As filed with the Securities and Exchange Commission on April 8, 1999
Registration No. 333-[_______]
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TECHNICAL VENTURES INC.
(Name of Small Business Issuer as specified in its charter)
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New York 13-3296819 1700
(State or other jurisdiction of (I.R.S. Employer Identification Number) (Primary Standard Industrial
incorporation or organization) Classification Code Number)
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3411 McNicoll Avenue
Unit 11
Scarborough, Ontario
Canada M1V 2V6
(416) 299-9280
(Address and telephone number of principal executive offices)
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Frank Mortimer, President
3411 McNicoll Avenue
Unit 11
Scarborough, Ontario
Canada M1V 2V6
(416) 299-9280
(Name, address and telephone number of agent for service)
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Copies of all communications to:
Gregory Sichenzia, Esq.
Richard A. Friedman, Esq.
Sichenzia Ross & Friedman, LLP
135 West 50th Street
New York, New York 10022
Telephone No.: (212) 664-1200
Facsimile No.: (212) 664-7329
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
<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 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 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. |_|
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Title of Each Dollar Offering Aggregate Amount of
Class of Securities Amount to be Price Per Offering Registration
to be Registered Registered Security(1)(2) Price(1) Fee
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Common Stock, $0.01 par value 6,913,842 $.27 $1,866,737.34 $373.35
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(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
(2) Represents the closing sale price for the Registrant's common stock on
April 1, 1999.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
TECHNICAL VENTURES INC.
Cross Reference Sheet
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Form SB-2 Item Number and Caption Captions In Prospectus
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1. Front of Registration Statement and Outside Front Cover of Prospectus..................... Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus................................... Cover Page, Inside Cover Page,
Outside Back Page
3. Summary Information and Risk Factors...................................................... Prospectus Summary, Risk Factors
4. Use of Proceeds........................................................................... Use of Proceeds
*
5. Determination of Offering Price...........................................................
6. Dilution.................................................................................. Dilution
7. Selling Securityholders................................................................... Selling Shareholders, Plan of
Distribution
8. Plan of Distribution...................................................................... Prospectus Summary, Selling
Securityholders
9. Legal Proceedings......................................................................... Business
10. Directors, Executive Officers, Promoters and Control Persons.............................. Management, Principal
Stockholders
11. Security Ownership of Certain Beneficial Owners and Management............................ Principal Stockholders
12. Description of Securities................................................................. Description of Securities
13. Interest of Named Experts and Counsel..................................................... Legal Matters
14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities....... Management
15. Organization Within Last Five Years...................................................... *
16. Description of Business................................................................... Prospectus Summary, Business
17. Management's Discussion and Analysis or Plan of Operation................................. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
18. Description of Property................................................................... Business
19. Certain Relationships and Related Transactions............................................ Certain Transactions
20. Market for Common Equity and Related Shareholder Matters.................................. Front Cover Page, Description of
Securities
21. Executive Compensation.................................................................... Management
22. Financial Statements...................................................................... Financial Statements
23. Changes in and Disagreements with Accounts on Accounting and Financial Disclosure......... *
</TABLE>
*Not Applicable
<PAGE>
SUBJECT TO COMPLETION, DATED April 8, 1999
PROSPECTUS
TECHNICAL VENTURES INC.
6,913,842 Shares of Common Stock
This Prospectus is prepared in connection with the sale to the public of
shares of our common stock. A portion of the shares of our common stock is being
offered by our shareholders, and the remainder is being offered by certain
persons who have purchased debentures which are convertible into our common
stock and warrants to purchase our common stock. In total, an aggregate of
6,913,251 shares of our common stock will be sold to the public from these
persons.
Our common stock is publicly traded on the Over-the-Counter Bulletin Board
under the symbol "TEVT."
This investment involves a high degree of risk. See "Risk Factors"
beginning on page [__] for a discussion of certain factors that you should
consider before you invest in the common stock being sold with this prospectus.
----------------------------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
The date of this Prospectus is [_____], 1999
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Table of Contents
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Page
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Special Note About Forward-Looking Statements.....................................................
Prospectus Summary................................................................................
Risk Factors......................................................................................
Use of Proceeds...................................................................................
Dividends.........................................................................................
Dilution..........................................................................................
Capitalization....................................................................................
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................
Business..........................................................................................
Management........................................................................................
Principal Stockholders............................................................................
Certain Transactions..............................................................................
Description of Our Securities.....................................................................
Shares Eligible for Future Sale...................................................................
Selling Shareholders.............................................................................
Plan of Distribution..............................................................................
Legal Matters.....................................................................................
Experts...........................................................................................
Where You Can Find More Information...............................................................
Index to Financial Statements..................................................................... F-1
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Special Note about Forward-Looking Statements
Some of the information in this Prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this Prospectus. The factors contained in the "Risk Factors"
section beginning on page [__] and other factors noted throughout this
Prospectus, including certain risks and uncertainties, could cause our actual
results to differ materially from those contained in any forward-looking
statement.
2
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
It is not complete and may not contain all the information that is important to
you. You should read the entire Prospectus carefully, including the "Risk
Factors" section and the financial statements. Unless stated otherwise, all
information with respect to our common stock has been adjusted to reflect the
reverse split discussed in the paragraph immediately below.
The Company
We are a corporation organized under the laws of the State of New York. We
were formed for the purpose of acquiring businesses which, in our opinion,
demonstrate long-term growth potential. Since our formation, we have only
acquired one business, Mortile Industries Ltd. ("Mortile"), which we presently
have a 70% interest. Mortile is a corporation organized under the federal laws
of Canada. Through Mortile, we are engaged in the design, development and
manufacture of highly engineered products made primarily from specially
formulated high performance polymer materials. Our products are used in a wide
range of applications primarily by manufacturers of end-use products,
particularly products used in industrial markets. We focus on niche markets and
applications for which we can provide our customers application-specific product
solutions based on our polymer based materials technology, engineering expertise
and production technology. Our products and technologies are sold to
manufacturers of end-use products in the industrial equipment, transportation,
electronics, munitions and process industries markets.
The Offering
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Common Stock Offered........................ 6,913,842 shares, such shares consisting of 127,842 shares are issuable upon
exercise of warrants we previously issued and will be sold by the holders of such
warrants, 6,120,000 shares are issuable upon conversion of $225,000 principal
amount of debentures and will be sold by the holders of such debentures, and
666,000 shares are being offered by certain shareholders. The outstanding
principal and interest on the debentures is convertible at a price that is equal
to the lesser of $.176 per share or 75% of the 10 day average of the per share
market price immediately prior to the date of conversion. Thus, the debentures
are convertible into a minimum of 1,278,409 shares of common stock. For the
purposes of this Prospectus, we have assumed that the 10 day average of the
market price of our common stock is $.05 per share (yielding a conversion price
per share of $.0375) and we have assumed that 2% interest has accrued on the
principal amount of the debentures.
Use Of Proceeds We will not receive any proceeds from the conversion of the debentures or
the sale of common stock by our shareholders. Any money we receive upon the
exercise of warrants will be used to pay for the expenses of this
offering.
Risk Factors................................ You should read the "Risk Factors" section beginning on page [___], as well as
other cautionary statements throughout the entire prospectus, to ensure you
understand the risks associated with an investment in our stock.
Common Stock Outstanding Before this
Offering.................................... 22,048,011 shares(1)
Common Stock Outstanding After this
Offering.................................... 28,795,853 shares(2)
Over-the-Counter Bulletin Board Symbol...... TEVT
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(1) Excludes (i) 50,000 shares of common stock issuable upon the conversion
of promissory notes outstanding, and 50,000 shares of common stock issuable upon
exercise of outstanding options.
(2) Assumes the debentures are converted into 6,120,00 shares of common
stock and all of the outstanding warrants to purchase 127,842 shares of common
stock are exercised. Assumes the issuance of all 500,000 shares of common stock
issuable to Coleman Capital Partners Ltd. in connection with consulting services
to be performed pursuant to an Advisory Agreement, dated January 11, 1999.
3
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Summary Financial Information
The following is summary of our financial information for fiscal years
ended June 30, 1998 and June 30, 1997, and for the six month periods ended
December 31, 1998 and December 31, 1997. You should also read our Financial
Statements which begin at the end of this Prospectus, beginning on page F-1.
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Statement of Operations Data:
Six Months Ended December 31, Year Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales ................... $ 505,078 $ 671,949 $ 1,185,091 $ 1,414,062
Gross profit ................ 148,676 93,110 200,192 184,160
Income (loss) from operations (45,027) (131,125) (216,576) (216,843)
Net income (loss) ........... (39,369) (117,125) 519,594(1) (216,843)(2)
Earnings (loss) per share ... $ (0.002) $ (0.01) $ 0.04 $ (0.01)
Weighted average number of
common stock outstanding . 18,430,709 14,711,341 14,676,752 14,586,341
</TABLE>
Balance Sheet Data:
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<CAPTION>
Six Months Ended Year ended June 30,
December 31, 1998 1998 1997
<S> <C> <C> <C>
Working Capital .... $ (8,460) $ 17,605 $ 23,772
Total Assets ....... 351,757 411,440 505,776
Total Liabilities .. 1,417,634 1,660,550 2,368,206
Stockholders' Equity (1,065,877) (1,249,110) (1,862,431)
</TABLE>
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(1) Reflects gain from transfer of technology rights of $693,415 and income
tax recovery of $42,755.
(2) Reflects income tax recovery of $20,521.
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Risk Factors
Investing in our common stock is highly risky. You should carefully
consider the following risk factors, together with all of the other information
in this Prospectus, before you decide to invest in shares of our common stock.
We have had a history of net losses, have experienced cash flow
deficiencies, and have, at times, been unable to pay many of our obligations as
they became due. For fiscal year ended June 30, 1998, we incurred net losses of
$216,576 before accounting for an income tax recovery and a gain on a transfer
of technology. For fiscal year ended June 30, 1997, we incurred net losses of
$216,843. At June 30, 1998, we had an accumulated deficit of $1,249,110. At
times, our cash shortages have caused us to be delinquent in paying its
suppliers, and have impaired our ability to purchase raw materials, causing
production delays that resulted in back orders and lost sales. Cash shortages
have hindered our existing operations and, thus, prevented any expansion. As a
result, our auditors have noted in their report that we have experienced
significant operating losses and have an accumulated deficit which raise
substantial doubt about our ability to continue as a going concern.
If we are unable to find additional financing, we may be unable to
continue operations. We intend to seek additional funding through public or
private equity or debt financing. We cannot assure you that additional financing
will be available on acceptable terms, or at all. If we are required to sell
equity to raise additional funds, our existing shareholders may incur
substantial dilution to the value of their shares, and any shares so issued may
have rights, preferences and privileges superior to the rights, preferences and
privileges of our outstanding common stock. Insufficient funds may require us to
delay, scale back or eliminate some or all of our activities or to obtain funds
through arrangements with third parties that may require us to relinquish rights
to certain of its technologies, product candidates or products that we would
otherwise seek to develop or commercialize.
Acceptance and use of our products in the marketplace is uncertain.
Part of our business is to develop innovative products which will improve the
manufacture of plastics and plastic products. To be successful, our products
must have a price-value relationship that is competitive with alternative
products and technologies. We cannot assure you that we will not experience
unforseen problems with our technology or products. Nor can we provide you with
assurance that our products or technology will be commercially accepted.
Our revenues are dependant on the continued operation of our
manufacturing facilities. The operation of manufacturing facilities involves
risk. Our manufacturing equipment may break down, fail to operate or perform at
substandard levels. We may be effected by natural disasters which may make the
operation of our facilities impossible. Also, our manufacturing facilities must
comply with directives of government agencies. Any reduction or suspension of
manufacturing operations from any of the events listed above is likely to have a
material adverse effect on our productivity and profitability.
Our markets are highly competitive. Each of the industries in which we
compete is highly competitive. We compete with other companies primarily on the
basis of price, service, product quality and performance. We compete with some
of the world's largest chemical companies, such as Exxon Corp., E.I. DuPont De
Nemours & Co., Union Carbide Corp., and Raychem Corp. Our competitors have
significantly greater financial, technical and human resources. We cannot
provide you with assurances that our competitors will not develop products or
technologies that are more effective than any we have developed or are
developing, or that our competitors will render our products or technologies
obsolete and noncompetitive. Our competitors may succeed in obtaining market
acceptance for products more rapidly than us. Furthermore, even if our products
are accepted by the marketplace, we will compete with respect to volume
manufacturing efficiency and marketing capabilities; areas in which we have
limited or no experience.
We depend on our key personnel. Our future success partly depends upon
key managerial, technical and marketing personnel and upon our ability to
continue to attract and retain such highly talented individuals. Competition for
qualified personnel is intense in our industry. We are dependent upon the
efforts and abilities of Frank Mortimer, our President, Bryan Carter, our Vice
President, and Larry Leverton, our Secretary and Treasurer. We are not presently
engaged in employment agreements with Messrs. Mortimer, Carter and Leverton, nor
do we maintain key man life insurance policies on either of these individuals.
The loss of the services of any of the above individuals, or of other key
personnel, could adversely affect our business. We cannot assure you that we
will retain our key employees or that we will attract or assimilate such
employees in the future.
We depend on patents and proprietary technology. Our future success
will partly depend on our ability to maintain protection for our products and
manufacturing processes under United States and foreign patent laws, to preserve
its
5
<PAGE>
trade secrets and to operate without infringing the proprietary rights of third
parties. We currently hold patents and trademark registrations for various
products and plan to continue to establish and protect their proprietary rights
with respect to new products we develop. U.S. patent applications are maintained
in secrecy until patents issue. Since publication of inventions in technical or
patent literature tend to lag behind inventions by several months, we cannot be
certain that we are the first creator of inventions covered by our issued
patents or pending patent applications, or that we were the first to file patent
applications for such inventions.
We also rely on trade secrets and proprietary know-how, which we seek
to protect, in part, by confidentiality agreements with our research partners,
employees, consultants, advisors and others. However, actions taken to establish
and protect proprietary rights may be inadequate to prevent imitation of such
products by others or to prevent others from claiming violations of their
proprietary rights by our company. In addition, others may assert rights in our
proprietary products and processes and other proprietary rights.
Shares of our common stock that are eligible for future sale could
adversely affect its market price. Our common stock presently trades on the
Over-the-Counter Bulletin Board. Sales of substantial amounts of our Common
Stock in the public market or the prospect of such sales by existing
shareholders, and holders of our warrants, could materially reduce the market
price our common stock. As of the date hereof, we had outstanding 22,048,011
shares of common stock. This number does not take into account shares of common
stock issuable upon conversion of the debentures or exercise of the warrants.
Virtually all of our outstanding shares of common stock are either registered,
and therefore freely tradable, or may be transferred pursuant to Rule 144(k)
under the Securities Act, unless held by our "affiliates" as that term is
defined in Rule 144 under the Securities Act.
We are dependant on our ability to obtain raw materials. Although
certain raw materials used in our products are available from several sources.
However, if we unable to obtain a supply of raw materials, and we are unable to
develop alternative sources of supply quickly and on a cost-effective basis, our
ability to manufacture and deliver its products would be materially impaired.
Should demand for our products substantially exceed current expectations, or if
we experience supply problems we cannot assure you that we would be able to
obtain sufficient quantities of raw materials from our current sources, or that
alternate sources could be found without disrupting our manufacturing process.
Our products may be subject to government regulation. Certain end
products into which our products are to be incorporated are subject to extensive
government regulation in the United States by federal, state and local agencies
including the EPA and the Food and Drug Administration (the "FDA"). Similar
regulatory agencies exist worldwide. Our customers who incorporate our products
into consumer products will bear primary responsibility for obtaining any
required regulatory approvals. The process of obtaining and maintaining FDA and
any other required regulatory approvals for products is lengthy, expensive and
uncertain, and regulatory authorities may delay or prevent product introductions
or require additional tests prior to introduction. We cannot assure you that
changes in existing regulations or the adoption of new regulations will not
occur, which could prevent us or our customers from obtaining approval (or delay
the approval of) various products or could adversely affect market demand for
our products.
We are subject to many foreign and domestic laws and regulations
relating to the protection of human health and the environment. These laws and
regulations govern areas such as emissions to the air, discharges to land and
water and the generation, handling, storage, transportation, treatment and
disposal of waste.
We believe that our business, operations and facilities are being
operated in compliance with environmental laws and regulations. However, we are
exposed to risks relating to accidental discharges of hazardous materials,
personal injury, property damage and environmental damage. Furthermore,
environmental laws and regulations provide for substantial fines and criminal
sanctions in the event we do not comply. As such, we cannot provide you with
assurance that our ongoing operations will not be effected by material costs or
liabilities resulting from such risks.
