<PAGE> 1
As filed with the Securities and Exchange Commission on September 30, 1998
Registration Statement No. 33-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MIGRATEC, INC.
(Exact name of small business issuer as specified in its Charter)
Florida 7371 65-0125664
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification No.)
organization)
12801 North Stemmons Freeway, Suite 710
Farmers Branch, TX 75234
(972) 969-0300
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
W. Curtis Overstreet, President
MIGRATEC, INC.
12801 North Stemmons Freeway, Suite 710
Farmers Branch, TX 75234
(972) 969-0300
(Name, address and telephone number of agent for service)
With copies to:
James M. Schneider, Esq.
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, FL 33301
Telephone No.: (954) 763-1200
Facsimile No.: (954) 766-7800
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
<PAGE> 2
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier registration statement for the same offering:
[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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<PAGE> 3
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Amount to be Price per Offering Registration
Title of Shares to be Registered Registered Share (1) Price (1) Fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 26,217,750 $0.28 $7,340,970 $2,165.59
Common Stock reserved for
issuance upon exercise of
Common Stock
Purchase Warrants (2) 300,000 $0.28 84,000 24.78
Common Stock reserved for
issuance upon exercise of
Common Stock
Purchase Warrants (3) 1,000,000 $0.28 280,000 82.60
Common Stock reserved for
issuance upon exercise of
Common Stock
Purchase Warrants (4) 2,260,250 $0.28 632,870 186.70
Common Stock reserved for
issuance upon exercise of
Common Stock
Purchase Warrants (5) 600,000 $0.28 168,000 49.56
Common Stock reserved for
issuance upon exercise of
Common Stock
Purchase Warrants (6) 204,878 $0.28 57,366 16.92
Common Stock reserved for
issuance upon exercise of
Common Stock
Purchase Warrants (7) 3,213,591 $0.28 899,805 265.44
Common Stock reserved for
issuance upon exercise of
Common Stock
Purchase Warrants (8) 500,000 $0.28 140,000 41.30
Common Stock reserved for
issuance upon exercise of
Common Stock
Purchase Warrants (9) 35,000 $0.28 9,800 2.89
Common Stock reserved for
issuance upon exercise of
Common Stock
Purchase Warrants (10) 240,000 $0.28 67,200 19.82
Total 34,571,469 $9,680,011 $2,855.60
</TABLE>
iii
<PAGE> 4
(1) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) under the Securities
Act of 1933, as amended (the "Securities Act"), based on the average of
the closing bid and asked prices for the Common Stock, per share (the
"Common Stock") as reported on the OTC Bulletin Board at September 24,
1998.
(2) To be offered and sold by the Selling Security Holders upon any
exercise of Common Stock purchase warrants exercisable at $0.01 per
share through February 10, 2000.
(3) To be offered and sold by the Selling Security Holders upon any
exercise of Common Stock purchase warrants exercisable at $0.10 per
share through September 9, 2001.
(4) To be offered and sold by the Selling Security Holders upon any
exercise of Common Stock purchase warrants exercisable at $0.20 per
share through July 1, 2001.
(5) To be offered and sold by the Selling Security Holders upon any
exercise of Common Stock purchase warrants exercisable at $0.25 per
share through March 25, 2000.
(6) To be offered and sold by the Selling Security Holders upon any
exercise of Common Stock purchase warrants exercisable at $0.25625 per
share through December 30, 2001.
(7) To be offered and sold by the Selling Security Holders upon any
exercise of Common Stock purchase warrants exercisable at $0.35 per
share through July 1, 2000.
(8) To be offered and sold by the Selling Security Holders upon any
exercise of Common Stock purchase warrants exercisable at $0.40 per
share through November 11, 2001.
(9) To be offered and sold by the Selling Security Holders upon any
exercise of Common Stock purchase warrants exercisable at $0.50 per
share through July 22, 2000.
(10) To be offered and sold by the Selling Security Holders upon any
exercise of Common Stock purchase warrants exercisable at $0.70 per
share through December 31, 2002.
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.
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MIGRATEC, INC.
Cross Reference Sheet for Prospectus Under Form SB-2
<TABLE>
<CAPTION>
Form SB-2 Item No. and Caption Caption or Location in Prospectus
- --------------------------------------- ----------------------------------
<S> <C>
1. Forepart of Registration Statement Cover Page; Cross
and Outside Front Cover of Reference Sheet;
Prospectus Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Inside Front and
Cover Pages of Prospectus Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors Prospectus Summary;
High Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page
6. Dilution Not Applicable
7. Selling Security Holders Selling Security
Holders
8. Plan of Distribution Outside Front Cover
Page of Prospectus;
Selling Security
Holders; Plan of
Distribution
9. Legal Proceedings Business
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal
Beneficial Owners and Management Shareholders
12. Description of Securities Description of
Securities
13. Interest of Named Experts and Legal Matters
Counsel
14. Disclosure of Commission Position Undertakings
on Indemnification for Securities
Act Liabilities
15. Organization within Last Five Years Not Applicable
16. Description of Business Business
17. Management's Discussion and Management's
Analysis Discussion and
Analysis
</TABLE>
v
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<TABLE>
<S> <C>
18. Description of Property Business
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Price Range for
Related Shareholder Matters Common Stock;
Description of
Securities
21. Executive Compensation Management -
Executive
Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Not Applicable
Accountants on Accounting and
Financial Disclosure
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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Preliminary Prospectus dated September 30, 1998
Subject to completion
34,571,469 Shares
MIGRATEC, INC.
Common Stock, No Par Value
This Prospectus (the "Prospectus") relates to the offer and sale of up to
34,571,469 shares of Common Stock, no par value (the "Common Stock"), of
MigraTEC, Inc. (the "Company" or "MigraTEC") by certain selling shareholders
(the "Selling Security Holders"). Of the 34,571,469 shares of Common Stock
offered hereby (the "Shares"), (i) up to 300,000 are issuable upon exercise of
two-year Common Stock Purchase Warrants exercisable at $0.01 per share, (ii) up
to 1,000,000 are issuable upon exercise of three-year Common Stock Purchase
Warrants exercisable at $0.10 per share, (iii) up to 112,500 are issuable upon
exercise of one-year Common Stock Purchase Warrants exercisable at $0.20 per
share, (iv) up to 2,147,750 are issuable upon exercise of three-year Common
Stock Purchase Warrants exercisable at $0.20 per share, (v) up to 600,000 are
issuable upon exercise of two-year Common Stock Purchase Warrants exercisable at
$0.25 per share, (vi) up to 204,878 are issuable upon exercise of five-year
Common Stock Purchase Warrants exercisable at $0.25625 per share, (vii) up to
3,213,591 are issuable upon exercise of three-year Common Stock Purchase
Warrants exercisable at $0.35 per share, (viii) up to 500,000 are issuable upon
exercise of five-year Common Stock Purchase Warrants exercisable at $0.40 per
share, (ix) up to 35,000 are issuable upon exercise of three-year Common Stock
Purchase Warrants exercisable at $0.50 per share, and (x) up to 240,000 are
issuable upon exercise of five-year Common Stock Purchase Warrants exercisable
at $0.70 per share (collectively the "Warrants"). This Prospectus covers the
resale of the 34,571,469 Shares and, in accordance with Rule 416 under the
Securities Act of 1933, such presently indeterminate number of additional Shares
as may be issuable pursuant to the anti-dilution provisions of the Warrants. See
"Selling Security Holders."
The Company's Common Stock is traded on the OTC Bulletin Board under the symbol
"MIGR." On September 28, 1998, the closing bid price for the Company's Common
Stock was $0.28 per share. There can be no assurances that a substantial trading
market for its Common Stock will develop or be sustained in the future. See
"Price Range of Common Stock" and "Description of Securities."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL PURCHASERS SHOULD NOT
INVEST IN THESE SECURITIES UNLESS THEY CAN AFFORD A LOSS OF THEIR ENTIRE
INVESTMENT HEREIN. SEE "HIGH RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION
<PAGE> 8
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October _____, 1998
The Company believes that the number of shares of Common Stock to which this
Prospectus relates are be the maximum number of shares of Common Stock that are
likely to be issued to the Selling Security Holders and sold hereby.
The Selling Security Holders have advised the Company that they propose to sell
the Shares, from time to time, publicly through broker-dealers acting as agents
for others, or in private sales. See "Selling Security Holders" and "Plan of
Distribution." The Company will not receive any of the proceeds from the sale of
the Shares offered hereby by the Selling Security Holders except upon any
exercise of the Warrants.
The Company will pay all offering expenses for the offering, estimated at
approximately $94,854, including: (i) the SEC registration fee ($2,854); (ii)
blue sky fees ($1,000); (iii) printing and engraving expenses ($25,000); (iv)
legal fees and expenses ($25,000); (v) accounting fees and expenses ($25,000);
(vi) transfer agent fees and expenses ($6,000); and (vii) miscellaneous expenses
($10,000); but will not pay any discounts or commissions incurred by the Selling
Security Holders.
The Company has informed the Selling Security Holders that the anti-manipulative
rules and regulations under the Securities Exchange Act of 1934, including
Regulation M thereunder, may apply to their sales in the market and has
furnished each of the Selling Security Holders with a copy thereof. The Company
has also informed the Selling Security Holders of the need for delivery of
copies of this Prospectus in connection with any sale of Shares registered
hereunder.
NO DEALER, SALESMAN OR ANY 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.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THIS DATE.
The Company will furnish its shareholders with annual reports containing audited
financial statements and may distribute quarterly reports containing unaudited
summary financial information for each of the first three quarters of each
fiscal year.
2
<PAGE> 9
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (herein together with all
amendments and exhibits referred to as the "Registration Statement") under the
Securities Act of 1933. Reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street N.W., Washington D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, New York, New York
10048, or Room 1204, Everett McKinley Dirksen Building, 219 South Dearborn
Street, Chicago, Illinois 60604, or Suite 500 East, 5757 Wilshire Boulevard, Los
Angeles, California 90036. Copies of such material can be obtained upon written
request addressed to the Commission, Public Reference Section, 450 Fifth Street
N.W., Washington D.C. 20549, at prescribed rates. The Commission also maintains
a website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov.
3
<PAGE> 10
PROSPECTUS SUMMARY
The following is intended to summarize more detailed information and financial
statements and notes thereto which are set forth more fully elsewhere in this
Prospectus or incorporated herein by reference and, accordingly, should be read
in conjunction with such information.
Other than historical and factual statements, the matters and items discussed in
this Prospectus are forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from the results discussed
in the forward-looking statements. Certain factors that could contribute to such
differences are discussed with the forward-looking statements throughout this
Prospectus and are summarized in Sections "High Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
THE COMPANY
MigraTEC, Inc. (the "Company" or "MigraTEC") is a provider of software products
and services which address both the Year 2000 ("Y2K") challenge and the need for
companies to migrate existing software applications to new and more efficient
hardware and software platforms.
Migration is the process of making all changes necessary to move an
organization's current software applications from an existing operating system
to a new target operating system in order to utilize advancing technology and
meet changing business requirements. Migration allows companies to retain the
functionality and business processes which have been developed in their existing
software applications while gaining the efficiencies which result from moving
the software applications to more advanced technology platforms. Migration
avoids the business interruption, retraining and re-engineering problems created
when a software application is totally replaced. Thus, migration not only
extends the productive life of existing software applications, which have
already been developed at significant cost, but also preserves the business
logic and consistency of the existing software application, ensuring continued
ease of ongoing maintenance of the software.
MigraTEC's software technology has been utilized in over 400 migration projects,
facilitated either directly by the Company or through a license of previous
technology of the Company to IBM. Successful migration projects performed by the
Company include Caterpillar Inc., Ameritech Inc., USAA Insurance, Duke Energy,
Bell Sygma, The Sabre Group Inc., Payless ShoeSource Inc., Group 1 Software
Europe Ltd. and AutoTester Inc., including follow-up projects at Duke Energy,
Bell Sygma, Ameritech Inc. and The Sabre Group Inc.
In order to facilitate the Company's transition from its prior dependency on the
revenues generated from the IBM software license, a new management team was
brought into the Company in 1997 to implement a turnaround plan based on further
developing MigraTEC's proprietary "core" software technology and establishing
the Company as a "technology partner" of large strategically positioned
companies. Currently, MigraTEC is focused on further developing its proprietary
technology to serve as the foundation for an advanced "universal migration"
software tool designed to facilitate the transition between numerous computer
4
<PAGE> 11
languages and operating platforms. The Company intends to utilize the enhanced
technology to facilitate its provision of migration services and to generate
additional revenues through the licensing of the technology to large computer
products and services organizations.
With rapid technological changes occurring in today's marketplace, such as the
move to the Internet, Windows and WindowsNT, the development of 64 bit
processors, Y2K compliance issues, and the advent of the introduction of the
European Monetary Unit, management believes that MigraTEC's proprietary software
technology represents an attractive resource for companies seeking access to
technology that will allow them to respond to these challenges and market
opportunities. MigraTEC's proprietary technology is designed to automate a
significant amount of the migration process by identifying critical code
elements in the software to be migrated, thereby automating a high percentage of
the changes required. In June of 1998, the Company submitted a patent
application covering the "core" portion of its proprietary software technology.
The Company is designing its software products so they can be used:
o by MigraTEC to provide a variety of services for its business
customers,
o by individual businesses to correct or migrate their own client/server
software applications, or
o by other services and/or systems integrators in order to facilitate
their delivery of solutions and/or hardware to their customers.
The first "product" to which the Company has applied its enhanced technology is
MigraTEC2000, a Y2K software tool to remediate Y2K problems for client/server
applications. The Company's MigraTEC2000 software product utilizes a parsing
technology to perform the following: (1) an inventory of the current source code
to ensure that all lines of code in the application are present for analysis and
remediation, (2) an analysis of the code to ensure that all lines of code
containing Y2K date related fields have been identified, and (3) an automated
remediation of the code pursuant to parameters and instructions determined by
the client. The patent application filed by the Company was related to the
parsing technology incorporated into its MigraTEC2000 software product. Parsing
technology, which management believes is superior to scanning technologies, is a
technology that analyzes the structural relationships contained within computer
program code. The superiority that parsing technology achieves is in the
identification of not only the obvious names of program elements but also the
numerous and subtle ways in which those elements interact with each other to
produce secondary effects.
MigraTEC, Inc., was organized under the State of Florida in February 1989, under
the name New York Acquisitions, Inc. On February 29, 1996, the Company acquired
all of the capital stock of One Up Corporation in a reverse acquisition and
changed its name to One Up Corporation. Thereafter, on February 16, 1998, the
Company changed its name to MigraTEC, Inc. The address and telephone number of
the Company's executive offices are: 12801 North Stemmons Freeway, Suite 710,
Farmers Branch, Texas 75234, telephone number (972) 969-0300, facsimile number
(972) 969-0315.
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<PAGE> 12
THE OFFERING AND OUTSTANDING SECURITIES
<TABLE>
<S> <C>
Common Stock Outstanding 44,553,705 shares of
Common Stock
Common Stock Offered by Selling 34,571,469 shares of
Security Holders Common Stock
Number of shares underlying Common
Stock Purchase Warrants included in
this offering 8,353,719 (1)
Risk Factors Investment in these securities
involves a high degree of
risk. See "High Risk
Factors."
OTC Bulletin Board Symbol "MIGR" (2)
</TABLE>
- --------------------
(1) Under the terms of the Warrants outstanding, (i) Warrants to purchase
300,000 shares are exercisable at $0.01 per share, (ii) Warrants to
purchase 1,000,000 shares are exercisable at $0.10 per share, (iii)
Warrants to purchase 2,260,250 shares are exercisable at $0.20 per
share, (iv) Warrants to purchase 600,000 shares are exercisable at
$0.25 per share, (v) Warrants to purchase 204,878 shares are
exercisable at $0.25625 per share, (vi) Warrants to purchase 3,213,591
shares are exercisable at $0.35 per share, (vii) Warrants to purchase
500,000 shares are exercisable at $0.40 per share, (viii) Warrants to
purchase 35,000 shares are exercisable at $0.50 per share, and (ix)
Warrants to purchase 240,000 shares are exercisable at $0.70 per share,
on or prior to December 31, 2002.
(2) The Company intends to apply for the listing of its Common Stock on the
National Association of Securities Dealers, Inc., Automated Quotation
System ("NASDAQ") at such time as the Company satisfies NASDAQ listing
requirements. However, there can be no assurances that the Common Stock
will qualify for listing at any time in the future. See "Description of
Securities."
