As filed with the Securities and Exchange Commission on November 5, 1998.
Registration No. 333-56083
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-3
Registration Statement Under
The Securities Act of 1933
TOP SOURCE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1027821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7108 Fairway Drive, Suite 200, Palm Beach Gardens, FL 33418
(561) 775-5756
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Mr. William C. Willis, Jr., President
TOP SOURCE TECHNOLOGIES, INC.
7108 Fairway Drive, Suite 200
Palm Beach Gardens, FL 33418
(561) 775-5756
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copy to:
Michael D. Harris, Esq.
Michael Harris, P.A.
1645 Palm Beach Lakes Boulevard, Suite 550
West Palm Beach, Florida 33401
(561) 478-7077
Approximation date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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>
<TABLE>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Proposed Proposed
maximum maximum
Title of each class offering aggregate Amount of
of securities Amount to be price per offering registration
to be registered registered share price fee
Common Stock 3,500,000(1) $1.032(2) $3,612,000 $1,245.52(3)
($.001 par value)
TOTAL REGISTRATION FEE $1,245.52
</TABLE>
(1) Consists of shares of common stock to be issued upon conversion of 5%
Series A Convertible Preferred Stock ("Preferred Stock"), upon exercise of
warrants and as a dividend to holders of Preferred Stock.
(2) Estimated solely for the purpose of computing the registration fee based on
the average of the high and low price of the Registrant's common stock in
the consolidated reporting system on the American Stock Exchange on June 1,
1998.
(3) Previously paid.
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 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
<TABLE>
<S> <C>
Form S-3 Item Numbers and Caption Heading in Prospectus
1. Forepart of the Registration Statement and
Outside Front Cover of Prospectus.................................... Cover Page of Form S-3 and
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................................... Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information, Risk Factors...................................... Not Applicable and
and Ratio of Earning to Fixed Charges.................................. Risk Factors
4. Use of Proceeds........................................................ Cover Page of Prospectus
5. Determination of Offering Price........................................ Cover Page of Prospectus
6. Dilution............................................................... Not Applicable
7. Selling Security Holders............................................... Selling Stockholders
8. Plan of Distribution................................................... Cover Page of Prospectus and
Plan of Distribution
9. Description of Securities to be Registered............................. Documents Incorporated by
Reference and Description of
Preferred Stock and Warrants
10. Interests of Named Experts and Counsel................................. Legal Matters and Experts
11. Material Changes....................................................... Recent Developments and Pro
Forma Condensed Financial
Information
12. Incorporation of Certain Information By Reference...................... Documents Incorporated by
Reference
13. Disclosure of Commission Position on .................................. Part II
Indemnification for Securities Act Liabilities
14. Other Expenses of Issuance and Distribution............................ Part II
15. Indemnification of Directors and Officers.............................. Part II
16. Exhibits and Financial Statement Schedules............................. Part II
17. Undertakings........................................................... Part II
</TABLE>
<PAGE>
PROSPECTUS
TOP SOURCE TECHNOLOGIES, INC.
2,125,242 Shares of Common Stock
This Prospectus relates to an aggregate of 2,125,242 shares of common
stock, $.001 par value per share (the "Common Stock"), of Top Source
Technologies, Inc. (the "Company") being offered for sale by certain
stockholders of the Company (the "Selling Stockholders"). These shares consist
of 25,242 shares issued as dividends declared as of June 30, 1998 and September
30, 1998 on the 5% Series A Preferred Stock (the "Preferred Stock"), 1,176,470
shares issuable upon the conversion of Preferred Stock and 100,000 shares
issuable upon the exercise of warrants (the "Warrants") at $1.10 per share. In
May 1998, the Company sold to two foreign purchasers (the "Purchasers"), which
are two of the Selling Stockholders, an aggregate of 1,000 shares of Preferred
Stock for $1,000,000 and issued Warrants to purchase 250,000 shares of the
Company's Common Stock exercisable at $1.10 per share to those purchasers and
three other corporations designated by the Placement Agent. The Preferred Stock
and Warrants were issued to accredited investors pursuant to exemptions from
registration under Section 4(2) of the Securities Act of 1933 (the "Securities
Act") and Rule 506 thereunder. The Company was required to register the
underlying shares of Common Stock. The Purchasers are obligated to purchase up
to an aggregate of an additional $1,500,000 of the Company's Preferred Stock in
tranches of $500,000 on similar terms and conditions commencing 90, 150 and 210
days, respectively, from the date of this Prospectus, subject to certain
conditions concerning the future bid price of the Company's Common Stock and its
future sales volume. If the Purchasers purchase any additional shares of
Preferred Stock, the resale of such shares of Common Stock will not be covered
by this Prospectus. See "Description of Preferred Stock and Warrants".
As of the date of this Prospectus, the Company's officers and directors
beneficially own approximately 2.3% of the Company's Common Stock. Based upon
information available to the Company, the only stockholder beneficially owning
5% or more of the Company's Common Stock is a registered investment advisor.
According to a Schedule 13-G filed by the investment advisor on January 23,
1998, as the result of investment power over the accounts of its clients, the
advisor and its affiliates are the beneficial owners of 7.2% of the Company's
Common Stock, none of which are being offered for sale pursuant to this
Prospectus. The Company has no current information concerning the current
beneficial ownership of this investment advisor. On October 14, 1998, the
closing price of the Company's stock on the American Stock Exchange was
approximately $.625.
All of the shares of Common Stock are offered for the respective accounts
of the Selling Stockholders as listed in this Prospectus under "Selling
Stockholders". The Company will receive none of the proceeds from the sale of
the shares of Common Stock by the Selling Stockholders. However, the Company
will receive a maximum of approximately $110,000 in connection with the exercise
of 100,000 Warrants, the underlying shares of which are covered by this
Prospectus. Such proceeds will be used for general corporate purposes. All of
the expenses of this offering, estimated at $24,000 will be borne by the
Company.
The Company has been advised by the Selling Stockholders that the Common
Stock may be offered and sold from time to time by or on behalf of the Selling
Stockholders, in or through transactions or distributions (including crosses and
block transactions) on the American Stock Exchange or in the over-the-counter
market at market prices prevailing at the time of sale, or at negotiated prices,
and in connection therewith commissions may be paid to brokers. Brokers
participating in such transactions may act as agents for the Selling
Stockholders. The Selling Stockholders, and any brokers participating in this
offering may be deemed to be "underwriters" within the meaning of the Securities
Act, and any commissions received by them may be deemed to be underwriting
compensation.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith to files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Company can be inspected and
copied at the Public Reference Room maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60604-2511,
and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of this
material may also be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street N.W., Washington, D.C. 20549. The
Commission maintains a World Wide Web site that contains reports, proxy
statements and other information regarding registrants including the Company
that file electronically with the Commission. The address of the site is
http:\\www.sec.gov. Reports, proxy statements and other information concerning
the Company can also be inspected at the offices of the American Stock Exchange,
Inc., 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered by this Prospectus.
This Prospectus does not contain all the information set forth in the
Registration Statement certain parts of which are omitted in accordance with the
rules of the Commission. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to the Registration Statement
including the exhibits. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and,
where the contract or other document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
reference to the applicable document filed with the Commission.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the information that has
been incorporated by reference in this Prospectus (other than exhibits).
Requests should be directed to the Company at its principal executive offices,
7108 Fairway Drive, Suite 200, Palm Beach Gardens, Florida, 33418-3757, (561)
775-5756.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
On October 6, 1992, the Company's change of domicile merger from Colorado
to Delaware became effective. Top Source, Inc., a Colorado corporation merged
into its wholly-owned subsidiary Top Source Technologies, Inc., formerly known
as Top Source, Inc., a Delaware corporation. The specifics of the merger are
described in the Form 8-B filed with the Commission on November 14, 1992, which
is specifically incorporated by reference into this Prospectus. As a result of
the change of domicile merger, the Form 8-A, which is incorporated by reference
herein, was filed with the Commission by the Company's predecessor, Top Source,
Inc., a Colorado corporation.
The following documents filed with the Commission are hereby specifically
incorporated by reference into this Prospectus:
(a) The Company's annual report on Form 10-K, as amended, for the fiscal year
ended September 30, 1997 and all amendments thereto;
(b) The Company's quarterly report on Form 10-Q for the quarters ended December
31, 1997, March 31, 1998, as amended, and June 30, 1998;
(c) The Company's proxy statement dated January 28, 1998 filed pursuant to
Section 14 of the Exchange Act;
(d) The description of the Company's Common Stock filed by the Company
predecessor, Top Source, Inc., a Colorado corporation, which is contained
in the Registration Statement on Form 8-A filed on March 12, 1992, File No.
1-11046, including any amendments or reports filed for the purpose of
updating such description;
(e) The description of the Company's change of domicile merger which is
contained in the Registration Statement on Form 8-B filed on November 14,
1992 and any amendments and reports thereto; and
(f) All other reports filed by the Company pursuant to Section 13(a) or 15(d)
of the Exchange Act since the filing of the Form 10-K for the year ended
September 30, 1997, as amended.