Additionally, we believe that, in the future, environmental and health
and safety laws and regulations, including the enforcement of such laws and
regulations, will become more strict. Increased regulation of our operating
activities could involve material expenditures with respect to our handling,
manufacture, use or disposal of substances, waste or pollutants at our
facilities. To meet changing regulatory standards, we may be required to
significantly modify our operations or manufacturing sites. Such modifications
may involve substantial expenditures and reductions or suspensions of certain
operations.
We could be liable for damages in connection with product liability
claims. Product liability claims may be asserted against us in the event that
the use of our products, or products which incorporate our products, are alleged
to have caused injury or other adverse effects. Such claims may involve large
amounts of alleged damages and significant defense costs. We do not
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maintain product liability insurance. If we do obtain product liability
insurance in the future, we cannot assure you that the liability limits, or the
scope of such insurance policy, would be adequate to protect against such
potential claims. Additionally, we may not be able to obtain product liability
insurance. Whether or not we obtain such insurance, a successful claim against
us could materially affect our financial stability. In addition, our reputation
could be adversely affected by product liability claims, regardless of such
claim's merit or eventual outcome.
Our business may be affected by problems associated with the Year 2000
issue. Many existing computer programs use only a two digit suffix to identify a
year in the date field with an assumed prefix of "19". Consequently, this limits
those systems to dates between 1900 and 1999. If not corrected, many computer
systems and applications could fail or create erroneous results at or in
connection with applications after the year 2000.
We have assessed the potential impact of the Year 2000 issue to our
internal operations. Such assessment included a review of the impact of the
issue in primarily four areas: products, manufacturing systems, business systems
and miscellaneous/other areas. Based on the results of that initial review, we
do not anticipate that the Year 2000 issue will impact operations or operating
results. We cannot assure you, however, that our review efforts, when completed,
will not result in a different conclusion or that the inability of third parties
on which we rely (such as suppliers) to implement corrective actions would not
materially adversely affect our operations or operating results.
Our common stock is subject to "penny stock" rules which may affect its
marketability. Trading in the Over-the-Counter Bulletin Board allows market
makers to enter quotes and trade securities that do not meet listing
requirements of the Nasdaq SmallCap Market or any regional exchange. In such
case, sales of our common stock will be subject to the "penny stock" rules
promulgated by the Securities and Exchange Commission (the "SEC"). The SEC's
regulations generally define a "penny stock" as any equity security that has a
market price (as defined) of less than $5.00 per share. The rules impose various
sales practice requirements on broker-dealers who sell securities governed by
the rules to persons other than established customers and certain accredited
investors. For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The rules further
require the delivery by the broker-dealer of a disclosure schedule prescribed by
the SEC relating to the penny stock market. Disclosure must also be made about
all commissions and about current quotations for the securities. Finally,
monthly statements must be furnished to the SEC disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
Although the regulations provide several exceptions to, or exemptions
from, the penny stock rules based on, for example, specified minimum revenues or
asset-value, we may not fall within any of the stated exceptions. Thus, a
transaction in our securities would subject the broker-dealer to sales practice
and disclosure requirements that make trading of the stock more cumbersome which
could materially adversely affect the marketability of the stock.
The price of our common stock may be volatile. The market price of our
securities may be highly volatile, as has been the case with the securities of
other companies engaged in high technology research and development. Any
announcements we or our competitors make concerning technological innovations,
new commercial products or procedures, proposed government regulations and
developments, disputes relating to patents or proprietary rights, operating
results, market conditions and economic factors may have a significant impact on
the market price of our common stock.
Our revenues are dependant on certain key customers. We have several
key customers which presently account for more than five percent of our total
revenues. For the fiscal year end 1998, Endex Polymer Additives accounted for
18%, Shaw Industries accounted for 41% and MLPC International accounted for 16%
of our total revenues. For the six month period ended December 31, 1998, Shaw
industries accounted for 44%, MLPC International accounted for 21% and SNC
Industrial Technologies accounted for 9% of our total revenues. Many of our
customers operate in cyclical industries and, as a result, their order levels
have varied significantly from period to period in the past and may vary
significantly in the future. Such customer orders are dependent upon their
markets and customers and may be subject to delays or cancellations. The loss of
one or more of such customers, or a declining market in which such customers
reduce orders or request reduced prices, could have a material adverse effect on
our operations or financial condition.
We do not expect to pay dividends on our common stock. To date, we have
paid no dividends on our common stock. The payment of any future dividends will
be at the sole discretion of the our Board of Directors. We intend to retain
earnings to finance the expansion of our business and do not anticipate paying
dividends on our common stock in the foreseeable future.
Our possible failure to comply with recent Over-the-Counter Bulletin
Board listing qualifications may affect the
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trading of our common stock. NASD Regulation, Inc. has enacted rule to limit
quotations on the Over-the-Counter Bulletin Board to the securities of issuers
that make current filings pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act"). Furthermore, NASD Regulation, Inc. has enacted rules which
require members to review current issuer financial statements prior to
recommending a transaction to a customer in an Over-the-Counter Bulletin Board
security and to deliver a disclosure statement to a customer prior to an initial
purchase of an Over-the-Counter equity security. If the we are unable to satisfy
reporting requirements our common stock may be de-listed from the
Over-the-Counter Bulletin Board and/or may severely limit the trading activity
of our securities.
USE OF PROCEEDS
The only proceeds we expect to receive will be from the exercise of the
warrants. However, pursuant to the terms of the warrants, the holders of the
warrants have a "cashless exercise" option. The cashless exercise option permits
the holders of the warrants to exercise the warrants without paying to us the
exercise price of the warrant. Instead, the holders of the warrants would
receive an amount of common stock with a dollar value that is equal to the
difference between the market price of the common stock less the exercise price
of the warrant multiplied by the number of warrants owned by the holder thereof.
In such a case, we would not receive any funds. In the event the holders of all
the outstanding warrants elect to exercise the warrants by paying the exercise
price of the warrants, we will receive a maximum of $22,500. Any proceeds
received by us will be applied towards the expenses of this offering which we
estimate to be $30,000.
DIVIDENDS
To date, we have paid no dividends on our common stock and our Board of
Directors has no present intention to pay dividends on its Common Stock in the
foreseeable future. See "Description of Securities." The payment of dividends in
the future, if any, rests solely within the discretion of our Board of
Directors. Our future dividend policy will depend upon, among other things, our
earnings, capital requirements and financial condition, as well as other factors
deemed relevant by our Board of Directors. Although we are not limited to pay
dividends by any agreements, we anticipate that future agreements, if any, with
institutional lenders or others may limit our ability to pay dividends.
DILUTION
Our present shareholders have acquired their shares of common stock and
a controlling interest in us, at a cost that is substantially less than which
you may purchase shares. Net tangible book value represents the amount of our
tangible assets, reduced by the amount of our liabilities, and it is a means to
determine the dollar value of our common stock. At December 31, 1998, our net
tangible book value (deficit) was ($1,065,877), or ($.05) per share based on
21,948,011 shares of common stock outstanding. When our net tangible book value
per share is adjusted to take into account the sale of $225,000 of debentures
and the receipt of $22,500 of proceeds from the exercise of 127,842 warrants,
our net tangible book value (deficit) as of December 31, 1998 would be
approximately ($818,377), or ($.03) per share. This means that you will
experience an immediate dilution (the difference between the offering price of
the shares and the net tangible book value per share after the Offering) per
share of approximately $.27 (or 100%).
The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
Per Share of
Common Stock
<S> <C> <C>
Assumed public offering price $0.25
Net tangible book value at December 31, 1998 $(0.05)
Increase in net tangible book value attributable to new
investors $0.02
Net tangible book value after this offering $0.00
Dilution of net tangible book value to new investors $0.27
</TABLE>
8
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1998. This table should be reviewed in conjunction with our Financial Statements
which begin at the end of this Prospectus on page F-1.
<TABLE>
<CAPTION>
December 31, 1998
Actual As Adjusted(1)
<S> <C> <C>
Long-term debt, less current maturities $ 338,215 $ 338,215
Shareholders' equity
Common stock, $.01 par value, 21,948,011
issued and outstanding; 23,946,262 issued and
outstanding, as adjusted 219,480 239,462
Additional paid-in-capital 4,165,410 4,392,928
Foreign currency translation adjustment 348,140 348,140
Deficit (5,798,907) (5,798,907)
Total shareholders' equity (1,065,877) (818,377)
Total capitalization $ (727,622) $ (480,162)
</TABLE>
-----------------
(1) Adjusted to reflect: (i) the sale of $225,000 of debentures and the
conversion of such debentures into 1,278,409 shares of common stock; (ii) the
receipt of $22,500 upon the exercise of warrants into 127,842 shares of common
stock; (iii) the issuance of 100,000 shares of common stock in connection with
consulting and legal services rendered; and (iv) the issuance of 500,000 shares
of common stock issuable to Coleman Capital Partners Ltd. pursuant to its
Advisory Agreement with us, dated January 11, 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
financial statements and notes thereto included at the end of this Prospectus
beginning on page F-1. This discussion contains forward looking statements that
involve risks and uncertainties. Our actual results may differ significantly
from the results discussed in the forward looking statements. Factors that might
cause such a difference include but are not limited to those discussed in "Risk
Factors."
Results of Operations
Six Month Period Ended December 31, 1998 Compared to Six Month Period Ended
December 31, 1997
Sales. Total sales decreased 25% to $505,078 for the six month period
ended December 31, 1998, from $671,949 for the six month period ended December
31, 1997. This decrease in sales was attributable to the elimination of the
inclusion of raw materials in invoiced sales to customers which provided raw
materials used in production. Accordingly, the decrease in sales was offset by a
corresponding decrease in material costs which is reflected in cost of sales.
Additionally, sales were affected by a 94% reduction in revenues generated by on
e of our customers.
Gross Margins. Gross margins, as a percentage of net sales, increased
to 29.4% during the six month period ended December 31, 1998, from 13.8% for the
six month period ended December 31, 1998. This increase was due, in part, to the
changes in arrangements for the supply of raw materials and changes in our
product mix to orders with higher productivity.
9
<PAGE>
Financial and Interest Expense. Financial and interest expense
decreased 41% or $26,105 from the six month period ended December 31, 1997,
through the six month period ended December 31, 1998. This change was a result
of the elimination of the debts owed to Dow and the resultant decline in
interest payments on such debt.
Administrative Expense. Administrative expense increased to $70,017 for
the six month period ended December 31, 1998, as compared to $66,575 for the six
month period ended December 31, 1997. This increase in attributable to our
increased efforts to seek financing.
Research and Development and Selling Expenses. Research and development
expenses decreased $12,646 to $44,883 for the six month period ended December
31, 1998, compared to $57,529 for the six month period ended December 31, 1997.
Selling expenses increased $4,777 to $41,661 for the six month period ended
December 31, 1998, compared to $36,884 for the six month period ended December
31, 1997. Decreases in research and development expenses and increases in
selling expenses is attributable to physical resources being diverted from
research and development to manufacturing and selling in connection with our
production of our new product MORFOAM.
Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997
Sales. Total sales decreased 16% to $1,185,091 for fiscal year ended
1998 from $1,414,062 for fiscal year ended 1997. Sales during fiscal 1998,
particularly sales of proprietary products, were significantly less than we
anticipated. While our products were widely accepted for use in the
manufacturing of our customer's products, acceptance in the marketplace by
end-users of our customers products was slow, thus, having an adverse effect on
sales. For example, we manufacture a composite of metal and plastic. The
composite is used in lieu of lead in the manufacture of munitions. We
anticipated that legislation banning the use of munitions products composed of
lead would boost sales; however, such legislation was never passed.
Additionally, sales to customers of specialty compounding materials were lower
in fiscal 1998 as a result of our customers' difficulties in marketing new
munitions products which resulted in decreased demand for our products.
Sales by geographic area for fiscal years ended 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
Geographic Area 1998 1997
========== ==== ==== ====
<S> <C> <C>
United States $ 33,277 $ 549,953
Ontario, Canada 1,104,222 864,031
Quebec, Canada 47,560 -
------------------- -------------------
$ 1,185,059 $ 1,414,062
=================== ===================
</TABLE>
Sales by product line for fiscal years ended 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
Product Line 1998 1997
======= ==== ==== ====
Specialty Compounding
<S> <C> <C>
(including Composite Technology) $1,136,768 $1,280,496
Polymer Technology 18,183 93,850
Miscellaneous 30,107 39,368
=================== -------------------
$1,185,059 $1,413,984
=================== ===================
</TABLE>
Gross Margins. Gross margins, as a percentage of net sales, increased to
17% during fiscal year ended June 30, 1998, from 13% for the fiscal year ended
June 30,1997. This increase was due, in part, to a shift in pricing arrangements
with some of our customers. For example, a number of our customers will purchase
and provide us with the raw materials necessary to make the compounds ordered.
As such, the purchase of raw materials is not included in invoiced sales, thus,
costs of sales are reduced and gross margins have increased.
Financial and Interest Expense. Financial and interest expense decreased
10.6%, or $12,655, from fiscal year ended 1997 through fiscal year ended 1998.
Decreases in our average indebtedness outstanding was the primary contributing
factor; however, less favorable foreign currency exchange between the Canadian
and U.S. dollars diluted the effect of decreased average indebtedness.
Administrative Expense. Administrative expense increased to $146,789 for
fiscal year ended June 30, 1998, as compared to $137,373 for fiscal year ended
June 30, 1997. This increase in attributable to our increased efforts to seek
10
<PAGE>
financing.
Research and Development and Selling Expenses. Research and development
expenses increased $12,649 to $94,874 for fiscal year ended June 30 1998,
compared to $82,225 for fiscal year ended June 30, 1997. Selling expenses
increased $12,649 to $94,874 for fiscal year ended June 30 1998, compared to
$82,225 for fiscal year ended June 30, 1997. Increases in research and
development and selling expenses is attributable to the development of
technology related to its our new product "MORFOAM" and our endeavors in
introducing the product to the marketplace.
Liquidity and Capital Resources
During the six month period ended December 31, 1998, we had an
operating loss of $45,027. During the fiscal year ended June 30, 1998, we had an
operating loss of $216,576 which was funded, primarily, by working capital
provided by a Canadian tax refund and debt financing. During fiscal 1998, we
reduced a portion of past due balances to vendors and creditors. However, our
operating losses and monthly debt service requirements continue to leave us in a
position where we are unable to meet our monthly cash flow requirements.
Our long term debt financing arrangements with Innovative Ontario
Corporation and FBX Holdings are presently past due. The aggregate amount of
principal payments currently in arrears and outstanding on this debt is
$376,296. Both of these creditors have verbally agreed to allow a moratorium on
principal repayments until we are in a financial position to make payment(s) or
alternate arrangements can be completed. We have entered into negotiations with
Innovative Ontario to eliminate all debt, plus accrued and unpaid interest,
which totals$326,099 in exchange for shares of common stock. We cannot assure
you that we will be successful in reaching an agreement with Innovative Ontario
Corporation; however, Innovative Ontario Corporation has indicated it's
willingness to negotiate an equitable settlement.
In June 1998, we finalized a transfer of technology in exchange for
debt agreement with Dow Chemical Canada Inc. and The Dow Chemical Company
("Dow"). We transferred to Dow title and ownership in our existing intellectual
property rights (including all proprietary knowledge, patents and patent
applications) relating to halogen free, flame retardant thermoplastic
composition technology and smelt filler technology. Dow granted us a
non-exclusive, non transferable, royalty free world-wide license for use of the
technology, pursuant to which, Dow has access on, at least, a non-exclusive
basis to improvements we make in the technology. Dow, in turn, released Mortile
from its debt obligations to Dow, plus all accrued and unpaid interest owed on
the debt. Dow also released us and Frank Mortimer, our President, from
guarantees made by both in connection such debt. As a result of the transfer of
technology to Dow, we realized a net gain of $693,415, which is reflected in our
financial statements for fiscal year ended June 30, 1998.
During fiscal 1998, we received a Canadian research and development tax
refund from fiscal year ended 1996 in the amount of Cdn.$19,680. We also
submitted a claim for fiscal 1997 amounting to approximately Cdn.$34,000, for
which we received a refund of Cdn.$26,000. This refund was recognized in the
fiscal year ended June 30, 1998. We received an additional provincial refund of
approximately Cdn.$8,000 during the first financial quarter of fiscal 1999 in
connection with our 1997 tax filing. Additionally, we will file a claim for
fiscal 1998 of approximately Cdn.$35,000. Revenue Canada, the Canadian federal
tax authority, has notified us of its intent to audit all submitted claims. We
do not consider these funds (assuming the refund claims listed above are
accepted) to be a long-term solution to our financial needs. We are making
efforts to find additional financing; however, our the financial condition has
hindered us in our pursuit of acceptable financing arrangements. We will give
serious consideration to raising additional funds through private or public
equity issuance's in the future if we deem that it is in our best interest and
that such financing is in the best interest of our stockholders.
