As filed with the Securities and Exchange Commission on July 26, 2000
Registration No. 333-88179
Securities and exchange commission
Washington, DC 20549
--------------------------------------------------
Amendment No. 2
to
FORM SB-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------------------------------------
International Test Systems, Inc.
(Name of small business issuer in its charter)
--------------------------------------------------
Delaware 4214 74-29581956
--------------------------------------------------------------------------------
(State or other jurisdiction of (Primary North American (IRS Employer
incorporation or organization) Industry Classification Identification No.)
System Code Number)
--------------------------------------------------
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)
--------------------------------------------------
Carey Birmingham, President
--------------------------------------------------
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 any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
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) 983-6900
--------------------------------------------------
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) . . . . . . . . . . . . . . . 3,100,000 $0.40 $ 1,240,000(1) $ 371.00(1)
Class A Warrants(.. . . . . . . . . . . . . . 1,250,000 $0.10 $ 125,000 $ 35.00
Class B Warrants.. . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . 8,050,000 $10,240,000 $ 2,874.00
----------------------------------------------------------------------------------------------------- ----------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee and
includes shares being sold by selling stockholders.
(2) Includes 1,850,000 shares being registered for resale by the selling
stockholders on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act. Pursuant to Rule 416 there are also registered hereby
such additional number of shares as may become issuable to prevent dilution
resulting from stock splits, stock dividends or similar transactions.
--------------------------------------------------
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>
EXPLANATORY NOTE: THIS REGISTRATION STATEMENT CONTAINS TWO FORMS OF PROSPECTUS.
ONE WILL BE USED IN CONNECTION WITH OUR OFFERING OF OUR COMMON STOCK, CLASS A
WARRANTS AND CLASS B WARRANTS AND THE OTHER WILL BE USED IN CONNECTION WITH AN
OFFERING OF SHARES OF OUR COMMON STOCK WHICH ARE CURRENTLY HELD BY CERTAIN
SELLING SHAREHOLDERS PURSUANT TO A LOCKUP AGREEMENT. THE PROSPECTUS WILL BE
IDENTICAL EXCEPT FOR (I) THE FRONT COVER PAGE OF THE PROSPECTUS; (II) AN
ALTERNATE "TABLE OF CONTENTS" PAGE; (III) AN ALTERNATE DESCRIPTION OF THE
OFFERING TO BE INSERTED IN THE "PROSPECTUS SUMMARY" SECTION; AND (IV) AN
ALTERNATIVE "SELLING SHAREHOLDERS" SECTION.
As filed with the Securities and Exchange Commission on July 26, 2000 --
Registration No. 333-88179
[OBJECT OMITTED] INITIAL PUBLIC OFFERING
PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 26, 2000
INTERNATIONAL TEST SYSTEMS, INC.
4703 Shavano Oak, Suite 102
San Antonio, Texas 78249
AN OFFERING OF UP TO 1,250,000 SHARES OF COMMON STOCK @ $.40 PER SHARE,
1,250,000 CLASS A WARRANTS @ $.10 PER WARRANT AND 1,250,000 CLASS B WARRANTS @
$.10 PER WARRANT
MINIMUM GROSS OFFERING OF $125,000 IN SALES ANY COMBINATION OF OUR COMMON STOCK
AND WARRANTS
MAXIMUM GROSS OFFERING OF $750,000 PRIOR TO WARRANT EXERCISES
<TABLE>
<CAPTION>
PRICE TO PUBLIC UNDERWRITING DISCOUNTS & PROCEEDS TO COMPANY
COMMISSIONS
<S> <C> <C> <C>
Per Share $.40 -0- $.40
Per Warrant $.10 -0- $.10
Total Minimum $125,000 -0- $125,000
Total Maximum $750,000 -0- $750,000
</TABLE>
THIS OFFERING INVOLVES A SIGNIFICANT DEGREE OF RISK AND PROSPECTIVE INVESTORS
NEED TO READ THE SECTION CALLED "RISK FACTORS" WHICH BEGINS ON PAGE 7.
We have also registered the resale of 1,850,000 shares of our common
stock owned by shareholders.
An investor may purchase either shares of our common stock, class A
redeemable warrants, or class B redeemable warrants. We must sell a combination
of these securities in an amount equal to $125,000 within 12 months from the
effective date of this prospectus in order for the offering to be continued.
Amounts received will be escrowed and promptly returned, without interest
accrued or fees charged, if this threshold is not reached.
This offering will extend for a period of one year from the date of
this prospectus unless extended for an additional one-year period.Neither the
Securities and Exchange Commission, nor any state securities commission, has
approved or disapproved these securities or passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
TABLE OF CONTENTS
PROSPECTUS SUMMARY 4
RISK FACTORS 6
PLAN OF DISTRIBUTION 9
USE OF PROCEEDS 14
GENERAL CORPORATE AND WORKING CAPITAL PURPOSES 16
DILUTION 17
CAPITALIZATION 18
BUSINESS OF THE COMPANY 19
THE PRODUCTS WE INTEND TO DISTRIBUTE 22
PROVEN METHODS OF PRODUCTION WILL BE USED 23
FUTURE PRODUCTS 24
OUR MARKET STRATEGY 25
OUR SIGNIFICANT EMPLOYEES 27
OUR INTELLECTUAL PROPERTY 28
THE DEVELOPMENT OF OUR COMPANY 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 31
CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD
FROM INCEPTION
EVENTS OR MILESTONES 37
DESCRIPTION OF OUR PROPERTY 40
DIRECTORS, OFFICERS AND KEY PERSONNEL OF THE COMPANY 40
EMPLOYMENT AGREEMENTS 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 43
SELLING SHAREHOLDERS 45
DESCRIPTION OF THE SECURITIES 47
LEGAL PROCEEDINGS 50
FEDERAL TAX ASPECTS 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 50
INTERESTS OF NAMED EXPERTS AND COUNSEL 51
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 51
CERTAIN PROVISIONS OF OUR ARTICLES AND BY LAWS AND
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION 51
FOR SECURITIES ACT LIABILITIES
WHERE CAN INVESTORS FIND ADDITIONAL INFORMATION 53
3
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
International Test Systems, Inc., a Delaware corporation, was incorporated on
September 20, 1999 and began business through predecessor operations in 1996.
Under our corporate charter documents, we may engage in any activity for which
corporations may be organized under the Delaware General Corporation Law. We are
a development stage company and have no substantial operations to date. We
intend to market, sell and distribute a family of hardware and software products
used to test and troubleshoot components on printed circuit boards. Our
telephone number is (210) 479-3756, our e-mail address is [email protected].
THE OFFERING
o Prior to this offering, there are 1,850,000 shares of our common stock
outstanding. Assuming the entire offering is sold, there shall be 3,100,000
shares of our common stock outstanding, 1,250,000 class A warrants
exercisable into shares of our common stock, and 1,250,000 class B warrants
exercisable into shares of our common stock. Assuming all 2,500,000
warrants are exercised, there shall be a total of 5,600,000 shares of our
common stock outstanding.
o Assuming the minimum offering amount is raised, the net proceeds to our
company shall be $120,000. Assuming the maximum offering amount is raised,
the net proceeds to our company shall be $733,000.
o Class A warrants are exercisable into shares of common stock at $2.50 per
share until the third anniversary of the effective date of the offering.
Class B warrants are exercisable into shares of common stock at $4.50 per
share until the fifth anniversary of the effective date of the offering.
Assuming all warrants are exercised, our company shall receive an
additional $8,750,000.
o We intend to use our net proceeds:
to pay distribution fees and marketing expenses;
to pursue strategic alliances; and
for general corporate and working capital.
5
<PAGE>
RISK FACTORS
WE WILL NEED ADDITIONAL FINANCING: CURRENT FUNDS ARE INSUFFICIENT TO FINANCE OUR
OPERATIONS AND PLANS FOR GROWTH. 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 such
funding.
AS OF JUNE 30, 2000, OUR COMPANY HAD WORKING CAPITAL OF $35,824. 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, 2000, WE ACCUMULATED
LOSSES OF APPROXIMATELY $70,796. We anticipate incurring additional losses until
we can successfully market and distribute products, develop new technologies and
produce commercially viable future products and/or enter into successful
strategic ventures with other entities. The "Going Concern" assumption in Note J
of our audited financial statements may hurt our ability to raise additional
financing.
WE ARE A DEVELOPMENT STAGE COMPANY WITH LIMITED OPERATING HISTORY; WE HAVE NO
HISTORY OF PROFITS AND OUR FUTURE PROFITABILITY REMAINS UNCERTAIN
We have a limited operating history and have yet to produce a profit.
Our future success will be materially dependent upon our 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.
THE TECHNOLOGY, UPON WHICH THE PRODUCTS WE WILL DISTRIBUTE ARE BASED, IS OWNED
BY PENSAR TECHNOLOGIES, LLC. WE HAVE A 10 YEAR RENEWABLE EXCLUSIVE DISTRIBUTION
AGREEMENT WITH PENSAR. IF THIS CONTRACT IS TERMINATED OR BREACHED, WE MAY NOT
HAVE ACCESS TO PENSAR'S PRODUCTS AND OUR PIPELINE OF PRODUCTS TO DISTRIBUTE
COULD BE SHUT DOWN.
We do not own the technology upon which the products we will distribute
are based. On June 16, 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. However,
our agreement allows us the right of first refusal to purchase and grants an
option to purchase the technology if we are successful in our marketing efforts.
In addition, our agreement with Pensar 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. If this contract is terminated and we do not find other products to
distribute, our distribution operations could be shut down.
6
<PAGE>
THE PENSAR TECHNOLOGY SUBJECT TO OUR DISTRIBUTION AGREEMENT WITH PENSAR IS
SUBSTANTIALLY UNTESTED IN THE MARKETPLACE; WHICH COULD RESULT IN UNANTICIPATED
CAPITAL EXPENDITURES AND DELAYS IN ACHIEVING MARKETING SUCCESS IN THE EVENT
PRODUCT IMPROVEMENTS OR UPGRADES ARE REQUIRED.
While Pensar and its predecessor companies have had sales of the
products subject to our distribution agreement with Pensar, 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 the future. We may be required
to fund such upgrades, changes or improvements out of operating income or
proceeds from this offering. If product improvements are required, success in
marketing these products and achieving profitability could be delayed or halted.
COMPETITORS MAY DEVELOP OR GAIN ACCESS TO THE TECHNOLOGY UPON WHICH OUR PRODUCTS
ARE BASED AND MORE EFFECTIVELY MANUFACTURE AND DISTRIBUTE PRODUCTS SIMILAR TO
OURS.
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.
WE MAY NOT BE ABLE TO SUCCESSFULLY MARKET OUR PRODUCTS, WHICH COULD MATERIALLY
ADVERSELY AFFECT OUR REVENUES, OUR FINANCIAL CONDITION AND, ULTIMATELY, THE
FUTURE OF OUR COMPANY.
Even if we are successful in obtaining needed financing, we cannot give
any assurance that we will be able to successfully market products to the
public. If we are unable to successfully market the products we currently sell
or expand our business to find a successful niche, our revenue production, our
financial condition and, ultimately, the future of our company could be
materially adversely affected.
WE RELY ON THIRD PARTY SUPPLIERS AND MANUFACTURERS; AN UNWILLINGNESS OR
INABILITY OF SUPPLIERS TO FULFILL THEIR OBLIGATIONS COULD DELAY, HALT OR
INCREASE THE COSTS OF PRODUCTION AND MATERIALLY ADVERSELY AFFECT OUR REVENUES
AND FINANCIAL CONDITION.
Pensar has informed us that it is currently dependent entirely upon
third party suppliers, fabricators, manufacturers and assemblers for the
manufacture of the products we distribute. There can be no assurance that they
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
products on a timely basis, it could
7
<PAGE>
cause delays and added expense to the
production and delivery of commercial quantities of these products. Any of these
events could materially adversely affect our revenues and financial condition.
WE HAVE ARBITRARILY DETERMINED THE OFFERING PRICE, WHICH EXCEEDS THE BOOK VALUE
OF THE SECURITIES; INVESTORS MAY BE UNABLE TO RECOUP THEIR INVESTMENT IF THE
VALUE OF OUR SECURITIES DOES NOT MATERIALLY INCREASE.
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. Since
an underwriter has not been retained to offer the securities, our establishment
of the offering price of the shares has not been determined by negotiation with
an underwriter as is customary in underwritten public offerings. The offering
price and the warrant exercise prices do not bear any relationship whatsoever to
our assets, earnings, book value or any other objective standard of value.
Therefore, investors may be unable to recoup their investment if the value of
our securities does not materially increase.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS FROM
THIS OFFERING AND MAY NOT APPLY THEM EFFECTIVELY; WHICH COULD MATERIALLY
ADVERSELY AFFECT THE ABILITY OF OUR COMPANY TO MEET ITS BUSINESS OBJECTIVES AND
OF OUR INVESTORS TO RECOUP THEIR INVESTMENT OR ACHIEVE A PROFIT THEREON.
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. The use of these funds will be at the
discretion of management. If management does not effectively utilize the
proceeds of this offering, our capital could be exhausted prior to meeting our
business objectives and our investors may be unable to recoup their investment
in our company or achieve a profit on their investment.
THIS IS A SELF-UNDERWRITTEN OFFERING AND WE MAY NOT BE ABLE TO SUCCESSFULLY SELL
OUR SECURITIES AND THEREBY RAISE NEEDED CAPITAL.
This is a self-underwritten offering. 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. No
broker or dealer has been retained or is under any obligation to purchase any of
these securities. We cannot give any assurance that we will be successful in our
fundraising efforts. If this offering is unsuccessful and we cannot raise needed
capital elsewhere, we may be unable to continue operations.
THERE IS NO MARKET FOR OUR SECURITIES AND THEREFORE AN INVESTMENT IN OUR
SECURITIES MAY BE AN ILLIQUID LONG-TERM INVESTMENT.
There will be no market for our securities after our offering. We
cannot give investors any assurance that we will succeed in developing a market.
Consequently, the securities we are offering may be an illiquid long-term
investment. We have held discussions with several potential market-makers to
make a market in our common stock once the stock becomes sufficiently
distributed,
8
<PAGE>
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 our market would be the OTC bulletin board market. Shares
that are "thinly" traded on the OTC 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.
UPON REDEMPTION OF WARRANTS, THE HOLDERS WOULD FORFEIT ALL RIGHTS THERE UNDER
EXCEPT THE RIGHTS TO RECEIVE $0.01 PER SHARE AND TO EXERCISE THE WARRANTS DURING
THE 30-DAY NOTICE PERIOD.
The warrants are subject to redemption by the company anytime on 30
days written notice at a redemption price of $.01 per warrant, provided that the
trading price of the underlying common stock is at least 150% of the then
current per share exercise price for 20 or more consecutive trading days. Upon
notice of redemption, holders of the warrants will forfeit all rights there
under except the rights to receive the $0.01 per share redemption price and to
exercise them during the relevant 30-day notice period.
Note: In addition to the above risks, businesses are often subject to risks not
foreseen or fully appreciated by management. In reviewing this prospectus
potential investors should keep in mind other possible risks that could be
important.
PLAN OF DISTRIBUTION
We are initially seeking to raise a minimum offering amount of $125,000
and a maximum offering amount of $750,000,without the exercise of any warrants,
through the sale of up to 1,250,000 shares of common stock @ $.40 per share,
1,250,000 class A warrants @ $.10 per warrant and 1,250,000 class B warrants @
$.10 per warrant. The public offering price of our securities will not change
until completion of the public offering distribution.
