As filed with the Securities and Exchange Commission on September 29, 1998
Registration No. 333-61869
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
CONSYGEN, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
Texas 7371 76-0260145
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
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125 South 52nd Street
Tempe, Arizona 85281
(602) 394-9100
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
----------------------
Stephen Kelly, ESQ.
Vice President/Legal
125 South 52nd Street
Tempe, Arizona 85281
(602) 394-9100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPY TO:
Paul Rosier, ESQ.
4436 East Camelback Rd. #39
Phoenix, Arizona 85018-2833
Tel/Fax: (602) 952-1422
------------------------
Approximate date of commencement of proposed sale to the public: from
time to time after the effective date of this Registration Statement
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]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]_______.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________.
<PAGE>
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Pursuant to Rule 429 under the Securities Act of 1933, this
Registration Statement is filed in part as a post effective amendment to
Registration Statement on Form S-1, File No. 3330649.
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Proposed Proposed
Title of each class Maximum Maximum
Of securities to be Amount to be Aggregate Aggregate Amount of
registered registered Price per Offering Registration
Share Price Fee
- -----------------------------------------------------------------------------------------------------------
Common Stock, 4,889,842 shares(1) $1.4375 (4) $ 7,029,148 (4) $2,073.60
$.003 par value per share
Common Stock, 1,931,827 shares(2) $1.4375 $ 2,777,001 $ .00 (2)
$.003 par value per share
Common Stock, 20,000 shares(3) $1.4375 (4) $ 28,750 (4) $ 8.48
$.003 par value per share
Common Stock, 215,000 shares(5) $4.9368 (6) $ 1,061,407 (6) $ 313.12
$.003 par value per share
---------------- ------------ ----------
Totals 7,056,669 shares $ 10,896,306 $ 2,395.20
================ ============ ==========
===========================================================================================================
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(1) Represents 150% of the number of shares of Common Stock issuable upon a
hypothetical conversion of $3,500,000 principal amount of 6% Convertible
Debentures due May 29, 2003, assuming that such conversion occurred on
August 18, 1998. Also includes 324,625 shares of Common Stock issuable at
the option of the Company in lieu of cash interest payable quarterly during
the 2 year period ended August 31, 2000. Estimated solely for purposes of
calculation of the registration fee. The actual number of shares of common
stock issuable upon such conversion and in lieu of such interest may be
more or less than such estimate based upon a variety of factors, including
the dates of conversion, the dates of payment of interest and the price of
the common stock on such dates.
(2) Represents the unsold portion of shares offered pursuant to Registration
Statement on Form S-1, File No. 333-40649 for which registration fees have
been paid.
(3) Represents shares issued in exchange for services rendered to the Company.
(4) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Act based upon the average of the high and low
sale prices reported on the Nasdaq SmallCap Market on August 17 , 1998.
(5) Represents shares issuable upon exercise of warrants to purchase shares of
the Company's Common Stock.
(6) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 (c) and (g).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
================================================================================
(ii)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion Dated September 29, 1998
7,056,669 Shares
CONSYGEN, INC.
Common Stock
This Prospectus covers 7,056,669 shares (the "Shares") of Common
Stock, par value .003 per share (the "Common Stock") of ConSyGen,Inc., a Texas
corporation (the "Company" or "ConSyGen") offered for the account of certain
security holders of the Company (the "Selling Security Holders").
The Shares offered hereby consist of: (i) 4,565,217 shares of
Common Stock, representing 150% of the number of shares estimated to be issued
upon conversion of $3,500,000 principal amount of 6% Convertible Debentures Due
May 29, 2003 (the "Convertible Debentures") based upon the number of such shares
that would be issuable if the holders of the Convertible Debentures had
converted the entire principal amount of such debentures on August 18, 1998;(ii)
324,625 shares of Common Stock issuable at the option of the Company in lieu of
cash interest payable quarterly to the holders of the Convertible Debentures
during the 2 year period ended August 31, 2000, based upon an assumed price for
the Company's common stock of $1.4375 per share, the same price used in the
calculation of the number of shares set forth in (i) above and upon the
assumption that the Company elects to pay the entire amount of interest due
during the period in shares of Common Stock; (iii) 115,000 shares of Common
Stock issuable upon the exercise of Common Stock Purchase Warrants to purchase
Common Stock at $4.8818 per share issued concurrently with the sale of the
Convertible Debentures, of which Warrants to purchase 105,000 shares were issued
to the holders of the Convertible Debentures and Warrants to purchase 10,000
shares were issued to finders; (iv) 100,000 shares of Common Stock issuable upon
the exercise of Common Stock Purchase Warrants to purchase Common Stock at $5.00
per share issued to a consultant (the Warrants described in (iii) and (iv) are
referred to in this Prospectus individually or collectively, as the context
requires, as the "Warrants,"and shares of Common Stock issuable upon exercise of
the Warrants are referred to as "Warrant Shares"); (v) 20,000 shares issued in
exchange for certain services rendered to the Company; and (vi) 1,931,827 shares
of Common Stock to be offered by certain stockholders of the Company. See
"Selling Security Holders."
The Shares being offered by the holders of the Convertible
Debentures are being registered herein pursuant to the terms of a Registration
Rights Agreement, as amended, which requires that the Company use its best
efforts to file a registration statement with respect to such shares (including
the related Warrant Shares) by August 19, 1998. The number of shares of Common
Stock offered by the holders of the Convertible Debentures was determined in
accordance with the terms of (i) the Registration Rights Agreement, which
requires that the number of such shares designated in the registration statement
to be offered by the holders of the Convertible Debentures be not less than 150%
of the total number of shares of Common Stock that would be required to be
issued to such holders if all such shares were issued the day before the filing
of this registration statement, and
<PAGE>
(ii) the Convertible Debentures, which provide for a conversion price equal to
the lesser of $4.8818 per share or 80% of the of the average closing bid price
of the Company's common stock for the 5 day trading period immediately preceding
the conversion date.
Accordingly, solely for the purpose of setting forth in this
registration statement a number of shares of Common Stock to be offered by the
holders of the Convertible Debentures, the conversion date is fixed as August
18, 1998, and the conversion price is fixed at $1.15 per share, the average
closing bid price of the Company's common stock for the 5 day trading period
ended August 17, 1998. The actual conversion price and number of shares issuable
upon conversion of the Convertible Debentures will depend upon the date or dates
of such conversion, and upon the effect upon the conversion rights of certain
restrictions contained in the Subscription Agreement relating to the sale of the
Convertible Debentures, and could therefore be materially different from the
price and number of shares set forth in this registration statement, depending
on factors that cannot be predicted by the Company, including, among other
things, the future market price of the Company's common stock (provided that the
price per share cannot exceed $4.8818 and the number of shares of Common Stock
into which the Convertible Debentures can be converted cannot be less than
716,948 shares). See "Selling Security Holders" and "Risk Factors- Limited
Trading Market and Shares Eligible for Future Sale."
