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REGISTRATION NO. 333-94477
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTEGCOM CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------
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DELAWARE 421600 22-3690168
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
JAMES E. HENRY, PRESIDENT
C/O INTEGCOM CORP.
280 MIDLAND AVENUE
SADDLE BROOK, NEW JERSEY 07663
(201) 794-6500
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE AND AGENT AND
TELEPHONE NUMBER INCLUDING AREA CODE)
-------------------
PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
KENNETH T. CASCONE, ESQ. RICHARD FRIEDMAN, ESQ.
CASCONE & COLE SICHENZIA, ROSS & FRIEDMAN, LLP
711 THIRD AVENUE, SUITE 1505 135 WEST 50TH STREET, 20TH FLOOR
NEW YORK, NY 10017 NEW YORK, NY 10020
TELEPHONE NO. (212) 599-4747 TELEPHONE NO. (212) 664-1200
TELECOPIER NO. (212) 599-7909 TELECOPIER NO. (212) 664-7329
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, 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 this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------
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.
________________________________________________________________________________
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT THE SOLICITATION OF AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED MAY 24, 2000
PRELIMINARY PROSPECTUS
[LOGO OF INTEGCOM CORP.]
1,000,000 UNITS
-------------------
This is an initial public offering of 1,000,000 units of InTegCom Corp. Each
unit consists of one share of common stock and one redeemable common stock
purchase warrant. The common stock and the warrants will be separately tradable
immediately after the completion of this offering.
Prior to this offering, no public market for the units exists. We anticipate
that the initial public offering price will be $6.35 per unit. This amount
includes $.10 for each warrant. The warrants run for three years, have an
exercise price of $7.50 and are subject to redemption.
-------------------
THIS INVESTMENT INVOLVES RISKS WHICH ARE DESCRIBED IN THE 'RISK FACTORS'
SECTION BEGINNING ON PAGE 6.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<CAPTION>
PER UNIT TOTAL
<S> <C> <C>
Public offering price..................................... $6.350 $6,350,000
Underwriting discounts and commissions.................... $ .635 $ 635,000
Proceeds to InTegCom Corp. ............................... $5.715 $5,715,000
</TABLE>
We have granted the underwriters the right to purchase an additional 150,000
units at the initial public offering price, minus the underwriting discount, to
cover over-allotments. The underwriters are offering the units on a firm
commitment basis.
MASON HILL & CO., INC.
-------------------
THE DATE OF THIS PROSPECTUS IS JUNE , 2000
<PAGE>
INTEGCOM MANUFACTURED PRODUCTS
[Description of Photo--"Complicated Circuit Board with individual security
devices superimposed on top, all manufactured by InTegCom."]
<PAGE>
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Summary Financial Data...................................... 5
Risk Factors................................................ 6
Use of Proceeds............................................. 10
Dividend Policy............................................. 11
Capitalization.............................................. 12
Dilution.................................................... 13
Selected Financial Information.............................. 14
Cautionary Note Regarding Forward-Looking Statements........ 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 20
Management.................................................. 32
Certain Transactions........................................ 40
Principal Stockholders...................................... 41
Description of Securities................................... 42
Shares Eligible For Future Sale............................. 44
Underwriting................................................ 44
Legal Matters............................................... 46
Experts..................................................... 46
How to Get More Information................................. 46
Change in Accountants....................................... 47
Financial Statements........................................ F-1
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PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, especially the risks of purchasing
our securities discussed under 'Risk Factors.'
OUR BUSINESS
We are a systems integrator and manufacturer of security and communication
devices. As an integrator, we primarily design, customize, install, connect and
maintain closed circuit television and access control systems for customers in
the private and public sectors. Either together or on a stand-alone basis, these
systems detect and reduce crime, prevent unauthorized entry, and record evidence
of infractions or accidents. They are also an effective tool in improving
building and facility management. In our smaller manufacturing operations, we
develop and fabricate a line of video, audio and control devices with hardware
and software elements that are used for our own integration efforts as well as
those of other integrators.
Our customers encompass transit authorities, airports, universities, office
buildings, hospitals, banks, brokerage firms, hotels, airlines, utilities and
other entities with security needs. Our current projects involve New York City
Transit Authority, Motorola, Delta Airlines, Qwest Communications Corp., Lucent
Technologies, Inc., Silverstein Properties, Ameritrade, Port Authority of New
York and New Jersey and Army, Air Force Exchange Services. For the year ended
December 31, 1999 and for the three months ended March 31, 2000, these customers
in the aggregate represented 62% and 76% of ITC's business.
To keep our competitive edge, we consistently seek either to develop
in-house or to acquire from third parties advanced technologies applicable to
our customers' evolving needs.
Several new technological areas where we intend to focus are:
Mobile applications for our closed circuit television products on buses,
trains, armored cars, police vehicles and taxis, using digital recording
and high-level compression techniques.
Communication link-ups for surveillance systems over long distances on
existing networks where digital signals are compressed for high-quality,
multi-media transmissions between remote locations and a central station.
A programmable key, on a stand-alone basis or as one element in a system,
that via a dedicated computer chip keeps track of where it has been and
which lock is using it, replaces numerous keys with one key, restricts and
controls its usage as well as changes locks electronically.
Our management considers its forty-five-year relationship with Motorola to
be one of its most important assets. We sell to Motorola and its authorized
service shops closed circuit television devices that we distribute or
manufacture, and we support Motorola, its divisions and authorized service shops
with integration, consulting and maintenance services. From Motorola, we
purchase wireless technology products, including card readers and smart cards.
OUR STRATEGY
Our objective is to become a leading systems integrator in security and
communications that extends its customer base across the country. The key
elements of our strategy involve:
Continued application of new proven technological solutions for customer
problems.
Aggressive marketing to larger customers and projects regionally and
nationally.
Growth by acquisitions of, and joint ventures with, selected systems
integrators in other areas of the country.
Expansion of our work force in technical, marketing and managerial fields
as well as our dealer network to capitalize on emerging business
opportunities.
Establishment of additional offices in new regions.
3
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OUR OFFICES
Our headquarters are located at 280 Midland Avenue, Saddle Brook, New
Jersey, 07663; our telephone number is (201) 794-6500; and our web site, which
is still under development, can be accessed at www.viscomproducts.com.
Information to be contained in our web site is not part of this prospectus. We
also maintain an office for systems integration in Grand Prairie, Texas near the
Dallas - Ft. Worth airport.
CORPORATE BACKGROUND
Our current management began operations in the fall of 1989 when we
repurchased under the name of HBE Acquisition Corp., the original family
business of one of our principal officers and directors from Communications
Group, Inc., a publicly held company. Afterwards we established other
corporations, including HBE Central Management, Inc. and Viscom Products, Inc.
to operate different parts of our business acquired from others. See 'Business
History'. In mid-November, 1999, we organized InTegCom Corp. ('ITC') in Delaware
and in December of that year through an exchange of stock, those HBE and Viscom
companies became the wholly owned subsidiaries of ITC.
THE OFFERING
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Securities offered by us....................... 1,000,000 units, each consisting of one share of
common stock and one warrant to purchase one
share
Common stock outstanding after this offering... 5,000,000 shares, assuming the underwriters do
not exercise their over-allotment option
Warrants outstanding after this offering....... 1,000,000 warrants
Use of Proceeds................................ We intend to use the net proceeds of this
offering to:
Market systems integration, new products and
technologies
Expand our dealer and value-added reseller
network,
Open sales and services offices in targeted
regions
Make acquisitions of other systems integrators
and related businesses,
Hire upper/middle-level management and
marketing personnel,
Increase research and development on
proprietary products for identifiable markets
Use balance for working capital
As an indirect benefit, the infusion of equity
resulting from this offering should expand our
bonding capabilities and allow us to handle
larger projects and customers.
Proposed NASDAQ Symbol......................... 'ITCM' and 'ITCMW'
Proposed Boston Stock Exchange Symbol.......... 'ITE' and 'ITEW'
</TABLE>
Except as noted, all of the information in this prospectus assumes that
neither the warrants that we will issue to the representative of the
underwriters or the underwriters' over-allotment option are exercised, and does
not reflect the issuance of any of our 500,000 shares of common stock available
under our 1999 incentive stock option plan.
4
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SUMMARY FINANCIAL DATA
You should read the following summary financial data together with the
section in this prospectus entitled 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and our financial statements and
notes included elsewhere.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales...................................... $4,011,408 $6,783,267 $7,556,855 $1,401,209 $1,677,163
Cost of goods sold......................... 2,574,169 4,680,342 5,255,303 953,142 1,133,164
64.17% 69.00% 69.54% 68.02% 67.56%
Gross profit............................... 1,437,239 2,102,925 2,301,552 448,067 543,999
35.83% 31.00% 30.45% 31.98% 32.44%
Selling, G&A............................... 1,255,920 1,819,205 1,863,447 589,353 719,298
31.31% 26.82% 24.66% 42.06% 42.89%
Interest................................... 159,672 106,939 122,340 17,736 25,427
3.98% 1.58% 1.62% 1.27% 1.52%
Income (loss) before taxes................. 21,647 176,781 315,765 (159,022) (200,726)
Income tax (credit)........................ 21,946 91,191 134,909 (66,789) (84,305)
Net income (loss).......................... (299) 85,590 180,856 (92,233) (116,421)
(0.01)% 1.26% 2.39% (6.58)% (6.94)%
Retained earning beginning................. 410,818 370,857 456,447
Prior period adjustment.................... (39,662)
Retained earning beginning as adjusted..... 371,156 370,857 456,447 456,447 637,303
Retained earnings end...................... 370,857 456,447 637,303 364,214 520,882
Basic and diluted earnings per share....... $ .00 $ .02 $ .05 $ (.03) $ (.03)
</TABLE>
The pro forma as adjusted balance sheet below as of March 31, 2000, has been
adjusted to reflect the sale of common stock and warrants offered in this
prospectus at an assumed initial public offering price of $6.25 per share and
$.10 per warrant representing the mid point of the filing range, and the receipt
of the estimated net proceeds.
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<CAPTION>
AS OF MARCH 31, 2000
-----------------------
HISTORIC PRO FORMA
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<S> <C> <C>
BALANCE SHEET DATA
Total working capital.................................... $2,169,913 $6,669,913
Total assets............................................. 4,579,892 9,079,892
Total liabilities........................................ 3,842,502 3,342,502
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Total stockholder's equity............................... $ 737,390 $5,737,390
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5
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RISK FACTORS
An investment in our common stock and warrants involves a high degree of
risk. In addition to the other information contained in this prospectus, you
should carefully consider the following risk factors before investing in our
securities.
RISKS RELATING TO OUR BUSINESS
WE MAY NOT BE ABLE TO DEVELOP OR ACQUIRE NEW TECHNOLOGICAL SOLUTIONS NECESSARY
FOR OUR CUSTOMERS' REQUIREMENTS
Our success depends on applying new technological developments to satisfy
customer needs either through purchases from outside vendors or internal
research. Any failure or delay to deliver these advances on our part could have
a negative impact on business and its prospects. While rapid technological
change does not typically occur in the security market, from time to time we or
other vendors develop superior technology. However, in the future we may fail to
develop or miss these applications through our own neglect or because the
vendors have made exclusive arrangements with competitors.
WE ARE CURRENTLY DEPENDENT UPON A SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION
OF OUR REVENUES.
In the year ended December 31, 1997 NYC Transit accounted for 21% of these
revenues, Motorola for 7% and Silverstein Properties for 6%. In 1998 NYC Transit
represented 34% of these revenues, Motorola represented about 14% and
Silverstein Properties represented 8%. In 1999, NYC Transit accounted for about
32% of these revenues, Motorola nearly 5% and Silverstein Properties 8%. In the
three months ended March 31, 2000, Silverstein Properties accounted for 47%,
Motorola 11%, NYC Transit and three other customers each 4%. The loss of or
diminution of business from NYC Transit or any other of these customers could
have a material adverse effect on our business, financial condition and results
of operations.
FOR KEY DEVICES AND SOFTWARE, WE ARE ALSO DEPENDENT ON ONLY A FEW VENDORS, AND
WE RELY ON TIMELY DELIVERIES OF EQUIPMENT FROM ALL OUTSIDE SOURCES
We obtain from sole sources devices and software for specific access control
and imaging, remote transmission, smart key and mobile applications. The loss of
any one of these companies as suppliers or our inability to develop or acquire
new technologies from other sources could have an adverse impact on our business
and its prospects.
Timely vendor deliveries of equipment meeting our stringent quality-control
standards from all suppliers are also important to our business because each
installed system requires a variety of elements to be fully functioning at once.
The failure to deliver any critical device or component, when needed in
operating condition, can delay a project, trigger vendor penalties, halt
progress payments or result in cancellation.
WE EXPERIENCE INTENSE COMPETITION FOR BUSINESS FROM A VARIETY OF SOURCES AND MAY
BE COMPELLED ON GOVERNMENT PROJECTS TO ENGAGE IN COMPETITIVE BIDDING OR
AFFIRMATIVE ACTION PROGRAMS WITH MINORITY CONTRACTORS
In system integration, ITC competes for new and existing businesses with
large construction firms, electrical contractors, consultants in the security
business and other systems integrators. In its manufacturing operations,
InTegCom vies with numerous manufacturers such as -- Vicon, Sensormatic, Pelco
and Phillips. Many are much larger than ITC with many more resources. Currently,
our integration operations and other dealers, including Motorola service shops
which we supply, consume substantially all our manufactured products.
Pursuit of government business typically involves competitive bidding under
an exacting set of varied rules, where the low bidder is generally awarded this
contract. Such business often means lower
6
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profit margins. Instead, we prefer to specialize in design-build projects where
ITC, in effect, writes the specifications due to its advanced technical
expertise and then implements and completes the project in a timely and economic
manner. This is not always feasible or possible.
In the government arena, a winning bidder may also be compelled to
subcontract to or hire minority enterprises for security projects to satisfy
public requirements of affirmative action programs. In that event, we may
encounter difficulties finding technologically qualified subcontractors that
comply with these requirements.
WE RELY ON ONLY A FEW KEY EXECUTIVES
James E. Henry, Irvin F. Witcosky and Louis Massad, our three top officers
and directors, are employees vital to our business operations. The loss of any
one of them could have an adverse impact on our business, financial condition or
results of operations.
We have recently entered into five (5) year employment contracts with
Messrs. Henry, Witcosky and Massad. See 'Management -- Employment Agreements.'
In addition, we maintain key man insurance policies on the lives of Mr. Henry
and Mr. Witcosky, each in the amount of $1,000,000 with InTegCom as the primary
beneficiary.
OUR BUSINESS AND GROWTH WILL SUFFER IF WE ARE UNABLE TO HIRE AND RETAIN HIGHLY
SKILLED PERSONNEL
Our future success depends on our ability to attract, train, motivate and
retain highly skilled employees. If we are unable to hire and retain skilled
personnel, our growth may be restricted, the quality of our products and
services diminished and our revenues and the value of your investment reduced.
Competition for highly skilled employees is intense in our industry. We may be
unable to retain our skilled employees or attract, assimilate and retain other
highly skilled employees in the future. From time to time in the past, we have
experienced, and we may experience in the future, difficulty in hiring and
retaining highly skilled employees with appropriate qualifications.
OUR LONG-TERM ANNUAL FINANCIAL RESULTS HAVE BEEN INCONSISTENT AND ARE NOT
PARTICULARLY IMPRESSIVE AND FUTURE RESULTS MAY BE SIMILAR OR WORSE.
For the year ended December 31, 1997, 1998 and 1999 our sales were
$4,011,408, $6,783,267 and $7,556,855, and our net income (loss) for those years
was ($299) $85,590 and $180,856. While these numbers demonstrate growth, they
also reveal one year in which there was a sales decline. Our annual
profitability has not been continuous, and we actually suffered a small loss in
the year in which the sales decline occurred. In profitable years, our net
income was small in actual dollar amounts as well as in relationship to total
sales, representing from 1.26% to 2.39% of sales. For the three months ended
March 31, 1999 and 2000 our sales were $1,401,209 and $1,677,163 while our net
losses were ($92,233) and ($116,421). We typically lose money in the first part
of each year. We cannot predict whether the future offers better or worse
financial results. This financial pattern, if it persists, could negatively
affect your investment.
ECONOMIC DOWNTURNS OR RECESSIONS MAY DAMPEN THE DEMAND FOR OUR SECURITY SYSTEMS
Our previous experience indicates that during economic declines, some
decisions to implement security programs and install systems are deferred or
cancelled. In other cases, customers may increase their purchases of security
systems because they fear more inventory shrinkage and theft will occur due to
peoples' increasing economic need. With nearly eight years of national economic
growth, it is reasonable to anticipate some slowdown in economic activity in the
foreseeable future. However, we are not able to predict whether a slowdown will
have a negative effect, and the extent, if any, on ITC's business, financial
condition and results of operations.
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IF WE DO NOT DEVELOP A SUFFICIENT SALES AND MARKETING FORCE, WE MAY NOT BE ABLE
TO IMPROVE PROFITABILITY AND INCREASE REVENUES SUFFICIENTLY
Currently, we engage in limited marketing activities, conducted primarily by
our senior management. We have obtained leads for new business mainly through
recommendations from existing clients and general word of mouth rather than
extensive marketing and sales campaigns. After the completion of this offering,
we will hire an in-house sales and marketing staff, but our efforts to develop a
sufficient sales and marketing campaign may prove to be inadequate. Our
inability to develop an effective sales and marketing group could have a
negative effect on our planned growth and profitability.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE ACQUISITIONS OR FORM JOINT VENTURES AS A
MEANS OF FOSTERING OUR GROWTH
We may not be able to identify suitable candidates for acquisitions or joint
ventures or consummate transactions with them. Since we are relying on acquiring
other companies and forming joint ventures with independent integrators to
promote a portion of our growth, our opportunities may be limited in this
regard.
If we make an acquisition of a company or form a joint venture, we could
have difficulty assimilating the acquired company's operations and personnel or
working with the joint adventurer which could increase our expenses and reduce
the value of your investment. These difficulties could disrupt our ongoing
business, distract our management and employees, increase our expenses and
charges as well as materially and adversely affect our revenues and the value of
your investment.
WE HAVE NO PATENTS, PATENTS PENDING OR COPYRIGHTS, AND WE MAY NOT BE ABLE TO
PROTECT OUR REMAINING PROPRIETARY RIGHTS AND MAY INFRINGE ON THE PROPRIETARY
RIGHTS OF OTHERS
We have no patents, patents pending or copyrights, but we regard our trade
secrets and similar intellectual property as important to our success. However,
our efforts to establish and protect our proprietary rights may be inadequate to
prevent misappropriation or infringement of our proprietary property. If we are
unable to safeguard our intellectual property rights, our business, operating
results and financial condition could be materially harmed. Third parties may
bring claims of copyright or trademark infringement against us or claim that our
use of certain technologies violates a patent. Third parties may also claim that
we have misappropriated their technology or otherwise infringed on their
proprietary rights. At present, we are not aware of any claims. Any claims of
infringement, with or without merit, could be time-consuming to defend, result
in costly litigation, divert management attention, require us to enter into
expensive royalty or licensing arrangements or prevent us from using important
technologies or methods. These eventualities, together or alone, could damage
our business and financial condition.
WE NEED TO MANAGE OUR GROWTH EFFECTIVELY
Our growth has placed, and will continue to place, a significant strain on
our managerial, operational and financial resources. Failure to manage our
growth effectively could have a material adverse effect on our business.
Eventually, we need to:
hire an administrative head and more project managers;
improve our financial and management controls, reporting systems and
procedures;
expand, train and supervise our work force for manufacturing, installation,
marketing and sales, and research and development; and
manage multiple relationships with key customers, strategic partners and
other third parties
To finance our growth, we may require additional funding sooner than
anticipated. Moreover, unplanned acquisition and development opportunities and
other contingencies may arise, which could require us to raise more capital.
Additional financing may not be available on commercially reasonable terms, if
at all.
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RISKS RELATING TO THIS OFFERING
OUR MANAGEMENT WILL CONTROL ALMOST 80% OF OUR COMMON STOCK AFTER THIS OFFERING
AND THEIR INTERESTS MAY BE DIFFERENT FROM AND CONFLICT WITH YOURS
The interests of management could conflict with the interests of our other
stockholders. After this offering, Mr. Henry, Mr. Witcosky and Mr. Massad will
beneficially own a total of approximately 80% of our outstanding common stock if
the underwriters' over-allotment option is not exercised in full. Accordingly,
if they act together, they will have the power to control the election of all of
our directors and other issues for which the approval of our shareholders is
required. If you purchase shares of our common stock and warrants, you may have
no effective voice in our management.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS OF THIS
OFFERING AND MAY NOT APPLY THEM EFFECTIVELY
Our management will have flexibility in applying the net proceeds of this
offering and may apply the proceeds in ways with which you do not agree. The
failure of our management to apply these funds effectively could materially harm
our business. The proposed allocation of this offering's net proceeds represents
our management's best estimate of the expected utilization of funds to finance
our activities in accordance with its current objectives and market conditions.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
You will experience an immediate and substantial dilution of $5.13 per share
in the net tangible book value per share of common stock from the initial public
offering price, assuming an initial public offering price of $6.25 per share,
representing the mid point of the filing range. You may also experience dilution
if future stock options to purchase our shares, or if the warrants issued to the
public or to be issued to the representative of the underwriters, are exercised.
Accordingly, existing shareholders will benefit disproportionately from this
offering. If we raise additional capital through the sale of equity, including
preferred stock or convertible securities, your percentage ownership will be
diluted.
UNLESS A PUBLIC MARKET DEVELOPS FOR OUR SECURITIES, YOU MAY NOT BE ABLE TO SELL
YOUR SHARES
Prior to this offering, there has been no public market for our common
stock. Although we have applied to register or list our shares of common stock
and warrants on NASDAQ small cap market list and the Boston Stock Exchange, an
active trading market may not develop or be maintained. Failure to develop or
maintain an active trading market could negatively affect the price of our
securities.