We are offering these securities on a self-underwritten basis. We are
planning to manage the offering without the use of an underwriter, and because
of that, there will not be any underwriting discounts or sales commissions. The
securities will be offered and sold by our president, Carey Birmingham, who will
receive no sales commissions or other compensation, except for reimbursement of
expenses actually incurred on our behalf for such activities, Mr. Birmingham
will use his best efforts to find purchasers for our securities. In connection
with his efforts, he will rely on the "safe harbor" provisions of Rule 3a4-1 of
the Securities and Exchange Act of 1934 (the "1934 Act"). Generally speaking,
Rule 3a4-1 provides an exemption from the broker/dealer registration
requirements of the 1934 Act for persons associated with an issuer. Mr.
Birmingham will not sell his own shares of our company while engaged in this
primary public distribution.
9
<PAGE>
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 our 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.
Mr. Birmingham anticipates making sales of the securities to parties
whom we believe may be interested, or who have contacted us expressing an
interest in purchasing the securities. We anticipate that Mr. Birmingham will
solicit subscriptions through business contacts both in person, by mail and by
telephone. During the past 14 years, in addition to his work in venture capital
and individual investments, Mr. Birmingham has served in various capacities as
Asset Manager, Portfolio Director, Assistant Vice President, Vice President and
consultant for companies which include New York Life Insurance, United Services
Automobile Association (USAA), Fidelity Mutual Life Insurance and Mutual Benefit
Life. In these roles, we may sell securities to parties if they reside in a
state in which the securities may be sold legally. However, we are not obligated
to sell securities to any parties and we may refuse to do so.
We will sell our securities in the following states:
Colorado
Connecticut
Florida
Illinois
Maryland
New Jersey
New York
Washington D.C.
No person or group has made any commitment to purchase any or all of
the securities. We cannot state at this point how many of the securities will be
sold. Insiders and affiliates will not purchase securities in order to reach the
minimum but anticipate purchasing our securities after we raise the minimum
offering amount.
If all of the securities we are offering are sold, we will have
outstanding 3,100,000 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 or private sales exemptions. An affiliate is a person controlling,
controlled by or under common control with ITS.
All securities held by selling shareholders will be subject to a one
year "lockup" agreement during which time they will be unable to offer and/or
sell shares currently held by them. After the expiration of such period, there
will be no limitations on any such shareholder's ability to sell shares assuming
that a registration statement with respect to such shares is then in effect,
10
<PAGE>
except that the selling shareholders have agreed not to sell their securities
below the public offering price. The shares offered by selling shareholders may
be sold on one or more exchanges or in the over-the-counter market, or in
privately negotiated transactions. Any shares covered by this prospectus that
qualify for sale pursuant to Rule 144 under the Securities Act may be sold under
such rule rather than pursuant to this prospectus. If a registration statement
is in effect, the shareholders may sell all, or any portion, of their shares. We
will not receive any proceeds from the sale by the selling stockholders of their
common stock.
Note: Equity investors should be aware that unless our company is able to
complete a further public offering or the Company is able to be sold for cash or
merged with a public company that their investment in our company may be
illiquid indefinitely.
MINIMUM OFFERING AMOUNT
We have established a minimum offering amount of $125,000 from the sale
of our common stock and warrants. We will promptly deposit all investor money
pending sale of the minimum offering amount into an escrow account with our
escrow agent. In the event the minimum offering amount is not raised within one
year from the effective date of this offering, we will promptly return all
investor money with out any interest accrued or penalties assessed. Upon receipt
of the minimum amount, each subscription for securities in this offering that is
accepted by us will be credited immediately to our company cash accounts, and
such funds may be spent by us at our discretion, without any waiting period or
other contingency. We anticipate that our funds will be escrowed with Kaplan
Gottbetter & Levenson, LLP, 630 Third Avenue, New York, New York 10017, (212)
983-6900.
DETERMINATION OF THE OFFERING PRICE
Prior to this offering, there has been no market for the common stock
and/or warrants of the company, and, as a development stage company, we have
essentially had no substantial business operations to date. The offering price
has been determined arbitrarily by our board of directors.
For the period from inception, September 20, 1999, to December 31, 1999
and for the six months ended June 30, 2000, losses were $62,695 and $8,101
respectively.
Our net tangible book value as of June 30, 2000 was $0.02 per share.
Per share based upon number of shares outstanding after this offering
if all securities sold: $0.23.
The reason for the discrepancy between net tangible book value per
share and the per share offering price is that this offering has been
arbitrarily determined by our board of directors and is being sold on a future
earnings capacity basis.
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 our company's development.
11
<PAGE>
On September 20, 1999 our company issued the following shares to the
parties listed below:
Unifund Financial Group 770,000
Carey Birmingham 193,000
R. Scott Barter 100,000
Douglas Harrison-Mills 50,000
Sheila Corvino, Esq. 50,000
Kaplan Gottbetter & Levenson, LLP 50,000
H. Youval Krigel 10,800
Harris Schiff 10,000
Alan Scott 5,000
Elizabeth Acton 5,000
Stephen G. Birmingham 5,000
Dr. Ed Lahniers 500
Andree Sonsino 400
Raphael Sonsino 300
Carey Birmingham, Youval Krigel and Raphael Sonsino were founding
shareholders of ITS Texas. During the first quarter of 1997, Stephen G.
Birmingham, Dr. Ed Lahniers, and Andree Sonsino purchased shares in ITS Texas in
a private sale pursuant to Section 4(2) of the Securities Act for a capital
investment of $50,000, $5,000 and $2,000, respectively. On September 20, 1999,
Carey Birmingham, Youval Krigel, Raphael Sonsino, Stephen G. Birmingham, Dr. Ed
Lahniers, and Andree Sonsino exchanged all their shares in ITS Texas for shares
in our company. Carey Birmingham was awarded his shares in remuneration for his
serving as president, chief executive officer and a director of our company.
Their holdings, as of September 20, 1999, are reflected in the preceding table.
Kaplan Gottbetter & Levenson LLP and Corvino & Associates performed
legal services for our company. On September 20, 1999, they each received a
portion of their remuneration in the form of 50,000 shares of our company.
On September 20, 1999, Douglas Harrison-Mills, Harris Schiff, Alan
Scott and Elizabeth Acton were awarded 50,000, 10,000, 5,000 and 5,000 shares
respectively in our company for consulting services. Unifund Financial Group
received 770,000 shares on September 20, 1999 as remuneration for consulting
services pursuant to the reorganization and subscription agreement between ITS
Texas and Unifund America, Inc. of June 16, 1999. Scott Barter received 100,000
shares as remuneration for his being chairman of the board and a director of our
company. Mr. Harrison-Mills provided creative and drafting services to the
company. Mr. Schiff provided word processing and management information services
to the company. Mr. Scott provided legal services to the company and Ms. Acton
provided administrative services to the company.
12
<PAGE>
On December 31, 1999, Carey Birmingham was awarded 50,000 shares in our
company in lieu of salary for the 1999 year.
On December 31, 1999, R. Scott Barter was awarded 25,000 shares in our
company in lieu of consulting and directorial fees for the 1999 year.
On December 31, 1999, Youval Krigel was awarded 25,000 shares in our
company in lieu of consulting and directorial fees for the 1999 year.
In January 2000, Carey Birmingham and Unifund Financial Group, Inc.
promised to make additional capital contributions to the company as a form of a
bridge financing to cover on-going expenses. Each of Unifund Financial Group,
Inc. and Mr. Birmingham contributed $25,000 in consideration for 250,000 shares
being awarded to him.
The percentage of outstanding shares the investors in the offering will
have if the maximum is sold and if the minimum is sold as well as if the
warrants are exercised is set forth as follows:
<TABLE>
<CAPTION>
Name of Owner Number of % if Minimum % if Maximum Offering % if Maximum Offering
Shares Offering Amount Amount Sold Amount Sold and all
Sold (Assuming only Warrants Exercised
Common Stock sold)
<S> <C> <C> <C> <C>
Unifund Financial Group 1,020,000 47.2% 32.9% 18.2%
Carey Birmingham 493,000 22.3% 15.9% 8.8%
R. Scott Barter 125,000 5.8% 4.0% 2.2%
Douglas Harrison-Mills 50,000 2.3% 1.6% 0.9%
Sheila Corvino 50,000 2.3% 1.6% 0.9%
Kaplan Gottbetter & Levenson, 50,000 2.3% 1.6% 0.9%
LLP
H. Youval Krigel 35,800 1.7% 1.2% 0.6%
Harris Schiff 10,000 0.5% 0.3% 0.2%
Alan Scott 5,000 0.2% 0.1% 0.0%
Elizabeth Acton 5,000 0.2% 0.1% 0.0%
Stephen G. Birmingham 5,000 0.2% 0.1% 0.0%
Dr. Ed Lahniers 500 0.0% 0.0% 0.0%
Andree Sonsino 400 0.0% 0.0% 0.0%
Raphael Sonsino 300 0.0% 0.0% 0.0%
TOTAL 1,850,000 85.0% 59.5% 32.7%
</TABLE>
13
<PAGE>
Management intends to attribute a post offering value of $272,500 to
our company in the event the minimum is sold and $897,750 if the maximum is
sold.
We reserve the right to reject any subscription in full or in part, and
to terminate the offering at any time.
No person, individual or group has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this prospectus and, if given or made, such
information or representation must not be relied on as having been authorized by
us or our officers. This prospectus is not an offer to sell, or a solicitation
of an offer to buy, any of the securities it offers to any person in any
jurisdiction in which that offer or solicitation is unlawful. Neither the
delivery of this prospectus nor any sale hereunder shall, under any
circumstances, create any implication that the information in this prospectus is
correct as of any date later than the date of this prospectus.
The securities may only be offered, sold or traded in those states
where the offering and/or securities have been registered, or where there is an
exemption from registration.
Purchasers of securities, either in this offering or in any subsequent
trading market which may develop, must be residents of states in which the
securities are registered or exempt from registration. Some of the exemptions
are self-executing, that is to say that there are no notice or filing
requirements, and compliance with the conditions of the exemption render the
exemption applicable.
USE OF PROCEEDS
The net proceeds of the offering, excluding warrant exercises, are
approximately $125,000 if the minimum offering is sold and $750,000 if the
maximum offering is sold. We expect all of our organizational expenses will be
paid prior to the effective date of this prospectus, as well as the majority of
offering expenses, including legal, accounting and other professional fees. We
are offering the securities through our officers and directors. No commissions
or other compensation will be paid to our officers and directors in connection
with this offering. We will not receive any proceeds from the sale by the
selling stockholders of their common stock. We will, however, receive proceeds
from the exercise of the warrants, if any warrants are exercised. We presently
intend to use the net proceeds as follows:
14
<PAGE>
<TABLE>
<CAPTION>
BUDGET DETAIL IF MINIMUM SOLD IF INTERIM AMOUNT IS IF MAXIMUM NUMBER SOLD
SOLD (ABSENT WARRANT EXERCISES)
<S> <C> <C> <C>
GROSS PROCEEDS $125,000 $750,000 $750,000
-------- -------- --------
Printing & Postage $ 3,000 $ 4,000 $ 4,000
Transfer & Escrow Agents $ 6,000 $ 6,000 $ 7,000
Legal Prepaid Prepaid Prepaid
Accounting Prepaid Prepaid Prepaid
TOTAL OFFERING COSTS/1/ $ 9,000 $ 10,000 $ 11,000
-------- -------- --------
NET OFFERING PROCEEDS $116,000 $465,000 $739,000
======== ======== ========
USE OF NET PROCEEDS
DISTRIBUTION AGREEMENT
Advance
Bonus $ 5,000 $ 5,000 $ 5,000
-------- -------- --------
TOTAL DISTRIBUTION FEES $ 5,000 $ 5,000 $ 5,000
DISCRETIONARY DIRECTORS' FEES AND INSURANCE/1/ $ -0- $ 15,000 $ 60,000
MARKETING
Advertising $ 5,000 $ 50,000 $ 85,000
Direct Mail $ 2,000 $ 36,000 $ 45,000
Trade Shows $ 5,000 $ 10,000 $ 20,000
-------- -------- --------
$ 12,000 $ 96,000 $150,000
CONSULTING & OUTSOURCING FEES, WAGES AND
SALARIES
Portion of President's Salary Up to $45,000 Up to $45,000 Up to $45,000
(footnote)
Marketing Executive -- $ 45,000 $ 65,000
Marketing and Sales Support -- $ 35,000 $ 35,000
Administrative Support $ 12,000 $ 24,000 $ 36,000
BENEFITS & INSURANCE -- $ 15,000 $ 18,000
-------- -------- --------
TOTAL FEES, WAGES & SALARIES $ 57,000 $164,000 $199,000
PURSUING STRATEGIC ALLIANCES AND PRODUCT $ 20,000 $ 70,000 $106,000
PIPELINE & CORPORATE MARKETING
OFFICE OPERATING EXPENSES $ 5,000 $ 25,000 $ 40,000
GENERAL CORPORATE AND WORKING CAPITAL $ 13,000 $ 90,000 $179,000
-------- -------- --------
TOTAL USE OF NET PROCEEDS $116,000 $465,000 $739,000
======== ======== ========
</TABLE>
__________
/1/ DIRECTOR COMPENSATION AND INSURANCE BENEFITS WILL COMMENCE AFTER WE RAISE
AT LEAST $300,000. THEREAFTER, DIRECTOR COMPENSATION WILL BE ALLOCATED IN
ACCORDANCE WITH A DIRECTOR'S LEVEL OF ENGAGEMENT WITH THE COMPANY AND AT
THE DISCRETION OF THE BOARD OF DIRECTORS.
15
<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 our company's business and operations, would
be adequate.
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 cannot assure
you that we will be able to raise additional funds on favorable terms, if at
all. Some expenses, such as marketing expenses and salaries, contemplate
spending with and without a third party distributor. Further, while the
president anticipates that his salary will be paid out of revenues, we allocated
a portion of his salary from the proceeds of this offering.
We are not in default on, nor 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.
GENERAL CORPORATE AND WORKING CAPITAL PURPOSES.
We will use the estimated net proceeds of this offering allocated to
general corporate and working capital purposes to fund the capital requirements
associated with our growth, including, without limitation, the retention and
training of personnel, the establishment of a secondary trading market for our
securities and an investor relations program. We may, when the opportunity
arises, use a portion, or all, of the net proceeds to acquire or invest in
complementary businesses, products or technologies. We may use the net proceeds
to obtain the right or license to use complementary technologies, and may enter
into joint ventures and strategic relationships with other companies that may
expand or complement our business. Although we anticipate that we will evaluate
possible acquisition candidates, we are not currently engaged in any discussions
for any material acquisitions, and have no agreements, plans or arrangements
with respect to any acquisition or investment.
16
<PAGE>
The foregoing represents our best estimate of the allocation of the net
proceeds of the sale of the securities offered in this offering based on our
contemplated operations, our business plan, and current industry conditions and
is subject to reapportionment of proceeds among the categories listed above or
to new categories in response to changes in our plans, regulations, industry
conditions, and future revenues and expenditures. The amount and timing of our
expenditures will vary depending on a number of factors, including the timing of
offering receipts, changes in our contemplated operations or business plan, and
changes in economic and industry conditions.
Until we use the net proceeds for a particular purpose, we will invest
them in short-term interest bearing securities, which may be investment grade
securities, money market funds, certificates of deposit, or direct or guaranteed
obligations of the United States government.
