As filed with the Securities and Exchange Commission on September 30, 1999.
Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
International Test Systems, Inc.
(Name of small business issuer in its charter)
Delaware 3670 74-2796396
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(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
Carey Birmingham, President
4703 Shavano Oak, Suite 102, San Antonio, Texas 78249;
(210) 479-3756 (Address and telephone number of
principal executive offices, principal place of business or
intended principal place of business and name,
address and telephone number of agent for service)
--------------------------------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this registration statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration statement of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
--------------------------------------------------
With copies to:
Adam S. Gottbetter, Esq.
Kaplan Gottbetter & Levenson, LLP
630 Third Avenue, 5th floor
New York, New York 10017-6705
(212) 983-0532
--------------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Amount Maximum Maximum Amount of
To be Offering Price Aggregate Registration
Title of each Class of Securities Being Registered Per Security(1) Offering Fee
Registered Price(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2) .................................... 2,500,000 $0.40 $ 1,000,000(1) $278.00(1)
Class A Warrants(2) ................................ 1,250,000 $0.10 $ 125,000 $ 35.00
Class B Warrants(2) ................................ 1,250,000 $0.10 $ 125,000 $ 35.00
Common Stock Underlying Class A Warrants(2) ........ 1,250,000 $ 2.50 $ 3,125,000 $869.00
Common Stock Underlying Class B Warrants(2) ........ 1,250,000 $4.50 $ 5,625,000 $1,564.00
TOTAL .............................................. 7,750,000 $10,000,000 $2,781.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee and
includes shares being sold by selling stockholders.
(2) Pursuant to Rule 416 there are also registered hereby such additional
number of shares as may become issuable by reason of the anti-dilution
provisions of the Class A Redeemable Warrants and Class B Redeemable
Warrants.
--------------------------------------------------
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
Disclosure alternative used (check one): Alternative 1 [X]; Alternative 2 [ ]
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[LOGO] PROSPECTUS -- SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 28, 1999
International Test Systems, Inc.
4703 Shavano Oak, Suite 102
San Antonio, Texas 78249
5,000,000 Shares Common Stock, par value $0.001 per share
1,250,000 Class A Redeemable Warrants
1,250,000 Class B Redeemable Warrants
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS NEED TO READ THE SECTION CALLED
"RISK FACTORS" WHICH BEGINS ON PAGE 6 OF THIS PROSPECTUS.
We are a developing, early-stage company that has designed and marketed
proto-type technologies for testing and troubleshooting components on printed
circuit boards. We are seeking to grow our business by (i) marketing these
products, (ii) developing new technologies and new products and (iii) seeking
market opportunities such as strategic alliances which we believe will
strengthen our company and maximize our future value.
We are seeking a minimum gross offering amount of $125,000 and a maximum gross
offering amount of $1,400,000 (prior to any warrant exercises/1/) through the
sale of up to:
(i) 1,250,000 shares of common stock, par value $0.001 at a price of $0.40 per
share (our "Common Stock");
(ii) 1,250,000 Three Year Class A Redeemable Warrants, at a price of $0.10 per
Warrant, which may be exercised for one (1) share of Common Stock from
their day of issuance until the third anniversary of issuance at an
exercise price of $2.50 per share (our "Class A Redeemable Warrant(s)");
and
(iii)1,250,000 Five Year Class B Redeemable Warrants at a price of $0.10 per
Warrant, which may be exercised for one (1) share of Common Stock from
their day of issuance until the fifth anniversary of issuance at an
exercise price of $4.50 per share (our "Class B Redeemable Warrant(s)").
In addition to the above securities, 1,250,000 shares of Common Stock underlying
our Class A Redeemable Warrants and 1,250,000 shares of Common Stock underlying
the Class B Redeemable Warrants are being offered.
An investor may purchase either our Common Stock, Class A Redeemable Warrants or
Class B Redeemable Warrants. However, we must sell a combination of these
securities in an amount equal to the minimum offering amount of $125,000 in
order for the offering to be continued. Amounts received will be escrowed and
returned, without interest if this threshold is not reached. The first closing
of this offering will occur after the minimum offering amount has been received.
Each warrant is exercisable immediately upon its issuance.
We also will be registering, concurrently with this offering, the sale of
1,250,000 shares of our Common Stock owned by shareholders. These shares may
sometimes be referred to as the Founders' Shares. Any proceeds and profits from
their sale will go to these shareholders and not us. The selling shareholders
may resell their shares at prices below our initial offering price. The selling
shareholders have agreed not to sell any of their shares until one year from the
effective date of this Registration Statement.
We are offering these securities in a "best efforts" underwriting through our
officers, directors and employees. No commissions or other compensation will be
paid to our officers, directors and employees in connection with this offering.
No broker or dealer has been hired by us or is under any obligation to purchase
any of these securities. However, we may use brokers or dealers and pay a
commission of up to 7% on such sales. In addition, we may pay a broker or dealer
additional compensation in the form of a non-accountable expense allowance equal
to up to 3% on such sales. The amount of compensation which may be paid to any
brokers and dealers, if retained, must be cleared by the National Association of
Securities Dealers.
There is currently no public market for the Securities. We intend to seek NASDAQ
"Bulletin Board" quotation of the common stock and warrants through one or more
market makers.
- ----------
/1/ Assuming all warrants were exercised, our maximum gross offering proceeds
would be $17,400,000.
<PAGE>
<TABLE>
<CAPTION>
Offering Proceeds
- ---------------- -------------- ------------- -------------- ------------- -------------- -------------- -----------------
Common Common Total Total
Type of Stock Stock w/o With
Securities Investor Common Class A under A Class B under B Warrant Warrant
Offered: Stock(1) Warrants Warrants Warrants Warrants Exercises Exercises
- ---------------- -------------- ------------- -------------- ------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Price $0.40 $0.10 $2.50 $0.10 $4.50
Per security:
- --------------------------------------------------------------------------------------------------------------------------
Maximum
Offering $750,000 $9,500,000
Amount:
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Maximum
Number of 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000
Securities:
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Price to $500,000 Up to $3,125,000 Up to $5,625,000 $750,000 $9,500,000
Investor: $125,000 $125,000
- --------------------------------------------------------------------------------------------------------------------------
Maximum
Underwriting
Discounts
Commission &
Expense Up to Up to -0- Up to -0- Up to Up to
Allowance(2) $50,000 $12,500 $12,500 $75,000 $75,000
- --------------------------------------------------------------------------------------------------------------------------
Total Proceeds At least At least At least At least At least At least At least
Maximum(3) $450,000 $112,500 $3,125,000 $112,500 $5,625,000 $675,000 $9,425,000
- --------------------------------------------------------------------------------------------------------------------------
Minimum Offering Amount: $125,000
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Minimum Number Any combination resulting in gross proceeds equal to $125,000
of Securities:
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Dependant on
Price to $125,000 warrants
Investor: purchased(2)
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Maximum up to $12,500
Underwriting
Discounts
Commission &
Expense
Allowance(2)
- --------------------------------------------------------------------------------------------------------------------------
Dependant on
Total Proceeds Minimum(2) up to warrants
$112,500 purchased(2)
</TABLE>
- -------------------------
(1) Excluding Founders' Shares.
(2) We are offering our securities in a best efforts underwriting
through our officers, directors and employees. No commissions or other
compensation will be paid to our officers, directors and employees in
connection with this offering. No broker or dealer has been retained or
is under any obligation to purchase any of the Securities, although we
may use brokers or dealers and pay a commission of up to 7% on such
sales. In addition, we may pay a broker or dealer additional
compensation in the form of a non-accountable expense allowance equal
to up to 3% on such sales. The amount of compensation which may be paid
to any brokers and dealers, if retained, must be cleared by the
National Association of Securities Dealers.
No broker or dealer has been retained and we may complete this offering
without the assistance of a broker or dealer. Therefore, the gross proceeds
from this offering (without the exercise of any warrants) may range, (i) in the
case of the minimum, from $112,500 to $125,000 and (ii) in the case of the
maximum, from $675,000 to $750,000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is September __, 1999
<PAGE>
International Test Systems, Inc.
PART I -NARRATIVE INFORMATION REQUIRED IN PROSPECTUS
TABLE OF CONTENTS
THE COMPANY 6
RISK FACTORS 6
BUSINESS AND PROPERTIES 13
OFFERING PRICE FACTORS 27
USE OF PROCEEDS 30
CAPITALIZATION 32
DESCRIPTION OF SECURITIES 33
PLAN OF DISTRIBUTION 35
DIVIDENDS, DISTRIBUTION AND REDEMPTION 36
OFFICERS AND KEY PERSONNEL OF THE COMPANY 37
DIRECTORS OF THE COMPANY 37
PRINCIPAL STOCKHOLDERS 41
MANAGEMENT RELATIONSHIPS, TRANSACTIONS AND REMUNERATION 41
LITIGATION 43
FEDERAL TAX ASPECTS 43
MISCELLANEOUS FACTORS 43
FINANCIAL STATEMENTS 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CERTAIN RELEVANT FACTORS 44
CHARTER AND BY LAW PROVISIONS ON INDEMNIFICATION
AND LIMITATION OF DIRECTOR LIABILITY 47
5
<PAGE>
THE COMPANY
1. Exact corporation name: INTERNATIONAL TEST SYSTEMS, INC.
State and date of incorporation: DELAWARE - September 20, 1999
Street address of principal office: 4703 SHAVANO OAK
SAN ANTONIO, TX 78249
Company Telephone Number: (210) 479-3756
Fiscal year: JANUARY 1 - DECEMBER 31
Person to contact at Company with
respect to offering: CAREY G. BIRMINGHAM, PRESIDENT
E-mail: [email protected]
RISK FACTORS
2. List in the order of importance the factors which the Company considers to
be the most substantial risks to an investor in this offering in view of
all facts and circumstances or which otherwise make the offering one of
high risk or speculation (i.e., those factors which constitute the greatest
threat that the investment will be lost in whole or in part, or not provide
an adequate return).
An investment in these securities involves a high degree of risk and should only
be made by investors who can afford to lose their entire investment. Before
purchasing these securities, you should consider carefully the following risk
factors, in addition to the other information in this prospectus.
(1) We could be required to cut back or stop operations if we are unable to
raise or obtain needed funding.
Our ability to continue operations will depend on our positive cash flow, if
any, from future operations and on our ability to raise funds through equity or
debt financing. We do not know if we will be able to raise additional funding or
if such funding will be available on favorable terms. We could be required to
cut back or stop operations if we are unable to raise or obtain needed funding.
Our negative cash flow from operations has been as follows: As of June 30, 1999
the Company had working capital of $3,823. WE HAVE A HISTORY OF LOSSES AND IF WE
DO NOT ACHIEVE PROFITABILITY WE MAY NOT BE ABLE TO CONTINUE OUR BUSINESS IN THE
FUTURE. As of June 30, 1999, we accumulated losses of approximately $292, 260.
We anticipate incurring additional losses until we can successfully market and
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<PAGE>
distribute products, develop new technologies and produce commercially viable
future products and/or enter into successful strategic ventures with other
entities. If we are unable to do so, we will continue to have losses and might
not be able to continue our operations. THE "GOING CONCERN" QUALIFICATION ON THE
REPORT OF OUR INDEPENDENT ACCOUNTANTS MAY HURT OUR ABILITY TO RAISE ADDITIONAL
FINANCING. The report of our independent accountants on our December 31, 1998
and 1997 financial statements contains an explanatory paragraph regarding
continuing operations.
(2) We are a developmental stage company with no history of profits.
We have a limited operating history and have yet to produce a profit. Our future
success will be materially dependent upon raising capital to fund our ongoing
operations and to position ourselves so as to be capable of exploiting market
opportunities. We expect that losses will continue for the near future, and
there is no certainty we will become profitable. As a new enterprise, we could
be subject to risks we have not anticipated.
(3) We rely on the technology of Pensar Technologies, LLC.
We do not own the technology upon which the products we will market are based.
In June 1999, we transferred all of our assets to Pensar Technologies LLC
("Pensar") in exchange for which Pensar assumed all of our liabilities and
agreed to enter into a Distribution Agreement with us. This Agreement with
Pensar (the "Distribution Agreement") has a ten year term and grants to us the
exclusive right to market and sell Pensar's intellectual property at a
substantial discount off the retail price as well as to design, develop, sell,
promote and distribute new printed circuit board test products throughout the
world. We have the option to renew this Distribution Agreement for an additional
five year term by delivering written notice to Pensar 90 days prior to the
expiration of the initial term and by guaranteeing them an additional $90,000 in
payments over the renewal period. We have the option to terminate the Agreement
on thirty days written notice to Pensar. We cannot assure you that competitors
will not develop, patent or gain access to similar know-how and technology, or
reverse engineer our products. We cannot assure you that any confidentiality
agreements upon which we or Pensar may rely to protect trade secrets and other
proprietary information will be adequate to protect proprietary technology. The
occurrence of any such events could have a material adverse effect on the
results of our operations and financial condition. We may receive communications
from third parties claiming that we or Pensar may be infringing certain parties'
patents and other intellectual property rights. Any infringement claim or other
litigation against or by us or Pensar could have a material adverse effect on
the results of our operations and financial condition.
(4) We rely on third party suppliers and manufacturers.
We currently depend entirely upon third party suppliers, fabricators,
manufacturers and assemblers for the manufacture of our products. There can be
no assurance that we will be able to obtain adequate quantities of necessary
parts within a reasonable period of time or at commercially reasonable rates. If
a fabricator, manufacturer or assembler is unable or unwilling to produce
adequate supplies of our products on a timely basis, it could cause delays and
7
<PAGE>
added expense to our production and delivery of commercial quantities of our
products, which in turn could materially adversely affect our revenues and
financial condition.
(5) There are risks associated with our technology.
The automated test equipment industry is subject to rapid technological change.
If the products we will market do not match customer expectations, our business
could suffer. Competitors in this industry regularly introduce new products and
services based on technological advances in electronic components, and we must
grow aggressively to compete. To remain competitive, we must continue to improve
the products we will market, develop or acquire technology for new products,
seek new market opportunities, and provide the necessary services and support.
The proceeds of this offering may not be adequate to support our development
needs. Our ability to operate successfully depends on key personnel and on our
ability to attract and retain qualified personnel who are in great demand.
(6) There are risks associated with competition.
The personal computer industry, in general, is intensely competitive. Our
ability to compete depends highly on elements outside our control, such as
general economic conditions affecting the personal computer industries and the
introduction of new products and technologies by competitors. Most of our
competitors and potential competitors have significantly greater financial,
technical, manufacturing and marketing resources than we do. To the extent that
our products achieve market acceptance, competitors typically offer competitive
products or embark on pricing strategies, which, if successful, could have a
material adverse effect on the results of our operations and financial
condition. We can not assure you that we will be successful in our efforts or
that, even if market penetration were to be achieved, the products would be
profitable or that competitive responses would not have a material adverse
impact on our future profitability. Our primary competitors in the automated
test equipment industry include: Huntron Instruments, Inc. of Mill Creek,
Washington, Polar Instruments and DiagnoSys, both of the United Kingdom. We
believe that the competitors' products offer significantly fewer features and
benefits than that of our proto-types. We may rely on additional distributors
and independent sales representatives who are not our employees to produce a
significant amount of sales. If we are able to retain the services of additional
distributors and/or independent sales representatives, they may also represent
our competitors. (See Response to 3 "BUSINESS AND PROPERTIES".)
(7) There are risks associated with acquisitions and the integration of
operations.
An element of our growth strategy is to pursue strategic acquisitions/ventures
that may expand and/or complement our business. Acquisitions involve a number of
risks inherent in assessing the values, strengths, weaknesses and profitability
of acquisition candidates including: adverse short-term effects on our operating
results; diversion of management's attention; dependence on retaining key
personnel; amortization of acquired intangible assets; and risks associated with
unanticipated problems and latent liabilities or contingencies. In addition,
acquisitions of other companies and/or product lines will require the
integration of their operations into our own. There can be no assurance that we
will be able to identify appropriate acquisition candidates, or successfully
integrate acquired operations to realize cost-savings or other synergies, and
the failure to do so could have a material adverse effect on the results of our
operations and financial condition.
8
<PAGE>
(8) We have had no dividends.
We have not paid any dividends to date. For the foreseeable future, we intend to
use any earnings that may be generated from operations to finance our growth.
Therefore, we do not expect to pay cash dividends to stockholders.
(9) We depend on management.
The success of our business will be highly dependent upon the services of Carey
G. Birmingham, President and CEO. Our success will also depend on the technology
of Pensar, as well as the periodic contract services of our director Mr. H.
Youval Krigel (who is not our employee), in order to continue developing the
technology which is subject to the Distribution Agreement with Pensar. We also
believe that our growth will be dependent upon our ability to attract and retain
skilled management personnel and exploit advantageous market opportunities. (See
Response to Questions regarding - "OFFICERS AND KEY PERSONNEL OF INTERNATIONAL
TEST SYSTEMS".)
(10) We need to attract and retain qualified personnel.
We are dependent upon our ability to attract and retain highly-skilled
technical, managerial and marketing personnel. We believe that our future
success in developing marketable products and achieving a competitive position
will depend in large part upon whether we can attract and retain skilled
personnel. Competition for such personnel is intense, and there can be no
assurance that we will be successful in attracting and retaining the personnel
we require to successfully develop new and enhanced products and to continue to
grow and operate profitably. Furthermore, retention of scientific and
engineering personnel in our industry typically requires us to present
attractive equity incentive packages, which could lead to additional dilution.
To the extent that consultants, vendors or other third parties apply
technological information independently developed by them or by others to our
proposed products, disputes may also arise as to the proprietary rights to such
information, which may not be resolved in our favor.
(11) We may not be able to successfully market the products.
Even if we are successful in obtaining the minimum or maximum financing, we seek
under this offering, we will have to market the products to the public. We
cannot give any assurance that we will be able to successfully market the
products. (See Response to Question 3(d) and (h) - "BUSINESS AND PROPERTIES.")
(12) We May Experience Year 2000 Problems.
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000. Our
code has been formulated within the Microsoft Windows' platform and other
Microsoft software products. We have had discussions with Microsoft
representatives who have informed us that they believe themselves to be "Y2K"
compliant. We believe that the Y2K compliance of our code is dependant upon the
Y2K compliance status of Microsoft and cannot provide assurances of their
compliance. Based on our assessment of Year 2000 issues, we may face the
following concerns:
o We may experience a significant number of operational inconveniences and
inefficiencies that may divert our time, attention and financial and human
resources from our ordinary business activities.
o We may suffer serious system failures that may require significant efforts
by us or our
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suppliers, customers, and other third parties, to prevent or alleviate
material business disruptions.
o We may experience a significant loss of revenues or incur a significant
amount of unanticipated expenses.
(13) We have arbitrarily determined the offering price.
We arbitrarily selected the price for the common stock and the warrants offered
in this offering, as well as the exercise price for the warrants. The offering
price and these exercise prices do not bear any relationship whatsoever to our
assets, earnings book value or any other objective standard of value.
(14) Our Existing Shareholders control our company.
Unifund Financial Group, Inc. ("Unifund") holds 770,000 shares of our common
stock prior to the effective date of this offering, control of which may be
attributed to Mr. R. Scott Barter. The officers and directors as a group hold an
aggregate of 303,800 shares of our common stock prior to the effective date of
this offering. If only the minimum offering amount is received and if the
minimum is comprised only of common stock, this group will own 78% of our common
stock. As a result, these shareholders, if they act as a group, will be able to
control all matters requiring shareholder approval, including the election of
directors and approval of significant corporate transactions. Such control may
have the effect of delaying or preventing a change in control. If the maximum
offering amount is received, prior to the exercise of any warrants, this group
will own 40% our common stock.
(15) Management has discretion concerning Use of Proceeds.
We intend to use the net proceeds of the offering for capital expenditures and
general corporate purposes, including increasing our working capital and
possible acquisitions. While we have engaged in several discussions with
potential acquisition candidates, we are not currently engaged in any
discussions for any material acquisitions and we cannot assure you that any such
acquisitions will be consummated in the future. Pending such uses, the net
proceeds will be invested in short-term, investment grade securities,
certificates of deposit, or direct or guaranteed obligations of the United
States government. Furthermore, to fully capitalize on changes in the automatic
test equipment marketplace, and in technology in general, we may be called upon
by the owners of Pensar to commit additional funds for the design, development
and production of new products. Such funds will be at the discretion of
Management and may come from Proceeds for the sale of this stock, yet will be
subject to the terms of the Distribution Agreement with Pensar.
(16) The Pensar technology subject to the Distribution Agreement is
substantially untested in the marketplace.
While Pensar and its predecessor companies have had significant sales of the
products subject to the Distribution Agreement (see Answer to 3 (k) - Sales
History), many standards in the industry might define the product as in the
prototype stage of development. Although we believe the products have been
market-tested, there are many aspects of a complex technology which may require
additional upgrades, changes or improvements, calling for additional capital in
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the future. We may be required to fund such upgrades, changes or improvements
out of operating income or proceeds from the sale of stock.
(17) We have a large number of outstanding shares eligible for future sale.
Sales of substantial amounts of our common stock in the public market
following this offering, or the perception that such sales will occur,
could have a material and adverse effect on the market price of our common
stock. After the completion of this offering and prior to any warrant
exercise, up to 2,500,000 shares of our common stock will be outstanding.
Approximately 50% of these shares or 1,250,000 shares of the total will be
shares that have been issued to officers, directors, and their affiliates
in return for organizational efforts and initial capitalization of the
issuer. For a period of one year, these officers, directors and affiliates
will not be able to sell their stock. We intend to keep the registration
statement that includes this prospectus effective for an extended period of
time after we sell the securities that we are offering.
(18) There will be immediate and significant dilution.
This offering involves immediate and significant dilution. The purchase price of
the common stock offered hereby will exceed the net tangible book value of the
common stock immediately following this offering. (See Response to Questions
regarding "OFFERING PRICE FACTORS.")
(19 We could issue stock options and there may be additional dilution.
We could issue additional stock, warrants, options, or convertible securities
which could have a further dilutive effect on shareholders.
(20) This is a best efforts offering.
This is a best-efforts offering. Unlike a firm commitment underwriting, no one
will have any commitment to buy any of the shares being offered even after the
registration statement becomes effective. Therefore, the amount of funds
available to us as a result of this offering will depend upon the success of the
sales efforts of our officers, directors and employees, who will be selling the
offering on our behalf. While no broker or dealer has been retained or is under
any obligation to purchase any of these securities, we may use brokers or
dealers in the event we experience trouble selling our shares and may pay a
commission of up to 7% on such sales. In addition, we may pay a broker or dealer
additional compensation in the form of a non-accountable expense allowance equal
to up to 3% on such sales.
(21) Lack of market for securities.
There is no market for the securities. We plan to try to develop such a market,
but we cannot give investors any assurance that we will succeed. Consequently,
the securities we are offering may be an illiquid long-term investment.
(22) Any market for the securities which does develop may be illiquid.
We do not currently meet the requirements such as income, stockholders' equity
and number of public shares outstanding, to have our shares listed on a stock
exchange in the United States or quoted on the NASDAQ over-the-counter market.
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We will not meet these requirements even after the offering. We have held
discussions with several potential market-makers and have received indications
that they would be willing to make a market in our common stock once the stock
becomes distributed sufficiently widely, but we cannot give any assurance that
we will achieve sufficient distribution or that we will be able to get a
market-maker. Even if we do get a market maker there may be only a limited
trading market for the shares we are offering. We expect that initially any
market will be on the NASD over-the-counter "Bulletin Board". Shares that are
"thinly" traded on the Bulletin Board often trade only infrequently and
experience a significant spread between the market maker's bid and asked prices.
As a result, an investment in our shares may be illiquid even if there is a
market. In addition, the price of the shares, after the offering, can vary due
to general economic conditions and forecasts, our general business condition,
the release of financial reports, and because our principals may eventually sell
shares they owned before the offering into any market that develops. See
Questions regarding "Shares Eligible For Future Resale."
(23) Our Certificate of Incorporation, By-laws and Delaware Law may have certain
anti-takeover effects.
The General Corporation Law of the State of Delaware and our certificate of
incorporation and by-laws each contain certain provisions which may, in effect,
discourage, delay or prevent a change of control of our company or unsolicited
acquisition proposals from taking place.
(24) The Penny Stock Rules could make selling the common stock more difficult.
Our common stock will be a "penny stock," under Rule 3a51-1 under the Securities
and Exchange Act of 1934, unless and until the shares reach a price of at least
$5.00 per share, we meet certain financial size and volume levels, or the shares
are registered on a national securities exchange or quoted on the NASDAQ system.