OUR STOCK PRICES MAY FLUCTUATE, WHICH MAY MAKE IT DIFFICULT TO RESELL YOUR
SHARES AT ATTRACTIVE PRICES
The market price of our common stock may be highly volatile. The market
prices of securities of other technologically oriented companies of similar size
have been extremely volatile. Factors that could cause volatility in our stock
price include:
fluctuations in our quarterly operating results;
changes in the market valuations of other security or technology companies
and stock market prices and volume fluctuations generally;
economic conditions specific to the security industry;
announcements by us or our competitors relating to new services or
technologies, significant acquisitions, strategic relationships, joint
ventures or capital commitments;
applicable regulatory developments; and
additions or departures of our key personnel.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $5,000,000
from our sale of the securities in this offering, based upon an initial public
offering price of $6.35 for the unit. If the underwriters exercise their
over-allotment option in full, we will receive net proceeds of approximately
$5,857,000. These amounts are derived after deducting estimated underwriting
discounts, commissions, fees and expenses of approximately $1,350,000 and
$1,445,000 payable by us. We currently intend to utilize the net proceeds of
this offering substantially as follows:
<TABLE>
<CAPTION>
PERCENT
AMOUNT (%)
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<S> <C> <C>
Market systems integration services, new products and
technologies.............................................. $ 900,000 18%
Expand dealer and Value-Added Resellers ('VAR') network..... 500,000 10
Open additional offices for sales and services.............. 500,000 10
Make acquisitions of other systems integrators and related
businesses................................................ 750,000 15
Hire management and marketing personnel..................... 600,000 12
Increase research and development on proprietary products
for identifiable markets.................................. 600,000 12
Repay bank loan in part..................................... 500,000 10
Use balance for working capital............................. 650,000 13
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Total................................................... $5,000,000 100%
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MARKET SYSTEMS INTEGRATION SERVICES AND NEW PRODUCTS
We intend to actively solicit new customers and business by exhibiting at
trade shows, advertising in trade magazines and setting up a sales group to
solicit prospective customers.
EXPAND DEALER AND VAR NETWORK
We must obtain and support additional dealers and VAR's to market more of
our products and services. To do so, we will identify experienced and qualified
resellers and dealers, send our representatives into the field to discuss
relationships with InTegCom and demonstrate our products, then enroll them.
OPEN ADDITIONAL SALES AND SERVICE OFFICES
In selected areas of the country, we intend to open new offices. These
locations have not been determined as yet, but the primary factors in their
selection will be the extent of business prospects and qualified personnel
available there. Having a presence in specific geographic markets should
increase our chances to develop new or additional business.
MAKE ACQUISITIONS OF OTHER SYSTEMS INTEGRATORS AND RELATED BUSINESSES
Although none have been identified, we anticipate acquiring other systems
integrators in the security industries of similar or smaller size than us and
related businesses. These concerns will in all probability be located in
geographic areas other than our current offices and will enable us to compete
for business in those areas or on a more national basis.
HIRE MANAGEMENT AND MARKETING PERSONNEL
We expect to hire additional management and marketing personnel in order to
grow our business. Management personnel will assist in directing existing and
new personnel for projects and overall business. We need to more actively market
our services and manufactured products. Since we have not done so in the past,
it is necessary to hire qualified personnel with marketing and sales experience
in selling security or technical devices.
10
<PAGE>
INCREASE RESEARCH AND DEVELOPMENT
Our research and development needs to be expanded. Work has already started
on a new specialized network application for our Matrix Switch product and
customized camera housings, and we seek to initiate other projects, such as a
graphic user interface. This interface presents information in easily
recognizable form for computer operators on their monitors while the housings
cover and shield cameras so they blend appropriately into the decor of a
building or structure.
Initially we shall focus on completing products in the final phase of our
research and development, including a networking applications, as well as
network integration of digital video recording devices manufactured by other
vendors.
USE BALANCE FOR WORKING CAPITAL
We anticipate that our working capital needs will increase substantially as
we grow the business. Consequently, we will utilize more funds to pay for, among
other things, increased purchases from vendors, additional salaries and wages,
professional fees and expenses and other operating costs.
The increase in our equity and improvements in our balance sheet resulting
from this offering should also enable us to increase our bonding capabilities in
order to win larger projects. Keep in mind these allocations are estimates only
and may be revised from time to time to meet our requirements; any excess will
be added to working capital and any shortage will be deducted from working
capital. Allocations may also be changed in response to unanticipated
developments in InTegCom's business. Based upon our management's judgments, we
may re-allocate such amounts from time to time among these categories or to new
categories if we believe this to be in our best interest. In the event that the
underwriters' over-allotment option is exercised, we will realize additional net
proceeds which will be added to working capital.
Pending full utilization of the net proceeds of this offering, we intend to
make temporary investments in United States government or federally insured
securities. We believe that the net proceeds from this offering plus working
capital from operations and other sources of funds will be adequate to sustain
our operations for the foreseeable future. It is anticipated that such proceeds
will be utilized over the first 36 months after this offering.
DIVIDEND POLICY
We have never declared or paid any cash or stock dividends on our capital
stock. We presently intend to reinvest earnings to fund the development and
expansion of our business and hence do not anticipate paying cash dividends on
our common stock in the foreseeable future. The declaration of dividends will be
at the discretion of our board of directors and will depend upon our earnings,
capital requirements and financial position, general economic conditions and
other pertinent factors.
11
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at March 31, 2000 and as
adjusted gives effect to the issuance and sale of the 1,000,000 shares of common
stock and 1,000,000 warrants and the initial application of the estimated net
proceeds.
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------
ACTUAL ADJUSTED
------ --------
<S> <C> <C>
Indebtedness
Short-term debt, due to bank and others, including
current portion of long term debt..................... $ 50,434 $ 50,434
Long-term debt due to bank and third parties............ 2,211,202 1,711,202
Stockholder's equity
Preferred Stock, par value $.01 per share; 2,000,000
shares authorized, none issued
Common Stock, par value $.01 per share; 10,000,000
shares authorized, 5,000,000 shares issued and
outstanding as adjusted............................... 40,000 50,000
Additional paid-in capital.............................. 233,800 5,223,800
Deferred stock-based compensation....................... (57,292) (57,292)
Retained earnings....................................... 520,882 520,882
---------- ----------
Total stockholder's equity.......................... $ 737,390 $5,737,390
---------- ----------
---------- ----------
</TABLE>
The above table includes our:
bank debt in the aggregate of $2,099,913 with interest at the bank's prime
rate, which will vary plus 1/2% under a credit agreement dated
September 8, 1999. Under this arrangement ITC may borrow up to $2,000,000,
for working capital and up to $250,000 for equipment purchases. Repayment
of the credit line for working capital must be made by June 1, 2001 and for
equipment in monthly installments starting October 1, 2000 and ending
September 1, 2005. Interest payments on existing notes are due monthly from
September or October 1, 1999. All our assets and the personal guarantees of
two of our top officers are used to secure these notes but upon completion
of this offering we expect our bank to eliminate the security and guarantee
arrangements.
settlement of debt aggregating $128,685, including deferred interest, owed
to a third party for money lent to us in October, 1989 under two promissory
notes due December 1, 2003 at 10% interest per year. This debt is
personally guaranteed by Mr. Henry and Mr. Witcosky.
recapitalization in which we organized InTegCom Corp., issued an aggregate
of 4,000,000 shares of its common stock to Mr. Henry and Mr. Witcosky in
exchange for all the common stock they held in the following corporations:
HBE Acquisition Corp, Viscom Products Inc., HBE Central Management Inc. As
a result, all these companies are now wholly owned subsidiaries of
InTegCom.
However, the above table does not cover our:
1,000,000 shares of common stock issuable upon exercise of the warrants to
be sold in this public offering;
up to 150,000 shares of common stock and 150,000 warrants to be issued on
their exercise to purchase the same number of shares under the
underwriters' over-allotment option;
500,000 shares of common stock reserved for issuance under our incentive
stock option plan;
100,000 shares of common stock to be issued on the exercise of the
representative's warrants.
12
<PAGE>
DILUTION
As of March 31, 2000, our net tangible book value was $624,000, or
approximately $.16 per share of common stock. Net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock issued and outstanding after
giving effect to the recapitalization described in this prospectus under
'Capitalization', 'Business -- Corporate History', 'Certain Transaction' and
Note 1 to the financial statements included elsewhere.
After giving effect to the sale of the 1,000,000 shares of common stock at
$6.25 per share and 1,000,000 warrants in this public offering at $.10 per
warrant, and after deducting estimated underwriting discounts and offering
expenses, our pro forma as adjusted net tangible book value at March 31, 2000
would have been $5,624,000 or $1.12 per share of common stock. This represents
an immediate increase in net tangible book value of $.96 per share of common
stock to existing stockholders and an immediate dilution in net tangible book
value of $5.13 per share of common stock, or approximately 82%, to new
investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share of
common stock.......................................... $6.25
Net tangible book value per share prior to the
offering.............................................. $ .16
Increase in net tangible book value per share
attributable to the offering.......................... $ .96
Pro forma, as adjusted, net tangible book value per
share after the offering.............................. $1.12
Dilution of net tangible book value per share to
investors in the offering............................. $5.13
</TABLE>
If the underwriters' over-allotment option is exercised in full, our pro
forma as adjusted net tangible book value after the offering would have been
approximately $6,576,000 or $1.28 per share of common stock. This represents an
immediate increase in net tangible book value of $1.12 per share of common stock
to existing stockholders and an immediate dilution in net tangible book value of
$4.97 per share of common stock, or approximately 80%, to new investors.
The following table summarizes on a pro forma basis, as of March 31, 2000,
the number of shares of common stock purchased from us, the total consideration
paid and the average price per share paid by existing stockholders of common
stock and the investors in this offering, assuming the sale of 1,000,000 shares
and 1,000,000 warrants at the prices indicated above and offered by this
prospectus. The calculations are based upon the total consideration given by new
investors and existing stockholders before any deduction of underwriting
discounts and offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................ 4,000,000 80% $ 211,000 3% $ .05
New investors........................ 1,000,000 20 6,350,000 97 6.35
--------- --- ---------- --- -----
Total............................ 5,000,000 100% $6,561,000 100% $6.40
--------- --- ---------- --- -----
--------- --- ---------- --- -----
</TABLE>
13
<PAGE>
SELECTED FINANCIAL INFORMATION
The historical selected financial data as of December 31, 1998 and 1999 and
for the years ended December 31, 1997, 1998 and 1999 are derived from and should
be read in conjunction with our audited financial statements and their notes
included elsewhere in the prospectus. The historical selected financial data as
of March 31, 2000 and for the three months ended March 31, 1999 and 2000 are
derived from and should be read in conjunction with our unaudited financial
statements and their notes included elsewhere in the prospectus. The data
presented below should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the financial
statements and accompanying notes appearing elsewhere.
Shares of common stock outstanding have been restated to reflect the
recapitalization described in Note 1 to the accompanying financial statements
and elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- ----------------------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales................. $4,011,408 $6,783,267 $7,556,855 $1,401,209 $1,677,163
Cost of goods sold.... $2,574,169 $4,680,342 $5,255,303 $ 953,142 $1,133,164
64.17% 69.00% 69.54% 68.02% 67.56%
Gross profit.......... $1,437,239 $2,102,925 $2,301,552 $ 448,067 $ 543,999
35.83% 31.00% 30.45% 31.98% 32.44%
Selling, G&A.......... $1,255,920 $1,819,205 $1,863,447 $ 589,353 $ 712,298
31.31% 26.82% 24.66% 42.06% 42.89%
Interest.............. $ 159,672 $ 106,939 $ 122,340 $ 17,736 $ 25,427
3.98% 1.58% 1.62% 1.27% 1.52%
Income (loss) before
taxes............... $ 21,647 $ 176,781 $ 315,765 $ (159,022) $ (200,726)
Income tax (credit)... $ 21,946 $ 91,191 $ 134,909 $ (66,789) $ (84,305)
Net income (loss)..... $ (299) $ 85,590 $ 180,856 $ (92,233) $ (116,421)
0.01% 1.26% 2.39% (6.58%) (6.94%)
Retained earning
beginning........... $ 410,818 $ 370,857 $ 456,447 $ 456,447 $ 637,303
Prior period $ (39,662)
adjustment..........
Retained as $ 371,156
adjusted............ $ 370,857 $ 456,447 $ 456,447 $ 637,303
Retained earnings $ 370,857
end................. $ 456,447 $ 637,303 $ 364,214 $ 520,882
Basic and diluted
earnings per
share............... $ .00 $ .02 $ .05 $ (.03) $ (.03)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------- MARCH 31,
1998 1999 2000
---- ---- ----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital.................................... $1,384,602 $1,900,153 $2,169,913
Total assets............................................. 3,088,800 3,715,549 4,579,892
Total liabilities........................................ 2,421,053 2,866,946 3,842,502
Total stockholder's equity............................... $ 667,747 $ 848,603 $ 737,390
</TABLE>
14
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements are
not historical facts, but rather are based on our current expectations,
estimates and projections about our industry, our beliefs and assumptions. Words
including 'may,' 'could,' 'would,' 'will,' 'anticipates,' 'expects,' 'intends,'
'plans,' 'projects,' 'believes,' 'seeks,' 'estimates' and similar expressions
are intended to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and other factors, some of which remain beyond our control, are difficult to
predict and could cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements. These risks and uncertainties
are described in 'Risk Factors' and elsewhere in this prospectus. We caution you
not to place undue reliance on these forward-looking statements, which reflect
our management's view only as of the date of this prospectus. We are not
obligated to update these statements or publicly release the result of any
revisions to them to reflect events or circumstances after the date of this
prospectus or to reflect the occurrence of unanticipated events.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of the financial
condition and results of operations should be read in conjunction with our
financial statements and their notes appearing elsewhere in this prospectus. In
addition to historical information, the management's discussion and analysis of
financial condition and results of operations as well as other parts of this
prospectus contain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of factors, including but not
limited to, those set forth under 'Risk Factors' and elsewhere.
OVERVIEW
We were incorporated in 1989 under the name HBE Acquisition Corp. ('HAC')
initially to repurchase the Closed Circuit Television ('CCTV') division of
Communications Group, Inc. and to provide customers with systems integration
services in the security area. HAC presently manages and operates such services,
general administration and the assets concerned. Other affiliated companies were
formed to handle related activities from 1990 to 1991. The companies also
include Viscom Products Inc., which oversees and controls the manufacturing and
assembly operations of CCTV equipment and related assets, and HBE Central
Management, Inc. ('HCM'). This subsidiary handles alarm monitoring which
represents less than 1% of ITC business.
HAC's principal assets consist of accounts receivable, inventory and fixed
assets consisting mainly of demonstration and testing equipment, computers and
service vehicles. Viscom's major assets are accounts receivable, inventories and
computer software product cost. The following table presents the percentage of
assets in the corporate consolidation attributed to each subsidiary:
<TABLE>
<S> <C>
HAC......................................................... 79.0%
Viscom...................................................... 20.5
HCM......................................................... 0.5
-----
100.0%
-----
-----
</TABLE>
In November, 1999, we organized InTegCom Corp. ('ITC') in the state of
Delaware in preparation for this public offering. Immediately afterwards, Mr.
Henry and Mr. Witcosky exchanged the common stock that they held in the three
affiliated companies which we mentioned above, with InTegCom for its common
stock. Consequently, these companies are now all wholly owned subsidiaries of
ITC. The value of the underlying assets of such affiliated companies, owned by
ITC, remained the same after the exchange of stock. The transaction was
accounted for as a transfer between enterprises under common control, and as a
result, the assets and liabilities transferred were accounted for at historical
cost in a manner similar to a pooling of interests.
15
<PAGE>
Our largest customer, NYC Transit, accounted for 32%, 34% and 21% of
revenues in each of the fiscal years ended December 31, 1999, 1998 and 1997. We
anticipate that NYC Transit will continue to account for a significant portion
of our revenues in the future. Four other customers each accounted for from 3%
of our revenues to 8% during the same periods.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 TO THREE MONTHS ENDED MARCH 31,
1999
Since our business tends to be seasonal, most of the jobs are usually
submitted by us in the latter half of the calendar year.
Sales
Sales for the three months ended March 31, 2000 totaled $1,677,163
representing an increase of 19.7% or $275,954 from $1,401,209 for the three
months ended March 31, 1999. Revenues increased largely due to increased
business from existing customers and the introduction of our new Transit bus
products.
Cost of Sales
Cost of Sales for the three months ended March 31, 2000 decreased to 67.6%
or 0.4% from 68.0% for the three months ended March 31, 1999. This minor
reduction was attributable to a different product mix and efficient labor
utilization.
Operating Costs and Expenses
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses for the three months ended March 31, 2000 increased to
$719,298 or 42.9% from $589,353 or 42.1% for the comparable period a year ago.
Most of the increase resulted from increase in staffing and related costs to
reposition the Company for potential growth and its public offering.
Interest Expense. Interest expenses increased to $25,427 or 1.52% of sales
for the three months ended March 31, 2000 from $17,736 or 1.27% of sales for the
same period a year ago. The $7,691 increase was primarily due to a higher level
of borrowing to cover increased sales volume and additional operating costs
associated with hiring more personnel in anticipation of its public offering.
Net loss. Net loss for the three months ended March 31, 2000 totaled
($116,421) or (6.9%) of sales as compared to ($92,233) or (6.6%) for the three
months ended March 31, 1999. The net loss increase was the result of incurring
additional operating cost to expand the business. These results are not
necessarily indicative of the year-end results for 2000.
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998
Sales
Sales increased to $7,556,855 for the year ended December 31, 1999 from
$6,783,267 for the year ended December 31, 1998. The $773,588 or 11.4% increase
in sales was derived principally from sales both to new customers and increased
business from existing customers. Our five largest customers accounted for 61%
of revenues for the year ended December 31, 1999 compared with 68% for the year
ended December 31, 1998.
Cost of Sales
Cost of sales increased to $5,255,303 or 69.5% of sales, for the year ended
December 31, 1999 from $4,680,342 or 69% of sales, for the year ended December
31, 1998. This increase was primarily due to normal yearly fluctuations in
sales, costs and margins.
16
<PAGE>
Operating Costs and Expenses
Selling, General and Administrative Expenses. Selling, general and
administrative increased to $1,863,447 or 24.6% of sales, for the year ended
December 31, 1999, from $1,819,205, or 26.8% of sales, for the year ended
December 31, 1998. A cost savings of 2.2% was attributable primarily to better
management controls and improvements in training of the labor force.
Interest Expense, Net of Interest Income. Interest expense increased to
$122,340 or 1.6% of sales for the year ended December 31, 1999 from $106,939 or
1.6% of sales for the year ended December 31, 1998. ITC's borrowing pattern for
both years was essentially the same.
Net Income. For the year ended December 31, 1999, Integcom's net income
totaled $180,856 or 2.4% of sales, as compared to $85,590 or 1.3% of sales for
the year ended December 31, 1998. This increase is the result of improvements in
sales volume and overall cost controls.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
Sales
Sales increased to $6,783,267 for the year ended December 31, 1998 from
$4,011,408 for the year ended December 31, 1997. The $2,771,859 or 69% increase
in revenues was mainly attributable to increased sales from new customers and
additional business from existing customers. Our five largest customers
accounted for approximately 68% of revenues for the year ended December 31, 1998
compared to 40% of revenues for the year ended December 31, 1997.
Cost of Sales
Costs of sales for the year ended December 31, 1998 were $4,680,342 or 69%
of revenues, compared to $2,574,169 for the year ended December 31, 1997, or 64%
of sales. A 5% increase in cost occurred because of increased subcontract work
required for the projects and the introduction of new digital technology that
required more personnel training and integration effort.
Operating Costs and Expenses
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $1,819,205 or 27% of sales for the year
ended December 31, 1998 from $1,255,920 or 31% of sales for the year ended
December 31, 1997. This 1998 increase of $563,285 stemmed from increased sales
volume.
Interest Expense, Net of Interest Income. Interest expenses decreased to
$106,939 or 2% of sales for the year ended December 31, 1998, from $159,672 or
4% of sales for the year ended December 31, 1997. The $52,733 savings was the
result of better cash management, coupled with reduced interest rates prevalent
in the general economy.
Net Income. For the year ended December 31, 1998 InTegCom's net income
totaled $85,590 or 2% of sales, as compared to a net loss of $(299) of sales for
the year ended December 31, 1997. The difference can be attributed to higher
sales volume and better cash flow management.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through bank debt,
loans and equity from principals, loans from third parties and funds generated
by our business. As of March 31, 2000, we had $81,367 in cash.
Net Cash Used in Operating Activities. Net cash used in operating activities
increased to $670,230 for the three months ended March 31, 2000 from a cash flow
of $17,969 for the three months ended March 31, 1999. The principal cause
involved an increase in inventory of $667,658 at March 31, 2000 which were
billed to a customer in early April 2000. The 1999 operations used $277,761 in
cash compared to the $10,989 provided in 1998. The principal cause involved an
increase in trade accounts receivable of $767,732 at December 31, 1999 compared
to December 31, 1998. This increase was due to the completion of a large number
of contracts during the fourth quarter of 1999.
17
<PAGE>
Net Cash Used in Investing Activities. Net cash used in investing activities
was $43,576 for the three months ended March 31, 2000 compared to $25,478 for
the same period a year ago. Net cash used in investing activities increased to
$171,785 for the year ended December 31, 1999 from $142,515 for the year ended
December 31, 1998. Because of the expansion of our business, the increase was
primarily attributed to additional purchases of new computer software and
equipment.
Net Cash Provided From Financing Activities. Net cash generated from
financing activities increased to $655,110 for the three months ended March 31,
2000 from the prior period in March 31, 1999. The net increase was caused by
increased borrowings to meet additions to inventory to cover higher sales
volume. Net cash generated from financing activities increased to 392,838 for
the year ended December 31, 1999 from $142,528 for the year ended December 31,
1998, a net increase of $250,000 caused by additional borrowings to meet the
increase in sales volume and to cover expenses related to this offering.
Under a settlement arrangement, we owe $128,685 to a former joint
adventurer. The terms of this settlement call for monthly installments of $3,264
to cover principal and interest at the rate of 10% per annum. We have made the
necessary payments to date, and expect to make the remainder from working
capital.
