<PAGE>
As filed with the Securities and Exchange Commission on December 22, 2000
Registration No. 333-41092
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 5 TO THE
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 OF
MIRENCO, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C> <C>
Iowa 3714 336322 39-1878581
---- ---- ------ ----------
(State or Other (Primary Standard (North American (IRS Employer
Jurisdiction of Industrial Classification Industry Classification Identification
Incorporation or ("SIC") Number) Number System ("NAICS") ("EIN")Number)
Organization) Number)
</TABLE>
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206 May Street, PO Box 343
Radcliffe, Iowa 50230
(800) 423-9903
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
---------------------------------------------------------------------------
Copy To:
Carl N. Duncan, Esq.
Duncan, Blum & Associates
5718 Tanglewood Drive
Bethesda, Maryland 20817
(301) 263-0200
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the
Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x].
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file an
amendment which specifically states that the Registration Statement shall
thereafter become effective in accordance with Section 8 (a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: From time to time after the
effective date of the Registration Statement and up to nine (9) months
thereafter or until such earlier time that all the shares registered hereunder
have been sold.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
Registration Statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
[Balance of page left intentionally blank.]
<PAGE>
MIRENCO, INC.
Mirenco, Inc., a development stage company incorporated in the state of
Iowa, is engaged in the business of developing and marketing technologically
advanced products for internal combustion engines that both improve fuel
efficiency and/or reduce environmental emissions. Our principal executive
offices are located at 206 May Street, Radcliffe, Iowa 50230, and our telephone
number is (800) 423-9903.
SECURITIES SUBJECT TO RESCISSION OFFER TO PURCHASE:
1,561,248 Shares of Common Stock
Mirenco is offering to the holders of the shares acquired in an Iowa-only
direct public offering the opportunity to rescind (i.e., void) their purchase of
the shares. We expect to qualify our shares for quotation on the NASD Bulletin
Board or NASDAQ SmallCap Market(TM) under the symbol "MIRR" shortly after
conclusion of this Rescission Offer.
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
No person is authorized to give any information not contained in the
prospectus in connection with this offering and, if given or made, such
information or representation must not be relied upon as having been authorized.
This prospectus does not constitute an offer by any person within any
jurisdiction to any person to whom such offer would be unlawful.
These are speculative securities. See "Risk Factors" for certain factors
that should be considered by prospective investors.
Neither the delivery of this prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that the information herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the affairs of Mirenco since such date or, in the case of information
incorporated herein or therein by reference, the date of filing with the
Securities and Exchange Commission.
The date of this Prospectus is December __, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Descriptive Title Page
<S> <C>
PROSPECTUS SUMMARY........................................... 3
SUMMARY FINANCIAL DATA....................................... 4
PRO FORMA FINANCIAL INFORMATION.............................. 4
RESCISSION OFFER............................................. 4
RISK FACTORS................................................. 8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 12
FIDUCIARY RESPONSIBILITY OF THE COMPANY'S MANAGMENT.......... 13
CAPITALIZATION............................................... 14
DESCRIPTION OF BUSINESS...................................... 14
SELECTED FINANCIAL DATA...................................... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 25
PUBLIC MARKET AND DIVIDEND POLICY............................ 30
DESCRIPTION OF CAPITAL STOCK................................. 31
ERISA CONSIDERATIONS......................................... 32
LEGAL MATTERS................................................ 32
EXPERTS...................................................... 32
AVAILABLE INFORMATION........................................ 32
APPENDIX I (FINANCIAL STATEMENTS)............................ I-1
APPENDIX II (RESCISSION ELECTION FORM)....................... II-1
</TABLE>
[Balance of page left intentionally blank.]
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PROSPECTUS SUMMARY
The following summary is intended to be an accurate overview of the
significant aspects of this offering. More detailed information and financial
statements are available elsewhere in this prospectus. All references in this
prospectus to shares are as of September 30, 2000, unless otherwise specified.
The Company
Incorporated on February 21, 1997 in Iowa, we develop and market
technologically advanced products for internal combustion engines that improve
fuel efficiency and/or reduce environmental emissions. Our primary products are
DriverMax(R) and DriverMax(R) Software as well as HydroFire(R) Injection, Fluid
and Lubricant. We believe we will be the first to provide a product that
incorporates Global Positioning System technology to reduce emissions while
improving fuel mileage.
Rescission Overview
From July 30, 1999 and continuing through July 30, 2000, we sold 1,561,248
shares at $5.00 per share to Iowa-only residents in a self underwritten,
intrastate direct public offering. We claimed the exemption from registration
in this intra-state offering provided by Section 3(a) (11) of the Securities Act
of 1933. We note that:
(1) the shares were part of an issue registered, offered and sold only to
residents of Iowa;
(2) we are incorporated in Iowa; and
(3) we do business within Iowa.
Nonetheless, certain of our "Iowa-Only Offering Shares" were resold by Iowa
residents to non-Iowa residents before "coming to rest" under (S)3(a)(11) and/or
Rule 147's nine month standard.
As a result, you may have the right under applicable federal and state law
to choose to recover the price that you paid for your outstanding Iowa-Only
Offering Shares, plus applicable interest. Accordingly, we have voluntarily
elected to rescind the earlier "Iowa-Only Offering." We are making this
"Rescission Offer" voluntarily to limit, as far as may be permissible under
applicable securities laws, our potential obligation stemming from our non-
compliance with applicable securities laws. This Rescission Offer is the
exclusive subject of this prospectus.
The steps that you must follow to either accept or reject this Rescission
Offer are explained under the heading "Rescission Offer". If you own Iowa-Only
Offering Shares and would like to retain them, you may reject the Rescission
Offer by doing nothing further. If you do not respond to this Rescission Offer,
within thirty days from the date of this prospectus, you will be deemed to have
rejected the Rescission Offer, thereby retaining your existing shares.
Generally, if you own outstanding Iowa-Only Offering Shares and decide to
accept this Rescission Offer, you must return your outstanding shares with the
Rescission Election Form that is attached to this prospectus as Appendix II and
return all of your outstanding Iowa-Only Offering Shares for cash. As described
in greater detail under the heading "Rescission Offer," if you elect to rescind,
the amount of cash you receive will be equal to the purchase price of your Iowa-
Only Offering Shares plus interest, calculated and paid at an annualized rate
of not less than 8% from the date of purchase. See also "Rescission - Specific
Terms."
Risks and Conflicts of Interest
An investment in the shares involves substantial risks, due in part to the
costs which we will incur and the highly speculative nature of our business.
Risks and conflicts of interest inherent in investing in our shares are
discussed respectively under "Risk Factors" and "Certain Relationships and
Related Transactions."
3
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SUMMARY FINANCIAL DATA
Following the conclusion of each fiscal year, shareholders will receive our
annual report, including a balance sheet, statements of operations, cash flows
and changes in stockholders' equity and related footnotes. The financial
statements contained in the annual report will be audited by our independent
certified public accountants. Unaudited quarterly reports on operations also
will be distributed to shareholders or made available through e-mail and/or the
Internet.
We derived the Summary Financial Information from audited financial
statements included elsewhere in this prospectus. This information reflects the
operations of Mirenco for its limited operating history as of and for the years
ending December 31, 1999 and 1998 and from February 21, 1997 to December 31,
1999 (audited), the nine months ending September 30, 2000 and 1999 (unaudited)
and from February 27, 1997 (inception) to September 30, 2000 (unaudited). This
information should be read in conjunction with the financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Period from
February 21, Nine months Nine months Period from
1997 ended ended February 21, 1997
Year ended Year ended (inception) to September 30, September 30, (inception) to
December 31, December 31, December 31, 2000 1999 September 30, 2000
1999 1998 1999 (Unaudited) (Unaudited) (Unaudited)
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<S> <C> <C> <C> <C> <C> <C>
Current assets $ 934,405 (*) $ (*) $6,628,311 (*) (*)
Noncurrent assets 28,473 (*) (*) 223,228 (*) (*)
Current liabilities 126,849 (*) (*) 47,121 (*) (*)
Gross revenues 195,295 $ 33,992 247,445 53,593 $ 82,663 301,038
Gross profit (loss) 51,133 (11,394) 34,576 (62,453) 13,786 (27,877)
Loss from
operations (536,850) (2,205,728) (2,838,434) (770,094) (410,014) (3,608,528)
Net loss (524,499) (2,192,542) 2,811,803) (636,263) (404,028) (3,448,066)
Loss per share $(0.05) $ (0.19) $(0.05) $ (0.03)
</TABLE>
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(*) If information is not included elsewhere in this prospectus, it is also not
disclosed in the table.
PRO FORMA FINANCIAL INFORMATION
Pro forma financial information has not been presented since no significant
business combination has occurred or is probable and, even where possible or
remote, there have been only limited historical operations. Furthermore, there
have been only minimal revenues since our inception (approximately 45 months).
Consequently, pro forma information would serve no useful purpose. In addition,
summary financial data is provided in "Selected Financial Data."
RESCISSION OFFER
Background Information
From July 30, 1999 and continuing through July 30, 2000, we sold 1,561,248
shares at $5.00 per share to Iowa-only residents in a self-underwritten,
intrastate direct public offering.
At the time of issuance of the Iowa-Only Shares, we registered the
pertinent shares with Iowa but did not register simultaneously with the U.S.
Securities and Exchange Commission. Instead, we claimed the exemption from
federal registration requirements pursuant to Section 3(a)(11) of the Securities
Act of 1933 based on the following:
(1) the shares were part of an issue registered, offered and sold only to
residents of Iowa;
(2) we are incorporated in Iowa; and
(3) we are doing business within Iowa.
Certain Iowa-Only Offering Shares were resold (see table below) by Iowa
residents to non-Iowa residents before the "coming to rest" provisions under the
1933 Act's Section 3(a)(11) and/or Rule 147's nine month standard. Accordingly,
we have voluntarily elected to rescind the earlier Iowa-Only Offering, which
could result in a maximum obligation of $7,990,000, including interest but
excluding associated costs.
4
<PAGE>
Under federal securities laws, our failure to register the Iowa-Only
Offering Shares with the SEC exposes us to potential liability under the 1933
Act and possibly certain state securities laws. Specifically, holders of the
Iowa-Only Offering Shares may have the right to choose to recover the price paid
for their outstanding shares, plus interest. As a practical matter, because of
our potential liability stemming from prospective future rescissions by our
Iowa-Only Offering Shareholders, we have chosen to immediately accelerate the
obligations that may already exist under pertinent securities requirements.
The following table represents data solely related to our Iowa-Only Offering:
<TABLE>
<CAPTION>
Total Total Shares Shares Resold Out of Percent of Resales to Average
Shareholders (1) Issued State (2) Total Shares Issued Investment (3)
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<S> <C> <C> <C> <C>
4,324 1,561,248 51,648 3% $1,805
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</TABLE>
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(1) Amount is an approximation based on data from our Transfer Agent less an
estimate for duplicate shareholder names occurring when certain
shareholders made multiple individual investments and they were not
identified as previous shareholders.
(2) Amount was obtained from reports generated by our Transfer Agent.
(3) The simple average investment (total shares issued at $5.00 per share
divided by Total Shareholders) is $1,805. Our additional research
determined that approximately 70% of Iowa-Only Offering Shareholders
invested less than $1,000, and many at the offering minimum investment of
$500.
Specific Terms
We are offering our Iowa-Only Offering Shareholders the opportunity to
rescind their purchase. Specifically, an Iowa-Only Offering Shareholder should
be aware that he or she may
(i) take no action, thereby retaining their outstanding Iowa-Only Offering
Shares;
(ii) reject the rescission offer, thereby retaining their outstanding Iowa-
Only Offering Shares; or
(iii) return all of their outstanding Iowa-Only Offering Shares for cash plus
interest from the date of their purchase through the date of re-
payment; an annualized 8% will be paid except in Oregon and South
Dakota where rates of 9% and 12%, respectively, will be paid.
Because we failed to prohibit resales by Iowa-Only Offering Shareholders to non-
Iowa residents and did not, as a result, previously register the sale of the
Iowa-Only Offering Shares under Section 5 of the Securities Act of 1933 and
similar state statutes, we may be liable to our Iowa-Only Offering Shareholders
under Section 12(1) of the 1933 Act and similar state statutes. Similarly, under
Section 12(1) of the 1933 Act, Iowa-Only Offering Shareholders can recover the
price paid for their Iowa-Only Offering Shares plus interest. We believe the
amount of the cash being offered is identical to the amount we would be required
to pay in damages in an action for rescission, exclusive of attorney's fees,
under federal and, if applicable, state securities laws.
Registration of the Rescission Offer
We are filing this federal registration statement with the SEC with respect
to the Rescission Offer to mitigate our prior failure to prohibit resales to
non-Iowa residents. The disclosure in this prospectus is intended to provide
the protections and information required by the 1933 Act and the rules and
regulations issued under the 1933 Act in connection with your investment
decision.
Accordingly, if an Iowa-Only Offering Shareholder takes no action or
rejects the Rescission Offer, he will retain his existing restricted shares. It
is our intent to register those shares for resale approximately 30 to 45 days
after the conclusion of this Rescission Offer. This registration is expected to
occur on or about March ___, 2001.
Legal Effect of the Rescission Offer Under Federal Securities Law
For the reasons outlined below, our potential obligation under applicable
federal securities laws resulting from our previous offer and sale of the Iowa-
Only Offering Shares will be mitigated with respect to those shareholders who
accept the Rescission Offer and return their outstanding shares for cash plus
applicable interest. Nonetheless, our Rescission Offer may not cure all
violations under federal securities laws. This is true because:
(1) we do not have sufficient money to fund the offer in the event that
more than approximately 75% of Iowa-Only Offering Shareholders accept
the Rescission; and
5
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(2) in any event, theoretically, we may still be liable under pertinent
federal securities laws, even by those Iowa-Only Offering Shareholders
who accept the Rescission Offer.
As a consequence, even though there are differences among the Circuit Courts of
Appeal, we have deemed these shares will continue to be restricted shares until
registered for resale (as expected on or before March ___, 2001) .__Further, we
are precluded from classifying the Iowa-Only Offering Shares and proceeds as
equity in our financial statements until such time as the rescission offer has
been completed. Upon completion of the Rescission Offer, we may classify as
equity such Iowa-Only Offering Shares and proceeds to the extent the
shareholders elect to retain their ownership in Mirenco.
Our counsel and we believe, however, that acceptance of the Rescission
Offer, and receipt by the Iowa-Only Offering Shareholders of the cash
consideration to be paid for each person's outstanding Iowa-Only Offering
Shares, should have the effect of mitigating federal and state liability to that
Iowa-Only Offering Shareholder because the damages element of any claim will be
eliminated. This is especially true because, as described below, the Iowa-Only
Offering (and any resales) were not violative of state law, including Iowa where
the sales were originally made. We recognize that, even if an Iowa-Only
Offering Shareholder affirmatively rejects or fails to respond to the Rescission
Offer, our potential liability under the Securities Act may not be completely
extinguished for period(s) of time outlined below. Nonetheless, we would expect
to assert that each Iowa-Only Offering Shareholder released any claims to
recover the purchase price of their outstanding Iowa-Only Offering Shares
because of their rejection or inaction.
If the affirmative rejection or failure to respond to the Rescission Offer
does not act as a release of claims, eligible Iowa-Only Offering Shareholders
who have rejected or failed to respond to the Rescission Offer would retain any
rights of claims they may have under federal securities laws. Any subsequent
claims by an Iowa-Only Offering Shareholder would be subject to any defenses we
may have, including the running of the statute of limitations and/or estoppel.
As a result, we may be subject to claims for up to one year after the date of
this prospectus. In general, to sustain a claim based on violations of the
registration provisions of federal securities laws, the claim must be brought
within one year after discovery of the violation upon which the claim is based,
but in no event more than three years after the occurrence of the violation, in
this case, based on the date of the prospectus. Under the principle of estoppel,
the person bringing a claim must carry the burden of proof of why he or she took
no action under the rescission offer and/or how he or she may have been injured.
Legal Effect Under State Law
Although the Iowa-Only Offering was violative of federal securities laws,
we believe the Iowa-Only Offering violated the securities laws neither of Iowa
(where the offering was made) nor the states where resales were subsequently
made. Nonetheless, in an abundance of caution, we have filed an amendment to
the registration statement filed in Iowa and given notice of these matters to
the states where we are aware resales occurred. After giving this notice and
associated statutory analysis, no state has required registration of the
Rescission Offer; moreover, this prospectus and the associated terms of the
Rescission Offer reflect all written and oral input from these states.
Moreover, as described in "Terms of the Rescission Offer" and "Legal Effect of
the Rescission Offer Under Federal Securities Law," the amount of cash being
offered is identical to the maximum obligation and/or any subsequent claims by
an Iowa-Only Offering Shareholder would be subject to any defenses we may have,
including the running of the statute of limitations and/or estoppel. In any
event, also as described above, an Iowa-Only Offering Shareholder's right of
action, if any, generally will end within one year of the date of discovery,
calculated from the date not later than this prospectus.
Procedures Governing the Rescission Offer
If you own one or more Iowa-Only Offering Shares, you will have 30 days
from the date of this prospectus to respond to the Rescission Offer. The
Rescission Offer will terminate upon receiving your response or 12:00 midnight,
Central Standard Time, on the 30th day after the date of this prospectus.
If you intend to accept the Rescission Offer and return your Iowa-Only
Offering Shares for cash, please mark the Rescission Election Form attached to
this prospectus as Appendix II to indicate your preference and return the
Election Form, together with your outstanding shares marked "canceled," to
Mirenco at the address listed below. If you elect to affirmatively rescind your
prior purchase of Iowa-Only Offering Shares, except in the unlikely event that
more than 75% of the Iowa-Only Offering Shares are rescinded (see "Funding the
Rescission Offer"), we will send you payment within 15 business days after the
termination of the Rescission Offer. Your outstanding shares will be canceled
upon receipt.
You may return the Election Form and the outstanding shares to Mirenco
either in person or by mail at the following address: 206 May Street, Radcliffe,
Iowa 50230. If you are unable to locate and return your outstanding Iowa-Only
Offering Shares with the Election Form, contact Mirenco at 800-423-9903.
6
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If you intend to reject the Rescission Offer and retain your outstanding
restricted shares, please mark the Election Form that is attached to this
prospectus as Appendix II to indicate your rejection of the Rescission Offer and
return it to us. You need do nothing further. If you do not respond to this
Rescission Offer by returning your completed Election Form before the
termination date, you will be deemed to have rejected the Rescission Offer and
will retain your outstanding restricted shares. It is our intent that your
shares will be registered for resale approximately 30 to 45 days after
conclusion of this Rescission Offer, expected to occur on or about March ____,
2001.
If you want to return your Election Form in person, you must do so by the
close of business on the termination date of the Rescission Offer. If you intend
to notify us on or within five days before the termination date of the
Rescission Offer, we recommend that you use registered mail, return receipt
requested.