In addition, all documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of the offering made by this Prospectus shall be deemed to be incorporated by
reference into this Prospectus. Any statement contained in a document
incorporated or deemed to be incorporated by reference in this Prospectus shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in this Prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference in this Prospectus or in a supplement hereto modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
RISK FACTORS
The shares of Common Stock of Top Source Technologies, Inc. (the "Company")
involve a high degree of risk, including, but not necessarily limited to the
risk factors described below. Each prospective investor should carefully
consider the following risk factors inherent in and affecting the business of
the Company and this offering before making an investment decision. All
statements, trend analysis and other information contained in this Prospectus
relating to the proposed sale of the assets (the "Assets") of Top Source
Automotive, Inc. (the "Proposed Transaction"), the future profitability of Top
Source Automotive, Inc. ("TSA"), Top Source Instruments, Inc. ("TSI"), future
operating results, the ability of the Company to achieve profitability,
development of the Company's new on-site oil analyzer ("OSA-II"), the receipt of
future orders for the sale of overhead sound systems ("OHSS") from Chrysler, the
ability of the Company to enter into strategic alliances or develop new
technologies and the Company's future compliance with debt covenants as well as
other statements including words such as "seek", "anticipate", "believe",
"plan", "estimate", "expect", "intend" and other similar expressions constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Readers are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
the date of this Prospectus. These statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
contemplated in such forward-looking statements. Such risks and uncertainties
include those identified in this "Risk Factors" section as well as the
following: the ability of the buyer of TSA to close the necessary financing; the
ability of the Company to obtain the required stockholder approval of the
Proposed Transaction; potential changes by Chrysler Corporation ("Chrysler") in
the placement of its speakers in Jeep? Wranglers or decline in production levels
at Chrysler for vehicles installing OHSS; the Company's ability to market
OSA-IIs; the acceptance of the OSA-II technology by the marketplace; a general
tendency of large corporations not to change from known technology to emerging
new technology; the reliability of the OSA-II technology over an extended period
of time; the Company's ability to attract strategic partners for OSA-II and for
TSA if the Company is unable to sell it; and other matters which may increase
the Company's current losses and thereby cause it to exceed the 1.5 to 1.0 debt
to equity ratio required by a loan agreement.
Historical Losses. Since inception, the Company has never reported income
from operations. As of June 30, 1998, the Company had a retained earnings
deficit of $(25,392,345). The Company has provided cash to support its
operations from the income generated by TSA, the sale of the assets of United
Testing Group, Inc. in 1996, the sale of securities pursuant to private
placements and the exercise of stock options and warrants and from borrowings
from institutional lenders. As described below, TSA has lost and is losing
substantial revenues from Chrysler and the Company has entered into the
Agreement to sell TSA. See "Change in Business of the Company - Loss of
Operating Income" and "RECENT DEVELOPMENTS - Sale of TSA" at page 15. TSA will
remain profitable in spite of its loss of revenues from Chrysler, unless
Chrysler discontinues or materially reduces its business relationship with the
Company beyond that described below in the risk factor on page 10 entitled
"Dependence on Chrysler". The Company has shifted its primary focus toward the
sale of its OSA-II which the Company has just completed developing. However, the
Company has generated only limited revenues from the sale and lease of first
generation OSAs. Revenue for TSI for the year ended September 30, 1997 was
$403,853 and $329,596 for the nine months ended June 30, 1998. The identifiable
assets relating to the oil analysis services segment were approximately
$4,408,100 which includes the net value of the capitalized database of
$2,125,902 at June 30, 1998. In order to achieve profitability, for which no
assurances can be given, the Company is relying upon its ability to market and
sell OSA-IIs in sufficient numbers to pay the Company's substantial fixed and
other expenses. The Company believes that its marketing efforts will be
successful. However, if the Company is unable to meet its goals or to have the
necessary resources to sustain its marketing activities it could have a material
adverse effect on the Company's business, the carrying value of the above listed
assets, and the financial condition of the Company. The Company will continue to
evaluate the success of the new marketing efforts as well as the carrying value
of the related assets. There can be no assurances that the Company will be
profitable from operations in the future.
Reliance on On-Site Oil Analyzer. For several years, the Company has
concentrated on sale and marketing of its first generation on-site oil analyzer
(the "OSA") but with only limited success. Since June 1997, under the direction
of the Company's new president, the number of OSAs (and OSA-IIs) sold and leased
in the past year has increased. Additionally, the Company augmented its
technical expertise by the hiring of Dr. John Coates who has developed the
second generation machine OSA-II. The OSA-II is substantially smaller, quicker
and less expensive than the OSA. Moreover, the OSA-II does not require the
Company to rely upon an outside corporation to manufacture or assemble the
machines. Because the Company is relying upon one product, there is a
substantially increased degree of risk to investors.
Development of OSA-II. The Company recently completed the development of
the new OSA-II and in August 1998 completed the assembly of and shipped the
first seven OSA-IIs. However, as with the development of any new product,
unforeseen delays occur and problems may be discovered. Sophisticated computer
software and complex machines often encounter developmental difficulties or
"bugs" which only become apparent subsequent to widespread commercial use.
Problems which may arise in the operation of the OSA-IIs could have a material
adverse effect upon the Company's future operations.
Inability to Market OSA-IIs. The Company has devoted substantial resources
and different approaches to marketing the OSAs. Although the Company's marketing
efforts over approximately the last year have increased the number of OSAs being
used, the Company has only received orders for tests or leases of multiple
machines from four companies. In July 1998, the Company announced that a leading
operator of retail tire stores has agreed to install one OSA-II unit in each of
seven locations in Jacksonville, Florida for a six-month trial. The units were
shipped in August and began generating nominal revenue in early September as
anticipated. In August, the Company also announced a new test with a large
insurance company which has agreed to supply warranty coverage for automobiles
which are successfully evaluated using the OSA-II at the Florida sites and at
one other location. Additionally, in August 1998, the Company announced that it
had entered into an agreement with Speedco, Inc. ("Speedco") to lease 13 OSA-IIs
to be placed at various Speedco truck oil change service centers. Previously,
the Company had leased four OSAs to Speedco on a test basis. These four OSAs
will be replaced by four of the 13 OSA-IIs. The Company also recently entered
into a lease for two OSAs to be placed in a new oil analysis center operated by
a midwestern operator of automobile auctions. The Company also recently entered
into a lease for two OSAs to be placed in a new oil analysis center operated by
a midwestern operator of automobile auctions.The other multiple order consists
of a short-term lease for five OSAs to be placed at different locations of the
customer in the United States. Of these multiple unit orders, only the initial
orders for five units and the four Speedco units are currently generating
revenues. Without the receipt of numerous orders for multiple OSA-IIs and repeat
orders from the automobile manufacturers who purchased OSAs, it is not likely
that the Company can profitably market and sell OSA-IIs.
Dependence on Chrysler. Historically, the Company has derived almost all of
its revenues from the sale of OHSS to Chrysler by TSA. In 1997, Chrysler
discontinued using the OHSS on its Jeep Cherokee vehicles. Although the Company
does not know for certain, management believes the contract was lost to another
vendor because of pricing which would have yielded unacceptably low gross
margins for TSA. In November 1998, Chrysler will discontinue producing its Jeep
Grand Cherokee Ltd. Plus which is the only model that uses the OHSS. TSA expects
to continue assembling the OHSS for the Jeep Wrangler through at least model
year 2002. There can be no assurances that Chrysler will continue to order OHSSs
from TSA. If Chrysler discontinues using the OHSS on the Jeep Wrangler and the
Proposed Transaction is not consummated, it will have a material adverse effect
upon the Company at least until the Company generates significant revenues from
OSA-II.
Change in Business of the Company - Loss of Operating Income. The sale of
TSA Assets will result in a major change in the nature of the Company's
business. For the fiscal year ended September 30, 1997 and the nine months ended
June 30, 1998, TSA reported $16,580,270 and $8,952,308, respectively, in
revenues or approximately 97.6% and 96.4%, respectively, of the Company's
consolidated revenues. TSA's operating income, including the corporate overhead
allocation was $3,091,161 and $1,191,283 for such periods; the Company reported
operating losses of $(3,304,057) and $(3,113,621) for such periods. Assuming
consummation of the Proposed Transaction, the Company's sole remaining operating
subsidiary will be TSI which reported approximately $403,853 and $329,596 of
revenues in the year ended September 30, 1997 and the nine months ended June 30,
1998, respectively. Because TSA has been profitable, the Company has utilized
those profits to develop the OSA and OSA-II and to meet the Company's other
working capital needs including corporate overhead. To date, the Company has
only sold five OSAs and has not entered into any long-term leases of OSAs or
OSA-IIs. While management believes the proceeds from the sale of Assets will
permit the Company to pay its indebtedness and provide working capital to meet
current operating losses of TSI, the loss of TSA income will eliminate future
contributions to working capital and could adversely affect the Company's
long-term financial condition. The Company will be required to meet its future
working capital needs from anticipated cash flow from TSI or additional
financing. There can be no assurances that TSI will achieve positive cash flow
during fiscal 1999 or that the Company will obtain the necessary financing.
Change in Short-Term Financial Condition. The proceeds from the sale of the
Assets will substantially improve the Company's short-term financial condition
and liquidity by significantly increasing working capital. The Company's results
of operations will be materially and adversely affected for the short-term if
the sale is consummated. However, the loss of revenues and income from the sale
of the TSA Assets will be partially offset by projected annual debt service
savings and corporate overhead savings including reduced audit fees, travel
costs and other efficiencies. See "Pro Forma Condensed Financial Information of
the Company." The funds available from the sale of TSA Assets will be necessary
to sustain TSI and pay the Company's corporate overhead until TSI is able to
generate substantial revenues and reduce its operating losses. With the
improvement in short-term liquidity, the Company believes it will have
sufficient working capital to successfully market its OSA-IIs over the
long-term. No assurances can be given that the Company will have sufficient
working capital or that it will be successful in marketing OSA-IIs.
