001 par value common stock were
replaced by 15,000,000 shares of .001 par value common stock, 3,000,000 shares
of Class A .01 par value stock, and 2,000,000 shares of .01 par value preferred
stock.
On January 10, 1997, the Company sold 2,000,000 shares of Class A $.01 par value
common stock for 37.5 cents per share for a total of $750,000. The Company
received stock subscriptions for this amount. At the time of the sale of stock,
a stockholder loan payable existed in the amount of $390,684. The stock
subscription receivable extinguished the stockholder loan payable, and as of
January 30, 1997, after $276,650 of payments had been received, the balance in
the stock subscription receivable was $82,666.
-14-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED
JUNE 30, 1997 AND 1996
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
INDEX
Page
Number
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
June 30, 1997. . . . . . . . . . . . . . . . . . . . . . . . . 1-2
Condensed Consolidated Statements of Operations -
Nine months ended June 30, 1997 and 1996 . . . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows -
Nine months ended June 30, 1997 and 1996 . . . . . . . . . . . 4
Notes to Condensed Consolidated Financial Statements -
June 30, 1997. . . . . . . . . . . . . . . . . . . . . . . . . 5-7
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
CONDENSED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
ASSETS
1997
-----------
Current Assets:
Cash $ 5,063
Contract receivables 465,851
Costs and estimated earnings in excess of billings on
uncompleted contracts 581,146
Inventory 13,057
Deposits for public offering costs 100,000
Other current assets 10,178
-----------
Total Current Assets 1,175,295
-----------
Property and Equipment:
Office furniture and equipment 6,149
Computer equipment 44,022
Less: accumulated depreciation (22,687)
-----------
Property and Equipment, net 27,484
-----------
Other Assets:
License agreement, net of amortization 952,083
Deposits 4,164
Loan to licensor 390,312
-----------
Total Other Assets 1,346,559
-----------
Total Assets $ 2,549,338
===========
See accompanying notes to condensed financial statements.
-1-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
CONDENSED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
1997
-----------
Current Liabilities:
Accounts payable $ 229,653
Accounts payable - related party 73,414
Billings in excess of costs and estimated earnings on
uncompleted contracts 198,498
-----------
Total Current Liabilities 501,565
-----------
Loan Payable - Stockholders 552,352
-----------
Total Liabilities 1,053,917
-----------
Stockholders' Equity:
Preferred stock, $.01 par value - 2,000,000
shares authorized; none issued and outstanding --
Common stock, $.001 par value - 15,000,000
shares authorized; shares issued and outstanding
4,000,000 4,000
Common stock, (Class A) $.01 par value - 3,000,000
shares authorized; 2,000,000 shares issued and outstanding 20,000
Additional paid-in-capital 2,527,000
Accumulated deficit (1,055,579)
-----------
Total Stockholders' Equity 1,495,421
-----------
Total Liabilities and Stockholders' Equity $ 2,549,338
===========
See accompanying notes to condensed financial statements.
-2-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the nine months ended
June 30,
-----------------------------
1997 1996
----------- -----------
Revenues $ 802,717 $ 522,858
----------- -----------
Costs and Expenses:
Cost of revenues 749,858 295,863
Marketing 132,674 51,385
General and administrative 364,735 178,543
Amortization - license costs 18,750 18,750
Royalties 160,141 166,543
Research and development -- 18,921
----------- -----------
Total costs and expenses 1,426,158 730,005
----------- -----------
Loss from operations (623,441) (207,147)
----------- -----------
Other income (expense):
Interest income 415 677
Interest expense -- (834)
----------- -----------
Total other income (expense) 415 (157)
----------- -----------
Net loss before income tax benefit (623,026) (207,304)
Income tax benefit -- --
----------- -----------
Net loss $ (623,026) $ (207,304)
=========== ===========
Weighted average common
shares outstanding 6,000,000 6,000,000
=========== ===========
Net loss per common share $ (.10) $ (.03)
=========== ===========
See accompanying notes to condensed financial statements.
-3-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended
June 30,
------------------------
1997 1996
---------- -----------
Cash flows from operating activities:
Net cash used by operations $(801,948) $ (471,207)
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment (2,468) (13,504)
--------- -----------
Deposits for public offering costs (100,000) --
--------- -----------
Net cash used by investing activities (102,468) (13,504)
--------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 359,316
Loan to related party (390,312) --
Proceeds from stockholder loan 849,594 1,167,706
Increase in related party loan -- 26,694
Payments on contract payable -- (896,558)
Payments on stockholder receivable -- 151,000
--------- -----------
Net cash provided by financing activities 818,598 448,842
--------- -----------
Net decrease in cash (85,818) (35,869)
Cash, beginning of period 90,881 51,753
--------- -----------
Cash, end of period $ 5,063 $ 15,884
========= ===========
Supplemental disclosure of cash flow
information Cash paid during the period for:
Interest $ -- $ 834
========= ===========
Income taxes $ -- $ --
========= ===========
Supplemental schedule of noncash
Investing and financing activity:
Issuance of common stock for stockholder debt $ 390,684 $ --
========= ===========
See accompanying notes to condensed financial statements.
-4-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required for complete financial
statements. In the opinion of management, all adjustments necessary for a fair
presentation of the results for the interim periods presented have been
included.
These results have been determined on the basis of generally accepted accounting
principles and practices applied consistently with those used in the preparation
of the Company's Annual Financial Statement for the year ended September 30,
1996. Operating results for the nine months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
September 30, 1997.
It is recommended that the accompanying condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included elsewhere in this filing.
NOTE 2 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The following schedule presents the status of costs and estimated earnings on
uncompleted contracts:
1997
----------
Costs incurred on uncompleted contracts $ 660,495
Estimated earnings 670,662
----------
1,331,157
Less: Billings to date (948,509)
----------
$ 382,648
==========
Included in accompanying balance sheets under the
following captions:
Costs and estimated earnings in excess of billings
on uncompleted contracts $ 581,146
Billings in excess of costs and estimated earnings
on uncompleted contracts (198,498)
----------
$ 382,648
==========
-5-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 3 - INCOME TAXES
Temporary differences between the financial statement carrying amounts and tax
basis of assets and liabilities did not give rise to significant portions of
deferred taxes at June 30, 1997. There is a permanent difference between pretax
income and taxable income due to the amortization of the license agreement.
As of June 30, 1997, the Company had an unused net operating loss carry forward
of $1,026,412 available for use on its future corporate federal tax returns. The
Company's evaluation of the tax benefit of its net operating loss carry forward
is presented in the following table. The tax amounts have been calculated using
the 34% tax rate resulting from the use of graduated rates.
Deferred tax asset:
Tax benefit of net operating loss $ 348,980
Less: valuation allowance (348,980)
---------
Deferred tax asset $ --
=========
The net operating loss carryover of $1,026,412 will begin to expire in the year
2019.
NOTE 4 - RELATED PARTIES TRANSACTIONS
Activity with the Company's stockholders during the nine months ended June 30,
1997 and is summarized as follows:
June
30, 1997
---------
Loan payable stockholders - beginning of period $ 93,442
Cash receipts 849,594
Cash disbursements --
Common stock issued for debt (390,684)
---------
Loan payable stockholders - end of period $ 552,352
=========
During the nine months ended June 30, 1997, the Company advanced $390,455 to
Intellisys Systems, Inc., ("Licensor").
Also, during the nine months ended June 30, 1997, the Company incurred $45,130
in consulting fees to a stockholder and was advanced $73,414 as of that date.
-6-
<PAGE>
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 5 - CONTINGENCIES
The Company is involved in various legal proceedings incident to the character
of its business. Although it is not possible to predict the outcome of these
proceedings, or any claims against the Company related thereto, the Company
believes that such proceedings will not, individually or in the aggregate, have
a material adverse effect on its financial condition or results of operations.
NOTE 6 - COMMON AND PREFERRED STOCK
On January 6, 1997, the capital structure of the Company was changed so that the
originally authorized 20,000,000 shares of .001 par value common stock were
replaced by 15,000,000 shares of .001 par value common stock, 3,000,000 shares
of Class A .01 par value stock, and 2,000,000 shares of .01 par value preferred
stock.
On January 10, 1997, the Company issued 1,041,824 shares of stock in exchange
for a stockholder loan of $390,684. In addition, the Company issued 958,176
shares in exchange for a stock subscription receivable for a total of 2,000,000
shares at 37.5 cents per share.
NOTE 7 - INVENTORY
Inventory is stated at the lower cost or (first-in, first-out method) or Market.
The inventory consist of computer hardware and supplies.
NOTE 8 - ROYALTIES
As of January 1, 1997, the agreement to pay Intellisys Systems, Inc.,
("Licensor") royalties was renegotiated from 40% to 30% of the Company's gross
revenue, less the cost of direct materials.
NOTE 9 - NET (LOSS) PER SHARE
Net loss per share for the nine months ended June 30, 1997 and 1996 has been
computed in accordance wit Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 83. SAB No. 83 requires that common stock issued by the
Company in contemplation of the IPO at prices substantially below the initial
public offering price be included in the calculation of common stock as if they
were outstanding for all periods presented. Net loss per share was calculated by
dividing the net loss by the weighted average number of common shares
outstanding during the periods. The weighted average common shares outstanding
at June 30, 1997 and 1996 was 6,000,000.
-7-
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus, nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Company since the date hereof or that the information
contained herein is correct as of any date subsequent to the date hereof. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities offered hereby by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................................4
Risk Factors..................................................................9
The Company..................................................................20
Dividend Policy..............................................................20
Use of Proceeds..............................................................20
Dilution ....................................................................21
Capitalization...............................................................23
Selected Financial Data......................................................24
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................25
Business ....................................................................26
Management...................................................................41
Principal Stockholders.......................................................46
Certain Transactions.........................................................46
Description of the Securities................................................47
Shares Eligible for Future Sale..............................................53
Underwriting.................................................................54
Legal Matters................................................................56
Experts ....................................................................57
Available Information........................................................57
Index to Financial Statements.............................................F - 1
----------
Until ________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
IntelliSys Automotive Systems, Inc.
300,000 UNITS
Each Unit Consisting of
Two Shares of Common Stock
and
One Common Stock Purchase Warrants
- --------------
PROSPECTUS
- --------------
The Agean Group, Inc.
