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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON August 16, 2000
REGISTRATION NO. 333-___________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTERNATIONAL MERCANTILE CORPORATION
(Name of small business issuer in its charter)
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<S> <C> <C>
Missouri 6162 43-0970243
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization Classification Code Number) Number)
</TABLE>
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1625 Knecht Avenue
Baltimore, Maryland 21227
(410) 242-5000
(Address and Telephone Number of Principal Executive Offices)
---------------
C. Timothy Jewell, COPY TO:
Chief Executive Officer Barry Klein.
International Mercantile Corporation Attorney at Law
1625 Knecht Avenue 300 Biscayne Drive
Baltimore, Maryland 21227 West Palm Beach, Florida
(410) 242-5000 (telephone) (561) 833-0960 (telephone)
(410) 242-8575 (facsimile) (561) 833-3323 (facsimile)
(Name, Address and Telephone Number of Agent for
Service)
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time 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, check the following box. [X]
<PAGE>
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Maximum Maximum
Title of each Class of Amount to be Offering Price Offering Price
Securities to be Registered Registered Per Share (1) (2) (1) (2) Fee
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<S> <C> <C> <C> <C>
Class A Common Stock, par
value $.01, issuable on
conversion (3) 3,815,881 $0.92 $3,525,874 $931
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Selling Stockholders'
warrants (4) 1,071,429 $0.10 $107,143 ---
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Class A Common Stock
issuable upon exercise of
Selling Stockholders'
warrants 1,071,429 $1.44 $1,542,858 $963
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Total 5,958,739 -- $5,175,875 $1,894
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</TABLE>
1. Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933.
2. Calculated solely for the purpose of determining the registration fee
pursuant to Rule 457(g)(3) based on the average of the bid and asked
price of the Common Stock on the over the counter electronic bulletin
board maintained by the National Association of Securities Dealers on
August 9, 2000.[This is the price after the 1:7 reverse split prior to
the filing.]
3. Represents shares that have been or may be acquired by certain Selling
Stockholders upon conversion of convertible notes, assuming a conversion
price of $0.84 per share for notes which have not yet been converted.
4. No registration fee is required pursuant to Rule 457 of the Securities
Act of 1933.
<PAGE>
Subject to Completion, Dated August 16, 2000
PROSPECTUS
INTERNATIONAL MERCANTILE CORPORATION
(A Development Stage Company)
3,923,023 Shares
Class A Common Stock
This prospectus relates to 3,923,023 shares of Class A Common Stock,
par value $.10 per share, of International Mercantile Corporation. These shares
are being offered for sale by the persons named herein under the caption
"Selling Stockholders". The shares offered will be issued in the future pursuant
to convertible notes and warrants. We will not receive any of the proceeds from
the sale of shares by the Selling Stockholders. See "Risk Factors" commencing on
page _.
Our Class A Common Stock is quoted on the OTC Bulletin Board. On June
22, 2000 the price of the Class A Common Stock was $0.30 per share. On August 8,
2000, at the time at which a 1:7 Reverse Split was announced, the price of the
Class A Common Stock was $.22 per share.
We have retained no underwriters in connection with this offering.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We hereby amend 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.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
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TABLE OF CONTENTS
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<S> <C>
PROSPECTUS SUMMARY.............................................................5
CERTAIN DEFINED TERMS..........................................................6
DESCRIPTION OF BUSINESS........................................................7
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.....................14
DESCRIPTION OF PROPERTY.......................................................18
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHERS...........................21
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS....................24
SECURITIES OFFERED............................................................25
CAPITALIZATION................................................................26
CONFLICTS OF INTEREST.........................................................31
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES ............................................34
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.................................34
LEGAL PROCEEDINGS.............................................................35
TO OBTAIN ADDITIONAL INFORMATION..............................................35
FINANCIAL STATEMENTS..........................................................36
THE OFFERING..................................................................37
SELLING SHAREHOLDER...........................................................39
SUMMARY FINANCIAL DATA........................................................41
</TABLE>
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<TABLE>
<S> <C>
RISK FACTORS..................................................................42
</TABLE>
PROSPECTUS SUMMARY
This prospectus relates to 3,923,023 shares of Class A Common Stock,
par value $.10 per share, of International Mercantile Corporation. These shares
are being offered for sale by the persons named herein under the caption
"Selling Stockholders". The shares offered will be issued in the future pursuant
to convertible notes and warrants. We will not receive any of the proceeds from
the sale of shares by the Selling Stockholders. See "Risk Factors" commencing on
page _.
Our Class A Common Stock is quoted on the OTC Bulletin Board. On June
22, 2000 the price of the Class A Common Stock was $0.30 per share. On August 9,
2000, at the time at which a 1:7 Reverse Split was announced, the price of the
Class A Common Stock was $.22 per share.
We have retained no underwriters in connection with this offering.
This prospectus contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this prospectus, including the information under "Risk Factors."
We were organized as International Mercantile Corporation under
the laws of Missouri on March 10, 1971 to operate in the insurance industry.
Since September 2, 1999, we have engaged in the business of manufacturing
competitively priced custom-configured, build-to-order, unbranded or "white-box"
desktop systems and servers for value added resellers ("VARS"). We are in our
development stage. We presently do business under the fictitious name of
Micromatix.net ("MICROMATIX").
Unless the context otherwise requires, all references to the
"Company" "we" "our" and other similar terms means Micromatix, but not Home
America Mortgage Company, our other subsidiary company which is presently
inactive.
Our offices are located at 1625 Knecht Avenue, Baltimore, Maryland
21227. Our telephone number is (410) 242-5000.
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CERTAIN DEFINED TERMS
When used in this prospectus, unless the context requires otherwise:
a. "Commission" or "SEC" means the Securities and Exchange Commission
b. "Common Stock" means the Company's $.001 par value Common Stock
c. "Company" means the issuer, International Mercantiile Corporation, a
Missouri corporation
d. "Convertible Notes" means an aggregate of $3,000,000 of 8% notes issued
by the Company in March 1999 in a private placement which are
convertible into shares of Common Stock as described in the Section
"Description of Securities"
e. "Exchange Act" means the Securities Exchange Act of 1934, as amended
f. "NASD" means the National Association of Securities Dealers
g. "Nasdaq" means the National Association of Securities Dealers Automated
Quotation System for buying and selling securities operated by NASD
h. "OTC" means the "over the counter" method of buying and selling
securities not listed on a national securities exchange
i. "OTC Bulletin Board" means the Nasdaq inter-dealer system for quoting
bids and asking prices for OTC securities
j. "Securities Act" means the Securities Act of 1933, as amended
k. "Selling Shareholder" means H.A.A., Inc, the entity selling the shares
of Common Stock offered by this prospectus listed in the section
entitled "Selling Shareholder"
l. "VARs" has the meaning given in the section titled Description of
Business hereunder.
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<PAGE>
DESCRIPTION OF BUSINESS
We were organized as International Mercantile Corporation under the
laws of Missouri on March 10, 1971 to operate in the insurance industry. Since
September 2, 1999, we have engaged in the business of manufacturing
competitively priced custom-configured, build-to-order, unbranded or "white-box"
desktop systems and servers for value added resellers ("VARS"). We are in our
development stage. We presently do business under the fictitious name of
Micromatix.net ("MICROMATIX").
OUR RECENT HISTORY:
1:7 Reverse Split: The company, through a Board action, dated August 8,
2000 authorized a 1:7 reverse split of our Class A Common Stock outstanding
from, 26,770,572 to 3,824,367. The Board approved the rounding up of every
fractional shareholder to a full share. The purpose of the reverse split was to
facilitate raising additional capital for the company and allow management to
find possible merger and acquisition candidates. Given time limitations and
financial constraints management and the Board believes there would be no way to
maintain shareholder value while closing on available funding sources, which
necessitated the need for the reverse split.
RECAPITALIZATION WITH MICROMATIX.COM, INC.
On September 6, 1999, the Company merged with Micromatix.com, Inc. (the
"PREDECESSOR COMPANY"), a newly formed Delaware corporation which maintained an
internet based personal computer manufacturing business that sells build to
order unbranded or "white box" personal computer systems and personal computer
related hardware throughout the United Sates to value added retailers and other
marketers of micro computer systems. Shareholders of the Predecessor Company
received 2,500 shares of Company stock. We entered into a transaction with Red
River Trading Company, Inc., a Delaware corporation, ("RED RIVER"), the sole
shareholder of Micromatix.com, Inc., whereby we recapitalized our Company with
Micromatix.com, Inc., in exchange for consideration payable to Red River equal
to $1,375,000: (i) one million shares of IMTL Class B Common Stock at a deemed
price of $1.00 per share and (ii) 1.5 million shares of IMTL Class A common
stock at market value of $.25 per share. We are treating this transaction as a
reverse merger for accounting purposes, even though we have not yet filed the
requisite articles of merger and other related documents with the applicable
state authorities.
We have an option to put the Micromatix.com, Inc. shares back to Red
River if Micromatix.com, Inc. fails to implement its business plan and achieve
certain performance benchmarks. This put option expires September 2, 2000. If we
exercise our put option, Red River must return to us all of their shares of
Class A and Class B Common Stock. Additionally, Red River is required to repay
any funds that we, or any third party, invested into Micromatix.com, Inc. This
obligation is to be
7
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evidenced by a promissory note payable in 24 equal monthly installments,
guaranteed by Red River and secured by all of the capital stock and assets of
Micromatix.com, Inc.
Additionally, Red River has a put option to reacquire all the shares of
Micromatix.com, Inc. in exchange for all of the Company's Class A and Class B
Common Stock which Red River holds if we do not invest, directly or indirectly,
$350,000 in Micromatix.com, Inc. on or before November 30, 1999 (excluding the
$150,000 which was invested at closing). If Red River exercises its put option,
Red River must repay all funds we invested in Micromatix.com, Inc. This put
option expires September 2, 2000.