Failure of Proposed Transaction to Close. There can be no assurances that
all of the conditions to the Proposed Transaction will be satisfied and that it
will be consummated. A major condition of the Agreement, in addition to approval
of the Company's stockholders, is that NCT Audio Products, Inc. (the "Buyer")
complete a financing of at least $6,500,000 (the "Financing"). While the Buyer's
parent is a publicly-traded company whose common stock trades on the Nasdaq
National Market System under the symbol "NCTI", the Company believes that Buyer
only recently began active operations. However, the Company has no access to
internal information concerning the Buyer's financial condition. There can be no
assurances that the Buyer will complete the necessary Financing. Failure to
consummate the Proposed Transaction will result in material expenses of the
Company of approximately $250,000, which will not be reimbursed.
Changing Technology; Competitive Factors. The OSAs represent a
technological breakthrough affecting the oil analysis industry. Oil analysis is
a 50-year old technology, which is widely used for diagnostic and preventative
maintenance programs for equipment by various industries. It is also used for
quality control and pipeline monitoring in the petroleum industry. Essentially,
the OSAs analyze (and the OSA-IIs are designed to analyze) oil at the end user's
location thereby avoiding the need to send petroleum samples to a central
laboratory. The OSAs and OSA-IIs utilize complex computer software. In general,
the computer industry is subject to rapid and significantly changing technology
including potential introduction of new products and technologies, which may
have a material adverse impact upon the Company's ability to market and sell
OSA-IIs. Although the Company believes that it has a significant advantage over
potential competitors as a result of its experience over a five-year period with
the OSAs, the Company's proprietary database and the proprietary nature of the
resulting technology including the development of the OSA-IIs. No assurances can
be given that either a comparable or more advanced on-site oil analyzer will not
be developed in the future by one or more third parties.
Patents and Proprietary Information. Historically, the Company generated
almost all of its revenue from products subject to patents and patent
applications exclusively licensed to the Company. TSA has relied upon the sale
of its OHSS enclosures which are covered by a patent license limited to the
United States and Canada. The Company has obtained patents covering various
features of the OSAs which are applicable to the OSA-IIs. The Company has
applied for additional patents covering various features of the OSA-IIs. In
addition, steps have been taken to protect trade secrets through appropriate
confidentiality agreements. There can be no assurances that the patent
applications for the OSA-II will be granted. The failure by the Company to
obtain patents and protect its respective trade secrets could have a material
adverse effect on the Company by increasing the likelihood of competition. In
addition, other companies may independently develop equivalent or superior
technologies and may obtain patent or similar rights with respect to them.
Although the Company believes that the software for the OSAs and OSA-IIs has
been independently developed by it, and that such technology does not infringe
on the patents or violate the proprietary rights of others, there can be no
assurances that the Company will not be determined to infringe upon the patents
or proprietary rights of others, or that patents or proprietary rights of others
will not have a material adverse effect on the ability of the Company to
commercialize the OSA-IIs. Patent and technology disputes are common with high
technology products and services.
New Technologies and Other Considerations. In order to expand its current
product line, the Company may continue to seek new technologies and products.
This aspect of the Company's business involves a number of special risks.
Because of these risks, the Company will seek capital input and strategic
partners to sell equity in suitable products and technologies to these partners
in order to reduce the risks to investors. Also, the Company will seek to avoid
substantial and long-term expense associated with the necessary research and
development. Assuming that the Company is able to enter into agreements with
such partners and that those partners will be able to carry out the necessary
research and development, there is the risk that the technologies will not
perform as expected or be cost effective. Assuming successful research and
development, there remains the risks of being able to market the products and
locate industry partners or others able to manufacture the products according to
stringent quality control standards and in a viable economic manner. There can
be no assurances that the Company will be able to successfully locate such
technologies and if so, will be able to find strategic partners able to develop
and market new technologies. Finally, there is the risk that while the Company
is seeking to commercialize a new technology, a competitor will develop
technologies which are more commercially viable thereby reducing the viability
of the Company's products.
Anti-Takeover Considerations. The Company's Restated Certificate of
Incorporation (the "Certificate Provisions") contains various provisions
designed to deter a third party from launching a hostile takeover for the
Company. In addition, the Company has adopted a Shareholder Rights Plan (the
"Rights Plan"). In this Prospectus, the Certificate Provisions and the Rights
Plan are collectively referred to as the "Anti-Takeover Provisions". The
Certificate Provisions consist of: (i) empowering the Board of Directors (the
"Board"), without further action by the stockholders, to issue up to 5,000,000
shares of Preferred Stock in one or more series, with such designations,
preferences, special rights, qualifications, limitations and restrictions as the
Board may determine; (ii) establishing a classified Board whereby election of
the directors is staggered and each year approximately one-third of the
directors are elected for a three year term; (iii) making it difficult to remove
directors for "cause" by requiring a super-majority vote of either: (1) 75% of
the stockholders, or (2) 66-2/3% of the stockholders and the majority of the
"disinterested directors"; (iv) providing that stockholder action taken by
written consent in lieu of a meeting is prohibited unless such consent is signed
by the holders of at least two-thirds of the stock; and (v) restricting
stockholder nomination of directors to any stockholder with the power to vote at
least 15% of the outstanding voting securities of the Company who timely
complies with specific notice procedures. In connection with the Rights Plan,
the Board declared a dividend of one Preferred Stock Purchase Right (the
"Rights") for each outstanding share of the Company's Common Stock. The Rights
permit the holders (stockholders of the Company) to purchase Series A Junior
Preferred Stock. Holders of Rights have the right to acquire stock of the
Company or an "acquiring entity" at one-half of market value. The Rights only
become exercisable in the event, with certain exceptions, an acquiring party
accumulates 15 percent or more of the Company's voting stock. These Rights may
be redeemed by the Company at $.01 per Right prior to the close of business on
the 15th day after a public announcement that beneficial ownership of ownership
of 15% or more of the Company's voting stock has been accumulated by single
acquiror or group (with certain exceptions), under specified circumstances.
The Anti-Takeover Provisions generally make it more difficult or discourage
a proxy contest or the assumption of control by a holder of a substantial block
of the Company's Common Stock because it is more difficult to remove the
incumbent Board. Thus, the Anti-Takeover Proposals have the affect of: (i)
entrenching incumbent management, and (ii) discouraging a third party from
making a tender offer at a premium over the market price or otherwise attempting
to obtain control of the Company even though such an attempt could be desired by
a substantial member of the Company's stockholders. The Anti-Takeover Provisions
were not intended to prevent a takeover of the Company on terms which are
beneficial to the stockholders and will not do so. They may, however, deter an
attempt to acquire the Company in a manner or on terms that the Board determines
not to be in the best interest of its stockholders.
Dependence on Key Personnel. The Company is currently dependent upon the
efforts of the key members of its management team consisting of Mr. William C.
Willis, Jr., the Company's President and Chief Executive Officer, and Mr. David
Natan, the Company's Chief Financial Officer. In addition, the Company is
dependent upon Dr. John Coates who is in charge of the group which developed the
OSA-II. In the event that one or more of these persons ceases to be employed by
the Company, it may have a material adverse effect upon the Company.
Competition. Competition in the automotive business and the oil analysis
business is intense. With regard to the Company's OHSS business, interior trim
suppliers have a substantial competitive advantage as a result of their
relationships with automobile manufacturers and their substantially greater
degree of financial strength, management depth and engineering expertise. By
offering automobile manufacturers the opportunity to deal with one primary
supplier, an interior trim supplier can offer alternative speaker placement and
thereby competes directly with the Company. With regard to the OSA-II, while the
Company is not aware of any other business that markets and sells an on-site oil
analysis instrument, the Company's oil analysis subsidiary, TSI, competes with
various oil analysis laboratories located throughout the United States. These
laboratories offer service through Federal Express or other express delivery
couriers and provides facsimile or other rapid delivery of oil analysis reports
to the customers.
Liquidity Considerations. In 1995, the Company issued $3,020,000 of 9%
Senior Subordinated Convertible Notes (the "Notes"). If the Proposed Transaction
is approved, the Company intends to pay the Notes which are prepayable without
penalty. These Notes contain a debt to equity ratio that cannot exceed 1.5 to
1.0. As of June 30, 1998, this ratio was 1.14 which meant that the Company was
in compliance with the ratio. Without the receipt of the Buyer's non-refundable
deposit of $1,450,000 the Company would not have met this debt covenant.
However, due to the Company's historical losses and due to the uncertainty and
timing of OSA-II revenues, there is a possibility that the Company will exceed
this ratio in future quarters. In the event that the ratio is not met and the
Company is unable to receive a waiver from the representative of the
noteholders, Mr. G. Jeff Mennen, a member of the Company's Board, has agreed to
guarantee to infuse a sufficient amount of capital into the Company to permit it
to maintain compliance with this debt to equity ratio through October 1, 1998
or, alternatively, he will refinance the Notes. In consideration for this
guarantee, the Company issued to Mr. Mennen 50,000 10-year warrants exercisable
at $2.00 per share. Mr. Mennen has the right to compel the Company to file a
registration statement covering the shares of Common Stock underlying such
warrants or to include the shares of Common Stock in a registration statement
filed by the Company on behalf of others.