The shares are likely to remain penny stocks for a considerable period of time
after the offering. A "penny stock" is subject to Rules 15g-1 through 15g-10 of
the Securities and Exchange Commission. Those rules require securities
broker-dealers, before effecting transactions in any "penny stock," to deliver
to the customer, and obtain a written receipt for a disclosure document set
forth in Rule 15g-10. (Rule 15g-2); to disclose certain price information about
the stock (Rule 15g-3); to disclose the amount of compensation received by the
broker-dealer (Rule 15g-4) or any "associated person" of the broker-dealer
(Rule15g-5); and to send monthly statements to customers with market and price
information about the "penny stock" (Rule 15g-6). Our common stock will also be
subject to Rule 15g-9, which requires the broker-dealer, in some circumstances,
to approve the "penny stock" purchasers account under certain standards, and
deliver written statements to the customer with information specified in the
rules (Rule 15g-9). These additional requirements could prevent broker-dealers
from effecting transactions and limit the ability of purchasers in this offering
to sell their shares into any secondary market for our Common Stock.
(25) There could be an adverse effect from the Redemption of Warrants
The Class A Redeemable Warrants are exercisable at a price of $2.50 per Warrant
until the third anniversary of this offering and the Class B Redeemable Warrants
are exercisable at a price of $4.50 per Warrant until the fifth anniversary of
this offering. We may redeem both forms of warrants at any time if the trading
price of our common stock is at least 150% of the then current exercise price of
the warrant for a period of 20 consecutive trading days. Thus, based on the
current exercise price for the warrants, the Class A Redeemable Warrants could
be subject to redemption if the trading price of our common stock were $3.75 or
greater, and the Class B Redeemable Warrants could be subject to redemption if
the trading price of our common stock were $6.75 or greater, in each case for
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the required twenty (20) day trading period. A "Notice of Redemption" for these
warrants would force the holders to (i) exercise them and pay the exercise price
at a time when it might be disadvantageous to do so, (ii) sell them at the
current market price when they might otherwise wish to hold them, or (iii)
accept the redemption price, which may be substantially less than the market
value of the warrants would otherwise be but for the redemption. In addition,
exercise of these warrants may have an adverse effect upon the trading price of
and market for our common stock, if any such market develops, and result in
dilution to stockholders.
In addition to the above risks, Businesses are often subject to risks not
foreseen or fully appreciated by management of our company. In reviewing this
prospectus, potential investors should keep in mind other possible risks that
could be important.
BUSINESS AND PROPERTIES.
FORWARD LOOKING STATEMENTS: Some of the information in this prospectus may
contain forward-looking statements. Such statements can be identified by the use
of forward-looking terminology such as "may", "will", "expect", "anticipate",
"continue", or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "Forward-Looking" information. When considering such
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements included in this prospectus. The risk factors noted in the
"Risk Factors" section and the other factors noted throughout this prospectus,
including certain risks and uncertainties, could cause the actual results of the
company to differ materially from those contained in any forward-looking
statement
3. With respect to the business of the company and its properties:
(a) Describe in detail what business the company does and proposes to do,
including what products or goods are or will be produced or services that
are or will be rendered.
We are a developing, early-stage company, which has designed and sold two
types of coordinataed hardware-and-software products used to test and
troubleshoot components on printed circuit boards.
On June 16, 1999 we entered into a Reorganization and Subscription
Agreement with Unifund America, Inc. Unifund America agreed to provide us
with business and marketing advice. It reviewed all aspects of our
business. Unifund believed that a leaner operation devoted to marketing and
distributing a successful technology would be a more successful direction
for our company to take. Unifund America helped us engineer a
reorganization of our company whereby we sold our technology to Pensar in
exchange for relief of our debt and an exclusive ten (10) year renewable
distribution agreement to distribute the technology. In addition, the
president of Unifund America will join our board and will continue to aid
in our growth by identifying and evaluating companies to complement and
expand our existing business. Unifund will seek to maximize our value by
seeking strategic marketing and financial opportunities and by forming
strategic alliances.
The products we will distribute, known as the CircuiTest 2000S Base System
and the CircuiTest 2100 Scanner Expansion, are low-cost, easy-to-use, are
quickly "ramped-up" and have numerous attributes that we believe separate
them from the competition. Some of these attributes include:
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1. Knowledge-Based Data: A database feature within the product software
allows it to locate failed components faster.
2. Power-Off Testing: Testing of components is performed without applying
electrical power to the board. Power-off testing eliminates the risks
of damaging the board by not turning the board on to conduct tests.
3. Family of Adaptive Products: Our core testing product, the CircuiTest
2000S Base System, is designed to facilitate rapid adaptation to meet
the unique, complex testing requirements that our customers identify.
As more and more products are manufactured with personal computer
based systems ("PCBS"), the demand increases for manufacturer's
defect-testing and troubleshooting systems, such as ours. We believe
The CircuiTest 2000S Base System and its family of flexible, adaptive
products can test and troubleshoot the majority of problems that exist
in a variety of products with PCBS.
Our products have been sold to several brand name entities including the
United States Air Force, the Harris Corporation, the Immigration
Naturalization Service, IBM, and Sony Microelectronics. Periodically, sales
of the products call for customized installation which require on-site
installation and the manufacture of custom fixtures and customer training.
Generally, this is accompanied by a purchase order for such fixtures, yet
is not anticipated to materially affect the sale of the products. We are
seeking a capital infusion from this offering (i) to further develop a
market and support our products, (iii) to develop and/or acquire new
technologies, and (iv) to seek and form strategic alliances in order to
strengthen our company and maximize our future value.
A more complete description of our two products follows:
The CircuiTest 2000S In-Circuit Component Test System (the "CircuiTest
2000S"), is a PC-based product which will troubleshoot, test and allow for
the repair of assembled populated, printed circuit boards and their
individual components. We developed the CircuiTest 2000S for power-off,
in-circuit or out-of-circuit digital and analog component testing.
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The CircuiTest 2100 Scanner Expansion, when connected to the 2000S,
increases the point count of tests from 64 points to a range of between 256
and 1024 points on populated, printed circuit boards.
The CircuiTest 2000S is an economical, easy-to-use solution to power-off
comparative testing of components on populated, printed circuit boards. The
system connects with any standard IBM PC-compatible computer (386 or
greater) via a serial communications port and contains its own external
power module. The system tests discrete components in or out-of-circuit,
and tests integrated circuits (ICs) via a 64-pin scanner affixed to the
front of the system. The CircuiTest 2100 Scanner Expansion allows
adaptation of the base system to edge connectors, headers, etc. up to 1,024
pins.
The CircuiTest 2000S tests both analog and digital circuits. Electronic
printed circuit boards are now used in a wide spectrum of the electronics
industry and will continue to be used in the future. Despite the growth of
digital technology, we believe the real world to be analog in nature.
Digital circuits can only operate on very specialized (restricted) kinds of
electrical signals. All other types of signals are, and must be, translated
by analog circuits if digital circuits are to process them. Furthermore,
digital circuits require highly stable power sources, and these power
supplies must be created from analog components.
Specific Electronics that may use our Printed Circuit Board Testing
Equipment for Manufacturing, Repair and Maintenance include:
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o Network switching cards,
o Computer and peripheral circuit boards (i.e. computers, mother boards,
monitors, laser printers matrix printers, scanners, modems, optical
disk drives),
o Avionics circuit boards (i.e. aircraft, navigational and
communications electronics),
o Medical circuit boards,
o Military and government electronics,
o Telecommunication circuit boards,
o Telephone equipment, answering machines and fax machines,
o Cash registers, scanners, credit card verification equipment,
o Electronic equipment power supplies,
o TV and monitor circuit boards.
(b) Describe how these products or services are to be produced or rendered and
how and when the company intends to carry out its activities. If the
company plans to offer a new product(s), state the present stage of
development, including whether or not a working prototype(s) is in
existence. Indicate if completion of development of the product would
require a material amount of the resources of the company, and the
estimated amount. If the company is or is expected to be dependent upon one
or a limited number of suppliers for essential raw materials, energy or
other items, describe. Describe any major existing supply contracts.
International Test Systems will outsource production to Pensar, the owner
and manufacturer of the 2000S/2100 Technology.
Pensar plans to outsource the production and assembly of our products to
local and regional sheet metal fabricators, manufacturers and assemblers.
Numerous back-up outsourcing firms exist in the area, and we believe that
we will not be reliant on any single provider. Most parts and components
for our products are readily available off-the-shelf through wholesalers.
Less than 5% of the final product is composed of long-lead, delivery-time
components, and these are normally carried by Pensar in inventory. In
addition, to achieve certain discounts, Pensar may, from time to time,
warehouse bulk quantities of off-the-shelf components.
The steps in the manufacturing process include: the sheet metal enclosures
are manufactured to our specifications and delivered to Pensar.
Simultaneously, blank printed circuit boards are manufactured and, when
completed, are delivered to a printed circuit board assembly house, a
subcontractor of Pensar. Upon completion of the assembly of the printed
circuit board (installation of all off-the-shelf components), the completed
and loaded printed circuit boards are delivered to Pensar.
We anticipate that final insertion on the printed circuit board of our
components, pre-testing, packaging and shipping of our finished products will be
executed by Pensar in San Antonio, allowing for quality control inspections
prior to delivery. This process has been in place since Pensar began production
and we expect it to continue. We expect that we would experience a maximum
two-week delay if Pensar had to change suppliers or manufacturers. This delay
should not have a material effect on sales.
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We would like to introduce new products based on current technology.
We would like to introduce new variants to our existing core product
base as well as to continually seek to develop and/or acquire new and different
technology. A variant to our existing core product base includes peripheral
equipment to enhance the capabilities of our 2000S system. The peripheral
equipment is readily available and includes robotics autoprobers and
bed-of-nails technology.
The design of a prototype for our model CircuiTest 1000S has been
completed. The CircuiTest 1000S is a system that uses voltage and current
analysis and attaches to oscilloscopes. We anticipate that the 1000S will be
retail-priced under $1,500 , will not require software and will be marketed to a
wide range of electronics repair customers.
Future products, of which no prototypes are currently available, may
be developed by us or Pensar as market needs demand. This may result
form a merger or acquisition of a new technology company. Our core
testing product is designed to facilitate rapid adaptation to meet the
unique, complex testing requirements that customers identify. We
believe that as more and more products are manufactured with PCBS, the
demand for manufacturer's defect-testing and troubleshooting systems,
such as ours, increases. Our core product and its family of flexible,
adaptive products can test and troubleshoot the majority of problems
that exist in these products.
We are not reliant on any one supplier, subcontractor or energy resource.
We do not have any existing major supply contracts.
(c) Describe the industry in which the company is selling or expects to sell
its products or services and, where applicable, any recognized trends
within that industry. Describe that part of the industry and the geographic
area in which the business competes or will compete. Indicate whether
competition is or is expected to be by price, service, or other basis.
Indicate (by attached table if appropriate) the current or anticipated
prices or price ranges for the company's products or services, or the
formula for determining prices, and how these prices compare with those of
competitors' products or services, including a description of any
variations in product or service features. Name the principal competitors
that the company has or expects to have in its area of competition.
Indicate the relative size and financial and market strengths of the
company's competitors in the area of competition in which the company is or
will be operating. State why the company believes that it can effectively
compete with these and other companies in its area of competition.
As of 1999, our research indicates that the estimated annual market for
PC-Based Testing Equipment was in excess of $400 Million. We have compiled
this information from Frost & Sullivan, an international marketing and
consulting firm.
Existing Competition for the CircuiTest Systems
Voltage/Current (V/I) Tracers.
Competitive testers that are marketed by both Huntron and Polar rely on a
graphic voltage/current plot of the component tested on an oscilloscope or
PC. To utilize the V/1 tracers, the user visually compares a plot on the
oscilloscope screen with a reference plot previously learned by the tester.
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Because of the rudimentary display in most V/1 tracers, the margin for
error is significant. The price for these units ranges from $4,500 to
$7,000. In addition, Huntron also carries a very low-end V/1 tracer which
sells for about $1,995, but it is limited in its use and performance.
Advantage of the CircuiTest over the V/I Tracer of the CircuiTest over the
V/1 Tracer using a computer and color monitor, our CircuiTest system tests
by comparing the value of components to a previously learned reference
value and displaying that value and difference on the computer monitor in
numerical terms. This method provides higher accuracy and more consistent
results than those provided by the competitions V/1 tracers.
Huntron
Our CircuiTest system is most often compared to the Huntron series of
testers. Huntron Corporation, a privately held company based in Mill Creek,
Washington, has several systems ranging in price from $1,995 for a
rudimentary system to $40,000 and more for its advanced auto-prober system.
Huntron currently offers a 1-year warranty on its equipment with subsequent
one-year extensions for $950, as well as fees for software upgrades.
International Test Systems offers a free 3-year warranty and free 3-year
software upgrades.
Most often, the CircuiTest 2000S is compared to Huntron's Model 5100DS,
priced at $7,495, and the more recent ProTrack Model 20, priced at $6,995.
After using both the Huntron 5100DS and our CircuiTest 2000S system, a
focus group comprised of eight potential customers reported that our
CircuiTest system had numerous advantages over its competitor.
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The following chart shows the advantages of International Test System's
CircuiTest 2000S over the Huntron 5100DS.
================================================================================
HUNTRON INTERNATIONAL TEST SYSTEMS
5100DS CIRCUITEST 2000S
================================================================================
System base Price $7,495 $5,995
- --------------------------------------------------------------------------------
Report Generator x/
- --------------------------------------------------------------------------------
SymSort(TM) x/
- --------------------------------------------------------------------------------
AutoLearn x/
- --------------------------------------------------------------------------------
Numerical values x/
- --------------------------------------------------------------------------------
Auto Contact x/
- --------------------------------------------------------------------------------
DC Test x/
- --------------------------------------------------------------------------------
Variable Control Voltage x/
- --------------------------------------------------------------------------------
3-Year Hardware Warranty free $950 p.a after year 1 x/
- --------------------------------------------------------------------------------
3-year free software Upgrades x/
- --------------------------------------------------------------------------------
Portable x/
- --------------------------------------------------------------------------------
FREE Factory-Site Training $295 per person (3 days) x/ (unlimited)
- --------------------------------------------------------------------------------
Software Windows(R) Windows(R)
- --------------------------------------------------------------------------------
Test Frequency Settings 1 7
- --------------------------------------------------------------------------------
Total Ranges 4 512
- --------------------------------------------------------------------------------
Carrying Case $250 $180
- --------------------------------------------------------------------------------
Unit Dimensions 20.3 LX 12 W X 6.3 H 12 L X 9.7 W X 3.0 H
================================================================================
Traditional Test Instruments
Other competitors' systems include a variety of manually operated meters,
function generators, oscilloscopes, frequency counters and so on. We
believe that the use of these instruments is laborious, slow, inefficient
and particularly subject to human errors. Furthermore, they require highly
skilled personnel, further increasing the cost of the testing process. The
largest drawback of these items, however, is that they cannot capture and
save results for analysis and comparison at a later date.
NOTE: Because this Disclosure Document focuses primarily on details concerning
our company rather than the industry in which our company operates or will
operate, potential investors may wish to conduct their own separate
investigation of our company's industry to obtain broader insight in assessing
our prospects.
(d) Describe specifically the marketing strategies the company is employing or
will employ in penetrating its market or in developing a new market. Set
forth below the timing and size of the results of this effort which will he
necessary in order for the company to be profitable. Indicate how and by
whom its products or services are or will be marketed (such as by
advertising, personal contact by sales representatives, etc.), how its
marketing structure operates or will operate and the basis of its marketing
approach, including any market studies. Name any customers that account
for, or based upon existing orders will account for, a major portion (20%
or more) of the company's sales. Describe any major existing sales
contracts.
Product Marketing Introduction
The market for products such as those designed and sold by us ranges from
large manufacturers to small electronics repair facilities. (See Responses
to Question 3- "BUSINESS AND PROPERTIES.")
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Product Sales and Marketing Plan
Our sales approach is based on maximizing contact with potential customers
by demonstrating that our products have a wider range of capabilities and a
lower price point than our competitors' products.
Our approach includes establishing worldwide distributor relationships and
implementing direct marketing campaigns to specific segments of the market.
Our direct marketing and sales efforts include trade publication
advertising, Internet web site promotion, public relations, trade
shows/conferences and database marketing, culminating in demonstrations by
either our direct sales force or its distributors.
Our sales experience to date is that 60% of all product demonstrations
result in product sales, and approximately 50% of our customers refer
the product to other companies.
Product Distribution
Our research indicates that, increasingly, companies are creating sales
distribution channels composed of non-company employees, and that companies
are reducing their dependence on their own direct field sales force. We are
building our distribution channels to reflect this industry trend.
We may engage additional regional and international distributors, and
we plan to engage independent sales representatives, OEMs (original
equipment manufacturers), licensing partners and joint venture partners
to market and sell its products to prospective customers.
All representation contracts, either oral or written, are expected to
contain a provision allowing us to terminate the contract with 30-days
notice without cause.
Direct Marketing Strategy
GSA Database Marketing Campaign
We have marketed our prototype products to the General Services
Administration (GSA) Federal Supply Service. The GSA granted us a
government contract number under the federal supply schedule for FSC/6625
instruments and laboratory equipment. The contract pre-approved us under a
negotiated price schedule to sell our products to any branch of the federal
government for the five-year period June 1, 1997 through May 31, 2003. In
two categories that apply to our products, FSC/6625 subcategory 627-11 and
FSC/627-1, the GSA purchased $4,829,000 of circuit board testers and $20
million of products in a recent 24-month period. To the date of this
prospectus, we have not sold any of our products to the GSA and as a result
out contract may be subject to cancellation at the discretion of the GSA.
Business-to-Business Direct Mail
We are considering the utilization of direct mail as the first phase of our
database marketing campaign to generate more leads and inquiries that lead
to sales. In addition, we expect to continue generating prospect lists from
trade shows, trade publications, associations, and other sources.
Sales Materials and Direct Mail Pieces
We have produced marketing materials describing our products which we can
mail to potential customers who respond to our print ads, who attend the
trade shows and conferences and who are trade magazine subscribers (we can
receive these mailing lists as an advertiser).
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Lead Management
In order to enhance the success of the direct mail campaign, a portion of
the marketing budget may be designated for follow-up phone calls to
potential customers and lead management.
(e) State the backlog of written firm orders for products and/or services as of
a recent date (within the last 90 days) and compare it with the backlog of
a year ago from that date Explain the reason for significant variations
between the two figures, if any. Indicate what types and amounts of orders
are included in the backlog figures. State the size of typical orders.
If the company's sales are seasonal or cyclical, explain.
We do not have any backlog. Sales are not seasonal or cyclical, though they
are affected by the overall demand for electronic systems and components.
(f) State the number of the company's present employees and the number of
employees it anticipates it will have within the next 12 months. Also,
indicate the number by type of employee (i.e., clerical operations,
administrative, etc.) the company will use, whether or not any of them are
subject to collective bargaining agreements, and the expiration date(s) of
any collective bargaining agreement(s). If the company's employees are on
strike, or have been in the past three years, or are threatening to strike,
describe the dispute. Indicate any supplemental benefits or incentive
arrangements the company has or will have with its employees.
We have one employee, Carey Birmingham, our President and a Director. Our
other directors are Youval Krigel, Brad Smith and Scott Barter. We seek to
maintain lean operations while seeking a capital infusion in order to
minimize operating expenses. Depending upon the success of this offering,
we intend to hire staff and enter into consulting relationships as needed
in order to (i) develop and market our products, (ii) develop and exploit
new technologies and products and (iii) seek and exploit strategic
alliances with persons and/or business that we believe will strengthen our
company and maximize our future value.
We do not anticipate that any of the employees engaged by us will be
subject to any collective bargaining agreements nor do we anticipate the
possibility of any strike or work stoppage.
We anticipates that all employees will receive a base salary or hourly
wage, as necessary. The sales staff may receive a sales commission in
addition to the base salary.
As a general course of business, we offer, and will continue to offer,
partial premium-paid health insurance to employees. In addition, we believe
financial incentives should be offered to quality employees, and we
anticipate the payment of cash and stock bonuses, stock options and other
monetary incentives to maintain a loyal and productive employee base.
(g) Describe generally the principal properties (such as real estate, plant and
equipment, patents, etc.) that the company owns, indicating also what
properties it leases and a summary of the terms under those leases,
including the amount of payments, expiration dates and the terms of any
renewal options. Indicate what properties the company intends to acquire in
the immediate future, the cost of such acquisitions and the sources of
financing it expects to use in obtaining these properties, whether by
purchase, lease or otherwise.
We currently sublease approximately 2,000 square feet of office and
warehouse space which we use for our corporate offices. This lease is month
to month, with prime lease expiring June 30, 2001.
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We believe that the existing premises will satisfy our needs in the
foreseeable future with only moderate changes needed to be made to the
premises to accommodate additional staff. Ample small office space is
available to us, and we are not real estate dependent.
(h) Indicate the extent to which the company's operations depend or are
expected to depend upon patents, copyrights, trade secrets, know-how or
other proprietary information and the steps undertaken to secure and
protect this intellectual property, including any use of confidentiality
agreements, covenants-not-to-compete and the like. Summarize the principal
terms and expiration dates of any significant license agreements. Indicate
the amounts expended by the company for research and development during the
last fiscal year, the amount expected to be spent this year and what
percentage of revenues research and development expenditures were for the
last fiscal year.
Copyrights and Security Features
Pensar Technology LLC ("Pensar") owns the copyright to the printed circuit
board design within in our products. In addition, Pensar owns the copyright
on the propriety software, which is an integral part of our product. Our
existing software cannot be modified by outsiders without access to
Pensar's software source code. We have an Exclusive Distribution Agreement
with Pensar. On June 16, 1999, we entered into a ten (10) year Distribution
Agreement with Pensar to market, sell, promote and distribute existing and
new printed circuit board test products throughout the world. Terms of the
Distribution Agreement include our right to purchase products from Pensar
at a 40% discount off the retail price for resale into the electronics
repair, manufacturing and related markets. In addition, we have a First
Right of Refusal to Purchase the existing technology and the option to
renew the Distribution Agreement for an additional five (5) year term by
delivering written notice to Pensar 90 days prior to the expiration of the
initial term and by guaranteeing an additional $90,000 in payments to
Pensar over the renewal period. We have the option to terminate the license
agreement on thirty days written notice to Pensar.
Pensar completes the final assembly of our product in-house in order to
eliminate the opportunity for duplication by outside competitors. The
hardware is protected from outside duplication by a PAL (Programmable Array
Logic) chip on the main system motherboard. This chip is installed and
programmed in the final phase of quality control at our main office by
developers of the system. Immediately after programming, a small fuse is
"blown" in the PAL, making the hardware and its functions virtually
impossible to duplicate. In addition, we are considering upgrading our
hardware security by including a modified EPROM (Erasable Programmable
Read-Only Memory) chip which also has a fuse "blowing" feature. Including
this chip is expected to increase the cost of the base system by $10-$15.
Mr. Youval Krigel was a key individual in our software, firmware and
hardware development. Mr. Krigel is no longer employed by us, but remains a
director, a shareholder and consultant to our company. We have a verbal
agreement with Mr. Krigel to be available to our company in order to
customize and install prototype systems as well as to train customers for
their use. We intend to compensate Mr. Krigel $75 per hour for these
consulting services. To the extent that we choose to develop new software
or new products we contemplate (i) contracting with Pensar for such
services; or (ii) seeking strategic acquisitions, partnerships or ventures
with entities with developing technologies.
(i) If the company's business products, or properties are subject to material
regulation (including environmental regulation) by federal, state, or local
governmental agencies, indicate the nature and extent of regulation and its
effects or potential effects upon the company.
None of our business, products or properties are subject to material regulations
by federal, state, or local governmental agencies except state and local sales
taxes.
(j) State the names of any subsidiaries of the company, their business purposes
and ownership, and indicate which are included in the Financial Statements
attached hereto.
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We have no subsidiaries.
(k) Summarize the development of the company (including any material mergers or
acquisitions) during the past five years, or for whatever period the
company has been in existence. Discuss any pending or anticipated mergers,
acquisitions, spin-offs or recapitalizations. If the company has recently
undergone a stock split, stock dividend or recapitalization in anticipation
of this offering, describe (and adjust historical per share figures
elsewhere in this disclosure document accordingly).
In September 1993, UAT Development Partners (UAT), a Texas general
partnership, was formed to design, develop, manufacture and market a
universal analog tester for component level testing of printed circuit
boards.
In September 1993, Pensar Technologies, Inc. (Pensar, Inc.), a Texas
corporation, was formed to finance contract services in the design,
development, manufacture, marketing and ownership of the universal
analog tester for UAT.
In February 1995, Pensar, Inc. changed its name to Pensar Research &
Development, Inc. (Pensar R&D, Inc.), and ownership remained at the
previous level. UAT continued to contract with Pensar, Inc. to produce new
modifications to the universal analog tester, now the CircuiTest 2000S.
In April 1995, Pensar Technologies, LLC (Pensar, LLC), a Texas limited
liability company, was formed and simultaneously in April 1995, UAT
Development Partners transferred all of its assets, including the
technology, into Pensar, LLC in exchange for ownership units.