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
(Audited) (Unaudited)
1997 1996 1998 1997
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 2,045,607 $ 2,259,997 $ 774,440 $ 712,061
Total operating expenses $ 4,500,640 $ 7,149,986 $ 2,925,555 $ 2,363,274
Loss from operations $(2,455,033) $(4,889,989) $(2,151,115) $(1,651,213)
Net loss $(2,517,606) $(3,717,152) $(2,085,344) $(1,757,617)
Net loss per common share $ (0.094) $ (0.231) $ (0.057) $ (0.069)
Balance Sheet Data:
Current assets $ 456,371 $ 872,492 $ 902,167 $ 125,198
Working capital surplus
(deficit) $(1,563,162) $(1,147,820) $ 327,318 $(2,354,871)
Total assets $ 1,031,856 $ 1,883,033 $ 1,365,717 $ 680,869
Total liabilities $ 3,106,368 $ 2,545,312 $ 1,698,085 $ 2,580,069
Stockholders' deficit $(2,070,760) $ (667,911) $ (328,616) $(1,895,448)
</TABLE>
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<PAGE> 14
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY. THIS PROSPECTUS
CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCE INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
RECENT OPERATING LOSSES
The Company was organized in January 1991, and while it has experienced certain
periods of profitability since its inception, the Company has sustained
substantial losses in recent times. For the years ended December 31, 1997 and
1996, the Company incurred net losses of $2,517,606 and $3,717,152,
respectively, and for the six months ended June 30, 1998, the Company incurred
net losses of $2,085,344. At June 30, 1998, the Company had an accumulated
deficit of $6,081,378. Results of operations in the future will be influenced by
numerous factors including technological developments, further development of
the Company's proprietary software products and services, expansion of the
Company's marketing program, capacity to identify itself as a Y2K solutions
provider, ability to control increases in expenses associated with sales growth,
obtaining substantial additional funding, market acceptance of the Company's
products and services, the capacity of the Company to expand and maintain the
quality of its software migration products, competition and the ability to
attract and maintain a skilled and cohesive management group, and the ability of
the Company to control costs. In addition, the Company will be subjected to all
the risks incident to a rapidly developing and technologically oriented business
with only a limited history of operations. See "Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITED OPERATING HISTORY; GOING CONCERN QUALIFICATION IN INDEPENDENT
ACCOUNTANT'S REPORT
The Company has only a limited operating history upon which an evaluation of the
Company's performance and prospects can be made. The Company's prospects must be
considered in light of the numerous risks, expenses, delays, problems and
difficulties frequently encountered in the establishment of a new business in
industries characterized by emerging markets and products entailing high levels
of technological obsolescence, as well as intense competition and regulation.
Accordingly, there can be no assurance that the Company will be able to
successfully manage and expand, increase its revenues, attract sufficient
funding and develop profitable operations to offset the risks inherent in the
establishment of an expanding technology oriented business. As a result of the
aforementioned conditions and deficiencies, the Company's independent certified
public accountants included an explanatory paragraph in their report dated
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<PAGE> 15
April 1, 1998, indicating that such conditions raise substantial doubt about the
Company's ability to continue as a going concern. See "Management's Discussion
and Analysis of Financial Conditions and Results of Operations" and "Financial
Statements."
SIGNIFICANT CAPITAL REQUIREMENTS
The Company's capital requirements have been and will continue to be significant
due to the substantial costs associated with product development and refinement,
recruitment of skilled personnel and the marketing of innovative software
products and related services primarily to large established corporations and
other corporations. The Company's cash requirements for purposes of developing
its products have been substantial, and, as a result, the Company is dependent
upon capital resources provided by investors in order to finance its operations.
Based upon the Company's currently proposed plans and assumptions relating to
its current business plan, the Company anticipates that it has sufficient cash
requirements for three months as of the date hereof. In the event the Company's
products are not developed and refined on a timely basis, contracts for the
provision of products and technology are not consummated in sufficient number,
or in the event the Company's current resources otherwise prove to be
insufficient for the implementation of the Company's business plan and working
capital requirements, the Company will be required to seek additional financing.
The Company has no current arrangements with respect to, or potential sources
of, additional financing, and it is not anticipated that existing shareholders
will satisfy any portion of the Company's future financing requirements. There
can be no assurance that any additional financing will be available to the
Company when needed, on commercially reasonable terms, or at all. Any inability
to obtain additional financing when needed would have a material adverse affect
on the Company, including the curtailment of its product development, marketing
and expansion activities. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations."
RISKS ASSOCIATED WITH Y2K PRODUCTS
The Company believes that there will be a substantial market for its Y2K
software products based on pressure for companies and others to rewrite old
computer codes and convert computer systems to use new codes that acknowledge
the year 2000. Failure to successfully implement such programs for any reason,
whether or not attributable to the Company or its Y2K products, could result in
substantial exposure to the Company. While MigraTEC includes in its contractual
terms for the provision of its Y2K products, various provisions which limit its
liability in the event that client companies are not able to successfully
implement Y2K conversions and adjustments, there can be no assurances that
customers confronting adverse economic conditions might not seek to circumvent
such limitations or that third parties affected by unsuccessful implementation
programs will not seek to seek financial remedies against the Company. Given the
uncertainty of implementing Y2K programs, the Company could find itself as a
significant target of litigation in the future.
Furthermore, the Company anticipates that the competition for technical
personnel will increase substantially as companies continue to hire technical
personnel and consultants to perform services to implement Y2K solutions. Such
increased competition could materially and
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<PAGE> 16
adversely affect the Company's ability to attract and retain qualified technical
personnel in the future. The Company also believes that many of its customers
and potential customers will continue to devote substantial resources to Y2K
projects. As a result, the Company's customers or potential customers may
postpone other information systems projects pending completion of their Y2K
projects. This could adversely affect the demand for the Company's other
products and services. In addition, the Company's competitors offering Y2K
services and products may be able to obtain other assignments from customers
previously served by the Company or may provide solutions which give them an
advantage in competing for new customers. Moreover, the Company expects that Y2K
projects will peak prior to calendar year 2000 as companies address their Y2K
needs. Thereafter, the availability of a substantial number of information
technology personnel formerly engaged in Y2K projects could have a material
adverse affect on the Company, including reducing the demand for the Company's
services, increasing competition for available customer engagements and creating
downward pressure on pricing for the Company's services and products. See
"Business."
UNCERTAINTY OF MARKET ACCEPTANCE
Developing market acceptance for the Company's existing and proposed products
and services will require substantial marketing and sales efforts and the
expenditure of a significant amount of funds to inform customers as to the
benefits and cost advantages of the Company's services and products as well as
to achieve name recognition. There can be no assurance that the Company will be
able to successfully develop or position its products or services, or that any
marketing efforts undertaken by the Company will result in increased demand for
or market acceptance of the Company's products and services.
RAPID TECHNOLOGY CHANGE
The software development industry in which the Company competes, as well as the
computer industry as a whole, is subject to rapid technological change and
obsolescence. In order for the Company to compete effectively, it must offer
products which receive customer and consumer acceptance and fulfill customer and
industry needs. To the extent that the Company is unable to keep pace with
technological advances and enhancements comparable to and competitive with those
made by others in the industry, the Company's products may become obsolete.
There can be no assurances that the Company's products will not be rendered
obsolete by changing technology or that the Company will be able to respond to
advances in technology or changes in customer or consumer needs in a
commercially feasible manner. See "Business."
DEPENDENCE ON KEY PERSONNEL
The success of the Company will be largely dependent on the efforts of the
members of the management of the Company, particularly W. Curtis Overstreet, its
President and Chief Executive Officer, and Benjamin Swirsky, its Chairman.
Although the Company has entered into employment and consulting agreements with
various members of the management, including all officers of the Company, there
can be no assurance that such persons will continue their employment with the
Company. The loss of the services of one or more of such key
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<PAGE> 17
personnel would have a material adverse effect on the Company's ability to
maximize its use of its products and technologies or to develop related products
and technologies. The success of the Company also is dependent upon its ability
to hire and retain additional qualified executive, programming, engineering and
marketing personnel. There can be no assurance that the Company will be able to
hire or retain such necessary personnel. See "Management."
RECRUITMENT AND RETENTION OF INFORMATION TECHNOLOGY PROFESSIONALS
The Company's business involves delivering services and products and remains
partially labor intensive. The Company's success depends upon its ability to
attract, develop, motivate and retain highly skilled information technology
consultants possessing the technical skills and experience necessary to meet
customer needs. Qualified information technology personnel are in high demand
worldwide and are likely to remain a limited resource for the foreseeable
future. The shortage of information technology professionals has in the past and
is likely in the future to result in wage inflation. The Company competes for
such individuals with general information technology service firms, temporary
staffing and personnel placement companies, general management consulting firms,
major accounting firms, divisions of large hardware and software companies,
systems consulting and implementation firms, programming companies and niche
providers of information technology services. There can be no assurance that
qualified information technology personnel will continue to be available to the
Company in sufficient numbers, or that the Company will be successful in
retaining current or future employees and consultants. Failure to attract or
retain qualified information technology personnel in sufficient numbers could
have a material adverse affect on the Company's business, operating results and
financial condition. See "Business."
SUBSTANTIAL INDEBTEDNESS
The Company's operations have been financed in part from short-term and
long-term indebtedness provided by shareholders and others. The Company is
obligated to repay the Senior Secured Promissory Notes in the principal amount
of $1,112,500 on July 1, 1999. In the absence of sufficient financing, the
Company may be materially adversely affected by the requirement to repay the
Notes since it may not have use of such funds to either sustain or to continue
the development of its operations. If the Company is unable to secure additional
financing or to generate sufficient cash flow from operations to meet scheduled
or unscheduled debt payments, there can be no assurance that the Company will be
able to repay or restructure such indebtedness, and any default on its debt
would have a material adverse effect on the Company. See "Financial Statements"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
OTHER LIABILITY RISKS
The Company is exposed to liability risks with respect to other products and
services provided by the Company, such as damages caused by errors of MigraTEC
personnel and possible misuse of client proprietary information. Although the
Company maintains insurance coverage, due to the nature of the Company's
projects and engagements, there can be no assurance that such
11
<PAGE> 18
insurance coverage will continue to be available on reasonable terms or that it
will be adequate to cover any such liability. Furthermore, many of the Company's
contracts involve projects that are critical to its customers' business or
products, and the benefits provided by the Company may be difficult to quantify.
The Company's failure or inability to meet a client's expectations in the
execution of its services or the provision of its products could result in a
material adverse effect on the Company's business or products and, therefore,
could give rise to claims against the Company or damage to the Company's
reputation, which might adversely affect its business, operating results and
financial condition.
PRODUCT DEVELOPMENT RISKS
The Company's business is, to a large degree, subject to continued updating of
existing technology, enhancing current software conversion products and
development of new products. Product enhancement and development involves a high
degree of risk, and there is no assurance that development efforts of the
Company will be successful or, if successful, that such efforts can be completed
on a cost effective and timely basis. Additional funds may be necessary to
develop or enhance a product, and there can be no assurance that such funds will
be available upon acceptable terms. Finally, there is no assurance that, once a
product has been developed, it will be accepted in the marketplace, will be
commercially successful, or will not be rendered technologically obsolete soon
after its development. See "Business."
COMPETITION
The Company is engaged in a highly competitive segment of the data processing
industry. The Company competes, directly or indirectly, with a large number of
companies providing various levels of services or products comparable with those
provided by the Company. MigraTEC competes with many firms which provide
products and services similar to the Company's current and proposed offerings.
Most of these competitors have capital, name recognition and financial,
personnel and other resources far greater than those of MigraTEC. These
competitors include IBM, Andersen Consulting, Computer Science Corporation,
Viasoft, Acceler8 and many others. The Company's ability to compete effectively
will depend, in part, upon its systems' features, their cost effectiveness, the
ability of the Company to maintain state-of-the-art technology, the ability of
the Company to service its products efficiently and the Company's success in
marketing and selling such products and services. No assurance can be given that
the Company will effectively compete within its market.
Industry standards with respect to the markets for the technology and products
being developed by the Company are continually evolving, which often results in
product obsolescence or short product life cycles. Accordingly, the ability of
the Company to compete will depend on its ability to complete development and
introduce into the marketplace its proposed products and technology, to
continually enhance and improve its products and technology in a timely manner,
to adapt its proposed products in order to be compatible with specific products
manufactured by others, and to successfully develop and market new products and
technology. There can be no assurance that the Company will be able to compete
successfully, that its competitors or future competitors will not develop
technologies or products that render the Company's products and
12
<PAGE> 19
technology obsolete or less marketable, or that the Company will be able to
successfully enhance its proposed products or technology or adapt them
satisfactorily. See "Business - Competition."
DIFFICULTIES IN MAINTAINING PROPRIETARY RIGHTS
The Company's success is dependent upon its proprietary applications software
technology, which may be difficult to protect. The Company currently relies on a
combination of contractual rights, trade secrets, know-how, trademarks, patents,
nondisclosure agreements and technical knowledge to establish and protect its
proprietary rights. There can be no assurance, however, that the measures taken
by the Company to protect its proprietary rights will be adequate to prevent
misappropriation of the technology or independent development by others of
products with features based upon, or otherwise similar to, those of the
Company's products. Additionally, although the Company believes that its
technology has been independently developed and does not infringe on the
proprietary rights or trade secrets of others, there can be no assurance that
the Company's technology does not and will not so infringe, or that third
parties will not assert infringement claims, trade secret violations,
competitive torts or other proprietary rights violations against the Company in
the future. In the case of infringement, the Company could, under certain
circumstances, be required to modify its products or obtain licenses, which
would likely require cash or other consideration. There can be no assurance that
the Company would be able to do either in a timely manner or upon acceptable
terms and conditions, and such failure could have a material adverse effect on
the Company. In addition, there can be no assurance that the Company will have
the resources to defend or prosecute a patent infringement or other proprietary
rights infringement action.
NO ASSURANCE OF PROTECTION FOR PROPRIETARY RIGHTS; RELIANCE ON TRADE SECRETS
The Company will seek to maintain its proprietary rights by patents, trade
secret protection and by the use of nondisclosure and restrictive covenant
agreements with its employees. While the Company has taken legal precautions to
protect its interests, there can be no assurance that meaningful proprietary
protection can be attained, that the Company will be able to enter into or
enforce patents and agreements which restrict competitive activities of its
employees, or that various individuals trained by the Company may not seek to
engage in competitive activities subsequent to their employment by the Company.
The Company has filed a patent application on its MigraTEC2000 technology. While
the Company believes that, if granted, this patent would provide protection for
its technology, there can be no assurance that any patent will issue.
CONTROL OF THE COMPANY BY PRESENT SHAREHOLDERS
Members of management and their affiliates will own and control the vote of
approximately 21% of the outstanding shares of Common Stock, which, among other
things, will enable them to elect the Company's entire Board of Directors and
generally control the operations of the Company.
13
<PAGE> 20
NO DIVIDENDS ANTICIPATED TO BE PAID
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends in the foreseeable
future. The future payment of dividends is directly dependent upon future
earnings of the Company, the capital requirements of the Company, its financial
requirements, and other factors to be determined by the Company's Board of
Directors. For the foreseeable future, it is anticipated that earnings, if any,
which may be generated from the Company's operations will be used to finance the
growth of the Company, and that cash dividends will not be paid to Common Stock
shareholders. See "Dividend Policy."
IMMEDIATE SUBSTANTIAL DILUTION TO PURCHASERS IN THIS OFFERING
Initial purchasers of the Common Stock of the Company offered hereby will incur
an immediate and substantial dilution from the purchase price of their shares.
As of June 30, 1998, the negative net tangible book value of the Company's
Common Stock was approximately $0.008 per share.
POSSIBLE RESALES OF SECURITIES BY CURRENT SHAREHOLDERS AND DEPRESSIVE EFFECT ON
MARKET
There are currently 29,986,265 shares of the Company's Common Stock outstanding
which were "restricted securities" as that term is defined by Rule 144 under the
Securities Act of 1933 as amended, inclusive of shares being registered pursuant
to the Registration Statement, of which this Prospectus is a part. Certain of
such shares will be eligible for public sale only if registered under the
Securities Act or if sold in accordance with Rule 144. Under Rule 144, a person
who has held restricted securities for a period of one year may sell a limited
number of shares to the public in ordinary brokerage transactions. Sales under
Rule 144 may have a depressive effect on the market price of the Company's
Common Stock due to the potential increased number of publicly held securities.
The timing and amount of sales of Common Stock covered by this Prospectus, as
well as such subsequently filed registration statement, could have a depressive
effect on the market price of the Company's Common Stock. See "Shares Eligible
for Future Sales."
LIMITED MARKET FOR THE COMPANY'S COMMON STOCK; POSSIBLE VOLATILITY OF SECURITIES
PRICES
There is currently only a limited trading market for the Common Stock of the
Company. The Common Stock of the Company trades on the OTC Bulletin Board under
the symbol "MIGR," which is a limited market and subject to substantial
restrictions and limitations in comparison to the NASDAQ System. There can be no
assurance that a substantial trading market will develop (or be sustained, if
developed) for the Company's Common Stock upon completion of this offering, or
that purchasers will be able to resell their securities or otherwise liquidate
their investment without considerable delay, if at all. Recent history relating
to the market prices of newly public companies indicates that, from time to
time, there may be significant volatility in the market price of the Company's
securities because of factors unrelated, as well as related, to the Company's
operating performance. There can be no assurances that the Company's Common
Stock will ever qualify for inclusion within the NASDAQ System, or that more
than a limited market will ever develop for its Common Stock. See "Price Range
of Common Stock."
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<PAGE> 21
BROKER-DEALER SALES OF COMMON STOCK AND LIMITATION ON MARKETABILITY; POSSIBLE
FAILURE TO QUALIFY FOR NASDAQ SMALLCAP MARKET LISTING
The Company's Common Stock is not presently included for trading on the NASDAQ
System, and there can be no assurances that the Company will ultimately qualify
for inclusion within that system. The Nasdaq Stock Market, Inc., has recently
adopted certain changes to the entry and maintenance criteria for listing
eligibility on The Nasdaq SmallCap Market. The entry standards now require at
least $4 million in net tangible assets or $750,000 in net income in two of the
last three years. The entry standards also require a public float of at least
one million shares, a $5 million market value of public float, a minimum bid
price of $4.00 per share, at least three market makers, and at least 300 round
lot shareholders. The newly enacted maintenance standards (as opposed to entry
standards) require at least $2 million in net tangible assets or $500,000 in net
income in two of the last three years, a public float of at least 500,000
shares, a $1 million market value of public float, a minimum bid price of $1.00
per share, at least two market makers, and at least 300 round lot shareholders.