All shares registered hereby are offered by the Selling Security
Holders. The Shares may be offered by the Selling Security Holders, in their
discretion, from time to time, in ordinary brokerage transactions (which may
include block transactions) on the Nasdaq SmallCap Market or otherwise, in
negotiated transactions, through a combination of such methods, or otherwise, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Security Holders may effect such transactions by selling the Shares to
or through broker-dealers, who may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders and/or
the purchasers of the Shares for whom such broker-dealers may act as agents or
to whom they may sell as principals, or both (which compensation, as to a
particular broker-dealer might be in excess of customary commissions). The
Company will not receive any proceeds from the sale of the Shares by the Selling
Security Holders. The Company has agreed to bear all expenses of registration of
the Shares, but any selling and other expenses incurred by the Selling Security
Holders will be borne by the Selling Security Holders.
The Selling Security Holders and any broker-dealers, agents, or
underwriters that participate with the Selling Security Holders in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, as amended (the "Act"), and any commissions paid
or any discounts or concessions allowed, and any profits received on the resale
of the Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Selling Security Holders" and "Plan of
Distribution."
Notwithstanding the registration of the Shares, the Selling
Security Holders have no obligation to sell any portion or all of the Shares.
The Company's Common Stock, par value $.003 per share, is listed on
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") and traded on the Nasdaq SmallCap Market under the symbol "CSGI." On
August 17, 1998, the last reported sale price of the Common Stock on the Nasdaq
SmallCap Market was $1.50 per share.
2
<PAGE>
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
- --------------------------------------------------------------------------------
Price to Public Underwriting Discounts and Proceeds to Issuer or
Commissions (1) Other Persons
- --------------------------------------------------------------------------------
Per Unit $ 1.50 (2) 0 0 (3)
Total $10,584,004 (2) 0 0 (3)
- --------------------------------------------------------------------------------
(1) None, to the Company's knowledge.
(2) Estimate assuming sales of all Shares at $ 1.50 per share, the closing bid
price of the Company's common stock as reported on the Nasdaq SmallCap
Market on August 17,1998. The actual price at which the Shares may be
offered to the public may vary and could be substantially different from
the amount shown. See "Selling Security Holders."
(3) The Company will receive none of the proceeds of sales of the Shares by the
Selling Security Holders and, as such sales are to be made as and when
determined in the discretion of the Selling Security Holders, no estimate
of the proceeds to the Selling Security Holders is, or can be, provided. To
the extent, if any, that the Warrants are exercised, the Company will
receive the amount paid by the holders of the Warrants upon the exercise
thereof; and to the extent that the holders of the Convertible Debentures
exercise their conversion rights thereunder, or the Company exercises its
election to pay shares of Common Stock in lieu of cash interest, the effect
of such conversion or payment will be the discharge of indebtedness of the
Company equal to the principal amount converted or to the cash interest
paid in shares of Common Stock. See "Selling Security Holder," "Plan of
Distribution," and "Use of Proceeds."
The date of this Prospectus is September 29, 1998.
(Remainder of Page Intentionally left Blank)
3
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY
THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED HEREBY IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITAION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AT ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION............................................ 4
INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS.................. 5
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION............... 6
RISK FACTORS..................................................... 6
USE OF PROCEEDS.................................................. 11
THE COMPANY...................................................... 11
SELLING SECURITY HOLDERS......................................... 12
PLAN OF DISTRIBUTION............................................. 17
LEGAL MATTERS.................................................... 18
EXPERTS.......................................................... 18
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 files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the following regional offices of the Commission: New York Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048; and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Information on the operation of the Public
Reference Section can be obtained by calling the Commission at 1-800-SEC-0330.
In addition, the Company is required to file electronic versions of these
documents through the Commission's Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR"). The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The common stock of the Company is traded on the Nasdaq SmallCap
Market, and reports and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement
on Form S-3 (herein, together with all amendments, supplements, exhibits and
schedules thereto, the "Registration Statement") under the Securities Act with
respect to the Shares of Common Stock offered hereby. This Prospectus, which is
a part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement, certain portions of which are omitted
in accordance with the rules and regulations of the Commission, to which
portions reference is hereby made. For further information pertaining to the
Company and the Shares, reference is made to the Registration Statement.
Statements contained
4
<PAGE>
in this Prospectus or in any document incorporated by reference in this
Prospectus as to the contents of any agreement or other document referred to
herein or therein are not necessarily complete, and in each instance reference
is made to the copy of such agreement or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of all or any portion of the Registration Statement,
including all exhibits thereto, may be obtained at prescribed rates at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, or
may be examined without charge at such office or at the Regional offices of the
Commission set forth above.
INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS
The following documents and materials previously filed by the
Company with the Commission under the Exchange Act are hereby incorporated by
reference into this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1998, filed with the Commission on August 11, 1998;
(2) The Company's report on Form 8-K relating to the change in the
Company's independent auditors, filed with the Commission on September 24, 1998.
(3) The description of the Company's common stock contained in the
Company's registration statement on Form 8-A, as amended by amendment filed with
the Commission on April 29, 1998.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering to which this Prospectus
relates shall be deemed to be incorporated by reference into this Prospectus and
to be a part of this Prospectus from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and the Registration Statement of which it is a
part to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein 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 or such Registration Statement.
The Company will provide without charge to each person to whom this
Prospectus has been delivered, upon the written or oral request of such person,
a copy of any or all documents, or portions thereof, incorporated by reference
into this Prospectus but not delivered with the Prospectus (not including
exhibits, except for exhibits specifically incorporated by reference into such
documents). All such requests should be directed to: ConSyGen, Inc. 125 South
52nd Street Tempe Arizona 85281; Attention: Raj K. Kapur, Telephone: (602)
394-9100.
(Remainder of Page Intentionally left Blank)
5
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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Prospectus and in the documents
incorporated by reference herein constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. For this purpose, any statements contained herein or incorporated by
reference herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "plans," "anticipates," "expects," "estimates" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus, that could cause actual results to differ
materially from those indicated by such forward-looking statements.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk. In addition to the other information in this Prospectus,
the following risk factors identify important factors that may cause the
Company's actual results to differ materially from any results presented or
implied by any forward-looking statements included in this prospectus, and
should be considered carefully in evaluating the Company and its business before
purchasing the shares of Common Stock offered hereby.
Technology/Market Acceptance. There can be no assurance that the
Company's ConSyGen Conversion and ConSyGen 2000 tool sets will perform to market
expectations, be well received, or generate substantial revenues, if any. The
Company is not currently generating significant revenue from either its ConSyGen
2000 or ConSyGen Conversion toolset, or otherwise. To date, the Company has
completed only 4 year 2000 conversions on a commercial basis with its ConSyGen
2000 toolset. Moreover, the Company has not completed a revenue generating
migration project with its ConSyGen Conversion toolset since 1995. There can be
no assurance that the Company's ConSyGen Conversion toolset will enable the
Company to successfully perform migration projects on a commercial basis.
