As filed with the U.S. Securities and
Exchange Commission on June 24, 1999
Registration No. 333-40001-NY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM SB-2
Registration Statement
Under The Securities Act of 1933
New Jersey 2899 223-319-224
State of Standard Industrial IRS Employer
Incorporation Classification Code Identification No.
PPA TECHNOLOGIES, INC.
163 South St.
Hackensack, New Jersey 07601
(201) 457-1221
Address, including zip code and telephone number, including area code of
registrant's principal executive offices and principal place of business or
intended principal place of business.
ROGER L. FIDLER
163 South St.
Hackensack, New Jersey 07601
(Name and Address of Agent for Service)
Copies of Communication to:
Roger L. Fidler, 163 South St., Hackensack, New Jersey 07601, (201) 457-1221
Steve Gutstein, Esq., Attorney at Law,
276 Fifth Avenue, New York, New York 10001
Approximate date of proposed sale to public: As soon as possible after the
effective date of the Registration Statement.
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CALCULATION OF REGISTRATION FEE
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Title of Amount to be Proposed maximum Proposed maximum Amount
each class registered offering price aggregate Registration
of Securities l per Unit (1) offering Price (1) Fee
- -------------------------------------------------------------------------------
Units consisting
of 1 Share of
Common Stock
and 1 Class
<S> <C> <C> <C> <C>
A Warrant 1,015,000 $6.00 $6,090,000.00 $1,845.46
Common Stock,
no par value
per share,(2)
underlying
Class A
Warrants 507,500 $8.00 $4,060,000.00 $1,230.30
Underwriter's
warrants, no
par value 101,500 $0.001 $101.50 $0.04
Units, no
par value
per share,
underlying
Underwriter's
Warrants 101,500 $7.80 $791,700.00 $242.34
Common Stock,
no par value
per share,
underlying
warrants in
Underwriter's
Warrant Units 50,750 $8.00 $406,000.00 $122.68
</TABLE>
Total Registration-Fee ----------------------------- $ 3,440.78
The Exhibit Index is located at page 54
(1) Estimated solely for the purpose of calculating the registration fee. (2)
Pursuant to Rule 416 there are also being registered such additional shares as
may be issued pursuant to the anti-dilution provisions of the 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 or on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
<PAGE>
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PPA TECHNOLOGIES, INC.
CROSS REFERENCE SHEET FOR PROSPECTUS
(Pursuant to Item 501 of Regulation S-B)
Item No. Caption in Prospectus
1. Forepart of the Registration
Statement and Outside Front Cover
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Page of Prospectus............................Forepart, Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus...........................Inside Front Cover Page
3. Summary Information Risk Factors
and Ratio of Earnings
to-Fixed Charges.............................. Prospectus Summary
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of offering Price.............. Description of Units;
Description of Capital Stock
6. Dilution..................................... Dilution
7. Selling Security Holders..................... Not Applicable
8. Plan of Distribution......................... Underwriting
9. Legal Proceedings............................ Legal Proceedings
10. Directors and Executive Officers............. Management
11. Security ownership of Certain
Beneficial owners and Management............. Principal Shareholders
12. Description of Securities to Be
Registered................................... Description of Units
13. Interest of Named Experts and
Counsel ..................................... Legal Counsel, Experts
<PAGE>
14. Information With Respect To
The Registrant; Organization
with Five Years............................. Prospectus Summary;
The Company; Dividend Policy;
Selected Financial Information;
Management's Discussion
Analysis of Financial Condition
and Results of Operations;
Business; Management; Principal
Shareholders; Certain
Transactions; Description of
the Securities.
15. Disclosure of Commission
Position on Indemnification
For Securities Act Liabilities.................... Not applicable
16. Description of Business....................... Business of the Company
17. Description of Property....................... Business of the Company
18. Interest of Management and Others
in Certain Transactions....................... Certain Transactions;
Principal Shareholders
19. Certain Market information.................... Risk Factors; Description
of Securities; Underwriting
20. Remuneration of Directors and officers........ Remuneration
21. Financial Statements.......................... Financial Statements
</TABLE>
<PAGE>
PROSPECTUS
PPA TECHNOLOGIES, INC.
A Minimum of 100,000 to a Maximum of 1,000,000 Units,
Each consisting of One Share of Common Stock
and One Class A Redeemable Common Stock Purchase Warrant,
offered at a price of $6.00 per Unit
-----------------------------
A minimum of 100,000 and a Maximum of 1,000,000 of the Units (the "Units")
offered hereby (the "Offering"), each Unit consisting of one share of common
stock, without par value, (hereinafter referred to as "Share" or "Share of
Common Stock") and one "Class A" Redeemable Common Stock Purchase Warrant
(hereinafter referred to as the "Warrants" or "Redeemable Warrants"),
exercisable into one-half share of common stock per warrant for a period of one
year from the effective date ("Effective Date") of the registration statement of
which this prospectus (this "Prospectus") is a part at an exercise price of
$8.00 per share, are being offered by PPA Technologies, Inc. (the "Company" or
"PPA"). The Warrants are redeemable at the Company's option commencing [ ] (90
days after the effective date (the "Effective Date")of the registration
statement (the "Registration Statement") of which the Prospectus is a part) upon
30 days notice to the Warrant holders at $.05 per Warrant if the closing bid
price of the Common Stock in the over-the-counter market as reported by ("NASD")
shall have for a period of 30 consecutive trading days ending within 15 days of
the notice of redemption average in excess of $10.00 per share (subject to
adjustments in the case of a stock split, stock dividend, recapitalization or
similar event). Since it is the Company's present intention to exercise such
right, Warrant holders should presume that the Company would call the Redeemable
Warrants for redemption if such criteria are met. The Redeemable Warrants are
immediately detachable and separately tradeable from the Units upon issuance. It
is anticipated that the Shares of Common Stock and Redeemable Warrants will be
included on the NASDAQ Electronic Bulletin Board Market ("Bulletin Board") under
the symbols "PPAS" and "PPAW", respectively.
Prior to the offering, there has been no market for the securities of
the company. There can be no assurance that a market for the company's
securities will develop after completion of this offering or, if developed, that
it will be maintained. As a consequence of such a limited market, a purchaser of
the Shares may be unable to sell the Shares when desired and may have to hold
the Shares indefinitely. See "Risk Factors Limited Trading Market." The
determination of the offering price of the Shares was made arbitrarily by the
Company. See "Risk Factors - Arbitrary Offering Price."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION TO
PUBLIC INVESTORS. A PROSPECTIVE PURCHASER MAY LOSE HIS TOTAL INVESTMENT. SEE
"RISK FACTORS" AND "DILUTION."
- ------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY It is A CRIMINAL OFFENSE.
=================================================================
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Price to Underwriting Proceeds to
Public Discounts(l) Company(2)
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<S> <C> <C> <C>
Per Unit $6.00 $0.60 $5.40
- -----------------------------------------------------------------
Total(3) $600,000 $60,000 $540,000
(Minimum)
- -----------------------------------------------------------------
Total(3) $6,000,000 $600,000 $5,400,000
(Maximum)
=================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act of 1933, as Amended.
(See "Underwriting.")
<PAGE>
(2) Before deducting expenses payable by the Company in connection with the
Offering estimated at approximately $405,000 if the maximum is sold, and $75,000
if the minimum is sold. These expenses include filing fees, printing, a 3%
non-accountable fee to the Underwriters, legal and accounting fees. Net proceeds
to the Company after such expenses are estimated to be $4,995,000 if the maximum
is sold, and $465,000 if the minimum is sold.
(3) The Company has granted to the Underwriters an option (the "Over-Allotment
Option") exercisable within 45 days after the date of this Prospectus to
purchase up to 15,000 additional Units, upon the same terms and conditions as
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts, and
Proceeds to Company will be $6,090,000, $609,000, and $6,210,000, respectively.
See "Underwriting."
The date of this Prospectus is _________ 1999.
Kenneth Jerome & Company, Inc.
In connection with this offering, the Underwriters may over-allot or effect
transactions which stabilize or maintain the market price of the Units and the
components thereof at a level above that which might otherwise prevail in the
open market. Such transactions may be effected on the NASDAQ SmallCap market.
Such stabilizing, if commenced, may be discontinued at any time.
AVAILABLE INFORMATION
The Company intends to file with the Securities and Exchange Commission (the
"Commission"), New York, New York, a registration statement on Form SB-2 under
the Act with respect to the Units offered hereby. For further information about
the company and the securities being offered hereby, reference is made to the
registration statement and to the financial statements and exhibits filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete, and in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. The registration statement, including exhibits
thereto, may be inspected without charge at the Commission's principal office in
Washington, D.C., and the Northeast Regional Office located at 7 World Trade
Center, New York, New York and copies of all or any part thereof may be obtained
from such offices after payment of the fees prescribed by the Commission.
Reports to Shareholders
The Company intends to furnish its shareholders with annual reports
containing audited financial statements as soon as practicable at the end of
each fiscal year, commencing with the next fiscal year. In addition, the Company
may, from time to time, issue unaudited interim reports and financial
statements. As a result of the effectiveness of the registration statement of
which this Prospectus is a part, the Company will incur a reporting obligation
under the Securities Exchange Act of 1934.
<PAGE>
Glossary
Coalescent - A liquid material which when exposed to the environment becomes a
solid.
Volatile Organic Compound ("VOC") - liquid substances which evaporate when
exposed to the environment.
Coupling Agent - A material which can either bond two materials together with
greater strength or, alternatively, can also serve to bond two different
materials together more weakly.
Resin - Organic polymer.
Hologenated - Compounds containing a halogen, e.g. chlorine or flourine.
Phr - Parts per hundred of resin.
V0 - Flame spread rate.
Plate-out - Bloom to the surface of mobile phases.
Cross-linking - Establishment of chemical bonds between different substances.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed information
and financial statements, including the notes thereto, appearing elsewhere in
this Prospectus and, accordingly, should be read in conjunction with such
information and statements.
The Company
PPA Technologies, Inc. (the "Company" or "PPA") was incorporated on July 22,
1994 under the laws of the State of New Jersey. The Company's principal offices
are located at 163 South St., Hackensack, NJ 07601 and its telephone number is
(201) 457-1221.
PPA Technologies, Inc., hereinafter referred to as PPA Technologies or "the
Company", was formed to develop and manufacture innovative specialty chemical
products with applications in the plastics and coatings industries. After
research, development and testing, PPA has begun to sell certain products.
In general, PPA Technologies' products improves processing and/or the end
product. This is accomplished through its proprietary Coupling Agents and
Reactive Coalescents. In these areas, the Company's products are an advance in
environmental performance, product performance, cost performance, or, in many
cases, performance in more than one of these parameters. (See "Business of the
Company").
The Offering
The Company is offering hereby through the Underwriter on a "firm commitment
basis" the minimum of 100,000 Units, and on a best efforts basis an additional
900,000 Units, totalling a maximum of 1,000,000 Units at an offering price of
$6.00 per Unit. Each Unit is comprised of one (1) share of common stock (no par
value per share) and one (1) Class A redeemable common stock purchase warrant
exercisable for five years from the Effective Date at an exercise price of $8.00
per common share and allowing the purchase of one-half (1/2) share. The
Redeemable Common Stock Purchase Warrants (hereinafter referred to as the
"Warrants" or "Redeemable Warrants") are redeemable at the Company's option
commencing [ ] (90 days after the Effective Date) upon 30 days notice to the
Warrant holders at $.05 per Warrant if the closing bid price of the Common Stock
in the over-the-counter market as reported by NASDAQ shall have for a period of
30 consecutive trading days ending within fifteen days of the notice of
redemption average in excess of $10.00 per share (subject to adjustments in the
case of a reverse stock split, stock dividend, etc.). The Redeemable Warrants
are immediately detachable and separately tradeable from the Units upon
issuance. The offering price of the Units and the exercise price of the
Redeemable Warrants were determined by the Company and the Underwriter. Such
prices bear no relation to the book value, assets or earnings of the Company, or
to any other generally recognized objective criteria of value.
Common Stock:
On June 20, 1996, the stockholders approved an increase in the authorized
capital to 10,000,000 Shares of Common Stock par value, and 1,000,000 shares of
preferred stock having a par value of $100.00 each. On June 28, 1996 the Board
of Directors effected a 1,000 to 1 stock split upon the filing of the Amendment
of the Certificate of Incorporation authorized by the stockholders. All
financial and stock related numbers set forth herein reflect this stock split,
except where otherwise specifically stated.
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<S> <C>
Common Stock Outstanding at March 31, 1999 ...... 1,697,500(1)(4)
Preferred Stock Outstanding at March 31, 1999 .....4,806(1)
To be offered(2)
Minimum ...................................... 100,000
Maximum ...................................... 1,000,000
To be outstanding after the offering(2)
Minimum ...................................... 1,797,500
Maximum ...................................... 2,697,500
</TABLE>
Use of Proceeds......... The Company intends to use the maximum net proceeds
of this offering principally for production equipment,
salaries, inventory, advertising, administrative overhead
and working capital. The maximum proceeds of this Offering
will enable the Company to expand marketing of its entire
line of products, and to build an inventory of its products.
The minimum proceeds of this Offering would be used as
working capital and payment of debt. (See "Use of
Proceeds.")
Risk Factors and Dilution ..... Prospective Investors should carefully consider
the factors described under the captions "Risk
Factors" and "Dilution."
Bulletin Board Proposed Listing Symbol (3) .....................PPAS, PPAW
- --------------
(1) Does not include an aggregate of 500,000 shares reserved for issuance under
the Company's Stock Grant and Stock Option Plans nor does it include options on
1,280,000 shares, exerciseable at $1.00 per share, and on 120,000 shares at
$1.50, held by management.
(2) Does not include the exercise of any of the Redeemable Warrants contained in
said Units, nor the exercise of any Underwriter's Warrants or the Unit Warrants
contained in the Units issuable upon the exercise of the Underwriter's Warrants,
nor the outstanding warrants held by current shareholders.
(3) The Company intends to apply for and anticipates listing on the Bulletin
Board Market, but there can be no guarantee that such listing will be approved,
or if approved that such listing will be maintained, or if listed that a market
will develop or if developed, that such market will be sustained.
(4) Recent convertible bond conversions have created an additional 82,880 shares
of freely tradeable common stock.
<PAGE>
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SUMMARY FINANCIAL INFORMATION
The following table summarizes certain selected financial data of the Company
and is qualified in its entirety by the more detailed financial statements
contained elsewhere in this Memorandum.
Income Statement:
For the
Nine Months period from
Year Ending Year Ending Year Ending Ended Inception, June 22
June 30, June 30, June 30, March 31, 1994 to March 31,
1996 1997 1998 1999 1999
<S> <C> <C> <C> <C> <C>
Sales 155,525 131,335 148,537 94,752 756,351
Cost Of Goods 104,552 61,453 95,687 62,491 480,531
------- ------- ------ ------- --------
Gross Profit 50,973 69,882 52,850 32,261 275,820
Operating Expenses 165,388 211,080 1,029,258 327,755 2,080,3037
Other Income -0- -0- -0- -0- -0-
Other Expenses -0- 3065 43,385 22,350 68,800
Net Profit(Loss) (114,715) (144,263) (519,793) (295,494) (1,804,483)
Per share (0.04) (0.15) (0.16) (0.02) (0.22)
Shares Outstanding 3,383,000 3,355,067 3,343,280 4,516,291 5,516,291
Dividends -0- -0- -0- -0- -0-
</TABLE>
Balance Sheet
<TABLE>
<CAPTION>
as of: March 31
1999 As Adjusted(1)
Maximum Minimum
<S> <C> <C> <C>
Cash And Cash Equivalents 1,379 4,996,379 466,379
Working Capital (deficit) (542,322) 4,452,678 (75,943)
Total Assets 225,307 5,220,307 690,307
Current Liabilities 730,005 730,005 730,005
Long Term Debt -0- -0- (-0-)
Stockholders' (deficit) (504,698) 4,490,302 (39,698)
Equity
</TABLE>
(1) Gives effect to the issuance and sale of the minimum of 100,000 Units and
maximum of 1,000,000 Units offered hereby and the receipt of the estimated net
proceeds ($4,995,000 if the maximum is sold and $465,000 if the minimum is sold)
before their application. This does not take into account any potential revenues
from the 150,000 Units allotted for the over-allotment. See "Use of Proceeds".
<PAGE>
RISK FACTORS
The Units being offered hereby are speculative and involve a high degree of
risk. In addition to the other information in this Prospectus, prospective
investors, prior to making an investment, should carefully consider the
following risks and speculative factors inherent in and affecting the business
of the Company and this offering.
Risks Associated With Forward-Looking Statements. This Prospectus contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities and Exchange Act of 1934, as
amended, (the "Exchange Act" and the Company intends that such forward-looking
statements be subject to the safe harbors for such statements under such
sections.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that the Company will continue to design,
market and provide new products and services on a timely basis, that competitive
conditions in the polymers and additives markets will not change adversely or
materially, that demand for the Company's products will continue or increase,
that the market will accept the Company's new and existing products, that the
Company will retain and add qualified sales, research and systems integration
personnel and consultants, that the Company's forecasts will accurately
anticipate market demand, and that there will be no material adverse change in
the Company's operations or business. The foregoing assumptions are based on
judgments with respect to, among other things, future economic, competitive and
market conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in forward-looking statements will be realized. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Accumulated Losses; History of Operating Losses; Explanatory Paragraph
Within Accountants' Opinion. The Company commenced in July of 1994. In order to
execute its business strategy and develop new products, the Company will require
significant funds. Increased spending and decreased sales levels resulted in a
net loss of $519,793 for the fiscal year ended June 30, 1998, and a loss of
$295,494 for the nine months ended March 31, 1999 and may result in future
losses as the Company will incur significant expenses in connection with
research and development of its products, development of its direct and indirect
selling and marketing strategies, and the hiring of additional personnel. There
can be no assurance that the Company will be profitable in the future or that
the net proceeds of this offering, together with any funds provided by
operations and presently available capital, will be sufficient to fund the
Company's ongoing operations. At March 31, 1999, the Company's current
liabilities exceeded its current assets by $504,698 its cash balance was $1,379.
At March 31, 1999, the Company's accumulated deficit was $1,804,483 and its
stockholder equity deficit was $504,698. The Company is dependent on generating
additional sales to improve cash flow, and it is possible that the Company will
require additional debt or equity bridge financing prior to completion of this
offering. The Company believes its current operating funds, along with the
proceeds of the offering after amounts used to repay debt, will be sufficient to
finance its cash requirements for at least the next 12 months. See "Use of
Proceeds." If the Company has insufficient funds, there can be no assurance that
additional financing can be obtained on acceptable terms, if at all. The absence
of such financing would have a material adverse effect on the Company's
business, including a possible reduction or cessation of operations. The report
of the Company's independent accountants on the Company's financial statements
as of June 30, 1998 contains an explanatory statement concerning the Company's
ability to continue as a going concern. See "Financial Statements-Report of
Independent Auditors."
No Trading Market. There is no trading market for the Company's Common
Stock and there is no assurance that such a market will develop after this
offering, or if such a market develops, that it will be maintained. Holders of
the Shares may, therefore, have difficulty in selling their stock should they
desire to do so and should be able to withstand the risk of holding their Shares
indefinitely. See "Description of Securities."
Broad Discretion of Management in Allocation of the Proceeds of Offering. A
substantial portion of the proceeds of the offering will be used for general
working capital. If the maximum number of Shares is sold, working capital will
comprise 8.2% of total net proceeds if the maximum is sold and 100% of net
proceeds if the minimum is sold. Management will have broad discretion as to the
use of such proceeds and management reserves the right to reallocate all
proceeds to working capital. See "Use of Proceeds."
Additional Capital. The Company believes that the maximum proceeds of this
offering will allow the Company to meet all of its presently planned future
operations for at least twelve months. However, a significant portion of the
proceeds will be used to develop and improve product lines. Thus, while the
Company has no plans that would require it to seek additional funding, it may be
required to do so to complete or accelerate these development programs. There
can be no assurance that such funding will be available on terms acceptable to
the Company, and the failure to procure such funding on acceptable terms could
materially and adversely affect the Company. If the minimum is sold, the Company
would use the proceeds solely to bolster working capital while the Company would
continue to seek other sources of funding for its other planned endeavors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
Limitations Imposed by Environmental Regulation. Federal, state and local
environmental laws govern air emissions and discharges into water and the
generation, transportation, storage, and treatment and disposal of solid and
hazardous waste. These laws establish standards governing most aspects of the
construction and operation of the Company's facilities, and often require
multiple governmental permits before these facilities can be constructed,
modified, or operated. There can be no assurance that all required permits will
be issued for the Company's projects under development or for future projects,
or that the requirements for continued environmental regulatory laws and
policies governing their enforcement may change, requiring new technology or
stricter standards for the control of discharges of air or water pollutants, or
for solid or hazardous waste or ash handling and disposal. Such future
developments could affect the manner in which the Company operates its plants
and could require significant additional expenditures to achieve compliance with
such requirements. It is possible that compliance may not be technically or
economically feasible. To the date of this Prospectus, the Company has not
experienced any delays or costs associated with environmental regulations that
have materially effected the Company's business. See "Business of the Company -
Environmental Regulation".
Untested Marketing Strategy. To date, the Company has experienced
development and shipment delays due to a lack of working capital and resultant
inadequate staffing and there is no assurance that such delays will not
continue. To date, the Company's product marketing efforts have been very
limited and the Company has not been able to capitalize on the interest
generated by said marketing efforts. There is no assurance that if the Company
applies the proceeds of this offering to marketing and distribution that these
problems will disappear. See "Business of the Company - Marketing".
Dependence On Others; Limited Manufacturing Capability. At its present
stage of development, the registrant has developed and continues to develop new
chemicals and new uses for existing chemicals by combining them with chemicals
proprietary to the Company. The Company's strategy for the research,
development, marketing, distribution, and commercialization of its products
entails entering into various arrangements with third party toll manufacturers,
(other companies which the Company pays to manufacture the Company's products or
components thereof. and it is dependent upon the ability of these outside
parties to perform their responsibilities. The Company may also enter into
marketing agreements and arrangements with various third parties, rely on
collaborative partners to conduct research efforts and trials, and to
manufacture and distribute certain of the Company's products. The Company does
not currently have in place all such relationships. The Company does have those
relationships in place which are presently deemed adequate to support the
Company's business for the next twelve months, including toll manufacturing of
proprietary chemicals, and end users in the ink, paint, and plastic industries
which will run field tests on the Company's products. There can be no assurance
that the Company will be successful in establishing all the necessary
collaborative arrangements or that, if established, the arrangements will be
successful or on terms that will enable the Company to achieve profitability.
See "Business of the Company".
Risks Related To Low-Priced or Penny Stocks.
In addition, if the Common Stock were to become delisted from trading on
Nasdaq and the trading price of the Common Stock were to fall below $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
certain rules promulgated under the Exchange Act, which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non Nasdaq equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). 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 institutions). 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. See "Description of Securities; Underwriting".
Business Dependent Upon Key Employee. The business of the Company is
specialized. The continued employment of Gerald Sugerman is critical to the
Company's proposed product development and the conduct of the Company's business
Upon closing, the Company intends to procure key man insurance insuring Mr.
Sugerman. There can be no assurance that the Company will be able to retain Mr.
Sugerman or other equally qualified individuals to run the affairs of the
Company. See "Management".
Use of Proceeds to Benefit Insiders. The law firm of the President of the
Company, Roger Fidler, will receive $150,000 from the gross proceeds as an
expense of the offering for services associated with this offering if the
maximum is sold. If the minimum is sold, none of the proceeds will be used for
that purpose. Gerald Sugerman, the Executive Vice President, Secretary and
Treasurer of the Company, will receive from the net proceeds of the offering
$200,000 for payment of future salary and redemption of preferred stock if the
maximum is sold. Otherwise, the proceeds devoted to that purposes will be paid
pro rata between the minimum and the maximum. See "Use of Proceeds".
Potential Conflict of Interest. The Law Firm of Roger L. Fidler is a sole
proprietorship owned and operated by Roger L. Fidler, President of the Company.
Since Mr. Fidler will be the recipient of some of the benefits which will accrue
from the successful conclusion of this offering, there is a potential conflict
of interest in that he is opining as to the legality of the issuance of the
securities offered hereby and is responsible in both capacities for assuring the
accuracy of this Prospectus. See "Management".
Thin Management. The Company employs two officers, one of whom, the
President, is only a part time employee. This thin management exposes the
Company to the risks associated with being undermanaged. See "Management".
Competition. The Company is aware of several business entities in the
United States marketing products similar to those offered by the Company and the
Company's customers. Some of these companies have substantially greater capital
resources, larger staffs and more sophisticated facilities than the Company.
Such companies may produce products which are more effective than any developed
by the Company or its customers and may be more successful than the Company or
its customers in their production and marketing of such products. There can be
no assurance that other companies will not enter the markets developed by the
Company or its customers. There can be no assurance that the Company will be
able to compete successfully in the future with existing or new competitors. See
"Business of the Company--Competition."