The Company currently does not meet the minimum NASDAQ (SmallCap) financial
criteria and no assurance can be given that the Common Stock of the Company will
ever qualify for inclusion on the NASDAQ System. Until the Company's shares
qualify for inclusion in the NASDAQ System, the Company's Common Stock will be
traded in the over-the-counter markets on the OTC Bulletin Board. As a result,
the Company's Common Stock is covered by a Securities and Exchange Commission
rule that imposes additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors (generally institutions with assets in excess of $5 million or
individuals with net worth in excess of $1 million or annual income exceeding
$200,000 or $300,000 jointly with their spouse). For transactions covered by the
rule, the broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser's written agreement to the transaction prior
to the sale. Consequently, the rule may affect the ability of broker-dealers to
sell the Company's securities and may also affect the ability of shareholders to
sell their shares in the secondary market. See "Description of Securities."
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW PRICED STOCKS
Any shares which trade under $5.00 per share are considered Penny Stocks. The
Shares offered hereby are being sold for under $5.00 per share and will be
considered Penny Stock. There is no assurance a market for the Common Stock of
the Company will develop. In the event that the share price does not reach $5.00
per share, these shares will be subject to the Penny Stock Rules promulgated
under the Securities Exchange Act of 1934. These rules regulate broker-dealer
practices in connection with transactions in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). The
Penny Stock Rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
15
<PAGE> 22
and monthly account statements showing the market value of each penny stock held
in the customer's account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information, must be given to the customer orally
or in writing prior to effecting the transaction and must be given to the
customer in writing before or with the customer's confirmation.
In addition, the Penny Stock Rules require that prior to a transaction in a
penny stock not otherwise exempt from such rules, the broker and/or dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing
the level of purchases in the instant offering and trading activity in the
secondary market for the Company's Common Stock. If the Company's Shares are, or
become, subject to the Penny Stock Rules, investors in this offering may find it
more difficult to sell such securities.
ANTI-TAKEOVER PROVISIONS
The Board of Directors has the authority to issue 1,000,000 shares of Redeemable
Convertible 12% Preferred Stock (the "Redeemable Preferred Stock"), none of
which are outstanding, and to fix the dividends, liquidation, conversion,
redemption and other rights, preferences and limitations of such shares without
any further vote or action of the shareholders. Accordingly, the Board of
Directors is empowered, without shareholder approval, to issue Redeemable
Preferred Stock, as well as other preferred stock, with dividend, liquidation,
conversion voting or other rights which could adversely affect the voting power
or the rights of the holders of the Company's Common Stock. In the event of
issuance, any class of preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
the control of the Company. Furthermore, certain provisions of the Company's
Articles of Incorporation and Bylaws may be deemed to have anti-takeover effects
and may delay, defer or prevent a takeover attempt of the Company. In addition,
certain provisions of the Florida Business Corporation Act also may be deemed to
have certain anti- takeover effects. See "Description of Securities."
LIMITATION OF LIABILITY
The Florida General Corporation Law provides that a director is not personally
liable for monetary damages to the Company or any other person for breach of
fiduciary duty, except under very limited circumstances. Such a provision makes
it more difficult to assert a claim and obtain damages from a director in the
event of his non-intentional breach of fiduciary duty. See "Description of
Securities."
PRICE RANGE OF COMMON STOCK
There is currently only a highly limited trading market for the Common Stock of
the Company. The Common Stock of the Company trades on the OTC Bulletin Board
under the symbol "MIGR" which is a limited market and subject to substantial
restrictions and limitations in
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<PAGE> 23
comparison to the NASDAQ System. Since the time the Company's Common Stock was
included on the OTC Bulletin Board on June 14, 1996, the price of the Common
Stock has generally been quoted in the range of a high closing bid price of
$5.00 and a low closing bid price of $0.09 based on limited trading. There can
be no assurance that a substantial trading market will develop (or be sustained,
if developed) for the Common Stock upon completion of this offering, or that
purchasers will be able to resell their securities or otherwise liquidate their
investment without considerable delay, if at all. Recent history relating to the
market prices of newly public or recently listed companies indicates that, from
time to time, there may be significant volatility in the market price of the
Company's securities because of factors unrelated, as well as related, to the
Company's operating performance. There can be no assurances that the Company's
Common Stock will ever qualify for inclusion within the NASDAQ System or that
more than a limited market will ever develop for its Common Stock. See "Risk
Factors - Possible Applicability of Rules Relating to Low Priced Stocks;
Possible Failure to Qualify for NASDAQ SmallCap Market Listing."
As of September 28, 1998, the approximate number of record holders of the
Company's Common Stock was 780.
The Company's Common Stock has been traded on the NASDAQ Over-The-Counter
("OTC") Bulletin Board since June 14, 1996. The predecessor to the Company was
acquired by an inactive public company on February 29, 1996. The following table
sets forth, for the periods indicated, the high and low closing bid prices for
the Company's Common Stock on the OTC Bulletin Board. On September 28, 1998, the
closing price for the Company's Common Stock on the OTC Bulletin Board was $0.28
per share. At September 28, 1998, the Company had 44,553,705 shares of Common
Stock outstanding.
<TABLE>
<CAPTION>
Period High Bid Low Bid
- -------------------------- --------- --------
<S> <C> <C>
First Quarter 1997 $ 0.594 $ 0.09
Second Quarter 1997 $ 0.50 $ 0.30
Third Quarter 1997 $ 0.95 $ 0.30
Fourth Quarter 1997 $ 0.86 $ 0.35
First Quarter 1998 $ 0.70 $ 0.35
Second Quarter 1998 $ 0.60 $ 0.30
Third Quarter 1998 through
September 28, 1998 $ 0.89 $ 0.20
</TABLE>
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<PAGE> 24
DIVIDEND POLICY
The Company has not paid, and does not anticipate paying, any dividends on its
Common Stock in the foreseeable future. The Company currently intends to retain
its future earnings for use in operations and expansions of its business.
Declaration and payment of future dividends, if any, will be at the sole
discretion of the Board of Directors.
CAPITALIZATION
The following table sets forth the capitalization of the Company as at June 30,
1998. No effect is given to the exercise of any Options or Warrants. This table
should be read in conjunction with the financial statements and related notes
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1998
--------------
<S> <C>
Long-term portion of notes payable, net of discount of $25,369 $ 1,087,131
Long-term portion of obligation under capital lease 27,081
--------------
Total debt $ 1,114,212
--------------
Redeemable convertible 12% preferred stock; $1,000 par value; 1,000,000 shares
authorized; redeemable at par value plus
cumulative dividends; none issued or outstanding --
Shareholders' deficit:
Common stock, no par value; 200,000,000 shares authorized;
53,271,108 shares issued (1) $ 6,765,128
Additional paid-in capital 796,263
Treasury stock, at cost (10,254,903 shares) (1,808,629)
Accumulated deficit (6,081,378)
--------------
Total shareholders' deficit (328,616)
--------------
Total capitalization $ 785,596
==============
</TABLE>
- -----------------
(1) Does not give effect to the issuance of up to 13,956,634 shares of
Common Stock upon exercise of any Options or Warrants.
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<PAGE> 25
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock for the
accounts of the Selling Security Holders. There is included in the Registration
Statement, of which this Prospectus is a part, 8,353,719 shares of Common Stock
underlying Warrants issued by the Company. If all of the Warrants were exercised
in their entirety, the Company would receive total proceeds, before expenses, of
approximately $2,267,807. Inasmuch as the holders of all of the Warrants have no
obligation to exercise such Warrants, the Company is not in a position to
evaluate when and if such securities will ever be exercised and the amount of
proceeds that may be realized therefrom. Accordingly, the Company is not able to
allocate specifically at this time the proceeds that may be received from the
exercise of the Warrants, and any proceeds realized will be utilized for
enhancing the Company's research and development and for general working capital
purposes. To the extent the proceeds of such exercise are not used immediately,
they will be invested in certificates of deposit, savings deposits or other
interest bearing instruments, or will be left in the checking accounts of the
Company.
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<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included in, or incorporated by reference
into this Registration Statement, are forward-looking statements. In addition,
when used in this document, the words "anticipate," "estimate," "project" and
similar expressions are intended to identify forward-looking statements. Such
forward-looking statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, no assurance can be given that such expectations will prove to have
been correct.
Among the key factors that could cause actual results to differ materially from
expectations, estimates of costs, projected results or anticipated results are
the risk that the Company will be unable to generate sufficient cash flows to
fund operations or to obtain additional financing on favorable terms, the risk
that the Company will be unable to effectively penetrate its target markets for
migration products and services and Y2K product sales, the risk that new
untested management will be unable to successfully implement the business plan
and sales strategy, and the risk of unfavorable changes in economic and industry
conditions, as well as changes in regulatory requirements. The Company has also
made certain assumptions relating to its operations and the industry in general.
All written or oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by, but
not limited to, the factors described above.
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
MigraTEC should be read in conjunction with the consolidated financial
statements of MigraTEC included elsewhere herein.
Although the Company experienced significant losses for the six months ended
June 30, 1998, and for both 1997 and 1996, management believes it is important
to note the growing opportunity for MigraTEC to sell its automated migration
products and services based on the rapid growth and changes occurring in today's
marketplace, as well as the increasing market demand for migration products and
services. Management believes, that by capitalizing on this opportunity,
revenues and earnings will increase during the remainder of 1998, although no
assurances can be given regarding such increase.
Management believes that the net loss posted for the six months ended June 30,
1998, was in part due to expenditures for reengineering the Company's business
and shifting its strategic approach to exploiting its technology as a product
offering as opposed to a service offering. The Company now has a new product
line (MigraTEC2000) to sell and intends to introduce an additional
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<PAGE> 27
migration product line in late 1998. This leads management to believe that
profitability can be achieved by the fourth quarter of 1998, although no
assurances can be given regarding such increase.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues
During 1997, MigraTEC revenues decreased by approximately 9% to $2,045,607,
compared to $2,259,997 in 1996, due primarily from the reduction in revenues
from the Canadian subsidiary resulting from ceasing its operations and the lack
of Education revenues resulting from discontinuing that portion of the business.
Operating Expenses
MigraTEC's total operating expenses decreased by approximately 37% to $4,500,640
during 1997, compared to $7,149,986 for 1996, resulting primarily from (1)
decreased labor costs primarily due to the layoffs and resignations during the
first quarter of 1997, (2) decreased expenditures for travel due to layoffs in
the sales and marketing area as well as new management's cost containment
efforts, (3) decreased rent expense due to the Company's move from its
facilities located in Westlake, Texas, to a smaller and less costly location in
Farmers Branch, Texas, and (4) no expenses being incurred for merger,
acquisition and consulting expenses (relating to other expenses incurred as a
result of the reverse merger in February 1996), which were nonrecurring after
1996. As a percentage of revenues, total operating expenses decreased to 220%
for 1997, compared to 316% for 1996, primarily attributable to decreased
operating expenses as previously discussed.
Labor costs, including benefits and insurance, decreased by approximately 30% to
$2,756,621 compared to $3,954,015, respectively for 1997 and 1996, primarily due
to decreased labor costs resulting from the layoffs and resignations during the
first quarter of 1997. General and administrative expenses decreased to $340,665
from $723,932, primarily due to cost containment efforts successfully executed
by new management, particularly in the areas of software and computer related
expenditures, employment recruiting fees, and office related expenses (such as
supplies, printing, equipment rental, telephone expenses and utilities).
Advertising, marketing and product costs decreased to $17,086 from $99,633,
primarily due to a reduction of expenditures in the area of public relations.
Travel decreased to $39,749 from $465,530, resulting primarily from decreased
expenditures for travel due to layoffs in the sales and marketing area as well
as new management's cost containment efforts. Rent expense decreased to $186,899
for 1997, compared to $386,106 in 1996, attributable primarily to decreased
monthly office rent due to the Company's move from its facilities located in
Westlake, Texas, to a smaller and less costly location in Farmers Branch, Texas.
Depreciation and amortization decreased to $233,962 in 1997, compared to
$317,036 in 1996, as a result of asset retirements. Legal and professional fees
decreased to $211,936 in 1997, compared to $315,486 in 1996, primarily due to
the legal fees incurred in 1996 related to the Reg S offering. Year 2000 program
costs of $293,604 consists of labor costs and various other expenses related to
the development and
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<PAGE> 28
marketing of the Company's Year 2000 tool set. Provision for contract losses of
$6,800 relates to the excess of the remaining estimated contract costs over
contract revenues (which are recognized on the percentage of completion method
based on estimated hours to complete). Bad debt expense of $123,720 relates to
doubtful collection of a trade accounts receivable. Loss on release of assets of
$284,573 relates to the write-off of the net book value of the Company's
leasehold improvements on its Westlake offices which were released to the
landlord effective March 31, 1997, upon a successful negotiation of early
termination of the lease for those facilities. (In April 1997, the Company moved
from its facilities located in Westlake, Texas, to a smaller and less costly
location in Farmers Branch, Texas). Merger, acquisition and consulting expenses
(which relate to other expenses incurred as a result of the reverse merger in
February 1996 and becoming a public company, including the increased management
consulting, and additional accounting and legal work made necessary as a result
of the reverse merger and the various SEC filings related thereto) decreased to
$0 from $871,586, amounting to 0% and approximately 12% of total operating
expenses for the years ended December 31, 1997 and 1996, respectively.
Other Income and Expenses
Interest income decreased approximately 82% to $1,281 in 1997, compared to
$7,312 in 1996, primarily due to the steady depletion of cash balances resulting
from declining sales revenues coupled with increased operating expenses and
costs and expenditures relating to the reverse merger and various fund raising
activities throughout 1996. Interest income on shareholder advance decreased to
$0 in 1997, compared to $33,522 in 1996, due to payoff of the loan during the
second quarter of 1996. Interest expense (which includes loan origination fees)
increased to $156,175 in 1997, compared to only $45,263 in 1996, primarily due
to (1) interest and loan fees connected with obtaining short-term financing, (2)
interest on convertible debentures, senior secured promissory notes and
shareholder loans, (3) finance charges assessed by trade creditors for late
payment of accounts payable, and (4) interest and penalties related to the 1995
income tax liability. Financing fees of $108,806 relate to (1) the amortized
portion of fees paid in 1997 to the placement agent in connection with the
issuance of the Senior Secured Promissory Notes, (2) the expensing of fees paid
in 1996 to the placement agent in connection with the issuance of convertible
debentures, and (3) fees paid in connection with two private sales of shares in
the fourth quarter of 1997.
Income Taxes
The Company generated losses for income tax purposes of approximately $2,100,000
during the year ended December 31, 1997. The total net operating loss at
December 31, 1997, of approximately $3,400,000 has a valuation allowance against
the deferred tax asset due to uncertainty of generating future taxable income.
The net operating loss carryover generated for the year ended December 31, 1997,
will expire in 2012.
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Extraordinary Item
Forgiveness of debt of $183,351 relates to reductions in amounts due to various
vendors through negotiation of terms.
SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues
During the first six months of 1998, the Company's sales revenues increased by
approximately 9% to $774,440, compared to $712,061 for the first six months of
1997, primarily attributable to an adjustment made during the second quarter of
1997 to decrease revenues (which are recognized on the percentage of completion
method based on estimated hours to complete) after a thorough evaluation of the
status of the various projects resulted in an increased but more realistic
estimation of the effort to complete, pushing out the project completion dates.
Operating Expenses
The Company's total operating expenses increased by approximately 24% to
$2,925,555 during the first six months of 1998, compared to $2,363,274 for the
first six months of 1997, resulting primarily from (1) increased labor costs
resulting from expansion of the Company's software development, administrative,
and sales and marketing staff, (2) increased expenditures for advertising and
marketing, including public relations, (3) increased legal fees resulting from
various litigation in which the Company was involved, and (4) costs relating to
the Company's Year 2000 program in connection with the development and marketing
of the Company's Year 2000 tool set. As a percentage of revenues, total
operating expenses increased to 378% for the first six months of 1998, compared
to 332% for the first six months of 1997, primarily attributable to the increase
in operating expenses as previously discussed.
Labor costs, including benefits and employee-related insurance, increased by
approximately 26% to $1,552,072 compared to $1,231,033, for the six months ended
June 30, 1998 and 1997, respectively, resulting primarily from expansion of the
Company's software development, administrative, and sales and marketing staff.
General and administrative expenses decreased to $131,190 from $197,172,
primarily due to a lack of expenditures during the second quarter of 1998 for
employee recruiting fees and moving expenses (related to relocating the
Company's principal offices). Advertising and marketing increased to $60,779
from $5,076 primarily due to increased expenditures in the areas of advertising
and marketing as well as public relations resulting from expansion of the
Company's sales and marketing staff. Legal and professional fees increased to
$369,005 from $155,361, primarily due to increased legal costs resulting from
various litigation in which the Company was involved. Year 2000 program costs of
$637,629 consists of labor costs and various other expenses related to the
development and marketing of the Company's Year 2000 tool set.
Other Income and Expenses
Interest income of $5,530 relates to the interest earned on cash balances
invested by the Company in short term certificates of deposit. Interest expense
(which includes loan origination
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<PAGE> 30
fees) increased to $161,168 from $25,989, primarily due to (i) interest on the
Senior Secured Promissory Notes, including the amortized portion of the related
discount, (ii) interest and loan fees connected with obtaining short-term
financing, (iii) interest on shareholder loans, and (iv) finance charges
assessed by trade creditors for late payment of accounts payable. Financing fees
of $31,985 relate to the amortized portion of fees paid in 1997 to the placement
agent in connection with the issuance of the Senior Secured Promissory Notes.
Income Taxes
The net operating loss incurred for the six months ended June 30, 1998, was
approximately $2,085,000. Any net operating loss incurred for the year ended
December 31, 1998, eligible to be carried forward to future years will expire in
2013.