In late July, by amendment to its Certificate of Incorporation, our
capital structure was modified to increase the number of authorized common
shares from fifteen million to fifty million. On February 5, 1999, we completed
a private offering of 8% convertible debentures and common stock purchase
warrants. Pursuant to the offering, we sold an aggregate of $225,000 of
debentures and common stock purchase warrants. The debentures are convertible at
the option of the holders thereof, into a minimum aggregate of 1,278,409 shares
of our common stock. The warrants are exercisable at an exercise price of $.176
per share into 127,842 shares of our common stock. The aggregate gross proceeds
from the offering was $225,000, of which we received $191,520, after deducting
the expenses of the offering. The net proceeds of the offering was used for
working capital purposes. We believe that the proceeds of the offering will be
sufficient to meet our capital needs for the next three months.
On January 11, 1999, we entered into an advisory agreement with Coleman
Capital Partners Ltd., whereby Coleman agreed to advise and assist us with,
among other things, raising capital, arranging "road shows" and other formal
presentations to the investing community and listing our common stock on NASDAQ
or a major stock exchange in the United States and Europe. For the services
Coleman will perform, Coleman will receive $5,000 per month, an aggregate of
550,000 shares of common
11
<PAGE>
stock, of which 50,000 shares have been issued, plus a cash fee of eight percent
of the total gross proceeds raised in any capital raising transaction for our
benefit. The term of the advisory agreement is for one year and it can be
renewed or restructures with the written consent of both parties. The advisory
agreement can be terminated by either party on certain pre-determined intervals.
Operating Trends and Uncertainty
Our ability to attain a profitable level of operations is dependent
upon expansion of sales volume, both domestically and internationally, and
continued development of new, advanced products. We believe that we will
increase sales with the continued release of new products, market expansion, and
the addition of new customers.
As previously discussed, we have developed a number of component
products, used in the manufacture of end-use products, that are alternatives to
hazardous component materials, such as lead. We have developed such products in
anticipation of legislation, including environmental regulations, that will ban
the use of these hazardous materials. A number of our products are poised for
tremendous success should certain legislation be enacted. For example, there are
several projects within the realm of the metal technology that we are currently
assessing which could represent major sources of revenue. One such project is
the supply of a composition to be used in the production of a metal filled
laminated sheet. The laminated sheet is being considered in the manufacture of
visual display boards, which, by applying the metal technology would allow the
use of magnetized items on the surface of the display. Other potential uses for
this product are light weight x-ray blankets, self lubricating bearings and
bushings, components for the toy industry and any lead replacement industry.
Although some of our products are more costly than more hazardous
alternatives, some manufacturers of end-use products have elected to use our
materials in the manufacture of their products. For example, Lucent Technologies
Corp. has specified our flame retardant material for use in their fiber optic
products and we presently manufacture a product for a munitions manufacturer
that is used in lieu of lead. We believe that there are indications that there
has been a recent increase in public pressure to ban the use of certain
hazardous materials, particularly lead. However, in the absence of specific
legislation banning the use of such materials the growth in sales of certain of
our products may be slow or certain of our products may never achieve market
acceptance.
Specialty (Contract) Compounding represented 98% of our revenues during
1998. We continue to submit bids and quotes on further contract work, and we
actively look for suitable applications for our compounding technologies. We
expect an increase in future sales of masterbatch powders and plastics. See the
section "Business-Specialty Compounding" for a discussion of masterbatch powders
and plastics.
We have worked very closely for over two years with a few major
customers, including MLBC International, on the development of technology
relating to the compounding of masterbatch powders and plastics. Each of these
customers has appointed us as the compounder in connection with their
masterbatch compounding needs. We expect substantial orders over a long period
in connection with our efforts. We have entered into a three year contract with
MLBC for the supply of masterbatch compounds. We commenced manufacturing for
MLBC in early March 1998. Should specialty compounding sales to MLBC increase
substantially, we will need to expand our manufacturing facilities.
Effect of the Declining Value of the Canadian Dollar on Our Business
We do not anticipate that recent declines in the value of the Canadian
dollar, as compared to the U.S. dollar, will have a material adverse effect on
our business operations or financial results. Nearly all of our raw materials
and operating costs are realized in Canada, and nearly all of our sales are to
customers in Canada. Should we be required to purchase raw materials in the
United States or other foreign countries, we incorporate any price increase into
invoiced sales.
Effect of the Year 2000 Issue on the Our Operations
Many existing computer programs use only a two digit suffix to identify
a year in the date field with an assumed prefix of "19". Consequently, this
limits those systems to dates between 1900 and 1999. If not corrected, many
computer systems and applications could fail or create erroneous results at or
in connection with applications after the year 2000.
We undertaken to review the potential impact of the Year 2000 issue to
our internal operations. Such assessment has included a review of the impact of
the issue in primarily four areas: products, manufacturing systems, business
systems and miscellaneous/other areas. Based on the results of our review, we do
not anticipate that the Year 2000 issue will impact operations or operating
results. We have determined that all of our systems are currently Year 2000
compliant.
12
<PAGE>
We rely on our customers, suppliers, utility service providers,
financial institutions and other partners in order to continue normal business
operations. We have been advised most, if not all, of our external vendors,
business associates and associated financial institutions that they are now Year
2000 compliant. However, at this time, it is impossible to assess the impact of
the Year 2000 issue on each of these organizations. There can be no guarantee
that the systems of other unrelated entities on which we will be corrected on a
timely basis and will not have a material adverse effect on us. Our task force
has identified the other organizations which are critical to our continued
operations.
BUSINESS
Introduction
We were formed on June 14, 1985 in the state of New York. Our primary
purpose was to search for a business which, in the opinion of management,
demonstrated long-term growth potential that would warrant involvement.
Presently, our only operating subsidiary is Mortile Industries Ltd. ("Mortile"),
a Canadian corporation which we have a 70% interest. Our present operations,
assets and employees are primarily those of Mortile.
Through Mortile, we are engaged in the design, development and
manufacture of highly engineered products made primarily from specially
formulated high performance polymer materials. Our products are used in a wide
range of applications primarily by manufacturers of end-use products. We focus
on niche markets and applications for which we can provide our customers
application-specific product solutions based on our polymer based materials
technology, engineering expertise and production technology. Our products and
technologies are sold to manufacturers and industrial aftermarket equipment and
maintenance providers in the industrial equipment, transportation, electronics,
munitions and process industries markets.
Our business is comprised of three distinct industrial units:
o Specialty compounding
o Polymer technologies
o Composite technology
Specialty Compounding
Over 98% of our revenues for fiscal year end 1998, and the majority of
our efforts, to date, have been concentrated on specialty compounding. In this
business unit, our customers retain us to enhance and compound its proprietary
formulations into a pellet form. To complete the compounding process, a customer
would designate the mix components it requires. With the assistance of our
customer, we formulate the most effective and efficient method to mix the
components. Once a method for mixing is determined, we physically mix the
components. The end-product of mixed components is called a "masterbatch," and
in certain cases, we convert the masterbatch into a pelletized form. Typical
masterbatches are: foaming agents, sulphur, zinc oxide, flame retardants, curing
agents, processing aids, antioxidant stabilizers and slip and anti block agents.
Customers who retain us for specialty compounding are, typically,
manufacturers of plastics and plastic products. Generally, it is not necessary
for manufacturers of these products to compound component materials into a
pelletized form prior to manufacturing end-products. However, an increase number
of manufacturers prefer this process because it provides for a more perfect
dispersion of component materials which are often in powder form. Specialty
compounding is particularly useful when manufacturing components are reactive.
Reactive components are used in the curing or cross-linking of rubber or
plastic. Additionally, because powder components are difficult to work with,
manufactures prefer to work with masterbatches as there are less environmental
risks when working with components in a pelletized form.
During fiscal year 1998, we worked closely with three customers
developing compounding methodology for each customer's proprietary component
formulations. We provided compounding services for Shaw Industries Ltd. in
connection with Shaw's formulation fora variety of proprietary formulations for
industrial pipe wrap and coating. We provide compounding services for MLPC
International in connection with MLPC's formulation for various proprietary
rubber curing compounds, and for FinProject in connection with FinProject's
proprietary formulation for the footwear industry. For the six month period
ended December 31, 1998, we continued to provide compounding services for these
customers.
The following table lists amount of revenues generated by each of these
customers, and the revenues as a percentage of our total revenues for the six
month period ended December 31, 1998 and for fiscal year ended June 30, 1998:
13
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year Ended
Customer December 31, 1998 June 30, 1998
- -------- -------- --- ---- ---- --- ----
<S> <C> <C> <C> <C>
Shaw Industries $348,062 44% $698,583 41%
MLPC International 163,702 21% 277,980 16%
FinProject 30,401 3.9% 0 0%
</TABLE>
Composite Technology
We are also engaged in sale of products that are developed and
manufactured using composite technology. The object of composite technology is
to mix plastic binders with fine granulated material, such as fine metal
powders. The end result is a material that is both strong and durable, yet has
flexible design options as it can be used in injection molding applications.
Injection molding is a process by which a compound is heated to a fluid state
and injected into a cavity mold in the shape or form and density required. The
fluid compound flows to the shape of the mold and is cooled to a solid state and
then removed. Injection molding is a significantly less expensive alternative to
machining and die casting.
Using composite technology, we have successfully produced metal/plastic
compounds that can be used in many applications as a replacement for lead. We
presently supply this product for use in munitions, fishing sinkers and lures,
and for bushings in copiers and fax machines. We also expect to market lead
replacement compounds in the automotive, construction and additional areas of
the firearms markets. The sale of products manufactured using composite
technology represented 12% of total revenues, or $60,609 during the six month
period ended December 31, 1998.
Polymer Technologies
Approximately four percent (4%) of our total revenues during fiscal
year ended June 30, 1998, was derived from the sale of products which were
developed and manufactured using polymer technologies.
A polymer consists of chains of chemicals, called monomers, that
combine or polymerize (normally with help from a catalyst) to form large
molecular structures. Polymers are very versatile materials. They can be cast
into molds to create intricate structures, extruded through a spinneret to make
fibers, blended with liquids including water to make coatings, adhesives and
thickeners and generally bonded to other materials or each other with adhesives.
As a result, polymers have replaced, and continue to replace, natural products
such as metal, wood, paper, cotton and glass in a broad range of applications.
Moreover, substitution is not driven primarily by cost, but by the increasing
desirability of polymers based on their versatility and performance
characteristics. Two common types of polymers are thermoplastics and thermosets
which, collectively, are referred to as plastics.
Thermoplastics are the most common synthetic polymers. They are
relatively inexpensive, light and durable, but not particularly strong.
Thermoplastics can be melted at relatively low temperatures and recrystallized,
thus making them recyclable. They are used in structural applications where
exposure to high stresses and heat are concerns. Common thermoplastics include
polyethylene, polypropylene, polystyrene, polyvinyl chloride and most polyester.
Thermosets polymerize at relatively high temperatures, normally through
mixing with an initiation compound. During polymerization they are cross-linked,
a process that increases their strength and durability relative to
thermoplastics. They are generally stronger, more heat resistant and more
difficult to process than thermoplastics. Common thermosets include epoxies,
most polyurethanes, unsaturated polyester, melamine and phenolics. Thermosets,
however, cannot be remelted or recycled.
In light of growing environmental pollution concerns, we expect that
the plastics industry will be forced by legislation to develop and manufacture
plastics that are recyclable. The plastics industry has undertaken extensive
research to develop cost-effective thermoplastic products which are both durable
and flame retardant; particularly for applications in the wire cable and
construction industries.
Flame resistant polymer compositions have been available for many
years. However, such compositions relied on the presence of "halogens" to yield
flame retardancy. Halogens are gases which, on combustion, emit toxins including
cyanide, bromide, sulphur and phosphoric gas. Concerns by environmentalists
world-wide have resulted in increased pressure on manufacturers of polymer-based
products to eliminate plastics with such potential dangers.
14
<PAGE>
We have developed, manufacture and sell a flame retardant, non-toxic,
thermoplastic compound that is corrosion resistant, minimizes the hazards of
fire and can be easily processed into end-use products. We have conducted
extensive research and testing with regard to the use of this product in the
construction and transportation industries, because of their greater ease of use
in fabrication and their ability to be recycled, and trimmed into scrap, and for
use in applications such as wire cable, fiber optics, injection and rotational
molding, and petrochemical containment.
Our performance test results have concluded that our thermoplastic
products, when burned, emit none of the aforementioned toxins. Additionally, our
products possess anticombustion, low toxicity and anticorrosive attributes
considered to be superior to other products presently available. Although the
sale of our thermoplastic products has not represented a significant portion of
our revenues to date, we believe that these products have significant market
potential.
In June 1998, we entered into an agreement with Dow Chemical Canada and
Dow Chemical to transfer the rights to the technology we developed with regard
to the production of flame retardant thermoplastics and smelt fillers in
exchange for satisfaction of a debt we owed to Dow. However, pursuant to this
agreement, we continue to enhance, manufacture and market this technology,
royalty free. See the section "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page __, and the section
"Certain Transactions" for a discuss relating to our agreement with Dow.
MORFOAM. During the fourth quarter of fiscal 1998, we commenced
supplying samples of our new product "MORFOAM." MORFOAM is chemical foaming
agent, pigment extender and nucleating agent which reacts with process
temperatures to produce a fine cell structure in extrusion molded parts. The
product technology combines chemical foaming and a nucleating agent in to one
easy to use masterbatch concentrate which is encapsulated in an olefin binder,
presented in pellet form to be easily blended or metered in to various polymers.
MORFOAM's fine particle size acts as a nucleating agent to form fine cell
structures in polymers. The product improves cell structure and reduces voids
when nitrogen is used as the primary foaming agent. This provides for improved
surface finishes, physical properties, and sink mark elimination, lower part
weight and shorter cycle times.
The product was developed for use in the following applications:
o Injection Molding
o Structural Foam Molding
o Blow Molding
o Extrusion (film, sheet, profiles)
Research and Development
Since inception, we have expended $3,005,100 in the development of our
products. During fiscal year ended June 30, 1999, we expended $94,874 on
research and development. Our research and development efforts have led to the
development and manufacture of our composite and polymer related products, and
the development of our specialty compounding technologies. We maintain
continuous dialogue with our customers and technology partners to ensure that
our products and technologies incorporate features that are essential for our
customer's rapidly evolving requirements.
Licenses
In June 1998, The Dow Chemical Company has granted us a non-exclusive,
non transferable, royalty free world-wide license for use of technology,
pursuant to which, Dow has access on, at least, a non-exclusive basis to
improvements we make relating to halogen free, flame retardant thermoplastic
composition technology and smelt filler technology for an indefinite period.
This license was granted to us in connection with our agreement transfer this
technology to Dow in exchange for being release from certain debts owed by us to
Dow. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page __ hereof.
Employees
As of December 31, 1998, we employed twelve full time employees of
which seven were engaged in manufacturing and quality control, three in general
administration and executive activities and two in engineering and research and
development. We are not a party to any collective bargaining agreement and
consider our relations with its employees to be good.
Environmental Consideration
15
<PAGE>
We do not believe that our operations are adversely affected by
existing environmental regulations. Our primary waste products are non-toxic and
non-corrosive and are disposed of by a private sanitation company in accordance
with all appropriate regulations.
Competition in Our Industry
We compete with some of the world's largest chemical companies, such as
Exxon Corp., E.I. DuPont De Nemours & Co., Union Carbide Corp., and Raychem
Corp. Our competitors are substantially larger than us in terms of financial,
marketing, and research and development resources.
Our Competitive Advantages
Polymer Technology. Dow Chemical has licensed our technology and Lucent
Technologies, after subjecting our product to a five year rating program, has
assigned our product the highest quality rating based on their internal rating
procedures. The application of our polymer technology in wallboard is still the
only plastic in its field to pass certain fire codes for high rise buildings.
Additionally, in other applications where the product is being tested, we were
advised by customers that our polymer technology out performs the competition.
Composite Technology. We have achieved the highest filler levels to
obtain maximum specific gravity and have no competition. Our composite for
bushings for copiers and fax machines is extremely difficult, if not impossible,
to reverse engineer.
Specialty Compounding. We believe we have three distinct advantages,
equipment, personnel and size. Our equipment was selected to allow for superior
dispersion in connection with proprietary polymer technology and composite
technology. The Our personnel and our associations with consulting scientists
and chemist enables us to work closely and co-operatively with our customers to
meet their needs. Our size allows us to direct immediate attention to existing
and potential customers in a cost effective and timely manner. We direct our
efforts to "niche" markets where the following criterion is essential: fast turn
around of small orders; equipment designed for ease of cleaning at minimum
downtime and wastage; air cooled die heads for moisture sensitive materials and
excellent dispersion of powders into the resins and nitrogen blankets for
cooling in high humidity.