No Cumulative Voting - Control by Management. The Company's Certificate of
Incorporation does not provide for cumulative voting. The Company's present
shareholders will own approximately 60.9% (not including the exercise of options
held by management, which, if exercised, would increase such ownership to 73.4%)
of the Company's outstanding Common Stock following the offering, if the maximum
is sold, and 94.4% if the minimum is sold. Thus, the Comapny's present
shareholders will be able to continue to elect all of the Company's directors
and control the Company. More specifically, Management will own approximately
44% if the maximum is sold, 66% if the minimum is sold, (not including the
exercise of options held by management, which, if exercised, would increase such
ownership to 62.3% if the maximum is sold, 94.4% if the minimum is sold) of the
Company's outstanding Common Stock following the offering. Thus, Management will
be able to continue to control the election of all of the Company's directors
and control the Company. See "Principal Shareholders" and "Description of
Capital Stock."
Lack of Dividends. The Company has not paid dividends since its inception
and does not intend to pay any dividends in the foreseeable future, but intends
to retain all earnings, if any, for use in its business operations. Prospective
investors who seek dividend income from their investment should not purchase the
Shares offered by this Prospectus. See "Description of Capital Stock--Dividends"
Immediate Substantial Dilution. The present shareholders have acquired a
controlling interest in the Company at a cost substantially below the offering
price of the Shares. Upon the completion of the offering, investment in the
Company's Common Stock will result in an immediate substantial dilution of
approximately $4.30 per share (71.7%) if the maximum number of Units is sold at
$6.00 per Unit, and approximately $5.97 or 99.5% if the minimum is sold, while
the present shareholders will realize an immediate increase in the net tangible
book value of approximately $1.94 per share (32.2%) if the all Units are sold
and $0.27 per share (4.5%), if the minimum is sold. The foregoing assumes that
no Redeemable Warrants are exercised and does not take the over-allotment into
account. See "Dilution."
Inexperience of Management. Gerald Sugerman is the originator of the
Company's business concept and has run the Company since inception. No officer
of the Company has had, prior to the organization of the Company, experience in
the managerial aspects of the inks, paints, and plastics polymer additives
industry. Since the business is relatively new, the experience of management can
give no assurance that the business will continue to succeed. See "Management."
Arbitrary offering Price. The Offering Price at which the Shares are being
offered has been arbitrarily determined by the Company and the Underwriter.
There is no relationship between the said prices and the Company's assets, book
value, net worth or any other economic or recognized criteria of value.
Sales Pursuant to Rule 144. Officers, Directors and/or affiliates of the
Company hold 1,697,500 Common Shares of the Company, all of which are, subject
to quantity limitations discussed below, available for sale. Such shares are
"restricted securities" under Rule 144, as promulgated by the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, which
shares may not be freely resold. Rule 144 provides, in essence, that any
shareholder of the Company, after holding restricted securities for a period of
one year, may, every three months, sell them in an unsolicited brokerage
transaction in an amount equal to 1% of the Company's outstanding Common Shares,
or the average weekly trading volume, if any, during the four weeks preceding
the sale. After two years, non-affiliated shareholders holding restricted
securities are no longer subject to the 1% limitation and may sell unlimited
amounts of shares they own. If a substantial part of the shares which can be
sold were so sold, the price of the Company's Common Shares might be adversely
affected. (See "Principal Shareholders" and "Underwriting.")
Underwriter's Warrants The Company has agreed to sell to the
Representative Underwriter Warrants (the "Underwriter's Warrants") to purchase
an aggregate of 10% of the Units sold by the Company hereby. The Underwriter's
Warrants may be exercised for a period of four years commencing one year after
the date of this Prospectus, at a price equal to 120% of the public offering
price. For the life of the Underwriter's Warrants, the holders are given, at a
nominal cost, the opportunity to profit from a rise in the market price for the
Common Stock of the Company without assuming the risk of ownership, with a
resulting dilution in the interest of the other securities holders. As long as
the Underwriter's Warrants remain unexercised, the terms under which the Company
could obtain additional capital may be adversely affected. Moreover, the holders
of the Underwriter's Warrants might be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain additional capital by a
new offering of its securities on terms more favorable than those provided by
the Underwriter's Warrants. See "Descriptions of Securities - Underwriter's
Warrants" and "Underwriting."
Product Protection and Infringement. The Company relies on a
combination of patent and trade secret laws, nondisclosure and other contractual
agreements and technical measures to protect its proprietary rights in its
products. The company has applied for several patents, both domestic and
foreign, and will be applying for several more patents. Such protection may not
preclude competitors from developing products with features similar to the
Company's products. The Company believes that its products, trademark and other
proprietary rights do not infringe on the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims against the Company in the future. The successful assertion
of such claims would have a material adverse effect on the Company's business,
operating results and financial condition. See "Business of the Company
Proprietary Rights."
Possible Difficulties In Obtaining Supplies. The success of the
Company's additive products will depend on the ability of the Company to obtain
significant amounts of raw materials at affordable prices. The Company may
encounter shortages or delays in obtaining adequate amounts of raw materials,
and the Company has not yet entered into an arrangement pursuant to which it
will ensure adequate access to those materials. The failure of the Company to
obtain adequate materials at affordable prices could have a material adverse
affect on the Company's ability to produce and deliver its products.
Revenue Concentration from a Small Group of Customers. The Company
presently, and historically, derives the majority of its revenues from a small
group of customers, or a single customer. The Company expects this trend to
continue for some time. The Company has experienced material losses related to
one of it's customers inability to pay for the Company's products. As the
Company's customer base expands it may be subject to increased credit risk. Such
concentration exposes the Company to the risk of severe fluctuations in revenue,
cost of goods sold and business continuity. The inability of one of these
significant customers to satisfy its obligations to the Company could have an
adverse material affect on the Company. See "Financial Statements"
Limitations on Liability of Directors. The Company's Articles of
Incorporation substantially limit the liability of the Company's Directors to
its shareholders for breach of fiduciary or other duties to the Company, to the
full extent permitted by New Jersey law. See "Description of
Securities-Indemnification and Waiver of Director Liabilities."
<PAGE>
USE OF PROCEEDS
The net proceeds to be realized by the Company from the sale of the maximum
number of Units offered hereby, after deducting all commissions and expenses of
the offering, is estimated at $4,995,000 ($465,000 if the minimum is sold).
Included in the expenses of this offering are the commissions and projected
legal fees, accounting fees, filing fees and printing costs. No officer,
director or affiliate of the Company, or associated person of them, will receive
any portion of the gross proceeds of this offering, except for legal fees owed
to the law firm of its President to be paid from gross proceeds as an expense of
the offering in an amount not to exceed $150,000 (0 if the minimum is sold, with
the balance pro-rated); and payments from the net proceeds to Gerald Sugerman,
Vice President and Secretary of the Company, for future payments due under his
employment contract, which provides for payments of $10,000 per month, and for
redemption of his preferred stock not to exceed a combined total of $200,000 (0
if the minimum is sold, with the balance pro-rated). (See "Remuneration of
Officers and Directors") These funds will be used by the Company in
substantially the following manner:
<TABLE>
Maximum Minimum
ADMINISTRATIVE
<S> <C> <C> <C> <C> <C>
Officers Salary $200,000 4.00 %
Equipment 6,000 0.12
Supplies 2,000 0.04
Salaries 40,000 0.80
Overhead 60,000 1.21
------ ------
308,000 6.17
PRODUCTION & CUSTOMER SERVICE
Salaries 240,000 4.80
Equipment 1,787,500 35.79
Inventory 450,000 9.01
------- ------
2,477,500 49.60
PRODUCT DEVELOPMENT
Equipment 300,000 6.00
Supplies 175,000 3.50
Salaries 110,000 2.20
------- ------
585,000 11.7
MARKETING
Advertising 500,000 10.01
Salaries 650,000 13.01
Travel and Entertainment 50,000 1.00
------ ------
1,200,000 24.02
WORKING CAPITAL 412,000 8.25 452,500 97.31
DEBT REPAYMENT 12,500 0.25 12,500 2.69
TOTAL ------------------------ $4,995,000 100% 465,000 100%
</TABLE>
Since the proceeds of this Offering, will be applied over time, the actual
expenditure of such proceeds for any purpose could vary significantly from the
anticipated expenditures described above. The Company reserves the right,
therefore, to reallocate proceeds among the uses described above, including to
working capital, depending upon factors such as the results of the Company's
marketing efforts, the Company's success in developing new products, and
technological advances in the industry.
The net proceeds of this offering may not be used immediately. Any net
proceeds of this offering that are not expended immediately will be deposited
only in short-term interest bearing obligations of the United States government.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
DIVIDEND POLICY
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid any
dividends to date and does not anticipate that it will be in a position to pay
any dividends in the foreseeable future.
<PAGE>
DILUTION
As of March 31, 1999, there were 1,697,500 of the Company's Common
Shares issued and outstanding. See "Description of Securities." If all Units
(1,000,000) offered hereby are sold there will be 2,697,500 Shares outstanding.
If the minimum is sold, there will be 1,797,500 shares outstanding.
As of March 31, 1999, the approximate net tangible book value of the
Company's common stock (total tangible assets less total liabilities) was
$(506,048) or $(.30) per share. See "CAPITALIZATION." Giving effect to the sale
of 1,000,000 Units and receipt of the net proceeds therefrom, the pro forma net
tangible book value of the Company would be approximately $4,488,952, or $1.66
per share. This represents an immediate dilution of $4.34 (72.3%)for each share
of Common Stock purchased by new investors and an immediate increase of $1.96
(32.6%) per share to existing shareholders. If the minimum number of shares is
sold, 100,000, then the book value after the offering will be $41,048, or
($0.02) per share. This represents a dilution of $6.02 (99.6%) to the new
investors and an immediate increase of $0.28 (4.66%) per share to existing
shareholders.
<TABLE>
Maximum Minimum
<S> <C> <C> <C> <C>
Sale price per unit $6.00 (100.00%) $6.00 (100.00%)
Net tangible book value per unit
before offering............ $(0.30) ((4.0%)) $(0.30) ((4.0%))
Increase to present shareholders
in net tangible book value
attributable to sale of
shares offered........... $1.96 (32.6%) $0.28 (4.66%)
Pro Forma net tangible book value
per share after offering... $1.66 (27.7%) $0.02 (0.33%)
Dilution of net tangible book
value per share to new
investors.................. $4.34 (72.3%) $6.02 (100.3%)
</TABLE>
The officers and directors of the Company have acquired their common
shares for cash of $101,750. If the maximum number of Shares is sold, the new
investors shall acquire 1,000,000 shares (about 37.1% of the total outstanding
common shares) at a price of $6.00 per share or a total of $6,000,000. The
following table summarizes the number of shares acquired from the Company and
the aggregate consideration paid by the existing shareholders and to be paid by
new shareholders in this Offering:
<TABLE>
<CAPTION>
Number of Percentage Aggregate Aggregate
Shares Acquired of Shares Consideration Consideration
from Company Held by Group Paid for Shares Paid as a Percentage
<S> <C> <C> <C> <C>
Existing
shareholders........1,697,500 62.9% $236,750 3.8%
New shareholders....1,000,000 37.1% $6,000,000 96.2%
(Maximum)
Total...............2,697,500 100.0% $6,236,750 100%
(Maximum)
New shareholders....100,000 5.6% $600,000 71.7%
(Minimum)
Total...............1,797,500 100.0% $836,750 100%
(Maximum)
</TABLE>
SELECTED FINANCIAL INFORMATION
The following table sets forth certain selected financial data for the
years ended June 30, 1996, 1997, and 1998, and the fiscal quarter ended
December 31, 1998. This information is derived from the Company's financial
statements which appear elsewhere in this Prospectus. The selected financial
data is qualified by reference to, and should be read in conjunction with, the
Company's financial statements and notes thereto included elsewhere in this
Prospectus and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS".
Income Statement as of:
<TABLE>
<CAPTION>
For the
Nine Months period from
Year Ending Year Ending Year Ending Ended Inception, June 22
June 30, June 30, June 30, March 31, 1994 to March 31,
1996 1997 1998 1999 1999
<S> <C> <C> <C> <C> <C>
Sales 155,525 131,335 148,537 94,752 756,351
Cost Of Goods 104,552 61,453 95,687 62,491 480,531
------- ------- ------ ------- --------
Gross Profit 50,973 69,882 52,850 32,261 275,820
Operating Expenses 165,388 211,080 1,029,258 327,755 2,080,3037
Other Income -0- -0- -0- -0- -0-
Other Expenses -0- 3065 43,385 22,350 68,800
Net Profit(Loss) (114,715) (144,263) (519,793) (295,494) (1,804,483)
Per share (0.04) (0.15) (0.16) (0.02) (0.22)
Shares Outstanding 3,383,000 3,355,067 3,343,280 4,516,291 5,516,291
Dividends -0- -0- -0- -0- -0-
</TABLE>
Balance Sheet
<TABLE>
<CAPTION>
as of: March 31
1999 As Adjusted(1)
Maximum Minimum
<S> <C> <C> <C>
Cash And Cash Equivalents 1,379 4,996,379 466,379
Working Capital (deficit) (542,322) 4,452,678 (75,943)
Total Assets 225,307 5,220,307 690,307
Current Liabilities 730,005 730,005 730,005
Long Term Debt -0- -0- (-0-)
Stockholders' (deficit) (504,698) 4,490,302 (39,698)
Equity
</TABLE>
(1) Gives effect to the issuance and sale of the minimum of 100,000 Units and
maximum of 1,000,000 Units offered hereby and the receipt of the estimated net
proceeds ($4,995,000 if the maximum is sold and $465,000 if the minimum is sold)
before their application. This does not take into account any potential revenues
from the 150,000 Units allotted for the over-allotment. See "Use of Proceeds".
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1999 and as adjusted to give effect to the issuance and sale of the
shares upon the closing of this offering:
Actual As Adjusted
(Maximum) (Minimum)
<TABLE>
<S> <C> <C> <C>
Long Term Liabilities 0 0 0
Stockholders' Equity:
Preferred Stock 480,600 480,600 480,600
Common Stock, no par
value authorized
10,000,000 shares;
issued and outstanding
1,697,500 shares; as
adjusted 2,697,500 736,750 5,731,750 1,201,750
Deficit Accumulated During
Development Stage (2,080,303) (1,644,312) (1,644,312)
Total Liabilities and
Stockholders' Equity (504,698) 4,568,038 38,038
Total Capitalization 426,962 4,568,038 38,038
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE YEARS ENDING JUNE 30, 1997 AND 1998 AND
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 AND THE PERIOD
FROM INCEPTION (JULY 22, 1994) TO MARCH 31, 1999.
Development stage activities.
The Company has been a development stage enterprise from its inception July
22, 1994, to March 31, 1999. The Company develops and manufactures innovative
specialty chemical products with applications in the plastics and coatings
industries. To date the Company has had minimal sales of these additives
representing limited quantities produced from its research and development
facilities in Hackensack, New Jersey.
During this period, management devoted the majority of its efforts to
obtaining new customers for its products, developing sources of supply,
developing and testing formulas, pursuing and finding a management team to begin
the process of: completing its marketing goals; furthering its research and
development for its products; marketing limited quantities of the Company's
products; completing the documentation for and selling initial shares through
the Company's private placement; and completing the documentation for the
Company's initial public offering. These activities were funded by the Company's
management and investments from stockholders and borrowings from related third
parties. The Company has not yet generated sufficient revenues during its
limited operating history to fund its ongoing operating expenses, repay
outstanding indebtedness, or fund its product development activities. For the
period of inception July 22, 1994, to March 31, 1999, the Company completed the
development of its first product line. The recent acquisition and construction
of operating assets positions the Company to produce initial quantities of
products with present production facilities. There can be no assurance that
sales to utilize such capacity will develop. Further investments into processing
and production as defined in the Company's operating plan will significantly
reduce the cost of preparation, processing and production by enabling the
Company to operate without reliance upon outside vendors and suppliers.
During this developmental period, the Company has been financed through
officer's loans with a balance of $54,504 from Roger Fidler, of which $100,000
of the aggregate debt was converted to shares of common stock through the
exercise of 100,000 options at $1.00. In addition, Mr. Sugerman either advanced
to the Company or paid on behalf of the Company expenses aggregating $197,900 of
which all but $112,036 was converted to shares of preferred stock as of March
31, 1999. The Company also financed its activities through the sale of $372,500
in 12% bridge notes and through the sale of shares of common stock aggregating
$236,750. Although, the sales of limited quantities of developed products were
primarily in the ink business with test quantities of additives and paints being
supplied for testing by paint manufacturers, retailers and volume users of these
products, it is expected that the near term significant sales will come from
customers using the Company's paint additives and the sale of paints.
Results of Operations for the year ended June 30, 1998 as compared to the
year ended June 30, 1997
For the year ended June 30, 1998, the Company generated net sales of
$148,537 as compared to $131,335 for the year ended June 30, 1997 representing
an increase of $17,202. Of these sales approximately 60% were to two large
customers. Of these sales, 70% of which were to two customers of which $88,023
was to Enviro Ink in Canada, a related party. The Company's cost of goods sold
for the year ended June 30, 1998 was 64.4% as compared to 46.8% for the year
ended June 30, 1997. The Company's gross profit on sales was approximately 35.6%
as compared to 53.2% for the year ended June 30, 1997. The decrease in gross
profit is the result of changing the product mix from paint additives to
providing additives for the ink business. In particular to Enviro Ink.
The Company's general and administrative costs aggregated approximately
$470,984 for the year ended June 30, 1998 as compared to $206,935 for the year
ended June 30, 1997 representing an increase of $264,049. This increase
represents increased spending for marketing and administrative infrastructure of
$148,373, $74,535 in legal and professional expenses relating to the public
offering, $74,555 in office expense, $8,177 in allocated rent expense, $152,773
in salaries and payroll taxes, laboratory and computer supplies of approximately
$12,571; research and development of $50,243; depreciation of $8,031; non cash
compensation of $500,000 paid in the issuance of common stock to Mr. Roger
Fidler; and a write off to bad debt expense of $41,875.
Results of Operations for the nine months ended March 31, 1999 as compared
to the nine months ended March 31, 1998.
For the nine months ended March 31, 1999, the Company generated net sales
of $94,752 as compared to $91,490 for the nine months ended March 31, 1998
representing a increase of $3,262. The Company's cost of goods sold for the nine
months ended March 31, 1999 was 70.0% as compared to 37.5% for the nine months
ended March 31, 1999. The Company's gross profit on sales was 32,261 for the
nine months ended March 31, 1999 or 30.0% as compared to 62.5% for the nine
months ended March 31, 1999. The decrease in gross profit is the result of
changing the product mix from paint additives to providing additives for the ink
business. In particular to Enviro Ink.
The Company's general and administrative costs aggregated approximately
$205,888 for the nine months ended March 31, 1999 as compared to $137,310 for
the nine months ended March 31, 1998 representing a increase of $68,578. This
decrease represents increased spending for marketing and administrative
infrastructure as Management amended its marketing strategy from manufacturing
and distribution to end users to wholesale to quantity distributors and volume
consumers. Marketing expenses approximated $31,644, $7,600 in legal and
professional expenses relating to the public offering, $11,517 in office
expense, $34,645 in allocated rent expense, $115,298 in salaries and payroll
taxes, $5,184 in laboratory and computer supplies of approximately; research and
development of $54,644; depreciation of $10,084; and a write off to bad debt
expense of $57,139.
Results of Operations for the period of inception (July 22, 1994) to March
31, 1999.
For the period from the Company's inception, July 22, 1994, through March
31, 1999, a period of approximately 59 months, the Company generated net sales
of $756,351(an average of $12,819 per month). Of these sales approximately 40%
were to two large customers. The Company's cost of goods sold on sales was
approximately 62.8% for the period from the Company's inception July 22, 1994,
through March 31, 1999. The gross profit from sales for this 56 month period is
36.5%. Management believes the gross profit of an average of 36.5% for the
period from inception July 22, 1994, through March 31, 1999, will improve and
stablize once the Company's manufacturing facilities become realized at the
completion of the public offering and its marketing plans become fully
implemented.
The Company's general and administrative costs aggregated approximately
$1,350,917 for the period from inception July 22, 1994, through March 31, 1999.
Of these initial start-up costs, approximately $495,000 is attributed to wages
and reimbursed expenses of ,Gerald Sugerman; approximately $60,000 in rent;
legal and professional fees of $83,135; filing fees, office expenses including
salaries, outside labor, printing, laboratory and computer supplies of
approximately $412,658; research and development of $104,887; salaries of
approximately $206,585; depreciation of $25,485, commissions of $83,000 and a
write off to bad debt expense of $99,014 for the loss relating to Enviro Ink..
Liquidity and Capital Resources.
The Company decreased liquidity by $210,657 from a cash balance at July 1,
1999 to June 30, 1998 and increased it to $1,379 at March 31, 1999. Working
capital at June 30, 1998 and March 31, 1999 is negative at $352,856 and 635,067
respectively. For the year ended June 30, 1998 and for the nine months ended
March 31, 1999, working capital was provided by increases in accounts payable of
$21,709 and $71,910 respectively. The Company continued to be funded in part
through officer loans aggregating $569,527 for ther period from inception, July
22, 1994 to March 31, 1999. Of which $474,447 was eventually converted to both
shares of common and preferred stock. The Company also financed its activities
through the sale of $372,500 in 12% bridge notes. The Company expended cash as
follows: $168,965 in capital assets; paid security deposits of $5,000; funded
accounts receivable of $42,780; purchased inventory of $50,779; and funded a
related party accounts receivable which was eventually deemed uncolectable and
written off amounting to $99,014.
Management believes that it will be able to fund the Company and the
initial cost of the offering from personal resources until the completion of the
initial public offering. The Company is initiating an initial public offering of
1,000,000 Units at $6.00 per Unit for an aggregate of $6,000,000. The Company
will defer the expenses of the Offering until the Offering is completed and the
offering expenses will be deducted from proceeds received therefrom. The
Offering proceeds will be sufficient to satisfy Management's objectives of
purchasing equipment for office , production and product development of
$2,106,000, purchasing supplies for office and product development of $177,000,
financing the payment of administrative, production, and marketing salaries of
$1,240,000, pay advertising of $500,000, purchase inventory of $450,000, pay
overhead of $60,000, pay travel and entertainment expenses of $50,000, provide
working capital of $412,000, pay Underwriter's Discounts of $600,000 and pay
projected offering expenses of $347,000. The Company is currently obligated to
repay $25,000 of the initial 12% bridge notes. This investor has agreed to wait
to be paid out of the offering. The balance of the bridge note holders have
agreed to either convert their notes into stock or to wait and be paid out from
the proceeds of the offering. The balance of the bridge notes does not come due
until June of 1999.
<PAGE>
BUSINESS OF THE COMPANY
SUMMARY
PPA Technologies, Inc., hereinafter referred to as "PPA" or "the Company",
was incorporated in the State of New Jersey in July, 1994 to develop and
manufacture innovative specialty chemical products with broad application in the
plastics and coatings industries. The Company now markets proprietary products
including VOC free coalescents, organometalic coupling agents, and reactive
diluents and has recently launched the marketing of paints and coatings
utilizing the Company's proprietary technologies.
THE INDUSTRY
Industry
The Company operates in two polymer based industries, plastics and
coatings. Each of these industries is vast in total worldwide production and
sales.
The plastic industry is composed of several subsets, however to present a
concept of general size, worldwide sales of polyvinyl chloride ("PVC") exceeded
18 billion dollars in 1995, and those of polyethylene were in excess of 50
billion. Sales by the twenty five largest film and sheet plastics manufactures
were 12.4 billion dollars in 1996. Domestic sales of PVC pipe totaled about 8.7
billion dollars in 1996.
The global paints and coatings market totaled $65 billion in 1995. In
North America alone 4.7 million metric tons were produced in 1995 having a value
of about 15 billion dollars. The top ten producers accounted for about 60% of
the market.
Organometalic coupling Agents
These coupling agents are organometallic compounds which may be delivered
in liquid, powder or pelletized forms depending primarily upon customer need.
These products are presently used primarily by plastics compounders and
manufacturers of plastic products to obtain improved line speed, faster
throughput, lower operating temperatures and pressures, better dry blend and hot
melt flow, reduced energy requirements, better control over wall/sheet
thickness, higher impact resistance and greater flame retardance.
Since only small proportions (.2 to 2% of the total product mix by weight) of
these compounds are used, worldwide market volumes of coupling agents are quite
low, and total only several million pounds. However, because of the great
benefits to be derived from their use, profit margins on coupling agents are
quite high. Also, the totality of products in which coupling agents could be
beneficially used is vast, including at least 10% of the total plastics, and an
even larger proportion of the coating output worldwide. At present there are
only a few sources of these compounds, one of which is PPA.
Reactive Diluents / Coalescents
Reactive / diluents / coalescents allow resin producers, formulators, and
coatings end-users to utilize Low / Zero VOC solutions in place of current
solvent-based packages. In architectural and industrial coatings, volatile
organic solvents have been historically required and applied to a) dissolve the
resin, and b) to provide coalescing action. These traditional solvents, which
comprise the competing products for the Company's reactive diluents /
coalescents, have markets exceeding $5 billion per year. Historically, they have
been used because of their low price and a lack of concern regarding the
environmental impact of their use, i.e. the consequences of evaporation of the
solvent into the air. With increasing restrictions being placed upon the use of
VOC's because of these environmental concerns the use of solvents is under wide
spread attack and many companies have been attempting to develop replacements
for these solvents in a wide variety of applications. To date such replacements
have been generally unsatisfactory expensive and limited in application. the
Company's reactive diluents basically replace VOCs which contribute little (if
anything) to the finished coating except for ease of application and cost; with
nonpolluting alternatives which add significantly to the product's performance.