Extraordinary Item
Forgiveness of debt of $256,344 relates to reductions in amounts due to various
vendors through negotiation of terms.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $2,534,450 for the six months ended
June 30, 1998, which resulted primarily from the net operating loss, offset
primarily by the net change in assets and liabilities and $2,153,297 for the
year ended December 31, 1997, which resulted primarily from the operating loss,
partially offset by receipt of the income tax refund. This compares to net cash
used by operating activities of $343,173 for six months ended June 30, 1997,
which resulted primarily from the operating loss offset by the receipt of the
income tax refund and $2,304,344 for the year ended December 31, 1996,
attributable primarily to the operating loss, offset partially by net increases
in accounts payable balances. At June 30, 1998, the Company had net working
capital of $327,318, compared to a net working capital deficit of $1,563,162 at
December 31, 1997, a net increase in working capital of $1,890,480 for the six
months then ended.
At June 30, 1998, the Company had a total of $249,616 in outstanding accounts
receivable ($249,616 billed and $0 unbilled, both net of $0 allowance for
doubtful accounts) and at December 31, 1997, the Company had a total of $394,755
in outstanding accounts receivable ($518,475 billed, net of $123,720 allowance
for doubtful accounts, and $0 unbilled), all of which is considered fully
collectible.
At June 30, 1998, the Company's outstanding debt obligations included (i)
$1,087,131 in Senior Secured Promissory Notes (net of $25,369 unamortized
discount) and (ii) $1,356 in advances from a shareholder. At December 31, 1997,
the Company's outstanding debt obligations included (i) $462,500 in short-term
loans from a bank and outside investment groups, (ii) $1,036,423 in Senior
Secured Promissory Notes (net of $76,077 unamortized discount) related to the
private placements and (iii) $63,276 in advances from shareholders.
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During the first six months of 1998, the Company funded its operations primarily
from the collection of $4,536,750 in connection with the issuance of common
stock, from the receipt of $781,500 in proceeds from short-term loans from a
bank and various outside investment groups, and from the collection of accounts
receivable outstanding and the receipt of sales revenues and customer deposits
totaling $746,489. During the eighteen months ended June 30, 1998, the Company
funded its operations primarily from the collection of $5,042,430 in connection
with the issuance of common stock, from the receipt of $1,112,500 in connection
with the Senior Secured Promissory Notes (net of $127,938 in financing fees),
from the receipt of $507,733 (net of penalties and interest) relating to an
income tax refund receivable, from the receipt of $1,544,000 in proceeds from
short-term loans from a bank and outside investment groups, and from the
collection of accounts receivable outstanding and the receipt of sales revenues
and customer deposits totaling $1,977,834.
The Company continues to actively work with trade creditors to negotiate
settlements regarding outstanding accounts payable on terms favorable to the
Company. As of the filing of its Form 10-QSB for the six months ended June 30,
1998, the Company has been successful in settling $503,018 in outstanding
accounts payable for approximately $246,000, thereby saving the Company just
over $256,000. In addition to the aforementioned settlements, subsequent to June
30, 1998, the Company has further reduced its debt by paying, and thereby
reducing, outstanding accounts payable of approximately $73,000.
To continue to fund its operations for 1998, the Company successfully commenced
private offerings in March and September 1998 which, in the opinion of
management, yielded gross proceeds to the Company sufficient to fund operations
until such time that product revenues begin to ramp up. While much remains to be
accomplished, the Company has made significant progress towards stabilization.
While the success of the Company will in part depend upon its ability to market
and sell its products and services, management believes that the recent
implementation of its plan to shift the Company's strategic approach to
exploiting its technology through strategic relationships, should move the
Company forward with a focus on achieving profitability by the end of 1998. The
anticipated increase in revenues coupled with a continued emphasis on
controlling costs should position the Company to achieve improved results for
1999. However, there can be no assurance that the Company will generate an
increase in revenues or earnings, or achieve improved operating performance or
results.
YEAR 2000
The Securities and Exchange Commission, in Staff Legal Bulletin No. 5 (CF/IM),
has stated that public operating companies should consider whether they will be
affected by any material expenditures, problems or uncertainties associated with
the Y2K issue, which affects many existing computer systems that use only two
digits to identify a year in the date field. The Company believes that the
matters raised by Staff Legal Bulletin No. 5 are not applicable in any material
way to its own computer systems, and the Company intends to confirm that any
computer systems that the Company may purchase or lease in the future will have
addressed the Y2K issue.
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The Company is currently determining the extent to which it may be impacted by
third parties' failure to remedy their own Y2K issues. The Company is having,
and will continue to have, formal communications with all of its significant
customers, payers, suppliers, and other third parties to determine the extent,
if any, to which the Company's interface systems could be impacted by any third
party Y2K issues and related remedies. There can be no assurance that the
systems of other companies with which the Company's systems interact will be
timely converted and would not have an adverse effect on the Company's business.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes new
guidance for the reporting and display of comprehensive income and its
components; the adoption will have no impact on the Company's net income or
stockholders' equity. In July 1997, the FASB issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Statement expands certain reporting and disclosure requirements for segments
from current standards. In February 1998, the FASB issued Statement No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." This
Statement revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
The Company is not required to adopt these Statements until December 1998 and
does not expect the adoption of these standards to result in material changes to
previously reported amounts.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that all derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The accounting
provisions for qualifying hedges allow a derivative's gains and losses to offset
related results on the hedged item in the income statement, and requires that
the Company must formally document, designate, and assess the effectiveness of
transactions that qualify for hedge accounting. The Company is not required to
adopt this Statement until January 2000. The Company has not determined its
method or timing of adopting this Statement or the impact on its financial
statements. However, when adopted this Statement could increase volatility in
reported earnings and other comprehensive income of the Company.
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BUSINESS
INTRODUCTION
MigraTEC, inc. (Formerly New York Acquisitions, Inc.) was organized under the
laws of the state of Florida on February 24, 1989. The company was a development
stage enterprise until it acquired a privately-owned, Texas-based company on
February 29, 1996. At that time, MigraTEC, Inc. ("MigraTEC") (then a
privately-held Texas corporation) entered into a reverse acquisition agreement
with New York Acquisitions, Inc., A publicly-held "shell" Florida corporation.
MigraTEC became a wholly-owned subsidiary of the public company through the
exchange of 11,337,432 shares on a post-split basis of the public company's
common stock for all of the outstanding stock of MigraTEC. The name New York
Acquisitions, Inc., Was amended to One Up Corporation and then subsequently to
MigraTEC, inc. For accounting purposes, the reorganization of MigraTEC and the
public company is regarded as an acquisition by the public company of all of the
outstanding stock of MigraTEC, and is accounted for as a recapitalization of the
public company with MigraTEC as the acquirer (a reverse acquisition).
Accordingly, the historical financial statements are those of MigraTEC.
MigraTEC, inc. (Formerly known as One Up Corporation) (the "Company" or
"MigraTEC"), was incorporated in 1991. The initial focus of the business was to
provide contract computer programming education services. Subsequently, several
software products were developed and sold, and the Company further diversified
into consulting services and providing assistance to clients wishing to migrate
or convert their software from the Windows operating system to the IBM OS/2
platform. Identifying the need to automate the migration process, the Company
developed its first set of software tools for that purpose, and licensed the
technology to IBM in 1993. The IBM software license generated virtually all of
the Company's revenues for the next three years, during which the Company
continued to enhance and further automate its migration technology.
GENERAL
MIGRATEC, Inc. (the "Company" or "MigraTEC") is a provider of software products
and services which address both the Year 2000 ("Y2K") challenge and the need for
companies to migrate existing software applications to new and more efficient
hardware and software platforms.
Migration is the process of making all changes necessary to move an
organization's current software applications from an existing operating system
to a new target operating system in order to utilize advancing technology and
meet changing business requirements. Migration allows companies to retain the
functionality and business processes which have been developed in their existing
software applications while gaining the efficiencies which result from moving
the software applications to more advanced technology platforms. Migration
avoids the business interruption, retraining and re-engineering problems created
when a software application is totally replaced. Thus, migration not only
extends the productive life of existing software applications, which have
already been developed at significant cost, but also preserves the
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business logic and consistency of the existing software application, ensuring
continued ease of ongoing maintenance of the software.
MigraTEC's software technology has been utilized in over 400 migration projects,
facilitated either directly by the Company or through a license of previous
technology of the Company to IBM. Successful migration projects performed by the
Company include Caterpillar Inc., Ameritech Inc., USAA Insurance, Duke Energy,
Bell Sygma, The Sabre Group Inc., Payless ShoeSource Inc., Group 1 Software
Europe Ltd. and AutoTester Inc., including follow-up projects at Duke Energy,
Bell Sygma, Ameritech Inc. and The Sabre Group Inc.
In order to facilitate the Company's transition from its prior dependency on the
revenues generated from the IBM software license, a new management team was
brought into the Company in 1997 to implement a turnaround plan based on further
developing MigraTEC's proprietary "core" software technology and establishing
the Company as a "technology partner" of large strategically positioned
companies. Currently, MigraTEC is focused on further developing its proprietary
technology to serve as the foundation for an advanced "universal migration"
software tool designed to facilitate the transition between numerous computer
languages and operating platforms. The Company intends to utilize the enhanced
technology to facilitate its provision of migration services and to generate
additional revenues through the licensing of the technology to large computer
products and services organizations.
MARKET OVERVIEW AND STRATEGY
With rapid technological changes occurring in today's marketplace, such as the
move to the Internet, Windows and WindowsNT, the development of 64 bit
processors, Y2K compliance issues, and the advent of the introduction of the
European Monetary Unit, management believes that MigraTEC's proprietary software
technology represents an attractive resource for companies seeking access to
technology that will allow them to respond to these challenges and market
opportunities.
The Company believes that the parsing technology, for which it filed a patent
application in June of 1998, can be used as the nucleus for many "best of breed"
software products. To maximize the opportunity that this "core" technology
presents, the Company formulated and has begun to execute a plan that allows it
to assess market opportunities and bring new products to market quickly at a
relatively low cost. The key steps to implement this plan have been:
o In April 1998 the Company retained Deloitte & Touche (D&T) to conduct
an in-depth analysis of the Company's "core" technology and to
recommend potential "best of breed" products that can be developed from
the "core" technology. This analysis confirmed that MigraTEC has
valuable technology from which many software products or "tools" can be
developed. The D&T analysis further identified over a dozen strategic
market needs which can be addressed with further development of
MigraTEC's "core" technology.
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o In May 1998 the MigraTEC research team developed high-level project
plans for seven of the potential products identified by D&T.
o The Company is currently in discussions with several large companies
about possible joint ventures to develop the new products.
The Company believes that the further development of its technology will create
the following revenue opportunities:
o Payments for enhancing the Company's core technology pursuant to the
specifications of "strategic partners."
o Royalties/revenue sharing produced from licensing the enhanced
technology to "strategic partners."
o Revenues from software sales to "end user" customers.
o Revenues from expanded services offerings provided by the Company.
Larger companies such as Sun Microsystems, Oracle, IBM and EDS are seeking out
smaller technology companies like MigraTEC to form development partnerships to
address emerging market opportunities. MigraTEC is currently discussing
co-development opportunities with these companies and anticipates that with its
"core" technology there will be other opportunities for strategic relationships.
The Company has recently signed a five-year agreement with EDS which licenses
MigraTEC's Y2K software to EDS and guarantees EDS access to future software
products developed by the Company. Under the terms of the agreement, MigraTEC
will be paid an amount per line of code that EDS processes through EDS's Y2K
"factory" using the MigraTEC2000 software tool.
The Company believes that its strategic "partnering" and co-development strategy
will provide:
o "Partners" that can direct development efforts towards emerging
markets.
o "Partners" with enormous sales and marketing resources and a vested
interest in getting the end product into the market.
o Cash necessary to retain key development personnel.
The Company believes that by concentrating on the further development of
"strategic partnerships" with large technology companies and service providers,
the Company can successfully leverage off of such partners' strategic market
positions and growing customer bases.
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PRODUCTS AND SERVICES
OVERVIEW
MigraTEC's proprietary technology is designed to automate a significant amount
of the migration process by identifying critical code elements in the software
to be migrated, thereby automating a high percentage of the changes required. In
June of 1998, the Company submitted a patent application covering the "core"
portion of its proprietary software technology.
The Company is designing its software products so they can be used:
o by MigraTEC to provide a variety of services for its business
customers,
o by individual businesses to correct or migrate their own client/server
software applications, or
o by other services and/or systems integrators in order to facilitate
their delivery of solutions and/or hardware to their customers.
MIGRATEC2000
The first "product" to which the Company has applied its enhanced technology is
MigraTEC2000, a Y2K software tool to remediate Y2K problems for client/server
applications. The Company's MigraTEC2000 software product utilizes a parsing
technology to perform the following: (1) an inventory of the current source code
to ensure that all lines of code in the application are present for analysis and
remediation, (2) an analysis of the code to ensure that all lines of code
containing Y2K date related fields have been identified, and (3) an automated
remediation of the code pursuant to parameters and instructions determined by
the client. The patent application filed by the Company was related to the
parsing technology incorporated into its MigraTEC2000 software product. Parsing
technology, which management believes is superior to scanning technologies, is a
technology that analyzes the structural relationships contained within computer
program code. The superiority that parsing technology achieves is in the
identification of not only the obvious names of program elements but also the
numerous and subtle ways in which those elements interact with each other to
produce secondary effects.
The Y2K problem arises from the widespread use of computer programs which were
programmed using two-digit year codes when calculating dates after December 31,
1999. Many "mission critical" programs do not presently have the ability to
correctly interpret and apply date codes representing the year 2000 and later.
"00" may be interpreted as the year 1900 instead of the year 2000 causing
potentially massive information processing and reporting mistakes and the
malfunction of systems which are controlled by date codes. Industries and
software applications which may be particularly affected include those related
to financial services, insurance, transportation, health care, billing, planning
and scheduling, and represent billions of lines of
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code containing date-related instructions which will need to be checked and
remediated. Failure to correct Y2K problems may result in significant portions
of a company's business being inoperable.
Originally, the Y2K issue was thought to be a "mainframe only" problem. This was
due primarily to the fact that most non-mainframe (client/server) programs had
been written within the past ten years, and, thus, were thought to be Y2K
compliant. However, in reality, a significant percentage of client/server
programs are not Y2K compliant. Since most companies have just recently begun to
recognize the potential for Y2K problems in the client/server area, they have a
limited amount of time in which to bring their programs into compliance.
The Company's MigraTEC2000 software and proprietary migration software
technology have attracted the interest of several service providers including
IBM, Sun Microsystems, EDS, and Reasoning Inc., as well as other concerns
interested in partnering opportunities. During 1998, EDS, Keane Inc., Ernst &
Young, and Reasoning Inc. have evaluated "MigraTEC2000," the Company's Y2K tool.
Each of these companies indicated that MigraTEC2000 is a high-quality tool
designed for the remediation of client/server applications written in C and C++.
The Company has entered into agreements with EDS and Reasoning Inc. involving
the use of MigraTEC2000 and the Company anticipates a growing volume of
relationships involving MigraTEC's software.
"UNIVERSAL" MIGRATION TOOL
The Company is currently working on the development of a migration work bench
which is a "universal migration" software tool which will incorporate the "core"
technology already developed by the Company. This software tool is being
designed to further automate the migration of a customer's software from a wide
variety of existing operating system platforms to a wide variety of target
operating system which should significantly decrease the time and cost of the
migration project. This should remove the major obstacles facing most companies
when making a decision with regard to upgrading their operating systems or
software applications.
The Company believes that the value of a migration work bench to a computer
hardware vendor would be immense in facilitating a "buy decision" by greatly
reducing the customer's total upgrade and migration process. The Company also
believes that a migration work bench would be extremely valuable to services
providers and systems integrators in reducing their costs and time requirements
involved in performing an upgrade or migration project. The Company believes
that there is significant potential for entering into strategic relationships
with hardware vendors, services providers and systems integrators under which
the Company can generate revenues through licensing agreements and or provisions
of services utilizing the migration work bench. The Company is currently in
discussions with such entities regarding structuring strategic relationships
involving the Company's technology.
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COMPETITION
The Company is engaged in a highly competitive segment of the data processing
industry. The Company competes, directly or indirectly, with a large number of
companies providing various levels of services or products comparable with those
provided by the Company. MigraTEC competes with many firms which provide
products and services similar to the Company's current and proposed offerings.
Most of these competitors have capital, name recognition and financial,
personnel and other resources far greater than those of MigraTEC. These
competitors include IBM, Andersen Consulting, Computer Science Corporation,
Viasoft, Acceler8 and many others. The Company's ability to compete effectively
will depend, in part, upon its systems' features, their cost effectiveness, the
ability of the Company to maintain state-of-the-art technology, the ability of
the Company to service its products efficiently and the Company's success in
marketing and selling such products and services. No assurance can be given that
the Company will effectively compete within its market.
Industry standards with respect to the markets for the technology and products
being developed by the Company are continually evolving, which often results in
product obsolescence or short product life cycles. Accordingly, the ability of
the Company to compete will depend on its ability to complete development and
introduce into the marketplace its proposed products and technology, to
continually enhance and improve its products and technology in a timely manner,
to adapt its proposed products in order to be compatible with specific products
manufactured by others, and to successfully develop and market new products and
technology. There can be no assurance that the Company will be able to compete
successfully, that its competitors or future competitors will not develop
technologies or products that render the Company's products and technology
obsolete or less marketable, or that the Company will be able to successfully
enhance its proposed products or technology or adapt them satisfactorily.
EMPLOYEES
As of September 28, 1998, the Company employed 25 persons on a full-time basis.
None of the Company's employees are covered by a collective bargaining
agreement. The Company believes that it enjoys harmonious relations with its
employees. The Company also utilizes the services of approximately 7 independent
contractors, as programming consultants, on an as-needed, project basis.
DESCRIPTION OF PROPERTY
The Company leases approximately 15,000 square feet of office space at 12801
North Stemmons Freeway, Suite 710, Farmers Branch, Texas 75234. The base rent
under the lease is $10,650 per month. The lease expires on April 30, 2000.