On July 1, 1997, the Company entered into a three-year $5,000,000
asset-based financing agreement ("Credit Facility") with NationsCredit
Commercial Corporation ("Nations"). This Credit Facility replaced the Company's
former $3,750,000 facility. The new Credit Facility, which is secured by
substantially all of the assets of the Company enables the Company to borrow up
to $5,000,000 based upon certain percentages of accounts receivable and
inventory balances. This Credit Facility allows for borrowing of up to 85% of
accounts receivable and 50% of inventory for both TSA and TSI. The overall
sub-limit of borrowing against inventory is $1,500,000. The interest rate on
this Credit Facility is 1-1/2% over the prime rate and is payable monthly with a
required minimum borrowing level of $2,500,000 for the fee calculation purposes.
The Company's effective interest rate at June 30, 1998 factoring the interest
earned on used drawn funds was approximately 11.1%. As of June 30, 1998 and
August 14, 1998, borrowings on this Credit Facility were $833,477 and $504,995,
respectively. Total unused availability for the same periods were $830,000 and
$160,000, respectively. The Company plans to repay the Credit Facility in full
upon consummation of the Proposed Transaction. Upon payment of the Credit
Facility, NationsCredit will release the lien, which it holds on all of the
assets of the Company including TSA Common Stock and Assets.
The Credit Facility calls for one financial covenant that, if not met,
would cause default under the agreement and increase the interest rate by 2%.
The Credit Facility requires the Company not to exceed $2,000,000 in losses from
operations (plus or minus any non-recurring items agreed upon) measured on an
annual basis each September 30th.
The Company expects to report a loss from operations of more than
$3,300,000 for the year ended September 30, 1998. This will require the Company
to obtain a waiver from Nations (which Nations provided to the Company in fiscal
1997 for exceeding this covenant), or to pay off the loan balance at the time of
default, which the Company intends to do with the proceeds of the Proposed
Transaction. This covenant violation will also increase the effective interest
note to approximately 13.1% unless the Company obtains a waiver. For fiscal
1997, the Company paid Nations $25,000 and it waived the covenant violation and
the interest rate increase. There can be no assurances that these waivers can be
obtained from Nations.
RECENT DEVELOPMENTS
SALE OF TSA
On August 14, 1998, the Company and TSA entered into an agreement, as
amended (the "Agreement") with the Buyer through which the Buyer agreed to
purchase TSA for a minimum of $10,000,000 and up to an additional $6,000,000
representing the Earn-Out.
The Company believes that the current aftermarket and other OEM production
line initiatives in process for OHSS will result in additional revenues that
will enable the Company to achieve the full $6,000,000 Earn-Out over the
two-year period following the Closing. However, no assurances can be given. If
earned, for the first year following the Closing ("Year One"), the Buyer shall
pay TSA an Earn-Out of up to $3,000,000 and a cumulative amount of up to
$6,000,000 for Year One and the 12-month period subsequent to Year One ("Year
Two").
The Earn-Out in Year One shall be equal to the amount by which the product
of four and one-half times EBITDA, as defined, for Year One exceeds $8,000,000.
As used in the Agreement, "EBITDA" means income before interest, taxes,
depreciation and amortization of the Buyer's subsidiary acquiring the Assets
("New TSA"). The Agreement further provides that EBITDA shall be based solely
upon the operations of New TSA based upon operations consistent with the
historical operations of TSA and excluding items of income or expense such as
non-recurring items, extraordinary items, intercompany items and other items of
income and expense which are not consistent with such past practice.
In effect, to the extent that in Year One the cash flow of New TSA times
four and one-half exceeds $8,000,000, the Buyer shall pay the Earn-Out up to the
maximum of $3,000,000. The Year Two Earn-Out shall be equal to the amount by
which the product of four and one-half times EBITDA for Year Two exceeds the
greater of: (i) Year One EBITDA times four and one-half, or (ii) $8,000,000. The
maximum Year Two Earn-Out calculated using this formula is $6,000,000 minus the
Year One Earn-Out.
Based upon an anticipated closing date in December 1998, and assuming no
changes to TSA's revenues and expenses after the closing, no Earn-Out payment if
calculated on a pro-forma basis would have been earned by the Company. The
Company believes that current after-market and other OEM production line
initiatives in process for OHSS will result in additional revenues that will
enable the Company to achieve the full $6,000,000 Earn-Out over a two-year
period after closing. However, no assurances can be given.
The Buyer paid the Company $1,450,000 as a non-refundable deposit in June
1998. Additionally, the Buyer has paid $2,050,000 into escrow. The escrow
agreement provides that the $2,050,000 and certificates for 14.5% and 5.5% of
TSA shall be held in escrow pending approval of the Company's stockholders. If
such approval is obtained, the $2,050,000 will be delivered to the Company and
the Buyer will receive a certificate for 20% of TSA. If it is not obtained, the
escrow agent will deliver the Buyer 14.5% of TSA Common Stock and return the
$2,050,000.
Pursuant to the Agreement, the Buyer has the exclusive right to purchase
the Assets of TSA at any time through March 31, 1999. However, if the Proposed
Transaction fails to close by December 31, 1998, the Buyer has a one-week option
to cancel its exclusive right to purchase the Assets of TSA and as consideration
receive an additional 15% of TSA Common Stock. The Company anticipates convening
a stockholders' meeting in December 1998 and has filed preliminary proxy
material with the Commission. Upon clearance of the preliminary proxy material,
the Company will mail to its stockholders definitive proxy solicitation material
and schedule a stockholders' meeting.
Under the terms of the Agreement, the Buyer has agreed to assume all of
TSA's liabilities subject to the limitation that such liabilities not exceed the
amount of inventory owned by TSA, and pay the Company $10,000,000 (or (or
$6,500,000 in addition to the $1,450,000 and $2,050,000 payments described
above).
In about mid-February 1998, management began discussing with the Buyer the
possibility of the Buyer acquiring TSA. These discussions arose after initial
discussions with the Buyer concerning a proposed strategic alliance between the
two companies. The Company and the Buyer began exchanging letters of intent
beginning in early April 1998 which negotiations continued periodically over the
next several weeks until an initial letter of intent was signed on April 17,
1998. The Buyer agreed to pay $16 million subject to completion of due
diligence. The Company supplied the Buyer with substantial documentation, and
the Buyer's representatives made two trips to Troy, Michigan to review TSA's
operations. As the discussions with the Buyer became more serious and as the
Buyer conducted its due diligence, the Company and its financial advisor, Morgan
Keegan & Company, Inc. ("Morgan Keegan"), continued preliminary discussions with
a number of potential purchasers, none of which ultimately led to more serious
negotiations. During the course of these discussions, the Company and Morgan
Keegan contacted approximately 135 third parties. None of these potential
purchasers expressed any interest in acquiring TSA.
As a result of its investigation, the Buyer focused on the changes to the
business of TSA and reduced the purchase price to a base of $10 million cash
with a potential Earn-Out of $6 million. This reduced offer was presented to the
Company in June 1998 and approved by the Company's Board on June 16th.
Previously, the Buyer signed the non-binding letter of intent on June 9th and
the Company received a non-refundable deposit on June 11th. On June 16th, the
Board also directed management to pay for and obtain the a fairness opinion from
Morgan Keegan. Its approval of the Proposed Transaction was subject to its
review of and satisfaction with the fairness opinion. Subsequent to the June
16th Board meeting, the Company retained Morgan Keegan to evaluate the Proposed
Transaction and determine whether, in its opinion, the consideration to be
received by the Company and the Proposed Transaction was fair to the Company
from a financial point of view.
Although legal counsel for the Company and the Buyer did not participate in
the negotiations for the letter of intent, they did participate in the review of
it. Moreover, commencing on June 3rd, counsel for the Company and the Buyer
commenced periodic negotiations of the terms and provisions of letter of intent
and the Agreement. On June 20th, the Company submitted to the Buyer, , the first
draft of the Agreement. After receiving comments, the Company's counsel
submitted a second draft of the Agreement on July 12th; additional comments were
received on July 22nd and corrected pages provided to the Buyer's counsel on
July 23rd.
On July 30th, the escrow agreement was executed and on July 31st the Buyer
paid $2,000,050 into escrow. Also on July 31st, the Buyer advised the Company
that it would not be in a position to complete the Proposed Transaction unless
it had the option to pay up to $2,500,000 by issuing a short-term note. The
parties did not agree to the terms of any security. On August 4th, the Company
supplied another draft of the Agreement to the Buyer. On August 6th, the Buyer's
counsel supplied comments on the latest draft of the Agreement. Because the
escrow agreement required the escrow agent to return the $2,050,000 if requested
by the Buyer on August 7th, the parties amended the escrow agreement to extend
the Buyer's time to request a return of the escrow deposit until August 13th.
The parties continued to discuss the issue of security for the Buyer's note
through August 11th when they agreed to defer the type of security until a later
date. Additionally, management of the Company and the Buyer agreed upon
additional changes to the Agreement on August 11th. Their discussions continued
on August 12th at which time the Buyer agreed to modify the escrow agreement to
maximize the federal income tax consequences to the Company. The final changes
to the Agreement were made on August 12th and August 13th, agreed upon by the
Buyer on August 13th and the parties executed the Agreement on August 14, 1998.
The Agreement was amended on October 7, 1998 to eliminate the option of issuing
the Buyer's note and requiring an all cash payment.
OTHER MATTERS
As previously publicly reported, Mr. Stuart Landow, the Company's former
Chairman of the Board, resigned as a director and as an employee effective June
30, 1998.