In September, 1999, InTegCom changed banks. On September 8, 1999 we
refinanced our bank debt with the Hudson United Bank ('HUB') This not only
improved our working capital position by approximately $884,000 by restructuring
all bank debt as non-current. The HUB financing consists of two credit lines, a
working capital line of $2,000,000 and equipment financing line of $250,000,
which aggregates to $2,250,000. The $2,000,000 line is due on June 1, 2001.
However, all borrowings under the equipment line are payable in monthly
installments until September 1, 2005. As of December 31, 1999, the balance owed
on these lines was $1,423,749 and $6,163, respectively. At that date we had
available to us $576,251 and $243,837, respectively. By refinancing we not only
increased our available lines of credit by $1,250,000 in the aggregate, but
reduced the cost of our working capital by 1/2%, from prime plus 1% to prime
plus 1/2%.
Due to our increased sales in 1999, accounts payable and accrued expenses
increased $149,055 to $1,043,821 in 1999 from $894,770 in the prior year. In
1998, most income taxes were prepaid by estimated payments. However, in 1999,
due to our rapidly expanding business, sales increased to approximately
$7,557,000 in 1999 from $6,783,000 in 1998 and income before taxes rose to
$316,000 from $176,781, thereby resulting in a Federal and local tax liability
of $102,000. At December 31, 1999, we were current with all our obligations.
At December 31, 1999 accounts payable increased to $830,581, a $171,807 or
26% increase over the balance at December 31, 1998 of $658,774. Part of the
increase related to our increased sales volume in 1999. Also, there were a
number of large projects completed in the fourth quarter for which invoices were
still open. During 1998, we started to do business with several new vendors for
which we had no credit history and required cash on delivery. During 1999, those
vendors gave us terms ranging from 45-60 days from delivery. At December, 1999,
all our vendors were being paid in accordance with terms.
In 1998 we requested a $150,000 deposit from a customer that did not meet
our credit criteria. We returned the deposit in 1999. We continue to request
deposits from new customers that fail to meet our credit criteria. Inventories
at December 31, 1999 were at $702,268, a decrease of $106,941 from the balance
of $809,209 at December 31, 1998. Some of the decrease was due to the large
number of contracts completed in December, 1999 together with tighter inventory
controls instituted during the year.
Our capital requirements have grown since our inception consistently with
the growth of our operations and staffing. We expect our capital requirements to
continue to increase in the future to expand and maintain our growth and to
remain a competitive force in our industry. We intend to use approximately
$3,850,000 of the net proceeds from this initial public offering for expansion
and improvements. See the section in this prospectus entitled 'Use of Proceeds.'
We believe that the cash flow from operations, combined with our borrowing
capabilities and the net proceeds from this offering will be sufficient to meet
our anticipated working capital and capital expenditure requirements for at
least the foreseeable future after this offering.
18
<PAGE>
Integcom adopted an incentive stock option plan on December 23, 1999. Under
this plan we granted options covering 100,000 shares of our common stock to 44
employees at an exercise price equal to 90% of the initial public offering price
for such stock. These options vest at the rate of 33 1/3% for each year of
continuous employment the optionee has with ITC.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective October 1, 1997, we adopted the provisions of SFAS No. 130,
'Reporting Comprehensive Income.' SFAS No. 130 establishes standards for
reporting comprehensive income, defined as all changes in equity from non-owner
sources. Adoption of SFAS No. 130 did not have a material effect on our
financial position or net income.
Effective October 1, 1997, we adopted the provisions of SFAS No. 131,
'Disclosures About Segments of an Enterprise and Related Information.'
SFAS No. 131 establishes standards for the way the public enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to stockholders. Adoption of SFAS No. 131 did
not have a material effect on our financial position or net income.
Effective October 1, 1997, we adopted American Institute of Certified Public
Accountants Statement of Position 97-2, 'Software Revenue Recognition.'
SOP 97-2 generally requires revenue earned on software arrangements involving
multiple elements, such as software products, upgrades, enhancements,
post-contract customer support, installation and training to be allocated to
each element based on the relative fair values of the elements. The adoption of
SOP 97-2 does not have an effect on our financial position or net income.
Effective December 29, 1997, we adopted Statement of Financial Accounting
Standards (SFAS) No. 132, 'Employers' Disclosures About Pensions and
Post-retirement Benefits,' which standardizes the disclosure requirements for
pensions and other Post-retirement benefits. The Statement addresses disclosure
only. It does not address liability measurement or expense recognition. There
was no effect on our financial position or net income as a result of adopting
SFAS No. 132.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, 'Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use,' which revised the accounting for software development costs
and will require the capitalization of certain costs. The adoption of SOP 98-1
did not have an effect on our financial position or net income.
Seasonality
Our business tends to be seasonal in that most of the orders are usually
submitted by customers in the latter half of the calendar year.
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BUSINESS
OVERVIEW
In the commercial marketplace InTegCom furnishes its customers with
integrated electronic security systems which include technologically advanced
Closed Circuit Television ('CCTV') and access control systems to secure and
regulate their sites and locations. Access control systems electronically govern
the entry of authorized persons to facilities and restricted spaces. ITC
designs, integrates, manufactures, installs, maintains and purchases these
systems and their related devices and software. Our integrated systems encompass
CCTV's, intercoms, alarm-monitoring, video and audio recording, card access
controls and personnel identification devices, plus facility equipment sensors
and building controls. ITC security systems are often integrated with the
client's building and facility management systems.
INTEGRATED ELECTRONIC SECURITY SYSTEMS
CCTV systems for security applications provide video surveillance of many
locations on a continuous basis and extend the visual reach of human personnel
from central locations. These systems replace guards and watchmen, thereby
reducing labor costs, and at the same time improve and up-grade security. They
permit operators at a central location to survey the pictures and the activities
transmitted from multiple sites on a set of television monitors in their
presence and to record them automatically on analog video tape or digital
storage media. Recordings in digital format can be archived, transmitted to
other locations and retrieved for analysis. They can be useful in resolving
insurance claims, as evidence in legal proceedings, to train and manage
employees, or in verifying events and checking faculty status.
Access control systems can incorporate several card reader technologies. For
example, control systems rely on magnetic-stripped, proximity and/or smart cards
issued to select individuals to allow them to gain access to a secure area or
office. The holder presents the card at a card reader. If the card is authentic
and authorized, the holder is then admitted.
At times biometrics such as fingerprint reading, eye imaging, voice
verification and hand geometric devices or keypads, are used in these systems to
identify the correct person for entry and bar the unauthorized one. Some
customers employ both card and biometric systems for greater protection.
Frequently, a customer relies on video badging to identify its employees or
students. Under this technique, the badge with his or her picture is attached to
the front of the authorized person or is contained digitally in the computer.
When linked to a CCTV system, the security controller or the system itself views
the pictures on the badge or in the computer and matches it to the face of the
individual seeking entrance. If the picture matches the face, the controller or
system lets him in. If it does not, entry is barred.
Communication remains vital to the operational effectiveness of these
systems. For CCTV applications the obvious communications involve the video
component where pictures are transmitted to the monitoring personnel. These
transmissions can be in black and white or in color, must be clear and properly
focused without distortion. Today most customers select color cameras to obtain
better identification and clarity.
In both CCTV and access control systems, an audio component is often present
that allows voice communication between the controller and the individual under
video surveillance or seeking access. This may consist of a telephone, radio,
pager, or intercom hook-up or even a public address system. At the very least, a
controller can talk to this individual and in a two-way or multiple setup the
individual and others may speak with him.
Another element in the system may be alarms which signal unauthorized entry
or break-ins to monitoring personnel. Usually linked to motion detectors or door
contact switches, they discover the presence of an intruder and relay that event
to monitoring personnel or the alarm monitoring system. When connected to alarm
sensors, CCTV permits monitoring personnel to identify intruders and document
the intrusion.
Within these systems an array of sensors frequently gauge the physical
condition of equipment, such as computers, air conditioning, heating,
ventilation devices, as well as spaces themselves. These
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sensors include temperature gauges, smoke detectors, humidity and air-quality
testing devices. They usually function to detect emergencies and prevent
equipment breakdown or damage and result in better and more efficient building
and facility management.
Besides the video and audio aspects of the transmission, these systems also
move data from one location to another, and they must do it quickly, reliably
and without interruption. This data includes the pictures and accompanying voice
elements and needs to be stored in an organized fashion so that it can be easily
retrieved, analyzed and perhaps applied as evidence in a legal proceeding or to
resolve insurance claims.
Of course, these systems are comprised of many different devices involving
various technologies under computer control that are linked to one another,
sometimes over long distances. They are often hooked together over cables, which
consist of copper wire or fiber optics (standard telephone lines). However, in
today's rapidly evolving environment, wireless (radio) link-ups have been widely
used to reduce installation time and cost.
The devices in these systems each have different functions but are designed
and linked to work together. To that end dedicated computer hardware and
specially written software for the application concerned control them. Systems
integrators, like InTegCom, customize and tailor this equipment in light of the
requirements of each project and integrate the differing technologies and
disparate devices fabricated by many manufacturers, including its own in ITC's
case.
Security systems can be set up to communicate over networks -- local area
networks or wide area ones through standard telephone lines, fiber optics, the
internet, or special leased telephone lines with rapid transmission
capabilities. The method of communication selected for a network will depend on
the needed bandwidth to support videos from multiple sites. Bandwidth refers to
the network's capacity to carry data and the speed of transmission. Networks
permit the transmission of digitized pictures, voice and data to many more
locations over longer distances, and, depending on its bandwidth, at faster
speeds and in larger amounts.
The system integration specialists in the commercial arena remain highly
fragmented, and the industry is populated by many small and medium-sized
companies with only a few larger players. These companies tend to do business in
the geographic areas where their offices are physically located. It is unusual
when any one company can offer its services on a national basis. Outsiders, such
as large construction firms and electrical contractors, often seek to furnish
simplified integration services.
In contrast, manufacturers of security devices and systems come in many
different sizes. Their businesses are often national in scope, and their
products are distributed throughout the country and even abroad. Rarely, do they
encounter competition from companies outside the security industry selling
similar products.
As people's concerns about security grow, the customer base for CCTV and
access control systems has broadened in the commercial marketplace over the
years. Federal and state government agencies and large corporations have
frequently led the charge for greater security. However, smaller businesses,
local governments, schools and universities are not far behind in adopting these
systems to their special needs.
CCTV systems, for example, have become increasingly common fixtures in
today's society. Covert or overt, their high-resolution cameras, fixed or with
pan and tilt and zoom lens features, survey casinos, department and drug stores,
malls, office buildings, parks, factories, warehouses, banks, parking lots and
garages, transit operations and many other commercial, academic, and industrial
realms. More recently, these systems have also been incorporated into downtown
centers, vehicular traffic regulation and toll collection efforts.
Similarly, access control applications have infiltrated a wider territory
with many more varied types of customers. Once operative only in the domain of
highly security-conscious concerns like government intelligence agencies or
money-counting centers, access control systems now regulate and restrict the
internal movements of employees in a host of industries and government agencies
as well as students, faculty and administrators in school and university
settings. The rash of recent shootings at schools and churches throughout the
country merely heightens security concerns for those in charge of areas where
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people gather in sufficient numbers and accelerates the drive for solutions
involving CCTV and access control systems.
On the supply-side of the commercial security equation loom various trends
as well. In earlier phases, manufacturers of devices and related software
specialists tended to create proprietary products that locked customers into
their particular systems. This tendency made it more difficult for systems
integrators to meld different technical elements from separate manufacturers
into one fully functioning system. Recently, a propensity towards open
architecture in security devices and their software, allowing flexible sharing
of information between diverse systems, as well as upgrading and expanding
security systems without dismantling older installed devices, has gained
acceptance. Now neither customer nor the integrators are trapped into purchasing
a particular device, system or add-ons from a sole manufacturer or software
supplier. It has also become easier to marry disparate systems, devices and
software.
In card access, proximity cards permit access control by communicating the
identity of the card via a wireless link to a specialized reader. Smart cards
with their multi-applications have also entered the marketplace, utilizing
similar wireless technology. Smart cards usually contain a computer chip and may
be scanned by a contactless reader. This speeds up their usage and reduces wear
and tear on the cards and their readers. Because smart cards are harder to
counterfeit than magstripped ones, the incidence of fraud are also lowered.
But perhaps even more crucial is smart cards' diverseness of functionality
though more expensive. By performing several functions at the same time, they
appear to have greater utility. For example, a debit transit card for riding
subways and buses can be used as an access card for transit employees. A student
card which controls entry to classrooms and dormitories at the same time can
serve as a debit card for purchases in a campus cafeteria or bookstore.
Security systems are more frequently designed to be linked to the customer's
own internal information management networks called virtual private networks.
This trend has accelerated as companies and agencies incorporate and meld
conventional copper wire installations with fiber optics to create these
networks for wider-area coverage. It reflects the further integration and
centralization of separate systems into a single overall communication network.
Customers for security applications, particularly larger ones, are seeking
systems integrators with national and even international capabilities. While a
local presence has always been critical in rendering effective service, bigger
customers with more extensive geographic needs are driving the market for
security systems beyond traditional local and regional boundaries. Accordingly,
this trend has spurred the management of InTegCom to seek acquisitions of system
integrators in different sections of the country, to enter into joint ventures
or other cooperative business arrangements with them and to open new offices
elsewhere.
CORPORATE HISTORY
In the early 1950's John Henry, the father of James E. Henry, the current
President of InTegCom, started a small television repair business in Paramus,
New Jersey that focused on retail consumers. Soon afterwards, John's oldest
brother, Ray Henry, joined him, and they both worked full time servicing
television sets. In mid 1950's, the health-care division of Motorola assigned or
subcontracted its hospital service business in the New York-New Jersey area to
the Henry Brothers who began to repair television sets in patient rooms as well
as the nurse call systems. This assignment initiated their entry into the
commercial marketplace and expanded their expertise to radio communications.
In 1960 they became an authorized Motorola Service Shop ('MSS'). This
relationship grew when Motorola encouraged them to enter the CCTV business. As a
result, they designed, installed, integrated and maintained CCTV and audio
systems. By 1965, the commercial side of their business exceeded their consumer
activities.
During the 1950's, Hartford Henry, another brother, served as an informal
business advisor to them. But as the business expanded, he also came on board on
a full-time basis as the chief financial officer and administrator. In the early
1960's, the business was incorporated in New Jersey under the name of Henry
Bros. Electronics, Inc. ('HBE').
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By 1975, HBE had developed three separate divisions -- CCTV, two-way
radio/paging and consumer (sales and service of television sets). As part of the
radio-paging services, HBE owned and operated repeating towers in New Jersey,
and in the mid-1980's they began selling and servicing cellular telephones.
As the brothers got older and sought retirement, they sold HBE to
Communications Group, Inc. ('CGI'), a publicly-held company, in July, 1986. At
the time of the sale, HBE had annual revenues of approximately $10,000,000 with
a history of profitability.
In October 1989, James E. Henry, who had worked continuously for HBE since
1978 and Irvin F. Witcosky, who had joined HBE in 1987, arranged a buy-back of
its CCTV division from CGI and the HBE name through HBE Acquisition Corp.
('HAC') currently an ITC wholly owned subsidiary. In a separate transaction,
other employees of CGI repurchased the radio-paging division from CGI about the
same time.
In 1990, Mr. Henry and Mr. Witcosky purchased the assets of a former
Motorola CCTV factory, then owned by another company. These assets, under a new
corporation named Viscom Products, Inc., now a wholly-owned subsidiary of
InTegCom, were transferred from Chicago, Illinois to ITC's headquarters in
Saddle Brook, New Jersey. After the acquisition, Viscom provided support of
parts and maintenance for its older installed devices to the MSS's. Viscom also
redesigned and upgraded their aging products with the latest digital technology.
These products were sold to MSS's, as well as other ITC integration customers.
In 1991, HAC became a distributor for Motorola's two-way commercial radio
products, which it later sold in 1996. Also in 1991, HAC acquired the assets of
Advantage Security, Inc., a small Long Island-based company that specialized in
security system integration and alarm monitoring. Incorporated on December 18,
1991, HBE Central Management Inc. supervised alarm monitoring after the
acquisition of Advantage Security by HAC. In July 1995 HAC purchased the assets
of the security systems integration office of Ogden Allied, Inc., near Dallas,
Texas. Through this acquisition, ITC supports the expanding Motorola business in
the southwest as well as other commercial and government accounts.
In November, 1999, InTegCom was incorporated in Delaware. Soon afterwards
Mr. Henry and Mr. Witcosky exchanged the common stock held in three related
companies for an aggregate of 4,000,000 shares of the common stock of ITC. As a
consequence, these companies are currently wholly-owned subsidiaries of
InTegCom.
The following table shows the number of outstanding shares of common stock
in these three corporations that Mr. Henry and Mr. Witcosky exchanged for their
shares in ITC.
<TABLE>
<CAPTION>
HAC VISCOM HCM
--- ------ ---
<S> <C> <C> <C>
Mr. Henry............................................. 500 shares 505 shares 50 shares
Mr. Witcosky.......................................... 500 shares 505 shares 50 shares
------------ ------------ ----------
Total:............................................ 1,000 shares 1,010 shares 100 shares
</TABLE>
SERVICES
In consultation with our customers we strive to identify their security
needs and then design, customize, install and maintain an appropriate system for
them. Because each customer's needs ordinarily differ, the CCTV and access
control systems designed by us will vary from project to project. As part of the
design phase, we typically evaluate and select equipment to be purchased from
third party vendors. We also manufacture CCTV devices in our own factory for
sale to customers of our systems integration services and other authorized
MSS's. Our emphasis in selecting equipment for a project is to provide each
customer with the most advanced proven technology. In this regard, we stress
speed and quality of communications, recording, storage and transmission
capacities, media presentation, including formatting, as well as equipment
reliability for cost-effective security solutions.
When in search of new technologies to apply, InTegCom personnel continually
reviews the technical literature, attends major trade shows, engages in research
and development, and plies an array of personal contacts in relevant industries.
On the supply side, InTegCom is quick to establish
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relationships with key vendors, especially those with applicable advanced
technologies, and earn their loyalties. ITC also exploits its membership in PSA,
an industry purchasing co-op that offers members the opportunity to buy
equipment at discounts, to train personnel, and to exchange new business
concepts.
After the design is completed, our engineers and technicians install,
customize and integrate the selected devices and related software. As part of
our services, we sell our customers devices and software purchased from other
vendors as well as those manufactured by us. Where off-the-shelf equipment and
software are not available or applicable, we create the missing link and
incorporate it into the system. At the end we present the customer with a
turn-key operation that performs to its needs and specifications. Often we
connect and integrate systems to create networks for our customers. In addition,
we train their personnel to use the systems properly and to maintain them to
deliver maximum performance.
We currently maintain a tiny alarm monitoring operation for several
customers in which we track and communicate alarm warnings from their locations
to the appropriate authorities. Over time we intend to phase out this type of
business.
The systems designed and installed by us consist of:
video surveillance (CCTV) with remote monitoring and numerous cameras
public address, intercom call stations and wireless radio with remote
monitoring
video, audio and data transmission gateways over networks
digital video recording and video badging
magnetic-stripped, proximity and smart card access control
alarm sensors monitoring unauthorized activity in restricted area with
remote/response
remote sensors and controls for interior environmental and computer
facility purposes
Many of our projects represent first-time installations; others represent
upgrades where new equipment is added to an already installed system or new
equipment replaces obsolete or malfunctioning devices. For example, we may add
20 to 30 new video cameras, substitute color for black and white cameras,
install new monitors or control features at a location or simply replace
existing equipment with a newer set of devices. In dollar volume, it is
estimated that for the year ended December 31, 1999 approximately 75% to 80% of
our work involved initial installations and the remainder upgrades.
After initial installations and upgrades, customers usually require
maintenance services. Under our standard maintenance contract, we provide repair
services during the normal work day or on 7 day, 24 hour-basis at the customer's
request. Typically, we charge a small percentage of the total equipment sales,
and we bill the customer either monthly or quarterly. We also bill non-contract
customers for repair services at fixed hourly rates plus the cost of materials.
Contracts for design and installation of systems vary widely, depending on
the customer and the project. Most contracts are at a fixed price, including
mark-up for profit, which represents the cost of the bonding, equipment,
installation, sub-contracting, labor and warranty. Change orders, in which the
customer opts for additional or different devices or configurations during the
project, generally add to the project's scope and increase the price. A
mobilization charge, which involves payments for preparatory efforts, such as
scaffolding, cranes, office trailers, insurance and bonding, when applicable,
may be billed and collected initially. Bonding requires the installer to post
financial security to assure project completion.
On longer-term jobs we bill monthly to reflect the extent of our work, and
the customer makes progress payments each month until the project is completed.
Ordinarily, a percent of the contract price (between 2% and 15%) is withheld to
guarantee satisfactory completion. Cost overruns on government and other
projects have been avoided or minimized by meticulously applying cost estimates
at the beginning of a project and convincing customers to alter the scope of the
work and terms of the contract when necessary.
On certain projects, ITC is a prime contractor and for others a
subcontractor. When the installation is large in scope or must be performed by
union labor, this work is subcontracted to independent
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electrical installers. On government projects, minority enterprises frequently
have mandated preferences by law for this type of work.
PRODUCTS
In our manufacturing and assembly operations, we produce equipment related
primarily to CCTV installations. The devices set forth below comprise the
standard products that we manufacture in-house.
Keyboard Encoders -- Basic Control, Full Function Control with Audio Option
in either Desktop or Rackmount -- Encoders send control and routing signals
to the Digital Decoders, Audio Call Stations and Matrix Switchers. These
devices come in three different models and allow the operator to select
many cameras from a remote viewing location and present their pictures on
monitors and control cameras to pan, tilt or zoom. In two models the
operator can speak to, and hear from, persons being viewed by the camera if
the audio option is selected.
Digital Decoder -- This device permits the Encoder operator to operate
pan/tilt motors and to move the camera and adjust its lens. It acts upon
the signal from the Encoder.