The architectural coatings market alone was over 450 million gallons in
1995 out of a total paint and coatings volume of one billion gallons. this
market largely divided into latex and oil based (solvent borne) segments. In
latex based coatings, conventional coalescents typically comprise 15 to 40% of
the complete formulation, in oil based systems, the percentage of solvent used
varies from about 25 to 50% in most products. Displacement of these VOC
requirements by the Company's VOC free alternatives, (3-7% requirements) could
create a market potential in excess of $400 million versus the present
architectural requirement of 67.5 million gallons of coalescents or $918
million. As the Clean Air Act, 42 U.S.C. sections 7401-7671, is further enforced
along with new environmental legislation, the need to replace solvent with
reactive diluents / coalescents will increase.
According to the Chemical Marketing Reporter, October 19, 1995 edition "The
$300 million additives segment is expected to continue to outpace the coatings
business as a whole, and the bulk of this growth comes from the push to reduce
solvent use." As the percentage of solvents in coatings continues to shrink in
favor of water and additives, including reactive coalescents, demand for
reactive coalescents, such as those produced by the company, should increase.
Flame Retardants
Flame retardants comprise 40% to 50% of all additives for plastics
worldwide. Historically, halogenated materials have been the preferred flame
retardants, comprising about 80% of the market. In the past ten years, this
group of chemicals has become the subject of legislated restrictions and in
general has lost market share to less effective additives because of well known
disadvantages: they often cause localized corrosion of metals in direct contact
(e.g. wire and cable), cannot incinerate scrap or used product due to hazardous
fumes generated, and their thermal decomposition and/or combustion results in
toxic fumes. Effective early in 1991, Western Electric banned all use of
halogenated chemicals from its wire and cable coatings.
Flame retardants comprise a significant percentage of all additives for
plastics worldwide. Almost 90% of the $3 billion per year domestic plastic
additives sector is comprised of just four products - plasticizers, flame
retardants, impact modifiers and lubricants. Of the approximately 35 billion
pound annual polyolefin market, about 10% or 3.5 billion pounds contain flame
retardant. At an average loading of 50 phr flame retardant, the 3.5 billion
pounds polyolefins sector translates to about one billion pounds of flame
retardant sold annually.
Halogen-based FR chemicals are added at 15 to 50 phr and are currently sold
at$1.40 to $2.40 per pound. The Company's flame retardants will cost about 40%
less to achieve the same degree of flame retardance. Aluminum and magnesium
hydroxides do not have many of the disadvantages of the halogen compounds
discussed above, but these hydroxides offer limited application., and the need
for as much as 75 to 85 phr in the formulation to achieve a 94V0 UL (a standard
flame spread rate measurement) rating, only a small number of uses are
practical. consequent to the severe degradation of the plastics properties
engendered by the necessity to use such high proportions of filler. Usage of
low levels of the company's organometalic coupling agents in both halogen and
hydrate based flame retarded plastics (0.3- 0.5%), significantly reduces FR
requirements, enhances processability and upgrades physical properties. (See
"The Company's Products - Flame Retardants").
<PAGE>
THE COMPANY'S PRODUCTS
Coupling Agents
PPA offers approximately 15 different organometallic coupling agents
available in liquid, powder or pelletized forms. Like their competitor products,
they can be and are used primarily by plastics compounders and manufacturers of
plastic products to obtain improvements such as: higher line speed, faster
throughput, lower operating temperatures and pressures, better dry blend flow
and hot melt flow, reduced energy requirements, better control over wall/sheet
thickness, higher impact resistance and greater flame retardance.
Since all coupling agents are presently proprietary products, the
opportunity for the production of value added products utilizing these compounds
is more than feasible. The overwhelming advantage of the coupling agents in
almost all applications is the ability to produce a more cost effective product
with the coupling agent thereby creating a true "value added" situation enabling
either direct sales of the agent or production of a more finished product at
competitive price advantages in large markets of essentially fungible
commodities. Most purchasers in fact prefer receipt of compounded resins (resins
in to which additives, such as the coupling agents, have been added) rather than
the pure coupling agents (which would then be added to the resin by the end
user). While margins on the value added products are lower than the coupling
agents, the total gross profit from operating a compounding facility is many
times greater than from sale of the coupling agents alone. It is the Company's
intention to move into value added products where feasible.
Our coupling agents have already been successful in extrusion,
injection and blow molding operations, so Management assumes that coupling
agents can be beneficially utilized in a large part of the total plastics
market.
Reactive Coalescents
Approximately 23 reactive coalescent packages have been developed
to-date. These products allow resin producers and coatings end-users to utilize
Zero VOC solutions in place of current solvent-based packages. In architectural
(building) and industrial coatings, volatile organic solvents have been
historically required and applied to a) dissolve the resin, and b) to provide
coalescing action. PPA coalescing packages are 100% solids (after application),
Zero VOC (as measured by present test methodologies), water-reducible systems
that provide all of the necessary dissolution and coalescing of solvent-based
systems, but which are a) without solvents for immediate Clean Air Act
compliance, b) more cost effective since there is no wasted solvent to evaporate
out of the coating, and of considerable importance, and c) generate harder, more
durable films due to chemically reactive cross-linking versus no cross-linking
in organic solvent systems.
Recently, the Company received a purchase order from a small regional paint
company for approximately 3.8 million dollars of reactive coalescents to be
delivered starting July 1999 with shipments due during the following twelve
months.
Flame Retardants
PPA flame retardants are non-halogenated for health and safety concerns,
and they utilize coupling agents for maximum dispersion efficiency. The end
result allows the end user to: a) use lower cost resin than with alterative
flame retardants, b) run at 10 to 20% higher speed, and at lower temperatures,
and c) only PPA offers a concentrated compound that the customer can add at a
1:1 rate to achieve high resistance such as Vo.
PPA flame retardants are targeted for polyolefins only at this time.
This means high density polyethylene, low density polyethylene, and
polypropylene.
With respect to cost, PPA materials cost will be $0.95 to $1.10 per
pound of compound for large volume purchases. This represents a distinct price
advantage over the competition which typically sells for $2.80 per pound and
requires as much as 45 weight percent in polyolefins to acheive 94 V0. The
anticipated sales volume is 1% of the market for olefins (hydrocarbons
containing at least one double bond) or 10 MM lbs/yr.
PPA flame retardants offer U.L.94 V0 efficacy in 1/16" polypropylene at
just 30 to 35 phr. PPA coupling agents are employed for their large surface
activity which creates the following advantages in comparison to both
halogenated and non-halogenated flame retardants:
1. The ability to use lower cost resin than with alternative flame retardants;
2. The melt index is basically unaffected; 3. Manufacturing processes can run at
10 to 20% higher speeds, and at lower temperatures; and, 4. PPA can offer a
concentrated compound that the customer can add at a 1:1 rate to achieve high
resistance such as V0. (This advantage is in comparison to non-halogenated
additives only).
As with all of the Company's products, the apparent technological
superiority in flame retardant technology has yet to be translated into sales
due to, in the Company's opinion, lack of funds for marketing, advertising, and
sales efforts.
Governmental Regulation
As a chemical manufacturer the Company is subject to a wide variety of
local, state and federal regulations. While the Company believes that it is in
compliance with all applicable regulations, there can be no assurance that from
time to time unintentional violations of such regulations will not occur. In the
event of such violations, the company may be subject to fines, injunctive action
and other forms or governmental action which would have a material and adverse
impact on the Company (see Risk Factors-Governmental Regulation.) The following
is a brief survey of some of the applicable federal regulations believed by the
Company to include all material regulations. Many states, including the State of
New Jersey where the Company has its principle place of business, also regulate
certain aspects of the chemical industry. In general, compliance with federal
regulation would comprise the more difficult burden. One example discussed
herein below, California, has more stringent regulation.
The Resource Conservation and Recovery Act 42 U.S.C. Sec. 6901-6987
("RCRA") was enacted in 1976. The Comprehensive Environmental Response,
Compensation and Liability Act, 42 USC Sec. 9601-9657 ("CERCLA") was enacted in
1980. These statutes regulate the disposed of hazardous waste and the clean-up
of chemicals that have been, or will be, subject to illegal disposal. The Toxic
Substance Control Act (hereinafter TOSCA) also governs aspects of chemical
disposal. The Clean Air Act and the Clean Water Act also control emissions into
the atmosphere and water systems (hereinafter these statutes are referred to as
PCS.)
The company believes that it is a) not in violation of the PCS and b)
not subject to the PCS because of the nature of the materials being utilized by
the Company at this time. However, existing environmental laws may be amended
and new laws may be enacted by Congress and state legislatures and new
environmental regulations may be issued by regulatory agencies. For these
reasons, the Company cannot predict the specific environmental control
requirements that it will face in the future.
Compliance with Federal, State and local provisions which have been
enacted or adopted regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment, may have a material
effect on the capital expenditures, earnings and competitive position of the
registrant and its subsidiaries.
MARKETING
Having completed Research & Development work for fifteen coupling
agents, limited marketing and sales have commenced. Various powder and pellet
forms of these are also available. The current list of active customers includes
five plastics manufacturers. As a result of the sales effort PPA coupling agents
have been accepted in several different applications such as PVC pipe production
and sporting goods production.
Trials are ongoing for the utilization of coupling agents in PVC window
frames, PVC electrical conduit, glass and carbon reinforced nylon structural
composites, carbon filled polystyrene electrical conductors, color concentrates
in polyethylene, polypropylene and ABS (acrylonitrile butadiene styrene), and
several ink and paint applications, including waterbourne and solvent based
systems. So far these tests have been successful.
The reactive coalescent packages have proven successful in wood
coatings and architectural applications. Regional, national and international
companies have shown interest in these products and testing by these companies
are also ongoing.
Marketing in these areas have to date been limited to direct mail to
potential customers and referrals through the personal business contacts of the
officers. The Company has recently employed two commission only salesmen to
expand this effort with primary focus on printing inks in Europe. The Company
intends to expand these marketing efforts upon the successful conclusion of this
Offering, See "Use of Proceeds" by attendance at trade shows, advertising in
trade journals and by hiring additional sales personnel. The Company also plans
to expand marketing to other foreign markets, especially with products that have
significant environmental impacts, such as paints and inks.
ADDITIONAL FINANCING
The Company believes that the minimum proceeds of this Offering will
allow the Company to meet all of its presently planned future operations for at
least twelve months. However, the Company's anticipated development projects may
require a substantial amount of funds in order to fully develop these proposed
future products to their fullest potential. (See "USE OF PROCEEDS" and
"FINANCIAL STATEMENTS.") The proceeds of this Offering may be inadequate to
permit the Company to achieve its research objectives, and there can be no
assurance that the Company will be able to raise additional funds when needed on
terms acceptable to the Company, if at all. (See "RISK FACTORS - Additional
Capital.")
COMPETITION
In each of the product areas in which the Company operates it is subject to
competition from firmly established, very large and very numerous competitors
which have far greater resources, staffs, facilities and reputations than those
possessed by the Company. The same will be true after this offering. There can
be no assurance that the Company will be able to sell its products successfully
in light of this competition, or that if it does succeed in selling its products
initially that the Company will be able to withstand attempts by these
competitors to market against the Company. Further, there can be no assurance
that any new market opened by the Company will not become the object of efforts
by these competitors to take over these markets. Also, there can be no assurance
that new products will not be developed by these competitors that are superior
to or marketed more successfully than the Company can market its products. In
the event that the Company cannot successfully compete against these larger
companies the business of the Company will be materially and adversely affected.
EMPLOYEES
The Company employs a President and an Executive Vice President for
Scientific Affairs. In addition, the Company employs one chemical technician,
two commission only marketing representatives, and one part-timesecretary.
During the next twelve months the company anticipates opening several production
facilities requiring the acquisition of about one hundred production personnel,
plant management and technical sales representatives. There can be no assurance
that the Company will be able to hire such personnel or if hired retain their
service.
PROPRIETARY RIGHTS
The Company relies on a combination of patent and trade secret laws,
nondisclosure and other contractual agreements and technical measures to protect
its proprietary rights in its products. Despite these precautions, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary.
The Company believes that its products, trademark and other proprietary
rights do not infringe on the proprietary rights of third parties. There can be
no assurance, however, that third parties will not assert infringement claims
against the Company in the future. (See "RISK FACTORS - Proprietary Rights.") In
the event that pending applications are not granted, or if subsequently obtained
patents are either invalidated or designed around, the Company would be
materially and adversely affected.
FACILITIES
The Company leases 4,000 square feet of industrial space and 2,000 square
feet of office space under a three year lease with an option to extend the lease
for three years at 163 South St. in Hackensack, New Jersey. The lease contains
cost of living increases and current rent payments, including taxes, are $3,513
per month. The Company anticipates renting additional production facilities upon
the successful conclusion of this offering as required by demand for the
Company's products.
<PAGE>
MANAGEMENT
The names of the Officers and Directors of the Company, their ages and
positions with the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Roger Fidler 48 President, Director
Gerald Sugerman 61 Executive Vice President,Secretary,
Treasurer, Director
James Wright 66 Director
Albert Mersberg 59 Director
George J. Barenholtz 62 Director
</TABLE>
The above officers and directors will hold office until the next annual meeting,
or until their successors are elected and qualified.
MANAGEMENT
Roger L. Fidler Mr. Fidler has been President of the Company and a director
of the company since inception in July 1994, devoting about half of his time to
the Company. He has been continuosly, and is presently, engaged in the private
practice of law as a sole proprietor since 1983 and has held several
directorships in both private and public corporations. During the time period
from 1992 to the present, Mr. Fidler has been employed both as President of the
Company and engaged in the private practice of law. He is currently President
and Sole Director of D-Lanz Development Group, Inc. a public company. Mr. Fidler
holds degrees in Law (J.D.) from the University of South Carolina, Columbus,
South Carolina (1977), in Physics (M.S.) from the University of Illinois Urbana,
Illinois (1974) and a B.S. from Dickinson College (1972), Carlisle, PA.
Gerald Sugerman, Ph.D. Dr. Sugerman has served full time as Executive Vice
President, Sectretary, Treasurer, and as a Director of the Company since
inception in July of 1994. As PPA's Chief Scientist he is in charge of all
technical developments. From February, 1992 until July, 1994, Dr. Sugerman was
President of Pi-Tech Inc., a specialty chemical company. Dr. Sugerman received
his Ph.D. in organic chemistry from Fordham University in 1960, and holds
several other degrees. He has authored over 100 papers and holds more than fifty
patents.
James Wright Mr. Wright has been a director since inception. Mr. Wright is
a retired businessman who until 1989 was a principal in a sand and gravel mining
company in New Jersey. Mr. Wright holds a Bachelor of Science degree in Business
Administration from Rider University (B.S. 1961), Lawrenceville, New Jersey. Mr.
Wright serves on the Audit Committee.
Albert Mersberg Mr. Mersberg became a director of the Company in September,
1997. He had previously consulted for the Company from inception until November,
1996. He is currently employed as Blue Ridge Paint, Inc. of Henry Va, where he
has been a Technical manager since June of 1998. From December, 1996 to June,
1998 Mr. Mersberg was the Technical Manager of New Product Development for
Sampson Coatings, Inc. of Richmond, VA. prior to that, Mr. Mersberg was employed
by Lawrence McFadden Co. in Philadelphia, PA from 1991 to December, 1996 in a
similar capacity. He holds a B.S. degree in Chemistry from the State University
of New York at Buffalo.
George J. Barenholtz will become a director of the Company upon the
successful conclusion of this offering. Since 199 Mr. Barenholtz has been acting
as a private investor and business consultant out of Montclair, New Jersey.
Prior to that, from 1987 to 1991 Mr. Barneholz had been the Chairman of the
Board and Chief Executive Officer of the Merocel Corporation in Mystic,
Connecticut. Mr. Barenholtz holds degrees in business (M.B.A.) from the Baruch
School of Business (1973), in chemistry (M.S.) from Case Western Reserve
University (1961), and in engineering (B.Sc.) from the University of Alberta
(1959).
<PAGE>
REMUNERATION OF OFFICERS AND DIRECTORS
No officer of the Company has received compensation since inception in
July, 1994 except Dr. Sugerman, Exec. V.P. of the Company. Directors are not
compensated for serving on the Board of Directors. No contingent forms of
remuneration, property, or other benefits were conferred during that period.
The Company has entered into written employment and assignment agreements
with Gerald Sugerman and Roger Fidler. Pursuant to these Agreements, Mr.
Sugerman assigned his rights to any and all technologies and improvements
thereto to the products presently marketed by the Company and which he may
develop from time to time while employed by the Company. Mr. Fidler's contract
was modified with his consent to provide that his salary will commence upon
completion of financing or gross profits in excess of $30,000 per month. The
capacity and annual salaries for key management is set forth below.
<TABLE>
<CAPTION>
Summary Compensation Table
Fiscal Annual Compensation Long Term
Name & Position Year Salary Bonus Other(1) Compensation
<S> <C> <C> <C> <C>
Roger Fidler Current -0-(2) -0- -0- -0-
President 1998 -0-(2) -0- -0- -0-
1997 -0-(2) -0- -0- -0-
1996 -0-(2) -0- -0- -0-
Gerald Sugerman Current $120,000(3) -0- -0- -0-
Executive Vice 1998 $120,000(3) -0- -0- -0-
President; 1997 $120,000(3) -0- -0- -0-
Director 1996 $120,000(3) -0- -0- -0-
</TABLE>
(1) Mr. Fidler's contract provides for sale commissions which have not
been earned to the date of this Prospectus. Mr. Sugerman's contract
provides for royalties of 5% on sales to a maximum of $350,000
in payments, and 2% of sales thereafter.
(2) Mr. Fidler's contract provides for his base compensation of $120,000
to begin either after financing has been completed or the Company
reaches $30,000 per month in gross income. Neither of these conditions
has been met yet, and therefore Mr. Fidler has not yet received any
remuneration from the Company.
(3) Mr. Sugerman has been accruing $10,000 per month as part of his
remuneration agreement with the Company. This amount has been
converted into preferred stock on various occasions, as noted in the
Financial Statements.
<PAGE>
STOCK OPTION INFORMATION
The following table sets forth certain information with respect to the
value of stock options held by the Named Executive Officers and Directors for
through the period ended January 31, 1999.
<TABLE>
<CAPTION>
Fiscal Year-End Option Value Table
Number Of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired Options On Jan. 31, 1999 January 31, 1999($)(1)(2)(3)
On Value ------------------------ ------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Roger Fidler -0- -0- 445,000 -0- 2,100,000 -0-
Gerald Sugerman -0- -0- 850,000 -0- 4,200,000 -0-
James Wright -0- -0- 100,000 -0- 500,000 -0-
Albert Mersberg -0- -0- 5,000 -0- 25,000 -0-
- -----------
</TABLE>
(1) Based upon an assumed initial public offering price of $6.00 per share of
Common Stock. (2) Options are in-the-money if the fair market value of the
Common Stock exceeds the exercise price. (3) Represents the total gain which
would be realized if all the in-the-money options beneficially held at December
31, 1999 were exercised, determined by multiplying the number of shares
underlying the options by the difference between the per share option exercise
price and $6.00, the fair market price as of the initial public offering date,
as determined by the offering price.
EMPLOYEE STOCK OPTION PLAN INFORMATION
The Company has adopted a Stock Grant Program and a Stock Option
Program. The Stock Grant Program provides for the issuance to officers,
directors and key employees stock grants as determined by the Board of
Directors. The recipient must continue employment with the Company for two years
after the grant is made or forfeit the stock. The stock option program is also
available for officers, directors and key employees and permits the Board to
issue options which are exercisable in equal amounts over a five year period.
Any unvested options expire upon the termination of employment with the Company.
To the date of this Prospectus, no stock options have been issued pursuant to
the Stock Option Program and no grants were made under the Stock Grant Plan.
CERTAIN TRANSACTIONS
The Company was organized primarily through the efforts of Roger Fidler and
incorporated on July 22, 1994 under the laws of the State of New Jersey. On July
29, 1994, the Company's Board of Directors approved the issuance of 75 shares
each to Mr. Fidler and James Wright as consideration for organizational expenses
and services valued at $100 each.
On October 24, 1994, an agreement was made by which the Company acquired
certain license rights in return for the assumption of certain liabilities and
the issuance of 975 Shares to Gerald Sugerman.
Effective November 1, 1994, the Company entered into a two year employment
contract with Gerald Sugerman which provides for salary of $120,000 per annum.
In June, 1996 the Company entered into a five year employment agreement with Dr.
Sugerman requiring the payment of $10,000 per month plus 5% royalty on sales he
makes up to a maximum salary of $350,000. In addition, he receives life
insurance equal to twice his annual salary, disability insurance, vacation pay,
and sick leave.
On February 5, 1996, the Company entered into an employment agreement with
Roger Fidler by which Mr. Fidler's salary would be set by the Board of Directors
from time to time. This salary will commence at the rate of $10,000 per month
when the Company has additional financing or gross profits exceed $30,000 per
month. In addition, Mr. Fidler receives commission on gross sales of between 10%
and 15% on sales initiated by him. No such sales have been made to the date of
this Prospectus.
The transactions between officers and directors of the Company and the
Company and its affiliates are made on terms no less favorable to the Issuer
than those available from unaffiliated parties. Future transactions will be
handled in the same fashion.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the share
ownership, both before and after the prospective closing of the offering made
hereby, of the Company's common stock by its officers and directors, both
individually and as a group, and by the present record and/or beneficial owners
of more than 5% of the outstanding amount of such stock:
<TABLE>
<CAPTION>
Number of Percentage(2) Percentage(2) Percentage(2)
Name Shares of shares of shares shares
Owned Owned Prior After After
to Offering Offering Offering
(Maximum) (Minimum)
Gerald
<S> <C> <C> <C> <C>
Sugerman(1) 1,825,000 71.6% 47.1% 68.9%
8 Cambridge Dr
Allendale, NJ 07401
Roger Fidler(1) 620,000 28.9% 15.49% 27.6%
400 Grove Street
Glen Rock, NJ 07452
James Wright 175,000 9.74% 2.9% 9.2%
244C Mayflower Way
Jamesburg, NJ 08831
Officers
and Directors
as a Group(3) 2,520,000 87.0% 64.6% 78.9%
- -----------------
</TABLE>
(1)Gives effect to 445,000, 850,000 and 100,000 shares underlying options held
by Fidler, Sugerman, and Wright respectively.
(2) Does not give effect to (i)up to 1,000,000 shares of Common Stock issuable
upon the exercise of the Class A Unit Warrants; (ii) the common stock underlying
the Underwriter's Over Allotment Option (150,000 shares); and (iii) the common
shares underlying the Underwriter's Warrant Units (200,000 shares). See
"Underwriting" and "Certain Transactions."
DESCRIPTION OF SECURITIES
Preferred Stock
The authorized capital stock of the Company consists in part of 1,000,000
shares of Preferred Stock, $100 par value per share (the "Preferred Stock"). The
Company's present issued and outstanding number of Preferred shares is 4,806.
The holders of Preferred Stock have preference as to liquidation, receive a 5%
dividend, and may have their shares redeemed by the Company at par value plus
accrued dividends during a five year period.
Common Stock
The authorized capital stock of the Company consists of, in part,
10,000,000 shares of Common Stock, without par value (the "Common Stock"). The
Company's present issued and outstanding number of common shares is 1,697,500.
The holders of Common Stock have equal ratable rights to dividends from funds
legally available therefor, when, as and if declared by the Board of Directors
of the Company; are entitled to share ratably in all of the assets of the
Company available for distribution to holders of Common stock upon liquidation,
dissolution or winding up of the affairs of the Company; do not have preemptive,
subscription or conversion rights and there are no redemption or sinking fund
provisions applicable thereto. Such shares are entitled to one vote per share on
all matters which stockholders may vote on at all meetings of shareholders. All
shares of Common Stock now outstanding are fully paid and nonassessable and all
shares of Common Stock which are the subject of this Offering, when issued, will
be fully paid and nonassessable.
Non-Cumulative Voting
The holders of shares of Common Stock of the Company do not have cumulative
voting rights. Thus, the holders of more than 50% of such outstanding shares,
voting for the election of directors, can elect all of the directors to be
elected, and in such event, the holders of the remaining shares will not be able
to elect any of the Company's directors. If the shares offered hereby are sold,
the present shareholders will own approximately 60.9% of the Company's
outstanding shares. If the options held by management were exercised, the
present shareholders would own 73.9% of the Company's outstanding shares, and in
either event, will remain in a position to elect all of the members of the Board
of Directors. Further, Mr. Sugerman, Executive Vice President of the Company,
exercised his options only, he would own approximately 53.6% of the Company's
Common Stock and would therefore control the Company. (See "Principal
Shareholders").
Transfer Agent and Registrar
The Company has chosen Jersey Transfer & Trust Company of Verona, New
Jersey as its transfer agent.
