<PAGE>
Page 1
As filed with the Securities and Exchange Commission on November 24, 1999
SEC Registration No. 333-87535
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM SB-1/A-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
IMAGENETIX, INC.
(Name of small business issuer in its charter)
COLORADO 2834 84-1352444
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Number) Identification No.)
incorporation or
organization)
11777 BERNARDO PLAZA CT., SUITE 206, SAN DIEGO, CA 92128; (619) 674-8455
(Address and Telephone Number of Principal Executive Offices)
11777 BERNARDO PLAZA CT., SUITE 206, SAN DIEGO, CA 92128
(Address of Principal Place of Business)
WILLIAM SPENCER, PRESIDENT, IMAGENETIX, INC.
11777 BERNARDO PLAZA CT., SUITE 206, SAN DIEGO, CA 92128; (619) 674-8455
(Name, Address and Telephone number of agent for service)
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Copies to:
Ronald N. Vance, Esq. Jon D. Sawyer, Esq.
57 West 200 South Krys Boyle Freedman & Sawyer, P.C.
Suite 310 600 17th Street, Suite 2700 South Tower
Salt Lake City, UT 84101 Denver, CO 80202-5427
(801) 359-9300 (303) 893-2300
(801) 359-9310 - FAX (303) 893-2882 - FAX
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
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 number of
the earlier effective registration statement for the same
offering. [ ] __________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this form is a post-effective amendment filed pursuant to Rule
462(d) 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, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Unit(1) Price(1) Fee
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common
Stock, $.001
par value 383,334 Shares(2) $3.00 $1,150,002 $320
Per Share
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Class A Warrants, each
entitling the holder to
purchase one share of
Common Stock, issuable upon
exercise of the Class A
Warrants 300,000 $3.00(3) $900,000 $251
Common Stock, $.001 par
value, issuable upon
exercise of the Class A
Warrants 300,000 Shares(4) --
Class B Warrants, each
entitling the holder to
purchase one share of
Common Stock, issuable upon
exercise of the Class B
Warrants 300,000 $3.05(3) $915,000 $255
Common Stock, $.001 par
value, issuable upon
exercise of the Class B
Warrants 300,000 Shares(4) --
Underwriter's Warrants (5) --
Common Stock $.001 par
value (6) 33,333 Shares $3.60(3) $119,999 $34
----
TOTAL $860
====
</TABLE>
<PAGE>
Page 4
(1) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457 under the Securities Act of 1933.
(2) Includes 50,000 Shares subject to the Underwriter's
over-allotment option.
(3) Estimated based upon the price upon which the warrants may be
exercised.
(4) Includes, pursuant to Rule 416, an additional indeterminate
number of securities as may be issuable upon the exercise of the Warrants by
reason of the anti-dilution provisions to prevent dilution resulting from
stock splits, stock dividends or similar transactions.
(5) To be issued to the Underwriter.
(6) Issuable upon exercise of Underwriter's Warrants.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Disclosure alternative used (check one): Alternative 1 _____
Alternative 2 X
-----
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
IMAGENETIX, INC.
233,334 Shares of Common Stock
$3.00 Per Share
This is our initial public offering, and no public market currently
exists for our shares. The underwriter may purchase up to an additional
50,000 shares at the public offering price, less the underwriting discount of
10%, within 35 days from the date of this prospectus to cover over-allotments.
We are offering through our underwriter 233,334 of the shares for cash,
and are exchanging 100,000 shares for outstanding promissory notes in the
aggregate principal amount of $300,000. See "Use of Proceeds" beginning on
page 10.
The Offering:
<TABLE>
<CAPTION>
Per Share Total
---------- -----
<S> <C> <C>
Public Price $3.00 $700,002
Underwriting Discounts $0.30 $70,000
Cash Proceeds to Imagenetix $2.70 $630,002
Note Exchange $3.00 $300,000
</TABLE>
Concurrently with this offering, we are registering for resale 300,000
Class A and 300,000 Class B Warrants, and the shares underlying these
warrants, and the 100,000 shares to be issued to the note holders, to be
offered by selling security holders. We will not receive any of the proceeds
from the sale of the shares by the note holders, or the warrants or the
shares underlying the warrants, except for the exercise price of up to
$1,815,000 which would be paid to us upon exercise of the warrants.
THIS OFFERING IS HIGHLY SPECULATIVE AND INVOLVES SPECIAL RISKS CONCERNING
THE COMPANY AND ITS BUSINESS. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is
a criminal offense.
SPENCER EDWARDS, INC.
________, 1999
<PAGE>
[INSIDE FRONT COVER]
IMAGENETIX, INC.
[PICTURE OF GLOBE AND SAMPLE PRODUCT LABELS]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary
Risk Factors
Forward Looking Statements
Use of Proceeds
Dilution
Plan of Operation
Business
Management
Certain Transactions
Concurrent Offering
Principal Shareholders
Description of Securities
Dividend Policy
Underwriting
Shares Eligible For Future Sale
Legal Matters
Experts
</TABLE>
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PROSPECTUS SUMMARY
OUR COMPANY
We develop, formulate, and market nutritional supplements and skin care
products. These products are sold primarily to network marketing companies
which in turn place their own labels on the products and offer them to their
customers or members. We also offer various marketing services to our network
marketing customers. Management and key personnel carry over twenty-five (25)
years of experience in successfully developing and selling nutritional
systems and programs in this channel of distribution including health food
stores and mass market. With the proceeds of this offering, we intend to
market some of our proprietary products through our E-Commerce web site,
which is currently in development. Our strategy is to build a loyal base of
E-Commerce customers under the Imagenetix brand of speciality products that
are not competitive with our primary client base.
Our principal executive offices are located at 11777 Bernardo Plaza
Court, Suite 206, San Diego, CA 92128, and our telephone number at these
offices is (619) 674-8455.
THE OFFERING
<TABLE>
<S> <C>
Securities offered 233,334 shares
Promissory Notes Converted $300,000
Resale Shares from Converted Notes 100,000
Shares outstanding at November 1, 1999 1,725,000 shares
Shares outstanding after the offering 2,058,334 shares
Total public price $700,002
Underwriter's discount $70,000
Net proceeds $630,002
Estimated offering expenses $71,000 (including the Underwriter's
expense allowance)
Over-allotment Up to 50,000 shares. If the full
over-allotment is purchased by the
underwriter, the total public
offering price, underwriting
discount, and net proceeds will be
$850,002, $85,000, and $715,002,
respectively.
Warrants outstanding at November 1, 1999 300,000 Class A warrants
300,000 Class B warrants
</TABLE>
We intend to use the net offering proceeds to:
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- Provide working capital, including the purchase of raw
materials and the financing of receivables;
- Develop and market our E-commerce web site; and
- Expand our Globestar System.
The following summary financial information has been derived from our
consolidated financial statements which appear later in this prospectus and
should be read in conjunction with those consolidated financial statements
and related notes.
<TABLE>
<CAPTION>
For the Period
For the Six From January 7,
Months Ended 1999 to March
Sept. 30, 1999 31, 1999
-------------- ---------------
<S> <C> <C>
Consolidated Statement of Operations Data:
Net sales $ 781,138 $ 84,986
Gross profit 251,864 16,390
Operating loss (8,612) (20,096)
Net loss (22,649) (20,151)
Loss per share (.01) (.01)
Shares used in per share computations 1,761,885 1,800,000
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 183,318 $ 141,154
Working capital (2,882) 35,342
Total assets 1,033,922 150,434
Total stockholders' equity (deficit) 28,800 42,791
</TABLE>
RISK FACTORS
WE HAVE HAD LOSSES OF $42,800 SINCE BEGINNING OPERATIONS IN FEBRUARY 1999.
Imagenetix' operating subsidiary was organized in January 1999 and began
principal operations in February 1999. Since beginning operations, and
through September 30, 1999, we generated $866,124 in net sales and incurred
losses of $42,800, or $0.02 per share. For the quarter ending September 30,
1999, we earned $24,088, or $0.01 per share on net sales of $615,676 for the
same period. Our ability to operate profitably depends on increasing our
sales and distribution outlets, achieving sufficient gross profit margins,
and a continuing demand for the nutritional supplements and skin care
products offered. We cannot assure you that the company will operate
profitably. See "Financial Statements."
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WE ARE RELYING UPON A LIMITED NUMBER OF CLIENTS AND NON-PAYMENT OR LATE
PAYMENT BY THEM WOULD MAKE IT DIFFICULT TO MEET OUR OWN FINANCIAL OBLIGATIONS
As of September 30, 1999, we had taken orders from eleven clients. Since
then we have increased our client base to a total of seventeen clients. Our
success depends upon expanding the number of clients and retaining our
present limited client base. With such a few number of customers, if any
major one was late in payment to us, or failed to pay for the products, it is
likely that our company's growth would be substantially delayed or that we
would be unable to continue operations since we would be unable to continue
to purchase raw materials or pay manufacturers. There are also a number of
factors which would inhibit our ability to expand our client base, including
acceptance of our limited line of products. See "Business."
OUR E-COMMERCE SITE IS NOT FULLY OPERATIONAL.
We are currently generating revenue and orders from multiple channels of
distribution. To achieve higher margins and awareness of our own company
brand, we are planning to implement an E-Commerce site to launch our
speciality branded products. We have not fully implemented our E-Commerce
site, but anticipate being able to do so with the funds from this offering.
We plan to drive potential customers to our site through articles written on
the products, one of which is a nutritional product to assist in the area of
men's sexual health called ViGro. This product is currently undergoing
clinical testing. There is, however, no assurance that the results of the
clinical studies will be positive or satisfactory enough to warrant active
marketing of the product. See "Business."
WE RELY EXCLUSIVELY ON OUTSIDE MANUFACTURERS FOR OUR PRODUCTS.
All of our products are manufactured by outside manufacturers with whom we
have contracts. Our profit margins and our ability to deliver our existing
products on a timely basis are dependent upon the ability of the outside
manufacturers to continue to quickly supply products as ordered by us. Our
ability to grow is dependent upon these manufacturers to reformulate existing
and additional future products. The failure of any manufacturer to supply
products as required by us could have a material adverse effect upon our
business, results of operations, and financial condition. Also, if we lose
any of the present manufacturers, we would be forced to locate new
manufacturers and establish operating relationships with them. While we
believe there are other manufacturers available, the loss of an existing
manufacturer could cause delays in delivery and could effect our ability to
fill orders. See "Business."
WE CURRENTLY USE ONE PROVIDER FOR CETYL MYRISTOLEATE WHICH IS USED IN
APPROXIMATELY 20% OF OUR PRODUCTS.
We currently obtain ingredients for our products from suppliers with whom
we have an existing business relationship and binding contracts. We believe
we have dependable alternative sources for all of our product's ingredients,
except Cetyl Myristoleate which is used in seven
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existing formulas. The Cetyl Myristoleate ingredient is a blend which we
co-developed with the supplier. We expect to rely upon this ingredient to
expand our client base and increase the number of formulas. We have a binding
purchase agreement to acquire an amount which management believes represents
a dominant position of the current supply of Cetyl Myristoleate. These
products presently constitute approximately 60% of our total revenue. We
believe that in the event adequate supplies of this ingredient become
unavailable through our current source, this would have a material adverse
effect on our business since we would be unable to provide these products.
See "Business."
WE DO NOT CARRY OUR OWN LIABILITY INSURANCE.
We require our suppliers and manufacturers to add us as additional insured
parties on their product liability insurance policies. Nevertheless, this
coverage may not be adequate to protect us from potential product liability
claims. These claims, and the legal defense of them, would have a material
drain on the revenues of the company and would have a detrimental effect on
our continued operations. See "Business."
WE ARE DEPENDENT ON THE CONTINUED SERVICES OF OUR PRESIDENT, BUT WE DO NOT
HAVE ANY EMPLOYMENT CONTRACT WITH HIM.
Our business is largely dependent on our ability to hire and retain quality
personnel, especially William P. Spencer, our president. We have no written
employment or non-competition agreements with our officers and directors. Any
officer or director may terminate his position with no prior notice. We do
have an initial written agreement with Dr. Charles Cochran, although it does
not prohibit Dr. Cochran from terminating his employment and subsequently
competing with us. The loss of Messrs. Spencer or Cochran could have an
adverse effect on our business and prospects. See "Management."
WE DO NOT HAVE ANY KEY-MAN INSURANCE ON OUR OFFICERS OR DIRECTORS.
We do not maintain any key-man insurance on any of our officers or directors.
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MR. SPENCER WILL CONTINUE TO CONTROL IMAGENETIX AFTER THE OFFERING.
Upon completion of this offering, not giving effect to the issuance of any
over-allotment shares or shares issuable pursuant to the warrants, William
and Debra Spencer will continue to own 48.58% of the outstanding stock of the
company. Thus, they will likely continue to be able to control the company
and to elect all of the directors. See "Principal Shareholders."
THE NAMES OF OUR PRODUCTS COULD BE VERY IMPORTANT TO OUR SUCCESS. ALTHOUGH WE
HAVE APPLIED FOR TRADE MARKS ON THESE PRODUCTS, NO TRADE MARKS HAVE BEEN
ISSUED.
A portion of our proposed business involves supplying exclusive Company
labeled products on an E-Commerce basis. The brand names used for these
company labeled products could eventually be important, and we intend to
apply for federal trademark and trade name protection when appropriate,
relying primarily on trademark law to protect brand names. The Globestar and
ViGro trademarks have been applied for and registration has been mailed to
the Patent and Trademark Office. We cannot assure you that any pending
trademark application will result in a registered trademark, or that any
trademark granted will be effective in thwarting competition or be held valid
if subsequently challenged. Our failure to obtain trademark protection, or
illegal use by others of any trademarks we may obtain, may have an adverse
effect on our business, financial condition and operating results. In
addition, the laws of certain foreign countries do not protect proprietary
rights to the same extent as the laws of the United States or Canada. See
"Business."
THE DESIGNATION OF OUR STOCK AS "PENNY STOCK" WILL MEAN THAT IT WILL BE MORE
DIFFICULT TO SELL YOUR SHARES.
Initially our shares will be subject to Rule 15g-9 under the Exchange Act.
That rule imposes additional sales practice requirements on broker-dealers
that sell low-priced securities designated as "penny stocks" to persons other
than established customers and institutional accredited investors. The SEC's
regulations define a "penny stock" to be any equity security that has a
market price less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. Initially our stock will be
penny stock. We cannot assure you that our shares will ever qualify for
exemption from these restrictions. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule may affect the ability of broker-dealers to sell
our shares and may affect the ability of holders to sell their shares in the
secondary market.
YOUR STOCK WILL BE DILUTED 86.33% FROM THE OFFERING PRICE.
Purchasers of shares will experience immediate and substantial dilution of
$2.59 in net tangible book value per share, or approximately 86.33% of the
offering price of $3.00 per share. In contrast, existing shareholders paid an
average price of $.042 per share. See "Dilution."
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FORWARD LOOKING STATEMENTS
This prospectus contains statements that plan for or anticipate the
future. Forward- looking statements include statements about the future of
personal care and nutritional products, statements about our future business
plans and strategies, and most other statements that are not historical in
nature. In this prospectus forward-looking statements are generally
identified by the words "anticipate," "plan," "believe," "expect,"
"estimate," and the like. Although we believe that any forward-looking
statements we make in this prospectus are reasonable, because forward-
looking statements involve future risks and uncertainties, there are factors
that could cause actual results to differ materially from those expressed or
implied. For example, a few of the uncertainties that could affect the
accuracy of forward-looking statements, besides the specific factors
identified in the Risk Factors section of this prospectus, include the
following:
- changes in general economic and business conditions affecting
the personal care and nutrition industry;
- changes in our business strategies; and
- market acceptance of the products in the United States and
foreign markets.
In light of the significant uncertainties inherent in the
forward-looking statements made in this prospectus, particularly in view of
our early stage of operations, the inclusion of this information should not
be regarded as a representation by us or any other person that our objectives
and plans will be achieved.
The Private Securities Litigation Reform Act of 1995, which provides
a "safe harbor" for similar statements by existing public companies, does not
apply to our offerings.
USE OF PROCEEDS
The following table sets forth the use of proceeds and our present
estimate of the allocation of net proceeds of this offering. Our actual
receipts and expenditures may vary from these estimates. Pending use of the
funds, we will invest the net proceeds in investment-grade, short-term,
interest bearing securities.
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<TABLE>
<CAPTION>
Offering
Proceeds Percentage
---------- ----------
<S> <C> <C>
Gross Proceeds $700,002
Underwriting discounts 70,000 10%
Underwriter's expense allowance 21,000 3%
Other offering expenses 50,000 7.14%
--------
NET OFFERING PROCEEDS $559,002
Use of Net Proceeds
Working capital(1) 341,450 48.78%
Development and marketing of E-Commerce web site 130,350 18.62%
Expansion of Globestar System 87,200 12.46%
--------
TOTAL $559,002
</TABLE>
- -------------------
(1) We will use these funds to purchase raw materials to produce our
products and to finance receivables from our customers. The amounts to be
allocated between these two items will vary depending upon the amount of back
orders at the completion of this offering. See "Business."
DILUTION
Since our inception, we have issued a total of 1,725,000 shares to
existing shareholders, at an average price of $.042 per share. The following
table summarizes, as of September 30, 1999, the relative investments of all
existing shareholders and the new investors, after giving pro forma effect to
the sale of the shares in this offering (excluding the over-allotment
shares):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing shareholders 1,725,000 83.81% $71,600 6.68% $0.042
New investors 333,334 16.19% $1,000,002 93.32% $3.00
--------- ----- ---------- ----
Total 2,058,334 100% $1,071,600 100%
========= ===== ========== ====
</TABLE>
Our financial statements at September 30, 1999, show a net tangible book
value of $27,802 or $0.0161 per share. Net tangible book value per share
represents the amount of our tangible assets (total assets less intangible
assets), less total liabilities, divided by the number of shares of common
stock outstanding. Without taking into account any further adjustments in net
tangible book value after September 30, 1999, other than to give effect to
the sale of the 333,334 shares, including 100,000 shares for conversion of
$300,000 of Notes Payable, offered hereby (after deduction of underwriting
discount and other offering expenses) the pro forma net tangible book value
of the Company at September 30, 1999, would have been $886,804 or
approximately $0.43 per share of common stock, representing an increase in
net tangible book value of
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approximately $0.43 to existing shareholders and a dilution of approximately
$2.57 per share to new investors.
PLAN OF OPERATIONS
General
We started our principal activities in January 1999. From the date of
beginning our business until March 1999, we developed our business plan,
located our principal facilities, developed our initial products, and secured
sources for our products. In accordance with the terms of a funding
agreement, we borrowed $100,000 in March 1999 for operating expenses and
another $200,000 in September 1999 for additional operating expenses. We
borrowed these funds from certain of our shareholders. In addition, Mr. and
Mrs. Spencer, our President and Secretary, have loaned a total of $288,500 to
us since our inception to pay for the startup costs and expenses of starting
and continuing operations. These loans are evidenced by one-year promissory
notes. (See "Certain Transactions.") No proceeds of this offering will be
used to repay the amounts owed to Mr. and Mrs. Spencer. The other note
holders intend to convert the principal amount of their notes into 100,000
shares of our stock; the interest will be paid from operating revenues.
At November 9, 1999, we had a backlog of orders in the amount of
$236,460. We intend to use approximately $341,450 of the offering proceeds to
acquire the raw materials and pay for the production costs to satisfy a
portion of the backlog orders. The balance of the funds from the offering
will be used to expand the Globestar System and to develop and market our E-
Commerce site. We believe that the equity funding received through this
offering will satisfy our cash requirements for twelve months or longer
without the need to raise additional funds.
Year 2000 Issue
We do not believe that the Year 2000 Issue will have a significant impact
on our business. The "Year 2000 Issue" involves the potential for system and
processing failures of date-related data resulting from computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that contain time-sensitive software may recognize
a date using two digits of "00" as the year 1900 rather than the year 2000.
This could result in system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar ordinary business
activities.