Our agreement with Red River also provides that we hold our annual
meeting of stockholders and a meeting of our board of directors no later than 60
days after closing to consider and act upon the following matters:
- A 2:1 reverse stock split of the Class B Common Stock
- A dividend payment of the issued and outstanding common shares of
University Mortgage, Inc., the registrant's wholly-owned subsidiary
- Issuance to our chairman, Frederic S. Richardson, of 1.5 million
shares of Class A Common Stock, or options to purchase such shares, in
consideration of services rendered
- An employee stock ownership or option plan to attract and retain key
employees
- An agreement with Swartz Institutional Finance for the purchase and
sale of shares of Class A Common Stock for $5 million
- Amendment of the certificate of incorporation to change the
registrant's name to Micromatix or a derivative thereof
- Changing our state of domicile to Delaware
Items 3, as described above was successfully implemented. Other than
with respect to item 5., we intend to implement the remaining items during 2000.
Additionally, at the closing, Michael Scott Hess resigned as our
Director and President; C. Timothy Jewell, Red River's President, was appointed
as our new President; and Bernard Cary was appointed as our Vice President and
Chief Operating Officer.
8
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Potential investors are urged to review our entire background history
since our inception contained in our 1999 Form 10-KSB, as amended, filed with
the U.S. Securities Exchanged Commission on May 22, 2000.
OUR PRESENT BUSINESS
Since September 2, 1999, we have engaged in the business of
manufacturing competitively priced custom-configured, build-to-order, unbranded
or "white-box" desktop systems and servers for value added resellers ("VARS").
We are in our development stage. We presently do business under the fictitious
name of Micromatix.net ("MICROMATIX"). Unless the context otherwise requires,
all references to the "Company" "we" "our" and other similar terms means
Micromatix, but not Home America Mortgage Company, our other subsidiary company
which is presently inactive.
OUR PRODUCTS
We manufacture competitively priced custom-configured, build-to-order,
unbranded or "white-box" desktop systems and servers for VARs. Our Personal
computer systems utilize compatible, industry standard, branded components as a
cost-effective alternative to branded personal computer systems. Our goal is to
become the VARs' source-of-choice for build-to-order personal computer systems.
We intend to do this by:
SERVING THE VARS' INTEGRATION NEEDS. We intend to develop an East Coast
network of local, high quality white-box manufacturers supported by an Internet
based, state of the art e-commerce system. Through our network of local assembly
facilities, we expect to be able to deliver high quality white-box personal
computer systems that use compatible, industry standard, branded components as a
cost-effective alternative to branded personal computer systems. Further, as a
large East Coast operator, we expect to also provide VARs with infrastructure
and support which is typically difficult and costly for a VAR to maintain
itself.
CREATING A WEB-CENTRIC 'APPLICATION' FOR THE VAR TO CONDUCT BUSINESS
VIA OUR STATE OF THE ART E-COMMERCE SYSTEM. We believe that end-users are
increasingly demanding the ability to customize and purchase computer products
and services online. Therefore, we will provide solutions designed to provide
our customers the ability to offer online product configuration, pricing,
selection, ordering, tracking, and returns capabilities, which in turn will
provide the VAR with the ability for end-users to easily order computer products
and support services from their supplier.
MAINTAINING BUILD-TO-ORDER CUSTOMER FOCUS. We intend to focus on VARs
and Fortune 1000 companies, and to act as a partner of the VAR rather than its
competitor. We provide "just-in-time," local assembly of personal computer
systems pursuant to the VAR's customers' specifications upon receipt of an order
by utilizing in stock industry standard branded components, including Intel
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microprocessors and Microsoft operating systems, at the facility serving the VAR
which placed the order. This enables us to maintain only limited quantities of
components sensitive to technological improvement or price decreases and
insulate us from inventory obsolescence that otherwise might increase our costs.
We can intend to pass our cost savings on to the VARs which, in turn, can offer
a more competitive price to their customers. As a result, we expect the VARs to
outsource their assembly, logistics and other requirements to us, allowing them
to focus on higher margin businesses such as providing software, integration and
support.
CONSOLIDATING THE FRAGMENTED WHITE-BOX MARKET. We believe that there
are a large number of attractive acquisition candidates in the highly fragmented
white-box segment of the personal computer systems market. We intend to seek to
acquire companies engaged in the assembly of white-box personal computer systems
in targeted geographic markets in order to establish an East Coast network of
local assembly facilities. We will target companies that have a strong local
market share, are led by experienced management teams, and focus on serving
VARs.
EMPHASIZING QUALITY CONTROL AS FOUNDATION FOR GROWTH. Since the
production of superior quality systems is the foundation on which we expect our
business will prosper, our strategy is to embrace ISO 9002 as its foundation for
quality since it encompasses all of the operating departments of our business
and is not just one of the latest 'quality fads' that come and go. When
implemented, and actively worked, ISO provides key improvements to both the
qualities of the product and our overall business model.
OUR MARKET
According to International Data Corporation: the total U.S. market in
1998 for Personal computer systems, including desktops, notebooks and servers,
was approximately 36 million units, accounting for approximately $75 billion in
revenue; it is estimated that this market will grow at a compounded annual
growth rate of 12.1% over the next three years; it is now estimated that the
white-box personal computer market accounts for more than 20% of all U.S.
Personal computer shipments, which makes the white-box market the biggest
'brand' of Personal computers sold in the United States.
In 1998, 8.3 million white-box personal computer systems were sold,
compared to 3.3 million units sold by Compaq (the leading personal computer
systems manufacturer), 2.7 million units sold by Dell, 1.9 million units sold by
Hewlett-Packard, and 1.5 million units sold by IBM. The white-box market
expanded at a unit rate of at least 15% in 1998 and it is currently maintaining
its share by growing at least in line with the overall industry average.
OUR CUSTOMERS - RESELLERS/VARs
The white-box market includes the following segments:
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- Small business and small office marketplaces (primary market)
- State and local government
- Educational institutions
- Home offices
- Consumer markets
- Some medium-sized and large businesses.
We believe the lower cost of a white-box personal computer compared to
a branded personal computer is an important factor for small businesses, which
makes up our primary market. In addition, many VARs appear to be more inclined
to recommend white-box personal computers to their small business customers over
branded Personal computer's due to:
QUALITY CONTROL PRINCIPLES. VARs can easily assemble desktop Personal
computers, notebooks and servers and perform their own diagnostic burn-ins,
ensuring that each unit meets high quality standards prior to delivery to the
VAR's customer.
ENHANCED CUSTOMER SERVICE. Since the same branded components used by
manufacturers of branded Personal computers are available to VARs on short
notice, VARs can offer their customers a greater choice in components and can
configure the white-box Personal computer to meet their customers' requirements.
GREATER PROFIT MARGINS. International Data Corporation research shows
that reseller margins are greater for white-box Personal computers than for
branded Personal computers. On average, white-boxes with the same components as
a branded system can return margins as high as 20% to the manufacturer.
OUR VENDOR RELATIONS
We have accounts with numerous suppliers that provide us with the
components required to custom configure systems for our customers. Our
purchasing decisions are primarily governed by pricing and availability. We
currently do not have any contracts to purchase from specified vendors for any
parts. Conversely, we also do not have any contracts that require any vendor to
segregate and maintain inventory for our consumption. As a result, we are
dependant upon market conditions to obtain products at reasonable prices that
allow us to operate profitably. Should market conditions experience any
shortages or price hikes, we would be subject to such conditions and would be
unable to compete with other companies with supplier contracts.
11
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OUR COMPETITION
The Personal computer systems industry is highly competitive and has
been characterized by intense pricing pressure, generally low gross margin
percentages, rapid technological advances in hardware and software, frequent
introduction of new products and rapidly declining component costs. Our current
and potential competitors can be divided into three primary groups:
- Other white-box manufacturers
- Distributors
- Branded Personal computer system manufacturers
OTHER WHITE-BOX MANUFACTURERS
We compete for market share against other white-box manufacturers.
Competitive factors in the white-box Personal computer systems market include:
- Product quality and availability;
- Price
- Brand name components
- Marketing and distribution resources
- Customer service and support
We believe that we can strongly compete against other white-box
manufacturers with respect to each of these factors since we expect to be in the
unique position of being the only white-box manufacturer with a nationwide
presence. As a result, we should be able to negotiate favorable terms with
vendors of branded components and achieve efficiencies and economies of scale
not typically available to white-box manufacturers located in more remote
locations.
DISTRIBUTORS
We also compete for market share against distributors of Personal
computer systems. Many of these competitors are well-established and possess
greater financial, marketing, technical, personnel and other resources, and we
cannot assure that we will have the ability to compete successfully. Our
financial resources are relatively limited when contrasted with these
competitors.
However, since we intend to act as a VAR partner and sell and
distribute our personal computer systems and components exclusively to VARs and
not their customers, while personal computer system distributors market their
products to both VARs and end-users, we believe we can maintain a competitive
position. As a VARs' partner, rather than its competitor, we expect
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that the VARs will source their personal computer systems needs from us rather
than from other non-exclusive distributors.
BRANDED MANUFACTURERS.
We also compete for market share against regional, national and
international manufacturers of branded Personal computer systems, all of which
are well-established and possess significantly greater financial, marketing,
technical, personnel and other resources than we do. We cannot assure that we
will have the ability to compete successfully against any of these competitors.
The dominant companies in the branded Personal computer system industry are
Compaq, Dell, Gateway, IBM, Apple, and Hewlett-Packard.
However, although the residual resistance of consumers to unbranded
personal computer systems remains a challenge, we feel we can be competitive due
to a growing acceptance by consumers of the white-box, and the higher sales and
marketing expenses which such manufacturers of branded systems pass on to their
customers.
OUR FACILITIES
Our executive and business offices and manufacturing facilities are
located at 1625 Knecht Avenue, Baltimore, Maryland 21227. Our facilities consist
of approximately 40,000 square feet of space. We believe our facilities are
adequate for our reasonably foreseeable needs. See "Description of Property".
OUR EMPLOYEES
We presently employ 40 full time and 8 part time personnel who work in
management, administration, sales, assembly, and warehousing. We have also
contracted with two consulting executives to advise us with regard to our
business development, business strategies and securities and investment banking
activities. We consider our employee relations to be good, and none of our
employees are represented by a labor union. We believe that our future success
will depend in part on our continued ability to attract, integrate, retain and
motivate highly qualified sales, technical, and managerial personnel, and upon
the continued service of our senior management and key sales and technical
personnel.
Our success depends upon our senior management, particularly, C.
