<PAGE>
As filed with the Securities and Exchange Commission on February 21, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------
INSCI CORP.
(Exact name of registrant as specified in its charter)
Delaware 7373 06-1302773
(Jurisdiction of (Primary Standard Industrial (I.R.S. Employer I.D.
incorporation) Classification Code Number) Number)
Two Westborough Business Park
Westborough, Massachusetts 01581
(508)-870-4000
(Name, address, including zip code, and telephone number,
including area code, of Registrant's Principal
Executive Office)
--------------------------
Joseph A. Baratta, Esq.
Baratta & Goldstein
597 Fifth Avenue
New York, New York 10017
(212)-750-9700
(Name, address, including zip code, and telephone number, including area code,
of Agent for Service)
Approximate date of commencement of proposed sale by the selling shareholders
to the public: From time to time after the effective date
of this registration statement.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of earlier effective registration statement for
the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------------------
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM OFFERING PRICE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE PER AGGREGATE
REGISTERED REGISTERED SHARE OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock par value, $.01 per share(1) 6,605,411 $ 4.37 (2) $28,865,646 $ 9,953.67
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Common Stock par value, $.01 per share,
issuable upon conversion of 10% Convertible
Redeemable Preferred Stock(3) 585,538 $ 4.37 (4) $ 2,558,801 $ 882.35
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Common Stock par value, $.01 per share,
issuable upon conversion of 10%
Convertible Preferred Stock(5) 501,434 $ 4.37 (4) $ 2,191,267 $ 755.61
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Common Stock par value, $.01 per share,
issuable upon conversion of Units(6) 2,214,697 $ 4.37 (4) $ 9,678,226 $ 3,337.32
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Common Stock, par value $.01 per share,
issuable upon exercise of Options 3,212,700 $ 4.37 (4) $14,039,499 $ 4,841.21
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Common Stock, par value $.01 per share,
issuable upon exercise of Initial
Public Offering Warrants 625,000 $ 9.00 (8) $ 5,625,000 $ 1,939.66
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Common Stock, par value $.01 per share,
issuable upon exercise of reissued
underwriter warrants 187,500 $ 4.37 (4) $ 819,375 $ 282.54
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Common Stock, par value $.01 per share,
issuable upon exercise of 1994 warrants 39,272 $ 4.37 (4) $ 171,619 $ 59.18
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Common Stock par value, $.01 per share
issuable upon exercise of Options 25,000 $18.00 (7) $ 450,000 $ 155.17
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Common Stock par value, $.01 per share
issuable upon exercise of Option 10,000 $ 7.00 (7) $ 70,000 $ 24.14
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Common Stock par value, $.01 issuable
upon exercise of Options 400,000 $ 6.25 (7) $ 2,500,000 $ 862.07
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Common Stock par value, $.01 per share
issuable upon exercise of Options 50,000 $ 6.00 (7) $ 300,000 $ 103.45
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Common Stock, par value, $.01 per share
issuable upon exercise of warrants 133,334 $ 5.50 (8) $ 733,337 $ 252.87
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Common Stock, par value, $.01 per share
issuable upon exercise of warrants 1,333,334 $ 5.00 (8) $ 6,666,670 $ 2,298.85
=============================================================================================================================
TOTAL REGISTRATION FEE $25,748.09
=============================================================================================================================
</TABLE>
(1) Includes 4,000,000 shares of Common Stock par value $.01 per share ("Common
Stock") reserved by INSCI Corp. ("INSCI or the "Company") for acquisition
purposes; 2,605,411 shares of Common Stock issued by the Company to selling
stockholders.
(2) Estimated solely for the purpose of determining the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933.
(3) Represents 585,538 shares of Common Stock underlying 10% Convertible
Redeemable Preferred Stock ("10% Convertible Redeemable Stock") and dividends to
be issued on the 10% Convertible Redeemable Stock (assuming an average market
price of $5.00 a share for conversion purposes);
(4) Estimated solely for the purpose of determining the amount of the
registration fee pursuant to Rule 457(g) under the Securities Act of 1933.
(5) Represents 501,434 shares of Common Stock underlying 10% Convertible
Preferred Stock and dividends to be issued on the 10% Convertible Preferred
Stock (assuming an average market price of $5.00 a share for conversion
purposes);
(6) Represents 2,214,697 shares of Common Stock underlying 8% Convertible
Redeemable Preferred Stock derived from 8% Units). Includes shares of Common
Stock underlying dividends to be issued on shares of 8% Preferred Stock which
underlie the Units;
(7) Exercise price of options.
(8) Exercise price of warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DAY OR DATE 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 UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under securities laws of any such State.
Subject to Completion, Dated February 21, 1997
PROSPECTUS
{INSCI CORP. LOGO}
15,923,220 SHARES COMMON STOCK
This Prospectus relates to the subsequent resale or offer for sale by
Selling Stockholders (as hereinafter defined) of up to 15,923,220 shares (the
"Shares") of Common Stock, par value $.01 per share ("Common Stock"), of INSCI
Corp. ("INSCI" or the "Company"), a Delaware corporation including 2,605,411
shares of Common Stock currently owned by the Selling Stockholders; 4,000,000
shares of Common Stock reserved by the Company for acquisitions, 585,538* shares
of Common Stock issuable upon conversion of the Company's 10% Convertible
Redeemable Preferred Stock; 501,434* shares of Common Stock underlying 10%
Convertible Preferred Stock: 3,681,365* shares of Common Stock underlying the
Company's Units (each unit comprised of one share of 8% Redeemable Preferred
Stock which is convertible into a share of Common and Stock and a three year
Warrant to purchase one share of Common Stock at $5.00 per share (the placement
agents warrants are exercisable at $5.50 per share)); 851,772 shares of
Common Stock issuable upon the exercise of Warrants; and 3,697,700 shares of
Common Stock which may be issued upon the exercise of Options granted by the
Company. The distribution of the Shares may be effected in one or more
transactions through one or more transactions through one or more brokers or
dealers, through privately negotiated transactions or otherwise at market prices
prevailing at the time of sale or at prices otherwise negotiated.
Upon any sale of the Shares covered by this Prospectus, Selling
Stockholders and any participating brokers or dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933, as amended
(the "Act"), and commissions or discounts or any profits realized on the sale of
such Shares received by Selling Stockholders and such brokers or dealers may be
deemed to be underwriting commissions or discounts within the meaning of the
Act.
The Common Stock and Warrants of the Company are listed on the NASDAQ(SM)
Small Cap Market under the symbols "INSI" for the Common Stock and "INSIW" for
the Warrants. The Common Stock and Warrants are also listed on the Boston Stock
Exchange under the symbols "INI" and "INIW" respectively. On February 19, 1997,
the last sale price of the Common Stock as reported by NASDAQ(SM) was $ 4.37 per
share of Common Stock, on February 4, 1997 the last sale price of the warrants
as reported by NASDAQ(SM) WAS $.75 per Warrant.
The expenses of this offering will be paid by the Company.
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 5 .
--------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE
A HIGH DEGREE OF RISK AND SUBSTANTIAL IMMEDIATE DILUTION
UPON EXERCISE OF OPTIONS AND WARRANTS.
SEE "RISK FACTORS"
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company will not receive any proceeds from the sale of Common Stock
under the Offering by Selling Stockholders. In the event a warrant or option
holder elects to exercise then in that event the Company will receive proceeds.
The date of this Prospectus is February , 1997
- ----------
*Number of underlying shares based upon assumed market price of $5.00 per share
of the Company's Common Stock. The actual number of shares may vary depending
upon the market price at time of conversion.
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus,
including information under "Risk Factors". The Common Stock offered hereby
involves a high degree of risk.
OVERVIEW OF THE COMPANY
INSCI Corp. (INSCI or the "Company") develops, markets, installs and
services electronic information and document management systems designed to meet
the enterprise-wide needs of organizations which produce large quantities of
computer-generated documents and require the storage of and access to a broad
array of document types. The Company provides its customers with the ability to
electronically capture documents and computer output from a variety of sources,
to store information electronically and to access and deliver the information
either electronically or via reprints in a fashion that lowers costs, improves
quality, improves service and provides greater control to the customer. INSCI's
products focus on the desktop imaging, integrated output management and document
management market and the automated document factory production market.
INSCI's software products marketed under the name, COINSERV, utilize a
customer's existing host computer and computer network to link powerful "Server"
computers, which perform automated document indexing and optical disk storage
functions. This is accomplished with the customer's existing network of "client"
computers, which are used by the customer's employees to search, retrieve and
distribute documents. COINSERV is an optical-disk based client/server computer
output to laser disk (COLD) system. The COLD market addresses print and
microfiche replacement using digital-based techniques to replace printing and
microfiche production and allowing on-line viewing of reports that would
otherwise need to be printed. This produces rapid and major savings for users.
In fiscal year 1996 (ending March 31), INSCI introduced the COINS-CD
product aimed at both the corporate and service bureau markets. The new product
combines INSCI's core technology with CD- Recordable media for purposes of
electronic information distribution. COINS-CD offers the user the advantage of
using low-cost and easily available CDS which can be used for distribution of
large quantities of data. Use of this type of technology also offers rapid
payback for users and service bureaus. These products are often used in
conjunction with optical disk-based products and are particularly useful for low
cost - large volume information distribution.
During fiscal year 1997, INSCI introduced Augusta, an advanced technology
imaging and document management system through its acquisition of certain assets
of the Courtland Group, Inc. ("Courtland"). Augusta provides a document storage
system by allowing the user to see and store images of documents and to store
and retrieve documents in mixed data formats such as image, word process
documents and spreadsheet documents.
INSCI offers services including software installation, training, software
maintenance support and systems integration. INSCI's advanced systems
integration services division works with its customers to integrate these
various technologies into existing technical environments to leverage
investments in technology. INSCI's current business strategy is to develop and
provide document management solutions in a fully integrated and customized
manner that enables customers to improve their business processes and
competitive position.
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<PAGE>
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THE OFFERING
Common Stock being registered ........................ 15,923,220 (1) shares
of Common Stock $.01
par value per share
Common Stocks outstanding and
to be outstanding after this registration............. 4,079,778(2)
Common Stock to be Outstanding
after the registration assuming the exercise of all
options and warrants and the conversion of all
shares of Preferred Stock issued into common stock. 17,397,587(1),(3) shares
Use of Proceeds....................................... INSCI Corp. will not
receive any proceeds
from the sale of
Common Stock pursuant
to the offering unless
options and warrants are
exercised. In that
event, proceeds received
will be used for working
capital, general
corporate purposes and
acquisitions.
NASDAQ(SM) Small Cap Market Symbols................... INSI, Common Stock,
INSIW, Warrants
Boston Stock Exchange Symbols......................... INI, Common Stock,
INIW, Warrants
- ----------
(1) Assumes the exercise of all options, and warrants and the conversion of all
Preferred Stock. Also assumes dividends issued on 10% Preferred Stock, with an
assumed market price of Common Stock at $5.00, and dividends issued on 8%
Preferred Stock with a market price of $3.75.
(2) Includes 2,605,411 shares previously issued and being registered herein, and
does not assume the exercise of any options and warrants or the conversion of
any Preferred Stock.
(3) Does not include 1,097,865 shares of Common Stock underlying Stock Options
with exercise prices between $.94 and $6.00 granted by the Company as of
November 12, 1996.
RISK FACTORS
See "Risk Factors" beginning on page 7 for a description of certain risks
relevant to an investment in the Common Stock.
<PAGE>
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SUMMARY FINANCIAL DATA
The summary historical financial data presented below for each of the five
fiscal years ended March 31, have been derived from audited Financial
Statements. The summary historical data presented below for the nine months
ended December 31, 1995, and December 31, 1996, were derived from INSCI Corp.'s
Unaudited Condensed Financial Statements which contain all accruals and
adjustments (consisting only of normal recurring adjustments) which management
considers necessary for a fair presentation of the financial information for
such periods. The results of operations for the nine months ended December 31,
1996, are not necessarily indicative of the operating results that may be
expected of the full fiscal year. This financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Financial Statements and Notes thereto, the
Unaudited Condensed Financial Statements and Notes thereto and the other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, (UNAUDITED)
-------------------- ------------------------------------------------
FISCAL FISCAL FISCAL FISCAL FISCAL DEC. 31, DEC. 31,
In thousands, except per share amounts 1992 1993 1994 1995 1996 1995 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenue $2,680 $5,869 $8,187 $7,188 $7,913 $5,072 $8,380
Gross Margin $559 $2,210 $3,849 $3,684 $4,602 $2,714 $5,044
Net Income (loss) $(3,720) $(2,899) $(2,968) $(3,113) $(1,452) $(1,493) $ (683)
Net Income (loss)
Per Share $(2.19) $(1.54) $(1.55) $(1.04) $(0.40) $ (.42) $ (.23)
Total Assets $3,021 $3,929 $5,242 $5,299 $5,193 $3,822 $10,600
Working Capital $(2,591) $(2,697) $(6,190) $883 $60 $140 $5,248
Long Term Debt $562 $894 $648 $32 $44 - $44
Preferred Stock 0 0 0 $1,634 $12 $12 $39
</TABLE>
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<PAGE>
RISK FACTORS
Prospective investors should review carefully and consider the factors
described under "Risk Factors".