As of December, 1998, Carey G. Birmingham owned approximately a 4% limited
partnership interest in the Birmingham Family Partnership, Ltd. In
addition, he serves as co-trustee for the Janet Birmingham Inter Vivos
Trust, General Partner of the Birmingham Family Partnership, Ltd. The
contract between UAT (now Pensar, LLC) to perform services was completed in
December 1995, and Pensar R&D, Inc. ceased day-to-day operations.
International Test Systems, Inc. (ITS), a Texas corporation, was formed in
September 1996. Articles of Incorporation for ITS authorized 5,000,000
Shares of Common Stock. Simultaneously in September, 1996 Pensar
Technologies, LLC contributed all of its assets and liabilities to ITS in
exchange for 730,000 shares of stock. By Board Resolution ratified by the
shareholders on May 19, 1997, the total number of shares authorized was
increased to 20,000,000.
On June 16, 1999 we entered into a Reorganization and Subscription
Agreement with Unifund America, Inc. Unifund America agreed to provide us
with business and marketing advice. It reviewed all aspects of our
business. Unifund believed that a leaner operation devoted to marketing and
distributing a successful technology would be a more successful direction
for our company to take. Unifund America helped us engineer a
reorganization of our company whereby we sold our technology to Pensar in
exchange for relief of our debt and an exclusive ten (10) year renewable
distribution agreement to distribute the technology. In addition, the
president of Unifund America will join our board and will continue to aid
in our growth by identifying and evaluating companies to complement and
expand our existing business. Unifund will seek to maximize our value by
seeking strategic marketing and financial opportunities and by forming
strategic alliances.
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In June 1999, ITS transferred all of its assets to Pensar in exchange for
which Pensar assumed all of the liabilities of ITS and entered into a
Distribution Agreement for the exclusive right to market, sell and
distribute the intellectual property Pensar had acquired from ITS in this
transaction. On June 16, 1999, ITS entered into the Distribuiton Agreement
with Pensar (the "Distribuiton Agreement") for a ten year term pursuant to
which ITS was granted the exclusive right to sell, promote and distribute
new printed circuit board test products throughout the world.
Terms of the Distribution Agreement include our right to purchase products
from Pensar at a 40% discount off the price for resale into the electronics
repair, manufacturing and related markets. In addition, we have a First
Right of Refusal to Purchase the existing technology and the option to
renew the Distribution Agreement for an additional five (5) year term by
delivering written notice to Pensar 90 days prior to the expiration of the
initial term and by guaranteeing an additional $90,000 in payments to
Pensar over the renewal period. We have the option to terminate the license
agreement on thirty days written notice to Pensar.
ITS was reincorporated in Delaware on September 20, 1999.
Officers and Directors
The Officers and Directors of International Test Systems, Inc. are as
follows:
Carey G. Birmingham, President and CEO, and Director
H. Youval Krigel, Director
Brad Smith, Director
R. Scott Barter, Director
Sales History
In September 1994, Pensar R&D, Inc. completed prototypes of the CircuiTest
2000S, and began marketing prototypes to prospective customers. The
following month, the first prototype was sold to UltraTest International of
San Jose, CA for $6,000 as part of an OEM/Distributor agreement between the
two companies.
During the next six months, ITS averaged more than one sale per month and
sold eight prototype units. In January 1995, Pensar R&D, Inc. redesigned
the 2000S, incorporating new software features and hardware upgrades.
In July 1995, Pensar, LLC received 25 completed CircuiTest 2000S systems
from its new outsourcing contractor and began selling the systems in
earnest. The first few systems went to select customers as exchanges,
upgrades or were sold as additional units to those consumers who had
previously purchased systems. By December 1995, Pensar, LLC had sold 13
systems to customers in the U.S., Canada and Singapore.
In January 1996, Pensar, LLC introduced the 2100 Scanner Expansion as an
adjunct to the CircuiTest 2000S base system. The 2100 expands the pin-count
testing ability of the system from 64 pins on the CircuiTest 2000S up to
256 pins, or more. This allows the user to test entire boards using simple
connections. (See Response to Question 3(a) - "BUSINESS AND PROPERTIES.")
24
<PAGE>
As of August 30 , 1999 ITS and its predecessors had sold a total of 114
units to 43 customers in the U.S., Japan, China, Egypt, Singapore, Jamaica,
Mexico and Canada for total sales revenues of $ $501,000 A partial list of
end-use customer list includes:
================================================================================
Company Location No. of Systems
================================================================================
NCR Corporation Bethlehem, PA 1
IBM Corporation San Jose, CA 2
Sony Microelectronics San Antonio, TX 2
Solectron Corp. Austin, TX 4
Seagate technology San Jose, CA 2
Harris corporation San Antonio, TX 6
US Air Force San Antonio 10
US Army Mannheim, Germany 1
ICL/Fujitsu Dallas, TX 3
Immigration Naturalization Service Various Location in Texas 3
Radian Corporation Austin, TX 2
Paradigm Corp. San Antonio, TX 2
Finetest San Jose, CA 2
Vanco PTE Singapore 1
Fastar, Ltd. Dallas, TX 1
Primetech Electronics Quebec, Canada 1
Colin Medical Instruments San Antonio, TX 1
Matrix Components Austin, TX 2
Tanisys Corporation Austin, TX 2
EMSCO Cairo, Egypt 1
Electronic Resources, Int'l Des Moines, LA 2
Digital Repair Corp. San Antonio 1
===============================================================================
EVENTS OR MILESTONES
4. (a) If the company was not profitable during its last fiscal year list
below in chronological order the events which in management's opinion must
or should occur or the milestones which in management's opinion the Company
must or should achieve in order for the Company to become profitable, and
indicate the expected manner of occurrence or the expected method by which
the Company will achieve the milestones.
The following milestones are not necessary for break-even profitability,
however they will contribute significantly to our ongoing growth and
earnings potential.
<TABLE>
<CAPTION>
- -------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Event Method of Achievement Date or number of months after
receipt of proceeds when event
should be accomplished
- -------------------------------------- -------------------------------------- --------------------------------------
Fund minimal operations Conduct this offering and raise the Immediately after escrowed funds are
minimum offering amount released.
- -------------------------------------- -------------------------------------- --------------------------------------
Market products based upon existing Conduct this offering to obtain Ongoing process which should
technology. needed funds to pay for direct commence within one month after
mailings and other marketing receipt of funds in excess of
efforts. Hire marketing support and minimum offering amount. Direct
establish relationships with Mail can commence if the minimum
independent sales contractors to offering amount is received. Other
market products. forms of marketing and the
retainment of marketing support
staff can commence when amounts in
excess of the minimum offering
amount are received. In addition,
the president and the directors will
be compensated from the offering
proceeds to the extent they engage
in developing our business, which
may include marketing advice or
activities.
- -------------------------------------- -------------------------------------- --------------------------------------
25
<PAGE>
Seek product and technology Conduct this offering to obtain Ongoing process which can commence
opportunities which expand our needed funds to continue immediately after receipt of minimum
business in both the area of testing Distribution Agreement with Pensar offering amount. Upon receipt of
and trouble shooting as well as and to hire a product developer and minimum, payments can continue to
other areas that will maximize our establish relationships with Pensar for the Distribuiton
value. independent technology companies and Agreement rights . Upon receipt of
developers. the maximum offering amount, we can
hire a product developer. The
receipt of amounts between these
breakpoints will enable us to pay
our president and directors who
shall engage in the development of
relationships with individuals and
companies which can provide us with
improved and different technologies
and products.
- -------------------------------------- -------------------------------------- --------------------------------------
Seek to establish strategic Conduct this offering to obtain Ongoing process which can commence
alliances that will maximize our needed funds to pay for the services immediately after receipt of minimum
value. of the president, the directors and offering amount. Upon receipt of
consultants to conduct due diligence minimum, and upon the receipt of
on market needs and opportunities amounts between the minimum and the
for our company to increase its maximum, we can pay our president,
value. our directors who intend to engage
in the development of our business.
The ability to complete strategic
alliances cannot be definitively
timed and will depend on
opportunities which these
individuals will continue to
explore.
- -------------------------------------- -------------------------------------- --------------------------------------
Seek liquidity and growth in the Become listed on the Six months to one year initially
market place. over-the-counter bulletin board and and then a continuing effort
continue marketing efforts. thereafter.
- -------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
26
<PAGE>
We cannot assure you that any, or all, of the events previously outlined can, or
will, occur within the expected time frame.
(b)) State the probable consequences to the Company of delays in achieving each
of the events or milestones within the above time schedule, and
particularly the effect of any delays upon the Company's liquidity in view
of the Company's then anticipated level of operating costs.
We have scaled back operating costs and will continue to do so until we
have an infusion of cash. If this offering is successful we will be able to
market and sell our products, to develop and/or license new technology; and
to strengthen the company and maximize its value by exploiting strategic
alliances. In the past we were unable to generate enough capital from
revenues to fully develop and retain the proper staff to market and support
our products as well as to seek and exploit other market opportunities.
While no assurances can be given, we believe that with proper funding, we
will have the support to achieve our objectives. However, we believe that
to achieve these goals involves a process and not a list of separately
identifiable milestones that must be achieved by a date-certain.
NOTE: After reviewing the nature and timing of each event or milestone,
potential investors should reflect upon whether achievement of each within the
estimated time frame is realistic and should assess the consequences of delays
or failure of achievement in making an investment decision.
27
<PAGE>
OFFERING PRICE FACTORS
If the securities offered are common stock, or are exercisable for or
convertible into common stock, the following factors may be relevant to the
price at which the securities are being offered.
5. What were net, after-tax earnings last year? (If losses, show in
parenthesis.)
For the years ended December 31, 1998 and 1997, losses were $(166,886)
and $(55,409), respectively.
6. If the Company had profits, show Offering price as a multiple of earnings.
Adjust to reflect for any stock splits or recapitalization, and use
conversion or exercise price in lieu of Offering price, if applicable.
Not Applicable.
7. (a) What is the net tangible book value of the Company? (If deficit, show
in parenthesis.) For this purpose, net tangible book value means total
assets (exclusive of copyrights, patents, goodwill, research and
development costs and similar intangible items) minus total liabilities.
September 24, 1999: $0.01 per share.
Per share based upon number of Shares outstanding after this
Offering if all securities sold: $0.15.
If the net tangible book value per share is substantially less than this
Offering (or exercise or conversion) price per share, explain the reasons for
the variation.
The reason for the variation in net tangible book value per share and the
Offering price is that this Offering is being sold on a future earnings
capacity basis and that the average sales price represents an average of
total number of shares sold over an aggregate consideration of $750,000
less offering costs.
(b) State the dates on which the Company sold or otherwise issued securities
during the last 12 months, the amount of such securities sold, the number
of persons to whom they were sold, any relationship of such persons to the
Company at the time of sale, the price at which they were sold and, if not
sold for cash, a concise description of the consideration. (Exclude bank
debt.)
28
<PAGE>
The following shares of common stock were issued to the persons
identified below by our Texas predecessor on June 27, 1999. These
interests were exchanged for an equal number of shares of common stock
in our reincorporated Delaware corporation.
<TABLE>
<CAPTION>
- ----------------------------- --------------------------- -------------------------- ---------------------------
Name of Owner Number of Shares % if Minimum Offering % if Maximum Offering of
Amount Sold (Assuming Common Stock is sold
only Common Stock sold) (without Warrant
exercises)
- ----------------------------- --------------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Unifund Financial Group 770,000 55.5% 29.2%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Carey Birmingham 193,000 13.9% 7.3%
- ----------------------------- --------------------------- -------------------------- ---------------------------
R. Scott Barter 50,000 3.6% 1.8%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Brad Smith 50,000 3.6% 1.8%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Douglas Harrison-Mills 50,000 3.6% 1.8%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Sheila Corvino 50,000 3.6% 1.8%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Kaplan Gottbetter & 50,000 3.6% 1.8%
Levenson, LLP
- ----------------------------- --------------------------- -------------------------- ---------------------------
H. Youval Krigel 10,800 .77% .4%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Harris Schiff 10,000 .72% .37%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Alan Scott 5,000 .36% .18%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Elizabeth Acton 5,000 .36% .18%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Stephen G. Birmingham 5,000 .36% .18%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Dr. Ed Lahniers 500 .03% .018%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Andree Sonsino 400 .028% .015%
- ----------------------------- --------------------------- -------------------------- ---------------------------
Raphael Sonsino 300 .021% .013%
- ----------------------------- --------------------------- -------------------------- ---------------------------
</TABLE>
8. (a) What percentage of the outstanding Shares of the Company will the
investors in this Offering have? (Assume exercise of options, warrants or
rights and conversion of convertible securities)
If the maximum is sold: 46.8%
If the minimum is sold: 90%
(b) What value is management attributing to the entire Company by establishing
the price per security set forth on the cover page (or exercise or
conversion price if Common Stock is not offered)? (Total outstanding shares
after Offering times Offering price, or exercise or conversion price if
Common Stock is not offered.)
If maximum is sold: $760,989
If minimum is sold: $141,989
(For above purposes, assume convertible securities are converted and
outstanding options exercised in determining "shares")
NOTE: After reviewing the above, potential investors should consider whether or
not the Offering price (or exercise or conversion price, if applicable) for the
securities is appropriate at the present stage of the Company's development.
29
<PAGE>
USE OF PROCEEDS
9. (a) Set forth the use of the proceeds from this Offering.
<TABLE>
<CAPTION>
- -------------------------------------- ------------------------------------- --------------------------------------
BUDGET DETAIL IF MINIMUM SOLD IF MAXIMUM NUMBER SOLD
(Absent Warrant Exercises)
- -------------------------------------- ------------------------------------- --------------------------------------
<S> <C> <C> <C>
Gross Proceeds/1/ $125,000 $750,000
-------- --------
Printing & Postage $2,000 $10,000
Transfer & Escrow Agents $2,000 $6,000
Legal Prepaid Prepaid
Accounting Prepaid Prepaid
Total Offering Costs/1/ $4,000 $16,000
------ -------
NET OFFERING PROCEEDS/1/ $121,000 $734,000
======== ========
USE OF NET PROCEEDS
License Agreement
Advance $5,000 $5,000
Monthly @ $1,500 $18,000 $18,000
Bonus $5,000 $5,000
Total License Fees $28,000 $28,000
Directors' Fees /2/ $15,000 $60,000
Marketing
Advertising -- $100,000
Direct Mail $2,000 $40,000
Trade Shows -- $12,000
TOTAL MARKETING $2,000 $152,000
Wages, Salaries & Benefits
President $40,000 $75,000
Product Developer -- $65,000
Marketing Support -- $45,000
TOTAL WAGES & SALARIES $40,000 $185,000
Preparation of a Business Plan $5,000 $10,000
Analyzing & Pursuing Strategic $7,500 $25,000
Alliances
General & Administrative $10,000 $50,000
Working Capital /1/ $18,500 $224,000
------- --------
Total Use of Net Proceeds /1/ $121,000 $744,000
======== ========
</TABLE>
/1/ We are offering the Securities in a best efforts underwriting through our
officers, directors and employees. No commissions or other compensation
will be paid to our officers, directors and employees in connection with
this offering. No broker or dealer has been retained or is under any
obligation to purchase any of the Securities, although we may use brokers
or dealers and pay a commission of up to 7% on such sales equal to up.
Therefore, our net proceeds from this offering may range, (i) in the case
of the Minimum, without the exercise of any Warrants, from $112,250 to
$121,000 (ii) in the case of the Maximum, without the exercise of any
Warrants, from $681,500 to $734,000. Potential non-accountable expense
allowances of up to 3% of sales have not been included in this calculation.
Any differential in net proceeds raised will be reflected in Working
Capital.
/2/ Director compensation will commence after the Minimum offering is funded.
Thereafter, such compensation shall be allocated to the directors based
upon their level of engagement in developing our business.
30
<PAGE>
NOTE: After reviewing the portion of the offering allocated to the payment
of offering expenses, and to the immediate payment to management and
promoters of any fees, reimbursements, past salaries or similar payments, a
potential investor should consider whether the remaining portion of his
investment, which would be that part available for future development of
the Company's business and operations, would be adequate.
(b) If there is no minimum amount of proceeds that must be raised before the
company may use the proceeds of the offering, describe the order of
priority in which the proceeds set forth in the column if maximum sold will
he used.
Not Applicable.
10. (a) If material amounts of funds from sources other than this offering are
to be used in conjunction with the proceeds from this offering, state the
amounts and sources of such other funds, and whether funds are firm or
contingent. If contingent, explain.
Not Applicable
(b) If any material part of the proceeds is to be used to discharge
indebtedness, describe the terms of such indebtedness, including interest
rates. If the indebtedness to be discharged was incurred within the current
or previous fiscal year, describe the use of the proceeds of such
indebtedness.
Not Applicable
(c) If any material amount of the proceeds is to be used to acquire assets,
other than in the ordinary course of business, briefly describe and state
the cost of the assets and other material terms of the acquisitions. If the
assets are to be acquired from officers, directors, employees or principal
stockholders of the Company or their associates, give the names of the
persons from whom the assets are to be acquired and set forth the cost to
the company, the method followed in determining the cost, and any profit to
such persons.
Not Applicable
(d) If any amount of the proceeds is to be used to reimburse any officer,
director, employee or stockholder for services already rendered, assets
previously transferred, moneys loaned or advanced, or otherwise, explain.
$5,000 is to be applied to payment of the distribution fee to Pensar LLC
11. Indicate whether the company is having or anticipates having within the
next 12 months any cash flow or liquidity problems and whether or not it is
in default or in breach of any note, loan, lease or other indebtedness or
financing arrangement requiring the company to make payments. Indicate if a
significant amount of the company's trade payables have not been paid
within the stated trade term. State whether the company is subject to any
unsatisfied judgments, liens or settlement obligations and the amounts.
Indicate the company's plans to resolve any such problems.
31
<PAGE>
We are not in default or in breach of any loan, note, lease or any
other obligation or indebtedness. We are not subject to any unsatisfied
judgments, liens or settlement obligations. We have no significant amount
of trade payables that have not been paid within the stated trade term.
While we do anticipate cash flow problems in the event this offering is
unsuccessful, we have scaled back operations and have deferred growth until
we receive a capital infusion (See Response to Questions regarding -"USE OF
PROCEEDS.")
12. Indicate whether proceeds from this offering will satisfy the company's
cash requirements for the next 12 months, and whether it will be necessary
to raise additional funds. State the source of additional funds, if known.
Both the minimum and the maximum proceeds from this offering are
expected to satisfy our cash requirements for the next 12 months.
However, if only the minimum is raised, we will implement a modified
growth plan. This will result in slower development and introduction of
new products, as well as a more limited sales and acquisition plan. If
only the minimum offering amount is raised, we may reduce our planned
operations, raise additional equity capital through either a private
placement exemption or a registered public offering and/or may incur
short or long-term debt, as needed. However, we can not assure you that
we will be able to raise additional funds on favorable terms, if at
all.
CAPITALIZATION
13. Indicate the capitalization of the Company as of the most recent
practicable date and as adjusted to reflect the sale of the minimum and
maximum amount of securities in this Offering and the use of the net
proceeds therefrom:
Amount Outstanding
- --------------------------------------------------------------------------------
As Adjusted: As Adjusted:
6/30/99 Minimum Maximum
- -------------------------------------------------------------------------------
Long term debt $ -0- $ -0- $ -0-
Preferred Stock -0- -0- -0-
Common stock-par or stated 1,250 1,250 2,500
value x no. of outstanding shares
Additional paid in capital: 397,999 518,999 1,053,249
Retained earnings (deficit): (292,260) (292,260) (292,260)
-------- -------- --------
Total stockholders equity (deficit): 16,989 227,989 763,489
------ ------- -------
Total Capitalization: 16,989 227,989 763,489
====== ======= =======
Number of common Shares
reserved to meet conversion
Requirements or for the Issuance
upon exercise of options,
warrants or rights: 1,250,000 1,250,000 1,250,000
32
<PAGE>
DESCRIPTION OF SECURITIES
14. The securities being offered hereby are:
[X] Common Stock (the Founders' Shares are identical to our common
stock except that the holders of the Founders' Shares will be
subject to a 12 month contractual lock-up on any subsequent
transfers)
[ ] Preferred or Preference Stock
[ ] Notes or Debentures
[ ] Units of two or more type of
[X] Other: Class A Redeemable Warrants to purchase common stock at
$2.50 per share for a three year period and Class B Redeemable
Warrants to purchase common stock at $4.50 per share for a five
year period. We may redeem both Warrants at any time if the
trading price of our Common Stock is at least 150% of the then
current exercise price of the Warrant for a period of 20
consecutive trading days. Thus, based on the current exercise
price for the Warrants, the Class A Redeemable Warrants could be
subject to redemption if the trading price of our Common Stock
were $3.75 or greater, and the Class B Redeemable Warrants could
be subject to redemption if the trading price of our Common Stock
were $6.75 or greater, in each case for the required twenty (20)
day trading period. If required, the Company will file a
post-effective amendment to the registration statement with the
Commission with respect to the Common Stock underlying the Class
A and Class B Redeemable Warrants prior to the exercise of such
Warrants and deliver a prospectus with respect to Such Common
Stock to all Class A Redeemable Warrant holders as required by
Section 10(a)(3) of the Securities Act of 1933.
15. These securities have:
Yes No
[ ] [X] Cumulative voting rights
[ ] [X] Other special voting rights
[ ] [X] Preemptive rights to purchase in new issues of shares
[ ] [X] Preference as to dividends or interest
[ ] [X] Preference upon liquidation
[ ] [X] Other special rights or preferences (specify):
Explain:
(c) Are the securities convertible? [ ] Yes [X ] No
If so, state conversion price of formula. Not Applicable
Date when conversion becomes effective: / /
Date when conversion expires: / /
17. (a) If securities are notes or other types of debt securities:
Not Applicable
33
<PAGE>
(1) What is the interest rate?
If interest rate is variable or multiple rates, describe:
(2) What is the maturity date? / / If serial maturity dates, describe:
(3) Is there a mandatory sinking fund? [ ]Yes [ ] No Describe:
(4) Is there a trust indenture? [ ] Yes [ ] No Name, address and telephone
number of Trustee
(5) Are the securities callable or subject to redemption? [ ] Yes [ ] No
Describe, including redemption prices:
(6) Are the securities collateralized by real
or personal property? [ ] Yes [ ] No Describe:
(7) If these securities are subordinated in right of payment of
interest or principal, explain the terms of such
subordination.
(8) How much currently outstanding indebtedness of the company is senior to
the securities in right of payment of interest or principal? How much
indebtedness shares in right of payment on an equivalent (pari passu)
basis? How much indebtedness is junior (subordinated to the
securities)?
(b) If notes or other types of debt securities are being offered and the
company had earnings during its last fiscal year, show the ration of
earnings to fixed charges on an actual and pro forma basis for that fiscal
year. "Earnings" means pre-tax income from continuing operations plus fixed
charges and capitalized interest. "Fixed charges" means interest (including
capitalized interest), amortization of debt discount premium and expense,
preferred stock dividend requirements of majority owned subsidiary, and
such portion of rental expense as can be demonstrated to be representative
of the interest fact or in the particular case. The pro forma ratio of
earnings to fixed charges should include incremental interests expense as a
result of the offering of the notes or other debt securities.
Not Applicable.
NOTE: Care should be exercised in interpreting the significance of the ratio of
earnings to fixed charges as a measure of the "coverage" of debt service, as the
existence of earnings does not necessarily mean that the company's liquidity at
any given time will permit payment of debt service requirements to be timely
made. See the Financial Statements and especially the Statement of Cash Flows.
18. If securities are Preference or Preferred stock:
Are unpaid dividends cumulative? [ ] Yes [ ] No Not Applicable
Are securities callable? [ ] Yes [ ] No Explain: Not Applicable
NOTE: Attach to this disclosure document copies or a summary of the charter,
bylaw or contractual provision or document that gives rise to the rights of
holders of Preferred or Preference Stock, notes or other securities being
offered.
34
<PAGE>
19. If securities are capital stock of any type, indicate restrictions on
dividends under loan or other financing arrangements or otherwise:
Not Applicable
20. Current amount of assets available for payment of dividends (if deficit must
be first made up, show deficit in parenthesis):
No dividends are planned. ITS expects that any and all positive cash flow
will be retained for working capital for at least the next two years.
PLAN OF DISTRIBUTION
21. The selling agents (that is, the persons selling the securities as agent
for the company for a commission or other compensation) in this offering
are:
We are offering our common stock and warrants in a "best efforts"
underwriting through our officers, directors and employees. No commissions
or other compensation will be paid to our officers, directors and employees
in connection with this offering. No broker or dealer has been retained or
is under any obligation to purchase any of the securities, although we may
use brokers or dealers and pay a commission of up to 7% on such sales. In
addition, we may pay a broker or dealer additional compensation in the form
of a non-accountable expense allowance equal to up to 3% on such sales. The
amount of compensation which may be paid to any brokers and dealers, if
retained, must be cleared by the National Association of Securities
Dealers.