Audio Call Station -- This device is a two-way intercom that allows the
Encoder operator to respond to a person seeking entry from a remote
location who has signaled by pushing a call button. The operator, if
certain the individual is authorized, can open a door in or outside the
restricted area to let him in. It must be remotely controlled by the
keyboard encoder.
Matrix Switches -- These switches route camera signals to monitors
according to instructions from keyboard encoders. The small system model
can accept up to 64 cameras and route their pictures onto 8 monitors
sequentially or automatically when an alarm signals an unauthorized entry.
The largest system model has a minimum capacity of up to 128 cameras routed
to 32 monitors which can be expanded in increments of 128 cameras or 32
monitors.
Distribution Amplifier -- Video signals from cameras are often required to
feed numerous devices in the system. The amplifier, while maintaining
signal integrity, accepts up to 16 camera inputs for distribution to a
programmable number of outlets (32).
Video Cameras and Housings -- The cameras produce video images in low-light
or demanding environments. Housings cover, support and protect the cameras
in their positions or movements. These housings are primarily used in
environmentally or architecturally demanding applications and, as a
consequence, meet special customer requests for rough treatment or
aesthetics.
Mobil DVR Interface -- This product provides the electrical interface
between the mobil transit Digital Video Recorder ('DVR') and the CCTV
devices, such as -- cameras, microphones and operator display unit. DVR is
a video recording mechanism which stores pictures from multiple cameras on
a computer hard drive for ease of access and transmission between sites.
MANUFACTURE AND SUPPLY
We design and engineer all of these devices, purchase their components from
third parties and assemble and test the final products. Given our limited
in-house production needs, we design our own printed circuit boards for
fabrication at outside shops. Components are then manually inserted on the
boards with our personnel doing the soldering. Typically, these boards are of
multi-layered design for both space efficiency and signal integrity. At present,
we do not envision the need for surface-mount production equipment that will
automatically place the chips on the board because the quantities we manufacture
are limited and our applications do not require it.
We do not assemble our products on a continuous mass-production basis.
Instead they are usually assembled on a batch basis in which products in
different forms move irregularly from station to station. Further testing of
products is generally accomplished at the end of the assembly process as part of
our extensive quality control procedure. The manufacture of devices is done in
response to specific customer purchase orders either from outside dealers or for
our own HBE project installations.
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We utilize modern equipment for the design, engineering, assembly and
testing of our products. We intend to expand our manufacturing capacity only to
supply the needs of our system integration activities and the MSS's that we
currently supply.
We usually purchase hardware, supplies and components from vendors under
written purchase orders of both individual and blanket variety. Blanket purchase
orders entail the purchase of a larger amount at fixed prices for delivery and
payment on specific dates. We rarely issue blanket orders without supporting
customer purchase orders.
We rely on many manufacturers of different sizes and capabilities located
throughout the United States. Certain equipment and software used in our systems
are obtained from sole sources. We have occasionally experienced delays in
deliveries of equipment and may experience similar problems in the future. In an
attempt to minimize these problems, we constantly monitor new orders to justify
investment in an inventory of equipment that are generally more difficult to
obtain. However, any interruption, suspension or termination of component
deliveries from our suppliers could have a material adverse effect on our
business and cause our redesign and resourcing to minimize the impact on
installation schedules.
Although we believe that there will be alternate sources and redesigns,
inevitably time would be required to find substitutes. During any interruption
in supplies, we may have to curtail the production and sale of our equipment for
an indefinite period. Any interruption could have a negative impact on our
systems integration business and prevent us from meeting project deadlines on a
timely basis. However, we consider this to be a remote possibility.
Our design, engineering and assembly facilities are located in the Saddle
Brook, New Jersey headquarters. At present we have not secured Underwriters'
Laboratory approval of our manufactured products or met the quality management
and assurance standards of an international rating organization (ISO 9000) due
to our low production volume. As volumes increase and customers' needs require,
we intend to obtain UL approval as well as qualifying under ISO 9000.
The Company has not taken any substantial measures to qualify under these
standards. Meeting such criteria involve a long, complicated process of new
planning, documentation and other factors. Qualification may improve our
marketing opportunities internationally or with certain domestic customers. But
we may not achieve these standards or may not increase the sales of our products
in the future even if they are met.
PURCHASED PRODUCTS
InTegCom has entered into licensing or reselling arrangements for certain
hardware and software elements contained in, or used in conjunction with, its
devices. These agreements are usually non-exclusive, sometimes provide for
volume purchases, charge fixed prices to be paid by us to the particular
licensor or supplier, run for a limited term and encourage sales for specific
territories.
Some devices and components purchased from third party manufacturers, we
insert in our products or place our name and label on; others we resell under
the name of its manufacturer.
We are a member/owner of Professional Security Alliance ('PSA') based in
Denver, Colorado. In addition, Mr. Witcosky has been a founding member and past
president of PSA. A buying co-op for the security industry, PSA has about 140
members that generate approximately $60,000,000 in annual purchases. Established
in 1974, PSA provides central purchasing, training, marketing and other support
for its membership. PSA allows us to achieve 10% to 15% discounts on equipment
purchased under its auspices and grants us patronage dividends related to our
annual purchasing volume and its own profitability. Typically, we purchase from
30% to 40% of our outside requirements through PSA. Along with our MSS
affiliations, membership in PSA furnishes contacts so we can team with other
member integrators in different regions for customers operating on a national or
sectional basis.
The following table reflects primary suppliers of products and related
technology which we consider important to our current business and prospects.
The loss of any one of these suppliers could have a material adverse impact on
our growth:
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<PAGE>
<TABLE>
<CAPTION>
NAME OF BRIEF DESCRIPTION TYPE OF EXPIRATION OF TERM
SUPPLIER OF PRODUCTS SUPPLY CONTRACT AND TERRITORY
-------- ----------- --------------- -------------
<S> <C> <C> <C>
Lenel Systems Software and hardware Non-exclusive Annual, terminable on
International, Inc. for video badging, resale/licensing with 90 days prior notice
(Rochester, NY) access control, alarm fixed pricing New York & Dallas
monitoring, network Metropolitan Area
communications,
Mavix Ltd. (Israel) Audio, video and data Master distributor Annual U.S.
network interface non-exclusive sales
products for fast, resale agreement
remote transmissions
(software and
hardware)
Sungjin C&C Ltd. Digital video OEM exclusive for Annual U.S.
(Seoul, Korea) recording and transit;
transmission products non-exclusive for
for mobile and fixed fixed sites
applications
Intellikey Smart programmable Non-exclusive resale Annual U.S.
Corporation key arrangement without a
(Melbourne, written agreement
Florida)
</TABLE>
WARRANTIES AND MAINTENANCE
We offer warranties on all our products, including parts and labor, that
range from one year to four years depending upon the type of product concerned.
For products made by others, we pass along the manufacturer's warranty to the
end-user. For years ended December 31, 1997, 1998 and 1999 net expenses
attributable to warranties were approximately $50,591, $42,624 and $55,892.
On non-warranty items, we perform repair services for our products sold
either at our New Jersey or Texas facilities or at customer locations. In regard
to maintenance services for years ended December 31, 1997, 1998 and 1999, we
generated revenue of approximately $482,686, $521,280 and $550,882 and for the
three months ended March 31, 2000 approximately $116,700. For those years, the
percentage of our revenues attributable to maintenance services are 12%, 8% and
7%. Our devices generally have a long operating life.
NEW PRODUCTS FROM THIRD PARTIES
DIGITAL VIDEO RECORDER
Over the years, we have specialized on mass transit applications and private
commercial sites. Generally, we install security systems at fixed sites like
money-counting centers, badging operations or metro card printing facilities.
Our prime customers for this emerging technology have been Silverstein
Properties, New York City Transit Authority, Port Authority and several other
public transit agencies.
Now we are extending our security expertise and equipment sales for CCTV to
the mobile transit operations -- the buses and trains themselves as well as
armored cars, police cars and wagons, fire engines and taxis. Until recently,
attempts to harness existing analog cameras and VCR's to on-board vehicles were
crude and only marginally reliable. However, in our opinion, one manufacturer,
Sungjin of Seoul, Korea, has developed an advanced digital video recording
system, ruggedized enough for mobile operations.
Sungjin products have demonstrated high-quality performance with proven
stability and reliability as well as unmatched storage and transmission
efficiency. The key to Sungjin technology involves the application of
compression techniques that minimize file size, thereby enhancing storage
capacity and maximizing transmission speed.
In December 1999 we entered an exclusive OEM arrangement with Sungjin
covering the United States for mobile applications, which we anticipate will be
shortly memoralized in writing. Initially, we plan to introduce this device into
the market through the MSS network. For fixed sites, we have a non-exclusive
reselling arrangement with Sungjin and its primary distributor.
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INTELLIKEY
In access control, as in CCTV, we have actively sought to keep up with new
technological developments and products. Intellikey represents a relatively new
vendor for us. It produces a smart key and lock with dedicated computer elements
that can operate on a stand-alone basis or as an integral part of a central
access control system.
The key can be programmed to restrict its use to specific locks and entry
points as well as specific days and hours. If an unauthorized key is used to
access a restricted area, entry is barred. Instead of having to carry a bundle
of keys on one chain to unlock multiple doors, with Intellikey, a single key
will do. In the smart lock, the key itself and its controllers, a record is kept
by time and date where each key has been. Locks can be changed electronically
and keys can be aborted without the need and expense of a locksmith. By just
replacing the mechanical lock cylinder with an intelligent one and attaching a
small electronic controller to the door, Intellikey can be installed into
existing doors and locks.
Both the keys and the lock contain a microprocessor, which is programmed
with a unique digital code. When the key is inserted, this code and the
customer's parameters restricting users and entry points are transmitted via
secure encrypted infra-red optics. If the controller recognizes the code and
parameters, the door opens. If an unauthorized key is utilized, the door remains
firmly locked, and the key can be disabled.
We are currently purchasing Intellikey devices on a non-exclusive basis
without a written contract. These devices are being incorporated into our
systems and sold to customers. At present, we are negotiating with Intellikey
for a written exclusive agreement to develop and market a new integrated
application of its product. However, we cannot predict the outcome of these
negotiations.
DIGITAL NETWORK INTERFACE
In July 1999, we entered into a non-exclusive distribution agreement with
Mavix, Ltd., an Israel company to distribute its digital transmission products
and software in the U.S. This device and its special software interface and
control other security and monitoring equipment and communicate video, audio and
data rapidly back to a central station over a variety of transmission media.
The product digitizes and compresses analogue information gathered from
remote sites and then packages and routes this information through standard
communication systems using its special TCP/IP protocol. At a monitoring
station, the data is then recorded, decompressed and viewed or converted to
analogue signals. Flexible and easily modified for customization or expansion,
the product offers the customer a cost-effective means of connecting remote
locations to central stations over long distances quickly through internet,
intranet, virtual private network, telephone lines or dedicated fiber cables.
THE MOTOROLA RELATIONSHIP
We have a long-standing, professional relationship with Motorola, Inc..
Initially, Motorola encouraged HBE's entry into the commercial CCTV and two-way
communications markets. Now involved in a more multi-faceted arrangement, we
provide installation, repair, maintenance and consulting services for specific
contracts with several Motorola divisions. We also furnish Motorola with devices
manufactured by us and others for integration into complex communication
systems.
In addition, we purchase from Motorola wireless products incorporating card
readers and smart cards. For authorized Motorola service shops and selected
systems integrators servicing older Motorola equipment, we repair, install and
upgrade Motorola-originated devices manufactured by us or equipment, including
software, purchased from others. Moreover, we encourage the MSS's to adopt
integrated systems generally in their operations and to seek mobile CCTV
applications. Currently, we do not have any overall written contract with
Motorola; instead a series of purchase orders governs our relationship.
The most recent project awarded to us by Motorola in competition with other
bidders involves a world-wide integrated badging system using Lenel's software.
This is also being done on a purchase order basis. We have developed and
installed the main equipment at Motorola headquarters. Systems
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for another twenty sites are scheduled to be ordered this year. Smart card
access and alarm features are also planned in this system for later
installation.
BONDING
Many projects require InTegCom to provide performance and payment bonds from
an established surety company. This means that ITC must perform to pre-set
specifications of the customer within a specific time frame and to assure
payment of its employees, suppliers and subcontractors on that project, and if
InTegCom fails to meet these obligations, the surety company must assume
responsibility to complete the commitments.
Bonds are usually required in all government-related projects and private
construction or capital improvement projects above $100,000. These bonds insure
that when the project is completed, it is free and clear of any liens for the
customer. To date, no claims have been filed against us or our insurance
coverage regarding the services we have performed on these projects.
Presently, we carry an umbrella bonding policy of $5,000,000 issued by the
Reliance Insurance Company. Should our business continue to grow, we anticipate
the need to increase our bonding capabilities to assume larger projects and
customers. The capital infusion resulting from the completion of this offering
should improve our financial condition to permit higher levels of bonding.
Insurance companies, which offer bonding of system integrators on these projects
consider, among other things, the net worth of applicants in providing varying
bond amounts. Generally, the higher the net worth of a qualified applicant, the
bigger the bond possible.
MARKETING AND SALES
In the past, we have done little direct marketing of our services and
products. Nearly all of our business is generated by referrals from customers,
PSA or others in the security industry. InTegCom develops, maintains and
distributes product literature for its own devices and those manufactured by
others. It also publishes and distributes an extensive catalogue listing its own
equipment as well as the devices manufactured by others. In the past, our
advertising has been limited. While our personnel attend relevant trade shows on
a regular basis to keep up industry contacts and investigate new technology, we
usually do not exhibit products and services at these shows.
After this offering, we plan to apply a portion of the proceeds to mobilize
an industry-specific sales and marketing program. Accordingly, we will hire
additional sales and marketing personnel, advertise in trade magazines, exhibit
at selected trade shows, expand our dealer and VAR network and open new sales
and service offices in targeted regions.
CUSTOMERS
We sell our products and services directly to end-users in the public and
private sectors. These are often state and city government agencies in transit
and transportation, owners and operators of urban office buildings, public
utilities, universities, large industrial and technology corporations, airlines,
banks, oil, insurance and telecommunications companies, brokerage houses and
retailers.
The table below sets forth the approximate percentage of total revenues done
with each of our nine largest customers for the years ended December 31, 1997,
1998 and 1999 and the three-months ended March 31, 2000.
29
<PAGE>
<TABLE>
<CAPTION>
1997 1998 1999 MARCH 31, 2000
NAME OF CUSTOMER % OF TOTAL REVENUES % OF TOTAL REVENUES % OF TOTAL REVENUES % OF TOTAL REVENUES
---------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
New York City Transit.... 21% 34% 32% 4%
Motorola................. 7% 14% 5% 11%
Silverstein Properties... 6% 8% 8% 47%
New York State DOT....... 2% 6% 3% 1%
Army/Air Force Exchange
Services............... 5% 6% 2% 1%
Port Authority........... 1% 2% 5% 1%
Quest Communication...... 0% 0% 1% 4%
Ameritrade............... 0% 0% 1% 4%
VSI...................... 0% 0% 0% 4%
</TABLE>
As reflected in the above table, from period to period the business mix
among customers shifts and changes.
BACKLOG
As of May 15, 2000, our backlog was approximately $5,362,122 as compared
with a backlog of approximately $3,395,986 as of May 15, 1999. One customer,
Bechtel, accounted for more than 36% of such backlog as of May 15, 2000,
another, NABI, for approximately 22% and a third, Silverstein Properties for 9%.
We presently expect to manufacture and/or deliver most of the devices and
systems and perform the installation services recorded in our backlog within the
next 12 months.
Nearly all our backlog figures are based on written purchase orders or
contracts executed by the customer and involve product deliveries and
engineering services. All orders or contracts may be cancelled. Because we
usually participate in larger projects than most systems integrators in this
field, our backlog typically runs higher than industry averages.
ENGINEERING, RESEARCH AND DEVELOPMENT
InTegCom maintains an engineering staff consisting of 4 individuals whose
functions include the improvement of existing products, modification of products
to meet customer needs and the engineering, research and development of new
products and applications. Engineering and research and development expenses
were approximately $145,500 in the year ended December 31, 1997, $194,400 in
1998, $200,000 for 1999 and $74,800 for the three months ended March 31, 2000.
Usually, we only perform research and development in response to a purchase
order or contract from a specific customer. However, we typically retain all
rights to the products developed and may use it again at no additional cost in
other applications. Currently, we are working to complete a specialized network
controller, a graphical user interface and customized camera housings with call
station and control features. The controller has the capacity to integrate
numerous diverse security systems and meld them together into a single network.
The interface, in contrast, is a combined software/hardware package that enables
interrelated computers to more easily manage, control and monitor multiple
arrays of security devices. The customized camera housings are designed to match
architecturally the up-scale lobbies and spaces where they are installed.
COMPETITION
We compete for systems integration business in the security area with
electrical contractors, large construction firms, consultants and other systems
integrators. Some of these concerns are much larger than we and have greater
financial, marketing, personnel and other resources. While many companies
manufacture similar security devices to ours, we generally compete with them
only on a limited basis because the products we make fulfill the in-house needs
of our systems integration group and those of the MSS's with which we have had a
long relationship. Moreover, because these products are often upgraded versions
of former Motorola-supplied devices which can be easily integrated with older
Motorola systems, we possess a competitive advantage when dealing with the
MSS's.
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In the public sector in which competitive bidding procedures frequently
apply, we have concentrated on design-build projects where specifications for
our equipment and technology are prescribed for the job ahead of time. This too
gives us a competitive advantage.
We compete for systems integration business on the basis of reputation,
technological sophistication, overall know-how, local presence and understanding
of customers' needs. In the manufacturing arena, performance, features and
special interconnections and software represent the primary determinants. Price
is usually a lesser consideration than features for currently targeted customers
and markets. However, price may become a critical factor in the foreseeable
future as we seek to penetrate new markets.
EMPLOYEES
As of May 15, 2000, we had 49 full time employees including our officers, of
whom 4 were engaged in manufacturing, 26 in systems installation and repair
services, 8 in administration and financial control, 4 in engineering and
research and development, and 7 in marketing and sales.
None of our employees are covered by a collective bargaining agreement or
are represented by a labor union. We consider our relationship with our
employees to be satisfactory.
The design and manufacture of our equipment and the installation of our
systems require substantial technical capabilities in many disparate disciplines
from mechanics and computer science to electronics and advanced software. While
we believe that the capability and experience of our technical employees
compares favorably with other similar systems integrators and manufacturers, we
may not be able to retain existing employees or attract and hire the highly
capable technical employees necessary in the future on terms deemed favorable to
us, if at all.
However, we do emphasize continued training for new and existing technical
personnel. Accordingly, we conduct training classes and seminars in-house, send
select employees to technical schools and avail ourselves of training
opportunities offered by equipment manufacturers and other specialists on a
regular basis.
PROPERTIES AND FACILITIES
Since July 15, 1990, we have leased a 17,055 square foot facility in Saddle
Brook, New Jersey, for our corporate headquarters, integration operations and
later for our manufacturing plant. This facility is a one-story, modern brick
building in a commercial-industrial area. The lease on this space which has been
extended twice, terminates on June 30, 2001, and provides for a fixed annual
rent of $88,800 until that date, payable in equal monthly installments of
$7,400. We are also responsible for the cost of property taxes, utilities,
repairs, maintenance, alterations, cleaning and insurance. These facilities
should meet our operational needs for the foreseeable future.
We also lease a 3,500 square foot office facility, in Grand Prairie, Texas,
between Dallas and Ft. Worth. A single-story, cinder block building in an office
complex, this space is leased until January 31, 2001 at a fixed annual rental of
$31,500, payable in equal monthly installments of $2,625 with additional costs
to us for insurance, repairs and alterations, utilities, taxes and cleaning.
In addition, we lease several automobiles, truck, office, production and
testing equipment and expect to continue to lease this equipment after the
offering.
LEGAL PROCEEDINGS
We know of no material litigation or proceeding, pending or threatened, to
which we are or may become a party.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our current directors and officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James E. Henry............... 46 President, Chief Executive Officer and Director
Irvin F. Witcosky............ 61 Executive Vice President, Secretary and Director
Louis Massad................. 61 Vice President, Treasurer, Chief Financial Officer
and Director
Theodore Gjini............... 34 Vice President of Operations
Leroy Kirchner............... 57 Director
C. Jay Pelliconi............. 67 Director
</TABLE>
BACKGROUND INFORMATION ABOUT EXECUTIVE OFFICERS AND DIRECTORS
JAMES E. HENRY
Mr. Henry co-founded InTegCom in 1989 with Mr. Witcosky and has served as
its president, chief executive officer and director since that date.
A graduate of the University of New Hampshire with a bachelor of science
degree in electrical engineering, he worked on a part-time basis for Henry Bros.
Electronics, Inc. ('HBE') as a technician from 1968 to 1978 servicing and
installing CCTV, audio and radio communication systems. A full time employee
starting in 1978, Mr. Henry continued to work for HBE as a systems engineer
until 1989. During this period, he designed, integrated and installed extensive
and sophisticated communication and control systems in microwave, laser, fiber
optic and infra technologies for larger corporations, utilities and government
agencies in the New York Metropolitan Area.
Then in 1989 he and Mr. Witcosky arranged the repurchase of HBE from CGI,
and Mr. Henry has continued to design, install, integrate and market security
and communications systems as well as manage the research and development while
serving as InTegCom's chief executive officer and a director.
IRVIN F. WITCOSKY
A co-founder of InTegCom, Mr. Witcosky has served as its executive vice
president, secretary and director to date. Previously, he had also acted as its
treasurer and general manager.
A graduate of California Polytechnic University with a bachelor of science
degree in aeronautical engineering, Mr. Witcosky entered the workforce at the
Naval Weapons Center as a civilian engineer. There, from 1960 to 1974, he became
involved in research, development, testing and production of rocket-assisted
projectiles for naval guns and guided missiles, including the Agile missile. As
a recipient of a special Michelson Laboratories Award of Fellow in Ordinance
Science and co-inventor on a Navy patent for a new rocket propellant, Mr.