The securities offered hereby are highly speculative in nature and
involve a high degree of risk. Therefore, each prospective investor should
consider very carefully certain risks and speculative factors inherent in and
affecting the business of the Company prior to the purchase of any of its common
stock as well as all of the other matters set forth herein. The Company refers
each prospective investor to the 10-K Report filed for the fiscal year ended
March 31, 1996 and to Form 10-QSB for the fiscal quarters that ended June 30,
1996, September 30, 1996 and December 31, 1996 as well as the Form 8-K Reports
all of which are incorporated by reference herein. Certain of these risks and
speculative factors are as follows:
1. HISTORICAL INABILITY TO ACHIEVE PROFITABILITY; FACTORS AFFECTING OPERATING
RESULTS
INSCI has experienced, and may in the future experience, significant quarter
to quarter fluctuations in revenues and the results of operations. Such
fluctuations may result in volatility in the market price of the Company's
Common Stock. Quarterly revenues and results of operations may fluctuate as a
result of a variety of factors, including the lengthy sales cycle for the
Company's products, the proportion of revenues attributable to software license
fees versus services, the amount of revenue generated by alliances with other
companies selling INSCI's products, demand for the Company's products, the size
and timing of individual license transactions, the introduction of new products
and product enhancements by the Company or its competitors, changes in customer
budgets, competitive conditions in the industry and general economic conditions.
Additionally, the sale of the Company's products generally involves a
significant commitment of capital by its customers and may be delayed due to
time-consuming authorization procedures within an organization.
While the Company has achieved an operating income in some quarters, INSCI
historically has been unable to generate sales volumes necessary to achieve
profitability on a sustained basis. INSCI's operating results are affected by a
wide variety of factors, including many of which are beyond the control of the
Company. The principal factors are the organization and management of INSCI's
sales force and its distribution partners, market acceptance of INSCI's
products, customer demand for INSCI's products and services, the level of orders
which are received and can be shipped in a quarter, and product performance and
reliability. Other factors include INSCI's ability to design and introduce on a
timely basis new products which compete effectively on the basis of price and
performance and which address customer requirements, product obsolescence,
technological changes, competition and competitive pressures on price, and
general economic conditions affecting the investment by potential customers in
peripheral computer devices. Many of these factors are beyond the control of the
Company. There is no assurance that the Company can sustain its sales volume
going forward or that it will be able to achieve a profit in the marketing of
its products.
2. COMPANY'S OBLIGATION TO FILE A REGISTRATION STATEMENT FOR SHARES OF COMMON
STOCK UNDERLYING 10% CONVERTIBLE REDEEMABLE PREFERRED STOCK.
The Company sold $1,200,000 in 10% Convertible Redeemable Preferred Stock
("10% Redeemable Preferred Stock") in a private placement offering in June 1995.
As a part of the Offering, the Company agreed to file a registration statement
with the Securities and Exchange Commission (the "Commission") to register the
shares of Common Stock underlying the 10% Redeemable Preferred Stock within
ninety (90) days after the closing of the private placement. The Company to date
has not filed a registration for underlying shares of Common Stock under the
1995 private placement. (The underlying shares of Common Stock and dividends
issued on the 10% Redeemable Preferred Stock are included in the within
registration.) The 10% Redeemable Preferred Stock is convertible at the option
of the holder into shares of Common Stock at the greater of $.10 per share or
50% of the average closing bid price of the Common Stock during the twenty (20)
trading days preceding the date that a conversion notice may first be given (See
Conversion schedule in "Description of 10% Redeemable Convertible Preferred
Stock"). The Company has also granted cost free registration rights for an
additional 2,318,440 shares of Common Stock to stock and warrant holders and is
in default in its agreement to file a registration statement for the shares of
Common Stock. The Company may be liable in damages for violations of its
registration rights agreement.
3. COMPANY'S OBLIGATION TO REGISTER SHARES OF COMMON STOCK UNDERLYING 8%
PREFERRED STOCK AND UNIT WARRANTS.
The Company under its 1996 Unit Private Placement concluded in November 1996
sold 1,333,334 Units, each Unit comprised of one share of 8% Preferred Stock and
a Warrant exercisable by the holder into one share of Common Stock at $5.00, for
a period of three (3) years. The Shares of 8% Preferred Stock are subject to a
"lock-up" period as per the terms of the Unit Placement Agreement. The lock-up
restriction of 8% Preferred Stock applies to shares of Common Stock on a one for
one basis. In the event that the Company does not file a registration statement
with respect to the shares of Common Stock underlying the 8% Preferred Stock and
Warrants issued in a the Unit Placement Offering, holders of such securities
will not be able to sell, transfer or otherwise dispose of the Common Stock
pursuant to an effective registration statement under the 1933 Act and will have
to rely on Rule 144 promulgated by the Securities Act of 1933, which requires a
holding period of two (2) years prior to resale as well as limitations on the
number of shares that can be sold in a ninety (90) day period. While the Company
is obligated to have a registration statement declared effective within nine (9)
months from November 1996, or by August 1997, no assurance can be given that a
Registration Statement when filed, will be declared effective prior to that
date. In the event that the Company does not register the underlying shares,
then in that event the Company has agreed to a penalty of two (2%) percent per
month (a maximum of ten (10%) percent) reduction in the conversion price of the
8% Preferred Stock.
The Company is also obligated to use its best efforts to register shares of
Common Stock underlying shares of 10% Convertible Preferred Stock issued under a
private placement completed in September 1996.
4. ACCUMULATED DEFICIT; PREFERRED STOCK DIVIDED OBLIGATION
INSCI has incurred significant losses since its commencement of business in
1989. Its accumulated deficit from inception until December 31, 1996 was
approximately $15,760,000. During the fiscal year ended March 31, 1996, it
sustained a loss of approximately $1,452,000. During the first quarter ended
June 30, 1996, the Company had a net income of $95,000. During the second
quarter ended September 30, 1996, the Company sustained a loss of $878,000.
During the quarter ended December 31, 1996 the Company had a net income of
$98,000. As a result of the completion of the Company's 1995 10% Convertible
Redeemable Preferred Stock Private Placement Offering, the 1996 10% Convertible
Preferred Stock Private Placement and the Company's 1996 Private Placement of
Units of 8% Convertible Preferred Stock and warrants, the Company will be
required to provide dividends of approximately $628,000 per annum in cash or in
stock at the option of the Company. The Company has obligations through 1999 to
pay dividends on shares of Preferred Stock in the event that holders do not
exercise their right of conversion.
5. NEED FOR ADDITIONAL WORKING CAPITAL
The Company believes that it will require substantial funds for working
capital and additional future product development. There can be no assurance
that the Company will be able to raise additional funds on terms favorable to
the Company or at all, or that such funds, if raised, will be sufficient to
permit the Company to conduct its operations as currently contemplated. The
Company's completion of the 10% Convertible Redeemable Preferred Stock Private
Placement in September 1996 and the 8% Unit Private Placement Offering in
November 1996 for an aggregate of $6,350,000 require the Company to represent
that the Company will utilize an aggregate of approximately $4,000,000 of the
Placements for acquisition of other companies.
The Company has established a bank line for working capital and equipment
financing totaling $1,750,000 with Silicon Valley Bank. This line contains
standard banking covenants relating to financial ratios and profitability that
must be obtained by the Company in order for it to utilize this loan. There can
be no assurances that the Company will meet these covenants and accordingly,
that this bank line will be available to the Company as a source of working
capital.
6. POTENTIAL ADVERSE MARKET PRICE IMPACT FROM SHARES ELIGIBLE FOR FUTURE SALE.
The sale of a substantial number of shares of Common Stock in the public
market may adversely affect the trading market price of the Common Stock and
warrants. The Company presently has an aggregate of 4,079,778 shares of Common
Stock outstanding and approximately 9,317,809 (not including 1,097,865 shares of
Common Stock underlying incentive stock options) shares reserved for issuance
(hereinafter collectively, "Reserved Securities") upon the exercise of
outstanding options, warrants and rights and upon the conversion of other
outstanding convertible securities. Of the 4,079,778 shares of Common Stock
issued and outstanding, 1,474,367 are free trading without restriction under the
1933 Act and the remaining 2,605,411 shares of Common Stock are "restricted
securities" as defined by Rule 144 promulgated under the 1933 Act. The Company
is currently registering 2,605,411 shares of restricted Common Stock, 3,697,700
shares of Common Stock underlying options, 585,538 shares of Common Stock
underlying shares of 10% Convertible Redeemable Preferred Stock , 501,434 shares
of Common Stock underlying shares of 10% Convertible Preferred Stock, 3,681,365
shares of Common Stock underlying units which are comprised of shares of 8%
Preferred Stock and Warrants, and 851,772 shares of Common Stock underlying
Warrants, Reserved Securities which are issuable by the Company upon the
exercise or conversion of outstanding options, warrants, rights and other
convertible securities. The Company has agreed to register shares of Common
Stock underlying conversion of Preferred Shares subscribed to by Selling
Shareholders under the Company's 1995 10% Convertible Redeemable Preferred Stock
Placement, the 1996 10% Convertible Preferred Stock Placement, the 1996 8% Unit
Placement and for other registration commitments by the Company (the number of
shares underlying the 10% Convertible Redeemable, 10% Convertible Preferred
Stock and 8% Units are based upon certain assumptions and subject to change. See
"Notes to Selling Shareholders.").
7. CERTAIN TAX CONSEQUENCES OF DIVIDENDS ON PREFERRED STOCK TO BE PAID IN
SHARES OF COMMON STOCK.
The Company's 8% Preferred Stock requires payment of a quarterly dividend at
the rate of 8% per annum payable either in cash or Preferred Stock of the
Company, at the option of the Company. Additionally, the Company's 10% Preferred
Stock requires payment of dividends payable either in cash or Common Stock, at
the option of the Company (depending upon the terms of the specific private
placement offering). For federal income tax purposes, distributions of Preferred
Stock as dividends upon 8% Preferred Stock or distribution of Common Stock as
dividends upon 10% Preferred Stock will be treated as distributions of property.
Accordingly, the cash dividend or fair market value of the shares of Preferred
Stock of the Company when accrued and/or distributed may be taxable as ordinary
income (to the extent of the Company's current or accumulated earnings and
profits) or as capital gain income (if and to the extent that the excess of the
fair market value of such shares over the Company's current or accumulated
earnings and profits per share exceeds the stockholder's tax basis in his
Preferred Stock). As a result, a holder of the Preferred Stock may incur federal
income tax obligations upon the accrual and/or receipt of a dividend payable in
cash or in Preferred Stock. Additionally, payment of dividends on the Preferred
Stock in shares of Preferred Stock and/or Common Stock (depending upon the terms
of the subscription) may result in dilution to the holders of Common Stock. Such
dilution will reduce the net tangible book value per share and earnings per
share attributable to then outstanding shares of Common Stock. The shares of
Preferred Stock carry mandatory conversion rights.
8. REGISTRATION OF 4,000,000 SHARES OF COMMON STOCK FOR ACQUISITIONS
Included in the within Registration Statement is 4,000,000 shares of its
Common Stock, $.01 par value, intended to be used by the Company in its
acquisition program. See "New Business Strategy". There is no assurance that the
Company will be able to acquire or attract acquisition candidates that are
compatible with the Company's business, or that the Company will receive
adequate value for the acquisition of a company. Consequently, there may be
further dilution to existing shareholders, as a result of an acquisition by the
Company.
9. DIVIDENDS ON COMMON STOCK NOT LIKELY.
No dividends have been declared or paid by the Company, and the Company does
not presently intend to declare or pay cash dividends on its Common Stock in the
foreseeable future. Any earnings that may be generated, of which no assurance
can be given, will be used in the foreseeable future to finance the growth of
the Company.
10. SUBSTANTIAL DILUTION.
Investors may experience substantial dilution upon the exercise of
outstanding options and warrants, which were granted under the private placement
offerings, Stock Option Plans, in addition to other options granted to
directors, officers, employees and consultants to the Company. The Company has
previously funded operations through the sale of equity securities. In the event
of additional sales of equity securities by the Company, holders may experience
additional dilution.
11. "PENNY STOCK" RULES.
If the Company fails to maintain NASDAQ(SM) Small Cap Market listing for its
securities, and no other exclusion from the definition of a "penny stock" under
the Exchange Act is available, then any broker engaging in a transaction in the
Company's securities would be required to provide any customer with a risk
disclosure document and the compensation of the Broker-Dealer in the transaction
and monthly account statements showing the market values of the Company's
securities held in the customer's accounts. The bid and offer quotations and
compensation information must be provided prior to effecting the transaction and
must be contained on the customer's confirmation. If brokers become subject to
the "penny stock" rules when engaging in transactions in the Company's
securities, they would become less willing to engage in such transactions,
thereby making it more difficult for purchasers in this offering to dispose of
their shares. The NASDAQ(SM) organization has proposed changes in trading
requirements and should those changes be adopted it may affect the Company's
ability to maintain its qualification for trading status of its Common Stock and
warrants.
12. NEW BUSINESS STRATEGY.
The Company intends to continue the development, and has commenced the
marketing and commercialization of its CD-ROM products. The Company is targeting
independent service bureaus who will license the COINS CD-ROM product as a
microfiche replacement product. Through this new strategy, the Company intends
to build a strong recurring revenue stream based on monthly license fees.
Additionally, the Company intends to enhance its industry position by offering
expanded systems integration and consulting services and to continue its
development program to maintain the technology leadership of its COINSERV
products. With the implementation of its new business strategy, the Company is
subject to all of the risks inherent in a new business enterprise. These
include, but are not limited to, unanticipated problems relating to development,
product introduction and acceptance, marketing and competition. The introduction
of the CD-ROM Products will involve significant risk to the Company, and no
assurance can be given that such Product will be successful or ever result in
the achievement of profits or positive cash flow. Further, the implementation of
INSCI's new business strategy is likely to impact the Company's attention on its
current business and will require a substantial commitment of time and
resources. The Company may need additional funds. There can be no assurance that
the Company will obtain such additional funds on terms acceptable to the
Company, or at all, or that the Company will be successful in the implementation
of the aforementioned strategies.