Reports to Shareholders
The Company intends to furnish its shareholders with annual reports
containing audited financial statements as soon as practicable at the end of
each fiscal year, commencing with the next fiscal year. In addition, the Company
may, from time to time, issue unaudited interim reports and financial
statements.
Dividends
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid any
dividends to date and does not anticipate that it will be in a position to pay
any dividends in the foreseeable future.
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Kenneth Jerome
& Company, Inc. is acting as Representative, have severally 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 units of
Common Stock and Redeemable Warrants as set forth opposite their names:
<TABLE>
<CAPTION>
Underwriter Number of Units
<S> <C>
Kenneth Jerome & Company, Inc............ 100,000
Total.................................... 100,000
</TABLE>
The Underwriters are committed to purchase 100,000 Units of the Securities
offered hereby, if any of such Securities are purchased.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the public offering
prices set forth on the cover page of this Prospectus and to certain dealers
less concessions of not in excess of $0.60 per unit. Such dealers may reallow a
concession not in excess of $0.60 per unit to other dealers. After the
completion of this Offering, the public offering prices, concessions and
reallowances may be changed by the Representative.
The Representative has advised the Company that it does not anticipate
sales to discretionary accounts by the Underwriters to exceed ten (10%) percent
of the total number of Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payment that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative an expense allowance on a non-accountable
basis equal to three percent (3%) of the gross proceeds derived from the sale of
the Securities underwritten.
Also, the Company is selling 900,000 additional units which are being
offered through the Underwriters on a "best efforts" basis, subject to the terms
and conditions of the Underwriting Agreement. There will be no escrow account.
All subscriptions will be accepted or rejected within one day of receipt.
The Underwriters have been granted an option by the Company, exercisable
within 45 days after the date of this Prospectus, to purchase up to an
additional 15,000 units at the initial public offering price per unit offered
hereby, less underwriting discounts and the expense allowance. Such option may
be exercised only for the purpose of covering over-allotments, if any, incurred
in the sale of the Securities offered hereby by firm commitment. To the extent
such 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.
Shareholders who currently hold four percent (4%) or more of the Company's
outstanding shares have agreed to "lock-up" their securities (i.e. not to sell,
grant any option for sale, or otherwise dispose of, directly or indirectly, any
shares they hold) of the Company's Common Stock or other securities of the
Company which they hold for a period of twelve months from the date of the
consummation of the Offering.
The holders of 1,500,000 outstanding shares of Common Stock, including all
of the Company's directors, officers and principal stockholders, have agreed not
to directly or indirectly, offer to sell, contract to sell, sell, transfer,
assign, encumber, grant an option to purchase, pledge or otherwise dispose of
any beneficial interest in such securities for a period of 13 months following
the date of this Prospectus without the prior written consent of the
Representative. An appropriate legend shall be marked on the face of the
certificates representing all of such securities.
The Company has agreed that, for three years after the date of this
Prospectus, it will use its best efforts to cause one individual designated by
the Representative, if any, to be elected to the Company's Board of Directors.
Such individual may be a director, officer, employee or affiliate of the
Representative. In the event the Representative elects not to designate a person
to serve on the Company's Board of Directors, the Representative may designate a
person to attend meetings of the Board of Directors.
Prior to this Offering, there has been no public market for the Securities.
Consequently, the initial public offering prices of the Securities and the terms
of the Redeemable Warrants have been arbitrarily determined by negotiations
between the Company and the Representative and are not necessarily related 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, include 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 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 but does include all
material terms . Reference is made to a copy of each such agreement which is
filed as an exhibit to the Registration Statement.
The Company also agreed to indemnify the Representative against certain
liabilities, including liabilities under the Securities Act, or to contribute to
related payments that the Representative may be required to make. In addition,
the Company granted the Representative, for a period of five years commencing on
the final closing of this offering a right of first refusal to be the managing
underwriter or placement agent for any securities to be offered by the Company.
The Company will also sell to the Representative warrants (the
"Underwriter's Warrants") to purchase up to 100,000 Units at a price $7.80 per
Unit. The Underwriter's Warrants will be exercisable for a period of four years
commencing one year after the Effective Date of this Offering, at an initial per
Unit exercise price of 120% of the offering price per Share. The Underwriter's
Warrants cannot be transferred, assigned or hypothecated for one year from the
date of their issuance, except that they may be assigned, in whole or in part,
to any successor, officer or partner of the Underwriter (or to officers and
partners of any such successor or partner). The Underwriter's Warrants will
contain anti-dilution provisions providing for appropriate adjustment of the
exercise price and number of Shares which may purchased upon exercise upon the
occurrence of certain events. The anti-dilution provisions of the Underwriter's
Warrants generally are triggered by the issuance of Common Stock (or securities
convertible or exchangeable into common stock) by the Company at prices below
the market price of the Common Stock at the time of such issuance (subject to
certain exceptions), as well as stock splits, stock dividends and other similar
dilutive events in which the Company increases its outstanding stock without
receiving additional consideration.
The Company has agreed that it will, upon request of the Representative
within the four-year period commencing one year from the Effective Date,
register the Underwriter's Warrants and the underlying securities once at the
Company's expense. The Company has also agreed, during the four-year period
commencing one year from the Effective Date, to register on a "piggy-back"
basis, and on an unlimited number of occasions, the Underwriter's Warrants and
the underlying securities whenever the Company files a Registration Statement.
See "RISK FACTORS - Underwriter's Warrants."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby are being passed
upon for the Company by Roger L. Fidler, Esq., 400 Grove Street, Glen Rock, New
Jersey 07452. Mr. Fidler is the beneficial owner of 175,000 shares of the
Company's Common Stock, holds an option to acquire 445,000 more shares, and from
inception until the date of this Prospectus was and is a director and president
of the Company. The Underwriter is represented by Steven I. Gutstein, Esq., 276
Fifth Avenue, New York, New York 10001.
EXPERTS
The financial statements of PPA Technologies, Inc. for the years ending
June 30, 1998 and June 30, 1997 included elsewhere in this Prospectus have been
included herein and in reliance upon the report of Thomas P. Monahan, CPA, an
independent certified public accountant, appearing elsewhere herein, and upon
the authority of said firm as an expert in accounting and auditing.
ADDITIONAL INFORMATION
The Company will not become subject to the reporting requirements of
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 until
completion of this Offering. The Company has filed with the Securities and
Exchange Commission (the "Commission"), Washington, D.C. 20549, a Registration
Statement on Form S-1, including amendments thereto, under the Act with respect
to Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Securities offered hereby,
reference is hereby made to such registration statement and to the exhibits and
schedules filed therewith. Statements contained in the Prospectus regarding the
contents of any contract or other document referred to are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the registration statement, each such
statement being deemed to be qualified in its entirety by such reference. The
registration statement, including all exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, Public
Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549-1004, and at the
regional offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7 World
Trade Center, Suite 1300, New York, New York 10048 and copies of all or any part
thereof may be obtained from such offices upon the payment of prescribed fees.
<PAGE>
SUBSCRIPTION AGREEMENT
The undersigned hereby subscribes for ______________ Units of the offering of
PPA Technologies, Inc. described herein. Subscriber acknowledges receipt of the
Prospectus in which the Subscription Agreement is included.
_______________________________ _______________________________
(Signature of Subscriber) (Signature of Subscriber)
_______________________________ _______________________________
Print Name Print Name
_______________________________ _______________________________
Date Date
_______________________________ _______________________________
Address Address
_______________________________ _______________________________
Social Security or Taxpayer Social Security or Taxpayer
Identification number Identification number
Form of Ownership Resided (check one):
[ ] Individual
[ ] Joint Tenants with rights of survivorship
[ ] Tenants in Common
[ ] Trust
[ ] Corporate
[ ] Partnership
<PAGE>
THOMAS P. MONAHAN
CERTIFIED PUBLIC ACCOUNTANT
208 LEXINGTON AVENUE
PATERSON, NEW JERSEY 07502
(201) 790-8775
Fax (201) 790-8845
To The Board of Directors and Shareholders
of PPA Technologies, Inc.
I have audited the accompanying balance sheet of PPA Technologies, Inc. as of
June 30, 1998 and the related statements of operations, cash flows and
shareholders' equity for the years ending June 30, 1997 and 1998 and for the
period from inception, June 22, 1994, to June 30, 1998. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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 and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PPA Technologies, Inc. as of
June 30, 1998 and the results of its operations, shareholders equity and cash
flows for the years ending June 30, 1997 and 1998 and for the period from
inception, June 22, 1994, to June 30, 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
PPA Technologies, Inc. (a development stage company) will continue as a going
concern. As more fully described in Note 2, the Company has incurred operating
losses since inception and requires additional capital to continue operations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans as to these matters are described in Note
2. the financial statements do not include any adjustments to reflect the
possible effects on the recoverability and classification of assets or the
amounts and classifications of liabilities that may result from the possible
inability of PPA Technologies, Inc. (a development stage company) to continue as
a going concern.
s/Thomas Monahan
----------------------
Thomas P. Monahan, CPA
June 1, 1999
Paterson, New Jersey
<PAGE>
<TABLE>
<CAPTION>
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEET
June 30, March 31,
1998 1999
Unaudited
------------ -----------
Assets
<S> <C> <C>
Current assets
Cash $ -0- $ 1,379
Accounts receivable 6,708 42,780
Accounts reveivable- related party 41,876
Inventory 59,427 50,779
------- -------
Total current assets 108,011 94,938
Capital assets-net 136,518 124,019
Other assets
Security deposit 5,000 5,000
License 1,350 1,350
------- -------
6,350 6,350
------- -------
Total Assets $250,879 $225,307
======= =======
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable and accrued expenses $ 37,830 $109,740
Notes payable-short term portion 420,200 453,725
Officer loan payable 2,567 166,540
------- -------
Total current liabilities 460,597 730,005
Stockholders Equity
Common Stock-10,000,000 common shares
authorized, no par. At June 30, 1998
and March 31, 1999, the number of
shares outstanding was 1,697,500 and
1,697,500 respectively. 736,750 736,750
Preferred Stock-1,000,000 preferred shares authorized, $100 par value. At June
30, 1998 and March 31, 1999, the number of shares oustanding was 4,441
and 4,806 respectively.
444,100 480,600
Deficit accumulated during development stage (1,390,568) (1,722,048)
-------- -------
Total stockholders equity (209,718) (504,698)
------- -------
Total liabilities and stockholders equity $250,879 $225,307
======== =======
</TABLE>
See accompanying notes to financial statement
<PAGE>
<TABLE>
<CAPTION>
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
For the
For the For the period from
For the For the nine nine inception,
year year months months July 22,
ended ended ended ended 1994 to
June 30, June 30, March 31, March 31, March 31,
1997 1998 1998 1999 1999
Unaudited Unaudited Unaudited
--------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales $131,335 $148,537 $ 91,490 $94,752 $756,351
Cost of goods sold 61,453 95,687 34,309 62,491 480,531
------- ------- ------ ------- -------
Gross profit 69,882 52,850 57,181 32,261 275,820
Operating expenses
General and
administrative 206,935 429,109 137,310 205,888 1,350,917
Bad debt expense 41,875 57,139 99,014
Non cash compensation
charges 500,000 500,000
Research and
development 50,243 126,315 54,644 104,887
Depreciation 4,145 8,031 27,666 10,084 25,485
------ ------ ------ ------ ------
Total operating
expenses 211,080 1,029,258 291,291 327,755 2,080,303
(Loss) from operations (141,198) (976,408) (234,110) (295,494) (1,804,483)
Other expenses
Interest expense (3,065) (43,385) (30,847) (35,985) (82,435)
------- -------- ------ -------- --------
Total other expenses (3,065) (43,385) (30,847) (35,985) (82,435)
Net loss $(144,263$(1,019,793) $(264,957) $(331,479) $(1,722,048)
========== ========== ========= ========= ==========
Net loss per share
basic and diluted $(.04) $(.15) $(.16) $(.02) $(.22)
====== ======== ======= ======= ======
Weighted average
number of shares
outstanding basic
and diluted 3,338,300 3,555,067 3,343,280 4,516,291 4,516,291
========= ========== ========= ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
For the For the
three three
months months
ended ended
March 31, March 31,
1998 1999
Unaudited Unaudited
--------- ---------
<S> <C> <C>
Sales $16,415 $38,620
Cost of goods sold 7,530 29,585
------ -------
Gross profit 8,885 9,035
Operating expenses
General and
administrative 55,365 51,135
Bad debts
Research and
development 32,500 20,000
Depreciation 9,240 2,000
------ ------
Total operating
expenses 97,105 73,135
(Loss) from operations ( 88,220) ( 64,100)
Other expenses
Interest expense (9,637) (13,635)
------ --------
Total other expenses (9,637) (13,635)
Net loss $( 97,857) $( 77,735)
========= =========
Net loss per share
basic and diluted $(.01) $(.02)
======= =======
Weighted average
number of shares
outstanding basic
and diluted 3,343,280 4,516,291
========= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the
For the For the period from
For the For the nine nine inception,
year year months months July 22,
ended ended ended ended 1994 to
June 30, June 30, March 31, March 31, March 31,
1997 1998 1998 1999 1999
Unaudited Unaudited Unaudited
--------- ------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net profit (loss) $(144,263)$(1,019,793)$(264,957) $(331,480) $(1,722,048)
Depreciation 4,145 20,052 27,666 17,524 44,946
Non cash common stock
compensation 500,000 500,000
Non cash preferred
stock compensation 76,153 30,000 106,153
Adjustments
Accounts receivable (2,733) (3,975) ( 1,833) (36,072) (42,780)
Inventory 7,571 (16,748) (15,862) 8,648 (50,779)
Accounts payable and
accrued expenses 16,345 20,146 ( 4,886) 71,910 109,740
------- ------- ------- ------- ------
TOTAL CASH FLOWS
PROVIDED (USED) FROM
OPERATIONS (118,935) (424,165) (259,872) (239,470) (1,051,768)
CASH FLOWS FROM INVESTING ACTIVITIES
Accounts receivable-
related party (41,878) (25,765) 41,876 -0-
License Fee 1,350
Security deposit (5,000) (5,000)
Capital asset additions (16,579) (128,012) (145,939) (5,025) (168,965)
-------- --------- -------- ------- ---------
TOTAL CASH FLOWS
PROVIDED (USED)FROM
INVESTING ACTIVITIES (21,579) (169,890) (171,704) (36,851) (175,315)
CASH FLOWS FROM FINANCING ACTIVITIES
Officer loan 46,397 (43,834) (21,124) 163,973 166,540
Preferred stock 71,347 58,000 6,500 374,447
Notes payable 224,315 170,885 93,347 33,525 453,725
Sale of common stock 185,000 96,331 236,750
-------- ------- ------- ------- ---------
CASH FLOWS PROVIDED
(USED) FROM FINANCING
ACTIVITIES 270,712 383,398 226,554 203,998 1,231,462
NET INCREASE (DECREASE)
IN CASH 130,198 (210,657) (205,022) 1,379 1,379
CASH BALANCE BEGINNING
OF PERIOD 80,459 210,657 210,657 -0- -0-
------- -------- -------- ------ ------
CASH BALANCE END OF
PERIOD $210,657 $-0- $ 5,635 $1,379 $1,379
========= ======== ======= ===== =====
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS EQUITY
Deficit
accumulated
during
Common Stock Common Stock Preferred Preferred development Unaudited
Date Stock Stock stage Total
---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
7-22-1994(1) 150 $100 $100
7-24-1994(2) 1,350 1,350 1,350
6-30-1995 Net loss (111,797) (111,797)
--------- ------ --------- --------- -------- -------
6-30-1995 1,500 1,450 (111,797) (110,347)
====== ====== ========= ========= ======== =======
5-31-1996(3) 30,000 300 300
6-28-1996(4) 1,500,000 1,450 1,450
6-30-1996(5) 25,000 50,000 50,000
6-30-1996(6) 2,966 296,600 296,600
6-30-1996 Net loss (114,715) (114,715)
-------- -------- --------- -------- ------- --------
6-30-1996 1,555,000 51,750 2,966 $296,600 $(226,512) $121,838
6-30-1997 Net loss (144,263) (144,263)
-------- -------- --------- -------- ------- --------
6-30-1997 1,555,000 $51,750 2,966 $296,600 $(370,775) $(22,425)
6-30-1998(5) 42,500 85,000 85,000
6-30-1998(7) 100,000 100,000 100,000
6-30-1998(7) 500,000 500,000
6-30-1998(6) 1,475 147,500 147,500
6-30-1998 Net loss (1,019,793) (1,019,793)
-------- -------- --------- -------- ------- --------
6-30-1998 1,697,500 $736,750 4,441 $444,100 $(890,568) $(209,718)
Unaudited
9-30-1998(6) 365 $36,500 36,500
3-31-1998 Net loss (331,480) (331,480)
-------- -------- --------- -------- ------- --------
3-31-1998 1,697,500 $736,750 4,806 $480,600 $(1,722,048) $(504,698)
====== ====== ========= ========= ======== =======
</TABLE>
(1) Sale of 150 shares of common stock for $100.
(2) Exchange of shares of common stock for acquisition of license agreement. (3)
30 shares of Common stock sold Pursuant to Reg. D at $10 per share restated
to 30,000 shares post forward split at $.01 per share.
(4) Forward split of common shares in a ratio of 1,000 to 1.
(5) Private placement of 25,000 shares of common stock at $2.00 per share for
$50,000.
(6) Conversion of debt into preferred stock at $100 par value each by Gerald
Sugarman.
(7) Issuance of compensatory stock to Mr. Roger Fidler
See accompanying notes to financial statements.
<PAGE>
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
Note 1. Organization of the Company and Issuance of Capital Stock
a. Creation of the Company
PPA Technologies, Inc. (the "Company") was incorporated on July 22,1994
under the laws of the State of New Jersey with an authorized number of common
shares of 2,500 no-par value. On June 20, 1996, the certificate of incorporation
was amended changing the number of common shares authorized to 10,000,000, no
par value each and 1,000,000 preferred shares, $100 par value each.
b. Description of the Company
The Company has under development and will manufacture and distribute
specialty chemicals and chemical additives.
c. Issuance of Common stock
On July 23, 1994, the Company sold 75 shares of common stock to Roger
Fidler and 75 shares of common stock to James Wright for a total consideration
of $100.
On July 24, 1994, the Company acquired certain patented technologies from
Broadwater Developments, Inc. ("Broadwater"), a British Columbia corporation for
375 shares of common stock and Gerald Sugerman for 975 shares of common stock
relating to coupling agents to be used as paint additives. The Company has
assigned a value of $1.00 per share of common stock or $1,350 as the cost basis
of this transaction.
On May 31, 1996, the Company sold, pursuant to a private placement under
"Rule 504" of the Securities Act of 1933, as amended, an aggregate of 30,000
shares of common stock at $.01 per share for an aggregate consideration of $300.
On June 28, 1996, the Company forward split the number of common shares
outstanding in the ratio of 1,000 to 1 restating the number of common shares
outstanding from 1,500 to 1,500,000.
As of June 30, 1996, the Company sold 25,000 shares of common stock at
$2.00 per share for a total of $50,000 through a private placement.
As of July, 1997, the Company sold 42,500 shares of common stock for
aggregate consideration of $85,000 or $2.00 per share.
As of June 30 1998, Mr. Fidler exercised 100,000 options into 100,000
shares of common stock for and aggregate consideration of $100,000. In addition
the Company recognized $500,000 as non cash compensation for an aggregate
consideration of $600,000 or $6.00 per share.
d. Issuance of Preferred Stock
On June 30, 1996, the Company issued 2,966 shares of preferred stock to
Gerald Sugerman in exchange for moneys due plus accrued and unpaid salary and
moneys advanced to the Company aggregating $296,600 including accrued interest.
As of June 30, 1998, the Company issued 1,475 shares of preferred stock
to Gerald Sugerman in exchange for moneys due for accrued and unpaid salary and
moneys advanced to the Company during the period July 1, 1997 through June 30,
1998 aggregating $147,500 including accrued interest.
As of September 30, 1998, the Company issued 365 shares of preferred
stock to Gerald Sugerman in exchange for moneys due for accrued and unpaid
salary and moneys advanced to the Company during the period July 1, 1998 through
December 31, 1998 aggregating $36,500 including accrued interest.
Note 2. Summary of Significant Accounting Policies
a. Basis of presentation
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred net losses
of $1,722,048 for the period from inception July 22, 1994 to March 31, 1999.
These factors indicate that the Company's continuation as a going concern is
dependent upon its ability to obtain adequate financing. The Company is
anticipating that with the completion of a public offering and with the increase
in working capital, the Company will experience an increase in sales. The
Company will require substantial additional funds to finance its business
activities on an ongoing basis and will have a continuing long-term need to
obtain additional financing. The Company's future capital requirements will
depend on numerous factors including, but not limited to, continued progress
developing its source of inventory, continued research and development and
initiating marketing penetration. The Company plans to engage in such ongoing
financing efforts on a continuing basis.
The financial statements presented at June 30, 1998 consist of the
balance sheet as at June 30, 1998 and the statements of operations, cash flows
and stockholders equity for the year ended June 30, 1998.
The unaudited financial statements presented at December 31, 1998 consist
of the unaudited balance sheet as at March 31, 1998 and the unaudited statements
of operations, cash flows and stockholders equity for the nine months ended
March 31, 1998 and 1999
b. Cash and Cash Equivalents
The Company treats temporary investments with a maturity of less than six
months as cash.
c. Property and equipment
Depreciation of property and equipment is computed using the
straight-line method over five years. Amortization of leased equipment is
computed using the straight-line method over the shorter of the estimated useful
lives of the assets or the lease term. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of the estimated useful
lives of the assets or the remaining lease term.
d. Earnings per share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE
("Statement No. 128"). Statement No. 128 applies to entities with publicly held
common stock or potential common stock and is effective for financial statements
issued for periods ending after December 15, 1997. Statement No. 128 replaces
APB Opinion 15, Earnings per Share ("EPS"). Statement No. 128 requires dual
presentation of basic and diluted earnings per share by entities with complex
capital structures. Basic EPS includes no dilution and is computed by dividing
net income by the total number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share in
the earnings of the Company such as common stock which may be issuable upon
exercise of outstanding common stock options or the conversion of debt into
common stock.
Pursuant to the requirements of the Securities and Exchange Commission,
the calculation of the shares used in computing basic and diluted EPS include
the 12% Convertible Bridge Notes, converted into shares of common stock, the
exercise of a stock grant and stock option program, and the exercise of stock
options granted to Mr. Fidler and Mr. Sugerman and the sale of shares of common
stock through the Company's initial public offering. public offering, as if they
were converted into common stock as of the original dates of issuance.
<TABLE>
<CAPTION>
Year Year Nine months Nine months
June 30, June 30, March 31, March 31,
1997 1998 1998 1999
-------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Total number common
shares outstanding 1,555,000 1,697,500 1,555,000 1,697,500
Effect of the assumed conversion
of convertible 12% bridge notes 8,300 140,067 13,280 143,791
Effect of the exercise of options
pursuant to Non Statutory Stock
Option Plan 300,000 300,000 300,000 300,000
Effect of the issuance of
shares of common stock
pursuant to Stock Grant
program 200,000 200,000 200,000 200,000
Effect of the exercise of
stock options 1,275,000 1,175,000 1,275,000 1,175,000
Proforma sale of Shares
through registered offering 1,000,000
--------- --------- --------- ---------
Shares used in calculating
per share amounts - Diluted 3,338,300 3,512,567 3,343,280 4,516,291
========= ========= ========= =========
</TABLE>
e. Revenue recognition
Revenue is recognized when products are shipped or services are rendered.
f. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
g. Unaudited financial information
In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Company as of December
31, 1998 and the results of its operations and its cash flows for the nine
months ended March 31, 1999. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
SEC's rules and regulations of the Securities and Exchange Commission. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year.
h. Asset Impairment
The Company adopted the provisions of SFAS No. 121, Accounting for the
impairment of long lived assets and for long-lived assets to be disposed of.
(SFAS No. 121) effective January 1, 1996. SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the estimated undiscounted cash flows to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. There was no effect of such adoption on the Company's financial position or
results of operations.
i. Income taxes:
The Company uses the liability method of accounting for income taxes. The
liability method measures deferred income taxes by applying enacted statutory
rates in effect at the balance sheet date to the differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements. The resulting asset or liability is adjusted to reflect changes in
the tax law as they occur.
j. Stock-based compensation:
The Financial Accounting Standards Board has issued SFAS No.123,
"Accounting for Stock-Based Compensation", which encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation under a fair value based method. The Company has elected to
continue to account for its stock-based employee compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion No.25
("APB No.25"), "Accounting for Stock Issued to Employees" and disclose the pro
forma effects on net loss and loss per share basic and diluted had the fair
value of such compensation been expensed. Under the provisions of APB No.25,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's common stock at the date of the grant over
the amount an employee must pay to acquire the stock.
k. Recent accounting pronouncements:
The Financial Accounting Standards Board has recently issued statements of
Financial Accounting Standards No.130, "Reporting Comprehensive Income," and
No.131, "Disclosures about Segments of an Enterprise and Related Information,"
and No.132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." The above pronouncements will not have a significant effect on the
information presented in the financial statements.