Failure of the Company's ConSyGen 2000 or ConSyGen Conversion toolsets to enable
year 2000 conversions and migrations on a commercial basis will have a material
adverse effect on the price of the Company's common stock and on the Company's
business, financial condition, results of operation, and prospects. There can be
no assurance that the Company will be able to compete effectively in the market
for its services. Market acceptance of the Company's services will depend upon
the ability of the Company to demonstrate the advantages of its toolsets over
competing technologies.
Accumulated Deficit; Net Losses. The Company has not been profitable
and, as at May 31, 1998, the close of its most recent fiscal year, had net
operating losses of approximately $3,079,000 and an accumulated deficit of
approximately $21,949,000. The Company's long-term ability to continue as a
going concern is dependent upon the achievement of profitability and upon
obtaining adequate long-term financing. The Company has not yet generated
significant revenue from either its ConSyGen 2000 or ConSyGen Conversion
toolset, or otherwise, and there can be no assurance that the Company will be
able to generate significant revenue from services related to either its
ConSyGen 2000 or ConSyGen Conversion toolset. Nor can there be any assurance
that the Company will be able to obtain adequate long term financing. See "Risk
Factors - Future Capital Needs." The failure of the Company to generate
significant revenue from its conversion services or to obtain adequate long term
financing will have a material adverse effect on the Company's ability to
continue as a going concern.
Dependence on Year 2000 Market. Although the Company has yet to
generate any significant revenue from providing year 2000 services, the Company
currently devotes substantially all of its resources and efforts to marketing
its ConSyGen 2000 toolset that addresses the year 2000 problem. Although the
Company believes that the market for products and services relating to the year
2000 problem will grow as the year 2000 approaches and that such market will
continue to exist for a limited time beyond the year 2000, eventually the demand
for year 2000 products and services will disappear. Moreover, there can be no
assurance that the market will develop to the extent anticipated by the Company.
Other organizations may attempt
6
<PAGE>
to resolve the problem internally rather than contract with an outside firm such
as the Company. The eventual development of a significant market for year 2000
products and services is therefore uncertain and unpredictable. If the market
for year 2000 products and services fails to develop to the extent anticipated
by the Company, or the Company fails to attract substantial business, the
Company's financial condition and results of operations would be materially
adversely affected, and its ability to continue as a going concern could depend
upon its ability to develop additional products and services. See "Need to
Develop Additional Products and Services."
Need to Develop Additional Products and Services. The Company is not
currently generating any significant revenue from its ConSyGen Conversion
toolset, the toolset it uses to migrate software applications from mainframe
environments to open systems. There can be no assurance that the Company will be
able to develop and market its ConSyGen Conversion toolset or to diversify and
develop additional products and services to enable the Company to generate
business from non-Year 2000 related services. The failure of the Company to
develop and market its ConSyGen Conversion toolset or to generate other business
unrelated to the year 2000 market will have a material adverse effect on the
Company's business, financial condition and results of operations. The
likelihood of the Company's success must also be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with the development of new technologies, such as
competition, market acceptance, the need to develop customer support
capabilities and market expertise, and setbacks in product development.
Future Capital Needs. The Company's future capital requirements will
depend on many factors, including the Company's ability to generate cash flow
from operations, if any, continued progress in its research and development
programs, the development of superior technologies by the Company's competitors,
and the Company's ability to market its services successfully. See "Risk Factors
- - "Technology/Market Acceptance," Accumulated Deficit; Net Losses," and "Need to
Develop Additional Products and Services." The Company may need to raise
additional funds in the future through equity and/or debt financings. Any such
financings may result in dilution to the Company's then existing stockholders,
and any financing, if available at all, may not be on terms favorable to the
Company. There can be no assurance that the Company will be able to obtain
needed financing or that the terms of such financing will be favorable to the
Company. If adequate funds are not available, there would be a material adverse
effect on the Company's ability to continue as a going concern.
Reliance on New Key Personnel/Need for Additional Personnel. In July
1998, the Company made major changes in key personnel. Thomas S. Dreaper was
hired as president and chief executive officer, replacing Ronald I. Bishop. In
addition, Robert O. Andersen, Jr. was hired as executive vice president, sales
and marketing. The Company also relies heavily, at present, on Robert L.
Stewart, chairman of the board of directors, and James Vales, executive vice
president, operations. The success of the Company will depend upon the ability
of the new key personnel to generate the revenues necessary to continue its
operations. The Company does not have an employment agreement with any of such
officers that commits them to remain in the employ of the Company for any
specified period of time, nor does the Company currently hold key man life
insurance policies on any of such persons. While the Company will hire and train
others to assist them, should any of such officers become unable to serve or
leave the Company in the near future, such an event would have a material
adverse effect on the Company. The ability of the Company to generate revenues
in the future will depend in part on its success in adding and managing a
significant number of management, research and product development, operations,
marketing, sales and sales support personnel. Due to the level of technical and
marketing expertise necessary to support and market the Company's service
offerings, the Company must attract and retain highly qualified and well trained
personnel. There are a limited number of persons with the requisite skills to
serve in these positions and it may become increasingly difficult for the
Company to hire and retain such personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to attract
and retain such personnel.
Competition. The Company's business is extremely competitive. Many of
the Company's competitors have greater market recognition and greater financial,
technical, marketing and human resources than the Company. There can be no
assurance that the Company will be able to compete successfully against existing
companies or new entrants to the marketplace. Furthermore, the development by
7
<PAGE>
competitors of new or improved products and technologies may render the
Company's services or proposed services obsolete or less competitive, which
could have a material adverse effect on the Company.
Competitive Market for Technical Personnel. The future success of the
Company will depend to a significant extent on its ability to attract, train and
motivate skilled software engineers and other software professionals with the
skills to keep pace with continuing changes in software evolution, industry
standards and technologies, and client preferences. The Company believes that
there is a shortage of, and significant competition for, such personnel. There
can be no assurance that the Company will be successful in hiring such personnel
as and when needed by the Company.
Technological Obsolescence. The market in which the Company operates is
characterized by extensive research and development and rapid technological
change, resulting in relatively short life cycles for the Company's service
offerings. Development by others of new or improved products, processes or
technologies may make the Company's services or proposed services or products
obsolete or less competitive. The Company will be required to devote substantial
efforts and financial resources to enhance its existing services and to develop
new services or products.