DILUTION
The following table shows, on a pro forma basis determined as of June
30, 2000, the difference between existing stockholders and new investors
purchasing securities in this offering.
<TABLE>
<CAPTION>
RAISE OF MINIMUM OFFERING AMOUNT OF $125,000 ASSUMING 312,500 SHARES PURCHASED
Number Percent of Total Amount Percent of Total Average Price Per Share
<S> <C> <C> <C> <C> <C>
Present stockholders 1,850,000(1) 85.5% $147,750 54.2% $0.08
New stockholders 312,500 14.5% 125,000 45.8% $0.40
-------------------------------------------------------------------------------------------
TOTAL 2,162,500 100.0% $272,750 100.0% .13
===========================================================================================
RAISE OF MAXIMUM OFFERING AMOUNT OF $750,000 ASSUMING 1,250,000 SHARES PURCHASED
Number Percent of Total Amount Percent of Total Average Price Per Share
Present stockholders 1,850,000(1) 59.7% $147,750 16.5% .08
New stockholders 1,250,000 40.3% 750,000 83.5% .40
-----------------------------------------------------------------------------------------------
TOTAL 3,100,000 100.0% $897,750 100.0% .29
===============================================================================================
RAISE OF MAXIMUM OFFERING AMOUNT AND EXERCISE OF ALL WARRANTS (3,750,000)
Number Percent of Total Amount Percent of Total Average Price Per Share
Present stockholders 1,850,000(1) 33.0% $147,750 1.5% .08
New stockholders 3,750,000 67.0% 9,500,000 98.5% 2.53
-------------------------------------------------------------------------------------------
TOTAL 5,600,000 100.0% $9,647,750 100.0% 1.72
============================================================================================
</TABLE>
17
<PAGE>
On June 30, 2000, we had a net book value of $40,917, or $0.02 per
share (based on the proforma 1,850,000 shares outstanding). The net tangible
book value per share is equal to the company's total tangible assets, less our
total liabilities, and divided by our total number of shares of common stock
outstanding. After giving effect to the maximum sale of the common stock and
associated warrants at the public offering price of $0.40 per share and $0.10
per warrant, the application of the estimated net offering proceeds, our pro
forma net tangible book value, as of June 30, 2000, would have been $0.25 per
share. This represents an immediate increase in net tangible book value of $0.25
per share to existing stockholders, and an immediate dilution of $0.25 per share
to new investors purchasing shares in this offering. Based on the above, the
following table illustrates the per share dilution in net tangible book value
per share to new investors:
MINIMUM MAXIMUM
------- -------
Public offering price per share $ 0.40 $0.40
of common stock
Value per share due to sale of warrants $ 0.10 $0.10
Net tangible book value per share
as June 30, 2000 $ 0.02 $0.02
Increase per share attributed to
investors in this offering $ 0.07 $0.25
Net tangible book value dilution per
share to new investors $ 0.43 $0.25
CAPITALIZATION
We have authorized the issuance of twenty million shares of common stock, par
value $0.001 per share.
18
<PAGE>
CAPITALIZATION TABLE -- JUNE 30, 2000
<TABLE>
<CAPTION>
ACTUAL(1) As Adjusted: As Adjusted:
Long term debt Minimum Maximum
<S> <C> <C> <C>
$ -0- $ 0 $ -0-
Preferred Stock authorized 5,000,000 -0- 0 -0-
shares, $.001 par value each. At June 30,
2000 there are -0- shares outstanding 1,850 2,162 3,100
Common Stock authorized 20,000,000 shares,
$.001 par value each. At June 30, 2000,
there are 2,050,000 shares outstanding .
Additional paid in capital: 145,600 226,551 848,613
Deficit accumulated during development stage (70,796) ( 70,796) ( 70,796)
-------- -------- --------
76,654 157,917 780,917
Total stockholders' equity -------- ------- -------
</TABLE>
NET PROCEEDS FOR THE MAXIMUM SALE AMOUNT INCLUDES GROSS PROCEEDS OF $750,000
LESS $10,000 AND $34,737 IN PREPAID EXPENSES AT JUNE 30, 2000.
NET PROCEEDS FOR THE MINIMUM SALE AMOUNT INCLUDES GROSS PROCEEDS OF $125,000
LESS $10,000 AND $34,737 IN PREPAID EXPENSES AT JUNE 30, 2000.
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.
BUSINESS OF THE COMPANY
COMPANY BACKGROUND AND HISTORY.
We are a Delaware corporation that was formed on September 20, 1999
("ITS Delaware") as a successor to ITS, Texas, a Texas Corporation ("ITS
Texas"). We intend to market, sell and distribute a family of hardware and
software products used to test and troubleshoot components on printed circuit
boards.
19
<PAGE>
Predecessors to our company have designed and sold these test products
since 1994. Our management team experienced difficulties in growing our
operations, became overburdened with debt and sought the assistance of outside
consultants. On June 16, 1999, International Test Systems, Inc. of Texas (a
predecessor entity) ("ITS Texas") entered into a reorganization and subscription
agreement with Unifund America, Inc. Unifund America agreed to provide
management with business and marketing advice in exchange for 770,000 shares in
a newly formed entity, which would become ITS Delaware. Its chief executive
officer, Scott Barter, joined our board of directors. Unifund America promised
to review all aspects of our business and to suggest solutions to the problems
we have been experiencing. Unifund America promised 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 for our company.
Unifund believed that a leaner operation devoted to marketing and
distributing products based on a successful technology would be a more
successful direction for our company to take. Unifund America helped engineer a
reorganization of ITS Texas. On June 16, 1999, ITS Texas transferred all of its
technology to Pensar Technologies LLC ("Pensar") in exchange for which Pensar
assumed all of the liabilities of ITS Texas. On June 19, 1999, Pensar and ITS
Texas entered into a ten-year exclusive distribution agreement granting ITS
Texas the exclusive, worldwide right to market, sell and distribute products
based on Pensar technology. Pursuant to the reorganization, our company (ITS
Delaware) was organized on September 20, 1999. On that date, the shareholders of
ITS Texas exchanged all their shares for our shares and we were assigned the
distribution agreement with Pensar. On April 15, 2000, we amended our
distribution agreement with Pensar and we subcontracted our distribution rights
in the 48 contiguous United States to Comware Technical Services of Irvine
California, an unrelated, third party, on a six months trial basis.
The original June 19, 1999 distribution agreement provided our company
with the right to purchase products from Pensar at a 40% discount off the price
to the consumer. We have no obligation to prepurchase any products or parts for
our inventory. In consideration for our distributorship, we were required to pay
a one-time $5,000 distributorship fee upon execution of the agreement and a
monthly $1,500 distributorship fee to Pensar during the term of the contract.
The agreement also requires our company to pay a one-time bonus of $5,000 if and
when our company becomes a publicly traded company. Although an assignment of
our agreement required the written consent of the non-assigning party, the
agreement gave us the unfettered right to subcontract our rights and obligations
to any subcontractor, value-added reseller or other distributor. In addition,
the agreement contains a right of first refusal to purchase the existing
technology. We have 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 course of the renewal period. We can
terminate this agreement at any time upon thirty days written notice to Pensar.
In the first quarter of 2000, we decided to subcontract a portion of
our worldwide distribution rights on a trial basis. We believed that if we could
subcontract a portion of our worldwide distribution rights to an established
distributor, we could immediately expand our marketing force without an upfront
outlay of capital while completing this public offering of our stock. We
believed that a sub-distributorship could increase our revenue and allow us to
focus our marketing efforts on a more defined section of the world marketplace.
We met with representatives of Comware Technical Services of Irvine California
to discuss subcontracting a portion of our distribution rights to them. Comware
Technical Services was founded in 1985. Comware supplies aftermarket products
and services to automated test equipment users worldwide. Comware offers a wide
range of automated test equipment solutions and services including complete
board test systems, networking solutions, spare parts, depot repair, board test,
and benchtop automated test equipment. We agreed to a six-month trial
sub-distributorship agreement with Comware subject to a renegotiation of our
distributorship agreement with Pensar.
20
<PAGE>
Pensar and our company agreed that if Comware committed to purchase an
inventory of products, Pensar would terminate the monthly $1,500 fee that we
were required to pay them as of July 1, 2000. Based on the belief that the sub
distributorship would result in a higher volume of product sales, Pensar raised
our discount on worldwide sales and agreed to give us commissions on all sales
made by Comware. On April 15, 2000 we entered into our sub distributorship
agreement with Comware and our amended distribution agreement with Pensar.
Our six-month trial sub distributorship agreement with Comware contains
the following terms:
We subcontracted the exclusive right to distribute the CircuiTest 2000S
In-Circuit Test System and theCircuiTest 2100 Scanner Expansion in the 48
contiguous United States;
Comware was required to and did purchase $22,710 worth of these
products before April 15, 2000;
Comware would be given the following discounts on product purchases up
to a total of $45,420:
Product Suggested Retail Price Price to Comware
CircuiTest 2000S $5,995 $3,297.25
CircuiTest 2100 Scanner $2,995 $1,317.80
Comware would be given the following discounts on product purchases
over $45,420
Product Suggested Retail Price Price to Comware
CircuiTest 2000S $5,995 $2,997.50
CircuiTest 2100 Scanner $2,995 $1,198.00
The agreement will automatically terminate at the end of the six-month
trial period if Comware does not sell $45,420 worth of products. If Comware
sells a minimum of $45,420 worth of products, the agreement will automatically
renew. However, to maintain the agreement in force, Comware must order a minimum
or $4,200 worth of products each month. If this quota is not reached, the
agreement will terminate automatically.
Our amended agreement with Pensar dated April 15, 2000 contains the
following new terms:
The monthly $1,500 distributorship fee ceases June 31, 2000.
21
<PAGE>
In addition to a right of first refusal on the part of our company to
purchase the assets or technology of or ownership interests in Pensar in the
event of a proposed sale by Pensar, our company was granted the right to
purchase the technology or shares of Pensar for 25% less than the fair market
value as determined by a third party appraiser.
Our discounts for all United States governmental sales and all sales
outside the contiguous 48 United States and to the United States are equal to
that of Comware.
In consideration for sales made by Comware, the flow of consideration
will be as follows:
o product purchases up to a total of $45,420:
<TABLE>
<CAPTION>
Product Suggested Retail Price Price to Comware Commission to ITS
<S> <C> <C> <C>
CircuiTest 2000S $5,995 $3,297.25 $1,400
CircuiTest 2100 Scanner $2,995 $1,317.80 $ 500
o product purchases over $45,420
Product Suggested Retail Price Price to Comware Commission to
ITS
CircuiTest 2000S $5,995 $2,997.50 $1,200
CircuiTest 2100 Scanner $2,995 $1,198.00 $ 350
</TABLE>
THE PRODUCTS WE INTEND TO DISTRIBUTE.
The products we will initially distribute are known as the CircuiTest
2000S In-Circuit Component Test System and the CircuiTest 2100 Scanner
Expansion.
The CircuiTest 2000S In-Circuit Component System is a personal
computer-based product which will troubleshoot, test and allow for the repair of
components on assembled printed circuit boards. This system connects with any
standard personal computer via a serial communications port and contains its own
external power supply. The CircuiTest 2000S tests both analog and digital
circuits. Electronic printed circuit boards are now used throughout the
electronics industry and will continue to be used in the foreseeable 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 themselves must be created from analog components.
The CircuiTest 2100 Scanner Expansion, when connected to the CircuiTest
2000S, increases the number of tests the software can automatically perform from
64 to a range of between 256 and 1024.
22
<PAGE>
Specific electronics components that might use our printed circuit
board testing equipment for manufacturing, repair and maintenance include:
Network switching cards;
Computer and peripheral circuit boards (i.e. computers, mother boards,
monitors, laser printers, matrix printers, scanners, modems,
optical disk drives);
Avionics circuit boards (i.e. aircraft, navigational and communications
electronics); Medical circuit boards; Military and government
electronics; Telecommunication circuit boards; Telephone equipment,
answering machines and fax machines; Cash registers, scanners, credit
card verification equipment; Electronic equipment power supplies; and
TV and monitor circuit boards.
We believe these systems are low-cost, easy-to-use and have numerous
attributes that we believe separate them from the competition. Some of these
attributes include:
Knowledge-Based Data: A database feature within the product software
allows it to locate failed components faster.
Power-Off Testing: Testing of components is performed without applying
electrical power to the board. Power-off testing eliminates the risks of
damaging the components of the printed circuit boards.
Family of Adaptive Products: Our core testing product, the CircuiTest
2000S System, is designed to facilitate rapid adaptation to meet the unique,
complex testing requirements that our customers identify. We believe the
CircuiTest 2000S System and its family of flexible, adaptive products can test
and troubleshoot the majority of problems that exist in a variety of products or
can be readily adapted to do so.
Our products have been sold to several well-known corporations and
major governmental agencies including the U.S. Air Force ($33,527.00), the
Harris Corporation ($33,756.00), the U.S. Immigration and Naturalization Service
($28,359.00), IBM, ($15,440.00) and Sony Microelectronics ($9,995.00). There are
however, no current contractual relationships with these companies or entities.
We are seeking a capital infusion from this offering (i) to further develop a
market and support our products, (ii) to develop and/or acquire new
technologies, and (iiiv) to seek and form strategic alliances in order to
strengthen our company and maximize our future value.
PROVEN METHODS OF PRODUCTION WILL BE USED.
Since 1994, Pensar and its predecessors have continually outsourced all
the manufacturing and production of products to various companies around Texas
and the Southwest. Pensar has stated that it intends to continue to subcontract
the production and assembly of products to local and regional sheet metal
fabricators, manufacturers and assemblers.
23
<PAGE>
Numerous back-up outsourcing firms exist in the area, and we believe
that Pensar will not be reliant on any single provider. 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. Most parts
and components are readily available off-the-shelf through wholesalers. Less
than 5% of the final product is composed of long-lead-delivery-time components,
and Pensar normally carries these in inventory. In addition, to achieve certain
discounts, Pensar may, from time to time, warehouse bulk quantities of
off-the-shelf components.
FUTURE PRODUCTS
We believe that as more and more products are manufactured with printed
circuit boards, the demand for manufacturer's defect-testing and troubleshooting
systems, such as ours, increases. We anticipate the introduction of new variants
to our existing core product line. Pensar has completed development of the
CircuiTest 1000S. 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.
We would also like to introduce enhancements to our core products. An
example of such an enhancement is the autoprober. At present, our testing
systems are attached to the circuit board by hand. An autoprober is a robotic
chassis into which the circuit board is inserted for hands-free testing. We are
very satisfied with the Pensar product without the enhancement of the
autoprober, as it is less expensive than products with this feature, thereby
providing us a price advantage over our competitors. However, providing this
enhancement as an alternative for our customers could enlarge our market share.
While Pensar does not presently manufacture autoprobers, other companies, such
as Probotech, Inc. and Teradyne, Inc., do. We intend to seek the addition of new
products to our product line, as well as new ways to maximize the relationships
we build with our customers. We intend to accomplish this goal by seeking
distributorships or other strategic relationships, such as joint ventures,
mergers, or acquisitions, with companies other than Pensar. We believe that by
establishing a superior marketing network and staying abreast of the needs of
our customers, as well as current technological advances, we should be able to
continually expand our product line and maximize the value of our company.