The Company does not currently own real property.
LEGAL PROCEEDINGS
The Company has been named as defendant in several lawsuits in which the
respective plaintiffs are seeking payment for unpaid fees relating to the
Company's trade accounts payable and
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contract obligations related to leased office equipment in the aggregate amount
of approximately $320,000. These cases are presently in negotiations as the
Company attempts to settle for a lesser amount and/or reach favorable payment
terms.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current executive officers, directors and significant employees of the
Company and its subsidiaries are as follows:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------------------------------------------------------
<S> <C> <C>
W. Curtis Overstreet 52 President, Chief Executive
Officer and Director
Benjamin Swirsky (1) (2) 56 Chairman of the Board and
Director
Rick J. Johnson 39 Chief Operating Officer
Mark C. Myers 44 Chief Financial Officer,
Secretary and General
Counsel
Joseph B. Meredith 43 Vice President of Business
Development
Deane Watson, Jr. (1) (2) 51 Director
Marcus Rowan (2) 37 Vice Chairman of the Board
and Director
Richard A. Gray, Jr. (1) 50 Director
</TABLE>
- --------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
W. CURTIS OVERSTREET. Mr. Overstreet was appointed President and Chief Executive
Officer of MigraTEC, Inc., and elected to the Board of Directors on April 10,
1997. Prior to his appointment as President, Mr. Overstreet served as a
consultant to Company management for several weeks, during which time he
reviewed the Company's management and technical expertise, the status of current
client projects, the prospects for future contracts and also analyzed the
Company's financial situation. The review and analysis of this information and
data was used to prepare the new business plan for the Company. From October
1994 to March 1997, Mr. Overstreet was Regional Vice President for Software AG,
based in Dallas, Texas. Prior thereto, from January 1992 to October 1994, Mr.
Overstreet served as Executive Vice President for Software Recording
Corporation, based in Dallas, Texas. From August 1987 to October 1992, Mr.
Overstreet served as President of the Dallas-based company which he founded,
AutoTester, Inc. From August 1982 to August 1987, Mr. Overstreet served as
Executive Vice President of the
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Company he founded, PetroWare, based in Dallas, Texas. From May 1976 to August
1982, Mr. Overstreet served as President of the Amarillo-based company which he
founded, Computer Software Resources. Prior thereto, from February 1968 to May
1976, Mr. Overstreet was Systems Engineer/Marketing Representative for IBM at
their offices located in Amarillo, Texas.
BENJAMIN SWIRSKY. Mr. Swirsky was elected to the Board of Directors in July
1997, and subsequently was elected Chairman in December 1997. Currently, Mr.
Swirsky is serving as Chairman and CEO of Nextel Group Inc., a
telecommunications company head quartered in Toronto, Canada. From 1993 to 1998,
Mr. Swirsky was the President and Chief Executive Officer of Slater Steel, Inc.,
a diversified industrial company with investments in steel production, service,
forging and hardware and trucking industries. Slater Steel is head quartered in
Toronto, Ontario, and conducts operations in Canada and the United States. From
1978 to 1993, Mr. Swirsky served in the various capacities of President, Chief
Executive Officer and Vice Chairman of Bramalea, one of North America's largest
real estate development companies. Prior thereto, from 1968 to 1978, Mr. Swirsky
of Peat, Marwick, Mitchell, Chartered Accountants ultimately becoming a senior
partner and a member of the executive committee. Mr. Swirsky currently serves on
the boards of directors of Visual Data Inc., Four Seasons Hotels Inc., P.C. Docs
Inc., Cam Vec Inc., Commercial Alcohols Inc., and Easy Access Inc.
RICK J. JOHNSON. Mr. Johnson was appointed Chief Operating Officer of MigraTEC,
Inc., on July 1, 1997, and served as Secretary of the Company from July 1997
through March 1998. From January to March 1997, Mr. Johnson was Director of
Operations Support - Integrated Business Solutions and thereafter also Director
of Applications Solutions for Software AG, Americas, based in Dallas, Texas.
Prior thereto, from January 1995 to December 1996, Mr. Johnson served as
Business Manager - West U.S. Area for that company. From February 1982 to
January 1995, Mr. Johnson served in various executive capacities with Andersen
Consulting and its predecessor division at Arthur Andersen & Co., based in
Dallas, Texas.
MARK C. MYERS. Mr. Myers was appointed to the position of Chief Financial
Officer, General Counsel and Secretary of MigraTEC, Inc., on April 1, 1998. From
1996 to 1997, Mr. Myers served as COO and CFO for Interactive Software, Inc., an
Oracle software consulting services and software sales company, based in Dallas,
Texas. Prior thereto, Mr. Myers served in numerous executive capacities
including President of Healthtronix from 1992 to 1996, President and founder of
United Medicorp, Inc., a high-tech medical insurance claim processing and
consulting company, from 1989 to 1992, President of Premier Services, Inc., from
1986 to 1989, Vice President and General Counsel for ARM, Inc., from 1985 to
1986, Assistant General Counsel and Director of Regulatory Affairs for U.S.
Telephone from 1982 to 1985, and a practicing attorney for Moseley, Jones, Enoch
& Martin from 1980 to 1982.
JOSEPH B. MEREDITH. Mr. Meredith was appointed Vice President of Business
Development of MigraTEC, Inc., on June 2, 1997. From January 1995 to May 1997,
Mr. Meredith was Account Executive for Software AG, Americas, based in Dallas,
Texas. Prior thereto, from August 1993 to November 1994, Mr. Meredith served as
Director of Business Development for BSG Corporation, based in Houston, Texas.
From May 1986 to August 1993, Mr. Meredith was Senior Account Executive for EDS
Corporation located in Dallas, Texas. From October 1982 to
34
<PAGE> 41
April 1986, Mr. Meredith served as Regional Vice President for Parker North
America Corporation head quartered in Newport Beach, California.
DEANE WATSON, JR. Mr. Watson was elected to the Board of Directors in March
1998. Currently, Mr. Watson is a practicing attorney in general business
practice with an emphasis in oil and gas, real estate and collections. Since
1992, Mr. Watson has also served as President and Managing Director of Omega
Energy Corporation, an oil and gas production Company. Prior thereto, Mr. Watson
has served in numerous other capacities including residential builder/developer
from 1986 to 1989, independent petroleum landman from 1989 to 1992 and from 1980
to 1986, and Vice President/Escrow Officer of Chicago Title Company from 1973 to
1980.
MARCUS ROWAN. Mr. Rowan was elected to the Board of Directors as both Vice
Chairman and Director in April 1998. Presently, Mr. Rowan serves as President of
Berkshire Interests, a commercial real estate property development and
investments firm, head quartered in Dallas, Texas. Previously, Mr. Rowan has
served in other capacities with an emphasis in commercial real estate, including
commercial real estate broker for Helmsley-Spear Inc. located in New York, New
York and Henry S. Miller Company located in Dallas, Texas. Mr. Rowan currently
serves on the board of directors of American Electromedics Corporation.
RICHARD A. GRAY, JR. Mr. Gray was elected to the Board of Directors in April
1998. From 1986 to the present, Mr. Gray has served as President of Gray & Co.
Realtors, Inc., a commercial real estate company involved in the sale,
development and management of real estate for both Asian and U.S. markets. Gray
& Co. Realtors, Inc., is head quartered in Dallas, Texas, and conducts
operations mainly in the Pacific Rim (Hong Kong, China, Philippines, Vietnam and
Thailand) and the United States. Prior thereto, from 1974 to 1986, Mr. Gray was
a partner of Hudson & Hudson, a commercial real estate company located in
Dallas, Texas.
Each director is elected to hold office until the next annual meeting of
shareholders and until his successor is elected and qualified. The officers of
the Company serve at the pleasure of the Company's board of directors.
There are no family relationships among any of the executive officers or
directors of the Company.
BOARD COMMITTEES
Effective December 16, 1997, the Company established a Compensation Committee
and an Audit Committee.
The Compensation Committee, being comprised of a majority of independent
directors, will administer the Company's stock option plan and make
recommendations to the full Board of Directors concerning compensation,
including incentive arrangements, of the Company's officers and key employees.
Currently, members of the Compensation Committee include Benjamin Swirsky, Deane
Watson, Jr., and Marcus Rowan.
35
<PAGE> 42
The Audit Committee, being comprised of a majority of independent directors,
will review the engagement of the independent accountants and review the
independence of the accounting firm. The Audit Committee will also review the
audit and non-audit fees of the independent accountants and the adequacy of the
Company's internal accounting controls. Currently, members of the Compensation
Committee include Benjamin Swirsky, Deane Watson, Jr., and Richard A. Gray, Jr.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Act permits the indemnification of directors, employees, officers
and agents of Florida corporations. The Company's Articles of Incorporation
indemnify its directors and officers to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification is
being sought. Insofar as indemnification for liability arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Company pursuant to the foregoing provisions or otherwise, the Company
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
COMPENSATION OF DIRECTORS
Beginning December 1, 1997, the Company adopted a policy whereby Directors would
be compensated for their services at a rate of $2,000 per month. Through May 31,
1998, the Company paid $30,583.67 for Directors' fees. Effective June 1, 1998,
the Company revised its policy regarding Director compensation, adopting a
policy whereby board members will not be compensated for their services until
such time that Director compensation is re-instituted by the Board. Directors
will, however, continue to be reimbursed for expenses incurred in attending
board and committee meetings and will be indemnified against any claims arising
out of his or her status as a director of the Company, including claims arising
under federal and state securities laws. In addition, Directors are eligible to
receive options under the Company's 1997 Stock Option Plan.
EXECUTIVE COMPENSATION
Total cash compensation paid to all executive officers as a group for services
provided to the Company in all capacities during the year ended December 31,
1997, aggregated to $434,772. Set forth below is a summary compensation table in
the tabular format specified in the applicable rules of the Securities and
Exchange Commission.
36
<PAGE> 43
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ALL
NAME AND ANNUAL RESTRICTED OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION PERIOD SALARY BONUS SATION AWARD(S) SARS(#) PAYOUTS SATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Curtis Overstreet, 1997 $ 67,925 $ 48,000 $2,000 $ -- -- - $29,500
President, Ceo and 1996 $ -- $ -- $ -- $ -- -- - $ --
Director 1995 $ -- $ -- $ -- $ -- -- - $ --
Richard G. Dews, 1997 $ 1,500 $ -- $ -- $ -- -- - $ --
Former President, 1996 $145,636 $ -- $ -- $63,650 -- - $ --
Ceo And Chairman 1995 $250,020 $891,743 $ -- $ -- 2,154,112 - $ --
H. Wayne Sanderson, 1997 $ 50,945 $ -- $ -- $ -- -- - $ --
Former Secretary, 1996 $ 62,813 $ -- $ -- $ 3,350 26,006 - $ --
V.P. And Director 1995 $100,000 $ -- $ -- $ -- 113,374 - $ --
</TABLE>
Employment Agreements
On April 10, 1997, the Company entered into an employment agreement with its
President and CEO. The agreement includes provisions for an annual base salary
(currently $140,000), with incentives to earn salary increases and bonuses to be
determined by and subject to discretion of the Board of Directors.
On July 1, 1997, the Company entered into an employment agreement with its Chief
Operating Officer. The agreement includes provisions for an annual base salary
(currently $117,000), with incentives to earn salary increases and bonuses to be
determined by and subject to discretion of the Board of Directors.
On April 1, 1998, the Company entered into an employment agreement with its
Chief Financial Officer. The agreement includes provisions for an annual base
salary (currently $112,500), with incentives to earn salary increases and
bonuses to be determined by and subject to discretion of the Board of Directors.
On June 2, 1997, the Company entered into an employment agreement with its Vice
President of Business Development. The agreement includes provisions for an
annual base salary (currently $88,000), with incentives to earn salary increases
and bonuses to be determined by and subject to discretion of the Board of
Directors, as well as sales commissions ranging from 2% to 4% of sales as
stipulated in the agreement.
STOCK OPTIONS
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Percentage of
Number of Total
Securities Options/SARs
Underlying Granted Exercise or
Options/SARs Employees in Base Price Per Expiration
Name Granted Fiscal Year Share Date Through
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
W. Curtis Overstreet (1) 2,935,611 61.13% $0.37 April 9, 2002
Rick J. Johnson (2) 587,122 12.23% $0.33 n/a
Joseph B. Meredith (3) 587,122 12.23% $0.31 n/a
Deane Watson, Jr. (4) 25,000 0.52% $0.35 March 31, 2000
Jeffrey C. Manchester 25,000 0.52% $0.35 June 19, 2000
Benjamin Swirsky (5) 50,000 1.04% $0.35 June 24, 2000
</TABLE>
37
<PAGE> 44
(1) Effective May 1, 1998, the Company canceled these options, replacing
them with a new stock option grant of 6,000,000 shares at $0.20 per
share with vested options exercisable at any time during employment.
(2) Effective May 1, 1998, the Company canceled these options, replacing
them with a new stock option grant of 1,500,000 shares at $0.20 per
share with vested options exercisable at any time during employment.
(3) Effective May 1, 1998, the Company canceled these options, replacing
them with a new stock option grant of 1,500,000 shares at $0.20 per
share with vested options exercisable at any time during employment.
(4) Effective May 1, 1998, the Company canceled these options, replacing
them with a new stock option grant of 1,000,000 shares, exercisable at
$0.20 per share through May 31, 2002.
(5) Effective May 1, 1998, the Company canceled these options, replacing
them with a new stock option grant of 1,100,000 shares, exercisable at
$0.20 per share through May 31, 2002.
1997 STOCK OPTION PLAN
In April 1997, management announced plans to terminate the Employee Stock Option
Plan that the Company had adopted effective March 25, 1996.
In 1997, the Company adopted a new stock option plan. The 1997 Stock Option Plan
(the "Plan") provides for the grant of options to purchase up to 2,000,000
shares of Common Stock to employees, officers, directors, and consultants of the
Company. Options may be either "incentive stock options" within the meaning of
Section 422 of the United States Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified options. Incentive stock options may be granted only
to employees of the Company, while non-qualified options may be issued to
non-employee directors, consultants, and others, as well as to employees of the
Company.
The Plan will be administered by the Board of Directors or a committee thereof,
who determine, among other things, those individuals who shall receive options,
the time period during which the options may be partially or fully exercised,
the number of shares of Common Stock issuable upon the exercise of each option,
and the option exercise price.
The exercise price of an incentive stock option may not be less than the fair
market value per share of Common Stock on the date the option is granted. The
exercise price of a non-qualified option may be established by the Board of
Directors. The aggregate fair market value (determined as of the date the option
is granted) of Common Stock for which any person may be granted incentive stock
options which first become exercisable in any calendar year may not
38
<PAGE> 45
exceed $100,000. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option to such person, 10% or more of the total
combined voting power of all classes of stock of the Company (a "10%
Shareholder") shall be eligible to receive any incentive stock options under the
Plan unless the exercise price is at least 110% of the fair market value of the
shares of Common Stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to such limitation.
Incentive stock options may not be transferred by an optionee other than by will
or the laws of descent and distribution, and, during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment other than by death or disability, the optionee will
have no more than three months after such termination during which the optionee
shall be entitled to exercise the option, unless otherwise determined by the
Board of Directors. Upon termination of employment of an optionee by reason of
death or permanent and total disability, such optionee's options remain
exercisable for one year thereafter to the extent such options were exercisable
on the date of such termination. No similar limitation applies to non-qualified
options.
Options under the Plan must be issued within ten years from the effective date
of the Plan, which is December 16, 1997. Incentive stock options granted under
the Plan cannot be exercised more than ten years from the date of grant.
Incentive stock options issued to a 10% Shareholder are limited to five year
terms. Options granted under the Plan generally provide for the payment of the
exercise price in cash and may provide for the payment of the exercise price by
delivery to the Company of shares of Common Stock already owned by the optionee
having a fair market value equal to the exercise price of the options being
exercised, or by a combination of such methods. Therefore, if so provided in an
optionee's options, such optionee may be able to tender shares of Common Stock
to purchase additional shares of Common Stock and may theoretically exercise all
of his stock options with no additional investment other than the purchase of
his original shares.
Any unexercised options that expire or that terminate upon an employee's ceasing
to be employed by the Company become available again for issuance under the
Plan.
The Plan may be terminated or amended at any time by the Board of Directors,
except that the number of shares of Common Stock reserved for issuance upon the
exercise of options granted under the Plan may not be increased without the
consent of the shareholders of the Company.
Pursuant to the Plan, as of the date hereof, the Company has previously granted
to members of its management and employees options to purchase an aggregate of
921,400 shares of Common Stock of the Company exercisable at prices ranging from
$0.67 to $0.23, exercisable through August 21, 2003, leaving a balance of
1,078,600 shares of Common Stock available for issuance.
OTHER STOCK OPTION GRANTS
In addition to options granted pursuant to the Company's 1997 Stock Option Plan
described above, MigraTEC granted options on April 1, 1998, to Mark C. Myers,
the Chief Financial Officer
39
<PAGE> 46
and Secretary of the Company, to purchase 900,000 shares of Common Stock of the
Company at $0.20 per share, vesting at the rate of 1/24 each month beginning
April 30, 1998, exercisable at vesting anytime during employment. On May 1,
1998, the Company granted options to its three remaining executive officers to
purchase an aggregate of 9,000,000 shares of Common Stock of the Company at
$0.20 per share, such options being 50% vested on the date of grant and vesting
an additional 1/24 each month thereafter, exercisable at vesting anytime during
employment. At that time, the Company also granted options to its four
non-employee directors to purchase an aggregate of 4,300,000 shares of Common
Stock of the Company at $0.20 per share, such options vesting at the rate of
1/24 each month beginning May 31, 1998, exercisable at vesting through May 31,
2002. In addition, the Company granted options to Jeffrey C. Manchester, a
former Director of the Company, on June 19, 1997, to purchase 25,000 shares of
Common Stock of the Company at $0.35 per share, fully vested at grant date,
exercisable on or prior to June 19, 2000.