Potential Contract Liability. Conversion services as complex as those
offered by the Company, especially solutions addressing the year 2000 problem,
involve key aspects of its clients' computer systems. A failure in a client's
system could result in a claim for substantial damages against the Company,
regardless of the Company's responsibility for such failure. The Company
attempts to limit contractually its liability for damages resulting from
negligent acts, errors, mistakes or omissions in providing its products and
services. However, there can be no assurance that the limitations of liability
set forth in its contracts would be enforceable or would otherwise protect the
Company in the event of such a claim. The Company does not currently have
insurance to cover potential liabilities resulting from such claims. The Company
has in the past encountered difficulties while performing its conversion
services, and there can be no assurance that the Company will not encounter such
difficulties in the future. The successful assertion of such a claim or claims
against the Company could have a material effect upon the Company's business,
financial condition, results of operations, and reputation, and regardless of
outcome, result in substantial cost to the Company and divert management's
attention from the Company's operations.
Software Errors or Bugs. The Company's software products and tools are
highly complex and sophisticated and could from time to time contain design
defects or software errors that could be difficult to detect and correct.
Errors, bugs or viruses may result in loss of or delay in market acceptance,
failure in a client's system, or loss or corruption of client data. Although the
Company has not experienced material adverse effects resulting from any software
defects or errors, to date, the Company has had only limited commercial business
exposure with its products, and there can be no assurance that errors will not
be found in the Company's current or future products, which errors could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Year 2000. The Company's review of its own operating systems does not
indicate any Year 2000 problems. There can be no assurance that the Year 2000
issue can be resolved by third parties such as banks, electric, water and phone
utility companies prior to the upcoming change in century. Although the Company
may incur costs resulting from increased charges by such third party service
providers resulting from the impact of Year 2000 issues and related corrective
efforts, the liklihood or amount of such costs is too speculative to estimate at
this time.
Intellectual Property. The Company's ability to compete effectively
depends in part on its ability to protect its proprietary rights in its
software, technology and other proprietary information ("Intellectual Property
Rights"). The Company relies primarily upon confidentiality procedures, trade
secrets and trademark and trade name laws to protect its Intellectual Property
Rights. The Company generally enters into confidentiality agreements with its
customers, key employees and marketing partners, and generally attempts to
control access to its technology, software and other proprietary information.
Despite these precautions, it may be possible for competitors, customers or
other unauthorized third parties to copy all or portions of the Company's
products, reverse engineer, obtain and use information that the Company regards
as proprietary, or design around the Company's
8
<PAGE>
proprietary rights. Although the Company intends to defend its Intellectual
Property, there can be no assurance that the steps taken by the Company to
protect against its misappropriation will be adequate, or that the Company's
competitors will not independently develop technologies that are substantially
similar, equivalent or superior to those developed or planned by the Company.
The Company has filed a patent application covering its year 2000
(ConSyGen 2000) conversion toolset. However, there can be no assurance that such
application will result in the issue of any patent, or that if issued, such
patent will provide substantial protection for the Company. In addition, the
Company understands that certain of its competitors have announced the filing of
patent applications relating to fixing the year 2000 problem. Although the
Company believes that its software does not infringe on the proprietary rights
of others and has not received any written notice of claimed infringement,
because of the rapid technological development of the computer industry, certain
of the Company's technologies could infringe on existing proprietary rights of
third parties, and the Company believes that such risk may be increased if and
to the extent that competitors of the Company are successful in obtaining such
patents or as new and overlapping processes and methodologies used in services
of the character performed by the Company become more pervasive. If any such
infringement claim is asserted against the Company, there can be no assurance
that the assertion of such claims will not result in litigation, or that that
the Company would prevail in such litigation or be able to obtain a license for
the use of any infringed intellectual property on commercially reasonable terms,
if at all. Alternatively, in such event, the Company might be required to modify
the alleged infringing technology, and there can be no assurance that the
Company would be able to do so in a timely manner, upon acceptable terms and
conditions or at all. Furthermore, any infringement claim or litigation, whether
by or against the Company, and regardless of outcome, could involve substantial
cost to the Company and divert management's attention from the Company's
operations. For the foregoing reasons, any infringement claim by or against the
Company could have a material adverse effect upon the Company's business,
financial condition and results of operations.
Controlling Shareholder. Robert L. Stewart, the chairman of the board
of directors of the Company, currently owns, beneficially, 7,437,000 shares of
the Common Stock of the Company, or approximately 48.3% of the total number of
shares of the Company's Common Stock presently outstanding. As a result of his
share ownership and position as chairman of the Company's board of directors,
Mr. Stewart may be deemed to be a controlling person of the Company and may have
the ability, as a practical matter, to elect the Company's directors and to
determine the outcome of corporate actions requiring shareholder approval,
irrespective of how other shareholders may vote. This concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company. See "Selling Security Holders."
No Anticipated Dividends. The Company has not paid any cash dividends
on its capital stock since its inception and does not intend to pay any
dividends in the foreseeable future. Although the Company has not had any
earnings to date, the Company intends to retain any future earnings for use in
its business operations.
Limited Trading Market; Nasdaq Listing. There is currently a
limited public market for the Common Stock of the Company. Effective April 9,
1998, the Company's common stock qualified for trading on the Nasdaq SmallCap
Market. Previously, it had been quoted on the over-the-counter Bulletin Board.
However, there can be no assurance that the Company's Common Stock will remain
qualified under the Nasdaq rules for trading on the Nasdaq SmallCap Market.
Under the rules currently in effect, the Company's qualification is subject to
revocation if the minimum bid price for the Company's common stock as quoted on
the Nasdaq SmallCap Market drops to less than $1.00 per share for a consecutive
period of 30 days or more and fails to reach such $1.00 level for a consecutive
period of at least 10 days within the 90 day period after it has received notice
from Nasdaq of the minimum price qualification deficiency, and unless tangible
net assets exceed a total of $2,000,000. Although the minimum bid price and net
tangible asset criteria for qualification of the Company's common stock for
trading on the Nasdaq SmallCap Market have been met by the Company to date,
there can be no assurance that such criteria will continue to be met in the
future. As at August 17, 1998, the closing bid price of the Company's common
stock as quoted on the Nasdaq SmallCap Market was $1.50 per share. See also the
Financial Statements of the Company included in the Company's Annual Report on
Form 10K for the fiscal year ended May 31, 1998
9
<PAGE>
incorporated by reference herein (See "Incorporation by Reference of Certain
Documents"). In light of the limited trading market for the Company's common
stock, the sale of a small number of shares could cause the quoted price of the
common stock to drop dramatically. Due to the volatility of the market price of
the Company's common stock, an investor may not be able to dispose of the common
stock without losing all or a substantial portion of its investment. See "Risk
Factors - Shares Eligible for Future Sale."
Effect of Delisting from Nasdaq. Should the Company's common stock fail
to meet the criteria for continued listing on Nasdaq, trading in the Company's
common stock would have to be conducted on the non-Nasdaq over-the-counter
market. In such event, an investor could find it more difficult to trade in or
obtain accurate quotations as to the market price of the Company's common stock.