Property
We lease our headquarters, an 8,500 square foot of office and
production facility, located at 3411 McNicoll Avenue, Scarborough, Ontario,
Canada. In July 1997, we leased an additional 8,800 square feet of for storage
of raw materials. We pay total monthly rent of Cdn.$6,397, exclusive of real
estate tax escalations. The lease on the 8,500 square foot facility expires on
March 31, 1999, and the lease on the additional 8,800 square foot facility
expires on June 30, 1999.
Legal Proceedings
We are not a party to any pending or threatened litigation.
Address
Our principal executive offices are located at 3411 McNicoll Avenue, Unit
11, Scarborough, Ontario, Canada M1V 2V6.
16
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding our
executive officers and directors. There are no family relationships among our
directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Frank Mortimer 59 President and Director
Bryan Carter 77 Vice President and Director
Larry Leverton 59 Secretary, Treasurer and Director
</TABLE>
Frank Mortimer has been President and a Director of since April 1986.
He is also President of Fam Tile Restoration Services Ltd.("FAM"), a company
specializing in the restoration of acoustical ceilings. FAM is one of Mortile's
wholly owned subsidiaries and is presently inactive. From 1967 to 1982 Mr.
Mortimer managed several export companies in South Africa. Mr.
Mortimer is an associate member of the Institute of Materials Handling (London
UK).
Bryan Carter has been a director since April 1986. In 1982, he formed
Bryan Carter and Associates, a firm which offers international consulting and
marketing services to the plastics industry and small businesses. From 1954 to
1962, he was in charge of the North American base of Rosedale Assoc.
Manufacturers of London (UK.) in Toronto, Canada. From 1962 to 1982, he was
President and part owner of Rosedale Plastics, a rotational molding company. Mr.
Carter has extensive international business experience including work in
Lebanon, Haiti and Australia, on behalf of various organizations. Mr. Carter
pioneered the rotational molding industry in North America and in 1982 served as
the International President of Rotational Moulders.
Larry Leverton has been Secretary and Treasurer since April 1986. Since
1983, he has been president of L.R. Leverton Enterprises' Inc., a transportation
consulting firm. In 1982, he was Vice-President of Newman Harbour Terminals and
Transportation.
Directors serve until the next annual meeting of stockholders or until
their successors are elected and qualified. Officers serve at the discretion of
the Board of Directors. Directors do not currently receive fees for their
services as directors, but are reimbursed for travel expenses.
Executive Compensation
The following table sets forth certain summary information with respect
to the compensation paid Frank Mortimer, our President, for services rendered in
all capacities to the company for the fiscal years ended June 30, 1998, 1997 and
1996. Other than as listed below, we had no executive officers whose total
annual salary and bonus exceeded $100,000 for that fiscal year:
<TABLE>
<CAPTION>
Long Term
Other Annual All Other Compensation
Name and Principal Position Year Salary Compensation Bonus Compensation Awards/Option(1)
<S> <C> <C> <C> <C> <C> <C>
Frank Mortimer, President 1998 $63,450 - - - -
1997 $66,000 - - - -
1996 $66,000 - - - -
</TABLE>
Employment Arrangements
Presently, none of our officers or directors are employed pursuant to
an employment agreement.
PRINCIPAL STOCKHOLDERS
17
<PAGE>
The following table sets forth information with respect to the
beneficial ownership of our outstanding common stock known by us as of December
31, 1998 after giving effect to: (a) the sale of 50,000 shares of common stock
upon exercise of options which are outstanding; (b) the sale of 50,000 shares of
common stock upon the conversion of debt which is outstanding; and (c) as
adjusted to reflect the sale of the our common stock offered hereby. The
following table sets forth the information with respect to: (i) each person or
entity known by us to be the beneficial owner of more than 5% of our common
stock; (ii) each of our directors who owns any shares of our common stock; (iii)
each of our named executive officers set forth in the Executive Compensation
table above who beneficially owns any shares of our common stock; and (iv) all
of our directors and named executive officers as a group. Except as otherwise
indicated, the persons listed below have sole voting and investment power with
respect to all shares of our common stock owned by them, except to the extent
such power may be shared with a spouse.
<TABLE>
<CAPTION>
Number of Shares Approximate Percentage of
Name Beneficially Owned(1) Common Stock
- ---- --------------------- ------------
<S> <C> <C> <C>
Frank Mortimer (2) 2,199,753 7.6%
Larry Leverton (3) 591,448 2.1%
Bryan Carter 165,000 0.6%
All Officers and Directors
as a group (4) 2,956,201 10.3%
</TABLE>
- ------------------
Except as noted above, the address for the above identified officers
and directors is care of Technical Ventures Inc., 3411 McNicoll Avenue, Unit 11,
Scarborough, Ontario, Canada M1V 2V6.
(1) Unless otherwise indicated, each such beneficial owner holds the sole
voting power and investment power over the shares beneficially owned.
(2) Includes 453,020 shares owned by Mr. Mortimer's wife and 200,000 shares
owned by Mr. Mortimer's son.
(3) All shares are owned in the name of L.R. Leverton Enterprises. Inc., a
corporation owned and controlled by Larry Leverton
Presently, none of the our officers or directors own options, warrants
or other securities which are convertible into the common stock, nor do we have
a plan for the issuance of options or securities to purchase shares of our
common stock.
CERTAIN TRANSACTIONS
In June 1998, we finalized a transfer of technology in exchange for
debt agreement with Dow Chemical Canada Inc. and The Dow Chemical Company. We
transferred to Dow title and ownership in our existing intellectual property
rights (including all proprietary knowledge, patents and patent applications)
relating to halogen free, flame retardant thermoplastic composition technology
and smelt filler technology. Dow granted us a non-exclusive, non transferable,
royalty free world-wide license for use of the technology, pursuant to which,
Dow has access on, at least, a non-exclusive basis to improvements we make in
the technology. Dow, in turn, released Mortile from its debt obligations to Dow,
plus all accrued and unpaid interest owed on the debt. Dow also released us and
Frank Mortimer, our President, from guarantees made by both in connection such
debt.
DESCRIPTION OF OUR SECURITIES
The following description of our securities does not purport to be complete
and is subject in all respects to applicable New York law and to the provisions
of our Certificate of Incorporation and Bylaws.
Common Stock
Our authorized capital stock consists of 50,000,000 shares of common stock,
$.01 par value per share. As of the date of
18
<PAGE>
this Prospectus, 22,048,011 shares of our common stock are issued and
outstanding. Holders of our common stock will have the right to cast one vote
for each share held of record on all matters submitted to a vote of our
stockholders, including the election of directors. There is no right to cumulate
votes for the election of directors. Stockholders holding a majority of the
voting power of the capital stock issued and outstanding and entitled to vote,
represented in person or by proxy, are necessary to constitute a quorum at any
meeting of our stockholders, and the vote by the holders of a majority of such
outstanding shares is required to effect certain fundamental corporate changes
such as liquidation, merger or amendment of our Certificate of Incorporation.
Holders of our common stock are entitled to receive dividends pro rata
based on the number of shares held, when, as and if declared by the our Board,
from funds legally available therefor. In the event of the liquidation,
dissolution or winding up of our affairs, all of our assets and funds remaining
after the payment of all debts and other liabilities, shall be distributed, pro
rata, among holders of our common stock. Holders of our common stock are not
entitled to preemptive or subscription or conversion rights, and there are no
redemption or sinking fund provisions applicable to our common stock. All
outstanding shares of our common stock are, and the shares of our common stock
offered hereby will be when issued, fully paid and non-assessable.
Warrants
On January 27, 1999, we issued warrants representing the right to
purchase shares of our common stock. There will be 127,842 shares of common
stock underlying the warrants at an exercise price of $.176 per share. The
expiration date of the warrants is January 31, 2002. All of the shares of common
stock underlying the warrants are being registered pursuant to the registration
statement filed in connection with this Prospectus.
The exercise prices of the warrants were determined by negotiation and
should not be construed to imply that any price increases in our securities will
occur. We have reserved from its authorized but unissued shares a sufficient
number of shares of our common stock for issuance upon the exercise of the
warrants. Upon notice to the warrant holders, we have the right to reduce the
exercise price or extend the expiration date of the warrants.
The warrants do not confer upon the warrant holder any voting or other
rights of a stockholder of our company. The warrants provide for customary
anti-dilution provisions in the event of certain events which may include
mergers, consolidations, reorganizations, recapitalizations, stock dividends,
stock splits and other changes in our capital structure.
The foregoing is a summary of the terms generally applicable to the
warrants as of the date of this Prospectus. The terms of the individual warrants
may vary according to negotiation between us and the various warrant holders.
Options
Presently, there are options outstanding to purchase 50,000 shares of
our common stock at an exercise price of $.50 per share. All of such options are
presently exercisable and there is no termination date on the options.
Debentures
On January 27, 1999, we issued an aggregate of $225,000 principal
amount in 8% convertible debentures. Interest on the debentures is payable
quarterly and the principal on the debentures is due on January 31, 2002. From
and after the time that such principal amount on the debentures shall have
become due and payable (whether at maturity or by acceleration), interest shall
be payable, to the extent permitted by law, at the rate equal to the lesser of
(i) eighteen percent (18%) per annum or (ii) the maximum rate permitted by law,
on the entire unpaid principal amount of this Debenture.
Unpaid principal plus all accrued and unpaid interest and penalties on
the debentures is convertible at a conversion price that is the lesser of $.176
per share or 75% of the average closing bid price of our common stock on the 10
days prior to when a debenture is presented for conversion. Thus, the debentures
are convertible into a minimum of 1,278,409 shares of common stock. In the event
the registration statement (for which this Prospectus forms a part) covering the
shares of common issuable upon conversion of the debentures is not declared
effective by June 8, 1999, we shall pay to the holders of the debentures a
19
<PAGE>
penalty of one-fifteenth of one percent of the principal amount of the notes for
each day beyond such date until such registration statement is declared
effective.
Convertible Promissory Notes
We have outstanding a $25,000 principal amount promissory note which is
payable upon demand of the holder thereof. Such note is convertible, at any
time, at the option of the holder thereof, into 50,000 shares of our common
stock.
Trading Information
Our common stock is publicly traded on the Over-the-Counter Bulletin
Board, a regulated quotation service that captures and displays real-time quotes
and/or indications of interest in securities not listed on The NASDAQ Stock
Market or any U.S. exchange. As of December 31, 1998, the closing price for our
common stock was $0.26 and the 52 week high and low prices were $1.01 and $0.08,
respectively. Information as to trading volumes, and bid and asked prices, for
our common stock may be obtained directly from the Over-the-Counter Electronic
Bulletin Board.
The following table sets forth the high and low bid (price which a
market maker is willing to pay for our common stock) quotations for our common
stock, as reported to us by the Over-the-Counter Bulletin Board. These
quotations are between dealers, do not include retail mark-ups, markdowns or
other fees and commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
Quarter Low Bid High Bid
======= === === ==== ===
<S> <C> <C> <C> <C>
September 30, 1996................................. $0.125 $0.070
December 31, 1996.................................. $0.045 $0.070
March 31, 1997..................................... $0.060 $0.070
June 30, 1997...................................... $0.165 $0.210
September 30, 1997................................. $0.200 $0.230
December 31, 1997.................................. $0.250 $0.280
March 31, 1998..................................... $0.150 $0.190
June 30,1998....................................... $0.300 $0.380
September 30, 1998................................. $.0789 $.4931
December 31, 1998.................................. $.1447 $.3422
March 31, 1999..................................... $.2105 $.3027
</TABLE>
As of December 31, 1998, there were 1021 holders of our Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
If we sell all 6,913,842 shares offered under this Prospectus,
28,795,853 shares of our common stock will be outstanding, all of which will be
freely tradable without restriction or further registration under the Securities
Act, unless purchased or held by our "affiliates," as defined in Rule 144 of the
Securities Act ("Rule 144").
SELLING STOCKHOLDERS
20
<PAGE>
The following table sets forth the holders of our common stock who are
offering their shares of common stock pursuant to this Prospectus, and the
number of shares of common stock being offered by each person:
<TABLE>
<CAPTION>
Number of
Name of Shareholder Shares Offered
- ---- -- ----------- ------ -------
<S> <C>
Gene Howland..................................................................... 5,414,796(1)
William Hoops.................................................................... 833,046(2)
Coleman Capital Partners Ltd..................................................... 550,000(3)
Sichenzia, Ross & Friedman LLP................................................... 50,000(4)
Steven Hocke 66,000(5)
</TABLE>
- -----------------------
(1) On January 27, 1999, Gene Howland purchased an 8% convertible debenture
which is convertible into an estimated 5,304,000 shares of common stock.
Additionally, Mr. Howland was issued warrants to purchase 110,796 shares of
common stock at an exercise price of $.176 per share.
(2) On January 27, 1999, William Hoops purchased an 8% convertible
debenture which is convertible into an estimated 816,000 shares of common stock.
Additionally, Mr. Hoops was issued warrants to purchase 17,046 shares of common
stock at an exercise price of $.176 per share.
(3) Represents 50,000 shares of common stock issued to Coleman Capital
Partners Ltd., and an additional 500,000 shares of common stock to be issued
Coleman pursuant to its advisory agreement with us, dated January 11, 1999, in
consideration for consulting services rendered.
(4) Represents shares of common stock issued to Sichenzia, Ross & Friedman
LLP, our counsel in the United States, in consideration for legal services
rendered on our behalf.
(5) Represents shares of common stock issued to Steven Hocke upon the
conversion of a $10,000 principal amount promissory note we previously issued to
Mr. Hock.
PLAN OF DISTRIBUTION
Each stockholder selling securities pursuant to this offering is free to
offer and sell his or her shares of common stock at such times, in such manner
and at such prices as he or she shall determine. Such common shares may be
offered by selling stockholders in one or more types of transactions, which may
or may not involve brokers, dealers or cash transactions. The selling
stockholders may also use Rule 144 under the Securities Act, to sell such
securities, if they meet the criteria and conform to the requirements of such
Rule. There is no underwriter or coordinating broker acting in connection with
the proposed sale of common stock by the selling stockholders. The selling
stockholders have advised us that sales of common stock may be effected from
time to time in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, through the writing of
options on the common stock, or a combination of such methods of sale, at fixed
price which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices, the selling stockholders may effect such transactions by
selling common stock directly to purchasers or to or through broker/dealers
which may act as agents or principals. Such broker/dealers may receive
compensation in the form of discounts, concessions, or commissions from the
selling stockholders and/or the purchasers of common stock from whom such
broker/dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker/dealer may act as agents might be
in excess of customary commissions). The selling stockholders and any
broker/dealers that act in connection with the sale of the common stock might be
deemed to be "underwriters" within them meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the common stock as principal might be deemed to be underwriting
discounts and commissions under the Securities Act. The selling stockholders may
agree to indemnify any agent, dealer or broker/dealer that participates in
transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act. Because selling
stockholders may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities, they will be subject to prospectus delivery
requirements under the Securities Act. Furthermore, in the event of a
"distribution" of his or her common stock, any selling stockholder, any selling
broker/dealer and any "affiliated purchasers" may be subject to Regulation M
which prohibits any "stabilizing bid" or "stabilizing purchase" for the purpose
of pegging, fixing or stabilizing
21
<PAGE>
the price of the common stock in connection with the offering.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed
upon for us by our counsel, Sichenzia, Ross & Friedman LLP, 135 West 50th
Street, 20th Floor, New York, New York, 10020.
EXPERTS
Our financial statements for each of the two fiscal years in the
period ended June 30, 1998 and 1996, appearing in this Prospectus have been
audited by Schwartz Levitsky Feldman, Chartered Accountants, to the extent and
for the periods set forth in their reports appearing elsewhere herein and in the
Registration Statement and are included in reliance upon such reports given upon
the authority of said firm as experts in accounting and auditing.
Where You Can Find More Information
We filed a registration statement with the SEC on Form SB-2 relating
to the shares offered in this Prospectus. This Prospectus does not contain all
of the information included in the registration statement. For further
information about us and the shares we are offering in this Prospectus, refer to
the registration statement and its exhibits. The statements we make in this
Prospectus regarding the content of any contract or other document are
necessarily not complete, and you may examine the copy of the contract or other
document that we filed as an exhibit to the registration statement. All our
statements about those contracts or other documents are qualified in their
entirety by referring you to the exhibits to the registration statement.