Timothy Jewel, our President and Chief Executive Officer, and Bernard C. Cary,
Chief Operating Officer. The loss of either one or both of their services could
have a material adverse affect on our Company. Although Mr. Jewell and Mr. Cary
have entered into employment arrangements with us, neither the final terms of
Mr.
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Jewell's nor Mr. Cary's employment agreement with us have been determined and
memorialized in writing.
Most of our technical personnel are not bound by employment agreements
that prevent such personnel from terminating his or her relationship with us at
any time for any reason. At times we have experienced difficulties in attracting
new technical personnel. We cannot assure that we will successfully attract,
integrate, retain and motivate a sufficient number of qualified personnel to
conduct our business in the future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This Memorandum contains forward-looking statements. For this purpose,
any statements contained in it that are not statements of historical fact should
be regarded forward looking statements. For example, the words "believes,"
"anticipates," "plans," and "expects" are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include those shown at the end of this
section under the caption "Certain Factors That May Affect Future Results."
The following discussion for the Company's results of operations and
financial condition should be read in conjunction with the Company's Financial
Statements contained in the Company's Quarterly Report on Form 10-QSB for the
period ending June 30, 2000, and the Company's Audited Financial Statements and
the Notes thereto contained in the Company's 1999 Annual Report on Form 10-KSB,
both of which are on file with the SEC. The SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding the Company, including the aforementioned reports. The address of such
Web site is (http://www.sec.gov).
Since September 2, 1999, we have engaged in the business of
manufacturing competitively priced custom-configured, build-to-order, unbranded
or "white-box" desktop systems and servers for value added resellers ("VARs").
We are in our development stage. We presently do business under the fictitious
name of Micromatix.net ("Micromatix"). Unless the context otherwise requires,
all references to the "Company" "we" "our" and other similar terms means
Micromatix, but not Home America Mortgage Company, our other subsidiary company
which is presently inactive.
USE OF PROCEEDS
We will not receive any additional funds from the sale of the
registered securities.
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RESULTS OF OPERATIONS
For the period of operations since inception on 9/2/99 and ending
3/31/00, our Company posted total sales of $1,465,294. Total sales for the
quarter ended 6/30/00 were $4,045,914 which represents an increase of $2,580,620
or 300%. During the first quarter of our operations, our management recruited
sales personnel with significant customer bases consistent with our goals in
both our target markets and reseller qualifications. As a result of hiring these
sales persons, we obtained an immediate clientele with existing purchasing
power, and increased sales began to materialize. Since our manufacturing,
warehouse facility, administration, technical support and purchasing departments
are fully staffed, we were able to respond and fulfill the needs of our
customers. In the first 2 quarters of 2000 we have been focused on increasing
sales and staying within our financial limits, to that end we have streamlined
our production and sales departments. At the end of the first quarter of 2000 we
reduced our operating expenses while maintaining our sales levels.
Our SG&A for the quarter ended 12/31/99 was higher than expected,
given the level of sales generated. The SG&A of $502,065, as a percentage of
sales for the period since inception on 9/2/99 and ending 12/31/99 was 35%. For
the quarter ended March 31, 2000, SG&A was $596,472 or 27% of sales which
indicates that SG&A will approach realistic conditions as sales continue to
increase in accordance with our goals and projections.
PLAN OF OPERATION
Our primary emphasis through December 31, 1999 was placed upon
our capitalization, the establishment of our website, our internal
infrastructure, our production lines and the development of our marketing team.
During the quarter ended March 31, 2000, this emphasis shifted to sales and
production, which we expect to continue to be our emphasis throughout the
remainder of the year 2000 so that we can increase sales by capturing a larger
percentage of the growth in the white box market. Based upon our current SG&A
rate, we believe that sales revenue of $2.0 million per month, at a gross margin
of 10%, is our Company's break even level. Management believes that this sales
revenue is achievable. Our growth is projected to result from an increase in
sales equal to or greater than 50% each quarter, which would annualize to
approximately $18 million in sales. Potentially, should negotiations conclude
all of the contracts that we are currently pursuing, annual sales could exceed
$40 million for the calendar year 2000. Coinciding with this anticipated growth
is the anticipated need for additional financing. We are currently finalizing an
arrangement for a $1,000,000 investment of capital from an unrelated third party
investor. This investor presently has extended a $750,000 line of credit to the
Company in the form of a factoring arrangement, secured by (i) an assignment of
accounts receivable, (ii) acquired inventory related to receivables, and (iii)
1,500,000 shares of the Company's Class A Common Stock.
15
<PAGE>
In addition, future growth strategies may include strategic
acquisitions should opportunities arise which would not jeopardize current
operations. This anticipated growth, along with the growth already experienced,
has and will strain our financial and operational resources. Additional funding
is necessary to achieve the results projected. Multiple funding avenues are
currently being explored to provide the resources needed to fund the growth
while allowing our Company to maintain debt at a manageable level for our cash
flow.
MARKETING
We have a sales force consisting of six account executives,
with varying degrees of experience. All have knowledge of computers essential to
assisting customers in configuring their orders optimally. In addition, we have
two account executives specializing in government sales and marketing, and the
management of our strategic corporate accounts (Fortune 500 - 1,000). Our
website allows our customers and potential customers to view our specials and to
apply for active account status. In the year 2000, we have plans to upgrade our
website to allow our customers to custom configure their orders online, with
real-time interaction with our inventory software. This will allow customers to
ascertain availability of product, and monitor progress of their order through
production. We anticipate that this upgrade will cost approximately $125,000.
Our sales department is currently faxing our specials to all current customers
and targeted potential customers contained in our database on a weekly basis.
Additionally, we have tele-marketers calling and updating our database of
prospective customers on a daily basis. We expect that we will need to hire a
minimum of 5 additional sales persons in order for us to attain our projected
sales goals.
PRODUCTION
Our production department is designed for flexibility and staffed with
skilled assemblers and system integration technicians. Small to medium quantity
orders can be easily produced on our existing custom configuration line. In
addition, we have the capability, at very short notice, of activating an
assembly line of skilled workers for large production builds. As these contracts
increase in consistency and quantity, these additional workers will be used on a
permanent basis. Our production facility has the capacity to add additional
assembly lines on an as needed basis. We have completed the required independent
audit for ISO 9002 certification and we were certified on April 26, 2000. The
ISO 9002 certification is internationally accredited, and guarantees that our
product is processed to the highest quality standards. In addition, it allows
our Company to participate in and be awarded state and federal government
contracts.
INVENTORY
We manage the quantity and quality of our component inventory through
our purchasing personnel and warehousing policy and procedures. We strive to
maximize our responsiveness to customer requirements while optimizing inventory
turns. Inventory management is critical to the success
16
<PAGE>
of our business. Our strategy is to focus on products with high turnover ratios
to reduce exposure to product obsolescence, changing consumer demands and
declines in market prices, while still fulfilling the needs of our customers.
Our software program facilitates the control of purchasing, inventory, and
accounts payable. Each sales representative has available real-time data with
respect to our inventory levels. We believe that we are able to take advantage
of synergies and efficiencies arising out of the combination of system assembly
and inventory warehousing in a single facility.
VENDOR RELATIONS
Our Company has accounts with numerous suppliers that provide us with
the components required to custom configure systems for our customers. Pricing
and availability primarily govern our purchasing decisions. We currently do not
have any guarantees to purchase from specified vendors for any parts.
Conversely, we also do not have any contracts that require any vendor to
segregate and maintain inventory for our consumption. As a result, we are at the
mercy of market conditions to obtain products at reasonable prices that allow us
to operate profitably. Should market conditions experience any shortages or
price hikes, we would be subject to such conditions and would be unable to
compete with other companies with supplier contracts.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The white box personal computer industry is highly competitive.
Competition is largely based on price, quality, range of service offered,
shipping capabilities, customer service, and product availability. Many of our
competitors are larger, more established, and have greater name recognition and
financial and marketing resources than our Company. As a result, we could
potentially experience downward pricing pressure and increased competition,
which would drive down our revenues by either forcing a cut in our sales or in
our prices. There is always the risk of general market down turn, which could
adversely impact our revenues and our growth.
We are considered a start-up company and have no significant
operating history as Micromatix.net. We have not generated revenue to date to
support operations on an ongoing basis. We cannot assure that we will achieve
sufficient revenues to offset our anticipated operating costs. Our viability,
profitability and growth depend upon meeting our sales goals and attaining
sufficient financing to purchase inventory at competitive prices. We cannot
assure that we will be able to generate revenues or ever achieve profitable
operations.
We have no significant capital. We have required significant
capital to develop our business and to date all of our costs have been funded
through sales of the Common Stock and loans. We will continue to require
significant funds as we grow. We cannot assure that future financing will be
available on acceptable terms or at all. Our inability to obtain additional
financing, when needed, would
17
<PAGE>
have a material adverse effect on our business, and possibly require us to
curtail or cease our operations.
Demand and market acceptance for white box personal computer
systems are subject to a high level of uncertainty. We cannot assure that
widespread acceptance of white box personal computer systems, or our products in
particular, will occur. We will rely on VARs who utilize white box personal
computer systems to purchase our products. In order for us to be successful,
these VARs must perceive us as their partner, not their competitor. Further,
issues concerning the reliability, cost and quality of white box personal
computer systems may affect our market. We cannot assure that VARs will view us
as "partners" and use our products. If our products do not achieve market
acceptance, our business, results of operations and financial condition could be
materially adversely affected.
DESCRIPTION OF PROPERTY
Our executive and business offices and manufacturing facilities are
located at 1625 Knecht Avenue, Baltimore, Maryland 21227. Our facilities consist
of approximately 40,000 square feet of space. We believe our facilities are
adequate for our reasonably foreseeable needs.
DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
(a) Identity of directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
------ ---- -------- --------------
<S> <C> <C> <C>
Maxwell Apple 61 Director, Chairman of the
Board, Secretary 1991
C. Timothy Jewell 43 Director, Chief Exec.
Officer, President 1999
Bernard C. Cary 35 Chief Operating Officer NA
Frederic Richardson 40 Director, Treasurer, 1998
Executive V.P., Ass't
Secretary, Chmn. Emeritus
Edward A. Hutya 56 Director 1997
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C> <C>
Charles Shorter 46 Director 2000
</TABLE>
Each director is elected until the next annual meeting of shareholders
and until his successor is qualified.