13. TECHNOLOGICAL CHANGES AND INDUSTRY CONSIDERATIONS
The market for products such as COINSERV and related systems integration and
consulting services and INSCI's new COINS CD-ROM products are characterized by
rapidly changing technology, extensive competition, technological complexity and
evolving industry standards. Therefore, the performance of INSCI will depend on
the success of its existing products as well as its ability to develop and
market new products and services or enhance its existing products to accommodate
the latest technological advances and customer requirements. INSCI is developing
additional enhancements to COINSERV and intends to introduce new software
products during fiscal 1997 (year ended March 31, 1997) to further enhance
COINSERV, make it substantially easier to install and support, provide
additional functions and improve its ease of use. INSCI's business may be
adversely affected if INSCI incurs delays in developing these new products or
enhancements to its existing products or if any new products or enhancements
that are developed or acquired do not gain sufficient and timely market
acceptance. There can be no assurance that the Company's existing or future
product or service offerings will be successful or profitable.
The Company must continue to insure its products are compatible with products
offered by third party vendors, including "server" platforms for COINSERV's
client/server software and optical disk storage devices. INSCI has no
contractual agreements with any such third party vendors, and there can be no
assurance that INSCI will be able to modify COINSERV to be compatible with new
products which may be introduced. In addition, there can be no assurance that
products or technologies developed by others will not render INSCI's products or
technologies noncompetitive or obsolete.
The ability to provide these products for a competitive price will be subject
to numerous potential technological alternative solutions that may be provided
by competitive companies. In light of rapidly developing technological solutions
in the computer industry, no assurance can be given that the Company's proposed
new business strategy will be successful.
INSCI's products currently do not provide a broad choice of imaging
functions. The Company believes that the successful development or acquisition
of these capabilities may be essential to the Company's future success. The
Company is presently exploring alternatives to obtain an imaging product that
will compliment its existing product line. See "New Business Strategy".
The Company believes that the imaging industry is rapidly consolidating. The
Company in order to maintain its industry position and continue its growth is
presently conducting an active search for suitable acquisition candidates under
the strategy of broadening its product line, increasing sales volume and
expanding its distribution channels. However, there can be no assurances that
the company will find a suitable acquisition candidate, or that the company will
be able to obtain sufficient funds on acceptable terms to the Company or be able
to purchase a company or companies from the proceeds raised by the Company in
the recently completed private placement offerings or for purposes of
acquisitions.
14. FOREIGN BUSINESS OPERATIONS
The Company currently has a contractual relation with Technology Providers
Ltd., a Sri Lankan vendor, to develop software with respect to its NT Product
line. Technology Providers Ltd. is owned by family members of Mr. Krishan
Canekeratne who is the Company's Senior Vice President of Development. (See
"Certain Relationships and Related Transactions"). INSCI is also establishing a
business operation in the Philippines. While the Company has achieved cost
savings with its Sri Lanka vendor, and anticipates cost savings with the
formation of its Philippine wholly-owned subsidiary, there can be no assurances
that the Company's foreign operations will continue to maintain cost savings or
will not be subject to political instability in a particular country.
Additionally, although the risk of exposure to currency fluctuations to date
have been insignificant, there can be no assurance that fluctuations in the
currency exchange rates in the future will not have a material adverse impact on
the Company's business, operating results and financial condition.
15. DEPENDENCE UPON PROPRIETARY TECHNOLOGY.
INSCI's business depends upon its proprietary software technology. INSCI does
not hold any patents on any portions of its products at this time but does not
anticipate applying for any patents as new products are developed. In order to
protect its propriety rights, INSCI relies primarily upon a combination of
copyright, trade secret and service mark protection, together with
confidentiality and nondisclosure agreements signed by employees, independent
contractors and other third parties. There can be no assurance, however, that
the steps taken by INSCI to protect its proprietary rights will be adequate to
deter misappropriation of INSCI's technology or independent development by third
parties of similar technology. INSCI does not believe that its products and
proprietary rights infringe upon the rights of any third party. There can be no
assurance, however, that third parties will not assert infringement claims
against INSCI in the future.
16. SUBSTANTIAL DEPENDENCE UPON OUTSIDE SALES LEADS.
The Company depends upon introductions to potential customers provided by
companies with which the Company maintains strategic alliances for a significant
percentage of its sales. Although the Company has written agreements with
UNISYS, and, OCE (formerly Siemen Nixdorf Printing Systems) and the Company's
principal Value Added Resellers (VARs), which generally provide for discounts,
commissions or referral fees for sales of products and services generated by
them or by referral to their customers, such agreements do not require customer
introductions or provide for minimum required purchases of INSCI's products. If
any of the companies with which the Company maintains strategic alliances at any
time decide not to refer potential customers to the Company, the Company may
suffer reduced sales and increased operating losses. In addition, there can be
no assurance that the Company will be able to maintain its strategic alliances
on current terms, or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -Comparison of Results of
Operations" and "Business - Marketing and Sales" contained herein.
17. INTENSE COMPETITION.
Competition among companies providing document archival, indexing and
retrieval solutions is intense. Several companys' market products that compete
directly with INSCI's products and many other companies offer products which
potential customers may consider to be acceptable alternatives to INSCI's
products and services. Several larger competitors with substantially more
resources and capital market computer document storage and retrieval systems
utilizing optical disk drive technology. Other competitors offer alternative
methods for storing and retrieving computer generated documents, including
computer output microfilm/microfiche ("COM") services or solutions in
competition with the Company's proposed COINS CD-ROM products and services.
INSCI expects that the developing need for cost-effective solutions for
indexing, storing and retrieving historical computer data will attract new
competitors and newly developed competitive products. Newly developed products
could be more effective and cost efficient than the Company's current product or
products that it may develop in the future. Many of the Company's existing
competitors have, and future competitors may have, substantially more
engineering, sales and marketing capabilities, substantially greater financial,
technological and personnel resources than the Company, and broader product
lines. The principal competitive factors in the optical disk computer output
storage and retrieval market are aesthetic presentations, functionality,
document access speed, cost, strategic alliance relationships and "open" systems
connectivity. There is no assurance that the Company's competitors will not
enhance their existing products or new competitors will not introduce new
systems or technologies with better features and functions than the COINSERV
system or the COINS CD-ROM products. Additionally, alliances between major
suppliers of data stream software may be formed to create new standards that may
obsolete the Company's products.
18. LACK OF PROVEN ACCEPTANCE OF COMPANY'S MARKETING OF COINS CD PRODUCT
The Company has recently introduced a new Coins CD product directed toward
both Corporate and Server Bureau Markets. The Company's new product may not be
accepted by the market, or if accepted there can be no assurance that the
Company will be able to market the product on a profitable basis or that larger
companies with far greater resources will not compete against the Company with
their version of the product.
19. DEPENDENCE UPON KEY SUPPLIERS.
Optical disk storage devices necessary for the use of INSCI's software
systems currently are available from a number of third party vendors. INSCI does
not intend to manufacture optical disk drive systems or optical disks. An
extended interruption of the supply of optical disk drive systems or optical
disks or extended performance problems could have an adverse effect on the
Company. In addition to optical disk storage devices, INSCI also relies on third
party vendors to provide certain industry standard communication protocols.
INSCI does not currently have any fixed commitments from any suppliers to
provide equipment.
20. ATTRACTION AND RETENTION OF KEY PERSONNEL.
The Company's future performance depends in significant part upon the
continued service of its key technical, sales and senior management personnel.
The loss of the services of one or more of the Company's executive officers of
other key employees could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company is a party
to employment agreements with certain executive officers and key employees. The
Company also maintains key-person life insurance in the sum of $1,000,000 each
on the life of Dr. E. Ted Prince, the Company's Chief Executive Officer and
President, Mr. John Gillis the Company's Executive Vice President of Field
Operations and Chief Operating Officer and Krishan Canekeratne the Company's
Chief Technology Officer and Senior Vice President. The Company's future success
also depends on its continuing ability to attract and retain highly qualified
technical, sales and managerial personnel. Competition for such personnel is
intense, and there can be no assurance that the Company can retain its key
technical, sales and managerial employees or that it can attract, assimilate or
retain other highly qualified technical, sales and managerial personnel in the
future.
21. CHANGE IN CONTROL PROVISIONS.
INSCI's Bylaws and the Delaware General Corporation Law contain provisions
that may have the effect of making more difficult or delaying attempts by others
to obtain control of INSCI, even when these attempts may be in the interests of
stockholders. The Delaware General Corporation Law also imposes conditions on
certain business combinations with "interested stockholders" (as defined by
Delaware law). The Company has provided a provision in certain agreements with
key personnel that in an event of a change of control and a termination of those
employment agreements without cause that each key employee will be entitled to
receive a minimum of one year severance payment and the immediate vesting of all
stock options. Additionally, the Company has provided for certain directors,
that in the event of a change in control, there will be an immediate vesting of
all outstanding options granted under the 1992 directors stock option plan.
22. LACK OF PRODUCT LIABILITY INSURANCE
The Company develops, markets, installs and services electronic information
and document management systems. Any failure by the Company's products may
result in claims against the Company. Due to the high cost of product liability
insurance, the Company does not maintain insurance to protect against claims
associated with the use of its products. Any claim whether or not successful may
result in the Company's expenditure of substantial funds in litigation.
Additionally any claim may require managements time and company resource, and
may have a materially adverse impact to the Company.
23. LIMITED ANTI-DILUTION PROTECTION
Holders of 8% Preferred Stock and/or Warrants, have anti-dilution protection
and adjustment right with respect to : (i) any subdivision of the outstanding
shares of Common Stock of the Company into a greater number of shares of Common
Stock; (ii) any declaration of a dividend or any other distribution by the
Company upon its Common Stock payable in shares of Common Stock; (iii) any
capital reorganization or reclassification of the capital stock of the company;
or (iv) any consolidation or merger of the Company with another entity.
Investors who convert 8% Preferred Stock will incur dilution in the event the
Company issues Common Stock below $3.75 per share, and investors who have
exercised Warrants will also incur dilution in the event the Company issues
Common Stock at below $5.00 per share. In the event that any of the events are
triggered with respect to the anti-dilution rights there may be an adjustment
with respect to the 8% Preferred Stock and/or warrants issued which may result
in a substantial dilution to shareholders.
24. POTENTIAL INSUFFICIENT NUMBER OF SHARES OF COMMON STOCK
In addition to the 1,466,668 Units (each unit comprised of one share of 8%
Preferred Stock, which earns dividends of 8% per annum and a warrant convertible
into a share of Common Stock; each share of 8% Preferred Stock and warrant is
convertible into one share of Common Stock respectively.)issued under the
Company's 1996 Private Placement completed in November 1996, the Company also
issued 1,350,000 shares of 10% Convertible Preferred Stock under another Private
Placement completed in 1996. Each share of 10% Convertible Preferred Stock is to
be converted by the holder into shares of Common Stock at a 30% discount to the
average market price of such Common Stock for the ten trading days prior to
conversion (regardless of the market price for shares of Common Stock).
Additionally, in June 1995, the Company issued $1,200,000 of 10% Convertible
Redeemable Preferred Stock , which is able to be converted over a period of time
at the greater of $.10 per share or 50% of the average closing bid price of the
Common Stock during the 20 days preceding the day of conversion. In the event
that the trading share price of the Company's Common Stock declines for the
period of the time provided for in the Convertible Redeemable Preferred Stock
Placement, then in that event shareholders may experience additional dilution as
a result of the decline in the trading price of the Common Stock.
Additionally, if the price of the Company's Common Stock falls below a
certain price level, the Conversion of 10% Convertible Redeemable Preferred
Stock may result in an insufficient amount of underlying shares of Common Stock
which would require the Company to seek shareholder approval for an increase in
its Common Stock capitalization.
25. PRIOR SEC INVESTIGATION AND SETTLEMENT
On September 30, 1992, the Company and Information Management Technologies
Corporation ("IMTECH"), the Company's former majority shareholder, reached an
agreement with the Securities and Exchange Commission ("Commission") to conclude
and settle the Commission's informal investigation of the Company and IMTECH.
The Company and IMTECH, without admitting or denying any of the allegations made
by the Commission in its complaint, and without trial or final adjudication of
the allegations made in the Commission's complaint consented to the entry of an
order enjoining them from future violations of certain provisions of the Federal
Securities Laws and the rules and regulations thereunder. The settlement may
adversely affect the Company and restrict the Company's ability to raise funds
from persons located in certain significant states. The impact of these
restrictions may be to prevent the Company and IMTECH from conducting future
public offerings or private security placements. The Company and IMTECH may be
subject to contempt of court or other sanctions if the Company or IMTECH, at any
time in the future, engage in actions that are deemed to violate the consent
judgement and the injunctions.
USE OF PROCEEDS
The Company will not receive any proceeds upon filing of this registration.
In the event any option or warrant holder elects to exercise, then in that event
the Company will receive proceeds. In the event proceeds are received, they will
be used for working capital, and general corporate purposes.
INSCI has agreed to pay all fees and expenses related to this offering and to
provide to selling stockholders a cost free registration for shares owed by
Selling Stockholders and for the shares underlying preferred stock options and
warrants. The Company has also agreed to maintain an effective registration for
a period of three years.