22. Describe any compensation to selling agents or finders, including cash,
securities, contracts or other consideration, in addition to the cash
commission set forth as a percent of the offering price on the cover page
of this disclosure document. Also indicate whether the company will
indemnify the selling agents or finders against liabilities under the
securities laws. ("Finders" are persons who for compensation act as
intermediaries in obtaining selling agents or otherwise making
introductions in furtherance of this offering.)
Please see our response to Question 21.
23. Describe any material relationships between any of the selling agents or
finders and the Company or its management.
Not Applicable.
NOTE: After reviewing the amount of compensation to the selling agents
or finders for selling the securities, and the nature of any relationship
between the selling agents or finders and the Company, a potential investor
should assess the extent to which it may be inappropriate to rely upon any
recommendation by the selling agents or finders to buy the securities.
24. If this offering is not being made through selling agents, the names of
persons at the Company through which this offering is being made:
We are offering the securities in a best efforts underwriting through our
officers, directors and employees. We have not retained the services of any
broker or dealer. The use of a broker or dealer is subject to NASD
35
<PAGE>
oversight. We may decide to seek the help of brokers or dealers in the sale
of some or all of the securities offered in this offering. We would pay
such brokers or dealers a commission of up to 7% on such sales. In
addition, we may pay a broker or dealer additional compensation in the form
of a non-accountable expense allowance equal to up to 3% on such sales. .
The amount of compensation which may be paid to any brokers and dealers, if
retained, must be cleared by the National Association of Securities
Dealers.
25. If this offering is limited to a special group, such as employees of the
company, or is limited to a certain number of individuals (as required to
qualify under Subchapter S of the Internal Revenue Code) or is subject to
any other limitations, describe the limitations and any restrictions on
resale that apply:
The Founders' Shares has been issued to officers, directors, key employees,
key advisors and their affiliates in connection with organizational
activities. The holders of the Founders' Shares have agreed not to transfer
their shares prior to the 12-month anniversary of the effectiveness of this
offering.
26. (a) Name, address and telephone number of independent bank or savings and
loan association or other similar depository institution acting as escrow
agent if the proceeds are escrowed until minimum proceeds are raised:
Name: Kaplan Gottbetter & Levenson, LLP
Address: 630 Third Avenue, New York, New York 10017
Telephone: 212-983-0532
(b) Date at which funds will be returned by escrow agent if minimum
proceeds are not raised:
one year after the effective date of the offering
Will interest on proceeds during escrow period be paid to investors?
[ ]Yes [X]No
27. Explain the nature of any resale restrictions on presently outstanding
shares, and when those restrictions will terminate, if this can be
determined:
If all of the securities we are offering are sold, ITS will have
outstanding 2,500,000 shares of common stock prior to exercise of any of the
warrants we are offering. The shares of common stock sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act, except for any shares purchased by an "affiliate" of ITS, which
may be sold only while this registration statement or another registration
statement covering sales by those affiliates is effective, or in accordance with
Rule 144. An affiliate is a person controlling, controlled by or under common
control with ITS. The holders of Founders' Shares have agreed not to transfer
their shares until the twelve (12) month anniversary of the date of the
effectiveness of this offering document.
DIVIDENDS, DISTRIBUTION AND REDEMPTION
28. If the Company has within the last five years paid dividends, made
distributions upon its stock or redeemed any securities, retain how much
and when: Not Applicable
36
<PAGE>
OFFICERS AND KEY PERSONNEL OF THE COMPANY
29. Chief Executive Officer: Title: President
Name: Carey G. Birmingham Age: 43
Office Street Address: 4703 Shavano Oak,
Suite 102
San Antonio, TX 78249
Telephone No.: (210) 408-6019
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Carey Birmingham has served as Chairman and President of ITS since its
inception and as such has been responsible for long-term strategic planning
and all day-to-day administrative activities, including marketing, finance,
P&L responsibility, building strategic alliances and developing sales.
Mr. Birmingham has capitalized and assisted in the management of two small
businesses in San Antonio: AIT, Inc., an asphalt products packaging and
marketing firm, and MIGA International, a firm specializing in marketing
goods and services to Mexico. Mr. Birmingham served on the board of
directors of both these companies. Mr. Birmingham has been in the real
estate and finance business since 1982.
During the past 14 years, in addition to his work in venture capital and
individual Investments, Mr. Birmingham had been responsible for the asset
and property management of real estate portfolios valued in excess of $1
billion, and generated proceeds of over $700 million in the sale of
properties. His clients have included New York Life Insurance, United
Services Automobile Association (USAA), Fidelity Mutual Life Insurance and
Mutual Benefit Life.
Also a Director of the Company? [X] Yes [ ] No
Indicate amount of time to be spent on Company matters if less than
full-time:
Full-time
31. Chief Financial Officer:
Not Applicable.
32. Other Key Personnel:
See discussion of Youval Krigel in Question 34.
DIRECTORS OF THE COMPANY
33. Number of Directors: 4
If Directors are not elected annually, or are elected under a voting trust
or other arrangement, explain:
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Elected annually.
34. Information concerning outside or other Directors (i.e., those not described
above):
Name: R. Scott Barter Age: 52
Office Street Address: 575 Madison Avenue
New York, NY 10022
Telephone No.: (212) 421-4400
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Mr. Barter, age 52, is the Founder, Chairman, Chief Executive Officer and a
Director of Unifund Financial Group, Inc. and Unifund America, Inc. Mr. Barter
has been engaged in the securities industry in the United States and abroad
since August, 1975. He has been licensed with the National Association of
Securities Dealers and as a member of the National Futures Association. He has
been registered as a representative with the United Kingdom National Association
of Securities Dealers and Investment Managers (now FSA) and in addition, has
held a Representative's license to deal in securities from the United Kingdom
Department of Trade and Industry.
Mr. Barter has served as a senior officer/director of various brokerage firms
and has acted as advisor to and consultant for both publicly and privately
traded companies in the United States and the United Kingdom. He has diverse
investment experience combined with an extensive background in the areas of
corporate finance and the private client/independent investor.
Name: Brad Smith Age: 50
Office Street Address: 3 Glenway Drive
Austin, TX 78738
Telephone No.: (512) 261-3750
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Mr. Smith is a director of Unifund America, Inc. since 1998. Since July 1991,
Mr. Smith has been the President of WBS&A Ltd., a
management consulting firm.
Mr. Smith founded the Small Corporate Offering Registration Task Force, has
served as an advisor to the Texas Delegation to the 1995 White House Conference
on Small Business, and attended and has made recommendations to the 15th, 16th,
17th and 18th Annual SEC's Government-Business Forums on Small Business
Capitalization, the Small Business Capital Foundation Committee at the 1997
North American Securities Administrators Association annual conference and the
University of Southern California's SEC and Financial Reporting Institutes Forum
on Selected Issues of Small Business Capital Formation.
Mr. Smith serves as Chairman of the Board of the non-profit Investors Research
Institute ("IRI") and has worked with IRI projects for small publicly traded
companies to be followed by securities analysts and to develop information
disclosure standards and best practices.
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Mr. Smith has helped organize, sponsor and/or spoken at small business capital
formation conferences including the Dallas Federal Reserve Bank's "Capital
Solutions for Small Businesses," Greater Austin Chamber of Commerce's SCOR
conferences, Houston/Galveston Area Council's "Capitalizing a Small Business,"
International Quality and Productivity Center's "Stock Trading on the Internet,"
Loyola-Marymount University's Los Angeles SCOR a Million symposium, Southern
California Edison's "Understanding Equity Capital" seminar, five SEC Town Hall
Meetings on Small Business Capital Formation and the Seattle SCOR $1,000,000
(and more) Small Business Capital Formation Seminar.
Mr. Smith was president of a division of Johnstown/Consolidated Capital,
president of Bradford Investment Company, and division vice president of Valley
Federal Savings and Loan, and Relco Industries.
Mr. Smith is the author of "Guide to Strategic Thinking". and received his MBA
from Pepperdine University and a BBA from the University of Oklahoma.
Name: Henrik Youval Krigel Age: 47
Office Street Address: 4703 Shavano Oak,
Suite 102,
San Antonio, TX 78248
Telephone No.: (210) 408-6019
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
As co-designer of the CircuiTest 2000S, Mr. Krigel was instrumental in the
formation and planning of Pensar Technologies, LLC. Prior to the formation of
Pensar, he served from 1986-1992 as Vice President and Director of Protech,
Inc., a San Antonio-based company specializing in the design, manufacture and
marketing of large- scale digital circuit board testing systems. As Vice
President for Protech, Mr. Krigel was responsible for the development and sale
of various digital test systems for international distribution.
Education (degrees, schools, and dates):
University of Texas at San Antonio, attended 1982
San Antonio Community College, attended 1982-1983
Israeli Air Force Academy, 1967-1969
(35) (a) Have any Of the Officers or Directors ever worked for or managed a
Company (including a separate subsidiary or division of a larger
enterprise) in the same business as the company?
[ ]Yes [X] No Explain:
H. Youval Krigel, a director, has spent over 25 years in electronics and
20 years in automated test equipment design, most recently as one of the
founders of Protech, Inc., a company formed for the design and manufacture
of large-scale functional testers, a technology Mr. Krigel developed. (See
also Response to Questions regarding - "OFFICERS AND KEY PERSONNEL OF THE
COMPANY.")
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(b) If any of the Officers, Directors or other key personnel have ever
worked for or managed a company in the same business or industry as the
company or in a related business or industry, describe what precautions, if
any, (including the obtaining of releases or consents from prior employers)
have been taken to preclude claims by prior employer for conversion or
theft of trade secrets, know-how or other proprietary information.
None. Management does not believe that such precautions are necessary.
(c) If the company has never conducted operations or is otherwise in the
development stage, indicate whether any of the Officers or Directors has
ever managed any other company in the start-up or development stage and
describe the circumstances, including relevant dates.
The Company has been conducting operations since September 1994. (See
Response to Question 3(k) - "BUSINESS AND PROPERTIES.")
Not applicable.
(d) If any of the company's key personnel are not employees but are
consultants or other independent contractors, state the details of their
engagement by the company.
Mr. Youval Krigel is a shareholder, director and consultant to the company.
He has agreed to provide consultation services in connection with the
customization and installation of pro-type products as well as the training
of customers to use our systems.
We intend to compensate Mr. Krigel at the rate of $75.00 per hour.
(e) If the Company has key man life insurance policies on any of its
Officers, Directors or key personnel, explain, including the names of the
persons insured, the amount of insurance, whether the insurance proceeds
are payable to ITS and whether there are arrangements that require the
proceeds to be used to redeem securities or pay benefits to the estate of
the insured person or to a surviving spouse.
Not applicable.
36. If a petition under the Bankruptcy Act or any state insolvency law was
filed by or against the Company or its Officers, Directors or other key
personnel, or a receiver, fiscal agent or similar officer was appointed by
a court for the business or property of any such persons, or any
partnership in which any of such persons was general partner at or within
the past five years, or any corporation or business association of which
any such person was an executive officer at or within the past five years,
set forth below the name of such persons, and the nature and date of such
actions.
Not applicable.
Note: After reviewing the information concerning the background of the
company's officers, directors and other key personnel, potential investors
should consider whether or not these persons have adequate background and
experience to develop and operate this company and to make it successful.
In this regard, the experience and ability of management are often
considered the most significant factors in the success of a business.
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PRINCIPAL STOCKHOLDERS
37. Principal owners of the company (those who beneficially own directly or
indirectly 5% or more of the common and preferred stock presently
outstanding) starting with the largest common stockholder. Include
separately all common stock issuable upon conversion of convertible
securities (identifying them by asterisk) and show average price per share
as if conversion has occurred. Indicate by footnote if the price paid was
for a consideration other than case and the nature of any such
consideration.
(a) Name: Unifund Financial Group, Inc.
Office Street Address: 575 Madison Avenue, Suite 10006
New York, New York 10022
Telephone Number: (212) 421-4400
Shareholdings: Currently owns 770,000 Shares
(b) Name: Carey Birmingham
Office Street Address: 4703 Shavano Oak,
Suite 102
San Antonio, TX 78249
Telephone No.: (210) 408-6019
Shareholdings: Currently owns 193,000 Shares
(c) Number of Shares beneficially owned by Officers and Directors
as a group:
Before Offering: 1,073,800 Shares*
After Offering: 1,073,800 Shares*
*As Mr. Barter controls Unifund Financial Group, Inc., the ownership of these
shares have been attributed to him
(Assume all options exercised and all convertible securities converted.)
MANAGEMENT RELATIONSHIPS, TRANSACTIONS AND REMUNERATION
39. (a) If any of the Officers, Directors, key personnel or principal
stockholders are related by blood or marriage, please describe.
Not applicable.
(b) If the Company has made loans to or is doing business with any of
its Officers, Directors, key personnel or 10% stockholders, or any of their
relatives (or any entity controlled directly or indirectly by any of such
persons) within the last two years, or proposes to do so within the future,
explain. (This includes sales or lease of goods, property or services to or from
the Company, employment or stock purchase contracts, etc.) State the principal
terms of any significant loans, agreements, leases, financing or other
arrangements.
Not applicable.
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(c) If any of the Company's Officers, Directors, key personnel or 10%
stockholders has guaranteed or co- signed any of the Company's bank debt or
other obligations, including any indebtedness to be retired from the proceeds of
this offering, explain and state the amounts involved.
Not Applicable.
40. (a) List all remuneration by the Company to Officers, Directors and key
personnel for the last fiscal year.
Cash Other
President and Director - C. Birmingham $ 34,350 0
Vice President and Director - Y. Krigel $ 57,600 0
Legal Counsel - R. Sonsino $ 0 0
TOTAL $ 91,950 0
Directors as a group:
(number of persons 2) $ 91,950 0
(b) If remuneration is expected to change or has been unpaid in prior years,
explain:
It is anticipated that the President of ITS will receive an estimated base
salary of between $40,000 and $75,000 (depending upon the amount of funds
we raise) plus performance bonuses in future years. Performance bonuses for
the President, as well as other officers or employees of ITS, will be based
upon milestones in gross revenue increases and profitability of ITS. Based
upon successfully meeting the milestones, such bonuses may equal 100% of
the individual's annual salary, or more.
Director compensation will commence after the Minimum offering is funded.
We have allocated $15,000 from the Minimum Offering proceeds and $60,000
from the Maximum Offering proceeds for this purpose. Thereafter, such
compensation shall be allocated to the directors based upon their level of
engagement in developing our business.
(c) If any employment agreements exist or are contemplated, describe:
Not applicable.
41. (a) Number of shares subject to issuance under presently outstanding stock
purchase agreements, stock options, warrants or rights: shares (% of total
shares to be outstanding after the completion of the offering if all
securities sold, assuming exercise of options and conversion of convertible
securities). Indicate which have been approved by shareholders. State the
expiration dates, exercise prices and other basic terms for these
securities:
Not applicable.
(b)Number of common shares subject to issuance under existing stock
purchase or option plans but not yet covered by outstanding purchase
agreements, options or warrants:
None.
(c) Describe the extent to which future stock purchase agreements, stock
options, warrants or rights must be approved by shareholders.
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Not applicable. However, it is expected that any future option plans
applicable to officers or directors will be submitted for stockholder approval
in order to comply with certain requirements of the IRS and of the SEC relating
to the tax treatment of those options and exemptions from the "short-swing"
profit rules.
42. If the business is highly dependent on the services of certain key
personnel, describe any arrangements to assure that these persons will
remain with the company and not compete upon any termination:
There are no arrangements to keep key personnel. Mr. Krigel shall be
compensated for ongoing work at the rate of $75 per hour.
NOTE: After reviewing the above, potential investors should consider
whether or not the compensation to management and other key personnel
directly or indirectly, is reasonable in view of the present stage of
the company's development.
LITIGATION
43. Describe any past, pending or threatened litigation or administrative action
which has had or may have a material effect upon the company's business,
financial condition, or operations, including any litigation or action involving
the company's Officers, Directors or other key personnel. State the names of the
principal parties, the nature and current status of the matters, and amounts
involved. Give an evaluation by management or counsel, to the extent feasible,
of the merits of the proceedings or litigation and the potential impact on the
company's business, financial condition, or operations.
In June 1996, we received a formal cease and desist letter from Pensar
Corporation of Appleton, Wisconsin alleging trademark infringement and
demanding that we cease use of the name "Pensar" due to Pensar
Corporation's prior registered trademark of the name. ITS agreed to change
its name to International Test Systems, Inc. and no lawsuit was filed.
FEDERAL TAX ASPECTS
44. If the Company is an S corporation under the Internal Revenue Code of 1986,
and it is anticipated that any significant tax benefits will be available to
investors in this offering, indicate the nature and amount of such anticipated
tax benefits and the material risks of their disallowance. Also, state the name,
address and telephone number of any tax advisor that has passed upon these tax
benefits. Attach any opinion or any description of the tax consequences of an
investment in the securities by the tax advisor.
Not applicable.
NOTE: Potential investors are encouraged to have their own personal tax
consultant contact the tax advisor to review details of the tax
benefits and the extent that the benefits would be available and
advantageous to the particular investor.
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MISCELLANEOUS FACTORS
45. Describe any other material factors, either adverse or favorable, that will
or could affect ITS or its business (for example, discuss any defaults under
major contracts, any breach of bylaw provisions, etc.) or which are necessary to
make any other information in this Disclosure Document not misleading or
incomplete.
Not Applicable.
FINANCIAL STATEMENTS
46. Provide the financial statements required by Part F/S.
Provided prior to Signature page.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF CERTAIN RELEVANT FACTORS
47. If the company's financial statements show losses from operations, explain
the causes underlying these losses and what steps the Company has taken or
is taking to address these causes.
Operating losses in FYE 1994 were the result of extensive up-front costs
for the design development and manufacture of prototypes, as well as normal
start-up costs.
Operating losses in FYE 1995 were, in part, the result of delays producing
the new model of the products by a subcontractor. (See Response to Question
43 - "LITIGATION.") As a result of the delay, we did not receive inventory
of its core product until July 1995 as opposed to April 1995, when it was
scheduled. The delay resulted in our incurring continual and substantial
operating costs and delayed demonstration and sale of units to customers,
resulting in losses for the year.
Management believes that operating expenses stabilized for FYE 1996,
exclusive of anticipated additions to personnel. Sales, meanwhile,
represented a 45% increase from the FYE 1995, although operating losses
occurred for the year. As a result of lower capital costs associated with
development of the product, losses are expected to be lower in future
years.
Total product sales since inception through December 31, 1998 are $ 467,055.
While our Company in the past three years has yet to produce a profit, the
following is a brief analysis of sales through December 31, 1998 :
% Increase
Year Sales over Prior Yr.
---- ----- --------------
1994 $ 11,745
1995 63,555 441%
1996 92,332 45%
1997 207,912 128%
1998 91,508 (57%)
TOTAL $ 467,055
=========
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48. Describe any trends in the Company's historical operating results. Indicate
any changes now occurring in the underlying economics of the industry or
the Company's business which, in the opinion of Management, will have a
significant impact (either favorable or adverse) upon the Company's results
of operations within the next 12 months, and give a rough estimate of
probable extent of the impact, if possible.
We are is unable to discern any noticeable trends in historical operating
results since it has only been selling its core product since July 1995.
However, we foresee two significant issues which will favorably affect our
operations in the future:
Low Cost/PC-Based Automated Test Equipment
The price point of the CircuiTest 2000S, our core product, is favorably
priced in the low-cost category of automated test equipment. (See Response
to Question 3 - "BUSINESS AND PROPERTIES.")
Power-Off Testing
Our core product, the CircuiTest 2000S, tests and troubleshoots populated,
printed circuit boards without applying power to the board. Management
believes, and has had confirmation from the marketplace, that power-off
testing will increase dramatically in the future due to its ability to test
and repair without the possibility of board or component damage. As
components get smaller and smaller, the trend in the industry will be to
test and repair components at the board level with no power supplied to the
populated, printed circuit board. When power is supplied to the board to
test components, there is a risk of damaging the component or the entire
board if the technician incorrectly connects the test equipment. Our
technology tests the board without power and uses known and trusted methods
of troubleshooting, thereby virtually eliminating the possibility of
damaging the board or its components.
Approved for Sales to Federal Government
Effective June 1, 1997, the Company was awarded a US Government Contract
Number GS-24F-3059 under the General Services Administration (GSA), Federal
Supply Service schedule FSC-6625. Under this GSA Contract the Company is
pre-approved to sell to any branch of the Federal Government. In two
categories that apply to ITS' products, FSC/6625 subcategory 627-11 and
FSC/627-1, GSA purchased $4,829,000 of circuit board testers and $20
million of comparable products in a recent 24-month period.
In connection with the GSA Contract Award, the Company received a mailing
list from the GSA of 900 purchasing agents which purchase products similar
to the Company's 2000S & 2100. These agents are currently being contacted
through the ITS database marketing campaign.
Sampling of Features Found in ITS CircuiTest 2000S & 2100:
SymSort(TM) - A copyrighted database feature which allows technicians to
automatically accumulate information on failed components on a PCB. This
feature directs the technician to the most likely component to cause a
particular problem.
Turbo Scanning - Sped up software feature allows up to 10 tests/second, or
test-by-test discharge of individual points.
Digital Image Importing - Software feature allowing the user to view a
digital image of the printed circuit board under test, making locating
components under test fast and easy. The image can be in photographic
format or schematics, or whatever the user chooses.
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Warranty & Software Upgrades - ITS offers a 3-year repair or replace
warranty on its products as well as 3-year free software upgrades for
customers. This compares to competitors that offer only 1-year warranties
and 1-year free upgrades.
Ease of Use - The Windows(TM)-based software is icon-driven, and training
time averages three hours per customer.
Quick Ramp-Up - One of the product's software features is "Scope Mode."
Scope Mode allows technicians to begin trouble-shooting boards immediately,
without using all the product features and with virtually no training.
Low Cost - Based on market comparisons of similar testing systems, the
Company's products are inexpensive. Payback typically averages four to six
months, but in the case of one customer, was as fast as one day.
Family of Adaptive Products - Our core testing product, the CircuiTest
2000S Base System, is designed to facilitate rapid adaptation to meet the
unique, complex testing requirements that ITS' customers identify. As more
and more products are manufactured with PCBs, the demand for manufacturer's
defect-testing and troubleshooting systems, such as our Company's,
increases. The CircuiTest 2000S Base System and its family of flexible,
adaptive products can test and troubleshoot the majority of problems that
exist in a variety of products with PCBs.
Positioned for Future Growth
The next generation of power-off testers will be automated, with robotics
devices to reduce the amount of time spent in the testing process. Our
Company has already identified a robotics arm prober, and development of
the next generation of CircuiTest systems is underway.
49. If the Company sells a product or products and has had significant sales
during its last fiscal year, state the existing gross margin (net sales
less cost of such sales as presented in accordance with generally accepted
accounting principles) as a percentage of sales for the last fiscal year:
___%. What is the anticipated gross margin for the next year of operations?
Approximately ____%. If this is expected to change, explain. Also, if
reasonably current gross margin figures are available for the industry,
indicate these figures and the source or sources from which they are
obtained.
FYE 1995 sales are not considered significant to test for gross margins.
FYE 1996 sales gross margins were 46.2%
FYE 1997 sales gross margins were 83.8%
FYE 1998 sales gross margins were 69.9%
Due to stabilization of price at $$5,995 for the CircuiTest 2000S and
$2,995 for the CircuiTest 2100, the Company believes future gross margins
for the core products should exceed 80%, excluding labor.
50. Foreign sales as a percent of total sales for the last fiscal year: 16%.
Domestic government sales as a percent of total domestic sales for the last
fiscal year: 0 %. Explain the nature of these sales, including any
anticipated changes:
Foreign sales represented units sent to companies in Japan, China, Egypt,
Singapore, Jamaica, Mexico and Canada. The Company intends to increase
international sales by signing international distribution agreements.
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Domestic government sales in the past have represented sales to the US Air
Force, the INS and the US Army. The Company will continue to market
aggressively to US government agencies
INTERESTS OF NAMED EXPERTS AND COUNSEL
The Company's Financial Statements as of December 31, 1998 and Dec 31,
1997 were passed upon by Darilek Butler & Co., P.C., independent certified
public accountants. Certain legal matters in connection with the registration of
the Securities were passed upon by Kaplan Gottbetter & Levenson, LLP, counsel to
the Company. Kaplan Gottbetter & Levenson, LLP was awarded 50,000 shares of our
common stock in partial consideration of the services they rendered to us. They
have an agreement with us not to sell their shares until the first anniversary
of the date of effectiveness of this offering.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
CERTAIN PROVISIONS OF OUR ARTICLES AND
BY-LAWS AND DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Certificate of Incorporation and By-laws contain provisions
eliminating the personal liability of a director to the company and its
stockholders for certain breaches of his or her fiduciary duty of care as a
director. This provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty to
the company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Delaware statutory provisions making directors personally liable, under a
negligence standard, for unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of the company protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above),
including grossly negligent business decisions made in connection with takeover
proposals for the company. As a result of this provision, the ability of the
company or a stockholder thereof to successfully prosecute an action against a
director for a breach of his duty of care has been limited. However, the
provision does not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of his duty of care. The
SEC has taken the position that the provision will have no effect on claims
arising under the federal securities laws.