Witcosky managed and coordinated six Navy laboratories and upwards of 100
engineers on various projects along with the civilian contractor's personnel at
Thiokol and Hughes Aircraft.
From 1974 to 1983, Mr. Witcosky founded and ran Photoscan, a CCTV company
for security systems in Salt Lake City, Utah and from 1977 to 1981 he formed
another corporation, Beehive Video, a video specialty concern for industrial and
retail markets, where he acted as president.
From 1978 to 1981 Mr. Witcosky served as president of PSA, the security
industry buying co-op in which ITC is a member/owner. He later worked for VCS,
Inc., the former Motorola CCTV factory, now a subsidiary of InTegCom, in the
capacity of vice president of marketing from 1981 through 1986.
In 1987 Mr. Witcosky joined HBE and became a vice president and general
manager. There to the present he has supervised, coordinated, performed and
managed designs, sales, quotations, operations and administration.
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LOUIS MASSAD
Mr. Massad joined InTegCom in 1997 as a financial advisor and became a vice
president, treasurer and chief financial officer in 1999. He holds bachelor of
science and masters degrees in accounting from Cairo University in Egypt and a
masters in business administration in finance from Long Island University. From
1960 to 1970, Mr. Massad worked as an auditor for a large foreign certified
public accounting firm in its overseas offices.
During 1970 and 1971, he was employed as a senior auditor at First Fidelity
Bank of Newark, New Jersey. From 1971 to 1974, he served as a controller to
Magnus Organ Corp., a manufacturer of electronic organs. During the 1974-1976
period, Brunswick Corporation, a large manufacturer of many products and
equipment, employed him as a controller of one of its divisions. In 1976 to 1981
he held the positions of vice president of finance and treasurer of Mediscience
Technology Corp., a publicly held company that manufactured medical equipment.
From 1981 to 1982, the Beattie Manufacturing Company, a carpet manufacturer,
employed Mr. Massad as its controller, chief financial officer and a director.
Then in 1982 he began a lengthy involvement with Computer Power Inc., a publicly
held manufacturer of power supply equipment for computers and emergency lighting
equipment. There, he worked continuously until 1996 as vice president of
finance, controller, and director. From 1996 to 1999 he functioned as an
independent accountant and financial advisor to several companies, including
ITC.
Since 1995 Mr. Massad has been a director of Conolg Corporation, a
publicly-held company that manufactures electronic components and subassemblies
for communication equipment.
THEODORE GJINI
Elected Vice President in December, 1999, Mr. Gjini also serves as
operations manager and supervises the coordination of ITC personnel and their
activities in sales and marketing, project installations and maintenance. He has
acted in that capacity as well as sales engineer and project manager for
InTegCom since 1988.
A graduate of New Jersey Institute of Technology with a bachelor of science
degree in electrical engineering and William Paterson College with a masters in
business administration, he previously worked for Allied Signal Corporation as a
research technician during 1986 and as a security officer for Nabisco from 1985
to 1988.
LEROY KIRCHNER
Mr. Kirchner was elected to our board of directors in December, 1999. Having
earned bachelor of science and masters in business administration degrees from
Fairleigh Dickinson University, he had continuously worked in various capacities
for Motorola Inc., primarily in sales and marketing from 1966 through 1998.
Between 1992 to 1996, he served as a Motorola vice president in charge of dealer
sales for the eastern U.S. where he managed over 300 dealers and successfully
directed a nation-wide task force to increase specialized mobile radio sales.
From 1996 through 1998, he also functioned as vice president and strategist for
a Motorola subsidiary engaged in sales of related radio equipment and systems.
Afterwards to date, Mr. Kirchner has acted as an independent consultant to the
communications industry.
C. JAY PELLICONI
Mr. Pelliconi was also elected to our board in December, 1999 and holds a
bachelor of arts degree in economics from Wagner College. Since 1959, he has
been actively engaged in commercial and investment banking. During that time he
served as a vice president of public finance with a major New York Stock
Exchange member firm, secretary of the metropolitan loan committee of a New York
money center bank, manager of the municipal bond department of another member
firm and a municipal bond trader at two other investment concerns.
More recently, he has worked as a vice president in charge of office sales
for another member firm from 1986 to 1989, vice president for corporate finance
at Jesup Josephthal & Co., Inc. from 1989 to 1991, manager of private placements
at Jay Partners Holding, Inc. and registered representative of
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Du Pasquier & Co. Inc., both from 1991 to 1997. Starting in 1997 to the present,
he has acted as an administrative manager and a leading member of the corporate
finance group at Mason Hill & Co., Inc., the representative of the underwriters
in this offering.
BACKGROUND INFORMATION ABOUT CERTAIN KEY EMPLOYEES
EMIL J. MARONE
Since 1965 Mr. Marone has worked continuously for HBE and ITC as a hospital
communication system specialist, security systems supervisor, systems engineer
and quality control specialist.
In his current position, he is responsible for the development of special
products and testing procedures as well as quality assurance and management. He
holds an associate science degree from Bergen County Community College and has
attended New Jersey Institute of Technology and Fairleigh Dickinson University
taking courses in mathematics, computer sciences and engineering.
GERARD ROMOLO
Mr. Romolo joined our company in 1994 and has continuously worked for us as
a technician, manufacturer's liaison, project manager and quality control
specialist. Since then, he has attended Orange and Ulster Counties Boces taking
courses in electronics and Orange County Community College studying accounting
and business administration. He has received other training and certification
from the National Burglar Fire Alarm Association, Edicon, PSA, Lenel, Mavix,
Sungjin, Intellikey and MDI in alarms, computers and software.
From 1988 to 1994, he worked for Prontronics Fire & Alarm Company, Inc. as a
quality control manager, trouble-shooter and installer. In 1986 to 1988, he was
employed by Rickel Home Center as a department manager supervising employees,
ordering products and maintaining all other aspects of his department.
CARL J. ERICKSON
Mr. Erickson joined InTegCom as chief systems engineer in December, 1999.
From 1998 through 1999, he served as a project manager for Lockheed Martin on
the new Austin/Bergstrom International Airport in Texas. In this position, he
supervised the design and installation of the power distribution, access
control, CCTV, gate control and control center systems. He also coordinated and
managed the subcontractors, the local Lockheed team, negotiated contracts and
administered and supervised the construction effort.
Between 1987 and 1998, Texas Instruments/Raytheon employed him as a project
manager. In this capacity, he managed the development, design and installation
of fire detection, CCTV, Intercom, card access, paging and other systems for a
wide variety of corporate and government projects. A graduate of Brigham Young
University with a bachelor of science degree in electrical engineering, Mr.
Erickson has in prior years acted as a consultant to architectural and
engineering firms, contractors and owners for communications, electronic control
and security systems located in airports, hotels, hospitals, penal institutions,
malls and corporate.
ROBERT H. GREENQUIST
Mr. Greenquist joined us in 1991 and has continuously worked for ITC as a
production and engineering manager. In these capacities, he has been in charge
of electro-mechanical and analogue designs of equipment and oversees
engineering, manufacturing and quality control activities.
From 1986 to 1991, he served as president of Alpha-Tronics, an engineering
consulting firm specializing in analogue designs. During 1976 to 1986, he owned
and operated Research Development Corp., an R&D consulting firm to manufacturers
of high-end assemblies for echo cardiology and medical imaging equipment as well
as avionics equipment in large commercial jet aircrafts. Between 1965 and 1976,
he owned and operated GHV Electronics, Inc., a manufacturer of audio/visual
products, where he also functioned as a design engineer for new products.
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<PAGE>
ALBERTO SID
Mr. Sid has acted as an engineering manager with ITC since early 1995.
Before that he held positions of director of R&D and hardware engineering
manager at Graphex Imaging Systems, Inc., a manufacturer of imaging, plotter and
scanner products, from 1991 until his employment by IntegCom. In 1989 to 1991,
he served as president of Telec Research and Engineering, a start-up
manufacturer of products using robotic controls, high-resolution positioning
devices, multiprocessors and smart light fixtures.
From 1984 to 1989, he was a senior technical specialist at Scitex America
Corp., where he lent technical, maintenance and marketing support to customers.
A graduate of Technion Israel Institute with a bachelor of science degree in
electrical engineering, Polytechnic University of New York with a masters degree
in computer science, and New York Institute of Technology with an MBA, he worked
for several Israel companies from 1978 to 1984 as a technical specialist,
project leader, design engineer and electronic technician.
CHARLES R. ADAMS, JR.
Mr. Adams started working for ITC in 1995 and has continued until the
present. In our Texas office, he oversees service and installation projects,
interfacing with customers, general contractors, architects and vendors.
From 1993 to 1995, he was employed as a service and installation supervisor
for Ogden Government Services. During 1984 to 1993, he worked for Walker
Engineering as foreman on projects involving security conduits, hook-ups for
airport lighting, power distribution, lighting and wiring. Previously, he held
positions as a wirer and electronic technician at Cal Electric, Tristar Electric
and Western Electric from 1971 to 1984.
DAVID R. JONES
Mr. Jones has been in ITC's employ as a general manager since 1995. He
oversees sales, marketing, and customer relations in our Texas office, reviews
blueprints for new projects and performs financial analysis for them. From 1993
to 1995 he worked for Ogden Security Services as an operations manager where he
supervised personnel, scheduled manpower on projects and interfaced with
customers.
In 1981 to 1993, Kastle Security Systems employed Mr. Jones as a general
manager. There he prepared and handled budgets and other financial reports. From
1979 to 1981, he served as an installation and service supervisor at SETEC
Protection Service and worked for the Federal Bureau of Investigation from 1977
to 1979, specializing in and coordinating telecommunications between regional
offices and headquarters. Mr. Jones holds a bachelor of arts degree in business
administration from the University of Kentucky.
INGE FOLEY
Ms. Foley has served as our office manager from 1989 to the present. In this
position, she has supervised the office staff, acted as a controller and
overseen the purchase of equipment and parts for us.
Having attended Rutgers University in business administration, she had
worked previously, starting in 1966 to 1989, as a sales administrator and an
operations manager for Tele-Measurement, Inc., another security systems
integrator.
JANE MCCALLUM
From 1998 to date, Ms. McCallum has managed our Texas office where she is
responsible for the administration, finance, budgeting and purchasing. In 1996
to 1998, she served as a staffing manager for Personal Touch Home Care, Inc., a
concern that provides nursing service to patients in their homes. In 1995 to
1996, she acted as business service manager of RedBird Health, Inc., another
health care company, where she supervised the office and clerical staff, billing
and accounts payable and receivable.
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From 1990 to 1995, she was employed by Techcord Consulting Group, Inc., a
security consultant, as office manager in charge of marketing, public relations,
payroll, collections and invoices. Starting in 1982 to 1989, she acted as a
clerical and collection supervisor for GTE directories and oversaw public
relations, training and office finances.
Potential investors should consider the backgrounds of our officers,
directors and key employees whether or not they have the necessary experience
and capabilities to operate our business and develop it effectively.
Management's experience and ability are often deemed to be the most significant
factors in the success of any business. ITC's management believes that it
currently possesses the necessary ability and experience to operate its business
effectively. Should either Mr. Henry or Mr. Witcosky leave our employ, we would
be operating at a definite disadvantage. While ITC may be in a position to
replace them with comparable personnel, that would not necessarily be the case,
and in any event delays in locating suitable replacements are likely to occur.
BOARD COMPOSITION
At each annual meeting of our stockholders, all of our directors will be
elected to serve from the time of election and qualification until the next
annual meeting election. In addition, our bylaws provide that the authorized
number of directors, which is a minimum of three and a maximum of fifteen, may
be changed only by resolution of the board of directors.
Each officer is elected by, and serves at the discretion of, our board of
directors. Each of our officers and directors, other than non-employee
directors, devotes his full time to our affairs. Our non-employee directors
devote such time to our business as is necessary to discharge their duties.
There are no family relationships among any of our directors, officers or key
employees.
BOARD COMMITTEES
We have established both a compensation committee and an audit committee, a
majority of which is composed of independent, outside members of our board of
directors. The audit committee reviews with our independent public accountants
the scope and adequacy of the audit to be performed by the independent public
accountants, the accounting practices, our procedures and policies, and all
related party transactions. The compensation committee recommends to our board
of directors the compensation to be paid to our officers and directors,
administers our stock option plan and approves the grant of options under the
plan. We have appointed Mr. Pelliconi, Mr. Witcosky and Mr. Kirchner as the
members of both committees.
DIRECTORS' COMPENSATION
Directors who are also our employees receive no additional compensation for
attendance at board meetings. Non-employee directors will receive $500 for
attendance at each board meeting or any committee of the board that they attend
unless the board and committee meetings are held on the same day, in which case
they should be considered as one and paid accordingly. Also, these directors
will be reimbursed for their travel, lodging and other out-of-pocket expenses
related to their attendance at board and committee meetings. Additional
compensation for these directors may be arranged for special projects. No
directors' fees have been paid to date. We anticipate that our board of
directors will hold regularly scheduled meetings on a quarterly basis.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to our president
and chief executive officer and each other executive officer whose 1999
compensation equaled or exceeded $60,000.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SALARY AND
NAME AND PRINCIPAL POSITION YEAR BONUSES
- --------------------------- ---- -------
<S> <C> <C>
James E. Henry ............................................. 1999 $60,000
President and CEO 1998 $60,000
1997 $60,000
Irvin F. Witcosky .......................................... 1999 $60,000
Executive Vice President 1998 $60,000
1997 $60,000
</TABLE>
The aggregate compensation paid to all persons who served in the capacity of
director or executive officer during our fiscal year ended December 31, 1999 (2
persons) was approximately $120,000.
In December, 1999, Mr. Gjini became an executive officer of ITC. His annual
1999 compensation was $86,000.
EMPLOYMENT AGREEMENTS
Messrs. Henry and Witcosky are each serving as ITC's President and Executive
Vice President under written employment contracts for five years commencing
January 1, 2000. These agreements provide for an initial annual compensation of
$135,000, unspecified bonuses approved by the board of directors and the
compensation committee, an increase of 10% in compensation in each of the third,
fourth and fifth years and a one-year non-competition covenant covering the
security business that commences after termination of employment.
Mr. Massad has entered into a five year written employment contract with ITC
commencing January 1, 2000. His initial annual compensation under such contract
is $110,000, and it also provides for unspecified bonuses, a 10% increase per
annum in each of the third, fourth and fifth years. All these contracts may be
terminated or modified by us if we fail to complete our initial public offering
of securities by July 31, 2000.
INCENTIVE STOCK OPTION PLAN
On December 23, 1999, our directors and shareholders approved the adoption
of our Incentive Stock Option Plan. Under the Plan, options to purchase a
maximum of 500,000 shares of its common stock may be granted to officers and
other key employees of ITC. Options granted under the Plan are intended to
qualify as incentive stock options as defined in the Internal Revenue Code of
1986, as amended.
ADMINISTRATION
Our board of directors has appointed three of its members as the
compensation committee to administer the Plan. This committee determines which
persons are to receive options, the number of options granted and the options'
exercise prices. The compensation committee may also prescribe the rules and
regulations for administering the Plan, and it is this committee which decides
questions arising under the Plan or any of its rules and regulations.
OPTION TERM AND PRICE
The maximum term of any option is ten years, and the option price per share
may not be less than the fair market value of our shares at the date the option
is granted. However, options granted to persons owning more than 10% of our
voting shares (or a combination of our voting shares and those of any subsidiary
of ours) will have a term not in excess of five years, and the option price per
share will not be less than 110% of fair market value.
An optionee may exercise these options only if and to the extent that these
options are vested at that time. Unless otherwise determined by our compensation
committee, vesting generally occurs at the rate of 33 1/3% per year of
continuous employment with InTegCom.
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OPTION GRANTS
As of the date of this prospectus, we have granted options covering a total
of 100,000 shares to 44 employees at an exercise price per share equal to 90% of
the initial offering price per share of the shares offered in this prospectus
under the Plan.
TRANSFERABILITY AND ANTI-DILUTION
Options granted under the Plan are not transferable other than by will or by
the laws of descent and distribution. Options granted under the Plan are
protected by so called anti-dilution provisions which both modify the number of
shares issuable under it and adjust the exercise price of an option to account
for stock dividends, stock splits and the like.
TERMINATION OF EMPLOYMENT
Despite the term of an option, it will expire when an optionee's employment
ends. The precise timing depends on the reason for the termination of
employment. In the event of retirement or disability, his right extends for
three (3) months afterwards. In the case of death it runs for a year after
termination, while in the case of voluntary termination it occurs upon
termination. When an optionee's employment is terminated involuntarily, his
option runs for 30 days, except if the involuntary termination is for cause.
Then the right expires as of the date of the event which triggers the
termination.
PLAN TERMINATION
The Plan will terminate on December 23, 2009 or on such earlier date as the
board of directors may determine. Any option outstanding at the termination date
will remain outstanding until it expires or is exercised in full, whichever
occurs first.
TAX TREATMENT
If shares are treated as being received under a Plan qualified as an
Incentive Stock Option within the meaning of the Internal Revenue Code of 1986,
as amended, and if the shares acquired are not disposed of by the optionee
within two years from the date of the grant of the option nor within one year
from the transfer of the shares to the optionee, then no income is recognized by
the optionee upon his receipt of the option or its exercise. If the shares are
disposed of within either the first two years of the option's grant or one year
from the acquisition of the shares, then compensation income in the amount of
the difference between the value of the shares at the time they were acquired
and the price actually paid for them will be recognized by the optionee in the
year of the disposition, and an equal deduction will be allowed to ITC.
If the aggregate fair market value of the shares of common stock (determined
at the time the option is granted) with respect to which incentive stock options
are exercisable for the first time by such optionee during any calendar year
(under all such plans) exceeds $100,000, then only the first $100,000 of such
shares so purchased will be treated as exercised under the Plan and any excess
over $100,000 so purchased shall be treated as options which are not incentive
stock options. This rule is applied by taking options into account in the order
or sequence in which they are granted.
SIMPLE IRA PLAN
On October 1, 1999, we adopted a Simple IRA Plan for our employees to
accommodate their pension needs. Under this plan, we shall contribute on behalf
of each participant for the plan year an amount equal, dollar for dollar, to
that amount which these participants contribute to their retirement accounts
under the plan.
Our matching contributions are limited to 3% of each participant's
compensation or $6,000, as adjusted, whichever is less. Each employee may elect
to make contributions to his retirement account by means of reductions from his
salary or his personal contribution of a specific dollar amount not to
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<PAGE>
exceed $6,000. From time to time, the U.S. Secretary of the Treasury may adjust
these limitations on both our matching contributions and the employees'
contributions for cost of living increases. The employees' portion of his
account vests immediately in full and cannot be forfeited. Our contributions
under this Plan are generally deductible for taxable year for which they were
made.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation and bylaws limit the liability of directors
and officers to the maximum extent permitted by Delaware law. We will indemnify
any person who was or is a party, or is threatened to be made a party to, an
action, suit or proceeding, whether civil, criminal, administrative or
investigative, if that person is or was our director, officer, employee or agent
or serves or served any other enterprise at our request.
In addition, our certificate of incorporation provides that a director shall
not be personally liable to us or our stockholders for monetary damages for
breach of the director's fiduciary duty. However, the certificate does not
eliminate or limit the liability of a director for any of the following reasons:
breach of the director's duty of loyalty to us or our stockholders;
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law;
the unlawful payment of a dividend or unlawful stock purchase or
redemption; and
any transaction from which the director derives an improper personal
benefit.
We intend to purchase and will maintain directors' and officers' insurance
in the amount of $2,000,000. This insurance will insure directors against any
liability arising out of the director's status as our director, regardless of
whether we have the power to indemnify the director against the liability under
applicable law.
We have been advised that in the opinion of the Security Exchange Commission
insofar as the indemnification provisions referred to above may be invoked to
disclaim liability for damages arising under the Securities Act, these
provisions are against public policy as expressed in the Act and are, therefore,
unenforceable.
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<PAGE>
CERTAIN TRANSACTIONS
In October, 1989, as part of the repurchase of HBE assets and name,
Mr. Henry lent us approximately $100,000 to finance this acquisition. This loan
was converted to equity in December, 1993. From 1989 until 1994, Mr. Witcosky
lent us an aggregate of about $100,000 to finance our business which was
converted into equity in December, 1994. No common stock was issued to
Mr. Henry or Witcosky in connection with such conversions; instead they were
treated as contributions to paid-in capital.
On November 19, 1999, InTegCom was organized as a corporation in the State
of Delaware. Later that month, Messrs. Henry and Witcosky exchanged the shares
of common stock they held in three corporations that owned and operated their
system integration and manufacturing operations for shares of ITC. These shares
represented all the outstanding stock of those three corporations. Before the
exchange Mr. Henry and Mr. Witcosky each owned 50% of the shares of the old
corporations and immediately after the exchange they each owned 50% of the
shares of ITC, the new holding company. The value of the underlying assets did
not change as a result of the exchange, and only the form, not the substance, of
principals' corporate ownership changed. The transaction was accounted for as a
transfer between enterprises under common control, and as a result, the assets
and liabilities transferred were accounted for at historical cost in a manner
similar to a pooling of interests.
In the early 1990's, we had orally agreed to settle an open matter with
Alfred Albrecht, and Security Management System, Inc. ('SMS') a privately held
company which he owns and controls, both of which are former joint adventurers
of Mr. Henry and Mr. Witcosky. The settlement related to the joint venture's
asset acquisition from CGI. In the settlement Messrs. Henry and Witcosky agreed
to repay Albrecht's $50,000 loan with accrued interest, to resolve product and
component sales between SMS and ITC and to extinguish any Albrecht equity
claims. That agreement was finally memoralized in writing in December, 1999.
Under these arrangements, we are obligated to repay an aggregate of
$128,685, plus accrued interest to Mr. Albrecht at the rate of 10% per annum
until December 1, 2003 in monthly installments under two promissory notes. Mr.
Henry and Mr. Witcosky are also obligors under these notes. In addition, Mr.
Witcosky paid Mr. Albrecht $40,000 to extinguish any possible equity claim
regarding an InTegCom subsidiary, HBE Acquisition Corp.