DIVIDEND POLICY
INSCI has never declared or paid any cash dividends on its Common Stock and
does not expect to pay cash dividends on its Common Stock in the foreseeable
future. The Company under certain circumstances may be required to pay cash
dividends on its Preferred Stock. See "Dividends" and "Description of Securities
- - Preferred Stock".
DIVIDENDS
O COMMON STOCK
No dividends have been declared or paid by the Company since its inception.
INSCI intends to retain all earnings when realized to finance future growth and
therefore does not anticipate paying any cash dividends on its Common Stock for
the foreseeable future.
O 10% CONVERTIBLE REDEEMABLE PREFERRED STOCK
The 10% Convertible Redeemable Preferred Stock ("10% Convertible Redeemable
Stock") issued under the Company's 1995 Private Placement will accrue cumulative
dividends at a rate equal to 10% per annum of the issued price of $1.00 per
share (the "Issue Price"), payable semi-annually out of the funds legally
available therefore on April 15 and October 15 in each year with respect to
dividends accrued as of March 31 and September 30 in each such year (each a
"Dividend Payment Date"). At the option of the Company, dividends may be paid in
cash or in-kind. Dividends in-kind shall be paid by delivery of that number of
shares of Common Stock determined by dividing the amount of the aggregate
dividend accrued and payable by an amount (not less than $.10) equal to 50% of
the average closing bid price of the shares of Common Stock during the twenty
(20) trading days immediately preceding a dividend payment date.
O 10% CONVERTIBLE PREFERRED STOCK
The 10% Convertible Preferred Stock ("10% Preferred Stock") issued under the
Company's Private Placement Offering which closed in September 1996 will pay a
stock dividend of 10% per annum payable on a semi-annual basis, or in the
alternative, the Company may elect to make payment of the dividend as an annual
8% cash dividend. If the Company elects to make dividends payable in cash they
will be payable semi-annually out of funds legally available therefore on June
30 and December 31 in each year. Dividends payable in-kind shall be paid by
delivery of the number of shares of Common Stock determined by the average of
the trading market price of the shares of Common Stock during the ten (10)
trading days immediately preceding a dividend payment date.
O 8% CONVERTIBLE REDEEMABLE PREFERRED STOCK
The 8% Convertible Redeemable Preferred Stock ("8% Preferred Stock") issued
in the Company's Unit Private Placement which closed in November 1996 will pay
dividends of 8% per annum on a quarterly basis and are cumulative. Dividends can
be paid in cash or 8% Preferred Stock at the option of the Company. The 8%
Preferred Stock payable as dividends is to be valued at the lesser of $3.75
(three dollars seventy-five cents) or the average bid price for Common Stock for
twenty (20) consecutive trading days prior to the end of the quarter. In the
event that the average bid price for Common Stock during any sixty (60) day
period commencing August 1, 1998 is $2.75 (two dollars seventy-five cents) or
less, holders of a majority of outstanding 8% Preferred Stock can elect to have
dividends paid in cash for the balance of the life of the 8% Preferred Stock
(the "Cash Election"). If the Company fails to honor the Cash Election, the
Company must pay dividends in shares of 8% Preferred Stock (valued at the lesser
of $3.75 or the average bid price for Common Stock for twenty (20) consecutive
trading days prior to the end of the quarter) and a majority of holders of 8%
Preferred Stock shall have the right to designate one (1) Board Member and the
Company shall immediately appoint a designee and use its best efforts to cause
the election of the designee for so long as twenty-five (25%) percent of the 8%
Preferred Stock remains outstanding. In the further event the average bid price
for Common Stock during the last thirty (30) day period of any quarter
commencing with the thirty (30) day period beginning September 1, 1998 is $3.75
(three dollars seventy-five cents) or less, annual dividends on 8% Preferred
Stock will be automatically readjusted to eleven (11%) percent per annum for the
balance of the period that any 8% Preferred Stock is outstanding.
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as of
December 31, 1996. This table should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
AT DECEMBER 31,
1996
(IN THOUSANDS)
--------------
NOTES PAYABLE
Current 15
Long term 44
--
59
==
STOCKHOLDERS' EQUITY
10% Convertible redeemable preferred 11
stock, $.01 par value authorized
10,000,0000 shares, 1,240,000
issued, 1,042,375 outstanding
10% Convertible preferred stock, 14
$.01 par value authorized 10,000,0000
shares, 1,350,000 issues and outstanding
8% Convertible redeemable preferred 14
stock, $.01 par value authorized
10,000,000 shares, 1,333,333 shares issued
and outstanding
Common Stock, $.01 par value 40
authorized 40,000,000 shares, issued
and outstanding 4,075,257(1)
Additional paid in capital 23,295
Accumulated deficit -15,760
------
Total stockholders' equity 7,614
-----
Total capitalization 7,658
- ----------
(1) Excludes an aggregate of 1,097,865 shares of Common Stock reserved for
issuance upon the exercise of options outstanding as of December 31, 1996.
DILUTION
Dilution is not applicable.
SELECTED FINANCIAL DATA
The following Selected Financial Data should be read in conjunction with the
Financial Statements and the Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operation" included elsewhere in
this Prospectus. The Selected Financial Data presented below under "Statement of
Operations Data" and "Balance Sheet Data" as of and for each of the fiscal years
ended March 31, 1996, and 1995 are derived from the Financial Statements of
INSCI Corp., which have been audited by Mahoney Cohen Rashba & Pokart, CPA, PC,
independent certified public accountants. The Financial Data for each of the
fiscal years ended March 31, 1994, 1993 and 1992 and is derived from, and is
qualified by reference to, Financial Statements audited by Grant Thornton,
independent certified public accountants. The information set forth below should
be read in conjunction with such Financial Statements and Notes thereto. The
Selected Financial Data presented below for the nine months ended December 31,
1996 and 1995, are derived from the unaudited Financial Statements of the
Company. The unaudited Financial Statements have been prepared on the same basis
as the audited Financial Statements and, in the opinion of Management, contain
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the Company's financial position and its results of
operations for such periods.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, (UNAUDITED)
--------------------------------------------------------------------------------------
DEC. 31, DEC. 31,
In thousands, except per share amounts 1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue $ 2,680 $ 5,869 $ 8,187 $ 7,188 $ 7,913 $ 5,072 $ 8,380
Cost of revenue 2,121 2,762 4,338 3,504 3,311 2,358 3,336
Write down of software development costs -- 897 -- -- -- -- --
Product development -- 745 1,147 1,364 1,758 1,060 1,545
Selling, general and administrative costs 3,459 4,036 4,686 5,441 4,326 3,186 4,242
Write-off of registration costs 445 -- 330
Operating income (loss) (3,345) (2,571) (2,314) (3,121) (1,482) (1,532) (743)
Interest expense, net 375 328 654 (8) (30) (39) (60)
Net loss ($3,720) ($2,899) ($2,968) ($3,113) ($1,452) ($1,493) ($683)
Preferred stock dividend -- - - (253) (27) (27) (220)
Net income (loss) applicable to
common stock (3,720) (2,899) (2,968) (3,366) (1,479) (1,520) (903)
Net loss per common share ($2.19) ($1.54) ($1.55) ($1.04) ($.40) ($.42) ($.23)
Weighted average common shares outstanding 1,701 1,878 1,913 3,242 3,655 3,641 3,983
BALANCE SHEET DATA:
Working capital (deficiency) ($2,591) ($2697) ($6,190) 883 60 140 5,248
Total assets 3,021 3,929 5,242 5,299 5,193 3,822 10,600
Long-term indebtedness 562 894 648 32 44 -- 44
Stockholders' equity (deficiency) (1,346) (1,724) (4,692) 1,601 2,519 1,851 7,614
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was incorporated on December 20, 1989 as a wholly owned
subsidiary of IMTECH. Effective December 1, 1989, the Company consummated an
acquisition (the "Acquisition") of certain assets from Acctex for a purchase
price paid by delivery to Acctex of 144,865 shares of IMTECH's Class A Common
Stock which were contributed by IMTECH to the Company and valued at $335,000,
and the assumption of capital lease liabilities valued at $73,000. Assets
purchased from Acctex included computer software, customer support and
maintenance agreements and certain trade names. Prior to the Acquisition, Acctex
marketed its single user stand-alone software document indexing, storage and
retrieval software primarily to end users and distributors. Following the
Acquisition, the Company engaged in substantial efforts to expand the size and
geographical coverage of its direct sales force and its network of distributors.
The Company also engaged in efforts to enhance the acquired software with
additional functions and features and marketed the stand-alone single user
software under the COINSERV trademark. IMTECH provided working capital for
operations through periodic advances to the Company.
At the end of fiscal 1991, the Company revised its business objectives by
changing its primary focus to a strategy of developing and marketing more
complex client/server software that is designed to be integrated into a
customer's existing local or wide area network and to receive computer generated
documents directly from the customer's existing host computer. During this
period, the Company also undertook to develop significant additional software
functions, to develop additional COINSERV versions that operate compatibly with
the computer operating systems and equipment of additional vendors of computer
servers and optical disk drives. The Company believed it was in its best
long-term interest to adopt a strategy of focusing on the development and sale
of client/server software in order to serve a larger potential market for
document storage, indexing and retrieval software that can be used concurrently
by multiple computer operators connected to the COINSERV server through a
customer's existing local or wide area network.
On April 21, 1994, the Company received net proceeds of approximately
$7,159,000 from an initial public offering of its equity securities. The Company
used the proceeds of its public offering to enhance the COINSERV software and
develop new products, hire software developers, system engineers, and customer
support personnel and significantly increase marketing spending.
On March 28, 1996 the Company acquired certain assets from a non-affiliated
company known as Courtland Group, Inc. ("Courtland"). The purchase of assets
transaction involved the payment by the Company to or on behalf of Courtland of
the sum of $679,000 in cash, common stock, and a note payable, plus assumption
of $96,000 in accrued liabilities. The following discussion should be read in
conjunction with the "Selected Financial Data" above and the financial
statements and notes thereto contained elsewhere in this document.
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship that certain items of the Company's results of operations bear to
total revenue.
Nine months ended
December 31,
1996 1995
---- ----
Revenue % %
- -
Product 53 61
Maintenance 17 25
Services 30 14
--- ---
Total revenue 100 100
Cost of revenue
Product 15 23
Maintenance 12 14
Services 13 9
--- ---
Total cost of revenue 40 46
--- ---
Gross margin 60 54
Expenses
Sales and marketing 33 32
Product development 18 21
General and administrative 18 24
Litigation settlement costs 0 5
Restructure/relocation costs 0 2
--- ---
Total expenses 69 84
Income (loss) from operations -9 -30
Interest income (expense)
Interest income 1 1
Interest expense 0 0
--- ---
Interest income (expense) net 1 1
--- ---
Net income (loss) -8 -29
=== ===
<PAGE>
NINE MONTHS ENDED DECEMBER 31, 1996 AS COMPARED
TO THE NINE MONTHS ENDED DECEMBER 31, 1995:
REVENUE
Total revenue for the nine months ended December 31, 1996 was $8,380,000
and increased by 65% compared to revenue of $5,072,000 for the nine months ended
December 31, 1995. Product revenue was $4,473,000 for the latest nine month
period and increased by 45% compared product revenues of $3,078,000 for the same
period in 1995. This increase is attributable to higher value sales orders and
reflects the Company's emphasis on selling enterprise licenses to key accounts
and larger customers, combined with increasing revenues from the Company's
strategic sales partners.
Maintenance revenue was $1,435,000 for the nine months ended December 31,
1996 and increased by $139,000 compared to the same period in 1995. Services
revenue was $2,472,000 for the latest nine month period and increased by 254%,
or $1,774,000 compared to the nine months ended December 31, 1995. This increase
is primarily attributable to the increase in revenue from the Company's
consulting and systems integration activities. During the current fiscal year,
the Company has focused on increasing its systems integration services to
increase total revenue and to provide support services to enable higher sales
volumes of its core software products.
GROSS MARGIN AND COST OF REVENUE
Gross margin for the nine months ended December 31, 1996 was $5,044,000
and increased by 86% over gross margin of $2,714,000 for the nine months ended
December 31, 1995. Gross margin as a percent of sales for these periods was 60%
and 54% respectively. The increase in the gross margin percentage during 1996
reflects an increase in sales volume with a lower rate of increase in cost of
revenue, much of which, including software amortization and support expenses,
does not increase in proportion to revenue increases.
Cost of product revenue was $1,209,000 for the nine months ended December
31, 1996 compared to $1,149,000 for the same period during 1995. The cost of
product revenue includes software amortization charges of $680,000 for the
December 31, 1996 period compared to $591,000 for the comparable period last
year.
<PAGE>
Total combined costs of revenue for maintenance and services were
$2,127,000 for the nine months ended December 31, 1996 and increased by 76%
compared to $1,209,000 for the nine months ended December 31, 1995. This
compares with a 96% increase in the revenues related to these costs. The
increase in cost of revenue reflects additional personnel associated with
increased billings in systems integration services combined with added personnel
costs associated with upgrading the level of maintenance support provided to
customers.
SALES AND MARKETING
Sales and marketing expenses for the nine months ended December 31, 1996
were $2,746,000 or 33% of total revenue compared to $1,645,000 or 32% of total
revenue for the nine months ended December 31, 1995. The expense increase of
$1,101,000 between these periods is attributable to sales commissions related to
increased revenues combined with additions in marketing programs and personnel
to support increases in revenues.