OUR INDUSTRY AND OUR COMPETITION
As of 1999, our research indicates that the estimated annual market for
personal computer-based testing equipment was in excess of $400 million. We have
obtained this information from Frost & Sullivan, an international marketing and
consulting firm. As described below, other competitors are substantially larger
in size and market share or market coverage. However, we anticipate that the
CircuiTest Systems will be priced lower than the competition, be easier to use
and include a wider range of features.
24
<PAGE>
Note: Because this prospectus 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
the company's prospects.
EXISTING COMPETITION FOR THE CIRCUITEST SYSTEMS
Competitive testers to ours are marketed by Huntron Instruments, Inc.,
a US-based company, Polar, PLC, and DiagnoSYS, Ltd., both UK-based companies.
The systems these companies manufacture and sell rely on a graphic
voltage/current plot of the component tested on a personal computer, similar to
our systems. However, we believe our systems, the CircuiTest 2000S and 2100
scanner expansion, are less expensive, easier to use and when compared to
Huntron, can test a much wider range of components.
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 $1995 for a rudimentary
system to $40,000 and more for its advanced auto-prober system. Huntron is
recognized in the voltage/current curve analysis market and has estimated annual
sales of $10 to $17 million. Huntron currently offers a 1-year warranty on its
equipment with subsequent one-year extensions for $950, as well as fees for
software upgrades. We offer 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 $7495, and more recently the Huntron ProTrack Model 20, priced
at $6995, compared to our CircuiTest 2000S priced at $5995. After using both the
Huntron 5100DS and our CircuiTest 2000S system, a focus group comprised of eight
potential customers reported that the Company's CircuiTest system had numerous
advantages over its competitor.
In general, the CircuiTest systems compete in circuit board repair and
troubleshooting for companies around the world. Although 85% of our historical
sales have been in the domestic United States, we have had sales to companies in
Brazil, Japan, Egypt, Turkey, Mexico, Canada and Germany (to the US Army).
Although these sales represented a small percentage of overall sales, we believe
the potential for future business is strong overseas and in Mexico and Canada.
With our agreement with Comware in place, we intend to cultivate an
international client-base.
OUR MARKET STRATEGY
1. Sales
Our sales approach will be 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.
25
<PAGE>
As of April 15, 2000, we subcontracted exclusive distribution rights
for the 48 contiguous United States to Comware Technical Service of Irvine,
California on a six-month trial basis. We believe that subcontracting a portion
of our worldwide distribution rights to an established distributor, could
immediately expand our marketing force without an upfront outlay of capital. We
believe that a sub-distributorship could increase our revenue and allow us to
focus our marketing efforts on a more defined section of the world marketplace.
We intend to focus our selling effort on the international markets.
Our current internal sales force consists of our president, Carey
Birmingham. Our approach includes establishing new additional worldwide
distributor relationships and implementing direct marketing campaigns to
specific segments of the market. Our direct marketing and sales efforts include
increasing our internal direct sales force, trade publication advertising,
Internet web site promotion, public relations, trade shows/conferences and
database marketing culminating in demonstrations.
This method is based upon our own internal experience of selling to
this market and does not rely on any specific outside sales study or model.
2. 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 as
well as VAR (value-added resellers) and we may engage independent sales
representatives, licensing partners and joint venture partners to market and
sell products to prospective customers.
3. GSA Marketing
We have marketed our products, which to date only include the 2000S &
2100, to the General Services Administration (GSA) the chief procurement agency
for U.S. federal governmental operations. 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
six-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. As of the date of this prospectus, we have not sold any of our
products to the GSA and as a result our contract may be subject to cancellation
at the discretion of the GSA.
26
<PAGE>
4. Direct Mail
We are considering the use 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.
We have produced marketing materials describing our products that 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.
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.
5. Advertising and Trade Shows.
We plan to allocate a portion of our marketing budget to print
advertisements
In conjunction with paid advertisements, most trade publications offer
complimentary editorials and feature stories on new product releases. We are
developing an editorial calendar and will increase our public relations efforts
to write articles about the technology.
In addition, numerous trade shows exist for electronics manufacturing
and testing. We plan to participate at both large, national trade shows and
smaller, regional trade shows.
OUR SIGNIFICANT EMPLOYEES.
We have one employee, Carey Birmingham, our president and a director.
Our other directors are Youval Krigel, and Scott Barter. We plan to maintain
lean operations in order to minimize operating expenses while seeking a capital
infusion. Depending upon the success of this offering, during the next 12 months
we intend to hire staff and enter into consulting relationships as needed in
order to:
market our products,
exploit new technologies and products, and
seek and exploit strategic alliances with persons and/or
businesses that we believe will strengthen our company and
maximize our future value.
If our contract with Comware is extended beyond the six-month trial
basis, we will outsource our mainland US non-governmental marketing and sales to
them. In this case, we intend to concentrate our efforts on marketing our
products to the US government, and the rest of the world. Initially, we will
rely on the expertise of our president, Carey Birmingham to begin marketing
efforts. In addition, we anticipate hiring a marketing and sales support person
to provide marketing support to Comware as well as to conduct "in-house"
marketing efforts, such as phone solicitations and direct mailings. We also
anticipate hiring an administrative support staff member to provide office
support services to the president and the marketing support person. Depending on
the success of the foreign marketing efforts, we anticipate employing a
marketing and sales executive to aid in the overseas marketing effort.
27
<PAGE>
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 anticipate 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.
OUR INTELLECTUAL PROPERTY.
Our company does not own any copyrights or patents. However, Pensar
owns a perpetual copyright on the printed circuit board design within our
products. In addition, Pensar owns a perpetual copyright on the proprietary
software, which is an integral part of our product. The software cannot be
modified by outsiders without access to Pensar's software source code. 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 its 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. Pensar is considering upgrading
its 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, a director of our company, was a key individual in
the development of the software, firmware and hardware of the products we
distribute. 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.
We have not spent any funds on research and development of products
during the last fiscal year.
28
<PAGE>
THE DEVELOPMENT OF OUR COMPANY.
In September 1993, UAT Development Partners (UAT), a Texas general
partnership, was formed to design, develop, and market a universal analog tester
for component level testing of printed circuit boards. UAT was comprised of
Carey G. Birmingham and the Birmingham Family Partnership, Ltd. Simultaneously,
Pensar Technologies, Inc. ("Pensar Inc."), a Texas corporation, was formed.
Pensar Inc. and UAT entered into a contract for services for Pensar, Inc. to
manufacture the universal analog tester for UAT. This product was named the
A-2000.
Pursuant to their manufacturing contract, Pensar, Inc. and UAT
completed ten prototypes of the A-2000 in September 1994, and commenced
marketing efforts to prospective customers. The first system was sold one month
after marketing efforts commenced at a price $6,000.
During the next six months, the company sold an aggregate of eight
prototype units. Between January 1995 and July 1995, the A-2000 was redesigned
into the new CircuiTest-2000S, incorporating new software features and hardware
upgrades. The Circuit-Test 2000S, with its new features, would be considered the
"core" product for the company from that point forward.
In April 1995, Pensar Technologies, LLC ("Pensar LLC"), a Texas limited
liability company, was formed. Simultaneously, UAT transferred all of its
assets, including the technology, to Pensar LLC in exchange for 2,000,000 units,
representing 100% ownership and assumption of the manufacturing contract between
Pensar, Inc and UAT.
In July 1995, Pensar LLC received 25 completed CircuiTest 2000S systems
from Pensar, Inc. The first few systems went to select customers as exchanges,
upgrades or were sold as additional units to those customers who had previously
purchased systems. By December 1995, 13 systems had been sold to customers in
the U.S., Canada and Singapore. In December 1995, Pensar, Inc. and Pensar LLC
terminated their manufacturing agreement and Pensar, Inc. ceased day to day
operations.
International Test Systems, Inc. ("ITS Texas"), a Texas corporation,
was formed in September 1996. Simultaneously, Pensar LLC contributed all of its
assets and liabilities to ITS Texas in exchange for 730,000 shares of stock,
representing 45.625% of the total shares.
Subsequently, ITS Texas experienced difficulties in growing its
operations, became overburdened with debt and sought the assistance of outside
consultants. On June 16, 1999, ITS Texas entered into a Reorganization and
Subscription Agreement with Unifund America, Inc. Unifund America agreed to
provide business and marketing advice to ITS Texas in exchange for 770,000
shares in a newly formed entity, which would become ITS Delaware. Scott Barter,
chief executive officer of Unifund joined the ITS Texas board of directors.
Unifund believed that a leaner operation devoted to marketing and distributing a
successful technology would be a more successful direction for the company to
take. Unifund America helped engineer a reorganization whereby ITS Texas sold
the technology to Pensar in exchange for relief of its debt and an exclusive ten
(10) year renewable distribution agreement to distribute the technology. The
president of Unifund America 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.
29
<PAGE>
As part of the reorganization and subscription agreement, on June 16,
1999, ITS Texas transferred all of its technology to Pensar LLC in exchange for
which Pensar LLC assumed all of the liabilities of ITS Texas. On June 19, 1999,
Pensar LLC and ITS Texas entered into a renewable, ten-year distribution
agreement granting ITS Texas the exclusive, worldwide right to market, sell and
distribute products based on Pensar technology. Pursuant to the reorganization,
our company (ITS Delaware) was organized on September 20, 1999. On that date,
the shareholders of ITS Texas exchanged all their shares for shares in ITS
Delaware in the amounts shares listed in the Selling Shareholder section of this
prospectus and ITS Texas assigned us the Distribution Agreement with Pensar LLC.
On April 15, 2000, we amended the compensation section of our
distribution agreement with Pensar and we subcontracted our distribution rights
in the 48 contiguous United States to Comware Technical Services of Irvine
California on a six-month trial basis.
During the fiscal year ending December 31, 1999, ITS sold a total of 18
Units, consisting of a blend of 2000S base Systems, 2100 Scanner Expansions and
1000S Benchtop Troubleshooting Tool.
As of May 31, 2000, a total of 139 units have been sold to a total of
50 customers in the U.S., Japan, China, Egypt, Singapore, Jamaica, Mexico,
Brazil, Turkey, India and Canada. 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
SMT Centre Austin, TX 62
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
===============================================================================
30
<PAGE>
The Distribution Agreement between ITS and Pensar Technologies states
that in consideration for the assuming all the liabilities of ITS, Pensar would
receive all the assets of the company at closing, or June 19, 1999. Part of
those assets included completed inventory, comprised of approximately 14 2000S,
2100 and 1000S units. The Distribution Agreement allowed Pensar to sell the
existing units at or close to the scheduled retail price and retain the proceeds
until the inventory was depleted, while accruing a commission due ITS. As a
result, 5 units were sold by Pensar in the second half of 1999 and, while these
sales are reflected in the total sales described above, the revenues are not
included in ITS sales for 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION,
SEPTEMBER 20, 1999 TO DECEMBER 31, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 2000.
The following discussion relates to the results of our operations to
date, and our financial condition:
This prospectus contains forward looking statements relating to our
company's future economic performance, plans and objectives of management for
future operations, projections of revenue mix and other financial items that are
based on the beliefs of, as well as assumptions made by and information
currently known to, our management. The words "expects, intends, believes,
anticipates, may, could, should" and similar expressions and variations thereof
are intended to identify forward-looking statements. The cautionary statements
set forth in this section are intended to emphasize that actual results may
differ materially from those contained in any forward looking statement.
DEVELOPMENT STAGE ACTIVITIES.
The Company has been a development stage enterprise from its inception
September 20, 1999 to June 30, 2000. The Company is a development stage company
that was organized as a successor to International Test Systems, Inc., a Texas
corporation, and has obtained a distribution agreement from the manufacturer to
exclusively market and sell a component-level printed circuit board tester whose
principal customers use the tester to analyze, repair, and service printed
circuit boards with components attached.
During its development stage, management has devoted the majority of
its efforts to creating and initiating the marketing program, and sourcing
working capital to engage in any profitable business activity and provided the
initial working capital through the sale of 1,320,000 shares of common stock
aggregating $115,000 through June 30, 2000. Activities of the predecessor
company, ITS Texas, were limited to the creation of new products, obtaining a
distribution agreement, and preparation of documentation for a public offering
of its stock. These activities were funded by the ITS Texas' management and
investments rom stockholders. The Company has not yet generated sufficient
revenues during its limited operating history to fund its ongoing operating
expenses, repay outstanding indebtedness, or entirely fund its research and
product development activities. There can be no assurance that development of
the manufacturer's products will be completed and fully tested in a timely
manner or that the Company's sales efforts will provide a profitable path for
the Company. Future investments in new technologies for processing quotations,
purchase orders and invoices will significantly reduce the cost of marketing and
sales and allow the Company to effectively compete in the electronic market
place.
During the developmental period, the Company has been financed through
the sale of stock to the Company's shareholders aggregating $40,000 and an
additional sale of stock to the Company's shareholders aggregating $50,000
subsequent to the date of the financial statements.
RESULTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION, SEPTEMBER 20, 1999, TO
DECEMBER 31, 1999.
The company had an aggregate of $497 in commission income earned on
equipment sold directly by Pensar to customers pursuant to the Distribution
Agreement. Activities consisted of preparing and filing corporate income tax
returns and filings for the Securities and Exchange Commission and organizing
the operations.
The company's general and administrative costs aggregated approximately
$35,742 for the period from inception, September 20, 1999, to June 30, 2000.
These expenses represents payments towards the license agreement $6,000;
accounting fees $2,950; rent of $1,565; and office expenses of $25,227.
RESULTS OF OPERATIONS FOR THE PERIOD FROM JUNE 16, 1999 (THE DATE OF
INCEPTION) TO JUNE 30, 2000
FOR THE PERIOD FROM JUNE 16, 1999 TO JUNE 30, 2000, THE COMPANY HAS
SOLD 12 UNITS COMPRISED OF 2000S/2100 SYSTEMS AND 1000S OSCILLOSCOPE TOOL .
FOR THE SIX MONTHS ENDED JUNE 30, 2000.
The company had an aggregate of $18,657 in commission income earned on
equipment sold directly by Pensar to customers pursuant to the distribution
agreement. Activities consisted of preparing and filing corporate income tax
returns and filings for the Securities and Exchange Commission and organizing
the operations.
The company's general and administrative costs aggregated approximately
$26,757 for the Six months ended June 30, 2000 . These expenses represents rent
and utilities of $1,591; and office expenses of $168; license rights of $117;
accrued salaries of $6,000; and office expense of $18,881.
31
<PAGE>
Management believes the causes for losses in predecessor companies,
including ITS Texas, were the result of an under funded marketing plan and
little on no direct sales support using in-house sales personnel. Because we
lacked the resources to hire qualified sales and marketing staff, our CEO was
called upon to formulate and implement the sales effort himself, resulting in
significantly lower sales revenues than management believes can otherwise be
derived from the marketplace. We believe that these past events were not
indicative of future results because ITS will have the working capital to
implement its marketing plan without the up-front cash requirements need to
stock inventory, manufacture products, and design and create new technologies.
These facts notwithstanding, we have the right, but not the obligation, to
purchase the technology from Pensar and become the manufacturer if sales volumes
and gross margins warrant it. By creating a marketing and distribution company
as we envision it here, we believe we have eliminated significant risk for the
company and its investors, while simultaneously procuring important rights and
sources of income.