We do not intend to extend the termination date of the Rescission Offer for
any responses that we find deficient. We will mail notice of any deficiencies
to the eligible Iowa-Only Offering Shareholder's last known address within five
business days after we receive a deficient response. If the Iowa-Only Offering
Shareholder does not correct a deficient response within 30 days from the date
of this prospectus, we may not rescind the outstanding shares from that
shareholder in connection with this Rescission Offer.
Please note that your response will be deemed to be effective upon receipt
if you deliver it to Mirenco in person or, if you return it by mail, as of the
date postmarked. To be effective, your response must be either delivered or
postmarked by the termination date. Mirenco will accept your election upon
receipt if it is not deficient and, once accepted, you cannot withdraw or change
your election.
We have not retained, nor do we intend to retain, any person to make
solicitations or recommendations to Iowa-Only Offering Shareholders in
connection with this Rescission Offer. Neither Mirenco nor its officers and
directors will, or may, make any recommendations to any eligible Iowa-Only
Offering Shareholders with respect to the Rescission Offer. Each eligible Iowa-
Only Offering Shareholder must make his or her own decision about whether to
accept or reject the Rescission Offer.
Funding the Offer
Because we have no way of predicting the number of Iowa-Only Offering
Shareholders who will accept the Rescission Offer or what number of shares will
be tendered, we are not certain of the effect that the Rescission Offer will
have on our financial condition. We have approximately $6,000,000 available to
fund rescissions. The maximum funds required to fund the Rescission Offer, if
all Iowa-Only Offering Shares were rescinded, would aggregate approximately
$7,990,000, including interest. Accordingly, we believe it would require over
75% of existing Iowa-Only Offering Shares to be rescinded before we would have
insufficient funds to honor any and all requests.
We expect few, less than 10%, of the outstanding Iowa-Only Offering
Shareholders subject to the Rescission Offer will accept rescission of their
Iowa-Only Offering Shares and receive their money back. There is little factual
support. We base our expectation on the knowledge that many Iowa-Only Offering
Shareholders made their original investment decision in Mirenco based on our
patents, products and business potential in an ongoing market which has greater
awareness of unstable fuel prices and greater sensitivity to air quality. We
also believe the reasons supporting the investment decision made by Iowa-Only
Offering Shareholders remain applicable and that our products meet a need in the
marketplace, in spite of the issue causing this Rescission Offer. Further, our
belief is based in part on our review of the subscription agreements which
reflect that the average individual investment of $1,805, and 70% of Iowa-Only
Offering Shareholders invested less than $1,000, causes management to believe
that investment in Mirenco is not necessarily material to most investors' total
assets.
Mirenco does not have liquid assets sufficient to pay the approximately
$7,990,000 in cash that we would need to pay if the Rescission Offer is accepted
by all of the Iowa-Only Offering Shareholders. If more than 75% of existing
Iowa-Only Offering Shares are rescinded, then Mirenco may be forced to
significantly scale back operations, seek alternative sources of financing,
including sale of additional shares of Mirenco common stock, or liquidate
assets. Costs, including legal, accounting, and printing expenses associated
with the offering, are estimated to be $35,000. Mirenco has already paid almost
all of these additional costs. For the reasons outlined above, management
believes Mirenco has adequate operating capital to maintain its operations for
the next year, and expects this to remain accurate.
7
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RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information contained in this prospectus, before
purchasing the shares offered hereby. In addition to the enumerated risks,
businesses are often subject to risks not foreseen by management. This is
especially true for developmental stage companies. In reviewing the prospectus,
potential investors should keep in mind that other possible risks could affect
us and their investments therein, including normal business risks and several
economic conditions which are not within our control.
Risks Associated With This Rescission Offer
1. We may be forced to expend funds if legal actions are brought by Iowa-Only
Offering Shareholders for alleged prior violations of pertinent securities laws.
Iowa-Only Offering Shareholders who affirmatively reject the Rescission Offer
may still attempt to assert claims against us relating to noncompliance with
applicable securities laws. While we believe we have adequate defenses once the
Rescission Offer is completed, we cannot predict with certainty that those
claims will be barred by the Rescission Offer. This is because the legal effect
of rescission offer is uncertain. To the extent any claims are brought and
result in judgments for damages, our business, financial condition and results
of operations could all be adversely affected. Even if we are successful in
defending those claims under applicable securities laws, their mere assertion
could result in potentially costly litigation and significant diversions of
effort by management. At this point, we cannot quantify the dollar amount of the
shares that will be rescinded. The Rescission Offer could result in a maximum
obligation of $7,990,000, including interest, but excluding associated costs.
2. We may be forced to decrease the scope and size of our operations,
liquidate assets or seek alternate sources of financing to fund the Rescission
Offer. As of November 30, 2000, we had approximately $6.2 million in current
assets. Current assets would be the primary resource to fund the Rescission
Offer and is expected to meet needs without materially or adversely affecting
our operations or financial condition. As described in "Rescission Offer -
Funding the Offer," we believe that few Iowa-Only Offering Shareholders will
rescind their prior purchase which, if facts later support that expectation,
should mean there will be no substantive change in our business. However, if a
significant number of our Iowa-Only Offering Shareholders were to rescind, we
may have to liquidate assets, scale back our operations or seek alternative
sources of financing, which could adversely and materially affect our operations
and financial condition. If we were to scale back our operations, we may lose
customers either permanently or temporarily and also drive our potential
customers to competitors. If we were to liquidate assets, we might not have the
equipment or facilities to adequately operate our business. If we are forced to
seek alternate sources of financing, we will likely have to pay significantly
higher interest rates than would be the case currently.
Risks Associated with Our Business
3. We are a development stage company with a limited operating history and
net losses to date. We are a development stage company and have only a limited
history of operations, which limits our ability to predict the effect of future
events and how management will respond. Our operations commenced shortly after
our inception on February 21, 1997. From inception through September 30, 2000,
we have experienced net losses and have an accumulated deficit of $3,448,066.
It is uncertain whether our range of emission control and increased fuel economy
products will produce significant sales or that we will ever become profitable.
We therefore expect to continue to incur net losses until we can produce
sufficient sales to cover our expenses.
4. We depend on our intellectual property and any failure to protect that
intellectual property could adversely affect our ability to meet future
expectations. Failure to protect our existing intellectual property rights may
result in the loss of our exclusivity and thus could reduce our sales potential.
We rely on patent and trademark law to protect our intellectual property but we
may be forced to rely upon common-law protection with respect to our trade
secrets and other proprietary matters. In the absence of further patent
protection beyond our contractual rights, we may be vulnerable to competitors
who attempt to copy our products or methods. Consequently, it may be extremely
difficult for us to enforce our proprietary rights and thereby prevent
competitors from selling or otherwise infringing on our products. At this time
our patents, which expire between 2007 and 2011, have an average remaining life
of approximately 9 years. Outside the U.S., Canada, and Mexico, effective patent
and trademark protection may not be applied for or may be limited or costly. We
acquired our patents approximately one year ago through contractual agreement
with American Technologies, LLC, an affiliated company controlled by Dwayne
Fosseen, buying the exclusive licensing and distribution rights to five products
developed by American Technologies: DriverMax, DriverMax Software, HydroFire
Injection, HydroFire Fluid and HydroFire Lubricant. We believe that we have
obtained all rights necessary to market our products and services without
infringement on rights or patents. We seek to achieve profitability through
aggressive promotion and marketing of our patents and by developing customer
relationships, which could provide a contractual basis for profits irrespective
of proprietary infringements.
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5. Our products could be deemed subject to regulatory standardswhich could
adversely impact sales. We believe our products to be "retrofit devices," as
defined under EPA regulations, which generally classifies our products as
external modifications made to the vehicle after manufacturing and not affecting
the federal certified combustion process. We are, however, subject to the
regulatory risk that EPA may construe distribution of the products to be also
governed by "fuel additive" regulations which generally classifies products that
affect the federally certified combustion process. These more stringent
regulations sometimes require scientific testing for both acute and chronic
toxicity. This testing is not required for approval of pollution control
products deemed to be "retrofit devices."
The Clean Air Act of 1990 mandates annual emission testing for every
vehicle located in many of the one hundred fourteen Environmental Protection
Agency -designated "Non-Attainment Areas" throughout the United States. A non-
attainment area is a locality where air pollution levels persistently exceed
national ambient air quality standards. The EPA has, in some instances,
however, granted or permitted certain waivers or time extensions for compliance
with these air quality standards. Similar mandates are required in cities in
Mexico and Canada. Therefore, a significant market is generally available for
products that reduce emissions and increase operating efficiency. However, the
future of this market is uncertain and environmental laws could change.
Further, a decline in the aggressive enforcement of prevailing regulations could
severely impact our sales and, therefore, our cash flow and profitability.
6. Our dependence on outside entities to produce our inventory could delay
availability. We are dependent upon numerous outside entities and market
conditions for our revenues. I.C.E. Corporation, a Federal Aviation Authority
certified electronic manufacturing company in Manhattan, Kansas, has been
contracted to produce our DriverMax(R) and possibly other electronic products,
which we distribute. While all materials required to manufacture and assemble
our product line are readily available and are shelf items, we are reliant on
I.C.E. Corp. to provide electronic product quality protection for our products,
sales of which generated revenues for us during our early stage product
distribution. Nonperformance by, or poor service from, I.C.E. Corp. could have
a damaging effect on our relationships with our customers. There is a
possibility the prices of materials and labor might increase and that operations
or deliveries may be delayed if shortages occur. Unavailability of or delay in
obtaining our products from I.C.E Corp., among other factors, may delay our
receipt of income for significant periods.
7. We are developing a new market where market acceptance is not fully known.
Because the market for our products and services is new and evolving, it is
difficult to predict the size and future growth rate, if any, of this market.
While it is known that the retrofit, automotive aftermarket, and automotive
original equipment manufacturers industries are large and growing, it is unknown
whether the market for our products and services will continue to develop or
become sustainable. We believe that establishing and maintaining brand identity
of our products is a critical aspect for attracting and expanding our targeted
market audience and that the importance of brand recognition will increase.
Promotion and enhancement of our brands will depend largely on our success in
continuing to provide high-quality products and services. Our success will be
largely dependent upon marketing and upon the quantity of customers who purchase
our products or license rights to our patents. It is uncertain whether there is
a broad market for our products or that one will ever exist. Therefore, the
market potential for our products must be deemed less than certain. It is
anticipated the market will be highly sensitive to many features exhibited by
our products, including our retail price, quantity discounts, replacement or
recharge costs, fuel savings, emission reduction percentages, engine wear
characteristics, establishment and enforcement of local regulatory mandates and
length of time required to achieve measurable results.
8. Changes in general market conditions could more significantly disrupt a new
venture. Fuel prices fluctuate and extraordinary variations therein could have
a detrimental effect on our business. Customer purchase decisions may also be
based on an increase or decrease in the cost of regulatory compliance,
prevailing interest rates, vehicle maintenance costs, or other market
conditions. We have no ability to influence market conditions that may affect
the decisions of our customers. Unfavorable taxation policies, import tariffs,
or other regulations imposed by federal and state governments that affect the
overall business climate could adversely affect our product sales. Any future
tax increases or new government regulations levied on our products could
severely affect our operations.
9. We currently face and will continue to face competition which may become
more significant in our attempt to establish our brand. Both the retrofit
industry, and the automotive original equipment manufacturers industry are, and
can be expected to remain, intensely competitive with respect to price, service,
location and professionalism. Instense competition could materially and
adversely affect our ability to achieve profitability. We will compete with
other companies that have greater brand recognition, greater resources, and
broader distribution capabilities than we have. It is also likely other
competitors will emerge in the future, both foreign and domestic. We believe we
offer products that are more effective, more convenient, and economically
preferable than our competitors' products. We will seek to establish a position
of market leadership and brand recognition through aggressively marketing these
differences. However, our competitors may introduce more competitive products
or techniques. Although we believe we will compete successfully, we may not be
able to maintain a high level of name recognition and prestige within the
marketplace. Our inability to compete within the industry or maintain a high-
quality spectrum of products may adversely effect an investment in the company.
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10. Technological change may make our products obsolete. The market for our
products and services is characterized by rapid technological developments,
frequent new-product introductions, and evolving industry standards. The
emerging character of these products and services and their rapid evolution will
require us to effectively use leading technologies; continue to develop our
technological expertise; enhance our current products and services; and continue
to improve the performance, features, and reliability. We may not be successful
in responding quickly, cost-effectively, and sufficiently to these or similar
developments. In addition, the widespread adoption of new Internet technologies
or standards could require us to make substantial expenditures to modify or
adapt our products and services. A failure by us to respond rapidly to
technological developments could have a material adverse effect on our business,
results of operations and financial condition.
11. We are dependent on certain key personnel, and our future success may
depend on our ability to retain and recruit other management and technical
personnel. Currently, we are wholly dependent on the personal efforts and
abilities of certain key members of our current management staff. In addition,
we may be required to retain the services of other qualified individuals. The
market for individuals possessing the qualifications we require is competitive,
and it is difficult to attract and retain personnel. Our business and
operations may be adversely affected if relationships with certain of our key
personnel were to be severed. We maintain key-man life insurance of $1,000,000
on Mr. Fosseen. We intend to carry key-man life insurance on other personnel as
well. We have entered into employment agreements with each of Messrs. Fosseen,
Relick, Allison and Jolley. These employment agreements contain noncompete
provisions; however, we may not be able to retain these employees or prevent
them from competing with Mirenco in the event of their departure. Moreover,
because of the technological nature of our business, we are dependent upon our
ability to attract and retain technologically qualified personnel. There is
significant competition for technologically qualified personnel in the
geographical area of our business, and we may not be successful in recruiting
and retaining qualified personnel. Our inability to retain personnel may
adversely affect the business.
12. While our management team has general business experience, it has limited
experience managing full-scale production and sales of our product line.
Members of management have significant experience and expertise in their prior
work background. However, it is unknown how these individuals will perform
until the product is accessible to the customer and the management team is
tested. Further, investors will have no right or power to take part in or
direct the management of Mirenco. Thus, purchasers of the shares offered hereby
will be entrusting the funds to our management, upon whose judgment the
investors must depend, with only limited information concerning management's
specific intentions and limited experience in this field. Accordingly, no
investor should purchase shares unless an investor is willing to entrust all
aspects of management, including the selection of businesses and/or officers
and/or directors.
13. Management and ownership of Mirenco is controlled by our Officers and
Directors and the interests of a related party may be adverse to the interests
of Mirenco. Prior to the offering, individual officers, directors, and
shareholders owning more than 10% owned in the aggregate 72.5% of the shares.
As of the date of this prospectus, one member of our current management team,
Dwayne L. Fosseen, controls 67.9% of the issued common stock of Mirenco.
Consequently, the principal shareholders may be able to effectively control the
affairs of Mirenco and the outcome on all matters submitted for a vote to our
shareholders, including the election of a majority of our directors.
Specifically, at least initially, the principal shareholders will be able to
elect all of our directors. Control by the principal shareholders may have the
effect of discouraging certain transactions involving an actual or potential
change of control of Mirenco, including transactions in which holders of shares
might otherwise receive a premium for their shares over then current market
prices.
Risks Associated with Our Common Stock
14. Possible adverse impact in the level of trading activity if deemed a penny
stock. Penny stock status relates to low-priced securities regulations which
take effect when the price of a company's shares are, or fall below, $5.00 per
share. These regulations require, among other standards, broker-dealers to
disclose the risk associated with buying penny stocks and to disclose their
compensation for selling the shares. If the penny stock or similar regulations
apply in the future, they could have the effect of reducing the level of trading
activity in the secondary market for our shares and make it more difficult for
investors to sell their shares in our company. As of the date of the prospectus,
our shares are not deemed to constitute so called penny stock. If the shares are
not listed on a national exchange, or if we can not attract a market maker
following and the price of our shares falls below the so-called penny stock,
low-priced securities regulations could affect the sale of the shares by
decreasing liquidity.
15. There is no assurance of a public market. There currently is no public
market for Mirenco's shares. We do expect to list our shares on the NASD
Bulletin Board or NASDAQ Small Cap Market shortly after this Rescission Offer is
concluded. It is uncertain in the future, even if the shares are listed on a
national or regional exchange or a proprietary reporting system, whether broker-
dealers will want to continue making a market for the shares. Continuing to be
a publicly
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traded company requires us to enlist broker-dealers to serve as market makers.
After becoming a market maker, the broker-dealer may discontinue related
activities at any time, without notice.
Liquidity of the trading market for the shares or even that an active
public market will develop is uncertain. If an active public market does not
develop or is not maintained, the market price and liquidity of the shares may
be adversely affected. Consequently, holders of shares acquired pursuant to
this offering may not be able to immediately liquidate their investment, and the
shares may not be readily accepted as collateral for a loan. Accordingly,
prospective investors should consider the purchase of shares only as a long-term
investment.
16. Future sales of our common stock could adversely affect our stock price. As
of September 30, 2000, we have 11,697,779 shares of our common stock issued and
outstanding, and 1,561,248 shares of common stock subject to rescission offer
issued and outstanding, out of a total of 30 million authorized shares. Shares
were issued to the current shareholders at differing times between our inception
and this date. As is true for other companies contemplating significant growth,
we expect to require additional financing in due course. Additional financing
may not be available to us if and when required or on terms acceptable to us. If
we issue any additional securities, the proportionate ownership and voting power
of the other shareholders would be reduced. Further, any new issuance of shares
may result in a change of control of Mirenco. Moreover, any currently
undesignated shares of Mirenco may be issued without shareholder consent in a
manner and with terms, provisions and rights which would make a takeover of
Mirenco more difficult and therefore less likely. Further, additional financing,
if available, might result in substantial dilution of the equity interests of
existing shareholders. Potential investors should be aware any issuance of
additional shares may result in a reduction of the book value per share or the
market price or economic value, if any, of the outstanding shares. Moreover,
shares held by the principal shareholders, as well as other directors, officers
or 10% shareholders, have been owned beneficially for more than one year by
existing shareholders and may now be sold in the market pursuant to Rule 144
with regard to sales by affiliates after at least one year has passed from the
date of their purchase. Sales of substantial amounts of shares in the public
market, or the perception that these sales could occur, could depress prevailing
market prices for the shares. Public market sales may also make it more
difficult for Mirenco to sell equity securities or equity-related securities in
the future at a time and price which it deems appropriate.
17. Trading activity in our common stock could be volatile. Our business is
expected to change rapidly, which could cause our quarterly operating results to
vary and our stock price to fluctuate. The price at which shares may be
purchased or sold may be subject to extreme fluctuations resulting from many
factors, including actual or anticipated fluctuations in our operating results,
selection of new products, execution of new contracts, general market conditions
or other factors. Our quarterly operating results may vary significantly in the
future, depending upon a number of factors, including timing of new
announcements and customer subscriptions. The sales cycle could be lengthy and
subject to a number of significant risks over which we have little or no
control, including customers' budgetary constraints and general economic
conditions. Due to the foregoing factors, quarterly revenue is difficult to
forecast. Additionally, if quarterly revenue levels are below expectations,
operating results are likely to be materially adversely affected. In
particular, net income, if any, may be disproportionately affected by a
reduction in revenue, because only small portions of our expenses vary with
revenue.