PRODUCT DEVELOPMENT
Product development expenses were $1,545,000, or 18% of revenues, ( after
capitilization of software developments costs of $675,000) for the nine months
ended December 31, 1996 compared to $1,060,000, or 21% of revenues, ( after
capitilization of software developments costs of $141,000) for the comparable
period in 1995. The $485,000 increase in expenses reflects resources, primarily
personnel additions and outside contractors, to enhance and develop future
company products. The increase in capitalized software development costs
reflects additional investments in new and enhanced products, much of which
relates to the Company's new Windows NT and imaging products.
.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $1,496,000, or 18% of revenues,
for the nine months ended December 31, 1996 compared to $1,202,000, or 24% of
revenues for the comparable period in 1995. The increase of $294,000 is
attributable to additional audit, legal, professional, shareholder relations,
compensation and insurance expenses.
NON-RECURRING COSTS
The Company recorded a charge of $250,000 in the quarter ended December
31, 1995 related to the settlement in full of a dispute with Marine Midland
Bank. During the same quarter, the Company reversed $89,000 in expenses related
to provision for a restructuring plan that had been accrued during the quarter
ended June 30, 1995. There has been no activity relating to non-recurring
charges during the nine months ended December 31, 1996.
<PAGE>
INTEREST INCOME (EXPENSE)
Interest income (expense) net was $60,000 in the for the nine months ended
December 31, 1996 compared to $39,000 for the comparable period last year. The
increase in net interest income of $21,000 reflects interest on added equity
funds that were raised during September, October and November of 1996.
NET INCOME (LOSS)
Net loss was $683,000 for the nine months ended December 31, 1996 compared
to a net loss of $1,493,000 for the nine months ended December 31, 1995. After
provision for preferred stock dividends of $220,000, which primarily relate to
capital raised for acquisition purposes during the Fall of 1996, net loss
applicable to common shares for the nine months ended December 31, 1996 was
$903,000 , or ($.23) cents per share, compared to a loss of $1,520,000 after
preferred stock dividends of $27,000, or ($.42) per share, for the comparable
period last year.
COMPARISON OF RESULTS OF OPERATIONS OF FISCAL YEARS 1996, 1995, 1994
The following table sets forth, for the periods indicated, the percentage
relationship that certain items of the Company's results of operations bear to
revenue.
FISCAL YEAR ENDED MARCH 31,
---------------------------
1996 1995 1994
---- ---- ----
Revenue 100% 100% 100%
Cost of revenue 42 49 53
Expenses 73 87 71
Non-recurring charges. 4 7 -
Write-off of registration cost - 4
-
--- --- ---
Loss from operations (19) (43) (28)
Interest income - net 1 - (8)
--- --- ---
Net loss (18%) (43%) (36%)
=== === ===
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1996 VERSUS MARCH 31, 1995
REVENUE. The following chart compares INSCI's revenue for fiscal 1996
versus fiscal 1995: (in thousands)
FISCAL YEAR ENDED MARCH 31,
1996 1995 % Change
---------- ------- ------------
Software $4,099 $3,939 4%
Hardware 884 996 (11)
------ ------
Total product revenue 4,983 4,935 1
------ ------
Services 1,172 763 54
Maintenance 1,758 1,490 18
----- -----
Total services revenue 2,930 2,253 30
----- -----
Total revenue $7,913 $7,188 10%
====== ======
INSCI sells, installs and supports imaging, print-on-demand, and data
management and archival storage software products. Sales to end users generally
include software, optical storage hardware, systems integration and consulting
services, installation, and training. Post-installation maintenance and customer
support is available under the terms of a separate contract at an additional
charge. INSCI also sells software products directly to VARS and distributors.
Revenue is net of discounts and allowances given to third party VARS and
distributors. INSCI reported revenue of $7,913,000 in fiscal 1996, an increase
of $725,000, or 10%, from revenue of $7,188,000 for fiscal 1995. Product
revenues were $4,983,000 for fiscal 1996 compared to $4,935,000 for fiscal 1995,
an increase of $48,000 or 1%.
Services revenue, which includes charges for systems integration and
consulting, custom applications, installation, training, and maintenance,
totaled $2,930,000 in fiscal 1996, an increase of $677,000 (30%) over service
revenue of $2,253,000 in fiscal 1995. This increase is primarily attributable to
the growth of the systems integration and consulting revenues which increased to
$683,000 in fiscal 1996 from $32,000 in fiscal 1995, due to the emphasis the
Company started placing in fiscal 1996 on providing customers with a broader
range of services complementary to their complete document management system
needs.
COST OF REVENUE. Total cost of revenue for fiscal 1996 was $3,311,000 or
42% of sales, compared to $3,504,000, or 49% of sales, for fiscal 1995.
Cost of revenue for product sales increased to $1,784,000 or 36% of
product revenue in fiscal 1996 as compared to $1,387,000 or 28% of sales in
fiscal 1995. Costs associated with product sales include the costs of hardware
and software products purchased from third parties for resale, and amortization
of capitalized software development and capitalized purchased software costs.
Costs of product revenue varies depending upon the mix of software and hardware
included in total system revenue. The increase in cost of product revenue is
primarily due to the increase in the level of charges pertaining to the
amortization of capitalized software development which increased to $760,000 in
fiscal 1996 from $218,000 in fiscal 1995 as a result of the commencement in
April 1995 of amortization of the development costs for the COINSERV 2.2
product. This increase was partially offset by an improvement in margin on
hardware sales due to lower discounting.
Costs associated with service revenues reflect principally the costs of
systems integration, consulting, and customer support personnel, and the cost of
third-party services and hardware maintenance subcontracts. These decreased to
$1,527,000 or 52% of services revenue in fiscal 1996 from $2,117,000 or 94% in
fiscal 1995. The decrease in costs reflects the change in the mix of support
staff levels in fiscal 1996, and $162,000 less in costs associated with hardware
maintenance due to the exclusive use of third party contracted services for all
of fiscal 1996, and less of services provided by outside contractors and
companies.
SALES AND MARKETING. Sales and marketing expenses were $2,459,000, or 31%
of revenue, for fiscal 1996, as compared to $3,070,000 or 43% of revenue, for
fiscal 1995. This decrease was attributable to a change in compensation programs
and lower travel expenses, and reduced spending on consultants.
PRODUCT DEVELOPMENT. Product development expenses increased to $1,878,000
(before capitalization of software development expenses of $120,000, resulting
in net expenses of $1,758,000) or 24% of revenue in fiscal 1996 compared to
$2,185,000 (before capitalization of software development expenses of $821,000
resulting in net expense of $1,364,000) or 30% of revenue in fiscal 1995. While
there was only a small change in total spending, the level of capitalization of
software development costs dropped $701,000 as a greater proportion of the
development staff's time was devoted to sustaining engineering tasks. In
addition, during fiscal 1996 the Company commenced a program to reduce its cost
of product development by having selected product development performed under a
fixed price contract basis by a programming company in Sri Lanka.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$1,542,000, or 20% of revenue, for fiscal 1996, as compared to $1,871,000, or
26% of revenue, for fiscal 1995. The decrease is primarily due to lower
compensation related costs, and a reduction in facilities expense.
NON-RECURRING CHARGES. The Company paid $250,000 in fiscal 1996 to Marine
Midland Bank ("Marine") in full settlement of all claims with respect to a
dispute over a 1993 sublease of office space from Marine. In addition, in fiscal
1996, the Company recorded a charge of $75,000 for a fee paid to Bank of New
York Financial Corp. ("BNY") in April 1996 to terminate, at the Company's
request, the Company's credit facility with BNY. The Company incurred $500,000
of expense in fiscal 1995 in conjunction with its move from White Plains, NY to
its new headquarters in Westborough, MA. These expenses included the costs of
relocating employees and equipment, and employee severance and replacement
costs.
INTEREST INCOME/EXPENSE. Interest income was $70,000 in fiscal 1996
partially offset by $40,000 in connection with interest on the 10% subordinated
notes. Interest income-net of $8,000 for fiscal 1995 represents interest income
of $64,000 offset by interest expense consisting of charges of $45,000 on
intercompany advances from IMTECH, and $11,000 of interest charges from
borrowings under its external credit facility.
NET LOSS. The net loss for fiscal 1996 was $1,452,000 or 18% of revenue
compared to a net loss of $3,113,000 or 43% of revenue for fiscal 1995. The
decrease in the net loss principally resulted from increased system integration
and maintenance revenues, and lower compensation related expense due to lower
sales staffing levels and lower commission and bonus expenses.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1995 VERSUS MARCH 31, 1994
REVENUE
The following chart compares INSCI's revenue for fiscal 1995 to revenue
for fiscal 1994: (in thousands)
FISCAL YEAR ENDED MARCH 31,
1995 1994 % Change
------ ------ --------
Software $3,939 $3,791 4%
Hardware 996 2,771 (64)
------ ------
Total Product Revenue 4,935 6,562 (25)
------ ------
Services 763 584 31
Maintenance 1,490 1,041 43
------ ------
Total Service Revenue 2,253 1,625 39
------ ------
Total Revenue $7,188 $8,187 (12%)
====== ======
INSCI sells, installs and supports document and data management and
archival storage software products. Sales to end users generally include
software, optical storage hardware, installation, and training.
Post-installation maintenance and customer support is available under the terms
of a separate contract at an additional charge. INSCI also sells software
products directly to VARS and distributors. Revenue is net of discounts and
allowances given to third party VARS and distributors. INSCI reported revenue of
$7,188,000 in fiscal 1995, a decrease of $999,000, or 12%, from revenue of
$8,187,000 for fiscal 1994. Product revenues were $4,935,000 for fiscal 1995
compared to $6,562,000 for fiscal 1994, a decrease of $1,627,000 or 25%.
Starting in fiscal 1995 the Company no longer sells computer systems but rather
only optical storage devices for use in conjunction with its software products.
This resulted in a decrease in hardware revenue in fiscal 1995 to $996,000 as
compared to $2,771,000 in fiscal 1994 - a decrease of $1,775,000.
Services revenue, which includes charges for custom applications,
installation, training, consulting, and maintenance, totaled $2,253,000 in
fiscal 1995, an increase of $628,000 (39%) over service sales of $1,625,000 in
fiscal 1994. This increase is primarily attributable to the growth of the
Company's installed base and a corresponding increase in revenue from
maintenance contracts which increased to $1,490,000 in fiscal 1995 as compared
to $1,042,000 in fiscal 1994.
COST OF REVENUE. Total cost of revenue for fiscal 1995 was $3,504,000
or 49% of sales, compared to $4,338,000, or 53% of sales, for fiscal 1994. Costs
associated with product sales include the costs of hardware and software
purchased for resale, and amortization of capitalized software development.
Costs of product revenue varies depending upon the mix of software and hardware
included in total system revenue. The decrease in cost of product revenue
reflects the higher proportion of high profit margin software product revenue in
fiscal 1995 than in fiscal 1994 and the $1,775,000 decrease in low profit margin
hardware sales.
Costs associated with services revenues reflect principally the costs
of customer support personnel, and the cost of third-party services and hardware
maintenance subcontracts. These increased to $2,117,000 or 94% of services
revenue in fiscal 1995 from $1,462,000 or 89% in fiscal 1994. The increase in
costs reflects the expansion of the customer support staff in fiscal 1995 to
meet the needs of the increased customer base, and the use of a greater amount
of services provided by outside contractors and companies.
SALES AND MARKETING. Sales and marketing expenses were $3,070,000, or
43% of revenue, for fiscal 1995, as compared to $2,541,000 or 31% of revenue,
for fiscal 1994. This increase was attributable to increased compensation and
travel expenses, and increased spending on marketing programs and consultants.
PRODUCT DEVELOPMENT. Product development expenses increased to
$2,185,000 (before capitalization of software development expenses of $821,000)
or 30% of revenue in fiscal 1995 compared to $1,445,000 (before capitalization
of software development expenses of $298,000) or 18% of revenue in fiscal 1994.
This increase was primarily due to increased compensation, supplies and
consultant expenses as a result of the expansion of the Company's development
activities subsequent to the completion of the Company's IPO in April 1994.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$1,871,000, or 26% of revenue, for fiscal 1995, as compared to $2,145,000, or
26% of revenue, for fiscal 1994. The decrease is primarily due to lower
consulting costs, lower management charges from IMTECH, and $275,000 less
provision for bad debts.
NON-RECURRING CHARGE. The Company incurred $500,000 of expense in
fiscal 1995 in conjunction with its move from White Plains, NY to its new
headquarters in Westborough, MA. These expenses included the costs of relocating
employees and equipment, and employee severance and replacement costs.
INTEREST INCOME/EXPENSE. Interest income-net of $8,000 for fiscal 1995
represents interest income of $64,000 offset by interest expense consisting of
charges of $45,000 on intercompany advances from IMTECH, and $11,000 of interest
charges from borrowings under its external credit facility. The decrease from
interest expense- net of $654,000 in fiscal 1994 is due to the receipt of
approximately $7,159,000 in net proceeds from the Company's IPO in April 1994.