To resolve the problem, management has chosen to raise capital in the
public markets, hire sales and marketing support staff as described in this
prospectus and concentrate on direct sales as well as establishing strategic
relationships with distributors, sales representative firms and other sources to
increase sales revenues domestically and overseas. Furthermore, the company and
Pensar Technologies, LLC (the manufacturer of our test systems) have agreed to
cease payment of the distribution fee effective June 30, 2000. Based on the
amended distributor agreement with Pensar, management believes the Company will
be profitable. This will result from not only a more efficient marketing program
as described here, but also by eliminating the costs and risks of development of
future products and maintaining inventory. These functions, and their associated
capital requirements, will be performed by Pensar as the manufacturer, sparing
ITS significant up-front cash outlays.
Relationships and Agreements between the Parties
Mr. Carey Birmingham was president and a director of both Pensar and
ITS Texas during the negotiation of the distributor agreement with Pensar, as
well as during the period covered in this prospectus. Although Mr. Birmingham
was president and a director during these periods, ITS Texas (subsequently ITS
Delaware) and Pensar have different third party directors who gave final
approval of the distribution agreement and ITS' efforts to obtain additional
capital in the public markets. As of the date of this prospectus, Mr. Birmingham
remains president and CEO of ITS Delaware and Pensar.
The majority shareholder approving the Pensar exchange and distribution
agreements was the Birmingham Family Partnership, Ltd., of which Mr. Birmingham
is less than a 5% Limited Partner.
Pensar owned 45.625% of the total shares of ITS Texas at the time of
the merger and distribution agreement. However, Pensar does not now own, nor has
at any time owned, any shares of ITS Delaware.
Unifund Financial Group, Inc. acquired 61.6% of its shares in this
transaction for management, business and marketing advice and the payment of
certain legal and accounting expenses in connection with the reorganization of
our business.
32
<PAGE>
We have the option to terminate the distribution agreement with Pensar.
If our agreement with Pensar was terminated without a distribution agreement
with another manufacturer or another business plan, our operations, liquidity
and cash flow would be severely adversely affected. We do not anticipate
terminating our agreement with Pensar. Note that we also have the right of first
refusal to purchase the assets or technology of or ownership interests in Pensar
in the event of a proposed sale by Pensar. Further, we were granted, by
amendment, the right to purchase the technology or shares of Pensar for 25% less
than the fair market value as determined by a third party appraiser. The company
intends to act in the best interests of its shareholders by working to make the
company a success. Whether that will involve the cancellation of the Pensar
contract or the purchase of its assets or ownership interests will be dictated
by business conditions and be based on our judgment of what is best for our
business and our shareholders.
LIQUIDITY AND CAPITAL RESOURCES.
Overview
As of December 31, 1999 and June 30, 2000, the Company's cash balance
was $8,265 and $34,597 respectively, and the Company's working capital was
$1,283 and $40,917 respectively. As of December 31, 1999, the Company has been
funded through the sale of shares of common stock aggregating $65,000 and an
additional $50,000 as of June 30, 2000. As of December 31, 1999, the Company had
negative cash flows from operations of $23,263 and had expensed an additional
$33,472 for pre-offering expenses. As of June 30, 2000, the Company had $22,403
in negative cash flows from operations and had expended an additional $1,265 in
pre-offering expenses. As of June 30, 2000, the Company had a tax loss
carry-forward of $68,296 to off-set future taxable income. There can be no
assurance, however, that the Company will be able to take advantage of any or
all of such tax loss carry-forward, if at all, in future fiscal years.
Financing Needs
To date, the Company has not generated any revenues. The Company has
not been profitable since inception, may incur additional operating losses in
the future, and may require additional financing to continue the development and
commercialization of its technology. While the Company does expect to generate
significant revenues from the sale of products in the near future, the Company
may enter into licensing or other agreements with marketing and distribution
partners that may result in license fees, revenues from contract research, or
other related revenue.
The Company expects its capital requirements to increase significantly
over the next several years as it commences new research and development
efforts, undertakes new product developments, increases sales and administration
infrastructure and embarks on developing in-house business capabilities and
facilities. The Company's future liquidity and capital funding requirements will
depend on numerous factors, including, but not limited to, the levels and costs
of the Company's research and development initiatives and the cost and timing of
the expansion of the Company's sales and marketing efforts.
33
<PAGE>
The Company anticipates that it will be able to fund operations over
the next twelve (12) months subsequent to the sale of its public offering and
sales of shares and capital contributions from its present shareholders. To
enable the Company to fund its research and development and commercialization
efforts, including the hiring of additional employees, the Company in the
process of offering additional shares of its common stock.
TRENDS IN THE COMPANY'S HISTORICAL OPERATING RESULTS.
We are unable to discern any noticeable trends in historical operating
results since we have only been selling our 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
considerably lower than our competitors' comparable automated test equipment.
Most often, the CircuiTest 2000S is compared to Huntron's Model 5100DS, priced
at $7495, and the more recently the Huntron ProTrack Model 20, priced at $6995.
Our CircuiTest 2000S priced at $5995.
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 this feature.
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 "power-free" circuit
board testing technology uses known and trusted methods of troubleshooting and
virtually eliminates 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.
To date, we have not sold any systems to GSA under this Contact. Prior to this
GSA Contract becoming effective, however, we sold in excess of $90,000 worth of
products to agencies of the US Government, including the Air Force, INS and the
US Army.
34
<PAGE>
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:
SymSortTM - 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 causing a particular
problem.
Turbo Scanning - Accelerated 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, schematics, or
user-designated format.
Warranty & Software Upgrades - We offer 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-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.
35
<PAGE>
POSITIONED FOR FUTURE GROWTH
Fiscal year-end 1995 sales were not considered significant to test for
gross margins.
Fiscal year-end 1996 sales gross margins were 46.2%
Fiscal year-end 1997 sales gross margins were 83.8%
Fiscal year-end 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, we believe future gross margins for the core products
should exceed 80%, excluding labor.
Past foreign sales represented units sent to companies in Turkey, India, Japan,
China, Egypt, Singapore, Jamaica, Mexico and Canada. The Company intends to
increase international sales by signing international distribution agreements.
Foreign sales as a percent of total sales for last fiscal year: 25.3%
Past domestic government sales represented sales to the US Air Force, the INS
and the US Army. The Company will continue to market aggressively to US
government agencies. Domestic government sales as a percent of total domestic
sales for last fiscal year: Less than 1%.
EVENTS OR MILESTONES
Printed circuits boards are in found virtually every type of electronic
instrument and product manufactured today. Every new product and every existing
product that contains a printed circuit board represents an application or
product opportunity for ITS test systems. While no assurance can be given, we
believe that printed circuit boards will remain a mainstay in the electronics
industry. Our products test the individual components on a printed circuit board
based on voltage and current (V/I) signature analysis. This technology is
time-tested and is a recognized generic means of testing throughout the
electronics industry. While the CircuiTest 2000S and associated software uses
new and innovative interpretations of the V/I, we believe that this basic method
of testing will continue to be a standard far into the foreseeable future. We do
not believe that this industry is as time sensitive as other high-technology
industries, and, thus, we believe we have the time to plan, fund and scale up
our business without losing a place in the market. Of course, the foothold that
competitors have in the industry will be a barrier which we must pass.
<TABLE>
<CAPTION>
EVENT METHOD OF ACHIEVEMENT DATE OR NUMBER OF MONTHS AFTER RECEIPT OF
PROCEEDS WHEN EVENT SHOULD BE ACCOMPLISHED
<S> <C> <C>
Fund minimal operations Conduct this offering and raise Immediately after escrowed funds
the minimum offering amount are released.
Market products based upon Conduct this offering to obtain Ongoing process which should
existing 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 minimum offering amount. Direct
and establish relationships with mail can commence if the minimum
37
<PAGE>
independent sales contractors to offering amount is received.
market products. If successful, Other forms of marketing and the
continue to rely on retainment of marketing support
sub-distributorship arrangement staff can commence when amounts
with Comware for US sales or in excess of the minimum offering
territory as defined at the end amount are received. In addition,
of the trial basis. Target the president and the directors
governmental and foreign markets. will be compensated from the
offering proceeds to the extent
they engage in developing our
business, which may include
marketing advice or activities.
Seek product and technology Conduct this offering to obtain Ongoing process which can
opportunities which expand our needed funds to continue the commence immediately after
business in both the area of distribution agreement with receipt of minimum offering
testing and trouble shooting as Pensar and to hire a product amount. Upon receipt of minimum,
well as other areas that will developer and establish payments can continue to Pensar
maximize our value. relationships with independent for the distribution agreement
technology companies and rights. Upon receipt of the
developers. 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.
Ongoing process which can
Seek to establish strategic Conduct this offering to obtain commence immediately after
alliances that will maximize our needed funds to pay for the receipt of minimum offering
value. services of the president, the amount. Upon receipt of minimum,
directors and consultants to and upon the receipt of amounts
conduct due diligence on market between the minimum and the
needs and opportunities for our maximum, we can pay our
company to increase its value. president, 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 then a continuing effort
and continue marketing efforts. thereafter.
</TABLE>
38
<PAGE>
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.
We cannot assure you that any, or all, of the events previously outlined
can, or will, occur within the expected time frame.
We have scaled back operating costs and will continue to do so until we
receive 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 the achievement of these goals involves
a process cannot necessarily be defined by a list of separately identifiable
date-certain milestones.
To make our company profitable, we estimate we will require a minimum
of $125,000 in capital to be used over a 12-18 month period for such costs as
marketing and sales staff salaries and support, as well as advertising, trade
show participation and reimbursement of costs to subcontracted distributors, if
any.
In the event we encounter delays in the successful marketing of our
products, we can expect consequences which include reduction in advertising
expenditures, participation in tradeshows and possibly layoff of marketing and
sales staff and support, in that order. Should, such events occur, we have the
option to terminate the agreement with Pensar, and re-evaluate our sales and
marketing efforts.
39
<PAGE>
DESCRIPTION OF OUR PROPERTY
We currently sublease approximately 2,000 square feet of office and warehouse
space at 4703 Shavano Oak, Suite 102, San Antonio, Texas, which we use for our
corporate offices. This lease is month to month, with prime lease expiring June
30, 2001. Our lease payment is $450 per month plus expenses. We have a right to
renew this sub-lease for an additional 3 year period upon terms to be
negotiated.
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.
DIRECTORS, OFFICERS AND KEY PERSONNEL OF THE COMPANY.
Listed below are our officers and directors and their previous experience. The
directors have been elected by the present shareholders and shall serve for
terms of one year, or until their successors are elected and have qualified.
Officers are appointed by, and serve at the pleasure of, the board of directors.
CAREY BIRMINGHAM, PRESIDENT, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER
AND DIRECTOR, AGE 44
For the past five years Carey Birmingham has served as chairman and president of
ITS, as well as Pensar LLC, and has been responsible for long-term strategic
planning and all day-to-day administrative activities, including marketing,
finance, profit and loss responsibility, building strategic alliances and
developing sales. Mr. Birmingham is a full-time employee of our company. In
addition to acting as the chief executive officer and president, he acts as the
chief operating officer and chief financial officer of the company.
During the past 14 years, in addition to his work in venture capital and
individual investments, Mr. Birmingham had served in various capacities as Asset
Manager and Sr. Asset Manager for New York Life Insurance, Vice President for
Unicorp American Corporation, Executive Vice President for Unicorp Property
Management, Portfolio Director for United Services Automobile Association (USAA)
and consultant for Fidelity Mutual Life Insurance and Mutual Benefit Life. Mr.
Birmingham has been responsible for the asset and property management of real
estate portfolios valued in excess of $250 Million at New York Life, $300-$400
Million at Unicorp American, $200-$300 Million at USAA and approximately $300
-$400 million at Fidelity and Mutual Benefit Life. During his tenure with these
companies, Mr. Birmingham generated gross sales proceeds of over $700 million
from the sale of properties.
Office Address: International Test Systems, Inc.
4703 Shavano Oak, Suite 102
San Antonio, TX 78249
210-479-4756
Fax: 210-408-1856
Email: [email protected]
40
<PAGE>
R. SCOTT BARTER, CHAIRMAN OF THE BOARD AND DIRECTOR, AGE 53.
Mr. Barter, age 53, is the Founder, Chairman, Chief Executive Officer and a
Director of Unifund Financial Group, Inc. since its inception in 1991 and
Unifund America, Inc. since its inception in 1995. 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.
Office Address Unifund America, Inc.
575 Madison Avenue
Suite 1006
New York, New York 10022
HENRIK YOUVAL KRIGEL, DIRECTOR AND CONSULTANT, AGE 47.
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.
Since joining our company as a Director in June 1999, Mr. Krigel has worked full
time for Ktest International, LLC a company unrelated to our company. Ktest
designs and sells test equipment for the avionics wire harness repair market.
Since June 1999, Mr. Krigel has spent less than 10 hours a month on ITS matters,
although we share office space with his company and he is available to our
company at any time for consultation or advice.
As co-designer of the CircuiTest systems, Mr. Krigel served as Vice President of
Pensar LLC from its inception in 1994 until the formation of International Test
Systems in September 1996, at which time he resigned to become Vice President of
R&D for ITS until June 1999. As Vice President of ITS, Mr. Krigel was
responsible for creation, design and planning of new products for both Pensar
Inc. and International Test Systems.
41
<PAGE>
Prior to the formation of Pensar Inc., he served from 1986-1992 as founder, Vice
President and Director of Protech, Inc., a development stage, 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. Mr. Krigel resigned as an officer and director of
Protech in 1992 when the company relocated to California. He was not required to
sign a non-compete agreement and, to the best of his knowledge, no general
company requirement existed at the time. Subsequently, in 1993, Protech
dissolved and is no longer in business.
Mr. 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 as an independent contractor at
the rate of $75.00 per hour. We do not have an employment or consulting
agreement with Mr. Krigel.
Office Address: Ktest International, LLC
4703 Shavano Oak, Suite 102
San Antonio, TX 78249
210-408-8005
Fax: 210-408-1856
Email: [email protected]
----------------------------
Mr. Krigel is the only member of ITS to have worked in a related industry. It is
important to point out, however, that wide and significant technical differences
exist between our products and the products he designed and produced for his
previous employers. Management believes these technical differences, combined
with the fact the his previous employer, Protech, no longer exists, obviates the
need for any additional precautions or releases. In addition, the technology is
owned by the manufacturer, Pensar, and they have agreed to indemnify us against
any claims in this regard.
ITS Delaware was formed in September 1999 and is the successor to ITS Texas. Mr.
Birmingham, the President of both companies, was responsible for the formation
and management of ITS Texas in September 1996 which was a development stage
company. Prior to the formation of ITS Texas, Mr. Birmingham was also
responsible for the formation of Pensar Technologies in 1995, a start-up company
created to design and market the technology known as the 2000S In-Circuit Test
System.
Note: After reviewing the information concerning the background of our 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.
EMPLOYMENT AGREEMENTS
We do not presently have any employment or consulting agreements, although we
may enter into employment agreements with certain officers, directors or other
key personnel.
42
<PAGE>
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 our company's
development.
RELATIONSHIPS AMONGST MANAGEMENT
There are no family relationships amongst the management of the company
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding the beneficial
ownership of shares of common stock of the company by our officers, directors,
principal owners of ten percent (10%) or more of our common stock, and those
holders of five percent (5%) or more of stock in our company both prior to the
offering as well as after completion of the offering. Based on information
furnished by these individuals and/or groups, we believe that they are the
beneficial owners of the common stock listed below, and unless otherwise noted,
have sole investment and voting power with respect to such shares, except in
those cases where community property laws may apply.