, 1997
- --------------------------------------------------------------------------------
F - 2
<PAGE>
PART II
Item 24. Indemnification of Directors and Officers.
Article EIGHTH of the Registrant's Certificate of Incorporation, as
amended, contains the following provision with respect to the indemnification of
directors of the Company:
"EIGHTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the provisions of Section
102(b)(7) of the General Corporation Law of the State of Delaware, as the same
may be amended or supplemented."
Sections 1,2, 3 and 4 of Article 8 of the Registrant's By-laws contain
the following provision with respect to the indemnification of directors,
officers, and authorized representatives:
"Section 1. Indemnification of Directors and Officers in Third Party
Proceedings. The Corporation shall indemnify any director or officer of
the Corporation who was or is an "authorized representative" of the
Corporation (which shall mean for the purposes of this Article a
director or officer of the Corporation, or a person serving at the
request of the Corporation as a director, officer, partner or trustee
of another corporation, partnership, joint venture, trust or other
enterprise) and who was or is a "party" (which shall include for
purposes of this Article the giving of testimony or similar
involvement) or is threatened to be made a party to any "third party
proceeding " (which shall mean for purposes of this Article any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, other than an action
by or in the right of the Corporation) by reason of the fact that such
person was or is an authorized representative of the Corporation,
against expenses (which shall include for purposes of this Article
attorney's fees and disbursements), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by such
person in connection with such third party proceeding if such person
acted in good faith and in a manner such person reasonably believed to
be in, or not opposed to, the best interests of the Corporation and,
with respect to a criminal third party proceeding (which shall include
for purposes of this Article any investigation which could or does lead
to a criminal third party proceeding) had not reasonable cause to
believe such conduct was unlawful. The termination of any third party
proceeding by judgment, order, settlement, indictment, conviction or
upon a plea of no contest or its equivalent, shall not, of itself,
create a presumption that the authorized representative did not act in
good faith and in a manner which such person reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with
respect to any criminal third party proceeding, had reasonable cause to
believe that such conduct was unlawful."
"Section 2. Indemnification of Directors and Officers in Corporate
Proceedings. The Corporation shall indemnify any director or officer of
the Corporation who was or is an authorized representative of the
Corporation and who was or is a party or is threatened to be made a
party to any "corporate proceeding" (which shall mean for purposes of
this Article any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor or
any investigative proceeding by or on behalf of the Corporation) by
reason of the fact that such person was or is an authorized
representative of the Corporation, against expenses (including
attorneys' fees and disbursements) actually and reasonably incurred by
such person in connection with the defense or settlement of such
corporate proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in, or not opposed to, the best
interests of the Corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in
the performance of such person's duty to the Corporation unless and
only to the extent that the court in which such corporate proceeding
was pending shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, such authorized representative is fairly and reasonably entitled
to indemnity for such expenses which the court shall deem proper."
"Section 3. Indemnification of Authorized Representatives. To the
extent that an authorized representative of the Corporation who neither
was nor is a director or officer of the Corporation has been successful
on the
II - 1
<PAGE>
merits or otherwise in defense of any third party or corporate
proceeding or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses actually and reasonably
incurred by such person in connection therewith. Such an authorized
representative may, at the discretion of the Corporation, be
indemnified by the Corporation in any other circumstances to any extent
if the Corporation would be required by Section 1 or 2 of this Article
VIII to indemnify such person in such circumstances to such extent as
if such person were or had been a director or officer of the
Corporation."
"Section 4. General Terms. Any indemnification under Section 1 and
Section 2 of this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee
or agent is proper in the circumstances because he had met the
applicable standard of conduct set forth in Section 1 and Section 2 of
this Article VIII. Such determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a
quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in
written opinion, or (iii) by the shareholders.
"Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent
to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation as authorized in
these By-laws."
Section 145 of the Delaware General Corporation Law also contains
provisions entitling directors and officers of the Company to indemnification
from judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, as the result of an action or proceeding in which
they may be involved by reason of being or having been a director or officer of
the Company (or, at the request of the Company, a director or officer of another
corporation or other enterprise); provided the officers or directors acted in
good faith. The Company also may obtain an insurance policy which will cover
officers and directors for any liability arising out of their actions in such
capacity.
The foregoing do not and will not eliminate or limit the liability of a
director for violating his duty of loyalty (which includes the obligation of a
director of the Company to refrain from self dealing with respect to the
Company, improperly competing with the Company or usurping Company
opportunities), failing to act in good faith, engaging in intentional misconduct
or knowingly violating a law or participating in the payment of a dividend or a
stock repurchase or redemption for himself. The foregoing also do not and will
not affect any director's liability under federal securities laws or the
availability of equitable remedies such as an injunction or rescission for
breach of fiduciary duty.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth an itemized list of all expenses to be
borne by the Registrant in connection with the issuance and distribution of the
securities being registered hereby other than underwriting discounts and
commissions and non-accountable expenses.
II - 2
<PAGE>
SEC Registration Fee........................................... $ 2,006.83
NASD Filing Fee................................................ 1,116.53
State Securities Laws (Blue Sky) Fees and Expenses............. 30,000.00*
Nasdaq SmallCap Market Listing Fee............................. 10,000.00*
Printing and Engraving......................................... 60,000.00*
Legal Fees and Expenses........................................ 145,000.00*
Accounting Fees and Expenses................................... 50,000.00*
Escrow Agent Fee............................................... 10,000.00*
Transfer Agent Fees............................................ 5,000.00*
Miscellaneous Expenses......................................... 36,830.64*
-----------
TOTAL................................................. $350,000.00*
===========
- ----------
* Estimated.
Item 26. Sales of Unregistered Securities.
Effective July 17, 1995, the Registrant issued and delivered shares of
Common Stock to the individuals and entities listed below for the consideration
set forth opposite their respective names. All of such shares of Common stock
were issued pursuant to an exemption from the registration requirements of the
Securities Act afforded by Section 4(2) thereof.
Name Number of Shares Aggregate Consideration
- ---- ---------------- -----------------------
Marcel Brun............... 500,000 $ 75,250
FMC Group, Inc............ 500,000 75,250
Paul Ulli, Jr............. 500,000 75,250
Suzanne Wolf 500,000 75,250
--------- ---------
Totals........... 2,000,000 $ 301,000
Effective September 30, 1996, the Registrant sold and issued an
aggregate 2,000,000 shares of Common Stock to a total of twenty individuals
(100,000 shares each) for the aggregate consideration of $1,500,000 ($.75 per
share). The issuance of all of such shares of Common Stock did not require
registration under the Securities Act in that they were not issued or sold
pursuant to an "offer," "offer to sell," "sale" or "offer to buy" for the
purposes of Section 5 of the Securities Act as provided by Rule 501 of
Regulation D promulgated under said Section 5.
Effective January 10, 1997, the Registrant sold and issued an aggregate
2,000,000 shares of its Class A Stock to a total of 29 individuals for the
aggregate consideration of $750,000 ($.375 per share). All of such shares of
Common stock were issued pursuant to an exemption from the registration
requirements of the Securities Act afforded by Section 4(2) thereof.
The Registrant believes that the purchasers of the above described
securities were all sophisticated investors within the meaning of the applicable
securities laws.
Item 27. Exhibits.
Number Description
- ------ -----------
1.1+ Form of Underwriting Agreement, to be entered into between Registrant
and The Agean Group, Inc.
1.2+ Form of Underwriter's Warrant Agreement, to be entered into between
Registrant and
II - 3
<PAGE>
The Agean Group, Inc.
1.3+ Form of Warrant Agreement, to be entered into between the Registrant
and Liberty Transfer Co.
3.1 Articles of Incorporation of Registrant, as amended to date.
3.2 By-Laws of Registrant, as amended to date.
4.1+ Specimen Common Stock Certificate.
4.2+ Specimen Common Stock Purchase Warrant.
4.3+ Form of Underwriter's Warrant.
4.4+ Form of Common Stock Certificate.
5.1+ Opinion of Mintz & Fraade, P.C.
10.1+ 1997 Stock Option Plan.
10.2 License Agreement between Registrant and ISI Technology Corp (formerly
Known as IntelliSys Systems, Inc. ), as amended.
10.3+ Management Agreement between Registrant and FMC Group, Inc.
23.1+ Consent of Mintz & Fraade, P.C.
23.2 Consent of Daszkal, Bolton & Manela.
24.1 Power of Attorney (set forth on the signature page of this Registration
Statement).
- ----------
+ To be filed by amendment.
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to any of the provisions
described under Item 24 above, 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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by 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 governed by the final
adjudication of such issue.
The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(a) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) reflect in the prospectus any facts or events which,
individually or in the
II - 4
<PAGE>
aggregate, represent a fundamental change in the information set
forth in the registration statement; and, notwithstanding the
forgoing, 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
end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in the 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
(c) Include any additional or changed material information with
respect to the plan of distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering; and
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the termination of the offering.
The Registrant hereby further undertakes to provide to the Underwriters at
the closing as specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The Registrant hereby further undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as
of the time the Commission declared it effective; and
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration
Statement, and that offering of such securities at that time as the
initial bona fide offering of those securities.
II - 5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in Southfield, State of
Michigan, on November 12, 1997.
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
By: /s/ Douglas Dick
-------------------------------
Douglas Dick, President
POWER OF ATTORNEY
We, the undersigned officers and directors of IntelliSys Automotive
Systems, Inc., hereby severally constitute and appoint Douglas Dick and James
Perretty, and each of them (with full power to each of them to act alone), our
true and lawful attorneys-in-fact and agents, with full power of substitution,
for us and in our stead, in any and all capacities, to sign any and all
amendments (including pre-effective and post-effective amendments) to this
Registration Statement and all documents in connection thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting to said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing necessary or advisable to be done in and about the
premises, as full to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all the said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Name Title Date
---- ----- ----
President, Chief Executive
/s/ Douglas Dick Officer and Director November 12, 1997
- ------------------------
Douglas Dick
/s/ Fred Shadko Director November 12, 1997
- ------------------------
Fred Shadko
Chief Financial Officer (Principal
Financial and Accounting Officer) November 12, 1997
/s/ James Perretty and Director
- ------------------------
James Perretty
/s/ Paul Michelin Director November 12, 1997
- ------------------------
Paul Michelin
II - 6
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/17/1995
950159153 -2524734
CERTIFICATE OF INCORPORATION
OF
IntelliSys Automotive Systems, Inc.