We believe that our internal software and hardware systems will function
properly with respect to dates in the Year 2000 and thereafter, especially
since our web site and related activities have occurred in 1999 and are
sensitive to the Year 2000 Issue. In particular, our computer manufacturer
has disclosed that our system has successfully completed testing by the
<PAGE>
Page 17
National Software Laboratories and is Year 2000 compliant. Any failure due to
the Year 2000 problem is also covered by the manufacturer's warrant.
In addition to reviewing our own internal Year 2000 readiness, we have
contacted our suppliers, manufacturers, and principal clients. We have also
either contacted directly, or reviewed disclosures prepared by, our utility
and telecommunications companies and other companies which provide key
services or equipment to our business. Of our suppliers, manufacturers, and
principal clients, we asked whether or not they had made an assessment of
their readiness for the Year 2000 problem, and if so, whether they believed
the Year 2000 problem would have a material effect on their business, results
of operations, or financial condition. We also asked them to describe any
material issues regarding the Year 2000 problem which might affect, either
directly or indirectly, their ability to continue to conduct business with us
after December 31, 1999, in the same manner as prior to January 1, 2000. Of
those suppliers, manufacturers, or clients which did respond, only one had
not made a Year 2000 readiness assessment; the others, including our supplier
of Cetyl Myristoleate, believed they were Year 2000 compliant. As a
contingency plan, we believe that if for any reason the particular
manufacturer who had not yet completed its readiness assessment is not Year
2000 compliant by December 31, 1999, alternative manufacturers would be
available. Of the utility and telecommunications companies, and others who
provide key equipment or services to us, each has disclosed that it is
presently Year 2000 compliant.
BUSINESS
Our Organization and History
Imagenetix, Inc. was incorporated in the State of Colorado on July 26,
1996, under the name "Internet International Business Management, Inc." We
changed our name to "Imagenetix, Inc." on April 27, 1999.
From our inception in 1996 until March 1999, we had no significant
business operations. In March 1999 we entered into a reverse acquisition
agreement with Imagenetix, a California corporation, incorporated in January
1999 and organized for the purpose of providing nutritional supplement and
skin care products for specific health applications. Mr. and Mrs. Spencer,
current officers and directors of the Colorado corporation, were the only
shareholders of the California corporation at the time of the reorganization.
The agreement provided that we would acquire all of the outstanding stock of
the California corporation and that Mr. and Mrs. Spencer would receive
1,300,000 shares of common stock representing approximately 72% of our
outstanding stock. In connection with the transaction, existing management of
the Colorado company agreed to resign and to appoint the present directors.
In addition, certain shareholders of the Colorado company entered into a
funding agreement to provide $100,000 to the Company at the closing of the
transaction and $200,000 at the time of filing this registration statement.
(See "Plan of Operations" and "Certain Transactions.") The closing of the
transaction was held on March 26, 1999, and all of the foregoing terms were
implemented. The California corporation is now a
<PAGE>
Page 18
wholly owned subsidiary of the Colorado corporation and conducts all of our
business. Unless otherwise indicated in this section, all references to our
business refers to the business operations of the California corporation.
In June 1999 we adopted a 1999 Stock Bonus Plan which authorizes the
Board of Directors to issue up to 211,500 shares to our officers, directors,
employees and consultants. The Plan is intended to aid us in maintaining and
developing a management team, attracting qualified directors, officers, and
employees capable of assisting in our future success, and rewarding those
individuals who have contributed to the success of the Company. In June 1999
we issued 166,500 shares under the Plan to our directors, employees, and
consultants. In order to avoid further dilution of the outstanding shares,
Mr. and Mrs. Spencer canceled 241,500 of the shares received in the
reorganization between the Colorado and the California corporations. This
allowed us to use 211,500 shares for the Stock Bonus Plan and to reserve
30,000 shares for future issuance to Mr. Cochran after this offering. See
"Management."
Industry Overview
The dietary supplement industry is highly diversified and intensely
competitive. It includes companies that manufacture, distribute, and sell
products that are generally intended to supplement the daily diet with
nutrients that may enhance the body's performance and well being. Dietary
supplements include vitamins, minerals, herbs, botanicals, amino acids, and
compounds derived therefrom. Specific statutory provisions governing the
dietary supplements industry were codified in the Dietary Supplement Health
and Education Act of 1994 ("DSHEA"). DSHEA provides new statutory protections
for dietary supplements. It codifies and strengthens legal protection for
statements of nutritional support that apprise consumers of the effect
dietary supplements have upon the structure or functions of the body.
Dietary supplements are sold primarily through (i) mass market retailers,
including mass merchandisers, drug stores, supermarkets and discount stores,
(ii) health food stores, (iii) mail order companies, and (iv) direct sales
organizations. Our primary marketing thrust is targeted at direct selling, of
which network marketing is a significant segment.
Operations
Our management and key personnel carry over twenty-five (25) years of
experience in developing nutritional systems and marketing programs for the
network marketing channel of distribution. The management team has been
responsible for generating sales from a number of the world's largest direct
selling and network marketing companies. Currently, we have generated sales
and orders from multiple network marketing companies, one of which is Nikken,
a global network marketing company.
Our strategy also includes targeting large companies who sell primarily
through mass market retailers. Two notable companies who specialize in mass
market retailing, from which we
<PAGE>
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have generated purchase orders or sales, are Natrol and Pharmavite.
Additionally, we have built relationships with companies that sell primarily
through health food stores. One of these companies is Nature's Way. We have
generated significant sales to this company as well as others in this channel
of distribution.
We offer a variety of specialized nutraceutical formulations and
compounds along with proprietary skin care products which are designed to be
sold to network marketing companies. Since beginning operations in February,
we have generated approximately fifteen customers for which we prepare
nutritional supplements to be sold by the customer under its own label. Once
initial funding from this offering has taken place, we intend to embark on a
more aggressive marketing campaign of capturing orders, diversifying the
client base, and expanding sales.
Through March 31, 1999, our primary focus was to establish suppliers,
manufacturing agreements, and develop business systems. During this period we
were able to successfully implement our business system by generating and
collecting on sales of approximately $80,000. Since this quarter end, we have
added eleven additional clients. Three of these customers represent in excess
of 10% of our total orders and sales to date. The loss of any of these
customers could have a material detrimental effect on our business. Also, the
failure of any of these customers to pay for the products in a timely manner,
could have a negative impact on us since we do not have significant financial
reserves to supplement such a loss. See "Risk Factors."
Products
We offer a number of products, also known in the industry as
nutraceutical formulas or formulations, to our clients. These formulations
are, in some cases, developed by our clients, codeveloped by us and the
client, or developed exclusively by us for the client. We also have developed
formulations which we intend to offer directly to consumers through the
Internet. We categorize our current revenue producing products as those which
include Cetyl Myristoleate in the formulation and those that do not. Since
our inception through September 30, 1999, approximately 66% of our revenues
were generated from the sale of formulations without Cetyl Myristoleate and
approximately 34% were generated from formulations which contained this
compound. We provide over thirty (30) formulations on behalf of our clients
under the client trade names.
We use Cetyl Myristoleate to produce a number of dietary supplement
formulations for our clients. Ongoing research may determine the extent of
its effects on the body, including the role it may play in providing support
for the normal functioning of muscles and joints. We can produce a wide range
of formulas using this compound and then market these formulas through
multiple distribution channels. Currently we have sold formulas using this
compound primarily to network marketing companies. These companies are
reselling the compounds under their own label and tradename. We do not own or
have any interest in the trade marks or names under which these products are
sold. Using multiple processes to produce this compound, we are able
<PAGE>
Page 20
to offer formulas to our clients in three forms of delivery: soft gel,
hard-shell capsule, and tablet. Each process employed, from producing the
compound to manufacturing the product, has been co-developed and
co-engineered by our staff in collaboration with the supplier and
manufacturer. We believe Cetyl Myristoleate will be our principal compound in
the foreseeable future, particularly if clinical research provides a clearer
indication of the role the compound plays in the area of joint health. We
intend to expand the number of clients who use this compound in formulas and
to develop a unique formula for each specific client.
We have also developed a natural compound extracted from artichoke and
sarsaparilla which has demonstrated in a medical double-blind placebo study
to assist the human body in improving the functions of the liver. This
product is proprietary to us and was specifically developed by Dr. Charles
Cochran, one of our directors. We currently have received orders for this
product from two network marketing companies.
We also have developed proprietary skin care products for the face, which
we believe contain unique ingredients designed to be beneficial to the skin.
The skin care products were designed and developed to be sold to network
marketing companies seeking unique skin and beauty care products. The
products consist of exfoliants, moisturizers, and masks. Full product
development has been completed and we are beginning to market the products to
targeted network marketing companies which would offer these products under
their own private labels.
We have also developed a dietary supplement known as ViGro which is
designed to assist the human body in the area of men's sexual health.
Compounds in this formula have been found to increase blood testosterone
levels, increase formation and development of sperm and their mobility,
decrease blood lipids, and increase serum nitric oxide levels, which relaxes
smooth muscle and increases blood supply to penile tissues. We developed this
product for the purpose of selling it through our E-Commerce site. We intend
to conduct a medically supervised study to determine the efficacy of this
formula. We intend to sell our ViGro product under our own brand exclusively
on an E-Commerce basis. We do not intend to market ViGro until clinical
evidence demonstrates the effectiveness of the formula. We have contacted a
physician who has expressed interest in conducting clinical trials, but no
firm agreement has been reached. We cannot predict how long the clinical
trials will take.
Raw Materials and Manufacturing
We develop, formulate and design nutritional and skin care systems, but
do not manufacture any of our own products. We currently purchase ingredients
from suppliers that we consider to be the superior suppliers of these
ingredients. We currently have a single source supplier of Cetyl Myristoleate
and an agreement is in place to protect our right to purchase sufficient
quantities of this material to meet our estimated needs through at least
April 2000. Products using Cetyl Myristoleate represent approximately 34% of
our sales from inception through September 30, 1999. With the exception of
Cetyl Myristoleate, we believe that, in the
<PAGE>
Page 21
event we are unable to obtain any ingredients from our current suppliers, we
could obtain substitute ingredients without great difficulty or prohibitive
increases in the cost of goods sold. However, there can be no assurance that
the loss of such a supplier would not have a material adverse effect on our
business and results of operations. See "Risk Factors."
We rely on a number of manufacturers to produce our personal care and
nutritional products. We have written confidentiality and client exclusivity
agreements with those key manufacturers. However, we believe that in the
event our relationship with any of our key manufacturers is terminated, we
would be able to find suitable replacement manufacturers. However, there can
be no assurance that the loss of a manufacturer would not have a material
adverse effect on our business and results of operations. See "Risk Factors."
Marketing
Since inception we have marketed our products and custom formulations to
clients in multiple channels of distribution. Using part of the funds from
this offering, we plan to more aggressively implement the following
three-phase marketing strategy:
The first phase is to continue to offer our proprietary products to
existing clients and seek new customers, primarily those engaged in the
network marketing and mass marketing of nutraceutical products. We would
assist these clients in designing nutritional and skin care systems using our
formulations. We would also prepare and design marketing materials, provide
spokespersons to help market the product, and provide an array of other value
added services to assist each client in enhancing and expanding its
business.
The second phase of the marketing program would be to offer additional
products to those network and mass marketing companies. The additional
products would include items which they would be currently offering, but
which would be presently furnished through another supplier or manufacturer.
We believe we could furnish these additional products at competitive prices
coupled with providing added services to assist the client in marketing their
nutraceutical and skin care products.
The third phase would be to establish our E-Commerce channel of
distribution. Initially we would offer our ViGro product only through our own
Internet site. Upon successfully implementing our E-Commerce business with
our offering of ViGro, we could add other products to expand this form of
product distribution. We anticipate that potential customers would be driven
to our web site, in part, through articles written on our products in various
publications. According to the research firm, Cyber Dialogue, Inc.,
approximately 40% of American adults online used the Internet to obtain
health information and treatments in 1998.
We anticipate being able to more actively and fully implement and expand
the first two phases of the marketing plan as soon as this offering is
completed. We also intend to begin
<PAGE>
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implementation of the E-Commerce strategy in part with the funds from this
offering and open the E-Commerce site within three months following
completion of this offering.
Globestar
We propose to implement an online intranet computer system known as
"Globestar" which will be a proprietary, interactive, multimedia, global
inter-linking system which we could use in marketing to all of our clients.
We have designed and begun the engineering phase of the system. A primary
function of the system will be to instantaneously monitor and update the
real-time status of all of our products and client orders, from inception, to
development, and to delivery.
A preassigned access code will enable clients and manufacturers to enter
into select regions of the Globestar system. This will allow clients and
manufacturers to have real time information on product progress through an
automatically updated sales order system. Through the extensive use of
multi-media and intra-linking programs, Globestar is being designed to
provide for clients hard to find or breakthrough ingredients in the
nutraceutical and skin care industry. In addition to providing clients with
real-time product order updates, Globestar also will provide them the story
behind the development of particular products or compounds that assist in the
marketing of the product. Certain features of the system are in the
development stage and we anticipate that activation of Globestar could take
place by the first quarter of next year.
When fully functional, Globestar will also permit and extend to
authorized manufacturers and scientists around the world to inflow product
information directly into the Globestar system. This will enable us to
quickly evaluate and determine the market potential of any product or
compound. Globestar will also permit authorized clients to input requests for
new products or compounds to be reviewed by us. Additional features of
Globestar will be engineered to include: (i) access to the lowest raw
material pricing through linkage of direct suppliers and manufacturers; (ii)
world-wide online access for our key clients; (iii) product delivery
schedule; and, (iv) rapid registration or certification of products destined
for foreign markets.
Competition
The nutraceutical products industry is large and intensely competitive.
We compete directly with companies that manufacture and market nutritional
products in each of our product lines, including companies such as Twin Labs
Corporation, Weider Nutrition International, Inc., IVC Industries, and
Perrigo Company. Most of our competitors in the nutritional supplements
market have longer operating histories, greater name recognition and
financial resources than do we. In addition, nutritional supplements can be
purchased in a wide variety of distribution channels. While we believe that
consumers appreciate the convenience of ordering products from home through
the Internet or a sales person, the buying habits of many consumers
accustomed to purchasing products through traditional retail channels are
difficult to change. Our offerings in
<PAGE>
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each product category are also relatively small compared to the wide variety
of products offered by many other nutritional product companies.
Government Regulation
In both the United States and foreign markets, we are or will be subject
to and affected by extensive laws, governmental regulations, and similar
constraints at the federal, state and local levels. For example, we will be
subject, directly or indirectly, to regulations pertaining to the following:
- dietary ingredients;
- the manufacturing, packaging, labeling, promotion,
distribution, importation, sale and storage of our products;
- product claims, labeling, and advertising (including direct
claims and advertising by us as well as claims in labeling and
advertising by associates, for which we may be held
responsible);
- transfer pricing and similar regulations that affect the level
of foreign taxable income and customs duties; and
- taxation, which in some instances may impose an obligation on
us to collect the taxes and maintain appropriate records.
The dietary ingredients, manufacturing, packaging, storing, labeling,
advertising, promotion, distribution and sale of our products are subject to
regulation by one or more governmental agencies, including the Food and Drug
Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer
Product Safety Commission, the Department of Agriculture, the Department of
Customs, the Patent and Trademark Office, and the Environmental Protection
Agency. Our activities are, or may be, also regulated by various agencies of
the states, localities and foreign countries in which our products are
manufactured, distributed, and/or sold. The FDA, in particular, regulates the
ingredients, manufacture, packaging, storage, labeling, promotion,
distribution and sale of foods, dietary supplements and OTC drugs, such as
those we distribute. We and our suppliers are required by FDA regulations to
meet relevant current good manufacturing practice ("GMP") guidelines for the
preparation, packing and storage of foods and drugs. The FDA has published an
Advance Notice of Proposed Rule Making, 62 Fed. Reg. 5700 (Feb. 6, 1997) for
the establishment of GMPs for dietary supplements, but it has not yet issued
a proposal rule. FDA conducts unannounced inspections of companies that
manufacture, distribute and sell dietary supplements, issues warning letters
for rule violations found during these inspections and refers matters to the
U.S. Attorneys and Justice Department for prosecution under the Federal Food,
Drug, and Cosmetic Act ("FFDCA"). There can be no assurance that FDA will not
question our labeling or other operations in the future.
<PAGE>
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The Dietary Supplement Health and Education Act of 1994 ("DSHEA") revised
the provisions of the FFDCA governing dietary ingredients and labeling of
dietary supplements. The legislation creates a new statutory class of
"dietary supplements." This new class includes vitamins, minerals, herbs,
botanicals, other dietary substances to supplement the daily diet, and
concentrates, metabolites, constituents, extracts, and combinations thereof.
The legislation requires no federal premarket approval for the sale of
dietary ingredients that were on the market before October 15, 1994. Dietary
ingredients first marketed on or after October 15, 1994, may not be
distributed or marketed in interstate commerce unless, (i) the manufacturer
has proof that the dietary ingredient has been present in the food supply as
an article used for food in a form in which the food has not been chemically
altered, or (ii) the manufacturer supplies FDA with proof to the agency's
satisfaction of the dietary ingredient's safety. Manufacturers and
distributors of dietary supplements may include statements of nutritional
support, including structure and function claims, on labels, in labeling, and
in advertising if (a) the claims are corroborated by "competent and reliable
scientific evidence" consistent with FTC standards for advertising review;
(b) the claims for labels and labeling are filed in a certified notice with
the FDA no later than 30 days after first market use of the claims; (c) the
manufacturer retains substantiation that the claims are truthful and
nonmisleading; (d) each claim on labels and in labeling is cross- referenced
by an asterisk to a mandatory FDA disclaimer.
The majority of the products marketed, or proposed to be marketed, by us
are classified as dietary supplements under the FFDCA. In September 1997, the
FDA issued regulations governing the labeling and marketing of dietary
supplement products. The regulations cover: (i) the identification of dietary
supplements and their nutrition and ingredient labeling; (ii) the terminology
to be used for nutrient content claims, health claims, and statements of
nutritional support, including structure and function claims; (iii) labeling
requirements for dietary supplements for which "high potency" and
"antioxidant" claims are made; (iv) notification procedures for statements of
nutritional support, including structure and function claims, on dietary
supplement labels and in their labeling; and (v) premarket notification
procedures for new dietary ingredients in dietary supplements. The
notification procedures became effective in October 1997, while the new
labeling requirements did not become effective until March 23, 1999.
Dietary supplements are subject to the FFDCA as amended by the Nutrition,
Labeling and Education Act ("NLEA") and DSHEA and are subject to the
regulations of the FDA. Those laws regulate, among other things, health
claims, ingredient labeling, and nutrition content claims characterizing the
level of nutrient in the product. NLEA prohibits the use of any health claim
for dietary supplements, unless the health claim is supported by significant
scientific agreement and is pre-approved by the FDA. In Pearson v. Shalala,
64 F3d 650 (D.C. Cir 1999), the United States Court of Appeals for the D.C.
Circuit ruled that the FDA must authorize health claims presented to the
agency in health claims petitions unless they are inherently misleading and
must rely on disclaimers to eliminate any potentially misleading connotation
conveyed by a claim. The court held that even claims not found supported by
significant scientific agreement must be allowed if disclaimers can correct
misleading connotations. The court ruled that the FDA violated the
<PAGE>
Page 25
Administrative Procedure Act by not defining its significant scientific
agreement standard of review and ordered the FDA to define the standard in a
way that would enable regulatees to perceive the principles which guide
agency action.
In foreign markets, prior to starting operations and prior to making or
permitting sales of our products in the market, we may be required to obtain
an approval, license or certification from the country's ministry of health
or comparable agency. Prior to entering a new market in which a formal
approval, license or certificate is required, we may be required to work with
local authorities in order to obtain the requisite approvals, license or
certification. The approval process generally would require us to present
each product and product ingredient to appropriate regulators and, in some
instances, arrange for testing of products by local technicians for
ingredient analysis. These approvals may be conditioned on reformulation of
our products or may be unavailable with respect to certain products or
certain ingredients. We must also comply with product labeling and packaging
regulations that vary from country to country.