(b) Business experience of directors and executive officers.
Mr. Maxwell W. Apple has been one of our directors since 1991, and has
also served as our Secretary since 1995. Mr. Apple is a former judge and
currently a member of the Indiana Bar. He has been involved in various business
ventures which include the private ownership of Nunur Corporation, a company
which owned commercial and residential properties, a partner in French Lick
Springs Golf and Tennis Resort, L.P., and the sole shareholder of The Paoli
Corporation, a company specializing in the manufacturing of wood products and
operating lumber dry kilns. He received his Juris Doctor Degree from the Indiana
University School of Law and also attended the National College of the State
Judiciary and Indiana Judicial College .
Mr. C. Timothy Jewell has been our President and Chief Executive
Officer since September 1999. From 1997 to 1999, Mr. Jewel served as general
manager of Arbor Computer Company, a computer manufacturing company. Prior to
that time, Mr. Jewell served as a consultant with C.T.J. Enterprises, Inc., a
computer systems integration consulting firm. Mr. Jewell received a Bachelor of
Science degree in accounting from the University of Tennessee in 1976 and an MBA
in Finance from Southeastern University in 1980.
Mr. Bernard C. Cary has been our Chief Operating Officer since
September 1999. From October 1997 to June 1999 he served as a Vice President of
Arbor Computer Company, a computer manufacturing company. From 1991 to October
1997, Mr. Cary served as the managing partner of Micromatix Distribution, a
computer distribution company that was a former affiliate of the Company. Mr.
Cary received a Bachelor of Science Degree in Engineering from the University of
Maryland in 1984.
Mr. Frederic S. Richardson has been our director since September 1998.
He also served as our Chief Financial Officer during 1998 and part of 1999.
Mr. Richardson is experienced in insurance, mortgage and financial services
transactions. He focuses on structuring transactions for private and public
entities, raising capital, and identifying acquisition targets. Since 1994, Mr.
Richardson has been the President of Maccabean Industries, Inc., a consulting
firm specializing in raising capital for companies in the financial services
industry and real estate market. Mr. Richardson received a degree in Economics
from the University of Maryland in 1983 and a Masters in Business Administration
from American University in 1996.
From 1991 until its liquidation in February 1994, Mr. Richardson was a
director and officer of Corporate Life Insurance Company ("CHIC"), a stock life
insurance company from 1991 until its
19
<PAGE>
liquidation in February 1994. He was the controlling stockholder of the
corporate parent and controlling stockholder of CHIC. In June 1995, Linda L.
Kaiser, the Insurance Commissioner of Pennsylvania and CHIC's Statutory
Liquidator, filed a complaint against Mr. Richardson (and others) alleging,
among other things, that he engaged in fraudulent and negligent conduct in his
operation of CHIC causing the company to lose millions of dollars and finally
collapse. CHIC was liquidated and dissolved by the Insurance Commissioner. In
October 1997, Mr. Richardson entered into a Settlement Agreement with the
Insurance Commissioner pursuant to which he was released from the lawsuit and
from any further liability. Pursuant to the terms of the Settlement Agreement,
the policy limits of Mr. Richardson's insurance policy were paid to the
Statutory Liquidator. In addition, he agreed not to accept any position of
executive authority with any Pennsylvania domiciled insurance company without
the consent of the Commissioner and agreed not to accept any position of
executive authority with any other insurance company for a period of ten years.
Mr. Edward A. Hutya has been one of our directors since 1997. He also
served as our vice president until September 1999. He is currently the president
of the Center of Independent Living and a consultant to Riverside Healthcare
Foundation, two not-for-profit organizations. Mr. Hutya has many years of
experience in the operations and acquisitions of health care properties. During
his tenure as president of several not-for-profit corporations, Mr. Hutya
directed corporate development for the acquisition of housing and nursing
facilities for the elderly and special populations. Mr. Hutya also selected and
hired management companies which operated nursing homes. Prior to his
involvement with not-for-profit organizations, Mr. Hutya specialized in
financing, including equipment, vehicles, real estate and governmental leasing
and financing. Mr. Hutya received a degree in Economics from the University of
Connecticut in 1965, and participated in graduate work in Urban Economics at
American University.
Mr. Charles Shorter has been a director since April of 2000. He was
appointed to fill a vacancy. Mr Shorter is a Missouri resident. He is currently
operating partner of an assisted living facility in the mid-west and has many
years experience in operating healthcare facilities. Mr. Shorter is also
affiliated with Mr. Huyta in other ventures.
Presently, the only persons who perform material operations on behalf
of our Company are the Company's present officers and directors. Although we are
presenting recruiting to fill management positions, our officers and directors
do not expect any significant changes in the composition of our Company's
officers or board of directors in the near future. There are no arrangements,
agreements or understandings for any officer or director to resign at the
request of another person, and there are no arrangements, agreements or
understandings between non-management shareholders and management under which
non-management shareholders may directly or indirectly participate in or
influence the management of our Company's affairs.
REMUNERATION OF DIRECTORS AND OFFICERS
20
<PAGE>
The following tables set forth, as of the date hereof, the name and the
amount of remuneration received by each of our officers and directors
individually, and as a group, during the last fiscal year, as remuneration for
serving as our officers and directors:
<TABLE>
<CAPTION>
Capacities in remun- Aggregate
Name of Person/Group eration was received remuneration
-------------------- -------------------- ------------
<S> <C> <C>
Frederic S. Richardson(2) n/a 0
C. Timothy Jewell cash $70,000
Bernard C. Cary cash $70,000
Max W. Apple stock $25,000
M. Scott Hess (4) n/a 0
All Officers and Directors
as a Group n/a 0
Explanation of Table:
</TABLE>
Although our board of directors has recommended we adopt a stock
option, retirement, pension, or profit-sharing programs for the benefit of our
directors, officers or other employees, the board has not adopted one to date,
but expects the adoption of one or more such programs in the future. Certain
non-management employees who have been recently recruited by the Company have
been granted no-qualified stock option SEE FINANCIAL STATEMENTS
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHERS
The following tables set forth, as of March 31, 2000 (i.e. before the 1:7
reverse split of the Company's Common Stock), the name and number of shares of
Class B Common Stock owned by each person or entity who will own more than 10%
of the outstanding shares of the Company's Class B Common Stock, together with
the approximate percentage holdings of such shares. Note that numbers in
parentheses refer to footnotes below the table:
<TABLE>
<CAPTION>
Name and Address Amount Owned Amount Owned Percent of Class
Of Owner(1) Before the Offering (2) After the Offering (2) Owned After the Offering (2)
----------- ----------------------- ---------------------- ----------------------------
<S> <C> <C> <C>
Sarah Saul Simon Trust(3) 1,523,667 1,523,667 (D) 10.8%
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C>
VirtualLender.com, Inc. 3,000,000 3,000,000 (D) 21.2%
</TABLE>
-----------------
- In care of our Company's address at 1625 Knecht Avenue,
Baltimore, Maryland 21227.
- To our best knowledge, as of June 30, 2000, such holders had
the sole voting and investment power with respect to the voting
securities of the Company beneficially owned by them, unless otherwise
indicated herein.
- Includes 1,500,000 shares of Class A Common Stock owned by the
Sarah Saul Simon Trust, the beneficiaries of which are Mr. Richardson's
children, and the trustees of which are Mr. Richardson's mother and
sister-in-law; and 23,667 shares of Class A Common Stock owned by
Continent Finance Corporation which is owned by the Sarah Saul Simon
Trust. Mr. Richardson disclaims beneficial ownership of these shares.
The following tables set forth, as of June 30, 2000, the name
and number of shares of Class B Common Stock owned by each person or
entity who will own more than 10% of the outstanding shares of the
Company's Class B Common Stock, together with the approximate
percentage holdings of such shares. Note that the numbers in
parantheses refer to footnotes below the table:
<TABLE>
<CAPTION>
Number of shares of
Name and Address of Class B Common Stock Percent
Beneficial Owner (1) Beneficially Owned (2)(3) Of Class
-------------------- ------------------------- --------
<S> <C> <C> <C>
Sarah Saul Simon Trust (4) 217,667 16%
</TABLE>
1. In care of our Company's address at 1625 Knecht Avenue, Baltimore,
Maryland 21227.
2. Each share of Class B Common Stock is entitled to 51 votes.
3. To our best knowledge, as of June 30, 2000, such holders had the sole
voting and investment power with respect to the voting securities of
the Company beneficially owned by them, unless otherwise indicated
herein.
4. The beneficiaries of the Sarah Saul Simon Trust are Frederic
Richardson's children. The current trustees are Mr. Richardson's mother
and sister-in-law.
5. All of these shares are held directly by Mr. Cary.
(b) The following tables set forth, as of June 30, 2000, the name and
number of shares of Class A Common Stock owned by each officer and
director who is the beneficial owner of the Company's Class A Common
Stock, together with the approximate percentage holdings of such
shares:
22
<PAGE>
Number of shares of
<TABLE>
<CAPTION>
Name and Address of Class A Common Stock Percent
Beneficial Owner (1) Beneficially Owned (2) Of Class
-------------------- ---------------------- --------
<S> <C> <C>
Frederic S. Richardson(3)(4) 6.857 *
C. Timothy Jewell (5) 107,143 3.1%
Bernard C. Cary 107,143 3.1%
Maxwell W. Apple (6) 54,284 1.5%
Edward A. Hutya (7) 25,714 .8%
All officers and directors
as a group (5 persons) (8) 295,384 8.5
</TABLE>
-----------------------------------
* Less than 1%.
(1) In care of our Company's address at 1625 Knecht Avenue, Baltimore,
Maryland 21227.
(2) To our best knowledge, as of June 30, 2000, such holders had the sole
voting and investment power with respect to the voting securities of
the Company beneficially owned by them, unless otherwise indicated
herein.
(3) Does not include 1,500,000 shares of Class A Common Stock owned by the
Sarah Saul Simon Trust, the beneficiaries of which are Mr. Richardson's
children, and the trustees of which are Mr. Richardson's mother and
sister-in-law. Mr. Richardson disclaims beneficial ownership of these
shares.