40
<PAGE> 47
CERTAIN TRANSACTIONS
The following section describes transactions since inception to which the
Company or its subsidiaries were a party and in which any of the Company's
officers, directors, director nominees, or principal shareholder had a direct or
indirect interest.
During the year ended December 31, 1995, the Company advanced $984,013 to Mr.
Richard G. Dews, its then President/CEO and majority shareholder, pursuant to
provisions contained in Mr. Dews' employment agreement. The advance was subject
to an annual interest rate of 7 1/2% which was accrued as an additional advance.
During the years ended December 31, 1996 and 1995, the advance earned interest
income of $33,522 and $51,095, respectively. The employment agreement called for
the advance to be repaid during the three year period ended December 31, 1998.
However, on June 14, 1996, the Company received into its treasury 854,903 common
shares, valued at $1.25 per share, in exchange for early retirement of the
shareholder advances, including accrued interest, totaling $1,068,629 (comprised
of $984,013 principal plus $84,616 accrued and unpaid interest earned on the
advance through June 14, 1996).
On March 6, 1996, the Company entered into an agreement to pay $100,000 over a
12 month period to American Technology Associates Corporation (the President of
which, Mr. Richard Darrell, was a former employee of the Company) in exchange
for services rendered. As of the date hereof, all amounts due under the
agreement have been paid in full.
During 1996, the employment agreement with Mr. Richard G. Dews, the Company's
former President/CEO/majority shareholder, which, among other provisions, called
for annual compensation of $600,000 from January 1, 1996, to December 31, 1998,
was set aside pending renegotiation. At that time, Mr. Dews agreed to waive the
annual compensation as called for in the agreement and to accept as compensation
only those amounts which were actually received.
During 1996, two shareholders/officers of the Company (Mr. Richard G. Dews,
former President/CEO, and Mr. H. Wayne Sanderson, former Vice-President and
Secretary), advanced amounts to the Company totaling $72,000. As of the date
hereof, all amounts due relative to these two advances have been paid in full.
During 1996 and 1997, the Company had back wages due to Mr. H. Wayne Sanderson,
former Vice-President and Secretary of the Company, of approximately $35,500. As
of the date hereof, all amounts due relative to these back wages have been paid
in full.
Effective March 25, 1998, the Company reached an agreement with its former
principal executive officer, Mr. Richard G. Dews, regarding actions of Mr. Dews
as Chairman and CEO and efforts by Mr. Dews to sell shares of the Company's
Common Stock, originally acquired and restricted pursuant to Rule 144 of the
Act, as well as claims made against the Company by Mr. Dews totaling
approximately $640,000. Pursuant to the agreement, which was finalized on March
31, 1998, (1) the Company acquired from Mr. Dews 9,400,000 shares of the
Company's Common Stock for $740,000, (2) the Company agreed to file a
registration statement or take
41
<PAGE> 48
other appropriate steps to allow free trading of the remaining shares owned by
Mr. Dews, (3) the Company issued to Mr. Dews a transferable option to purchase
up to 600,000 shares of the Company's unregistered and free trading Common Stock
at $0.25 per share, (4) the Company paid to Mr. Dews $60,000 in full
satisfaction, including principal and accrued interest, of amounts previously
loaned to the Company by Mr. Dews, (5) the Company released Mr. Dews from all
claims arising from or relating to the employment of Mr. Dews or the promissory
note from the Company to Mr. Dews, (6) Mr. Dews released the Company from all
claims, estimated by Mr. Dews to total approximately $640,000, arising from or
relating to the employment of Mr. Dews or the promissory note from the Company
to Mr. Dews, including back wages relating to accrued but unused vacation pay,
and (7) pursuant to a promissory note dated March 25, 1998, no stated interest,
the Company agreed to pay to a former employee the amount of $68,250 in
installments of $1,000 for 68 months on the tenth of each month beginning April
10, 1998, with the final payment of $250 being due on December 10, 2003.
Attorney fees incurred by the Company as a result of negotiating the settlement
with Mr. Dews were comprised of (1) the transfer of 390,454 shares of the
Company's Common Stock and (2) $210,523 paid in cash.
42
<PAGE> 49
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date hereof, certain information
regarding the Company's Common Stock beneficially owned by (i) each shareholder
known by the Company to be the beneficial owner of five (5%) percent or more of
the Company's outstanding Common Stock, (ii) each of the Company's directors,
and (iii) all executive officers and directors as a group. As of the date
hereof, there are 44,553,705 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding
Name (1) Ownership (2) Shares Owned (2)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
W. Curtis Overstreet 3,875,000 (3) 6.39 %
Benjamin Swirsky 1,018,333 (4) 1.68 %
Rick J. Johnson 968,750 (5) 1.60 %
Mark C. Myers 300,000 (6) 0.49 %
Joseph B. Meredith 968,750 (7) 1.60 %
Deane Watson, Jr. 966,667 (8) 1.59 %
Marcus Rowan 2,181,583 (9) 3.60 %
Richard A. Gray, Jr. 2,470,833 (10) 4.07 %
All directors and executive officers
as a group (8 persons) 12,749,917 (11) 21.02 %
</TABLE>
- --------------------------------
(1) Unless otherwise indicated below, the address of each person is c/o the
Company at 12801 North Stemmons Freeway, Suite 710, Farmers Branch,
Texas 75234. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all the shares of Common Stock beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Proxy
Statement upon the exercise of warrants or options. Each beneficial
owner's percentage ownership is determined by assuming that warrants or
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from the date of this
Proxy Statement have been exercised.
(3) Mr. Overstreet is the Company's current President and CEO, as well as a
Director. Includes 6,000,000 shares of Common Stock underlying
options exercisable between May 31, 1998, and May 31, 2000, at an
exercise price of $0.20 per share.
(4) Mr. Swirsky is the Company's current Chairman. Includes 1,297,500
shares of Common Stock underlying options and warrants exercisable
between May 31, 1998, and May 31, 2002, at an exercise price of $0.20
per share.
(5) Mr. Johnson is the Company's current COO. Includes 968,750 shartes of
Common Stock underlying options exercisable at $0.20 per share anytime
during employment.
(6) Mr. Myers is the Company's current CFO and Secretary. Includes 300,000
shares of Common Stock underlying options exercisable at $0.20 per
share anytime during employment.
(7) Mr. Meredith is the company's current Vice President of Business
Development. Includes 968,750 shares of Common Stock underlying
options exercisable at $0.20 per share anytime during employment.
(8) Mr. Watson is a Director of the Company. Includes: (i) 1,025,000 shares
of Common Stock underlying options and warrants exercisable between May
31, 1998, and May 31,
43
<PAGE> 50
2002, at an exercise price of $0.20 per share, (ii) 100,000 shares of
Common Stock owned by The Watson Family Trust underlying warrants
exercisable between January 29, 1998, and January 29, 2000, at an
exercise price of $0.01 per share, and (iii) 200,000 shares of Common
Stock owned by The Watson Family Trust.
(9) Mr. Rowan is a Director of the Company. Includes 2,585,750 shares of
Common Stock underlying options and warrants exercisable between
February 25, 1998, and May 31, 2002, at an exercise price of $0.20 per
share.
(10) Mr. Gray is a Director of the Company. Includes: (i) 1,150,000 shares
of Common Stock underlying options and warrants exercisable between May
31, 1998, and May 31, 2002, at an exercise price of $0.20 per share
and (ii) 100,000 shares of Common Stock owned by The Gray Family Trust.
(11) Includes: (i) 14,200,000 shares of Common Stock underlying options and
warrants exercisable between April 30, 1998, and May 31, 2002, at an
exercise price of $0.20 per share, (ii) 100,000 shares of Common Stock
owned by The Watson Family Trust underlying warrants exercisable
between January 29, 1998, and January 29, 2000, at an exercise price of
$0.01 per share, (iii) 200,000 shares of Common Stock owned by The
Watson Family Trust, and (iv) 100,000 shares of Common Stock owned by
The Gray Family Trust.
44
<PAGE> 51
SELLING SECURITY HOLDERS
STOCK OWNERSHIP
The following table sets forth the name of each Selling Security Holder, the
amount of shares of Common Stock (including shares of Common Stock underlying
the Warrants) held directly or indirectly by each holder as of September 28,
1998, the amount of shares of Common Stock to be offered by each such holder,
the amount of Common Stock to be owned by each such holder following sale of
such shares of Common Stock and the percentage of shares of Common Stock to be
owned by each such holder following completion of such offering. As of the date
of this Prospectus, there are 44,553,705 shares of Common Stock of the Company
outstanding.
<TABLE>
<CAPTION>
Percentage
Shares to to be
Number of Shares to be Owned Owned
Shares be After After
Name of Selling Security Holder Owned Offered Offering Offering
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
455885 B.C. Limited 100,000 100,000 0 0
Richard A. Adler 100,000 100,000 0 0
Elias Argyropoulos 25,000 25,000 0 0
Atlas, Pearlman, Trop & Borkson P.A. 71,429 71,429 0 0
Philip Barretti 152,858 152,858 0 0
Connie Benesch 25,000 25,000 0 0
Larry Berkin 175,000 175,000 0 0
Alan Best 100,000 100,000 0 0
Benjamin Blech 25,000 25,000 0 0
Greg Bonkowski 25,000 25,000 0 0
Robert R. Booker 150,000 150,000 0 0
Daniel Boutcher 33,500 33,500 0 0
Brillco Inc. 25,000 25,000 0 0
Browning Living Trust 50,000 50,000 0 0
A.R. Campbell 100,000 100,000 0 0
Matthew Campbell 382,000 382,000 0 0
James Carpenter 71,429 71,429 0 0
Cautious Ventures 71,429 71,429 0 0
Chao Ming Chang 100,000 100,000 0 0
John Clark 500,000 500,000 0 0
Harvey H. Conger Trust #2 250,000 250,000 0 0
Angela Coppola 125,000 125,000 0 0
James Craig 71,429 71,429 0 0
Blakeney C. Davenport 500,000 500,000 0 0
Robert Davenport 750,000 750,000 0 0
David Dunning Children's Trust 250,000 250,000 0 0
Leslie David 196,429 196,429 0 0
Richard G. Dews 1,800,000 600,000 1,200,000 *
Dreher Living Trust 25,000 25,000 0 0
Robert Enright 100,000 100,000 0 0
Richard Feldman 214,287 214,287 0 0
</TABLE>
45
<PAGE> 52
<TABLE>
<S> <C> <C> <C> <C>
Fred Fialkow 71,429 71,429 0 0
Richard Friedman 285,716 285,716 0 0
Henry Gellis 181,000 181,000 0 0
GHK Corporation 2,400,000 2,400,000 0 0
Lloyd G. Glazer 50,000 50,000 0 0
Brenda Gray 100,000 100,000 0 0
Gray Family Trust 100,000 100,000 0 0
George D. Gray 50,000 50,000 0 0
Richard A. Gray, Jr 2,050,000 2,050,000 0 0
Carrie Lee Green 100,000 100,000 0 0
James Haberman 71,429 71,429 0 0
Bervin Hatton 250,000 250,000 0 0
C.R. Hefner, Jr 1,437,500 1,437,500 0 0
Barry & Robin Helfan 150,000 150,000 0 0
Robin Helfan 35,715 35,715 0 0
Helmbrist Investments, Ltd. 246,429 246,429 0 0
Han Henning 142,858 142,858 0 0
Lorry Holotik 200,000 200,000 0 0
Charles B. Humphrey 125,000 125,000 0 0
Sam W. Hunsaker 125,000 125,000 0 0
Herbert L. Hutner 40,000 40,000 0 0
Innovative Research Associates, Inc. 35,000 35,000 0 0
Sheldon Inwentash 300,000 300,000 0 0
Charles F. Irish, Jr 125,000 125,000 0 0
Anders Jansson 71,429 71,429 0 0
Roy Johnson 25,000 25,000 0 0
Lance Johnston 640,000 640,000 0 0
Maurice Karlin 71,429 71,429 0 0
Edward P. King 126,000 125,000 1,000 *
David J. Knust IRA 50,000 50,000 0 0
Debbie A. Knust IRA 50,000 50,000 0 0
Bill R. Kochwelp 137,500 137,500 0 0
Chana Keussous 200,000 200,000 0 0
Elana Keussous 200,000 200,000 0 0
Richard Kuna 25,000 25,000 0 0
Benjamin Kraiem 40,000 40,000 0 0
Hal Kraiem 40,000 40,000 0 0
Jennifer Kraiem 40,000 40,000 0 0
Yehezkel Kraiem 280,000 280,000 0 0
Laudau Trust 142,858 142,858 0 0
Walter Lawrence 25,000 25,000 0 0
Jiin Jen Lee 71,429 71,429 0 0
Fred D. Levine 100,000 100,000 0 0
Paul Lewis 50,000 50,000 0 0
Bruce Light 250,000 250,000 0 0
Larry & Bruce Light 71,429 71,429 0 0
Jeffrey Manchester 96,429 96,429 0 0
Jeffrey Markowitz 285,716 285,716 0 0
Ronda Mathews 100,000 100,000 0 0
</TABLE>
46
<PAGE> 53
<TABLE>
<S> <C> <C> <C> <C>
Michelle McDonough 100,000 100,000 0 0
Oliver M. Mendell 40,000 40,000 0 0
James W. Meredith 275,000 275,000 0 0
Dr. Milton Mintz 125,000 125,000 0 0
MJ Capital Partners 82,500 82,500 0 0
Steven J. Murfin 150,000 150,000 0 0
Charlotte R. Nelson 25,000 25,000 0 0
Noble Investment Compan 704,878 704,878 0 0
Darell Norris 142,858 142,858 0 0
Norris Family Trust 100,000 100,000 0 0
Allen Notowitz 250,000 250,000 0 0
Odds on Inc. Retirement 200,000 200,000 0 0
John V. Overstreet 50,000 50,000 0 0
Scott Paterson 500,000 500,000 0 0
Sean R. Phinney 25,000 25,000 0 0
Phoenix Energy Companies, Inc. 3,500,000 3,500,000 0 0
Tom Pollock 85,714 85,714 0 0
Porter Partners, L.P. 1,500,000 1,500,000 0 0
W. Christopher Price, S.S.P 125,000 125,000 0 0
Pyrenees Capital Ltd. 142,858 142,858 0 0
Quarry Bay Investments 100,000 100,000 0 0
Remiad Management Securities Ltd. 50,000 50,000 0 0
Denae Richards 50,000 50,000 0 0
Charles A. & Ann Q. Richey 250,000 250,000 0 0
Diane Duvall Rogers 250,000 250,000 0 0
John Rooney 71,429 71,429 0 0
Marci Rosenbaum 50,000 50,000 0 0
Stephen Rosenbaum 10,000 10,000 0 0
Norman Rothman 71,429 71,429 0 0
Norman & Caryl Rothman 71,429 71,429 0 0
Marcus Rowan 1,860,750 1,860,750 0 0
Russell Post Properties 71,429 71,429 0 0
Omer Schrock 79,829 71,429 8,400 *
Dennis Schubert 35,715 35,715 0 0
Ed Searcy 70,000 70,000 0 0
Seaview Investment Group Trust 100,000 100,000 0 0
David M. Sherer 100,000 100,000 0 0
Shelly L. Skeen 20,000 20,000 0 0
Thomas A. Slamecka 250,000 250,000 0 0
Sydney Smith 21,000 21,000 0 0
J.C. Sterquell 625,000 625,000 0 0
Linda C. Strugar 30,000 30,000 0 0
Benjamin Swirsky 697,500 697,500 0 0
TDF Management 71,429 71,429 0 0
Joseph H. Thal 125,000 125,000 0 0
Kenneth & Mollie Torbik 50,000 50,000 0 0
Huitt Tracey 25,000 25,000 0 0
Richard B. Trull 50,000 50,000 0 0
N. Mark Varel 100,000 100,000 0 0
</TABLE>
47
<PAGE> 54
<TABLE>
<S> <C> <C> <C> <C>
Paul Varrick 25,000 25,000 0 0
James Vervack 200,000 200,000 0 0
Lars Wahlin 142,858 142,858 0 0
Deane Watson, Jr 375,000 375,000 0 0
Watson Family Trust 300,000 300,000 0 0
Joseph Wendling 12,500 12,500 0 0
Lonnie L. Whiddon, M.D 2,500,000 2,500,000 0 0
Rick & Glenna Williams 50,000 50,000 0 0
Janet Witter 47,250 47,250 0 0
Ya Ting Yan 100,000 100,000 0 0
Ying Yang 50,000 50,000 0 0
Fei Zhuang 71,429 71,429 0 0
------------------------------
Total 35,780,869 34,571,469
==============================
</TABLE>
- ----------------------------
* Less than 2%
48
<PAGE> 55
(1) In April 1996, the Company sold 91,000 shares of its Common Stock at
prices between $1.50 and $1.75 per share for a total of $141,750 to two
executive level employees. All of the shares of Common Stock included
in such issuance are included in the shares of Common Stock listed
above to be sold by the Selling Security Holders.
(2) In December 1996, the Company issued 15,750 shares of its Common Stock
at $2.00 per share for a total of $31,500 to an executive level
employee pursuant to a stock option agreement dated July 31, 1996. All
of the shares of Common Stock included in such issuance are included in
the shares of Common Stock listed above to be sold by the Selling
Security Holders.