FIRST: The name of this corporation is IntelliSys Automotive Systems, Inc.
SECOND: Its registered office in the State of Delaware is to be located at Three
Christina Centre, 201 N. Walnut Street, Wilmington DE 19801, County of New
Castle. The registered agent in charge thereof is The Company Corporation,
address "same as above".
THIRD: The nature of the business and, the objects and purposes proposed to be
transacted, promoted and carried on, are to do any or all the things herein
mentioned as fully and to the same extent as natural persons might or could do,
and in any part of the world, viz:
The purpose of the corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The amount of the total authorized capital stock of this corporation is
divided into 100,000 shares of stock at .0010 par value.
FIFTH: The name and mailing address of the incorporator is as follows:
Regina Cephas, Three Christina Centre, 201 N. Walnut St., Wilmington DE 19801
SIXTH: The Directors shall have power to make and to alter or amend the By-Laws:
to fix the amount to be reserved as working capital, and to authorize and cause
to be executed, mortgages and liens without limit as to the amount, upon the
property and franchise of the Corporation.
With the consent in writing, and pursuant to a vote of the holders of a majority
of the capital stock issued and outstanding, the Directors shall have the
authority to dispose, in any manner, of the whole property of this corporation.
The By-Laws shall determine whether and to what extent the accounts and books of
this corporation, or any of them shall be open to the inspection of the
stockholder; and no stockholder shall have any right of inspecting any account,
or book & document of this Corporation, except as conferred by the law of the
By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have power to hold their meetings and keep
the books, documents and papers of the Corporation outside of the State of
Delaware, at such places as may be from time to time designated by the By-Laws
or by resolution of the stockholders or directors, except as otherwise required
by the laws of Delaware.
SEVENTH: Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of fiduciary
duties unless the breach involves: (1) a director's duty of loyalty to the
corporation or its stockholders; (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law: (3)
liability for unlawful payments of dividends or unlawful stock purchase or
redemption by the corporation: or (4) a transaction from which the director
derived an improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a Corporation under the laws of
the State of Delaware, do make, file and record this Certificate and do certify
that the facts herein are true; and I have accordingly hereunto set my hand.
DATED: JULY 17, 1995
/s/ Regina Cephas
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/27/1995
950169229 -- 2524734
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF INCORPORATION
PURSUANT TO SECTION 103 OF THE DELAWARE CORPORATION LAW,
I, the undersigned, being the Incorporator of Intellisys Automotive
Systems, Inc., do hereby certify that:
FIRST: The name of the corporation is Intellisys Automotive Systems, Inc.
SECOND: That the Certificate of Incorporation filed on July 17, 1995 is an
inaccurate record of the corporation action. The incorrect Certificate of
Incorporation was submitted for filing. (hereinafter referred to as Exhibit A).
THIRD: The original Certificate of incorporation is hereby rendered null
and void and replaced in its entirety per Exhibit A attached.
FOURTH: This correction of the Certificate of Incorporation was duly
authorized by unanimous written consent of the incorporators, dated as of July
28, 1995.
IN WITNESS WHEREOF, I have made and subscribed this certificate this 21st
day of April, 1995
/s/ Regina Cephas
-----------------------
Authorized Person
<PAGE>
Certificate of Incorporation
of
IntelliSys Automotive Systems, Inc.
Under Section 102 of the General Corporation Law
of the State of Delaware
------------------------------
The undersigned, a natural person of at least eighteen (18) years of age,
for the purpose of forming a corporation under the General Corporation Law of
the State of Delaware, certifies that:
FIRST: The name of the corporation (hereinafter referred to as the
"Corporation") is
IntelliSys Automotive Systems, Inc.
SECOND: The purpose of purposes for which the Corporation is formed are as
follows:
To provide software, analytic, training and management services to
government agencies, foreign governments, industry, including, but not limited
to the automobile industry and private institutions.
To design and develop automated training systems, expert systems, and
artificial intelligence systems.
To provide technical and consultant services in many fields allied to
training technology and applications of computer science to enhance human and
organizational performance.
To engage in research and development, purchase, sale, import, export,
license, distribution, design, manufacture, assembly or rental of any product,
machine, apparatus, appliance, merchandise, and property of every kind and
description, ideas, systems, procedures, and services of any nature, including,
without limiting the generality of the foregoing, all types of products which
possess an internal intelligence for recognizing and correlating and type of
data or information to be processed, pattern interpretation, recognition and
memory systems and equipment; all types of product which relate to computers,
electronic systems, equipment and components and electrical, mechanical and
electromechanical apparatus and equipment of every kind and description and
electronic, telecommunication and communication related devices and equipment.
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware, provided
that it is not formed to engage in any act or
<PAGE>
activity requiring to consent or approval of any state official, department,
board, agency or other body without such consent or approval first being
obtained.
To purchased, sell, lease, exchange, hire or otherwise acquire real
property, with or without buildings thereon, or any interest therein whatsoever
or whatsoever situated; to make, enter into, perform, and carry out contracts
for constructing, building, altering, improving, repairing, decorating,
maintaining, furnishing and fitting buildings and structures of every
description; to erect, construct, rebuild, enlarged, alter, improve, maintain,
manage and operate houses, buildings or other structures on any lands owned or
leased by the Corporation or upon any other lands, and to do all things
necessary and appropriate in furtherance of the purposes or powers enumerated
herein.
To enter into any lawful arrangements for sharing profits, union of
interest, reciprocal concession or cooperations with any corporation,
association, partnership, syndicate, entity, person, or governmental, municipal,
or public authority, domestic or foreign, in the carrying out of any of the
purposes of the corporation.
To apply for, register, obtain, purchase, lease, take licenses in respect
of, or otherwise acquire, and to hold, own, use, operate, develop, enjoy, grant
licenses and immunities in respect of, manufacture under and to introduce, sell,
assign, mortgage, pledge or otherwise dispose of, and in any manner deal with
and contract with reference to:
A. inventions, devices, formulas, processes and any improvements
and modifications thereof;
B. letters patent, patent rights, patented processes, copyrights,
designs, and similars rights, trademarks, trade symbols and
other indications of origins and ownership granted by or
recognized under the laws of the United states of America or
of any state or subdivision thereof, or of any foreign country
or subdivision thereof, and all rights connected therewith or
appartaining thereunto; and
C. franchise, licenses, grants and concessions.
To enter into, make and perform contracts of every kind and description
which may be necessary or convenient for the business of the Corporation, with
any person, firm, association, corporation, municipality, county, state, body
politic, or government, or colony, any dependency, or political or
administrative division
2
<PAGE>
thereof.
To enter into and carry out partnerships) both general partnerships and
limited partnerships) and other forms of joint arrangements with other persons,
firms or corporations, so far as and too the extent that the same may be done
and performed by a corporation organized under the General Corporation Law of
the State of Delaware.
To carry on business at any place within the jurisdiction of the United
States and in any and all foreign countries and to purchase any property at any
such place or places.
To acquire and take over as a going concern, and thereafter to carry on
the business of any person, firm or corporation engaged in any business which
the Corporation is authorized to carry on and, in connection therewith, to
acquire the good will and all or any of the assets and to assume or otherwise
provide for all or any of the liabilities of any such business.
To borrow money for its corporate purposes and to make, accept, endorse,
execute and issue promissory notes, bills of exchange, bonds, debentures, or
other obligations from time to time to, for the purchase of property, or for any
purpose in connection with the business of the Corporation, and, if deemed
proper, to secure the payment of any such obligations, mortgages, pledge, deed
of trust or otherwise.
To carry on any other similar business in connection with the foregoing,
and to have and exercise all of the powers conferred by the laws of the State of
Delaware upon corporations formed under the General Corporation Law of the State
of Delaware, and to do any or all of the things hereinbefore set forth to the
same extent as natural persons might or could do so.
To such extent as a corporation organized under the General Corporation
Law of the State of Delaware may now or hereafter lawfully do, to perform or do
each and everything necessary, suitable, convenient, or proper for, or in
connection with, or incidental to, the accomplishment of any one or more of the
purposes or the exercise of any one or more of the powers herein described, or
designed directly or indirectly to promote the interests of the Corporation or
to enhance the value of its properties; and in general, to do any and all things
and exercise any and all powers, rights and privileges for which a corporation
now and or hereafter may be organized under the General Corporation Law of the
State of Delaware, or under any act amendatory thereof, supplemental thereto, or
substituted therefore, including, but not limited to, all of the powers
enumerated in Section 121-123 of the Delaware State General Corporation Law or
any other statute of the State of Delaware.
3
<PAGE>
THIRD: The registered office of the Corporation is to be located in New
Castle County, in the State of Delaware.
FOURTH: The aggregate number of shares which the Corporation shall have
the authority to issue is one hundred thousand (100,000) shares, each having a
par value of $.001 cent.
FIFTH: The Secretary of State is designated as the agent of the
Corporation upon whom process against the Corporation may be served. The post
office address to which the Secretary of State shall mail a copy of any process
against the Corporation served upon him is the Company Corporation, Three
Christina Centre, 201 N. Walnut Street, Wilmington, Delaware 19801.
SIXTH: The duration of the Corporation is to be perpetual.
SEVENTH: Except as may otherwise be specifically provided in this
Certificate of Incorporation, no provision hereof is intended to be construed as
limiting, prohibiting, denying, or abrogating any of the general or specific
powers or rights conferred under General Corporation Law of the State of
Delaware upon corporations of the State of Delaware, upon the Corporation, its
shareholders, bondholders and securityholders, and upon its directors, officers
and other corporate personnel, including, without limitation, the power of the
Corporation to furnish indemnification to any person or persons in the
capacities defined and prescribed by the General Corporation Law of the State of
Delaware and the defined and prescribed rights of a person or persons to
indemnification as the same are conferred by the General Corporation Law of the
State of Delaware.
EIGHTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the provisions of Section
102(b)(7) of the General Corporation Law of the State of Delaware,s the same
may be amended or supplemented.
IN WITNESS WHEREOF, this Certificate has been subscribed this 14th day of
July, 1995 by the undersigned who affirms that the statements made herein are
true under the penalties of perjury.
/s/ Alan P. Fraade, Esq.
----------------------------------------
Alan P. Fraade, Esq.
c/o Mintz & Fraade, P.C.
488 Madison Avenue
New York, New York 10022
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/07/1995
950177864 -- 2524734
Certificate of Amendment of the Certificate of Incorporation
of
IntelliSys Automotive Systems, Inc.
Under Section 242, As Amended, of the General Corporation Law of
the State of Delaware
--------------------
It is hereby certified that:
FIRST: The name of the Corporation is IntelliSys Automotive Systems, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed with
the Department of State on July 17, 1995.
THIRD: The Amendment of the Certificate of Incorporation of the
Corporation effected by this Certificate of Amendment is as follows:
1. To increase the number of shares of Common Stock, par value of $.001
cent per share to twenty million (20,000,000) from one hundred thousand
(100,000).
2. To accomplish the foregoing amendment, Article FOURTH of the
Certificate of Incorporation relating to the creation of stock and its issuance
is hereby amended to read as follows:
ARTICLE FOURTH: The aggregate number of shares of capital stock which the
corporation shall have the authority to issue is twenty million (20,000,000)
shares, each having a par value of $.001 per share.
FIFTH: The foregoing amendment of the Certificate of Incorporation of the
Corporation was authorized by the consent in writing of the sole Shareholder and
Director of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of its Certificate of Incorporation to be signed by its President and
Secretary as of this 24th day of July, 1995.
IntelliSys Automotive Systems, Inc.
/s/ Paul Michelin
--------------------------------------
Paul Michelin, President
and Secretary
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:00 PM 01/14/1
971013433 -2524734
Certificate of Amendment of the Certificate of Incorporation
of
IntelliSys Automotive Systems, Inc.
(Under Section 242, as amended, of the Delaware Corporation Law)
It is hereby certified that;
FIRST: The name of the corporation is IntelliSys Automotive Systems, Inc.
(the "Corporation").
SECOND: The Certificate of Incorporation of IntelliSys Automotive Systems,
Inc. (the "Corporation") was filed with the Department of State on July 17,
1995.
THIRD: A Certificate of Correction of the Certificate of Incorporation of
the Corporation was filed with the Department of State on July 27, 1995.
FOURTH: The Certificate of Incorporation of the Corporation was amended
and filed with the Department of State on August 7, 1995 to provide that the
authorized number of shares of the Corporation's capital stock is twenty million
(20,000,000) shares.
FIFTH: The Article of the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is: Article FOURTH.
SIXTH: To accomplish the foregoing amendment, Article FOURTH of the
Certificate of Incorporation relating to the authorized stock of the Corporation
and its issuance is hereby amended to read as follows:
ARTICLE FOURTH: The aggregate number of shares of capital stock
which the corporation shall have authority to issue is twenty million
(20,000,000) shares, consisting of fifteen million (15,000,000) shares of Common
Stock, par value of $.001 per share, three million (3,000,000) shares of Class A
Stock, par value $.01 per share, and two million (2,000,000) shares of Preferred
Stock, par value $.01 per share. Except as otherwise expressly required by law,
in all matters as to which the vote or consent of the stockholders of the
corporation shall be required or taken, the respective holders of Common Stock
as a class shall be entitled to one vote for each share of Common Stock held,
the respective holders of Class A Stock as a class shall not be entitled to a
vote for each share and the Class A Stock shall be non-voting shares, and the
respective holders of Preferred Stock as a class shall not be entitled to a vote
for each share and the Preferred Stock shall be non-voting shares. Except as
provided herein with respect to voting rights, the relative rights, privileges,
and limitations of the Common Stock and the Class A Stock shall be in all
respects identical, share for share.
<PAGE>
The shares of Preferred Stock may be issued from time to time in one or
more series, each of such series to have such designations, relative rights,
preferences, and limitations as are stated and expressed in the resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors and except as may be otherwise stated.
The holders of all series of Preferred Stock shall be entitled to receive
cumulative dividends as and when declared by the Board of Directors and at such
rates as shall be established by the Board of Directors. Dividends on the
Preferred Shares shall be payable in preference and priority to any payment of
any dividend of the Common Stock and the Class A Stock.
No holder of shares of the corporation of any class whether now or
hereafter authorized shall have any preemptive right to subscribe for, purchase
or receive any shares of the corporation of any class, whether now or hereafter
authorized, or any options or warrants to purchase any such shares, or any
securities convertible into or exchanged for any such shares, which may at any
time be issued, sold or offered for sale by the corporation.
No holder of shares of the corporation of any class whether now or
hereafter authorized shall have the rights to vote such shares cumulatively in
any election for Board of Directors.
SEVENTH: The foregoing amendment of the Certificate of Incorporation of
the Corporation was authorized by the unanimous written consent of the Board of
Directors of the Corporation pursuant to Section 141(f) of the Delaware General
Corporation Law, followed by the written consent of the holder's of a majority
of the outstanding shares of the Common Stock of the Corporation pursuant to
Section 228(a) of the Delaware General Corporation Law and written notice of the
foregoing shareholder consent was provided to all of the holders of shares of
the Common Stock of the Corporation in accordance with Section 228(d) of the
Delaware General Corporation Law
IN WITNESS WHEREOF, the undersigned have subscribed this document as of
the 6th day of January, 1997 and hereby affirm, under the penalties of perjury,
that the statements contained therein have been examined by us, are the act and
deed of the Corporation, and are true and correct.
/s/ Douglas Dick
----------------------------
Douglas Dick, President
Attest:
/s/ James Perretty
- ------------------------------
James Perretty, Secretary
BY LAWS
OF
INTELLISYS AUTOMOTIVE SYSTEMS, INC.
(A DELAWARE CORPORATION)
I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in New Castle County in the State of Delaware
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware are as the Board of
Directors may from time to time determine.
II
MEETING OF STOCKHOLDERS
Section 1. Place of Meeting. Meetings of the stockholders for the election
of directors or for any other purpose shall he held at such time and place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Section 3. Special Meetings. Special Meetings of the stockholders may be
called by the Board of Directors, the Chairman of the Board, the President, or
by the holders of shares entitled to cast not less that 25% of the votes at the
meeting. Upon request in writing to the Chairman of the Board, the President,
any Vice President or the Secretary by any person (other than the board)
entitled to call a special meeting of the stockholders, the officer forthwith
shall cause notice to be given to the stockholders entitled to vote that a
meeting will be held at a time requested by the person or persons calling the
meeting, not less that 15 nor more than 60 days after the receipt of the
request. If the notice is not given within 20 days after receipt of the request,
the persons entitled to call the meeting may give the notice
Section 4. Notice of Meetings. Written notice of the place, date, and time
of all meetings of the stockholders shall be given, not less than ten (10) nor
more than sixty (60) days before the date
<PAGE>
on which the meeting is to be held, to each stockholder entitled to vote at such
meeting, except as otherwise provided herein or as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation.
Section 5. Quorum; Adjournment. At any meeting of the stockholders, the
holders of a majority of all of the shares of the stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law or the Certificate of Incorporation. Where a separate
vote by a class, classes or series is required, a majority of the outstanding
shares of such class, classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter, unless or except to the extent that the presence of a
larger number may be required by law or the Certificate of Incorporation. If a
quorum shall fail to attend any meeting, the chairman of the meeting or the
holders of a majority of the shares of stock entitled to vote who are present,
in person or by proxy, may adjourn the meeting to another place, date or time
without notice other than announcement at the meeting, until a quorum shall be
present or represented.
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 6. Organization. At every meeting of the shareholders, the
chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated shall act as chairman of the meeting; the vice
chairman of the board, if there be one, the president, the vice presidents in
their order of rank or seniority, a chairman designated by the board of
directors or a chairman chosen by the shareholders in the manner provided in
Section 5 of this Article II. The secretary, or in his absence, an assistant
secretary, or in the absence of the secretary and the assistant secretaries, a
person appointed by the chairman of the meeting, shall act as secretary.
Section 7. Proxies and Voting. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law or the Certificate of
Incorporation.
2
<PAGE>
All voting, including on the election of directors but excepting where
otherwise provided herein or required by law or the Certificate of
Incorporation, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or such stockholder's proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the Board of Directors.
All elections of directors shall be determined by a plurality of the votes
cast, and except as otherwise required by law or the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List. A complete list of stockholders entitled to vote at
any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in such stockholders name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which places
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholder entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Inspectors of Election. In advance of any meeting of
stockholders, the Board of Directors may appoint inspectors of election, who
need not be stockholders, to act at such meeting or any adjournment thereof. If
inspectors of election are not so appointed, the person presiding at any such
meeting may, and on the request of any stockholder entitled to vote at the
meeting and before voting begins shall, appoint inspectors of election. The
number of inspectors shall be either one or three, as determined, in the case of
inspectors appointed upon demand of a stockholder, by the stockholders in the
manner provided in Section 5 of this Article II, and otherwise by the Board of
Directors or person presiding at the meeting, as the case may be. If any person
who is appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board of Directors in advance of the meeting, or at the
meeting by the person presiding at the meeting. Each inspector, before entering
upon the discharge of his duties, shall take an oath faithfully to execute the
duties of inspector at such meeting.
If inspectors of election are appointed as aforesaid, they shall determine
from the lists referred to in Section 8 of this Article II the number of shares
outstanding, the shares represented at the meeting, the existence of a quorum,
and the voting power of shares represented at the meeting, determine the
authenticity, validity and effect of proxies, receive votes or ballots, hear and
determine all challenges and questions in any way arising in connection with the
right to vote or the number of
3
<PAGE>
votes which may be cast, count and tabulate all votes or ballots, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders entitled to vote thereat. If there be three
inspectors of election, the decision, act or certificate of both shall be
effective in all respects as the decision, act or certificate of both.
Unless waived by vote of the stockholders conducted in the manner which is
provided in Section 5 of this Article II, the inspectors shall make a report in
writing of any challenge or question or matter which is determined by them, and
execute a sworn certificate of any facts found by them.