Prior to the offering and according to the records provided by the company
(which currently has 1,850,000 shares of common stock outstanding), the
officers, directors, principal owners of ten percent (10%) or more of our common
stock, and holders of five percent (5%) or more of our common stock, owned the
following number of shares:
<TABLE>
<CAPTION>
NUMBER PERCENTAGE AVERAGE
NAME OF SHARES NOW HELD PRICE PER SHARE
---- --------- -------------------------------
<S> <C> <C> <C>
Unifund Financial Group, Inc.* 1,020,000 55.1% .05
Carey Birmingham 493,000 26.6% .05
R. Scott Barter 125,000 6.8% .05
H. Youval Krigel 35,800 1.9% .05
(All officers and directors
as a group - 4 persons) 1,673,800 90.5% .05
*This entity is controlled by Mr. Barter and his share ownership in
Unifund Financial Group, Inc. is attributed to him.
Totals 1,673,800 90.5%
</TABLE>
Upon completion of the offering, officers, directors, principal holders of
ten percent (10%) or more of our common stock and holders of five percent (5%)
or more of our common stock will hold, in the aggregate 1,673,800 shares issued
43
<PAGE>
and outstanding, if the minimum amount is sold and 1,673,800 shares issued and
outstanding if the Maximum Amount is sold.
PERCENTAGE OF COMMON STOCK
NUMBER
NAME OF OWNERS OF SHARES MINIMUM MAXIMUM
---------------------------------------------------------------------
Unifund Financial Group, Inc. 1,020,000* 55.5% 32.9%
Carey Birmingham 493,000 22.8% 15.9%
R. Scott Barter 125,000 5.8% 4.0%
H. Youval Krigel 35,800 1.7% 1.2%
*This entity is controlled by Mr. Barter and his share ownership in
Unifund Financial Group, Inc. is attributed to him.
1,673,800 77.4% 54%
--------- ------ ----
(All officers and directors
as a group -4 persons)
TOTALS 1,673,800 77.4% 54%
========= ===== =====
44
<PAGE>
MANAGEMENT COMPENSATION AS OF THE FISCAL YEAR ENDING
CASH OTHER
President and Director - C. Birmingham $ 34,350 0
Vice President and Director - Y. Krigel $ 57,600 0
TOTAL $ 91,950 0
Directors as a group:
(number of persons 2) $ 91,950 0
It is anticipated that the president of our company will receive an estimated
base salary of between $40,000 and $75,000 (depending upon revenue and 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 our
company, will be based upon milestones in gross revenue increases and our
profitability. Based upon successfully meeting the milestones, such bonuses may
equal 100% of the individual's annual salary, or more.
Director compensation and insurance benefits will commence after we raise at
least $300,000. We have allocated $15,000 based upon interim financing levels
and $60,000 based on maximum financing levels. Thereafter, director compensation
will be allocated in accordance with a director's level of engagement with the
company and at the discretion of the board of directors.
SELLING SHAREHOLDERS
All securities held by existing shareholders will be subject to a
one-year "lockup" period during which they will be unable to offer and/or sell
shares currently held by them. After the expiration of such period, there will
be no limitations on any such shareholder's ability to sell shares assuming that
a registration statement with respect to such shares is then in effect and any
sale must occur at not less than $0.40 per share.
The shareholdings of our officers and directors is set forth under the
heading "Security Ownership of Certain Beneficial Owners and Management". There
are 176,200 shares held by individuals who are neither officers nor directors.
The names and shareholdings of the selling shareholders and their percentage
ownership of the common stock of the company if the minimum and maximum number
of shares are sold as well as if all warrants are exercised are as follows:
45
<PAGE>
<TABLE>
<CAPTION>
Name of Owner Number of % if Minimum % if Maximum Offering % if Maximum Offering
Shares Offering Amount Amount Sold Amount Sold and all
Sold (Assuming only Warrants Exercised
Common Stock sold)
<S> <C> <C> <C> <C>
Unifund Financial Group 1,020,000 47.2% 32.9% 18.2%
Carey Birmingham 493,000 22.3% 15.9% 8.8%
R. Scott Barter 125,000 5.8% 4.0% 2.2%
Douglas Harrison-Mills 50,000 2.3% 1.6% 0.9%
Sheila Corvino 50,000 2.3% 1.6% 0.9%
Kaplan Gottbetter & Levenson, 50,000 2.3% 1.6% 0.9%
LLP
H. Youval Krigel 35,800 1.7% 1.2% 0.6%
Harris Schiff 10,000 0.5% 0.3% 0.2%
Alan Scott 5,000 0.2% 0.1% 0.0%
Elizabeth Acton 5,000 0.2% 0.1% 0.0%
Stephen G. Birmingham 5,000 0.2% 0.1% 0.0%
Dr. Ed Lahniers 500 0.0% 0.0% 0.0%
Andree Sonsino 400 0.0% 0.0% 0.0%
Raphael Sonsino 300 0.0% 0.0% 0.0%
TOTAL 1,850,000 85.0% 59.5% 32.7%
</TABLE>
Of the individuals listed above, Carey Birmingham serves as President and CEO,
R. Scott Barter and H. Youval Krigel are both directors of the company. Others
may be considered to be "significant employees" and a description of their
activities during the prior three years is included in the section entitled
"Directors, Executive Officers, Promoters and Control Persons".
Carey Birmingham, Scott Barter and Youval Krigel are directors of our company.
Carey Birmingham, Youval Krigel and Raphael Sonsino were founding shareholders
of ITS Texas. During the first quarter of 1997 in a private sale pursuant to
Section 4(2) of the Securities Act, Stephen G. Birmingham, Dr. Ed Lahniers, and
Andree Sonsino purchased shares in ITS Texas for a capital investment of
$50,000, $5,000 and $2,000, respectively. Upon formation of our company, all
holders exchanged all of their shares in ITS Texas for shares in our company.
Kaplan Gottbetter & Levenson LLP and Sheila Corvino, Esq. performed legal
services for our company. They received a portion of their remuneration in
shares of our Company. Douglas Harrison Mills, Harris Schiff, Alan Scott and
Elizabeth Acton was awarded shares in our company for consulting services. Mr.
Harrison-Mills provided creative and drafting services to the company. Mr.
Schiff provided word processing and management information services to the
company. Mr. Scott provided legal services to the company and Ms. Acton provided
administrative services to the company. Mr Birmingham received a portion of his
shares in lieu of payment for his services as a chief executive officer and
director for the year ended 1999. Mr. Krigel received a portion of his shares in
lieu of payment for consulting and directorial services for the year ended 1999.
46
<PAGE>
Unifund Financial Group received its shares as remuneration for consulting
services pursuant to the Distribution Agreement. Scott Barter received 125,000
shares in remuneration for his directorial function and consulting services . In
January, 2000, Carey Birmingham and Unifund Financial Group, Inc. made an
additional capital contribution to the company to cover on-going expenses. The
company issued shares in consideration for this contribution. Each of Unifund
Financial Group, Inc. contributed $25,000 in consideration for 250,000 shares
being awarded to each of them
DESCRIPTION OF THE SECURITIES
The securities offered for sale consist of
1,250,000 shares of common stock, par value $0.001 per share, which
can be purchased for $0.40 per share,
1,250,000 class A redeemable warrants, which can be purchased for
$0.10 per warrant, and which may be exercised for one share of common
stock at an exercise price of $2.50 per share, and
1,250,000 class B redeemable warrants, which can be purchased for
$0.10 per warrant and which may be exercised for one share of common
stock at an exercise price of $4.50 per share.
COMMON STOCK
We are authorized to issue up to 20,000,000 shares of common stock, par
value $.001 per share, of which 1,850,000 shares are outstanding on the date
hereof. Holders of common stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may be outstanding, if and when the board of
directors declares dividends, holders of common stock are entitled to ratably
receive, such dividends. Upon the liquidation, dissolution, or winding up of the
company, holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and payment of accrued dividends and
liquidation preferences on the preferred stock, if any. Common stock is not
convertible, nor does it have any preemptive rights. The outstanding common
stock is validly authorized and issued, fully paid, and nonassessable.
We will, at all times, reserve a sufficient number of authorized but
unissued shares to accommodate the exercise of warrants. There is no assurance
that any such exercise will take place and therefore no assurance that we will
have available to us proceeds from an exercise.
WARRANTS
The company will offer class A redeemable warrants and class B
redeemable warrants. The following discussion of certain terms and provisions of
47
<PAGE>
the warrants is qualified in its entirety by reference to the detailed
provisions of each warrant and its related warrant agreement, the forms of which
have been filed as exhibits to the registration statement of which this
prospectus forms a part. Both the class A redeemable warrant and the class B
redeemable warrant and the class A redeemable warrant agreement and class B
redeemable warrant agreement can be inspected and copied by the public at the
offices of the SEC in Washington, D. C., New York, New York, and Chicago,
Illinois.
THE CLASS A REDEEMABLE WARRANTS
The class A redeemable warrants will be issued in registered form
pursuant to an agreement dated the date of this prospectus between the company
and American Stock Transfer and Trust Company . One class A redeemable warrant
represents the right of the registered holder to purchase one share of common
stock at an exercise price of $2.50 per share, subject to adjustment . The class
A redeemable warrants are subject to adjustment in the purchase price and in the
number of shares of common stock and/or other securities deliverable upon the
exercise of the class A redeemable warrants in the event of certain stock
dividends, stock splits, reclassifications, reorganizations, consolidations or
mergers.
The class A redeemable warrants may be exercised at any time after
issuance, until the close of business on the third anniversary of the effective
date of the offering. After the expiration date, the class A redeemable warrants
become void and of no value. A holder of the class A redeemable warrants may
exercise them at the office of the class A redeemable warrant agent (now located
at 40 Wall Street, NY, NY 10005) by surrendering his or her warrant, and paying
the exercise price for each warrant being exercised.
No holder of the class A redeemable warrants will be entitled to vote
or to receive dividends or be deemed the holder of shares of common stock for
any purpose whatsoever until the class A redeemable warrants have been duly
exercised and the exercise price paid in full.
The class A redeemable warrants are subject to redemption by the
company anytime on 30 days written notice at a redemption price of $.01 per
warrant, provided that the trading price of the underlying common stock is at
least 150% of the then current per share exercise price for 20 or more
consecutive trading days. Upon notice of redemption, holders of the class A
redeemable warrants will forfeit all rights there under except the rights to
receive the $0.01 per share redemption price and to exercise them during the
relevant 30-day notice period.
If required, the company will file a post-effective amendment to the
registration statement with the Securities and Exchange Commission with respect
to the common stock underlying the class A redeemable warrants prior to the
exercise of the class A redeemable 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.
THE CLASS B REDEEMABLE WARRANTS
The class B redeemable warrants will be issued in registered form
pursuant to an agreement dated the date of this Prospectus between the company
48
<PAGE>
and American Stock Transfer and Trust Company . One class B redeemable warrant
represents the right of the registered holder to purchase one share of common
stock at an exercise price of $4.50 per share, subject to adjustment. The class
B redeemable warrants are subject to adjustment in the exercise price and in the
number of shares of common stock and/or other securities deliverable upon the
exercise of the class B redeemable warrants in the event of certain stock
dividends, stock splits, reclassifications, reorganizations, consolidations or
mergers.
The class B redeemable warrants may be exercised at any time after
issuance, until the close of business on the fifth anniversary of the effective
date of this offering. After the expiration date, the class B redeemable
warrants become void and of no value. A holder of the class B redeemable
warrants may exercise them at the office of the class B redeemable warrant agent
(now located at 40 Wall Street, NY, NY 10005) by surrendering his or her
warrant, and paying the class B exercise price for each class B redeemable
warrant being exercised.
No holder of the class B redeemable warrants will be entitled to vote
or to receive dividends or be deemed the holder of shares of common stock for
any purpose whatsoever until the class B redeemable warrants have been duly
exercised and the exercise price paid in full.
The class B redeemable warrants are subject to redemption by the
company anytime on 30 days written notice at a redemption price of $.01 per
warrant, provided that the trading price of the underlying common stock is at
least 150% of the then current per share exercise price for 20 or more
consecutive trading days. Upon notice of redemption, holders of the class B
redeemable warrants will forfeit all rights there under except the rights to
receive the $0.01 per share redemption price and to exercise them during the
relevant 30-day notice period.
If required, the company will file a post-effective amendment to the
registration statement with the Securities and Exchange Commission with respect
to the common stock underlying the class B redeemable warrants prior to the
exercise of the class B redeemable warrants and deliver a prospectus with
respect to such common stock to all class B redeemable warrant holders as
required by Section 10(a)(3) of the Securities Act of 1933.
Note: Attached to this prospectus are copies of the charter, bylaws that gives
rise to the rights of other securities being offered.
DIVIDEND POLICY
We have not paid any cash dividends to date, there are no assets
available to pay dividends, and we do not expect to pay dividends in the
foreseeable future. We intend, in the short term at least, to use all available
funds to develop our business.
49
<PAGE>
LEGAL PROCEEDINGS
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
Potential investors are encouraged to have their own personal tax
consultant review the tax aspects of an investment in this offering.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Carey Birmingham is chairman and president of our company as well as
that of Pensar LLC. On June 16, 1999, ITS Texas transferred all of its
technology to Pensar LLC in exchange for which Pensar LLC assumed all of the
liabilities of ITS Texas. On June 19, 1999, Pensar LLC and ITS Texas entered
into a renewable, ten-year distribution agreement granting ITS Texas the
exclusive, worldwide right to market, sell and distribute products based on
Pensar technology. Pursuant to the reorganization, our company (ITS Delaware)
was organized on September 20, 1999. ITS Texas assigned us the distribution
agreement with Pensar LLC. On April 15, 2000, we amended the compensation
section of our distribution agreement with Pensar.
Mr. Carey Birmingham was president of both ITS and Pensar during the
transactions described in this prospectus. He was at such time, and remains, the
majority shareholder in Pensar. The exchange and distribution agreements between
ITS and Pensar were approved by Mr. Birmingham and the Birmingham Family
Partnership, Ltd., Pensar's largest creditor and second largest shareholder.
While Pensar owned 45.625% of the total shares of ITS Texas immediately
prior to the June 16, 1999 merger with Unifund, Pensar was not directly involved
in the negotiations which resulted in the formation of ITS Delaware, although it
did consent to the assignment and assumption of the distribution agreement.
Pensar owns no shares in ITS Delaware and Unifund Financial Group, Inc. acquired
61.6% of our shares in this transaction for management, business and marketing
advice and the payment of certain legal and accounting expenses in connection
with the reorganization of our business in Delaware.
In January, 2000, Scott Barter, Carey Birmingham and Unifund Financial
Group, Inc. made an additional capital contribution to the company to cover
on-going expenses. The company issued shares in consideration for this
contribution. Each of Mr. Barter and Unifund Financial Group, Inc. contributed
$25,000 in consideration for 250,000 shares being awarded to each of them. Mr.
Birmingham contributed $25,000 in consideration for 250,000 shares being awarded
to him.
None of the officers, directors, key personnel or principal
stockholders are related by blood or marriage.
50
<PAGE>
INTERESTS OF NAMED EXPERTS AND COUNSEL
The Company's Financial Statements as of December 31, 1999, December
31, 1998 and December 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 services
rendered which shares they have agreed not to sell 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
for any breach of such director's duty of loyalty to the company or
its stockholders,
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
under Delaware statutory provisions making directors personally
liable, under a negligence standard, for unlawful dividends or
unlawful stock repurchases or redemptions, or
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. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of our company pursuant to the foregoing provisions, or otherwise, we have 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.