The FTC, which exercises jurisdiction over the marketing practices and
advertising of all products similar to those we offer, has in the past
several years instituted enforcement actions against several dietary
supplement companies for deceptive marketing and advertising practices. These
enforcement actions have frequently resulted in consent orders and
agreements. In certain instances, these actions have resulted in the
imposition of monetary redress requirements. Importantly, the FTC requires
that "competent and reliable scientific evidence" corroborate each claim of
health benefit made in advertising before the advertising is first made. A
failure to have that evidence on hand at the time an advertisement is first
made violates the Federal Trade Commission Act. While we have not been the
subject to FTC enforcement action for the advertising of its products, there
can be no assurance that the FTC will not question our advertising or other
operations in the future. See "Risk Factors."
We believe we are in compliance with all material government regulations
which apply to our products. However, we are unable to predict the nature of
any future laws, regulations, interpretations or applications, nor can we
predict what effect additional governmental regulations or administrative
orders, when and if promulgated, would have on our business in the future.
These future changes could, however, require the reformulation or elimination
of certain products; imposition of additional record keeping and
documentation requirements; imposition of new federal reporting and
application requirements; modified methods of importing, manufacturing,
storing, or distributing certain products; and expanded or different labeling
and substantiation requirements for certain products and ingredients. Any or
all of these requirements could have a material adverse effect on our
business, results of operations and financial condition.
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Trademarks
We have applied for trademarks for the names "Globestar" and "ViGro." The
application for the "Globestar" trademark was filed in May of 1999, and the
application for the "ViGro" trademark was filed in June of 1999.
Employees
At November 1, 1999, we had eight full-time employees, one of whom is
also an executive officer of the Company.
Facilities
We currently rent on a month-to-month basis approximately 1,151 square
feet of office space for $1,710 per month. Effective December 31, 1999, we
will terminate this arrangement and effective January 1, 2000, we will occupy
approximately 5,768 square feet of office space located at 16935 West
Bernardo Drive, Suites 101 and 101A, San Diego, California 92127. We have
entered into a three year lease for this space and will pay approximately
$13,635 for the monthly lease payments. Effective January 1, 2000, our
principal executive offices will change to this new location; our telephone
number will not change
Reports to Our Security Holders
Our fiscal year ends on March 31st. We intend to furnish our shareholders
annual reports containing audited financial statements and other appropriate
reports. In addition, we intend to become a reporting company and file
annual, quarterly and current reports, and other information with the SEC.
You may read and copy any reports, statements or other information we file at
the SEC's public reference room at 450 fifth Street, N.W., Washington D.C.
20549. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our
SEC filings are also available to the public on the SEC Internet site at
http\\www.sec.gov.
MANAGEMENT
General
The following table sets forth the current officers, directors, and
significant employees of Imagenetix:
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Page 27
<TABLE>
<CAPTION>
Director
Name Age Position(s) Since
<S> <C> <C> <C>
William P. Spencer 47 Director, President, & CEO 1999
Debra L. Spencer 47 Director, Secretary, & Treasurer 1999
Dr. Charles L. Cochran 51 Director 1999
Dr. Peter H. Antoniou 39 Director 1999
Patrick S. Millsap 46 -- --
</TABLE>
Set forth below is the business experience and biographical information
on each of the officers, directors, and significant employees of Imagenetix:
WILLIAM P. SPENCER has served as the president of Imagenetix since March
1999 and has served as a director and president of the Subsidiary since
January 1999. From January 1986 until December 1996, he served as chief
operating officer, chief financial officer, and executive vice-president of
Natural Alternatives International, Inc., a company engaged in the
formulation and production of encapsulated vitamins and nutrients. He served
as president of this entity from December 1996 until October 1998, and as a
director from January 1986 until October 1998. Mr. Spencer received a
Bachelor of Science in Finance in 1974, and a Masters in Business
Administration, also in the area of Finance, in 1979 from San Diego State
University.
DEBRA L. SPENCER has served as Secretary and Treasurer of Imagenetix
since March of 1999. Her responsibilities with Imagenetix also include
graphics layout and development of marketing material for the Company's
private label products. From 1994 to February 1999 she was a homemaker. From
1987 to 1993 she served as Vice President, Secretary and Treasurer for a
consumer mail order vitamin company, Vitamin Direct, Inc. She was responsible
for developing marketing material, generating leads as well as maintaining a
high consumer satisfaction ratio for their over 25,000 customers.
DR. CHARLES L. COCHRAN has been employed full-time by the Company as the
director of product research and development since September 27, 1999. He was
the owner/operator of a chiropractic clinic from 1984 until 1996. From 1970
to 1999 he worked as a health care and nutritional consultant. Dr. Cochran
received his Doctorate of Chiropractic in 1984 from Palmer College of
Chiropractic, Davenport, Iowa.
DR. PETER H. ANTONIOU founded Pomegranate International in 1986 as an
international consulting firm specializing in educational programs, trade
matching activities, and consulting assistance. Since 1994 he has been an
adjunct professor at the Graduate College of Business for U.S. International
University, San Diego, CA; from 1993 to the present he has been an adjunct
professor at the Executive MBA and the Undergraduate College of Business at
CSU San Marcos; and from 1991 to the present he has been an adjunct professor
at the School of Business Administration at Mount St. Mary's College, Los
Angeles, CA. Dr. Antoniou received
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his Bachelor of Science degree in 1981 in Business Administration, and his
Masters in International Business Administration in 1982, from the
International University Europe, London, England. He received his Doctorate
in Business Administration in 1986 from the U.S. International University.
PATRICK S. MILLSAP, has been the vice-president of marketing for the
Subsidiary since May 1999. From April 1991 until May 1999 he was employed by
Natural Alternatives International, Inc. as a senior account manager. Mr.
Millsap graduated in 1990 from San Diego State University with a bachelor's
degree in history. He received a certificate of international business from
the University of San Diego in 1996, and is currently studying international
trade and finance at the University of California, San Diego.
Each of our directors is elected to hold office for one year and until
his or her successor is elected and duly qualified. Each of our officers is
appointed to hold office until the first meeting of the Board of Directors
immediately following the annual meeting of shareholders. William P. Spencer
and Debra L. Spencer are husband and wife.
Executive Compensation
Neither Imagenetix nor its subsidiary has a written employment contract
with any of its officers, although we have entered into a preliminary written
agreement with Dr. Cochran concerning his employment. We pay Mr. Spencer an
annual salary of $100,000 and provide health care insurance for him and his
wife. Dr. Cochran received $20,375 in royalty payments from us pursuant to an
Alliance Agreement which terminated on September 27, 1999, when he became a
full-time employee for us. (See "Certain Transactions.") Dr. Cochran will
receive an annual salary of $100,000 and health insurance benefits for
himself only. Following this offering, we will furnish him with a
company-leased automobile. After this offering, we have agreed to issue
30,000 shares to Dr. Cochran for his interest in all of the company products
developed by him, and an additional 10,000 shares for accepting employment
with us. We have also agreed with him to establish a bonus pool based upon
the company's performance. If we decide to terminate Dr. Cochran's
employment, the Alliance Agreement will be reinstated effective on the date
of severance.
As consideration for accepting positions as directors, Dr. Cochran and
Dr. Antoniou each received 5,000 shares of Common stock under our 1999 Stock
Bonus Plan.
Indemnification of Directors, Officers, and Others
Article 109 of the Colorado Business Corporation Act expressly authorizes
a Colorado corporation to indemnify its directors, officers, employees,
fiduciaries, and agents against claims or liabilities arising out of a
persons' conduct in these capacities if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of the Company. In general, these provisions provide for indemnification in
instances when a
<PAGE>
Page 29
person acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the Company. A corporation may also
purchase and maintain liability insurance on behalf of these persons.
Article VIII of our Bylaws provides for the indemnification of the
Company's officers, directors, and employees. We do not maintain any
liability insurance on behalf of any director, officer, or other person
affiliated with us.
Insofar as indemnification by us for liabilities arising under the
Securities Act may be permitted to our officers and directors pursuant to the
foregoing provisions, or otherwise, we are aware that in the opinion of the
Securities and Exchange Commission this indemnification is against public
policy as expressed in the Act and is therefore, unenforceable.
CERTAIN TRANSACTIONS
During 1999 the following persons loaned us $300,000 pursuant to the
terms of a Funding Agreement entered into in connection with the reverse
acquisition of the Colorado company by the California corporation in March
1999:
<TABLE>
<CAPTION>
Name Amount Loaned
<S> <C>
Claudia A. McAdam $50,000
Great Expectations Family Limited Partnership $50,000
David N. Nemelka $50,000
1st Zamora Corp. $75,000
Greg Puesy $26,250
Barry C. Loder $11,250
Gulfstream 1998 Irrevocable Trust $37,500
</TABLE>
These persons were issued convertible promissory notes which are
convertible into common stock at the rate of one share for each $3.00 of
principal debt. These note holders have agreed to convert the principal
amount of their notes into a total of 100,000 shares. The notes bear interest
at the rate of 10% per annum, which will be paid at the time of conversion.
Each of these persons was also granted warrants at the rate of one A Warrant
and one B Warrant for each $1.00 loaned to us. (See "Description of
Securities.") Prior to the date of this offering, Great Expectations Family
Limited Partnership sold and transferred $25,000 of the promissory note, and
the accompanying A and B warrants, issued to it to David N. Nemelka.
Claudia A. McAdam is the spouse of Gary J. McAdam, the founder of the
Colorado corporation. Mr. McAdam is also the general partner of Great
Expectations Family Limited Partnership. 1st Zamora Corp. is a Colorado
corporation controlled by Laura Lee Madsen. Gulfstream 1998 Irrevocable Trust
is a trust created by Henry Fong for his children.
<PAGE>
Page 30
Mr. and Mrs. Spencer, officers, directors, and principal shareholders of
the our company, have loaned $288,500 to us for operating expenses. This loan
is evidenced by promissory notes dated May 25, 1999, for $100,000, July 20,
1999, for $90,000, July 28, 1999, for $75,000, September 10, 1999, for
$19,500, and September 20, 1999, for $4,000. The promissory notes provide for
interest at the rate of 10% per annum. The notes are due and payable not
later than May 25, 2000, through September 20, 2000, respectively. Repayment
of the loans will not be made from the selling proceeds of this offering, but
will be made from our profits, if any, or from the exercise of our
outstanding warrants.
Mr. Spencer owns 15% of the outstanding stock of Integris International,
one of our significant clients.
Dr. Cochran, one of our directors, entered into an Alliance Agreement
dated June 16, 1999, with us. This ten-year agreement granted to us the right
to market the products developed by Dr. Cochran, including those products
using Cetyl Myristoleate and ViGro. We agreed to pay Dr. Cochran a royalty of
10% of the actual payments received by us from all of these products sold by
us. This agreement terminated upon Dr. Cochran becoming a full-time employee
for us on September 27, 1999. Upon completion of this offering, he has agreed
to transfer all of his interest in these products to us for 30,000 shares of
our common stock. See "Management."
CONCURRENT OFFERING
The registration statement of which this prospectus forms a part also
includes a prospectus with respect to an offering by certain selling security
holders of 100,000 shares received in the exchange of $300,000 in outstanding
promissory notes, 300,000 Class A and 300,000 Class B Warrants, and the
shares of common stock underlying the warrants, which warrants were issued in
connection with funds loaned to us by certain of the selling security
holders. These shares may be sold in the open market, in privately negotiated
transactions, or otherwise directly by the holders thereof. See "Description
of Securities" and "Certain Transactions."
We will not receive any proceeds from the sale of any of the selling
security holders' securities, except possibly in connection with the exercise
of the warrants. (See "Description of Securities.") Sales of this stock or
the potential of these sales may have an adverse effect on the market price
of the shares of common stock offered hereby. See "Risk Factors."
PRINCIPAL SHAREHOLDERS
Voting Securities
The following table sets forth certain information furnished by the
following persons concerning the common stock ownership as of August 30,
1999, of (i) each person who is known to us to be the beneficial owner of
more than five percent of the common stock; (ii) all directors and executive
officers; and (iii) our directors and executive officers as a group:
<PAGE>
Page 31
<TABLE>
<CAPTION>
Amount and Nature Percent of Class
Name and Address of Beneficial ----------------
of Beneficial Owner Ownership(1) Before Offering After Offering(2)
- ------------------- ----------------- --------------- -----------------
<S> <C> <C> <C>
Management:
William & Debra Spencer 1,000,000(3) 57.97% 48.58%
11777 Bernardo Plaza Court
Suite 206
San Diego, CA 92128
Dr. Charles L. Cochran 5,000 *
226 Lake Court
Aptos, CA 95003
Dr. Peter H. Antoniou 5,000 *
2166 Lemon Ave.
Escondido, CA 92029
Officers and Directors
as a Group (4 Persons) 1,010,000 58.55% 49.07%
Others:
Gary J. McAdam 187,500(4) 10.71% 9%
14 Red Tail Drive
Highlands, CO 80126
1st Zamora Corp. 137,500(5) 7.86% 6.6%
9025 Oakwood Pl.
West Jordan, UT 84088
David N. Nemelka(6) 137,500(6) 7.86% 6.6%
55 West 200 North
Provo, UT 84601
</TABLE>
- -------------------
*Represents less than 1%.
(1) Unless otherwise indicated, this column reflects amounts as to which
the beneficial owner has sole voting power and sole investment power.
(2) Does not include shares to be issued, if any, pursuant to the
Underwriter's over-allotment option.
<PAGE>
Page 32
(3) William and Debra Spencer are husband and wife and are therefore
deemed to share beneficial ownership of these shares.
(4) All of these shares are held indirectly by Mr. McAdam. Of these
shares 162,500 are held directly by GM/CM Family Partnership, Ltd., a family
limited partnership controlled by Mr. McAdam. Claudia A. McAdam, the wife of
Mr. McAdam holds a promissory note from us convertible into approximately
16,667 shares of common stock and Great Expectations Family LP, a family
limited partnership controlled by Mr. McAdam, also holds a promissory note
from us convertible into approximately 8,333 shares of common stock (see "Use
of Proceeds.") Mr. McAdam is deemed to share beneficial ownership of the
foregoing shares by reason of his relationship to the direct owners of the
shares. See "Certain Transactions."
(5) Of the shares listed, 112,500 are currently outstanding and held in
the name of 1st Zamora Corp. and 25,000 represent the approximate number of
shares which could be issued if the corporation converts its note in the
amount of $75,000. (See "Certain Transactions.") 1st Zamora Corp. is a
Colorado corporation controlled by Laura Lee Madsen, who is deemed to share
beneficial ownership of these shares with the corporation.
(6) Mr. Nemelka is holding 50,000 of these shares for the benefit of his
family limited partnership, Boulder Family Partnership Ltd, for which he is
the general partner, and 25,000 are held for the benefit of McKinley
Enterprises Profit Sharing Plan, of which he is the beneficiary. Of the
shares listed, 112,500 are currently outstanding and held in the name of Mr.
Nemelka and 25,000 represent the approximate number of shares which could be
issued if he converts his notes in the aggregate amount of $75,000. (See
"Certain Transactions.")
DESCRIPTION OF SECURITIES
Equity Securities
We have two classes of stock, namely common stock, par value $.001 and
preferred stock, par value $001. There are 50,000,000 shares of common stock
authorized, of which 1,725,000 shares are outstanding. The holders of the
common stock have equal ratable rights to dividends from funds legally
available therefor, when, as, and if declared by the Board of Directors and
are entitled to share ratably in all of our assets available for distribution
to holders of common stock upon our liquidation, dissolution, or winding up.
Holders of the common stock are entitled to one vote per share on all matters
on which shareholders may vote at all meetings of shareholders. There are no
conversion rights, subscription rights, preemptive rights, cumulative voting
rights, or redemptive rights with respect to the common stock. There are no
sinking fund provisions relating to the common stock. The presently issued
and outstanding shares of common stock are, and upon sale and issuance as set
forth in this prospectus, the shares will be, validly issued, fully paid, and
non-assessable.
We have authorized 5,000,000 shares of preferred stock, none of which
shares is outstanding. Neither the Articles of Incorporation nor the Board of
Directors has determined the preferences, limitations, and relative rights of
the preferred stock. The issuance of any preferred stock may have the effect
of delaying, deferring, or preventing a change in control without further
<PAGE>
Page 33
action by the shareholders and may adversely affect the voting and other
rights of the holders of the common stock. At present we have no plans to
issue any shares of preferred stock.
Warrants
We have issued two classes of warrants, namely the A Warrants and the B
Warrants. The rights and terms of each class of warrants are the same, except
for the exercise price. The exercise price of the A Warrants is $3.00 per
share, and the exercise price of the B Warrants is $3.05 per share, subject
to adjustment under certain circumstances. We have outstanding 300,000 A
Warrants and 300,000 B Warrants, each warrant entitling the holder to
purchase one share of common stock at the exercise price at any time
beginning one year from the date of issuance, but not earlier than ninety
days from the date of this prospectus, and ending five years from the date of
this prospectus.
The warrants also provide for a cashless exercise. In a cashless
acquisition of shares pursuant to the provisions of the warrants, the warrant
holders have the right to convert the warrants, in whole or in part, into the
number of shares determined by dividing (a) the aggregate fair market value
of the shares of the common stock issuable upon exercise of the warrants
minus the aggregate warrant price of these shares by (b) the fair market
value of one share. The formula for computing the number of shares to be
issued in this type of exercise is set forth below:
Aggregate fair market value of shares
issuable upon exercise of the warrants
less the aggregate warrant price for
that number of shares
= Number of shares received in
------------------------------------- conversion
The fair market value of one share
For example, if a warrant holder wanted to exercise 1,000 warrants
exercisable at $3.00 per share, and if the fair market value of the shares on
the date of exercise were $10.00, the aggregate fair value of the shares to
be issued upon conversion would be $10,000, less the aggregate warrant price
for the shares which would be $3,000, divided by $10.00. Thus, the warrant
holder would receive 700 shares and the warrants to purchase the 1,000 shares
would be canceled as part of the cashless exercise.
We cannot call or redeem the warrants.
The warrants do not confer upon the holder any voting or preemptive
rights, or any other rights of a stockholder.
The warrant exercise price and the number and kind of shares of common
stock to be obtained upon exercise of the warrants are subject to adjustment
only in the event of a stock split
<PAGE>
Page 34
of, dividend on, or a subdivision, combination , or recapitalization of the
common stock or the sale of substantially all of our assets, or a merger or
consolidation into another corporation or other business entity where we are
not the surviving corporation.
The warrants may be exercised upon surrender of the warrant
certificate on or prior to the expiration date at our offices, with the form
of "Subscription Form" furnished with the warrant certificate filled out and
executed as indicated, accompanied by payment of the full exercise price for
the number of warrants being exercised.
Transfer Agent
The Transfer Agent for the shares of common stock is Interwest Transfer
Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117;
telephone number (801) 272-9294. Initially we will act as our own agent for
the transfer and exercise of the warrants.
DIVIDEND POLICY
We have not declared or paid any cash dividends as yet on the common
stock and the Board of Directors has not yet decided on a dividend policy.
Whether dividends will be paid will be determined by the Board of Directors
and will necessarily depend on our earnings, financial condition, capital
requirements and other factors. The Board of Directors has no current plans
to declare any dividends in the foreseeable future.
UNDERWRITING
We have agreed to sell to the Underwriting Group, for which Spencer
Edwards, Inc. is acting as the representative, and the underwriting group has
agreed to purchase from us, 333,334 shares of our common stock. The
underwriting group is obligated to purchase all of the shares, if any of the
shares are purchased.
Discounts and Costs
We will sell the shares to the underwriting group for $2.70 per share and
the underwriting group will offer the shares directly to the public at $3.00
per share. This offering price may not be changed until after the completion
of the public distribution. The Underwriter may also offer the shares to
certain securities dealers who may reoffer the shares on the same terms and
conditions of the offering set forth in this prospectus. The members of the
underwriting group may allow these discounts and concessions upon sales to
selected dealers as may be determined from time to time by Spencer Edwards.