In addition, the Amended Certificate and By-Laws provide mandatory
indemnification rights, subject to limited exceptions, to any person who was or
is party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that such person is
or was a director or officer of the Company, or is or was serving at the request
of the Company as a director or officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. Such
indemnification rights include reimbursement for expenses incurred by such
person in advance of the final disposition of such proceeding in accordance with
the applicable provisions of the Delaware General Corporation Law.
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WHERE CAN INVESTORS FIND ADDITIONAL INFORMATION
A Registration Statement on Form SB-1, including amendments thereto,
relating to the shares offered hereby has been filed with the Securities and
Exchange Commission. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to us and
the Securities offered hereby, reference is made to such Registration Statement,
exhibits and schedules. A copy of the Registration Statement may be inspected by
anyone without charge at the Commission's principal office located at 450 Fifth
Street, N.W., Washington, D.C. 20549, the Northeast Regional Office located at 7
World Trade Center, 13th Floor, New York, New York, 10048, and the Midwest
Regional Office located at Northwest Atrium Center, 500 Madison Street, Chicago,
Illinois 60661-2511 and copies of all or any part thereof may be obtained from
the Public Reference Branch of the Commission upon the payment of certain fees
prescribed by the Commission. The Commission also maintains a site on the World
Wide Web at http://www.sec.gov that contains information regarding registrants
that file electronically with the Commission.
<PAGE>
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 3. Undertakings.
The registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
Item 4. Unregistered Securities Issued or Sold Within One Year
The following shares of common stock were issued to the persons
identified below by our Texas predecessor on June 27, 1999. On
September 20, 1999, these interests were exchanged for an equal number
of shares of common stock in our reincorporated Delaware corporation.
- ----------------------------- --------------------------- ----------------------
Name of Owner Number of Shares Consideration Paid
- ----------------------------- --------------------------- ----------------------
Unifund Financial Group 770,000(1)
R. Scott Barter 50,000(1)
Brad Smith 50,000(1)
Douglas Harrison-Mills 50,000(1)
Sheila Corvino 50,000(2)
Kaplan Gottbetter &
Levenson, LLP 50,000(2)
Harris Schiff 10,000(1)
Alan Scott 5,000(1)
Elizabeth Acton 5,000(1)
- ----------
(1) $40,000 and services.
(2) Legal services.
Item 5. Index to Exhibits
Exhibit No. Description
- ----------- -----------
2.1 Certificate of Incorporation of Registrant
2.2 By-laws of Registrant
6.1 Letter of Intent dated June 4, 1999 with Unifund America, Inc.
6.2 *Reorganization and Stock Subscription Agreement Dated June 24, 1999
6.3 *Agreement and Plan of Reorganization dated September 20, 1999 between
International Test Systems, Inc., a Texas corporation and
International Test Systems, Inc., a Delaware corporation.
6.4 Distributorship Agreement dated June 24, 1999.
9 *Escrow Agreement
10.1 Consent of Darilek, Butler & Co., P.C., Certified Public Accountants.
10.3 The consent of Kaplan Gottbetter & Levenson, LLP, counsel to
registrant, is included in Exhibit 11.
11 *Opinion of Kaplan Gottbetter & Levenson, LLP
- ----------
*To be filed by amendment
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
Pro Forma Financial Statements
(Unaudited)
The following unaudited proforma condensed financial statements present
a combined balance sheet and related statements of income, cash flows and
stockholders' equity of International Test Systems, Inc. (the "Company"), a
Delaware corporation and International Test Systems, Inc., a Texas corporation,
("ITS Texas") and Pensar Technologies LLC ("Pensar") giving effect to the
following transactions: the issuance on a one for one basis of an aggregate of
1,250,000 shares of common stock for all the issued and outstanding shares of
common stock of ITS Texas. The transaction has been accounted for as a transfer
and is accounted for as if a pooling of interests had occurred using historic
costs with the recording of the net assets acquired at their historical book
value with restatement of periods prior to the reorganization on a combined
basis; an agreement with Pensar whereby ITS Texas transferred all of its assets
to Pensar in exchange for which Pensar assumed all of the liabilities of ITS
Texas and licensed back to ITS Texas the intellectual property Pensar had
acquired from ITS in this transaction; and a distribution agreement entered into
between ITS Texas and Pensar for a ten year term pursuant to which ITS Texas was
granted the license to use Pensar's intellectual property to market and
distribute, sell, promote new printed circuit board test products throughout the
world based upon the technology granted through this distribution agreement; as
part of this reorganization, certain shareholders of ITS Texas agreed to
transfer an aggregate of 1,040,000 shares of common stock for reissuance to
certain related parties; certain shareholders ITS Texas agreed to remit back to
ITS Texas 350,000 shares of common stock for cancellation.
The pro forma combined condensed balance sheet as of September 24, 1999
and the related statements of income for the period from inception. September
20, 1999, to September 24, 1999 include the balance sheet of ITS Texas as of
June 30, 1999 and the related statements of income, cash flows for the six
months ended June 30, 1999 giving effect to the proposed transactions as if they
had been in effect throughout the periods presented. The information shown is
based upon numerous assumptions and estimates and is not necessarily indicative
of the results of future operations of the combined entities or the actual
results that would have occurred had the transaction been consummated during the
periods indicated . These statements should be read in conjunction with the
consolidated financial statements of the Company, and the financial statements
of ITS Texas included herein.
F-1
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
PROFORMA BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
International Effect of International Test
Test Systems, Inc. reorganization Systems, Inc.
(Texas) Agreement September 24, 1999
June 30, 1999 June 30, 1999
<S> <C> <C> <C>
Assets
Current assets
Cash $ 955 $ 955
Accounts receivable - trade 1,004 1,004
Prepaid expenses 1,864 1,864
Inventory 71,541 (71,541)
------- -------- -------
Current assets 75,364 (71,541) 3,823
Fixed assets
Equipment 23,832 (23,832)
Furniture and Leasehold Improvements 1,897 (1,897)
Accumulated depreciation (11,560) 11,560
------- --------
Other assets
Accounts receivable-related party 6,700 6,700
Note receivable-related party 5,700 5,700
Accrued interest-related party 766 766
Software development costs, net of amortization 24,829 (24,829)
Patent costs, net of amortization 1,830 (1,830)
----- ------ -------
Total other assets 39,825 (26,659) 13,166
------- -------- ------
Total assets $ 129,358 $ (112,369) $16,989
========= ========== =======
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable - trade $21,800 $21,800
Accrued liabilities 9,320 9,320
Accrued interest - related parties 4,628 4,628
Line of credit - related party 333,416 333,416
Note payable - current portion 8,640 8,640
------ ------
Total current liabilities 377,804 377,804
Long term liabilities
Note payable - net of current portion
Total liabilities
Stockholders' equity
Preferred stock, 5,000,000 shares
authorized, $.001 par value each.
The number of shares outstanding on
September 24, 1999 is -0-.
Common Stock, 20,000,000 shares authorized, 1,000 (1,000) 1,250
$.001 par value each. The number of shares 1,250
outstanding at September 24, 1999 is 1,250,000
Additional paid capital 308,249 1,000 307,999
(1,250)
Retained earnings deficit (557,695) (265,435) (292,260)
--------- --------- --------
Total stockholders' equity (248,446) (265,435) 16,989
--------- --------- ------
Total liabilities and stockholders' equity $129,358 $112,369 $16,989
======== ========= =======
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
PROFORMA STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
International Test
Systems, Inc. International
(Texas) Test Systems,
For the six months Effect of Inc.
ended reorganization September 24, 1999
June 30, 1999 agreement
<S> <C> <C> <C>
Revenue $25,162 $25,162
Costs of goods sold 3,692 3,692
----- -----
Gross profit 21,470 21,470
Operations:
General and administrative 51,704 51,704
Depreciation and amortization -0- -0-
Total expense 51,704 51,704
Loss from operations before gain on (30,234) (30,234)
transfer of assets and liabilities
and corporate income taxes
Other income and expenses
Gain on transfer of assets and 265,435 265,225
liabilities
Interest expenses (3,235) (3,235)
------ -------- -------
Total other Income $(3,235) 265,435 261,990
Net income (loss) $(26,999) $ 265,435 $238,436
========= ========= ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
PROFORMA STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
International Test International
Systems, Inc. Test Systems,
(Texas) Effect of Inc.
For the six months reorganization September 24,
ended June 30, 1999 agreement 1999
------------------- --------- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(26,999) $(26,999)
Adjustment to reconcile net loss to net cash
Depreciation and amortization 370 370
Accounts receivable (8,131) (8,131)
Inventory (17,728) (17,728)
Accounts payable and accrued expenses (2,416) (2,416)
------- -------
TOTAL CASH FLOWS FROM OPERATIONS (54,904) (54,904)
CASH FLOWS FROM FINANCING ACTIVITIES
Note- Birmingham family partnership 8,900 8,900
Note Birmingham partnership 46,286 46,286
Note payable- Pitney Bowes 1,071 1,071
------ ------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 56,257 56,257
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (108) (108)
Trademarks and patents (2,200) (2,200)
Deposit
Bank loans payable (2,309) (2,309)
------- -------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (4,617) (4,617)
NET INCREASE (DECREASE) IN CASH (3,264) (3,264)
CASH BALANCE BEGINNING OF PERIOD 4,219 4,219
------ -----
CASH BALANCE END OF PERIOD $ 955 $-0- $ 955
====== ======= =====
Non cash activities
Reorganization of Company giving effect of $(333,804) $(333,804)
transfer of certain assets in consideration for
forgiveness of debt
Value of assets transferred 112,369 112,369
Gain of forgiveness of debt 265,435 265,435
-------- --------
$-0- $-0-
======== ========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
PROFORMA STATEMENT OF STOCKHOLDERS EQUITY
UNAUDITED
<TABLE>
<CAPTION>
Additional Retained
paid in earnings
Date Common Stock Common Stock capital deficit Total
- ---- ------------ ------------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Open balances December 31, 1996 1,600,000 1,600 $280,149 $(308,401) $(26,652)
Purchase of treasury stock $(27,500) $(27,500)
Sale of treasury stock 27,500 27,500 55,000
Net loss (55,409) (55,409)
-------- --------
Balances December 31, 1997 1,600,000 1,600 $307,649 (363,810) (54,561)
Net loss (166,886) (166,886)
--------- ---------
Balance December 31, 1998 1,600,000 1,600 $307,649 $(530,696) $(221,447)
Cancellation of shares by certain 350,000 (350) 350
shareholders
Proforma Net income (loss) 238,436 238,436
-------- -------
Balances September 24, 1999 1,250,000 $1,250 $307,999 $(292,260) $16,989
========== ======= ========= ========== =======
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
PROFORMA NOTES TO FINANCIAL STATEMENTS
September 24, 1999
Note 1. Organization of Company and Issuance of Common Stock
a. Creation of the Company
International Test Systems, Inc., (the "Company") was formed under the
laws of Delaware on September 20, 1999 and is authorized to issue 20,000,000
shares of common stock, $0.001 par value each and 5,000,000 shares of preferred
stock, $.001 par value each.
b. Description of the Company
The Company is a development stage company that was formed to
reorganize the business of International Test System, Inc. a corporation formed
under the laws of the State of Texas ("ITS Texas") to change the domicile of ITS
Texas to the State of Delaware and has acquired through a related party
agreement with Pensar Technology LLC ("Pensar") a license and marketing
agreements the rights to manufacturer a component-level printed circuit board
tester whose principal customers use the tester to analyze, repair, and service
printed circuit boards with components attached.
c. Issuance of Shares of Common Stock
On September 20, 1999, the Company issued an aggregate of 1,250,000
shares of common stock to ITS Texas in consideration for all of the issued and
outstanding shares of common stock of ITS Texas.
Note 2-Summary of Significant Accounting Policies
a. Basis of Financial Statement Presentation
The proforma financial statements presented consist of the balance
sheet of the Company as at September 24, 1999 and the related statements of
operations and cash flows for the period from inception, September 20, 1999 to
September 24, 1999 and the financial statements of ITS Texas as of June 30, 1999
and the related statements of operations and cash flows for the six months ended
June 30, 1999.
b. Cash and cash equivalents The Company treats cash equivalents which
includes temporary investments with a maturity of less than three months as
cash.
c. Revenue recognition
Revenue is recognized when products are shipped or services are
rendered.
F-6
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
PROFORMA NOTES TO FINANCIAL STATEMENTS
September 24, 1999
d. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. e. Recent
Accounting Standards
Accounting for Derivative Instruments and Hedging Activities
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) was issued in June
1998. It is effective for all fiscal years beginning after June 15, 1999. The
new standard requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivatives and whether they qualify for hedge accounting. The
key criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash flows.
The Company does not currently engage in derivative trading or hedging activity.
The Company will adopt SFAS 133 in the fiscal year ending December 31, 2000,
although no impact on operating results or financial position is expected.
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
In March of 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
computer software costs associated with internal use software to be charged to
operations as incurred until certain capitalization criteria are met. SOP 98-1
is effective beginning January 1, 1999. The Company is currently assessing the
impact that adoption of this statement will have on consolidated financial
position and results of operations.
Note 3 - Reorganization of Company
On September 30, 1999, the Company exchanged on a one for one basis
shares of its common stock for all the issued and outstanding shares of common
stock of ITS Texas. The transaction has been accounted for as a transfer and is
accounted for as if a pooling of interests had occurred using historic costs
with the recording of the net assets acquired at their historical book value
with restatement of periods prior to the reorganization on a combined basis.
On June 16, 1999, ITS Texas entered into an agreement with Pensar
whereby ITS Texas transferred all of its assets to Pensar in exchange for which
Pensar assumed all of the liabilities of ITS Texas and entered into a
distribution agreement with Pensar as described as follows: On June 16, 1999,
ITS Texas entered into a distribution agreement with Pensar (the "Distribution
Agreement") for a ten year term pursuant to which ITS Texas was appointed as the
exclusive distributor to market and distribute new printed circuit board test
products throughout the world based upon the technology granted through this
distribution agreement. ITS Texas is required to pay an initial fee of $5,000, a
monthly fee of $1,500, and a $5,000 bonus upon the Company's registration on the
"over the counter bulletin board" and has the option to renew this distribution
agreement for an additional five year term with similar terms and conditions.
The Company has the right to purchase products from Pensar at a 40% discount
from the resale price.
F-7
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
PROFORMA NOTES TO FINANCIAL STATEMENTS
September 24, 1999
As part of this reorganization, certain shareholders of ITS Texas
agreed to transfer an aggregate of 1,040,000 shares of common stock for
reissuance as follows: 770,000 shares of common stock to Unifund Financial
Group, Inc.; 50,000 shares to Scott Barter; 50,000 shares to Brad Smith; 50,000
to Douglas Harrision-Mills; 10,000 shares to Harris Schiff; 5,000 shares to Alan
Scott; and 5,000 shares to Elizabeth Acton in consideration for cash payments
aggregating $40,000 and a Reorganization and Subscrition Agreement dated June
16, 1999. In addition, 50,000 shares of common stock were reissued to Sheila
Corvino, Esq and 50,000 shares of common stock to Kaplan Gottbetter & Levenson,
LLP as part payment for legal services aggregating $10,000. In addition, certain
shareholders agreed to remit back to ITS Texas 350,000 shares of common stock
for cancellation.
Note 4 - Related Party transactions
a. Issuance of Shares of Common Stock
On September 20, 1999, the Company issued an aggregate of 1,250,000
shares of common stock to ITS Texas in consideration for all of the issued and
outstanding shares of common stock of ITS Texas.
b. Office Location
The Company occupies 2,000 square feet of office and warehousing space
at 4703 Shavano Oak, Suite 102, San Antonio, Texas 78249. ITS Texas is obligated
to pay $285 a rent on a month to month basis with prime lease expiring June 30,
2001.
c. Corporate Relationships
Carey Birmingham is the President of the Company and is the President
of International Tests Systems, Inc., a Texas Corporation Mr. Scott Barter
through his ownership of an aggregate of 50,000 shares of common stock acquired
through an Reorganization and Subscrition Agreement and his position as
President of Unifund directly controls the Company.
Note 5 - Income Taxes
The Company provides for the tax effects of transactions reported in
the financial statements. The provision if any, consists of taxes currently due
plus deferred taxes related primarily to differences between the basis of assets
and liabilities for financial and income tax reporting. The deferred tax assets
F-8
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
PROFORMA NOTES TO FINANCIAL STATEMENTS
September 24, 1999
and liabilities, if any represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of December 31, 1998 and June 30, 1999,
the Company had no material current tax liability, deferred tax assets, or
liabilities to impact on the Company's financial position because the deferred
tax asset related to the Company's net operating loss carryforward and was fully
offset by a valuation allowance.
At September 24, 1999, the Company has net operating loss carry
forwards for income tax purposes of $292,260. This carryforward is available to
offset future taxable income, if any, and expires in the year 2010. The
Company's utilization of this carryforward against future taxable income may
become subject to an annual limitation due to a cumulative change in ownership
of the Company of more than 50 percent.
The components of the net deferred tax asset as of September 30, 1999
are as follows:
Deferred tax asset:
Net operating loss carry forward $ 99,368
Valuation allowance $(99,368 )
---------
Net deferred tax asset -0-
=========
The Company recognized no income tax benefit for the loss generated in
the period from inception, September 24, 1999 , to September 24, 1999.
SFAS No. 109 requires that a valuation allowance be provided if it is
more likely than not that some portion or all of a deferred tax asset will not
be realized. The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company has
yet to recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
Note 6 - Business and Credit Concentrations
The amount reported in the financial statements for cash approximates
fair market value. Because the difference between cost and the lower of cost or
market is immaterial, no adjustment has been recognized and investments are
recorded at cost.
Financial instruments that potentially subject the company to credit
risk consist principally of trade receivables. Collateral is generally not
required.
F-9
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
Financial Statements
December 31, 1998 and 1997
F-10
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
Financial Statements
December 31, 1998 and 1997
Table of Contents Page
- ----------------- ----
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report 1
Balance Sheet 2
Statement of Income (Loss) 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to the Financial Statements 6
F-11
<PAGE>
DARILEK BUTLER PC
INDEPENDENT AUDITORS' REPORT
International Test Systems, Inc.
San Antonio, Texas
We have audited the accompanying balance sheets of International Test Systems,
Inc., a Texas corporation, (the Company) as of December 31, 1998 and 1997 and
the related statements of income (loss), changes in stockholders' equity, and
cash flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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.
As described in Note J, the Company has received a commitment from a related
party for continued funding of future operations. The Company's continued
operations are dependent upon this funding.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Test Systems,
Inc. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
San Antonio, Texas
March 10, 1998
F-12
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 2
Balance Sheet
December 31, 1998 and 1997
ASSETS:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
Current Assets
<S> <C> <C>
Cash $ 4,219 $ 22,286
Accounts Receivable - Trade 9,134 23,727
Prepaid Expense 1,640 1,404
Inventory 53,131 22,525
------------ ------------
Total Current Assets 68,124 69,942
------------ ------------
Fixed Assets
Equipment 22,871 18,492
Furniture and Leasehold Improvements 1,789 1,789
Accumulated Depreciation (16,170) (11,560)
------------ ------------
8,490 8,721
------------ ------------
Other Assets
Accounts Receivable - Related Party 7,243 5,985
Note Receivable - Related Party 5,700 5,700
Accrued Interest - Related Party 800 766
Software Development Costs, net of amortization 22,526 24,829
Patent Costs, net of amortization 1,453 1,567
Deposits 0 461
------------ ------------
37,722 39,308
------------ ------------
$ 114,336 $ 117,971
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities
Current Liabilities
Accounts Payable - Trade $ 19,718 $ 10,013
Accounts Payable - Related Parties 15,413 14,086
Accrued liabilities 6,337 7,045
Accrued Interest - Related Parties 22,611 4,628
Line of Credit - Related Party 244,314 89,313
Note Payable, Current Portion 27,390 23,160
------------ ------------
Total Current Liabilities 335,783 148,245
------------ ------------
Long-Term Debt
Note Payable, Net of Current Portion 0 24,287
------------ ------------
335,783 172,532
------------ ------------
Stockholders' Equity
Common Stock, No Par, 20,000,000 Shares Authorized,
1,600,000 Shares Issued and Outstanding in 1998 and 1997 309,249 309,249
Retained Deficit (530,696) (363,810)
------------ ------------
(221,447) (54,561)
------------ ------------
============ ============
$ 114,336 $ 117,971
============ ============
The Accompanying Notes are an Integral Part of These Financial Statements
F-13
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 3
Statement of Income (Loss)
For the Year Ended December 31,1998 and 1997
1998 1997
------------- -----------
Sales $ 91,508 $ 207,912
Cost of Sales 30,241 33,717
------------- -----------
Gross Profit 61,267 174,195
------------- -----------
Operating Expenses
Advertising 8,565 24,731
Amortization 2,416 12,699
Contract Labor 5,036 3,485
Depreciation 4,610 3,974
Directors Fees 500 2,000
Dues and Subscriptions 2,667 2,693
Insurance 16,105 10,931
Other 3,890 3,950
Postage 2,137 1,989
Professional Fees 22,266 39,829
Rental - Building 7,741 7,985
Rental - Equipment 2,425 3,596
Repair and Maintenance 2,127 1,539
Salaries Officers 88,465 73,934
Supplies - Office 4,810 4,599
Taxes - Payroll 6,162 5,139
Telephone 8,374 7,214
Travel and Entertainment 18,202 6,138
------------- -----------
Total Operating Expenses 206,498 216,425
------------- -----------
Net Operating Loss Before Other Income (Expense) and Federal Income Taxes (145,231) (42,230)
Other Income (Expense)
Interest Income 92 1,093
Interest Expense (21,747) (14,272)
------------- -----------
Total Other Income (Expense) (21,655) (13,179)
------------- -----------
------------- -----------
Net Loss Before Federal Income Taxes (166,886) (55,409)
Provision For Federal Income Taxes 0 0
------------- -----------
Net Loss $ (166,886) (55,409)
============= ===========
The Accompanying Notes are an Integral Part of These Financial Statements
F-14
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 4
Statement of Changes in Stockholders' Equity
For the Year Ended December 31,1998 and 1997
Retained Total
Common Stock Earnings Stockholders'
Shares Amount (Deficit) Equity
----------- ---------- ----------- -------------
Balance - December 31, 1996 1,600,000 $ 281,749 $ (308,401) $ (26,652)
Purchase of Treasury Stock 0 0 (27,500) (27,500)
Sale of Treasury Stock 0 27,500 27,500 55,000
Net Loss 0 0 (55,409) (55,409)
----------- ---------- ----------- -------------
Balance - December 31,1997 1,600,000 309,249 (363,810) (54,561)
----------- ---------- ----------- -------------
Net Loss 0 0 (166,886) (166,886)
=========== ========== =========== =============
Balance - December 31,1998 1,600,000 $ 309,249 $ (530,696)$ (221,447)
=========== ========== =========== =============
The Accompanying Notes are an Integral Part of These Financial Statements
F-15
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 5
Statement of Cash Flows
For the Year Ended December 31,1998 and 1997
1998 1997
-------------- -------------
Cash Flows From Operating Activities
Net Loss $ (166,886) $ (55,409)
Adjustment to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation 4,610 3,974
Amortization 2,417 12,699
(Increase) Decrease In:
Accounts Receivable 13,335 (10,642)
Accrued Interest Receivable (34) (766)
Prepaid Expense (236) (1,404)
Deposits 461 0
Inventories (30,606) (5,726)
Increase (Decrease) In:
Accounts Payable 11,032 (6,840)
Accrued Liabilities (708) 4,891
Accrued Interest 17,983 4,628
-------------- -------------
Net Cash Provided (Used) by Operating Activities (148,632) (54,595)
-------------- -------------
Cash Flows From Investing Activities
Purchase of Assets (4,379) (5,097)
-------------- -------------
Net Cash Provided (Used) by Investing Activities (4,379) (5,097)
-------------- -------------
Cash Flows From Financing Activities
Advance on Note Receivable 0 (5,700)
Purchase of Treasury Stock 0 (27,500)
Sale of Treasury Stock 0 55,000
Advances on Lines of Credit and Notes Payable 155,001 89,313
Payments on Lines of Credit and Notes Payable (20,057) (27,889)
-------------- -------------
Net Cash Provided (Used) by Financing Activities 134,944 83,224
-------------- -------------
Net Increase (Decrease) in Cash (18,067) 23,532
Cash at Beginning of Year 22,286 (1,246)
============== =============
Cash at End of Year $ 4,219 $ 22,286
============== =============
Supplemental Information:
Interest Paid $ 3,763 $ 9,644
============== =============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
F-16
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 6
Notes to the Financial Statements
December 31, 1998 and 1997
Note A - Summary of Significant Accounting Policies
Corporate History and Operations
International Test Systems, Inc. (the Company) was incorporated as a Texas
corporation on September 23, 1996. The Company was formed for the purpose of
acquiring the assets of Pensar Technologies, LLC (Pensar). This transaction was
completed on December 1, 1996 through a business combination accounted for as a
pooling of interests transaction.