(4) Does not include 23,667 shares of Class A Common Stock owned by
Continent Finance Corporation which is owned by the Sarah Saul Simon
Trust, the beneficiaries of which are Mr. Richardson's children, and
the trustees of which are Mr. Richardson's mother and sister-in-law.
Mr. Richardson disclaims beneficial ownership of these shares.
(5) All of these shares are held indirectly by Mr. Jewell through Red River
Trading Company. Mr. Jewell is the president of Red River Trading
Company, Inc., and his wife, Mrs. Shannon C. Jewell is its sole owner.
(6) Includes (i) 260,000 shares of which are owned directly by Mr. Apple,
and (ii) the right to acquire 120,000 shares within 60 days.
(7) Includes 60,000 shares of which are owned directly by Mr. Hutya, and
(ii) the right to acquire 120,000 shares within 60 days.
(8) Includes (i) 1,868,000 shares owned directly or indirectly by such
officers and directors, and (ii) the right of certain of such persons
to acquire 240,000 shares within 60 days.
23
<PAGE>
The following tables set forth, as of June 30, 2000, the name and
number of shares of Class A Common Stock owned by each of our officers and
directors who are the beneficial owner of our Company's Class B Common Stock,
together with the approximate percentage holdings of such shares. Note that the
numbers in parenthesis refer to the footnotes below the table:
<TABLE>
<CAPTION>
Name and Address Amount Owned Amount Owned Percent of Class
Of Owner (1) Before the Offering After the Offering Owned After the Offering
------------ ------------------- ------------------ ------------------------
<S> <C> <C> <C>
Sarah Saul Simon Trust 1,000,000 1,000,000 50%
C. Timothy Jewell(2) 500,000 500,000 25%
Bernard Cary(3) 500,000 500,000 25%
</TABLE>
1. In care of our Company's address at 1625 Knecht Avenue, Baltimore,
Maryland 21227.
2. All of these shares are held indirectly by Mr. Jewell through Red River
Trading Company. The sole shareholder, officer and director of Red
River Trading Company, Inc. is C. Timothy Jewell.
3. All the shares are held directly by Mr. Cary.
All directors and executive officers of the Company hold office during
the term for which they are elected and qualify. There are no family
relationships among or between such directors and executive officers.
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
On July 31, 1999, we caused our sole operating subsidiary, University
Mortgage, Inc., to issue a significant amount of new stock to M. Scott Hess, one
our directors, in consideration of his investment in University Mortgage, Inc.
of approximately $14,000,000 in assets, notes and securities. This action
effectively diluted our holding in University Mortgage, Inc. to less than 5%.
Subsequently, in a stock for stock transaction, we exchanged our 3,000,000
shares of University Mortgage, Inc. for 3,000,000 of shares of
VirtualLender.com, Inc., a publically traded company controlled by Mr. Hess. As
a result, we effectively turned our Company into a publicly traded "shell"
company.
On September 2, 1999, we entered into a transaction with Red River
Trading Company, Inc. ("Red River") whereby we acquired 100% of the issued and
outstanding shares of Micromatix.com, Inc., a Delaware corporation
("Micromatix"), in exchange for $1,375,000, payable by delivery of (i) one
million shares of Class B Common Stock valued at $1.00 per share and (ii) 1.5
million shares of
24
<PAGE>
Class A Common Stock at the then-current market value of $.25 per share. (Each
share of Class B Common Stock is entitled to 51 votes.) At the time of this
transaction, Red River was an unrelated third party and this transaction was
negotiated at arms length. The president of Red River is C. Timothy Jewell who
is now the President of the Company.
On September 7, 1999, we purchased fixed assets in the amount of
$150,000 from Red River Trading for which we made an unsecured note payable to
Red River in the amount of $150,000, bearing interest at 8% per annum. The note
calls for six annual principal payments of $25,000 plus accrued interest.
On November 23, 1999, we borrowed $571,609.40 from the Sarah Saul Simon
Trust for which we made an unsecured note payable to the Sarah Saul Simon Trust
in the amount of $571,609.40, bearing interest at 8% per annum until the note is
paid in full. The note calls for a lump sum principal payment of $571,609.40
plus accrued interest, all of which is due on November 23, 2000.
During the fourth quarter of 1999, Frederic Richardson advanced us
$261,322 on his personal credit card so that we could purchase inventory. We are
making payments on Mr. Richardson's credit card for this purchase. The credit
card interest rate is 14% per annum.
On May 1, 1995, the Company entered into a compensation plan consulting
agreement with Frederic Richardson for a monthly fee of $10,000 per month and
reimbursement of all "out-of-pocket" expenses. The term of this agreement is 10
years and is renewable. The agreement was assigned to FSR Group, Inc. ("FSR"), a
company owned by the Sarah Saul Simon Trust, in October 1997. Commencing January
1, 1999, the agreement was reassigned by FSR to Mr. Richardson.
SECURITIES OFFERED
The following is a summary of the rights and privileges of holders of
our Company's Common Stock. It does not purport to be complete and is subject to
the provisions of The General and Business Corporation Law of Missouri, as
amended, and the Securities Act of 1933, as amended; and to the terms of the
Company's Articles of Incorporation and Bylaws. The following is qualified in
its entirety by such references.
CALCULATION OF MAXIMUM NUMBER OF SHARES OFFERED
The quantity of shares of Common Stock was determined by calculating
the maximum number which were subject to (1) outstanding convertible notes and
warrants and (2) convertible notes and
25
<PAGE>
warrants that may be issued after the effectiveness of the registration
statement.) The conversion price used was the Conversion Price of the warrants,
which was arbitrarily set by the Company. The quantity is calculated as of
August 8, 2000 when the Company's Board of Directors unanimously approved a 1:7
reverse split of Common Shares. The reverse split did not change the number of
shares authorized. However, it did increase by sevenfold the number of shares
outstanding of Common Stock.
CAPITALIZATION
AUTHORIZED CAPITAL STOCK:
31,000,000 shares of Classs A Common Stock, $0.01 par value
2,000,000 shares of Class B Common Stock, $0.01 par value
10,000,000 shares of Series 1 Preferred Stock, $0.10 par value
2,000,000 shares of Series "2" Preferred Stock, $0.10 par value
5,000,000 shares of Series "3" Preferred Stock $0.10 par value
No other type of securities are authorized by our Company at this time.
ISSUED AND OUTSTANDING CAPITAL STOCK:
As of August 8, 2000, following a 1:7 reverse split of common
shares, the following amount of capital stock was issued and
outstanding:
Class A Common Stock: 3,479,601 shares (held of
record by 2808 shareholders).
8,366,911 shares if all shares
of Common Stock offered herein
are purchased.
Class B Common Stock: 285,915 shares (held of record
by three shareholders).
Series 1 Preferred Stock: 2,000,000 shares currently being
held in escrow pending closing
Series 2 Preferred Stock: None
Series 3 Preferred Stock: None
26
<PAGE>
RIGHTS AND PRIVILEGES:
CLASS A COMMON STOCK
The holders of our Class A Common Stock have One (1) vote per share on
all matters (including election of directors) without provision for cumulative
voting. Our Class A Common Stock is not redeemable and has no conversion or
pre-emptive rights. There are no sinking fund provisions. The Class A Common
Stock currently outstanding is validly issued, fully paid and non-assessable. In
the event of liquidation of our Company, the holders of Class A Common Stock
will share equally in any balance of the Company's assets available for
distribution to them after satisfaction of creditors and preferred shareholders,
if any. No shares of our Class A Common Stock are presently subject to
outstanding options or warrants to purchase, or securities convertible into,
common equity of the Company for our employees. This number is subject to change
up or down based upon, among other things (i) each individual employee's
compensation arrangements with the Company; (ii) the trading price our Class A
Common Stock on the date the employee exercises his right to obtain such shares;
and (iii) the effect of 1,071,429 warrants from this offering.
CLASS B COMMON STOCK
The holders of our Class B Common Stock have fifty-one (51) votes per
share on all matters (including election of directors) without provision for
cumulative voting. Thus, holders of more than 50% of the shares voting for the
election of directors can elect all of the directors, if they choose to do so.
Our Class B Common Stock is not redeemable and has no conversion or pre-emptive
rights. There are no sinking fund provisions. The Class B Common Stock currently
outstanding is validly issued, fully paid and non-assessable. In the event of
liquidation of our Company, the holders of Class B Common Stock will share
equally in any balance of the Company's assets available for distribution to
them after satisfaction of creditors and preferred shareholders, if any. No
shares of our Class B Common Stock are presently subject to outstanding options
or warrants to purchase, or securities convertible into, common equity of the
Company.
SERIES 1 PREFERRED STOCK:
Each share of Series 1 Preferred Stock is convertible at any time for
three (3) years following issuance into one share of Class A Common Stock, at a
price of two dollars ($2.00) per share. Each share of Series 1 Preferred Stock
has dividend rights identical to the Class A Common Stock in the event the
Company declares any dividends. There is no automatic accrual of dividends on
the Series 1 Preferred Stock.
27
<PAGE>
Each share of Series 1 Preferred Stock is redeemable by the Company for
$.10 per share at any time after the first annual anniversary of issuance if the
average closing bid price of the Class A Common Stock for ten (10) business days
immediately preceding the date of such redemption notice is at least 125% of the
exercise price of the Series 1 Preferred Stock (i.e. $2.50 per share) upon
written notice to the shareholders as described herein ( the "redemption
notice"). Following any such redemption notice the holders of the Series 1
Preferred Stock shall have the opportunity to convert the Series 1 Preferred
Stock for a period of twenty (20) days. Any shares of the Series 1 Preferred
Stock redeemed pursuant to this section or otherwise acquired by the Company in
any manner whatsoever shall be permanently retired immediately on the
acquisition thereof and shall not under any circumstances be reissued. If fewer
than all of the issued and outstanding share of Series 1 Preferred Stock are
redeemed at any time, all shares of Series 1 Preferred Stock to be redeemed
shall be selected pro rata, and there shall be so redeemed from each registered
holder in whole shares, as nearly as practicable to the nearest share, that
proportion of all of the shares to be redeemed which the number of shares held
of record by such holder bears to the total number of shares of Series 1
Preferred Stock at the time outstanding.