The underwriter has advised us that it does not intend to sell any shares to
accounts for which it has discretionary authority.
If all of the shares are sold, we have also agreed to reimburse Spencer
Edwards on a nonaccountable basis for the Underwriter's expenses in the
amount of 3% of the gross proceeds
<PAGE>
Page 35
of the shares, including the proceeds from the over-allotment shares. We paid
$10,000 to Spencer Edwards toward these expenses when we entered into our
letter of intent with them and an additional $10,000 when we filed this
registration statement.
Over-allotment Option
The Underwriter has an option to purchase up to 50,000 additional shares
at the public offering price to cover over-allotments. The Underwriter can
exercise this option for a period of 30 days after the date of this
prospectus. If the Underwriter exercises this option, it will have a firm
commitment, subject to some conditions, to purchase the 50,000 shares.
Underwriter's Warrants
At the closing of the underwriting, we have agreed to sell to the
Underwriter for $100 warrants to purchase 33,333 shares at $3.60 per share.
These warrants cannot be transferred by the Underwriter for one year after
the date of this prospectus. They will be exercisable at any time after one
year from the date of this prospectus until six years from the date of the
prospectus. The warrants will contain anti-dilution provisions, a cashless
exercise provision, and piggyback registration rights.
Future Financings
We have agreed with Spencer Edwards on a non-exclusive basis that if they
arrange for equity, debt, or other financing for us over the next five years,
we will pay a commission to them ranging from 10% for equity financings to 5%
or less for debt financings, increase in lines of credit, sales of assets,
mergers, acquisitions, or joint ventures.
Lock-up of Shares
The Underwriting Agreement provides that we will cause all of our
officers and directors and certain others to enter into an agreement not to
sell, pledge, hypothecate, transfer, or otherwise dispose of any shares of
common stock owned by them for a period of 24 months from the date of this
prospectus without the prior written consent of the Underwriter. The shares
subject to the lock-up consist of the 1,010,000 owned by management, 215,000
shares issued to employees, consultants, and others, 45,000 shares reserved
for future issuance under our Stock Bonus Plan and 30,000 shares reserved for
issuance to Dr. Cochran.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common
stock. We cannot predict the effect, if any, that future market sales of our
shares, or the availability of these shares for sale, will have on the
prevailing market price of the common stock following this
<PAGE>
Page 36
offering. Nevertheless, sales of substantial amounts of our stock in the open
market following this offering could adversely affect the prevailing market
price of the stock.
Upon completion of this offering, and assuming no exercise of outstanding
warrants to purchase shares of the common stock, we will have 2,088,334
outstanding shares. Of those, only the 333,334 shares being offered in this
offering, will, subject to any applicable state law restrictions on secondary
trading, be freely tradeable without restriction under the Securities Act,
except that any shares purchased by "affiliates" (as that term is defined in
Rule 144 under the Securities Act) will be subject to the resale limitations
of Rule 144.
The remaining 1,725,000 shares are "restricted" within the meaning of
Rule 144 under the Securities Act. Of this number, 500,000 shares will be
eligible for immediate sale in the public market without restriction under
Rule 144(k). The remaining shares are subject to a twenty-four month lock-up
agreement with the underwriter.
In general, under Rule 144, as currently in effect, any person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares for at least one year, is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of (i) 1% of our
then outstanding shares (approximately 20,883 shares immediately after the
offering), or (ii) the average weekly trading volume of our stock during the
four calendar weeks immediately preceding the date on which notice of the
sale is filed with the Commission. Sales pursuant to Rule 144 are also
subject to certain requirements relating to manner of sale, notice and
availability of current public information about Imagenetix. A person who is
not deemed to have been an affiliate of Imagenetix at any time during the 90
days immediately preceding the sale and whose restricted shares have been
fully-paid for two years since the later of the date they were acquired from
us, or the date they were acquired from one of our affiliates, may sell these
restricted shares under Rule 144(k) without regard to the limitations and
requirements described above. Under Rule 701, shares privately issued under
certain compensatory stock-based plans, such as our Stock Bonus Plan, may be
resold under Rule 144 within ninety days from the date of this prospectus. Of
the current outstanding shares, 141,500 were issued prior to this offering
under Rule 701.
Prior to the offering, there has been no public market for our stock. We
cannot predict the effect, if any, that sales of shares under Rule 144 or the
availability of shares for sale will have on the market price of our stock
prevailing from time to time after the offering. We are unable to estimate
the number of shares that may be sold in the public market under Rule 144,
because the amount will depend on the trading volume in, and market price
for, our stock and other factors. Nevertheless, sales of substantial amounts
of shares in the public market, or the perception that sales of these shares
could occur, could adversely affect the market price of our stock.
<PAGE>
Page 37
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
Imagenetix by Ronald N. Vance, Attorney at Law, Salt Lake City, Utah. The
firm of Krys Boyle Freedman & Sawyer, P.C. has acted as counsel for the
Underwriter in this offering.
EXPERTS
Our financial statements for the year ended March 31, 1999, included in
this prospectus have been examined by Pritchett, Siler & Hardy, P.C.,
Certified Public Accountants. The financial statements examined by the
Certified Public Accountants have been included in reliance upon their audit
report.
FINANCIAL STATEMENTS
We have attached to this prospectus copies of our audited financial
statements as of March 31, 1999, consisting of a consolidated balance sheet
at March 31, 1999 and the related statements of operations, stockholders'
equity and cash flows from inception on January 7, 1999, through March 31,
1999. We have also included unaudited financial statements for September 30,
1999, consisting of a balance sheet as of September 30, 1999, and the related
statements of operations, stockholders' equity, and cash flows for the six
months ended September 30, 1999, and from inception on January 7, 1999,
through September 30, 1999.
<PAGE>
Page 38
IMAGENETIX, INC. AND SUBSIDIARY
CONTENTS
PAGE
----
- -- Independent Auditors Report 1
- -- Consolidated Balance Sheets, September 30, 1999
(Unaudited) and March 31, 1999 2
- -- Consolidated Statements of Operations, for the six
months ended September 30, 1999 (Unaudited)
and from inception on January 7, 1999 through
March 31, 1999 and September 30, 1999 (Unaudited) 3
- -- Consolidated Statement of Stockholders' Equity,
from inception on January 7, 1999 through March 31,
1999 and September 30, 1999 (Unaudited) 4
- -- Consolidated Statements of Cash Flows, for the six
months ended September 30, 1999 (Unaudited) and from
inception on January 7, 1999 through
March 31, 1999 and September 30, 1999 (Unaudited) 5-6
- -- Notes to Consolidated Financial Statements 7-14
<PAGE>
Page 39
INDEPENDENT AUDITORS' REPORT
Board of Directors
IMAGENETIX, INC. AND SUBSIDIARY
San Diego, California
We have audited the accompanying consolidated balance sheet of Imagenetix,
Inc. and Subsidiary at March 31, 1999, and the related statements of
operations, stockholders' equity and cash flows from inception on January 7,
1999 through March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the consolidated financial position of
Imagenetix, Inc. and Subsidiary as of March 31, 1999, and the results of its
operations and its cash flows for the period from inception through March 31,
1999, in conformity with generally accepted accounting principles.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
May 10, 1999
Salt Lake City, Utah
<PAGE>
Page 40
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
1999 March 31,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash in bank $ 183,318 $ 141,154
Accounts receivable 413,038 -
Inventory 362,058 1,831
Prepaid assets 30,000 -
------------ ------------
Total Current Assets 988,414 142,985
------------ ------------
PROPERTY AND EQUIPMENT, net 31,332 6,594
------------ ------------
OTHER ASSETS:
Deferred stock offering costs 12,323 -
Refundable deposits 855 855
Trademark, net 998 -
------------ ------------
Total Other Assets 14,176 855
------------ ------------
$ 1,033,922 $ 150,434
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 274,140 $ 3,014
Accrued liabilities 21,619 4,629
Customer deposits 83,025 -
Notes payable - related parties 607,250 100,000
Current portion of capital lease obligation 5,262 -
------------ ------------
Total Current Liabilities 991,296 107,643
CAPITAL LEASE OBLIGATION, less current portion 13,826 -
------------ ------------
Total Liabilities 1,005,122 107,643
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000
shares authorized, no shares issued and
outstanding - -
Common stock, $.001 par value, 50,000,000
shares authorized, 1,725,000 and 1,800,000
shares issued and outstanding, respectively 1,725 1,800
Capital in excess of par value 69,875 61,142
Accumulated deficit (42,800) (20,151)
------------ ------------
Total Stockholders' Equity 28,800 42,791
------------ ------------
$ 1,033,922 $ 150,434
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE>
Page 41
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Inception on
For the Six January 7, 1999 Through
Months Ended -------------------------------------
September 30, September 30,
1999 March 31, 1999
(Unaudited) 1999 (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 781,138 $ 84,986 $ 866,124
COST OF GOODS SOLD 529,274 68,596 597,870
------------ ------------ ------------
GROSS PROFIT 251,864 16,390 268,254
------------ ------------ ------------
EXPENSES:
Selling expense 38,317 20,023 58,340
General and administrative 219,594 15,963 235,557
Research and development 2,565 500 3,065
------------ ------------ ------------
Total Expenses 260,476 36,486 296,962
------------ ------------ ------------
LOSS FROM OPERATIONS (8,612) (20,096) (28,708)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense - related party (12,250) (55) (12,305)
Interest expense (2,249) - (2,249)
Other Income 462 - 462
------------ ------------ ------------
Total Other (Expense) (14,037) (55) (14,092)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (22,649) (20,151) (42,800)
CURRENT TAX EXPENSE - - -
DEFERRED TAX EXPENSE - - -
------------ ------------ ------------
NET LOSS $ (22,649) $ (20,151) $ (42,800)
------------ ------------ ------------
LOSS PER COMMON SHARE $ (.01) $ (.01) $ (.02)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
Page 42
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON JANUARY 7, 1999
THROUGH MARCH 31, 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital in
------------------------- ------------------------- Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
---------- --------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
January 7, 1999 - $ - - $ - $ - $ -
Issuance of 1,300,000 shares of
common stock for cash,
January 1999 at $.052,
net of $5,000 stock offering
costs - - 1,300,000 1,300 61,642 -
Effect of recapitalization
of subsidiary, March
1999 - - 500,000 500 (500) -
Net loss for the period
ended March 31, 1999 - - - - - (20,151)
---------- --------- ----------- --------- ---------- -----------
BALANCE,
March 31, 1999 - - 1,800,000 1,800 61,142 (20,151)
Issuance of 166,500
shares of common
stock for services
rendered, June, 1999
at $.052 per share
(unaudited) - - 166,500 167 8,491 -
Cancellation of 241,500
shares of common
stock, June, 1999
at $.001 per share
(unaudited) - - (241,500) (242) 242 -
Net loss for the six
months ended
September 30, 1999
(unaudited) - - - - - (22,649)
---------- --------- ----------- --------- ---------- -----------
BALANCE,
September 30, 1999
(unaudited) - $ - 1,725,000 $ 1,725 $ 69,875 $ (42,800)
---------- --------- ----------- --------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
-4-
<PAGE>
Page 43
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
From Inception on
For the Six January 7, 1999 Through
Months Ended ----------------------------------
September 30, September 30,
1999 March 31, 1999
(Unaudited) 1999 (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (22,649) $ (20,151) $ (42,800)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Non-cash expense 8,658 - 8,658
Depreciation expense 3,660 138 3,798
Changes in assets and liabilities:
(Increase) in accounts receivable (413,038) - (413,038)
(Increase) in inventory (360,227) (1,831) (362,058)
(Increase) in prepaid assets (30,000) - (30,000)
(Increase) in other assets - (855) (855)
Increase in accounts payable 271,126 3,014 274,140
Increase in accrued liabilities 16,989 4,629 21,618
Increase in customer deposits 83,025 - 83,025
------------ ------------ ------------
Net Cash (Used) by Operating
Activities (442,456) (15,056) (457,512)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of office equipment (7,039) (6,732) (13,771)
Purchase of trademark (1,015) - (1,015)
------------ ------------ ------------
Net Cash (Used) by Investing
Activities (8,054) (6,732) (14,786)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock
issuance - 67,942 67,942
Proceeds from notes payable
- related party 507,250 100,000 607,250
Payments for stock offering costs (12,323) (5,000) (17,323)
Payments for capital leases (2,253) - (2,253)
------------ ------------ ------------
Net Cash Provided by Financing
Activities 492,674 162,942 655,616
------------ ------------ ------------
NET INCREASE IN CASH 42,164 141,154 183,318
CASH AT BEGINNING OF PERIOD 141,154 - -
------------ ------------ ------------
CASH AT END OF PERIOD $ 183,318 $ 141,154 $ 183,318
------------ ------------ ------------
[CONTINUED]
</TABLE>
-5-
<PAGE>
Page 44
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
From Inception on
For the Six January 7, 1999 Through
Months Ended ----------------------------------
September 30, September 30,
1999 March 31, 1999
(Unaudited) 1999 (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,057 $ - $ 1,057
Income taxes $ - $ - $ -
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
For the Period Ended September 30, 1999 (unaudited)
The Company entered into various capital leases for equipment valued at
$21,341.
The Company issued 166,500 shares of common stock for services
rendered. The shares were valued at $.052 per share or $8,658.
For the Period Ended March 31, 1999
During March 1999, the Company effected a recapitalization wherein
Parent issued 1,300,000 shares of common stock to acquire all the
outstanding stock of Subsidiary. Parent had 500,000 shares of common
stock outstanding at the time of the recapitalization.
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<PAGE>
Page 45
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The accompanying consolidated financial statements represent
the accounts of Imagenetix, Inc. ["Parent"] organized under the laws of the
State of Colorado on July 26, 1996 (formerly Internet International
Business Management, Inc.) and Imagenetix ["Subsidiary"] organized under
the laws of the State of California on January 7, 1999 ["The Company"]. The
Company is engaged in the business of setting up alliances between various
people and companies in order to market and distribute health care
products. For the past few months, the Company has been selecting
suppliers, finding customers, developing its own method of business
operations, and many other activities necessary to form a viable business.
On March 23, 1999, Parent completed an exchange agreement with Subsidiary
wherein Parent issued 1,300,000 shares of its common stock in exchange for
all of the outstanding common stock of the Subsidiary. The Acquisition was
accounted for as a recapitalization of the Subsidiary as the shareholders
of the Subsidiary controlled the combined Company after the acquisition.
There was no adjustment to the carrying values of the assets or liabilities
of the Parent or Subsidiary as a result of the recapitalization [SEE NOTE
6].
The Company has, at the present time, not paid any dividends and any
dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.
INTERIM FINANCIAL STATEMENTS - The accompanying interim financial
statements have been prepared by the Company without audit. In the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1999 and for all the periods
presented have been made. The results of operations for the periods ended
September 30, 1999 are not necessarily indicative of the operating results
for the full year.
CONSOLIDATION - All significant intercompany transactions between the
Parent and Subsidiary have been eliminated in consolidations.
CASH AND CASH EQUIVALENTS - For purposes of the financial statements, the
Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
ORGANIZATION COSTS - Costs of approximately $2,000 that were incurred to
organize the Company have been expensed.
TRADEMARKS - Costs of purchasing trademarks are amortized on a
straight-line basis over 17 years.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized, upon being placed in
service. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation is computed for financial statement purposes using
the straight-line method over the estimated useful lives of the assets.
- 7 -
<PAGE>
Page 46
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
INVENTORY - Inventory is carried at the lower of cost or market using the
First In, First Out method [SEE NOTE 2].
REVENUE RECOGNITION - Revenue is recognized when the product is shipped
to the customer.
LOSS PER SHARE - The computation of loss per share is based on the weighted
average number of shares outstanding during the period presented in
accordance with Statement of Financial Accounting Standards ["SFAS"] No.
128, "Earnings Per Share" [SEE NOTE 12].
ADVERTISING COSTS - Costs incurred in connection with advertising and
promotion of the Company's products are expensed as incurred. Such costs
amounted to approximately $38,317 for the six months ended September 30,
1999 (unaudited) and $13,000 for the period ended March 31, 1999.
ACCOUNTING 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, the disclosures 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 estimated by management.
RECENTLY ENACTED ACCOUNTING STANDARDS - Statement of Financial Accounting
Standards ["SFAS"] No 130, "Reporting Comprehensive Income", SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", No.
132, "Employer's Disclosure about Pensions and Other Postretirement
Benefits", SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", SFAS No. 134, "Accounting for Mortgage-Backed Securities..."
and SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections" were recently issued. SFAS No. 130, 131, 132, 133, 134 and 135
have no current applicability to the Company or their effect on the
financial statements would not have been significant.
NOTE 2 - INVENTORIES
Inventory is carried at the lower of cost or market value and consists of
the following:
<TABLE>
<CAPTION>
September 30,
1999 March 31,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
Raw Materials $ 362,058 $ 1,831
---------------- ------------
$ 362,058 $ 1,831
---------------- -------------
</TABLE>
NOTE 3 - TRADEMARKS
During the six months ended September 30, 1999 (unaudited) the Company
recorded $1,015 to register trademarks name for their products. The
trademarks are being amortized on a straight-line basis over 17 years. For
the six months ended September 30, 1999 (unaudited) amortization expense
was $18.
- 8 -
<PAGE>
Page 47
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of equipment, at cost, less accumulated
depreciation:
<TABLE>
<CAPTION>
September 30,
1999 March 31,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
Office Equipment $ 35,112 $ 6,732
Less accumulated depreciation (3,780) (138)
------------ ------------
$ 31,332 $ 6,594
------------- ------------
</TABLE>
Depreciation expense for the six months ended September 30, 1999
(unaudited) was $3,641 and for the period ended March 31, 1999 was $138.
NOTE 5 - NOTES PAYABLE - RELATED PARTY
During the six months ended September 30, 1999 (unaudited) the President of
the Company loaned the Company $288,500. The loans are due at dates varying
from May 2000 to September 2000, are unsecured, and have an interest rate
of 10%. Accrued interest as of September 30, 1999 (unaudited) was $6,715.
During September 1999 (unaudited) a relative of the President loaned the
Company $30,000. The loan is due at September 2000 and bears an interest
rate of 10%. Accrued interest as of September 30, 1999 (unaudited) was
$115.
At September 30, 1999 (unaudited) and March 31, 1999, the Company had
convertible notes payable outstanding totaling $288,750 (unaudited) and
$100,000, respectively, to individuals who are shareholders of the Company
or to entities related to shareholders of the Company. The notes bear
interest at 10% per annum. The notes are due upon the receipt of proceeds
from a proposed public stock offering [SEE NOTE 13] or on March 29, 2000
whichever is earlier. At September 30, 1999 (unaudited) and March 31, 1999,
the Company accrued $5,400 (unaudited) and $55, respectively, in interest
expense on the notes. The notes and any unpaid interest thereon are
convertible into common stock of the Company at $3.00 per share. The
Company also issued 288,750 "A" warrants and 288,750 "B" warrants to the
holders of the notes payable [SEE NOTE 6]. The "A" warrants allow the
holder to acquire one share of common stock per warrant at $3 per share.
The "B" warrants allow the holder to acquire one share of common stock per
warrant at $3.05 per share. The convertible notes were issued as part of a
funding agreement [SEE NOTE 11].
- 9 -
<PAGE>
Page 48
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - CAPITAL STOCK AND RECAPITALIZATION
STOCK BONUS PLAN - During June 1999 (unaudited), the Board of Directors of
the Company adopted a stock bonus plan. The plan provides for the granting
of awards of up to 211,500 shares of common stock to officers, directors,
consultants and employees. Awards under the plan will be granted as
determined by the board of directors. An officer and majority shareholder
has agreed to return and cancel 241,500 shares of common stock so that the
common shares issued through the stock bonus plan will not further dilute
the public shareholders of the company. During June 1999 (unaudited),
166,500 shares valued at $.052 per share were issued under the plan to
certain employees, consultants and directors.
PREFERRED STOCK - The Company has authorized 5,000,000 shares of preferred
stock, $.001 par value, with such rights, preferences and designations and
to be issued in such series as determined by the Board of Directors. No
shares are issued and outstanding at September 30, 1999 (unaudited) or
March 31, 1999.