In addition, non-Nasdaq equity securities trading under $5.00 per share which
fail to meet certain minimum net tangible asset or average revenue criteria are
subject to the requirements of the rules relating to "Penny Stocks" under
Section 15(g) of the Exchange Act, which impose additional disclosure
requirements upon broker dealers in connection with any trades involving such
stock. Such securities may also become subject to Rule 15g-9 under the Exchange
Act, which imposes certain sales practice requirements upon broker-dealers
involving the suitability of customers to buy the stock. The additional burdens
imposed upon broker-dealers should the Company's common stock become subject to
such requirements could discourage them from effecting transactions in the
Company's common stock and/or affect their ability to effect such transactions.
In such event, the market liquidity of the Company's common stock could be
materially adversely affected.
Potential Application of Certain Terms of Convertible Debentures. The
Convertible Debentures are convertible into Common Stock at a price equal to the
lesser of $4.8818 per share or 80% of the average closing bid price of the
Company's common stock for the 5 day trading period immediately preceding the
conversion date. Under the terms of the Convertible Debenture Subscription
Agreement, if the total number of shares issuable upon conversion of the
Debentures, plus the shares issuable pursuant to the Warrants, including the
warrants issued to finders (an aggregate of 115,000 Warrant Shares), exceeds
3,051,929 shares or (19.9% of the 15,336,328 shares of common stock of the
Company outstanding at May 29, 1998, the closing date of the sale of the
Convertible Debentures), then the Company is required immediately to call a
stockholders meeting for the purpose of approving below market issuances of
Common Stock upon conversion of the Debentures in excess of 2,936,929 shares (
3,051,929 shares less the 115,000 Warrant Shares). If such proposal is not
ratified, the Company is required to apply for a waiver from Nasdaq to permit
such issuances; and if the Company is unable to obtain a waiver within 20 days
of its application, the Company is required, at its option, either to (i) delist
the Company's common stock from the Nasdaq SmallCap market and include it for
quotation on the over-the-counter Bulletin Board or (ii) pay to the Holders of
the Convertible Debentures, in cash, the "Economic Benefit" of that number of
shares exceeding 2,936,929 shares that would have been issuable upon conversion
of the Debentures in the absence of the foregoing restrictions (the "Excess
Shares"). The "Economic Benefit" is defined in the Subscription Agreement as an
amount equal to the number of Excess Shares multiplied by the average closing
bid price of the Company's common stock for the 5 trading days preceding the
10th trading day after the above-mentioned stockholders meeting, and is required
to be paid within 30 day after such 10th trading day.
The effect of the foregoing provisions is that if, at the end of any 5
day trading period, the average closing bid price of the Company's common stock
for such period is lower than $1.4897 per share, the number of shares issuable
upon conversion of the Debentures will exceed 2,936,929 shares. The average
closing bid price of the Company's common stock for the 5 day trading period
ending on August 17, 1998 was 1.4375. Based upon such price, the number of
shares of Common Stock issuable upon conversion of the Convertible Debentures is
3,043,478 shares, or 106,549 Excess Shares. The Company has not yet called for a
stockholders meeting as required by the terms of the Convertible Debentures and
is unable to predict at this time the consequences that may result from the
application of the provisions of the Convertible Debentures relating to Excess
Shares.
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market, or the perception that such sales may occur, could
adversely affect the prevailing market price of the Common Stock. Upon
completion of this offering, and assuming (i) the conversion of the Convertible
Debentures into the maximum number of shares into which they are convertible
(based upon the assumption herein that such debentures are converted in full on
August 18, 1998),
10
<PAGE>
(ii) the issuance of the maximum number of shares payable as interest on the
Convertible Debentures, and (iii) the exercise of the Warrants for the maximum
number of shares listed herein as offered by the holders of such warrants, the
Company will have approximately 18,925,167 shares of common stock outstanding.
Of those shares, approximately 10,667,915 shares will be freely tradable without
restriction under the Securities Act of 1933, as amended (the "Securities Act"),
and approximately 8,110,585 shares will be eligible for sale in the public
market upon completion of this Offering or thereafter without registration,
subject to certain volume and other limitations, pursuant to Rule 144 under the
Securities Act. The balance of 146,667 shares have been issued for future
services, and the Company is obligated to register such shares if and when such
services are performed. In addition, there are currently outstanding warrants to
purchase 300,000 shares of Common Stock which are not included in the Offering
herein, all of which warrants are currently exercisable, and currently
outstanding options to purchase 3,518,664 shares of Common Stock, of which
1,451,000 are currently exercisable. In April 1998 the Company filed a
registration statement on Form S-8 registering 3,500,000 shares issuable
pursuant to its Non-Qualified Stock Option Plans. The sale in the public market
of any portion of such shares of Common Stock of the Company issued pursuant to
the exercise of conversion, warrant or option rights, or the sale in the public
market of restricted common stock of the Company pursuant to Rule 144 may have a
material adverse effect on the market price of the Company's common stock. See
"Risk Factors - Limited Trading Market." The sale of such shares may also have a
material adverse effect on the Company's ability to raise needed capital.
USE OF PROCEEDS
Of the estimated 7,056,669 shares of Common Stock offered by the Selling
Security Holders, (i) an estimated 5,004,842 shares are being offered by the
holders of the Convertible Debentures upon conversion of $3,500,000 in principal
amount of such debentures (including Warrant Shares issuable upon exercise of
Warrants issued to them and to finders in connection with the sale of such
debentures), (ii) a maximum of 100,000 shares are being offered by the holders
of Warrants (other than the Warrant holders described in (i) above) upon
exercise of such Warrants, and (iii) the balance of 1,951,827 shares are being
offered by certain selling stockholders. See "Selling Security Holders." The
Company will receive no proceeds from the sale of the Common Stock offered
hereby by the Selling Security Holders. The effect upon the Company of the
conversion of the Convertible Debentures will be the discharge of long term debt
in the amount of $3,500,000 (assuming that the Convertible Debentures are
converted in full into common stock of the Company); the effect upon the Company
of the payment of shares of Common Stock in lieu of cash interest will be the
discharge of accrued interest obligations in the aggregate amount of $420,000
(assuming that the Company elects to pay such interest in full in shares of
Common Stock of the Company for the 2 year period ended August 31, 2000); and
the Company will receive a maximum of $1,061,407 from the Warrant holders
described in (i) and (ii) above (assuming that such Warrants are exercised to
purchase the maximum number of shares purchasable upon the exercise thereof).
The proceeds received by the Company upon the exercise of the Warrants will be
used for working capital.
THE COMPANY
The following summary information about the Company should be read
in conjunction with the more detailed information contained in Part I, Item 1 of
the Company's Annual Report on Form 10-K for the year May 31, 1998 incorporated
herein by reference (See "Incorporation by Reference of Certain Documents").