NET LOSS. The net loss for fiscal 1995 was $3,113,000 or 43% of revenue
compared to a net loss of $2,968,000 or 36% of revenue for fiscal 1994. The
increase in the net loss principally resulted from increased spending on sales
and marketing programs, and relocation costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows are summarized below for the periods indicated:
Nine months ended
December 31,
------------------------------
1996 1995
---- ----
Cash provided by (used in):
Operating activities $ (478,000) $(514,000)
Investing activities (934,000) (250,000)
Financing activities 5,752,000 (88,000)
---------- ---------
Increase (decrease) in cash $4,340,000 $(852,000)
========== =========
The Company generated net negative cash flows of ($478,000) from
operations in the nine months ended December 31, 1996. The Company had a
negative cash flow of ($934,000) from investing activities relating to additions
to capitalized software and capital expenditures. Financing activities generated
cash flow of $5,752,000, and included proceeds from the sale of preferred stock,
net of issuance costs, of $5,622,000. The preferred stock placement requires
that approximately $4,000,000 of the funds raised be utilized for acquisition
purposes. In January, 1997, the Company obtained a bank line of credit
aggregating $1,750,000 to supplement its working capital and equipment financing
requirements. Working capital at December 31, 1996 was $5,248,000 compared to
$140,000 at December 31, 1995.
Cash generated from the sale of preferred stock included gross proceeds of
$1,350,000 during September, 1996 from the sale of the Company's 10% Convertible
Preferred Stock and $5,000,000 from the sale of the Company's 8% Convertible
Redeemable Preferred Stock, the offering of which was completed in November,
1996. Funds from these placements were raised primarily for the purpose of the
Company acquiring other companies. The Company is required to utilize
approximately $4,000,000 of the funds from these placements for acquisition
purposes.
In January, 1997, the Company established a bank line with Silicon Valley
Bank for working capital and equipment financing totaling $1,750,000. This line
contains standard banking covenants relating to financial ratios and
profitability that must be maintained by the Company in order to utilize the
loan. The purpose of this line is to supplement the Company's working capital
and equipment financing requirements through December 31, 1997.
The Company has no fixed capital commitments.
CHANGE IN ACCOUNTANTS
Effective December 30, 1996, by a resolution of the Company's Board of
Directors, the Company resolved to change auditing firms from Mahoney Cohen
Rashba & Pokart, CPA, PC to Pannell Kerr Forster PC. There were no disagreements
with the Company's former auditors in any matter of accounting principles,
practices, financial statement disclosures or auditing scope or procedures in
connection with audits by the Company's former auditors for the two most recent
fiscal years.
BUSINESS
Overview
INSCI Corp. (INSCI or the "Company") develops, markets, installs and
services electronic information and document management systems designed to meet
the enterprise-wide needs of organizations which produce large quantities of
computer-generated documents and require the storage of and access to a broad
array of document types. The Company provides its customers with the ability to
electronically capture documents and computer output from a variety of sources,
to store information electronically and to access and deliver the information
either electronically or via reprints in a fashion that lowers costs, improves
quality, improves service and provides greater control to the customer. INSCI's
products focus on both the desktop imaging and document management market and
the automated document factory production market.
INSCI's software products marketed under the name, COINSERV, utilize a
customer's existing host computer and computer network to link powerful "Server"
computers, which perform automated document indexing and optical disk storage
functions. This is accomplished with the customer's existing network of "client"
computers, which are used by the customer's employees to search, retrieve and
distribute documents. COINSERV is an optical-disk based client/server computer
output to laser disk (COLD) system. The COLD market addresses print and
microfiche replacement using digital-based techniques to replace printing and
microfiche production and allowing on-line viewing of reports that would
otherwise need to be printed. This produces rapid and major savings for users.
In fiscal year 1996, INSCI introduced the COINS-CD product aimed at both
the corporate and service bureau markets. The new product combines INSCI's core
technology with CD-Recordable media for purposes of electronic information
distribution. COINS-CD offers the user the advantage of using low-cost and
easily available CDS which can be used for distribution of large quantities of
data. Use of this type of technology also offers rapid payback for users and
service bureaus. These products are often used in conjunction with optical
disk-based products and are particularly useful for low cost - large volume
information distribution.
During fiscal year 1997, INSCI introduced Augusta, an advanced technology
imaging and document management system through its acquisition of certain assets
of the Courtland Group, Inc. ("Courtland"). Augusta provides a document storage
system by allowing the user to see and store images of documents and to store
and retrieve documents in mixed data formats such as image, word process
documents and spreadsheet documents.
INSCI offers services including software installation, training, software
maintenance support and systems integration. INSCI's advanced systems
integration services division works with its customers to integrate these
various technologies into existing technical environments to leverage
investments in technology. INSCI's current business strategy is to develop and
provide document management solutions in a fully integrated and customized
manner that enables customers to improve their business processes and
competitive position.
MANAGEMENT CHANGES
On June 15, 1995, Dr. E. Ted Prince was appointed President and Chief
Executive Officer, replacing the former CEO, David Grace. John Gillis, formerly
President and Chief Operating Officer, became Executive Vice President and Chief
Operating Officer.
In September 1995, Dr. Prince was appointed as Chairman of the Board of
Directors of INSCI. Two members of the board, Mr. David Grace and Mr. Olin
Broadway, resigned from the board at the end of the 1995 fiscal year and were
replaced by two new directors, Mr. Frank Murphy and Mr. Leonard Gartner. Mr.
Richard Gerstner, was appointed to the board in March 1996. In September of 1996
at the Company's annual meeting for Shareholders Messrs. Prince, Gartner,
Gerstner, Murphy and Oxenberg were elected by Shareholders to serve as directors
of the Company for the ensuing year.
In March 1996, Mr. George Trigilio, Jr. was appointed Executive Vice
President and Imaging Division Director. Mr. John E. Steinkrauss resigned as the
Company's Chief Financial Officer and Vice President of Finance and
Administration in May 1996. Mr. Roger C. Kuhn was appointed Vice-President and
Chief Financial Officer of the Company in July 1996.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Selected quarterly results of operation for the four quarters ended March 31,
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 1995 FISCAL YEAR 1996
QUARTER ENDED QUARTER ENDED
------------------------------------- --------------------------------------
First Second Third Fourth First Second Third Fourth
June September December March June September December March
1994 1994 1994 1995 1995 1995 1995 1996
------- -------- -------- ------ ----- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $1,734 $1,530 $1,662 $2,262 $841 $2,076 $2,155 $2,841
Cost of Revenue 733 1,129 915 727 691 850 817 953
------ ------- ----- ------ ------- ------ ------ ------
Gross Margin 1,001 401 747 1,535 150 1,226 1,338 1,888
Sales, Marketing,
Product Development
and General &
Administrative 1,445 2,233 1,508 1,119 1,503 1,151 1,253 1,852
------ ------- ----- ------ ------- ------ ------ ------
Earnings (loss) (444) (1,832) (761) 416 (1,353) 75 85 36
before non-
recurring charges
and interest
Non-Recurring
Charges - (500) - - (320) 170 (189) 14
Interest (33) 14 12 15 18 14 7 (9)
------ ------- ----- ------ ------- ------ ------ ------
Net Income(Loss) $ (477) $(2,318) $(749) $ 431 $(1,655) $ 259 $ (97) $ 41
====== ======= ===== ====== ======= ====== ====== ======
<CAPTION>
- -------------------------------------------
First Second Third
June September December
1996 1996 1996
------- -------- --------
<S> <C> <C> <C>
Revenue $ 2,936 $ 2,085 $ 3,360
Cost of Revenue 1,071 1,085 1,179
------- -------- --------
Gross Margin 1,865 1,000 2,181
Sales, Marketing,
Product
Development and
General &
Administrative 1,775 1,891 2,123
------- -------- --------
Earnings (loss) 90 (891) 58
before non-
recurring charges
and interest
Non-Recurring - - -
Charges
Interest 5 13 40
------- -------- --------
Net Income(Loss) $ 95 $ (878) 98
======= ======== ========
- -------------------------------------------
</TABLE>
This table should be read in conjunction with the Financial Statements provided
elsewhere herein.
<PAGE>
PRODUCT OVERVIEW
INSCI Corp. is a supplier of optical-disk based client/server computer
output to laser disk (COLD) systems. These are electronic printing and digital
repository systems that replace the need to carry out paper-based printing in
many situations. This market addresses print and microfiche replacement using
digital-based techniques to replace unnecessary printing and microfiche
production and allowing on-line viewing of reports that would otherwise need to
be printed. This in turn produces savings for users. INSCI's leading product,
COINSERV, is recognized as a performance leader in the client-server segment of
the market.
INSCI also has developed CD-based products (COINS-CD) for print and
microfiche replacement. These are aimed at both the corporate market for
electronic printing and viewing and at the service bureau market. These products
offer the user the advantage of using low-cost and easily available CDS which
can be used for distribution of large quantities of data. These products are
often used in conjunction with optical disk-based products particularly for
distribution purposes.
INSCI develops and markets Ultra and Augusta, imaging and document
management products. They are used for major business applications including
purchasing, law enforcement, legal, manufacturing, medical records, library and
reference. These products provide a complete document storage system by allowing
the user to scan and store images of documents and to store and retrieve
documents in mixed data formats such as image, word processed documents, and
spreadsheet documents. This allows INSCI to offer a complete suite of software
which allows a user to address all document storage needs.
INSCI provides advanced systems integration services to its customers
which allow them to integrate its various products and services and to provide
more efficient and less costly customer service, printing and mailing operations
and to increase their competitive efficiency. The goal of INSCI's present
business strategy with respect to its systems integration group is to provide
outstanding document management solutions in a fully integrated and customized
manner that enable customers to improve their business processes and competitive
position.
INSCI STRATEGY
Since its founding, INSCI has been a leader in adapting high performance
index management, data handling and data compression technologies into the
design of its industry standards compliant electronic printing and document
management systems. INSCI's operating focus has been to develop and provide
cost-effective software products and services for the high volume electronic
printing, document archive, retrieval, viewing, and distribution requirements of
large organizations. The development of strategic relationships that will allow
INSCI to market its products to specific markets or technology segments plays an
important role in the Company's plans for future growth.
The Company markets its products and services primarily to financial and
commercial institutions which produce large quantities of computer-generated
documents and require the storage of and access to such documents as an
alternative to printing them or transferring them to microfiche. INSCI's product
and service offerings are sold through a combination of direct sales by its own
sales force, referrals and strategic partnerships, sales by Value Added
Resellers ("VAR's"), distributors and by Company's operating multiple service
bureaus.
INSCI's current business strategy is to develop, enhance and market
software and services solutions for electronic printing, document archival,
indexing, retrieval and distribution systems. INSCI intends to pursue this
strategy through a marketing focus that will seek to leverage these and future
strategic alliances.
PRODUCTS AND SERVICES
COINSERV
INSCI's COLD/electronic printing software product set, marketed under the
name COINSERV, utilizes a customer's existing host computer and computer network
to link powerful server computers, which perform automated document indexing and
optical disk storage functions, with the customer's existing network of client
computers, which are used by the customer's employees to search, retrieve, and
distribute documents. INSCI emphasizes sales of its multiple user, client/server
based software for management of page formatted computer output and scanned
image documents.
The COINSERV client/server product is currently installed at over 300
customer sites which includes all key vertical industry segments. The system is
supported on many UNIX platforms and provides LAN/WAN connectivity to Windows &
DOS PC's and UNIX terminals. Furthermore, COINSERV provides native terminal
connectivity to 7 mainframe and mini-computer systems. This includes TICS 3270,
AS400 5250, UNISYS A/V, UNISYS 1100/2200, and Data General MVs.
ARCHIVE DATA FORMATS: To support enterprise wide document archive
requirements, an archive system must be capable of handling diverse print output
formats. The COINSERV system accomplishes this goal. COINSERV handles a plethora
of print output line data formats including IBM mainframe formats, UNISYS
mainframe formats, UNIX print output formats, and PC file formats; intelligent
data streams including IBM Advanced Function Presentation (AFP), Xerox MetaCode,
and Xerox DJDE; and scanned documents in TIFF format. COINSERV's support for all
these line data, intelligent data streams, and image data streams is a key
competitive advantage in the COLD industry.
A technology sharing partnership between INSCI and ELIXIR Technologies now
provides a way of processing, archiving, retrieving, viewing and distributing
complex data objects that combine text, graphics, forms, fonts, bar codes and
logos. It is the Company's intention to add support for other intelligent data
streams such as Postscript and PCL to both COINSERV and COINS-CD products.
DOCUMENT INDEXING AND ARCHIVE MANAGEMENT: The COINSERV Data and Index
Management engine is designed to handle large scale storage requirements without
experiencing performance degradation or "topping-out" as the index volume
increases. The COINSERV index component is built with an archive view which
requires that archive data be maintained for extended periods of time unlike
transaction oriented data which may be stored for short periods of time and then
simply overlaid or purged. A true archive system must be capable of handling
large volumes of archive documents, and index records to these documents which
constantly increase.
The COINSERV system is capable of archiving, indexing, and locating
archive documents at speeds that are unparalleled in the COLD market place. In
the Company's most recent fiscal year, it extended its capability of data
archiving, indexing, and compression techniques by providing support for storing
data on other storage media besides optical (WORM) Disk. This new component, the
Hierarchical Storage Manager, allows users to stage data archives so that they
utilize the media that is most responsive to an application's data access
requirements. INSCI's strength in this area provides all COINSERV users with a
high performance archive engine, superior indexing capabilities, and
"forever-view" of archive documents without constantly "topping-out" or having
to purge archive documents. INSCI believes that archive data is a vital and
valuable corporate asset and its products are designed to provide long term data
storage and access without any compromise.
CLIENT/SERVER ARCHITECTURE: The COINSERV system is built on open systems
distributed processing principles utilizing a true client/server architecture.
As such, the system allows for seamless data access from host-computer based
legacy systems as well as state of the art LAN/WAN environments. COINSERV users
get the best of both worlds; they can take advantage of the investments they
have made through the years in their legacy systems' hardware, software, and
networks, while at the same time supporting implementations of LAN/WAN
distributed processing topologies.