On December 30, 1999, Messrs. Henry and Witcosky each sold 80,000 shares of
their InTegCom common stock for a total of 160,000 shares to Mr. Massad for an
aggregate of $24,000 under restrictive conditions involving his continued
employment with ITC. On or about the same date, Messrs. Henry and Witcosky each
also transferred 20,000 of their InTegCom shares, totaling 40,000 shares, to
John, Ray and Hartford Henry as a gift to them in appreciation of a
long-standing loan on extremely favorable terms to Mr. Henry and Mr. Witcosky,
which enabled them to buy back the original CCTV business from CGI.
Under a bank loan agreement between us and Hudson United Bank dated
September 1, 1999, Mr. Henry and Mr. Witcosky have personally guaranteed up to a
possible $2,250,000 of our potential indebtedness to the bank, plus accrued
interest. Upon completion of this offering, we anticipate that these guarantees
and subordinations will be eliminated.
POLICY REGARDING LOANS AND OTHER AFFILIATED TRANSACTIONS
Nearly all of the affiliated transactions and loans described above were
entered into when there were less than two disinterested independent directors
on our board of directors, and accordingly we lacked sufficient disinterested
independent directors to approve or ratify such transactions and loans at the
time they were initiated. However, we believe that all such transactions and
loans were made on terms that are as favorable to us as those which were
generally available from unaffiliated third parties at that time.
We currently have and will maintain at least two independent directors on
our board of directors. All future material affiliated transactions and future
loans and loan guarantees with our officers, directors, 5% shareholders, or
their respective affiliates, will be on terms that are as favorable to us as
those generally available from unaffiliated third parties; and all such future
transactions and loans, and
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any forgiveness of such loans, shall be approved or ratified by a majority of
our independent directors who do not have an interest in the transactions and
who will have access, at our expense, to ITC's attorneys or an independent legal
counsel. We do not intend to make any future loans to or guarantee loans on
behalf of our officers, directors and employees, other than (i) advances for
travel, business expense, and similar ordinary operating expenditures; (ii)
loans or loan guarantees made for the purchase of our securities; and (iii)
loans for relocation.
PRINCIPAL STOCKHOLDERS
The table below sets forth information with respect to the beneficial
ownership of our common stock, as of the date of this prospectus for the
following persons:
each person known by us to be the beneficial owner of more than 5% of our
common stock;
each of our directors;
each of our executive officers; and
our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules and
regulations of the Securities and Exchange Commission and includes voting or
investment power with respect to the shares. Unless otherwise indicated, the
persons named in the table have sole voting and investment power with respect to
the number of shares indicated as beneficially owned by them. The number of
shares of common stock outstanding used in calculating the percentage ownership
for each person listed below includes shares of common stock, underlying options
or warrants held by the person that are exercisable within 60 days of the date
of this prospectus, but excludes shares of common stock underlying options or
warrants held by any other person. Common stock beneficially owned and
percentage ownership are based on 4,000,000 shares outstanding before this
offering and 5,000,000 shares to be outstanding after the completion of this
offering, assuming no exercise of the underwriters' over-allotment option.
Unless otherwise indicated, the address of each beneficial owner is c/o ITC,
280 Midland Avenue, Saddle Brook, New Jersey 07662.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
NUMBER OF BENEFICIALLY OWNED
SHARES -------------------
NAME, ADDRESS AND TITLE BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------- ----- -------- --------
<S> <C> <C> <C>
James E. Henry, CEO, President and Director(1)........... 1,900,000 47.5% 38.0%
Irvin F. Witcosky, Executive Vice President, Secretary
and Director........................................... 1,900,000 47.5% 38.0%
Louis Massad, CFO, Principal Accounting Officer,
Treasurer and Director(2).............................. 160,000 4.0% 3.2%
Theodore Gjini(3)........................................ 12,000 0.3% 0.2%
Leroy Kirchner........................................... -- -- --
C. Jay Pelliconi......................................... -- -- --
All executive officers and directors as a group
(6 persons)............................................ 3,972,000 99.3% 79.4%
</TABLE>
- ---------
(1) Disclaims beneficial ownership of 40,000 shares owned by John, Ray and Henry
Hartford, his father and uncles.
(2) Holds 40,000 shares currently but the remaining 120,000 shares are held in
escrow and will ordinarily be released to him at the rate of 40,000 shares
per year of continuous employment with InTegCom.
(3) Represents shares of common stock issuable upon exercise of unvested options
under the incentive stock option plan.
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DESCRIPTION OF SECURITIES
SECURITIES OFFERED
The 1,000,000 Units offered by the prospectus are comprised of 1,000,000
shares of common stock and 1,000,000 warrants to purchase an equal number of
shares of common stock. These shares and warrants will be traded separately upon
the effectiveness of this offering.
Our authorized capital stock consists of 10,000,000 shares of common stock,
par value $.01 per share, and 2,000,000 shares of preferred stock, par value
$.01 per share, the rights and preferences of which may be established from time
to time by our board of directors. Assuming no exercise of the underwriters'
over-allotment option, upon completion of this offering, there will be 5,000,000
shares of our common stock issued and outstanding, no preferred stock
outstanding, and excluding the representative's warrants, there will be
1,000,000 public warrants outstanding.
The description of our securities are summaries and do not contain all the
information that may be important to you. For more complete information, you
should read our certificate of incorporation, and the forms of representative's
warrants, public warrant agreement and the public warrant which are filed as
exhibits to the registration statement of which this prospectus forms a part.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of our common
stock entitled to vote in any election of directors may elect all of the
directors standing for election. Apart from preferences that may be applicable
to any shares of preferred stock outstanding at the time, holders of our common
stock are entitled to receive dividends ratably, if any, as may be declared from
time to time by our board of directors out of funds legally available therefor.
Upon the liquidation, dissolution or winding up of ITC, the holders of our
common stock are entitled to receive ratably, our net assets available after the
payment of all liabilities and liquidation preferences on any outstanding
preferred stock. Holders of our common stock have no preemptive, subscription,
redemption or conversion rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The outstanding shares of our common
stock are, and the shares offered in this offering will be, when issued and paid
for, validly issued, duly authorized, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which we may designate and issue in the future.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to 2,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of these shares,
including dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences, and to fix the number of shares constituting any
series and the designations of these series. These shares may have rights senior
to our common stock. The issuance of preferred stock may have the effect of
delaying or preventing a change in control of us. The issuance of preferred
stock could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely affect the rights
and powers, including voting rights, of the holders of our common stock. At
present, we do not intend to issue any shares of our preferred stock in the
foreseeable future. No preferred stock will be issued for two years from the
date of this prospectus without the consent of the representative, which shall
not be unreasonably withheld.
WARRANTS
We are authorized to issue three-year warrants to purchase an aggregate of
1,000,000 shares of common stock (exclusive of 150,000 warrants issuable upon
exercise of the underwriters' over-allotment option). We have reserved an
equivalent number of shares for issuance upon exercise of these warrants. Each
warrant represents the right to purchase one share of common stock, commencing
on the effective
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date of this offering and until the expiration of three years from the date of
this prospectus. The exercise price of the warrants is $7.50 per share, until
June , 2003 and during their term. After expiration, the warrants will be void
and of no value.
From June , 2001 until the close of business on June , 2003, the
warrants are subject to earlier redemption as follows: If the average of the
closing bid prices of the common stock (if the common stock is then traded in
the over-the counter market) or the average of the closing prices of the common
stock (if the common stock is then traded on a national securities exchange or
the NASDAQ National Market or Small Cap System) exceeds $6.25 for any
consecutive 20 trading days, then upon at least 30 days prior written notice,
given within 60 days of the period, we will be able to call all (but not less
than all) of the warrants for redemption at a price of $.25 per warrant.
The warrants contain provisions that protect their holders against dilution
by adjustment of the exercise price and number of shares issuable upon exercise
on the occurrence of specific events, such as stock dividends or other changes
in the number of outstanding shares except for shares issued under any ITC stock
option plans for the benefit of its employees, directors and agents, the
warrants offered hereby, the representative's warrants, the underwriters'
over-allotment option and any equity securities for which adequate consideration
is received. We are not required to issue fractional shares. In lieu of the
issuance of fractional shares, we will pay cash to holders of the warrants. In
computing the cash payable to holders, a share of common stock will be valued at
its price immediately prior to the close of business on the expiration date. The
holder of a warrant will not possess any rights as a stockholder of ITC unless
he exercises his warrant.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW
Section 203 of the Delaware General Corporation Law contains provisions that
may make the acquisition of control of our company by means of a tender offer,
open market purchase, proxy fight or otherwise, more difficult. We must comply
with the provisions of this law. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a 'business combination' with an
'interested stockholder' for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner.
A 'business combination' includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An 'interested
stockholder' is a person who, together with affiliates and associates, owns, or,
in some cases, within three years prior, did own, 15% or more of the
corporation's voting stock. Under Section 203, a business combination between
InTegCom and an interested stockholder is prohibited unless it satisfies one of
the following three conditions:
our board of directors must have previously approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder.
upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, shares owned by (1) persons who are directors and also
officers and (2) employee stock plans, in some instances; and
the business combination is approved by our board of directors and
authorized at an annual or special meeting of the stockholders by the
affirmative vote of the holders of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
LISTING ON NASDAQ SMALL CAP SYSTEM AND BOSTON STOCK EXCHANGE
After the offering we anticipate that the common stock and warrants will be
quoted on the National Association of Securities Dealers, Inc. (NASDAQ), Small
Cap System and the Boston Stock Exchange ('BSE') under the symbols 'ITCM' and
'ITCMW' and 'ITE' and 'ITEW'. Applications to list such securities on these
system and exchange will be filed shortly.
We cannot assure that the prices of our securities will be so quoted or that
a trading market for our securities will develop or be sustained, or at what
price the securities will trade. In addition, even if
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these securities are listed and traded initially on NASDAQ and BSE, we may fail
to meet subsequently certain minimum standards for continued listing. In that
event, these securities will consequently be delisted, and their price will no
longer be quoted in this system. These results may make it extremely difficult
to sell or trade our securities.
TRANSFER AND WARRANT AGENT AND REGISTER
Jersey Transfer & Trust Co. is the transfer and warrant agent and registrar
for our securities. Its address is 201 Bloomfield Ave., Verona, N.J. 07044 Tel.
No. (973) 239-2712, Fax No. (973) 239-2361.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our shares could drop as a result of sales of
substantial amounts of them in the public market after this offering or the
perception that these sales may occur. This set of circumstances could also make
it more difficult for us to raise funds through future offerings of stock.
The 1,000,000 shares and 1,000,000 warrants that we are offering will be
freely tradable without restriction except for any shares held by our
'affiliates' as defined in Rule 144 under the Securities Act or those otherwise
restricted under the Act. In addition, if the underwriters exercise their over-
allotment option, in part or in full, up to 150,000 additional shares and
150,000 additional warrants will be issued and freely tradable.
Our remaining 4,000,000 outstanding shares are 'restricted securities' as
defined in Rule 144. Those shares may only be resold if there is an effective
registration statement under the Securities Act covering those shares or an
exemption from registration under Rule 144 or otherwise is available. The
primary holders of all currently outstanding 4,000,000 shares have agreed that
they will not sell any shares without the prior consent of the representative of
the underwriters for a period of 365 days from the effective date of this
offering. Shares covered by such registration will be eligible for resale in the
public market, subject to Rule 144 limitations applicable to 'affiliates' and to
the lock-up agreements previously described. Furthermore, we will be issuing
warrants to the representative of the underwriters at the closing of this
offering which, if exercised in full, will yield another 100,000 shares. After
this offering, we eventually intend to register all 500,000 shares reserved for
issuance under our stock option plan.
Our stock options and warrants are likely to be exercised, if at all, at a
time when we otherwise could obtain a price for the sale of our shares that is
higher than the exercise price per share of the options or warrants. Any
exercise or the possibility of an exercise may impede our efforts to obtain
further financing through the sale of additional securities or make that
financing more costly.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement between
the Company and Mason Hill & Co., Inc., the representative of the several
underwriters, a copy of which agreement is filed as an exhibit to the
registration statement of which this prospectus forms a part, we have agreed to
sell to the underwriters named below, and the underwriters have agreed to
purchase all 1,000,000 shares of common stock and 1,000,000 warrants to purchase
shares of common stock offered.
<TABLE>
<CAPTION>
NUMBER OF
---------------------
UNDERWRITER NUMBER OF ADDRESS SHARES WARRANTS
- ----------- ----------------- ------ --------
<S> <C> <C> <C>
Mason Hill & Co., Inc......... 110 Wall Street
New York, NY 10005............
--------- ---------
Total..................................................... 1,000,000 1,000,000
--------- ---------
--------- ---------
</TABLE>
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<PAGE>
The representative has advised us that the underwriters will offer the
shares and warrants as set forth on the cover page of this prospectus, which
includes the underwriting discount indicated there, and that the underwriters
will initially allow concessions not in excess of $ per share and
$ per warrant on sales to certain dealers. After the initial public
offering, concessions to dealers terms may be changed by the representative.
The representative has advised us that the underwriters do not intend to
confirm sales of the shares and warrants to any account over which they exercise
discretionary authority in an aggregate amount in excess of five (5%) percent of
the total securities offered hereby.
We have granted to the underwriters an option which expires 45 days after
the date of this prospectus, exercisable as provided in the underwriting
agreement, to purchase up to an additional 150,000 shares and 150,000 warrants
at a net price of $6.25 per share and $.10 per warrant (90% of the public
offering price) which option may be exercised only for the purpose of covering
over-allotments, if any, in the sale of 1,000,000 shares and 1,000,000 warrants
offered in this prospectus.
The underwriting agreement provides that upon the closing of the sale of the
securities offered, the representative will be paid a non-accountable expense
allowance equal to 3% of the aggregate public offering price (including the
over-allotment option) of which $50,000 has been paid to date. The underwriting
agreement provides for reciprocal indemnification between us and the
underwriters against certain liabilities in connection with the registration
statement, including liabilities under the Securities Act of 1933, as amended.
The underwriting agreement further provides that we and each of our directors
individually will, upon completion of the public offering, for a period of no
less than three years, support for election a designee of the representative to
our board of directors.
In connection with this public offering, we have agreed to sell to the
representative or its designees, at a price of $10, representative's warrants
covering 100,000 shares which may not be transferred before June , 2001,
except to officers of the representative or to other members of their
underwriting group or to partners or officers of these members. The exercise
price of these warrants will equal 120% of the initial offering price of the
shares of common stock. The representative's warrants are exercisable for a
period of four years beginning one year after the date of this prospectus. These
warrants will contain certain anti-dilution provisions and have also been
included in the registration statement of which this prospectus forms a part but
may not be publicly offered unless and until a post-effective amendment or new
registration statement with respect thereto has been filed and becomes
effective. We have agreed to prepare and file one post-effective amendment (or
registration statement, if required) during this four-year period if requested
by the representative and to bear its expense, and in addition, the
representative has certain rights to include these warrants, and the underlying
stock in any other registration statement filed by us during the four-year
period. Any profit realized from the sale of these warrants or underlying stock
may be deemed additional underwriting compensation. The exercise of the
underwriters' over-allotment option will not result in increasing the securities
underlying the representative's warrants or in the granting of any additional
warrants to the representative.
Our officers and directors, who are current shareholders of our outstanding
shares, have agreed not to sell any shares of common stock owned by them,
without the prior written consent of the representative, for a period of 12
months after the effective date of the registration statement of which this
prospectus forms a part. In addition, we have granted the representative the
right for three years to name a member of its choice to our board of directors
which it has exercised with the selection of C. Jay Pelliconi to the board.
Mason Hill commenced operations in March 1995. It has co-managed or managed
only four public offerings of securities although it has participated in
numerous public offerings as a member of the underwriters' and dealers' groups.
Accordingly, the representative has limited experience as a managing underwriter
of public offerings.
Its lack of experience as lead underwriter may impair our ability to develop
a public market for our securities. The representative may not be able to
participate as a market maker of our common stock and warrants should our
securities trade below the minimum prices set by the NASDAQ for small cap
listings. Nor can we be certain that any broker-dealer will become a market
maker for our common
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<PAGE>
stock and warrants. If there are no market makers, our common stock and warrants
may be delisted from NASDAQ.
The representative may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and 'passive' market making in
accordance with Regulation M under the Securities Exchange Act of 1934.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
shares of common stock or warrants in the open market after the distribution has
been completed in order to cover syndicate short positions. Penalty bids permit
the representative to reclaim a selling concession from a syndicate member when
the shares of common stock or warrants originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. In 'passive' market making, market makers in the securities who are
underwriters or prospective underwriters may, subject to certain limitations,
make bids for or purchases of the securities until the time, if any, at which a
stabilizing bid is made. these stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock or
warrants to be higher than they would otherwise be in the absence of these
transactions. These transactions may be effected on the over-the-counter
Bulletin Board or otherwise and, if commenced, may be discontinued at any time.
Prior to this offering, there has been no public market for common stock or
warrants. Consequently, the public offering prices of our securities have been
determined by negotiation between us and the representative. Factors considered
in determining the public offering prices of these securities and the exercise
price of the warrants included our net worth and earnings, the amount of
dilution per share of common stock to the public investors, the estimated amount
of proceeds believed necessary to accomplish our proposed goals, prospects for
our business and the industry in which we operate, the present state of our
activities and the general condition of the securities markets at the time of
the offering.
The underwriters intend to reserve approximately ten (10%) percent of the
securities offered by this prospectus to our employees, directors, their friends
and relatives as well as our vendors and customers.
LEGAL MATTERS
The legality of the securities offered in this prospectus will be passed
upon for us by Cascone & Cole, 711 Third Avenue, New York, New York 10017.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by Sichenzia, Ross & Friedman, LLP, 135 West 50th Street, 20th
Floor, New York, NY 10020.
EXPERTS
Our financial statements of December 31, 1999, and 1998 and for each of the
three years in the period ended December 31, 1999 appearing in this prospectus
and registration statement have been included herein and in the registration
statement in reliance upon the report of Demetrius & Company, LLC, independent
certified public accountants, and upon the authority of this firm as experts in
accounting and auditing.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all the information set forth in the
registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the exhibits for a complete
statement of their terms and conditions. The
46
<PAGE>
registration statement and other information may be read and copied at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, DC
20549, and at the Commission's Regional Offices located at 7 World Trade Center,
Suite 1300, New York, New York, 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The public may obtain information on the operation of
the Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements, and other information regarding issues that
file electronically with the Commission.
Upon effectiveness of the registration statement, we will be subject to the
reporting and other requirements of the Securities Exchange Act of 1934 and we
intend to furnish our shareholders annual reports containing financial
statements audited by our independent auditors and to make available quarterly
reports containing unaudited financial statements for each of the first three
quarters of each year.
We have applied for the listing of our common stock on the NASDAQ Small Cap
Market and BSE under the symbol 'ITCM' and 'ITCMW' and 'ITE' and 'ITEW,'
respectively. After this offering is effective, you may obtain certain
information about us on NASDAQ Internet Site (http://www.Nasdaq-Amex.com) and
BSE Internet site (www.bostonstock.com).
CHANGE IN ACCOUNTANTS
In September 1999 our prior auditors, Schwack and Katz resigned solely
because we had decided to pursue an initial public offering, and Schwack and
Katz had no public offering experience. On or about the same time, we engaged
Demetrius & Company, LLC to audit our financial statements for the fiscal years
ended December 31, 1997 and 1998. The decision to change accountants was made
with the approval of our board of directors.
We believe and we have been advised by Schwack and Katz that it concurs in
such belief that, during its tenure with us, we did not have any disagreement on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Schwack and Katz would have caused it to make reference in
connection with its report on our financial statements to the subject matter of
the disagreement.
No report of Schwack and Katz on our financial statements for either of the
past three fiscal years contained an adverse opinion, a disclaimer of opinion or
a qualification or was modified as to uncertainty, audit, scope or accounting
principles. During such fiscal periods, there were no 'reportable events' within
the meaning of Item 304(a)(1) of Regulation S-B promulgated under the Securities
Act of 1933.
47
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-4
Consolidated Statements of Operations and Retained Earnings
for the Years Ended December 31, 1997, 1998 and 1999...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Financial Statements............................... F-7 - F-16
Unaudited Interim Condensed Consolidated Financial
Statements:
Unaudited Interim Condensed Consolidated Balance Sheet as of
March 31, 2000............................................ F-17
Unaudited Interim Condensed Consolidated Statements of
Operations for the Three Months Ended March 31, 2000 and
1999...................................................... F-18
Unaudited Interim Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31, 2000 and
1999...................................................... F-19
Notes to Unaudited Interim Condensed Consolidated Financial
Statements................................................ F-20 - F-21
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
INTEGCOM CORP.
We have audited the accompanying consolidated balance sheets of InTegCom
Corp. and Subsidiaries at December 31, 1999 and 1998, and the related
consolidated statements of operations and retained earnings and cash flows for
the three year period ended December 31, 1999, in accordance with standards
established by the American Institute of Certified Public Accountants. 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 audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects the consolidated financial position of InTegCom and
Subsidiaries as of December 31, 1999 and 1998, and the consolidated results of
their operations and cash flows for each of the years in the three year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
DEMETRIUS & COMPANY, L.L.C.
Wayne, New Jersey
February 8, 2000
F-3
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 140,063 $ 196,771
Accounts receivable -- net of allowance for doubtful
accounts of $65,600 and $52,544....................... 2,143,518 1,375,786
Inventory............................................... 702,268 809,209
Other current assets.................................... 136,158 96,881
---------- ----------
Total current assets................................ 3,122,007 2,478,647
Property and equipment, net of depreciation of $609,258 and
$501,708.................................................. 270,774 319,486
Computer software product cost -- net of amortization of
$213,322 and $135,442..................................... 222,849 207,181
Other Assets................................................ 99,919 83,486
---------- ----------
$3,715,549 $3,088,800
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 830,581 $ 658,774
Accrued taxes and expenses.............................. 213,244 235,996
Income taxes payable.................................... 101,695 --
Long-term debt current portion.......................... 27,536 --
Capitalized lease obligations, current portion.......... 28,030 32,898
Loans payable........................................... 16,377
Customer deposits held.................................. 20,768 150,000
---------- ----------
Total current liabilities........................... 1,221,854 1,094,045
Capitalized lease obligations, less current portion......... 25,031 54,631
Long-term debt, less current portion........................ 1,531,061 1,191,475
Deferred tax liability...................................... 89,000 80,902
Stockholders' equity:
Preferred stock -- par value $.01
Authorized 2,000,000 shares
Issued None
Common stock -- par value $.01
Authorized 10,000,000 shares
Issued and outstanding 4,000,000 shares.............. 40,000 40,000
Additional paid-in capital.................................. 233,800 171,300
Deferred Compensation....................................... (62,500)
Retained earnings........................................... 637,303 456,447
---------- ----------
Total shareholders' equity.......................... 848,603 667,747
---------- ----------
$3,715,549 $3,088,800
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the statements.