WARRANTS - As of September 30, 1999 (unaudited) and March 31, 1999, the
Company issued 288,750 (unaudited) and 100,000 "A" warrants, respectively,
and 288,750 (unaudited) and 100,000 "B" warrants, respectively, to the
holders of convertible notes payable [SEE NOTE 5]. The "A" warrants allow
the holder to acquire one share of common stock per warrant at $3 per
share. The "B" warrants allow the holder to acquire one share of common
stock per warrant at $3.05 per share. The warrants are exercisable for a
period of five years from the filing of the proposed registration statement
or through December 31, 2005 if a registration statement is not filed by
December 31, 1999.
EFFECT OF RECAPITALIZATION OF SUBSIDIARY - During January 1999, in
connection with its organization, the Subsidiary issued 1,300,000 shares of
its previously authorized, but unissued common stock. Total proceeds from
the sale of stock amounted to $67,942 (or $.052 per share). During March
1999, in connection with its Exchange Agreement with the Subsidiary, the
Parent issued 1,300,000 shares of its previously authorized, but unissued
common stock in exchange for previously issued Subsidiary stock. The
operations of Parent are included only from the date of recapitalization.
Accordingly, the previous operations and retained deficits of Parent prior
to the date of recapitalization have been eliminated. In connection with
the recapitalization, Parent effected a forward stock split on the basis of
100 shares issued for each 1 share previously outstanding. The former
shareholders of Parent retained 500,000 shares of common stock immediately
after the exchange of stock.
- 10 -
<PAGE>
Page 49
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - CAPITAL STOCK AND RECAPITALIZATION [CONTINUED]
The financial statements of Parent prior to the recapitalization of the
Company have not been included because the Parent's operations have been
eliminated in the recapitalization. However, the following information
summarizes the Stockholders' equity of the Parent prior to the
recapitalization of Subsidiary:
IMAGENETIX
(Formerly Internet International Business Management, Inc.)
[A DEVELOPMENT STAGE COMPANY]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JULY 26, 1996 THROUGH MARCH 23, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
_____________________ _____________________ Excess of Development
Shares Amount Shares Amount Par Value Stage
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 26, 1996 - $ - - $ - $ - $ -
Issuance of 5,000 shares of
common stock for cash,
July, 1996 at $.01
per share - - 5,000 5 45 -
Net loss for the period
ended December 31, 1996 - - - - - (4)
--------- --------- --------- --------- --------- -----------
BALANCE, December 31, 1996 - - 5,000 5 45 (4)
Net loss for the period
ended December 31, 1997 - - - - - (10)
--------- --------- --------- --------- --------- -----------
BALANCE, December 31, 1997 - - 5,000 5 45 (14)
Net loss for the period
ended December 31, 1998 - - - - - (10)
--------- --------- --------- --------- --------- -----------
BALANCE, December 31, 1998 - - 5,000 5 45 (24)
Capital contribution, March 1999 - - - - 5,000 -
100 for 1 forward stock split
March 1999 - - 495,000 495 (495) -
Net loss for the period
ended March 23, 1999 - - - - - (5,026)
--------- --------- --------- --------- --------- -----------
BALANCE, March 23, 1999 - $ - 500,000 $ 500 $ 4,550 $ (5,050)
--------- --------- --------- --------- --------- -----------
</TABLE>
- 11 -
<PAGE>
Page 50
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". SFAS
No. 109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards. At September 30, 1999
(unaudited) and March 31, 1999, the Company has available unused operating
loss carryforwards of approximately $40,700 (unaudited) and $20,000,
respectively, which may be applied against future taxable income and which
expire in 2019.
The amount of and ultimate realization of the benefits from the operating
loss carryforwards for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards the
Company has established a valuation allowance equal to the tax effect of
the loss carryforwards and, therefore, no deferred tax asset has been
recognized for the loss carryforwards. The net deferred tax assets are
approximately $13,800 (unaudited) and $6,800 as of September 30, 1999
(unaudited) and March 31, 1999, respectively, with an offsetting valuation
allowance of the same amount.
NOTE 8 - CONCENTRATION OF CREDIT RISK
For the period March 31, 1999, all of the Company's sales were from one
significant customer. Further, the Company maintains all its cash balances
in one bank. At March 31, 1999, the Company had cash balances in excess of
federally insured amount of approximately $41,000. An officer of the
Company is a 15% shareholder in the significant customer.
At September 30, 1999 (unaudited), the Company maintained its cash balances
primarily at one bank. The Company's cash balances are insured by the
Federal Deposit Insurance Corporation up to a maximum of $100,000. At
September 30, 1999, (unaudited) the Company had cash balances in excess of
federally insured amount of approximately $83,000.
NOTE 9 - ALLIANCE AGREEMENT
Subsequent to March 31, 1999, the Company entered into an Alliance
Agreement with an individual who has developed nutritional and skin care
products and innovations. The Company will pay the developer a 10%
commission based on sales of the developer's products or innovations. The
developer has been appointed as a member of the board of directors of the
Company. The agreement provides for a ten-year term but the agreement will
terminate when the developer becomes a full time employee of the Company.
The Company anticipates entering into an employment agreement with the
developer upon successful completion of its proposed public stock offering.
During the six months ended September 30, 1999 (unaudited), the developer
became a full-time employee of the Company and, thus, the alliance
agreement was terminated. No sales commission was paid to the developer.
Upon completion of the proposed offering, the developer has agreed to
transfer all of his interest in his products to the Company for 30,000
shares of the Company's common stock.
- 12 -
<PAGE>
Page 51
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LEASES
OPERATING LEASE - The Subsidiary entered into a month to month operating
lease for office space beginning March 22, 1999. The monthly rent is $1,710
per month. Rent expense for the six months ended September 30, 1999
(unaudited) totaled $10,810. Rent expense for the period ended March 31,
1999 totaled $570. As of March 31, 1999 and September 30, 1999 (unaudited),
a security deposit of $855 was included in other assets.
CAPITAL LEASES - During the six months ended September 30, 1999 (unaudited)
the Company entered into three capital leases for office equipment valued
at $21,341. The assets and liabilities under the capital leases were
recorded at the lower of the present value of the minimum lease payments or
the fair value of the assets at the time of purchase. The assets are
amortized over their related lease terms. Amortization expense of $2,583,
for the assets under the capital leases, has been included in depreciation
expense for the period ended September 30, 1999 (unaudited).
Total future minimum lease payments, executory costs and current portion of
capital lease obligations as of September 30, 1999 (unaudited) are as
follows:
<TABLE>
<CAPTION>
Lease Payments
--------------
<S> <C>
For the period ended March 31, 2000 $ 3,500
For the year ended March 31, 2001 7,947
For the year ended March 31, 2002 7,009
For the year ended March 31, 2003 2,637
For the year ended March 31, 2004 2,268
Thereafter 189
--------------
Total future minimum lease payments $ 23,550
Less: amounts representing interest and executory costs (4,462)
--------------
Present value of the future minimum lease payments 19,088
Less: current portion (5,262)
--------------
Capital lease obligations - long-term $ 13,826
--------------
</TABLE>
NOTE 11 - COMMITMENTS AND AGREEMENTS
FUNDING AGREEMENT - In connection with the recapitalization of the Company
[SEE NOTE 6], a funding agreement was negotiated wherein the shareholders
and officers of Parent (prior to the recapitalization) would provide
$300,000 of funding for the combined company. As of September 1999
(unaudited), $288,750 was received [SEE NOTE 5]. The remaining $11,250 was
received in October 1999 (unaudited). The funding agreement also provided
for 300,000 "A" warrants and 300,000 "B" warrants to be issued. All
warrants issued are subject to "Piggy-Back" registration rights should the
Company file a registration statement.
- 13 -
<PAGE>
Page 52
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted-average number of shares of dilutive
potential common stock for the period presented:
<TABLE>
<CAPTION>
From Inception on
For the Six January 7, 1999 Through
Months Ended _______________________________
September 30, September 30,
1999 March 31, 1999
(Unaudited) 1999 (Unaudited)
------------- ------------- -------------
<S> <C> <C> <C>
Loss from continuing operations available
to common shareholders (Numerator) $ (22,649) $ (20,151) $ (42,800)
------------- ------------- ------------
Weighted average number of common
shares outstanding used in loss per
share during the period (Denominator) 1,761,885 1,800,000 1,773,778
-------------- ------------- -------------
</TABLE>
Dilutive loss per share was not presented, as its effect is anti-dilutive.
At September 30, 1999 (unaudited) and March 31, 1999 the Company had
warrants outstanding to purchase 577,500 (unaudited) and 200,000 shares of
common stock, respectively, at prices of $3.00 and $3.05, per share that
were not included in the computation of diluted loss per share because
their effect was anti-dilutive. In October 1999, the Company issued 22,500
additional warrants in connection with the funding agreement [SEE NOTE 11].
NOTE 13 - SUBSEQUENT EVENTS
PROPOSED PUBLIC OFFERING OF COMMON STOCK - The Company plans to file a
registration statement with the United States Securities and Exchange
Commission on Form SB-1 under the Securities Act of 1933. The Company
proposes to sell 333,334 (which includes 100,000 shares for the conversion
of $300,000 of notes payable) common shares at a price of $3 per share,
which price has been arbitrarily determined by the Company. The shares will
be offered and sold by an underwriter, who will receive 10% of the offering
price of each share sold. The underwriter will also receive a 3%
non-accountable allowance for offering expenses. Other direct offering
expenses are expected to approximate $50,000. Underwriter warrants and
sales over-allotments are also provided for in the proposed offering. The
Company has incurred stock offering costs of $12,323 (unaudited) and $0 as
of September 30, 1999 (unaudited) and March 31, 1999, respectively. These
costs will be netted against the proceeds of the proposed public offering.
In accordance with the terms of a funding agreement [SEE NOTE 11], the
Company will also register the shares of common stock related to 300,000
Class "A" warrants and 300,000 Class "B" warrants. The Class "A" warrants
allow the holder to purchase shares of common stock at $3 per share. The
Class "B" warrants allow the holder to purchase shares of common stock at
$3.05 per share.
- 14 -
<PAGE>
Page 53
[INSIDE BACK COVER]
GLOBESTAR
[PICTURE OF GLOBE]
<PAGE>
Page 54
[OUTSIDE BACK COVER]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary
Risk Factors
Forward Looking Statements
Use of Proceeds
Dilution
Plan of Operation
Business
Management
Certain Transactions
Concurrent Offering
Principal Shareholders
Description of Securities
Dividend Policy
Underwriting
Shares Eligible For Future Sale
Legal Matters
Experts
</TABLE>
Until _____, 1999, (ninety days after the date of this prospectus) all
dealers that effect transactions in these securities may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
IMAGENETIX
JUST IMAGINE IT!
<PAGE>
Page 55
[ALTERNATIVE PAGE]
SUBJECT TO COMPLETION, DATED NOVEMBER *___, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or shale is not permitted.
IMAGENETIX, INC.
300,000 Class A Warrants
300,000 Class B Warrants
700,000 Shares of Common Stock
This Prospectus relates to 300,000 Class A Warrants and 300,000
Class B Warrants held by six selling warrant holders. This Prospectus also
relates to the 300,000 shares of common stock issuable upon exercise of the
Class A Warrants and the 300,000 shares of common stock issuable upon exercise
of the Class B Warrants, as well as 100,000 shares issued to certain note
holders. See "Description of Securities."
The warrants and the shares may be sold from time to time by the
selling security holders. The distribution of these securities may be effected
in one or more transactions that may take place on the over-the-counter market
(if the common stock is ever quoted on an over-the-counter market), including
ordinary brokers' transactions, privately negotiated transactions, or through
sales to one or more dealers for resale of the securities as principals, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices, or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the selling persons.
We will not receive any of the proceeds from the sale of these shares
or warrants, except the exercise price of the warrants. See "Selling Security
Holders" and "Plan of Distribution."
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company of
233,334 shares of common stock was declared effective by the Securities and
Exchange Commission. The Company will receive approximately $630,002 in net
proceeds from this offering (assuming no exercise of the Underwriter's
over-allotment option) after payment of underwriting discounts and estimated
expenses of this offering.
<PAGE>
Page 56
THIS OFFERING IS HIGHLY SPECULATIVE AND INVOLVES SPECIAL RISKS
CONCERNING THE COMPANY AND ITS BUSINESS. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is _______, 1999.
<PAGE>
Page 57
[ALTERNATE PAGE]
SELLING SECURITY HOLDERS
An aggregate of up to 100,000 shares issued in the conversion of
outstanding notes in the principal amount of $300,000 and 300,000 A Warrants and
300,000 Class B Warrants, as well as the shares underlying these Warrants, may
be offered for resale by the investors listed below.
The following table sets forth certain information with respect to
each selling security holder. The Company will not receive any of the proceeds
from the sale of these securities, except for the exercise price of the Warrants
(see "Description of Securities"). There are no material relationships between
any of the selling security holders and us, or any of our predecessors or
affiliates, nor have any such material relationships existed within the past
three years, except as footnoted below. Except as described below, no selling
security holder will beneficially own any of our securities if the selling
security holders' shares and warrants are sold. Each of the selling security
holders intends to offer and sell all of the securities listed below.
<TABLE>
<CAPTION>
Name of Selling
Shareholder Number of Securities
----------- --------------------
<S> <C>
Claudia A. McAdam(1) 16,667 Shares
50,000 A Warrants and 50,000 shares
underlying the warrants
50,000 B Warrants and 50,000 shares
underlying the warrants
Great Expectations Family 8,333 Shares
Limited Partnership(1)
25,000 A Warrants and 25,000 shares
underlying the warrants
25,000 B Warrants and 25,000 shares
underlying the warrants
Gregory Pusey 8,750 Shares
26,250 A Warrants and 26,250 shares
underlying the warrants
<PAGE>
Page 58
26,250 B Warrants and 26,250 shares
underlying the warrants
1st Zamora Corp.(2) 25,000 Shares
75,000 A Warrants and 75,000 shares
underlying the warrants
75,000 B Warrants and 75,000 shares
underlying the warrants
Barry C. Loder
3,750 Shares
11,250 A Warrants and 11,250 shares
underlying the warrants
11,250 B Warrants and 11,250 shares
underlying the warrants
Gulfstream 1998 Irrevocable
Trust(3) 12,500 Shares
37,500 A Warrants and 37,500 shares
underlying the warrants
37,500 B Warrants and 37,500 shares
underlying the warrants
David N. Nemelka
25,000 Shares
75,000 A Warrants and 75,000 shares
underlying the warrants
75,000 B Warrants and 75,000 shares
underlying the warrants
</TABLE>
- -----------------
(1)Claudia A. McAdam and Gary J. McAdam are husband and wife. Mr.
McAdam is a general partner of Great Expectations Family Limited Partnership.
Mr. McAdam was a founder of the Company, was instrumental in introducing
management of the Company to the Underwriter, and in negotiating the terms of
the underwriting for the Company. Mrs. McAdam and Great Expectations Family
Limited Partnership each loaned $50,000 to the Company, the principal and
accrued interest of which amounts may be converted into Shares. See "Certain
Transactions" and "Use of Proceeds."
(2)1st Zamora Corp. is a Colorado corporation controlled by Laura Lee
Madsen.
<PAGE>
Page 59
(3)This trust was created by Henry Fong for the benefit of his children.
<PAGE>
Page 60
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
The sale of the warrants or shares by the selling security holders
may be effected from time to time in transactions (which may include block
transactions by or for the account of the selling security holders) in the
over-the-counter market (if a market should develop) or in negotiated
transactions or otherwise. Sales may be made at fixed prices which may be
changed, at market prices, if any, prevailing at the time of sale, or at
negotiated prices.
The selling security holders may effect these transactions by
selling their warrants or shares directly to purchasers, through broker-dealers
acting as agents for the selling security holders or to broker-dealers who may
purchase the securities as principals and thereafter sell the securities from
time to time in the over-the-counter market, if any, in negotiated transactions
or otherwise. These broker-dealers, if any, may receive compensation in the form
of discounts, concessions or commissions from the selling security holders or
the purchasers for whom the broker dealers may act as agents or to whom they may
sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).
Under applicable rules and regulations under the Securities Exchange
Act, any person engaged in the distribution of the selling security holders'
warrants or shares may not simultaneously engage in market making activities
with respect to any of our securities for a period of at least two (and possibly
nine) business days prior to the start of any distribution. Accordingly, in the
event that the Underwriter of our public offering is engaged in a distribution
of the selling security holders' securities, it will not be able to make a
market in our shares during the applicable restrictive period. However, the
Underwriter has not agreed, nor is it obliged, to act as broker-dealer in the
sale of the selling security holders' securities. The selling security holders
may be required, and in the event the Underwriter is a market maker, will likely
be required, to sell their securities through another broker-dealer.
The selling security holders and broker-dealers, if any, acting in
connection with these sales might be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
<PAGE>
Page 61
[ALTERNATE PAGE]
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a Registration Statement was
declared effective under the Securities Act with respect to an underwritten
offering of 233,334 shares by us and up to 50,000 additional shares of common
stock to cover over-allotments, if any.
<PAGE>
Page 62
[ALTERNATE PAGE]
[OUTSIDE BACK COVER]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary
Risk Factors
Forward Looking Statements
Use of Proceeds
Dilution
Plan of Operation
Business
Management
Certain Transactions
Concurrent Offering
Principal Shareholders
Selling Security Holders
Concurrent Public Offering
Description of Securities
Dividend Policy
Plan of Distribution
Shares Eligible For Future Sale
Legal Matters
Experts
</TABLE>
Until _____, 1999, (ninety days after the date of this prospectus) all
dealers that effect transactions in these securities may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
IMAGENETIX
JUST IMAGINE IT!
<PAGE>
Page 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. Indemnification of Directors and Officers
Article 109 of the Colorado Business Corporation Act expressly
authorizes a Colorado corporation to indemnify its directors, officers,
employees, fiduciaries, and agents against claims or liabilities arising out of
such persons' conduct in such capacities if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the Company. In general, these provisions provide for indemnification in
instances when such persons acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the Company. A
corporation may also purchase and maintain liability insurance on behalf of such
persons.
Article VIII of the Company's Bylaws provides for the indemnification
of the Company's officers, directors, and employees. The Company does not
maintain any liability insurance on behalf of any director, officer, or other
person affiliated with the Company.
Item 2. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection
with the offering described in the registration statement:
<TABLE>
<CAPTION>
<S> <C>
Registration Fee $860
Blue Sky Fees $10,000
Accounting Fees and Expenses $8,000
Legal Fees and Expenses $25,000
Printing and Engraving $3,000
Transfer Agent Fees $1,000
Miscellaneous $2,140
------
Total Expenses $50,000
</TABLE>
Item 3. Undertakings
(a) The Company hereby undertakes that it will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement;
and (iii) include any material information with respect to the plan of
distribution not
<PAGE>
Page 64
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) For the purpose of determining liability under the Securities Act
of 1933, treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time shall 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.
(b) The Company will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "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 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel 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 Act and will be governed by the final adjudication of such
issue.
(d) The Company will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in the form of a prospectus filed by
the Company under Rule 424(b) (1) or (4) or 497(h) under the Act as part of this
registration statement as of the time the Commission declared it effective.
(2) For any liability under the 1933 Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that the offering of
the securities at that time as the initial bona fide offering of those
securities.
(e) The Company will use a sticker amendment if between 5% and 10% of the
shares subject to the lock-up agreement attached as an exhibit to this
registration statement are released from
<PAGE>
Page 65
this agreement. If greater than 10% of such shares are released, the
Company will file a post-effective amendment to this registration statement.
Item 4. Unregistered Securities Issued or Sold Within One Year
In March 1999 the Company issued 1,300,000 shares of Common Stock of
the Company to William P. Spencer, a director, president, and principal
shareholder of the Company. The shares were issued in a merger transaction
between the Company and Imagenetix, the wholly owned subsidiary of the Company.