INSCI's architectural design and engineering strength with regard to
multi-vendor systems connectivity has given INSCI a strong position in the COLD
market. COINSERV is supported on five UNIX server platforms including SUN
Solaris, UNISYS UNIX, and IBM AIX and provides native host terminal connectivity
from seven mainframe and mini-computer system types in addition to Windows, DOS,
and UNIX workstation access. The COINSERV product is one of the few products
that has been built on a true client/sever architecture that is capable of
retrieving archive data in the native host environment (without emulation) and
from LAN based workstations simultaneously.
COINS-CD
During last fiscal year, INSCI introduced a new product, COINS-CD, that
provides a much more cost effective approach for distributing archive data. The
new product combines INSCI's core technology with CD-R for purposes of data
distribution. This product is targeted at the $450 million per annum
micrographics service business. Based on market research and experience, INSCI
believes that most companies will switch from micrographics products and
services to CD-R products and services. INSCI recently introduced the COINS-CD
product for the Windows NT platform providing significantly increased
performance and functionality.
With the COINS-CD product, third party service centers licensed by INSCI
process computer generated magnetic tapes and record the information on CD-ROMs.
All the data and indexes are written to the CD or other selected storage media
along with the software necessary to access and view them thus making archival
and retrieval methods such as paper and microfiche obsolete.
AUGUSTA
The Augusta imaging and information product was acquired as a result of
the acquisition of certain assets of Courtland Group, Inc. ("Courtland") by
INSCI in March 1996. INSCI Corp. is using this product within its own customer
base to provide imaging and information retrieval systems integrated with its
existing COLD and CD products.
Management believes that the integration of advanced information
retrieval, document management and advanced imaging capabilities into its
COINSERV and CD products will provide it with a powerful new way of
differentiating itself in the market and that customers are demanding this new
type of product.
INSCI SYSTEMS INTEGRATION SERVICES
Utilizing INSCI's core products and technologies and the capabilities of
its consulting resources, INSCI has developed specialized systems integration
approaches and methodologies which allow it to carry out the implementation of
these advanced solutions within large and complex client environments. Its
methodologies encompass project management, project direction, quality assurance
and control, and testing disciplines that are essential for mission critical and
industrial strength solutions in large organizations with massive data stores
and critical processing time frames. These methodologies allow INSCI to provide
enterprise electronic printing, data warehousing and viewing solutions to global
problems in the customer service and data storage area. It is these project
management skills, as well as its technical, product and architectural skills
that allow INSCI to offer a unique set of solutions to organizations that are
seeking more than purely a software product which is capable of satisfying their
organizational requirements.
PRODUCT DEVELOPMENT
The market for data storage and retrieval products is highly competitive
and characterized by frequent technological change. Consequently, INSCI must
continually enhance its products and continue to develop new products. INSCI
engages in product development activities primarily intended to:
o Modify its software products to permit operation with additional computers
and operating environments
o Enhance its software products to make them easier to install, use and
maintain
o Add new features to this software product intended to simplify installation,
operation and the generations of optical applications
o Add additional features and functions
o Develop new user specific applications
o Investigate potential uses of emerging technologies to complement COINSERV's
document management function.
Over the past year in pursuit of these goals, INSCI has enhanced its
existing products, developed new products and acquired others which fit into its
overall strategic direction of the automated document factory.
INSCI Corp. utilizes its staff of development engineers and customer
support personnel to identify, design, and develop product enhancements and new
products. The company has additionally increased the amount of development it
performs by locating some work offshore where resources are less costly, thus
enabling the company to compete more effectively against many competitors with
far greater resources than it possesses.
The Company has recently completed the development of numerous product
enhancements to COINSERV and to COINS-CD that it believes will provide leading
edge functions for customers. COINSERV release 3.0 was released for customer
shipment in January 1996. COINS-CD has undergone numerous major enhancements to
render it more capable in high production environments. The following is a
summary of the new features of COINSERV Release 3.0.
HIGH PERFORMANCE COINSERV
Advanced COINSERV release 3.0 provides customers with increased levels of
archive performance that is unparalleled in the industry. COINSERV is capable of
processing over 600,000 pages of archive data per hour on mid range UNIX archive
servers attached to magnetic RAID devices. Advanced COINSERV provides
performance levels that double the performance of the previous releases.
HIERARCHICAL STORAGE MANAGER
Advanced COINSERV Hierarchical Storage Manager ("HSM") makes it possible
for COINSERV to utilize the most responsive media for current archive data and
migrate older data to less expensive storage media. COINSERV writes the most
current data with the highest access requirement to magnetic RAID devices and as
the data ages and the access frequency for the data diminishes, the archive
documents are migrated to less expensive media such as WORM optical disks.
The COINSERV HSM component will:
o provide faster archive speeds and access to most current data
o allow migration based on report characteristics, download bundles, document
size and index values
o provide a way of deleting reports that are temporary
o provide access to documents while new documents are being archived to the
magnetic RAID sub-system
o provide independent index and data migration
SUPPORT FOR PAPER CLIPS
Advanced COINSERV release 3.0 provides users with a mechanism for adding
annotations at the page level. These annotations, often referred to as paper
clips, are used to maintain an electronic post-it at the page level.
SUPPORT FOR INTELLIGENT DATA STREAMS
Advanced COINSERV release 3.0 includes support for the leading high
performance production print data streams. This includes support for IBM
Advanced Function Presentation ("AFP"), Xerox's MetaCode, and Xerox DJDE. As a
result of this enhancement, the COINSERV product provides high speed archiving,
indexing, full fidelity retrieving, printing and faxing of AFP, MetaCode, and
DJDE.
COMMON DASHBOARD
INSCI's MS Windows based document viewer, WinCoins, displays diverse
archive data using a common dashboard. The common dashboard simplifies document
access by providing a common user interface regardless of the data stream. This
approach eliminates retrieval complexity and simplifies end user document access
and training.
ADDITION OF SUN SOLARIS
Towards the end of 1995, the COINSERV product was ported to run on SUN
Solaris UNIX servers. The addition of SUN as a COINSERV server platform
increases the marketability of the COINSERV product to the financial community.
SUPPORT FOR 12.6 AND 15 GB OPTICAL TECHNOLOGY
The COINSERV product may be installed with 12.6 GB optical devices from
LMSI or 15 GB optical devices from SONY. Both of these devices provide
unparalleled storage capacities and document retrieval performance due to more
data available under read/write head.
ENHANCED SECURITY
The Advanced COINSERV release 3.0 security component provides users with
enterprise level security management by providing security groups, user
changeable passwords, password encryption, and password expiration.
HIGH PERFORMANCE CLOSING
High Performance Closing allows customers to migrate less frequently
accessed index volumes to optical disk. This component allows high speed
migration of index volumes from magnetic disk to optical disk, thereby fully
supporting not only index volumes generated for the 5.25" optical platters but
also much larger index volumes associated with 12" optical platters. Once the
indices have been migrated from magnetic to optical, the optical volume becomes
a self contained repository that includes the data and the index information.
RETRIEVE FROM CLOSED OPTICAL DISK
The COINSERV interface for retrieving index information has been augmented
to include index searches from closed index volumes. This interface provides end
users with a simple means of accessing closed index volumes for archive data
without regard to locale or having to lead the index information to magnetic
disk. Retrieving index information that has been closed may be tailored to a
customer's needs by either providing seamless access, seamless access with
break-points, user defined optical volume access or excluding optical index
access.
DYNAMIC INDEX SELECTION
Dynamic Index Selection ("DIS") provides the infrastructure for optimizing
index searches. This component significantly improves the COINSERV index process
by eliminating unnecessary index searches and dynamically selecting the most
optimum index key field. DIS maintains statistical information about each index
volume during the data archive process and uses this information to
intelligently select the index volumes that must be searched. Furthermore, in
the event that multiple index key values have been selected for a search, DIS
intelligently selects the most optimum key to search the index volume.
The combination of Index Closing, Retrieve from Closed Index Volumes, and
Dynamic Index Selection provides COINSERV Release 3.0 users with an efficient
and cost effective way of archiving and retrieving large volumes of data without
constantly "topping-out" or degrading performance -- the COINSERV "forever-view"
document management architecture. The combination of these concepts fully
supports on-line, near-line, and off-line data archive and retrieve.
WINCOINS ENHANCEMENTS
Numerous enhancements have been made to the Microsoft Windows client. The
new WinCoins software is a true Microsoft Windows GUI application that conforms
and adheres to all Microsoft standards. The new client fully supports the
Microsoft Desktop, Imaging, Dynamic Data Exchange, WINSOCK, and many other
features.
OTHER ENHANCEMENTS
Other enhancements include numerous additions to the COINSERV Volume
Manger: error recovery, reporting and tracking, fax sub-system, imaging, and
advanced document indexing.
COINS-CD PRODUCT
During the past year INSCI introduced the COINS-CD product. The COINS-CD
product provides the ability to replace microfiche with inexpensive electronic
storage media that can be used on PC's. The same data that would be written on
microfiche is now written to CD-R, optical or some other electronic storage
media. At the same time, index values are extracted from the data in preparation
for rapid access to data. An electronic document viewer is also copied to the CD
so that the data may be easily retrieved on a PC with a CD drive.
Many of the enhancements to COINSERV also benefit COINS-CD since the core
platform is the same. Additionally, other enhancements to COINS-CD are in
process. These include advanced networking and an increase in the number and
type of storage devices supported. This platform is strategic for the company
and although new, it is expected that this product will be a major contributor
to the company's growth.
MARKETING AND SALES
INSCI markets its COINSERV products principally through its own sales
force, through strategic alliances and value added resellers. Marketing
activities include trade journal advertising, distribution of sales and product
literature describing the COINSERV products, their applications and benefits,
attendance at trade shows and conferences, sponsoring or supporting seminars for
customers and prospects, and on-going communications with the established base
of customers via newsletters, new product announcements, direct mail and
telemarketing. Public relations activities include speaking at trade group
meetings, publishing of technical articles, publishing of user success stories,
and distributing of press releases about the Company and its products.
INSCI's direct sales force focuses on prospects for its products that are
particularly in high volume, high performance environments. Sales
representatives initiate contacts with prospective end user customers and make
direct sales of COINSERV products to those prospects. They also provide
assistance and make joint presentations with the Company's resellers and
strategic business alliances. Additionally, they frequently work with INSCI's
systems engineers to provide high level technical consulting services both
before and after a sale.
INSCI has developed several strategic business alliances through which the
Company generates sales. INSCI and UNISYS Corporation are parties to a joint
selling agreement originally entered into in August 1991 and expanded in 1995 to
encompass UNISYS markets on a global basis. UNISYS and INSCI make joint sales
calls and conduct joint product introduction seminars to major corporate and
government organizations. Data General Corporation's System Integration Group
also entered into a reseller agreement with INSCI in early 1995 whereby they
market, install and service INSCI software products on Data General's AViiON
UNIX server series on a worldwide basis.
In 1995, INSCI began a joint marketing and technology partnership with
Elixir Technologies Corporation. Under the terms of an agreement signed in 1995,
INSCI markets Elixir's intelligent data stream viewers and desktop composition
tools for use with COINSERV, and Elixir introduces INSCI to prospects for its
products.
INSCI entered into an agreement with OCE (formerly Siemens Nixdorf
Printing Systems, L.P. ("Siemens") in May 1995. The agreement provides for
Siemens to refer customers to INSCI. Under the terms of the agreement, INSCI is
to develop a new module for the COINSERV product which will be jointly marketed
by both INSCI and Siemens.
INSCI is increasingly entering into partnerships with companies that
operate service bureaus nationwide. These companies permit the company to
increase its sales and penetration into new areas of industry.
INSCI currently has agreements with a limited number of VARs. VARs
generally are organizations that sell their own computer application software
systems to special vertical markets, such as banks, health care organizations or
credit unions. VARs sell INSCI's products as part of an integrated system of
hardware and software for the VARs' customers. INSCI sells its products directly
to VARs for resale to the VARs' customers.
The Company believes that COLD and electronic printing are scarce
technologies and that it is likely to enter into additional marketing alliances
that will have the potential to generate further significant sales. In
particular it believes that companies in the imaging, workflow, information
retrieval, electronic commerce, Internet and printing areas are likely to
require COLD technology in order to meet their own objectives. It intends to
continue discussions with such companies with a view to closing further such
alliances.
CUSTOMER SUPPORT AND SERVICE
INSCI's in-house technical support personnel provide pre-sale support to
assist in product selec tion and configuration, installation support assisting
in technical integration of COINSERV with a customer's existing computer system,
and post-sale telephone support (included in the customer's maintenance support
agreement) assisting in the ongoing use of the COINSERV system. INSCI's post-
sale support also includes software maintenance, software updates and technical
support pursuant to renewable one-year contracts. VARs and distributors
generally handle service and support for their customers. INSCI intends to
expand this level of support both through traditional approaches and through
non-traditional ones. In this regard it has set up a Web site and intends to use
this as a medium for customer information and support.
The computer hardware utilized in COINSERV systems is generally covered by
warranties granted directly by the hardware manufacturer to the customer, and
INSCI does not assume responsibility for support or maintenance of this
equipment. INSCI has not experienced significant return claims. Maintenance and
technical support for the optical disk drive components in all INSCI systems are
provided by a third party contractor which specializes in providing service for
optical disk drives and jukeboxes.