F-4
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales.................................................... $7,556,855 $6,783,267 $4,011,408
Cost of sales............................................ 5,255,303 4,680,342 2,574,169
---------- ---------- ----------
Gross profit............................................. 2,301,552 2,102,925 1,437,239
---------- ---------- ----------
Operating expenses
Selling, general and administrative.................. 1,863,447 1,819,205 1,255,920
Interest expense..................................... 122,340 106,939 159,672
---------- ---------- ----------
Total operating expenses......................... 1,985,787 1,926,144 1,415,592
---------- ---------- ----------
Income before income taxes........................... 315,765 176,781 21,647
Provision for income taxes............................... 134,909 91,191 21,946
---------- ---------- ----------
Net income (loss)........................................ 180,856 85,590 (299)
Retained earnings -- beginning....................... 456,447 370,857 410,818
Prior period adjustment.............................. -- -- (39,662)
---------- ---------- ----------
Adjusted retained earning -- beginning................... 456,447 370,857 371,156
Retained earnings -- end......................... $ 637,303 $ 456,447 $ 370,857
---------- ---------- ----------
---------- ---------- ----------
Basic and diluted earnings per common share:
Basic earnings per common share...................... $.05 $.02 $.00
Weighted average common shares....................... 4,000,000 4,000,000 4,000,000
Diluted earnings per common share.................... $.05 $.02 $.00
Weighted average diluted shares outstanding.......... 4,000,247 4,000,000 4,000,000
</TABLE>
The accompanying notes are an integral part of the statements.
F-5
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) for the year.......................... $ 180,856 $ 85,590 $ (299)
Adjustments to reconcile net income to net cash
Provided by (applied to) operating activities:
Depreciation and amortization....................... 204,829 170,977 151,230
Changes in operating assets and liabilities:
Accounts receivable................................. (767,732) (234,233) 171,900
Inventory........................................... 106,941 (51,921) (342,636)
Other assets........................................ (12,025) (37,357) (27,953)
Accounts payable.................................... 171,807 (137,543) 21,674
Accrued taxes and expenses.......................... 78,943 (22,436) (113,120)
Deferred interest payable........................... (120,246) 7,010 --
Other liabilities................................... 8,098 80,902 1,342
Customer deposits held.............................. (129,232) 150,000 65,046
--------- --------- ---------
Net cash used in operating activities........... (277,761) 10,989 (72,816)
--------- --------- ---------
Cash flows from investing activities:
Computer software development costs..................... (93,548) (82,327) (76,091)
Purchase of property and equipment and leasehold
improvements.......................................... (78,237) (60,188) (78,907)
--------- --------- ---------
Cash used in investing activities............... (171,785) (142,515) (154,998)
--------- --------- ---------
Cash flows from financing activities
Proceeds of bank credit lines........................... 1,423,749 822,177 125,554
Proceeds of equipment loan facility..................... 6,163 -- --
Repayments against bank credit lines.................... -- (300,000) --
Proceeds of term loan bank.............................. -- 250,000 --
Scheduled payments on term loan......................... (29,167) (45,833) --
Refinancing of term loan................................ (175,000) -- --
Repayments of bank lines refinanced..................... (522,177) (572,177) --
Repayment of loans from officers and others............. (232,577) -- --
Increase in loans from officers and others.............. -- 1,084 45,169
Capitalized lease obligation payments................... (71,852) (9,068) (58,912)
Equipment loan.......................................... (6,301) (3,655) --
Purchase of treasury stock in subsidiary................ -- -- (500)
--------- --------- ---------
Cash provided by financing activities........... 392,838 142,528 111,311
Net cash increase (decrease)................................ (56,708) 11,002 (116,503)
Cash -- beginning........................................... 196,771 185,769 302,272
--------- --------- ---------
Cash -- ending.................................. $ 140,063 $ 196,771 $ 185,769
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the statements.
F-6
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NATURE OF OPERATIONS
InTegCom Corp. ('ITC') was incorporated under the laws of the State of
Delaware on November 19, 1999. Also, on November 30, 1999 the Company acquired
all the outstanding shares of HBE Acquisition Corp. ('HAC') (T/A Henry Bros.
Electronics) Viscom Products, Inc. ('VPI') and HBE Central Management, Inc.
('HCM') Also, VPI owns all the outstanding shares of HBE Communications, Inc.,
an inactive company at December 31, 1999. InTegCom is a systems integrator
providing design, installation and support services for a wide variety of
security, communications and control systems. ITC specializes in turnkey systems
that integrate many different technologies. Systems are customized to meet the
specified needs of the client. ITC markets nationwide with an emphasis on the
New York and Dallas metropolitan areas. Customers are primarily Fortune 500
companies and government agencies. HAC owns and operates the systems integration
business, providing overall administration for all subsidiaries and holds the
related assets. VPI, on the other hand, supervises and controls the
manufacturing and assembly of the CCTV equipment and the assets concerned. HCM
handles the alarm monitoring which represents less than 1% of the business.
The Company's headquarters and manufacturing facility is located in Saddle
Brook, New Jersey. A sales and service facility is located near Dallas, Texas.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The Company acquired all the HBE Acquisition
Corp., Viscom Products, Inc. and HBE Central Management, Inc. through an
exchange of 4,000,000 shares of common stock for all the outstanding stock of
the acquired companies. The transaction was accounted for as a transfer between
enterprises under common control, and as a result, the assets and liabilities
transferred were accounted for at historical cost, in a manner similar to a
pooling of interests.
Sales, net income and changes in stockholders' equity of the separate
companies for the periods preceding the merger were as follows:
<TABLE>
<CAPTION>
ELIMINATION OF SALES PRIOR
INTERCOMPANY AFTER NET PERIOD
SALES SALES ELIMINATION INCOME ADJUSTMENT
----- ----- ----------- ------ ----------
<S> <C> <C> <C> <C> <C>
The period of January 1, 1999
to November 30, 1999 (date of
combination)
HBE Acquisition Corp........... $6,208,703 $6,208,703 $ 646,095 $
Viscom Products, Inc........... 994,421 (315,000)* 679,421 (487,396)
HBE Central Management, Inc.... 38,993 38,993 7,086
---------- --------- ---------- --------- --------
Combined................... $7,242,117 $(315,000) $6,927,117 $ 165,785 $
---------- --------- ---------- --------- --------
---------- --------- ---------- --------- --------
For the year ended December 31,
1998
HBE Acquisition Corp........... 6,327,205 6,327,205 98,715
Viscom Products, Inc........... 794,658 (378,000)* 416,658 (17,994)
HBE Central Management, Inc.... 39,404 39,404 4,869
---------- --------- ---------- --------- --------
Combined................... $7,161,267 $(378,000) $6,783,287 $ 85,590 $
---------- --------- ---------- --------- --------
---------- --------- ---------- --------- --------
For the year ended December 31,
1997
HBE Acquisition Corp........... 3,676,170 3,676,170 (42,525) (39,662)
Viscom Products, Inc........... 527,513 (243,000)* 284,513 40,624
HBE Central Management, Inc.... 50,725 50,725 1,602
---------- --------- ---------- --------- --------
Combined................... $4,254,408 $(243,000) $4,011,108 $ (299) $(39,662)
---------- --------- ---------- --------- --------
---------- --------- ---------- --------- --------
</TABLE>
(footnote on next page)
F-7
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
(footnote from previous page)
* Intercompany sales were all made from Viscom Products, Inc. to HBE Acquisition
Corp. In elimination, the cost of sales of HBE Acquisition Corp. was reduced
by the same amount. There was no intercompany profits from these transactions.
The accompanying consolidated financial statements have been restated to
give effect to the combination. All significant transactions and balances have
been eliminated in consolidation.
Because the various companies included in this consolidation were under
common control throughout the reporting period, there were no differences in
accounting practices or differences in fiscal year ends.
Income Recognition -- Sales revenues from systems installations are
generally recognized on the completed-contract method, in which revenue is
recognized when the contract is substantially complete. Most contracts are
completed in less than a year. Contracts that are expected to be completed in
more than a year are accounted for on the percentage of completion method. This
method recognizes revenue on a proportional basis as work on the contract
progresses. Mobilization charges are accounted for as a direct contract cost and
included in the estimated cost to complete for determination of revenue
recognition on the percentage of completion method. The excess of costs and
estimated earnings over billings, and excess of accumulated billings over costs
are not presented because management has determined that the amounts are not
material.
Service contracts are billed either monthly or quarterly on the first day of
the month covered by the contract. Accordingly, revenue from service contracts
is recognized on the straight line method.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash and cash equivalents includes cash on
hand, demand deposits and short term investments with initial maturities of
three months or less.
Inventories -- Inventories are stated at the lower of cost or market. Cost
has been determined using the first-in, first-out method.
Property and Equipment -- Property and equipment are stated at cost, net of
accumulated depreciation. Depreciation is computed on a straight-line basis over
estimated useful lives of five to ten years. Leasehold improvements are
depreciated over the shorter of related lease terms or the estimated useful
lives. Upon retirement or sale, the costs of the assets disposed and the related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the determination of income. Repairs and maintenance costs
are expensed as incurred.
Computer Software Product Cost -- The Company accounts for software
development costs in accordance with Statement of Financial Accounting Standards
No. 86 'Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed' ('FAS 86') under which certain software development costs
incurred subsequent to the establishment of technological feasibility are
capitalized and amortized over the estimated lives of the related products.
Technological feasibility is established upon completion of a working model. All
costs incurred prior to demonstrating technical feasibility have been charged to
cost of sales. To date, costs incurred subsequent to the establishment of
technological feasibility were $436,171 and $342,623, respectively at December
31, 1999 and 1998. These costs are capitalized and amortized over the estimated
product life using the straight line method. Amortization expense charged to
operations for the years ended December 31, 1999, 1998 and 1997 is $77,880,
$60,292 and $44,450, respectively.
F-8
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
Impairment of Long Lived Assets -- Long-lived assets consist of intangible
assets and certain capital assets. The carrying value of these assets is
regularly reviewed to verify that they are valued properly. If the facts and
circumstances suggest that the value has been impaired, the carrying value of
the assets will be reduced appropriately. The Company has identified no such
impairment losses.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of cash,
cash equivalents and accounts receivable. At December 31, 1999 and 1998, the
Company had cash balances at certain financial institutions in excess of
federally insured limits. However, the Company does not believe that it is
subject to unusual credit risk beyond the normal credit risk associated with
commercial banking relationships.
At December 31, 1999 and 1998 31% and 52% of accounts receivable were due
from Federal and local government agencies respectively. Also, at December 31,
1999 and 1998 approximately 92% and 96% of accounts receivable were concentrated
in customers located in the Dallas, Texas and New York City metropolitan areas.
Income Taxes -- The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under the asset and liability method
of SFAS No. 109, deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using statutory tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Fair Value of Financial Instruments -- The carrying amounts of the Company's
financial instruments, which include cash equivalents, accounts receivable,
notes receivable, accounts payable, accrued expenses and notes payable
approximate their fair values at December 31, 1999 and 1998.
Advertising Costs -- The Company expenses advertising costs when the
advertisement occurs. Total advertising expense amounted to approximately
$15,000, $19,000 and $18,000 for the years ended December 31, 1999, 1998 and
1997.
Comprehensive Income -- The Company adopted SFAS No. 130, Reporting
Comprehensive Income (SFAS 130), effective January 1, 1998. SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. Comprehensive income is
the change in equity of a business enterprise during a period from certain
transactions and the events and circumstances from non-owner sources. For the
periods presented in the accompanying combined statements of operations,
comprehensive income equals the amounts of net income reported on the
accompanying combined statements of operations.
Stock Based Compensation -- Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ('FS 123'), encourages, but
does not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has elected to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Accordingly, compensation cost for stock
options issued to employees is measured as the excess, if any, of the fair
market value of the Company's Common Stock at the date of grant over the amount
the employee must pay to acquire the stock. Pro forma disclosure of net income
based on the provisions of FAS 123 is discussed in Note 8.
Research and Development Costs -- Costs of research and development for new
products are charged to operations as incurred and amounted to approximately
$145,000, $194,000 and $200,000 for the years ended December 31, 1997, 1998 and
1999.
Warranty -- The Company offer warranties on all products, including parts
and labor, that range from one year to four years depending upon the type of
product concerned. For products made by
F-9
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
others, the Company passes along the manufacturer's warranty to the end user.
The Company charges operations with warranty expenses as incurred. For the years
ended December 31, 1999, 1998 and 1997 net warranty expense was $58,268, $42,624
and $58,268, respectively.
Historical Net Income Per Share -- The Company computes net income per
common share in accordance with SFAS No. 128, 'Earnings per Share' and SEC Staff
Accounting Bulletin No. 98 ('SAB 98'). Under the provisions of SFAS No. 128 and
SAB 98, basic and diluted net loss per common share is computed by dividing the
net income available to common shareholders for the period by the weighted
average number of shares of common stock outstanding during the period.
Accordingly, the number of weighted average shares outstanding as well as the
amount of net income per share are the same for basic and diluted per share
calculations for all periods reflected in the accompanying financial statements.
Reclassifications -- Certain reclassifications to the 1997 and 1998
financial statements have been made to conform to the 1999 presentation.
Segment Information -- In June 1997, Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 131, 'Disclosure
About Segments of an Enterprise and Related Information' ('Statement 131'),
effective for financial statements for fiscal years beginning after
December 15, 1997. Statement 131 establishes standards for the reporting by
public business enterprises of financial and descriptive information about
reportable operating segments in annual financial statements and interim
financial reports issued by shareholders. The Company primarily provides
installation services for companies in need of closed-circuit television and
access control systems that are located throughout the United States and
considers all of its operations as one segment because expenses support multiple
products and services. Management uses one measurement of profitability and does
not separate or segment its business for internal reporting.
Sales to local government agencies were 40%, 34% and 21% of sales for the
years ended December 31, 1999, 1998 and 1997, respectively.
2. INVENTORIES
Inventories at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Parts........................................... $388,609 $562,288
Work-in Process................................. 313,659 246,921
-------- --------
$702,268 $809,209
-------- --------
-------- --------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Office equipment........................................ $143,906 $109,756
Demo and testing equipment.............................. 229,122 227,830
Warehouse equipment..................................... -- 46,515
Vehicles................................................ 204,274 204,274
Computer equipment...................................... 281,730 211,819
Leasehold improvements.................................. 21,000 21,000
-------- --------
880,032 821,194
Accumulated Depreciation............................ 609,258 501,708
-------- --------
$270,774 $319,486
-------- --------
-------- --------
</TABLE>
F-10
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
4. LONG-TERM DEBT
As of December 31, 1998, the Company had a credit facility with PNC Bank
(PNC) for $750,000 dated January 23, 1997 at a prime rate plus 1%. This credit
line was to expire on April 30, 1999, but was extended until it was refinanced
by Hudson United Bank (HUB) on September 8, 1999. In addition, PNC granted the
Company a convertible line of credit in the amount of $250,000 at prime rate
plus 1%. On January 26, 1998 this line was converted into a five year term loan
due February 26, 2003 with interest at 8.818%. On September 8, 1999, both PNC
loans were refinanced from the proceeds of a new credit line of $2,000,000 from
HUB, which is not due until June 1, 2001. Accordingly, all amounts due on the
PNC loans have been classified as long-term debt. Under the terms of the HUB
revolving line of credit, the Company may borrow up to $2,000,000 at 1/2% above
the bank's prime interest rate through June 1, 2001. The aggregate principal
amount of the advances up to $1,500,000 shall not exceed 80% of the face amount
of qualified accounts receivable. In addition, the Company may borrow up to
$500,000 against the line for the purchase of inventory and expenses related to
large contracts awarded the borrower.
Also on September 8, 1999, HUB granted the Company an equipment line of
credit in the amount of $250,000. This is not a revolving line. Advances under
the line will converted into monthly installments payable until September 1,
2005. Interest is at the prime rate of the bank plus 1/2% until September 1,
2000. At that time the rate will be fixed at the rate then being paid on five
year U.S. Treasury Notes plus 250 basis points. No advances will be permitted
under this loan after August 31, 2000.
As of December 31, 1999 these lines are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT OF FACILITY BALANCE DUE UNUSED LINE
------------------ ----------- -----------
<S> <C> <C> <C>
Revolving line.............................. $2,000,000 $1,423,749 $ 576,251
Equipment line.............................. 250,000 6,163 243,837
</TABLE>
Substantially all the Company's assets are pledged as collateral for this
loan. Among other provisions the loan agreement requires the Company to maintain
net tangible networth, as defined, and maintain appropriate insurance coverage
on tangible and intangible assets. In addition, the agreement prohibits the
Company from, among other things, purchasing or making capital improvements in
excess of defined limits in any one year, merge or consolidate with or into any
corporation or acquire more than 5% of the shares of any corporation or
substantially all of the assets of any other person, firm or corporation and
sell, assign, transfer or dispose of any assets without obtaining the bank's
consent in writing. As of December 31, 1999, the Company was in compliance with
its loan covenants.
In addition, at December 31, 1998, the Company had loans payable to
officers, shareholders and others in the amount of $309,885 plus accrued
interest of $155,246 (see note 10). Because some of these amounts were paid off
from the proceeds of the HUB line of credit in December, 1999, the amounts due
at December 31, 1998 have been reclassified as long-term debt.
F-11
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
As of December 31, 1999 and 1998 long-term debt consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Credit facility with Hudson United Bank dated
September 8, 1999, at 1/2% above bank's prime rate.
All borrowing under this line are due June 1, 2001.... $1,423,749
Equipment loan facility with Hudson United Bank dated
September 8, 1999, at 1/2% above bank's prime rate.
All borrowing under this line are due September 1,
2005.................................................. 6,163
Notes payable, due in monthly installments of $3,264 a
month, including interest at 10% per annum with final
payment to be made on December 1, 2003 (see
note 12).............................................. 128,685
Credit facility with PNC Bank dated January, 1998, at 1%
above prime rate. This was refinanced on September 8,
1999 by HUB........................................... $ 522,177
PNC Bank term loan dated January, 1998, payable in
monthly installments of $4,167 plus interest at the
rate of 8.818%. Final payment due February, 2003. The
balance due at September 8, 1999, was financed at this
date by the proceeds from HUB......................... 204,167
---------- ----------
1,558,597 726,344
Less: current portion................................. 27,536
---------- ----------
1,531,061 726,344
Short term debt refinanced with long-term debt reclassified
as latter:
Loans payable to officers, shareholders and others...... 309,885
Deferred interest payable to above group................ 155,246
---------- ----------
$1,531,061 $1,191,475
---------- ----------
---------- ----------
</TABLE>
Annual maturities over the next five years for long-term debt as of
December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000................................................. $ 27,536
2001................................................. 1,454,169
2002................................................. 33,605
2003................................................. 37,124
2004................................................. --
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities under operating leases expiring through
2002. The Company also leases certain equipment under capital lease. The future
minimum rental payments under noncancelable leases and equipment loans as of
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
2000..................................................... $120,300 $35,034
2001..................................................... 47,025 20,186
2002..................................................... -- 12,385
Thereafter...............................................
-------- -------
Total................................................ $167,325 67,605
--------
--------
Interest expense......................................... 14,544
-------
</TABLE>
(table continued on next page)
F-12
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
(table continued from previous page)
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
Net present value of future payments..................... 53,061
Current portion of capital lease obligations............. 28,030
-------
$25,031
-------
-------
</TABLE>
Rent expense under operating leases was approximately $140,000, $126,000 and
$111,000, for the years ended December 31, 1999, 1998 and 1997.
(B) EMPLOYMENT AGREEMENTS
In December 1999, the Company entered into five-year employment agreements
with three of its officers. The employment agreements provide for minimum
aggregate annual compensation of $380,000 for the years 2000 through 2004, as
well as unspecified annual bonuses. The contracts increase 10% in each of the
third, fourth and fifth years. Also, there is a one-year non-competition
covenant that commences after termination of employment. All these employment
contracts may be terminated or modified by the Company if it fails to complete
an initial public offering of securities by June 30, 2000.
6. INCOME TAXES
The years ended December 31, 1999, 1998 and 1997 includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal
Current............................................. $ 96,070 $52,056 $ 8,277
Deferred............................................ 16,205 16,089 (1,614)
State
Current............................................. 24,957 16,046 15,283
Deferred............................................ (2,323) 7,000 --
-------- ------- -------
$134,909 $91,191 $21,946
-------- ------- -------
-------- ------- -------
</TABLE>
The components of the deferred tax asset (liability) as of December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Total deferred tax assets:
Allowance for uncollectible accounts.................... $ 26,200 $ 21,000
Accrued absences........................................ 21,145 16,000
Accrued warranty........................................ 28,356 4,882
-------- --------
75,691 41,882
Deferred tax liability (non-current)
Capitalized software development.......................... (89,000) (80,902)
-------- --------
Net Deferred Tax Liability.............................. $(13,309) $(39,020)
-------- --------
-------- --------
</TABLE>
F-13
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
The reconciliation of estimated income taxes attributed to operations at the
United States statutory tax rate to reported provision for income taxes is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Provision for taxes computed using statutory rate....... $107,400 $60,100 $ 3,200
State taxes, net of Federal benefit..................... 19,000 10,600 1,700
Depreciation and amortization........................... 14,275 9,191 16,246
Other................................................... (5,766) 11,300 800
-------- ------- -------
Provision for Income Taxes.......................... $134,909 $91,191 $21,946
-------- ------- -------
-------- ------- -------
</TABLE>
7. SHARE OFFERING
In December 1999, pursuant to a letter of intent with Mason Hill & Co. to
underwrite an initial public offering of its securities, the board of Directors
authorized management to file a registration statement with the Securities and
Exchange Commission to permit the Company to offer 1,000,000 units consisting of
one share of common stock and one warrant to purchase one share of common stock
(the 'Offering').