51
<PAGE>
52
<PAGE>
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 our company, or is or was serving at the request
of our 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.
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 Securities and Exchange 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 Securities and
Exchange Commission upon the payment of certain fees prescribed by the
Securities and Exchange Commission. The SEC also maintains a site on the World
Wide Web at http://www.sec.gov that contains information regarding registrants
that file electronically with the Securities and Exchange Commission.
53
<PAGE>
As filed with the Securities and Exchange Commission on July 26, 2000
-- Registration No. 333-88179
[OBJECT OMITTED] INITIAL PUBLIC OFFERING
PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 26, 2000
INTERNATIONAL TEST SYSTEMS, INC.
4703 Shavano Oak, Suite 102
San Antonio, Texas 78249
-------------------------------------------------------------------------
1,850,000 SHARES OF COMMON STOCK
-------------------------------------------------------------------------
This prospectus relates to the public offering, which is not being underwritten,
of up to 1,850,000 shares of our common stock by some of our shareholders.
Shares sold pursuant to this prospectus will be sold for $5.00 per share. We
will not receive any of the proceeds from the sale of the shares.
The shares of our common stock offered by the selling shareholders pursuant to
this involves substantial risk. See "Risk Factors" beginning on page 6.
--------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-------------------------------------------------------------------------------
We will amend and complete the information in this prospectus. Although the
Selling shareholders are permitted by U.S. federal securities laws to offer
these securities using this prospectus, the selling shareholders may not sell
them or accept your offer to buy them until the documentation filed with the SEC
relating to these securities has been declared effective by the SEC. This
prospectus is not an offer to sell these securities or our solicitation of your
offer to buy these securities in any jurisdiction where that would not be
permitted or legal.
[ALTERNATE PAGE FOR PROSPECTUS RELATING TO SECONDARY SHARES]
A-1
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY
RISK FACTORS
PLAN OF DISTRIBUTION
USE OF PROCEEDS
GENEERAL CORPORATE AND WORKING CAPITAL PURPOSES
DILUTION
CAPITALIZATION
BUSINESS OF THE COMPANY
THE PRODUCTS WE INTEND TO DISTRIBUTE
PROVEN METHODS OF PRODUCTION WILL BE USED
FUTURE PRODUCTS
OUR MARKET STRATEGY
OUR SIGNIFICANT EMPLOYEES
OUR INTELLECTUAL PROPERTY
THE DEVELOPMENT OF OUR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD
FROM INCEPTION
EVENTS OR MILESTONES
DESCRIPTION OF OUR PROPERTY
DIRECTORS, OFFICERS AND KEY PERSONNEL OF THE COMPANY
EMPLOYMENT AGREEMENTS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SELLING SHAREHOLDERS
DESCRIPTION OF THE SECURITIES
LEGAL PROCEEDINGS
FEDERAK TAX ASPECTS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INTERESTS OF NAMED EXPERTS AND COUNSEL
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
CERTAIN PROVISIONS OF OUR ARTICLES AND BY LAWS AND
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
WHERE CAN INVESTORS FIND ADDITIONAL INFORMATION
[ALTERNATE PAGE FOR PROSPECTUS RELATING TO SECONDARY SHARES]
A-2
THE SALE OF THE SHARES OF OUR COMMON STOCK REGISTERED PURSUANT TO THIS
PROSPECTUS HAS BEEN DECLARED EFFECTIVE IN THE FOLLOWING STATES:
WE HAVE NOT AUTHORIZED ANY DEALER, SALES PERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THAT WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF
INTERNATIONAL TEST SYSTEMS, INC. HAVE NOT CHANGED SINCE THE DATE HEREOF.
[ALTERNATE PAGE FOR PROSPECTUS RELATING TO SECONDARY SHARES]
A-3
<PAGE>
THE OFFERING
We will not receive any proceeds from the shares sold by the
selling shareholders.
[ALTERNATE PAGE FOR PROSPECTUS RELATING TO SECONDARY SHARES]
A-4
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following tables presents certain information regarding the beneficial
ownership of our common stock as of June 30, 2000 by the following:
Each person who is known by us to own beneficially more than five percent of our
outstanding common stock;
Each of our directors and executive officers named in the Summary Compensation
Table; Each selling shareholder; and All of our current executive officers and
directors as a group. The percentage of outstanding shares is based on 1,850,000
shares of our common stock outstanding as of June 30, 2000 and 3,10,000 shares
of our common stock outstanding immediately following completion of this
offering.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to the Offering After the Offering(2)
Number Percent Shares Number Percent
Offered(1)
Directors, Officers and 5%
Shareholders
<S> <C> <C> <C> <C>
Carey Birmingham 493,000 55.1% All -0- -0-
Unifund Financial Group, Inc.* 1,020,000 26.6% All -0- -0-
R. Scott Barter 125,000 6.8% All -0- -0-
H. Youval Krigel 35,800 1.9% All -0- -0-
(All officers and directors 1,873,800 90.5% All -0- -0-
as a group - 4 persons)
Selling Shareholders:
Sheila Corvino 50,000 2.7% All -0- -0-
Brad Smith 50,000 2.7% All -0- -0-
Douglas Harrison Mills 50,000 2.7% All -0- -0-
Kaplan Gottbetter & Levenson, LLP 50,000 2.7% All -0- -0-
Harris Schiff 10,000 0.54% All -0- -0-
Alan Scott 5,000 0.27% All -0- -0-
Elizabeth Acton 5,000 0.27% All -0- -0-
Stephen G. Birmingham 5,000 0.27% All -0- -0-
Dr. Ed Lahniers 500 0.027% All -0- -0-
Andree Sonsino 400 00.2% All -0- -0-
Raphael Sonsino 300 00.1% All -0- -0-
</TABLE>
*This entity is controlled by Mr. Barter and its share ownership in us is
attributed to him.
(1) There is no assurance that the selling shareholders will sell any or all of
these shares.
(2) Assumes that the directors, officers and 5% shareholders and the selling
shareholders acquire no additional shares of our common stock prior to the
completion of this offering.
The SEC deems a security holder the beneficial owner of a security when
that person maintains voting or investment power with respect to security,
subject to community property laws, where applicable. If stock options are
presently exercisable or exercisable within 60 days of October __, 2000, the SEC
will deem the shares underlying those options to be outstanding and beneficially
owned by their holder when computing the percentage of common stock held by that
person. However, the SEC will not deem shares underlying these options to be
outstanding when computing the percentage of common stock held by others.
[ALTERNATE PAGE FOR PROSPECTUS RELATING TO SECONDARY SHARES]
A-5
<PAGE>
RELATIONSHIPS AMONG THE SELLING SHAREHOLDERS AND INTERNATIONAL TEST SYSTEMS,
INC.
We have had material relationships with several of the selling shareholders in
the past three years. See the discussion set forth in "Directors, Officers and
Key Personnel of the Company" for a description of business relationships with
International Test Systems, Inc.
Unless otherwise noted, all shareholders listed have sole voting and investment
power with respect to their shares. There are no family relationships among our
executive officers and directors.
[ALTERNATE PAGE FOR PROSPECTUS RELATING TO SECONDARY SHARES]
A-6
<PAGE>
ITEM 2.
SIGNIFICANT PARTIES
The full names and business and residential addresses, as applicable, for the
following persons are:
(1) the issuer's directors;
Carey Birmingham
Business Address:
International Test Systems, Inc.
4703 Shavano Oak, Suite 102
San Antonio, TX 78249
Residence:
19818 Park Ranch
San Antonio, Texas 78259
R. SCOTT BARTER
Business Address:
Unifund America, Inc.
575 Madison Avenue
Suite 1006
New York, New York 10022
Residence:
140 East 56th Street
Apartment 7D
New York, New York 10022
H. YOUVAL KRIGEL
Business Address:
Ktest International, LLC
4703 Shavano Oak, Suite 102
San Antonio, TX 78249
Residence:
14326 Citation
San Antonio, Texas 78248
(2) the issuer's officers;
Carey Birmingham, President, Chief Executive Officer and
Chief Financial Officer
Business Address:
International Test Systems, Inc.
4703 Shavano Oak, Suite 102
San Antonio, TX 78249
Residence:
19818 Park Ranch
San Antonio, Texas 78259
(3) record and beneficial owners of 5 percent or more of any class of the
issuer's equity securities;
Carey Birmingham
Business Address:
International Test Systems, Inc.
4703 Shavano Oak, Suite 102
San Antonio, TX 78249
Residence:
19818 Park Ranch
San Antonio, Texas 78259
R. SCOTT BARTER
Business Address:
Unifund America, Inc.
575 Madison Avenue
Suite 1006
New York, New York 10022
Residence:
UNIFUND FINANCIAL GROUP
575 Madison Avenue
Suite 1006
New York, New York 10022
H. YOUVAL KRIGEL
Business Address:
Ktest International, LLC
4703 Shavano Oak, Suite 102
San Antonio, TX 78249
Residence:
14326 Citation
San Antonio, Texas 78248
(4) promoters of the issuer;
none
(5) affiliates of the issuer;
none
(6) counsel to the issuer with respect to the proposed offering; Kaplan
Gottbetter & Levenson, LLP Attorneys at Law 630 Third Avenue
New York, New York 10017-6705
(7) each underwriter with respect to the proposed offering;
none
<PAGE>
THOMAS P. MONAHAN, P.C.
INTERNATIONAL TEST SYSTEMS, INC.
Financial Statements
December 31, 1999 and June 30, 2000
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
Financial Statements
December 31, 1999 and June 30, 2000
TABLE OF CONTENTS
Page
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Cash Flows 4
Statement of Shareholders Equity 5
Notes to the Financial Statements 6
<PAGE>
<PAGE>
THOMAS P. MONAHAN
CERTIFIED PUBLIC ACCOUNTANT
208 LEXINGTON AVENUE
PATERSON, NEW JERSEY 07502
(973) 790-8775
FAX (973) 790-8845
To The Board of Directors and Shareholders
of International Test Systems, Inc., (a development stage company)
I have audited the accompanying balance sheet of International Test
Systems, Inc., (a development stage company) as of December 31, 1999 and the
related statements of operations, cash flows and shareholders' equity for the
period from inception, May 13, 1999, to December 31, 1999. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of International Test
Systems, Inc., (a development stage company) as of December 31, 1999 and the
results of its operations, shareholders equity and cash flows for period from
inception, May 13, 1999, to December 31, 1999 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
International Test Systems, Inc., (a development stage company) will continue as
a going concern. As more fully described in Note 2, the Company has incurred
operating losses since the date of reorganization and requires additional
capital to continue operations. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans as to
these matters are described in Note 2. The financial statements do not include
any adjustments to reflect the possible effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the possible inability of International Test Systems, Inc., (a
development stage company) to continue as a going concern.
Thomas P. Monahan, CPA
March 17, 2000
Paterson, New Jersey
F-1
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
December 31, 2000
1999 Unaudited
---- ---------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents 8,265 34,597
Commissions receivable 497 18,657
--------- ---------
Total current assets 8,762 52,254
Other assets
Prepaid offering costs 33,472 34,737
--------- ---------
Total other assets 33,472 34,737
--------- ---------
Total assets $ 42,234 $ 87,991
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 7,479 $ 9,812
Accounts payable -related party -- 1,525
--------- ---------
7,479 11,337
Stockholders' equity
Preferred Stock authorized 5,000,000 shares, $.001 par value each $-0- $-0-
At December 31, 1999 and June 30, 2000 there were -0- and -0- shares
outstanding respectively
Common Stock authorized 20,000,000 shares, $.001 par value each 1,350 1,850
At December 31, 1999 and June 30, 2000, there are 1,350,000 and
1,850,000 shares outstanding respectively
Additional paid in capital 96,100 145,600
Deficit accumulated during development stage (62,695) (70,796)
--------- ---------
Total stockholders' equity 34,755 76,654
--------- ---------
Total liabilities and stockholders' equity $ 42,234 $ 87,991
========= =========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the period
For the period from inception,
from inception, For the six September 30,
September 20, months ended 1999, to
1999, to June 30, June 30,
December 31, 1999 2000 2000
----------------- -------- ---------
Unaudited Unaudited
<S> <C> <C> <C>
Revenue $ 497 $ 18,656 $ 19,153
Costs of goods sold -0- -0- -0-
----------- ----------- -----------
Gross profit 497 18,656 19,153
Operations:
General and administrative 35,742 26,757 62,499
Issuance of stock for payment of consulting fees 20,650 20,650
Issuance of stock for payment of license rights 6,800 6,800
Depreciation and amortization -0- -0- -0-
----------- ----------- -----------
Total expense 63,192 26,757 89,949
Loss from operations (62,695) (8,101) (70,796)
Net income (loss) $ (62,695) $ (8,101) $ (70,796)
=========== =========== ===========
Net income (loss) per share -basic $ (0.20) $ (0.01)
=========== ===========
Number of shares outstanding-basic 316,666 1,458,333
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
from inception, For the six For the period from
September 20, months ended inception,
1999, to June 30, September 20, 1999,
December 31, 2000 to June 30, 2000
1999 Unaudited Unaudited
---- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $(62,695) $ (8,101) $ (70,796)
Adjustments to reconcile net loss to cash used in operating
activities
Depreciation -0- -0- -0-
Issuance of stock for payment of consulting fees 20,650 20,650
Issuance of stock for payment of legal fees 5,000 5,000
Issuance of stock for payment of license rights 6,800 6,800
Commissions receivable (497) (18,160) (18,657)
Accounts payable and accrued expenses 7,479 3,858 11,337
-------- -------- ---------
TOTAL CASH FLOWS FROM OPERATIONS (23,263) (22,403) (45,666)
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of shares 65,000 50,000 115,000
-------- -------- ---------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 65,000 50,000 115,000
CASH FLOWS FROM INVESTING ACTIVITIES
Pre offering costs (33,472) (1,265) (34,737)
-------- -------- ---------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (33,472) (1,265) (34,737)
NET INCREASE (DECREASE) IN CASH 8,265 26,332 34,597
CASH BALANCE BEGINNING OF PERIOD -0- 8,265 -0-
-------- -------- ---------
CASH BALANCE END OF PERIOD $ 8,265 $ 34,597 $ 34,597
======== ======== =========
</TABLE>
Supplemental disclosure of cash flow information Cash paid for interest Cash
paid for income taxes
See accompanying notes to financial statements
F-4
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Deficit
Additional accumulated
paid in during
Date Common Stock Common Stock capital development stage Total
---- ------------ ------------ ------- ----------------- -----
<S> <C> <C> <C> <C> <C>
Initial sale of shares 770,000 $ 770 $ 39,230 $ 40,000
Issuance of shares for license 17,000 17 6,783 6,800
rights
Issuance of shares for 513,000 513 25,137 25,650
consulting fees
Sale of shares 50,000 50 24,950 25,000
Net loss (62,695) (62,695)
---------- ---------- ---------- ----------
Balance December 31, 1999 1,350,000 $ 1,350 $ 96,100 $ (62,695) $ 34,755
Unaudited
Sale of shares 500,000 500 49,500 50,000
Net loss (8,101) (8,101)
---------- ---------- ---------- ----------
Balance June 30, 2000 1,850,000 $ 1,850 $ 145,600 $ (70,796) $ 76,654
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
INTERNATIONAL TEST SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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 purchase
the business of International Test System, Inc. a corporation formed under the
laws of the State of Texas ("ITS Texas") has acquired through an agreement with
Pensar Technology LLC ("Pensar") a license and marketing agreements the rights
to a Distribution Agreement ("Agreement") 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
The company sold 770,000 shares of common stock to Unifund Financial
Group, Inc. in consideration for $40,000 or $0.05 per share.