18. The offering price has been arbitrarily determined and your investment will
be immediately diluted. The price of the shares offered currently to investors
has been arbitrarily determined by our management together with our advisors.
Among the factors considered in determining the price of the shares were current
market conditions, overhead requirements, securities standards, certain research
and development requirements, and general product sales and revenue projections
perceived by management as achievable or necessary by Mirenco. There are no
relationships whatsoever between the price of the shares and our assets,
earnings, book value or any other objective criteria of value.
Current purchasers of the shares will also experience an immediate and
substantial dilution of their investment in the Company since the net tangible
book value per share after this offering will be less than the per share
offering price, since the offering price exceeds the current net tangible book
value per share.
19. Mirenco has not paid dividends and has no current plans to pay dividends.
Dividends, if any, to shareholders are at the discretion of the Board of
Directors. We have never paid any cash distributions and intend for the
foreseeable future to retain any earnings to finance the growth of our business.
Dividend policy will be determined by Mirenco's Board of Directors based upon
consideration of Mirenco's earnings, if any, its future capital needs, and other
relevant factors. To conserve funds for our contemplated activities, the Board
of Directors currently does not intend to pay dividends. In fact, we anticipate
that, for the foreseeable future, we will continue to retain any earnings for
use in the continuing operations of our business. Moreover, we may be
restricted from paying dividends to our shareholders under any future credit or
other financing agreements.
20. Forward-looking statements. We make statements in this prospectus and in
the documents we will file with the SEC that are considered "forward-looking
statements" within the meaning of the 1933 Act and the Securities Exchange Act
of 1934. Sometimes these statements contain words like "believe," "will likely
result," "are expected to," "will continue," "is
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anticipated," "estimate," "project" or similar words or expressions. These
statements are not guarantees of our future performance and are subject to
risks, uncertainties and other factors that could cause our actual performance
or achievements to be materially different from those we project.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Because of certain statutory and case law relating to broad discretion
granted management of a company, typically directors and officers of a
corporation are indemnified by and have limited monetary liability to its
shareholders. Failure of management to satisfy its fiduciary responsibility to
shareholders could subject management to certain claims. The following inherent
or potential conflicts of interest should be considered by prospective investors
before subscribing for shares. Prospective investors should also see the
disclaimer at the end of the following discussion regarding certain specific
transactions and "Fiduciary Responsibility of the Company's Management" and
"Description of Capital Stock - Directors' Liability."
American Technologies and Fosseen Manufacturing & Development, Inc. share
common shareholders with us. Specifically, our founder and principal
shareholder, Dwayne Fosseen, owns 49.9% of American Technologies and 100% of
Fosseen Manufacturing. Jerrold Handsaker and Don Williams, directors of the
Company, own 2.4% combined of American Technologies.
Effective April 30, 1999, and through contractual agreement with American
Technologies, we have acquired patents and trademarks, the exclusive licensing
and distribution rights to the patents, all rights to the characteristics,
anticipated results, regulatory compliance, and five products developed by
American Technologies. These five products are DriverMax(R), DriverMax(R)
Software, HydroFire(R) Injection, HydroFire(R) Fluid and HydroFire(R) Lubricant.
Under terms of the agreement, we owed an initial purchase price of $250,000 to
American Technologies shareholders and will pay royalties of 3% of gross sales
for twenty years from sales of the related patents and products. See also the
discussion under the heading "Patents and Trademarks." Our purchase of the
patents was done to reduce any potential conflicts, especially in the future.
Nonetheless, Mr. Fosseen will have a continuing interest in American
Technologies and Fosseen Manufacturing and, to that degree, may have a conflict
of interest relative to Mirenco shareholders.
As part of a negotiated termination agreement originally among American
Technologies, Mirenco and J. Richard Relick, a director and former distributor
for Mirenco, Mr. Relick will be paid ten percent of the royalties received by
American Technologies from Mirenco, not to exceed a cumulative $800,000. These
royalty payments are an obligation of American Technologies.
Moreover, we do not currently own any real estate for the running of our
business. However, we have executed a one-year lease with Fosseen Manufacturing
requiring monthly payments of $1,200 for the use of 2,400 square feet of
facilities for our offices and operations. Upon completion of the contemplated
distribution center, the lease will be terminated and all employees will be
housed in a combination 21,600 square foot office, warehouse and distribution
facility. Dwayne Fosseen, Mirenco's principal shareholder, owns, and will
continue to own, the 1.2 acres of land for the construction, located in
Radcliffe, Iowa.
While it is not expected to undermine professional representation or have
any other adverse consequence, our securities counsel Duncan, Blum & Associates,
is being paid for services rendered through significantly reduced cash
compensation and the issuance of warrants to exercise the purchase of 30,000
shares in Mirenco at an exercise price of $0.01, over a term ending March 31,
2003.
In each of these instances, we believe, as does Mr. Fosseen, the agreements
involved are on terms no less competitive than those available through
unaffiliated third parties, if not more advantageous. To that end, we, with Mr.
Fosseen's active support, have instituted the policies enumerated in the
paragraph following.
While we may enter into transactions with affiliates in the future, these
transactions, if any, will be entered only at prices and on terms no less
favorable to us than transactions with independent third parties. In that
context, we will require any director or officer who has a pecuniary interest in
a matter being considered to recuse themselves from any negotiations. The
Company's Articles of Incorporation, as amended, provide that any related party
contract or transaction must be authorized, approved or ratified at a meeting of
the Board of Directors by sufficient vote thereon by directors not interested
therein; or the transaction must be fair and reasonable to the Company. In any
event, any debt instruments of the company in the future are expected generally
to prohibit us from entering into any affiliate transaction on other than arm's-
length terms. In addition, a majority of the Board is, and must continue to be,
neither an officer nor may any person have a pecuniary interest, other than as a
shareholder or director, in any transactions with us. In turn, commencing
immediately, a majority of the independent Board of Directors members, defined
as having no pecuniary interest in the transaction under consideration,
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will be required to approve all matters involving interested parties. It is
expected that additional independent director(s) will be added to the Board at
some time after the effective date of this Rescission Offer. Moreover, an
independent stock transfer agent has been appointed to assure proper issuance of
stock to shareholders.
At the current time, Mirenco has no provision to issue any additional
securities to management, promoters, or their respective affiliates or
associates. If, as expected, the Board of Directors adopts an employee stock
option or pension plan, any issuance would be in accordance with the terms
thereof and proper approval. Although Mirenco has a very large amount of
authorized but unissued common stock, which may be issued without further
shareholder approval or notice, Mirenco intends to reserve the stock for certain
offerings contemplated for continued expansion, acquisitions and properly
approved employee compensation at the time a stock option plan is adopted.
FIDUCIARY RESPONSIBILITY OF THE COMPANY'S MANAGEMENT
Counsel has advised our management it has a fiduciary responsibility for
the safekeeping and use of all of Mirenco's assets. Management is accountable
to each shareholder and required to exercise good faith and integrity with
respect to its affairs. For example, whether under SEC, Iowa and/or general
fiduciary principles, management cannot commingle Mirenco's property with the
property of any other person, including that of management.
Cases have been decided under the common or statutory law of corporations
in certain jurisdictions to the effect that a shareholder may institute legal
action on behalf of himself and all other similarly situated shareholders (a
class action) to recover damages from management for violations of fiduciary
duties or on behalf of a corporation (a corporation derivative action), to
recover damages from a third party where management has failed or refused to
institute proceedings to recover damages. On the basis of federal and/or Iowa
state statutes and rules and decisions by pertinent federal and/or state courts,
accordingly, (a) shareholders in a corporation have the right, subject to the
provisions of the Federal Rules of Civil Procedure and jurisdictional
requirements, to bring class actions in federal court to enforce their rights
under federal securities laws; and (b) shareholders who have suffered losses in
connection with the purchase or sale of their shares may be able to recover
losses from a corporation's management where the losses result from a violation
by the management of SEC Rule 10b-5, promulgated under the Securities Exchange
Act of 1934, as amended, and corresponding Iowa standards. It should be noted,
however, that in endeavoring to recover damages in shareholder actions, it would
be generally difficult to establish as a basis for liability that our management
has not met the relevant standards. This is due to the broad discretion given
the directors and officers of a corporation to act in its best interests.
To the extent any exculpatory or indemnification provision purports to
include indemnification for liabilities arising under the 1933 Act, the SEC has
stated that this sort of indemnification is contrary to public policy and,
therefore, unenforceable. Shareholders who believe that our management may have
violated applicable laws regarding fiduciary duties should consult with their
own counsel as to their evaluation of the status of the law.
[Balance of page intentionally left blank.]
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CAPITALIZATION
The following table sets forth (i) the capitalization of Mirenco as of
September 30, 2000; and (ii) the effect on capitalization if 10%, 25%, 50% or
100% of the Iowa-Only Offering Shareholders were to accept the Rescission Offer.
<TABLE>
<CAPTION>
As Adjusted After Considering Possible Effect of Rescission
Offer(1)
(acceptance means shares are rescinded)
----------------------------------------------------------------------------------------------------------------------------------
Actual as of
September 30, Effect if 10% Effect if 25% Effect if 50% Effect if 100%
2000 Acceptance Acceptance Acceptance Acceptance
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stock subject to rescission
offer (2) $ 7,806,240 $ - $ - $ - $ -
Common Stock 731,290 7,756,906 6,585,970 4,634,410 731,290
Additional paid in capital 1,714,954 1,714,954 1,714,954 1,714,954 1,714,954
Deficit accumulated during
the Development stage (3) (3,448,066) (3,466,176) (3,493,342) (3,538,618) (3,629,171)
Total stockholders' equity (Deficit)
and total capitalization (1,001,822) 6,005,684 4,807,582 2,810,746 (1,182,927)
</TABLE>
----------------
1. While there is no factual support, management believes the acceptance rate
of the Rescission Offer will be less than 10% for the reasons described in
"Rescission Offerring -- Funding the Offer."
2. We have reclassified the Iowa-Only Offering Shares from common stock to
temporary equity until the completion of the Rescission Offer, at which
time the shares not rescinded will be classified as permanant equity.
3. Deficit accumulated during the development stage has been adjusted in each
column for an expected level of interest expense calculated at an
annualized 8% interest rate and a weighted average time all shares have
been outstanding, considering that the investments occurred throughout the
period from July 30, 1999 through July 30, 2000. The calculation resulted
in estimated interest $18,110 at 10% ; $45,276 at 25%; $90,552 at expense
at the following Rescission Offer acceptance rates: 50%; and $181,105 at
100%.
DESCRIPTION OF BUSINESS
General
Mirenco, Inc., a development stage company, was organized and incorporated
in the State of Iowa on February 21, 1997. We develop and market
technologically advanced products for throttle control of internal combustion
vehicles that improve fuel efficiency, reduce environmental emissions and reduce
vehicle maintenance. Our primary products are derived from technology patented
in the U.S., Mexico and Canada and are the following: DriverMax(R), DriverMax(R)
Software, HydroFire(R) Injection, HydroFire(R) Fluid and HydroFire(R) Lubricant.
We also intend to supply new and improved versions of our product line utilizing
other input sensors, including Global Positioning System satellite technology
and ambient sensor features. We believe we are the first to provide a product
that incorporates Global Positioning System technology into a throttle-control
application called "EconoCruise(R)," using "Satellite-to-Throttle(TM)"
technology.
As of July 30, 2000, we closed our Iowa-Only Offering, having raised
$7,806,240 , selling 1,561,248 shares at $5 per share. As described under the
heading "Rescission Offer," Mirenco is offering to rescind (i.e., void) our sale
of the Iowa-Only Offering Shares, the exclusive subject of this prospectus.
We provide our customers with post-sale services where they are desired.
However, most of our customers employ in-house maintenance, trained by our
employees, to install and maintain our products. All our products are market-
ready at this time, not simply in the design stage. During the past two years
and after completing testing, we focused on introducing our products to the
municipal transportation industry. We limited our sales efforts while we
focused on raising the capital necessary to implement our long-term business
plan.
Because we are still a developmental stage company, and have had relatively
nominal sales to date, we have been dependent upon just a few larger, sporadic
purchases. However, although 91% of 1999 sales were concentrated among 4
customers, our customers are primarily metropolitan transit authorities with
finite numbers of buses; therefore, we do not believe we are dependent upon only
these customers to maintain future business. Instead, we intend to use
testimonials and real-world performance data from these customers to decrease,
or eliminate, trials and evaluations from future customers'
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decision-making and acquisition processes. Nonetheless, past dependence to a
handful of customers could continue unless our envisioned aggressive marketing
campaign is successful.
Our technology originally grew from the ideas and early inventions of our
founder, Dwayne Fosseen. Mr. Fosseen submitted his ideas to the United States
Department of Energy ("DOE") Kansas City Plant operated by AlliedSignal. Mr.
Fosseen sought, and received, a Federal cost-shared "CRADA" (a Cooperative
Research and Development Agreement) program so that his ideas could be jointly
engineered. Under the DOE's CRADA program, the resulting technology design
became the property of Mr. Fosseen. Mr. Fosseen subsequently filed for and
obtained patents for the technology in the United States, Mexico and Canada.
There is no requirement to promote, acknowledge or provide financial
remuneration for the DOE's efforts, although we have approval to display the
DOE's logo on the resulting technology and do so.
Over the next two years, at a minimum, we intend to sell both the licensing
rights to the patented technology and products that are based on the patents.
We believe that the aftermarket of existing automobiles represents a potentially
substantial market for our products as add-ons. We further believe that the
automobile original equipment manufacturers represent a potential market for the
licensing rights to our patents.
DriverMax(R), currently marketed and in production, is an environmental
product that improves engine exhaust emissions while increasing fuel mileage and
reducing vehicle-maintenance costs. DriverMax(R) is primarily targeted to heavy
start-stop vehicles like buses, trash trucks and construction vehicles. The
benefits recognized from the installation of DriverMax(R) are accomplished by
precise programmable computer management of the vehicle's throttle position. We
believe DriverMax(R) is unique since it has demonstrated improvements without
the usual unacceptable negative performance tradeoff (between fuel mileage,
emissions and speed) found in competing products, is configurable via software
parameters, and self-adjusts as a function of the age of the vehicle.
The HydroFire(R) System, currently marketed and in production, is a
sophisticated superset of the DriverMax(R) technology, providing all of the
benefits of the DriverMax(R) plus the additional benefit of cutting oxides of
nitrogen ("NOx") emissions under performance conditions where NOx is produced.
Specifically, NOx is produced under heavy loads and high engine temperatures.
When these conditions occur, HydroFire(R) Injection injects a patented fluid,
HydroFire(R) Fluid, into the engine to combat the Nox production by
approximately 50%. The HydroFire(R) Fluid is a patented water-alcohol-lubricant
mixture for which we have patented the blending process. Specifically, water
cuts the NOx production, alcohol serves as an antifreeze for the water, and
HydroFire(R) Lubricant serves to thwart the potentially solvent and/or corrosive
characteristics of the alcohol in the engine and/or storage containers.
HydroFire(R) Systems are primarily targeted to heavy transport vehicles,
including as inner and inter-city buses and trucks.
EconoCruise(R), currently in development through a Fund-in Work-for-Others
agreement with the U.S. DOE's Kansas City Plant, operated by Honeywell
(previously operated by Allied Signal), is a highly sophisticated throttle-
control system that provides advanced levels of "intelligence" to common cruise
control technology. EconoCruise(R) utilizes Global Positioning System signals to
"know" the topography of the road ahead, thereby allowing the vehicle to best
manage throttle and emissions. For example, EconoCruise(R) allows a user-
programmed limit of momentum to be gained on downhill sections and limits the
traditional uphill over acceleration found in standard cruise controls.
Additional sensors can and will be employed within EconoCruise(R) to provide
further "intelligence" to the system - for example, calculating wind
direction/speed/resistance, real time engine performance (RPM, MPG, temperature,
emissions, etc.) as well as the potential of automatically "knowing" the speed
limit and terrain-imposed areas of acceleration and deceleration based on
programming the software and identifying the vehicle's position according to
Global Positioning System technology.
EconoCruise(R) is beyond the conceptual stage and is currently under
development from both the software intelligence perspective as well as the
physical design for installation on existing vehicles. The technology was
proven and demonstrated in August of 1999 in a publicized demonstration using a
cross-country truck on route from Des Moines, Iowa, to Kansas City, Missouri.
The route was first driven by a driver skilled at fuel efficiency; his actions
were programmed into a prototype EconoCruise(R) unit and then re-run by an
average driver, yielding approximately 20% fuel savings across the route.
Having worked through the early design and proving phases of
EconoCruise(R), we have executed a "Funds-in Work For Others Agreement" with the
DOE's Kansas City plant, whereby industry procures unique services from
government laboratories to build the product. We anticipate both the physical
product will be marketable to the population of existing vehicles and that
rights to the patented technology and proprietary design work will be marketable
to automakers.
Future applications of the patents are being investigated in respect to
production costs, market size, and opportunity. Examples of a potential product
include a "Teenage DriverMax(R)" where, for example, young drivers could be
limited in their ability to go from zero to sixty in less than 10 seconds.
Currently, our products are designed for diesel engines and are being adapted to
gasoline engines. This adaptation will open a considerably larger market for
us. Additionally, for example, using Global Positioning System technology, city
vehicles could be automatically changed into a throttle mode producing
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fewer emissions when inside a programmed radius of the center of the city. Given
over acceleration generates waste and excessive emissions, more "intelligent"
management of the throttle holds the benefit of both an economic and
environmental impact, globally. With our patented technology, the future
"intelligence" of the throttle is now only limited by what can be programmed
into a small on-board computer, and as provided by Mirenco, will be broadly
branded "SmartFoot(TM)" technology.
Product Market
We have built our market strategy on two marketable assets:
(1) Licensing the patents; and
(2) Product sales
Patent licensing is targeted to automakers. We have identified two dozen
major automakers whose markets include the three countries in which we hold
patents: the U.S., Mexico, and Canada. We intend to license our patents to as
many of these automakers as possible for a relatively nominal license fee and
per vehicle royalty, which we believe will have a negligible effect on the
retail price of new autos. Our intent is to provide nonexclusive licensing of
the patented technology, so that automakers will install the technology in an
effort to reduce emissions, save fuel, and decrease maintenance on all their
newly manufactured vehicles.
We are optimistic that, presuming a significantly affordable licensing fee
is charged, automakers will choose to license the technology and avoid the
possibility of future patent infringement legal action. We will use the
proceeds of these license fees to build and execute our business into the in-
service vehicle after market. We envision that automakers will take the lead in
producing more efficient and cleaner vehicles using our technology, while we
will work to help clean up emissions and save fuel in the market of vehicles
already in service.
We plan to introduce our current products into a variety of markets
including:
(1) Inner and inter-city transit authorities;
(2) Waste disposal fleets (e.g., trash trucks);
(3) School buses;
(4) Low-floor buses (e.g., rental car buses used for airport customer
pick up);
(5) Commercial fleet owners and operators (e.g., Federal Express,
UPS, Coke, etc.); and
(6) Manufacturers and maintenance organizations specializing in the
above segments.