The Company is the manufacturer of a component-level printed circuit board
tester whose principal customers use the tester to analyze, repair, and service
printed circuit boards with components attached.
The Company's financial statements have been prepared in conformity with
principles of accounting applicable to a going concern. These principles
contemplate the realization of assets and liquidation of liabilities in the
normal course of business. During 1998, the Company has sustained a substantial
net loss. At the present time, the Company has been financing these losses
through a related party line of credit. Management has indicated it has received
a commitment of continued financing of these losses through this line of credit
and has indicated that additional capital may be available through the SCOR
offering (see Note F). These financial statements have been prepared under the
assumption that the funding will continue. (Also see Note J.)
Basis of Accounting
Assets, liabilities, revenues and expenses are recognized on the accrual method
of accounting for financial statement presentation. Product revenue is
recognized when the product is shipped to the customer. Maintenance and extended
support revenue is recognized when billed. Expenses are recognized when
incurred.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
F-17
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 7
Notes to the Financial Statements
December 31, 1998 and 1997
Note A - Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. There were no cash equivalents as of December 31, 1998 and
1997.
As of December 31, 1998 and 1997, the Company held cash in demand accounts at
federally insured banks. No amounts were held in excess of the federally insured
limits.
Reclassifications
Certain changes have been made to the presentation of the December 31, 1997
financial statements to conform to the current period presentation.
Software Development Costs
Software development costs for each product are carried on the balance sheet at
the lower of unamortized capitalized costs or its net realizable value.
Direct labor costs of producing product masters including coding and testing,
which were incurred subsequent to establishing technological feasibility are
capitalized. Software production costs for computer software that is to be used
as an integral part of a product or process is charged to expense until both
technological feasibility has been established for the software and all research
and development activities for other components of the product or process have
been completed. Capitalization of computer software costs is discontinued when
the product is available for general release to customers. The sale price of a
product includes customer support and costs are expensed as incurred.
The Company amortizes capitalized software costs based on the ratio of current
gross revenues to the total of the current and anticipated future gross revenue.
Due to the inherent technological changes in the software development industry,
the period in which capitalized software costs (carried at $22,526 for 1998 and
$24,829 for 1997) are being amortized may have to be accelerated. Amortization
on capitalized software during 1998 and 1997 is $2,303 and $12,584.
F-18
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 8
Notes to the Financial Statements
December 31, 1998 and 1997
Note A - Summary of Significant Accounting Policies (Continued)
Fixed Assets
Equipment and leasehold improvements are stated at cost and depreciated over the
estimated "useful lives" of the related assets. The cost of leasehold
improvements is depreciated over the lesser of the length of the related leases
or the estimated useful lives of the assets. Depreciation is computed on the
MACRS (Modified Accelerated Cost Recovery System) method which does not
materially differ from generally accepted accounting principles.
Expenditures for maintenance and repairs are charged to operations as incurred.
Inventories
Inventories consist of component parts and completed tester units. Inventories
are stated at the lower of cost, determined by the specific identification
method, or market.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $8,565 and
$24,731 for the years ended December 31, 1998 and 1997.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between the financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Amortization
The cost of patents, trademarks and copyrights acquired are being amortized on
the straight-line basis over their remaining lives. Amortization expense charged
to operations is $114 for 1998 and $114 for 1997.
Concentration of Credit Risk
Substantially all of the Company's revenues are from the sale of the Company's
circuit board tester.
F-19
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 9
Notes to the Financial Statements
December 31, 1998 and 1997
Note B - Related Party Transactions
Accounts Receivable
At December 31, 1998 and 1997, the Company has $7,243 and $5,985 receivable from
stockholders for various personal purchases made by the Company.
Note Receivable
At December 31, 1998 and 1997, the Company has a $5,700 note receivable from
another company related to the Company through ownership of a major stockholder.
Accrued interest on the note at December 31, 1998 and 1997 is $800 and $766.
Long-Term Debt
The Company has a note payable and a line of credit to another company related
to International Test Systems, Inc. through ownership by a major stockholder
(see Notes C and D).
Interest
During 1998 and 1997, the Company incurred $17,984 and $11,975 of interest
expense relating to various notes from a related party. The party is related to
the company through ownership by a major stockholder.
Legal Fees
During 1998 and 1997, the Company incurred $3,097 and $8,143 in legal fees
related to services performed by an individual stockholder.
Credit Card Purchases
During 1998 and 1997, the Company used the credit card of a stockholder for the
purchase of various expenditures including inventory, office supplies, and
travel. At December 31, 1998 and 1997, $15,413 and $14,086 for these credit card
purchases is included in accounts payable - related parties.
F-20
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 10
Notes to the Financial Statements
December 31, 1998 and 1997
Note C - Long-Term Debt - Related Party
Following is a summary of long-term debt at December 31, 1998 and 1997 which is
due to another company related to International Test Systems, Inc. through
ownership by a major stockholder:
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Unsecured note payable bearing interest at 12% $ 27,390 $ 47,447
- --------------------------------------------------------------------------------
Less: Current maturities (27,390) (23,160)
================================================================================
$ 0 $ 24,287
================================================================================
Following are maturities of long-term debt to maturity :
----------------------------------------------
1999 $ 27,390
==============================================
$ 27,390
==============================================
Note D - Line of Credit - Related Party
In January of 1997, the Company entered into a line of credit agreement with
another company related to International Test Systems, Inc. through common
ownership and management by a major stockholder. The line provided for maximum
borrowings of $100,000. Interest accrues on outstanding balances at 8% and is
payable annually at the expiration date. At December 31, 1997, the Company had
received advances of $89,313 and accrued interest on the outstanding balance
totaled $4,628. The line expired on December 31, 1997 and was renewed at that
time in an amount of $350,000 due December 31, 2000. At December 31, 1998, the
Company had a balance outstanding on the line of credit of $244,314 and accrued
interest on the outstanding balance totaled $13,543.
The unused portion of the line of credit was $92,143 at December 31, 1998.
Note E - Note Receivable - Related Party
The note receivable from a related party consists of the following at December
31, 1998:
============================================================= ==== ==========
10% Unsecured Note Payable, principal and interest are due
at January 30, 1999 5,700
============================================================= ==== ==========
F-21
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 11
Notes to the Financial Statements
December 31, 1998 and 1997
Note F - Small Company Offering Registration
The Company has been approved by the Texas State Securities Board to offer stock
under a Small Company Offering Registration (SCOR). As a condition to
registering the Company's equity securities for sale to public investors in the
state of Texas, security holders of the Issuer and other security holders who
are deemed to be promoters of the Issuer have deposited equity securities in
accordance with a Promotional Shares Escrow Agreement. The Depositor's
promotional shares have been deposited into an escrow account and shall remain
there until they are released in accordance with Paragraph 4 of the Promotional
Shares Agreement. The actual amount of shares deposited was determine by the
State Securities Board. Following is a list of anticipated depositors and equity
securities.
- --------------------------------------- ---- --------------------------
Depositors Equity Securities
- --------------------------------------- ---- --------------------------
Pensar Technologies, Inc. 717,229
- --------------------------------------- ---- --------------------------
H. Youval Krigel 540,770
- --------------------------------------- ---- --------------------------
B. Raphael Sonsino 202,001
======================================= ==== ==========================
1,460,000
======================================= ==== ==========================
Note G - Income Taxes
The Company's effective tax rate on tax benefits differs from the expected
federal income tax rate as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Income tax benefit at statutory rate $ 24,520 $ 8,056
- --------------------------------------------------------------------------------------
Increase in valuation allowance (24,520) (8,056)
======================================================================================
Actual Income Taxes 0 0
======================================================================================
The components of the deferred tax assets
and liabilities are as follows:
======================================================================================
Deferred tax assets:
======================================================================================
Prior Net Operating Loss Carryforward $ 11,264 3,208
======================================================================================
Net operating loss carryforwards 24,520 8,056
- --------------------------------------------------------------------------------------
Total deferred tax assets 35,784 11,264
- --------------------------------------------------------------------------------------
Less valuation allowance (35,784) (11,264)
======================================================================================
Deferred tax assets, net of valuation allowance $ 0 $ 0
======================================================================================
</TABLE>
F-22
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 12
Notes to the Financial Statements
December 31, 1998 and 1997
Note G - Income Taxes (Continued)
The Company has net operating loss carryforwards available to offset future
taxable income. If not used, these carryforwards will expire as follows:
- ---------------------------------------------------------------
Year Ending December 31, Net Operating Loss
- ---------------------------------------------------------------
2011 $ 21,386
- ---------------------------------------------------------------
2012 $ 55,409
- ---------------------------------------------------------------
2013 $ 166,886
- ---------------------------------------------------------------
Note H - Stock Subscriptions
During 1998, the Company received funds from potential investors. Pursuant to
Section 26 (a) and (b), page 47, of the Form U-7 Prospectus, the Company is
required to open a cash escrow account in which subscriber funds are to be
deposited until the Company raises the minimum offering. The Company also
submitted a completed Form D to the U.S. Securities and Exchange Commission
(SEC) for approval. Counsel to the Company has advised the Company not to
deposit any checks from prospective investors prior to filing and receiving
confirmation on the Form D from the SEC. This confirmation has not yet been
received; thus, no escrow account has been opened. The Company did not raise the
minimum offering in accordance with the prospectus and parties who remitted
payments for shares which were not deposited in escrow received interest
pursuant to Section 26 (b) from the date received by the Company. At December
31, 1998, the Company held no stock subscription funds.
Note I - Stock Options
The Company adopted a stock option plan which provides for the granting of
options to personnel and key advisors. The Company intends to grant options that
are "incentive stock options" within the meaning of the Internal Revenue Code of
1986, as amended, but also has the latitude of granting "non-qualified" options.
The exercise price of any stock option granted cannot be less than 85% of fair
market value of the shares underlying the option on the date of the grant. The
term of any options will be determined by the compensation committee of the
Board of Directors, pursuant to the provisions and limitations of the plan. The
options are not transferable and cannot have a term exceeding ten (10) years.
They terminate on the earliest expiration date, 30 days after severance of
employment or advisory relationship, one year in the event of death, 90 days
upon disability, unless waived by the compensation committee. The plan provides
that options to purchase up to 10% of any public offering of common stock can be
granted to directors of, employees of, and advisors or consultants to the
Company. The plan also contains provisions for making adjustments in the number
of shares in events such as stock splits and dividends, in an effort to preserve
the optioner's proportionate rights in such events. Stock received upon exercise
of the options will be subject to certain terms, conditions, and restrictions.
No options have been granted at December 31, 1998 or 1997.
F-23
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 13
Notes to the Financial Statements
December 31, 1998 and 1997
Note J - Sustained Losses
The Company has experienced sustained losses for the past two years including a
substantial loss in 1998. As of December 31, 1998, the Company's current
liabilities exceed its current assets by $267,259, of which $244,314 is a line
of credit due to a related party. The Company also has negative equity at
December 31, 1998. The Company's continued operations is dependent upon it
receiving continued funding from the related party line of credit. Management
has received a letter of commitment from the related party that future
operations will continue to be funded as needed, at least through December 31,
1999, and for added years if necessary. The related party is a limited
partnership with common ownership to the company and whose general partner is
also the president of the Company.
These financial statements have been prepared assuming the Company is a going
concern and funding will continue which contemplates the realization of assets
and liquidation of liabilities in the normal course of business.
F-24
<PAGE>
UNAUDITED FINANCIAL STATEMENTS PRESENTED JUNE 30, 1999
F-25
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
BALANCE SHEET
JUNE 30, 1999
UNAUDITED
INTERNATIONAL TEST SYSTEMS, INC.
Assets
Current assets
Cash $ 955
Accounts receivable - trade 1,004
Prepaid expenses 1,864
Inventory 71,541
------
Current assets 75,364
Fixed assets
Equipment 23,832
Furniture and Leasehold Improvements 1,897
Accumulated depreciation (11,560)
-------
14,169
Other assets
Accounts receivable-related party 6,700
Note receivable-related party 5,700
Accrued interest-related party 766
Software development costs, net of amortization 24,829
Patent costs, net of amortization 1,830
-----
Total other assets 39,825
------
Total assets $ 129,358
=========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable - trade $21,800
Accrued liabilities 9,320
Accrued interest - related parties 4,628
Line of credit - related party 333,416
Note payable - current portion 8,640
-------
Total current liabilities 377,804
Long term liabilities
Note payable - net of current portion
Total liabilities
Stockholders' equity
Common Stock, No par, 20,000,000 shares authorized 1,000
Additional paid capital 308,249
Retained earnings deficit (557,695)
--------
Total stockholders' equity (248,446)
--------
Total liabilities and stockholders' equity $129,358
========
See accompanying notes to financial statements.
F-26
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
STATEMENT OF OPERATIONS
UNAUDITED
INTERNATIONAL TEST SYSTEMS, INC.
<TABLE>
<CAPTION>
For the For the
six months six months
ended ended
June 30, June 30,
1998 1999
---- ----
<S> <C> <C>
Revenue $35,132 $25,162
Costs of goods sold 8,432 3,692
----- -----
Gross profit 26,700 21,470
Operations:
General and administrative 112,453 51,704
Depreciation and amortization 1,847 -0-
Total expense 114,300 51,704
Loss from operations before corporate income taxes (87,600) (30,234)
Other income and expenses
Interest income 93
Interest expenses (7,906) (3,235)
------- ------
Total other Income $ (7,813) $ (3,235)
Net income (loss) $ (95,413) $(26,999)
========= ========
Net income (loss) per share -basic
Number of shares outstanding-basic
See accompanying notes to financial statements.
F-27
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
STATEMENT OF CASH FLOWS
UNAUDITED
For the six For the six
months ended months ended
June 30, June 30,
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(95,413) $(26,999)
Adjustment to reconcile net loss to net cash
Depreciation and amortization 2,495 370
Accounts receivable 12,023 (8,131)
Inventory (13,896) (17,728)
Prepaid expenses 1,404
Accounts payable and accrued expenses 7,629 (2,416)
----- -------
TOTAL CASH FLOWS FROM OPERATIONS (85,758) (54,904)
CASH FLOWS FROM FINANCING ACTIVITIES
Note- Birmingham family partnership 8,900
Note Birmingham partnership 61,786 46,286
Note payable- Pitney Bowes 1,071
Stock subscriptions 2,654
-----
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 64,440 56,257
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (108)
Trademarks and patents (2,200)
Deposit 461
Bank loans payable (2,309)
------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES 461 (4,617)
NET INCREASE (DECREASE) IN CASH (20,857) (3,264)
CASH BALANCE BEGINNING OF PERIOD 22,286 4,219
------ -----
CASH BALANCE END OF PERIOD $ 2,790 $ 955
====== ======
</TABLE>
See accompanying notes to financial statements
F-28
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS EQUITY
UNAUDITED
INTERNATIONAL TEST SYSTEMS, INC.
<TABLE>
<CAPTION>
Common Common Retained Earnings
Date Stock Stock Deficit Total
- ---- ----- ----- ------- -----
<S> <C> <C> <C> <C>
Open balances December 31, 1996 1,600,000 $281,749 $(308,401) $(26,652)
Purchase of treasury stock $(27,500) $(27,500)
Sale of treasury stock 27,500 27,500 55,000
Net loss (55,409) (55,409)
-------- --------
Balances December 31, 1997 1,600,000 $309,249 (363,810) (54,561)
Net loss (166,886) (166,886)
--------- ---------
Balance December 31, 1998 1,600,000 $309,249 $(530,696) $(221,447)
Unaudited
Net loss (26,999) (26,999)
-------- --------
Balances June 30, 1999 1,600,000 $309,249 $(557,695) $(248,446)
========= ======== ========= =========
</TABLE>
See accompanying notes to financial statements
F-29
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 5
Notes to the Financial Statements
December 31, 1998 and 1997
Note A - Summary of Significant Accounting Policies
Corporate History and Operations
International Test Systems, Inc. (the Company) was incorporated as a Texas
corporation on September 23, 1996. The Company was formed for the purpose of
acquiring the assets of Pensar Technologies, LLC (Pensar). This transaction was
completed on December 1, 1996 through a business combination accounted for as a
pooling of interests transaction.
The Company is the manufacturer of a component-level printed circuit board
tester whose principal customers use the tester to analyze, repair, and service
printed circuit boards with components attached.
The Company's financial statements have been prepared in conformity with
principles of accounting applicable to a going concern. These principles
contemplate the realization of assets and liquidation of liabilities in the
normal course of business. During 1998, the Company has sustained a substantial
net loss. At the present time, the Company has been financing these losses
through a related party line of credit. Management has indicated it has received
a commitment of continued financing of these losses through this line of credit
and has indicated that additional capital may be available through the SCOR
offering (see Note F). These financial statements have been prepared under the
assumption that the funding will continue. (Also see Note J.)
Basis of Accounting
Assets, liabilities, revenues and expenses are recognized on the accrual method
of accounting for financial statement presentation. Product revenue is
recognized when the product is shipped to the customer. Maintenance and extended
support revenue is recognized when billed. Expenses are recognized when
incurred.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated amounts.
Basis of Presentation
The unaudited financial statements presented consist of the unaudited balance
sheet of the Company as at June 30, 1999 and the related unaudited statements of
operations, stockholders equity and cash flows for the six months ending June
30, 1998 and 1999.
Unaudited financial information
In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Company as of June 30,
1999 and the results of its operations and its cash flows for the six months
ended June 30, 1998 and 1999. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
SEC's rules and regulations of the Securities and Exchange Commission. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year.
F-30
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 6
Notes to the Financial Statements
December 31, 1998 and 1997
Note A - Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. There were no cash equivalents as of June 30, 1998.
As of June 30, 1999, the Company held cash in demand accounts at federally
insured banks. No amounts were held in excess of the federally insured limits.
Software Development Costs
Software development costs for each product are carried on the balance sheet at
the lower of unamortized capitalized costs or its net realizable value.
Direct labor costs of producing product masters including coding and testing,
which were incurred subsequent to establishing technological feasibility are
capitalized. Software production costs for computer software that is to be used
as an integral part of a product or process is charged to expense until both
technological feasibility has been established for the software and all research
and development activities for other components of the product or process have
been completed. Capitalization of computer software costs is discontinued when
the product is available for general release to customers. The sale price of a
product includes customer support and costs are expensed as incurred.
The Company amortizes capitalized software costs based on the ratio of current
gross revenues to the total of the current and anticipated future gross revenue.
Due to the inherent technological changes in the software development industry,
the period in which capitalized software costs (carried at $22,526 for 1998 and
$24,829 for 1997) are being amortized may have to be accelerated. Amortization
on capitalized software during 1998 and 1997 is $2,303 and $12,584.
F-31
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 7
Notes to the Financial Statements
December 31, 1998 and 1997
Note A - Summary of Significant Accounting Policies (Continued)
Fixed Assets
Equipment and leasehold improvements are stated at cost and depreciated over the
estimated "useful lives" of the related assets. The cost of leasehold
improvements is depreciated over the lesser of the length of the related leases
or the estimated useful lives of the assets. Depreciation is computed on the
MACRS (Modified Accelerated Cost Recovery System) method which does not
materially differ from generally accepted accounting principles.
Expenditures for maintenance and repairs are charged to operations as incurred.
Inventories
Inventories consist of component parts and completed tester units. Inventories
are stated at the lower of cost, determined by the specific identification
method, or market.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $14,382 and
$8,738 for the six months ended June 30, 1998 and 1999.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between the financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Amortization
The cost of patents, trademarks and copyrights acquired are being amortized on
the straight-line basis over their remaining lives. Amortization expense charged
to operations is $649 for June 30, 1998 and $370 for June 30, 1999.
Concentration of Credit Risk
Substantially all of the Company's revenues are from the sale of the Company's
circuit board tester.
F-32
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 8
Notes to the Financial Statements
December 31, 1998 and 1997
Note B - Related Party Transactions
Long-Term Debt
The Company has a note payable and a line of credit to another company related
to International Test Systems, Inc. through ownership by a major stockholder
(see Notes C and D).
Interest
For the six months ended June 30, 1998 and 1999, the Company incurred $7,906 and
$3,235 of interest expense relating to various notes from a related party. The
party is related to the company through ownership by a major stockholder.
F-33
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 9
Notes to the Financial Statements
December 31, 1998 and 1997
Note C - Long-Term Debt - Related Party
Following is a summary of long-term debt at December 31, 1998 and 1997 which is
due to another company related to International Test Systems, Inc. through
ownership by a major stockholder:
1998 1997
Unsecured note payable bearing
interest at 12% maturing in 1999 $ 27,390 $ 47,447
Less: Current maturities (27,390) (23,160)
------------ ------------
$ 0 $ 24,287
Following are maturities of long-term debt to maturity :
1999 $ 27,390
$ 27,390
Note D - Line of Credit - Related Party
In January of 1997, the Company entered into a line of credit agreement with
another company related to International Test Systems, Inc. through common
ownership and management by a major stockholder. The line provided for maximum
borrowings of $100,000. Interest accrues on outstanding balances at 8% and is
payable annually at the expiration date. At December 31, 1997, the Company had
received advances of $89,313 and accrued interest on the outstanding balance
totaled $4,628. The line expired on December 31, 1997 and was renewed at that
time in an amount of $350,000 due December 31, 2000. At December 31, 1998, the
Company had a balance outstanding on the line of credit of $244,314 and accrued
interest on the outstanding balance totaled $13,543. The unused portion of the
line of credit was $92,143 at December 31, 1998.
Note E - Note Receivable - Related Party
The note receivable from a related party consists of the following at December
31, 1998:
10% Unsecured Note Payable, principal and interest are due at
January 30, 1999 $5,700
F-34
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 10
Notes to the Financial Statements
December 31, 1998 and 1997
Note F - Small Company Offering Registration
The Company has been approved by the Texas State Securities Board to offer stock
under a Small Company Offering Registration (SCOR). As a condition to
registering the Company's equity securities for sale to public investors in the
state of Texas, security holders of the Issuer and other security holders who
are deemed to be promoters of the Issuer have deposited equity securities in
accordance with a Promotional Shares Escrow Agreement. The Depositor's
promotional shares have been deposited into an escrow account and shall remain
there until they are released in accordance with Paragraph 4 of the Promotional
Shares Agreement. The actual amount of shares deposited was determine by the
State Securities Board. Following is a list of anticipated depositors and equity
securities.
Depositors Equity Securities
Pensar Technologies, Inc. 717,229
H. Youval Krigel 540,770
B. Raphael Sonsino 202,001
1,460,000
Note G - Income Taxes
The Company's effective tax rate on tax benefits differs from the expected
federal income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Income tax benefit at statutory rate $ 24,520 $ 8,056
Increase in valuation allowance (24,520) (8,056)
Actual Income Taxes 0 0
The components of the deferred tax assets and liabilities are as follows:
Deferred tax assets:
Prior Net Operating Loss Carryforward $ 11,264 3,208
Net operating loss carryforwards 24,520 8,056
Total deferred tax assets 35,784 11,264
Less valuation allowance (35,784) (11,264)
Deferred tax assets, net of valuation allowance $ 0 $ 0
</TABLE>
F-35
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 11
Notes to the Financial Statements
December 31, 1998 and 1997
Note G - Income Taxes (Continued)
The Company has net operating loss carryforwards available to offset future
taxable income. If not used, these carryforwards will expire as follows:
Year Ending December 31, Net Operating Loss
2011 $ 21,386
2012 $ 55,409
2013 $ 166,886
Note H - Stock Subscriptions
During 1998, the Company received funds from potential investors. Pursuant to
Section 26 (a) and (b), page 47, of the Form U-7 Prospectus, the Company is
required to open a cash escrow account in which subscriber funds are to be
deposited until the Company raises the minimum offering. The Company also
submitted a completed Form D to the U.S. Securities and Exchange Commission
(SEC) for approval. Counsel to the Company has advised the Company not to
deposit any checks from prospective investors prior to filing and receiving
confirmation on the Form D from the SEC. This confirmation has not yet been
received; thus, no escrow account has been opened. The Company did not raise the
minimum offering in accordance with the prospectus and parties who remitted
payments for shares which were not deposited in escrow received interest
pursuant to Section 26 (b) from the date received by the Company. At December
31, 1998, the Company held no stock subscription funds.
Note I - Stock Options
The Company adopted a stock option plan which provides for the granting of
options to personnel and key advisors. The Company intends to grant options that
are "incentive stock options" within the meaning of the Internal Revenue Code of
1986, as amended, but also has the latitude of granting "non-qualified" options.
The exercise price of any stock option granted cannot be less than 85% of fair
market value of the shares underlying the option on the date of the grant. The
term of any options will be determined by the compensation committee of the
Board of Directors, pursuant to the provisions and limitations of the plan. The
options are not transferable and cannot have a term exceeding ten (10) years.