ConSyGen, Inc., a Texas corporation ("ConSyGen-Texas'), was
incorporated on September 28, 1988 as C-Square Ventures, Inc. ConSyGen-Texas was
formed for the purpose of obtaining capital in order to take advantage of
domestic and foreign business opportunities which might have profit potential.
On March 16, 1989, ConSyGen-Texas (then C Square Ventures, Inc.) completed an
initial public offering. On September 5, 1996, ConSyGen-Arizona became a
wholly-owned subsidiary of ConSyGen-Texas in a transaction treated as a reverse
acquisition (purchase), with ConSyGen-Arizona as the acquiring and
ConSyGen-Texas as the acquired company. ConSyGen-Texas and ConSyGen-Arizona are
herein collectively referred to as the "Company."
11
<PAGE>
The Company's business consists solely of the business of
ConSyGen-Arizona.
In 1991, in response to growing business demand for migration of
older software applications from mainframe computers to open systems,
ConSyGen-Arizona commenced development of a fully-automated capability to allow
clients to move software applications from mainframes to open systems, while
simultaneously performing migration to alternative databases and providing
replacement of existing languages (primarily, COBOL). This process, also known
as "down-sizing" or "re-hosting," was designed to move application software from
expensive, inflexible, proprietary mainframe computers to newly-available,
lower-cost open-system computers, thereby opening up more effective
environments, while substantially reducing operating costs. After significant
research and development, an automated software conversion toolset - ConSyGen
ConversionSM - was completed.
Full automation of this otherwise-manual process eliminates most of
the manual conversion tasks, thereby reducing effort, time and expense, while
improving accuracy and reducing testing requirements.
In early 1996, ConSyGen-Arizona began to expand the existing
conversion capability to deal specifically with the Year 2000 problem; that is
the inability of a software application to recognize the Year 2000.
ConSyGen-Arizona's objective was to develop a fully automated process for the
identification and correction of date occurrences in software applications.
Prior to the fiscal year ended May 31, 1998, the Company's Year 2000 toolset,
which provides automated date conversions, had been utilized only in pilot
(non-revenue generating) projects. During the fiscal year ended May 31, 1998,
although still under development, the Company's ConSyGen 2000SM toolset has been
used to complete several revenue generating Year 2000 conversion projects.
Automation of the process by which software is made compliant for the Year 2000
and beyond, as compared with a manual process, offers the benefits of speed,
accuracy, reduced staffing, time and cost; and higher confidence in the
delivered result. Client staff involvement is reduced to project-related tasks
(such as test planning), and to confirmation of some date origins and
cross-references in the software.
Although the Company completed several revenue generating Year 2000
conversion projects during the fiscal year ended May 31, 1998, it has not
completed a revenue generating migration project since 1995. During the past 2
years, substantially all of the Company's sales efforts have been devoted to the
marketing and provision of services related to its ConSyGen 2000 toolset, while
the focus on the ConSyGen Conversion toolset has been on further development,
with the objective of extending its coverage to include new hardware
environments. Such further development and extension of the Conversion toolset
is necessary, as the toolset was limited in application to Honeywell/BULL
systems.
Marketing of the Company's products is performed by ConSyGen
directly, through selected teaming partners, and through a sales representative
program. Although the Company is actively marketing its ConSyGen 2000 and
ConSyGen Conversion toolsets, the Company, to date, has not generated any
significant revenue from either its ConSyGen 2000 toolset or its ConSyGen
Conversion toolset, or otherwise.
SELLING SECURITY HOLDERS
The following table sets forth, as of August 10, 1998, information
regarding the beneficial ownership of shares of Common Stock by the Selling
Security Holders, and the number of shares offered herein by such Selling
Security Holders. Reference is made to the footnotes to the table for a
description of any position, office or other material relationship known to the
Company (based upon information furnished by the Selling Security Holders) that
any Selling Security Holder has had with the Company or any of its predecessors
or affiliates (persons controlling, controlled by, or under common control with,
the Company) within the past 3 years.
12
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering (1) After Offering (5)
--------------------- ------------------
Name and Address Number Number of Shares Number Percentage
of Beneficial Owner* of Shares Being Offered of Shares Ownership
-------------------- --------- ------------- --------- ---------
<S> <C> <C>
Dominion Capital Fund, Ltd. 765,565 (2)(3) 3,210,866 (3)(4)
Canadian Advantage
Limited Partnership 209,781 (2)(3) 356,493 (3)(4)
Sovereign Partners Limited
Parnership 765,565 (2)(3) 1,427,483 (3)(4)
A.B. Phoenix, Inc. 1,666 (6) 5,000 (6)(7)
Ganesh Asset Management 1,666 (6) 5,000 (6)(7)
Irvington International (8) 100,000 100,000
Martin E. Janis & Company,
Inc. (9) 30,000 20,000
Robert L. Stewart (10) 7,437,000 871,390
c/o ConSyGen, Inc.
125 S. 52nd Street
Tempe, AZ 85044
Leslie Stewart (11) 66,552 1,302
Ming Sum Yeung (12) 190,000 190,000
Wor Foon Yeung (13) 170,000 170,000
Shu Kin Yeung (14) 40,000 40,000
Yuen Chi Kan (15) 120,000 120,000
Joseph and frank Ciolli 46,000 16,000
Kevin C. Baer 183,400 2,000
Robert H. and Delores 15,000 15,000
M. Goldsmith
Amertech International 11,000 11,000
Corp.
Irvington International
Limited (16) 23,600 3,600
Michael Block (17) 9,000 3,300
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering (1) After Offering (5)
--------------------- ------------------
Number Number of Shares Number Percentage
Name of Shares Being Offered of Shares Ownership
---- --------- ------------- --------- ---------
<S> <C> <C>
GFS, Inc. (18) 18,900 18,900
COFEP, S.A. 10,000 10,000
Rabobank (Switzerland) 152,000 152,000
Dominick company AG 28,500 28,500
Pat Finance AG 63,000 63,000
Cedar Globe Hedge Fund 5,000 5,000
Remaco Invest AG 200,000 200,000
Tom Warner 26,381 6,381
Harvey Dietrich 4,454 4,454
</TABLE>
- --------------
* Address provided for beneficial owners of more than 5% of the Common Stock.
14
<PAGE>
(1) The number of shares beneficially owned is based upon information provided
by the Selling Security Holders and determined under rules promulgated by
the Securities and Exchange Commission, and is not necessarily indicative
of beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the Selling Security Holder has
sole or shared voting power or investment power or has the right to acquire
within 60 days of August 10, 1998 through the exercise of any stock option,
warrant or other right (including conversion rights).