We believe the market for our products extends globally, beyond the borders
of our patented technology in the U.S., Mexico and Canada. European and Middle
Eastern countries, for example, pay approximately two to three times the U.S.
cost of fuel.
The macro-perspective market for our products includes all internal
combustion vehicles. Our initial products were designed for a segment of this
population specifically defined by diesel-burning, electronic engines (i.e.,
effectively all diesel-burning vehicles built after 1990). We have now created
a modification to the initial products that opens the market to both electronic
and mechanical engines, thereby increasing the potential market size
dramatically by including older vehicles. In fact, many foreign countries are
experiencing severe pollution problems and high fuel costs while using a
majority of older vehicles which are the worst emissions producers and the least
fuel efficient. This product modification also allows the products to be
marketed into traditional gas-powered passenger vehicles.
The U.S. and global population of in-service vehicles is enormous.
According to the 1999 U.S. Department of Energy Transportation Data Book, there
are approximately 125,000,000 automobiles and 76,000,000 trucks in the U.S.
These figures represent 26.7% and 41.3% of the world's automobile and bus/truck
registrations, respectively. The average age in the U.S. is 8.7 and 8.3 years
for cars and trucks, respectively. With age and natural deterioration and
degradation of the combustion process, these vehicles are less efficient, burn
more fuel, and produce more emissions; thus they can realize significantly
better environmental and economic benefits from our technologies.
Vehicles classified as "heavy" represent an immediate market for our
DriverMax(R) product as well as our new EconoCruise(R) technology. There are
approximately seven million vehicles classified as "heavy" in the U.S.,
averaging between six and seven miles per gallon. These vehicles are virtually
all professional, business-related vehicles and regularly experience extremely
high fuel expense. Consequently, we believe that this particular segment of the
vehicle population will be sensitive to higher fuel prices and be eager to adopt
new technologies that not only save fuel but also reduce emissions and decrease
maintenance expenses.
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A subset of the "heavy" classification is school buses. There are
approximately 500,000 school buses in the U.S., carrying over 23 million
students. These school buses alone represent a tremendous market for our
DriverMax(R) technology today, given their high frequency start-stop routes and
non-highway mileage.
According to compilations derived from various sources, including the U.S.
Department of Energy Transportation Data Book and Polk, at current rates of
production, approximately 400,000,000 new vehicles will be manufactured world-
wide during the next ten years. With an estimated scrap rate and the existing
number of vehicles, at the end of the next ten years, there will be
approximately 1.4 billion vehicles on earth. Our intent is to license our
technology for installation in as many of the 400,000,000 new vehicles as
possible over the next ten years while we market and sell into the existing
after market.
We believe that Mirenco can be a significant factor in a total market
exceeding $2 billion, based upon a 1998 University of Northern Iowa market
research and analysis survey which considered only early models of DriverMax(R).
This survey was conducted prior to our introduction of our EconoCruise(R)
technology.
Sales and Marketing
Our philosophy is to drive our cost of goods down far enough that the
suggested retail price of our products can be lowered to the point where the
payback in fuel savings is measured within one year. Consequently, our intent
is to build a streamlined sales and marketing operation and offer the products
at the lowest suggested retail price possible while maintaining an appropriate
gross profit per product.
We intend on utilizing various sales methods including distributors,
original equipment manufacturers, regional commissioned salespeople and
independent mechanics. All of the potential sales models will be tested and
utilized to varying degrees. The independent mechanic model is targeted
directly towards mechanics and engine repair shops that can serve as both
installation service sites and retail outlets.
We currently have existing contacts and prospective distributors and
regional commissioned sales people throughout the U.S., Canada and Mexico.
Furthermore, the Des Moines Area Community College offers one of a number of
certified mechanics schools around the U.S., and has expressed an interest in
becoming a certified Mirenco training center for Mirenco-certified independent
mechanics.
To date, we have consciously limited our sales efforts and intentionally
selected prospects that would help in building the proof and customer foundation
that will be leveraged in future sales. These sales began as initial
conversations regarding the benefits of our products and led to installation and
testing of several demonstration units. Once the technology was proven, our
customers worked through their signature approval process, leading to purchase
orders and full installation of sold units. We intend to use testimonials and
real-world performance data from these customers to decrease, or eliminate,
demonstration trials and evaluations from future customers' decision-making and
acquisition processes. Existing customers, installations, and evaluations
include Louisville; Cedar Rapids; Grand Canyon; Overland Custom Coach (a
Canadian bus manufacturer); Memphis; Iowa Department of Transportation; Ann
Arbor; Coke; Chicago; Pepsi; Mexico City; St. Louis; Sioux City; and the Steve
Forbes Presidential Campaign Bus.
We are hopeful that the licensing of our products to automakers will result
in increased consumer and user awareness of our products. We will additionally
use aggressive sales and marketing programs, including participation in
appropriate domestic and international trade shows and major print media.
The overall market for our products continues to become more accepting and
fertile as environmental regulatory and oversight agencies like the U.S.
Environmental Protection Agency continue to create more stringent compliance
standards for transportation. Similarly, the California Air Resource Board is
generally regarded as the most stringent state environmental agency in the
United States. We have obtained a California Air Resource Board exemption
number and approval to sell within California. This exemption number is
displayed on our DriverMax(R) product.
Production Suppliers
Our production has been outsourced to a firm with extensive experience in
the field of computerization and production of high performance, tolerance and
precision equipment. We are dependent upon outside entities and market
conditions for our revenues. I.C.E. Corp., an FAA certified electronic
manufacturing company located in Manhattan, Kansas, has been contracted to
produce our DriverMax(R) and possibly other electronic products which we
distribute. We are reliant on I.C.E. Corp. to provide electronic product-
quality protection for our products, sales of which will generate revenues
during our early stage product distribution. Nonperformance by, or poor service
from, I.C.E. Corp. could have a damaging effect on our relationships with our
customers.
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Our formal relationship with I.C.E. Corp. is an arm's-length arrangement
whereby we provide detailed production specifications and I.C.E. Corp. produces
products to those specifications in the quantities ordered. Generally, all
materials required to manufacture and assemble our product line are readily
available and are shelf items. Orders are typically manufactured and delivered
within, at most, a ten-week timeframe. Payment terms are standard for the
industry. We are not required to order or accept delivery of any product based
on a predetermined time schedule, and production unit costs decrease with
increasing quantities.
At the present time, we intend to continue having our current and future
products manufactured by outside companies that can meet our specifications for
high quality and reliability. Based on our knowledge of various manufacturers,
we believe that, if the need ever arose, we could develop alternative suppliers
with production capabilities to assure a continuing output of product. Our
management has contacted other companies capable of producing our products if
the current supplier is unable to produce our anticipated volume levels.
Competition
The market for our products and services is characterized by rapid
technological developments, frequent new product introductions and evolving,
varying industry and regulatory standards. The emerging character of these
products and services and their rapid evolution will require us to effectively
use leading technologies, continue to develop our technological expertise,
enhance our current products and services, and continue to improve the
performance, features and reliability.
We believe, considering the proprietary nature of our current DriverMax(R)
and HydroFire(R) control system and our new products utilizing Global
Positioning System technology, there is no other known automotive retrofit
device that can compete with our current or contemplated spectrum of offerings.
If there are products that perform the same functions as our products, we
believe our products are among the most economical, effective options available
for buyers of retrofit emission reduction devices. Furthermore, if substitute
products are introduced by competitors that infringe on the patents, we will
vigorously defend our rights.
Certain identified competitive products include: portable fuel cells that
combine hydrogen, which can be obtained from methanol, natural gas or petroleum,
and oxygen from air without combustion to generate electricity; biofuels that
use crops, corn stalks and trees to make cleaner, renewable fuels for cars and
buildings; cleaner burning gasoline engine cars; hybrid electric/gasoline motors
and electric vehicles. However, many, if not all, of these alternatives, are
considered years away; expecting for example that it may take decades before a
mass-marketable car using fuel cell technology is available. Also, these
alternatives may create a potential solution for emissions and fuel economy but
do not yet address the power, convenience and reliability needs of automobile
drivers.
In consideration of perceived competition, it is important to note that
Mirenco's technologies do not technically compete with most, if not all, of
their respective solutions. Mirenco's technologies and solutions target the
wasted fuel and excess emissions produced as a result of continuous,
unrecognized over throttling of vehicles under varying conditions. Alternate
(i.e., "competitive") solutions generally work to either filter emissions and/or
assist the engine in burning more of the excess fuel directed to the engine as a
result of over throttling. With this understanding and distinction, we intend
to make the industry aware that our products are not competitive to, but in fact
cooperate with other solutions.
Potential competitors include engine makers and auto manufacturers such as
Navistar (NYSE: NAV) and Detroit Diesel (NYSE: DDC) who are working to make more
efficient, cleaner engines; future technology researchers and manufacturers such
as FuelCell Energy (NasdaqNM: FCEL) and Ballard Power Systems (NasdaqNM: BLDP)
who are working to advance the newest technologies of electrical power
generation from hydrogen; physical and chemical exhaust screens, such as
KleenAir Systems (OTCBB: KAIR) NOxMaster that injects an ammonia-based product
into the exhaust; entirely new fuel mixtures such as that being developed by
Clean Diesel Technologies (OTCBB: CDTI); and various forms of air mixture
devices, magnets and engine add-ons. It is important to note that our solution
is based on a completely different paradigm from that of these potential
competitors in that we work to more precisely deliver an appropriate amount of
fuel to the engine for the operator's desired vehicle movement. In other words,
our competitors generally seek solutions after the fuel is burned, while we work
to solve the emissions problem before it happens.
Distribution
We currently utilize independent representatives and organizations for the
delivery of our products as well as for direct sales and marketing. We believe
that various methods will be employed for varying markets, and we will utilize
the most economical means available as our development continues. As part of
the anticipated use of proceeds detailed in our Iowa-Only Offering, we intend to
construct a state-of-the art distribution and warehousing facility for our
products. The
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facility will include sufficient office space to accommodate our management,
sales support, and expected growth in staff. We have sought and received
preliminary approval for economic development assistance from the state and
county for this proposed facility.
We intend to utilize technology wherever possible to drive an in-house
sales operation focused on large fleet owners, transit authorities, licensing
opportunities, and the federal government. Smaller fleets and international
sales will be managed indirectly through one of a number of distribution
arrangements.
Government Regulation
As public concern over air quality grows, we believe the marketplace grows
more fertile for our technologies. In the U.S., the EPA, under the Clinton
Administration, has created tighter emissions regulations that affect fuel
suppliers, automakers and operators. As President Clinton stated in his January
2000 State of The Union Address, "In the new century, innovations in science and
technology will be the key not only to the health of the environment, but to
miraculous improvements in the quality of our lives and advances in the
economy." We believe that we are one of the companies to lead the way in
providing new technologies to assist in the national and international effort to
deliver a cleaner environment to future generations.
The U.S. is not alone in its efforts to combat pollution. For example,
Canada's air quality regulatory agency has recognized a growing air quality
concern and is mandating similar regulations and standards to those being
promoted within the U.S. Mexico is currently experiencing tremendous air
quality problems in its highly populated areas. Mexico City officials work to
regulate heavy emissions-producing vehicles by not allowing them to operate on
consecutive days unless they pass emissions standards tests. We installed
DriverMax(R) on a large truck in Mexico City and were able to pass the tests,
thereby permitting the daily use of the vehicle for its inner city commercial
delivery route.
Developed nations around the world are working to promote a healthy
environment by identifying and taking action on the polluting sources.
Furthermore, based on our direct experience in Mexico City, feedback from
potential overseas distributors and management opinion, many of these countries
allow longer useful lives for their vehicles than we accept in the U.S.
Consequently these vehicles are likely to emit more smoke and polluting elements
and burn excessive amounts of fuel. As their government air quality officials
continue to recognize and act on vehicle emissions, the market for our products
becomes easier to penetrate.
Currently, all conventional vehicles, as well as most alternate fuel
vehicles and certain retrofit technologies legally sold in the United States,
must be "certified" by the EPA to qualify for the "Low Emission Vehicle" ("LEV")
classification necessary to meet federal fleet-vehicle conversion requirements.
Our products have met, and management believes the products will continue to
meet, these certification requirements. However, since this is an area in which
the government is continually updating and legislating or mandating new
requirements, we are uncertain whether our products will continue to be
certified. Whenever possible, we intend to maintain our certification.
We are aware that countries outside the U.S. are considering their own
regulatory requirements in the area of clean air and engine emissions. In order
to improve the marketability of our products in those countries, we will conform
our products to these regulations if it is economically feasible to do so.
We believe our products to be "retrofit devices" as defined under EPA
regulations. We are, however, subject to the regulatory risk that EPA may
construe distribution of the products to be also governed by "fuel additive"
regulations. These more stringent regulations sometimes require scientific
testing for both acute and chronic toxicity, which is not required for approval
of pollution control products deemed as "retrofit devices." Although scientific
testing would be facilitated by the fact that alcohol is a substance used in the
transportation and many other industries and about which a great deal is already
known concerning toxicity, additional regulatory compliance could substantially
lengthen the period of time before HydroFire(R) could be widely commercialized.
We believe the EPA "fuel additive" regulations do not apply to our DriverMax(R)
products, since our product does not involve the introduction of additives into
the engine air intake system, as those terms are defined in EPA regulations and
generally understood in the automotive engineering community. However, it is
possible that a competitor who manufactures fuel additives that are subject to
the more stringent "fuel additive" regulations may raise the issue with EPA in
order to interfere with or delay the commercialization of competing with our
technology.
We are not aware of any proposed regulatory changes that could have a
material adverse effect on our operations and/or sales efforts. Further, we
have not been required to pay any fines for and are not aware of any issues of
noncompliance with environmental laws.
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Patents and Trademarks
Effective April 30, 1999, we executed an agreement to transfer the
ownership of the patents and trademarks from American Technologies to us. Our
founder and principal shareholder, Dwayne Fosseen, owns 49.9% of American
Technologies, as discussed under the heading "Certain Relationships and Related
Transactions." We will pay American Technologies a 3% royalty of annual gross
sales for a period of 20 years, beginning November 1, 1999. The agreement
required the payment of $25,000 at the time we met the Iowa-Only Offering
$500,000 minimum offering. Approximately one-half of the amount due was paid on
December 13, 1999 and the other one-half was paid on February 15, 2000, being
distributed to Mr. Fosseen. A $225,000 payment became due American Technologies
per the agreement once we had raised $5,000,000 in the Iowa-Only Offering. The
$225,000 was paid in August 2000. Prior to the purchase of the patents at
November 1, 1999, we paid royalties to American Technologies for the use of and
opportunity to market the patents and trademarks. The payments were calculated
from January 1 through October 31, 1999 as the greater of 3% of actual sales or
3% of sales calculated at an established unit price ($495) and minimum
quantities of (40 to 80 units per month). We paid royalties in 1998 and earlier
at the unit price of $950 and minimum quantities of 20 to 40 units per month.
This method of calculating royalties was terminated with our purchase agreement
of November 1, 1999.
We believe the execution of this agreement with the associated transfer of
ownership to us will eliminate any uncertainty that may have existed in ensuring
our exclusive distribution and manufacturing rights. While we do have a right
of first refusal to purchase any additional patents from American Technologies
as they become available, we do not anticipate that any patents will be so
forthcoming and that we do not need any other patents to implement our business
plan. The patents covered by the above referenced agreement are:
1. United States Patent Number 4,958,598, issued September 25, 1990, entitled
"Engine Emissions Control Apparatus Method."
2. United States Patent Office, 5315977, "Fuel Limiting Method and Apparatus for
an Internal Combustion Vehicle" issued May 31, 1994.
3. Canadian Patent Number 1,289,430, issued September 24, 1991, entitled "Engine
Modification Apparatus Fuel."
4. Mexican Patent Number 180658, "Fuel Limiting Method and Apparatus (Staged
Fueling). Registration date January 17, 1996.
5. A Canadian patent application filed on April 13, 1992 is still pending. The
patent application is entitled "Fuel Limiting Method and Apparatus for an
Internal Combustion Vehicle."
In addition, we have filed for and obtained the following Registered
Trademarks:
(1) HydroFire(R) Fluid (5) EconoCruise(R)
(2) HydroFire(R) Injection (6) "SmartFoot(TM)"
(3) HydroFire(R) Lubricant (7) "Satellite-to-Throttle(TM)"
(4) DriverMax(R)
Employees and Consultants
We currently have ten full-time employees, with no part-time employees.
There have been no management-labor disputes, and we are not a party to any
collective bargaining agreement. Employees currently have minimal Company-
provided employee benefits. In order to attract the appropriate personnel to
assist the company in our future growth, we are analyzing additional benefits
and improvements to our existing benefits program. With the $7,806,240 raised
in the Iowa-Only Offering through July 30, 2000, less the dollar amount of
shares rescinded pursuant to this Rescission Offer, we are in the process of
establishing appropriate incentive compensation programs which are currently
being reviewed and approved by our Compensation Committee and/or our Board of
Directors.
Facilities; Description of Property
We currently do not own any properties for the running of our business.
However, we have executed a one (1) year lease with Fosseen Manufacturing
requiring monthly payments of $1,200 for the use of 2,400 square feet of
facilities for our offices and operations. Upon completion of the contemplated
distribution center, the lease will be terminated and all employees will be
housed in a combination 21,600 square foot office, warehouse and distribution
facility. As discussed at "Certain Relationships and Related Transactions," the
1.2 acres of land for the construction, located in Radcliff, Iowa, is owned by
Dwayne Fosseen, principal shareholder of Mirenco. Construction of the
distribution center began in August 2000 and, pending the result of the
Rescission Offer, is expected to be complete by March 2001.
[Balance of page intentionally left blank.]
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Management
(1) Introduction
------------
The following table summarizes the names, ages and positions of our
executive officers and directors as of September 30, 2000. Our By-laws set the
number of directors at five, each serving one-year terms. The current four
directors were all elected at our annual meeting of shareholders held on May 13,
2000, and will hold office until their successors are elected at the next annual
meeting of the shareholders. No director holds a directorship in any other
reporting company. See the pertinent individual's specific biographical
information, which follows:
Name Age Position
Dwayne Fosseen 53 Chief Executive Officer, Chairman of the
Board of Directors and Treasurer
J. Richard Relick 69 Chief Operating Officer, Director and Secretary
Wayne Allison 40 President
Darrell R. Jolley 38 Chief Financial Officer
Don D. Williams 64 Director
Jerrold Handsaker 49 Director
(2) Executive Officers
------------------
Dwayne L. Fosseen, born in 1946, is founder, President, Chief Executive
Officer, Chairman of the Board of Directors and Principal (controlling)
Shareholder. Mr. Fosseen's inventiveness and ingenuity have led to seven
patents that have been issued in the U.S., Canada and Mexico in the field of
energy conservation. He also has two patents pending. Mr. Fosseen has
personally been involved in major projects with the U.S. Department of
Agriculture, U.S. Department of Energy, Iowa Corn Growers Board, National
BioDiesel Board and the Iowa Soybean Promotion Board. Mr. Fosseen has over 15
years experience in the field of heavy-duty engines and has directed major EPA
testing efforts at Ortech Corporation, an international emissions testing
company. Mr. Fosseen is also the principal in Fosseen Manufacturing &
Development, Inc. Further discussion regarding Mr. Fosseen is available under
the heading "Certain Relationships and Related Transactions."