You should rely only on the information contained in this document or
that we have referred you to. We have not authorized anyone to provide you with
information that is different. The information contained in this document is
current as of the date this document was filed with the SEC. If any material
changes occur after such date, then we will notify you of the changes by an
amendment to this document. We are not offering to sell you securities if you
live in a jurisdiction where such an offer would be unlawful.
After the effective date of this offering, we intend to furnish to our
stockholders annual reports containing audited financial statements and interim
reports. We currently file annual, quarterly and special reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information can be inspected and copied at the public reference
facility of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained by
mail from the Public Reference Section of the SEC at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Our Common
Stock is traded in the over-the-counter market and is quoted on the
Over-the-Counter Bulletin Board and such reports, proxy statements and other
information concerning us may be inspected and copied at the offices of the
National Association of Securities Dealers, Inc., 9801 Washingtonian Boulevard,
Gaithersburg, Maryland 20878. In addition, we are required to file electronic
versions of these documents with the SEC through the SEC's Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. The SEC maintains a World
Wide Web site at http://www.sec.gov that contains reports, proxy statements and
other information regarding registrants that file electronically with the SEC.
22
<PAGE>
TECHNICAL VENTURES INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' report F-2
Balance sheets at June 30, 1998, June 30, 1997 and
at December 31, 1998 (unaudited) and December 31, 1997 (unaudited) F-3
Statement of Operations for the years ended June 30, 1998 and 1997 and for the
six month periods ended December 31, 1998 (unaudited)
and December 31, 1997 (unaudited) F-4
Statement of Changes in Shareholders' Deficiency for the years ended June 30,
1998 and June 30, 1997, and for the six month periods ended December 31, 1998
(unaudited)
and December 31, 1997 (unaudited) F-5
Statement of Cash Flows for the
years ended June 30, 1998 and June 30, 1997, and for the six month periods ended
December 31, 1998 (unaudited)
and December 31, 1997 (unaudited) F-6 & F-7
Notes to Consolidated Financial Statements F-8 - F-17
</TABLE>
F-1
<PAGE>
Schwartz Levitsky Feldman
Chartered Accountants
Toronto, Ottawa, Montreal
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Technical Ventures Inc.:
We have audited the accompanying consolidated balance sheets of Technical
Ventures Inc. (incorporated in New York State) as of June 30, 1998 and June 30,
1997 and the related consolidated statements of income, cash flows and changes
in stockholders' equity for the years ended June 30, 1998 and June 30, 1997.
These consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Technical
Ventures Inc. as of June 30, 1998 and June 30, 1997 and the results of its
operations and its cash flows for the years ended June 30, 1998 and June 30,
1997 in conformity with generally accepted accounting principles in the United
States of America.
The company has sustained significant operating losses since its inception
as indicated in Note 7. There is substantial doubt as to the company's ability
to continue as a going concern if additional financing is not obtained.
/s/Schwartz Levitsky Feldman
Chartered Accountants
Toronto, Ontario
September 30, 1998
F-2
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and 1997, and December 31, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
June 30 June 30 December 31,
1997 1998 1997 1998
ASSETS Unaudited
CURRENT ASSETS
<S> <C> <C> <C>
Cash $23,772 $17,605 $10,120
Accounts Receivable 166,660 118,140 139,365 77,538
Inventory (Note 2) 36,170 34,663 42,592 49,639
Other Current Assets
Advances 38,374 35,904 39,128 57,357
Deposits 10,866 26,931 14,571 11,542
--------------- ---------------- --------------- --------------
TOTAL CURRENT ASSETS 275,842 233,244 245,776 196,076
PROPERTY AND EQUIPMENT, at cost, net of accumlated
depreciation of $456,684 at December 31, 1998
(Note 3,6,10) 200,925 177,231 191,490 154,912
INTANGIBLE ASSETS, net of accumulated amortization of
$5,049 at Dec 31, 1998 (Note 6) 29,009 965 26,760 769
--------------- --------------- --------------- --------------
$505,776 $411,440 $464,026 $351,757
=============== =============== =============== ==============
LIABILITIES AND STOCK HOLDERS DEFICIENCY
CURRENT LIABILITIES
Current Portion of long term debt (Note 6):
Bank Overdraft $8,460
Notes Payable (Note 11) $135,230 $120,538 $133,044 107,394
Capital lease obligations 79,638 77,594 78,859 77,051
Other 1,146,569 376,296 1,114,221 326,099
Loans & advances:
Private Lenders (Note 10) 109,203 170,668 127,211 82,760
Shareholders, unsecured interest free 23,543 147,653 22,719 165,985
Accounts payable and accrued expenses 484,955 384,889 531,623 311,669
---------------- --------------- --------------- --------------
TOTAL CURRENT LIABILITIES 1,979,138 1,277,637 2,007,677 1,079,419
--------------- --------------- --------------- --------------
LONG-TERM DEBT, net of current portion (Note 6):
Shareholder 337,407 330,022 310,735 302,817
--------------- --------------- --------------- --------------
Capital Lease Obligations 480
--------------- --------------- --------------- --------------
Other 51,181 52,891 58,862 35,398
--------------- --------------- --------------- --------------
MINORITY INTEREST (Note 6) 0 0 0 0
--------------- --------------- --------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 5,7,9)
SHAREHOLDERS' DEFICIENCY: (NOTE 8)
Common stock, $.01 par value, 50,000,000 shares authorized:
Issued and outstanding, 21,948,011 shares at
December 31, 1998 $145,863 $147,113 $147,113 $219,480
Additional Paid in capital: 4,048,994 4,056,744 4,056,744 4,165,410
Deficit (6,279,132) (5,759,538) (6,396,257) (5,798,907)
Foreign currency translation adjustment 221,844 306,571 279,152 348,140
---------------- --------------- --------------- --------------
Total Shareholders' deficiency (1,862,431) (1,249,110) (1,913,248) (1,065,877)
--------------- --------------- --------------- --------------
$505,776 $411,440 $464,026 $351,757
=============== =============== =============== ==============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended June 30, 1998 and
1997 and For the Six Month Periods Ended December
31, 1998 and 1997 (unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31, Year Ended June 30,
1998 1997 1998 1997
---------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES NET SALES $505,078 $671,949 $1,185,091 $1,414,062
COST OF SALES COST OF SALES 356,402 578,839 984,899 1,229,902
---------------- ----------------- --------------- ---------------
GROSS MARGIN GROSS MARGIN 148,676 93,110 200,192 184,160
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE
Administration 70,017 66,575 146,789 137,373
Financial
Interest & Other 37,142 63,247 106,801 119,456
Research & Development 44,883 57,529 94,874 82,225
Selling 41,661 36,884 71,790 61,949
Gain From Disposal (3,486)
---------------- ----------------- --------------- ---------------
193,703 224,235 416,768 401,003
---------------- ----------------- --------------- ---------------
LOSS BEFORE INCOME TAX
RECOVERY & GAIN ON
TRANSFER OF TECHNOLOGY RIGHTS (45,027) (131,125) (216,576) (216,843)
Gain From Transfer Of Technology Rights 693,415
---------------- ----------------- --------------- ---------------
INCOME AFTER GAIN ON TRANSFER
OF TECHNOLOGY RIGHTS (45,027) (131,125) 476,839
---------------- ----------------- --------------- ---------------
Income Tax Recovery 5,658 14,000 42,755 20,521
---------------- ----------------- --------------- ---------------
NET INCOME [LOSS] ($39,369) ($117,125) $519,594 ($216,843)
NET INCOME [LOSS] PER COMMON SHARE ($0.00) ($0.01) $0.04 ($0.01)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,430,709 14,711,341 14,676,752 14,586,341
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIENCY)
For the Years Ended June 30, 1998 and 1997 and
for the Six Month Periods Ended December 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative
Issued and Outstanding Paid In Translation
Shares Amount Capital Deficit Adjustment
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1997:
Balance, end of year 14586341 $145,863 $4,048,994 ($6,279,132) $221,844
Year Ended June 30, 1998
Issued in Exchange For Services 125000 1,250 7,750
Net Income 519,594
Cumulative Translation Adjustment 84,727
---------------- -------------- ---------------- -------------- -------------
Balance, End Of Fiscal 1998 14711341 $147,113 $4,056,744 ($5,759,538) $306,571
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended June 30, 1998 and 1997 and
for the Six Month Periods Ended December 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31, Year Ended
June 30,
1998 1997 1998 1997
----
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net Income (Loss) ($39,369) ($117,125) $519,594 ($196,322)
Adjustment to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization 15,213 6,959 10,874 33,832
Gain on disposition of property & equipment (3,301)
Gain On Transfer of Technology Rights (682,278)
Issue of Restricted Stock For Services 20,201 8,999 8,999
Net Change in non-cash operating assets
and liabilities (48,448) 68,993 (53,749) 107,070
------------- ------------- --------------------------
Net Cash used by operating activities (55,703) (32,174) (196,560) (55,420)
------------- ------------- --------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property & Equipment Acquisition (484) (3,322) (8,035) (2,586)
Proceeds From Sale of property & equipment 3,301
------------- ------------- --------------------------
Net cash used by Investing Activities 2,817 (3,322) (8,035) (2,586)
------------- ------------- --------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) loans,
notes and advances:
Bank Overdraft 8,460
Bank Note (13,144) (2,186) (14,692) (5,152)
Line of Credit (33,755) (11,429) (11,150) (33,686)
Long-term debt (12,333) 30,221 32,576 20,310
Private lenders (38,310) 20,080 81,298 36,221
Shareholders 53,071 (14,865) 121,483 51,615
Issue of Restricted Common Stock 72,812
------------- ------------- --------------------------
Net Cash Provided by Financing Activities 36,802 21,821 209,515 69,308
------------- ------------- --------------------------
EFFECT OF EXCHANGE RATE ON CASH (1,521) 23 (11,088) 4,918
Change in Cash Balance for the year (17,605) (13,652) (6,168) 16,220
Cash Balance:
Beginning of year 17,605 23,772 23,772 7,552
------------- ------------- --------------------------
End of Year $0 $10,120 $17,605 $23,772
============= ============= ==========================
</TABLE>
See notes to condensed consolidated financial statements.
F-6
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTARY CASH FLOW INFORMATION
For the Years Ended June 30, 1998 and
1997 and for the Six Month Periods Ended December 31,
1998 and 1997 (unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, June 30,
1998 1997 1998 1997
----
Non-Cash Financing and Investing Activities:
Issue of Restricted Common Shares Reducing Debt Liabilities
<S> <C> <C> <C> <C>
Private Lenders 62,600
Shareholders 25,420
-------------
$88,020
Payments made during the year for interest $10,685 $8,807 $15,203 $19,751
============= ============= ============= ============
Net change in non-cash operating assets and liabilities:
Decreases (increases) in operating assets
and increases (decreases) in operating
liabilities:
Accounts Receivable $35,440 $21,463 $38,765 ($57,025)
Inventory (16,491) (7,688) (610) 34,940
Other assets (8,810) (6,182) (16,477) (6,813)
Accounts Payable and accrued expenses (58,587) 61,400 (75,427) 135,968
($48,448) $68,993 ($53,749) $107,070
============= ============= ============= ============
</TABLE>
See notes to condensed consolidated financial statements.
F-7
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies:
Principals of Consolidation:
The consolidated financial statements include the accounts of Technical
Ventures Inc.("the Company") and its majority-owned subsidiaries, Mortile
Industries Ltd. ("Mortile"), Fam Tile Restoration Services Ltd. and MPI Perlite
Ltd. All material intercompany transactions and balances have been eliminated.
Organization and Operations:
Mortile, a Canadian corporation, which was organized on February 12,1985,
is involved primarily in the development and manufacture of plastic compounds.
On April 14, 1986, the Company acquired all of the issued and outstanding shares
of common stock of Mortile.
Inventory:
Inventory is stated at the lower of cost or market. Cost is determined by
the first-in, first out method.
Property and Equipment:
Property and equipment are recorded at cost and are depreciated or
amortized over their estimated useful lives or related lease terms using the
straight line and accelerated methods.
Investment Tax Credits:
Refundable foreign investment tax credits related to research and
development activities are recognized as income in the year they are received.
Income [Loss] Per Share:
Income per share is computed based on the average number of common shares
outstanding during the period.
Outstanding warrants and convertible debt were not considered in the
computation as their effect on earnings per share would be anti-dilutive.
Intangible Assets:
Cost of intangible assets are being amortized using the straight-line
method over periods ranging from 5 to 17 years.
F- 8
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates
Foreign Currency Translation:
The financial statements of Canadian subsidiaries have been translated into
US. dollars as follows:
(a) Assets and Liabilities at the rate of exchange in effect at the
balance sheet date.
(b) Revenues and expenses at the average exchange rate during the
period.
Exchange gains or losses arising from the translation are deferred and
included as a separate component of shareholders' equity (deficiency).
All amounts presented in these financial statements are expressed in US.
dollars unless otherwise stated.
Fair Value Presentation
The Company has financial instruments, none of which are held for trading
purposes. The Company estimates that the fair value of all financial instruments
at June 30, 1998, does not differ materially from the aggregate carrying values
of its financial instruments recorded in the accompanying balance sheet. The
estimated fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. Considerable
judgement is necessarily required in interpreting market data to develop the
estimates of fair value, and accordingly, the estimates are not necessarily
indicative of the amounts that the Company could realise in a current market
exchange.
F-9
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2 - Inventory:
Inventory at June 30, 1998 is comprised entirely of raw materials
inventory.
Note 3 - Property and Equipment:
Property and equipment at June 30,1998 is comprised as follows:
<TABLE>
<CAPTION>
<S> <C>
Equipment:
Under Capitalized Leasing Arrangements $204,981
Other 442,819
Furniture & Fixtures 35,341
Leasehold Improvements 4,208
-----------
687,349
Less Accumulated Depreciation & Amortization 510,118
$177,231
</TABLE>
Note 4 - Foreign Operations:
The following table summarizes certain information regarding the Company's
US. and Canadian operations:
<TABLE>
<CAPTION>
U.S. Canadian Consolidated
Year Ended June 30, 1998
<S> <C> <C> <C>
Revenue from unaffiliated customers $ 1,185,091 $ 1,185,091
============ =============
Income (Loss) From Operations $ (46,220) $ 565,814 $ 519,594
=========== ============= =============
Identifiable assets at end of year $411,440 $411,440
========= ========
Year Ended June 30, 1997
Revenue from unaffiliated customers $ 1,414,062 $ 1,414,062
============ =============
Income (Loss) From Operations $ (40,178) $ (156,144) $ (196,322)
=========== ============= =============
Identifiable assets at end of year $ 505,776 $ 505,776
============= =============
</TABLE>
F- 10
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 5 - Income Taxes:
During the year ended June 30, 1998, the Company received $19,681
(Canadian) resulting from research and development refundable tax credit claims
filed for the year ended June 30, 1996. A claim for approximately $34,000
(Canadian) had been submitted for 1997, the Company having received notice from
the tax department that the claim had been approved and the amount would be
remitted shortly, the approved amount has been recognized as income tax recovery
in fiscal 1998. A claim for approximately $35,000 (Canadian) will be filed for
1998. It is anticipated that the claim for 1998 will be subject to audits and
there can be no assurance that they will be honoured and if they are, the amount
of the refunds may be substantially less than the claim amounts.
Recovery of Income taxes for the year ended June 30, 1998 consists entirely
of a current recovery of Canadian income taxes resulting from a reduction in the
Company's deferred tax asset valuation allowance. The aforementioned tax refund
was the primary factor contributing to the decrease in the valuation allowance.