They terminate on the earliest expiration date, 30 days after severance of
employment or advisory relationship, one year in the event of death, 90 days
upon disability, unless waived by the compensation committee. The plan provides
that options to purchase up to 10% of any public offering of common stock can be
granted to directors of, employees of, and advisors or consultants to the
Company. The plan also contains provisions for making adjustments in the number
of shares in events such as stock splits and dividends, in an effort to preserve
the optioner's proportionate rights in such events. Stock received upon exercise
of the options will be subject to certain terms, conditions, and restrictions.
No options have been granted at December 31, 1998 or 1997.
F-36
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC. Page 12
Notes to the Financial Statements
December 31, 1998 and 1997
Note J - Sustained Losses
The Company has experienced sustained losses for the past two years including a
substantial loss in 1998. As of December 31, 1998, the Company's current
liabilities exceed its current assets by $267,259, of which $244,314 is a line
of credit due to a related party. The Company also has negative equity at
December 31, 1998. The Company's continued operations is dependent upon it
receiving continued funding from the related party line of credit. Management
has received a letter of commitment from the related party that future
operations will continue to be funded as needed, at least through December 31,
1999, and for added years if necessary. The related party is a limited
partnership with common ownership to the company and whose general partner is
also the president of the Company.
These financial statements have been prepared assuming the Company is a going
concern and funding will continue which contemplates the realization of assets
and liquidation of liabilities in the normal course of business.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned, on September 28, 1999.
International Test Systems, Inc.
/s/ Carey Birmingham
--------------------
Carey Birmingham,
President and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/ H. Youval Krigel
--------------------
H. Youval Krigel, Director
Dated: September 28, 1999
/s/ R. Scott Barter
-------------------
R. Scott Barter, Director
Dated: September 28, 1999
/s/ Brad Smith
--------------
Brad Smith, Director
Dated: September 28, 1999
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting business and promoting the purposes herein stated,
under the provisions and subject to the requirements of the laws of the State of
Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts
amendatory thereof and supplemental thereto, and known, identified and referred
to as "General Corporation Law of the State of Delaware") hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is:
International Test Systems, Inc.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1209 Orange
Street, City of Wilmington 19901, County of New Castle; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
CT Corporation System.
THIRD: The nature of the business and the purpose to be conducted and
promoted by the Corporation, which shall be in addition to the authority of the
Corporation to conduct any lawful business, to promote any lawful purpose, and
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 25,000,000 shares of which 20,000,000 shares are
designated as common stock, par value $.001 per share and 5,000,000 shares of
which are designated as preferred stock, par value $.001 per share.
The Board of Directors of the Corporation is hereby authorized to, by
any resolution or resolutions duly adopted in accordance with the provisions of
the General Corporation Law of the State of Delaware and the By-Laws of the
Corporation, authorize the issuance of any or all of the preferred stock in any
number of classes or series within such classes and in the resolution or
resolutions authorizing such issuance, to set all terms of such preferred stock
of any class or series, including, without limitation:
(a) the designation of such class or series, the number of shares to
constitute such class or series, whether the shares shall be of a
stated par value or no par value, and the stated value thereof if
different from the par value thereof;
(b) whether the shares of such class or series shall have voting
rights, in addition to any voting rights provided by law, and, if
so, the term of such voting rights, which may be general or
limited;
(c) the dividends, if any, payable on such class or series, whether
any such dividends shall be cumulative, and, if so, from what
dates, the conditions and dates upon which such dividends shall be
payable, and the preference or relation which such dividends shall
bear to the dividends payable on any shares of stock of any other
class or any other class or series of preferred stock;
(d) whether the shares of such class or series shall be subject to
redemption by the Corporation, and, if so, the times, prices and
other conditions of such redemption;
(e) the amount or amounts payable upon shares of such class or series
upon, and the rights of the holders of such class or series in,
the voluntary or involuntary liquidation, dissolution or winding
up, or upon any distribution of the assets, of the Corporation;
(f) whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent
to and manner in which any such retirement or sinking fund shall
be applied to the purchase or redemption of the shares of such
class or series for retirement or other Corporation purposes and
the terms and provisions relating to the operation thereof;
(g) whether the shares of such class or series shall be convertible
into, or exchangeable for, shares of stock of any other class or
any other series of preferred stock or any other securities and,
if so, the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same, and any
other terms and conditions of conversion or exchange;
(h) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any
additional stock, including additional shares of such class or
series or of any other class or series of Preferred Stock or of
any other class; and
(i) any other powers, preferences and relative, participating, options
and other special rights, and any qualifications, limitations and
restrictions, thereof.
The powers, preferences and relative, participating optional and other
special rights of each class or series of preferred stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. All shares of any one
series of preferred stock shall be identical in all respects with all other
shares of such series, except that shares of any one series issued at different
times may differ as to the dates from which dividends thereof shall be
cumulative.
FIFTH: The name and mailing address of the incorporator is:
Sheila G. Corvino
811 Dorset West Road
Dorset, VT 05251
The name and mailing address of each person who is to serve as a
director until the first annual meeting of the stockholders or until a successor
is elected and qualified, is as follows:
Carey G. Birmingham 4703 Shavano Oak,
Suite 102
San Antonio, TX 78249
R. Scott Barter 575 Madison Avenue
New York, NY 10022
Brad Smith 3 Glenway Drive
Austin, TX 78738
Henrik Youval Krigel 4703 Shavano Oak,
Suite 102
San Antonio, TX 78249
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management for the business and the conduct of the
affairs of the Corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the whole
Board of Directors shall be fixed by, or in the manner provided in,
the Bylaws. The phrase "whole Board" and the phrase "total number
of directors" shall be deemed to have the same meaning, to wit, the
total number of directors which the Corporation would have if there
were no vacancies. No election of directors need be by written
ballot.
2. After the original or other Bylaws of the Corporation have
been adopted, amended, or repealed, as the case may be, in
accordance with the provisions of Section 109 of the General
Corporation Law of the State of Delaware, and, after the
Corporation has received any payment or any of its stock, the power
to adopt, amend, or repeal the Bylaws of the Corporation may be
exercised by the Board of Directors of the Corporation; provided,
however, that any provision for the classification of directors of
the Corporation for staggered terms pursuant to the provisions of
subsection (d) of Section 141 of the General Corporation Law of the
State of Delaware shall be set forth in an initial Bylaw or in a
Bylaw adopted by the stockholders entitled to vote of the
Corporation unless provisions for such classification shall be set
forth in this certificate of incorporation.
3. Whenever the Corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the Corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to
the right to vote at any meeting of stockholders except as the
provisions of paragraph (2) of subsection (b) of Section 242 of the
General Corporation Law of the State of Delaware shall otherwise
require; provided, that no share of any such class which is
otherwise denied voting power shall entitle the holder thereof to
vote upon the increase or decrease in the number of authorized
shares of said class.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of Section 102 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
<PAGE>
ELEVENTH: From time to time any of the provisions of this certificate
of incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on September 20, 1999
/s/ Sheila G. Corvino
---------------------------
Sheila G. Corvino
Incorporator
BY-LAWS
OF
INTERNATIONAL TEST SYSTEMS, INC.
* * * * * * * * * *
ARTICLE I
Offices
The registered office of International Test Systems, Inc. (the
"Corporation") shall be CT Corporation System: the City of Wilmington, County of
New Castle, State of Delaware. The Corporation also may have offices at such
other places, within or without the State of Delaware, as the Board of Directors
(the "Board") determines from time to time or the business of the Corporation.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings, etc. Except as otherwise provided in
these By-laws, all meetings of the stockholders shall be held at such dates,
times and places, within or without the State of Delaware, as shall be
determined by the Board or chief executive officer and as shall be stated in the
notice of the meeting or in waivers of notice thereof. If the place of any
meeting is not so fixed, it shall be held at the registered office of the
Corporation in the State of Delaware.
Section 2. Annual Meeting. The annual meeting of stockholders for
the election of directors and the transaction of such other business as properly
may be brought before the meeting shall be held on such date after the close of
the Corporation's fiscal year as the Board may from time to time determine.
Section 3. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, may be called by the Board or the chief executive
officer and shall be called by the chief executive officer or the Secretary upon
the written request of a majority of the holders of the outstanding shares of
the Corporation's common stock. The request shall state the date, time, place
and purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings. Except as otherwise required or
permitted by law, whenever the stockholders are required or permitted to take
any action at a meeting, written notice thereof shall be given, stating the
place, date and time of the meeting and, unless it is the annual meeting, by or
at whose direction it is being issued. The notice also shall designate the place
where the list of stockholders provided for in Section 8 of this Article II is
available for examination, unless such list is kept at the place where the
meeting is to be held. Notice of a special meeting also shall state the purpose
or purposes for which the meeting is called. A copy of the notice of any meeting
shall be delivered personally or shall be mailed, not less than ten (10) nor
more than sixty (60) days before the date of the meeting, to each stockholder of
record entitled to vote at the meeting. If mailed, the notice shall be given
when deposited in the United States mail, postage prepaid, and shall be directed
to each stockholder at his or her address as it appears on the record of
stockholders, or to such other address which such stockholder may have furnished
by written request to the Secretary of the Corporation. Notice of any meeting of
stockholders shall be deemed waived by any stockholder who attends the meeting,
except when the stockholder attends the meeting for the express purpose of
objecting at the beginning thereof to the transaction of any business because
the meeting is not lawfully called or convened. Notice need not be given to any
stockholder who submits, either before or after the meeting, a signed waiver of
notice. Unless the Board, after the adjournment of a meeting, shall fix a new
record date for the adjourned meeting, or unless the adjournment is for more
than thirty (30) days, notice of an adjourned meeting need not be given if the
place, date and time to which the meeting shall be adjourned is announced at the
meeting at which the adjournment is taken.
Section 5. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, at all meetings of stockholders
the holders of a majority of the outstanding shares of the Corporation entitled
to vote at the meeting shall be present in person or by proxy in order to
constitute a quorum for the transaction of business.
Section 6. Voting. Except as otherwise provided by the Certificate
of Incorporation of the Corporation, at any meeting of the stockholders every
stockholder of record having the right to vote thereat shall be entitled to one
vote for every share of stock standing in his or her name as of the record date
and entitling him to so vote. A stockholder may vote in person or by proxy.
Except as otherwise provided by law or by the Certificate of Incorporation of
the Corporation, any corporate action to be taken by a vote of the stockholders,
other than the election of directors, shall be authorized by not less than a
majority of the votes cast at a meeting by the stockholders present in person or
by proxy and entitled to vote thereon. Directors shall be elected as provided in
Section 2 of Article III of these By-laws. Written ballots shall not be required
for voting on any matter unless ordered by the Chairman of the meeting.
Section 7. Proxies. Every proxy shall be executed in writing by the
stockholder or by his or her attorney-in-fact.
Section 8. List of Stockholders. At least ten (10) days before every
meeting of stockholders, a list of the stockholders (including their addresses)
entitled to vote at the meeting and their record holdings as of the record date
shall be open for examination by any stockholder, for any purpose germane to the
meeting, during ordinary business hours, at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list also shall be kept at and throughout the meeting.
-2-
<PAGE>
Section 9. Conduct of Meetings. At each meeting of the stockholders,
the Chairman of the Board or, in his or her absence, the President, shall act as
Chairman of the meeting. The Secretary or, in his or her absence, any person
appointed by the Chairman of the meeting shall act as Secretary of the meeting
and shall keep the minutes thereof. The order of business at all meetings of the
stockholders shall be as determined by the Chairman of the meeting.
Section 10. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation of the Corporation, any
action which may be taken at any annual or special meeting of stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed, in person or by proxy, by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take the action at a meeting at which all shares entitled to vote thereon were
present and voted in person or by proxy and shall be delivered to the
Corporation in accordance with the laws of the State of Delaware. Every written
consent shall bear the date of signature of each stockholder signing the
consent. In no event shall any corporate action referred to in any consent be
effective unless written consents signed by a sufficient number of stockholders
to take action are duly delivered to the Corporation within sixty (60) days of
the earliest dated consent delivered in accordance with the laws of the State of
Delaware. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing, but who were entitled to vote on the matter.
ARTICLE III
Board of Directors
Section 1. Number of Board Members. The Board shall consist of two (2)
or more members. The number of directors may be reduced or increased from time
to time by action of a majority of the entire Board, but no decrease may shorten
the term of an incumbent director. When used in these By-laws, the phrase
"entire Board" means the total number of directors which the Corporation would
have if there were no vacancies.
Section 2. Election and Term. The first Board shall be elected by the
incorporator or incorporators of the Corporation and the directors shall hold
office until their respective successors are duly elected and qualified or until
their earlier death, resignation or removal. Thereafter, except as otherwise
provided by law or by these By-laws, the directors shall be elected at the
annual meeting of the stockholders and the persons receiving a plurality of the
votes cast shall be so elected. Subject to his or her earlier death, resignation
or removal as provided in Section 3 of this Article III, each director shall
hold office until his or her successor shall have been duly elected and shall
have qualified.
Section 3. Removal. A director may be removed at any time, with or
without cause, by action of the Board or the stockholders.
-3-
<PAGE>
Section 4. Resignations. Any director may resign at any time by
giving written notice of his or her resignation to the Corporation. A
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt, and, unless otherwise specified therein, the acceptance of a
resignation shall not be necessary to make it effective.
Section 5. Vacancies. Any vacancy in the Board arising from an
increase in the number of directors or otherwise may be filled by the vote of a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director. Subject to his or her earlier death, resignation or
removal as provided in Section 3 of this Article III, each director so elected
shall hold office until his or her successor shall have been duly elected and
shall have qualified.
Section 6. Place of Meetings. Except as otherwise provided in these
By-laws, all meetings of the Board shall be held at such places, within or
without the State of Delaware, as the Board determines from time to time.
Section 7. Annual Meeting. The annual meeting of the Board shall be
held either (a) without notice immediately after the annual meeting of
stockholders and in the same place, or (b) as soon as practicable after the
annual meeting of stockholders on such date and at such time and place as the
Board determines.
Section 8. Regular Meetings. Regular meetings of the Board shall be
held on such dates and at such places and times as the Board determines. Notice
of regular meetings need not be given, except as otherwise required by law.
Section 9. Special Meetings. Special meetings of the Board may be
called by or at the direction of the chief executive officer, and shall be
called by the chief executive officer or the Secretary upon the written request
of a majority of the directors. The request shall state the date, time, place
and purpose or purposes of the proposed meeting.
Section 10. Notice of Meetings. Notice of each special meeting of the
Board (and of each annual meeting held pursuant to subdivision (b) of Section 7
of this Article III) shall be given, not later than 24 hours before the meeting
is scheduled to commence, by the chief executive officer or the Secretary and
shall state the place, date and time of the meeting. Notice of each meeting may
be delivered to a director by hand or given to a director orally (whether by
telephone or in person) or mailed or telegraphed to a director at his or her
residence or usual place of business, provided, however, that if notice of less
than 72 hours is given it may not be mailed. If mailed, the notice shall be
deemed to have been given when deposited in the United States mail, postage
prepaid, and if telegraphed, the notice shall be deemed to have been given when
the contents of the telegram are transmitted to the telegraph service with
instructions that the telegram immediately be dispatched. Notice of any meeting
need not be given to any director who shall submit, either before or after the
meeting, a signed waiver of notice or who shall attend the meeting, except if
such director shall attend for the express purpose of objecting at the beginning
thereof to the transaction of any business because the meeting is not lawfully
called or convened. Notice of any adjourned meeting, including the place, date
and time of the new meeting, shall be given to all directors not present at the
time of the adjournment, as well as to the other directors
-4-
<PAGE>
unless the place, date and time of the new meeting is announced at the adjourned
meeting.
Section 11. Quorum. Except as otherwise provided by law or in these
By-laws, at all meetings of the Board a majority of the entire Board shall
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board. A majority of the directors present, whether or not a quorum
is present, may adjourn any meeting to another place, date and time.
Section 12. Conduct of Meetings. At each meeting of the Board, the
chief executive officer or, in his or her absence, a director chosen by a
majority of the directors present, shall act as Chairman of the meeting. The
Secretary or, in his or her absence, any person appointed by the Chairman of the
meeting, shall act as Secretary of the meeting and keep the minutes thereof. The
order of business at all meetings of the Board shall be as determined by the
Chairman of the meeting.
Section 13. Committee of the Board. The Board, by resolution adopted by
a majority of the entire Board, may designate an executive committee and other
committees, each consisting of one (1) or more directors. Each committee
(including the members thereof) shall serve at the pleasure of the Board and
shall keep minutes of its meetings and report the same to the Board. The Board
may designate one or more directors as alternate members of any committee.
Alternate members may replace any absent or disqualified member or members at
any meeting of a committee. In addition, in the absence or disqualification of a
member of a committee, if no alternate member has been designated by the Board,
the members present at any. meeting and not disqualified from voting, whether or
not they constitute a quorum, may unanimously appoint another member of the
Board to act at the meeting in the place of the absent or disqualified member.
Except as limited by law, each committee, to the extent provided in the
resolution establishing it, shall have and may exercise all the powers and
authority of the Board with respect to all matters.
Section 14. Operation of Committees. A majority of all the members of a
committee shall constitute a quorum for the transaction of business, and the
vote of a majority of all the members of a committee present at a meeting at
which a quorum is present shall be the act of the committee. Each committee
shall adopt whatever other rules of procedure it determines for the conduct of
its activities.
Section 15. Written Consent to Action in Lieu of A Meeting. Any action
required or permitted to be taken at any meeting of the Board or of any
committee may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 16. Meetings Held Other Than in Person. Members of the Board or
any committee may participate in a meeting of the Board or committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at the
meeting.
-5-
<PAGE>
ARTICLE IV
Officers
Section 1. Executive Officers, etc. The executive officers of the
Corporation shall be a President, a Secretary and a Treasurer. The Board also
may elect or appoint a Chairman of the Board, one or more Vice Presidents (any
of whom may be designated as Executive Vice Presidents or otherwise), and any
other officers it deems necessary or desirable for the conduct of the business
of the Corporation, each of whom shall have such powers and duties as the Board
determines. Any officer may devote less than one hundred percent (100%) of his
or her working time to his or her activities as such if the Board so approves.
Section 2. Duties.
(a) The Chairman of the Board of Directors. The Chairman of
the Board, if any, shall be the chief executive officer of the Corporation. The
Chairman of the Board shall preside at all meetings of the stockholders and the
Board, and shall be ex officio a member of all committees established.
(b) The President. The President shall be the chief operating
officer of the Corporation. The President shall have general management of the
business and affairs of the Corporation, subject to the control of the Board,
and shall have such other powers and duties as the Board assigns to him or her.
If there is no Chairman, the President shall be the chief executive officer of
the Corporation and, as such shall preside at all meetings of the stockholders
and the Board and shall be ex officio a member of all committees established.
(c) The Vice President. The Vice President or, if there shall
be more than one, the Vice Presidents, if any, in the order of their seniority
or in any other order determined by the Board, shall perform, in the absence or
disability of the President, the duties and exercise the powers of the President
and shall have such other powers and duties as the Board or the President
assigns to him or to her or to them.
(d) The Secretary. Except as otherwise provided in these
By-laws or as directed by the Board, the Secretary shall attend all meetings of
the stockholders and the Board; shall record the minutes of all proceedings in
books to be kept for that purpose; shall give notice of all meetings of the
stockholders and special meetings of the Board; and shall keep in safe custody
the seal of the Corporation and, when authorized by the Board, shall affix the
same to any corporate instrument. The Secretary shall have such other powers and
duties as the Board or the President assigns to him or to her.
(e) The Treasurer. Subject to the control of the Board, the
Treasurer shall have the care and custody of the corporate funds and the books
relating thereto; shall perform all other duties incident to the office of
Treasurer; and shall have such other powers and duties as the Board or the
President assigns to him or her.
-6-
<PAGE>
Section 3. Election, Removal. Subject to his or her earlier death,
resignation or removal as hereinafter provided, each officer shall hold his or
her office until his or her successor shall have been duly elected and shall
have qualified. Any officer may be removed at any time, with or without cause,
by the Board.
Section 4. Resignations. Any officer may resign at any time by giving
written notice of his or her resignation to the Corporation. A resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 5. Vacancies. If an office becomes vacant for any reason, the
Board or the stockholders may fill the vacancy, and each officer so elected
shall serve for the remainder of his or her predecessor's term.
ARTICLE V
Provisions Relating to Stock
Certificates and Stockholders
Section 1. Certificates. Certificates for the Corporation's capital
stock shall be in such form as required by law and as approved by the Board.
Each certificate shall be signed in the name of the Corporation by the Chairman,
if any, or the President or any Vice President and by the Secretary, the
Treasurer or any Assistant Secretary or any Assistant Treasurer and shall bear
the seal of the Corporation or a facsimile thereof. If any certificate is
countersigned by a transfer agent or registered by a registrar, other than the
Corporation or its employees, the signature of any officer of the Corporation
may be a facsimile signature. In case any officer, transfer agent or registrar
who shall have signed or whose facsimile signature was placed on any certificate
shall have ceased to be such officer, transfer agent or registrar before the
certificate shall be issued, it may nevertheless be issued by the Corporation
with the same effect as if he or she were such officer, transfer agent or
registrar at the date of issue.
Section 2. Lost Certificates, etc. The Corporation may issue a new
certificate for shares in place of any certificate theretofore issued by it,
alleged to have been lost, mutilated, stolen or destroyed, and the Board may
require the owner of the lost, mutilated, stolen or destroyed certificate, or
his or her legal representatives, to make an affidavit of that fact and to give
the Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation on account of the alleged loss,
mutilation, theft or destruction of the certificate or the issuance of a new
certificate.
Section 3. Transfers of Shares. Transfers of shares shall be registered
on the books of the Corporation maintained for that purpose after due
presentation of the stock certificates therefor appropriately indorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
-7-
<PAGE>
Section 4. Record Date.
(a) The Board may fix a record date for the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof. The record date fixed for such purpose shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board and shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting. If the Board does not fix a record date for
such purpose, the record date for such purpose shall be at the close of business
on the day next preceding the day on which notice is given and, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(b) The Board may fix a record date for the purpose of determining
stockholders entitled to consent to action in writing in lieu of a meeting. The
record date fixed for such purpose shall not precede the date upon which the
resolution fixing the record date is adopted by the Board and shall not be more
than ten (10) days after the adoption of such resolution fixing the record date.
If the Board does not fix a record date, the record date for the purpose of
determining stockholders entitled to consent to action in writing in lieu of a
meeting when no prior action by the Board is required by the laws of the State
of Delaware or these By- laws, the record date for such purpose shall be the
first date on which a signed written consent with respect to the action taken or
proposed to be taken is delivered to the Corporation in accordance with the laws
of the State of Delaware. If the Board does not fix a record date and prior
action by the Board is required by the laws of the State of Delaware or these
By-laws, the date for determining stockholders entitled to consent to action in
writing in lieu of a meeting shall be at the close of business on the day on
which the Board adopts the resolution taking such prior action.
(c) The Board may fix a record date for the purpose of determining the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or the purpose of any other action. The record date
fixed for such purpose shall not precede the date upon which the resolution
fixing the record date is adopted and shall be no more than sixty (60) days
prior to such action. If the Board does not fix a record date, the record date
for determining the stockholders for any such purpose shall be at the close of
business on the date on which the Board adopts the resolution relating thereto.
ARTICLE VI
General Provisions
Section 1. Dividends, etc. To the extent permitted by law, the Board
shall have full power and discretion, subject to the provisions of the
Certificate of Incorporation of the Corporation and the terms of any other
corporate document or instrument binding upon the Corporation, to determine
what, if any, dividends or distributions shall be declared and paid or made.
Section 2. Seal. The Corporation's seal shall be in such form as is
required by law and as shall be approved by the Board.
-8-
<PAGE>
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board.
Section 4. Voting Shares in Other Corporations. Unless otherwise
directed by the Board, shares in other corporations which are held by the
Corporation shall be represented and voted only by such individual or
individuals as may be appointed by the Board of Directors.
ARTICLE VII
Amendments
By-laws may be made, altered or repealed by the Board, subject to the
right of the stockholders to alter or repeal any by-law made by the Board.
ARTICLE VII
Indemnification
Section 1. Limitation of Certain Liabilities of Directors. To the
fullest extent permitted by the laws of the State of Delaware, a director of the
Corporation shall not be liable to the Corporation or the stockholders for
monetary damages for breach of fiduciary duty as director.