J. Richard Relick, born in 1929, Chief Operating Officer, graduated from
Dickinson College, Carlisle, Pennsylvania, in 1951 with a degree in economics
and has a 1963 associate degree in management from Northeastern University,
Boston, Massachusetts. Mr. Relick has extensive management background in the
introduction of new technology, having launched two new companies, one in the
environmental area and another in biotechnology. Mr. Relick was a Group Vice
President of Eco-Labs, a Fortune 500 company, and, as President of Ventron
Europe, formed a new company in Brussels, Belgium to serve the world chemical
and pharmaceutical markets. Mr. Relick served as a captain in the Marine Corps.
Mr. Relick currently serves as director of Certech Corporation, a manufacturer
of reusable oil filters, and Northern Probiotics, a producer of Antibiotic
Replacement Therapy for humans and animals. Further discussion regarding Mr.
Relick is available under the heading "Certain Relationships and Related
Transactions."
Wayne Allison, born in 1960, has served as President of an international
technology firm publicly traded in Israel and as CEO of a publicly traded
business consolidation holding company. Mr. Allison has served as a director
and officer of public companies since 1994 and has operated in a variety of
roles in growth companies. His background includes high technology development,
sales and marketing and national/international distribution channels.
Additionally, Mr. Allison has devised strategy and conducted a national merger
and acquisition campaign and has created and negotiated the public market
capital and equity strategies for growth companies. Mr. Allison published a
book on conducting Internet Business ("The Internet Business Primer",
Sourcebooks, 1995), obtained his bachelors degree in Behavioral Psychology and
Computer Science engineering from the University of Texas at Arlington, and has
completed his Masters Degree in Managerial Economics/Finance from Oklahoma
University.
Darrell R. Jolley, born in 1962, has been a Chief Financial Officer,
Secretary, Treasurer and a director of public, reporting companies since 1996
and has as well served as a Chief Operating Officer for much of that time
period. Mr. Jolley has a natural inclination to new businesses and industries
and has intentionally developed his business skills for start-up and fast growth
companies. His experience and expertise in managing SEC requirements as well as
equity and company valuations has enabled him to devise long-term wealth-
building corporate strategies for shareholders of growing companies. Early in
his career, Mr. Jolley was employed at Deloitte and Touche, international CPA
firm. Mr. Jolley graduated from the University of Texas at Austin majoring in
the Business Honors Program with a specialization in Accounting. Mr. Jolley
obtained his CPA certification in January 1989.
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(3) Directors
---------
Dwayne L. Fosseen. (See "Executive Officers" above.)
J. Richard Relick. (See "Executive Officers" above.)
Jerrold Handsaker, born in 1950, practiced general business law in Iowa for
22 years and was admitted to practice in all Iowa Courts, U.S. District Courts
in Northern and Southern Iowa, the U.S. Tax Court and the U.S. Supreme Court.
He holds two U.S. patents and is presently President and CEO of Innovative
Lighting, Inc., an Algona, Iowa manufacturing company that manufactures and
markets products to the worldwide marine and RV industries. He is a member of
the Iowa State Bar Association, the National Marine Manufacturer's Association
and the American Boat and Yacht Council. Mr. Handsaker received his
undergraduate degree from Iowa State University in 1972 and his juris doctorate
degree from Drake University in 1975. Mr. Handsaker has been a director of
Mirenco since June 1, 1998.
Don D. Williams, born in 1934, a lifelong resident of Williams, Iowa, has
been involved in the grain business and is a major producer of livestock. Mr.
Williams has also been associated with real estate as a licensed associate. Mr.
Williams has served as an officer of the County Farm Bureau Board, Heart of Iowa
Realtors Board, and the County Compensation and Extension Board. A director of
the Company since June 1, 1998, Mr. Williams is also a veteran of the Korean
War.
Two of the directors are employees of the Company: Mr. Fosseen also serves
as Chief Executive Officer and Mr. Relick serves as Chief Operating Officer.
Directors who are not employees of the Company receive no fee for attending
meetings of the Board of Directors but are reimbursed for any out-of-pocket
expenditures.
Remuneration, Employment Contracts and Employee Benefits
As the Company's operations develop, it is anticipated that additional
personnel may be hired. It is generally anticipated that any new-hires will
devote full time to the Company. At such time, the Board of Directors may, in
its discretion, approve the payment of additional cash or noncash compensation
to the foregoing for their services to the Company.
We have entered into employment agreements with Dwayne Fosseen, J. Richard
Relick, Wayne Allison and Darrell Jolley.
On June 15, 1999, Messrs. Fosseen and Relick each entered into two year
employment agreements with Mirenco (collectively, the "Employment Agreements")
that each provides for annual salaries, bonuses and other benefits. Annual
salaries, as set forth in their agreements, are $45,000 through 1999 and $75,000
starting January 1, 2000, or upon successful close of our public offering. As
described in "Remuneration", it is anticipated that Messrs. Fosseen and Relick
will devote approximately 100% of their time to Mirenco. The Board of Directors
has the right to terminate the Employment Agreements with or without cause at
any time, provided, however, that termination by the Board of Directors without
cause would obligate us to pay the compensation due under the applicable
Employment Agreement for the remainder of the term involved. Pursuant to the
terms of the Employment Agreements, Messrs. Fosseen and Relick have agreed that
they will not compete with us during the period of their employment and for a
one-year period after termination of each applicable Employment Agreement.
Messrs. Allison and Jolley each entered into a one-year employment
agreement with us dated November 3, 1999. The employment agreements provide for
each to earn compensation at the annual rate of $75,000 as well as other
benefits, including stock options which vest over the period of January 1, 2000
through September 30, 2003. Upon any future change in control of Mirenco, the
options will immediately and fully vest. It is anticipated that Messrs. Allison
and Jolley will devote approximately 100% of their time to Mirenco. The Board of
Directors has the right to terminate the employment agreements with or without
cause at any time, paying two weeks compensation. Pursuant to the terms of the
employment agreements, Messrs. Allison and Jolley have agreed that they will not
compete with us during the period of their employment and for a one-year period
after termination of each applicable employment agreement.
Mirenco does not provide officers with pension, stock appreciation rights,
long-term incentive or other plans, but it has the intention of implementing
these kinds of employee benefits in the future. Specifically, we anticipate
that we will adopt, in the future, an employee bonus program to provide
incentives to our employees. It is anticipated that an incentive plan would pay
bonuses in cash or stock to employees based upon our pretax or aftertax profit
for a particular period. It is anticipated that we will adopt a retirement plan
-- such as a 401(k) retirement plan -- and that we will implement an employee
health plan. Establishment of retirement plans and their implementation will be
at the discretion of the Board of Directors;
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<PAGE>
any bonus plan(s) will be based on annual objective, goal-based criteria
developed by the Board of Directors for eligible participants and will be
exercisable only at prices greater than or equal to the market value of the
underlying shares on the date of their grant.
Litigation
We are not a party to any litigation, material or otherwise; we are not
aware of any threatened civil, administrative or civil proceeding that would
have a material adverse affect on our business; and we do not believe that the
outcome of the rescission offer will have a negative impact on our ability to
conduct our business.
Securities Ownership of Certain Beneficial Owners and Management
The table set forth below presents certain information regarding beneficial
ownership of our common stock, our only voting class of securities, as of
September 30, 2000, by (i) each shareholder known to us to own, or have the
right to acquire within sixty days, more than five percent (5%) of our common
stock outstanding; (ii) named executive officers of the company; and (iii) all
officers and director nominees of the company as a group. All share amounts
have been adjusted to reflect the results of stock splits effective June 1998
and April 1999.
<TABLE>
<CAPTION>
Name and Address Amount of Common Stock
Beneficial Owner (1) Beneficially Owned(2)(3) Percent of Class
----------------- --------------------------- -----------------
<S> <C> <C>
Dwayne Fosseen, Director, Chairman of the Board 9,008,700(4) 67.9%
and Chief Executive Officer
Don Williams, Director 342,800 2.6%
Jerrold Handsaker, Director 44,030 (8)
J. Richard Relick, Director and Chief Operating Officer 50,000(5) (8)
Wayne Allison, President 80,000(6) (8)
Darrell R. Jolley, Chief Financial Officer 80,000(7) (8)
All Directors and Officers as a Group 9,605,530 72.5%
</TABLE>
----------------
(1) Unless otherwise indicated, the address of each director and officer is c/o
Mirenco, Inc., 206 May Street, P.O. Box 343, Radcliffe, Iowa 50230.
(2) Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities that may be acquired upon the exercise of options,
warrants or convertible securities by such person within 60 days from the
date on which beneficial ownership is to be determined.
(3) Reflects total outstanding 11,697,779 shares plus 1,561,248 of shares
subject to rescission as of September 30, 2000. All share amounts are after
the effect of our 3:1 stock on June 9, 1998 and 5:1 stock split on April 16,
1999.
(4) Amount excludes options to purchase 38,000 shares, exercisable at $0.29,
owned by Betty Fosseen.
(5) Represents 50,000 shares owned pursuant to options to purchase shares of
common stock at $4.25 per share, exercisable within 60 days. Excludes
options to purchase 50,000 shares at $4.25 per share that vest on January 1,
2001. All options expire on June 15, 2009.
(6) Represents 80,000 shares owned pursuant to options to purchase shares of
common stock at $5.00 per share, exercisable within 60 days. Excludes
unvested options to purchase 200,000 shares at $5.00 per share which vest
20,000 options per quarter between January 1, 2001 and September 30, 2001,
and 15,000 options per quarter between January 1, 2002 and September 30,
2003. All options expire on September 30, 2008.
(7) Represents 80,000 shares owned pursuant to options to purchase shares of
common stock at $5.00 per share, exercisable within 60 days. Excludes
unvested options to purchase 200,000 shares at $5.00 per share which vest
20,000 options per quarter between January 1, 2001 and September 30, 2001,
and 15,000 options per quarter between January 1, 2002 and September 30,
2003. All options expire on September 30, 2008.
(8) Less than 1%.
Family Relationships
There are no family relationships relating to Mirenco between executive
officers, directors or 10% or greater shareholders.
23
<PAGE>
Executive Compensation
The table below sets forth a summary of the compensation earned by our
named chief executive officer and other executive management for 2000
(projected), 1999 and 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Long-Term Compensation Awards
Bonus Securities Long-Term
Name and Fiscal and Other Restricted Underlying Incentive All other
Principal Position Year Salary($) Compensation Stock Awards Options Plans Compensation
--------------------- -------- ------------- ------------ ------------ --------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dwayne Fosseen, CEO 2000 $75,000
1999 $35,596 0 0 0 0 0
1998 $26,000
J. Richard Relick, 2000 $75,000
COO 1999 $25,365(1) 0 0 100,000 0 0
1998 n/a
Wayne Allison, 2000 $75,000
President 1999 $12,500(2) 0 0 280,000 0 0
1998 n/a
Darrell R. Jolley, 2000 $75,000
CFO 1999 $12,500(2) 0 0 280,000 0 0
1998 n/a
</TABLE>
----------------
(1) Amount represents payments for eight months in 1999.
(2) Amount represents payments for two months in 1999.
SELECTED FINANCIAL DATA
The following table sets forth certain financial data for Mirenco, a
development stage company. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Financial Statements and Notes thereto
included elsewhere in this filing. The selected financial data for the years
ended December 31, 1999 and 1998 and cumulative data since inception through
December 31, 1999, have been derived from our financial statements which have
been audited by independent certified public accountants and are included
elsewhere in this filing. The selected interim financial data for the nine
months ended September 30, 2000 and 1999 and the cumulative data since inception
have been derived from our financial statements which are unaudited and which
are included elsewhere in this filing.
[Balance of page intentionally left blank.]
24
<PAGE>
<TABLE>
<CAPTION>
Income Statement Data
Cumulative Cumulative
February 21, February 21,
1997 1997
(Inception) (Inception)
---------- ----------
through Nine months Nine months through
------- ended ended --------
Year ended Year ended December 31, September 30, September 30, September 30,
December 31, December 31, ------------- ------------ ------------ -------------
1999 1998 1999 2000 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 195,295 $ 33,992 $ 247,445 $ 53,593 $ 82,663 $ 301,038
Cost of Goods Sold
and Operating Expenses 732,145 2,239,720 3,085,879 823,687 492,677 3,909,566
Loss from Operations (536,850) (2,205,728) (2,838,434) (770,094) (410,014) (3,608,528)
Interest Income 12,351 13,186 26,631 133,831 5,986 160,462
Net Loss $ (524,499) $(2,192,542) $(2,811,803) $ (636,263) $ (404,028) $(3,448,066)
Loss per Share $(0.05) $(0.19) $(0.05) $(0.03)
Common Shares
Outstanding (1) 11,735,001 11,412,219 12,459,209 11,671,602
</TABLE>
Balance Sheet Data
<TABLE>
<CAPTION>
Year ended Nine months
December 31, 1999 Ended September 30, 2000
---------------------------- -----------------------------
<S> <C> <C>
Working Capital $ 807,556 $ 6,581,190
Total Assets 962,878 6,851,539
Shareholder's Equity (Deficit) (2) 836,029 (1,001,822)
Deficit accumulated during
the development phase $(2,811,803) $(3,448,066)
</TABLE>
----------------
(1) Based on the weighted average number of shares outstanding and shares
subject to rescission offer during the period and adjusted for stock splits
approved June 9, 1998 and April 16, 1999.
(2) There have been no, nor are there expected to be, cash dividends.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. Introduction
Management has, to date, intentionally focused all of our limited resources
on our business plan, consisting of the following chronological elements:
a. First Round Capitalization
b. Product Development and Testing
c. Empirical Performance Results and Testimonials
d. Launch Planning
e. Second Round Capitalization
f. Launch
g. Licensing, Sales and Marketing
We raised $788,400 in our successful SCOR offered during 1997 and 1998.
These funds supported the completion of our early product testing and first
marketing efforts. Initial product sales occurred to transit authorities in
Memphis, Ann Arbor, and Cedar Rapids.
We added another $334,895 from a private stock offering to our existing
shareholders during 1999 to support our planned follow up offering to raise up
to $10 million. The funds raised in the private stock offering were used
primarily for
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<PAGE>
legal, accounting, printing and marketing costs of our Iowa-Only Offering which
was approved for distribution within the state of Iowa on July 30, 1999. As of
July 30, 2000, we raised a cumulative $7,806,240 from the Iowa-Only Offering.
From inception to date, we have incurred no significant research and
development costs. Prior to our purchase of the patents from American
Technologies, as discussed at "Certain Relationships and Related Transactions,"
we estimate from records provided to us that American Technologies and other
related entities incurred research and development costs of approximately $4
million. From proceeds of our Iowa-Only Offering, we expect to spend between
$800,000 and $1.8 million over the next three years in research and development
for improving and streamlining our existing products, reducing manufacturing
costs and developing new applications.
We are investing funds from the Iowa-Only Offering in a distribution and
office facility located in Radcliffe, Iowa, on property owned by our principal
shareholder. The total cost is expected to be approximately $1.25 million to
build and furnish the new building. Through September 30, 2000, we have
expended $139,147 to begin construction. We have worked closely with state and
local government officials who have now declared the property to be an
enterprise zone where we will be able to take advantage of certain property tax
breaks. Though the number of employees will grow only slightly during fiscal
year 2000, we anticipate we will be adding additional mechanics and sales
personnel as well as sales management as we continue to implement our business
and marketing plans. By December 31, 2001, with the new facility built and
anticipated increased sales, we believe we will employ 29 full-time employees,
including the four existing executive managers.
We have now completed the first five steps as outlined above, with
significant and adequate capital to seek a listing on NASDAQ's Small Cap
Market(TM). A NASDAQ listing provides four elements that we desire:
a. Additional awareness and public attention gained from operating as a
publicly traded company;
b. A public market valuation for the Company;
c. An alternative for future equity capitalization if required and desired by
the Company; and
d. An exit vehicle for existing shareholders who desire to sell.
Once the Rescission Offer is concluded, we intend to use certain proceeds
from the Iowa-Only Offering to launch our products and offer to license our
patents to automakers simultaneous with the NASDAQ listing. Our intent is to
make the automakers aware of our patented technologies, provide a significantly
inexpensive offer for licensing and royalties, and to gain rapid and significant
market awareness for our technologies.
The simultaneous marketing campaign efforts conducted at the time of launch
are intended to jumpstart our sales efforts into the existing-vehicle
aftermarket, make a strategic, nonexclusive offer to automakers for patent
licensing and to generate awareness and interest in Mirenco within the
investment community. We are hopeful that the unique business method of
launching, licensing, and execution that we have chosen will yield product
marketing, patent licensing, and investment analyst attention more rapidly than
could be obtained via more traditional, smaller-exposure methods.
In parallel and support of our launch, Mirenco products are being utilized,
marketed and sold, albeit on a limited basis, to relatively high-profile
organizations. We are optimistic that the performance data and testimonials
obtained from these high-profile customers will serve to minimize, or eliminate,
potential extended evaluations from prospective customers' acquisition decision-
making cycles.
Our technologies are built on patents issued to our founder and principal
shareholder, Dwayne Fosseen, in a cost sharing CRADA industry/government
research and development project with the U.S. Department of Energy. We have
proven effectiveness in fuel savings, emissions reductions and decreased
maintenance, and our products are applicable and adaptable to vehicles
worldwide. Sufficient prospects regarding buses, heavy trucks and other
vehicles world-wide have been generated that we believe commercially viable
sales will be realized once we direct our emphasis and focus our resources. We
have identified 46 auto manufacturers world-wide that are expected to produce
400 million new vehicles over the next 10 years. We anticipate selling licenses
to our patents to many of the higher-volume auto producers, which will provide
for a per unit royalty. While there is seasonality in the U.S. automobile sales
industry, seasonality is not expected to have a significant impact on our
business in the near future.
Further, while other technologies continue to develop, we believe many of
these alternatives to be 4 to 10 years away from a cost-effective solution
which, in any event, would likely be implemented first and perhaps exclusively
to new vehicles. Our products have the advantage of being currently applicable
and we believe they provide the licensees with a foundation to further improve
and develop new applications. In spite of ongoing technological advances in
fuel, engines and our own products, we believe that the world-wide existing
number of cars, buses and trucks is expected to provide a source for our sales
for years to come. Furthermore, our technologies are in relative infancy in
that we intend to incorporate considerably advanced sophistication within our
products as the technological components become economically feasible for
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<PAGE>
mass production (e.g., Global Positioning System satellite, global road
topographical databases, speed limit databases, bi-directional throttle control,
etc.).
We are eager to launch and maximize the years of research and effort that
has gone into design, development, protection and planning. Management
believes, and performance data demonstrates, that market acceptance of Mirenco's
technologies can provide a global benefit measured both economically and
environmentally. Consequently, management has carefully crafted and implemented
a plan that provides the products, company infrastructure, human-resource skills
and business strategy to leverage and maximize the patents and resultant
technology as quickly as possible, with final company valuation being determined
by the free markets.