Such securities were issued without registration under the Act by reason of the
exemption from registration afforded by the provisions of Section 4(2) thereof,
and Rule 506 promulgated thereunder, as transactions by an issuer not involving
any public offering. Mr. Spencer delivered appropriate investment
representations to the Company with respect to such transaction and consented to
the imposition of restrictive legends upon the certificates evidencing such
securities. No underwriting discounts or commissions were paid in connection
with such issuance.
Also in March 1999 the Company issued promissory notes to Claudia A.
McAdam in the amount of $50,000 and to Great Expectations Family Limited
Partnership, a Colorado limited partnership, in the amount of $50,000. The
Company also granted 50,000 A Warrants and 50,000 B Warrants to each such party.
Such securities were issued without registration under the Act by reason of the
exemption from registration afforded by the provisions of Section 4(2) thereof
as transactions by an issuer not involving any public offering. The parties
delivered appropriate investment representations to the Company with respect to
such issuances and consented to the imposition of restrictive legends upon the
certificates evidencing such securities. No underwriting discounts or
commissions were paid in connection with such issuance.
In September 1999 the Company issued promissory notes to David N.
Nemelka in the amount of $50,000; to 1st Zamora in the amount of $75,000; to
Greg Pusey in the amount of $26,250; to Barry C. Loder in the amount of $11,250;
and to Gulfstream 1998 Irrevocable Trust in the amount of $37,500. The Company
also granted 200,000 A Warrants and 200,000 B Warrants pro rata to such parties.
Such securities were issued without registration under the Act by reason of the
exemption from registration afforded by the provisions of Section 4(2) thereof
as transactions by an issuer not involving any public offering. The parties
delivered appropriate investment representations to the Company with respect to
such issuances and consented to the imposition of restrictive legends upon the
certificates evidencing such securities. No underwriting discounts or
commissions were paid in connection with such issuance.
In June 1999 the Company issued 5,000 shares each to Dr. Charles L.
Cochran and Dr. Peter H. Antoniou, directors of the Company, for accepting such
positions with the Company. Such securities were issued without registration
under the Act by reason of the exemption from registration afforded by the
provisions of Section 4(2) thereof as transactions by an issuer not involving
any public offering. The party delivered appropriate investment representations
to the Company with respect to such issuances and consented to the imposition of
restrictive legends
<PAGE>
Page 66
upon the certificates evidencing such securities. No underwriting discounts or
commissions were paid in connection with such issuance.
In June 1999 the Company issued 85,000 shares to Patrick Millsap for
employment services provided to the Subsidiary; 15,000 shares to Jules Kozuki
for consulting services connected with the development of the Company's
products; 25,000 shares to Judy White for employment services rendered for the
Company; 6,500 shares to Dr. Paul Dragul for consulting services connected with
the development of new products for the Company; 10,000 shares to Maurile C.
Tremblay for legal services provided to the Company; and 15,000 shares to J.
Larry Cantrell as a bonus for assisting with business advice to the Company,
especially in connection with the testing of the Globestar system. Such
securities were issued without registration under the Act by reason of the
exemption from registration afforded by the provisions of Section 28 thereof,
and Rule 701 promulgated thereunder. Each party delivered appropriate investment
representations to the Company with respect to such issuances and consented to
the imposition of restrictive legends upon the certificates evidencing such
securities. No underwriting discounts or commissions were paid in connection
with such issuance.
Item 5. Exhibits
The exhibits set forth in the following index of exhibits are filed as
a part of this registration statement.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Location
<S> <C> <C>
1.1 Form of Underwriting Agreement *
1.2 Form of Underwriter's Warrant *
1.3 Form of Underwriter's Lock-up Agreement *
2.1 Articles of Incorporation, as amended *
2.2 By-Laws of the Company currently in effect *
3.1 Form of certificate evidencing shares of Common Stock *
3.2 Substituted Form of A Warrant Certificate
3.3 Substituted Form of B Warrant Certificate
6.1 Substituted Funding Agreement
6.2 Substituted Form of Convertible Promissory Note
6.3 Alliance Agreement with Dr. Cochran *
6.4 Promissory Notes to Mr. and Mrs. Spencer *
6.5 1999 Stock Bonus Plan *
6.6 Exchange Agreement dated March 23, 1999 *
6.7 Cetyl Myristoleate Agreement
6.8 Agreement with Dr. Cochran
10.1 Consent of Pritchett, Siler & Hardy, P.C.
10.2 Consent of Ronald N. Vance (contained in
Exhibit 11 below.)
11 Opinion re Legality
--
</TABLE>
<PAGE>
Page 67
*Filed with the original filing of the registration statement of the
Company on Form SB-1 on September 22, 1999 (SEC File No. 333-87535).
<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 for filing on Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned in the city of San
Diego, State of California, on the 23rd day of November 1999.
IMAGENETIX, INC.
By: /s/ William Spencer, President and Chief
Executive Officer
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.
Date: November 23, 1999 /s/ William Spencer, Director and Principal
Accounting Officer
Date: November 23, 1999 /s/ Debra L. Spencer, Director and Chief
Financial Officer
Date: November 23, 1999 /s/ Dr. Charles L. Cochran, Director
Date: November 23, 1999 /s/ Dr. Peter H. Antoniou, Director
<PAGE>
EXHIBIT 3.2
IMAGENETIX, INC.
(A Colorado Corporation)
WARRANT CERTIFICATE
WARRANT NUMBER A-_____ NUMBER OF WARRANTS:_________
CLASS "A" WARRANT CERTIFICATE FOR THE PURCHASE OF SHARES
OF THE $.001 PAR VALUE COMMON STOCK OF
IMAGENETIX, INC.
FOR VALUE RECEIVED, Imagenetix, Inc. (the "Company"), a Colorado
corporation, hereby certifies that, _________________________, subject to the
terms and conditions herein after set forth and at any time during the period
beginning one year from the date hereof and ending five years from the date
hereof, the registered holder hereof (the "Holder") is entitled to:
1. Purchase shares of the Common Stock of the Company for each of the
within Warrants exercised at a price of $3.00 per shares of such Common Stock
(the "Warrant Price") or
2. Convert these Warrants, in whole or in part, into that number of
shares of Common Stock of the Company determined by dividing (a) the aggregate
fair market value, as of the date of conversion, of the shares of Common Stock
of the Company which would be issuable upon exercise of the Warrants to be
converted minus the aggregate Warrant Price of the shares of Common Stock of the
Company which would be issuable upon exercise of the Warrants by (b) the said
fair market value of one share of the Common Stock of the Company.
For the purposes of conversion of these Warrants, fair market value shall
be the value determined in accordance with the following provisions:
a. If the Common Stock of the Company is not at the time listed or
admitted on any stock exchange but is traded on the Nasdaq National Market
System or SmallCap Market or is quoted on the OTC Bulletin Board, the fair
market value shall be the closing selling price per share of such common stock
on the date in question, as such price is reported by the National Association
of Securities Dealers through, in order of preference, the Nasdaq National
Market System, the SmallCap Market, or the OTC Bulletin Board, or any successor
system. If there is not closing selling price for such common stock on the date
in question, then the fair market value shall be the closing selling price on
the last preceding date for which such a quotation exists.
b. If the common stock is at the time listed or admitted to trading
on any stock exchange, the fair market value shall be the closing selling price
per share of such common stock on the date in question on the stock exchange
determined by the Board of Directors of The Company to be the primary market for
such common stock, as such price is officially quoted in the composite tape of
transaction on the exchange. If there is no closing selling price for such
<PAGE>
common stock on the date in questions then the fair market value shall be the
closing selling price on the last preceding date for which such a quotation
exists.
c. If the common stock is at the time neither listed nor admitted to
trading on any exchange nor traded on the Nasdaq National Market System nor the
SmallCap Market, nor traded on the OTC Bulletin board, then such fair market
value shall be determined by the Board of Directors of the Company after taking
into account such factors as the Board of Directors of the Company shall deem
appropriate.
3. Upon exercise or conversion of these Warrants, the registered Holder
hereof shall surrender to the stock transfer agent of the Company this Warrant
Certificate together with the form of subscription attached hereto and, in the
case of exercise of the Warrants, a certified check or bank draft payable to the
order of the Company, or in the case of a conversion of the Warrants, written
confirmation by a broker/dealer member of the National Association of Securities
Dealers, Inc. of the fair market value of the shares of Common Stock of the
Company determined in accordance with paragraph 2. above, on a date within three
days prior to surrender of this Warrant Certificate to the stock transfer agent
for conversion and the Conversion Form attached hereto specifying the number of
shares of Common Stock of the Company the registered Holder claims to be
entitled to be issued upon the conversion requested.
4. In neither the case of exercise nor of conversion of the Warrants
shall fractional shares of the Common Stock of the Company be issued.
5. The Company covenants and agrees that all shares of Common Stock which
may be delivered upon the exercise or conversion of this Warrant will, upon
delivery, be free from all taxes, liens and charges with respect to the purchase
thereof hereunder. This Warrant shall not be exercised nor converted by Holder
in any state where such exercise would be unlawful such as a state in which the
Company's Common Stock is not registered or qualified as the case requires.
6. The Company agrees at all times to reserve or hold available a
sufficient number of shares of its Common Stock to cover the number of shares
issuable upon the exercise or conversion of this and all other Warrants of like
tenor then outstanding.
7. This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company, or to any other rights whatsoever except
the rights herein set forth, and no dividend shall be payable to accrue in
respect to this Warrant or the interest represented hereby, or the shares which
may be acquired hereunder, until or unless, and except to the extent that this
Warrant shall be exercised or converted, and the Common Stock which may be
acquired upon exercise thereof shall become deliverable.
8. The Warrants are not redeemable nor cancellable by the Company.
9. This Warrant is exchangeable upon the surrender hereof by the Holder
to the Company for new Warrants of like tenor and date representing in the
aggregate the right to acquire the number of shares which may be acquired
hereunder, each of such new Warrants to
<PAGE>
represent the right to acquire such number of shares as many be designated by
the registered Holder at the time of such surrender.
10. The Company may deem and treat the Holder at any time as the absolute
owner hereof for all purposes and shall not be affected by any notice to the
contrary.
11. The number of shares of Common Stock which may be acquired upon
exercise or conversion of these Warrants and the Warrant Price shall be subject
to adjustment from time to time as follows:
a. If the Company shall at any time subdivide its outstanding shares
of Common Stock by recapitalization, reclassification or split-up thereof, or if
the Company shall declare a stock dividend or distribute shares of Common Stock
to its stockholders, the number of shares of Common Stock which may be acquired
upon exercise or conversion of this Warrant immediately prior to such
subdivision shall be proportionately increased in each instance, and if the
Company shall at any time combine the outstanding shares of Common Stock by
recapitalization, reclassification or combination thereof, the number of shares
of Common Stock which may be acquired upon exercise or conversion of this
Warrant immediately prior to such combination shall be proportionately decreased
in each instance.
b. If the Company shall distribute to all of the holders of its
shares of Common Stock any security (except as provided in the preceding
paragraph) or other assets (other than a distribution made as a dividend payable
out of earnings or out of any earned surplus legally available for dividends
under the laws of the jurisdiction of incorporation of the Company), the Board
of Directors shall be required to make such equitable adjustment in the Warrant
Price in effect immediately prior to the record date of such distribution as may
be necessary to preserve to the Holder of this Warrant rights substantially
proportionate to those enjoyed hereunder by such Holder immediately prior to the
happening of such distribution. Any such adjustment shall become effective as
of the day following the record date for such distribution.
c. Whenever the number of shares of Common Stock which may be
acquired upon the exercise or conversion of this Warrant is required to be
adjusted as provided herein, the Warrant Price shall be adjusted (to the nearest
cent) in each instance by multiplying such Warrant Price immediately prior to
such adjustment by a fraction (x) the numerator of which shall be the number of
shares of Common Stock which may be acquired hereunder upon the exercise or
conversion of the Warrants immediately prior to such adjustment, and (y) the
denominator of which shall be the number of shares of Common Stock which may be
acquired hereunder immediately thereafter.
d. In case of any reclassification of the outstanding shares of
Common Stock, other that a change covered by paragraph (1) above or which solely
affects the par value of such shares of Common Stock, or in the case of any
merger or consolidation of the Company with or into another corporation (other
that a consolidation merger in which the Company is the continuing corporation
and which does not result in any reclassification or capital reorganization of
the outstanding shares of Common Stock), or in the case of any sale or
conveyance to another
<PAGE>
corporation of the property of the Company as an entirety or substantially as
an entirety in connection with which the Company is dissolved, the Holder of
this Warrant shall have the right thereafter (until the expirations of the
respective rights of exercise or conversion of the Warrant) to receive upon
the exercise or conversion thereof, using the same aggregate Warrant Price
applicable hereunder immediately prior to such event, the kind and amount of
shares of stock or other securities or property receivable upon such
reclassification, capital reorganization, merger or consolidation, or upon
the dissolution following any sale or other transfer, which a holder of the
number of shares of Common Stock of the Company would obtain upon exercise or
conversion of the Warrants immediately prior to such event; and if any
classification also results in a change in shares of Common Stock covered by
paragraph (1) above, then such adjustment shall be made pursuant to both
paragraph (1) above and this paragraph (4). The provisions of this paragraph
(4) shall similarly apply to successive reclassifications, or capital
reorganizations, mergers or consolidations, sales or other transfers.
e. In case of the dissolution, liquidation or winding-up of the
Company, all rights under any of the Warrants not theretofore exercised nor
expired by their terms shall terminate on a date fixed by the Company, such date
so fixed to be not earlier than the date of the commencement of the proceedings
for such dissolution, liquidation or winding-up and not later than thirty (30)
days after such commencement date. Notice of the termination of purchase or
conversion rights shall be given to the registered Holder of this Warrant as the
same shall appear on the books of the Company, by certified or registered mail
at least thirty (30) days prior to such termination date.
f. In case the Company shall, at any time prior to the Expiration
Date of the Warrants, and prior to the exercise thereof, offer to the holders of
its Common Stock any right to subscribe for additional shares of any class of
the Company, then the Company shall give written notice thereof to the
registered Holder of this Warrant not less than thirty (30) days prior to the
date on which the books of the Company are closed or a record date fixed for
the determination of stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books shall be closed or record
date be fixed with respect to such offer or subscription, and the right of the
registered Holders hereof to participate in such offer or subscription shall
terminate if this Warrant shall not be exercised nor converted on before the
date of such closing of the books or such record date.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer this _____ day of ________ 1999.
Imagenetix, Inc.
By
President
ATTEST:
Secretary
<PAGE>
ASSIGNMENT FORM
(To be executed by the registered Holder to effect a
Transfer of the Within Warrant)
For Value Received ____________________________ hereby sells, assigns, and
transfer unto
(Please print or typewrite name and address, including postal zip code of
assignee)
this Warrant and the rights represented thereby to purchase Common Stock of
Imagenetix, Inc. in accordance with the terms and conditions thereof, and does
hereby irrevocable constitute and appoint ________________ attorney to transfer
this Warrant on the books of the Company with full power of substitution.
Date: ___________________ Signed _____________________________
SUBSCRIPTION FORM
(To Be Executed by the Registered Holder to Exercise The Rights
To Purchase Common Stock Evidenced By The Within Warrant)
The undersigned Registered Holder hereby irrevocably subscribes for
_____________ shares of the Common Stock of Imagenetix, Inc., pursuant and in
accordance with the terms and conditions of the Warrant Certificate attached
hereto and hereby makes payment of $ _______________ therefor, and requests
that certificate(s) for such shares be issued in the name of the undersigned and
be delivered to the address stated below, and if such number of shares shall not
be all of the shares purchasable hereunder, that a new Warrant of like tenor for
the balance of the remaining shares purchasable hereunder be delivered to the
undersigned at the address stated below:
Date: ___________________ Signed _____________________________
SIGNATURE(S) MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF A REGISTERED
NATIONAL STOCK EXCHANGE, OR BY A BANK (OTHER THAN A SAVINGS BANK), OR A TRUST
COMPANY. THE SIGNATURE TO THE ABOVE SUBSCRIPTION FORM AND, IF APPLICABLE,
CONVERSION FORM MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE
WARRANT. IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE
WHATSOEVER.
CONVERSION FORM
The undersigned registered Holder hereby exercises the Holder's right to
convert ______________ of the Warrants evidenced by the Warrant Certificate
attached hereto into ______________ shares of Common Stock of Imagenetix, Inc.
based upon the fair market value of $ ____________ per share of Common Stock of
Imagenetix, Inc. on ______________, as stated in the written confirmation of
said fair market value by _______________________, a broker/dealer member of the
National Association of Securities Dealers, Inc.
<PAGE>
Date: ___________________ Signed _____________________________
Schedule of Warrant "A" Holders
<TABLE>
<CAPTION>
Number of Warrant
Name Warrants Certificate No. Date
<S> <C> <C> <C>
Claudia McAdam 50,000 A-1 3/29/99
David N. Nemelka 75,000 A-3 and A-9 9/22/99
1st Zamora Corporation 75,000 A-4 9/22/99
Greg Pusey 26,250 A-5 9/22/99
Barry C. Loder 11,250 A-6 9/22/99
Gulfstream 1998 Irrevocable Trust 37,500 A-7 9/22/99
Great Expectations Family
Limited Partnership 25,000 A-8 9/22/99
-------
Total 300,000
</TABLE>
<PAGE>
EXHIBIT 3.3
IMAGENETIX, INC.
(A Colorado Corporation)
WARRANT CERTIFICATE
WARRANT NUMBER B-_____ NUMBER OF WARRANTS:_________
CLASS "B" WARRANT CERTIFICATE FOR THE PURCHASE OF SHARES
OF THE $.001 PAR VALUE COMMON STOCK OF
IMAGENETIX, INC.
FOR VALUE RECEIVED, Imagenetix, Inc. (the "Company"), a Colorado
corporation, hereby certifies that, _________________________, subject to the
terms and conditions herein after set forth and at any time during the period
beginning one year from the date hereof and ending five years from the date
hereof, the registered holder hereof (the "Holder") is entitled to:
1. Purchase shares of the Common Stock of the Company for each of the
within Warrants exercised at a price of $3.05 per shares of such Common Stock
(the "Warrant Price") or
2. Convert these Warrants, in whole or in part, into that number of
shares of Common Stock of the Company determined by dividing (a) the
aggregate fair market value, as of the date of conversion, of the shares of
Common Stock of the Company which would be issuable upon exercise of the
Warrants to be converted minus the aggregate Warrant Price of the shares of
Common Stock of the Company which would be issuable upon exercise of the
Warrants by (b) the said fair market value of one share of the Common Stock
of the Company.
For the purposes of conversion of these Warrants, fair market value
shall be the value determined in accordance with the following provisions:
<PAGE>
a. If the Common Stock of the Company is not at the time listed
or admitted on any stock exchange but is traded on the Nasdaq National Market
System or SmallCap Market or is quoted on the OTC Bulletin Board, the fair
market value shall be the closing selling price per share of such common
stock on the date in question, as such price is reported by the National
Association of Securities Dealers through, in order of preference, the Nasdaq
National Market System, the SmallCap Market, or the OTC Bulletin Board, or
any successor system. If there is not closing selling price for such common
stock on the date in question, then the fair market value shall be the
closing selling price on the last preceding date for which such a quotation
exists.
b. If the common stock is at the time listed or admitted to
trading on any stock exchange, the fair market value shall be the closing
selling price per share of such common stock on the date in question on the
stock exchange determined by the Board of Directors of The Company to be the
primary market for such common stock, as such price is officially quoted in
the composite tape of transaction on the exchange. If there is no closing
selling price for such common stock on the date in questions then the fair
market value shall be the closing selling price on the last preceding date
for which such a quotation exists.
c. If the common stock is at the time neither listed nor admitted
to trading on any exchange nor traded on the Nasdaq National Market System
nor the SmallCap Market, nor traded on the OTC Bulletin board, then such fair
market value shall be determined by the Board of Directors of the Company
after taking into account such factors as the Board of Directors of the
Company shall deem appropriate.