(2) The Subscription Agreement relating to the sale of the Company's 6%
Convertible Debentures prohibits the conversion of any portion of a
debenture which would result in the holder being deemed the beneficial
owner of 4.99% or more of the issued and outstanding common stock of the
Company. Accordingly, the shares of Common Stock shown as beneficially
owned by each holder of the Convertible Debentures represents the maximum
number of such shares which, together with the Warrant Shares allocable to
such holder (see the next sentence), is less than the 4.99 limit,
determined at August 18, 1998, as provided in the Subscription Agreement
(the Convertible Debentures are convertible in full, subject to such
restriction, by September 25, 1998). Also included are 35,000 out of a
total of 105,000 shares of Common Stock issuable upon the exercise of
Common Stock Purchase Warrants to purchase Common Stock at $4.8818 per
share issued to the holders of the Convertible Debentures concurrently with
the sale of the Convertible Debentures (Warrants covering the balance of
70,000 shares are not exercisable within 60 days of August 10, 1998). The
Company has been advised by the holders of the Convertible Debentures that
they are not acting in concert and interpret the foregoing ownership
restriction as applicable to each holder of the Convertible Debentures
individually. Based upon the information furnished to the Company by the
holders of the Convertible Debentures such holders have no relationship to
the Company except as investors.
(3) The terms of the Convertible Debentures provide for a conversion price
equal to the lesser of $4.8818 per share or 80% of the average closing bid
price of the Company's common stock for the 5 day trading period
immediately preceding the conversion date; and provide that the price of
the Company's common stock for purposes of calculating interest paid in
shares of such common stock is to be 90% of the average closing bid price
of such stock during the 5 day period immediately preceding the interest
payment date. Solely for the purpose of setting forth in this Prospectus a
number of shares of Common Stock beneficially owned and to be offered by
the holders of the Convertible Debentures, the conversion date is fixed as
August 18, 1998, and the conversion price is fixed at $1.15 per share, 80%
of $1.4375, the average closing bid price of the Company's common stock for
the 5 day trading period ended August 17, 1998. The actual conversion price
and number of shares issuable upon conversion of the Convertible Debentures
will depend upon the date or dates of such conversion, and upon the effect
upon the conversion rights of certain restrictions contained in the
Subscription Agreement relating to the sale of the Convertible Debentures,
and could therefore be materially different from the price and number of
shares set forth above, depending on factors that cannot be predicted by
the Company, including, among other things, the future market price of the
Company's common stock (provided that the price per share cannot exceed
$4.8818 and the number of shares of Common Stock into which the Convertible
Debentures can be converted cannot be less than 716,948 shares). See
footnote (2) above and "Risk Factors-Limited Trading Market; Nasdaq
Listing; Effect of Delisting from Nasdaq; Potential Application of Certain
Terms of Convertible Debentures; and Shares Eligible for Future Sale."
(4) Includes the allocated portion of (i) an aggregate of 4,565,217 shares,
constituting 150% of the total number of shares of Common Stock estimated
to be issued upon conversion of the Company's 6% Convertible Debentures,
based upon the number of such shares that would be issuable if the holders
of the Convertible Debentures had converted the entire principal amount of
such debentures on August 18, 1998 (see footnote (3) above); (ii) an
aggregate of 324,625 shares of Common Stock issuable at the option of the
Company in lieu of cash interest payable quarterly to the holders of the
Convertible Debentures during the 2 year period ended August 31, 2000,
based
15
<PAGE>
upon an assumed price for the Company's common stock of $1.4375 per share,
the same price used in the calculation of the number of shares set forth in
(i) above and upon the assumption that the Company elects to pay the entire
amount of interest due during the period in shares of Common Stock; and
(iii) an aggregate of 105,000 shares of Common Stock issuable upon the
exercise of Common Stock Purchase Warrants to purchase Common Stock at
$4.8818 per share issued concurrently with the sale of the Convertible
Debentures. The Registration Rights Agreement executed in conjunction with
the sale of the Convertible Debentures, as amended, requires, among other
matters, that the number of such shares designated in the registration
statement of which this Prospectus is a part to be offered by the holders
of the Convertible Debentures be not less than 150% of the total number of
shares of Common Stock that would be required to be issued to such holders
if all such shares were issued the day before the filing of the
registration statement.
(5) Because the decision of whether or how many shares offered by each Selling
Security holder pursuant to this Prospectus are to be sold is in the sole
discretion of such Selling Security Holder, no estimate can be given as of
the date of this Prospectus as to the number of such shares that will be
sold or of the number or percentage of shares of common stock of the
Company that will be beneficially owned by such Selling Security Holders
after completion of this offering. See "Plan of Distribution."
(6) Represents allocated portion of 3,333 shares issuable upon exercise of
Common Stock Purchase Warrants to purchase Common Stock at $4.8818 per
share issued to finders in connection with the sale of the Company's 6%
Convertible Debentures (Warrants covering the balance of 6,667 shares are
not exercisable within 60 days of the date of this Prospectus).
(7) Represents allocated portion of 10,000 shares purchasable upon exercise of
the Warrants issued to finders in connection with the sale of the
Convertible Debentures.
(8) Represents shares of Common Stock issuable upon the exercise of immediately
exercisable Common Stock Purchase Warrants to purchase Common Stock at
$5.00 per share issued to a consultant.
(9) Represents shares issued in exchange for public relations services.
16
<PAGE>
(10) Includes (i) 6,437,000 shares owned of record by The Loreto F. Stewart &
Robert L. Stewart Family Trust, a trust of which Robert L. Stewart is the
sole trustee and (ii) 1,000,000 shares owned of record by GEO Co., Ltd.,
which is controlled by Robert L. Stewart through his equity ownership, and
with respect to which Mr. Stewart shares voting and investment power. Mr.
Stewart is Chairman of the Board of Directors and a controlling person of
the Company. See "Risk Factors - Controlling Shareholder."
(11) Includes 1,302 shares of Common Stock issued to Mr. Stewart in payment of
$10,609 in indebtedness owing to Mr. Stewart by the Company and options to
purchase 65,250 shares of Common Stock, exercisable within 60 days.
(12) Includes 100,000 shares purchased in a private transaction from the Loreto
F. Stewart and Robert L. Stewart Family Trust, of which Robert L. Stewart
is sole trustee.
(13) Includes 50,000 shares purchased in a private transaction from the Loreto
F. Stewart and Robert L. Stewart Family Trust, of which Robert L. Stewart
is sole trustee.
(14) Includes 30,000 shares purchased in a private transaction from the Loreto
F. Stewart and Robert L. Stewart Family Trust, of which Robert L. Stewart
is sole trustee.
(15) Includes 120,000 shares purchased in a private transaction from the Loreto
F. Stewart and Robert L. Stewart Family Trust, of which Robert L. Stewart
is sole trustee.
(16) Represents 3,600 shares issued as a finder's fee in connection with a
financing transaction.