2. Background
Our fiscal year ends December 31. The following analysis of our financial
condition and results of operations for the fiscal years ended December 31, 1999
and 1998 should be read in conjunction with our audited financial statements for
the periods and other information presented elsewhere in this filing.
3. General
We develop and market technologically advanced products for throttle
control of internal combustion vehicles that improve fuel efficiency, reduce
environmental emissions and reduce vehicle maintenance. Our primary products
are derived from technology patented in the U.S., Mexico and Canada and are:
DriverMax(R), DriverMax(R) Software, HydroFire(R) Injection, HydroFire(R) Fluid
HydroFire(R) Lubricant and EconoCruise(R). Our newest product offering,
EconoCruise(R), is a new and improved version of our product line utilizing
other input sensors including Global Positioning System technology and ambient
sensor features. We believe that we are the first to provide a product that
incorporates Global Positioning System technology into a throttle-control
application using "Satellite-to-Throttle(TM) technology. We intend to market
our products both domestically and internationally and intend to license our
patented technology to automakers for use on their new model vehicles. We
expect our revenues to increase as a result of the broader market penetration,
license revenues and new products scheduled for introduction over the next 6 to
36 months.
We have incurred losses during our fiscal years ended December 31, 1999 and
1998 while developing and introducing our original products and focusing
management and other resources on capitalizing the Company to support future
growth. DriverMax accounts for more than 90% of our product sales during our
development stage, being the most readily marketable of our fully developed
products. HydroFire units account for the remainder. No sales have been
conditioned on other performance or approval. The losses incurred to date are
considered normal for a developmental stage company. Other costs were incurred
during these two years to prepare us for commercialization of our products,
including additional management, personnel, consultants and marketing
expenditures. We expect that, as sales increase, there will also be increases
in the total amount of distribution and selling, general and administrative
expenses. However, as a percentage of sales, these expenses should decline.
4. Financial Impact of Rescission Offer
Because we have only limited factual support, we have no way of predicting
the number of Iowa-Only Offering Shareholders who will accept the Rescission
Offer or what number of shares will be tendered. Therefore, we cannot precisely
quantify the effect that the Rescission Offer will have on our financial
condition. Our maximum obligation is $7,990,000, including interest, but
excluding associated costs. However, we believe this Rescission Offer will have
a minimal financial impact on our operations. We expect few, less than 10%, of
the outstanding Iowa-Only Offering Shareholders subject to the Rescission Offer
will accept rescission of their Iowa-Only Offering Shares and receive their
money back. We base our expectation on the knowledge that many Iowa-Only
Offering Shareholders made their original investment decision in Mirenco based
on our patents, products and business potential in an ongoing market which has
greater awareness of unstable fuel prices and greater sensitivity to air
quality. We believe the reasons supporting the investment decision made by Iowa-
Only Offering Shareholders remain applicable, that our products meet a need in
the marketplace, in spite of the issue causing this Rescission Offer. Further,
the average individual investment of $1,805, and 70% of Iowa-Only Offering
Shareholders invested less than $1,000, causes management to believe that
investment in Mirenco is not necessarily material to most investors' total
assets.
Regardless of the rate of acceptance of the Rescission Offer, we will
contribute the funds necessary to complete the Rescission Offer. Mirenco does
not have liquid assets sufficient to pay the approximately $7,990,000 in cash
that we would need to pay if the Rescission Offer is accepted by all of the
Iowa-Only Offering Shareholders. However, as of November 30, 2000, we have
approximately $6,000,000 available to fund rescissions. While we have no debt
obligations nor lines of credit available as additional resources to fund the
Rescission Offer, in December 2000, we will file an independent registration to
register the shares underlying warrants and options with an aggregate exercise
price of up to $1.8 million and to register up to
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<PAGE>
400,000 shares in a new primary offering at a price to be determined, but
expected to be not less than $5.00 per share. During our development stage, we
purposely sought to reduce operating expenses and have maintained no debt, while
building the infrastructure of management personnel to support growth.
Accordingly, we believe Mirenco has the resources to meet our expected
obligations with regard to the Rescission Offer. In the event the acceptance
rate of the Rescission Offer exceeds our expectations, we believe it would
require over 75% of existing Iowa-Only Offering Shares to be rescinded before we
would have insufficient funds to honor any and all requests. If we are required
to rescind all Iowa-Only Offering Shares, estimated at approximately $7,990,000,
we may be forced to significantly scale back operations, seek alternative
sources of financing or liquidate assets.
Even if the acceptance rate of the Rescission Offer is at or less than
management's expectations, we may continue to be subject to Iowa-Only Offering
Shareholders under relevant federal laws for a period of up to one year after
discovery of the violation upon which a claim by an Iowa-Only Offering
Shareholder is based, but in no event more than three years after the occurrence
of the violation. Particularly since extending this Rescission Offer may
eliminate any damages element, management has no way of predicting the potential
financial impact of this rescission offer.
5. Results of Operations
The fiscal year ended December 31, 1999 compared to the fiscal year ended
December 31, 1998.
Our net sales increased $161,303, or 475%, for the year ended December 31,
1999 compared to the same period in 1998. The increase resulted from initial
sales of our products, particularly one sale to the Transit Authority of River
City (TARC - Louisville, Kentucky) for approximately $95,000. Service revenue
accounted for $12,105, or 6%, of 1999 net sales compared to $3,200, or 9%, of
1998 net sales. 1999 service revenue came primarily from one customer. We
anticipate service revenues will continue to account for progressively smaller
portions of sales in the future, as service revenues are not planned to be a
significant business segment.
Cost of goods sold for 1999 and 1998 were 74% and 134% of sales,
respectively. Low gross margins during these periods relate to the high
percentage of fixed warehouse and assembly costs with relatively low sales
during the time we concentrated on capitalizing for future growth. We believe
product costs will range between 40% and 60% of sales with implementation of our
marketing plan.
Total operating expenses decreased $1,606,351 for fiscal year December 31,
1999. We incurred stock-based compensation expense of $1,858,054 in 1998 in
connection with the issuance of stock and employee stock options. Otherwise,
operating expenses increased $251,703 with the increase in sales and increased
personnel and management. During 1999, we hired a Chief Operating Officer,
President and Chief Financial Officer. These hires were considered critical
both for timing and implementation of our plans and, as we become a reporting
company, provide us with experience regarding finance, sales, marketing,
manufacturing, technology, national and international distribution, SEC
compliance and reporting, equity and capital formation and management. Also
with increased sales, we will continue to incur higher royalty expenses payable
to American Technologies. Owing 3% of gross sales through October 31, 2019, per
the terms of the patent purchase agreement, we believe royalty expense will be a
significant component of total expenses in future years.
Our net loss decreased from $2,192,542 in 1998 to $524,499 in 1999
primarily as a result of the employee options granted in 1998.
The nine months ended September 30, 2000 compared to the nine months ended
September 30, 1999.
Revenues were $53,593 for the nine months ended September 30, 2000 compared
to $82,663 for the same period in 1999. During our development stage, we
focused management and other resources on raising equity capital and developing
our products. This was particularly true during 2000 as we worked to close the
Iowa-Only Offering effective July 30, 2000 whereas we had only limited equity
sales efforts during the same period in 1999. While no trends or seasonality
have yet to be identified, sales occur sporadically during the development stage
creating differences between comparative periods. In 1999, certain large dollar
orders occurred prior to September 30 and then again in November. In 2000,
sales have remained low through the date of this prospectus.
Costs of sales and expenses increased $331,010 or 67% from 1999 to 2000
during this nine month period. The increase is primarily attributable to an
approximately $235,000 increase in wage expense because of new personnel and
executive management in 2000, offset by $75,000 of stock-based compensation in
1999 related to options granted to an officer. The increase at September 30,
2000 is also from an approximately $60,000 increase in travel and advertising as
we began to make sales presentations to other transit authorities around the
country, approximately $25,000 increased due to purchasing directors' and
officers' liability insurance, approximately $20,000 in increased research and
development spending related to EconoCruise(R), and approximately $20,000 in
additional accounting, legal and other general and
28
<PAGE>
administrative. The increase in costs and expenses is also related to an
approximately $45,000 increase in total cost of sales. The increase in cost of
sales is broken out as $40,000 of the increase from increases in production
personnel and $5,000 from increases in other production overhead. Though Mirenco
has been a privately held company, measures have been taken throughout its
history to seek to account for all transactions in a consistent and accurate
manner. Procedures have long been implemented whereby periodic financial
statements fairly and accurately present all financial statement information for
any and all periods presented, including year end and each quarter.
The September 30, 2000 negative gross margin of $62,453 is attributable to
higher overhead and production personnel costs during a period of low sales
enabling us to train and prepare for later increased sales levels. Management
believes cost of sales will range between 40% and 60% of sales as increased unit
sales levels cover production overhead and unit costs.
Royalty expense for the nine months ended September 30, 1999 was 23% of
sales. Prior to our purchase of the patents and trademarks from American
Technologies effective November 1, 1999, we incurred royalty expense for use of
and opportunity to market the patents, payable to American Technologies at the
greater of 3% of actual sales or 3% of sales calculated at an established unit
price ($950) and minimum quantities (40 to 80 units per month). The payments
were generally made quarterly. During this period, minimum quantities and the
unit price exceeded both quantities shipped and the actual sales prices with the
result that royalty expense exceeded 3% of actual sales. This royalty agreement
was terminated upon our purchase of the patents effective November 1, 1999. For
the nine months ended September 30, 2000, royalty expense was calculated
according to terms of the purchase agreement with American Technologies at 3% of
actual sales.
Our net loss increased from $404,028 to $636,263 in 2000 primarily as a
result of increased management and personnel costs as well as early sales and
marketing efforts that begin the sales cycle with new potential customers.
These changes are also applicable to differences identified from our
statement of operations at September 30, 2000 compared to December 31, 1999.
6. Liquidity and Capital Resources
We have not yet commenced generating substantial revenue. We expect to
fund development expenditures and incur losses until we are able to generate
sufficient income and cash flows to meet these expenditures and other
requirements. We believe we currently have adequate cash reserves to continue
to cover anticipated expenditures and cash requirements.
Since our inception in 1997, we have primarily relied on the sources of
funds discussed in "Cash Flows" below to finance our testing and operations. We
believe that the proceeds raised through July 31, 2000 from the Iowa-Only
Offering will be adequate to continue our operations, including the contemplated
expansion of sales efforts, inventories, and accounts receivable through the
next three years. If, as management believes, less than 10% of the Iowa-Only
Offering Shareholders accept the Rescission Offer, we will be able to continue
our contemplated expansion of sales. If the acceptance rate is 25 to 50%,
though unexpected, we may be required to curtail our research and development
efforts along with facilities expansion, promotional and trade show expenditures
and perhaps other significant operations. If, though unexpected, 100% of the
Iowa-Only Shareholders accept the Rescission Offer, in addition to the above
changes we may be forced to consider liquidating assets.
Since acceptance or the affirmative rejection or failure to respond to the
Rescission Offer does not act as a release of claims, eligible Iowa-Only
Offering Shareholders who have accepted, rejected or failed to respond to the
Rescission Offer would retain any rights of claims they may have under federal
securities laws. Any subsequent claims by an Iowa-Only Offering Shareholder
would be subject to any defenses we may have, including the running of the
statute of limitations and/or estoppel. As a result, we may be subject to a
maximum obligation of $7,990,000, including interest, for such claims for up to
one year after the date of this prospectus. In general, to sustain a claim based
on violations of the registration provisions of federal securities laws, the
claim must be brought within one year after discovery of the violation upon
which the claim is based, but in no event more than three years after the
occurrence of the violation, in this case, based on the date of the prospectus.
Under the principle of estoppel, the person bringing a claim must carry the
burden of proof of why he or she took no action under the rescission offer
and/or how he or she may have been injured.
We have been evaluating financing and capitalization alternatives as part
of our long-term business plans. These alternatives include the sale of
preferred stock and warrants. To preserve operating funds, we have also
developed a strategic plan that provides for reductions of expenditures and a
prioritization of development options, discussed below.
According to the terms of our purchase agreement with American Technologies
to acquire the patents and trademarks, we will pay a 3% royalty of annual gross
sales for a period of 20 years, which began November 1, 1999. The
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<PAGE>
agreement also required the payment of $25,000 at the time we met the Iowa-Only
Offering $500,000 minimum offering, approximately November 1, 1999.
Approximately one-half of the amount due was paid on December 13, 1999 and the
other one-half was paid on February 15, 2000. A $225,000 payment became due
American Technologies per the agreement once we had raised $5,000,000 in the
Iowa-Only Offering. The $225,000 was paid in August 2000.
7. Cash Flows for the Years Ended December 31, 1999 and 1998
Since our inception, February 21, 1997, through December 31, 1999, our
activities have been organizational, devoted to developing a business plan and
raising capital. Where these costs are indirect and administrative in nature,
they have been expensed in the accompanying statements of operations. Where
these costs relate to capital raising and are both directly attributable to our
offerings and incremental, they have been treated as offering costs in the
accompanying balance sheets. Therefore, all indirect costs, such as management
salaries, have been expensed in the period in which they were incurred.
Net cash used in operating activities for the years ended December 31, 1999
and 1998 was $358,475 and $417,252, respectively. The use of cash in operating
activities was primarily related to our net losses and significant changes in
working capital components , including inventory and receivables.
Net cash provided by financing activities during the years ended December
31, 1999 and 1998 was $851,028 and $538,550, respectively. The primary source
of the financing was proceeds from the issuance of shares of common stock.
8. Cash Flows for the Nine Months Ended September 30, 2000 and 1999
The changes in cash flows for the nine months ended September 30, 2000 from
1999 mirrored the changes comparing the years ended December 31, 1999 and 1998.
Operating losses and changes in working capital continue to account for the uses
from operating activities, while increased awareness and knowledge about our
products and potential market impact resulted in our raising an additional
$6,975,140, since December 31, 1999, from the sale of common stock in our Iowa-
Only Offering. During the nine months ended September 30, 2000, we used cash in
investing activities totaling $205,365 indicating purchases of new and
additional emissions testing equipment as well as initial building construction
costs. The only significant cash flow activity during the nine months ended
September 30, 1999 was the sale of restricted shares and shares in the Iowa-Only
Offering at $5 per share raising $180,702, net of offering costs incurred.
9. Business and Related Party Transactions
On April 30, 1999, Mirenco enteredt into an agreement to acquire patents
and trademarks from a company whose stockholders have controlling ownership in
Mirenco for a purchase price of $250,000 cash plus future royalty payments,
according to contract terms. Of the cash payment, $9,800 was recorded as a
lump-sum purchase of the affiliate's carrying value at the date of purchase.
The remaining $240,200 was accounted for as a distribution to stockholders, and
is reflected as a decrement to equity.
10. Recent Accounting Pronouncements
There are no recently issued accounting standards for which the impact on
our financial statements at December 31, 1999, 1998 and September 30, 2000 and
1999 is not known.
11. Forward-looking Statements
Statements contained in this document which are not historical fact are
forward-looking statements based upon management's current expectations that are
subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking statements.
PUBLIC MARKET AND DIVIDEND POLICY
We expect to qualify our shares for quotation on the NASD Bulletin Board or
NASDAQ SmallCap Market(TM) under the symbol "MIRR" shortly after conclusion of
this Rescission Offer. As described in "Risk Factors", it is uncertain whether
Mirenco can continue to satisfy then-current pertinent listing standards or
avoid later de-listing.
We do not anticipate paying dividends on the common stock at any time in
the foreseeable future. The Board of Directors plans to retain earnings for the
development and expansion of our business. The board of directors also plans to
regularly review our dividend policy. Any future determination as to the
payment of dividends will be at the discretion of the
30
<PAGE>
board of directors and will depend on a number of factors, including future
earnings, capital requirements, financial condition, and other factors the board
of directors deems relevant.
DESCRIPTION OF CAPITAL STOCK
General
As of May 13, 2000, our authorized capital stock consists of 30,000,000
shares of no par value common stock and 66,979 warrants to purchase 267,916
underlying shares at $5.00 per share. Shareholders are entitled to one vote per
outstanding share on all matters to be voted upon by shareholders and, upon
issuance in consideration of full payment, are non-assessable. Upon
liquidation, dissolution or cessation of the company, assets of the company that
are legally available after payment of liabilities will be distributed on a pro
rata basis to shareholders so entitled. As described below, shares do not have
cumulative voting rights with respect to the election of directors and,
accordingly, the holders of more than 50% of the shares could elect all the
directors of the company. The shares have no preemptive, subscription,
conversion or redemption rights and can only be issued as fully paid and non-
assessable shares.
Dividend Rights
Each share is entitled to dividends if, as and when our Board of Directors
so declares. However, we do not anticipate paying dividends on the common stock
at any time in the foreseeable future. The Board of Directors plans to retain
earnings for the development and expansion of our business. The Board of
Directors also plans to regularly review our dividend policy. Any future
determination as to the payment of dividends will be at the discretion of the
board of directors and will depend on a number of factors, including future
earnings, capital requirements, financial condition and other factors the board
of directors deems relevant.
Stock Split
In conjunction with the planning of the Iowa-Only Offering, on April 16,
1999, the Board of Directors effected a five-for-one split of our common stock.
The principal objective of the split was to increase the public float of
outstanding shares prior to the Iowa-Only Offering, dated July 30, 1999. On
June 9, 1998, our Board of Directors affected a three-for-one split of our
common stock.
Warrants
In order to continue the expansion and fund our operations until the
completion of the Iowa-Only Offering, from May 15 to June 15, 1999, we offered
to our existing shareholders the opportunity to purchase additional shares of
common stock and four (4) warrants to buy additional shares of common stock for
each share purchased. We sold to 192 shareholders (i) 66,979 shares of common
stock for an aggregate offering price of $334,895 and (ii) 66,979 warrants to
purchase 267,916 additional shares. The warrants are exercisable at any time on
or prior to June 15, 2002 at a purchase price equal to $5.00 per share. We also
issued warrants to exercise the purchase of 30,000 shares for professional legal
representation. These warrants are exercisable at any time on or prior to March
31, 2003 at a purchase price equal to $0.01 per share.
Options
To provide additional incentives to employees, we have granted nonqualified
compensatory stock options on our common stock according to an Option Plan for
1998 and 1999. Under the 1998 Option Plan, we granted options for prior
services to purchase 367,400 shares at $0.29 per share, which are fully vested,
and 100,000 shares at $4.25 per share for prior services that vest half on
January 1, 2000 and half on January 1, 2001. Under the 1999 Option Plan, we
granted options to purchase 560,000 shares at $5.00 per share that vest
quarterly from January 1, 2000 through September 30, 2003.
Voting Rights
All shares have equal voting rights and, when validly issued and
outstanding, have one vote per share in all matters to be voted upon by the
shareholders. A majority vote is required on all corporate action. Cumulative
voting in the election of directors is not allowed, which means that the holders
of more than 50% of the outstanding shares can elect all the directors as they
choose to do so and, in this event, the holders of the remaining shares will not
be able to elect any directors. See also the discussion of management ownership
and control under the heading "Risk Factors."