Note 3. Related Party Transactions
a. Issuance of Common shares
On July 23, 1994, the Company sold 75 shares of common stock to Roger
Fidler and 75 shares of common stock to James Wright for a total consideration
of $100.
On July 24, 1994, the Company acquired certain patented technologies from
Broadwater Developments, Inc. ("Broadwater") for 375 shares of common stock and
Gerald Sugerman for 975 shares of common stock relating to coupling agents to be
used as paint additives. The Company has assigned a value of $1.00 per share of
common stock or $1,350 as the cost basis of this transaction.
As of June 30 1998, Mr. Fidler exercised 100,000 options into 100,000
shares of common stock for and aggregate consideration of $100,000. In addition
the Company recognized $500,000 as non cash compensation for an aggregate
consideration of $600,000 or $6.00 per share.
b. Issuance of Preferred Stock
On June 20, 1996, the certificate was amended authorizing the issuance of
1,000,000 shares of preferred stock. The preferred stock may be issued in such
classes and with such preferences as the board of directors may, from time to
time, decide in their sole discretion.
On June 30, 1996, the Company issued 2,966 shares of preferred stock to
Gerald Sugerman in exchange for moneys due plus accrued and unpaid salary and
moneys advanced to the Company aggregating $296,600 including accrued interest.
As of June 30, 1998, the Company issued 1,475 shares of preferred stock
to Gerald Sugerman in exchange for moneys due for accrued and unpaid salary and
moneys advanced to the Company during the period July 1, 1997 through June 30,
1998 aggregating $147,500 including accrued interest.
As of September 30, 1998, the Company issued 365 shares of preferred
stock to Gerald Sugerman in exchange for moneys due for accrued and unpaid
salary and moneys advanced to the Company during the period July 1, 1998 through
December 31, 1998 aggregating $36,500 including accrued interest.
The shares of preferred stock have preference as to liquidation, pay a 5%
cumulative dividend and may be redeemed by the Company at par value plus
accumulated dividends for a period of 5 years.
c. Employment Agreement
On June 30, 1995, the Company entered into a five year employment
agreement with Mr. Gerald Sugerman requiring the payment of a salary of $10,000
per month, a royalty of 5% of net sales until a total of $350,000 in royalties
is earned and thereafter a 2% royalty on gross sales. For the period from July
22, 1994 to June 30, 1998, the Company has paid or accrued a salary for Mr.
Sugerman aggregating $390,000, of which $360,000 of accrued salary and $245,680
in additional loans payable and reimbursable expenses which were offset by the
issuance of 4,806 shares of preferred stock representing $480,600 as of March
31, 1999.
d. Officer Compensation
No other officers or employees were paid in excess of $100,000.
e. Accounts reveivable - related party
The Company entered into an informal marketing and supply agreement to
both sell componet raw and finished materials and to buy finished products from
Enviro Ink, a Montreal, Canadian company. The arrangement was instituted to
permit the Company to strategically position itself in seeking a market share of
the printing ink business in Canada. At June 30, 1998 and September 30, 1998,
the net amount due the Company was $83,752 and $114,275 respectively. Sales to
Enviro Ink for the year ended June 30, 1998 and for the six months ended
December 31, 1998 were $88,023 and $16,856 respectively.
As of December 31, 1998, the Company reviewed its business relationship
with Enviro Ink and has determined that the amounts receivable at June 30, 1998
and December 31, 1998 may possibly be uncollectable in total. The Company has
set up a 100% reserve for the doubtful collection of the accounts receivable at
June 30, 1998 and March 31, 1999 of $41,876 and $57,137 respectively.
f. Corporate Relationships.
Both the Company and Enviro Ink share Dr. Gerald Sugarman as a member of
senior management and as a principal shareholder. An Lou Chang is a 51%
shareholder in Enviro Ink and a shareholder in the Company.
Note 4 - Inventory
Inventory has been recorded at the lower of cost or market under the
first-in first-out method. At June 30, 1998 and March 31, 1999 , inventory
components were as follow: <TABLE>
June 30, 1998 march 31, 1999
<S> <C> <C>
Raw material $34,913 $31,859
Finished goods 24,514 18,919
------ ------
Total $59,427 $50,778
====== ======
</TABLE>
Note 5 - Capital Assets
Capital Assets for the Company consisted of the following at June 30,
1998:
<TABLE>
<CAPTION>
Accumulated
Asset depreciation Balance
<S> <C> <C> <C>
Office equipment $ 41,681 $15,401 $ 26,280
Production equipment 113,912 $11,186 102,726
Leasehold Improvements 8,346 835 7,511
------ ------- --------
Total $163,939 $27,422 $136,517
======== ======= ========
</TABLE>
Capital Assets for the Company consisted of the following at March 31, 1999:
<TABLE>
<CAPTION>
Accumulated
Asset depreciation Balance
<S> <C> <C> <C>
Office equipment $ 41,681 $20,541 $ 21,140
Production equipment 118,938 $20,153 $ 98,785
Leasehold Improvements 8,346 4,252 4,094
------- ------- ---------
Total $169,398 $44,946 $124,019
======= ======= ========
</TABLE>
Note 6 - License Agreement
On October 24, 1994, the Company entered into an agreement with
Broadwater and Pi-Tech, Inc., ("Pi-Tech"), a Delaware corporation controlled by
Broadwater and Gerald Sugerman for the licensing of certain patented
technologies relating to coupling agents used in paints. The Company acquired
the licensing agreement for 375 shares of common stock with Broadwater and 975
shares of common stock with Gerald Sugerman.
Note 7 - 12% Convertible Bridge Notes
Beginning May 1, 1996, the Company offered 12% Convertible Bridge Notes
("Notes") and then sold under Rule 504 to the Securities Act of 1933, as
amended, 20 Units consisting of a $25,000 Convertible Note bearing interest of
12% and is convertible in whole in or in part into a maximum of 8,300 shares of
common stock. The term of the note is two years with interest payable annually
in arrears. Each Debenture is in the face amount of $25,000 and may be sold in
1/2 Units.
As of June 30, 1998 and March 31, 1999, the Company has borrowed an
aggregate of $372,500 and accrued interest in the aggregate of $47,700 and
$81,225 respectively. As of June 30, 1998 and March 31, 1999, the total balance
due was current.
In the event of a public offering of the Company's stock, the Company may
compel the conversion of the Notes by paying the Note and accrued interest at
the closing of the public offering.
The indebtedness evidenced by the Notes is of equal priority regardless
of the date of any individual Note and is subordinate and junior to any and all
other indebtedness of the Company, whenever incurred, except indebtedness which
by its terms is expressly subordinated in right of payment to the Notes.
The Company has reserved sufficient authorized but unissued shares for
conversion of the Convertible Notes which shares, upon issuance and delivery,
will be duly and validly issued, fully paid and nonassessable.
Note 8 - Commitments and Contingencies
a. Lease Agreements
Through March 13, 1997, the Company occupied laboratory, plant and
warehousing space in Perkasie, Pennsylvania on a month to month basis for $500
per month.
On March 13, 1997, the Company entered into a lease agreement with an
unrelated parted for office and warehousing space at 163 South Street,
Hackensack, New Jersey for a period of 4 years with a monthly rent of $2,500 and
real estate taxes payable separately. The lease requires deposit of 2 months
rent aggregating $5,000 and two months free rent.. The minimum lease payments
each of the next four years is $30,000. The Company has an option to renew the
lease for an additional 4 years at a rental equal to the higher of $30,000 per
year or $30,000 per year plus 90% of the Consumer Price Index for April, 1997.
At June 30, 1998, the future minimum rental payments under the operating lease
are as follows: <TABLE>
<S> <C>
June 30, 1999 $ 30,000
June 30, 2000 30,000
June 30, 2001 30,000
-------
$ 90,000
</TABLE>
For the years ending June 30, 1998 and the nine months ended March 31,
1999, the Company paid an aggregate of $25,000 and $25,539 respectively.
b. Employment Agreement with Gerald Sugerman
On May 23, 1995, the Company entered into an employment with Gerald
Sugerman as Vice President for Scientific Affairs. The Company is obligated to
pay Mr. Sugerman 10,000 per month, life insurance equal to twice the his annual
salary, medical and disability insurance, automobile expenses equal to $0.30 per
mile, four weeks paid vacation, five sick days, six personal days, all of which
will be accumulated if not taken, reimbursement for travel and promotion
expenses, 5% of gross sales until Mr. Sugerman has received $350,000, 2% of net
sales thereafter and Mr. Sugerman is granted an option to purchase up to 850,000
shares of common stock at $1.00 per share for a period of 4 years beginning July
1, 1996.
As of June 30, 1998 and March 31, 1999, the Company has reserved 850,000
shares of common stock pending the exercise of this option
c. Employment agreement with Roger Fidler
In February, 1996, the Company entered into an employment agreement with
Roger Fidler as President and Director of Marketing. The Company is obligated to
pay Mr. Fidler a commission on sales equal to 15% of sales of coupling agents,
ink and paint vehicles and 10% of hard resin sales. Commissions on other
products sold through the efforts of Mr. Fidler will be negotiated in good faith
from time to time, but will be based upon the above scale as modified for
differences in the costs of production of the goods sold. The commissions will
be paid only on accounts opened by Mr. Fidler and will be paid for the term of
the contract and for one year after termination. Commissions will not be paid on
existing customers for the purchase of products presently purchased by them.
Upon the successful conclusion of a financing in excess of $500,000 or
sales of $2,000,000 per annum, whichever will occur first, Mr. Fidler will be
entitled to Company paid life insurance plan equal to twice his annual salary,
medical and disability insurance, automobile expenses equal to $0.30 per mile,
reimbursement for travel and promotion expenses Mr. Fidler is granted an option
to purchase up to 425,000 shares of common stock at $1.00 per share for a period
of 4 years beginning July 1, 1996. As of June 30, 1998, Mr. Fidler has exercised
100,000 options for an aggregate consideration of $100,000.
As of June 30, 1998 and March 31, 1999, the Company has reserved an
aggregate of 325,000 and 325,000 shares of common stock respectively pending the
exercise of these options.
d. Letter of Intent for Corporate Financing
On April 15, 1996, the Company entered into an financing agreement with
Kenneth Jerome & Co., Inc. of Florham Park, New Jersey concerning an initial
public offering of 1,000,000 Units at $6.00 per Unit for an aggregate of
$6,000,000. Each Unit consisting of 1 share of common stock and 1 five-year
common stock "A" Purchase Warrant. Each Warrant entitling the owner to purchase
1 share of common stock at an exercise price of $7.00. The aggregate amount of
the public offering is subject to adjustment to include in the initial public
offering an over-allotment of 15%. The Company may redeem at $0.05 per class "A"
Warrant provided, however, that the closing bid price of the Company's common
stock in the over-the-counter market as reported by NASDAQ will have for 30
consecutive business days ending 15 days of the date of redemption average in
excess of $8.50 per share (subject to adjustments in the case of a reverse stock
split, stock dividend, etc.).
The Company, after applying the net proceeds of the initial public
offering must meet the criteria for listing on either NASDAQ or a regional
exchange.
The Company will prepare and file with the Securities and Exchange
Commission a Registration Statement on Form SB-2 for the maximum number of Units
offered:
a. 1,150,000 Units, each Unit consisting of one share of common stock and
one five-year common stock A Purchase Warrant, including the over-allotment.
b. 1,150,000 shares of common stock to be issued upon closing, 1,150,000
shares of common stock to be issued upon exercise of the A Warrants and 115,000
shares of common stock to be issued upon exercise of the Underwriter's Warrants.
c. The Company will pay all expenses of the proposed offering and the
issuance, sale and delivery of all of the Units, accounting and legal fees, cost
of "tombstone" advertisements not to exceed $5,000, 3% non-accountable expenses
or a maximum of $207,000 and all administrative costs.
d. The gross commission to the Underwriter will be 10% of the total
proceeds of the public offering.
e. If the offering is sold within the Underwriting Period, the Company
will sell to the Underwriter, Underwriter's Warrants to purchase Units which
Units will equal 10% of the Units offered to the public, at a price of $.001 per
Underwriter's Warrant. The exercise price of the Underwriter's Warrant will be
approximately 120% of the offering price of the Units. The Underwriter's
Warrants will be exercisable for a period of 4 years following the expiration of
1 year from the Effective Date. The Company agrees that it will, upon request by
the Underwriter, within the period commencing 12 months from the Effective Date,
and for a period of 4 years thereafter, on one occasion, at the Company's
expense, file a post-effective amendment to Register the Underwriter's Warrants.
f. The Underwriter's Warrants will contain various anti dilution
provisions which will protect the Underwriter as to the exercise price of the
Underwriter's Warrants and the percentage of common stock to which the
Underwriter is entitled.
g. Non statutory Stock Option Plan
On January 1, 1997, the Company adopted a Non statutory Stock Option Plan
("Plan"). 300,000 shares of common stock are reserved under the Plan. The Plan
is administered by the Board of Directors.
Stock options under the Plan may be granted to employees, officers,
directors, consultants of the Company or any other parties who have made a
significant contribution to the business and success of the Company. The
exercise price under the Plan may be more equal to or less than the current
market price of the Shares of Common Stock.
At June 30, 1998 and March 31, 1999, the number of options granted
pursuant to this program is -0-. As of June 30, 1998 and March 31, 1999, the
Company has reserved 300,000 shares of common stock pending the issuance and
exercise of options into shares of common stock.
h. Stock Grant Program
The Company has adopted a stock grant program with 200,000 shares of
common stock. The stock grant program provides for the issuance to officers,
directors and key employees stock grants as determined by the Board of
Directors. The recipient must continue employment with the Company for two years
after the grant is made or forfeit the stock.
As of June 30, 1998 and March 31, 1999, the number of shares of common
stock granted pursuant to this program is -0- and -0- respectively.
As of June 30, 1998 and March 31, 1999, the Company has reserved 200,000
shares of common stock pending issuance.
I. Registered Offering
The Company is offering a minimum of 1,000,000 Units to a maximum of
1,150,000 Units at an offering price of $6.00 per Unit. Each Unit consists of 1
share of common stock and one redeemable common stock "A" Purchase Warrant,
exercisable into 1 share of common stock per warrant for a period of 5 years
from the effective date of the registration statement of which this prospectus
is a part at an exercise price of $7.00 per share. The "A" Purchase Warrants are
redeemable at the Company's option commencing 90 days after the effective date
upon 30 days notice to the Warrant holders at $.05 per Warrant if the closing
bid price of the common stock in the over-counter-market as reported by NASDAQ
will have for a period of 30 consecutive trading days ending within 15 days of
the notice of redemption average in excess of $8.50 per share (subject to
adjustments in the case of a reverse stock split, stock dividend, etc.). Since
it is the Company's present intention to exercise such right, Warrant holders
should presume that the Company would call the Redeemable Warrants for
redemption if such criteria are met. The Redeemable Warrants are immediately
detachable and separately tradable from the Units upon issuance.
The shares are being offered by the Company and/or selected dealers on a
"firm commitment basis". The Underwriter will purchase 1,000,000 Units for later
resale, and has reserved the right to purchase up to an additional 150,000 Units
on the date of the Initial Public Offering in case of over booking of sales.
The Company has agreed to sell to the Underwriter, at a nominal price,
warrants to purchase 10% of the number of shares sold by the Underwriter or
dealers at an exercise price of $7.80 per share, which warrants will be
exercisable for four years commencing one year after issuance.
Note 9 - Income Taxes
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any, represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of June 30, 1998 and March 31, 1999,
the Company had no material current tax liability, deferred tax assets, or
liabilities to impact on the Company's financial position because the deferred
tax asset related to the Company's net operating loss carryforward and was fully
offset by a valuation allowance.
At march 31, 1999, the Company has net operating loss carry forwards for
income tax purposes of $1,722,048. These carryforward losses are available to
offset future taxable income, if any, and expire in the year 2010. The Company's
utilization of this carryforward against future taxable income may become
subject to an annual limitation due to a cumulative change in ownership of the
Company of more than 50 percent.
The components of the net deferred tax asset as of March 31, 1999 are as
follows:
Deferred tax asset:
Net operating loss carry forward $ 594,180
Valuation allowance $( 594,180)
----------
Net deferred tax asset $ -0-
==========
The Company recognized no income tax benefit for the loss generated for
the year ended June 30, 1997 and 1998 and for the nine months ended March 31,
1998 and 1999.
The Company's deferred tax asset has been fully reserved by a valuation
allowance since realization of its benefit is uncertain. The difference between
the statutory tax rate of 34% and the Company's effective tax rate of 0% is
substantially due to the increase in the valuation allowance of $592,180 for the
period from inception July 22, 1994, to March 31, 1999. The Company's ability to
utilize its net operating loss carryforwards may be subject to an annual
limitation in futureperiods pursuant to Section 382 of the Internal Revenue Code
of 1986, asamended.
Note 10 - Business and Credit Concentrations
At June 30, 1997 and March 31, 1999, the Company has concentrated its
credit risk by maintaining deposits in one banks. The maximum loss that could
have resulted from this risk totaled $-0- which represents the excess of the
deposit liabilities reported by the banks over the amounts that would have been
covered by the federal insurance
The amount reported in the financial statements for accounts receivable
and investments approximates fair market value. Because the difference between
cost and the lower of cost or market is immaterial, no adjustment has been
recognized and investments are recorded at cost.
Financial instruments that potentially subject the company to credit risk
consist principally of trade receivables. Collateral is generally not required.
Note 11 - Supplemental Cash Flow Information
The following is supplemental cash flow information for the Company for
the period from inception July 22, 1994 to March 31, 1999:
Acquisition of licensing agreement for 1,350 shares of common stock $( 1,350)
Issuance of shares of preferred stock in settlement of note
Payable and other accrued expenses to Gerald Sugerman $(330,000)
Capital stock 331,350
-------
$ -0-
=======
Note 12 - Development Stage Company
The Company is considered to be a development stage company with little
operating history. The Company is dependent upon the financial resources of the
Company's management for its continued existence. The Company will also be
dependent upon its ability to raise additional capital to complete is marketing
program, acquire additional equipment, management talent, inventory and working
capital to engage in profitable business activity. Since its organization, the
Company's activities have been limited to the entering into the marketing of
providing limited quantities of chemical coupling agents and other chemical
additives at competitive pricing, hiring personnel, acquiring equipment and
warehousing space, conducting research and development of its formulas and
preparation of documentation and the sale of a private placement offering.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers.
The By-Laws of the Company provide for indemnification of officers and
directors to the maximum extent allowed by the law of New Jersey, set forth in
greater detail below.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and persons controlling the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Article VII of the By-Laws of the Company provide for the maximum
indemnification allowed by the law of the State of New Jersey as follows:
"Every person who is or was a director, officer, employee or agent of
the Corporation, or of any corporation which he has served as such at
the request of the Corporation, shall be indemnified by the Corporation
to the fullest extent permitted by law against all expenses and
liabilities reasonably incurred by or imposed upon him, in connection
with any proceeding to which he may be made, or threatened to be made,
a party, or in which he may become involved by reason of his being or
having been a director, officer, employee or agent of the Corporation,
or such other corporation, at the time the expense or liabilities are
incurred."
<PAGE>
ITEM 25. Other Expenses of Issuance and Distribution
The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts) are estimated as follows:
<TABLE>
<CAPTION>
Maximum Minimum
Registration Fee-Securities and
<S> <C>
Exchange Commission......................... $ 5,025.00 5,025.00
NASD Fee ................................... 2,175.00 2,175.00
Transfer Agent's Fee and Expenses .......... 2,800.00 2,800.00
Legal Fees and Expenses .................... 150,000.00 0.00
Blue Sky Fees and Expenses ................. 15,000.00 15,000.00
Printing Expenses (including securities) ... 25,000.00 25,000.00
Miscellaneous .............................. 25,000.00 25,000.00
Total.............................. $225,000.00 75,000.00
Estimated.
</TABLE>
ITEM 26. Recent Sales of Unregistered Securities
The following sales made by the issuer within the past three years were
made under circumstances not involving any public offering, and which were
exempt from the registration requirements of the Securities Act of 1933, as
amended, by reason of Section 4(2) thereof and/or the Rules and Regulations
promulgated thereunder, specifically, Rule 504, Regulation D:
<TABLE>
<CAPTION>
Purchaser Security Amount Date Consideration
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert Kaplon Common 30,000 shares 3/15/95 $ 300
Gary Metzger Common 25,000 shares 6/30/96 $50,000
AMCO Plastics Common 12,500 shares 11/30/96 $25,000
An Lou Chang Common 30,000 shares 07/01/97 $60,000
Eve Chang Debt $60,000 note 07/01/97 $60,000
Carl D. Fraley Debt $50,000 note 07/01/97 $50,000
Ray Beeler Debt $50,000 note 07/01/97 $50,000
Henry MacUga Debt $25,000 note 07/01/97 $25,000
Haskell Bernat Debt $25,000 note 07/01/97 $25,000
Edward Santangelo Debt $25,000 note 07/01/97 $25,000
Martin Santangelo Debt $25,000 note 07/01/97 $25,000
David Schotz Debt $25,000 note 07/01/97 $25,000
Lois S. MacUga Debt $12,500 note 07/01/97 $12,500
Aaron Lehman Debt $12,500 note 07/01/97 $12,500
David Lipson Debt $12,500 note 07/01/97 $12,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM 27. Exhibits and Financial Statement Schedules
<S> <C>
1.(a) Form of Underwriting Agreement
(b) Form of Selected Dealers Agreement
3.(a) Registrant's Certificate of Incorporation
(b) Amendment to Certificate of Incorporation
(c) Registrant's By-Laws
4.(a) Specimen Security Certificate
(b) Form of Warrant
(c) Form of Underwriter's Warrant
(e) Form of Warrant Agreement
5.(a) Consent and Opinion of Roger Fidler
10. Material Contracts
(a) Employment Agreement between the Company
and Gerald Sugerman
(b) Employment Agreement between the Company
and Roger Fidler
(c) Lease
24.(a) Consent of Thomas Monahan, Certified Public
Accountant
</TABLE>
ITEM 28. Undertakings
The undersigned Registrant hereby undertakes that:
(A) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; and,
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement, including
(but not limited to) any addition or deletion of a managing underwriter.
(B) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(C) To remove from registration, by means of a post-effective amendment to
the Registration Statement, any of the securities offered hereby which are not
sold pursuant to the terms of this offering.
(D) Will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names are required by the underwriter to permit prompt delivery to each
purchaser.
(E) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer 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 the
small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer will, unless in the opinion of its counsel has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this Amendment
No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hackensack and State of
New Jersey, on the 4th day of December, 1997.
PPA TECHNOLOGIES, INC.
BY: /S/ Roger Fidler
Roger Fidler, President
Chief executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
/S/ Roger Fidler President, June 18, 1999
Roger Fidler Director
/S/ Gerry Sugerman Director, June 18, 1999
Gerry Sugerman Treasurer,
Secretary,
Chief Financial and
Accounting Officer
/S/ James Wright Director, June 18, 1999
James Wright
/S/ Albert Mersberg Director, June 18, 1999
Albert Mersberg
PPA TECHNOLOGIES, INC.
1,000,000 Units
UNDERWRITING AGREEMENT
Kenneth Jerome & Company, Inc.
P.O. Box 38
147 Columbia Turnpike
Florham Park, New Jersey
(201) 966-6669
Ladies and Gentlemen:
PPA Technologies, Inc., a New Jersey corporation (the "Company"),
proposes to issue and sell to and through the several Underwriters named in
Schedule I hereto (the "Underwriters"), from a minimum of 100,000 Units , on a
"Firm" commitment basis up to a maximum of 1,000,000 units on a "best efforts"
basis (1,015,000 units including the over-allotment) (the "Units"), each Unit
consisting of one (1) share of common stock (the "Shares") and one (1)
redeemable one-year common stock A Purchase Warrant (the "A Warrants"), each A
Warrant entitling the owner to purchase one-half share of common stock at an
exercise price of $8.00. The offering price per Unit will not be less than
$6.00. You will act as the Company's exclusive underwriter (the "Underwriter" or
"You") and will assist the
Company in offering the 1,000,000 Units (the "Offering") on a "firm" commitment
basis as to the minimum of 100,000 Units and on a "best efforts" basis as to an
additional 900,000 Units.. The Company further agrees to issue, upon the closing
date as hereinafter defined in Section 2, the Underwriter's Warrants more fully
discussed in subparagraph (f) and Section 3(t) below (the "Representative's
Warrants"). The Company hereby confirms the agreement made by it with respect to
the purchase of the Securities by the Underwriter, which Securities are more
fully described in the Registration Statement referred to below. Kenneth Jerome
& Company, Inc. is referred to herein as the "Underwriter" or the
"Representative."
You have advised the Company that the Underwriters desire to act on
a firm commitment basis as to a minimum of 100,000 Units to publicly offer and
sell the Securities for the Company and that you are authorized to execute this
Agreement. The Company confirms the agreement made by it with respect to the
relationship with the Underwriters as follows:
(a) Subject to the terms and conditions of this Agreement, and on
the basis of the representations, warranties, and agreements herein contained,
the Company agrees to sell to, and the Underwriters agree to buy from the
Company at a purchase price of $6.00 per Unit before any underwriter expense
allowance, a total of 100,000 Units consisting of 100,000 shares of Common Stock
and 100,000 Redeemable
Warrants, on a firm commitment basis.