Mr. William C. Willis, Jr., the Company's president and chief executive
officer and new Chairman of the Board waived a bonus of $127,500 to which he was
entitled under his employment agreement. In exchange for this waiver, in July
1998 the Company's Compensation Committee granted Mr. Willis 100,000 stock
options exercisable at $.875 per share (then fair market value). The options
vest incrementally over a three-year period and are exercisable over a 10-year
term. Mr. Willis imitated this transaction as a result of the Company's efforts
to conserve cash and his confidence in the Company.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". SFAS No. 128 supersedes the previous standard (Accounting Principles
Board Opinion No. 15), modifies the methodology for calculating earnings per
share, and is effective for periods ending after December 15, 1997; early
adoption was not permitted. The Company is now required to restate previously
reported per share data to conform with the requirements of SFAS No. 128. Had
the provisions of SFAS No. 128 been applicable to the condensed consolidated
financial statements for all periods contained in the Company's Form 10-K for
the year ended September 30, 1997, basic and diluted earnings per share, as
calculated in accordance with the provisions of SFAS No. 128, would not have
been different from the per share amounts reported herein for all periods
presented.
During the three months ended March 31, 1998, the Company adopted Financial
Standards Board Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in the financial
statements. For the years ended September 30, 1997, 1996, 1995 and the nine
months ended June 30, 1998 and 1997, there were no differences between net
income and comprehensive income.
<PAGE>
PRO FORMA CONDENSED FINANCIAL
INFORMATION OF THE COMPANY
The following unaudited pro forma condensed financial statements were
prepared to reflect the estimated effects of the potential sale of 100% of TSA
for $10,000,000. The sale is structured to occur in three separate steps as
follows: (i) The Company has received a $1,450,000 non-refundable deposit which
gave the Buyer a minimum of a 14.5% equity interest in TSA ("Step 1"),(ii) the
Second Payment of $2,050,000 was received by the Company and is in escrow until
the requisite stockholder approval is obtained which would give the Buyer an
additional 5.5% of TSA Common Stock ("Step 2"), and (iii) the receipt of the
remaining proceeds of $6,500,000 to complete the ultimate sale of 100% of TSA
("Step 3"). If the Company's stockholders fail to approve the Proposed
Transaction by the requisite majority, the escrow agent shall return the
$2,050,000 to the Buyer and also deliver to the Buyer one stock certificate for
14.5% of the TSA Common Stock; the Company will receive back the stock
certificate for 5.5% of TSA Common Stock. On the date the TSA stock certificates
are released from escrow, the Buyer will be a stockholder of TSA owning 14.5% if
the Proposed Transaction is defeated or 20% if the Proposed Transaction is
approved. However, if the Buyer consummates the purchase of TSA's Assets, it
will deliver back to this Company the shares of TSA, and Buyer will not receive
any part of the Purchase Price by virtue of its ownership of TSA Common Stock.
Furthermore, if the Proposed Transaction is not consummated by December
31,1998, the Buyer has a one-week option to cancel its exclusive right to
purchase the Assets (which right exists through March 31, 1999) and as
consideration of such cancellation receive an additional 15% of TSA Common
Stock.
In the event that the Proposed Transaction fails to close for any reason,
the Company intends to operate TSA and seek another purchaser for its Assets.
For a discussion of the risks involved in this event, see "Risk Factors Failure
to Obtain Stockholder Approval and Failure of Proposed Transaction to Close".
The unaudited pro forma condensed balance sheet as of June 30, 1998 gives
effect to the above transactions as if they had occurred on June 30, 1998. The
unaudited pro forma condensed statements of operations for the years ended
September 30, 1997 and 1996 and 1995 and nine months ended June 30, 1998 and
1997 give effect to the pro forma transactions as if they had occurred as of
October 1, the first day of the Company's respective fiscal year. Upon the sale
of 100% of the TSA Assets (Step 3), this segment will be treated as a
discontinued operation as defined in Accounting Principals Board Opinion No. 30,
accordingly the pro forma statements of income have been presented for all the
same periods as the historical financial statements.
The unaudited pro forma condensed financial statements were also prepared
to show the effects of the use of the net proceeds from the sale to pay Nations
and the Notes as described in the notes to the unaudited pro forma condensed
financial statements.
The unaudited pro forma condensed financial statements were prepared
utilizing the accounting principles of the Company as outlined in its historical
financial statements included in the Company's Form 10-K/A No. 3 for the year
ended September 30, 1997, a copy of which is incorporated by reference herein.
The pro forma adjustments are based upon available information and contain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma condensed financial statements do not reflect the
potential corporate overhead savings as a result of the sale of TSA.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
<S> <C> <C> <C> <C> <C> <C> <C>
(iii)(Assumes
Proposed
Transaction is
Approved and
(ii) (Assumes Buyer Does Not
Proposed Close by 12/31/98
Tranaction is and Buyer Exercises
Approved and One Week Right to (iv) (Assumes
(i)(Assumes Buyer Does Not Cancel and Receive Proposed
Proposed Purchase 100% an additional 15% Transaction is
Transaction of TSA Assets) TSA Common Stock) Approved and
not Approved) Buyer Owns Record 15% Buyer Owns Buyer Owns
Buyer Owns 20% of TSA Minority 35% of TSA 100% of TSA
14.5% of TSA Adjustments Common Stock Interest in Common Stock Adjustments Assets)
Common Stock for Deposit for Pro Forma Income Pro Forma for 100% Sale Pro Forma
Historical 20% of TSA Total of TSA Total of TSA Total
------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and
cash equivalents $1,962,287 (a) $2,050,000(d) $4,012,287 - $4,012,287 $591 (g) $6,417,627
6,500,000 (g)
(4,503,477) (h)
408,226 (j)
Accounts
receivable, net 1,861,502 - 1,861,502 - 1,861,502 (1,663,844) (g) 197,658
Advances to officer 5,839 - 5,839 - 5,839 - 5,839
Inventories 1,303,150 - 1,303,150 - 1,303,150 (540,251) (g) 762,899
Prepaid expenses
and other
current assets 357,353 - 357,353 - 357,353 (74,629) (g) 282,724
-----------------------------------------------------------------------------------------------------------
Total current assets 5,490,131 2,050,000 7,540,131 - 7,540,131 126,616 7,666,747
Property and
equipment-net 1,601,100 - 1,601,100 - 1,601,100 (288,898) (g) 1,312,202
Manufacturing &
distribution
rights &
patents-net 262,922 - 262,922 - 262,922 (144,966) (g) 117,956
Capitalized
database, net 2,125,902 - 2,125,902 - 2,125,902 - 2,125,902
Notes receivable
from officers 27,395 - 27,395 - 27,395 - 27,395
Other assets, net 205,897 - 205,897 - 205,897 - 205,897
-----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $9,713,347 $2,050,000 $11,763,347 - $11,763,347 ($307,248) $11,456,099
============================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $833,477 - $ 833,477 - 833,477 ($833,477) (h) -
Accounts payable 711,254 - 711,254 - 711,254 (435,314) (g) 275,940
Accrued liabilities 1,362,442 (b) 1,535,750 (e) 2,898,192 (1,402,500)(e) 1,495,692 (260,477)(g,h) 1,235,215
------------------------------------------------------------------------------------------------------------
Total current
liabilities 2,907,173 1,535,750 4,442,923 (1,402,500) 3,040,423 (1,529,268) 1,511,155
Senior convertible
notes 3,020,000 - 3,020,000 - 3,020,000 (3,020,000)(h) -
------------------------------------------------------------------------------------------------------------
Total liabilities 5,927,173 1,535,750 7,462,923 (1,402,500) 6,060,423 (4,549,268) 1,511,155
------------------------------------------------------------------------------------------------------------
Minority interest 325,337 (b) 123,404 (f) 448,741 336,556 (f) 785,297 (785,297) (g) -
Stockholders' equity 3,460,837 (c) 390,846 (f) 3,851,683 1,065,944 (f) 4,917,627 5,027,317 (g) 9,944,944
TOTAL LIABILITIES -----------------------------------------------------------------------------------------------------------
AND STOCKHOLDERS'
EQUITY $9,713,347 $2,050,000 $11,763,347 - $11,763,347 ($307,248) $11,456,099
============================================================================================================
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(iii)(Assumes
Proposed
Transaction
Approved and
(ii) Buyer Does
(Assumes Not Close by
Proposed 12/31/98 and
Transaction Buyer Exer-
is Approved cises One Week (iv)
and Buyer Right to Cancel (Assumes
Does Not and Receives an Proposed
(i)(Assumes Purchase additional 15% Tansaction is
Record Proposed Record 100% of TSA Record of TSA Common Is Approved
14.5% Transaction 5.5% Assets) Buyer 15% Stock) Buyer and Buyer
Minority is Not Minority Owns 20% of Minority Owns 35% of Owns 100%
Interest Approved) Interest TSA Common Iterest TSA Common Adjustments of TSA Assets)
in Income Pro Forma in Income Stcok Pro in Income Stock Pro for 100% Pro Forma
Historical of TSA Total of TSA Forma Total of TSA Forma Total Sale of TSA Total
----------------------------------------------------------------------------------------------------------------------
Net sales $9,281,904 - $9,281,904 - $9,281,904 - $9,281,904 ($8,952,308) (j) $329,596
Cost of
sales 6,143,141 - 6,143,141 - 6,143,141 - 6,143,141 (6,010,274) (j) 132,867
Selling,
general &
admini-
strative
expenses 6,252,384 - 6,252,384 - 6,252,384 - 6,252,384 (1,750,751) (j) 5,326,633