31
<PAGE>
Transfer Agent
Signature Stock Transfer, Inc.
14675 Midway Road, Suite #221
Addison, Texas 75001
(972) 788-4193
ERISA CONSIDERATIONS
Persons who contemplate purchasing shares on behalf of Qualified Plans are
urged to consult with tax and ERISA counsel regarding the effect of any purchase
and, further, to determine that such a purchase will not result in a prohibited
transaction under ERISA, the Code or a violation of some other provision of
ERISA, the Code or other applicable law. We will rely on the determination made
by other persons.
LEGAL MATTERS
Duncan, Blum & Associates, Bethesda, Maryland and Washington, D.C., will
pass upon the validity of shares being offered by this prospectus for Mirenco.
EXPERTS
The financial statements included in this prospectus and in the
registration statement have been audited by Grant Thornton LLP, independent
certified public accountants, to the extent and for the period set forth in
their report, appearing elsewhere herein and in the registration statement, and
are included in reliance upon this report being given upon the authority of said
firm as experts in auditing and accounting. There has been no change in
accountants since our inception, and there are no disagreements with our
accountants on accounting and financial disclosure.
AVAILABLE INFORMATION
As a result of these shares being registered pursuant to the prospectus and
associated registration statement, Mirenco concurrently becomes subject to the
informational and periodic reporting requirements of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"). Accordingly, Company annual (Form
10-KSB), quarterly (Form 10-QSB), and periodic material reports (Form 8-KSB)
will become available and accessible as outlined below.
Since our periodic reporting responsibility arose only concurrently with
the date of this prospectus, we have not yet filed any annual, quarterly, or
other special reports; proxy statements; or any other information with the
Securities and Exchange Commission beyond this registration statement. You may
read and copy any document we do file at the Securities and Exchange
Commission's public reference rooms in Washington, D.C.; New York, New York; and
Chicago, Illinois. Please call the Securities and Exchange Commission at 1-800-
SEC-0330 for further information on the public reference rooms. Our Securities
and Exchange Commission filings will also be available to the public from the
Securities and Exchange Commission's web site at "http://www.sec.gov."
We have filed this registration statement on Form SB-2 with the Securities
and Exchange Commission to register the offering of the shares of common stock
offered pursuant to this prospectus. This prospectus is part of that
registration statement and, as permitted by the Securities and Exchange
Commission's rules, does not contain all of the information included in the
registration statement. For further information about us, this offering and our
securities, you may refer to the registration statement and its exhibits and
schedules as well as to the documents described below. You may review and copy
these documents at the public reference facilities maintained by the Securities
and Exchange Commission or on the Securities and Exchange Commission's website
as described above.
This prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a
contract or other document, you should read the copy filed as an exhibit to the
registration statement or incorporated in the registration statement by
reference. You may request a copy of these filings, at no cost, by writing to
or calling Richard Evans, Mirenco, Inc., 206 May St., P.O. Box 343, Radcliffe,
Iowa 50230, (800) 423-9903. You may also obtain information from our web site
at www.mirenco.com
32
<PAGE>
APPENDIX I
FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
MIRENCO, INC.
(a development stage company)
December 31, 1999 and 1998
<PAGE>
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS I-3
BALANCE SHEETS I-4
STATEMENTS OF OPERATIONS I-5
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY I-6
STATEMENTS OF CASH FLOWS I-7
NOTES TO FINANCIAL STATEMENTS I-8
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MIRENCO, Inc.
We have audited the accompanying balance sheet of MIRENCO, Inc. (a development
stage company) as of December 31, 1999, and the related statements of
operations, changes in stockholders' equity (deficit), and cash flows for the
years ended December 31, 1999 and 1998 and for the period from February 21, 1997
(inception) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MIRENCO, Inc. as of December
31, 1999 and the results of its operations and its cash flows for the years
ended December 31, 1999 and 1998 and for the period from February 21, 1997
(inception) to December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
Kansas City, Missouri
May 15, 2000
I-3
<PAGE>
MIRENCO, INC.
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
Septemner 30,
December 31, 2000
1999 (Unaudited)
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 711,612 $ 6,357,934
Accounts receivable 108,709 5,484
Inventories 37,050 102,927
Other 77,034 161,966
----------- -----------
Total current assets 934,405 6,628,311
PROPERTY AND EQUIPMENT - net 19,001 213,840
PATENTS AND TRADEMARKS, net of accumulated amortization
of $328 and $1,407, respectively 9,472 9,388
----------- -----------
$ 962,878 $ 6,851,539
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 83,058 $ 7,209
Accrued liabilities 43,791 39,912
----------- -----------
Total current liabilities 126,849 47,121
COMMITMENTS AND CONTINGENCIES - -
STOCK SUBJECT TO RESCISSION OFFER
Common stock, no par value, 1,561,248 shares issued and outstanding - 7,806,240
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 30,000,000 shares authorized,
11,863,999 and 11,679,779 shares issued and outstanding, respectively, 1,707,878 731,290
Additional paid-in capital 1,939,954 1,714,954
Deficit accumulated during development stage (2,811,803) (3,448,066)
----------- -----------
836,029 (1,001,822)
----------- -----------
$ 962,878 $ 6,851,539
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
I-4
<PAGE>
MIRENCO, Inc.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Nine Nine February 21,
February 21, months months 1997
1997 ended ended (inception) to
Year ended Year ended (inception) to September 30 September 30 September 30
December 31, December 31, December 31, 2000 1999 2000
1999 1998 1999 (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 195,295 $ 33,992 $ 247,445 $ 53,593 $ 82,663 $ 301,038
Cost of sales 144,162 45,386 212,869 116,046 68,877 328,915
----------- ----------- ----------- ----------- ----------- -----------
Gross profit (loss) 51,133 (11,394) 34,576 (62,453) 13,786 (27,877)
Salaries and wages 197,022 - 197,022 379,621 146,033 576,643
Stock-based compensation 75,000 1,858,054 1,933,054 - 75,000 1,933,054
Royalty expenses 8,739 7,415 18,529 1,608 6,000 20,137
Marketing and advertising 27,797 31,313 59,110 37,167 13,961 96,277
Other general and administrative expenses 279,425 297,552 665,295 289,245 182,806 954,540
----------- ----------- ----------- ----------- ----------- -----------
587,983 2,194,334 2,873,010 707,641 423,800 3,580,651
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations (536,850) (2,205,728) (2,838,434) (770,094) (410,014) (3,608,528)
Interest income 12,351 13,186 26,631 133,831 5,986 160,462
----------- ----------- ----------- ----------- ----------- -----------
NET LOSS $ (524,499)$(2,192,542) $(2,811,803) $ (636,263) $ (404,028) $(3,448,066)
=========== =========== =========== =========== =========== ===========
Net loss per share available for common
shareholders - basic and diluted $(0.05) $(0.19) $(0.05) $(0.03)
=========== =========== =========== ===========
Weighted-average shares outstanding -
basic and diluted 11,735,001 11,412,219 12,459,209 11,671,602
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
I-5
<PAGE>
MIRENCO, INC.
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Additional during
----------------------------- paid-in development
Shares Amount capital stage Total
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at February 21, 1997 (inception) 9,000,000 $ 500 $ - $ - $ 500
Issuance of stock 749,550 249,850 - - 249,850
Net loss - - - (94,762) (94,762)
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1997 9,749,550 250,350 - (94,762) 155,588
Issuance of stock 1,065,525 355,175 - - 355,175
Issuance of stock for services rendered 90,000 30,000 - - 30,000
Issuance of stock 550,125 183,375 - - 183,375
Issuance of stock for services rendered 117,000 39,000 - - 39,000
Issuance of stock for
services rendered 58,600 58,600 - - 58,600
Issuance of stock options - - 1,730,454 - 1,730,454
Net loss - - - (2,192,542) (2,192,542)
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1998 11,630,800 916,500 1,730,454 (2,287,304) 359,650
Distribution to stockholders - - (15,200) - (15,200)
Issuance of stock 66,979 334,895 - - 334,895
Issuance of stock 166,220 831,100 - - 831,100
Offering costs - (374,617) - - (374,617)
Issuance of warrants for
services rendered - - 149,700 - 149,700
Issuance of stock options - - 75,000 - 75,000
Net loss - - - (524,499) (524,499)
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1999 11,863,999 1,707,878 1,939,954 (2,811,803) 836,029
Issuance of stock (Unaudited) 1,395,028 6,975,140 - - 6,975,140
Offering costs (Unaudited) - (145,488) - - (145,488)
Stock subject to rescission offer - (Unaudited) (1,561,248) (7,806,240) - - (7,806,240)
Distribution to stockholders (Unaudited) - - (225,000) - (225,000)
Net loss (Unaudited) - - - (636,263) (636,263)
---------- ----------- ---------- ---------- -----------
Balance at September 30, 2000 (Unaudited) 11,697,779 $ 731,290 $1,714,954 $(3,448,066) $(1,001,822)
========== =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
I-6
<PAGE>
MIRENCO, Inc.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Period from February 21,
February 21, Nine months Nine months 1997
1997 ended ended (inception) to
Year ended Year ended (inception) to September 30, September 30, September 30,
December 31, December 31, December 31, 2000 1999 2000
1999 1998 1999 (Unaudited) (Unaudited) (Unaudited)
--------- ----------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (524,499) $(2,192,542) $(2,811,803) $ (636,263) $(404,028)$(3,448,066)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock-based compensatio 75,000 1,858,054 1,933,054 - 75,000 1,933,054
Depreciation and amortization 1,229 - 1,229 10,610 707 11,839
(Increase) decrease in assets:
Accounts receivable (102,988) (2,010) (108,709) 103,225 (10,367) (5,484)
Inventories 59,150 (85,457) (37,050) (65,877) 19,104 (102,927)
Other 11,719 8,912 (2,184) (84,932) (3,602) (87,116)
Increase (decrease) in liabilities:
Accounts payable 78,123 (4,209) 83,058 (75,849) 7,765 7,209
Accrued liabilities 43,791 - 43,791 (3,879) 68,703 39,912
--------- ----------- ----------- ---------- --------- -----------
Net cash used in operating activities (358,475) (417,252) (898,614) (752,965) (246,718) (1,651,579)
Cash flows from investing activities
Purchase of patent (9,800) - (9,800) (995) (9,800) (10,795)
Purchase of equipment (19,902) - (19,902) (204,370) - (224,272)
--------- ----------- ----------- ---------- --------- -----------
Net cash used in investing activities (29,702) - (29,702) (205,365) (9,800) (235,067)
Cash flows from financing activities
Proceeds from sale of stock,
net of offering costs 866,228 538,550 1,655,128 6,829,652 180,702 8,484,780
Distribution to stockholders (15,200) - (15,200) (225,000) (15,200) (240,200)
--------- ----------- ----------- ---------- --------- -----------
Net cash provided by financing activities 851,028 538,550 1,639,928 6,604,652 165,502 8,244,580
--------- ----------- ----------- ---------- --------- -----------
Increase (decrease) in cash 462,851 121,298 711,612 5,646,322 (91,016) 6,357,934
Cash, beginning of period 248,761 127,463 - 711,612 248,761 -
--------- ----------- ----------- ---------- --------- -----------
Cash, end of period $ 711,612 $ 248,761 $ 711,612 $6,357,934 $ 157,745 $ 6,357,934
========= =========== =========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements
I-7
<PAGE>
MIRENCO, Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. Nature of Business
MIRENCO, Inc. (the Company) was incorporated as an Iowa corporation in 1997.
The Company is a marketing company that distributes a variety of automotive and
aftermarket products for which they have exclusive licensing rights. The
products primarily reduce emissions and increase vehicle performance. The
Company's products are sold primarily in the domestic market.
2. Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Interest income is
generated from cash invested in these short-term financial instruments.
3. Revenue Recognition
Revenue is recognized from sales when a product is shipped and from services
when they are performed.
4. Inventories
Inventories, consisting of purchased finished goods ready for sale, are stated
at the lower of cost (as determined by the first-in, first-out method) or
market.
5. Income Taxes
The Company accounts for income taxes under the asset and liability method
where deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
applied to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred tax assets are recognized to the extent
management believes that it is more likely than not that they will be realized.
6. Patents and Trademarks
Effective April 30, 1999, the Company acquired certain patents and trademarks
in a single purchase (see Note I). Patents and trademarks will be amortized on
the straight-line method over their remaining legal lives of 10 years. The
Company recorded amortization expense in 1999 of $328.
I-8
<PAGE>
MIRENCO, Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
7. Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation on the straight-line method over the estimated useful lives of
three years for computer equipment and five years for manufacturing and test
equipment.
8. Impairment of Long-Lived Assets
Impairment losses are recognized for long-lived assets when indicators of
impairment are present and the undiscounted cash flows are not sufficient to
recover their carrying amount. The impairment loss is measured by comparing the
fair value of the asset to its carrying amount.
9. Stock-Based Compensation
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation," and elected to continue the accounting set forth in Accounting
Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees." This opinion requires that for options granted at less than fair
market value, a compensation charge be recognized for the difference between
the exercise price and fair market value.
10. Net Loss Per Share
Basic net loss per share is calculated on the basis of the weighted-average
number of common shares outstanding during the periods, which includes the
effects of all stock splits. Net loss per share, assuming dilution, is
calculated on the basis of the weighted-average number of common shares
outstanding and the dilutive effect of all potential common stock equivalents.
Net loss per share assumes dilution for the years ended December 31, 1999 and
1998 is equal to basic net loss per share, since the effect of common stock
equivalents outstanding during the periods is antidilutive.
11. Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, and accrued expenses. The carrying amounts of financial
instruments approximate fair value due to their short maturities.
12. Royalty Expense
Royalty expense is recorded and paid based upon the sale of products, services,
and rights related to patents according to a contractual agreement (See Note
I).
13. Advertising
Advertising costs are charged to expense as incurred.
I-9
<PAGE>
MIRENCO, Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
14. Offering Costs
Specific incremental costs directly attributable to the Company's equity
offerings, including advertisements in newspaper, radio and direct mail,
letters, printing costs and certain identifiable legal fees, are charged
against the gross proceeds of the offerings.
15. Software Development Costs
The Company capitalizes software development costs when project technological
feasibility is established and concludes when the product is ready for release.
To date, no amounts have been capitalized. Research and development costs
related to software development are expensed as incurred.
16. Research and Development
The Company expenses research and development costs as incurred. Such costs
include certain prototype products, test parts, consulting fees, and costs
incurred with third parties to determine feasibility of products. Costs
incurred for research and development were $13,415 in 1999. There were no such
expenses in 1998.
17. Accounts Receivable
The Company considers accounts receivable to be fully collectible; accordingly
no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
18. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. Actual results could
differ from those estimates.
NOTE B - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. During the Company's development stage, management
and other personnel are focused on fund raising in lieu of product sales. This
is consistent with the management belief that the Company would be negatively
impacted if it attempted to implement an underfunded business plan. However, as
part of management's strategy, the Company in 1999 hired a Chief Operating
Officer to oversee sales and cost control, a President to oversee marketing and
shareholder relations and a Chief Financial Officer to establish internal
controls, control expenses and oversee external and internal reporting. These
hires were accomplished while management also sought to maintain a low level of
expenses, no debt and low business liabilities prior to implementing the
business plan. . The Company's ability to raise capital through its direct
public offering in the State of Iowa is critical to its continued existence
such that failure to raise adequate capital could materially impact the
Company's ability to implement its business plan. Management believes these
steps and the funds raised are sufficient to provide the Company the ability to
continue in existence.
I-10
<PAGE>
MIRENCO, Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE C - OTHER CURRENT ASSETS
Other assets at December 31, 1999 and September 30, 2000 consisted of the
following:
<TABLE>
2000
1999 (Unaudited)
------- -----------
<S> <C> <C>
Prepaid legal, stock-based (note K) $74,850 $ 74,850
Interest receivable - 71,971
Nontrade receivables 2,184 15,145
------- --------
$77,034 $161,966
======= ========
</TABLE>
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and September 30, 2000 consisted
of the following:
<TABLE>
2000
1999 (Unaudited)
------- --------
<S> <C> <C>
Computer equipment $19,902 $ 29,856
Manufacturing and test equipment - 55,268
------- --------
19,902 85,124
Less accumulated depreciation (901) (10,431)
Building-in-progress construction - 139,147
------- --------
$19,001 $213,840
======= ========
</TABLE>
The Company recorded $901 and $9,530, respectively, of depreciation expense for
the year ended December 31, 1999 and the nine months ended September 30, 2000.
NOTE E - ACCRUED LIABILITIES
Accrued expenses at December 31, 1999 and September 30, 2000 consisted of the
following:
<TABLE>
2000
1999 (Unaudited)
------- -----------
<S> <C> <C>
Royalty $20,024 $ 1,608
Payroll and payroll taxes 12,402 16,329
Other 11,365 21,975
------- -------
$43,791 $39,912
======= =======
</TABLE>
I-11
<PAGE>
MIRENCO, Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE F - CONCENTRATION OF CUSTOMERS
The Company had four customers that accounted for 91% of 1999 sales and one
customer that accounted for 79% of 1998 sales. A major customer is considered
to be any customer who accounts for 10% or more of the Company's total sales.
NOTE G - LEASES
The Company leases office space and equipment from a related party under a
noncancelable operating lease expiring in December 2000. Future minimum lease
payments at December 31, 1999 total $14,400 for the year ending December 31,
2000.
Total rental expense for this operating lease was $14,400 for each of the years
ended December 31, 1999 and 1998.
NOTE H - INCOME TAXES
Deferred taxes relate to amounts recognized for financial reporting which have
not yet been recognized for income tax reporting. The tax effects of temporary
differences related to assets and liabilities were as follows at December 31,
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 309,900 $ 157,100
Stock-based compensation 613,900 588,400
---------- ----------
923,800 745,500
Less valuation allowance (923,800) (745,500)
---------- ----------
Net deferred tax $ - $ -
========== ==========
</TABLE>
The valuation allowance was established to reduce the deferred tax asset to an
amount that will more likely than not be realized. The reduction is necessary
given the Company's development stage, inability to generate profitable
operations, and uncertainty about its ability to utilize net operating loss
carryforwards before they expire starting in 2007. The valuation allowance was
increased $178,300 and $745,500 in fiscal years 1999 and 1998, respectively.
The income tax benefit reflected in the statements of operations differs from
the amounts computed at federal statutory income tax rates. The principal
differences are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C> <C>
Federal income tax benefit computed at
statutory rate $(178,300) $(745,500)
Increase in valuation allowance 178,300 745,500
--------- ---------
Net deferred tax $ - $ -
========= =========
</TABLE>
I-12
<PAGE>
MIRENCO, Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE I - RELATED PARTY TRANSACTIONS
The Company rents office space and equipment from a company that is wholly
owned by the majority stockholder of the Company. Rental payments for these
operating leases were $14,400 for each of the years ended December 31, 1999 and
1998.