Further, the Underwriter agrees to offer on behalf of the Company an
additional 900,000 Units, consisting of 900,000 common shares and 900,000
Redeemable Warrants, on a best efforts basis for a time period of not more than
ninety (90) days, unless extended by written agreement with the Company to
extend the offering period for an additional sixty (60) days.
It is understood that the Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement
becomes effective.
(b) Delivery of the Securities against payment for the minimum
therefor shall take place at the offices of the Clearing Broker, Herzog Heine
Geduld, Inc., at 525 Washington Blvd., Jersey City, New Jersey, 07310 within
five (5) business days after the effective date (the Effective Date)(or at such
other place as may be designated by agreement between you and the Company) at
10:00 A.M., New Jersey time, or at such time and date as you and the Company may
agree upon in writing, such time and date of payment and delivery for the
Securities being herein called the "Initial Closing Date." Subsequent closing(s)
on the best efforts offering shall be held from time to time at the same
location.
The Company will make the certificates for the Securities to be
purchased by the Underwriters hereunder available to the Representative for
inspection and packaging at least two (2) full, business days prior to the
Initial Closing Date and any subsequent closing date. The certificates shall be
in such names and denominations as the Underwriters may request to the Company
in writing at least two (2) business days prior to any Closing Date.
(c) In addition, subject to the terms and conditions of this
Agreement and on the basis of the representations, warranties and agreements
herein contained, the Company grants an option to the Underwriters to purchase
up to an additional 15,000 Securities ("Option Securities") at the same terms
per Units as the Underwriters shall pay for the initial securities being sold by
the Company pursuant to the provisions of the Firm Commitment Offering Section
2(a) hereof and priced in accordance subparagraph (a) above. This option may be
exercised from time to time, for the purpose of covering overallotments, within
forty-five (45) days after (i) the Effective Date of the Registration Statement
if the Company has elected not to rely on Rule 430A under the Rules and
Regulations of the Securities and Exchange Commission or (ii) the date of this
Agreement if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, upon written notice by the Underwriter setting forth the number of
Option Securities as to which the Underwriter is exercising the option and the
time and date at which such certificates are to be delivered. Such time and date
shall be determined by the Underwriter but shall not be earlier than four (4)
nor later than ten (10) full business days after the date of the exercise of
said option. Nothing herein shall obligate the Underwriter to make any
overallotment.
(d) Definitive certificates in negotiable form for the Securities
to be purchased by the Underwriter hereunder will be delivered at the closing by
the Company to the Underwriters against payment of the purchase price by the
Underwriters by certified or bank cashier's checks or wire transfer in next day
funds payable to the order of the Company.
(e) The information set forth under "Underwriting" in any
Prospectus relating to the Securities proposed to be filed by the Company with
the Securities and Exchange Commission and States designated by the Underwriter
(insofar as such information relates to the Underwriters) and constitutes the
only information furnished by the Underwriter to the Company for inclusion
therein, and you represent and warrant to the Company that the statements made
therein are correct.
(f) On the Initial Closing Date, the Company shall issue and sell
to the Representative, Representative's Warrants at a purchase price of $.001
per Representative's Warrant, which shall entitle the holders thereof to
purchase an aggregate of a maximum of 100,000 shares of Common Stock and 100,000
Redeemable Warrants. The number of Representative's Warrants issued shall equal
10% of the number of Units sold to, by or through the Underwriter. The shares of
Common Stock and the A Warrants issuable upon the exercise of the
Representative's Warrants are hereafter referred to as the "Representative's
Securities" or "Representative's Warrant." The shares of Common Stock issuable
upon exercise of the A Warrants are hereinafter referred to collectively as the
"Warrant Shares". The Representative's Warrants shall be exercisable for a
period of three (3) years commencing two (2) year from the effective date of the
Registration Statement at a price equaling one hundred thirty percent (130%) of
the initial public offering price of the Units. The form of Representative's
Warrant Certificate shall be substantially in the form filed as an Exhibit to
the Registration Statement. Payment for the Representative's Warrants shall be
made on the Initial Closing Date.
In consideration of the mutual agreements contained herein and of
the interests of the parties in the transactions contemplated hereby; the
parties hereto agree as follows:
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with the
Underwriter as follows:
(a) A registration statement on Form SB-2 (File No. 333-2496)(the
"Registration Statement") with respect to the Units, the Warrants and the
securities underlying such Units and Warrants has been prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as amended,
and the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder (collectively called the "Act") and has been filed with
the Commission under the Act. Copies of such Registration Statement, including
any pre-effective and post-effective amendments thereto, the preliminary
prospectuses (meeting the requirements of Rule 430A under the Act) contained
therein and the exhibits, financial statements and schedules, as finally amended
and revised, have heretofore been delivered by the Company to you. The
Registration Statement, which, upon filing of the Prospectus referred to below
with the Commission, shall be deemed to include all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred to
below, has been declared effective by the Commission under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. The form of prospectus first filed by the Company with
the Commission pursuant to Rule 424(b) and Rule 430A is herein referred to as
the "Prospectus." Each preliminary prospectus included in the Registration
Statement prior to the time it becomes effective is herein referred to as a
"Preliminary Prospectus."
(b) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement.
The Company is duly qualified to transact business and in good standing in all
jurisdictions in which the conduct of its business or the location of the
properties owned or leased by it requires such qualification, except where the
failure to qualify would not have a material adverse effect upon the business,
properties, financial condition or prospects of the Company. The Company has no
subsidiaries.
(c) The Company has authorized, issued and outstanding capital
stock as set forth under the heading "Capitalization" in the Prospectus. The
outstanding shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with all federal and state securities laws. All of the Units and
Warrants to be issued and sold pursuant to this Agreement, and the securities
underlying such Units and Warrants, have been duly authorized and, when issued
and paid for as contemplated herein, will be validly issued, fully paid and
nonassessable. No preemptive rights of stockholders exist with respect to any of
the Units or securities underlying the Units or the issue and sale thereof.
Neither the filing of the Registration Statement nor the offering or sale of the
Units or the Warrants as contemplated herein gives rise to any rights, other
than those which have been waived or satisfied, for or relating to the
registration of any of the Company's securities. All necessary and proper
corporate proceedings have been taken to validly authorize the Units, Warrants
and securities underlying such Units and Warrants and no further approval or
authority of the stockholders or the Board of Directors of the Company is
required for the issuance and sale of the Units or Warrants or securities
underlying such Units or Warrants to be sold as contemplated herein.
(d) The Units and the Warrants and the securities underlying the
Units and the Warrants conform with the statements concerning them in the
Registration Statement in all material respects. Except as specifically
disclosed in the Registration Statement and the financial statements of the
Company and the related notes thereto, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell shares of its capital stock or any such options,
rights, convertible securities or obligations. The descriptions of the Company's
stock option and other stock-based plans, and of the options or other rights
granted and exercised thereunder, set forth in the Prospectus are accurate
summaries and fairly present the information required to be shown with respect
to such plans and rights in all material respects. The Company and its
affiliates are not currently offering any securities, nor have they offered or
sold any of the Company's securities since June 30, 1997, except as described in
the Registration Statement.
(e) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus relating to the proposed
offering of the Units or Warrants nor instituted, or to the best knowledge of
the Company, contemplated instituting proceedings for that purpose. Each
Preliminary Prospectus, at the time of filing thereof, contained all statements
which were required to be stated therein by, and in all respects conformed to,
the requirements of the Act. No Preliminary Prospectus contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the Company makes no representations or warranties as to information
contained in or omitted from any Preliminary Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
the Underwriter, specifically for use in the preparation thereof. It is
understood that the statements set forth in each Preliminary Prospectus under
the heading "UNDERWRITING," and the identity of counsel to Kenneth Jerome &
Company, Inc. under the heading "LEGAL MATTERS" constitute the only written
information furnished to the Company by or on behalf of the Underwriter.
(f) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined below), (i) the
Registration Statement and the Prospectus and any amendments or supplements
thereto will contain all statements which are required to be stated therein by,
and in all respects will conform to the requirements of, the Act; and (ii)
neither the Registration Statement nor any amendment thereto, and neither the
Prospectus nor any supplement thereto, will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company makes no representations or warranties as to information
contained in or omitted from the Registration Statement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of the Underwriter,
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus under the heading "UNDERWRITING," and the
identity of counsel to Kenneth Jerome & Company, Inc. under the heading "LEGAL
MATTERS," constitute the only written information furnished to the Company by or
on behalf of the Underwriter.
(g) The consolidated financial statements of the Company, together
with related notes and schedules as set forth in the Registration Statement,
present fairly in all material respects the financial position, the results of
operations and cash flows of the Company, at the indicated dates and for the
indicated periods. Such consolidated financial statements, schedules and related
notes have been prepared in accordance with generally accepted accounting
principles, consistently applied throughout the periods involved, and all
adjustments necessary for a fair presentation of results for such periods have
been made. The summary and selected financial and statistical data and schedules
included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(h) There is no action, suit or proceeding pending or, to the best
knowledge of the Company after due inquiry, threatened against the Company
before any court or regulatory, governmental or administrative agency or body,
or arbitral forum, domestic or foreign, which might result in any material
adverse change in the business or condition (financial or otherwise),
properties, results of operation or prospects for the future of the Company,
except as set forth in the Registration Statement. The Company is not subject to
the provisions of any injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body or arbitral
forum that would have a material adverse effect upon the business of the
Company. There are no labor disputes involving the Company that exist or are
imminent which could materially and adversely affect the conduct of the
business, property, operations, financial condition or earnings of the Company.
(i) The Company has good and marketable title to all of the
properties and assets reflected in either the financial statements or as
described in the Registration Statement, and such properties and assets are
subject to no lien, mortgage, security interest, pledge or encumbrance (other
than easements, if any) of any kind, except (i) those reflected in such
financial statements or as described in the Registration Statement; and (ii) for
such encumbrances that, individually or in the aggregate, would not have a
material adverse effect on the Company. The Company occupies its leased
properties under valid and binding leases conforming to the descriptions thereto
set forth in the Registration Statement.
(j) The Company has filed all federal, state, local and foreign
income tax returns which have been required to be filed and has paid all taxes
indicated by said returns and has paid all tax assessments received by it. There
is no income, sales, use, transfer or other tax deficiency or assessment which
has been or might reasonably be expected to be asserted or threatened against
the Company or any of its Subsidiaries which could materially adversely affect
the business operations or property or business prospects of the Company. The
Company has paid all sales, use, transfer and other taxes applicable to it and
its business.
(k) Except as described in the Registration Statement, since the
respective dates as of which information is given in the Registration Statement,
as it may be amended or supplemented, (i) there has not been any adverse change
or any development suggesting the likelihood of a future material adverse change
in or affecting the condition, financial or otherwise, of the Company or the
earnings, business affairs, management, properties or business prospects of the
Company, whether or not occurring in the ordinary course of business, (ii) there
has not been any transaction entered into by the Company, other than
transactions in the ordinary course of business, (iii) except in the ordinary
course of business, the Company has not incurred any material obligation,
contingent or otherwise, (iv) the Company has not sustained any material insured
or uninsured loss or interference with its businesses or properties from fire,
flood, windstorm, accident or other calamity, (v) the Company has not paid or
declared any dividends or other distributions with respect to its capital stock
and the Company is not in default in the payment of principal of or interest on
any outstanding debt obligations, (vi) there has not been any change in the
capital stock (other than the exercise of outstanding stock options pursuant to
the Company's stock option plans described in the Registration Statement) of the
Company or material increase in indebtedness of the Company, and (vii) the
Company has not issued any options, warrants, convertible securities or other
rights to purchase the capital stock of the Company.
(l) The Company is not, nor with the giving of notice or the
passage of time or both will be, in violation or default under any provision of
its certificate of incorporation or bylaws or any of its agreements, leases,
licenses, contracts, franchises, mortgages, permits, deeds of trust indentures
or other instruments or obligations to which it is a party or by which it or any
of its properties is bound or may be affected (collectively, "Contracts") ,
except where such violation or default would not have a material adverse effect
on the business or financial condition of the Company. Each Contract to which
reference is made in the Registration Statement or which was filed as an exhibit
to the Registration Statement has been duly and validly authorized, executed and
delivered by the Company, constitutes the legal, valid and binding agreement of
the Company and is enforceable in accordance with its terms.
(m) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby do not and will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute, either by itself or upon notice or the passage of
time or both, a default under, any Contract to which the Company is a party or
by which the Company or any of its property may be bound or affected, except
where such breach, violation or default would not have a material adverse effect
on the business or financial condition of the Company, or violate any of the
provisions of the certificate of incorporation or bylaws of the Company, or
violate any statute, rule or regulation applicable to the Company or violate any
order, judgment or decree of any court or of any regulatory, administrative or
governmental body or agency or arbitral forum having jurisdiction over the
Company or any of its property, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the assets of the Company. The Company
has no intention of exercising any right which it may have to cancel any of its
rights or obligations under any Contract or has any knowledge that any other
party to any Contract has any intention not to render full performance
thereunder.
(n) The Company has the legal right, corporate power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is legally binding upon and enforceable against the Company in accordance
with its terms.
(o) Each approval, registration, qualification, license, permit,
consent, order, authorization, designation, declaration or filing by or with any
regulatory, administrative or other governmental body or agency necessary in
connection with the execution and delivery by the Company of this Agreement and
the consummation of the transactions herein contemplated (except such additional
steps as may be required by the National Association of Securities Dealers, Inc.
(the "NASD") or except as may be necessary to qualify the Units for public
offering under state securities or Blue Sky laws) has been obtained or made and
each is in full force and effect.
(p) The Company owns or possesses adequate and sufficient rights to
use all patents, patent rights, trade secrets, licenses or royalty arrangements,
trademarks and trademark rights, service marks, trade names, copyrights, know
how or proprietary techniques or rights thereto of others, and governmental,
regulatory or administrative authorizations, orders, permits, certificates and
consents necessary for the conduct of the business of the Company, except where
the failure to possess such would not have a material adverse effect on the
business or financial condition of the Company. The Company is not aware of any
pending or threatened action, suit, proceeding or claim by others, either
domestically or internationally, that alleges the Company is violating any
patents, patent rights, copyrights, trademarks or trademark rights, inventions,
service marks, trade names, licenses or royalty arrangements, trade secrets,
know how or proprietary techniques or rights thereto of others, or governmental,
regulatory or administrative authorizations, orders, permits, certificates and
consents. The Company is not aware, after due diligence, of any rights of third
parties to, or any infringement of, any of the Company's patents, patent rights,
trademarks or trademark rights, copyrights, licenses or royalty arrangements,
trade secrets, know how or proprietary techniques, including processes and
substances, or rights thereto of others, which could materially adversely affect
the use thereof by the Company or which would have a material adverse effect on
the Company. The Company is not aware, after due diligence, of any pending or
threatened action, suit, proceeding or claim by others challenging the validity
or scope of any of such patents, patent rights, trademarks or trademark rights,
copyrights, licenses or royalty arrangements, trade secrets, know how, or
proprietary techniques or rights thereto of others. The Company possesses those
patents that have been previously disclosed to you in writing, and such patents
remain in full force and effect.
(q) There are no Contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act which have not been described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(r) The Company is conducting business in compliance with all
applicable laws, rules, regulations and orders of the jurisdictions in which it
is conducting business, including, without limitation, all applicable local,
state, federal and foreign environmental laws and regulations, except where the
failure to so comply would not have a material adverse effect on the business,
property, financial condition or prospects of the Company. The Company possesses
adequate licenses, certificates and permits issued by the appropriate federal,
state and local regulatory authorities necessary to conduct its business and to
retain possession of its properties. Except as set forth in the Prospectus, the
expiration, revocation or modification of any such license, certificate or
permit would not materially adversley affect the operations of the Company. The
Company has not received any notice of any proceeding relating to the revocation
or modification of any of these licenses, certificates or permits.
(s) All transactions among the Company and the officers, directors,
and affiliates of the Company have been accurately disclosed in the Prospectus,
to the extent required to be disclosed in the Prospectus in accordance with the
Act. As used in this Agreement, the term "affiliate" shall mean a person or
entity controlling, controlled by or under common control with any specified
person or entity, with the concept of control meaning the ability to direct,
directly or indirectly, the management or policies of the controlled person or
entity, whether through the ownership of voting securities, by contract,
positions of employment, family relationships, service as an officer, director
or partner of the person or entity, or otherwise.
(t) Neither the Company nor, to the knowledge of the Company, any
officers, directors, employees, or agents acting on behalf of the Company has,
directly or indirectly, at any time during the past five years (i) made any
unlawful contribution to any candidate for public office, or failed to disclose
fully any contribution in violation of law, (ii) made any payment to any
federal, state, local or foreign governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any other such
jurisdiction, (iii) made any payment outside the ordinary course of business to
any purchasing or selling agent or person charged with similar duties of any
entity to which the Company sells or from which the Company buys product for the
purpose of influencing such agent or person to buy products from or sell
products to the Company, or (iv) except as set forth in the Prospectus, engaged
in any transaction, maintained any bank account or used any corporate funds
except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the Company. The
Company's internal accounting controls and procedures are sufficient to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(u) The Company maintains insurance of the types and in the amounts
which it deems adequate for its business and which is customary for companies in
its industry, including, but not limited to, general liability insurance and
insurance covering all real and personal property owned or leased by it against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.
(v) Thomas P. Monahan, C.P.A. who has certified the financial
statements filed with the Commission as part of the Registration Statement, is
an independent public accountant as required by the Act.
(w) The Company has taken all appropriate steps reasonably
necessary or appropriate to assure that no issuance, offering, sale or other
disposition of any capital stock of the Company will be made for a period of
thirteen (13) months after the date of this Agreement, directly or indirectly,
by the Company, otherwise than with your prior written consent or pursuant to
the exercise of outstanding stock options under the Company's stock option plans
described in the Registration Statement.
(x) The Company's Board of Directors consists of those persons
listed in the Prospectus. Except as disclosed in the Prospectus, none of such
persons is employed by the Company nor is any of them affiliated with the
Company, except for service on its Board of Directors.
(y) Except as provided for herein, no broker's or finder's fees or
commissions are due and payable by the Company, and none will be paid by it.
(z) The Company is eligible to use Form SB-2 for the registration
of the Units, Warrants and the securities underlying the Units and the Warrants.
(aa) Neither the Company nor, to its knowledge after due and
diligent inquiry, any person other than the Underwriter, has made any
representation, promise or warranty, whether verbal or in writing, to anyone,
whether an existing shareholder or not, that any of the Units will be reserved
for or directed to them during the proposed public offering.
(ab) Except as set forth in the Prospectus, the Company has not
established, contributed to or maintains any "employee benefit plan" as defined
in the Employment Retirement Income Security Act or in the Internal Revenue Code
of 1986, as amended.
(ac) The Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940, as amended.
(ad) Neither the Company nor, to its knowledge, any of its
officers, directors or affiliates (within the meaning of the Act) has taken,
directly or indirectly, any action designed to cause or result in, or which has
constituted the stabilization or manipulation of the price of the outstanding
Common Stock or any other outstanding securities of the Company to facilitate
the sale or resale of the Units other than in compliance with Commission Rule
10b-18.
2. Nature of the Offering.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, you will act
as the Company's exclusive underwriter (the "Underwriter" or "You") and will
assist the Company in offering 100,000 Units (the "Firm Commitment Offering") on
a "firm commitment" basis, and an additional 900,000 Units on a best efforts
basis (the "Best Efforts Ofering").
(jointly as the "Offering").
(b) The offering shall commence on the date designated by the
Underwriter.
(c) The Underwriter and any dealers with whom the Underwriter may
associate shall deposit all funds received from purchasers of the Units into an
account with the Clearing Broker.
Such funds shall remain in said account until the Firm Commitment
Offering has been sold and shall then be disbursed to the Company in accordance
with the terms of this Section 2. Funds in said account received with respect to
the Best Efforts Commitment will be accepted or rejected by the Company within
one (1) business day of receipt and will remain in said account not later than
one (1) additional business day before being transferred to the Company less
commissions and allowances set forth hereinafter.
(d) [Reserved]
(e) The Units are to be issued and sold at the gross price per
share indicated in the Prospectus (the "Initial Price") . The Underwriter may
from time to time thereafter change the offering price and other selling terms.
(f) Payment for the Units sold in the Offering is to be made by the
Clearing Broker by certified or bank cashier's check(s) drawn to the order of
the Company, or by wire transfer of funds as the Representative shall elect,
against delivery of such Units to the Underwriter. Such payment and delivery are
to be made at the offices of the Clearing Broker, Jersey City, New Jersey time,
on the fifth business day after the Effective Date of the Offering, or at such
other time, date and place not later than seven business days thereafter as the
Underwriter and the Company shall agree upon, such time and date being herein
referred to as the "Closing Date." The certificates for the Units shall be in
definitive form with engraved borders and shall be delivered in such
denominations and registered in such names as the Underwriter requests in
writing not later than the third full business day prior to the Closing Date,
and shall be made available for inspection by the Underwriter at least one
business day prior to the Closing Date at the offices of the Underwriter noted
above. (As used herein, "business day" means a day on which the New York Stock
Exchange, Inc. is open for trading and on which banks in New Jersey are open for
business and not permitted by law or executive order to be closed.)
(g) The Underwriter shall be entitled at closing to a commission equal to
ten percent (10%) of the gross amount raised through the sale of the Units and,
in addition thereto, a nonaccountable expense allowance equal to three percent
(3%) of the gross amount raised through the sale of the Units. On the Closing
Date, the Representative shall deduct the commission, and the nonaccountable
expense allowance from the proceeds received from the sale of the Units prior to
transmitting payment to the Company and shall pay such amounts to the
Underwriters by certified or bank cashier's check(s) drawn to the order of the
Underwriter, or by wire transfer of funds as the Clearing Broker shall elect. To
the date of this Agreement, the Company has advanced to the Underwriter the
amount of $20,000, which will be credited against the nonaccountable expense
allowance from the release of funds to the Company at the Closing.
(h) The Underwriter shall have the right to associate with such
other underwriters and dealers as the Underwriter may determine and shall have
the right to grant to such persons such concessions out of the Underwriting
discount to be received by the Underwriter as the Underwriter may determine,
under and pursuant to a Master Selected Dealers Agreement in the form filed as
an exhibit to the Registration Statement.
3. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company (i) shall prepare and timely file with the
Commission under Rule 424(b) under the Act a prospectus containing information
previously omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A under the Act and (ii) shall not file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously have been advised and furnished with a copy or to which you shall
have reasonably objected in writing or which is not in compliance with the Act.
The Company shall prepare and file, promptly upon your request, any amendments
of or supplements to the Registration Statement or Prospectus which you
reasonably deem necessary or advisable in connection with the transactions
contemplated by this Agreement.
(b) The Company shall advise you promptly and shall confirm such
advice in writing (i) when the Registration Statement has become effective, (ii)
of any request of the Commission for amendment of the Registration Statement or
for supplementation to the, Prospectus or for any additional information, and
(iii) of the issuance by the Commission or any state securities commission of
any stop order suspending the effectiveness of the Registration Statement or the
use of the Prospectus or of the institution of any proceedings for that purpose,
and the Company shall use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to obtain as
soon as possible the lifting thereof.
(c) The Company shall cooperate with you in endeavoring to qualify
the Units for sale under the securities laws of such jurisdictions as you may
have designated in writing and will make such applications, file such documents
and reports, and furnish such information as may be required for that purpose,
whether before, during or after the offering. The Company shall, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as you may request.
(d) The Company shall qualify the Units and the common stock for
trading on the National Association of Securities Dealers Electronic Bulletin
Board ("Bulletin Board") to be effective upon the Closing. The Company shall
make all filings required to obtain and maintain the listing of the Units on the
Bulletin Board. The Company shall use its best efforts (i) to be included in
Standard & Poor's Corporations Manual and Moody's Investors Services, Inc.
Manual as soon as possible following the Closing Date and (ii) to continue to be
included in both such manuals for at least five (5) years following the Closing
Date.
(e) The Company shall deliver to you, or upon your order, from time
to time, as many copies of any Preliminary Prospectus as you may request. The
Company shall deliver to you, or upon your order, during the period when
delivery of a Prospectus is required under the Act, as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as you may
request. The Company shall deliver to you, at or before the Closing Date, five
signed copies of the Registration Statement and all amendments thereto including
all exhibits filed therewith, and shall deliver to you such number of copies of
the Registration Statement, without exhibits, but including any information
incorporated by reference, and of all amendments thereto, as you may request.
(f) If during the period in which a Prospectus is required by law
to be delivered by an Underwriter or dealer any event shall occur as a result of
which, in the judgment of the Company or in the opinion of counsel for the
Underwriter, it becomes necessary to amend or supplement the Prospectus in order
to make the statements therein not misleading, or, if it is necessary at any
time to amend or supplement the Prospectus to comply with any law, the Company
promptly shall prepare and file with the Commission an appropriate amendment to
the Registration Statement or supplement to the Prospectus so that the
Registration Statement including the Prospectus as so amended or supplemented
will not be misleading, or so that the Registration Statement, including the
Prospectus, shall comply with law.