Section 10. Actions by Stockholders. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in this State,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery to a Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
III
BOARD OF DIRECTORS
Section I. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law or by the Certificate of Incorporation or by these By-laws directed
or required to be exercised or done by the stockholders. The use of the phrase
"Whole Board" herein refers to the total number of directors which the
Corporation would have if there were no vacancies.
Section 2. Number and Term in Office. A director need not be a stockholder
a citizen of the United States or a resident of the State of Delaware. The
authorized number of directors constituting the Board of Directors shall consist
of one person. Thereafter, the number of directors constituting the Whole Board
shall be at least one. Subject to the foregoing limitation and except for the
first Board of Directors, such number may bne fixed from time to time by action
of the stockholders or of the directors, or, if the number is not fixed, the
number shall be one. The number of directors may be increased or decreased by
action of stockholders or of the directors. Except as provided in Section 3 of
this Article III, directors shall be elected by the holders of record of a
plurality of the votes cast at Annual Meetings of Stockholders, and each
director so elected shall hold office until the next
4
<PAGE>
Annual Meeting and until his or her successor is duly elected and qualified, or
until his or her earlier resignation or removal. Any director may resign at any
time upon written notice to the Corporation.
Section 3. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director or by the stockholders entitled to vote at any Annual or
Special Meeting held in accordance with Article II, and the directors so chosen
shall hold office until the next Annual or Special Meeting duly called for that
purpose and until their successors are duly elected and qualified, or until
their earlier resignation or removal.
Section 4. Nominations of Directors; Election. Nominations for the
election of directors may be made by the Board of Directors or a committee
appointed by the Board of Directors, or by any stockholder entitled to vote
generally in the election of directors who complies with the procedures set
forth in this Section 4. Directors shall be at least 21 years of age. Directors
need not be stockholders. At each meeting of stockholders for the election of
directors at which a quorum is present, the persons receiving a plurality of the
votes cast shall be elected directors. All nominations by stockholders shall be
made pursuant to timely notice in proper written form to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 30 days nor more than 60 days prior to the meeting; provided, however,
that in the event that less than 40 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. To be in proper
written form, such stockholder's notice shall set forth in writing (i) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, including, without limitation, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected; and (ii) as to the stockholder giving the
notice (x) the name and address, as they appear on the Corporation's books, of
such stockholder and (y) the class and number of shares of the Corporation which
are beneficially owned by such stockholder.
Section 5. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. The first meeting of each newly-elected Board of Directors shall be
held immediately following the Annual Meeting of Stockholders and no notice of
such meeting shall be necessary to be given the newly-elected directors in order
legally to constitute the meeting, provided a quorum shall be present. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman of the
Board, the President or at least one of the directors then in office. Notice
thereof stating the place, date and hour of the meetings shall be given to each
director by mail, telephone or telegram not less than seventy-two (72) hours
before the date of the meeting. Meetings may be held
5
<PAGE>
at any time without notice if all the directors are present or if all those not
present waive such notice in accordance with Section 2 of Article VI of these
By-laws
Section 6. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these By-laws, at all meetings of the
Board of Directors, a majority of the directors then in office shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 7. Action of Board Without a Meeting. Unless otherwise provided by
the Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board of Directors of any committee
thereof may be taken without a meeting if all members of the Board of Directors
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 8. Resignations. Any director of the Corporation may resign at any
time by giving written notice to the president or the secretary. Such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 9. Organization. It every meeting of the Board of Directors, the
Chairman of the Board, if there be one, or, in the case of a vacancy in the
office or absence of the Chairman of the Board, one of the following officers
present in the order stated shall act as Chairman of the meeting: the president,
the vice presidents in their order of rank and seniority, or a chairman chosen
by a majority of the directors present. The secretary, or, in his absence, an
assistant secretary, or in the absence of the secretary and the assistant
secretaries, any person appointed by the Chairman of the meeting shall act as
secretary.
Section 10. Committees. The Board of Directors may, by resolution passed
by a majority of the directors then in office, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, whom may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member of
a committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such members constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. Any committee, to the extent allowed by law and provided
in the By-laws or resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may
6
<PAGE>
require it. Each committee shall keep regular minutes and reports to the
Board of Directors when required.
Section II. Compensation. Unless otherwise restricted by the Certificate
of Incorporation or these By-laws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 12. Removal. Unless otherwise restricted by the Certificate of
Incorporation or these By-laws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of shares
entitled to vote at an election of directors.
IV
OFFICERS
Section 1. General. The officers of the Corporation shall be appointed by
the Board of Directors and shall consist of a Chairman of the Board or a
President, or both, one or more Vice Presidents, a Treasurer and a Secretary.
The Board of Directors may also choose one or more assistant secretaries and
assistant treasurers, and such other officers and agents as the Board of
Directors, in its sole and absolute discretion shall deem necessary or
appropriate as designated by the Board of Directors from time to time. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-laws provide otherwise.
Section 2. Election; Term of Office. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect a Chairman of
the Board or a President, or both, one or more Vice Presidents, a Secretary and
a Treasurer, and may also elect at that meeting or any other meeting, such other
officers and agents as it shall deem necessary or appropriate. Each officer of
the Corporation shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors together with the powers
and duties which are customarily exercised by such officer; and each officer of
the Corporation shall hold office until such officer's successor is elected and
qualified or until such officer's earlier resignation or removal. Any officer
may resign at any time upon written notice to the Corporation. The Board of
Directors may at any time, with or without cause, by the affirmative vote of a
majority of directors then in office, remove an officer.
Section 3. Chairman of the Board. The Chairman of the Board, if there be
such an officer, shall be the chief executive officer of the Corporation. The
Chairman of the Board shall preside at all meetings of the stockholders and the
Board of Directors and shall have such other duties and powers as may be
prescribed by the Board of Directors from time to time.
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Section 4. President. The President shall be the chief operating officer
of the Corporation, shall have general and active management of the business of
the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. The President shall have and exercise such
further powers and duties as may be specifically delegated to or vested in the
President from time to time by these By-laws or the Board of Directors. In the
absence of the Chairman of the Board or in the event of his inability or refusal
to act, or if the Board has not designated a Chairman, the President shall
perform the duties of the Chairman of the Board, and when so acting, shall have
all the powers and be subject to all of the restrictions upon the Chairman of
the Board.
Section 5. Vice President. In the absence of the President or in the event
of his inability or refusal to act, the Vice President (or in the event that
there be more than one vice president, the vice presidents in the order
designated by the Board of Directors, or in the absence of any designation, then
in the order of their election) shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The vice presidents shall perform such other
duties and have such other powers as the Board of Directors or the President may
from time to time prescribe.
Section 6. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given notice of meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or the President. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of Directors or the
President may choose another officer to cause such notice to be given. The
Secretary shall have custody of the seal of the Corporation and the Secretary or
any Assistant Secretary, if there be one, shall have authority to affix same to
any instrument requiring it and when so affixed, it may be attested to by the
signature of the Secretary or by the signature of any such Assistant Secretary.
The Board of Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest to the affixing by his or her
signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
Section 7. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep complete and accurate accounts of
all receipts and disbursements of the Corporation, and shall deposit all monies
and other valuable effects of the Corporation in its name and to its credit in
such banks and other depositories as may be designated from time to time by the
Board of Directors. The Treasurer shall disburse the funds of the Corporation,
taking proper vouchers and receipts for such disbursements, and shall render to
the Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation. The Treasurer shall, when and if
required by the Board of Directors, give and file with the Corporation a bond,
in such form and
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amount and with such surety or sureties as shall be satisfactory to the Board of
Directors, for the faithful performance of his or her duties as Treasurer. The
Treasurer shall have such other powers and perform such other duties as the
Board of Directors or the President shall from time to time prescribe.
Section 8. Other Officers. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
Section 9. Resignations. Any officer may resign at any time by giving
written notice to the Corporation; provided, however, that notice to the Board
of Directors, the Chairman of the Board, the President or the Secretary shall be
deemed to constitute notice to the Corporation. Such resignation shall take
effect upon receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 10. Removal. Any officer or agent may be removed, either with or
without cause, at any time, by the Board of Directors at any meeting called for
that purpose; provided, however, that the President may remove any agent
appointed by him.
Section 11. Vacancies. Any vacancy among the officers, whether caused by
death, resignation, removal or any other cause, shall be filled in the manner
which is prescribed for election or appointment to such office.
V
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman of the Board or the President or a Vice President and (ii)
by the Treasurer or Secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation.
Section 2. Signatures. Any or all the signatures on the certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
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Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these By-laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by such person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty (60) days nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other action. A determination of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
Section 7. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the Chairman of the Board, the President, any Vice
President or the Secretary and any such officer may, in the name of and on
behalf of the Corporation take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and powers incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
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VI
NOTICES
Section 1. Notice. Whenever, under the provisions of the laws of this
state or the Certificate of Incorporation or these By-laws, any notice, request,
demand or other communication is required to be or may be given or made to any
officer, director, or registered stockholder, it shall not be construed to mean
that such notice, request, demand or other communication must be given or made
in person, but the same may be given or made by mail, telegraph, cablegram,
telex, or telecopier to such officer, director or registered stockholder. Any
such notice, request, demand or other communication shall be considered to have
been properly given or made, in the case of mail, telegraph or cable, when
deposited in the mail or delivered to the appropriate office for telegraph or
cable transmission, and in other cases when transmitted by the party giving or
making the same, directed to the officer or director at his address as it
appears on the records of the Corporation or to a registered stockholder at his
address as it appears on the record of stockholders, or, if the stockholder
shall have filed with the Secretary of the Corporation a written request that
notices to him be mailed to some other address, then directed to the stockholder
at such other address. Notice to directors may also be given in accordance with
Section 5 of Article III hereof.