Section 2. Indemnification and Insurance. (a) Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the laws of the State of Delaware, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in paragraph (b) hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board. The right to indemnification
conferred in this Section 2 shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its
-9-
<PAGE>
final disposition, provided, however, that if the laws of the State of Delaware
require, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer, including
without limitation service to an employee benefit plan) in advance of the final
disposition of a proceeding shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section 2 or otherwise. The
Corporation may, by action of the Board, provide indemnification to employees
and agents of the Corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
(b) If a claim under paragraph (a) of this Section 2 is not paid in
full by the Corporation within ninety days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the laws of the State of Delaware for the Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including the Board,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the laws of the State of Delaware, nor an actual
determination by the Corporation (including the Board's independent legal
counsel, or the stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
Section 3. Non-Exclusivity of Rights. The right to indemnification and
the payment of expenses conferred in this Article VIII shall not be deemed
exclusive of any other right to which any person seeking indemnification or
payment of expenses may be entitled under any statute, provision of the
Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 4. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the laws of the State of Delaware.
* * * * *
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[LETTERHEAD OF KAPLAN GOTTBETTER & LEVENSON, LLP]
June 2, 1999
Mr. Carey G. Birmingham, President
International Test Systems
4703 Shavano Oak
San Antonio, TX 78249
RE: Stock Purchases and Reorganization of International
Test Systems, Inc. ("ITS")
----------------------------------------------------
Dear Mr. Birmingham:
This Letter of Intent memorializes a proposal with respect to the stock
purchase and proposed corporate reorganization among ITS Systems, Inc.,
Birmingham Family Partnership, Ltd. ("BFP"), Pensar, LLC ("Pensar") and Unifund
America, Inc. and/or its affiliates, agents and assigns ("UA") (ITS, BFP, Pensar
and UA shall collectively be referred to herein as the "Parties" and each
separate as a "Party"). It has been the object of our discussion to execute and
implement as soon as practical (i) definitive ITS stock purchase agreements for
BFP and UA and (ii) a plan of reorganization of ITS to include BFP, Pensar and
UA (the "Reorganization Agreement") which among other things, would provide for
the various matters set forth below:
1. Purchase of Common Stock
a) It is intended that BFP and/or their designees shall purchase 50,000
shares of the reorganized ITS common stock (the "Common Stock") for an aggregate
purchase price of $5,000 and 20,000 warrants to purchase Common Stock at an
exercise price of $.50 per share pursuant to a purchase agreement (the "BFP
Purchase Agreement"). The shares of Common, the options and the purchase price
shall be delivered and held in escrow by Kaplan Gottbetter & Levenson, LLP
("KGL") pending closing of the Purchase Agreement.
b) It is intended that UA shall purchase approximately but not limited
to 870,000 shares of Common Stock at a price of $.10 per share pursuant to a
Common Stock purchase agreement (the "UA Purchase Agreement"). The shares of
Common and the purchase price shall be delivered and held in escrow by KGL
pending closing of the Purchase Agreement.
<PAGE>
International Test Systems, Inc.
Letter of Intent
Page 2 of 7
2. Corporate Reorganization
It is intended that ITS, BFP, Pensar and UA shall enter into a
corporate reorganization whereby ITS will assign all of its assets to Pensar in
exchange for Pensar assuming all of ITS' liabilities which shall be itemized and
agreed upon by the Parties ("Corporate Reorganization"). Upon the completion of
the Corporate Reorganization, Pensar will license its [intellectual property]
pursuant to an exclusive three (3) year license of the Intellectual Property to
ITS (the "License"). The terms of the License will include a $5,000 advance
royalty payable upon execution and a license fee due to BFP of $1,500 per month.
The License shall be terminable by ITS on thirty (30) days notice to BFP.
The Parties will execute the Purchase Agreements and as a part of that
Agreement, UA will assist and advise on the following:
(a) ITS will prepare a public offering of its Common Stock with a
minimum offering of 200,000 shares and a maximum offering of
2,000,000 shares at $.50 per share (the "Public Offering").
(b) ITS will prepare and file a Form S-1 or similar type
registration statement (the "Registration Statement") with the
Securities and Exchange Commission utilizing ITS' existing
SCOR offering documents for its Public Offering.
(c) The Common Stock, options and the underlying shares to be
issued and delivered pursuant to the BFP and UA Purchase
Agreements shall be included in the Registration Statement.
(d) Upon the Registration Statement being declared effective by
the SEC and quoted on the NASD OTC Bulletin Board, BFP will
receive a further payment of $5,000 from ITS.
(e) A Board of Directors designated by UA shall be appointed which
shall include Carey Birmingham who shall serve as a director
and as president of ITS.
(f) ITS will incorporate in the State of Delaware.
<PAGE>
International Test Systems, Inc.
Letter of Intent
Page 3 of 7
3. Due Diligence
a) From the date hereof, ITS, will make available to UA and/or its
affiliates for review their respective financial statements, books, records,
corporate documents and other information as UA may reasonably request, and UA
shall have the opportunity to meet with attorneys, accountants and key personnel
of ITS to discuss the financial and business conditions of the respective Party
and to make whatever future independent investigation deemed necessary and
prudent. The Parties agree to cooperate with each other in complying with these
requests and providing such materials as ITS maybe requested, provided UA agrees
to pay for its own due diligence costs.
b) Each Party shall make appropriate representations in the
Reorganization Agreement that it has fully and independently satisfied itself on
all aspects of the other Party's business, and that ITS will enter into an
exclusive investment banking relationship with UA.
c) Each Party shall represent and agree that all confidential
information which each Party or any of its officers, employees, agents,
consultants, or representatives, may possess or may receive in the future, shall
not be utilized, disclosed or made available to any other person or entity other
than current members of the Board of Directors officers, employees, agents,
consultants, or representatives at any time without the express written consent
of the other Party.
4. Condition Precedent to Obligations to Perform
The Reorganization Agreement and the performance of the obligations
thereunder are expressly subject to the following conditions:
a) The performance of a due diligence investigation by UA determined to
be satisfactory and favorable by UA, its legal counsel, financial advisors
accountants and agents on all matters pertaining to the transaction contemplated
hereby;
b) The execution of definitive agreements between the Parties
satisfactory in form and substance to such Parties and to their respective
counsel and financial advisors and containing such conditions, representations,
warranties, covenants and indemnities customary in a transaction contemplated by
this Letter of Intent;
c) Compliance with all applicable legal and/or regulatory requirements;
d) Completion of all required corporate shareholder actions and
approvals, if any; including any approvals of all terms and conditions of the
proposed Corporate Reorganization by the board of directors of each Party;
<PAGE>
International Test Systems, Inc.
Letter of Intent
Page 4 of 7
e) ITS shall have a sufficient number of authorized but unissued and
unreserved shares of Common Stock to consummate the transactions contemplated
hereby;
f) Execution of indemnification agreements between ITS, BFP, Pensar and
UA and each its officers and directors, where applicable;
g) An opinion by ITS's counsel to UA that the transactions contemplated
hereby do not violate any state or federal securities laws and any and all
regulations of any applicable governmental agency, and has been duly authorized
by ITS and its counsel is not aware of any undisclosed liabilities;
5. Capitalizations
a) ITS. As of March 31, 1999, ITS had six (6) shareholders who owned
all 1,600,000 of the issued and outstanding shares of Common Stock in ITS.
b) At the closing as contemplated in the Reorganization Agreement there
will be no outstanding shares or rights convertible into shares of Common Stock,
or any other security, except for those securities listed on attached Exhibit A.
6. Representations of ITS
a) ITS is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas, and has the authority to execute
this Letter of Intent and to be bound by the terms and conditions hereof and to
enter and be bound by the Reorganization Agreement.
b) Upon the closing of the Reorganization Agreement, ITS will have no
actual or contingent liabilities.
c) ITS has or will obtain prior to the close of the Reorganization
Agreement, all necessary corporate actions required for the execution of the
Reorganization Agreement.
d) ITS represents that it will not enter into any contract or agreement
with any other entity prior to the execution of the Reorganization Agreement.
e) ITS represents that it has good and marketable title to all assets
and liabilities set forth in its financial statements and that any and all
liens, mortgages or other encumbrances against said assets and properties are
duly and completely set forth in its financial statements.
f) ITS is not a party to or aware of any pending or threatened
litigation.
<PAGE>
International Test Systems, Inc.
Letter of Intent
Page 5 of 7
g) All costs and expenses related to the execution of the
Reorganization Agreement shall be borne by ITS for such cost and expense, except
for the Registration Statement which shall be paid by UA.
h) ITS represents that it will not execute any material agreement
without first obtaining UA's prior written consent, except for those entered
into in the ordinary course of its business.
7. Public Offering
In the event BFP invests or causes to invest by any affiliate or third
party at least $150,000 in the Public Offering, then BFP shall have the sole and
absolute option for one (1) year from the earlier of (i) the first effective
date of the registration statement with the SEC or (ii) a change in control of
ITS after the closing of the Reorganization Agreement to purchase in the Public
Offering 30,000 shares of ITS Common Stock pursuant to the terms and conditions
of the Public Offering.
8. Termination
This Letter of Intent may only be terminated by the mutual written
consent of the Parties hereto but may be extended upon the mutual written
consent of the Parties. If the terms and conditions of this Letter of Intent are
not fulfilled and the terms and conditions of the Reorganization Agreement is
not finalized, executed and effective by June 30, 1999 or any extensions
thereof, this Letter of Intent shall automatically expire and be void and of no
further effect. This Letter of Intent and execution of the proposed definitive
agreements shall be subject to the terms and conditions set forth herein.
9. Assignability
This Letter of Intent shall not be assignable or transferable by either
Party.
10. Governing Laws
The validity and interpretation of this Letter of Intent shall be
governed by and construed in accordance with the laws of the State of New York.
The parties to this Letter of Intent agree that any litigation arising out of
the terms of the proposed Reorganization set forth herein shall be commenced in
the courts of the State of New York, New York County. All parties consent to the
exclusive jurisdiction and venue of the federal and state courts of New York
County with respect to any action arising under this Letter of Intent.
<PAGE>
International Test Systems, Inc.
Letter of Intent
Page 6 of 7
11. Amendment
This Letter of Intent shall be amended only with the written consent of
all parties hereto.
12. Counterparts
This Letter of Intent may be executed in any number of counterparts by
original or facsimile signature, and each such counterpart shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
13. Brokers' or Finders' Fees
The Parties hereby represent and warrant to each other that the
transaction contemplated in this Letter of Intent was not consummated by any
broker or finder. The Parties further represent and warrant to each other that
there are not any fees, commissions or any other remunerations due to any broker
or finder in connection with the transaction contemplated in this Letter of
Intent. Each Party shall indemnify and hold the other Party harmless from any
claim for brokerage or finders' fees arising out of the transactions
contemplated hereby by any person claiming to have been engaged by either Party.
14. Expenses
Each of ITS, BFP, Pensar and UA and its shareholders, shall bear its
own expenses in connection with the preparation for the consummation of the
transactions contemplated by this Letter of Intent, except as provided for in
section 6 above. ITS, BFP and Pensar will be responsible for the completing the
Corporate Reorganization as well as the relevant costs and expenses. UA will be
responsible for completing the items detailed in section 2 (a) - (f) as well as
the relevant costs and expenses.
15. Binding Effect
Except as hereinafter set forth, the understandings contained herein
(i) do not constitute a binding agreement between the Parties hereto but merely
express their intent with respect thereto and (ii) shall only become binding
when a Reorganization Agreement is executed and the transactions contemplated
hereby have been approved by each of the Parties. Notwithstanding anything
herein to the contrary, the provisions set forth in Sections 3(c), 8, 9, 10, 11,
12, 13, 14 and this Section 15 are intended to be and are hereby binding and
enforceable obligations of the Parties.
[ SIGNATURE PAGE FOLLOWS ]
<PAGE>
International Test Systems, Inc.
Letter of Intent
Page 7 of 7
Sincerely,
KAPLAN GOTTBETTER & LEVENSON, LLP
Adam S. Gottbetter
The foregoing Letter of Intent of seven (7) pages is accepted, approved
and agreed to by ITS, BFP, Pensar and UA and each of their Directors and
Officers this 4th day of June 1999.
INTERNATIONAL TEST SYSTEMS, INC.
By: /s/ Carey G. Birmingham
Name: Carey G. Birmingham
Title: President
BIRMINGHAM FAMILY PARTNERSHIP, LTD.
By: /s/ Carey G. Birmingham
Name: Carey G. Birmingham
Title: Managing General Partner
PENSAR, LLC
By: /s/ Carey G. Birmingham
Name: Carey G. Birmingham
Title: President
UNIFUND AMERICA, INC.
By: /s/ R. Scott Barter
Name: R. Scott Barter
Title: President
DISTRIBUTORSHIP AGREEMENT
THIS AGREEMENT, made this 19th day of June, 1999, by and between PENSAR
TECHNOLOGIES, LLC, a Texas Limited Liability Company with its principal place of
business at 4703 Shavano Oak, Suite 102, San Antonio, TX 78249 ("Pensar"); and
INTERNATIONAL TEST SYSTEMS, INC., a Texas Corporation having its principal place
of business at 4703 Shavano Oak, Suite 102, San Antonio, TX 78249
("Distributor").
W I T N E S S E T H :
WHEREAS, Pensar is the owner of a certain proprietary technology that
enables the design and production of hardware and software products that, when
coordinated, are used to test and troubleshoot components of printed circuit
boards (the "Intellectual Property"); and
WHEREAS, Pensar acquired its ownership of the Intellectual Property
from Distributor by virtue of a corporate resolution of Distributor dated June
16, 1999 (a copy of which is annexed hereto as Exhibit A and made a part hereof)
to transfer its assets and liabilities to Pensar; and
WHEREAS, Distributor is engaged in the business of, among other things,
marketing and selling products used to test and troubleshoot components of
printed circuit boards (the "Products"); and
WHEREAS, subject to the terms and conditions contained herein, Pensar
desires to engage Distributor, and Distributor desires to be so engaged, as
Pensar's sole and exclusive distributor of the Products throughout the World
(the "Territory").
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, and for such other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Recitals: The recitals set forth above are hereby incorporated into the
body of this Agreement and made a part hereof.
2. Description of the Intellectual Property: The Intellectual Property is the
source code of Pensar's proprietary technology of copyrighted Windows based
software applications developed to compile databases of printed circuit
board measurements in multiple digital formats e.g. text, numerical, image,
video, and audio, that are icon drive. The software provides customization
applications and capabilities that enable new printed-circuit-board test
products to be developed. Printed circuit boards are ubiquitous and
typically each one has a different configuration of components. The
Intellectual Property is a software platform that can be customized to
1
<PAGE>
design and develop new products to test different printed circuit board
configurations as they are developed. The software source code is protected
from duplication and modification by the installation of a Programmable
Array Logic (PAL) chip in each firmware-testing product.
3. Engagement. Subject to the terms and conditions set forth herein below,
Pensar hereby engages Distributor and Distributor hereby accepts said
engagement as Pensar's sole and exclusive distributor of the Products in
the Territory. The scope and exclusivity of this Agreement shall apply to
all improvements, modifications and extensions of the Intellectual Property
and Products, as well as new products and technology developed by Pensar
during the Term hereof. Pensar shall be entitled to sell the remainder of
its current inventory as identified by serial number on Exhibit B hereto
without sharing proceeds therefrom from ITS.
4. Method of Transacting Sales. In order to effect sales of the Products from
Pensar to Distributor hereunder, Distributor shall issue purchase orders to
Pensar for the specific Products and quantities desired. Pensar shall
fulfill each such purchase order according to the reasonable terms
contained therein. Pensar shall undertake to design, produce, manufacture
and ship the Products (including all assembly and finishing work) to
Distributor in accordance with all purchase orders. Pensar agrees to
provide Distributor with sufficient quantities of the Products free of
charge for Distributor to use in demonstrations and sales calls.
5. Exclusivity. Pensar agrees not to engage the services of any other
distributor for the Products in the Territory for the Term of this
Agreement, subject to the express conditions hereof.
6. Consideration:
(a) Advance Payment: Upon execution of this Agreement by all
parties, Distributor shall pay Pensar Five Thousand Dollars
($5,000.00) as a non-refundable, recoupable advance. . (b)
Payments: Thereafter, Distributor shall pay to Pensar a
monthly distributorship fee of One Thousand Five Hundred
Dollars ($1,500.00) during the Term of this Agreement, after
receiving credit for the advance payment set forth in
paragraph A above..
(c) The amounts set forth above shall be paid in addition to the
amounts invoiced by Pensar to Distributor pursuant to the
purchase orders submitted to Pensar, which shall in the
amount equal to 60% of the price to the customer.
2
<PAGE>
(d) Distributor agrees to pay Pensar an additional Five Thousand
Dollars ($5,000.00) upon the completed filing of a
Registration Statement which is declared effective by the
Securities and Exchange Commission and Distributor's stock
is listed on the NASD OTC Bulletin Board.
7. Intellectual Property Rights. Distributor hereby acknowledges and agrees
that Pensar is the sole owner of all copyrights, trademarks, patents, trade
secrets and other proprietary information relating in any way to the
Intellectual Property and the Products, including but not limited to all
software, hardware, processes, methods, techniques, and know-how.
Distributor shall not, directly or indirectly, take any action inconsistent
with such ownership, including but not limited to opposition or
cancellation proceedings. Pensar acknowledges and agrees that Distributor
is the sole and exclusive owner of any and all copyrights, trademarks,
servicemarks, patents, trade secrets and other proprietary information
relating to the sale of the Products or Distributor's own operations.
Pensar shall not, directly or indirectly, take any action inconsistent with
such ownership, including but not limited to opposition or cancellation
proceedings. Pensar further represents and warrants that it has applied for
and obtained all necessary patent, trademark and copyright protection to
sufficiently protect the Intellectual Property for the Term of this
Agreement.
8. Warranty and Indemnifications. Each party warrants and represents that it
is a valid corporation or Limited Liability Company duly organized under
the laws of the jurisdiction which it stands, in good standing, and has
obtained any and all necessary approvals and or resolutions necessary to
execute and carry out the terms of this Agreement. Furthermore, each party
represents and warrants that in performing their respective obligations
under this Agreement, they will not be breaching or violating any third
parties' or governmental agency's rights, property, contracts, orders,
judgments, decrees, or otherwise. In this regard, Pensar warrants and
represents that it is the sole and exclusive owner of the Intellectual
Property, that there is no pending or threatened litigation or other
proceeding or investigation against it which does or could have an affect
on its ownership of the Intellectual Property or its right to enter into
and perform the terms of this Agreement. Each party hereby indemnifies and
holds harmless the other, their officers, directors, employees, agents,
heirs and successors from and against any and all loss, damage, expense,
liability (including reasonable attorney's fees) which arise as the result
of the breach of any provision or warranty contained herein.
9. Compliance With Applicable Laws: Each party agrees to perform its duties
and obligations hereunder in compliance with all applicable federal, state
and local laws, rules, regulations and ordinances.
10. No Partnership, etc. Neither party shall have the right, power or authority
to contract in the name of the other, or to otherwise bind or pledge the
assets of the other. This Agreement does not create a partnership, joint
venture or franchise Agreement.
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<PAGE>
11. Default. In the event either party defaults in any of its obligations under
this Agreement, the non-defaulting party shall send written notice to the
defaulting party setting for the nature of the alleged default and the
provision of this Agreement allegedly violated. In the event the defaulting
party has not cured the default within thirty (30) days of notice of
default, then the non-defaulting party may pursue any remedies at law or
equity it deems appropriate. Both parties hereby acknowledge and agree that
a breach of this Agreement could result in irreparable harm to the other
and, as such, agrees to the issuance of injunctive relief (including
preliminary injunction and temporary restraining orders) to prevent further
breaches and/or damages.
12. Term. This Agreement shall commence on the date it is fully and duly
executed by both parties, and shall endure for a period of ten (10) years
(the "Term"). In addition, Distributor shall have the option to renew this
Agreement on the same terms and conditions for an additional five (5) years
by sending Pensar written notice of its election to exercise said option
within sixty (60) days prior to the end of the original Term. Distributor
shall have the right to terminate this Agreement on thirty (30) days
written notice to Pensar.
13. Escrow of Technology: Upon execution of this Agreement, Pensar shall reduce
the Intellectual Property (including but not limited to all source codes)
to writing or some other form and format which is retrievable and readable
by Distributor so that Distributor can duplicate, reproduce and ascertain
same in the event of the demise, death, incompetency or other unforseen
extended or permanent unavailability of the individuals at Pensar with
knowledge of said information (the "Disclosure"). Said Disclosure shall be
deposited in trust with Raphael Sonsino, Esq. (the "Escrow Agent"). The
Escrow Agent shall hold said Disclosure in confidence and safe-keeping, and
shall, only to the extent necessary for Distributor to reasonably carry out
the terms and intentions of this Agreement, release the information from
safe-keeping to Distributor upon the death, demise, incapacity or other
unforseen extended or permanent unavailability of the individuals at Pensar
with knowledge of said information upon the written request of Distributor.
14. Right of First Refusal: Pensar hereby grants Distributor a right of first
refusal to purchase the assets, Intellectual Property or units of ownership
interest in Pensar (i.e. shares of stock, membership interests, etc.) in
the event of a proposed sale, transfer or assignment of any such items by
Pensar. In such event, Pensar shall provide Distributor with written notice
of its intention to sell, assign, transfer or convey its business, assets
or the Intellectual Property containing the identity of the
purchaser/transferee/assignee and all of the terms of the proposed sale,
transfer or assignment. Distributor shall have thirty (30) days to exercise
its right to consummate the transaction on the same terms and conditions as
those contained in the notice hereunder by delivering written notice of its
intention to do so. The failure of Distributor to notify Pensar within said
thirty (30) day period of its intention to exercise its rights hereunder
shall be deemed an election not to exercise its right hereunder. In the
event Distributor does not exercise its right hereunder, Pensar shall be
free to consummate the proposed transaction as proposed in the notice to
Distributor only on the exact same terms and conditions as those contained
in the original notice. In the event said transaction does not close within
ninety (90) days of the receipt of the original notice by Pensar,
Distributor's rights hereunder shall be renewed and Pensar must comply with
the terms of this Paragraph again.
15. Force Majeure: It is understood and agreed that in the event of an act of
the government, war, fire, flood or other natural disaster, or labor or
manufacturing strikes which prevent the performance of this Agreement, such
nonperformance will not be considered a breach of this Agreement, and such
nonperformance shall be excused while, but not longer than, the conditions
described herein prevail. The period of Force Majeure shall not exceed
eighteen (18) months.
16. Notices: All notices, whenever required in this Agreement, will be in
writing and sent by certified mail, return receipt requested. Notices will
be deemed to have been given three (3) days after being mailed. A copy of
all notices to Distributor shall be sent via regular mail to: Steven M.
Kaplan, Esq., Kaplan Gottbetter & Levenson, LLP, 630 Third Avenue, New
York, NY 10017.
17. Controlling Law: This Agreement shall be construed in accordance with the
laws of the State of New York, United States of America and jurisdiction
over the parties and subject matter over any controversy arising hereunder
shall exclusively be in the Courts of the State and County of New York,
County or the Federal courts therein. Both parties hereby irrevocably
consent to said jurisdiction and venue.
18. Assignment: This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted
assigns, but neither this Agreement, nor any of the rights, interests or
obligations hereunder shall be assigned by either party without the prior
written consent of the other party, and any attempts to do so without the
consent of the other party shall be void and of no effect.
19. Entire Agreement: This writing constitutes the entire agreement and
understanding between the parties. No other oral or written agreements or
representations exist or are being relied upon by either party. Any
modifications or additions hereto must be made in writing and signed by
both parties. This Agreement specifically supersedes and cancels any and
all prior agreements between the parties, including but not limited to the
License Agreement between the parties dated June 16, 1999.
20. Miscellaneous:
(a) The paragraph headings used herein are for reference purposes
only and do not effect the meaning or interpretation of this
Agreement. If any provisions of this Agreement are for any reason
declared to be invalid or illegal, the remaining provisions shall
not be affected thereby.
(b) The failure of either party to enforce any or all of its rights
hereunder as they accrue shall not be deemed a waiver of those
rights, all of which are expressly reserved.
(c) This Agreement may be executed in more than one counterpart, all
of which shall be deemed to be originals.
(d) This Agreement shall not be binding unless a fully executed
counterpart has been delivered to all parties.
WHEREAS, the parties have set their hand and executed this Agreement of
SIX (6) pages plus exhibits with the intention of being fully bound hereby.
PENSAR TECHNOLOGIES, LLC INTERNATIONAL TEST SYSTEMS, INC.
By: /s/ Carey Birmingham By: /s/ Carey Birmingham
--------------------- ---------------------
Title: President Title: President
CONSENT OF INDEPENDENT ACCOUNTANT
I hereby consent to the use of my report, dated March 10, 1999, on the
balance sheet of International Test Systems, Inc. as of December 31, 1998 and
the related statements of income [loss], changes in stockholders' equity and
cash flows for the years ended December 31, 1998 and December 31, 1997, in the
Registration Statement on Form SB-1 and the related Prospectus of International
Test Systems, Inc. for the registration of its common stock, Class A Redeemable
Warrants, and Class B Redeemable Warrants.
/s/ Darilek Butler P.C.
-----------------------
Darilek Butler P.C.
September 28, 1999