825,000 (o)
--------------------------------------------------------------------------------------------------------------------
Loss from
operations (3,113,621) - (3,113,621) - (3,113,621) - (3,113,621) (2,016,283) (5,129,904)
Interest
expense,
other
income
(expense)
net 701,623 (1,030,435)(i) (328,812) - (328,812) - (328,812) 26,213 (j) 105,627
408,226 (k)
Minority
interest in
income of TSA - (282,591)(i) (282,591) (107,190)(i) (389,781) (292,335)(i) (682,116)(i) 682,116 (j) -
------------------------------------------------------------------------------------------------------------------
Loss before
income taxes
and minority
interest (2,411,998) (1,313,026) (3,725,024) (107,190) (3,832,214) (292,335) (4,124,549) (899,728) (5,024,277)
Income tax
expense (41,242) - (41,242) - (41,242) - (41,242) 41,167 (j) (75)
--------------------------------------------------------------------------------------------------------------------
Loss from
continuing
operations ($2,453,240)($1,313,026) ($3,766,266) (107,190) ($3,873,456) ($292,335) ($4,165,791) ($858,561) ($5,024,352)
=====================================================================================================================
Loss from
continuing
operations
per common
share: ($0.18)
================
Basic ($0.09) ($0.18)
=============== ================
Diluted ($0.09)
===============
Weighted
average
common shares
Outstanding:
Basic 28,164,897 28,164,897
=============== ===============
Diluted 28,164,897 28,164,897
=============== ===============
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<S>
(iii)
(Assumes
Proposed
Transaction
(ii) Approved and
(Assumes Buyer Does
Proposed Not Close by
Transaction 12/31/98 and
is Approved Buyer Exer- (iv)
and Buyer cises One Week (Assumes
Does Not Pur- Right to Cancel Proposed
(i)(Assumes chase 100% of and Receives an Tansaction
Record Proposed Record TSA Assets) Record additional 15% of Is Approved
14.5% Transaction 5.5% Buyer 15% TSA Common Stock) and Buyer
Minority is Not Minority Owns 20% of Minority Buyer Owns 35% Owns 100%
Interest Approved) Interest TSA Common Interest of TSA Common Adjustments of TSA Assets)
in Income Pro Forma in Income Stock Pro in Income Stock Pro for 100% Pro Forma
Historical of TSA Total of TSA Forma Total of TSA Forma Total Sale of TSA Total
-----------------------------------------------------------------------------------------------------------------------
Net sales $14,236,732 - $14,236,732 - $14,236,732 - $14,236,732 ($13,859,582) (m) $377,150
Cost
of sales 9,229,164 - 9,229,164 - 9,229,164 - 9,229,164 (9,081,447) (m) 147,717
Selling,
general &
administra-
tive expenses 5,708,025 - 5,708,025 - 5,708,025 - 5,708,025 (1,585,508) (m) 4,947,517
825,000 (o)
---------------------------------------------------------------------------------------------------------------------
Loss
from
operations (700,457) - (700,457) - (700,457) - (700,457) (4,017,627) (4,718,084)
Interest
expense,
other
income
(expense)
net (99,051) - (99,051) - (99,051) - (99,051) 36,529 (m) 141,328
203,850 (n)
Minority
interest
in income
of TSA - (571,564)(l) (571,564) (216,800)(l)(788,364) (591,274)(l) (1,379,638) 1,379,638 (m) -
--------------------------------------------------------------------------------------------------------------------
Loss before
income taxes (799,508) (571,564) (1,371,072) (216,800) (1,587,872) (591,274) (2,179,146) (2,397,610) (4,576,756)
Income
tax expense (39,274) - (39,274) - (39,274) - (39,274) 39,274 (m) -
--------------------------------------------------------------------------------------------------------------------
Loss from
continuing
operations ($838,782) (571,564) (1,410,346) ($216,800)($1,627,146) (591,274) ($2,218,420) ($2,358,336) ($4,576,756)
===================================================================================================================
Loss from
continuing
operations
per common
share:
Basic ($0.03) ($0.16)
============ ================
Diluted ($0.03) ($0.16)
============ ================
Weighted
average
common shares
Outstanding:
Basic 28,089,261 28,089,261
============ ================
Diluted 28,089,261 28,089,261
============ ================
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(iii)
(Assumes Prop-
posed Transa-
ction is Approved
and Buyer Does
(ii)(Assumes Not Close by
Proposed 12/31/98 and
Transaction Buyer Exercises
is Approved One Week Right (iv)
and Buyer to Cancel and (Assumes
Does Not Pur- Receives an Proposed
(i) (Assumes chase 100% of additional 15% Tansaction is
Record Proposed Record TSA Assets) Record of TSA Common Approved
14.5% Transaction 5.5% Buyer 15% Stock) Buyer and Buyer
Minority is Not Minority Owns 20% of Minority Owns 35% of Owns 100%
Interest Approved) Interest TSA Common Iterest TSA Common Adjustments of TSA Assets)
in Income Pro Forma in Income Stock Pro in Income Stock Pro for 100% Pro Forma
Historical of TSA Total of TSA Forma Total of TSA Forma Total Sale of TSA Total
---------------------------------------------------------------------------------------------------------------------
Net sales $16,984,123 - $16,984,123 - $16,984,123 - $16,984,123 ($16,580,270) (m) $403,853
Cost of
sales 11,304,708 - 11,304,708 - 11,304,708 - 11,304,708 (11,197,664) (m) 107,044
Selling,
general &
admin-
istrative
expenses 8,277,875 - 8,277,875 - 8,277,875 - 8,277,875 (2,291,445) (m) 7,086,430
1,100,000 (o)
----------------------------------------------------------------------------------------------------------------------
Loss from
operations (2,598,460) - (2,598,460) - (2,598,460) - (2,598,460) (4,191,161) (6,789,621)
Interest
expense,
other
income
(expense)
net (223,597) - (223,597) - (223,597) - (223,597) 5,595 (m) 123,798
341,800 (n)
Minority
interest
in income
of TSA - (573,111)(l) (573,111) (217,387)(l)790,498) (592,874)(l) (1,383,372) 1,383,372 (m) -
-------------------------------------------------------------------------------------------------------------------
Loss before
income taxes (2,822,057) (573,111) (3,395,168) (217,387) (3,612,555) (592,874) (4,205,429) (2,460,394) (6,665,823)
Income tax
expense (482,000) - (482,000) - (482,000) - (482,000) 233,074 (m) (248,926)
-------------------------------------------------------------------------------------------------------------------
Loss from
continuing
operations ($3,304,057) ($573,111) ($3,877,168) ($217,387) ($4,094,555)($592,874) ($4,687,429) ($2,227,320) ($6,914,749)
====================================================================================================================
Loss from
continuing
operations
per common
share:
Basic ($0.12) ($0.25)
=============== =========
Diluted ($0.12) ($0.25)
=============== =========
Weighted
average
common
shares
Outstanding:
Basic 28,065,563 28,065,563
=============== ===========
Diluted 28,065,563 28,065,563
=============== ===========
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<S> <C> <C> <C>
(iii) (Proposed
Adjustments Transaction is Approved and
for 100% Sale Buyer Ownes 100% of TSA Assets)
Historical of TSA Pro Forma Total
---------- ------------ -----------------------
Net sales $16,146,524 $(16,102,523) (m) $44,001
Cost of sales 10,776,203 (10,749,431) (m) 26,772
Selling, general
and administrative expenses 8,426,540 (2,259,258) (m) 7,267,282
1,100,000 (o)
------------------------------------------------------------------------
Loss from operations (3,056,219) (4,193,834) (7,250,053)
Interest expense, other
income (expense) net (232,267) (45,460) (m) (277,727)
-----------------------------------------------------------------------
Loss before income taxes (3,288,486) (4,239,294) (7,527,780)
Income tax expense (1,543,300) 175,000 (m) (1,368,300)
-----------------------------------------------------------------------
Loss from continuing operations
$(4,831,786) $(4,064,294) $ (8,896,080)
=======================================================================
Loss from continuing operations per common share:
Basic $(0.17) $(0.32)
Diluted ========= =========
$(0.17) $(0.32)
========= =========
Weighted average common shares
Outstanding: 28,027,959 28,027,959
Basic ================ ===============
Diluted 28,027,959 28,027,959
================ ===============
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
<TABLE>
TOP SOURCE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<S> <C> <C> <C>
(iii) (Proposed
Adjustments Transaction is Approved and
for 100% Sale Buyer Ownes 100% of TSA Assets)
Historical of TSA Pro Forma Total
---------- ------------ -------------------------------
Net sales $13,907,354 $(13,893,459) (m) $13,895
Cost of sales 8,739,691 (8,739,691) (m) -
Selling, general
and administrative expenses 7,534,190 (1,924,539) (m) 6,709,651
1,100,000 (o)
-----------------------------------------------------------------------
Loss from operations (2,366,527) (4,329,229) (6,695,756)
Interest expense, other
income (expense) net 156,035 (2,218) (m) 153,817
--------------------------------------------------------------------
Loss before income taxes (2,210,492) (4,331,447) (6,541,939)
Income tax expense (610,000) 60,000 (m) (550,000)
--------------------------------------------------------------------
Loss from continuing operations $(2,820,492) $(4,271,447) $(7,091,939)
====================================================================
Loss from continuing operations per common share:
Basic $(0.10)
=============== $(0.26)
Diluted $(0.10) ===============
=============== $(0.26)
===============
Weighted average common shares Outstanding:
Basic 27,249,541 27,249,541
=============== ===============
Diluted 27,249,541 27,249,541
=============== ===============
See notes to unaudited pro forma condensed financial statements.
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Balance Sheet and Consolidated
Statements of Operations For the Nine Months Ended June 30, 1998
(a) Includes the receipt of a $1,450,000 non-refundable deposit.