Whenever, under the provisions of the laws of this state or the
Certificate of Incorporation or these By-laws, any notice, request, demand or
other communication is required to be or may be given or made to the
Corporation, it shall also not be construed to mean that such notice, request,
demand or other communication must be given or made in person, but the same may
be given or made to the Corporation by mail, telegraph, cablegram, telex, or
telecopier. Any such notice, request, demand or other communication shall be
considered to have been properly given or made, in the case of mail, telegram or
cable, when deposited in the mail or delivered to the appropriate office for
telegraph or cable transmission
Section 2. Waivers of Notice. Whenever any written notice is required to
be given under the provisions of the Certificate of Incorporation, these By-laws
or a statute, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any
meeting, without protesting prior to the conclusion of the meeting the lack of
notice of such meeting, shall constitute a waiver of notice of such meeting.
VII
GENERAL PROVISIONS
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Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting or by any
Committee of the Board of Directors having such authority at any meeting
thereof, and may be paid in cash, in property, in shares of the capital stock,
or in any combination thereof. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for any proper purpose, and the Board of Directors may modify or abolish any
such reserve.
Section 2. Disbursements. All notes, checks, drafts and orders for the
payment of money issued by the Corporation shall be signed in the name of the
Corporation by such officers or such other persons as the Board of Directors may
from time to time designate.
Section 3. Corporation Seal. The corporate seal, if the Corporation shall
have a corporate seal, shall have inscribed thereon the name of the Corporation,
the year of its organization and the words "Corporate Seal, Delaware". The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
VIII
INDEMNIFICATION
Section 1. Indemnification of Directors and Officers in Third Party
Proceedings. The Corporation shall indemnify any director or officer of the
Corporation who was or is an "authorized representative" of the Corporation
(which shall mean for the purposes of this Article a director or officer of the
Corporation, or a person serving at the request of the Corporation as a
director, officer, partner or trustee of another corporation, partnership, joint
venture, trust or other enterprise) and who was or is a "party" (which shall
include for purposes of this Article the giving of testimony or similar
involvement) or is threatened to be made a party to any "third party proceeding"
(which shall mean for purposes of this Article any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the Corporation) by
reason of the fact that such person was or is an authorized representative of
the Corporation, against expenses (which shall include for purposes of this
Article attorney's fees and disbursements), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such third party proceeding if such person acted in good faith
and in a manner such person reasonably believed to be in, or not opposed to, the
best interests of the Corporation and, with respect to a criminal third party
proceeding (which shall include for purposes of this Article any investigation
which could or does lead to a criminal third party proceeding) had not
reasonable cause to believe such conduct was unlawful. The termination of any
third party proceeding by judgment, order, settlement, indictment, conviction or
upon a plea of no contest or its equivalent, shall not, of itself, create a
presumption that the authorized representative did not act in good faith and in
a manner which such person reasonably believed to be in or not
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opposed to the best interests of the Corporation, and, with respect to any
criminal third party proceeding, had reasonable cause to believe that such
conduct was unlawful.
Section 2. Indemnification of Directors and Officers in Corporate
Proceedings. The Corporation shall indemnify any director or officer of the
Corporation who was or is an authorized representative of the Corporation and
who was or is a party or is threatened to be made a party to any "corporate
proceeding" (which shall mean for purposes of this Article any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor or any investigative proceeding by or on behalf
of the Corporation) by reason of the fact that such person was or is an
authorized representative of the Corporation, against expenses (including
attorneys' fees and disbursements) actually and reasonably incurred by such
person in connection with the defense or settlement of such corporate proceeding
if such person acted in good faith and in a manner such person reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of such person's duty to the
Corporation unless and only to the extent that the court in which such corporate
proceeding was pending shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
authorized representative is fairly and reasonably entitled to indemnity for
such expenses which the court shall deem proper.
Section 3. Indemnification of Authorized Representatives. To the extent
that an authorized representative of the Corporation who neither was nor is a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any third party or corporate proceeding or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses actually and reasonably incurred by such person in connection
therewith. Such an authorized representative may, at the discretion of the
Corporation, be indemnified by the Corporation in any other circumstances to any
extent if the Corporation would be required by Section 1 or 2 of this Article
VIII to indemnify such person in such circumstances to such extent as if such
person were or had been a director or officer of the Corporation.
Section 4. General Terms. Any indemnification under Section 1 and Section
2 of this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he had met the applicable standard of conduct set forth in
Section 1 and Section 2 of this Article VIII. Such determination shall be made
(i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in written
opinion, or (iii) by the stockholders.
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such
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amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in these By-laws.
Section 5. Amendment. Any amendment to Article VIII shall not apply to any
liability of a director, officer, employee or agent arising out of a transaction
or omission occurring prior to the adoption of such amendment, but any such
liability based on a transaction or omission occurring prior to the adoption of
such amendment shall be governed by Article VIII of these By-laws, as in effect
at the time of such transaction or omission.
Section 6. Insurance and Trust Fund. In furtherance and not in limitation
of the powers conferred by statute:
(1) the Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of law; and
(2) the Corporation may create a trust fund, grant a security interest
and/or use other means (including, without limitation, letters of credit, surety
bonds and/or other similar arrangements), as well as enter into contracts
providing indemnification to the fullest extent permitted by law and including
as part thereof provisions with respect to any or all of the foregoing, to
ensure the payment of such amount as may become necessary to effect
indemnification as provided therein, or elsewhere.
Section 7. Indemnification of Employees and Agents of the Corporation The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, including the right to be paid by
the Corporation the expenses incurred in defending any proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Section or otherwise with respect to
the indemnification and advancement of expenses of directors and officers of the
Corporation.
IX
AMENDMENTS
Except as otherwise specifically stated within an Article to be altered,
amended or repealed, these By-laws may be altered, amended or repealed and new
By-laws may be adopted at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting.
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The undersigned, being the sole incorporator of IntelliSys Automotive
Systems, Inc., does hereby adopt the foregoing By-laws of said Corporation.
Dated as of July 14, 1995
/s/ Alan P. Fraade
- ----------------------------
Alan P. Fraade
15
INTELLISYS LICENSE AGREEMENT
AGREEMENT made as of the 1st day of August, 1995 between IntelliSys
Systems, Inc., a Delaware corporation with offices at 1005 W. Fayette Street,
Syracuse, New York 13204 (the "Licensor"), and IntelliSys Automotive Systems,
Inc., a Delaware corporation with offices at 2255 Glades Road, Suite 124-A, Boca
Raton, Florida 33431 (the "Licensee").
WHEREAS, the Licensor is the owner of certain technology and computer
know-how and related documentation more particularly described in Schedule "A"
which is annexed hereto and made a part hereof (the "Products"); and
WHEREAS, the Licensor is a party to certain contracts more particularly
described in Schedule "B" which is annexed hereto and made a part hereof (the
"Contracts"); and
WHEREAS, the Licensor wishes to grant certain rights to the Licensee in
the Products and Contracts and the Licensee wishes to accept such rights from
the Licensor,
NOW, THEREFORE, in consideration of the mutual covenants of the parties
which are hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged,
IT IS AGREED:
1. Grant of License. Upon the terms and subject to the conditions of this
Agreement, the Licensor grants to the Licensee, and the Licensee accepts from
the Licensor, an exclusive license
<PAGE>
(the "License") to utilize the Products for manufacturers of automotive
vehicles, including, but not limited to, automobiles, buses, trucks and vans and
manufacturers of parts for automotive vehicles (collectively the "Automotive
Industry"). The Licensee acknowledges that the License is exclusive as to, and
limited to, the Automotive Industry. The Licensor acknowledges that during the
term of this Agreement it shall not grant licenses to others for the use of the
Products in the Automotive Industry in North America nor will it directly or
indirectly use the Products in the Automotive Industry in North America.
2. Assignment of Contracts. The Licensor hereby assigns, conveys and
transfers to the Licensee all of its rights pursuant to the Contracts. The
Licensee assumes and agrees to perform all of the Licensor's obligations
pursuant to the Contracts.
3. Other Business. The Licensee may engage in any other businesses without
restrictions as to type and location as long as any such business is not
competitive with any business of the Licensor and/or any other business
utilizing the Products.
4. Geographical Scope. The geographical scope of the License shall be
North America.
5. Term. The term of this Agreement shall commence as of the date hereof
and shall remain in force in perpetuity, subject to the terms of this Agreement,
and unless terminated pursuant to Article "13" of this Agreement.
6. Royalty. A. The Licensee shall pay a royalty (the "Royalty") to the
Licensor for the License of:
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(i) One Million Dollars ($1,000,000) of which One Hundred Thousand
Dollars ($100,000) shall be payable upon execution of this Agreement. Nine
Hundred Thousand Dollars shall be paid in monthly installments of ten (10%)
percent of the Licensee's Gross Revenues (as defined in Paragraph "B" of this
Article "6" of this Agreement). Said ten (10%) percent shall be in addition to
the forty (40%) percent specified in Subparagraph "(ii)" of this Paragraph "A"
of this Article "6" of this Agreement and shall be paid until an aggregate of
One Million Dollars ($1,000,000), including the One Hundred Thousand Dollars
($100,000) due and payable upon the execution hereof, has been paid; and
(ii) Forty (40%) percent of the Licensee's Gross Revenues payable
monthly.
B. The Licensee shall pay the Royalty within fifteen (15) days after
the end of each calendar month accompanied by a statement setting forth the
calculation of the Royalty. The Licensee shall provide the Licensor with such
other and further information with respect to the calculation of the Royalty as
the Licensor shall reasonably request. For purposes of this Agreement, "Gross
Revenues" shall mean monies actually received by the Licensee from use of the
Products with respect to the use and operation of the software licensed pursuant
to this Agreement; provided, however, that Gross Revenues shall not include
sales of, and fees for the installation of, computer hardware or other
equipment.
7. Records. The Licensee shall keep full and accurate records containing
all information reasonably required for
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<PAGE>
verification of the Royalty. The Licensor, or its authorized agent, upon
reasonable notice, shall have the right to examine and audit relevant records
during normal business hours, but not more than once during each calendar
quarter for the purpose of determining whether it concurs with the Licensee's
calculation of its Gross Revenues and the Royalty. If the Licensor or its
designee believes that the Licensee has erroneously calculated its Gross
Revenues and/or Royalty then within sixty (60) days after the close of the
quarter being examined, the Licensor shall notify the Licensee of its findings
pursuant to Paragraph "C" of Article "17" of this Agreement, setting forth the
errors believed to have been made. The parties thereafter shall attempt to
mutually resolve any alleged errors within thirty (30) days after the
notification to the Licensee. If any alleged errors cannot be resolved within
such period of time, the parties agree to submit the resolution of any alleged
error to arbitration in accordance with Paragraph "D" of Article "17" of this
Agreement.