3. Upon exercise or conversion of these Warrants, the registered
Holder hereof shall surrender to the stock transfer agent of the Company this
Warrant Certificate together with the form of subscription attached hereto
and, in the case of exercise of the Warrants, a certified check or bank draft
payable to the order of the Company, or in the case of a conversion of the
Warrants, written confirmation by a broker/dealer member of the National
Association of Securities Dealers, Inc. of the fair market value of the
shares of Common Stock of the Company determined in accordance with paragraph
2. above, on a date within three days prior to surrender of this Warrant
Certificate to the stock transfer agent for conversion and the Conversion
Form attached hereto specifying the number of shares of Common Stock of the
Company the registered Holder claims to be entitled to be issued upon the
conversion requested.
4. In neither the case of exercise nor of conversion of the Warrants
shall fractional shares of the Common Stock of the Company be issued.
5. The Company covenants and agrees that all shares of Common Stock
which may be delivered upon the exercise or conversion of this Warrant will,
upon delivery, be free from all taxes, liens and charges with respect to the
purchase thereof hereunder. This Warrant shall not be exercised nor
converted by Holder in any state where such exercise would be unlawful such
as a state in which the Company's Common Stock is not registered or qualified
as the case requires.
<PAGE>
6. The Company agrees at all times to reserve or hold available a
sufficient number of shares of its Common Stock to cover the number of shares
issuable upon the exercise or conversion of this and all other Warrants of
like tenor then outstanding.
7. This Warrant does not entitle the Holder to any voting rights or
other rights as a shareholder of the Company, or to any other rights
whatsoever except the rights herein set forth, and no dividend shall be
payable to accrue in respect to this Warrant or the interest represented
hereby, or the shares which may be acquired hereunder, until or unless, and
except to the extent that this Warrant shall be exercised or converted, and
the Common Stock which may be acquired upon exercise thereof shall become
deliverable.
8. The Warrants are not redeemable nor cancellable by the Company.
9. This Warrant is exchangeable upon the surrender hereof by the
Holder to the Company for new Warrants of like tenor and date representing in
the aggregate the right to acquire the number of shares which may be acquired
hereunder, each of such new Warrants to represent the right to acquire such
number of shares as many be designated by the registered Holder at the time
of such surrender.
10. The Company may deem and treat the Holder at any time as the
absolute owner hereof for all purposes and shall not be affected by any
notice to the contrary.
11. The number of shares of Common Stock which may be acquired upon
exercise or conversion of these Warrants and the Warrant Price shall be
subject to adjustment from time to time as follows:
a. If the Company shall at any time subdivide its outstanding
shares of Common Stock by recapitalization, reclassification or split-up
thereof, or if the Company shall declare a stock dividend or distribute
shares of Common Stock to its stockholders, the number of shares of Common
Stock which may be acquired upon exercise or conversion of this Warrant
immediately prior to such subdivision shall be proportionately increased in
each instance, and if the Company shall at any time combine the outstanding
shares of Common Stock by recapitalization, reclassification or combination
thereof, the number of shares of Common Stock which may be acquired upon
exercise or conversion of this Warrant immediately prior to such combination
shall be proportionately decreased in each instance.
b. If the Company shall distribute to all of the holders of its
shares of Common Stock any security (except as provided in the preceding
paragraph) or other assets (other than a distribution made as a dividend
payable out of earnings or out of any earned surplus legally available for
dividends under the laws of the jurisdiction of incorporation of the
Company), the Board of Directors shall be required to make such equitable
adjustment in the Warrant Price in effect immediately prior to the record
date of such distribution as may be necessary to preserve to the Holder of
this Warrant rights substantially proportionate to those enjoyed hereunder by
such Holder immediately prior to the happening of such distribution. Any
such adjustment shall become effective as of the day following the record
date for such distribution.
<PAGE>
c. Whenever the number of shares of Common Stock which may be
acquired upon the exercise or conversion of this Warrant is required to be
adjusted as provided herein, the Warrant Price shall be adjusted (to the
nearest cent) in each instance by multiplying such Warrant Price immediately
prior to such adjustment by a fraction (x) the numerator of which shall be
the number of shares of Common Stock which may be acquired hereunder upon the
exercise or conversion of the Warrants immediately prior to such adjustment,
and (y) the denominator of which shall be the number of shares of Common
Stock which may be acquired hereunder immediately thereafter.
d. In case of any reclassification of the outstanding shares of
Common Stock, other that a change covered by paragraph (1) above or which
solely affects the par value of such shares of Common Stock, or in the case
of any merger or consolidation of the Company with or into another
corporation (other that a consolidation merger in which the Company is the
continuing corporation and which does not result in any reclassification or
capital reorganization of the outstanding shares of Common Stock), or in the
case of any sale or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety in connection with
which the Company is dissolved, the Holder of this Warrant shall have the
right thereafter (until the expirations of the respective rights of exercise
or conversion of the Warrant) to receive upon the exercise or conversion
thereof, using the same aggregate Warrant Price applicable hereunder
immediately prior to such event, the kind and amount of shares of stock or
other securities or property receivable upon such reclassification, capital
reorganization, merger or consolidation, or upon the dissolution following
any sale or other transfer, which a holder of the number of shares of Common
Stock of the Company would obtain upon exercise or conversion of the Warrants
immediately prior to such event; and if any classification also results in a
change in shares of Common Stock covered by paragraph (1) above, then such
adjustment shall be made pursuant to both paragraph (1) above and this
paragraph (4). The provisions of this paragraph (4) shall similarly apply to
successive reclassifications, or capital reorganizations, mergers or
consolidations, sales or other transfers.
e. In case of the dissolution, liquidation or winding-up of the
Company, all rights under any of the Warrants not theretofore exercised nor
expired by their terms shall terminate on a date fixed by the Company, such
date so fixed to be not earlier than the date of the commencement of the
proceedings for such dissolution, liquidation or winding-up and not later
than thirty (30) days after such commencement date. Notice of the
termination of purchase or conversion rights shall be given to the registered
Holder of this Warrant as the same shall appear on the books of the Company,
by certified or registered mail at least thirty (30) days prior to such
termination date.
f. In case the Company shall, at any time prior to the Expiration
Date of the Warrants, and prior to the exercise thereof, offer to the holders
of its Common Stock any right to subscribe for additional shares of any class
of the Company, then the Company shall give written notice thereof to the
registered Holder of this Warrant not less than thirty (30) days prior to the
date on which the books of the Company are closed or a record date fixed for
the determination of stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books shall be closed or record
date be fixed with respect to such offer or subscription, and
<PAGE>
the right of the registered Holders hereof to participate in such offer or
subscription shall terminate if this Warrant shall not be exercised nor
converted on before the date of such closing of the books or such record date.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer this _____ day of ________ 1999.
Imagenetix, Inc.
By
President
ATTEST:
Secretary
ASSIGNMENT FORM
(To be executed by the registered Holder to effect a
Transfer of the Within Warrant)
For Value Received ____________________________ hereby sells, assigns, and
transfer unto
(Please print or typewrite name and address, including postal zip code
of assignee)
this Warrant and the rights represented thereby to purchase Common Stock of
Imagenetix, Inc. in accordance with the terms and conditions thereof, and
does hereby irrevocable constitute and appoint ________________ attorney to
transfer this Warrant on the books of the Company with full power of
substitution.
Date: ___________________ Signed _____________________________
SUBSCRIPTION FORM
(To Be Executed by the Registered Holder to Exercise The Rights
To Purchase Common Stock Evidenced By The Within Warrant)
The undersigned Registered Holder hereby irrevocably subscribes for
_____________ shares of the Common Stock of Imagenetix, Inc., pursuant and in
accordance with the terms and conditions of the Warrant Certificate attached
hereto and hereby makes payment of $ _______________ therefor, and requests
that certificate(s) for such shares be issued in the name of the undersigned
and be delivered to the address stated below, and if such number of shares
shall not be all of the shares purchasable hereunder, that a new Warrant of
like tenor for the balance of the remaining shares purchasable hereunder be
delivered to the undersigned at the address stated below:
Date: ___________________ Signed _____________________________
SIGNATURE(S) MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF A REGISTERED
NATIONAL STOCK EXCHANGE, OR BY A BANK (OTHER THAN A
<PAGE>
SAVINGS BANK), OR A TRUST COMPANY. THE SIGNATURE TO THE ABOVE SUBSCRIPTION
FORM AND, IF APPLICABLE, CONVERSION FORM MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WARRANT. IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
CONVERSION FORM
The undersigned registered Holder hereby exercises the Holder's right to
convert ______________ of the Warrants evidenced by the Warrant Certificate
attached hereto into ______________ shares of Common Stock of Imagenetix,
Inc. based upon the fair market value of $ ____________ per share of Common
Stock of Imagenetix, Inc. on ______________, as stated in the written
confirmation of said fair market value by _______________________, a
broker/dealer member of the National Association of Securities Dealers, Inc.
Date: ___________________ Signed _____________________________
Schedule of Warrant "B" Holders
Number of Warrant
Name Warrants Certificate No. Date
Claudia McAdam 50,000 B-1 3/29/99
David N. Nemelka 75,000 B-3 and B-9 9/22/99
1st Zamora Corporation 75,000 B-4 9/22/99
Greg Pusey 26,250 B-5 9/22/99
Barry C. Loder 11,250 B-6 9/22/99
Gulfstream 1998 Irrevocable Trust 37,500 B-7 9/22/99
Great Expectations Family
Limited Partnership 25,000 B-8 9/22/99
-------
Total 300,000
<PAGE>
EXHIBIT 6.1
FUNDING AGREEMENT
This Agreement, entered into this 23rd day of March 1999, is by, between,
and among Claudia A. McAdam, an individual ("McAdam"), Great Expectations Family
Limited Partnership, a Colorado limited partnership ("GEFLP"), Growth Ventures,
Inc., a Colorado corporation ("GVI"), Imagenetix, a California corporation
("Imagenetix"), Internet International Business Management, Inc., a Colorado
corporation ("IIBM").
RECITALS:
WHEREAS, Imagenetix has entered into an Exchange Agreement dated of even
date herewith by, between, and among IIBM, Imagenetix, and the shareholders of
Imagenetix (hereinafter the "Exchange Agreement") whereby Imagenetix shall
become a wholly owned subsidiary of IIBM;
<PAGE>
WHEREAS, subsection 1.3 of the Exchange Agreement requires IIBM to furnish
a $300,000 line of credit to Imagenetix;
WHEREAS, McAdam, GEFLP, and GVI, or its assigns, (hereinafter collectively
the "Funding Parties" or individually a "Funding Party") have agreed with IIBM
to provide the $300,000 line of credit to satisfy the requirements of subsection
1.3 of the Exchange Agreement, and Imagenetix is willing to accept funding from
IIBM as set forth herein in satisfaction of the requirements of such subsection
1.3;
WHEREAS, the provisions of subsection 5.15 of the Exchange Agreement
requiring the filing and processing of a registration statement (the
"Registration Statement") with the Securities and Exchange Commission ("SEC"),
are hereby adopted and incorporated herein;
WHEREAS, the parties hereto have agreed to the funding provisions as set
forth herein;
NOW, THEREFORE, in consideration of the mutual terms and conditions set
forth herein, and other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Line of Credit. The Funding Parties, severally and not jointly, each
hereby agrees to loan to IIBM, and IIBM hereby agrees to loan to Imagenetix,
upon reasonable request, up to the following maximum amount of funds which shall
be made available to IIBM, and IIBM shall make available to Imagenetix, in the
following order:
<TABLE>
<CAPTION>
Amount
Name of Loan Payment Date
<S> <C> <C>
McAdam $50,000 As of the date of this Agreement
GEFLP $50,000 As of the date of this Agreement
GVI, or its assigns $200,000 As of the Closing of the Exchange
Agreement, as provided therein
</TABLE>
The terms and conditions of the loans to IIBM are set forth in the form of a
Promissory Note, a copy of which is attached hereto as Exhibit "B-1" and
incorporated herein (the "IIBM Note" or "IIBM Notes"). The terms and conditions
of the loans from IIBM to Imagenetix are set forth in the form of a Promissory
Note, a copy of which is attached hereto as Exhibit "B-2" and incorporated
herein (the "Imagenetix Note"). Simultaneous with the furnishing of funds by
one of the Funding Parties to IIBM, IIBM shall execute and deliver an IIBM Note
to that Funding Party. Simultaneous with the furnishing of funds by IIBM to
Imagenetix, Imagenetix shall execute and deliver an Imagenetix Note to IIBM. The
principal and interest due under the IIBM Notes are convertible into shares of
Common Stock of IIBM, at the option of the Funding Party holding the IIBM Note,
as set forth in the IIBM Notes.
2. Draws of Funds. Each request for funds pursuant to this Agreement
shall be accompanied by a reasonable description of the use of such funds, which
funds shall be used for
<PAGE>
the business of Imagenetix. Each such request shall be subject to the
approval of Gary J. McAdam, which approval shall not be unreasonably withheld.
3. Issuance of Warrants. As partial consideration for the Funding
Parties providing the funding to IIBM, IIBM shall issue to the members of the
Funding Parties one "A" warrant and one "B" warrant to purchase common shares of
IIBM for each $1.00 loaned by the particular member of the Funding Parties,
which warrants shall be subject to the terms and conditions set forth in the
forms attached hereto as Exhibits "B-3" and "B-4" and incorporated herein (the
"Warrants"). The Warrants shall be issued, and Warrant certificates delivered,
not later than the Closing of the Exchange Agreement separately to each member
of the Funding Parties as follows:
<TABLE>
<CAPTION>
Number of Warrants
Funding Party Class "A" Class "B"
<S> <C> <C>
McAdam 50,000 50,000
GEFLP 50,000 50,000
GVI, or its assigns 200,000 200,000
</TABLE>
4. Registration Rights. IIBM hereby grants the following registration
rights in connection with the shares of Common Stock issued upon conversion of
the IIBM Notes, if any, the Warrants, the shares of Common Stock underlying the
Warrants and the shares of Common Stock issued upon conversion of the Warrants,
if any.
a. Registration Statement. IIBM shall include in the Registration
Statement filed by IIBM pursuant to subsection 5.15 of the Exchange Agreement,
the Warrants, the shares of Common Stock of IIBM underlying the Warrants, the
shares of Common Stock issued upon conversion of the Warrants and the shares of
Common Stock issued upon conversion of the IIBM Notes.
b. Piggyback Rights. If and when IIBM shall file a registration
statement with the SEC under the Securities Act of 1933 (the "Act") for the sale
of any of the securities of IIBM, prior to five years from the date hereof, on a
form prescribed by the Act which is appropriate for registration for sale of any
of the following securities of IIBM (the "Registerable Securities") held by a
Funding Party who is the registered holder of such securities as of the date for
the proposed filing of the registration statement by IIBM to wit:
Class "A" Warrants and the shares of Common Stock underlying the Warrants
Class "B" Warrants and the shares of Common Stock underlying the Warrants
Shares of Common Stock acquired by a Funding Party on exercise of
Class "A" and/or Class "B" Warrants
Shares of Common Stock acquired by a Funding Party on conversion of
Class "A" and/or Class "B" Warrants
Shares of Common Stock acquired by a Funding Party on conversion of an
IIBM Note
<PAGE>
then IIBM shall give written notice thereof to the holders of the Registerable
Securities prior to such filing, and the holders of the Registerable Securities
shall have the right to request to have included therein such number of the
Registerable Securities as shall be specified in such request, provided,
however, that the inclusion of such shares shall not unreasonably interfere with
IIBM's registration of its shares and that in no event shall IIBM be obligated
(i) to file such registration statement at any time other than during the period
ending five years following the date of this Agreement, or (ii) to keep the
prospectus with respect to the Registerable Securities current for any period
extending beyond five years from the date of this agreement. If a Funding Party
does not make a request for such registration within twenty days after receipt
of notice from IIBM, IIBM shall have no obligation to include any such
Registerable Securities in such registration statement, or in any future
registration statement.
c. Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by IIBM under subparagraph (b)
above, IIBM shall not be required under subparagraph (b) to include any of the
Registerable Securities in such underwriting unless the holders of the
Registerable Securities accept the terms of the underwriting as agreed upon
between IIBM and the underwriters selected by it, and then only in such quantity
as will not, in the opinion of the underwriters, jeopardize the success of the
offering by IIBM. If the total amount of securities, including the Registerable
Securities, requested to be included in such offering exceeds the amount of
securities to be sold, other than by the Company, that the underwriters
reasonably believe compatible with the success of the offering, only the number
of such securities, including the Registerable Securities, which the
underwriters believe will not jeopardize the success of the offering, but in no
event shall (i) the number of Registerable Securities included in the offering
be reduced below ten percent (10%) of the total number of shares included in
such offering.
d. State Registrations. At the written request of Funding Parties
who are the registered holders of a majority in number of the Registerable
Securities, IIBM shall file a registration statement with one state in which the
Funding Parties intend to sell the Registerable Securities, provided that such
filing can be made without unreasonable expense to IIBM and without materially
affecting the registration statement filed with the SEC. IIBM shall cooperate
with the holders of the Registerable Securities in the filing of a registration
statement in one or more additional states, provided that the holders of such
Registerable Securities shall reimburse IIBM for its time, effort, and costs
reasonably associated with such filings.
e. Payment of Expenses. IIBM shall bear all expenses incurred by it
in registering the Registerable Securities hereunder, including without
limitation, all filing, registration and qualification fees of the SEC or any
state agency (except for fees incurred in states expressly designated by the
holders of the Registerable Securities in subparagraph (d) above), printing
expenses, fees and disbursements of legal counsel and all accounting expenses
including expenses of the year-end audits. The holders of the Registerable
Securities shall bear the fees and disbursements of their own legal counsel,
underwriting or brokerage discounts and commissions, expenses of the brokers or
underwriters of the Funding Parties, and fees of the National Association of
Securities Dealers, Inc.
<PAGE>
f. Cooperation of the Holders of the Registerable Securities. It
shall be a condition of the obligations of IIBM to take action in response to
any request for registration by a holder of Registerable Securities that such
request include or be accompanied by all of the following: (i) the holder's
confirmation that such person then has a present intention of selling or
distributing the Registerable Securities which are the subject of such request;
(ii) information with respect to the holder and the number of Registerable
Securities proposed to be sold and a description of such Registerable
Securities, or, to the extent that such information is not then available, the
holder's undertaking to furnish the same; (iii) the indemnity agreement
specified in subparagraph (g) below; (iv) the holder's agreement to refrain, in
connection with such registration, offering and sale, from taking any action
violative of the anti-manipulative rules promulgated under the Securities
Exchange Act of 1934, as amended; and (v) the holder's agreement to cooperate
with IIBM generally in connection with such registration, and the undertaking to
execute such further documents relating to formal matters in connection with
such registration, offering and sale as may be necessary, appropriate and proper
to effectuate the transactions contemplated by such request.
g. Indemnification. Any registration hereunder shall be accompanied
by an agreement of the holder of the Registerable Securities to be registered to
indemnify IIBM, each of its directors, each of its officers who sign the
registration statement, and each person who controls IIBM against any loss,
claim, liability, damage or action arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in the
registration statement when the same becomes effective or in any final
prospectus or amendment or supplement thereto, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and to reimburse the
indemnified persons for any legal or other expenses reasonably incurred in
investigating or defending any such action or claim, but only to the extent that
the untrue statement (or alleged untrue statement) or omission (or alleged
omission) was made in reliance upon and in conformity with written information
furnished to IIBM by or on behalf of the holder for use in the registration
statement, final prospectus, or amendment or supplement thereto, as the case may
be.