(g) The Company shall make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the Effective Date of the Registration Statement an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 under the Act and will advise you in
writing when such statement has been so made available and shall furnish you
with a true and correct copy thereof.
(h) The Company shall, at its expense, for a period of five years
from the Closing Date, deliver to you copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as soon as they are
available. The Company shall deliver to you similar reports with respect to
significant subsidiaries, as that term is defined in the Act, which are not
consolidated in the Company's financial statements. The Company, at its expense,
shall furnish to its security holders an annual report (including financial
statements audited by independent public accountants) and, as soon as practical
after the end of each of the first three quarters of each fiscal year, a
statement of operations of the Company for such quarter (which may be in summary
form), all in reasonable detail. If and for long as the Company has an active
subsidiary or subsidiaries, the financial statements provided for in this
Section 4(h) will be on a consolidated basis to the extent the accounts of the
Company and its subsidiary or subsidiaries are consolidated in reports furnished
to its stockholders generally. The Company shall also use its best efforts to
cause its officers, directors and beneficial owners of ten percent (10%) or more
of any of its registered securities to deliver a copy of any of the Commission
Forms 3, 4 or 5 filed with the Commission to you and the Company shall deliver
copies of all such Forms received by it to you.
The Company shall maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (i)the transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary in order to permit preparation of
financial statements in accordance with generally accepted accounting principles
and to maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(j) The Company shall comply with all registration, filing and
reporting requirements of the Exchange Act which may from time to time be
applicable to the Company.
(k) The Company shall, at its expense, for a period of five years
from the Closing Date, deliver to you two copies of every press release and
every material news item and article in respect ot the Company and its affairs
at the time it is released by the Company, copies of transfer reports from its
transfer agents, and such additional documents and information with respect to
the Company and its affairs as you may from time to time reasonably request.
(l) After receipt of funds from the Clearing Broker, the Company
shall apply the net proceeds of the sale of the Units sold by it in accordance
with the statements under the caption "USE OF PROCEEDS" in the Prospectus. Prior
to the application of such net proceeds, the Company will invest or reinvest
such proceeds only in Eligible Investments. "Eligible Investments" shall mean
the following investments so long as they have maturities of one year or less:
(i) obligations issued or guaranteed by the United States or by any person
controlled or supervised by or acting as an instrumentality of the United States
pursuant to authority granted by Congress; (ii) obligations issued or guaranteed
by any state or political subdivision thereof rated either Aa or higher, or MIG
1 or higher, by Moody's Investors Service, Inc. or AA or higher, or an
equivalent, by Standard & Poor's Corporation, both of New York, New York, or
their successors; (iii) commercial or finance paper which is rated either
Prime-1 or higher or an equivalent by Moody's Investors Services, Inc. or A-1 or
higher or an equivalent by Standard & Poor's Corporation, both of New York, New
York or their successors; and (iv) certificates of deposit or time deposits of
banks or trust companies, organized under the laws of the United States, having
a minimum equity of $250,000,000. The Company shall file such reports with the
Commission with respect to the sale of the Units and the application of the
proceeds therefrom as may be required by Rule 463 under the Act.
(m)Until the date which is thirty (30) days after the Effective
Date of the Registration Statement, the Company shall not negotiate with any
other underwriter or other person relating to the possible public or private
offering or placement of its securities.
(n)The Company shall not, and has required each of its directors,
executive officers and affiliates to enter into agreements not to, offer, issue,
sell, transfer or otherwise dispose of, for value or otherwise, any shares of
the Company's capital stock for ninety (90) days after the Closing Date without
the prior written consent of the Underwriter, which consent may be withheld for
any reason. In addition, the Company has required each of its officers,
directors, shareholders holding in excess of four (4%) of the outstanding shares
of the Company's capital stock and all Class B Preferred stockholders who are
converting their shares into common stock to be registered in the Offering not
to offer, issue, sell, transfer or otherwise dispose of, for value or otherwise,
any shares of the Company's capital stock for twelve (12) months after the
Closing Date without the prior written consent of the Underwriter, which consent
may be withheld for any reason. The Company has furnished the Underwriter with
an executed copy of each such agreement.
(o)The Company shall make original documents and other
information relating to the affairs of the Company available upon request to the
Underwriter and to its counsel at the Company's office for inspection and copies
of any such documents will be furnished upon request to the Underwriter and to
its counsel. Included within the documents made available have been at least
true and complete copies of the articles of incorporation and all amendments
thereto of the Company (certified by the secretary of the Company) the bylaws
and all amendments thereto of the Company, minutes of all of the meetings of the
incorporators, directors and shareholders of the Company, all financial
statements of the Company and copies of all Contracts to which the Company is a
party or in which the Company has an interest.
(p)The Company has appointed Jersey Transfer and Trust Company,
as the Company's transfer agent. Unless you otherwise consent in writing, the
Company shall continue to retain a transfer agent reasonably satisfactory to you
for a period of three (3) years following the Closing. The Company shall make
arrangements to have available at the office of the transfer agent sufficient
quantities of the Company's Units and Common Stock certificates as may be needed
for the quick and efficient transfer of the Units as contemplated hereunder and
for the five (5) year period following the Closing.
(q)[Reserved]
(r)Except with your approval, which approval may be withheld for
any reason, the Company agrees that the Company shall not do any of the
following for ninety (90) days after Closing:
(i)Undertake or authorize any change in its capital structure or
authorize, issue or permit any public or private offering of additional
securities, except any currently outstanding options;
(ii) Authorize, create, issue or sell any funded obligations,
notes or other evidences of indebtedness, except in the ordinary
course of business;
(iii) Consolidate or merge with or into any other corporation or
effect a material corporate reorganization of the Company; or
(iv) Create any mortgage or any lien upon any of its properties
or assets, except in the ordinary course of its business.
(s)The Company agrees that neither it nor any of its directors or
officers will take, directly or indirectly, any action designed to or which
might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Units or to facilitate the sale or resale of
the Units.
(t)The Company shall deliver to each Underwriter, at the Closing
Representative's Warrants to purchase in the aggregate that number of Units (the
"Warrant Units") which is equal to ten percent (10%) of the number of Units sold
in the Offering, in the form attached hereto as Exhibit B.
(u)At or prior to the Closing, the Company shall purchase key man
life insurance on the lives of Gerald Sugerman and Roger Fidler. The Company
shall maintain such life insurance for a period of at least five (5) years after
the Closing Date. In addition, at or prior to the Closing, the Company shall
enter into an employment with Gerald Sugerman and Roger Fidler, the terms of
which are satisfactory to the Underwriter.
4. Costs and Expenses. The Company shall pay all actual costs,
expenses and fees reasonably itemized in connection with the Offering or
incident to the performance of the obligations of the Company under this
Agreement, including, without limiting the generality of the foregoing, the
following: the fees and disbursements of the accountants for the Company; the
fees and disbursements of counsel for the Company; the Blue Sky fees of counsel
for you; the cost of printing and delivering to, or as requested by the
Underwriter certificates for the Units and copies of the Registration Statement
and exhibits thereto, Preliminary Prospectuses, the Prospectus, this Agreement,
the Selected Dealers Agreement, the Invitation Telecopy, the Blue Sky Memorandum
and any supplements or amendments thereto; the filing and listing fees of the
Commission, NASD, NASDAQ, and any other similar entity in connection with the
offering; Blue Sky and other regulatory filing fees; the fees and disbursements
of the transfer agent; the fees and disbursements of the Escrow Agent; the costs
of advertising in publications to be determined by agreement between the Company
and the Underwriter in an amount not to exceed $5,000, and any other advertising
undertaken at the Company's request, provided, however, that the Company shall
not unreasonably withhold its consent to any advertising proposed by you and
shall pay the costs of any such advertising to which the Company consents or to
which it unreasonably withholds its consent; and the costs of preparing,
printing and distributing three (3) bound volumes for you and your counsel. The
Company shall use a printer acceptable to you. Any transfer taxes imposed on
the, sale of the Units to the Underwriter shall be paid by the Company. Except
as provided in Section 2(g) with respect to the nonaccountable expense allowance
or in this Section 4, the Company shall not be required to pay for any of the
Underwriter's other expenses; provided, however, that if this Agreement shall
not be consummated because the conditions in Section 5 hereof are not satisfied,
because this Agreement is terminated by the Underwriter pursuant to Section 9
hereof, or because of any failure, refusal or inability on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement or
to comply with any of the terms hereof on its part to be performed, unless such
failure to satisfy said condition or to comply with said terms be due solely to
the default of the Underwriter, then in lieu of the foregoing provisions in this
Section 4 (and without prejudice to all other rights and remedies which the
Underwriter may have against the Company at law and in equity, and which are in
accordance with the NASD's Rules of Fair Practice) the Company shall reimburse
the Underwriter upon demand and on an accountable basis for all out-of-pocket
costs and expenses, including all fees and disbursements of counsel, actually
incurred by the Underwriter in connection with investigating, marketing and
proposing to market the Units or in contemplation of performing its obligations
hereunder, but excluding general overhead, salaries, supplies and similar
expenses incurred in the normal conduct of business.
5. Conditions of Obligations of the Underwriter. The Company's
right to receive payment and the obligations of the Underwriter hereunder are
subject to the accuracy, as of the Closing Date of the representations and
warranties of the Company contained in this Agreement, to the performance by the
Company of its covenants and obligations hereunder, and to the following
additional conditions:
(a)The Registration Statement shall have become effective and the
Underwriter shall have received notice thereof not later than 5:00 p.m., New
Jersey time, on the first business day following the date of this Agreement, or
such later date and time as may be consented to in writing by the Underwriter.
No stop order suspending the effectiveness of the Registration Statement, as
amended from time to time, shall have been issued and no proceedings for that
purpose shall have been taken or, to the best knowledge of the Company, after
due inquiry, shall be contemplated by the Commission or any state securities
commission. Any request by the Commission for additional information shall have
been complied with to the reasonable satisfaction of your counsel.
(b)You shall have received on the Closing Date the opinion of
Roger Fidler, Esq., counsel for the Company, dated the Closing Date, addressed
to you to the effect that:
(i)The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and corporate authority to own or lease
its properties and conduct its business as described in the Registration
Statement. The Company is duly qualified to transact business and in good
standing in all jurisdictions, in which the conduct of its business or the
location of the properties owned or leased by it requires such qualification,
except where the failure to qualify would not have a material adverse effect
upon the business properties, financial condition or prospects of the Company.
(ii) The Company has authorized, issued and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus. The
outstanding shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with all federal and state securities laws, except where
noncompliance would not materially adversely affect the business or financial
condition or results of operation of the Company. All of the Units and Warrants
to be issued and sold by the Company pursuant to this Agreement and the
securities underlying such Units and Warrants have been duly authorized and,
when issued and paid for as contemplated herein, will be validly issued, fully
paid and nonassessable. To the best of such counsel's knowledge, no preemptive
rights of stockholders exist with respect to any of the Units or the issue and
sale thereof. To the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Units or the Warrants as
contemplated herein gives rise to any rights, other than those which have been
waived or satisfied, for or relating to the registration of any of the Company's
securities. To the best of such counsel's knowledge, no further approval or
authority of the stockholders or the Board of Directors of the Company is
required for the issuance and sale of the Units and Warrants to be sold by the
Company as contemplated herein or for the issuance and sale of the securities
underlying such Units and Warrants.
(iii) The certificates representing the Units to be delivered
hereunder are in due and proper form under Delaware law and the Units and the
Warrants conform in all material respects to the description thereof contained
in the Prospectus. The Warrants and the securities underlying the Warrants have
been duly authorized and reserved for issuance.
(iv) Except as specifically disclosed in the Registration
Statement and the financial statements of the Company, and the related notes
thereto, to the best of such counsel's knowledge, the Company does not have
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell shares of its capital stock or any
such options, rights, convertible securities or obligations. The descriptions of
the Company's stock option and other stock-based plans set forth in the
Prospectus are accurate summaries and fairly present the information required to
be shown with respect to such plans and rights in all material respects.
(v)The Registration Statement and all posteffective amendments
thereto have become effective under the Act and to the best of the knowledge of
such counsel no stop order proceedings with respect to the Registration
Statement have been instituted or are pending or threatened under the Act and
nothing has come to such counsel's attention to lead them to believe that such
proceedings are contemplated. Any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) under the Act has been made in the
manner and within the time period required by such Rule 424(b).
(vi) The Registration Statement, all Preliminary Prospectuses,
the Prospectus and each amendment or supplement thereto comply as to form in all
material respects with the requirements of the Act (except that such counsel
need express no opinion as to the financial statements, schedules and other
financial and statistical information included therein).
(vii) To the best of such counsel's knowledge, there are no
Contracts or other documents required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or the
Prospectus which are required to be filed or described, which are not so filed
or described as required, and such Contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.
(viii) To the best of such counsel's knowledge, there is no
action, suit or proceeding pending or threatened against the Company before any
court or regulatory, governmental or administrative agency or body or arbitral
forum, domestic or foreign, which questions the validity of the Units or the
Warrants or this Agreement or of any action to be taken by the Company pursuant
thereto, which is of a character required to be disclosed in the Prospectus
pursuant to the Act, or which might result in any material adverse change in the
business or condition (financial or otherwise), properties, results of
operations or prospects for the future of the Company, except as set forth in
the Prospectus. To the best of such counsel's knowledge, the Company is not a
party or subject to the provisions of any injunction, judgment, decree or order
of any court, regulatory body, administrative agency or other governmental body
or agency or arbitral forum except as disclosed in the Prospectus. During the
course of their ordinary due diligence, which does not include knowledge of the
Company's day-to-day operations, nothing has come to the attention of such
counsel that would suggest that the Company is not conducting business in
compliance with all applicable laws, statutes, rules, regulations and orders of
the United States of America on a federal level, and of each jurisdiction in
which it is conducting business, except where the failure to so comply would not
have a material adverse effect on the business, properties, financial condition
or prospects of the Company.
(ix) To the best of such counsel's knowledge, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not conflict with or result in
a breach or violation of any of the terms or provisions of, or constitute,
either by itself or upon notice or the passage of time or both, a default under,
any Contract to which the Company is a party or by which the Company or any of
its property may be bound or affected, which has been certified by the Company
to such counsel as instruments under which the Company enjoys substantial rights
and benefits (and counsel shall state that to the best of such counsel's
knowledge they know of no other such instruments to be in existence), except
where such breach, violation or default would not have a material adverse effect
on the business or financial condition of the Company or any of its
Subsidiaries, or violate any of the provisions of the certificate of
incorporation or bylaws of the Company, or, to the best of such counsel's
knowledge, violate any statute, rule or regulation known to such counsel or
violate any judgment, decree or order, of any court or of any governmental,
regulatory or administrative body or agency or arbitral forum having
jurisdiction over the Company or any of its property (other than as may be
required by state securities or Blue Sky laws as to which such counsel need
express no opinion) or, to the best of such counsel's knowledge, result in the
creation or imposition of any lien, charge or encumbrance upon any of the assets
of the Company.
(x) The Company is not, nor with the giving of notice or the
passage of time or both will be, in violation or default under any provision of
any of its certificate of incorporation or bylaws, and, to the best of such
counsel's knowledge, the Company is not in violation of or default under any
Contracts to which it is a party or by which it or any of its properties is
bound or may be affected that have been certified by the Company to such counsel
as instruments under which the Company enjoys substantial rights and benefits
(and such counsel shall state that to the best of such counsel's knowledge they
know of no other such instruments to be in existence) except where such
violation or default would not have a material adverse effect on the business or
financial condition of the Company.
(xi) The Company has the legal right, corporate power and
authority to enter into this Agreement on behalf of itself and perform the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company. This Agreement is the legal, valid and
binding obligation of the Company, enforceable in accordance with its terms,
subject to customary exceptions for bankruptcy, insolvency, and equitable
principles, except to the extent that the enforceability of the indemnification
provisions of this Agreement may be limited by consideration of public policy
under federal and state securities laws.
(xii) To the best of such counsel's knowledge, each approval,
consent, order, authorization, designation, registration, permit, qualification,
license, declaration or filing by or with any regulatory, administrative or
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD as to which such counsel
need express no opinion) has been obtained or made and each is in full force and
effect.
(xiii) To the best of such counsel's knowledge, the Company owns
or possesses adequate and sufficient rights to use all patents, patent rights,
trade secrets, licenses or royalty arrangements, trademarks and trademark
rights, service marks, trade names, copyrights, know how or proprietary
techniques, or rights thereto of others, and governmental, regulatory or
administrative authorizations, orders, permits, certificates and consents
necessary for the conduct of the business of the Company, except where the
failure to possess the same would not have a material adverse effect on the
business or financial condition of the Company. Such counsel is not aware of any
pending or threatened action, suit, proceeding or claim by others, either
domestically or internationally, that alleges the Company is violating any
patents, patent rights, copyrights, trademarks or trademark rights, service
marks, trade names, licenses or royalty arrangements, trade secrets, know how or
proprietary techniques, or rights thereto of others, or governmental, regulatory
or administrative authorizations, permits, orders, certificates or consents, the
existence of which would have a material adverse effect on the business or
financial condition of the Company. Such counsel is not aware of any rights of
third parties to, or any infringement of, any of the Company's patents, patent
rights, trademarks or trademark rights, copyrights, licenses or royalty
arrangements, trade secrets, know how or proprietary techniques, including
processes and substances, the existence of which would have a material adverse
effect on the business or financial condition of the Company. Such counsel is
not aware of any pending or threatened action, suit, proceeding or claim by
others challenging the validity or scope of any of such patents, patent rights,
trademarks or trademark rights, copyrights, licenses or royalty arrangements,
trade secrets, know how, or proprietary techniques or rights thereto of others,
the existence of which would have a material adverse effect on the business or
financial condition of the Company. The Company possesses licenses to those
patents that have been previously disclosed to you in writing, and, to the best
of counsel's knowledge, such licenses remain in full force and effect.
(xiv) To the best of such counsel's knowledge, no transfer taxes
are required to be paid under Delaware or New Jersey law in connection with the
sale and delivery of the Units or Warrants to the Underwriter hereunder.
(xv) The Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940, as amended.
(xvi) To the best of such counsel's knowledge, the offering and
sale of all securities of the Company made within the last three (3) years as
set forth in Item 15 of the Registration Statement were exempt from the
registration requirements of the Act pursuant to the provisions set forth in
such item. To the best of such counsel's knowledge, neither the offering nor
sale of such securities may be integrated with the offering or sale of any other
securities, including the Units, so as to cause the loss of such exemptions from
the registration requirements of the Act.
In rendering such opinion, Roger Fidler, Esq., may rely as to
matters governed by the laws of states other than Delaware and Federal laws of
the United States of America on local counsel in such jurisdictions, provided
that (a) Roger Fidler, Esq., shall state that it believes that it and the
Underwriter is justified in relying on such other counsel, (b) such other
counsel are acceptable to you, and (c) copies of the opinions of such other
counsel shall be attached to the opinion of Roger Fidler, Esq. As to factual
matters, Roger Fidler, Esq., may rely on certificates obtained from directors
and officers of the Company, its shareholders, and from public officials.
Matters stated to counsel's knowledge or to the best of such counsel's knowledge
shall be made after due and diligent inquiry, and the opinion shall so note that
requirement. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads him to believe that the Registration Statement, or any
amendment thereto, at the time the Registration Statement or amendment became
effective, contained an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or the Prospectus or any amendment or supplement thereto,
at the time it was filed pursuant to Rule 424 (b) or at the Closing Date,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading (except
that such counsel need express no view as to that portion of the Registration
Statement under the heading "UNDERWRITING, or as to the financial statements,
schedules and other financial information and statistical data and information
included in the Registration Statement).
(c)You and the Company shall have received at or prior to the
Closing Date from Roger L. Fidler, Esq., a memorandum or summary, in form and
substance satisfactory to you, with respect to the qualification for offering
and sale by the Underwriter of the Units under the state securities or Blue Sky
laws of such jurisdictions as you may have designated to the Company.
(d)You shall have received on the date hereof and on the Closing
Date a signed letter from Thomas P. Monahan, C.P.A dated the date hereof, and
the Closing Date, which shall confirm, on the basis of a review in accordance
with the procedures set forth in the letter signed by such person and dated and
delivered to you on the date noted above, the following matters:
(i)He is an independent public accountant with respect to the
Company as required by the Act.
(ii) The financial statements, the notes thereto and the related
schedules included in the Registration Statement and Prospectus covered by their
reports therein set forth comply as to form in all material respects with the
pertinent accounting requirements of the Act.
(iii) On the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a reading
of the minutes of meetings and consents of the shareholders and boards of
directors of the Company and the committees of such boards subsequent to
March 31, 1999, as set forth in the minute books of the Company, inquiries
of officers and other employees of the Company who have responsibilities for
financial and accounting matters with respect to transactions and events
subsequent to March 31, 1999, and such other specified procedures and
inquiries to a date not more than five days prior to the date of such letter,
nothing has come to his attention which in his judgment would indicate that (A)
with respect to the period subsequent to March 31, 1999, there were, as of
the date of the most recent available monthly consolidated financial statements
of the Company and, as of a specified date not more than five days prior to the
date of such letter, any changes in the capital stock or long-term indebtedness
of the Company or payment or declaration of any dividend or other distribution,
or decrease in net current assets, total assets, or net stockholders' equity, in
each case as compared with the amounts shown in the most recent audited
consolidated financial statements included in the Registration Statement and the
Prospectus, except for changes or decreases which the Registration Statement and
the Prospectus disclose have occurred or may occur or which are set forth in
such letter or (B) during the period from March 31, 1999, to the date of the
most recent available monthly unaudited consolidated financial statements of the
Company and to a specified date not more than five days prior to the date of
such letter, there was any decrease, as compared with the corresponding period
in the prior fiscal year, in total revenues or total or per share net income,
except for decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur or which are set forth in such letter.
(iv) He has compared the information expressed in amounts, dollar
amounts, numbers of shares, and percentages derived therefrom and other
financial information pertaining to the Company set forth in the Registration
Statement and the Prospectus, which have been specified by you prior to the date
of this Agreement, to the extent that such amounts, dollar amounts, numbers and
percentages and information may be derived from the general accounting and
financial records of the Company or from schedules furnished by the Company, and
excluding any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified reasonings, inquiries and
other appropriate procedures specified by you (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in such letter heretofore delivered, and found them to be
in agreement.
(v)Such other matters as may be reasonably requested by the
Underwriter.
All such letters shall be in form and substance satisfactory to you and your
counsel and shall be addressed to the Underwriter.
(e)You shall have received on the Closing Date a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as of the Closing Date, each of them jointly and
severally represents as follows:
(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for such purpose have been taken or are, to the
best of their knowledge, after due inquiry, contemplated or threatened by the
Commission or any state securities commissions.
(ii) They do not know of any investigation, litigation, or
proceeding instituted or threatened against the Company of a character required
to be disclosed in the Registration Statement which is not so disclosed. They do
not know of any Contract or other document required to be filed as an exhibit to
the Registration Statement which is not so filed. The representations and
warranties of the Company contained in Section I hereof are true and correct in
all material respects as of the Closing Date as if such representations and
warranties were made as of such date.
(iii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion, as of the Effective Date of the
Registration Statement, the statements contained in the Registration Statement
were and are correct, in all material respects, and such Registration Statement
and Prospectus do not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading and,
in their opinion, since the Effective Date of the Registration Statement, no
event has occurred which should be set forth in a supplement to or an amendment
of the Prospectus which has not been so set forth in such supplement or
amendment.
(iv) Each of the licenses to the patents described in the
Registration Statement is valid and enforceable, each of such licenses described
in the Registration Statement is in the name of the Company and the Company has
full right, title and interest in and to each of such licenses. To the best
knowledge of such officers, no third party has attacked or questioned the
validity of any such patents, none of such patents are infringed by any third
party, and none of the systems, devices or inventions claimed in any of such
patents and patent applications, if manufactured, sold or used, would infringe
on any patents issued to any third party.
(v)The Company shall have furnished to you such further
certificates and documents confirming the representations, warranties and
covenants contained herein and related matters as you may reasonably have
requested.
The opinions and certificates described in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in all
respects satisfactory to you and to Steven I. Gutstein, your counsel.
If any of the conditions hereinabove provided for in this Section
5 shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriter hereunder may be terminated by
notifying the Company of such termination in writing or by telegram at or prior
to the Closing Date. In such event, the Company and the Underwriter shall not be
under any obligation to each other (except to the extent provided in Sections 4
and 7 hereof).
6. Conditions to the Obligations of the Company. The obligations
of the Company to deliver the Units and Warrants required to be delivered as and
when specified in this Agreement are subject to the conditions that at the
Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and in effect or proceedings therefor initiated
or threatened.