8. Reproduction and Modification of Products.
The Licensee may:
A. Use the Products to process information, and copy, record,
transcribe and compile the Products from one form to another and make
modifications, enhancements and other changes thereto; provided, however, that
any such modifications, enhancements and other changes shall be provided to the
Licensor, upon the Licensor's payment of one-half (1/2) of the cost of
developing and producing such modifications, enhancements and other
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<PAGE>
changes which it desires to obtain.
B. Reproduce the Products, but all copies of the Products, in whole
or in part, shall contain all of the Licensor's restrictive and proprietary
notices in form and content as they appear on or in the Products provided to the
Licensee hereunder.
9. Maintenance Services. The Licensor agrees:
A. To correct, without charge, any errors on Products known to the
Licensor or reported to it as quickly as is possible, and, where prompt
correction is not reasonably feasible, to provide to the Licensee instructions
for allowing use of the Products pending correction of the error.
B. To provide to the Licensee all innovations, improvements,
upgrades, modifications, substitutions or replacement for, or enhanced versions
of the Products subsequently developed by the Licensor.
10. Support Services. During the term of this Agreement, the Licensor
shall only be required to provide such consultation, education and support
services to the Licensee as is mutually agreed upon by the Licensee and the
Licensor, and the parties agree to bargain in good faith with respect thereto.
11. Non-Use and Non-Disclosure of Confidential Information.
A. As used in this Agreement, "Confidential Information" means
information which is disclosed to the Licensee or known by the Licensee as a
result of or through this Agreement, and not generally known by the public about
the Products, including without limitation, all documentation and software
relating
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thereto, and all know how and technology required to use such manuals and
information and data in written, graphic and/or machine readable form, products,
processes and services, including information with respect to research,
development, inventions, manufacture, purchasing, accounting, engineering,
marketing, merchandising and selling regardless of whether patentable,
trademarkable or copyrightable, including, but not limited to, any information
acquired by the Licensee from any source prior to the commencement of this
Agreement.
B. Except as required in order to exploit the License, the Licensee
will not, during or after the term of this Agreement, directly or indirectly,
use any Confidential Information or disseminate or disclose any Confidential
Information to any person, firm, corporation, association or other entity except
in accordance with this Agreement. The foregoing prohibition shall not apply to
any Confidential Information which (i) becomes publicly available through no act
or omission of the Licensee, (ii) is disclosed as reasonably required in a
proceeding to enforce the Licensee's rights under this Agreement, (iii) is
disclosed as required by court order or as otherwise required by law, (iv) is or
becomes available to the Licensee from third parties who in making such
disclosure breach no confidentiality relationships, or (v) is intentionally
disclosed by the Licensor on an unrestricted basis to others not privy to this
Agreement.
C. Upon the termination of this Agreement, all documents, records,
notebooks and similar repositories of or containing
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<PAGE>
Confidential Information, including copies thereof, then in the Licensee's
possession, whether prepared by it or others, will be delivered to the Licensor.
D. The Licensee will not assert any rights under or with respect to
any discoveries, concepts or ideas which relate to the Products, or any
improvements thereof or know-how related thereto, or claim any thereof as having
been made or acquired by it prior to this Agreement.
12. Proprietary Rights Indemnity.
A. The Licensor shall defend or settle at its own expense any claim
made against the Licensee or Automotive Industry manufacturer (the
"Indemnitees") that the use of the Products hereunder infringes any trademark,
service term, patent, copyright, trade secret or other proprietary right, and
shall indemnify the Indemnitees and hold them harmless against any final
judgment, including an award of attorneys' fees, that may be awarded by a court
of competent jurisdiction against the Indemnitees as a result of the foregoing;
provided, however, that the Indemnitees shall give the Licensor prompt written
notice of any such claim and shall provide the Licensor with all reasonable
cooperation and information in the Indemnitee's possession.
B. If a claim is made that the use of the Products under the License
infringes any trademark, servicemark, patent, copyright, trade secret or other
proprietary right, or if the Licensor believes that such a claim may exist, the
Licensor shall use its best efforts to procure for the Indemnitees the right to
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continue using the Products, or to modify the Products to make them
noninfringing but continuing to meet the specifications therefor, or to replace
the Products with noninfringing Products of like functionality that meet the
specifications for the Products. The choice of which alternative to pursue shall
be in the sole and absolute discretion of the Licensor. If none of the foregoing
alternatives is reasonably available to the Licensor, the Licensee may terminate
this License.
C. The provisions of this Article "12" shall survive the termination
of this Agreement.
13. Termination.
A. The Licensor may terminate this Agreement:
(i) if the Licensee defaults in any of its obligations under
Article "6" of this Agreement, unless within ten (10) calendar days after the
Licensee receives written notice of such default pursuant to Paragraph "C" of
Article "17" of this Agreement, Licensee cures the default;
(ii) if the Licensee defaults in any of its obligations under
this Agreement, unless within sixty (60) calendar days after the Licensee
receives written notice of such default pursuant to Paragraph "C" of Article
"17" of this Agreement, the Licensee cures the default, or, if there is a
default which cannot with due diligence be cured within sixty (60) calendar
days, the Licensee institutes within sixty (60) calendar days steps reasonably
necessary to remedy the default and thereafter diligently prosecutes the same to
completion:
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(iii) if the Licensee files a petition for protection as a
debtor under the bankruptcy laws;
(iv) if the Licensee makes an assignment for the benefit of
its creditors;
(v) if the Licensee consents to the appointment of, or
possession by, a custodian for the whole or any substantial part of its
property;
(vi) if the Licensee on a petition by a third party to subject
the Licensee as a debtor to the bankruptcy laws which is filed with or without
its consent, fails to have such petition dismissed within one hundred twenty
(120) days from the date that such petition is filed;
(vii) if the Licensee on a petition in bankruptcy filed
against it is adjudicated a bankrupt; or
(viii) if the Licensee files a petition or answer seeking
reorganization or similar aid or relief under the bankruptcy laws or any other
state or federal law for the relief of debtors or fails to deny in a timely
fashion, the material allegations of a petition filed against it for any such
relief; or
(ix) if a court of competent jurisdiction shall enter an
order, judgment or decree appointing, with or without its consent, a custodian
for the whole or any substantial part of the Licensee's property, or approving a
petition filed against it seeking reorganization or arrangement under any
bankruptcy or insolvency laws or any other state or federal law for the relief
of debtors, and such order, judgment or decree shall not be vacated or
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<PAGE>
set aside or stayed within one hundred twenty (120) days from the date of entry
thereof; or
(x) if under the provisions of any other law for the relief of
debtors, any court of competent jurisdiction or a custodian shall assume custody
or control of the whole or any substantial part of the Licensee' s property,
with or without its consent, and such custody or control shall not be terminated
or stayed within one hundred twenty (120) days from the date of assumption of
such custody or control.
B. If there is a termination of this Agreement, the Licensor may:
(i) Require that the Licensee cease any further use of the
Products or any portion thereof;
(ii) Cease performance of all of the Licensor's obligations
hereunder without liability to the Licensee; and
(iii) Cancel the assignment of the Contracts with all rights
thereunder reverting to the Licensor.
C. The Licensor's foregoing rights and remedies shall be cumulative
and in addition to all other rights and remedies available to the Licensor in
law and equity.
14. Licensor's Representations and Warranties. The Licensor warrants and
represents that:
A. It is a corporation duly organized, validly existing and in good
standing under the laws of Delaware with all requisite power and authority to
carry on its business as presently conducted in all jurisdictions where
presently conducted, to enter into this
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Agreement and to carry out the transactions which are contemplated herein.
B. The Licensor has full right, power and legal capacity to enter
into this Agreement and to consummate the transactions which are provided for
herein. The execution of this Agreement by the Licensor, and its delivery to the
Licensee, and the consummation of the transactions which are contemplated herein
have been duly approved and authorized by all necessary action by the Licensor's
Board of Directors and no further authorization shall be necessary on the part
of the Licensor for the performance and consummation by the Licensor of the
transactions which are contemplated by this Agreement.
C. The business and operations of the Licensor have been and are
being conducted in accordance with all applicable laws, rules and regulations of
all authorities which affect the Licensor or its properties, assets, businesses
or prospects. The performance of this Agreement shall not result in any breach
of, or constitute a default under, or result in the imposition of any lien or
encumbrance upon any property of the Licensor or cause an acceleration under any
arrangement, agreement or other instrument to which the Licensor is a party or
by which any of its assets is bound. The Licensor has performed all of its
obligations which are required to be performed by it pursuant to the terms of
any such agreement, contract or commitment.
D. All the contracts listed in Schedule "B" have been entered into
in the ordinary course of business and neither the
11
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Licensor nor any other party to any such contract is in default under any such
contract. The Licensor is not a guarantor of payment or collection of any
obligation. The Licensor has not assigned any of its rights in the Contracts in
whole or in part.
E. The Licensor does not know or have any reason to believe that any
of the products or items developed, manufactured or sold by the Licensor, or any
of the processes, techniques, know how or designations used in its business,
infringes on any patents, trademarks or copyrights. The Licensor has the sole
and exclusive right to conduct the business it currently performs with respect
to the Products set forth on Schedule "A". The Licensor has not granted any
other right or license for use of any of the Products set forth on Schedule "A",
and does not know or have any reason to believe that there are any claims of
third parties to the use of any of the Products set forth on Schedule "A".
F. No representation or warranty of the Licensor which is contained
in this Agreement, or in a writing furnished or to be furnished pursuant to this
Agreement contains or shall contain any untrue statement of a material fact,
omits or shall omit to state any material fact which is required to make the
statements which are contained herein or therein, in the light of the
circumstances under which they were made, not misleading. There is no material
fact relating to the Products which would adversely affect same which has not
been disclosed to the Licensee.
G. It shall not be a defense to a suit for damages for any
misrepresentation or breach of covenant or warranty that the
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<PAGE>
Licensee knew or had reason to know that any covenant, representation or
warranty in this Agreement or furnished or to be furnished to the Licensee
contained untrue statements.