(b) Includes 14.5% of the estimated accrued liabilities relating to legal,
accounting and investment banking fees for the sale of TSA in the
amount of $94,250 and the recording of a 14.5% minority interest.
(c) Includes the gain on 14.5% of the equity in TSA of $1,030,435. This
gain is not included on the Unaudited Pro Forma Condensed Consolidated
Statement of Operations for all periods presented since it is a
non-recurring item.
(d) Represents the receipt of the additional deposit of $2,050,000 on Step
2 of the sale of TSA which is recorded as cash since the funds are
being held in escrow until stockholder approval.
(e) Represents the additional 5.5% of the estimated accrued liabilities
relating to the costs of the transaction in the amount of $35,750 and
$1,500,000 of deferred gain relating to the additional 15% the Buyer
will receive if the Proposed Transaction does not close by December
31, 1998. The $1,500,000 deferred gain, net of 15% or $97,500 of the
accrued liabilities relating to the costs of the transaction is
reversed when the additional 15% minority interest in income is
recorded.
(f) Represents the additional 5.5% and 15% of the gain on the TSA sale
(see Note (c) above)and the recording of the additional 5.5% and 15%
minority interest.
(g) The Company is selling 100% of the Assets of TSA and substantially all
of the liabilities of TSA. This adjustment represents the receipt of
the remaining proceeds for Step 3 of the sale of TSA, the elimination
of the minority interest and the elimination of the respective TSA
Assets, liabilities and equity. The total amount of the gain on the
sale of 100% of TSA's Assets is approximately $7,100,000 of which
$4,619,093 is included herein and the remaining gain is included in
notes ( c) and ( f) above. This gain is reflected in stockholders
equity, but not in the pro forma statements of operations.
(h) Represents the repayment of the Notes and the Nations Credit Facility
with the proceeds from the TSA sale, and payment of $650,000 of
estimated legal, accounting and investment banking fees and taxes for
the sale of TSA. The $650,000 in fees and taxes is included in accrued
liabilities and will be subsequently paid with the proceeds from the
sale.
(i) To record the 14.5%, 5.5% and 15% minority interest in TSA and to
eliminate a non-recurring item, which is 14.5% of the gain on the sale
of TSA, $1,030,435.
(j) Represents the elimination of the minority interest and the respective
TSA results of operations.
(k) Represents the reduction in interest expense resulting from the
repayment of debt as discussed in Note (h) above.
Notes to Unaudited Pro Forma Consolidated Statements of Operations
For All Periods Presented
(l) To record the 14.5%, 5.5% and 15% minority interest in TSA.
(m) Represents the elimination of the minority interest and the respective
TSA results of operations.
(n) Represents the reduction in interest expense resulting from the
repayment of the Notes.
(o) Represents the add back of corporate expenses that the Company
believes it will not save as a result of the sale of TSA.
<PAGE>
SELLING STOCKHOLDERS
Table of Selling Stockholders
The following table sets forth information furnished by the Selling
Stockholders, with respect to the number of shares of the Company's Common
Stock, including the shares of Common Stock underlying the warrants, owned by
each Selling Stockholder on the date of this Prospectus, the shares offered
hereby, and the number and percentage of outstanding shares to be owned by each
Selling Stockholder after the offering. No Selling Stockholder has held any
position, office, or had a material relationship with the Company within the
past three years. For further information on the Preferred Stock and Warrants,
See "Description of Preferred Stock and Warrants".
<TABLE>
<S> <C> <C> <C> <C>
Percentage
Ownership Securities Ownership Owned
Selling Prior to Being After After
Stockholder Offering Offered Offering Offering
Excalibur Limited Partnership(1),(2),(3) 1,470,169 1,470,169 None 0
Gundyco in Trust for RRSP
550-98866-19(1),(4),(5) 630,073 630,073 None 0
H & H Securities Limited(6) 8,200 (3) 8,200 None 0
Intercontinental Holding
Company, Ltd.(7) 8,400 8,400 None 0
San Rafael Consulting Group(8) 8,400 8,400 None 0
</TABLE>
(1) Assumes conversion of Preferred Stock at 80% of the October 14, 1998
closing bid price of $.625 per share.
(2) Includes 52,500 shares of Common Stock underlying Warrants which are
exercisable as of the date of this Prospectus. Also includes 17,669 shares
of Common Stock issued as dividends . Does not include 78,750 shares
underlying Warrants which are not currently exercisable.
(3) Does not include shares of Common Stock obtainable upon conversion of up to
1,050 shares of Preferred Stock which the Selling Stockholder is obligated
to purchase under certain circumstances at a price per share of $1,000.
(4) Includes 22,500 shares of Common Stock underlying Warrants which are
currently exercisable as of the date of this Prospectus. Also includes
7,573 shares of Common Stock issued as dividends . Does not include 33,750
shares underlying Warrants which are not currently exercisable.
(5) Does not include shares of Common Stock obtainable upon conversion of up to
450 shares of Preferred Stock which the Selling Stockholder is obligated to
purchase under certain circumstances at a price per share of $1,000.
(6) Represents 8,200 shares of Common Stock underlying Warrants which are
exercisable as of the date of this Prospectus. Does not include 12,300
shares underlying Warrants which are not currently exercisable.
(7) Represents 8,400 shares of Common Stock underlying Warrants which are
exercisable as of the date of this Prospectus. Does not include 12,600
shares underlying Warrants which are not currently exercisable.
(8) Represents 8,400 shares of Common Stock underlying Warrants which are
exercisable as of the date of this Prospectus. Does not include 12,600
shares underlying Warrants which are not currently exercisable.
<PAGE>
DESCRIPTION OF PREFERRED STOCK AND WARRANTS
The Company entered into an agreement with two investors (both of whom are
Selling Stockholders) to sell to such investors up to 2,500 shares of Preferred
Stock. The shares of Preferred Stock are convertible into Common Stock as
described below, pay an annual dividend of 5% in cash or Common Stock of the
Company as described below, contain a liquidation preference equal to the $1,000
per share purchase price together with accrued dividends (the "Stated Value"),
are redeemable by the Company under certain circumstances as described below and
contain no voting rights except as otherwise required by law.
The two Selling Stockholders purchased 1,000 shares of Preferred Stock in
May 1998. The holders of the Preferred Stock have the right to convert such
shares cumulatively at any time after August 5, 1998 pursuant to the following
restrictions: 25% after August 5, 1998, an additional 25% after September 4,
1998 and an additional 25% after October 4, 1998 and the remaining 25% after
November 3, 1998. The conversion formula provides that the Preferred Stock may
be converted into a number of shares of Common Stock equal to the Stated Value
divided by the conversion price which is equal to the lesser of (i) $1.10 per
share of Common Stock, or (ii) a formula declining from 85% of the average
closing bid price to 80% of the average closing bid price. The minimum number of
shares of Common Stock which may be issued upon conversion of the Preferred
Stock is approximately 909,091 shares. Such number can be substantially higher
depending upon the future bid price of the Company's Common Stock. The Preferred
Stock automatically converts into Common Stock two years after issuance at the
lesser of (i) $1.10 per share, or (ii) 80% of the average closing bid price.
The Preferred Stock pays an annual dividend of 5% commencing on June 30,
1998 at the option of the Company payable in cash or shares of Common Stock. The
Company has issued 25,242 shares of Common Stock because it is prohibited from
paying cash dividends under the terms of an agreement with a principal lender.
The Preferred Stock provides the holders with a per share liquidation preference
equal to the Stated Value. The Company may redeem the Preferred Stock prior to
conversion by paying the holders 120% of the Stated Value per share or
$1,200,000 (not including accrued dividends).
The two Selling Stockholders who purchased the Preferred Stock are
obligated to purchase up to an aggregate of an additional $1,500,000 of the
Company's Preferred Stock in tranches of $500,000 on similar terms and
conditions commencing on 90, 150 and 210 days, respectively, from the date of
this Prospectus. If a Selling Stockholder fails to purchase its pro-rata share
of the additional shares of the Preferred Stock within 30 days of the foregoing
dates, such Selling Stockholder shall forfeit its rights and preferences
including conversion privileges, the liquidation preference and the dividend
preference and the Preferred Stock held by it shall have minimal value. The
foregoing obligation of the Selling Stockholders to purchase an aggregate of
$500,000 on each of the three dates is subject to the average bid price of the
Company's Common Stock being not less than $1.00 and the average daily sales
volume being not less than 40,000 shares over a 20-trading day period prior to
the date of each purchase. If any additional shares of Preferred Stock are
purchased, the Company will be obligated to file additional registration
statements to cover the public sale of Common Stock if the Preferred Stock is
converted.
The Company has issued to the Selling Stockholders 250,000 Warrants
exercisable at $1.10 per share through May 7, 2001. Each Warrant entitles the
holder to purchase one share of Common Stock. The Warrants were issued to the
Selling Stockholders in connection with a purchase by two of the Selling
Stockholders of the Preferred Stock. An aggregate of 100,000 Warrants are
currently exercisable and an aggregate of 50,000 additional Warrants first
become exercisable commencing 90, 150 and 210 days, respectively, from the date
of this Prospectus. After this later date, subject to prior exercise, all
250,000 Warrants shall be exercisable until they expire on May 7, 2001.
PLAN OF DISTRIBUTION
All of the shares of Common Stock are offered for sale of the Selling
Stockholders as listed in this Prospectus under "Selling Stockholders". The
Company will receive none of the proceeds from the sale of the shares of Common
Stock by the Selling Stockholders. However, the Company will receive a maximum
of $275,000 in connection with the exercise of up to 250,000 Warrants, the
underlying shares of which are covered by this Prospectus. Such proceeds will be
used for general corporate purposes.