7. Indemnification.
(a)The Company agrees to indemnify and hold harmless the
Underwriter and its respective affiliates, directors, officers, partners,
employees, agents, counsel, and representatives, including the dealers who
execute the Selected Dealers Agreement (collectively, "Underwriter Parties"),
from and against any losses, claims, damages or liabilities to which such
Underwriter Parties or any one or more of them may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any
failure by the Company or any of its affiliates, directors, officers, employees,
agents, counsel, and representatives (collectively, the "Company Parties") to
perform any obligation hereunder or under any other agreement among any of the
Company Parties and any of the Underwriter Parties, (ii) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or in any Blue Sky application or other document executed by
the Company specifically for that purpose or based upon written information
provided by the Company filed in any state or other jurisdiction in order to
qualify any or all of the Units under the securities laws thereof, or (iii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and will reimburse each
Underwriter Party for any legal or other expenses incurred by such Underwriter
Party in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided, however, that (X) the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement, or
alleged untrue statement, or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by or
through you specifically for use in the preparation thereof (which the parties
hereto agree is limited solely to that information contained in the section of
the Preliminary Prospectus entitled "UNDERWRITING"), and (Y) such indemnity with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter Party from whom the person asserting any such loss, claim, damage or
liability purchased the Units which are the subject thereof if such person did
not receive a copy of the Prospectus (or the Prospectus as amended or
supplemented) at or prior to the confirmation of the sale of such Units to such
person in any case where such delivery is required by the Act and the untrue
statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented). This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b)The Underwriter will indemnify and hold harmless the Company
Parties against any losses, claims, damages or liabilities to which the Company
Parties or any one or more of them may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any failure
by the Underwriter Parties to perform any obligations hereunder or under any
other agreement among any of the Underwriter Parties and any of the Company
Parties, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or (iii) the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and will reimburse any legal or other
expenses reasonably incurred by the Company Parties in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that the Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Underwriter specifically
for use in the preparation thereof (which the parties hereto agree is limited
solely to that information contained on the cover page of the Prospectus or
Preliminary Prospectus and in the section thereof entitled "UNDERWRITING") .
This indemnity agreement will be in addition to any liability which the Company
Parties may otherwise have.
(c)In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 7, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 7 (a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 7(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give such notice,
but the failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of the provisions of Section 7 (a)
or (b). In case any such proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood, however, that the indemnifying party shall not, in
connection with any proceeding or substantially similar or related proceedings
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties, except as otherwise provided in
the next succeeding sentence. Such firm shall be designated in writing by you in
the case of parties indemnified pursuant to Section 7(a) and by the Company in
the case of parties indemnified pursuant to Section 7(b). The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment.
(d)If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriter on the other from the offering of the Units. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under Section 7(c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Underwriter on the
other in connection with the statements or omissions which resulted in such
losses, claims damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriter on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting fees and commissions received by the Underwriter, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriter on the other and the parties, relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriter agree that it would not be just
and equitable if contributions pursuant to this Section 7(d) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 7(d).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 7(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection 7(d), (i) the Underwriter shall not be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Units sold by the Underwriter pursuant to this Agreement, and
(ii) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
(e)In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 7 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon, him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
8. Notices. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered, telecopied, or
telegraphed and confirmed as follows: if to the Underwriter, to Kenneth Jerome &
Company, Inc., 247 Columbia Turnpike, Florham Park, New Jersey 07932 (201)
966-6669 Fax:(201) 966-6319 Attention: Mr. Robert Kaplon, with a copy to Steven
I. Gutstein, Esq., 276 Fifth Avenue, New York, New York 10001, (212) 725-7110
Fax (212) 725-7527; if to the Company, to PPA Technologies, Inc., 163 South
Street, Hackensack, New Jersey 07601 Attention: Gerald Sugerman, with a copy to:
The Law Offices of Roger Fidler, 163 South Street, Hackensack, New Jersey 07601,
(201) 457-1221 Fax: (201) 457-1331.
9. Termination. This Agreement may be terminated by you by notice
to the Company as follows:
(a)at any time prior to 11:30 A.M., New Jersey time, on the first
business day following the date of this Agreement;
(b)at any time prior to the Closing itself if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company, or the
earnings, business affairs, management or business prospects of the Company,
whether or not arising in the ordinary course of business, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change on the financial markets or economic conditions would, in your
reasonable judgment, make the offering or delivery of the Units impracticable,
(iii) suspension of trading in securities on the New York Stock Exchange, Inc.
or the American Stock Exchange or limitation on prices (other than limitations
on hours or numbers of days of trading) for securities on either such Exchange,
(iv) the enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of any court or other governmental
authority which in your reasonable opinion materially and adversely affects or
will materially or adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by either federal or New Jersey
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States or the prospects of the Company; or
(c) as provided in Section 5 of this Agreement.
10.Successors. This Agreement has been and is made solely for the
benefit of the Underwriter and the Company and their respective successors,
executors, administrators, heirs and assigns, and the Underwriter Parties and
Company Parties referred to herein, and no other person will have any right or
obligation hereunder. The term "successors" shall not include any purchaser of
the Units merely because of such purchase.
11.Miscellaneous. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations and
warranties in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter Party, or by or on behalf of any Company Party and (c)
delivery of and payment for the Units under this Agreement.
This Agreement and any notices delivered hereunder may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. This
Agreement and any and all notices may be delivered by telecopy and shall be
effective upon receipt, with the original of such document to be deposited
promptly in the U.S. Mail.
This Agreement and all disputes and controversies relating hereto
or in connection with the transactions contemplated hereby shall be governed by,
and construed in accordance with, the laws of the State of New Jersey.
If the foregoing agreement is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement between the
Company and you in accordance with its terms.
Very truly yours,
PPA TECHNOLOGIES, INC.
By:
Roger L. Fidler
President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
KENNETH JEROME & COMPANY, INC.
BY:________________
Robert Kaplon
President
KENNETH JEROME & CO., INC.
147 Columbia Turnpike
Florham Park, New Jersey 07932
SELECTED DEALERS AGREEMENT Gentlemen: Kenneth Jerome & Co., Inc. (the
"Representative" or the "Underwriter"), as representative for the underwriters
("Underwriters"), proposes to offer on a firm commitment basis, 100,000 Units
and an additional 900,000 Units on a "best efforts" basis (the "Units" or
"Securities") of PPA Technologies, Inc., a New Jersey corporation, (the
"Company"). Such offer will be made pursuant to the terms and conditions of the
Underwriting Agreement between the Company and the Underwriters. The Units to be
offered for sale are more particularly described in the enclosed preliminary
Prospectus ("Prospectus"). We invite your participation, as a Selected Dealer,
on the terms and conditions stated herein.
1. Offering Price. The Units are to be reoffered to the public
at a price of not less than $6.00 per Unit and shall not be directly or
indirectly offered or sold to the public by Selected Dealers at any lower price
during the period this Agreement is in effect. The Company proposes to issue and
sell 1,000,000 Units.
2. Selected Dealers. Members of the National Association of
Securities Dealers, Inc. (the "NASD") who shall agree to reoffer Units hereunder
(hereinafter referred to as "Selected Dealers" or "Participating Dealers") will
be allowed a selling concession of ______ percent (__%) payable as hereinafter
provided. No concession shall be earned or paid unless a Closing shall take
place prior to the "Termination Date" as defined in the Registration Statement
filed with the United States Securities and Exchange Commission. You agree that
in reoffering said securities, if your offer is accepted after the Effective
Date, you will make a bona fide public distribution of same. You will advise us
upon request of the Securities purchased by you remaining unsold and we shall
have the right to repurchase such Securities upon demand at the public offering
price without payment of any concession with respect to any Securities so
repurchased.
3. Subscriptions. The Underwriter reserves the right
to reject all offers to purchase, in whole or part, to make allotments and to
close the subscription books at any time without notice. The Units allotted to
you will be confirmed, subject to the terms and conditions of this Agreement.
Payments for Units purchased by you are to be made by check or money order only
and shall be made payable to the Representative as Agent or Trustee for the
Issuer. In respect of all Units purchased by you pursuant hereto, you will
promptly transmit (i.e., by no later than noon of the next business day
following receipt by you) to Herzog Heine Geduld, Inc. (the "Clearing Broker"),
having its principal office at 525 Washington Boulevard, Jersey City, New Jersey
0731, your certified check or cashier's check for payment for the full amount of
the Public offering Price for the number of Units purchased, without deduction
for any commission or concession, in compliance with the Securities Exchange Act
of 1934, as amended (the "1934 Act"). Your transmittal letter to the Escrow
Agent accompanying checks or money orders shall include a written account of
sale, which shall include each Purchaser's name and address, the number of Units
Purchased, the amount paid therefor, Social Security number, taxpayer
identification number, and whether the consideration received was in the form of
a check or money order. You shall concurrently send a copy of said transmittal
letter to us.
NO COMMISSIONS SHALL BE PAYABLE, AND ALL SUBSCRIPTIONS ARE SUBJECT TO
REJECTION BY THE UNDERWRITER, UNLESS AND UNTIL THE SELECTED DEALER HAS COMPLIED
WITH THE ABOVE UNDERLINED PROVISIONS.
Each sale shall be contingent upon the sale of 100,000 Units being
sold on or before the Termination Date, and upon the acceptance of such sale by
the undersigned. In the event any order submitted to you is not accepted, the
Representative will return all funds paid by the purchasers. Payment of the
selling concessions in respect of each such sale will be made to the Selected
Dealer, by the Underwriter when and only in the event that 100,000 Units are
sold by the Termination Date and the proceeds released by the Representative.
The offering is made subject to the issuance and delivery of the Units and the
acceptance hereof by the Underwriter, to the approval of legal matters by
counsel, and to the terms and conditions herein set forth.
If an offer to purchase is rejected or if a payment is received which
proves insufficient or worthless, any compensation paid to the Selected Dealer
shall be returned either by the Selected Dealer's remittances in cash or by a
charge against the account of the Selected Dealer, as the Underwriter may elect.
4. Offering to Public. Neither you nor any other person is, or has
been, authorized to give any information or to make any representations in
connection with the sale of the Units other than as contained in the Prospectus.
The Selected Dealer will not reoffer the Units pursuant to this Agreement unless
the Prospectus is furnished to the purchaser at least 48 hours prior to the
mailing of the confirmation of sale, or is sent to the person under such
circumstances that it would be received by him 48 hours prior to his receipt of
a confirmation of the sale. The Dealer understands that during the 90 day period
after the first date upon which the Units of the Company are bona fide offered
to the public, all Dealers effecting transactions in the Units shall be required
to deliver the Company's current Prospectus to any purchasers thereof prior to
or concurrent with the receipt of the confirmation of sale. Additional copies of
the then current Prospectus will be supplied by the Underwriter in reasonable
quantities upon request. No Selected Dealer is authorized to act as agent for
the undersigned in any respect.
5. Compliance with Securities Laws. Upon becoming a Selected Dealer, and in
purchasing and reoffering the Units, you agree to comply with all applicable
requirements of the Securities Act of 1933, as amended (the 111933 Act") , the
1934 Act, any applicable state securities or "Blue Sky" laws, and the Rules of
Fair Practice of the NASD, including, but not limited to, Article III, Section I
thereof, and the interpretations of said section promulgated by the Board of
Governors of such Association, including an Interpretation with respect to
free-riding and withholding dated November 1, 1970, and as thereafter amended,
and including information concerning the Board of Governor's Interpretation
thereof dated March 2, 1979, to NASD members. You also agree to comply with
Sections 8, 24, 25 and 36 of Article III of the Rules of Fair Practice of the
NASD. You also agree to comply with all requirements of Rules 2730, 2740, 2420,
and 2750 of the NASD Conduct Rules. Upon application, you will be informed as to
the states in which we have been advised by counsel to the Company or counsel to
the Underwriter that the Units have been qualified for sale under the respective
securities or Blue Sky Laws of such states, but we assume no obligation or
responsibility as to the right of any Selected Dealer to sell the Units in any
state or as to any sale therein.
By acceptance of this Agreement, you represent that you are a member in
good standing of the NASD.
By acceptance of this Agreement, each Selected Dealer has assumed full
responsibility for thorough and prior training of its representatives concerning
the selling methods to be used in connection with the offer and sale of the
Units, giving special emphasis to the NASD's principles of full and fair
disclosure to prospective investors, suitability standards and the prohibitions
against "Free-Riding and Withholding." .
Each Selected Dealer agrees to indemnify and hold harmless the
Underwriter, the Company and the other Selected Dealers against and from any
liability, loss, damage, or expense arising out of any failure by the Selected
Dealer to comply with the 1933 Act, the 1934 Act, applicable securities laws of
any state, the rules and regulations of the Securities and Exchange Commission
and the Rules of Fair Practice of the NASD, due to any act of omission by the
Selected Dealer.
By submitting an offer to purchase you confirm that you may, in
accordance with Rule 15c3-1 adopted under the 1934 Act, agree to purchase the
number of Units you may become obligated to purchase under the provisions of
this Agreement.
6. Prospectus and Offering. We have been advised by the Company that
the offering under the Registration Statement on Agreement, each Selected Dealer
acknowledges receipt of a copy of Form SB-2 (File No. )with respect to the
subject Units commenced on ___________________, 1997 . By signing this Agreement
each Selected Dealer acknowledges receipt of a copy of the Prospectus included
in said Registration Statement. Additional copies of the Prospectus will be
supplied to you in reasonable quantities upon request.
You will not, until advised by us in writing or by wire that the entire
offering has been distributed and closed, bid for or purchase securities in the
open market or otherwise make a market in the Securities or otherwise attempt to
induce others to purchase the Securities in the open market. Nothing contained
in this paragraph shall however preclude you from acting as agent in the
execution of unsolicited orders of customers effectuated for them through a
market maker.
7. Liability, Nothing herein will constitute the Underwriter or the
Selected Dealers as an association, partnership or joint venture with each
other, or as an unincorporated business or other separate entity, but you will
be responsible for your share of any liability or expense based ode any claim to
the contrary. As the Underwriter, we shall have full authority to take such
action as we may deem advisable in all matters pertaining to the offering. The
Underwriter shall not be under any liability (except for its own want of good
faith) for or in respect of: the validity or value of, or title to any of the
Units or securities underlying the Units; the form of, or the statements
contained in, or the validity of the prospectuses or any amendment or supplement
thereto; any document incorporated by reference therein or any other instruments
executed by or on behalf of the Company or others; the form or validity of the
Underwriting Agreement or this Agreement; the delivery of the Units or the
securities underlying the Units; the performance by the Company of the Units or
the securities underlying the Units or others of any agreement on its or their
part; the qualifications of the Units or the securities underlying the Units for
sale or the legality of the Units and such securities for investment under the
laws of any jurisdiction; or any matter in connection with any of the foregoing;
provided, however that nothing in this paragraph shall be deemed to relieve the
Underwriter from any liability imposed by federal securities laws.
8. Communications. All communications from Selected Dealers should be
addressed to Kenneth Jerome & Co., Inc., P.. Box 38, 147 Columbia Turnpike,
Florham Park, New Jersey 07932, Attention: Robert Kaplon, President. Any notice
from the Underwriter to a Selected Dealer shall be deemed to have been duly
given if mailed, telecopied, or telegraphed to such Selected Dealer at the
address first appearing in this Agreement.
9. Amendment. This Agreement may be supplemented or amended by the
Underwriter by written notice thereof to you, and any such supplement or
amendment to this Agreement shall be effective after the date of such supplement
or amendment.
10. Governing Law. This Agreement shall be governed by the laws
of the State of New Jersey.
This Agreement supersedes any prior understanding you have with the
Underwriter with respect to the subject matter hereof. If the foregoing is
acceptable to you, please sign and return the enclosed copy of this Agreement.
Very truly yours,
KENNETH JEROME & CO., INC.
By:_________________________
Robert Kaplon, President
<PAGE>
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in the Agreement) _______________* Units in accordance with
the terms and conditions set forth above. We hereby acknowledge receipt of the
Prospectus referred to herein above relating to such Units. We further state
that in purchasing such Units we have relied upon such Prospectus and upon no
other statement whatsoever, written or oral.
- - -------------------------------
(Name of Dealer)
By:_____________________________
Name:
Title:
Address:
FORM OF REDEEMABLE WARRANT
VOID AFTER 5:00 P.M. ,2000 WARRANT FOR PURCHASE OF SHARES OF
PPA TECHNOLOGIES, INC.
(A New Jersey Corporation)
Warrant No. warrant for Shares
THIS WARRANT CERTIFICATE CERTIFIES that
___________________________________________ (hereinafter called the "Holder"),
or registered assigns, is the registered holder of the number of Warrants of PPA
Technologies, Inc. (hereinafter called the "Corporation") which entitle the
Holder to purchase one-half fully paid and non-assessable share of Common Stock
(no par value per share) ("Shares") of the Corporation for Each Warrant held,
subject to the redemption and other provisions hereof and of the Warrant
Agreement (as defined below), at any time before 5:00 p.m., , 2000, a price of
$8.00 per Share, subject to certain adjustments, however, as to the number of
Shares purchasable and the purchase price, all as more fully set forth in the
Warrant Agreement. This Warrant may be redeemed at any time after at a price of
$.05 per Warrant on 30 days' prior written notice to the warrantholders if the
closing bid price of the Common Stock as reported by NASDAQ Bulletin Board
averages in excess of $10.00 for a period of 20 consecutive trading days ending
within 15 days of the notice of redemption. In the event the Company exercises
the right to redeem the Redeemable Warrants, such Redeemable Warrants will be
exercisable until the close of business on the date for redemption fixed in such
notice. If any Redeemable 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.
Any whole number of Warrants may be exercised by the Holder hereof upon
surrender of this Warrant with the subscription form attached duly executed, to
the Corporation's Warrant Agent at its principal office, 201 Bloomfield Avenue,
Verona, New Jersey 07044, or such other address as the Corporation may designate
by notice in writing to the registered holder hereof, at any time within the one
year period from , 1999 and until 5:00 P.M.
, 2000 inclusive, accompanied by payment of said purchase price (such
surrender and payment being hereinafter referred to as the exercise of this
Warrant). If this Warrant is exercised in respect of less than all of the Shares
covered hereby, the Holder shall be entitled to receive a new Warrant covering
the number of Shares in respect of which this Warrant shall not have been
exercised.
The number of Shares which will be received upon the exercise of this
Warrant is subject to modification and adjustment upon the happening of certain
events specified in the Warrant Agreement provided, however, that as more
particularly set forth herein, the Corporation shall not be required to issue
any fractional Shares in connection with the exercise of this warrant.
This Warrant is issued subject to the condition, and every Holder
hereof, by accepting the same, agrees with any subsequent Holder hereof and with
the Corporation that this Warrant and all rights hereunder are issued and shall
be held subject to all of the terms, conditions, limitations and provisions set
forth in the Warrant Agreement, the terms and provisions of which are
incorporated herein by reference. The Warrant Agreement is available for
inspection at the offices of the Warrant Agent, Jersey Transfer & Trust Company.
This Warrant does not confer upon the Holder hereof any rights
whatsoever as a stockholder of the Corporation. Upon the exercise of this
Warrant, the subscription form annexed hereto must be duly executed and the
accompanying instructions for registration of Shares filled in.
This Warrant Certificate is transferable in whole or in part by the
registered holder hereof, except no fractional warrants will be issued. This
Warrant Certificate shall not be valid for any purpose until it has been
countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be issued and
authenticated by the signatures of its President and its Secretary and its
corporate seal to be affixed hereon.
PPA TECHNOLOGIES, INC.
By:
ROGER FIDLER
President
ATTEST:
Countersigned:
Secretary Jersey Transfer & Trust Company
BY:
Authorized Signature
<PAGE>
FORM OF EXERCISE
(To be executed by the registered Holder desiring to exercise the right to
purchase Shares evidenced by the within Warrant.)
The undersigned hereby exercises the right to purchase
Shares evidenced by the within Warrant according to the terms
and conditions thereof and herewith makes payment of the purchase price in full.
Kindly issue all Shares in accordance with the instructions given below.
Instructions for registration of Shares:
Name (Please print in block letters)
Signature Date
Street
City
State Zip Code
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED
hereby sell, assign and transfer unto
(Name)
(Address)
the right to purchase the Shares of Common Stock evidenced by the within
Warrant, and do hereby irrevocably constitute and appoint
, attorney to transfer the said right on the books
of the Corporation with full power of substitution.
Dated: , 199_
Signature
ROGER L. FIDLER
Attorney at Law
163 South Street
Hackensack, NJ 07601
(201) 457-1221
(201) 457-1331 (Facsimile)
June 1, 1999
Board of Directors
PPA Technologies, Inc.
163 South Street
Hackensack, New Jersey 07601
RE: Opinion of Counsel on Legality of Issuance
of Securities by the Company
Gentlemen:
You have requested that I render an opinion as to the legality of the
issuance and sale of certain securities of PPA Technologies, Inc. (hereinafter
the "Company") in connection with the public offering of said securities which
are the subject of a registration statement, File No. 333-40001-NY on Form SB-2
filed with the Securities and Exchange Commission. These securities are
1,115,000 Common Shares (no par value), 1,115,000 Redeemable Common Stock
Purchase Warrants ("Redeemable Warrants")(no par value), 575,000 Common Shares
(no par value) underlying said Redeemable Warrants, 111,500 Underwriter's
Warrants ("Warrants") and 167,250 Common Shares underlying said Warrants.
As Counsel to the Company, I have examined the Company's charter
documents and have supervised the Company's Board of Directors in connection
with the authorization of the 1,150,000 Common Shares (for sale to the public)
and the 1,150,000 Redeemable Warrants, 575,000 Common Shares underlying said
Redeemable Warrants, 111,500 Underwriter's Warrants and 167,250 Common Shares
underlying said Warrants, the Redeemable Warrants and the Warrants being
exercisable pursuant to the terms set forth in the Registration Statement. After
review of the Securities Act of 1933, as amended, rules and regulations
promulgated thereunder, and other statutes, rules, regulations and such other
sources of law as deemed necessary, I render the following opinion in reliance
upon the representations of management and corporate records as presented to me
by the management of the Company:
(1) The Company is a duly incorporated and validly existing corporation
in good standing under the laws of the State of New Jersey and is duly
authorized to transact the business in which it is engaged and in which it
proposes to engage.
(2) The total authorized capital of the Company is Ten million
(10,000,000) Common Shares (no par value) and 1,000,000 Preferred Shares (Par
value $100.00/share).
(3) (a) When any of the Common Shares offered by Prospectus are
purchased in accordance with the terms of the Registration Statement, and
certificates for the 1,115,000 Common shares have been duly executed and
delivered upon payment to the Company of the agreed price per share, said Common
Shares will have been duly authorized and issued as fully paid and
non-assessable securities of the Company. The 1,115,000 Common Shares will be
entitled to the rights set forth in the Certificate of Incorporation of the
Company.
(b) When any of the Redeemable Warrants issued pursuant to the
terms of the Registration Statement and certificates for the Redeemable Warrants
have been duly executed and delivered upon payment to the Company of the agreed
price for the Redeemable Warrants, said Redeemable Warrants will have been duly
and validly authorized and issued as fully paid and non-assessable securities of
the Company. The 575,000 Common Shares underlying the Redeemable Warrants will
be entitled to the rights set forth in the Certificate of Incorporation of the
Company.
(c) When any of the Warrants issued pursuant to the terms of
the Registration Statement and certificates for the Warrants have been duly
executed and delivered upon payment to the Company of the agreed price for the
warrants, said Warrants will have been duly and validly authorized and issued as
fully paid and non-assessable securities of the Company. The 167,250 Common
Shares underlying the Warrants will be entitled to the rights set forth in the
Certificate of Incorporation of the Company.
(d) When any of the Redeemable Warrants are exercised in
accordance with their terms, and certificates for the 575,000 Common Shares
issuable upon exercise of said Redeemable Warrants have been duly executed and
delivered upon payment to the Company of the agreed exercise price per share,
said 575,000 Common Shares will have been duly and validly authorized and issued
as fully paid and non-assessable securities of the Company. The 575,000 Common
Shares will be entitled to the rights set forth in the Certificate of
Incorporation of the Company.
(e) When any of the Warrants are exercised in accordance with
their terms, and certificates for the 167,250 Common Shares issuable upon
exercise of said Warrants have been duly executed and delivered upon payment to
the Company of the agreed exercise price per share, said 167,250 Common Shares
will have been duly and validly authorized and issued as fully paid and
non-assessable securities of the Company. The 167,250 Common Shares will be
entitled to the rights set forth in the Certificate of Incorporation of the
Company.
(4) The contemplated issuances and sales of up to 1,150,000 Common
Shares, 1,150,000 Redeemable Warrants which may be exercised to purchase up to
575,000 Common Shares, 111,500 Warrants which may be exercised to purchase up to
167,250 shares of the Company's Common Stock do not violate applicable federal,
state or local statutes or regulations.
CONSENT
I HEREBY CONSENT TO THE INCLUSION OF THIS OPINION AS AN EXHIBIT TO THE
COMPANY'S REGISTRATION STATEMENT, AND TO THE USE IN THE REGISTRATION STATEMENT
AND RELATED PROSPECTUS OF MY NAME UNDER THE CAPTION "LEGAL MATTERS."
Sincerely,
/s/ Rogr L. Fidler
Roger L. Fidler, Esq.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
The undersigned, Thomas P. Monahan, CPA, hereby consents to the use of his
Accountant's report dated June 1, 1999 and the audited financial statement
submitted herewith in Amendment Number 3 to the registration statement upon Form
SB-2 of PPA Technologies, Inc, and the references made thereto in said
registration statement.
Date: June 11, 1998
/s/ Thomas P. Monahan
Thomas P. Monahan, CPA.