The Series 1 Preferred Stock shall not be entitled to any liquidation
preference in the event of the voluntary or involuntary liquidation, dissolution
or winding up of the Company and the holders of the Series 1 Preferred Stock
shall not be entitled to any amount upon liquidation, dissolution or winding up
of the Company. The holders of the Series 1 Preferred Stock shall not be
entitled to any voting rights whatsoever on matters submitted to a vote of
shareholders of the Company, so long as any shares of the Series 1 Preferred
Stock shall be outstanding, except those rights provided by the general
corporation law of the State of Missouri.
SERIES 2 PREFERRED STOCK
Dividends shall be paid on each share of Series 2 Preferred Stock at
the rate of six percent (6%) per-annum. All dividends shall be payable in shares
of the Company's Class "A" Common Stock. There is no automatic accrual of
dividends on the Series 2 Preferred Stock. The Series 2 Preferred Stock shall
not be entitled to any liquidation preference in the event of the voluntary or
involuntary liquidation, dissolution or winding up of the Company and the
holders of the Series 2 Preferred Stock shall not be entitled to any amount upon
liquidation, dissolution or winding up of the Company The holders of the Series
2 Preferred Stock shall not be entitled to any voting rights whatsoever on
matters submitted to a vote of shareholders of the Company, so long as any
shares of the Series 2 Preferred Stock shall be outstanding, except those rights
provided by the general corporation law of the State of Missouri.
SERIES 3 PREFERRED STOCK
28
<PAGE>
The board of directors is authorized, without prior shareholder
consent, to provide for the issuance of Series 3 Preferred Stock in classes and
Series and, by filing the appropriate articles of amendment with the State of
Missouri, is authorized to establish the number of shares to be included in each
class and series and the preferences, limitations, and relative rights of each
class and series.
DIVIDEND HISTORY
We have not paid any dividends on our Common Stock to date. Our board
of directors presently intends to retain all earnings, if any, for use in our
business operations and, accordingly, the board does not anticipate paying any
cash dividends in the foreseeable future. The payment of cash dividends in the
future, if any, will be contingent upon our revenues and earnings, capital
requirements and general financial condition.
MARKET
(a) Market Information
Our Class A Common Stock has been traded on the over-the-counter market
since 1971. The following table sets forth the range of high and low bid
quotations for each quarterly period in the fiscal year ended December 31, 1999,
and 1998 as reported by over-the-counter market quotations. The quotations
reflect inter-dealer prices, without retail mark-up, mark down or commission and
may not represent actual transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
<S> <C> <C>
1998
1st Quarter $5.25 $0.50
2nd Quarter $2.625 $0.75
3rd Quarter $2.00 $0.75
4th Quarter $1.25 $0.40625
1999
1st Quarter $0.625 $0.1875
2nd Quarter $0.34375 $0.0625
3rd Quarter $0.30 $0.03125
4th Quarter $0.8125 $0.125
2000
1st Quarter $1.87 $0.359
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
2nd Quarter $1.187 $0.187
</TABLE>
(b) Holders
As of June 30, 2000, approximately 2730 holders of record held our
Common Stock.
(c) Dividends
No cash dividends were declared or paid on our Common Stock for the last two
fiscal years. No restrictions limit our ability to pay dividends on our Common
Stock.
After the 1:6 reverse split approved on August 6, 2000, 3,395,796 of
the 3,824,367 shares of the Common Stock issued and outstanding prior to this
Offering are "restricted securities", as that term is defined under Rule 144
("Rule 144"), promulgated under the Securities Act. So long as all of the
conditions of Rule 144 are met, by December 31st 2000, 321,428 shares, and by
December 31st 2001, 2,645,797 shares, of Common Stock will be eligible for sale
under Rule 144, as currently in effect. No assurances can be given, however,
that Rule 144 will be available at any time for any shareholder's shares.
In general, under Rule 144, as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated), who has beneficially owned
restricted shares of Common Stock for at least one year is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class or, if
the shares sought to be sold are quoted on NASDAQ or an exchange, the average
weekly trading volume during the four calendar weeks preceding the sale. A
person who has not been an affiliate of the Company for at least the three
months immediately preceding the sale and who has beneficially owned restricted
shares of Common Stock for at least two years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above. No
prediction can be made as to the effect, if any, that sales of "restricted"
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities. See "Security Ownership of Management and Certain Security Holders".
Penny Stock Regulations - State Blue Sky Restrictions - Restrictions on
Marketability.
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<PAGE>
The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. The Company's
securities may be covered by the penny stock rules, which impose additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and "accredited" investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by the rule, the broker-dealers
must make a special suitability determination for the purchase and receive the
purchaser's written agreement of the transaction prior to the sale.
Consequently, the rule may affect the ability of broker-dealers to sell the
Company's securities and also may affect the ability of shareholders of the
Company to sell their shares of Common Stock in the secondary market
In addition, the Securities and Exchange Commission has adopted a
number of rules to regulate "penny stocks", which include Section 3(a)(51)(A)
and Rules 15g-1, 15g-2, 15g-3, 15g- 4, 15g-5, 15g-6, and 15g-9 under the
Securities Exchange Act of 1934, as amended. Because the securities of the
Company may constitute "penny stocks" within the meaning of the rules, the rules
would apply to the Company and to its securities. The rules may further affect
the ability of the Company's shareholders to sell their shares in the secondary
market.
Shareholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) "boiler room" practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv) excessive
and undisclosed bid-ask differentials and markups by selling broker-dealers; and
(v) the wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. The
Company's management is aware of the abuses that have occurred historically in
the penny stock market. Although the Company does not expect to be in a position
to dictate the behavior of the market or of broker-dealers who participate in
the market, management will strive within the confines of practical limitations
to prevent the described patterns from being established with respect to the
Company's securities.
CONFLICTS OF INTEREST
On July 31, 1999, we caused our sole operating subsidiary, University
Mortgage, Inc., to issue a significant amount of new stock to M. Scott Hess, one
our directors, in consideration of his investment in University Mortgage, Inc.
of approximately $14,000,000 in assets, notes and securities.
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<PAGE>
This action effectively diluted our holding in University Mortgage, Inc. to less
than 5%. Subsequently, in a stock for stock transaction, we exchanged our
3,000,000 shares of University Mortgage, Inc. for 3,000,000 of shares of
VirtualLender.com, Inc., a publically traded company controlled by Mr. Hess. As
a result, we effectively turned our Company into a publicly traded "shell"
company.
On September 2, 1999, we entered into a transaction with Red River
Trading Company, Inc. ("Red River") whereby we acquired 100% of the issued and
outstanding shares of Micromatix.com, Inc., a Delaware corporation
("Micromatix"), in exchange for $1,375,000, payable by delivery of (i) one
million shares of Class B Common Stock at a value of $1.00 per share and (ii)
1.5 million shares of Class A Common Stock at market value of $.25 per share.
(Each share of Class B Common Stock is entitled to 51 votes.) At the time of
this transaction, Red River was an unrelated third party and this transaction
was negotiated at arms length. The president of Red River is C. Timothy Jewell,
who is now the President of the Company.
We have an option to put the Micromatix shares back to Red River if
Micromatix fails to implement its business plan and achieve certain performance
benchmarks. This put option expires September 2, 2000. If we exercise our put
option, Red River must return to us all of their shares of Class A and Class B
Common Stock. Additionally, Red River is required to repay any funds that we,
or any third party, invested into Micromatix . This obligation is to be
evidenced by a promissory note payable in 24 equal monthly installments,
guaranteed by Red River and secured by all of the capital stock and assets of
Micrormatix.
Additionally, Red River has a put option to reacquire Micromatix and
return all of its Class A and Class B Common Stock to us if we do not invest,
directly or indirectly, $350,000 in Micromatix on or before November 30, 1999
(excluding $150,000 which was invested at closing), If Red River exercises its
put option, Red River must repay all funds we invested in Micromatix, in the
same manner as described above. This put option expires September 2, 2000.
Our agreement with Red River also provides that we hold our annual
meeting of stockholders and a meeting of our board of directors no later than 60
days after closing to consider and act upon the following matters:
- A 2:1 reverse stock split of the Class B Common Stock
- A dividend payment of the issued and outstanding common shares
of University Mortgage, Inc., the registrant's wholly-owned
subsidiary
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<PAGE>
- Issuance to our chairman, Frederic S. Richardson, of 1.5
million shares of Class A Common Stock, or options to purchase
such shares, in consideration of services rendered
- An employee stock ownership or option plan to attract and
retain key employees
- An agreement with Swartz Institutional Finance for the
purchase and sale of shares of Class A Common Stock for $5
million
- Amendment of the certificate of incorporation to change the
registrant's name to Micromatix or a derivative thereof
- Changing our state of domicile to Delaware
Items 3, as described above was successfully implemented. Other than
with respect to item 5., we intend to implement the remaining items during 2000.
Additionally, at the closing, Michael Scott Hess resigned as our
Director and President; C. Timothy Jewell, Red River's President, was appointed
as our new President; and Bernard Cary was appointed as our Vice President and
Chief Operating Officer.
On September 7, 1999, we purchased fixed assets in the amount of
$150,000 from Red River Trading for which we made an unsecured note payable to
Red River in the amount of $150,000, bearing interest at 8% per annum. The note
calls for six annual principle payments of $25,000 plus accrued interest.
On November 23, 1999, we borrowed $571,609.40 from the Sarah
Saul Simon Trust for which we made an unsecured note payable to the Sarah Saul
Simon Trust in the amount of $571,609.40, bearing interest at 8% per annum until
the note payable is paid in full. The note payable calls for a lump sum
principle payment of $571,609.40 plus accrued interest, all of which is due on
November 23, 2000.
During the fourth quarter of 1999, Frederic Richardson advanced us
$261,322 on his personal credit card so that we could purchase inventory. We are
making payments on Mr. Richardson's credit card for this purchase. The credit
card interest rate is 14% per annum.
On May 1, 1995, the Company entered into a compensation plan consulting
agreement with Frederic Richardson for a monthly fee of $10,000 per month and
reimbursement of all "out-of-pocket" expenses. The term of this agreement is 10
years and is renewable. The agreement was assigned to
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<PAGE>
FSR Group, Inc. ("FSR"), a company owned by the Sarah Saul Simon Trust, in
October 1997. Commencing January 1, 1999, the agreement was reassigned by FSR to
Mr. Richardson.