On September 20, 1999, the Company issued an aggregate of 17,000 shares
of common stock to shareholders of ITS Texas in consideration for the rights to
a 10 year license agreement. The shares were issued as follows: 10,800 to H.
Youval Krigel; 5,000 shares to Stephen G. Birmingham; 400 shares to Andree
Sonsino; 300 shares to Raphael Sonsino and 500 shares to Dr. Ed. Lahniers.
On September 30, 1999, the Company issued 100,000 shares of common
stock to R. Scott Barter in consideration of consulting services valued at
$5,000 or $0.05 per share.
On September 30, 1999, the Company issued an aggregate of 193,000
shares of common stock to Carey Birmingham, President of the Company, valued at
$9,650 or $0.05 per shares in consideration for consulting services.
On September 30, 1999, the Company issued 50,000 shares of common stock
to Kaplan Gottbetter & Levenson, LLP. and 50,000 shares of common stock to
Sheila Corvino, Esq. in consideration of legal services valued at an aggregate
of $5,000 or $0.05 per share.
The Company issued an aggregate of 70,000 shares of common stock as
follows: 50,000 shares to Douglas Harrison-Mills; 10,000 shares of common stock
to Harris Schiff; 5,000 shares of common stock to Alan Scott; 5,000 shares of
common stock to Elizabeth Acton for services valued in the aggregate at $3,500
or $0.05 per share.
F-6
<PAGE>
On December 31, 1999, the Company issued of 25,000 shares of common
stock each to H. Youval Krigel and R. Scott Barter in consideration for
consulting services valued at $1,250 or $0.05 per share.
On December 31, 1999, the Company issued 50,000 shares of common stock
to Carey Birmingham in consideration for $5,000 or $0.10 per share
On February 2, 2000, the Company sold 250,000 shares of common stock to
Unifund Financial Group for $25,000 or $0.10 per share.
On February 2, 2000 , the Company sold 250,000 shares of common stock
to Carey Birmingham in consideration for $25,000 or $0.10 per share.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Financial Statement Presentation
The accompanying unaudited financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred net losses
of $68,296 for the period from inception, September 20, 1999, to June 30, 2000.
These factors indicate that the Company's continuation as a going concern is
dependent upon its ability to obtain adequate financing. The Company is
anticipating that with the completion of a public offering and with the increase
in working capital, the Company will be able to implement the Company's
marketing strategy and experience an increase in sales. The Company will require
substantial additional funds to finance its business activities on an ongoing
basis and will have a continuing long-term need to obtain additional financing.
The Company's future capital requirements will depend on numerous factors
including, but not limited to, continued progress developing its customer base,
hiring and training competent sales people and other organization staff, and
initiating marketing penetration. The Company plans to engage in such ongoing
financing efforts on a continuing basis.
The financial statements presented consist of the balance sheet of the Company
as at December 31, 1999 and the related statements of operations and cash flows
for the period from inception September 20, 1999 to December 31, 1999.
The unaudited financial statements presented consist of the balance sheet of the
Company as at June 30, 2000 and the related statements of operations and cash
flows for the six months ended June 30, 2000 and for the period from inception
September 20, 1999 to June 30, 2000.
F-7
<PAGE>
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.
d. Advertising, Selling and Marketing Costs
Advertising, Selling and Marketing costs, are expensed as incurred and
for the period from inception, September 20, 1999, to December 31, 1999 and for
the six months ended June 30, 2000 was $-0- and $-0- respectively.
e. Significant Concentration of Credit Risk
At December 31, 1999 and June 30, 2000, the Company has concentrated
its credit risk by maintaining deposits in one bank. The maximum loss that could
have resulted from this risk totaled $-0- which represents the excess of the
deposit liabilities reported by the banks over the amounts that would have been
covered by the federal insurance.
f. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
g. 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.
F-8
<PAGE>
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. For the period from inception, September
20, 1999, to December 31, 1999 and for the six months ended June 30, 2000, costs
for computer software internally developed was $-0- and $-0-. respectively.
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 January 1, 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.
h. Earnings per share
Net income (loss) per share has been computed in accordance with SFAS
128. Basic net income (loss) per share is computed using the weighted average
common shares outstanding during the period. Diluted net income per share is
computed using the weighted average common shares and common equivalent shares
outstanding during the period. As of December 31, 1999 and June 30, 2000, the
Company has no potential common shares outstanding that would dilute earnings
per share.
i. 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,
2000 and the results of its operations and its cash flows for the three months
ended June 30, 2000. 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.
NOTE 3 - ORGANIZATION OF THE COMPANY
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,
F-9
<PAGE>
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.
On September 20, 1999, as part of this reorganization, certain
shareholders of ITS Texas agreed to exchange the license agreement and their
shares of common stock for 17,000 shares of the Company's common stock
The transaction has been accounted for as a purchase and is accounted
for the fair market value of the shares exchange or $0.05 per share for an
aggregate of $850.
In April, 2000, subsequent to the date of the financial statements, the
Company became party to an amended an agreement between Pensar and ITS Texas
whereby the Company will become the sole and exclusive distributor to products
manufactured by Pensar throughout the world. The Company is also entitled to a
commission prescribed by a schedule on sales by Pensar to a sub-distributor.
Upon execution of this agreement a fee of $5,000 and an additional $5,000 fee
upon the completed filing of a Registration Statement which is declared
effective by the Securities and Exchange Commission and the Company's stock is
listed on the NASD OTC Bulletin Board. The term of the agreement is 10 years and
is renewable for an additional 5 years. The Company may terminate this agreement
upon 30 days notice to Pensar. The Company has the right of first refusal to
purchase the assets, Intellectual Property or units of ownership interest in
Pensar in the event of a proposed sale, transfer or assignment. In event of a
sale of these assets, the Company will have 30 days to purchase these assets on
equal terms and conditions. The Company also has the right to purchase theses
assets at 25% less than a fair value.
NOTE 4 - RELATED PARTY TRANSACTIONS
a. Issuance of Shares of Common Stock
On September 20, 1999, as part of this reorganization, certain
shareholders of ITS Texas agreed to exchange the license agreement and their
shares of common stock for 17,000 shares of the Company's common stock.
On September 20, 1999, the company sold 770,000 shares of common stock
to Unifund Financial Group, Inc. in consideration in consideration for $40,000
or $0.05 per share.
F-10
<PAGE>
On February 2, 2000, the Company sold 250,000 shares of common stock to
Unifund Financials Group for $25,000 or $0.10 per share.
On September 30, 1999, the Company issued an aggregate of 193,000
shares of common stock to Carey Birmingham, President of the Company, valued at
$9,650 or $0.05 per shares in consideration for consulting services.
In February, 2000, the Company sold 250,000 shares of common stock to
Carey Birmingham in consideration for $25,000 or $0.10 per share.
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 from ITS Texas and is
obligated to pay $450 a rent on a month to month basis concurrent 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 and is President of
Pensar.
Mr. Scott Barter through his ownership of an aggregate of 125,000
shares of common stock issued in consideration of services is President of
Unifund which directly controls the Company.
d. Officer salary
A salary of $1,000 per month is being accrued as officer's salary while
the Company is in the development stage.
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
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, 1999 and June 30, 2000,
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.
F-11
<PAGE>
At June 30, 2000, the Company has net operating loss carry forwards for
income tax purposes of $70,796. 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 June 30, 2000 are as
follows:
Deferred tax asset:
Net operating loss carry forward $ 24,070
Valuation allowance $(24,070)
--------
Net deferred tax asset $ -0-
The Company recognized no income tax benefit for the loss generated in
the period from inception, September 20, 1999 , to June 30, 2000.
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-12
<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this prospectus in connection
with the offer made hereby. If given or made, such information or representation
must not be relied upon as having been authorized by the company. This
prospectus does not constitute an offer of any securities other than the
securities to which it relates or an offer to any person in any jurisdiction in
which such an offer would be unlawful. Neither the delivery of this prospectus
nor any sale made hereunder shall under any circumstances create any implication
that the information contained herein is correct as of any time subsequent to
the date hereof.
Until October __, 2000 (90 days from the date of this prospectus), all brokers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of a broker to deliver a prospectus when
acting as underwriter and with respect to their unsold allotments or
subscriptions.
INTERNATIONAL TEST SYSTEMS, INC. .
3,100,000 shares of Common Stock
Par Value, $0.001 per share
1,250,000 Class A Redeemable Warrants
1,250,000 Class B Redeemable Warrants
P R O S P E C T U S
July 26, 2000
<PAGE>
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 3. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation contains provisions to (i) eliminate the
personal liability of our directors for monetary damages resulting from breaches
of their fiduciary duty (other than breaches of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, violations under Section 174 of the Delaware General
Corporation Law (the "DGCL") or for any transaction from which the director
derived an improper personal benefit) and (ii) indemnify our directors and
officers to the fullest extent permitted by Section 145 of the DGCL, including
circumstances in which indemnification is otherwise discretionary. We believe
that these provisions are necessary to attract and retain qualified persons as
directors and officers. 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
Securities and Exchange Commission has taken the position that the provision
will have no effect on claims arising under the federal securities laws.
In addition, the Certificate of Incorporation 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 DGCL.
ITEM 4 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of this offering are:
Registration Fees $ 3,000.00
Blue Sky Filing Fees $ 15,000.00
Attorney's Fees $ 35,000.00
Accountant's Fees $ 10,000.00
Printing and Copying $ 5,000.00
Miscellaneous
TOTAL $ 68,000.00
ITEM 5. UNDERTAKINGS.
The registrant hereby undertakes that it will:
<PAGE>
1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement
a) Include any prospectus required by Section 10(a)(3) of the Securities Act;
II-1
<PAGE>
b) 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 Securities and
Exchange 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
c) 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.
5) In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
ITEM 6. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR
Carey Birmingham, Youval Krigel and Raphael Sonsino were founding
shareholders of ITS Texas. During the first quarter of 1997, Stephen G.
Birmingham, Dr. Ed Lahniers, and Andree Sonsino purchased shares in ITS Texas in
a private sale pursuant to Section 4(2) of the Securities Act for a capital
investment of $50,000, $5,000 and $2,000, respectively. On September 20, 1999,
Carey Birmingham, Youval Krigel, Raphael Sonsino, Stephen G. Birmingham, Dr. Ed
Lahniers, and Andree Sonsino exchanged all their shares in ITS Texas for shares
in our company. Carey Birmingham was awarded his shares in remuneration for his
serving as president, chief executive officer and a director of our company.
Kaplan Gottbetter & Levenson LLP and Corvino & Associates performed
legal services for our company. On September 20, 1999, they each received a
portion of their remuneration in the form of $50,000 shares of our company.
II-3
<PAGE>
On September 20, 1999, Douglas Harrison-Mills, Harris Schiff, Alan
Scott and Elizabeth Acton were awarded 50,000, 10,000, 5,000 and 5,000 shares
respectively in our company for consulting services. Unifund Financial Group
received 770,000 shares on September 20, 1999 as remuneration for consulting
services pursuant to the reorganization and subscription agreement between ITS
Texas and Unifund America, Inc. of June 16, 1999. Scott Barter received 100,000
shares as remuneration for his being chairman of the board and a director of our
company. Douglas Harrison-Mills received 50,000 shares as remuneration for his
being a director of our company. Mr. Harrison-Mills provided creative and
drafting services to the company. Mr. Brad Smith was awarded 50,000 shares as
remuneration for drafting and business consulting services. Mr. Schiff provided
word processing and management information services to the company. Mr. Scott
provided legal services to the company and Ms. Acton provided administrative
services to the company.
On December 31, 1999, Carey Birmingham was awarded 50,000 shares in our
company in lieu of salary for the 1999 year. On December 31, 1999, Scott Barter
was awarded 50,000 shares in our company in lieu of consulting and directorial
fees for the 1999 year. On December 31, 1999, H. Youval Krigel was awarded
50,000 shares in our company in lieu of consulting and directorial fees for the
1999 year.
In January 2000, Scott Barter, Carey Birmingham and Unifund Financial
Group, Inc. promised to make additional capital contributions to the company as
a form of a bridge financing to cover on-going expenses. Each of Mr. Barter and
Unifund Financial Group, Inc. promised to contribute $25,000 in consideration
for 250,000 shares being awarded to each of them. Mr. Birmingham promised to
contribute $30,000 in consideration for 300,000 shares being awarded to him.
The following shares of common stock were issued to the persons
identified below by our company.
<TABLE>
<CAPTION>
NAME OF OWNER NUMBER OF SHARES CONSIDERATION PAID
<S> <C>
Unifund Financial Group 1,020,000 Business, marketing and
financial consulting
services and $40,000
funding of our operations
and an additional $25,000
in bridge financing
R. Scott Barter 125,000 Directorial and consulting
services
Carey Birmingham 493,000 Presidential and
directorial services and an
additional $25,000 in
bridge financing
Douglas Harrison-Mills 50,000 Creative, and Drafting
services
Sheila Corvino 50,000 Legal services
Kaplan Gottbetter & Levenson, LLP 50,000 Legal services
Brad Smith 50,000 Drafting and Business
Consulting Services
H. Youval Krigel 35,800 Consulting and Directorial
Fees
Harris Schiff 10,000 Word processing and MIS
services
Alan Scott 5,000 Legal services
Elizabeth Acton 5,000 Administrative services
Stephen G. Birmingham 5,000 Stock exchange
Dr. Ed Lahniers 500 Stock exchange
Andree Sonsino 400 Stock exchange
Raphael Sonsino 300 Stock exchange
</TABLE>
Item 5. Index to Exhibits
EXHIBIT NO. DESCRIPTION
1.1 *Certificate of Incorporation of Registrant
1.2 *By-laws of Registrant
3.1 Lockup Agreement
5 Opinion of Kaplan Gottbetter & Levenson, LLP, counsel to
registrant
6.1 *Letter of Intent dated June 4, 1999 with Unifund America, Inc.
6.2 Reorganization and Stock Subscription Agreement Dated June 16, 1999.
6.3 Stock Exchange Agreement dated September 20, 1999 among certain
shareholders of International Test Systems, Inc., a Texas corporation
and International Test Systems, Inc., a Delaware corporation.
6.4 Distributorship Agreement dated June 19, 1999 between Pensar, Inc.
and International Test Systems, Inc.
6.5 Amended and Restated Distributorship Agreement dated April 15, 2000
between Pensar, Inc. and International Test Systems, Inc.
6.6 Distributorship Agreement dated April 15, 2000 between Comware
Technical Services and International Test Systems, Inc.
6.7 Escrow Agreement dated June 20, 2000.
10.1 *Consent of Darilek, Butler & Co., P.C., Certified Public Accountants.
10.2 Consent of Thomas Monahan, Independent Auditor
10.3 The consent of Kaplan Gottbetter & Levenson, LLP, counsel to
registrant, is included in Exhibit 11.
10.4 Certification of Darilek, Butler & Co., P.C.
11 Consent of Kaplan Gottbetter & Levenson, LLP dated July 25, 2000
----------
*Previously Filed
**To be filed by amendment
<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 and authorizes this amendment number two to its
registration statement on Form SB-1 to be signed on its behalf by the
undersigned, on July 26, 2000.
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: July 26, 2000
/s/ R. Scott Barter
-------------------
R. Scott Barter, Director
Dated: July 26, 2000