8. INCENTIVE STOCK OPTION PLAN
On December 23, 1999, the directors and shareholders approved the adoption
of an Incentive Stock Option Plan (the 'Plan'). Under the Plan, options to
purchase a maximum of 500,000 shares of its common stock may be granted to
officers and other key employees of the Company.
The maximum term of any option is ten years, and the option price per share
may not be less than the fair market value of the Company's shares at the date
the option is granted. However, options granted to persons owning more than 10%
of the voting shares will have a term not in excess of five years, and the
option price will not be less than 110% of fair market value. Options granted to
an optionee will usually vest 33 1/3% of each full year beginning on the first
anniversary of the options grant subject to the discretion of the Compensation
Committee of the Board of Directors.
The plan will terminate at December 23, 2009 or on such earlier date as the
board of directors may determine. Any option outstanding at the termination date
will remain outstanding until it expires or is exercised in full, which ever
occurs first.
As of December 23, 1999, options to acquire an aggregate of 100,000 shares
of common stock, all at an exercise price of 90% of the public offering price
(see Note 8), had been granted under the Plan to key employees of the Company.
None have been granted to Messrs. Henry, Witcosky and Massad, the three top
executive officers. An optionee may exercise these options only if and to the
extent that these options are vested at that time. At December 31, 1999,
deferred compensation cost was recorded in the amount of the difference between
the expected public offering price of $6.25 a share and $5.625 the expected
exercise price or $0.625 per share. The deferred compensation cost of $62,500
will be charged against income over the three year vesting period.
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant. The following weighted average assumptions were used for grants
under the Plan in 1999 to allow for the computation of pro forma results of
operations: volatility of 0%, dividend yield of 0%, risk-free interest rate of
6% and expected lives of 3 years. The fair value of the options granted during
1999 was $1.55 with an estimated exercise price of $6.25.
If compensation cost for stock option grants had been determined based on
the fair value on the grant dates for the year ended December 31, 1999
consistent with the method prescribed by SFAS No. 123, there would be no effect
on net income. However, deferred compensation would have been $155,160.
F-14
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
9. EMPLOYEE BENEFIT PLAN
As of October 1, 1999, the Company began a 'Simple IRA' plan for all
eligible employees wishing to contribute. An eligible employee is one that has
$1,000 or more in compensation. The Company will match the employees
contribution up to 3% of salary to a maximum of $6,000. The employee's
contribution cannot exceed $6,000 in any one year.
10. RELATED PARTY TRANSACTIONS
As of December 31, 1998, officers, shareholders and other related parties
were owed $193,577, plus accrued interest of $100,346. During December, 1999
these loans plus accrued interest were repaid from the proceeds of the HUB bank
line. (See note 4) Interest had been charged to income at the rate of 10% per
annum. In the three years ended December 31, 1999, operations were charged
$22,800, $23,000 and $23,000, respectively.
In the 1990's, the Company orally agreed with former joint adventurer to
repay his $50,000 loan to the Company, plus accrued interest of $35,000 and net
repayments for product purchases and to extinguish any equity claims. It is
ITC's position the joint adventurer was not entitled to nor demanded any equity.
That agreement was finally memorialized in writing in December, 1999. Under this
arrangement, two promissory notes were issued to that party totaling $128,685 at
10% interest due on December 1, 2003. (See Notes 4 and 12). Payments of these
notes were guaranteed by Mr. Henry and Mr. Witcosky. In addition Mr. Witcosky
paid the joint adventurer $40,000 to extinguish any equity claim despite the
fact no shares were issued, paid for or demanded.
On December 30, 1999, the two shareholders, Messrs. Henry and Witcosky each
sold 80,000 shares of their InTegCom common stock for a total of 160,000 shares
to Mr. Massad, an employee of the Company, for an aggregate of $24,000 under
restrictive conditions involving his continued employment. 120,000 shares of Mr.
Massad's purchase are being held in escrow to assure his continued employment
with the Company. 40,000 shares will be released on each anniversary date of
employment (December 31st). In case Mr. Massad resigns or is terminated for
cause before his contract expires, he will forfeit whatever shares are still in
escrow or in the event of death, his estate will receive that year's stock
portion and 50% of what remains in escrow and the balance will revert equally to
Mr. Henry and Witcosky.
On or about the same date, Messrs. Henry and Witcosky each also transferred
20,000 of their InTegCom shares, totaling 40,000 shares to, John, Ray and
Hartford Henry as a gift in appreciation of a favorable long-standing loan which
has been repaid in full.
Under a bank loan agreement between us and Hudson United Bank dated
September 1, 1999, Mr. Henry and Mr. Witcosky have personally guaranteed up to
$2,250,000 of ITC's potential indebtedness to the bank, plus accrued interest.
Loans made by Messrs. Henry and Witcosky to ITC from 1989 to 1994 were
converted into equity without the issuance of shares of common stock. Instead,
these amounts were credited to paid-in-capital.
11. STOCKHOLDERS' EQUITY
Common Stock -- Holders of common stock are entitled to one vote for each
share held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Apart from preferences that may be applicable to any
shares of preferred stock outstanding at the time, holders of our common stock
are entitled to receive dividends ratably, if any, as may be declared from time
to time by our board of directors out of funds legally available therefor. Upon
the liquidation, dissolution or winding up of the Company, the holders of common
stock are entitled to receive ratably, the net assets available after the
payment of all liabilities and liquidation preferences on any outstanding
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights, and there are no redemption or sinking fund
provisions applicable to the common stock.
F-15
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
Additional Paid-In Capital and Deferred Compensation
During 1999 there were changes in this account as follows:
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN DEFERRED
CAPITAL COMPENSATION
------- ------------
<S> <C> <C>
Balance December 31, 1998............................ $171,300 --
Deferred stock-based compensation.................... 62,500 $(62,500)
-------- --------
Balance December 31, 1999........................ $233,800 $ 62,500
-------- --------
-------- --------
</TABLE>
12. SUPPLEMENTAL CASH FLOW DISCLOSURE
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash paid for:
Taxes paid......................................... $132,200 $29,254 $ 50,873
Interest paid...................................... $269,148 $93,537 $129,826
</TABLE>
<TABLE>
<CAPTION>
During 1999 the Company had the following non-cash transactions:
<S> <C>
Fixed assets that were fully depreciated were written off
against accumulated depreciation........................ $ 19,399
A promissory note was issued in exchange for the following:
Loan payable.............................................. 50,000
Accrued interest.......................................... 35,000
Joint venture liquidating damages......................... 43,685
--------
$128,685
--------
--------
During 1998 the Company financed the following equipment:
Computer equipment by a capitalized lease................. $ 38,002
Equipment financed by installment loan.................... 20,457
--------
$ 58,459
--------
--------
</TABLE>
13. PRIOR PERIOD ADJUSTMENT
The Company's financial statements as of December 31, 1998 and 1997 have
been restated to reflect liabilities that existed for probable product warranty
claims and compensated absences. The effect of the restatement is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AS PREVIOUSLY
DECEMBER 31, 1998 REPORTED AS RESTATED
----------------- -------- -----------
<S> <C> <C>
Balance sheet:
Other current assets.................................... $ 62,881 $ 96,881
Accrued taxes and expenses.............................. 207,590 235,996
Deferred tax liability.................................. 31,902 80,902
Retained earnings....................................... 499,853 456,447
Statement of operations:
Provision for income taxes.............................. 76,191 91,191
Net Income.............................................. 105,475 85,590
Earnings per share, basic and diluted................... $ .03 $ .02
-------- --------
-------- --------
</TABLE>
Additionally, the shareholders' equity reflects a decrease in the Company's
retained earnings of $39,662 at January 1, 1997.
F-16
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.................................................... $ 81,367
Accounts receivable -- net of allowance for doubtful
accounts of $65,600................................... 2,221,460
Inventory............................................... 1,369,926
Other current assets.................................... 39,460
----------
Total current assets............................ 3,712,213
Property and equipment, net of depreciation of $629,258..... 272,350
Computer software product cost -- net of amortization of
$233,322.................................................. 224,849
Other assets................................................ 370,480
----------
$4,579,892
----------
----------
LIABILIITES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $1,359,189
Accrued taxes and expenses.............................. 111,909
Long-term debt current portion.......................... 27,536
Capitalized lease obligations, current portion.......... 22,898
Customer deposits held.................................. 20,768
----------
Total current liabilities....................... 1,542,300
Capitalized lease obligations, less current portion......... 18,920
Long-term debt, less current portion........................ 2,192,282
Deferred tax liability...................................... 89,000
Stockholders' equity:
Preferred stock -- par value $.01
Authorized 2,000,000 shares
Issued None
Common stock -- par value $.01
Authorized 10,000,000 shares
Issued and outstanding 4,000,000 shares............. 40,000
Additional paid-in capital.............................. 233,800
Deferred compensation................................... (57,292)
Retained earnings....................................... 520,882
----------
Total shareholders' equity...................... 737,390
----------
$4,579,892
----------
----------
</TABLE>
See notes to unaudited interim condensed consolidated financial statements.
F-17
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED
MARCH 31,
-----------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Sales....................................................... $1,677,163 $1,401,209
Cost of Sales............................................... 1,133,164 953,142
---------- ----------
Gross Profit................................................ 543,999 448,067
---------- ----------
Operating expenses
Selling, general and administrative..................... 719,298 589,353
Interest expense........................................ 25,427 17,736
---------- ----------
Total operating expenses............................ 744,725 607,089
---------- ----------
Loss before credit for income taxes..................... (200,726) (159,022)
Credit for income taxes..................................... (84,305) (66,789)
---------- ----------
Net (loss).................................................. $ (116,421) $ (92,233)
---------- ----------
---------- ----------
Basic and diluted earnings per common share:
Basic loss per common share............................. $ (0.03) $ (0.03)
---------- ----------
---------- ----------
Weighted average common shares.......................... 4,000,000 4,000,000
Diluted loss per common share........................... $ (0.03) $ (0.03)
---------- ----------
---------- ----------
Weighted average diluted shares outstanding............. 4,100,000 4,100,000
---------- ----------
---------- ----------
</TABLE>
See notes to unaudited interim condensed consolidated financial statements.
F-18
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED
MARCH 31,
-----------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows and Operating Activities:
Net loss for the quarter................................ $(116,421) $ (92,233)
Adjustments to reconcile net income to net cash provided
by (applied to) operating activities:
Depreciation and amortization....................... 40,000 23,842
Amortization of deferred compensation............... 5,208
Changes in operating assets and liabilities:
Accounts receivable............................. (77,942) 220,099
Inventory....................................... (667,658) (399,758)
Other assets.................................... (173,863) 102,563
Accounts payable................................ 528,608 393,319
Accrued taxes and expenses...................... (203,030) (115,801)
Other liabilities............................... (5,132)
Customer deposits held.......................... (150,000)
--------- ---------
Net cash used in operating activities....... (670,230) (17,969)
--------- ---------
Cash Flows from Investing Activities:
Computer software development costs..................... (22,000) (23,500)
Purchase of property and equipment and leasehold
improvements.......................................... (21,576) (1,978)
--------- ---------
Cash used in investing activities................... (43,576) (25,478)
--------- ---------
Cash Flows from Financing Activities
Proceeds of bank credit lines........................... 700,000
Repayments against bank credit lines.................... (38,779) (36,868)
Repayment of loans from officers and others............. (80,902)
Capitalized lease obligation payments................... (6,111) (32,129)
--------- ---------
Cash provided by financing activities............... 655,110 (149,899)
Net cash decrease....................................... (58,696) (193,346)
Cash -- beginning....................................... 140,063 196,711
--------- ---------
Cash -- ending.......................................... $ 81,367 $ 3,365
--------- ---------
--------- ---------
</TABLE>
See notes to unaudited interim condensed consolidated financial statements.
F-19
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of
IntegCom Corp and its wholly-owned subsidiaries (the 'Company') as of March 31,
2000 and for the three month periods ended March 31, 2000 and 1999,
respectively, have been prepared in accordance with generally accepted
accounting principles. In the opinion of management, such information contains
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results for such periods. Certain prior year amounts
have been reclassified to conform to the current presentation. All intercompany
transactions and balances have been eliminated. The results of operations for
the quarter ended March 31, 2000 are not necessarily indicative of the results
to be expected for the full fiscal year ending December 31, 2000.
Certain information and disclosures normally included in the notes to the
consolidated financial statements have been condensed or omitted as permitted by
the rules and regulations of the Securities and Exchange Commission, although
the Company believes the disclosure is adequate to make the information
presented not misleading. The accompanying unaudited financial statements should
be read in conjunction with the financial statements of the Company for the year
ended December 31, 1999.
2. INVENTORIES
Inventory quantities are based on our book records for the quarter-end.
Inventories are stated at the lower of cost or market on a first-in first-out
('FIFO') basis.
Inventories at March 31, 2000 and 1999 consist of the following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Parts............................................. $ 401,840 $ 465,365
Work-in Process................................... 968,086 743,602
---------- ----------
$1,369,926 $1,208,967
---------- ----------
---------- ----------
</TABLE>
3. INCOME TAXES
The Company's effective tax rate in the first quarters of 2000 and 1999 was
40%. A deferred tax asset was recorded in each first quarter for amounts
expected to be recovered by offsetting provision in future quarters.
4. LONG-TERM DEBT
As indicated in the notes to our year financial statements, we have two
lines of credit with Hudson United Bank.
As of March 31, 2000 these lines are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT OF FACILITY BALANCE DUE UNUSED LINE
------------------ ----------- -----------
<S> <C> <C> <C>
Revolving line................... $2,000,000 $1,900,000 $100,000
Equipment line................... 250,000 199,913 50,087
---------- ---------- --------
$2,250,000 $2,099,913 $150,087
---------- ---------- --------
---------- ---------- --------
</TABLE>
F-20
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2000
5. SEGMENT INFORMATION
As indicated in our annual financial statements, we have only one reportable
segment. However, sales to local government agencies were 19% and 21% of sales
for the three months ended March 31, 2000 and 1999, respectively.
6. SUPPLEMENTAL CASH FLOW DISCLOSURE
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED
MARCH 31,
-----------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash paid for:
Taxes paid................................... $ 0 $ 0
Interest paid................................ $25,427 $17,736
</TABLE>
F-21
<PAGE>
MOBILE TRANSIT VIDEO SURVEILLANCE SYSTEM
[Description of Photograph -- "Actual interior shots of people riding in a
municipal bus as digitally recorded on an installed InTegCom system, a
photograph of its mobile digital video recorder, and a shot of the exterior
of a municipal bus."]
<PAGE>
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on unauthorized information. This prospectus does not offer to sell or buy
any shares in any jurisdiction where it is unlawful. The information in this
prospectus is current only as of the date of this prospectus.
INTEGCOM CORP.
1,000,000 UNITS
CONSISTING OF 1,000,000 SHARES OF COMMON STOCK
AND 1,000,000 WARRANTS
MASON HILL & CO., INC.
JUNE , 2000
You should rely only on the information contained in this document or to
those which we have referred you. We have not authorized anyone to provide you
with any other information. This document may be used only where it is legal to
sell these securities. The information in this document may not be accurate
after the date on its cover.
Until July , 2000 (25 days after the date of this prospectus) all dealers
that buy, sell or trade these securities, whether or not participating in this
offering, 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.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Board of Director has authorized it to provide a general
indemnification to its officers, directors, employees and agents regarding any
claims or liabilities incurred in the course of their employment. In addition,
its certificate of incorporation and by-laws provide for such indemnification.
The Registrant was organized as a corporation in the state of Delaware on
November 18, 1999. The Delaware General Corporation Law ('DGCL') provides that
each officer, director, employee and agent of the Registrant shall be
indemnified by it against certain costs, expenses and liabilities which he or
she may incur in his or her capacity as such.
Section #145 of DGCL -- 'Indemnification of Officers, Directors, Employees
and Agents; Insurance' provides:
'(a) A corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgements, fines and amounts
paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that the person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorney's fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection therewith.
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<PAGE>
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct
set forth in subsections (a) and (b) of this section. Such determination
shall be made, with respect to a person who is a director or officer at the
time of such determination (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a
quorum, or (2) by a committee of such directors designated by majority vote
of such directors, even though less than a quorum, or (3) if there are no
such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or
other employees and agents may be so paid upon such terms and conditions, if
any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity
while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under
this section.
(h) For purposes of this section, references to 'the corporation' shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect
to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to 'other enterprises'
shall include employee benefit plans; references to 'fines' shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to 'serving at the request of the corporation' shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner 'not opposed to the best interests of the
corporation' as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit to the
heirs, executors and administrators of such a person.'
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<PAGE>
(k) the Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
ITEM 25. OTHER EXPENSES OF INSURANCE AND DISTRIBUTION*
<TABLE>
<S> <C>
Registration fee............................................ $ 5,799
NASD filing fee............................................. $ 3,086
Blue Sky fees and expenses.................................. $ 55,000
NASDAQ listing fee.......................................... $ 15,000
Boston Stock Exchange listing fee and expenses.............. $ 21,000
Representative's Non-accountable expense allowance.......... $190,500**
Legal fees and expenses..................................... $275,000***
Accounting fees and expenses................................ $ 60,000
Printing and engraving...................................... $ 70,000
Miscellaneous............................................... $ 19,615
--------
Total................................................... $715,000
--------
--------
</TABLE>
- ---------
* All expenses will be paid by Registrant and, other than the non-accountable
expense allowance, are estimated.
** if the Underwriters' over-allotment option is exercised in full, this amount
will increase.
*** May be discounted if offering not completed.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On November 30, 1999, Registrant issued an aggregate of 4,000,000 shares of
its common stock, par value $.01 per share, to James E. Henry and Irvin F.
Witcosky in exchange for all their shareholdings in HBE Acquisition Corp. (1,000
shares), HBE Central Management, Inc. (100 shares), and Viscom Products, Inc.
(1,010 shares), which are now wholly-owned subsidiaries of Registrant. This
transaction was done in reliance upon the exemption provided by Section 4(2) of
the Securities Act of 1933, as amended.
ITEM 27. EXHIBITS
The following is a list of exhibits filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT METHOD
NUMBER DESCRIPTION OF DOCUMENT OF FILING
- ------ ----------------------- ---------
<C> <S> <C>
1.1 -- Underwriting Agreement................................... *
1.2 -- Selected Dealer Agreement................................ *
1.5 -- Form of Representative's Warrants to purchase Shares..... *
3.1 -- Certificate of Incorporation of Registrant............... *
3.2 -- By-laws of the Registrant................................ *
4.1 -- Specimen Common Stock Certificate of Registrant.......... *
4.2 -- Warrant Certificate and Warrant Agreement of
Registrant................................................ *
5.1 -- Counsel's Opinion re: legality of securities............. *
10.1 -- Employment Agreement between Registrant and James E.
Henry..................................................... *
10.2 -- Employment Agreement between Registrant and Irvin F.
Witcosky.................................................. *
10.3 -- Employment Agreement between Registrant and Louis
Massad.................................................... *
10.4 -- 1999 Incentive Stock Option Plan and form of Stock Option
Agreement................................................. *
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT METHOD
NUMBER DESCRIPTION OF DOCUMENT OF FILING
- ------ ----------------------- ---------
<C> <S> <C>
10.6 -- Original Office Lease and Amendments between Registrant
and Midland Holding Co., Inc. (Saddle Brook, NJ).......... *
10.7 -- Office Lease between Registrant and Eagle-DFW, Inc.
(Grand Prairie, Texas).................................... *
10.8 -- Sales Agreement between Registrant and Mavix, Ltd........ *
10.9 -- Authorized Reseller Agreement between Registrant and
Lenel Systems International, Inc.......................... *
10.11 -- Form of OEM Agreement between Registrant and Sungjin C&C,
Ltd....................................................... *
10.12 -- NYC Transit Agreement.................................... *
16. -- Change of Accountants' Letter............................ *
23.1 -- Consent of Independent Certified Public Accountants......
23.3 -- Consent of Counsel (to be included in its opinion to be
filed as Exhibit 5.1)..................................... *
27. -- Financial Data Schedule.................................. *
</TABLE>
- ---------
* Previously Filed
ITEM 28. UNDERTAKINGS
Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriting Agreement to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
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 Registrant 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all the requirements of filing on Form SB-2 and has authorized this
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, in the Town of Saddle Brook, New Jersey on May 22, 2000.
INTEGCOM CORP.
By: /s/ JAMES E. HENRY
..................................
JAMES E. HENRY
PRESIDENT
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES E. HENRY President, Chief Executive May 22, 2000
......................................... Officer and Director
(JAMES E. HENRY)
/s/ (IRVIN F. WITCOSKY) Executive Vice President, May 22, 2000
......................................... Secretary and Director
(IRVIN F. WITCOSKY)
/s/ (LOUIS MASSAD) Vice President, Treasurer, May 22, 2000
......................................... Chief Financial Officer and
(LOUIS MASSAD) Director
/s/ (LEROY KIRCHNER) Director May 22, 2000
.........................................
(LEROY KIRCHNER)
/s/ (C. JAY PELLICONI) Director May 22, 2000
.........................................
(C. JAY PELLICONI)
</TABLE>
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<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
INTEGCOM CORP.
We consent to the inclusion in this Registration Statement on Form SB-2
(File No. 333-94477) of our report dated February 8, 2000 on our audit of the
financial statements of InTegCom Corp. We also consent to the reference to our
firm under the headings 'Experts' and 'Selected Financial Data' in the
prospectus.
DEMETRIUS & COMPANY, LLC
Wayne, New Jersey
May 23, 2000