5. The securities acquired and to be acquired and which may be acquired
pursuant to this Funding Agreement have not been registered under the Securities
Act of 1933 (the "Act"), or under the securities laws of any state. The
securities have been and will be acquired for investment any may not be
transferred or sold in the absence of an effective registration statement or
other compliance under the Act and the laws of the applicable state or a "no
action" or interpretive letter from the Securities and Exchange Commission or an
opinion of counsel reasonably satisfactory to the MBSI, and its legal counsel,
to the effect that the sale or transfer is exempt from registration under the
act and such state statutes.
a. Each of the Funding Parties, severally, represents and warrants:
i. The securities acquired and to be acquired and which may be
acquired pursuant to this Funding Agreement are being acquired for the Funding
Party's own account to be held for investment purposes only and not with a view
to, or for, resale in connection with any distribution of such securities or any
interest therein without registration, or
<PAGE>
an applicable exemption from registration, or other compliance under the Act,
or any state securities law, and the Funding Party has no direct or indirect
participation in any such undertaking or in underwriting such an undertaking.
ii. The Funding Party has been advised and understands that the
securities have not been registered under the Act, or any state securities laws,
and MBSI is under no obligation to register the securities under the Act or such
state securities laws, except as specifically provided herein.
6. Miscellaneous.
a. Notices. All communications provided for herein shall be in
writing and shall be deemed to be given or made when served personally or when
deposited in the United States mail, certified return receipt requested,
addressed as follows, or at such other address as shall be designated by any
party hereto in written notice to the other party hereto delivered pursuant to
this subsection:
McAdam: 14 Red Tail Drive
Highlands Ranch, CO 80126
GEFLP, IIBM and GVI: 14 Red Tail Drive
Highlands Ranch, CO 80126
Attn: Gary J. McAdam
With Copy to: Ronald N. Vance
Attorney at Law
57 West 200 South
Suite 310
Salt Lake City, UT 84101
Imagenetix
and Shareholders: 1702 Macero Street
Escondido, CA 92029
Attn: William P. Spencer
With Copy to: Louis K. Bruno
Attorney at Law
135 West Mission Avenue
Suite 105
Escondido, CA 92025
b. Default. Should any party to this Agreement default in any of
the covenants, conditions, or promises contained herein, the defaulting party
shall pay all costs and expenses, including a reasonable attorney's fee, which
may arise or accrue from enforcing this Agreement, or in pursuing any remedy
provided hereunder or by the statutes of the State of Utah.
<PAGE>
c. Assignment. This Agreement is not assignable in whole or in part
by any Funding Party without the prior written consent of IIBM.
d. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their heirs, executors,
administrators, successors and approved assigns.
e. Partial Invalidity. If any term, covenant, condition, or
provision of this Agreement or the application thereof to any person or
circumstance shall to any extent be invalid or unenforceable, the remainder of
this Agreement or application of such term or provision to persons or
circumstances other than those as to which it is held to be invalid or
unenforceable shall not be affected thereby and each term, covenant, condition,
or provision of this Agreement shall be valid and shall be enforceable to the
fullest extent permitted by law.
f. Entire Agreement. This Agreement constitutes the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all negotiations, representations, prior discussions,
letters of intent, and preliminary agreements between the parties hereto
relating to the subject matter of this Agreement.
g. Interpretation of Agreement. This Agreement shall be interpreted
and construed as if equally drafted by all parties hereto.
h. Survival of Covenants, Etc. All covenants, representations, and
warranties made herein to any party, or in any statement or document delivered
to any party hereto, shall survive the making of this Agreement and shall remain
in full force and effect until the obligations of such party hereunder have been
fully satisfied.
i. Further Action. The parties hereto agree to execute and deliver
such additional documents and to take such other and further action as may be
required to carry out fully the transactions contemplated herein.
j. Amendment. This Agreement or any provision hereof may not be
changed, waived, terminated, or discharged except by means of a written
supplemental instrument signed by the party or parties against whom enforcement
of the change, waiver, termination, or discharge is sought.
k. Full Knowledge. By their signatures, the parties acknowledge
that they have carefully read and fully understand the terms and conditions of
this Agreement, that each party has had the benefit of counsel, or has been
advised to obtain counsel, and that each party has freely agreed to be bound by
the terms and conditions of this Agreement.
l. Headings. The descriptive headings of the various sections or
parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
<PAGE>
m. Counterparts. This Agreement may be executed in two or more
partially or fully executed counterparts, each of which shall be deemed an
original and shall bind the signatory, but all of which together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto executed the foregoing Funding
Agreement as of the day and year first above written.
McAdam: /s/ Claudia A. McAdam, Individually
GEFLP: Great Expectations Family Limited Partnership
By /s/ Gary J. McAdam
Its General Partner
IIBM: Internet International Business Management,
Inc.
By /s/ Gary J. McAdam, President
Imagenetix: Imagenetix
By /s/ William P. Spencer, President
GVI: Growth Ventures, Inc.
By /s/ Gary J. McAdam, President
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and delivers unto
__________________________________ all right, title and interest of the
undersigned in and to that certain Funding Agreement by, between and among
Claudia A. McAdam, Great Expectations Family Limited Partnership, a Colorado
Limited Partnership, Growth Ventures, Inc., a Colorado corporation, Imagenetix,
a California corporation, and Internet International Business Management, Inc.,
a Colorado corporation, dated the 23rd day of March 1999.
Dated this __________ day of _______________ 1999.
_______________________________
Print Name_____________________
ACCEPTANCE OF ASSIGNMENT
__________________________________ hereby accepts the foregoing assignment
of all right, title and interest of __________________________________ in and to
the Funding
<PAGE>
Agreement identified above and in consideration therefore agrees to
be bound by the terms and conditions of said Funding Agreement as it applied to
the Funding Parties therein.
Dated this __________ day of _______________ 1999.
_______________________________
Print Name_____________________
CONSENT TO ASSIGNMENT
Internet International Business Management, Inc., a Colorado corporation, a
party to that certain Funding Agreement identified above, by and through its
undersigned duly authorized officer hereby consents to the foregoing assignment
and acceptance thereof.
Dated this __________ day of _______________ 1999.
Internet International Business Management,
Inc.
By_____________________________
It_____________________________
Print Name_____________________
<PAGE>
EXHIBIT 6.2
Date: _________, 1999
Amount: $
IMAGENETIX, INC.
(A Colorado Corporation)
PROMISSORY NOTE
ISSUE OF THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE TRANSFERRED OR
SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER
THE ACT OR THE LAWS OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT
THE SALE OR TRANSFER OF THIS NOTE IS EXEMPT FROM REGISTRATION UNDER THE ACT
AND SUCH STATE STATUTES.
Imagenetix, Inc., a corporation duly organized and existing under the
laws of the State of Colorado (hereinafter referred to as the "Maker"), for
value received, hereby promises to pay to the following person (the "Lender"):
<PAGE>
the principal sum of up to ___________________________ dollars ($______), as
loaned in one or more increments by the Lender to the Maker from time to time
as set forth in the Funding Agreement of even date herewith and incorporated
herein (the "Funding Agreement"), in such lawful money of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts, on the terms and at the time hereinafter provided.
This Note is subject to the terms and conditions of the Funding
Agreement and any inconsistencies between this Note and the Funding Agreement
shall be governed by the Funding Agreement. This Note is also subject to the
further terms and provisions:
1. Payment of Principal and Interest. The outstanding principal
amount of this Note, which amount shall be equal to the funds loaned by
Lender to the Maker hereunder and not otherwise repaid pursuant hereto,
together with all interest then accrued shall be due and payable on the date
of the initial release of funds under the registration statement (the
"Registration Statement") to be filed by the Maker pursuant to subsection
5.15 of the Exchange Agreement dated March 23, 1999, by and between the
Maker, Imagenetix, a California corporation, and the shareholders of such
entity or one year from the date hereof, whichever shall first occur (the
"Due Date"). Interest on the outstanding principal shall accrue at the rate
of ten percent (10%) per annum from the date of delivery of such principal
funds by the Lender. All interest shall be calculated on the basis of a
365-day year, counting the actual number of days elapsed from the date any
principal amount is delivered to the Maker through the Due Date. Interest on
any overdue payments of principal and interest due hereunder shall accrue and
be payable at the rate of twelve percent (12%) per annum, based on the actual
number of days elapsed from the date such principal or interest payment was
due to the date of actual payment.
2. Conversion. Subject to, and in compliance with, the provisions
contained herein, the holder of this Note is entitled, at its option, at any
time prior to the Due Date, to convert the outstanding principal and accrued
interest due under this Note, or any portion thereof, into fully paid and
nonassessable shares (calculated as to each conversion to the nearest share)
of common stock (the "Shares") of the Maker, by surrender of this Note, duly
endorsed (if so required by the Maker) or assigned to the Maker, accompanied
by written notice to the Maker, in the form set forth below, that the holder
hereof selects to convert this Note or, if less than the entire principal
amount and accrued interest hereof is to be converted, the portion hereof to
be converted. Such conversion shall be effected at the rate of one share of
the Maker for each $3.00 of principal and interest converted. No fractions
of Shares will be issued on conversion, but instead of any fractional
interest, the Maker will round up such fractional share to the next whole
share.
3. Prepayment. This Note is subject to prepayment, in whole or in
part, at any time upon not less than 30 days notice by registered mail at the
election of the Maker. Prepayment shall be effected by paying the amount
equal to the outstanding principal amount of this Note, plus all interest
accrued to the date of prepayment. During the 30 days following the date of
any notice of prepayment, the holder shall have the right to convert this
Note to the common stock of the Maker, on the terms and conditions provided
for in paragraph 2 above.
<PAGE>
4. Limitations on Right of Conversion. Following receipt of the
written notice of intention to convert the Note, the Maker shall take such
steps as it deems appropriate to permit conversion of the Note as specified
in the notice and to issue such Shares without registration or qualification
under applicable federal and state securities laws; PROVIDED, that in no
event shall the Maker be required to consent to the general service of
process or to qualify as a foreign corporation in any jurisdiction where the
Note holder resides if such jurisdiction is different than such Note holder's
residence when the Note was originally offered and sold. In order to comply
with any exemptions from the registration requirements of the Act and certain
state securities statutes, the Maker may require the holder of this Note to
make certain representations and execute and deliver to the Maker certain
documents as a condition to exercise of conversion rights hereunder, all in
form and substance satisfactory to the Maker as determined in its sole
discretion. In the event the Maker reasonably determines that the Note
cannot be converted in compliance with applicable federal and state
securities laws in the absence of registration or qualification under such
statutes, the Maker shall be under no obligation to permit conversion of the
Note and issue any shares of common stock pursuant hereto.
5. Satisfaction and Discharge of Note. This Note shall cease to be of
further effect (except as to any surviving rights of conversion, transfer, or
exchange of the Note herein expressly provided for) when:
a. The Maker has paid or caused to be paid all sums payable
hereunder by the Maker, including all outstanding principal amounts and
interest accrued under the Note; and
b. All the conditions precedent herein provided for relating to
the satisfaction and discharge of this Note have been complied with.
6. Events of Default. "Event of Default," when used herein, whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law pursuant to any judgment,
decree, or order of any court or any order, rule, or regulation of any
administration or government body or be caused by the provisions of any
paragraph herein means any one of the following events:
a. Default in the payment of any principal and/or interest on
this Note when it becomes due and payable, and continuance of such default
for a period of 30 days; or
b. Default in the performance or breach of any covenant or
warranty of the Maker in this Note (other than a covenant or warranty, the
breach or default in performance of which is elsewhere in this section
specifically dealt with), and continuation of such default or breach for a
period of 30 days after there has been given to the Maker by registered or
certified mail, by the holder of this Note, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a notice of default hereunder; or
c. The entry of a decree or order by a court having jurisdiction
in the premises adjudging the Maker a bankrupt or insolvent under the Federal
Bankruptcy Act or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee (or other
<PAGE>
similar official) of the Maker or of any substantial part of its property ,
or ordering the winding up or liquidation of its affairs, and the continuance
of any such decree or order unstayed and in effect for a period of 60
consecutive days;
d. The institution by the Maker of proceedings to be adjudicated
a bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or a filing by it of a
petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Act or any other applicable federal or state law; or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee (or other similar official) of the
Maker or of any substantial part of its property, or the making by it of any
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Maker in furtherance of any such action; or
e. Any material breach of the representations or warranties of
the Maker in, the Funding Agreement, or any material default of the Maker of
the terms and conditions of the Funding Agreement.
7. Acceleration of Maturity. If an Event of Default occurs and is
continuing then, in every such case, the holder of this Note may declare the
outstanding principal of this Note to be due and payable immediately, by a
notice in writing to the Maker of such default, and upon any such
declaration, such principal shall become immediately due and payable. At
such time after such declaration of acceleration has been made, and before a
judgment or decree for payment of money due has been obtained by the holder,
the holder of this Note, by written notice to the Maker, may rescind and
annul such declaration and its consequences, if all Events of Default, other
than the nonpayment of the principal of this Note which has become due solely
by such acceleration, has been cured or waived. No such rescission shall
affect any subsequent default or impair any right consequent thereon. Upon
the occurrence of an Event of Default which remains uncorrected, the Lender
shall not be obligated to provide further funds to the Maker under this Note.
8. Restrictions. The holder of this Note, by acceptance hereof,
represents and warrants as follows:
a. The Note is being acquired for the holder's own account to be
held for investment purposes only and not with a view to, or for, resale in
connection with any distribution of such Note or any interest therein without
registration, an applicable exemption from registration, or other compliance
under the Act, or any state securities laws, and the holder hereof has no
direct or indirect participation in any such undertaking or in underwriting
such an undertaking.
b. The holder hereof has been advised and understands that the
Note has not been registered under the Act, or any state securities laws, and
the Maker is under no obligation to register the Note under the Act.
<PAGE>
9. Non-Negotiability and Assignability. This Note is non-negotiable
and assignable by Lender only upon the prior written consent of the Maker
and, subject to compliance with the provisions of paragraph 8 hereof.
10. Presentment Waiver. The Maker, and guarantors, if any, severally
waive presentment for payment, protest, and notice of protest and of
nonpayment of this Note.
Imagenetix, Inc.
By
Imagenetix, Inc.
11777 Bernardo Plaza Court
Suite 206
San Diego, CA 92128
Re: Conversion of Note
Gentlemen:
The undersigned owner of this Note hereby irrevocably exercises the
option to convert this Note or the portion hereof designated, into shares of
common stock of Imagenetix, Inc., in accordance with the terms of this Note,
and directs that the shares issuable and deliverable upon the conversion be
issued in the name of and delivered to the undersigned unless a different
name has been indicated below. If shares are to be issued in the name of a
person other than the undersigned, the undersigned will pay any transfer
taxes payable with respect thereto.
Date:
______________________________
(Signature)
FILL IN FOR REGISTRATION OF SHARES
(Printed Name) (Social Security or other identifying number)
(Street Address)
(City, State, and ZIP Code) Portion to be converted (if less than all)
Schedule of Promissory Note Holders
Name Amount Date
Claudia McAdam $50,000 3/29/99
David N. Nemelka 75,000 9/22/99
1st Zamora Corporation 75,000 9/22/99
Greg Pusey 26,250 9/22/99
<PAGE>
Barry C. Loder 11,250 9/22/99
Gulfstream 1998 Irrevocable Trust 37,500 9/22/99
Great Expectations Family
Limited Partnership 25,000 9/22/99
--------
Total $300,000
<PAGE>
EXHIBIT 6.7
PURCHASE ORDER ACKNOWLEDGMENT
Imagenetix/Organic Technologies
Purchase Order Number #: 1112
Customer #: 00651
Date: March 17, 1999
Data Entered by: Angela Babcock
SOLD TO: 1st SHIPMENT TO:
Imagenetix Pacific Encapsulation
1702 Macero Street 415 Figeroa Street
Attn: Accounts Payable Attn:
Escondido, CA 92029 Wilmington, CA 90744
Product Delivery Date Quantity Price
Cetyl Myristoleate, 20% ASAP 10,200 lb $62.00/kg (Exhibit "A")
SPECIFICATIONS:
See attached Specification Sheet
Terms: Net 15 Days FOB: Coshocton Delivery: Exhibit "A" Ship: Motor
Freight, Collect
Special Notes and Instructions:
Accelerated payment schedule as outlined in Exhibit "A" is acceptable
Organic Technologies to notify Imagenetix 2 weeks prior to initial
shipment.
Any subsequent change(s) in this Purchase Order does (do) not become binding
until acknowledged and incorporated as a modification to the original
contract in writing by Organic Technologies (OT). If not acknowledged, WOT
retains the sole option to impose the terms of the original purchase order in
question.
WARRANTIES: Organic Technologies will warrant to each purchaser that products
will meet the specifications provided by the purchaser. Organic Technologies
will disclaim all implied warrantees including, without limitation, any
implied warranties of merchantability, fitness for a particular purpose and
non-infringement of the intellectual property rights of third parties.
EXHIBIT "A"
Price & Payment $62.00 per Kilo, payable over a 6 month
<PAGE>
period of time
$60.00 per Kilo, payable over a 4 month
period of time
$55.00 per Kilo, payable within 90 days of
first shipment
First Right of Refusal Imagenetix is to receive the first right of
refusal for the remaining CM produced
(estimated 10,000 Kilos+ @ $60.00 per kilo)
Initial Shipment Initial shipment will be in the amount of
1,700 Kilos (10 drums) and OT will advise
Imagenetix approximately 2 weeks before
initial shipment is made
IMAGENETIX
/s/ David B. Wiley, CEO /s/ William P. Spencer
President
<PAGE>
EXHIBIT 6.8
Employment Particulars
for
Dr. Charles Cochran
9-22-99
1) $8,500.00 per month
2) Full-time employment
3) Health Insurance benefits of coverage for Dr. Cochran (no spousal coverage)
4) Dr. Cochran will participate and share in a quarterly bonus program from a
pool based on company's performance. This bonus plan will be established
by the Board of Directors as soon as feasible.
5) If Imagenetix, Inc. decides to sever the employment agreement with Dr.
Cochran, Imagenetix, Inc. will provide Dr. Cochran a settlement of six (6)
months salary.
6) The royalty agreement between Dr. Cochran and Imagenetnix, Inc. dated June
16, 1999, will be superseded with this agreement when Dr. Cochran becomes a
full time employee of Imagenetix, Inc. If Imagenetix, Inc. decides to
sever the employment agreement with Dr.
<PAGE>
Cochran, the royalty agreement, dated June 16, 1999, will be reinstated and
effective the date of severance.
7) Dr. Cochran will receive an additional 10M shares (over and above the 30M
shares) plus the 5M shares of Imagenetix, Inc. restricted common stock.
8) After the public offering and funding has been received, Dr. Cochran will
be furnished by Imagenetix, Inc. a company leased automobile.
/s/ William P. Spencer, President /s/ Dr. Charles L. Cochran
Imagenetix, Inc.
<PAGE>
EXHIBIT 10.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment Number 1 to the Registration Statement on Form SB-1 for Imagenetix,
Inc., of our report dated May 10, 1999, relating to the March 31, 1999
financial statements of Imagenetix, Inc., which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts".
/s/ Pritchett, Siler & Hardy, P.C.
Salt Lake City, Utah
November 22, 1999
<PAGE>
EXHIBIT 11
RONALD N. VANCE, P.C.
Attorney at Law
57 West 200 South
Suite 310
Salt Lake City, Utah 84101
September 16, 1999
William P. Spencer, President
Imagenetix, Inc.
11777 Bernardo Plaza Court
Suite 206
San Diego, CA 92128
Re: Registration Statement on Form SB-1
Dear Mr. Spencer:
<PAGE>
You have requested my opinion as to whether or not the securities to be
issued by Imagenetix, Inc. (the "Company") in the above-referenced
registration statement will be legally issued and, when issued, will be fully
paid and non-assessable shares of the Company. In connection with this
engagement I have examined the form of the registration statement to be filed
by the Company; the Articles of Incorporation of the Company; the By-laws of
the Company currently in effect; and the minutes of the Company relating to
the registration statement and the issuance of the shares of common stock by
the Company.
Based upon the above-referenced examination, I am of the opinion that
pursuant to the corporate laws of the State of Colorado, the shares of common
stock to be issued by the Company and to be registered pursuant to said
registration statement will be legally issued and, when issued, will be fully
paid and non-assessable.
I hereby consent to being named in the registration statement as having
rendered the foregoing opinion and as having represented the Company in
connection with the registration statement.
Sincerely,
/s/ Ronald N. Vance