DIRECTOR AND OFFICER INDEMNIFICATION
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Our by laws limit the liability of the Company's officers and
directors, and provide for indemnification by the Company of officers and
directors to the full extent permitted by Missouri corporate law, which
generally provides that its officers and directors shall have no personal
liability to the Company or its stockholders for monetary damages for breaches
of their fiduciary duties as directors, except for breaches of their duties of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, acts involving unlawful payment of
dividends or unlawful stock purchases or redemptions, or any transaction from
which a director derives an improper personal benefit. Such provisions
substantially limit the shareholder's ability to hold officers and directors
liable for breaches of fiduciary duty, and may require the Company to indemnify
its officers and directors.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On February 21, 2000, Thomas P. Monahan, C.P.A., our Company's
certifying accountant, resigned as our auditor. The certifying accountant's
report on the financial statements for the past two years contained no adverse
opinion, no disclaimer of opinion nor was qualified or modified as to
uncertainty, audit scope or accounting principals. On February 21, 2000, our
board of directors accepted the resignation of Thomas P. Monahan, C.P.A. as our
independent certifying accountant.
During the preceding two years and subsequent interim periods preceding
their resignation, we had no disagreements with the certifying accountants on
any matter of accounting principle or practice, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the certifying accountants, would have caused it to make
reference to the subject matter of the disagreements in connection with their
report.
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<PAGE>
On February 22, 2000, our board of directors formally engaged Caruso &
Caruso C.P.A's, P.A. as its new independent certifying accountants (the "new
accounting firm") to audit our financial statements. During the two most recent
fiscal years and the subsequent interim periods prior to the engagement of the
new accounting firm, we did not consult with the new accounting firm with regard
to any of the matters listed in Regulation S-B Items 304(a)(2).
LEGAL PROCEEDINGS
In July of 1999, Bowne & Co., Inc., a financial and corporate printer,
filed suit against us in New York, seeking approximately $18,000 for, among
other things, outstanding printing invoices which we did not pay. As of yet, we
have not filed any response to this law suit, and this suit is still pending.
No other material legal proceedings are pending of which we are a
party.
TO OBTAIN ADDITIONAL INFORMATION
Prior to investing in the Company, the Company will make available to
any prospective qualified purchasers the opportunity to ask questions of and
receive answers from the Company concerning the terms and conditions of the
Offering. The following documents are available for inspection:(a) our articles
of incorporation; (b) our by laws; (c) our Form 10-KSB for the fiscal year ended
December 1999; (d) our Form 10-QSB for the period ended march 31, 2000; and
(e)our Form 10-QSB for the period ended June 30, 2000.
Additionally, these documents are on file with the SEC. The SEC
maintains a Web site that contains reports, proxy and information statements and
other information regarding the Company. The address of such Web site is
(http://www.sec.gov). Additional information or documents will be available to
any offeree upon request to our Company to the extent we possesses such
information or can acquire such information without unreasonable effort or
expense. Inquiries regarding this Memorandum should be directed to the Company
at 1625 Knecht Avenue, Baltimore, Maryland 21227, Telephone Number (410)
242-5000, Fax Number (410) 242-8575.
35
<PAGE>
FINANCIAL STATEMENTS
For the year ended December 31, 1999 and the quarters ended March 31,
2000 and June 30, 2000, please see our Forms 10-KSB and 10-QSB on file with the
Commission and incorporated herein by reference.
36
<PAGE>
THE OFFERING
Maximum number of shares of
Class A Common Stock 3,923,023
offered (Includes shares subject to (1)
outstanding convertible notes
and warrants and (2)
convertible notes and warrants
that may be issued after the
effectiveness of the
registration statement.)
Shares of Class A Common
Stock outstanding before the 3,824,367
offering (Does not include shares
subject to outstanding convertible
notes or warrants, some of which may
be sold under this prospectus after
conversion of these notes or the
exercise of these warrants.)
Shares of Class A Common
Stock to be outstanding after 7,747,390
the offering (The terms of our notes and
warrants require us to register more
shares than may be actually issued and
sold under this prospectus. The actual
number of shares that will be issued
depends upon the price of our common
stock at the time of conversion.)
Use of proceeds Except upon exercise of warrants, we
will not receive proceeds. Any
proceeds will be used for working
capital purposes.
37
<PAGE>
Risk Factors An investment in the securities
offered hereby involves a high degree
of risk. Prospective investors should
consider carefully the factors set
forth under "Risk Factors."
Symbol for Common Stock IMTE
38
<PAGE>
SELLING SHAREHOLDER
The name of the Selling Shareholder is H.A.A., Inc., a New York
corporation which may offer a maximum of 4,887,310 shares of Class A Common
Stock beneficially owned by it upon completion of the offering, assuming all of
the shares are sold. The number of shares sold by the Selling Shareholder may
depend upon a number of factors, including, among other things, the market price
of the Common Stock.
The Selling Shareholder has never had any position, office or other
material relationship with the company or any of its affiliates.
The maximum shares offered in the offering include (a) the principal
amount of the Convertible Notes to be converted in such conversion; (b) the
principal amount of the Warrants issuable upon exercise be Selling Stockholder;
and (c) the accrued and unpaid interest, if any, on the principal amount of the
Convertible Notes.
Because the number of shares of Class A Common Stock issuable upon
conversion of the Convertible Notes and as payment of interest thereon is
dependent upon the market price of the Common Stock prior to a conversion, the
actual number of shares of Common Stock that will be issued upon conversion and
consequently, offered for sale under this registration statement, cannot be
determined at this time. The Company has, however, agreed to register a total of
4,887,310 shares of Class A Common Stock, which includes 3,815,881 shares
converted from the Convertible Notes and accrued interest at the Default
Conversion Price of 60% of the Market Price (currently $0.22) or $0.132 per
share.
The address of H.A.A., Inc. is 1601 42nd Street, Brooklyn, New York
11204.
We are registering the shares for resale by the Selling Shareholder in
accordance with registration rights granted to the Selling Shareholder. We will
ay the registration and filing fees, printing expenses, listing fees, blue sky
fees, if any, and fees and disbursements of our counsel in connection with this
offering, but the Selling Shareholder will pay any underwriting commissions as
described above. The Selling Shareholder may also sell the shares in accordance
with Rule 144 under the Securities Act, rather than pursuant to this prospectus.
The Selling Shareholder and any broker dealers or agents that
participate with the Selling Shareholder in sales of the shares may be deemed to
be "underwriters" within the meaning of the Securities Act in connection with
such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
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<PAGE>
From time to time the Selling Shareholder may engage in short sales,
short sales against the box, puts and calls and other transactions in securities
of the Company or derivatives thereof, and may sell and deliver the shares in
connection therewith or in settlement of securities loans. If the Selling
Shareholder engages in such transactions, the conversion price may be affected.
From time to time the selling Shareholder may pledge their shares pursuant to
the margin provisions of its customer agreements with its brokers. Upon a
default by the Selling Shareholder, the broker may offer and sell the pledged
shares form time to time.
The Company is required to pay all fees and expenses incident to the
registration of the shares. The Company has agreed to indemnify the Selling
Shareholder against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
40
<PAGE>
SUMMARY FINANCIAL DATA
The following table summarizes the financial data of our business
for the year ended December 31, 1999 and the six months ended June 3o, 2000. The
information presents selected historical financial data derived from our
Financial Statements. The following data should be read with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our Financial Statements and the notes to the Financial Statements included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year Ended
June 30, 2000 December 31,1999
(unaudited) (audited)
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues $ 4,045,914 $ 1,465,294
Cost of revenues 3,697,212 1,262,396
Operating costs and expenses 1,422,573 502,342
Net (loss) (1,073,871) ($ 299,444)
Earning (Loss) per share of ($0.0368 ) ($ 0.0513)
Common Stock - Basic (Note #1)
Weighted Average Shares - Basic 9,190,183 5,835,166
Earnings (loss) per share of (0.0368) ($ 0.0308)
Common Stock
Weighted Average Shares - Diluted 9,190,183 9,726,833
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year Ended
June 30, 2000 December 31,
(unaudited) 1999 (audited)
<S> <C> <C>
BALANCE SHEET DATA:
Total Current Assets $ 61,840 $ 2,092,169
Investments 3,000,000 2,725,642
Fixed Assets (net of accumulated 200,008
depreciation) 221,574
Other Assets 227,457 215,162
Total Assets $ 5,404,034 $ 5,232,981
Current Liabilities $ 2,653,641 2,374,988
Total liabilities and stockholders'
equity $ 2,645,522 2,857,993
</TABLE>
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<PAGE>
RISK FACTORS
The shares offered in this prospectus are very speculative and involve a
high degree of risk. These shares should be purchased only by people who can
afford the loss of their entire investment. Before purchasing these shares, you
should carefully consider the following risk factors and the other information
concerning the company and its business contained in this prospectus.
WE HAVE A LIMITED OPERATING HISTORY AND MAY FACE DIFFICULTIES ENCOUNTERED
BY EARLY STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING MARKETS. We are a
development stage company with relatively small revenues and no profits. We have
a limited operating history. Our Company was incorporated in May 1971, but new
operations began in September 2, 1999. Our prospects must be considered in light
of the risks, expenses, delays, problems and difficulties frequently experienced
by early stage companies.
WE FACE COMPETITIVE CHALLENGES. The white box personal computer industry,
as well as the distribution industry, is highly competitive. Competition is
largely based on price, quality, range of service offered, shipping
capabilities, customer service, and product availability. Many of our
competitors are larger, more established and have greater name recognition and
financial and marketing resources than our Company. As a result, we could
potentially experience downward pricing pressure and increased competition which
would drive down revenues by either forcing a cut in sales or in prices. There
is always the risk of general market downturn which could impact revenues and
growth. Our viability, profitability and growth depend upon our meeting our
sales goals and our attaining sufficient financing to purchase inventory at
competitive prices.