(3) In December 1996, the Company completed its $550,000 private offering
of 7% Convertible Subordinated Debentures to accredited and/or
sophisticated investors. Pursuant to terms of the offering, in January
and February 1997, all of the Debentures were converted at per share
prices of $0.09125 and $0.04875, resulting in the issuance of
10,291,534 shares of the Company's Common Stock. The offering was
conducted by Noble Investment Company of Palm Beach which acted as the
placement agent for the offering. In connection therewith, Noble, in
consideration for serving as the placement agent for such offering,
received warrants to purchase 204,878 shares of Common Stock
exercisable at $0.25625 per share and 500,000 shares of Common Stock
exercisable at $0.40 per share. Only the shares of Common Stock
underlying the aforementioned warrants are included in the shares of
Common Stock listed above to be sold by the Selling Security Holders.
(4) In June 1997, the Company granted a warrant to purchase up to 10,000
shares of its Common Stock at $0.35 per share to the holder of a
short-term note. All of the shares of Common Stock underlying the
aforementioned warrants are included in the shares of Common Stock
listed above to be sold by the Selling Security Holders.
49
<PAGE> 56
(5) In June 1997, the Company granted a warrant to purchase up to 25,000
shares of its Common Stock at $0.35 per share to Jeffrey C. Manchester,
then a Director of the Company. All of the shares of Common Stock
underlying the aforementioned warrants are included in the shares of
Common Stock listed above to be sold by the Selling Security Holders.
(6) In September 1997, the Company issued 60,000 shares of its Common Stock
at $0.01 per share for a total of $600 to the holder of a short-term
note pursuant to a stock option agreement dated December 15, 1996. All
of the shares of Common Stock included in such issuance are included in
the shares of Common Stock listed above to be sold by the Selling
Security Holders.
(7) In September 1997, the Company granted a warrant to purchase up to
240,000 shares of its Common Stock at $0.70 per share to a consultant.
All of the shares of Common Stock underlying the aforementioned
warrants are included in the shares of Common Stock listed above to be
sold by the Selling Security Holders.
(8) In October 1997, the Company completed its $500,000 private placement
offering of its Common Stock at per share prices of $0.25 and $0.30
resulting in the issuance of 1,832,000 shares to 11 individual
investors and the finder for the transaction. All of the shares of
Common Stock included in such private offering are included in the
shares of Common Stock listed above to be sold by the Selling Security
Holders.
(9) In November 1997, the Company completed its $1,112,500 private offering
of non-convertible 10% Senior Secured Promissory Notes, including
warrants to purchase an aggregate of 3,178,591 shares of the Company's
Common Stock at $0.35 per share, to accredited and/or sophisticated
investors. The offering was conducted by Noble Investment Company of
Palm Beach which acted as the placement agent for the offering. In
connection therewith, Noble, in consideration for serving as the
placement agent for such offering, received $127,938. All of the shares
of Common Stock underlying the aforementioned warrants are included in
the shares of Common Stock listed above to be sold by the Selling
Security Holders.
(10) During the first quarter of 1998, the Company issued 1,810,000 Common
Stock purchase warrants to the holders of several short-term notes. The
warrants are exercisable at per share prices ranging from $0.01 to
$0.20. All of the shares of Common Stock underlying the aforementioned
warrants are included in the shares of Common Stock listed above to
be sold by the Selling Security Holders.
50
<PAGE> 57
(11) In February 1998, the Company sold 125,000 shares of its Common Stock
at $0.20 per share for a total of $25,000 to an individual investor.
All of the shares of Common Stock included in such issuance are
included in the shares of Common Stock listed above to be sold by the
Selling Security Holders.
(12) In March 1998, the Company granted a transferable warrant to purchase
up to 600,000 shares of its Common Stock at $0.25 per share to Mr.
Richard G. Dews, the Company's former President, CEO and majority
shareholder. All of the shares of Common Stock underlying the
aforementioned warrants are included in the shares of Common Stock
listed above to be sold by the Selling Security Holders.
(13) In April 1998, the Company granted options to purchase up to 900,000
shares of its Common Stock at $0.20 per share to Mr. Mark C. Myers, the
Company's Chief Financial Officer and Secretary. All of the shares of
Common Stock underlying the aforementioned options are included in the
shares of Common Stock listed above to be sold by the Selling Security
Holders.
(14) In May 1998, the Company completed its $4,500,500 private placement
offerings of its Common Stock at $0.20 per share resulting in the
issuance of 22,502,500 shares to 82 individual investors and Warrants
to purchase up to 2,147,750 shares of the Company's Common Stock to the
various finders for the transaction exercisable at $0.20 per share. All
of the shares of Common Stock included in such private offering and
underlying the aforementioned warrants are included in the shares of
Common Stock listed above to be sold by the Selling Security Holders.
(15) In May 1998, the Company granted options to purchase up to an aggregate
of 9,000,000 shares of its Common Stock at $0.20 per share to three
executive officers of the Company (W. Curtis Overstreet, President and
CEO, Rick J. Johnson, COO, and Joseph B. Meredith, Vice President of
Business Development). All of the shares of Common Stock underlying the
aforementioned options are included in the shares of Common Stock
listed above to be sold by the Selling Security Holders.
(16) In May 1998, the Company granted options to purchase up to an aggregate
of 4,300,000 shares of its Common Stock at $0.20 per share to four
directors of the Company (Benjamin Swirsky, Chairman of the Board,
Deane Watson, Jr., Marcus A. Rowan, and Richard A. Gray, Jr.). All of
the shares of Common Stock underlying the aforementioned options are
included in the shares of Common Stock listed above to be sold by the
Selling Security Holders.
(17) In September 1998, the Company completed its $307,500 private offering
of its Common Stock to 14 individual investors at $0.20 per share
resulting in the issuance of 1,537,500 shares. In addition, the Company
issued warrants to purchase an aggregate of 1,000,000 shares of the
Company's Common Stock at $0.10 per share. All of the shares of Common
Stock included in such private offering and underlying the
aforementioned warrants are included in the shares of Common Stock
listed above to be sold by the Selling Security Holders.
51
<PAGE> 58
The Company has undertaken to maintain the Registration Statement current for a
period of not less than nine months from the effective date of the Registration
Statement of which this Prospectus is a part in order that sales of shares of
Common Stock may be made by the Selling Security Holders. The Company has agreed
to pay for all costs and expenses incident to the issuance, offer, sale and
delivery of the Common Stock, including, but not limited to, all expenses and
fees of preparing, filing and printing the Registration Statement and Prospectus
and related exhibits, amendments and supplements thereto and mailing of such
items. The Company will not pay selling commissions and expenses associated with
any such sales by the Selling Security Holders. The Company has agreed to
indemnify the Selling Security Holders against civil liabilities including
liabilities under the Securities Act of 1933. The Selling Security Holders have
advised the Company that sales of shares of their Common Stock may be made from
time to time by or for the accounts of the Selling Security Holders in one or
more transactions in the over-the-counter market, in negotiated transactions or
otherwise, at prices related to the prevailing market prices or at negotiated
prices.
52
<PAGE> 59
PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Security Holders may be sold from time
to time by the Selling Security Holders, or by pledgees, donees, transferees or
other successors in interest. Such sales may be made on one or more exchange, or
in the over-the-counter market, or otherwise at prices and at terms then
prevailing, or at prices related to the then current market price, or in
negotiated transactions. The Shares may be sold by one or more of the following
methods, including, without limitation: (a) a block trade in which the
broker-dealer so engaged will attempt to sell the Shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) face-to-face or other direct transactions between the Selling Security
Holders and purchasers without a broker-dealer or other intermediary. In
effecting sales, broker-dealers or agents engaged by the Selling Security
Holders may arrange for other broker-dealers or agents to participate. Such
broker- dealers may receive commissions or discounts from the Selling Security
Holders in amounts to be negotiated immediately prior to the sale. Such
broker-dealers and agents and any other participating broker-dealers or agents
may be deemed to be "underwriters" within the meaning of the Act in connection
with such sales. In addition, any securities covered by this Prospectus that
qualify for sale pursuant to Rule 144 might be sold under Rule 144 rather than
pursuant to this Prospectus.
Upon the Company being notified by the Selling Security Holders that any
material arrangement has been entered into with a broker-dealer, agent or
underwriter for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a
broker-dealer, agent or underwriter, a supplemented Prospectus will be filed, if
required, pursuant to Rule 424(c) under the Act, disclosing (a) the name of each
such broker-dealer, agent or underwriter, (b) the number of Shares involved, (c)
the price at which such Shares were sold, (d) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), agent(s) or underwriter(s) or
other items constituting compensation or indemnification arrangements with
respect to particular offerings, where applicable, (e) that such
broker-dealer(s), agent(s) or underwriter(s) did not conduct any investigation
to verify the information set out or incorporated by reference in this
Prospectus, as supplemented, and (f) other facts material to the transaction.
53
<PAGE> 60
DESCRIPTION OF SECURITIES
GENERAL
The following description of the material terms of the Common Stock is subject
to the Florida Act and to the provisions contained in the Company's Articles of
Incorporation, as amended (the "Articles of Incorporation"), and By-Laws.
The Company's authorized capital stock consists of 200,000,000 shares of Common
Stock, no par value (the "Common Stock"), and 1,000,000 shares of Redeemable
Convertible 12% Preferred Stock, $1,000.00 par value (the "Redeemable Preferred
Stock"). Immediately prior to the Offering, there were outstanding 44,553,705
shares of Common Stock and no shares of Redeemable Preferred Stock. The Company
has 780 shareholders of record.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders, and are not entitled
to cumulate their votes in the election of directors. This means that holders of
more than 50% of shares voting for the election of directors can elect all of
the directors. The holders of 50% of the outstanding Common Stock constitute a
quorum at any meeting of shareholders, and the vote by the holders of a majority
of the outstanding shares are required to effect certain fundamental corporate
changes, such as liquidation, merger or amendment of the Articles of
Incorporation.
The Common Stock has no preemptive or other subscription rights and there are no
conversion rights or redemption or sinking fund provisions. Shares of Common
Stock are not liable for further call or assessment.
Holders of shares of Common Stock are entitled to receive ratably any dividends
as may be declared from time to time by the Board of Directors in its discretion
from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities and
distribution to holders of preferred stock, if any.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Redeemable
Convertible 12% Preferred Stock (the "Redeemable Preferred Stock"), $1,000.00
par value per share, of which no shares are outstanding as of the date hereof.
In addition to the Redeemable Preferred Stock, preferred stock may be issued in
one or more series, the terms of which may be determined at the time of issuance
by the Board of Directors, without further action by shareholders, and may
include voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion rights,
redemption rights, and sinking fund provisions. The issuance of any such
preferred stock could adversely affect the rights of the holders of Common Stock
and, therefore, reduce the value of the Common Stock. The ability of the Board
54
<PAGE> 61
of Directors to issue preferred stock could discourage, delay or prevent a
takeover of the Company.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
The Company may be subject to the control-share acquisition provisions of
Section 607.0902 of the Florida Act.
The control share acquisition provisions generally provide that control shares
of an issuing public corporation acquired in a control share acquisition have no
voting rights until voting rights are granted by a resolution approved by a
majority of shares entitled to vote excluding control shares. Control share
acquisition provisions apply to "Issuing Public Corporations" which are defined
to include corporations with: (i) 100 or more shareholders, excluding all
nominees or brokers; (ii) principal office in Florida; and (iii) more than 10%
of its shares owned by Florida residents.
"Control Shares" are defined as shares that, when acquired and added to other
shares owned by a person, enable that person to exercise voting power with
respect to shares of an Issuing Public Corporation within the ranges of
one-fifth to one-third, one-third to one-half, and one-half or more of the
outstanding voting power. This term does not include all shares owned by the
person but only those shares acquired to put the shareholder "over the top" with
respect to that particular range. The Florida Act provides that shares acquired
within any 90-day period either before or after purchase are considered to be
one acquisition. Approval of voting rights requires: (i) approval by each class
entitled to vote separately by majority vote and (ii) approval by each class or
series entitled to vote separately by a majority of all votes entitles to be
cast by that group excluding all Control Shares.
If an acquiring person proposes to make or has made a control share acquisition,
he may deliver to the Issuing Public Corporation an acquiring person's statement
("APS"). The acquiring person may then request that the Issuing Public
Corporation call a special meeting of the shareholders at the acquiring person's
expense to consider granting rights to the Control Shares. If no APS has been
filed, any Control Shares acquired in a Control Share acquisition by such person
may, after 60 days has passed since the last acquisition of Control Shares, be
redeemed at their fair market value. If an APS is filed, the shares are not
subject to redemption unless the shares are not accorded full voting rights by
shareholders. The effect and intent of the control share acquisition provision
is to deter corporate takeovers. Therefore, it is more likely than not that
control of the Company will remain in the hands of the existing principal
shareholders. See "Principal Shareholders."
TRANSFER AGENT
The transfer agent for the Company is Interwest Transfer Company, P.O. Box
17136, Salt Lake City, Utah 84117.
55
<PAGE> 62
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, 44,553,705 shares of the Company's Common
Stock are outstanding of which 2,451,653 shares will be "restricted securities,"
as such term is defined under the Securities Act of 1933, exclusive of the
Common Stock to be sold pursuant to the Registration Statement of which this
Prospectus is a part.
In general, Rule 144 (as presently in effect), promulgated under the Act,
permits a shareholder of the Company who has beneficially owned restricted
shares of Common Stock for at least one year to sell without registration,
within any three-month period, such number of shares not exceeding the greater
of 1% of the then outstanding shares of Common Stock or, if the Common Stock is
quoted on NASDAQ, the average weekly trading volume over a defined period of
time, assuming compliance by the Company with certain reporting requirements of
Rule 144. Furthermore, if the restricted shares of Common Stock are held for at
least two years by a person not affiliated with the Company (in general, a
person who is not an executive officer, director or principal shareholder of the
Company during the three-month period prior to resale), such restricted shares
can be sold without any volume limitation. Any sales of shares by shareholders
pursuant to Rule 144 may have a depressive effect on the price of the Company's
Common Stock.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be passed
upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A., Fort Lauderdale,
Florida.
Atlas, Pearlman, Trop & Borkson, P.A., which is listed as a selling security
holder herein, owns 71,429 shares of Common Stock of the Company.
EXPERTS
The financial statements of the Company appearing in this Prospectus have been
audited by King Griffin & Adamson P.C., independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, which contains an explanatory paragraph raising
substantial doubt as to the Company's ability to continue as a going concern,
and are included herein in reliance upon such report, given upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company intends to furnish to its shareholders annual reports, which will
include financial statements audited by independent accountants, and such other
periodic reports as it may determine to furnish or as may be required by law,
including Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
56
<PAGE> 63
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street N.W., Washington D.C. 20549, a Registration
Statement on Form SB-2 (the "Registration Statement") under the Securities Act
with respect to the securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
thereto, as permitted by the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement and to the
exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document which has been filed as an exhibit to
the Registration Statement are qualified in their entirety by reference to such
exhibits for a complete statement of their terms and conditions. The
Registration Statement and the exhibits thereto may be inspected without charge
at the offices of the Commission and copies of all or any part thereof may be
obtained from the Commission's principal office at 450 Fifth Street N.W.,
Washington D.C. 20549, or at certain of the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048, or 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the
fees prescribed by the Commission. Electronic reports and other information
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's website (http://www.sec.gov). In
addition, following approval of the Common Stock for quotation on The Nasdaq
SmallCap Market, reports and other information concerning the Company may be
inspected at the office of the National Association of Securities Dealers, Inc.,
1735 K Street N.W., Washington D.C. 20006.
57
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Florida Act") contains provisions
entitling the Company's directors and officers to indemnification from
judgments, settlements, penalties, fines, and reasonable expenses (including
attorney's fees) as the result of an action or proceeding in which they may be
involved by reason of having been a director or officer of the Company. In its
Articles of Incorporation, the Company has included a provision that limits, to
the fullest extent now or hereafter permitted by the Florida Act, the personal
liability of its directors to the Company or its shareholders for monetary
damages arising from a breach of their fiduciary duties as directors. Under the
Florida Act as currently in effect, this provision limits a director's liability
except where such director breaches a duty. The Company's Articles of
Incorporation and By-Laws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by the Florida Act. The Florida Act
provide that no director or officer of the Company shall be personally liable to
the Company or its shareholders for damages for breach of any duty owed to the
Company or its shareholders, except for liability for (i) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (ii) any unlawful payment of a dividend or unlawful stock repurchase or
redemption in violation of the Florida Act, (iii) any transaction from which the
director received an improper personal benefit or (iv) a violation of a criminal
law. This provision does not prevent the Company or its shareholders from
seeking equitable remedies, such as injunctive relief or rescission. If
equitable remedies are found not to be available to shareholders in any
particular case, shareholders may not have any effective remedy against actions
taken by directors or officers that constitute negligence or gross negligence.
The Articles of Incorporation also include provisions to the effect that
(subject to certain exceptions) the Company shall, to the maximum extent
permitted from time to time under the law of the State of Florida, indemnify and
upon request shall advance expenses to, any director or officer to the extent
that such indemnification and advancement of expenses is permitted under such
law, as may from time to time be in effect.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to any charter provision, by-law, contract, arrangement, statute or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and resale of the securities offered hereby. The
Company is responsible for the payment of all expenses in connection with the
Offering.
II-1
<PAGE> 65
<TABLE>
<S> <C> <C>
Registration fee under the Securities Act of 1933 * $ 2,854
Blue Sky filing fees and expenses * 1,000
Printing and engraving expenses * 25,000
Legal fees and expenses * 25,000
Accounting fees and expenses * 25,000
Transfer agent fees and expenses * 6,000
Miscellaneous * 10,000
--------------
Total $ 94,854
==============
</TABLE>
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On November 1, 1995, the Company granted options to two officers to purchase an
aggregate of 2,267,486 shares of Common Stock. The options are exercisable at a
price of $0.029548 per share for a period of one year. Each of such officers
were either accredited and/or sophisticated investors, had preexisting
relationships with members of management of the Company, were employees or
members of management of the Company, and/or had access to relevant information
pertaining to the operations or contemplate operations of the Company.