H. The Licensor is the sole and exclusive owner of the Products;
I. The Licensor has the right to license the Products as herein
licensed and to assign the Contracts as herein assigned;
J. The Licensor, in whole or in part, has not granted any other
right or license for use of the Products or assigned the Contracts. The Licensor
has not assigned any of its rights in the Contracts in whole or in part.
K. Neither the Products nor any significant part of any of them are
in the public domain; and
L. The Products conform in all material respects to the
specifications and documents set forth in Exhibit "A".
15. Licensee's Representations, Warranties and Covenants. The Licensee
represents and warrants to the Licensor and covenants, as follows:
A. The Licensee is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, with all requisite
power and authority to carry on its business as presently conducted, to enter
into this Agreement and to carry out the transactions which are contemplated
herein.
B. The Licensee has full right, power and legal capacity to enter
into this Agreement and to consummate the transactions which are provided for
herein. The execution of this Agreement by
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the Licensee and its delivery to the Licensor, and the consummation by it of the
transactions which are contemplated herein have been duly approved and
authorized by all necessary action by its Board of Directors and no further
authorization shall be necessary on the part of the Licensee for the performance
and consummation by the Licensee of the transactions which are contemplated in
this Agreement.
C. The performance of this Agreement shall not result in any breach
of, or constitute a default under, or result in the imposition of any lien or
encumbrance upon any property of the Licensee or cause an acceleration under any
arrangement, agreement or other instrument to which the Licensee is a party or
by which any of its assets is bound.
D. The Licensee agrees to utilize its best efforts to promote and
utilize the License in accordance with the terms and conditions of this
Agreement.
E. No representation or warranty of the Licensee which is contained
in this Agreement, or in a writing furnished or to be furnished pursuant to this
Agreement, contains or shall contain any untrue statement of a material fact,
omits or shall omit to state any material fact which is required to make the
statements which are contained herein or therein, in the light of the
circumstances under which they were made, not misleading. There is no material
fact relating to the business, affairs, operations, conditions (financial or
otherwise) or prospects of the Licensee which would materially adversely affect
same which has not been disclosed to
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the Licensor.
F. It shall not be a defense to a suit for damages for any
misrepresentation or breach of covenant or warranty that the Licensor knew or
had reason to know that any covenant, representation or warranty in this
Agreement or furnished or to be furnished to the Licensor contained untrue
statements.
16. Survival. All covenants, agreements, representations and warranties
made in or in connection with this Agreement shall survive its termination, and
shall continue in full force and effect after its termination, it being
understood and agreed that each of such covenants, agreements, representations
and warranties is of the essence of this Agreement and the same shall be binding
upon and shall inure to the benefit of the parties hereto, their successors and
assigns.
17. Miscellaneous.
A. Headings. Headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
B. Enforceability. If any provision which is contained in this
Agreement should, for any reason, be held to be invalid or unenforceable in any
respect under the laws of any jurisdiction, such invalidity or unenforceability
shall not affect any other provision of this Agreement. Instead, this Agreement
shall be construed as if such invalid or unenforceable provisions had not been
contained herein.
C. Notices. Any notices or other communication required
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<PAGE>
or permitted hereunder shall be in writing and be given sufficiently if sent by
first class or certified mail, return receipt requested, postage prepaid
addressed as follows:
To the Licensor: IntelliSys Systems, Inc.
1005 W. Fayette Street
Syracuse, New York 13204
Attn: Harold Popplewell
Copy to: Harris Beach Wilcox, LLP
One Clinton Square, Suite 300
Syracuse, New York 13202
Attn: Robert Paltz, Esq.
To the Licensee: IntelliSys Automotive Systems, Inc.
2255 Glades Road, Suite 124-A
Boca Raton, Florida 33431
Attn: Paul Michelin
Copy to: Mintz & Fraade, P.C.
488 Madison Avenue
New York, New York 10022
Attn: Frederick M. Mintz, Esq.
or in each case to such other address as shall have last been furnished by like
notice. If mailing is impossible due to an absence of postal service, notice
shall be in writing and personally delivered to the aforesaid addresses. Each
notice or communication shall be deemed to have been given as of three (3) days
after the date so mailed or as of the date delivered, as the case may be.
D. Governing Law; Disputes. This Agreement shall in all respects be
construed, governed, applied and enforced under the internal laws of the State
of New York without giving effect to the principles of conflicts of law and be
deemed to be an agreement entered into in the State of New York and made under
the laws of the State of New York. The parties agree that they shall be deemed
to
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<PAGE>
have agreed to binding arbitration in New York, New York for the entire subject
matter of any and all disputes relating to or arising under this Agreement. Any
such arbitration shall be conducted in New York, New York by under the rules
then obtaining of the American Arbitration Association in New York, New York. In
all arbitrations, judgment upon the arbitration award may be entered in any
court having jurisdiction. The parties specifically designate the Courts in the
City of New York and State of New York as properly having venue for any
proceeding to confirm and enter judgment upon any such arbitration award. The
parties hereby consent to and submit to personal jurisdiction over each of them
by the Courts of the State of New York in any action or proceeding, waive
personal service of any and all process and specifically consent that in any
such action or proceeding, any service of process may be effectuated upon any of
them by first class or certified mail, return receipt requested in accordance
with paragraph "C" of this Article "17" of this Agreement. The parties agree,
further, that the prevailing party in any such arbitration as determined by the
arbitrators shall be entitled to such costs and attorney's fees, if any, in
connection with such arbitration as may be awarded by the arbitrators; provided,
however, that if a proceeding is commenced to confirm and enter a judgment
thereon by the Courts of the State of New York and such application is denied,
no such costs or attorneys fees shall be paid. In connection with the
arbitrators' determination for this purpose of which party, if any, is the
prevailing party, they shall take into account all of the facts and
circumstances including, without
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<PAGE>
limitation, the relief sought, and by whom, and the relief, if any, awarded, and
to whom. In addition, and notwithstanding the foregoing sentence, a party shall
not be deemed to be the prevailing party unless the amount of the arbitration
award is greater than fifteen (15%) percent of the amount offered in writing by
the other party. For example, if the party initiating the arbitration ("A")
seeks an award of $100,000 plus costs and expenses, the other party ("B") has
offered A $50,000 prior to the commencement of the arbitration proceeding, and
the arbitration panel awards any amount less than $57,500 to A, the panel should
determine that B has "prevailed".
E. Entire Agreement. The parties have not made any representations,
warranties, or covenants about the subject matter hereof which is not set forth
herein, and this Agreement, together with any instruments executed
simultaneously herewith, constitutes the entire Agreement between them about the
subject matter hereof. All understandings and agreements heretofore had between
the parties about the subject matter hereof are merged in this Agreement and any
such instrument which alone fully and completely expresses their Agreement.
F. Modification. This Agreement may not be changed, modified,
extended, terminated or discharged orally, but only by an
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Agreement in writing, which is signed by all of the parties to this Agreement.
G. Effect. The Parties agree to execute any and all such other and
further instruments and documents, and to take any and all such further actions
which are reasonably required to effectuate this Agreement and the intents and
purposes hereof.
H. Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns.
I. Non-Waiver. Except as otherwise expressly provided herein, no
waiver of any covenant, condition, or provision of this Agreement shall be
deemed to have been made unless expressly in writing and signed by the party
against whom such waiver is charged; and (i) the failure of any party to insist
in any one or more cases upon the performance of any of the provisions,
covenants, or conditions of this Agreement or to exercise any option herein
contained shall not be construed as a waiver or relinquishment for the future of
any such provisions, covenants, or conditions, (ii) the acceptance of
performance of anything required by this Agreement to be performed with
knowledge of the breach or failure of a covenant, condition, or provision hereof
shall not be deemed a waiver of such breach or failure, and (iii) no waiver by
any party of one breach by another party shall be construed as a waiver of any
other or subsequent breach.
J. Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be
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deemed an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused these presents to be signed by
their duly authorized officers, as of the day, month and year first above
written.
Attest: IntelliSys Systems, Inc.
/s/[SIGNATURE ILLEGIBLE] By: /s/[SIGNATURE ILLEGIBLE]
10-2-95 ---------------------------
Name:
Title:
Attest: IntelliSys Automotive Systems, Inc.
/s/[SIGNATURE ILLEGIBLE] By: /s/Lorraine M. Capettini
10-2-95 ---------------------------
Name:
Title: President
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Schedule A
The Products
A. Software
1. RT/AI Agentware(R)
2. RT/AI NexGen(tm)
3. RT/AI IVIS(tm)
4. RT/AI AddA(tm)
5. RT/AI Adapt(tm)
6. RT/AI Agility(tm)
7. RT/AI InfoView(tm)
B. Documentation
All manuals associated with the above.
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Schedule "B"
The Contracts
SNAPP Blanket Purchase Order SB102061-9402
IPAS Purchase Order 1523
Ford Motor Company Purchase Order 75-2-R34313
SNAPP Purchase Order 40554
IPAS Purchase Order 4890
Ford Procurement Number B7 1P095-052341
All contracts arising under the following proposals outstanding:
IAS PROPOSALS
-------------
Ford Sterling Transmission Axle Assembly 113,498.00
Ford Windsor Casting Crankshaft 68,500.00
Chrysler Kenosha Engine Pin Stamp 145,000.00
Ford Romeo Engine Piston Sub-Assem 233,000.00
Ford Romeo Engine Snap Ring 105,952.00
Ford Essex Engine Crank AddA 55,000.00
Ford Essex Engine RF AddA 55,000.00
Ford Romeo Engine C312 123,200.00
Board of Directors and Stockholders
Intellisys Automotive Systems, Inc.
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form SB-2 of Intellisys
Automotive Systems, Inc., of our report dated January 13, 1997, except as to
the information in the last paragraph in Note 12 for which the date is January
30, 1997, and except for Notes 1 and 4 for which the date is April 23, 1997
appearing in the prospectus, which is part of this Registration Statement.
We also consent to the reference to us as "experts" in such prospectus.
/s/ Daszkal, Bolton & Manela
-------------------------------------
Boca Raton, Florida Daszkal, Bolton & Manela CPA's
November 12, 1997