The Company had an agreement with a company that is wholly owned by the
majority stockholder of the Company to provide personnel and administrative
services for part of 1999 and 1998. Total expenses incurred under this
agreement were $71,911 and $226,573 for the years ended December 31, 1999 and
1998, respectively.
On April 30, 1999, the Company entered into an agreement to acquire patents and
trademarks from a company whose stockholders have controlling ownership in the
Company for an initial price of $25,000. The patents and trademarks were
recorded as a lump-sum purchase at the affiliate's carrying value, $9,800, at
the date of purchase. The remaining $15,200 is recorded as a distribution to
stockholders. The agreement calls for additional payments in the amount of
$225,000 to be paid and accounted for as a distribution to stockholders upon
the completed sale of 1,000,000 shares of stock offered to the public. Also,
the agreement provides for royalty payments in the amount of 3% of gross sales
(including product sales, service revenues, and all revenues from sales of
patent rights) for 20 years commencing November 1999. This agreement can be
terminated by the seller if the Company fails to make the above payments or
becomes insolvent. To October 31, 1999, the Company paid royalties for
the use and potential marketing of the patents to the company that owned the
patents based on 3% of sales calculated at an established unit price ($950) and
minimum quantities (40 to 80 units per month), with payments generally made
quarterly. The Company paid royalty fees to a company partially owned by the
majority stockholder of the Company for the years ended December 31, 1999 and
1998 in the amounts of $22,502 and $7,415, respectively.
NOTE J - COMMON STOCK OPTIONS
During 1998, the Company established a nonqualified stock option plan (1998
Plan) pursuant to which options for up to 1,200,000 shares of the Company's
authorized but unissued common stock may be granted to employees and certain
nonemployees. During 1999, the Company adopted the 1999 Stock Option Plan
(1999 Plan), which provides for granting of options to officers, employees,
advisors and consultants of the Company, for the purchase of up to a total of
750,000 shares of the Company's authorized but unissued common stock. At
December 31, 1999, options for an aggregate of 1,027,400 shares had been
granted as shown below. The Company accounts for stock options in accordance
with APB Opinion No. 25 and related interpretations, and compensation expense
has been recorded in the amounts of $75,000 and $1,730,454 for the years ended
December 31, 1999 and 1998, respectively, related to stock options granted for
services rendered prior to the grant date.
On December 31, 1998, the Company granted 367,400 options to employees pursuant
to its 1998 plan. The options are fully vested. The option price is $0.29.
Compensation expense of $1,730,454 was recorded related to these options. The
options expire December 31, 2008.
On June 15, 1999, the Company granted 100,000 options to an employee for past
service pursuant to its 1998 plan. The options vest 50,000 shares at January
1, 2000, and the remaining shares vest and are exercisable at January 1, 2001.
Compensation expense of $75,000 was recorded related to these options. The
option price is $4.25 and expires June 15, 2009.
I-13
<PAGE>
MIRENCO, Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - COMMON STOCK OPTIONS - Continued
On December 31, 1999 the Company granted 560,000 options to two key employees
pursuant to its 1999 plan. The options vest quarterly, starting January 1,
2000, through September 30, 2003. The option price is $5.00 and expires
September 30, 2008. No compensation expense was recorded related to these
options.
<TABLE>
<CAPTION>
Weighted-
average
Number of shares exercise
------------------------------- price
Outstanding Exercisable per share
----------- ----------- ---------
<S> <C> <C> <C>
Outstanding, January 1, 1998 - - $ -
Granted 367,400 367,400 0.29
Outstanding, December 31, 1998 367,400 367,400 0.29
Granted 660,000 - 4.88
Outstanding, December 31, 1999 1,027,400 367,400 $3.24
========= ======= =====
</TABLE>
Had compensation cost for the plan been determined based on the fair value of
the options at the grant date the Company's net loss would have increased by
$638,000 in 1999 and $14,696 in 1998, resulting in a net loss for the years
ended December 31, 1999 and 1998 in the amounts of $1,162,499 and $2,207,238,
respectively. Net loss per share would have been $(0.10) and $(0.19) for the
years ended December 31, 1999 and 1998, respectively.
The following table summarizes information about options outstanding at
December 31, 1999 and 1998 under the Compensatory Stock Option Plan:
1999 Compensatory Stock Options and Warrants
---------------------------------------------
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------------------------------- -------------------------------
Weighted average
Range of Number Remaining Weighted-average Number Weighted-average
exercise prices outstanding contractual life exercise price exercisable exercisable price
--------------- ----------- ---------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$0.29 to $4.25 1,027,400 8.82 years $2.83 367,400 $0.29
</TABLE>
I-14
<PAGE>
MIRENCO, Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - COMMON STOCK OPTIONS - Continued
1998 Compensatory Stock Options and Warrants
--------------------------------------------
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------------------------------- -------------------------------
Weighted average
Range of Number Remaining Weighted-average Number Weighted-average
exercise prices outstanding contractual life exercise price exercisable exercisable price
--------------- ----------- ---------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$0.29 367,400 10.00 years $0.29 367,400 $0.29
</TABLE>
The fair value of the options granted was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for 1999 and 1998: dividend yield of zero percent; risk-free
interest rate of 6%; assumed forfeiture of zero percent; and expected lives of
8-10 years.
NOTE K - STOCKHOLDERS' EQUITY
In May 1997 the Company's Board of Directors authorized the Company to sell up
to 200,000 shares of common stock at $5 per share in a SCOR offering in the
State of Iowa. Total shares issued were 156,680, which resulted in proceeds of
$788,400.
In 1998, the Company issued 6,000 shares of common stock at $5 per share for
legal fees incurred.
In 1998, the Company's Board of Directors authorized the issuance of 19,520
shares of common stock to key employees for services rendered in 1998 and 1999.
In conjunction with the issuance of the shares, the Company recorded
compensation expense of $97,600, which approximated the fair market value of
the shares at the time of issuance.
The Company's common stock was split three-for-one in June 1998 and five-for-
one in April 1999.
On May 15, 1999, the Company's stockholders authorized the Company to sell up
to 150,000 shares of the Company's common stock at $5 per share. These shares
will also require the Company to issue four stock warrants for each share of
common stock purchased. The exercise price for these warrants totals $5 per
share and may be exercised at any time prior to June 15, 2002. Total shares
issued were 66,979, which resulted in proceeds of $334,895. At December 31,
1999 the Company had 267,916 outstanding warrants.
The Company's stockholders authorized the Company to sell up to 2,000,000
shares of common stock at $5 per share in a direct public offering in the State
of Iowa, the "Iowa-Only Offering." The proceeds from the offering will be used
to fund additional sales and marketing activities, research and development
efforts for new products, working capital, and operational costs. In addition,
funds will be used to construct a state-of-the-art warehouse and distribution
center, which will also house the corporate offices of the Company. As of
December 31, 1999, 166,220 shares had been sold.
In 1999, the Company issued 30,000 warrants at an exercise price of $0.01 for
legal fees. As of December 31, 1999, $74,850 has been accounted for as
offering costs. The remaining $74,850 will be expensed upon the completion of
the Company's registration under the Securities Act of 1933.
I-15
<PAGE>
MIRENCO, Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE L - STOCK SUBJECT TO RESCISSION OFFER (Unaudited)
As of August 31, 2000, Mirenco identified that it had allowed resales of its
Iowa-Only Offering Shares by Iowa residents to non-Iowa residents before the
"coming to rest" provisions under the Securities Act of 1933 Section 3(a)(11)
and/or Rule 147's nine month standard. Accordingly, Mirenco voluntarily elected
to rescind the earlier Iowa-Only Offering. Once approved for distribution, the
rescission offer will be outstanding for approximately thirty days. As of
September 30, 2000, the $7,806,240 raised from the sale of the Company's common
stock in the Iowa-Only Offering, 1,561,248 shares, is subject to a rescission
offer. Accordingly, the Company has reclassified the Iowa-Only Offering Shares
and proceeds from stockholders' equity to temporary equity until such time as
the rescission offer is completed. Upon completion of the rescission offer, the
Company will classify as permanent equity the Iowa-Only Offering Shares and
proceeds to the extent the shareholders elect to retain their ownership in the
Company. For Iowa-Only Offering Shareholders electing to rescind their
ownership, the rescission price is expected to be paid in cash. Maximum
obligation related to the rescission is estimated at $7,990,000, including
interest at approximately 8% per year. If all of the Iowa-Only Offering
Shareholders elect to rescind their investment, it will materially affect the
Company's liquidity.
I-16
<PAGE>
APPENDIX II
RESCISSION ELECTION FORM
I, the undersigned investor, have received this December ___, 2000 prospectus
relating to an offer to rescind my prior purchase of shares acquired in an Iowa-
Only Offering. I hereby make the following selection (only one) with regard to
this Rescission Offer:
[ ] I reject the terms of the Rescission Offer and would like to retain my
outstanding Iowa-Only Offering Shares.
[ ] I accept the terms of the Rescission Offer and would like to receive all
of the cash proceeds from my outstanding ________ Iowa-Only Offering
Shares. I am returning my certificate number _______ relating to Iowa-
Only Offering Shares together with this Election Form. I understand I
will be forwarded not less than $_______ in cash plus applicable
interest.*
* If you are unable to locate and forward your outstanding certificate, please
call Mirenco at (800) 423-9903.
INVESTOR STATUS:
[_] Individual [_] KEOGH
[_] Joint Tenants with [_] Uniform Gift to Minors-
Right of Survivorship* State of ______________
[_] Tenants in Common* [_] Living Trust
[_] Community Property* [_] Trust
[_] Corporation** ___________ Name of trustee:________________
(Type of Corp) Date established:_______________
[_] Limited Liability Company ** Grantor:________________________
[_] Partnership [_] Other:____________________________
[_] General [_] Limited
[_] IRA
* Signatures of ALL parties (ALL co-investors) are required.
** Please contact Mirenco to discuss the form of authorization that
is required.
[Balance of page left intentionally blank.]
II-1
<PAGE>
<TABLE>
<CAPTION>
INVESTOR CO-INVESTOR CO-INVESTOR
-------- ----------- -----------
<S> <C> <C>
--------------------------------------- --------------------------------------- -----------------------------------------
Print Full Name of Person or Entity Print Full Name of Person or Entity Print Full Name of Person or Entity
--------------------------------------- --------------------------------------- -----------------------------------------
If entity, print full name of Signatory If entity, print full name of Signatory If entity, print full name of Signatory
--------------------------------------- --------------------------------------- -----------------------------------------
Title, if applicable Title, if applicable Title, if applicable
--------------------------------------- -------------------------------------- -----------------------------------------
Address Address Address
--------------------------------------- -------------------------------------- -----------------------------------------
City/State/Zip Code City/State/Zip Code City/State/Zip Code
--------------------------------------- -------------------------------------- -----------------------------------------
Telephone Number Telephone Number Telephone Number
--------------------------------------- ------------------------------------- -----------------------------------------
Social Security No./EIN No. Social Security No./EIN No. Social Security No./EIN No.
UNDER THE PENALTIES OF PERJURY, I (WE) CERTIFY THAT THE INFORMATION PROVIDED ON THIS ELECTION FORM IS TRUE, CORRECT
AND COMPLETE.
--------------------------------------- ------------------------------------- -----------------------------------------
INVESTOR SIGNATURE CO-INVESTOR SIGNATURE CO-INVESTOR SIGNATURE
--------------------------------------- ------------------------------------- -----------------------------------------
Date Date Date
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
No dealer, salesperson or other individual has been authorized to
give any information or to make any representations not contained
in this prospectus with the offering covered by this prospectus.
If given or made, such information or representation must not be
relied upon as having been authorized by Mirenco. This
prospectus does not constitute as an offer to sell, or a Rescission Offer:
solicitation of an offer to buy, the common stock in any 1,561,248 Shares of
jurisdiction where, or to any person to whom, it is unlawful to Common Stock
make such offer or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has not been any
change in the facts set forth in this prospectus or in the
affairs of Mirenco since the date hereof.
MIRENCO, INC.
TABLE OF CONTENTS
Descriptive Title Page
----------------- ----
PROSPECTUS SUMMARY ............................................ 2 PROSPECTUS
SUMMARY FINANCIAL DATA......................................... 3
PRO FORMA FINANCIAL INFORMATION............................... 3
RESCISSION OFFER............................................... 3
RISK FACTORS................................................... 8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 12
FIDUCIARY RESPONSIBILITY OF THE COMPANY'S MANAGEMENT .......... 13 December_________, 2000
CAPITALIZATION ................................................ 14
DESCRIPTION OF BUSINESS ....................................... 14
SELECTED FINANCIAL DATA ....................................... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............. 25
PUBLIC MARKET AND DIVIDEND POLICY ............................. 30
DESCRIPTION OF CAPITAL STOCK .................................. 31
ERISA CONSIDERATIONS .......................................... 32
LEGAL MATTERS ................................................. 32
EXPERTS ....................................................... 32
AVAILABLE INFORMATION ......................................... 32
APPENDIX I (FINANCIAL STATEMENTS) ............................ I-1
APPENDIX II (RESCISSION ELECTION FORM) ....................... II-1
</TABLE>
Until January___, 2001 (25 days after the date hereof), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a current copy of
this prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 27. Index to Exhibits
(a)(1) Financial Statements -- Included in Prospectus: Independent Certified
Public Accountants' Report.
Balance Sheets as of December 31, 1999 and September 30, 2000 (unaudited).
Statements of Operations for the years ended December 31, 1999 and 1998 and for
the period from February 21, 1997 (inception) to December 31, 1999, and the
nine months ended September 30, 2000 and 1999 (unaudited) and the period
from February 21, 1997 (inception) to September 30, 2000 (unaudited).
Statement of Changes in Stockholder's Equity for the years ended December 31,
1999 and 1998 and the nine months ended September 30, 2000 (unaudited).
Statement of Cash Flows for the years ended December 31, 1999 and 1998 and for
the period from February 21, 1997 (inception) to December 31, 1999, and the
nine months ended September 30, 2000 and 1999 (unaudited) and the period
from February 21, 1997 (inception) to September 30, 2000 (unaudited).
Notes to Financial Statements.
(a)(2)Included Separately from Prospectus: Consent of Independent
Public Accountants (see Exhibits below).
Other than the Financial Data Schedule, no schedules are included for the
reason that all required information is contained in the financial
statements included in the Prospectus.
(c) Exhibits:
* 3.1 (Formerly 27.1) Certificate of Incorporation of Registrant.
* 3.2 (Formerly 27.2) Certificates of Amendment to the Certificate of
Incorporation.
* 3.3 (Formerly 27.3) Bylaws of Registrant
* 3.4 (Formerly 27.4) Form of Stock Certificate
* 5.1 (Formerly 27.5) Opinion of Counsel as to the Legality of the Shares.
* 10.1(a) (Formerly 27.8) Employment Agreement between Registrant and Dwayne L.
Fosseen.
* 10.1(b) (Formerly 27.8) Employment Agreement between Registrant and J. Richard
Relick.
* 10.1(c) (Formerly 27.8) Employment Agreement between Registrant and Wayne
Allison.
* 10.1(d) (Formerly 27.8) Employment Agreement between Registrant and Darrell
Jolley.
* 10.2(a) (Formerly 27.9) Stock Option Agreement between Registrant and Wayne
Allison.
* 10.2(b) (Formerly 27.9) Stock Option Agreement between Registrant and Bruce
Bergeron.
* 10.2(c) (Formerly 27.9) Stock Option Agreement between Registrant and Richard
Evans.
* 10.2(d) (Formerly 27.9) Stock Option Agreement between Registrant and Betty
Fosseen.
* 10.2(e) (Formerly 27.9) Stock Option Agreement between Registrant and Darrell
Jolley.
* 10.2(f) (Formerly 27.9) Stock Option Agreement between Registrant and J.
Richard Relick.
* 10.2(g) (Formerly 27.9) Stock Option Agreement between Registrant and Dave
Stone.
* 10.3 (Formerly 27.10) American Technologies LLC, Fosseen Manufacturing &
Development, Mirenco, Inc., Ethaco Agreements to
Terminate Prior Agreements and Transfer License,
respectively.
* 10.4 (Formerly 27.11) Purchase Agreement Between Registrant and American
Technologies, LLC.
* 10.5 (Formerly 27.12) Environmental Regulatory Approvals with the U.S.
Environmental Protection Agency and California Air
Resources Board.
* 10.6 (Formerly 27.13) Summary of Patents and Associated Service Marks.
* 10.7 (Formerly 27.14) Copies of U.S. and Canadian Patents Issued to Dwayne
L. Fosseen.
* 10.8 (Formerly 27.15) Summary of Mexican Patents and Associated Protections
Issued to Dwayne L. Fosseen.
SB-2-1
<PAGE>
* 10.9 (Formerly 27.16) Rental Agreement between Registrant and Fosseen
Manufacturing & Development, Inc.
* 10.10 (Formerly 27.17) March 31, 2000 Warrant Agreement between Registrant
and Duncan, Blum & Associates.
* 10.11 (Formerly 27.18) Registrant's 1999 Stock Compensation Plan.
* 10.12 (Formerly 27.19) Registrant's 1998 Stock Compensation Plan.
23.1 (Formerly 27.6) Consent of Counsel (Duncan, Blum & Associates).
23.2 (Formerly 27.7) Consent of Auditors (Grant Thornton LLP).
27.1 Financial Data Schedule for September 30, 2000.
* 27.2 Financial Data Schedule for December 31,1999.
* These exhibits were filed in the July 10, 2000 Registration Statement
and/or Pre-Effective Amendments filed subsequently. Since no changes to
such filings have occurred and/or are not material, these exhibits are not
filed herewith and are hereby incorporated by reference.
SB-2-1
[Balance of page intentionally left blank.]
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Pre-Effective
Amendment No. 5 to this Registration Statement to be signed on its behalf by
the Undersigned, thereunto duly authorized, in the City of Radcliffe, State of
Iowa, on the 20th day of December, 2000.
Mirenco, Inc.
By: /s/ Dwayne W. Fosseen
-------------------------------------------------------
Dwayne W. Fosseen, Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 4 to this Registration Statement has been signed below
by the following persons in their respective capacity as officer and/or director
of the Registrant on the date indicated.
<TABLE>
<CAPTION>
Signatures/Title Date
---------------- ----
<S> <C>
/s/ Dwayne Fosseen December 20, 2000
---------------------------------------------------------
Dwayne Fosseen, Chairman and Chief Executive Officer
And Treasurer
/s/ J. Richard Relick December 20, 2000
----------------------------------------------------------
J. Richard Relick, Director and Chief Operating Officer
and Secretary
/s/ Wayne Allison December 20, 2000
----------------------------------------------------------
Wayne Allison, President
/s/ Darrell R. Jolley December 20, 2000
----------------------------------------------------------
Darrell R. Jolley, Chief Financial Officer
/s/ Don Williams December 20, 2000
----------------------------------------------------------
Don Williams, Director
/s/ Jerrold Handsaker December 20, 2000
----------------------------------------------------------
Jerrold Handsaker, Director
</TABLE>
SB-1-3