The following is a summary of the tax effects of significant temporary
differences which comprise the Company's deferred tax asset at June 30, 1998:
<TABLE>
<CAPTION>
US Federal State & Local Foreign(1)
<S> <C> <C> <C>
Loss Carry Forwards $306,000 $81,000 $664,840
Credit Carry Forwards:
Non Refundable Credits 61,903
Refundable Credits 35,000
Depreciation & Amortization
Valuation Allowance (306,000) (81,000) (761,743)
-----------------------------------------------------------------
$0 $0 $0
-----------------------------------------------------------------
</TABLE>
Aggregate net operating loss carry forwards and tax credit carry forwards
and their expirations are summarized as follows:
<TABLE>
<CAPTION>
Net Operating Loss Carryforward
Expiring June 30, US Federal State & Local Foreign (1) Foreign Research & Development
----------------- ---------- ------------- ----------- ------------------------------
Tax Credits(1)
--------------
<S> <C> <C> <C> <C> <C>
1999 $80,105 $56,073
2000 229,975 2,932
2001 3,000 3,000 232,155
2002 225,000 225,000 1,218
2003 21,000 21,000 39,642 1,680
Thereafter 651,000 649,000 82,963
TOTAL $900,000 $898,000 $664,840 $61,903
===== ======== ======== ======== =======
</TABLE>
(1) Converted to US dollars based on conversion rate at June 30, 1998
F-11
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 6 - Long Term Debt:
At June 30, 1998, long-term debt consists of the following:
Notes & Loans
<TABLE>
<CAPTION>
Unsecured shareholder notes, loans and other payable balances: CURRENT NON-CURRENT TOTAL
<S> <C> <C> <C>
Subordinate to notes payable to Cooper Financial Corp. interest at the greater of prime or 10% $ 23,870 $ 23,870
Subordinate to note payable, I.O.C. : ........................................................ 10,230 10,230
Interest 15 %
Interest free:
Notes and loans ......................................................................... 147,653 52,200 199,853
Accrued Interest ........................................................................ 88,668 88,668
Accrued compensation .................................................................... 155,053 155,053
-------------------------------
$147,653 $330,021 $477,674
===============================
Other:
Dow Chemical Canada, Inc. (Dow), Re-Capitalization of Line of Credit and Accrued 35,297 35,297
Interest to April 30, 1996. Payable in monthly installments of $6,011.14
(Canadian) including interest at a rate of 10.75%. At June 30,1998
the Company was in default and the entire balance past due.(1)
Innovation Ontario Corp. (I.O.C.), outstanding balance of $249,999 (Canadian) 340,999 340,999
at June 30, 1995 plus $250,000 (Canadian) received in July 1995, are payable in
quarterly installments of $30,315 (Canadian), including interest at 8%
beginning December1995, through September 2000. At June 30, 1998 the Company
was in default and the entire balance past due (2)
Liabilities Subordinate to I.O.C. Note Payable:
Unsecured loans, private investor, interest at 10% 26,736 26,736
Unsecured loans, private investor
Note payable customer, interest at prime plus 1%, repayment based on volume of
materials processed by the Company on behalf of the customer 26,155 26,155
------------------------------------------------
$376,296 $52,891 $429,187
================================================
Leasing Liabilities:
Obligations under capitalized leasing arrangements payable in monthly 76,993 76,993
instalments of: $9981 $76,993amount representing interest of $2,790. at June
30th the Company was in default and the entire balance past due (3);
$297 (Canadian) through September 1998, net of amount representing interest of
$11.79 (Canadian) 601 601
------------------------------------------------
$77,594 $77,594
================================================
</TABLE>
F-12
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(1) In June, 1998 the Company reached an agreement with Dow Chemical of
Canada to repay the outstanding principal of $51,755 (Canadian) on the Company's
line of credit. This repayment, was integrated in a transfer of technology
rights to Dow Chemical of Canada and Dow Chemical which pertained to the
repayment of another of the Company's loans with Dow; the obligation in regard
of the outstanding line of credit was fulfilled in August 1998.
(2) In accordance with the I.O.C. loan provisions, I.O.C. acquired a 15%
interest in Mortile In March 1995 and an additional 15% interest in July 1995.
Mortile had previously been a wholly owned subsidiary of the Company. I.O.C.
investment in Mortile is reflected in the financial statements as a minority
interest, Mortile had the option to repurchase the shares at a price equal to
the amount of the original loan principal times 1.02, times the number of months
the debt is outstanding (but not less than 12), less the amount of principal and
interest payments made by Mortile to I.O.C. This repurchase option expired in
March 1997, the Company failed to exercise this option. The Company has been
unable to meet payments in respect of this loan. Accordingly the outstanding
balance at June 30, 1998 is reflected as a current liability in these financial
statements. The I.O.C. note is collateralized by all previously unsecured assets
of the Company. Negotiations are currently underway to eliminate this loan by
means of paying the loan and accrued interest in full, or, in exchange for an
equity position in the Company.
(3) At June 30, 1998, the Company was in default on this capital lease
arrangement and the entire balance was past due. Although the lessor has not
called the lease with two payments having been made during the fiscal 1997. The
lease is payable on demand. Accordingly the outstanding balance at June 30,
1998, is reflected in these financial statements as a current liability.
F-13
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 6 - Long-term debt: (continued)
Long-Term debt matures as follows:
<TABLE>
<CAPTION>
Year Ending June 30, Shareholders Other Total
1999 $376,296 $376,296
<S> <C> <C> <C> <C>
After 2003 330,022 52,891 382,913
------------------------------------------------------------
$330,022 $429,187 $759,209
============================================================
</TABLE>
The Company's obligations under capitalized leasing arrangements are
payable in fiscal 1999.
Payments of long-term debt and capitalized lease obligations under
agreements expressed in Canadian dollars, have been converted to U.S. dollars
based on the exchange rate at June 30,1998.
F-14
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 7 - Going concern:
The company has sustained significant operating losses since its inception
and there is doubt as to the Company's ability to continue as a going concern.
The Company's continued existence is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis. It is not
expected that cash flows from operations in the immediate future will be
sufficient to meet the Company's requirements. As a result the Company is in
need of additional financing. Liquidation value of the Company's assets
approximate carrying value. Accordingly, no adjustment has been made to the
value of the Company's assets in consideration of its financial condition.
With expected increases in sales levels in the next fiscal year, it is
anticipated that cash flows required to fund operations will be reduced.
A Canadian income tax claim for approximately $34,000 (Canadian) was
submitted for the fiscal year 1997, additionally a claim for fiscal 1998 will be
submitted for approximately $35,000 (Canadian). Tax claims for 1997 have been
accepted by the federal tax department and notice of payment has been received
in the amount of $26,000. (Canadian). This amount, therefore, has been accounted
for in the month of June 1998. The provincial portion of this claim remains in
audit with that tax department and has not been accounted for in June 1998. The
provincial portion of the claim approximates a further $8,000 (Canadian). Even
if the tax claims are accepted and the funds are received, they would only be
sufficient to satisfy the Company's immediate cash flow requirements and are not
sufficient for the Company to sustain it's operations and meet current debt
service requirements. Accordingly additional sources of funds are necessary. The
Company continues to assess completing a private or public stock offering. In
order for the Company to raise significant funds through the sale of common
stock, stock purchase warrants or convertible securities, the number of
authorized common shares must be increased. Therefore a special meeting of
shareholders was held July 22, 1998 for the purpose of amending the
Corporation's New York State, Certificate of Incorporation. All of the
amendments passed; one of which increased the authorized issue of shares from
fifteen million to fifty million common shares. This amendment will enable the
Corporation to act on obtaining funding through private or public stock
offering[s].
F-15
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8 - Shareholders' deficiency:
Restricted Common Shares reserved for convertible debt and stock purchase
options:
For convertible debt 50,000
For common stock purchase options at:
$.50 per share; without expiration 50,000
100,000
=======
Note 9 - Leases:
At June 30, 1998, under a real property lease classified as an operating
lease which expires in March 1999 and June 1999, the Company's future minimum
rental payments (excluding real estate taxes) are $32,303. In July 1997 the
Company doubled its existing facility to accommodate a European Specialty
Compounding client. Minimum rental payments in foreign currency have been
converted into US. dollars using the exchange rate at June 30, 1998.
Rent expense was $58,061 and $46,833 for 1998 and 1997 respectively.
Note 10 - Loans and Advances At June 30, 1998:
Private Investors:
Equipment financing:
Interest at 10% ............... $ 11,833
Unsecured Demand Loans:
Interest Free ........................ 85,000
Interest at 10%, convertible in 50,000
shares of common stock ...... 25,000
Interest at 15% ....................... 48,835
--------
$170,668
========
F-16
<PAGE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 11 - Note Payable Financial Institution
At June 30, 1998 the Company had a note payable balance of $120,538 due on
demand to Cooper Financial Corp. This obligation, which had previously been
payable to the Federal Deposit Insurance Corporation, as receiver for another
financial institution, is guaranteed by a shareholder of the Company.
In June 1997 the Company had received agreement from Cooper Financial of
their willingness to refinance the promissory note. The new payment schedule of
the note is based on 57 months at a fixed interest rate of 10%. A re-financing
charge was assessed increasing the principal to $143,000 US at July 1, 1997.
The term of the new promissory note is 24 months with a balloon payment of
$91,207.97 due June 30, 1999
The note is shown as a current liability on the Company's balance sheet at
June 30, 1998. The Company is current with it's obligation under this new
agreement.
Note 12 - Major Customers:
One customer accounted for 41% and 51 % of the Company's consolidated
revenues for fiscal 1998 and 1997, respectively. Another customer accounted for
18 % and 44 % of consolidated revenues for these respective periods. A new
customer accounted for 16% of consolidated revenues for fiscal 1998. The loss of
one or more of these customers would have a detrimental effect on the Company's
operating results.
Note 13 - Forward Looking Statements:
This registration statement on Form SB-2 contains forward looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21B of the Securities Exchange Act of 1934. The Company's actual results
could differ materially from those set forth in the forward looking statements.
F-17
<PAGE>
<TABLE>
<CAPTION>
================================================================== =======================================================
<S> <C>
No dealer, salesperson or other individual has been
authorized to give any information or to make any
representations not contained in this offering covered by this
Prospectus. If given or made, such information or 6,913,842 Shares
representations must not be relied upon as having been of Common Stock
authorized by the Company, or the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Stock in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has not been any change in the facts set forth in this Prospectus or in
the affairs of the Company since the date hereof.
__________________ Page
TABLE OF CONTENTS
Prospectus Summary
Risk Factors....................................
Use of Proceeds.................................
Dividends....................................... TECHNICAL VENTURES INC.
Dilution........................................
Capitalization..................................
Management's Discussion and Analysis of Financial _______________
Condition and Results of Operations.............
Business........................................ PROSPECTUS
Management...................................... _______________
Principal Stockholders..........................
Certain Transactions............................
Description of Our Securities...................
Shares Eligible for Future Sale.................
Selling Stockholders............................
Plan of Distribution............................
Legal Matters...................................
Experts.........................................
Where You Can Find More Information ............
Index to Financial Statements...................
F-1
Until _______, 1999 (25 days after the date of this
Prospectus), all dealers effecting transactions in the
Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This
__________, 1999 is in addition to the obligation of dealers
to deliver a Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such a director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities offered hereby.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee............................................................... $373.35
NASD registration fee.............................................................. 0.00
Printing and engraving............................................................. $5,000.00
Accountants' fees and expenses..................................................... $5,000.00
Legal fees......................................................................... $10,000.00
Transfer agent's fees and expenses................................................. 0.00
Blue Sky fees and expenses......................................................... 0.00
Miscellaneous...................................................................... $9,626.65
Total..................................................................... $30,000.00
</TABLE>
Item 26. Recent Sales of Unregistered Securities
In the past three years the Registrant has issued securities to a
limited number of persons as described below. Except as indicated, there were no
underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith.
In February 1999, the Registrant sold to two investors an aggregate of
$225,000 principal amount of 8% convertible debentures which are convertible
into a minimum of 1,278,410 shares of common stock (estimated for the purposes
hereof to be 1,530,000 shares of common stock), and common stock purchase
warrants to purchase 127,842 shares of common stock. This sale of securities was
exempt from registration pursuant to Rule 506 under Section 4(2) of the Act.
In February 1999, the Registrant issued to Coleman Capital Partners
Ltd. 50,000 shares of common stock in consideration for consulting services
rendered pursuant to an advisory agreement between the Registrant and Coleman,
dated January 11, 1999. The transaction was exempt from registration under
Section 4(2) of the Act.
In July 1998, the Registrant issued to Sichenzia, Ross & Friedman LLP
("SRF"), United States legal counsel to the Registrant, in consideration of
certain legal services performed by SRF for the benefit of the Registrant. The
issuance of securities was exempt from registration pursuant to Section 4(2) of
the Act. The Registrant has valued these 50,000 shares of stock at $10,000.
<PAGE>
<TABLE>
<CAPTION>
Item 27. Exhibits
<S> <C> <C>
3.1 Certificate of Incorporation, as amended to date(2)
3.2 By-Laws(2)
4.1 Form of Common Stock Certificate(2)
4.2 Form of 8%Convertible Debenture issued to Messrs. Howland and Hoops(1)
4.3 Form of Warrant issued to Messrs. Howland and Hoops(2)
5.1 Opinion of Sichenzia, Ross & Friedman, LLP(2)
10.1 Lease of premises located at 3411 McNicoll Ave, Unit 11,
Scarborough, Ontario, Canada(2)
10.2 Advisory Agreement, dated January 11, 1999, between the Registrant and Coleman Capital Partners Ltd.(2)
21.1 Subsidiaries of the Registrant(1) 24.1 Consent of Schwartz
Levitsky Feldman, Chartered Accountants, the Registrant's Independent
Auditors (see Page II-6)(1)
24.2 Consent of Sichenzia, Ross & Friedman, LLP (Included in Exhibit 5.1).(2)
25.1 Powers of Attorney (see Page II-5)(1)
27.1 Financial Data Schedule(2)
</TABLE>
- --------------------------
(1) Filed herewith
(2) To be filed by amendment
Item 28. Undertakings
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
a. To include any prospectus required by Section 10(a)(3) of the Securities
Act;
b. To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
c. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
2. For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. To remove from the registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
4. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
5. For determining any liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the issuer under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
6. For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of
<PAGE>
prospectus as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe it meets all the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
Province of Ontario, Canada, April 8, 1999.
TECHNICAL VENTURES INC.
By: /s/ Larry Leverton
Larry Leverton, Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Larry Leverton his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits and schedules thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully ratifying and confirming all that said attorney-in-fact and
agent or their substitutes or substitute may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 8, 1999.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
President (Principal Executive
/s/Frank Mortimer Officer) and Director
Frank Mortimer
/s/Larry Leverton Secretary and Treasurer
Larry Leverton (Principal Financial and
Accounting Officer) and
Director
/s/Bryan Carter
Bryan Carter Vice President and Director
</TABLE>
Exhibit 4.2
Form of 8%Convertible Debenture issued to Messrs. Howland and Hoops(1)
NEITHER THIS DEBENTURE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS DEBENTURE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT OR STATE LAW OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.
NA- New York, New York
$ ,000 January , 1999
TECHNICAL VENTURES INC.
8% CONVERTIBLE DEBENTURE DUE JANUARY 31, 2002
FOR VALUE RECEIVED, Technical Ventures Inc., a New York corporation (the
"Company"), hereby promises to pay to the order of , the principal amount of
thousand dollars ($ ,000) on January 31, 2002. Interest on this Debenture shall
be payable quarterly, on the last day of April, July, October and January of
each year to the holder of record of this Debenture on the 15th day of April,
July, October and January, respectively, with the first interest payment being
due on April 15, 1999. Interest shall be payable at the rate of eight percent
(8%) per annum, computed on the basis of a 360-day year, using the number of
days actually elapsed. Interest shall be payable, to the extent permitted by
law, at the rate equal to the lesser of (i) eighteen percent (18%) per annum or
(ii) the maximum rate permitted by law, on the entire unpaid principal amount of
this Debenture from and after the time that such principal amount shall have
become due and payable (whether at maturity or by acceleration). In no event
shall the rate of interest exceed the maximum interest rate which may legally be
charged, and any payments which would result in an interest payment being in
excess of such legal rate shall be treated for all purposes as payments of
principal. This Debenture is one of the Company's 8% Convertible Debentures due
January 31, 2002 (collectively, the "Debentures"), which were issued in the
aggregate maximum principal amount of two hundred thirty thousand dollars
($230,000). The Debentures were issued pursuant to subscription agreements
(collectively, the "Subscription Agreements" and each, a "Subscription
Agreement"). As used in this Debenture, the term "Closing Date" shall mean the
"First Closing Date," as defined in the Subscription Agreements.
ARTICLE 1
Covenants of the Company
Until the principal of and interest on the Debentures shall have been paid
in full:
(a)Continued Organization; Good Standing. Each of the Company and each of
its present or future subsidiaries (each, a "Subsidiary") will continue its
corporate existences and good standing in the state or province of its
organization and in each other state or province in which it owns or leases real
property.
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(b) Filings under the Securities Exchange Act of 1934. The Company's common
stock, par value $.01 per share ("Common Stock"), has been registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company shall file all reports required by Section 12 of
the Exchange Act not later than the date that such reports are due.
(c) Comply with Obligations under Subscription Agreement. The Company shall
comply with and perform in a timely manner all of its obligations pursuant to
the Subscription Agreements.