Accordingly, such issuances were exempt from the registration requirements of
the Act pursuant to Section 4(2) of the Act.
On March 20, 1996, the Company completed a private offering of 418,500 shares of
Common Stock to 23 individual investors at $0.667 per share. Each of such
investors were either accredited and/or sophisticated investors, had preexisting
relationships with members of management of the Company, were employees or
members of management of the Company, and/or had access to relevant information
pertaining to the operations or contemplated operations of the Company.
Accordingly, such issuances were exempt from the registration requirements of
the Act pursuant to Section 4(2) of the Act.
Between April 10, 1996, and April 17, 1996, the Company issued an aggregate of
1,426,000 shares of Common Stock, pursuant to the terms of, and as compensation
for, accounting, financial, legal and consulting services provided to the
Company beginning February 29, 1996, and through April 7, 1997, by seven
separate entities. In addition, the Company granted to one of the consultants
warrants to purchase up to 800,000 shares of Common Stock at per share prices
ranging from $1.00 to $2.50. Each of such consultants were either accredited
and/or sophisticated investors, had preexisting relationships with members of
management of the Company, were employees or members of management of the
Company, and/or had access to relevant information pertaining to the operations
or contemplated operations of the Company. Accordingly, such issuances were
exempt from the registration requirements of the Act pursuant to Section 4(2) of
the Act.
On April 18, 1996, the Company sold 91,000 shares of Common Stock at prices
between $1.50 and $1.75 per share to two executive level employees of the
Company. Each of such employees were either accredited and/or sophisticated
investors, had preexisting relationships with members of management of the
Company, were employees or members of management of the Company, and/or had
access to relevant information pertaining to the operations or contemplated
operations of the Company. Accordingly, such issuances were exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
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<PAGE> 66
On June 27, 1996, the Company issued an aggregate of 320,000 shares of Common
Stock, to two consultants in consideration for consulting services rendered to
the Company between January 5, 1996 and June 30, 1997. Each of such consultants
were either accredited and/or sophisticated investors, had preexisting
relationships with members of management of the Company, were employees or
members of management of the Company, and/or had access to relevant information
pertaining to the operations or contemplated operations of the Company.
Accordingly, such issuances were exempt from the registration requirements of
the Act pursuant to Section 4(2) of the Act.
On July 31, 1996, the Company granted options to purchase an aggregate of 50,000
shares of Common Stock at $2.00 per share to an executive level employee. The
options were exercisable at the date of grant and through December 31, 1996.
Such employee was either accredited and/or sophisticated investors, had a
preexisting relationship with members of management of the Company, was an
employee or member of management of the Company, and/or had access to relevant
information pertaining to the operations or contemplated operations of the
Company. Accordingly, such issuance was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
On October 30, 1996, the Company commenced a private offering of an aggregate of
$1,500,000 in 7% Convertible Subordinated Debentures (the "Debentures") pursuant
to Regulation S to five individual investors. Each Debenture was convertible at
the option of the holder any time after 40 days following the issuance thereof
into shares of the Company's Common Stock at a conversion price of 50% of the
prior five day average closing bid price per share of the Company's Common
Stock. The Debentures were offere by Noble Investment Company of Palm Beach, the
Placement Agent, on a best efforts basis. On December 31, 1996, the Company
terminated the offering and received $456,750 of net proceeds therefrom. All of
the debentures were converted to a combined total of 10,291,534 shares of Common
Stock between January 30, 1997, and February 4, 1997, at effective per share
prices of $0.09125 and $0.04875. On December 31, 1996, the Placement Agent was
entitled to receive a five year warrant to purchase 10% of the shares of Common
Stock underlying the Debentures sold in the offering, or 204,878 shares at
$0.25625 per share. In addition, on November 12, 1996, the Company entered into
a financial consulting agreement with the Placement Agent whereby the Company
granted to the Placement Agent a five year warrant to purchase 250,000 shares of
the Company's Common Stock at an exercise price of $1.00 per share. Effective
June 10, 1997, the Company agreed to grant an additional 250,000 warrants to the
Placement Agent, thereby reducing the exercise price of the warrants from $1.00
to $0.50. Subsequently thereto, the exercise price of the warrants was further
reduced to $0.40 per share. Each of such investors were either accredited and/or
sophisticated investors, had preexisting relationships with members of
management of the Company, were employees or members of management of the
Company, and/or had access to relevant information pertaining to the operations
or contemplated operations of the Company.
On December 15, 1996, the Company granted a warrant, fully vested at date of
grant, to purchase 60,000 shares of its Common Stock at an exercise price of
$0.01 per share to the holder of a short-term note. The warrant is exercisable
through December 31, 1998. Such investor was either accredited and/or
sophisticated investors, had a preexisting relationship with members of
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<PAGE> 67
management of the Company, was an employee or member of management of the
Company, and/or had access to relevant information pertaining to the operations
or contemplated operations of the Company. Accordingly, such issuance was exempt
from the registration requirements of the Act pursuant to Section 4(2) of the
Act.
On June 4, 1997, the Company granted a warrant, fully vested at date of grant,
to purchase 10,000 shares of its Common Stock at an exercise price of $0.35 per
share to the holder of a short-term note. The warrant is exercisable through
June 3, 2000. Such investor was either accredited and/or sophisticated
investors, had a preexisting relationship with members of management of the
Company, was an employee or member of management of the Company, and/or had
access to relevant information pertaining to the operations or contemplated
operations of the Company. Accordingly, such issuance was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
Between June 16, 1997, and November 30, 1997, and pursuant to Rule 506 of
Regulation D, the Company completed two private offerings of 44.5 units of the
Company's securities consisting of (i) $1,112,500 aggregate principal amount of
non-convertible 10% Senior Secured Promissory Notes and (ii) warrants to
purchase an aggregate of 2,225,000 shares of the Company's Common Stock to 32
individual investors. The notes mature July 1, 1999, and yield interest at a
rate of 10% per annum. The warrants are exercisable at the lesser of market
value at the time of the final closing or $0.50 per share. The warrants are
exercisable through July 1, 2000. The Offerings were offered by Noble Investment
Company of Palm Beach, the Placement Agent, on a best efforts basis. The
offerings yielded net proceeds to the Company of $984,563. Effective October 31,
1997, the maximum exercise price of the warrants was reduced from $0.50 to $0.35
per share, thereby increasing the number of shares underlying the warrants fro
2,225,000 to 3,178,591. Each of such investors were either accredited and/or
sophisticated investors, had preexisting relationships with members of
management of the Company, were employees or members of management of the
Company, and/or had access to relevant information pertaining to the operations
or contemplated operations of the Company. Accordingly, such issuances were
exempt from the registration requirements of the Act pursuant to Rule 506 under
Section 4(2) of the Act.
The Company entered into an agreement with Jeffrey C. Manchester, then a
Director of the Company, effective June 19, 1997, whereby the Company granted
options to purchase 25,000 common shares at an exercise price of $0.35 per
share. The options were vested 100% at grant date, and expire June 19, 2000.
Such individual was either accredited and/or sophisticated investors, had a
preexisting relationship with members of management of the Company, was an
employee or member of management of the Company, and/o had access to relevant
information pertaining to the operations or contemplated operations of the
Company. Accordingly, such issuance was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
On September 24, 1997, the Company granted warrants to a consultant to purchase
240,000 shares of the Company's Common Stock at an exercise price of $0.70 per
share. The warrants vested 6.25% ninety days after grant date, and vest an
additional 1/48 each month thereafter.
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<PAGE> 68
The warrants are exercisable upon vesting, and expire one year after fully
vested. Such consultant was either accredited and/or sophisticated investors,
had a preexisting relationship with members of management of the Company, was an
employee or member of management of the Company, and/or had access to relevant
information pertaining to the operations or contemplated operations of the
Company. Accordingly, such issuance was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
On October 15, 1997, the Company issued 1,800,000 shares of its Common Stock to
11 individual investors at per share prices ranging from $0.25 to $0.30 under
the terms of a private offering for total net cash proceeds of $500,000. The
Company issued 32,000 shares of Common Stock, to Matthew Campbell who acted as a
finder in connection with the offering. Each of such investors were either
accredited and/or sophisticated investors, had preexisting relationships with
members of management of the Company, were employees or members of management of
the Company, and/or had access to relevant information pertaining to the
operations or contemplated operations of the Company. Accordingly, such
issuances were exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
During the first quarter of 1998, the Company entered into several short term
loan agreements, with varying terms and maturities, totaling $704,000, with
certain investor groups. Pursuant to the terms and conditions of the loan
agreements, between February 2, 1998, and March 2, 1998, the Company granted
1,810,000 stock warrants to seven individual investors, fully vested at date of
grant, to purchase shares of its common stock at exercise prices ranging from
$0.01 to $0.20 per share, exercisable through February 10, 2000. Each of such
investors were either accredited and/or sophisticated investors, had preexisting
relationships with members of management of the Company, were employees or
members of management of the Company, and/or had access to relevant information
pertaining to the operations or contemplated operations of the Company.
Accordingly, such issuances were exempt from the registration requirements of
the Act pursuant to Section 4(2) of the Act.
On February 3, 1998, the Company issued 125,000 shares of its Common Stock to
one individual at $0.20 per share under a private offering wherein the Company
received net cash proceeds of $25,000. Such investor was either accredited
and/or sophisticated investors, had a preexisting relationship with members of
management of the Company, was an employee or member of management of the
Company, and/or had access to relevant information pertaining to the operations
or contemplated operations of the Company. Accordingly, such issuance was exempt
from the registration requirements of the Act pursuant to Section 4(2) of the
Act.
Between March 9, 1998, and May 6, 1998, and pursuant to Rule 506 of Regulation
D, the Company completed two private placements, offered on a best efforts
basis, for an aggregate of 22,502,500 shares of the Company's Common Stock to 82
individual investors from which the Company received net proceeds of $4,500,500.
As compensation to the various individuals who acted as finders for the
offerings, the Company granted warrants to six individuals (Matthew Campbell,
Tim Collins, Henry Gellis, Marcus Rowan, a Director of the Company, Benjamin
Swirsky, Chairman of the Board and a Director of the Company, and Deane Watson,
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<PAGE> 69
Jr., a Director of the Company) to purchase an aggregate of 2,147,750 shares of
Common Stock at $0.20 per share, exercisable through July 1, 2001. Each of such
investors were either accredited and/or sophisticated investors, had preexisting
relationships with members of management of the Company, were employees or
members of management of the Company, and/or had access to relevant information
pertaining to the operations or contemplated operations of the Company.
Accordingly, such issuances were exempt from the registration requirements of
the Act pursuant to Rule 506 under Section 4(2) of the Act.
On March 25, 1998, the Company granted Mr. Richard G. Dews a transferable
warrant to purchase up to 600,000 shares of Common Stock at $0.25 per share. The
warrant expires March 25, 2000, pursuant to the terms of a settlement agreement
between the Company and Mr. Dews. In connection with the preparation of the
settlement agreement, in partial payment of the related legal fees incurred, the
Company issued to its two attorneys 390,454 shares of the Company's Common
Stock. Such individuals were either accredited and/or sophisticated investors,
had preexisting relationships with members of management of the Company, were
employees or members of management of the Company, and/or had access to relevant
information pertaining to the operations or contemplated operations of the
Company. Accordingly, such issuances were exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
Pursuant to provisions of the employment agreement with Mark C. Myers, its Chief
Financial Officer, the Company granted options to purchase 900,000 shares of the
Company's common stock at an exercise price of $0.20 per share. The options vest
at the rate of 1/24 each month beginning April 1, 1998, and are exercisable at
vesting at any time during employment. Such officer was either accredited and/or
sophisticated investors, had a preexisting relationship with members of
management of the Company, was an employee or member of management of the
Company, and/or had access to relevant information pertaining to the operations
or contemplated operations of the Company. Accordingly, such issuance was exempt
from the registration requirements of the Act pursuant to Section 4(2) of the
Act.
On May 1, 1998, the Company granted options to purchase an aggregate of
9,000,000 shares of Common Stock to three executive officers of the Company (W.
Curtis Overstreet, President and CEO, Rick J. Johnson, COO, and Joseph B.
Meredith, Vice President of Business Development) at an exercise price of $0.20
per share. The options were 50% vested on the date of grant, and vest an
additional 1/24 each month thereafter. The options are exercisable at anytime
during employment. Each of such officers were either accredited and/or
sophisticated investors, had preexisting relationships with members of
management of the Company, were employees or members of management of the
Company, and/or had access to relevant information pertaining to the operations
or contemplated operations of the Company. Accordingly, such issuances were
exempt from the registration requirements of the Act pursuant to Section 4(2) of
the Act.
On May 1, 1998, the Company granted options to purchase an aggregate of
4,300,000 shares of Common Stock to four directors of the Company (Benjamin
Swirsky, Chairman of the Board, Deane Watson, Jr., Marcus A. Rowan, and Richard
A. Gray, Jr.) at an exercise price of $0.20 per share. The options vest 1/24
each month beginning May 31, 1998. The options are exercisable through May 31,
2002. Each of such directors were either accredited and/or sophisticated
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<PAGE> 70
investors, had preexisting relationships with members of management of the
Company, were employees or members of management of the Company, and/or had
access to relevant information pertaining to the operations or contemplated
operations of the Company. Accordingly, such issuances were exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
Between August 26, 1998, and September 22, 1998, the Company issued 1,537,500
shares of its Common Stock to 14 individual investors at a price of $0.20 per
share under the terms of a private offering for total net cash proceeds of
$307,500. In addition, pursuant to the terms and conditions of the private
placement, the Company granted warrants to purchase an aggregate of 1,000,000
shares of Common Stock of the Company to five of the individual investors at an
exercise price of $0.10 per share. The warrants were fully vested at grant date,
and are exercisable through September 9, 2001. Each of such investors were
either accredited and/or sophisticated investors, had preexisting relationships
with members of management of the Company, were employees or members of
management of the Company, and/or had access to relevant information pertaining
to the operations or contemplated operations of the Company. Accordingly, such
issuances were exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Page
- ------ ----
<S> <C>
3.1 Articles of Incorporation, as amended (1)
3.2 By-Laws (1)
4.1 Form of Common Stock Certificate (1)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. (1)
10.1 Agreement for the Exchange of Common Stock between New York
Acquisitions Inc. and MigraTEC Inc. (formerly One Up Corporation) dated
February 29, 1996 (1)
10.2 Commercial Lease Agreement between the Company and TDC Dallas Partners
No. 2 Ltd. dated April 7, 1997 (1)
10.3 Employment Agreement between the Company and W. Curtis Overstreet dated
April 10, 1997 (1)
10.4 Employment Agreement between the Company and Joseph B. Meredith dated
June 1, 1997 (1)
10.5 Employment Agreement between the Company and Rick J. Johnson dated July
1, 1997 (1)
</TABLE>
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<PAGE> 71
<TABLE>
<S> <C>
10.6 Employment Agreement between the Company and Mark C. Myers dated April
1, 1998 (1)
10.7 Settlement Agreement between the Company and Richard G. Dews dated
March 25, 1998 (1)
10.8 Strategic Product Assessment Report prepared for the Company by
Deloitte & Touche Consulting Group dated April 6, 1998 (1)
10.9 Agreement between the Company and Reasoning Inc. dated August 4, 1998 (1)
10.10 Agreement between the Company and Electronic Data Systems Corporation
dated September 1, 1998 (1)
23.1 Consent of King Griffin & Adamson P.C. (1)
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. [contained in such
firm's opinion filed as Exhibit 5.1] (1)
24.1 Power of Attorney relating to the signing of amendments hereto is
incorporated in the signature pages of this Registration Statement (1)
27.1 Financial Data Schedules (1)
</TABLE>
(1) To be filed by amendment
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities
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 which,
individually or together, represent a fundamental change in
the information set forth in the Registration Statement;
(iii) To include any additional or changed material information
with respect to the plan of distribution.
(2) For determining any liability under the Securities Act of 1933,
as amended, treat each post-effective amendment as a new
registration statement relating to
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<PAGE> 72
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questio 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.
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<PAGE> 73
SIGNATURES
In accordance with 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 SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the city of
Dallas, State of Texas on September 30, 1998.
MIGRATEC, INC.
By: /s/ W. CURTIS OVERSTREET
--------------------------------
W. Curtis Overstreet, President and
Principal Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears below
constitutes and appoints W. Curtis Overstreet and Benjamin Swirsky or either of
them, such person's true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities (including such person's capacity as
a director and/or officer of MigraTEC, Inc.) to sign any and all amendments
(including post-effective amendments pursuant to Rule 462(b) or otherwise) to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in- fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
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<PAGE> 74
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
President, Principal Executive
/s/ W. CURTIS OVERSTREET Officer and Director 9/30/98
- ---------------------------------------- -----------------
W. Curtis Overstreet
Chairman of the Board and
/s/ BENJAMIN SWIRSKY Director 9/30/98
- ---------------------------------------- -----------------
Benjamin Swirsky
Principal Financial Officer and
/s/MARK C. MYERS Secretary 9/30/98
- ---------------------------------------- -----------------
Mark C. Myers
/s/ CYNTHIA K. ALDERMAN Principal Accounting Officer 9/30/98
- ---------------------------------------- -----------------
Cynthia K. Alderman
/s/ DEANE WATSON, JR. Director 9/30/98
- ---------------------------------------- -----------------
Deane Watson, Jr.
Director
- ---------------------------------------- -----------------
Marcus A. Rowan
Director
- ---------------------------------------- -----------------
Richard A. Gray, Jr.
</TABLE>
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