(17) Represents 3,300 shares issued to Mr. Block as a finder's fee in connection
with a financing transaction.
(18) Represents 18,900 shares issued to GFS, Inc. as a finder's fee in
connection with a financing transaction.
17
<PAGE>
PLAN OF DISTRIBUTION
Pursuant to the Registration Rights Agreement executed in
conjunction with the sale of the Company's 6% Convertible Debentures, the
Company agreed to maintain the effectiveness of the registration statement of
which this Prospectus is a part until the earlier of (i) the date that all of
the Common Stock underlying the Convertible Debentures and related Warrants are
sold pursuant to such registration statement or (ii) the date the holders
thereof receive an opinion of counsel that all of such securities may be sold
pursuant to Rule 144, or (iii) May 29, 2003.
All shares registered hereby are offered by the Selling Security
Holders. The Shares may be offered by the Selling Security Holders, in their
discretion, from time to time, in ordinary brokerage transactions (which may
include block transactions) on the Nasdaq SmallCap Market or otherwise, in
negotiated transactions, through a combination of such methods, or otherwise, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Security Holders may effect such transactions by selling the Shares to
or through broker-dealers, who may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders and/or
the purchasers of the Shares for whom such broker-dealers may act as agents or
to whom they may sell as principals, or both (which compensation, as to a
particular broker-dealer might be in excess of customary commissions).
The Selling Security Holders and any broker-dealers, agents, or
underwriters that participate with the Selling Security Holders in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the Securities Act. Any commissions paid or any discounts or concessions
allowed to any such persons, and any profits received on the resale of the
Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Company will not receive any proceeds from the sale of the
Shares by the Selling Security Holders. The Company has agreed to bear all
expenses of registration of the Shares (excluding fees and expenses of counsel
to the Selling Security Holders). Any commissions, discounts, concessions or
other fees, if any, payable to broker-dealers in connection with the sale of the
Shares will be borne by the Selling Security Holders selling such Shares. In
addition, the Company has agreed to indemnify the holders of the Convertible
Debentures against certain losses, claims, damages sand liabilities, including
liabilities under the Securities Act.
Notwithstanding the registration of the Shares, the Selling
Security Holders have no obligation to sell any portion or all of the Shares.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for
the Company by Paul Rosier, of Phoenix, Arizona.
EXPERTS
The financial statements of ConSyGen, Inc. included in the Company's Annual
Report on Form 10-K for the year ended May 31, 1998, and incorporated by
reference in this Prospectus have been audited by Wolinetz, Gottlieb & Lafazan,
P.C., independent accountants, as stated in their report appearing in such
annual report (which report expresses an unqualified opinion and includes an
explanatory paragraph referring to the Company's ability to continue as a going
concern because the Company has incurred substantial losses), and have been so
incorporated by reference in reliance upon the report of such firm given upon
their authority as experts in auditing and accounting.
18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being registered
hereby, all of which will be borne by the Company. All amounts shown are
estimates except the Securities and Exchange Commission registration fee.
SEC Registration Fee ......................................... $ 2,395
Blue Sky Fees and Expenses ................................... NA
Transfer Agent and Registrar Fees ............................ NA
Accounting Fees and Expenses ................................. 5,000
Legal Fees and Expenses of the Company ....................... 20,000
Printing ..................................................... NA
Miscellaneous ................................................ 10,000
=======
Total ........................................................ $37,395
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation, as amended, (the
"Articles"), and By-Laws eliminate, subject to certain exceptions, the personal
liability of directors to the Company or its stockholders for monetary damages
for breaches of fiduciary duties as directors to the extent permitted by State
law. The Articles and By-Laws do not provide for the elimination of or any
limitation on the personal liability of a director for intentional misconduct,
or in situations where a director is found not to have acted in good faith or
where liability is prescribed by law. These provisions of the Articles and
By-Laws may limit the remedies available to a stockholder in the event of
breaches of any director's duties to such stockholder or the Company.
The Company has entered into indemnification agreements with each
of the directors and officers. The indemnification agreements provide that the
Company will pay certain amounts incurred by a director or officer in connection
with any civil or criminal action or proceeding and specifically including
actions by or in the name of the Company (derivative suits) where the
individual's involvement is by reason of the fact that he is or was a director
or officer. Such amounts include, to the maximum extent permitted by law,
attorney's fees, judgments, civil or criminal fines, settlement amounts and
other expenses customarily included in connection with legal proceedings. Under
the indemnification agreements, a director or officer will not receive
indemnification if he is found not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
II-1
<PAGE>
ITEM 16. LIST OF EXHIBITS.
4.13 Amendment to Subscription Agreement and Registration Rights Agreement
used in connection with Sale of Convertible Debentures filed as Exhibit
4.3 to the Company's Annual Report on Form 10K for the year ended May 31,
1998. (1)
5.2 Opinion of Paul Rosier (1)
23.1 Consent of Paul Rosier (included in the opinion filed as Exhibit 5.2 to
this registration statement) (1)
23.2 Consent of Wolinetz, Gottlieb & Lafazan, P.C. (*)
24 Power of Attorney (See page II-4 of this registration statement). (1)
- -------------------
(1) Filed as an Exhibit, with the same Exhibit number to Registrant's
Registration Statement on Form S-3, File No. 333-61869, and incorporated
herein by reference.
* Filed herewith
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;
(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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective 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 (i) and (ii) above 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 Company pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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) The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual
II-2
<PAGE>
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this 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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the indemnification provisions described
herein, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to its registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on this 29th day of September, 1998.
ConSyGen, Inc.
By:/s/ Thomas S. Dreaper *
---------------------------
Thomas S. Dreaper
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert L. Stewart * Chairman of the Board September 29, 1998
- ----------------------------
Robert L. Stewart
/s/ Thomas S. Dreaper * President, Chief Executive September 29, 1998
- ---------------------------- Officer and Director
Thomas S. Dreaper (Principal Executive Officer)
/s/ Rajesh K. Kapur * Executive Vice President September 29, 1998
- ---------------------------- Chief Financial Officer and
Rajesh K. Kapur (Principal Financial Officer)
/s/ John Stephen Kelly Executive Vice President, September 29, 1998
- ---------------------------- Director(Principal
John Stephen Kelly Administrative Officer)
* By /s/ John Stephen Kelly
------------------------
Attorney-in-fact
II-4
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in
this Registration Statement on Form S-3 (Amendment No. 1) and to the
incorporation by reference therein of our report dated July 17, 1998 with
respect to the consolidated financial statements of ConSyGen, Inc. (a Texas
Corporation) included in its Annual Report on Form 10-K for the year ended May
31, 1998, filed with the Securities and Exchange Commission.
/s/ Wolinetz, Gottlieb & Lafazan, P.C.
Rockville Centre, New York
September 28, 1998