ARTICLE 2
Events of Default and Acceleration
(a) Events of Default Defined. The entire unpaid principal amount of this
Debenture, together with interest thereon shall, at the option of the holder
this Debenture, exercised by written notice to the Company, forthwith become and
be due and payable if any one or more the following events ("Events of Default")
shall have occurred (for any reason whatsoever and whether such happening shall
be voluntary or involuntary or be affected or come about by operation of law
pursuant to or in compliance with any judgment, decree, or order of any court or
any order, rule or regulation of any administrative or governmental body) and be
continuing. An Event of Default shall occur:
(i) if failure shall be made in the payment of the principal of this
Debenture when and as the same shall become due; or
(ii) if failure shall be made in the payment of any installment of
interest on this Debenture when and as the same shall become due and
payable whether at maturity or otherwise and such failure shall continue
for ten (10) days after the date such payment is due; or
(iii) if the Company shall violate or breach any of the covenants set
forth in this Debenture and such violation or breach shall continue for
fifteen (15) days thereafter; or
(iv) if the Company shall violate or breach any of the
representations, warranties, covenants or agreements contained in any of
the Subscription Agreements, and such violation or breach shall continue
for fifteen (15) days thereafter; or
(v) if the Company or any Subsidiary shall consent to the appointment
of a receiver, trustee or liquidator of itself or of a substantial part of
its property, or shall admit in writing its inability to pay its debts
generally as they become due, or shall make a general assignment for the
benefit of creditors, or shall file a voluntary petition in bankruptcy, or
an answer seeking reorganization in a proceeding under any bankruptcy law
(as now or hereafter in effect) or an answer admitting the material
allegations of a petition filed against the Company or any Subsidiary, in
any such proceeding, or shall by voluntary petition, answer or consent,
seek relief under the provisions of any other now existing or future
bankruptcy or other similar law providing for the reorganization or winding
up of corporations, or an arrangement, composition, extension or adjustment
with its or their creditors, or shall, in a petition in bankruptcy filed
against it or them be adjudicated a bankrupt, or the Company or any
Subsidiary or their directors or a majority of its
2
<PAGE>
stockholders shall vote to dissolve or liquidate the Company or any
Subsidiary other than a liquidation involving a transfer of assets from a
Subsidiary to the Company or another Subsidiary; or
(vi) if an involuntary petition shall be filed against the Company or
any Subsidiary seeking relief against the Company or any Subsidiary under
any now existing or future bankruptcy, insolvency or other similar law
providing for the reorganization or winding up of corporations, or an
arrangement, composition, extension or adjustment with its or their
creditors, and such petition shall not be vacated or set aside within sixty
(60) days from the filing thereof; or
(vii) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without consent of the Company or any
Subsidiary, a receiver, trustee or liquidator of the Company or any
Subsidiary, or of all or any substantial part of the property of the
Company or any Subsidiary, or approving a petition filed against the
Company or any Subsidiary seeking a reorganization or arrangement of the
Company or any Subsidiary under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any State
thereof, or any substantial part of the property of the Company or any
Subsidiary shall be sequestered; and such order, judgment or decree shall
not be vacated or set aside within sixty (60) days from the date of the
entry thereof, or
(viii) if, under the provisions of any law for the relief or aid of
debtors, any court of competent jurisdiction shall assume custody or
control of the Company or any Subsidiary or of all or any substantial part
of the property of the Company or any Subsidiary and such custody or
control shall not be terminated within sixty (60) days from the date of
assumption of such custody or control.
(b) Rights of Debenture Holder. Nothing in this Debenture shall be
construed to modify, amend or limit in any way the right of the holder of this
Debenture to bring an action against the Company.
ARTICLE 3
Conversion
(a) Right of Conversion.
(i) At any time on or after the Initial Conversion Date, as
hereinafter defined, the holder of this Debenture shall have the right, in
whole at any time and in part from time to time, to convert all or any part
of the principal amount of this Debenture outstanding from time to time and
any accrued interest and any accrued Registration Payment, as hereinafter
defined, into such number of shares of Common Stock as is determined by
dividing the amount of principal and interest and Registration Payment
being converted by the Conversion Price, as hereinafter defined; provided,
that the right to convert this Debenture shall terminate at 5:00 P.M. New
York City time on the business day prior to the maturity date of this
Debenture.
(ii) The "Initial Conversion Date" shall mean the first to occur of:
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<PAGE>
(A) One year from the Closing Date, or
(B) The effective date of the Registration Statement, as
hereinafter defined.
(b) Exercise of Conversion Right. In order to exercise the conversion
right, the holder of this Debenture shall surrender this Debenture at the office
of the Company together with written instructions specifying the portion of the
principal amount of and accrued interest on this Debenture and any accrued
Registration Payment which the holder elects to convert and the registration and
delivery of certificates for shares of Common Stock issuable upon such
conversion. The shares of Common Stock issuable upon conversion of this
Debenture are referred to as the "Conversion Shares." The number of Conversion
Shares shall be determined by dividing the amount of principal and interest
being converted by the Conversion Price in effect on the date of such
conversion, which shall be the date this Debenture is presented to the Company
for conversion. The holder shall thereupon be deemed the holder of the shares of
Common Stock so issued and the principal amount of and interest on the
Debenture, to the extent so converted, shall be deemed to have been paid in
full. If this Debenture shall have been converted in part, the holder of this
Debenture shall be entitled to a new Debenture representing the unpaid principal
balance of such Debenture remaining after deducting the principal amount of the
Debenture converted. Any accrued interest or Registration Payment not converted
into Common Stock pursuant to this Paragraph 3 shall be paid to the holder in
cash at the time of conversion.
(c) Conversion Price.
(i) The Conversion Price shall be the lesser of the Maximum Conversion
Price, as hereinafter defined, or the Current Conversion Price, as
hereinafter defined, which shall be subject to adjustment as hereinafter
provided.
(ii) The Maximum Conversion Price shall mean 1 and /100 dollars ($ .
).
(iii) The Current Conversion Price shall mean seventy five percent
(75%) of the average closing bid price of the Common Stock for the ten (10)
trading days prior to the date on which this Debenture is presented for
conversion on the principal stock exchange or market on which the Common
Stock is traded. If there is more than one reported closing bid price on
any day, the lowest closing bid price shall be used for the closing bid
price on such day. If this Debenture is being converted in part only, then
the Current Conversion Price shall relate to the Debenture to the extent
that principal and interest is converted, and the Current Conversion Price
for any subsequent conversion shall be determined in accordance with this
Paragraph 3(c)(iii) at the time of such subsequent conversion.
(iv) The date that this Debenture is presented to the Company for
conversion shall mean the date on which this Debenture is either (A)
physically delivered to Company by the holder -------- 1 The Maximum
Conversion Price shall be the average of the closing bid prices for the
Company's common stock for the ten (10) trading days prior to the Closing
Date.
4
<PAGE>
of this Debenture or such holder's representative, (B) deposited in
the mail, with proper postage affixed addressed to the Company at its
address as hereinafter provided or (C) delivered to a domestic or
international, as the case may be, delivery service that provides for
evidence of delivery.
(v) The Maximum Conversion Price shall be subject to adjustment as
follows:
(A) If the Company shall, subsequent to the Closing Date, (A) pay
a dividend or make a distribution on its shares of Common Stock in
shares of Common Stock, (B) subdivide or reclassify its outstanding
Common Stock into a greater number of shares, or (C) combine or
reclassify its outstanding Common Stock into a smaller number of
shares or otherwise effect a reverse split, the Maximum Conversion
Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted upward or
downward, as the case may be. Such adjustment shall be made
successively whenever any event listed in this Paragraph 3(c)(v)(A)
shall occur.
(B) In case the Company shall, subsequent to the Closing Date,
issue rights or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price (or having a
conversion price per share) less than the current market price of the
Common Stock (as defined in Paragraph 3(c)(v)(D) of this Debenture) on
the record date mentioned below, the Maximum Conversion Price shall be
adjusted so that the Maximum Conversion Price shall equal the price
determined by multiplying the Maximum Conversion Price in effect
immediately prior to the date of such issuance by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of
additional shares of Common Stock which the aggregate offering price
of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered)
would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the number of shares of
Common Stock outstanding on such record date plus the maximum number
of additional shares of Common Stock offered for subscription or
purchased (or into which the convertible securities so offered are
convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled
to receive such rights or warrants; and to the extent that shares of
Common Stock or securities convertible into Common Stock are not
delivered after the expiration of such rights or warrants, the Maximum
Conversion Price shall be readjusted to the Maximum Conversion Price
which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(C) In case the Company shall, subsequent to the Closing Date,
distribute to all holders of Common Stock evidences of its
indebtedness or assets (excluding cash dividends or distributions paid
out of current earnings and dividends or distributions referred to in
Paragraph 3(c)(v)(A) of this Debenture) or subscription rights or
warrants (excluding those referred to in Paragraph 3(c)(v)(B) of this
Debenture), then in each such case the Maximum Conversion Price in
effect thereafter shall be determined by multiplying the Maximum
Conversion Price in effect immediately prior thereto by a fraction, of
which the numerator shall be the total number of shares of Common
Stock outstanding multiplied by the current market price per share of
Common Stock
5
<PAGE>
(as defined in Paragraph 3(c)(v)(D) of this Debenture), less the
fair market value (as determined in good faith by the Company's Board
of Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and of which the
denominator shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such distribution.
(D) For the purpose of any computation under Paragraphs
3(c)(v)(B) and (C) of this Debenture, the current market price per
share of Common Stock at any date shall be deemed to be the average of
the daily closing prices for ten (10) consecutive trading days
commencing twenty (20) trading days before such date. The closing
price for each day shall be the reported closing price on the
principal national securities exchange or market on which the Common
Stock is admitted to trading or listed, or if not listed or admitted
to trading on any such exchange or such market or if there is no
trading on any day in the computation period, the closing low bid
price as reported by the Nasdaq Stock Market ("Nasdaq"), the National
Quotation Bureau, Inc. or other similar organization, shall be used,
or if such prices are not available, the fair market price as
determined in good faith by the Board of Directors.
(vi) In the event that, during any ten (10) trading day period during
which a computation of the Current Market Price is being made, there is a
record date for an event described in Paragraph 3(c)(v)(A), (B) or (C) of
this Debenture, the closing bid price of the Common Stock for each day in
such period which is prior to such record date shall be adjusted in the
same manner as the Maximum Conversion Price.
(vii) No adjustment in the Conversion Price shall be made: (A) upon
the issuance or sale of shares of Common Stock upon the exercise of
warrants and options outstanding as of the date hereof; or (B) upon the
issuance of options granted prior to the date hereof pursuant to any of the
Company's stock option plans (collectively, the "Plans"); or (C) upon the
issuance of warrants to purchase Common Stock, with an exercise price equal
to not less than the fair market value of the Common Stock on the date the
options were granted pursuant to the Plans subsequent to the date hereof or
the sale of any shares of Common Stock pursuant to the exercise of any such
warrants; or (D) upon the issuance of any shares of capital stock to the
Company by any of its subsidiaries.
(d) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a Subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock or the class issuable upon conversion of this
Debenture) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
holder of this Debenture shall have the right thereafter by converting this
Debenture, to purchase the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been
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<PAGE>
purchased upon conversion of this Debenture immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Any such
provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Debenture. The foregoing provisions of this Paragraph 3(d) shall similarly apply
to successive reclassifications, capital reorganizations and changes of shares
of Common Stock and to successive consolidations, mergers, sales or conveyances.
In the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole in part, for a security of the Company other than Common
Stock, such transaction shall be treated as a reclassification or reorganization
pursuant to this Paragraph 3(d).
(e) Fractional Shares. No fractional shares or script representing
fractional shares shall be issued upon the conversion of any Debentures. If,
upon any full or partial conversion of this Debenture, the holder would, except
for the provisions of this Paragraph 3(e), be entitled to receive a fractional
share of Common Stock, then the number of shares of Common Stock to be issued on
such conversion shall be rounded up to the next higher integral number of
shares.
ARTICLE 4
Filing of S-3 Registration Statement; Payment for Failure to Register.
(a) As provided in the Subscription Agreement, the Company shall file a
registration statement (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act") on Form S-3 covering the sale of the
Conversion Shares by the holders thereof, and the Company will use its best
efforts to have such registration statement declared effective as soon as
possible thereafter. The Company shall take such steps to insure that the
Registration Statement is current and effective until all of the Conversion
Shares shall have been sold or until such time as all of the Conversion Shares
issuable upon all of the Debentures may be sold without registration pursuant to
Rule 144 of the Securities and Exchange Commission (the "Commission") or any
similar subsequent rule without regard to volume limitations and filing
requirements.
(b) The Company recognizes that its agreement to have the Conversion Shares
and the Warrant Shares, as defined in the Subscription Agreement, registered
pursuant to the Securities Act in a timely manner (with time being of the
essence) was a material inducement for the holder of this Debenture to purchase
this Debenture, and that the failure of the Company to have such Conversion
Shares and Warrant Shares so registered would cause damage to the holder of this
Debenture. Accordingly, if the Registration Statement is not declared effective
by the Commission by the Registration Date, the Company shall pay the holder of
this Debenture, as liquidated damages for such failure and not as a penalty, the
Registration Payment, as hereinafter defined.
(c) The Registration Payment shall mean the Applicable Percentage, as
hereinafter defined, multiplied by the number of days between Registration Date
and the date on which the Registration Statement is declared effective by the
Commission. In making such computation, the Registration Date shall not be
counted, and the date on which the Registration Statement is declared effective
shall be counted.
(d) The Registration Date shall be the one hundred twentieth (120th) day
following the
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<PAGE>
Closing Date.
(e) The Applicable Percentage shall mean one-fifteenth of one percent (.066
2/3%) for each day after the Registration Date that the Registration Statement
has not been declared effective by the Commission.
(f) Payment of the Registration Payment shall be made on the first day of
each calendar month following the Registration Date, based on the amount accrued
to the day prior to the date of such payment, except that the last payment shall
be made within two (2) business days after the effective date of the
Registration Statement.
(g) The holder of this Debenture may convert any portion of the
Registration Payment as provided in Paragraph 3(b) of this Debenture.
ARTICLE 5
Miscellaneous
(a) Transferability. This Debenture shall not be transferred except in a
transaction exempt from registration pursuant to the Securities Act and
applicable state securities law. The Company shall treat as the owner of this
Debenture the person shown as the owner on its books and records.
(b) No Right of Prepayment. Without the prior written consent of the holder
of this Debenture, the Company shall have no right to prepay or redeem this
Debenture.
(c) WAIVER OF TRIAL BY JURY. IN ANY LEGAL PROCEEDING TO ENFORCE PAYMENT OF
THIS DEBENTURE, THE COMPANY WAIVES TRIAL BY JURY, CLAIMS FOR OFFSET AND
COUNTERCLAIMS, IF ANY.
(d) Legal Fees. In the event that the holder of this Debenture engages
counsel in connection with the administration or enforcement of this Debenture,
the Company shall pay all reasonable legal fees and expenses incurred by the
holder, regardless of whether an action has been commenced.
(e) Governing Law. This Debenture shall be governed by the laws of the
State of New York applicable to agreement executed and to be performed wholly
within such State without regard to principles of conflict of laws.
(f) Court Jurisdiction. The Company hereby (i) consents to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York and Supreme Court of the State of New York in the County of New York in
any action relating to or arising out of this Debenture, (ii) agrees that any
process in any such action may be served upon it, in addition to any other
method of service permitted by law, by certified or registered mail, return
receipt requested, or by an overnight courier service which obtains evidence of
delivery, with the same full force and
8
<PAGE>
effect as if personally served upon him in New York City, and (iii) waives any
claim that the jurisdiction of any such tribunal is not a convenient forum for
any such action and any defense of lack of in personam jurisdiction with respect
thereto.
(g) Notices. Notice to the Company shall be given to the Company at 3411
McNicoll Avenue, Unit 11, Scarborough, Ontario, Canada, M1V 2V6, telecopier
(416) 299-9545, Attention of Mr. Frank Mortimer, President, or to the holder at
the address set forth on the Company's records, or to such other address as the
Company or the holder may advise by hand delivery, certified or registered mail,
return receipt requested, overnight courier service, or by telecopier if
confirmation of receipt is given or of confirmation of transmission is sent by
mail as herein provided.
IN WITNESS WHEREOF, the Company has executed this Agreement as of the
date and year first aforesaid.
TECHNICAL VENTURES INC.
By:
Frank Mortimer, President
9
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NOTICE OF CONVERSION
[To be Signed Only Upon Conversion
of Part or All of Debentures]
TECHNICAL VENTURES INC.
The undersigned, the holder of the foregoing Debenture, hereby surrenders
such Debenture for conversion into shares of Common Stock of IAS Communications,
Inc. to the extent of $ * unpaid principal amount of and interest due on such
Debenture, and requests that the certificates for such shares be issued in the
name of , and delivered to , whose address is .
DATED:
(Signature)
(Signature must conform in all respects to name of holder as specified on
the face of the Debenture.)