The Company has been advised by the Selling Stockholders that the shares of
Common Stock may be offered and sold from time to time by or on behalf of the
Selling Stockholders, in or through transactions or distributions (including
crosses and block transactions) on the American Stock Exchange, or in the
over-the-counter market at market prices prevailing at the time of sale, or at
negotiated prices, and in connection therewith commissions may be paid to
brokers. Brokers participating in such transactions may act as agents for the
Selling Stockholders. The Selling Stockholders, and any brokers participating in
this offering may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them may be deemed to be
underwriting compensation.
<PAGE>
LEGAL MATTERS
The legality of the securities to be offered hereby will be passed upon for
the Company by Michael Harris, P.A., 1645 Palm Beach lakes Boulevard, West Palm
Beach, Florida 33401. Attorneys employed by that law firm are the beneficial
owners of 31,000 shares of Common Stock.
<PAGE>
EXPERTS
The financial statements and schedules of Top Source Technologies, Inc.
incorporated by reference in this Prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent certified public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any of the Selling
Stockholders. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the securities offered
by this Prospectus, or an offer to sell or a solicitation of an offer to buy any
securities by any person in any jurisdiction in which such offer or solicitation
would be unlawful. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, imply that the information in this
Prospectus is correct as of any time subsequent to the date of this Prospectus.
TABLE OF CONTENTS
Page
Available Information....................... __
Documents Incorporated by
Reference.................................. __
Risk Factors................................ __
Recent Developments......................... __
Pro Forma Condensed Financial
Information of the Company................ __
Selling Stockholders........................ __
Description of Preferred
Stock and Warrants........................ __
Plan of Distribution........................ __
Legal Matters............................... __
Experts..................................... __
TOP SOURCE TECHNOLOGIES, INC.
2,125,242 Shares
of
Common Stock
----------------
Prospectus
----------------
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN Prospectus
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in
connection with the issuance and distribution of the securities being
registered. All of the amounts shown are estimates except the Commission
registration fee. Such expenses will be paid by the Company. None of these
expenses will be paid by the Selling Stockholders.
Registration fee ......................................... $ 1,245.52
Printing expenses......................................... $ 100.00
Accounting fees and expenses.............................. $10,000.00
Legal fees and expenses (other than Blue Sky)............. $12,000.00
Blue Sky fees and expenses................................. $ .00
Miscellaneous.............................................. $654.48
-------
Total........................................... $24,000.00
==========
Item 15. Indemnification of Directors and Officers.
The Company's amended and restated certificate of incorporation
provides that the Company shall indemnify its current and former officers and
directors against expenses reasonably incurred by or imposed upon them in
connection with or arising out of any action, suit or proceeding in which they
may be involved or to which they may be made parties by reason of their being or
having been a director or officer of the Company, or at its request, of any
other corporation which it is a stockholder or creditor and from which such
officers and directors are not entitled to be indemnified by (whether or not
they continue to be directors or officers at the time of imposing or incurring
such expense), except in respect of matters as to which they shall be finally
adjudged in such action, suit or proceeding liable for negligence or misconduct.
In the event of settlement of any such action, suit or proceeding,
indemnification shall be provided only in connection with such matters covered
by the settlement as to which the Company is advised by counsel that the persons
to be indemnified did not commit a breach of duty. The foregoing right of
indemnification shall not be exclusive of other rights to which such persons may
be entitled.
In addition, the Company has entered into indemnification agreements
with its executive officers and directors. These agreements provide that the
Company shall indemnify its executive officers and directors, if by reason of
their corporate status, they are or are threatened to be made parties to any
third-party proceedings, to the fullest extent provided by Delaware law. The
agreements provide for indemnification against expenses, judgments, penalties,
fines and amounts paid in settlement, actually and reasonably incurred by them
or on their behalf in connection with such proceeding or any claim, issue or
matter therein if (i) they acted in good faith; (ii) they reasonably believed in
the case of conduct in their official capacity with the Company that their
conduct was in the Company's best interests or in all other cases, that their
conduct was at least not opposed to the Company's best interests; (iii) with
respect to any criminal proceeding, they had no reasonable cause to believe
their conduct was unlawful; and (iv) with respect to an employee benefit plan
they reasonably believed their conduct to be in the best interests of the
participants and/or beneficiaries of the plan. The indemnification agreements
also provide indemnification in direct and derivative actions provided such
officers or directors acted in good faith and in a manner they reasonably
believed to be not opposed to the best interests of the Company. Such officers
or directors are not entitled to indemnification in connection with any
proceeding charging improper personal benefits to such officers or directors,
whether or not involving action in their official capacity, in which they were
judged liable on the basis that personal benefit was improperly received by
them.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
Item 16. Exhibits.
4. Form of Common Stock Certificate*
4.1 Certificate of Designation of Rights and Preferences**
4.2 Form of Warrant**
4.3 Form of Private Securities Subscription Agreement**
4.4 Asset Purchase Agreement***
4.5 Amendment to Asset Purchase Agreement
5. Opinion of Michael Harris, P.A.*****
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Michael Harris, P.A.****
* Contained in Registration Statement on Form 8-A filed March 12, 1992.
** Contained in Form 10-Q for the period ended March 31, 1998 filed on May
20, 1998 (Item 6, Exhibit 10.1).
*** Contained in the Form 10-Q for the period ended June 30, 1998 filed on
August 19, 1998 (Item 6, Exhibit 10.1).
**** Contained in Opinion of Michael Harris, P.A.
***** Contained in Registration Statement on Form S-3 filed on June 4, 1998.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any Prospectus required by section 10(a)(3) of the Securities
Act of 1933 (the "Securities Act");
(ii) 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;
(iii)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;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Exchange Act
that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) The undersigned Registrant hereby undertakes to deliver or
cause to be delivered with the Prospectus, to each person to
whom the Prospectus is sent or given, the latest annual report
to security holders that is incorporated by reference in the
Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange
Act; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in
the Prospectus, to deliver, or cause to be delivered to each
person to whom the Prospectus is sent or given, the latest
quarterly report that is specifically incorporated by
reference in the Prospectus to provide such interim financial
information.
(6) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the
foregoing provisions (see Item 15 above), or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act or 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirement for filing on Form S-3 and has duly caused this Amendment No.
3 to Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palm Beach Gardens, State
of Florida, on this 5th day of November, 1998
TOP SOURCE TECHNOLOGIES, INC.
By: /s/ William C. Willis, Jr.
William C. Willis, Jr.
(Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement on Form S-3 has been signed by the
following persons in the capacities and on the dates indicated.
Name Title Date
/s/ William C. Willis, Jr. Director November 5, 1998
- --------------------------
William C. Willis, Jr.
/s/ David Natan Chief Financial Officer November 5, 1998
- -------------------------- and Director
David Natan
/s/ Ronald Burd Director November 5, 1998
Ronald Burd
/s/ G. Jeff Mennen Director November 5, 1998
- --------------------------
G. Jeff Mennen
/s/ L. Kerry Vickar Director November 5, 1998
- --------------------------
L. Kerry Vickar
<PAGE>
EXHIBIT INDEX
Exhibit No.
4. Form of Common Stock Certificate*
4.1 Certificate of Designation of Rights and Preferences**
4.2 Form of Warrant**
4.3 Form of Private Securities Subscription Agreement**
4.4 Asset Purchase Agreement***
4.5 Amendment to Asset Purchase Agreement
5. Opinion of Michael Harris, P.A.*****
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Michael Harris, P.A.****
* Contained in Registration Statement on Form 8-A filed March 12, 1992.
** Contained in Form 10-Q for the period ended March 31, 1998 filed on May
20, 1998 (Item 6, Exhibit 10.1).
*** Contained in the Form 10-Q for the period ended June 30, 1998 filed on
August 19, 1998 (Item 6, Exhibit 10.1)
**** Contained in Opinion of Michael Harris, P.A.
***** Contained in Registration Statement on Form S-3 filed on June 4, 1998.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN, LLP
West Palm Beach, Florida
November 4, 1998
<PAGE>
EXHIBIT 4.5
Amendment to Asset Purchase Agreement
October 7, 1998 VIA FACSIMILE - (203) 348-4106
Michael J. Parrella
President
NCT Audio Products, Inc.
One Dock Street
Suite 300
Stamford, CT 06902
RE: NCT Audio / Top Source Automotive Transaction
Dear Mike:
This letter agreement amends the Asset Purchase Agreement (the "Agreement")
entered into as of August 14, 1998 by and among Top Source Technologies, Inc.
(the "Company"), Top Source Automotive, Inc. ("TSA"), NCT Audio Products, Inc.
(the "Buyer") and Noise Cancellation Technology, Inc. (the "Guarantor") by (i)
requiring the Buyer to pay all $10,000,000 in cash and thereby eliminating the
note; (ii) eliminating the Guarantor's guarantee of the Earn-Out, as defined in
the Agreement, and thereby deleting the Guarantor as a party to the Agreement;
and (iii) eliminating the option or other right to receive payment of the
Earn-Out in Common Stock of the Buyer. In all other respects, the Agreement is
ratified and confirmed.
Please confirm your agreement to the above terms by signing in the places
indicated below.
Very truly yours,
David Natan
Vice President and CFO
DN/mtd
We hereby agree to the foregoing amendment.
NCT Audio Products, Inc. Noise Cancellation Technology, Inc.
By: /s/Michael J. Parrella By: /s/Michael J. Parrella
Michael J. Parrella Michael J. Parrella
President President