DEMAND AND MARKET ACCEPTANCE FOR WHITE BOX PERSONAL COMPUTER SYSTEMS ARE
SUBJECT TO A HIGH LEVEL OF UNCERTAINTY. There can be no assurance that
widespread acceptance of white box Personal computer systems, or our products in
particular, will occur. We will rely on VARs who utilize white box personal
computer systems to purchase our products. In order for us to be successful,
these VARs must perceive us as their partner, not their competitor. Further,
issues concerning the reliability, cost and quality of white box personal
computer systems may affect our market. We cannot assure that VARs will view us
as "partners" and utilize our products. If our products do not achieve market
acceptance, our business, results of operations and financial condition could be
materially adversely affected.
WE HAVE INCURRED NET LOSSES SINCE COMMENCING OUR BUSINESS AND EXPECT
LOSSES FROM OPERATIONS IN THE FUTURE. We have not achieved profitability and
expect to continue to incur operating
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<PAGE>
losses for the foreseeable future. We expect to continue to incur significant
operating and capital expenditures and, as a result, we expect significant net
losses in the future and we will need to generate significant revenues to
achieve and maintain profitability.
WE HAVE POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND
UNPREDICTABLE FUTURE REVENUES. Our quarterly operating results may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside of our control. These factors include: demand for our products and
subsequent market acceptance; changes in our pricing structure resulting from
competition or other factors; technical difficulties affecting our products; and
changing economic conditions. Therefore, our operating results for any
particular quarter may not be indicative of future operating results.
We expect that over time our revenues will come from a mix of (i) sales
of our personal computer systems to VARs; and (ii) sales of our personal
computer systems to other resale venders. However, we expect the majority of our
initial revenues to be derived only from the sales of our personal computer
systems to other resale venders, such as Computer Personalities Network, our
largest single customer. Therefore, our quarterly revenues and operating results
are likely to be particularly affected by the level of our unit sales revenue in
each quarter.
Our operating expenses are based on our expectations of future revenues
and are relatively fixed in the short term. If we have lower revenues than we
expect, we may not be able to quickly reduce our spending in response.
Accordingly, we cannot assure that we will operate profitably in the future. In
addition, we intend to significantly increase our operating expenses to grow our
business. Any shortfall in our revenues would have a direct impact on our
operating results for a particular quarter and, these fluctuations could affect
the market price of our Common Stock in a manner unrelated to our long-term
operating performance or prospects.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS. We will require
additional funding. We currently do not have a credit facility or any
commitments for additional financing from either our management or from other
third party sources. If adequate funds are not available on a timely basis or on
acceptable terms, we may be unable to fund expansion, develop or enhance our
services or respond to competitive pressures. We cannot assure that financing
will be available to us on acceptable terms in the future or that, if the form
of any such future financing is through the direct or indirect issuance and sale
of equity securities, investors in this Offering will not be diluted. If
adequate funds are not available on a timely basis or on acceptable terms, we
may be unable to fund expansion, develop or enhance our services or respond to
competitive pressures. We may be forced to curtail one of our primary growth
strategies which may have an adverse effect on our long-term business prospects.
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<PAGE>
WE FACE RISKS ASSOCIATED WITH THE POSSIBILITY OF FUTURE ACQUISITIONS. One
of our principal growth strategies is to acquire other companies in the highly
fragmented white-box segment of the personal computer systems market in order to
establish an East Coast network of local assembly facilities; however, we cannot
predict whether we will be successful in pursuing such acquisition opportunities
or what the consequences of any such acquisition would be. Any future
acquisitions, investments, strategic alliances or related efforts will be
accompanied by associated risks. Among these: difficulty identifying appropriate
acquisition candidates; competition among prospective buyers; assimilation of
operations; failure to successfully incorporate licensed or acquired technology;
and the impairment of employee and customer relationships as a result of these
changes. We cannot assure that we will be successful in overcoming these risks.
In addition, entities which we acquire may have liabilities, including
contingent liabilities, for which we may become responsible. Additional debt or
equity financing could be required in order to complete future acquisitions. If
such additional financing is necessary, our ability to arrange financing and the
cost of such financing are dependent upon numerous factors, including the
general economic and capital market conditions; conditions in the personal
computer industry; regulatory developments; credit availability from banks or
other lenders; investor confidence in the personal computer industry and in our
Company.
WE FACE RISKS RELATED TO OUR SIGNIFICANT DEPENDANCE UPON A SINGLE
CUSTOMER. We are dependent upon our single largest customer, Computer
Personalities for a majority of our sales revenues. Our sales revenues derived
from sales to Computer Personalities were 0% of our total revenues in 1999 and
50% in the quarter ended March 31, 2000. We expect that the percentage of
revenues we derive from Computer Personalities will increase significantly and
ultimately could represent in excess of 50% of our total revenues. If we
experience a decrease in revenues from Computer Personalities, or lose Computer
Personalities as a customer all together, our total revenues may significantly
decrease and our quarterly results in the near future would be harmed.
Presently, we do not have any type of contractual agreement with Computer
Personalities for Computer Personalities to guarantee the purchase of any of our
products.
WE FACE RISKS RELATED TO OUR DEPENDENCE UPON OUR KEY PERSONNEL. We
are substantially dependent upon the individuals who comprise our current
management and other key personnel of our Company, in particular, C. Timothy
Jewell, our President, and Bernard Cary, our Chief Operating Officer. As
compared to many other public companies, we do not have a depth of managerial
and technical personnel. Accordingly, the loss of the services of any of these
two persons would have a material adverse effect on our business. We presently
do not have key-man life insurance policies on these person, but we intend to
obtain it upon receipt of the financing contemplated in this Offering.
Presently, we have not entered into formal, written employment agreements with
any of our executive officers, and may not do so in the near future.
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<PAGE>
Our ability to develop our business depends upon our attracting and
retaining qualified management personnel and specialized technical personnel.
Initially, we plan to hire experienced technical personnel who previously worked
for other high tech companies. The loss of key personnel or the failure to
recruit additional key personnel could significantly impede attainment of our
business objectives and have a material adverse effect on our financial
condition and results of operations. Our planned development will require the
addition of new personnel and the development of additional expertise by
existing management. There is significant competition for technologically
qualified personnel and we may not be successful in recruiting such qualified
personnel. We have encountered difficulties in recruiting such personnel in the
past. The inability to acquire such services or to develop such expertise could
have a material adverse impact on our continued development.
WE FACE RISK RELATED TO OUR RELIANCE UPON COMPONENT MANUFACTURERS
AND THE FACT WE HAVE NO SUPPLY CONTRACTS. We are dependent on outside suppliers
for all of the component parts and raw materials necessary for production, and
we are dependant upon maintaining good relationships with our suppliers. All the
component parts and raw materials we utilize are standard stock items for which
a replacement vendor could be obtained; however, a shortage, delay in delivery,
or lack of availability of a given part could lead to manufacturing delays,
which could reduce sales until the problem is remedied. Additionally, we
purchase certain custom parts. The failure of a vendor of one of these
customized components supply these custom parts could cause a lengthy delay in
production, resulting in a loss of revenues.
We have accounts with numerous component suppliers. Our purchasing
decisions are primarily governed by pricing and availability, and we currently
do not have any contracts with any specified vendors to purchase any parts.
Conversely, we also do not have any contracts that require any vendor to
segregate and maintain inventory for our consumption. As a result, we are
dependant upon market conditions to obtain products at reasonable prices that
allow us to operate profitably. Should there be market shortages or price hikes,
we could experience disruptions due to the failure or delay in the delivery of
our necessary components. Such disruptions could materially affect our ability
to effectively compete with other companies that have supplier contracts.
WE FACE RISKS RELATED TO OUR COMMON STOCK.
a) THE FUTURE SALE OF OUR SECURITIES WILL DILUTE THE PERCENTAGE OWNERSHIP
OF STOCKHOLDERS. If we raise additional capital through the sale of equity,
including preferred stock, or convertible debt securities, the percentage of
ownership of our stockholders will be diluted.
b) WE HAVE AN EXTRAORDINARY OVERHANG OF SECURITIES WHICH COULD ADVERSELY
AFFECT OUR COMMON STOCK. The Convertible Notes, outstanding and to be issued,
are convertible based upon market prices in the future and the number of shares
are presently indeterminate. If the price of our
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stock declines, the number of shares convertible from the Convertible Notes
could increase materially. If the outstanding options and warrants are exercised
or notes converted, the percentage of capital stock then held by the existing
stockholders will be reduced substantially. Furthermore, the outstanding options
and warrants can be expected to be exercised at a time when we would be able to
obtain funds from the sale of Common Stock or other securities at a price higher
than the exercise prices or conversion prices thereof.
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EXHIBITS
(3)(i)(a) Articles of Incorporation (incorporated by reference to our Report on
Form 10-K for the year ended December 31, 1981).
(b) Articles of Amendment (incorporated by reference to our Report on Form
10-K for the year ended December 31, 1981).
(c) Articles of Amendment (incorporated by reference to our Report on Form
10-K for the year ended December 31, 1998).
(d) Articles of Amendment (incorporated by reference to our Report on Form
10-K for the year ended December 31, 1998).
(3)(ii) Bylaws (incorporated by reference to the Company's Report on Form 10-K
for the year ended December 31, 1987).
(4) Instruments defining the rights of holders (incorporated by reference to
Exhibit (3) herein).
(10)
(1) Our Acquisition Agreement with Red River Trading Company, Inc. and
Micromatix.com, Inc. and Addendum thereto (incorporated by reference
to our Report on Form 10-K for the year ended December 31, 1999).
(2) Our compensation plan agreement with Frederic Richardson (incorporated
by reference to our Report on Form 10-K for the year ended
December 31, 1999).
(3) Our Lease Agreement (incorporated by reference to our Report on Form
10-K for the year ended December 31, 1999).
(4) Our Note Payable to Sarah Saul Simon Trust (incorporated by reference
to our Report on Form 10-K for the year ended December 31, 1999).
(5) Our Note Payable to Red River Trading (incorporated by reference to
our Report on Form 10-K for the year ended December 31, 1999).
(11) Earnings per share (See Financial Statements).
(27) Financial Data Schedule. (Incorporated by reference to our Report on
Form 10-K for the year ended December 31, 1999 and our Report on
Form 10-QSB for the period ending June 30, 2000.)
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL MERCANTILE CORPORATION
By: /s/ Frederic S. Richardson
--------------------------
Frederic S. Richardson,
Director
Date: August 16, 2000
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