* Insert here the unpaid principal amount of the Debenture (or, in the
case of a partial conversion, the portion thereof as to which the
Debenture is being converted). In the case of a partial conversion, a
new Debenture will be issued and delivered, representing the
unconverted portion of the unpaid principal amount of this Debenture,
to or upon the order of the holder surrendering such Debenture.
10
Exhibit 4.3
Form of Warrant issued to Messrs. Howland and Hoops(2)
Warrant to Purchase
WA- ** ,000**
Shares of Common Stock
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 P.M. New York City time on January 31, 2002
SERIES A COMMON STOCK PURCHASE WARRANT
OF
TECHNICAL VENTURES INC.
This is to certify that, FOR VALUE RECEIVED, or registered assigns
("Holder"), is entitled to purchase, on the terms and subject to the provisions
of this Warrant, from Technical Ventures Inc., a New York corporation (the
"Company"), at an exercise price per share of 2 and /100 dollars ($ . ), 3
thousand ( ,000) shares of the common stock, par value $.01 per share ("Common
Stock"), of the Company at any time during the period (the "Exercise Period")
commencing on the date of issuance of this Warrant and ending at 5:00 P.M. New
York City time, on January 31, 2002; provided, however, that if such date is a
day on which banking institutions in the State of New York are authorized by law
to close, then on the next succeeding day which shall not be such a day. The
number of shares of Common Stock to be issued upon the exercise of this Warrant
and the price to be paid for a share of Common Stock may be adjusted from time
to time in the manner set forth in this Warrant. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares," and the exercise price
for the purchase of a share of Common Stock pursuant to this Warrant, as the
same may be adjusted from time to time is hereinafter sometimes referred to as
the "Exercise Price." Reference in the Warrant to the "Series A Warrants" shall
mean any or all of -------- 2 The initial exercise price shall be equal to the
Maximum Conversion Price, as defined in the Debenture. 3 The number of shares
subject to the Warrant is determined by dividing (a) 10% of the principal amount
of Debentures purchased by the Warrant holder by (b) the initial exercise price.
<PAGE>
the warrants designated as Series A Common Stock Purchase Warrants by the
Company. The Series A Warrants were issued pursuant to subscription agreements
(the "Subscription Agreements" and each, a "Subscription Agreement"), between
the Company and the initial holders of the Warrant. As used in this Warrant, the
term "Closing Date" shall mean the "First Closing Date" as defined in the
Subscription Agreements.
(h) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole at any time or in part from
time to time during the Exercise Period by presentation and surrender of
this Warrant to the Company at its principal office, or at the office of
its stock transfer agent, if any, with the Purchase Form annexed hereto
duly executed and accompanied by payment of the Exercise Price for the
number of shares of Common Stock specified in such form. Payment of the
Exercise Price may be made either by check (subject to collection) in the
amount of the Exercise Price or by delivery of such number of shares of
Common Stock as has a current value, determined in the manner provided for
in Paragraph (a)(2) of this Warrant (with the current value being based on
the market price of the Common Stock on the date the Warrant, accompanied
by the shares of Common Stock delivered in respect of such exercise, is
delivered to the Company or its transfer agent for exercise), equal to the
Exercise Price. If this Warrant should be exercised in part only, whether
pursuant to this Paragraph (a)(1) or pursuant to Paragraph (a)(2) of this
Warrant, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of
the Holder hereof to purchase the balance of the shares of Common Stock
purchasable hereunder. Upon receipt by the Company of this Warrant at its
office, or by the stock transfer agent of the Company at its office, in
proper form for exercise, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall
not then be actually delivered to the Holder.
(2) In lieu of exercising this Warrant by payment of the Exercise
Price pursuant to Paragraph (a)(1) of this warrant, the Holder shall have
the right to convert this Warrant, in whole or in part to the extent that
this Warrant has not been exercised pursuant to said Paragraph (a)(1), for
the number of shares of Common Stock determined by (i) multiplying (x) the
number of shares of Common Stock as to which this Warrant is being
exercised by (y) the difference between the current value per share of
Common Stock on the date of exercise and the Exercise Price per share, as
in effect on such date, and (ii) dividing the result so obtained by the
current value per share of Common Stock on the date of exercise. The date
of exercise shall mean, for purposes of this Paragraph (a)(2), the date on
which this Warrant accompanied by the notice of exercise is delivered to
the Company or its transfer agent for exercise. The current value per share
of Common Stock shall be determined as follows:
(A) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq Stock Market ("Nasdaq") or other
automated quotation system which provides information as to the last
sale price, the current value shall be the average of the reported
last sale prices of one share of Common Stock on such exchange or
system on the last five (5) trading days prior
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to the date of exercise of this Warrant, or if, on any of such
dates, no such sale is made, the average of the closing bid and asked
prices for such date on such exchange or system shall be used; or
(B) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current value shall be the mean the average of
the reported last bid and asked prices of one share of Common Stock as
reported by Nasdaq, the National Quotation Bureau, Inc. or other
similar reporting service, on the last five (5) trading day prior to
the date of the exercise of this Warrant; or
(C) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current value of one share of Common Stock shall be an amount, not
less than book value, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(3) The date that this Warrant is delivered to the Company or its
transfer agent for exercise shall mean the date on which this Warrant is
either (A) physically delivered to Company by the holder of this Warrant or
such holder's representative, (B) deposited in the mail, with proper
postage affixed addressed to the Company at its address as hereinafter
provided or (C) delivered to a domestic or international, as the case may
be, delivery service that provides for evidence of delivery, in each case
accompanied by notice of exercise and, if applicable, payment of the
Exercise Price as provided in Paragraph (a)(1) of this Warrant.
(i) RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Common Stock as shall be required for issuance
and delivery upon exercise of this Warrant and that it shall not, without the
prior approval of the holders of a majority of the Series A Warrants then
outstanding, increase the par value of the Common Stock.
(j) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise of this Warrant,
the number of shares of Common Stock shall be rounded up to the next higher
integral number of shares.
(k) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to the provisions of Paragraph (k) of this
Warrant, upon surrender of this Warrant to the Company or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the office of the Company or
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<PAGE>
at the office of its stock transfer agent, if any, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(l) RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this Warrant,
be entitled to any rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth in this Warrant.
(m) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and
the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
(1) In case the Company shall, subsequent to the Closing Date, (A) pay
a dividend or make a distribution on its shares of Common Stock in shares
of Common Stock (B) subdivide or reclassify its outstanding Common Stock
into a greater number of shares, or (C) combine or reclassify its
outstanding Common Stock into a smaller number of shares or otherwise
effect a reverse split, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of
such subdivision, combination or reclassification shall be proportionately
adjusted so that the Holder of this Warrant exercised after such date shall
be entitled to receive the aggregate number and kind of shares which, if
this Warrant had been exercised immediately prior to such time, he would
have owned upon such exercise and been entitled to receive upon such
dividend, subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed in this Paragraph
(f)(1) shall occur.
(2) In case the Company shall, subsequent to the Closing Date, issue
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (or having a conversion price per share) less
than the current market price of the Common Stock (as defined in Paragraph
(f)(5) of this Warrant) on the record date mentioned below, the Exercise
Price shall be adjusted so that the same shall equal the price determined
by multiplying the Exercise Price in effect immediately prior to the date
of such issuance by a fraction, of which the numerator shall be the number
of shares of Common Stock outstanding on the record date mentioned below
plus the number of shares determined by multiplying the price or the
conversion price at which additional shares of Common Stock are offered by
the number of shares of Common Stock being offered by the number of shares
being issued, including shares being issued upon conversion of any
convertible securities, and dividing the result so obtained by the current
market price of the Common Stock, and of which the denominator shall be the
number of shares
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<PAGE>
of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock offered for subscription or purchased (or
into which the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants;
and to the extent that shares of Common Stock or securities convertible
into Common Stock are not delivered after the expiration of such rights or
warrants, the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of
such rights or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities convertible into Common
Stock) actually delivered.
(3) In case the Company shall, subsequent to the Closing Date,
distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current
earnings and dividends or distributions referred to in Paragraph (f)(1) of
this Warrant) or subscription rights or warrants (excluding those referred
to in Paragraph (f)(2) of this Warrant), then in each such case the
Exercise Price in effect thereafter shall be determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which
the numerator shall be the total number of shares of Common Stock
outstanding multiplied by the current market price per share of Common
Stock (as defined in Paragraph (f)(5) of this Warrant), less the fair
market value (as determined in good faith by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of
such rights or warrants, and of which the denominator shall be the total
number of shares of Common Stock outstanding multiplied by such current
market price per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed. Such adjustment shall be
made whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(4) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Paragraphs (f)(1), (2) or (3) of this Warrant, the
number of shares of Common Stock purchasable upon exercise of each Warrant
shall simultaneously be adjusted by multiplying the number of shares of
Common Stock issuable upon exercise of each Warrant in effect on the date
thereof by the Exercise Price in effect on the date thereof and dividing
the product so obtained by the Exercise Price, as adjusted. In no event
shall the Exercise Price per share be less than the par value per share,
and, if any adjustment made pursuant to Paragraph (f)(1), (2) or (3) would
result in an exercise price of less than the par value per share, then, in
such event, the Exercise Price per share shall be the par value per share.
The Company agrees not to increase the par value of the Common Stock other
than in connection with a reverse split or combination or shares or other
recapitalization, in which event any such increase shall not be greater
than that which would result from the application of the adjustments
provided in Paragraph (f)(1) of this Warrant to the par value.
(5) For the purpose of any computation under Paragraphs (f)(2) and (3)
of this Warrant, the current market price per share of Common Stock at any
date shall be deemed to be the average of the daily closing prices for
thirty (30) consecutive trading days commencing forty five (45) trading
days before such date. The closing price for each day shall be the
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<PAGE>
reported last sale price regular way or, in case no such reported sale
takes place on such day, the average of the reported last bid and asked
prices regular way, in either case on the principal national securities
exchange on which the Common Stock is admitted to trading or listed or on
Nasdaq, or if not listed or admitted to trading on such exchange or such
market, the average of the reported highest bid and reported lowest asked
prices as reported by Nasdaq, the National Quotation Bureau, Inc. or other
similar organization if Nasdaq is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors.
(6) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least one cent
($0.01) in such price; provided, however, that any adjustments which by
reason of this Paragraph (f)(6) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Paragraph (f) shall be made to the nearest cent or
to the nearest one-hundredth of a share, as the case may be. Anything in
this Paragraph (f) to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the Exercise
Price, in addition to those required by this Paragraph (f), as it in its
discretion shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of Common Stock, issuance of warrants to purchase Common Stock
or distribution of evidences of indebtedness or other assets (excluding
cash dividends) referred to hereinabove in this Paragraph (f) hereafter
made by the Company to the holders of its Common Stock shall not result in
any tax to the holders of its Common Stock or securities convertible into
Common Stock.
(7) The Company may retain a firm of independent public accountants of
recognized standing selected by the Board of Directors (who may be the
regular accountants engaged by the Company) to make any computation
required by this Paragraph (f), and a certificate signed by such firm shall
be conclusive evidence of the correctness of such adjustment.
(8) No adjustment in the Exercise Price shall be made: (A) upon the
issuance or sale of shares of Common Stock upon the exercise of warrants
and options outstanding as of the date hereof; or (B) upon the issuance of
options granted prior to the date hereof pursuant to any of the Company's
stock option plans (collectively, the "Plans"); or (C) upon the issuance of
warrants to purchase Common Stock, with an exercise price equal to not less
than the fair market value of the Common Stock on the date the options were
granted pursuant to the Plans subsequent to the date hereof or the sale of
any shares of Common Stock pursuant to the exercise of any such warrants;
or (D) upon the issuance of any shares of capital stock to the Company by
any of its subsidiaries.
(9) In the event that at any time, as a result of an adjustment made
pursuant to Paragraph (f)(1) of this Warrant, the Holder of any Warrant
thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained in Paragraphs
(f)(1) to (6), inclusive, of this Warrant.
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<PAGE>
(10) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in this and similar Warrants
initially issued by the Company.
(n) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of Paragraph (f) of this Warrant, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price and the adjusted number of
shares of Common Stock issuable upon exercise of each Warrant, determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder,
and the Company shall, forthwith after each such adjustment, mail, by first
class mail, a copy of such certificate to the Holder at the Holder's address set
forth in the Company's Warrant Register.
(o) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon Common Stock (other than a regular cash dividend payable out of retained
earnings) or (2) if the Company shall offer to the holders of Common Stock for
subscription or purchase by them any share of any class or any other rights or
(3) if any capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail, return receipt requested, to the Holder, at least fifteen days
prior to the date specified in clauses (i) and (ii), as the case may be, of this
Paragraph (h) a notice containing a brief description of the proposed action and
stating the date on which (i) a record is to be taken for the purpose of such
dividend, distribution or rights, or (ii) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any is to be fixed, as of which the holders of
Common Stock or other securities shall receive cash or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(p) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger in which the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in case
of any sale, lease or conveyance to another corporation of the property of the
Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder shall have
the right thereafter by exercising this Warrant, to
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<PAGE>
purchase the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, capital reorganization and other
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock which might have been purchased upon exercise of this
Warrant immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Paragraph (i) shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(q) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) The holder of this Warrant and/or the Warrant Shares shall be
entitled to the benefits of the registration provisions of the Subscription
Agreement with the same effect as if such rights were set forth verbatim in
this Warrant.
(2) In the event that, for any reason and for any period subsequent to
one hundred twenty (120) days after the Closing Date, the Warrant Shares
shall not be registered pursuant to a current and effective registration
statement or such registration statement shall cease to be current, the
last day of the exercise period shall be extended by two (2) days for each
day after such one hundred twentieth (120th) day that the registration
statement shall not be available to the holder of this Warrant or the
Warrant Shares.
(r) TRANSFER TO COMPLY WITH THE SECURITIES ACT. This Warrant or the Warrant
Shares or any other security issued or issuable upon exercise of this Warrant
may not be sold or otherwise disposed of except as follows:
(1) To a person who, in the opinion of counsel for the Company, is a
person to whom this Warrant or Warrant Shares may legally be transferred
without registration and without the delivery of a current prospectus under
the Securities Act with respect thereto and then only against receipt of an
agreement of such person to comply with the provisions of this Paragraph
(k) with respect to any resale or other disposition of such securities
which agreement shall be satisfactory in form and substance to the Company
and its counsel; or
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<PAGE>
(2) to any person upon delivery of a prospectus then meeting the
requirements of the Securities Act relating to such securities and the
offering thereof for such sale or disposition.
Dated as of , 1999
TECHNICAL VENTURES INC.
By:
Frank Mortimer
President and Chief Executive Officer
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<PAGE>
PURCHASE FORM
Dated:
The undersigned hereby irrevocably exercises this Warrant to the extent of
purchasing shares of Common Stock and hereby makes payment of $ in payment of
the Exercise Price therefor.
The undersigned hereby irrevocably exercises this Warrant to the extent of
purchasing shares of Common Stock and hereby makes payment of $ in payment of
the Exercise Price therefor by delivery of shares of Common Stock pursuant to
Paragraph (a)(1) of this Warrant.
The undersigned hereby irrevocably elects to exchange this Warrant to the
extent of shares of Common Stock pursuant to the provision of Paragraph (a)(2)
of this Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
(Please typewrite or print in block letters)
Signature
Social Security or Employer Identification No.
ASSIGNMENT FORM
FOR VALUE RECEIVED, hereby sells, assigns and transfer unto
Name
(Please typewrite or print in block letters)
Address Social Security or Employer Identification No. The right to
purchase Common Stock represented by this Warrant to the extent of shares as to
which such right is exercisable and does hereby irrevocably constitute and
appoint attorney to transfer the same on the books of the Company with full
power of substitution.
Signature
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Signature Medallion Guaranteed:
Exhibit 21.1 - Subsidiaries of the Registrant
Technical Ventures, Inc.
Mortile Industries Ltd. ("Mortile")
o 70% owned by Technical Ventures, Inc.
o Incorporated under the federal laws of Canada
<TABLE>
<CAPTION>
<S> <C>
FAM Tile Restoration Ltd. (Inactive) MPI Pertile Ltd. (Inactive)
o Wholly owned by Mortile o Wholly owned by Mortile
o Incorporated under the federal laws of Canada o Incorporated under the federal laws of Canada
</TABLE>
Exhibit - 24.1
Consent of Schwartz Levitsky Feldman, Chartered Accountants, the
Registrant's Independent Auditors
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated June 30, 1998 in the Registration Statement on Form
SB-2 and related prospectus of Technical Ventures Inc. for the registration of
6,913,842 shares of common stock.
/s/Schwarz Levitsky Feldman
Schwartz Levitsky Feldman
Chartered Accountants
Toronto, Ontario, Canada
April 8, 1999