VENDORS AND SUPPLIERS
INSCI acquires optical disk drives, including multiple disk drives and
computer hardware compo nents, for resale as part of integrated systems
including COINSERV software. To date, INSCI has utilized 5-inch and 12-inch
optical disk drives manufactured by several suppliers. There are several
manufacturers of 5-inch optical disk drives (including Panasonic, Plasmon,
Hewlett Packard, Sony, and LMSI), and several manufacturers of 12-inch optical
disk drives. INSCI utilizes alternative sources of supply for optical disk
drives in order to diversify its supplier relationships. INSCI generally
purchases optical disk drives and other hardware components as needed to meet
customer demands, and does not maintain any agreements or understandings
committing its suppliers to provide any minimum quantities or to maintain fixed
prices.
COMPETITION
There are a number of suppliers offering COLD, CD-R, imaging, information
retrieval and print- on-demand systems. In each case, the company believes that
it offers advantages over the competition. In the case of COLD systems, most
systems in the market are departmentally-based and do not offer the performance
at the enterprise level characterized by COINSERV. Nor, in most cases, do they
offer the support for intelligent data streams offered by INSCI. Few COLD
systems offer imaging and information retrieval integrated with COLD, as does
INSCI.
INSCI is aware of a variety of competing systems offerings which use
alternative media for storing and retrieving large amounts of computer data
utilizing computer systems and technology. These alternative media include
magnetic disk, magnetic tape or digital audio tape ("DAT"). Storage utilizing
magnetic disks is significantly more expensive than optical disk storage per
megabyte of data stored and, as an erasable media, is not as reliable for
long-term archival purposes. Magnetic tape storage also is generally more
expensive than optical disk, and magnetic tapes are more easily damaged or
erased. Because magnetic tape must be processed sequentially (data is located on
the tape by viewing the tape from the beginning and stopping when the data is
found), it provides a significantly slower access time than optical disk or
magnetic disk, which can randomly access the disk to read data. DAT storage is
less expensive per megabyte of data stored than optical disk; however, DAT has
limited archival characteristics due to the risk of inadvertent damage or
erasure and sequential access remains too slow for practical use in providing
acceptable data access and retrieval functions. Besides the alternative media
forms used for storing and retrieving data, the other alternative methods for
storing and retrieving large amounts of computer data utilizing media that are
not accessible from a computer include paper and computer output
microfilm/microfiche.
Competition among companies providing document storage, indexing and
retrieval solutions is intense. Numerous competitors market computer document
storage, indexing and retrieval systems utilizing optical disk drive technology.
Many of the Company's primary competitors have substantially greater financial
resources, more personnel, greater access to related products and broader
contact with potential customers than the Company.
The principle competitive factors in the document storage, indexing and
retrieval business include performance, functionality regarding document data
types, document archival and access speed, cost, strategic alliance
relationships and "open" systems connectivity. The Company believes that its
COINSERV, COINS-CD and AUGUSTA product offerings systems compete favorably with
products offered by its primary competitors.
New functionality introduced into the product suite recently included
intelligent data stream support, hierarchical storage management, combined data
and image management, and high volume performance enhancements provide the basis
for competitive differentiation. The Company believes, for example, that the
COINSERV software optimizes the number of documents that may be stored on an
optical disk through the use of efficient data compression technology. Moreover,
the Company believes that its customers consider COINSERV's indexing and
retrieval capabilities to have a greater number of features, and a greater ease
of use, than the systems offered by the majority of its competitors.
Furthermore, the "open" systems nature of COINSERV provides INSCI's strategic
alliances and end users with the ability to integrate COINSERV with their
diverse existing network. However, no assurance can be given that INSCI's
competitors will not enhance their existing systems or that existing or new
competitors will not introduce new systems with better features and functions
than the COINSERV system.
New enhancements to be added to COINSERV will provide more competitive
strength. In particular INSCI is in the process of converting COINSERV to run on
the Windows NT platform which is increasingly being required by customers. It
believes that this will provide it with an even greater competitive edge.
PROPRIETARY INFORMATION
INSCI does not hold any patents and currently relies upon a combination of
trademarks, contractual rights, trade secrets and copyright laws to protect its
proprietary rights in its products. INSCI seeks to protect its proprietary
rights in its COINSERV software through restrictions on disclosure and use set
forth in customer agreements and employee nondisclosure agreements.
Additionally, INSCI requires that all of its employees execute confidentiality,
trade secret and invention agreements in connection with their employment by
INSCI. Despite these precautions, it may be possible for third parties, without
authorization, to copy or duplicate INSCI's proprietary software or to obtain
and use its proprietary information. Existing copyright laws afford only limited
practical protection for computer software, and the laws of certain foreign
countries do not protect INSCI's proprietary rights in its products to the same
extent as the laws of the United States. Because of the rapid pace of
technological change in INSCI's industry, INSCI believes that the legal
protection for its products are less significant for the Company's success than
the knowledge, technical expertise and marketing skills of INSCI's personnel,
the frequency of product enhancements and the timeliness and quality of support
services provided by the Company.
EMPLOYEES
The Company employed 72 persons as of December 31, 1996. The Company's future
success depends, in part, on its ability to retain existing and to attract new
management and technical employees. The Company has no collective bargaining
agreements and considers its relationships with its employees to be good.
PROPERTIES
Effective October 1, 1994, INSCI entered into a ten year lease for
approximately 21,650 square feet of office space located in Westborough,
Massachusetts. On November 1, 1995, the Company subleased for a five year term
approximately 4,315 square feet of its Westborough office space. The Company
also entered into a lease for 3,196 square feet of office space for its
Courtland Imaging division's office in Columbia, Maryland which expires in
February 1998. Management considers its present office space adequate for the
Company's foreseeable needs.
In June 1995, the Company commenced an interim office sharing arrangement
on a month-to-month basis from Perth Ventures, Inc. at a monthly charge of
$2,000. Dr. Prince, who is President, Chief Executive Officer and Chairman of
the Board of Director's of the Company is 100% owner in and is President of
Perth Ventures, Inc. See "Certain Relationships and Related Transactions."
LEGAL PROCEEDINGS
On September 30, 1992, the Company and Information Management Technologies
("IMTECH") reached an agreement with the Securities and Exchange Commission
("Commission") to conclude and settle the Commission's informal investigation of
the Company and IMTECH. The Company and IMTECH, without admitting or denying any
of the allegations made by the Commission in its complaint, and without a trial
or final adjudication of the allegations made in the Commission's complaint,
consented to the entry of an order enjoining them from future violations of
certain provisions of the Federal securities laws and the rules and regulations
thereunder. As part of the order, the Company is subject to an injunction which
may limit or restrict certain activities. The injunction will expire in 1997.
The settlement may adversely affect the Company and restrict the Company's
ability to raise funds from persons located in certain significant states. The
impact of these restrictions may be to prevent the Company from conducting
future public offerings or private placements.
The Commission issued an order, dated April 13, 1995, authorizing a private
investigation of IMTECH and INSCI Corp., and its officers and directors during
the period from March 1993 and continuing until April 13, 1995. The order of
investigation inquiring into whether the Company and its then officers and
directors engaged in violations of Rule 10b-5 of the Securities Exchange Act of
1934 (the "Exchange Act"); failed to file annual reports and other information
as required by the rules and regulations of the Commission in violation of
Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13; and
failed to maintain proper books and records in violation of Section 13(b)2 of
the Exchange Act or falsified or caused to be falsified books and records of the
Companies in violation of Sections 13(b)(2)(a), Rule 13b2-1, and Rule 13b2-2 of
the Exchange Act. On September 10, 1996, the Company was informed by the
Commission that the staff inquiry relating to these matters had been terminated
and that no enforcement action had been recommended at this time.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of INSCI Corp. Each director of INSCI Corp.
will hold office until the next annual meeting of stockholders of INSCI Corp. or
until his or her successor has been elected and qualified. Officers of INSCI
Corp. are elected by the Board of Directors of INSCI Corp. and serve at the
discretion of the Board of Directors.
NAME Age Current Position With Company
Dr. E. Ted Prince [a] 49 Chairman, Chief Executive Officer,
President and Director
Robert Oxenberg 46 Director
Leonard Gartner 55 Director
Francis X. Murphy 48 Director
Richard T. Gerstner 57 Director
Krishan Canekeratne 30 Chief Technology Officer and Senior
Vice-President
John L. Gillis 44 Executive Vice-President of Field Operations
and Chief Operating Officer
Roger C. Kuhn 53 Vice President of Finance and Chief Financial
Officer
George Trigilio, Jr. 50 Executive Vice-President and Imaging Division
Director
[a] Dr. Prince held both the Chief Accounting and Financial Officer positions on
an interim basis from May 10, 1996 through July 29, 1996.
DIRECTORS AND EXECUTIVE OFFICERS
The directors of the Company are elected each year at the annual meeting
of shareholders for terms of one year and until their successors are elected and
qualified. The executive officers of the Company are appointed by the Board of
Directors to serve until their successors are appointed and qualified.
CURRENT DIRECTORS OF INSCI
DR. E. TED PRINCE, was appointed President and Chief Executive Officer of
the Company in June 1995. He was elected Chairman of the Board of Directors in
August of 1995 and appointed and served as Chief Financial and Accounting
Officer on an interim basis in May 1996 through July 1996. Dr. Prince has been
President of several software companies, including Computer Power Corporation,
and is also President of Perth Ventures, Inc., a New York City based investment
banking firm specializing in the emerging technology sector. Dr. Prince serves
as a member of the Board of Directors of Thinking Tools Inc. and Essex
Corporation of which are public companies. Dr. Prince also is an author and
publisher of an industry newsletter, "The Technology Fundamentalist." Dr. Prince
also serves as a Director for several software companies and has a degree in
Political Science from The University of New South Wales (Australia) and a
Master and Ph.D. degree from Monash University in Australia.
ROBERT H. OXENBERG, served as a Director of the Company from April 1992 to
November 1993. Mr. Oxenberg was reappointed to the Board to fill a vacancy in
September 1994. Mr. Oxenberg was appointed Chief Executive Officer of
Information Management Technologies Corporation ("IMTECH"), the Company's former
majority shareholder, in March 1995 and resigned April 1996 as CEO and has
served as a director since April 1992. Mr. Oxenberg is a consultant based in
Aspen, Colorado. From August 1984 to July 1991, he served as Manager of
Corporate Investments for the Anschutz Corporation, a Denver based privately
held corporation.
LEONARD GARTNER, has been the principal of Gartner and Company, an
accounting firm, for the past five years. His firm specializes in structuring
debt and equity instruments, advising clients on the financial and tax aspects
of acquisitions, stock option plans and stock issuance matters. Mr. Gartner was
elected as a Director of INSCI in September 1995. Mr. Gartner also serves as a
member of the Company's Audit and Compensation Committees.
FRANCIS X. MURPHY, was elected a Director of the Company in September
1995. He is the founder of Emerging Technology Ventures, Inc. and has served as
President and Chief Executive Officer from its inception in September 1994. From
February 1994 through September 1994 Mr. Murphy was the President and Chief
Operating Officer of Cryo-Cell International, Inc., a Research and Development
stage medical products public company. From 1991 through 1994, he served as
President and Chief Operating Officer of Creative Socio-Medics Corp., a wholly
owned subsidiary of Advanced Computer Techniques, a provider of technology to
the health care industry. He holds both a Bachelors of Arts and Masters of
Business Administration in Corporate Finance from Adelphi University.
RICHARD GERSTNER, was appointed a Director of the Company in March of
1996. In addition to serving as a Director of INSCI Corp., Mr. Gerstner serves
as a Director for the Lyme Disease Foundation. Mr. Gerstner is currently the
President and CEO of Clausner Wireless Corp. Prior to joining Clausner Wireless
Corp. he served as President and Chief Executive Officer of Telular Corporation,
a manufacturer of fixed wireless telecommunications equipment. Mr. Gerstner is a
graduate of Villanova University with a Bachelors of Science Degree in Chemical
Engineering and holds a Masters of Science in Industrial Engineering from
Stanford University.
CURRENT EXECUTIVE OFFICERS OF INSCI
In addition to Dr. Prince, the following INSCI employees are executive officers
of the Company.
KRISHAN CANEKERATNE, was elected Chief Technology Officer and Senior Vice
President of the Company in June 1995. He joined the Company in December 1989 as
Project Manager/Senior Programmer and was promoted to Director of Software in
September 1991, Vice President in November 1992 and Senior Vice President in
November 1993. Prior to joining the Company, Mr. Canekeratne worked for the
Independent Election Corporation of America.
JOHN L. GILLIS, is Executive Vice President-Field Operations and Chief
Operating Officer of the Company. Mr. Gillis has served as President of the
Company from July 1994 through June 1995. He has served as a director of the
Company October 1993 through September 1996. From August 1992 through November
1993, Mr. Gillis served as Senior Vice President. Mr. Gillis joined the Company
as Vice President Sales in November 1990.
ROGER C. KUHN, joined the Company and was appointed Vice President Finance
and Chief Financial Officer on July 29, 1996. Mr. Kuhn has been Chief Financial
Officer for Momentum Software Corporation and Acuity Imaging Inc. He was Vice
President and Controller of Computervision Corporation. Mr. Kuhn holds a
Bachelors of Science in Accounting and Masters of Business Administration in
Finance from Fairleigh Dickinson University.
GEORGE TRIGILIO, JR., was appointed Executive Vice President and Imaging
Division Director in March, 1996. Prior to joining INSCI Corp., Mr. Trigilio
established Courtland Group, Inc., and was President and Chief Executive Officer
until March 1996 when the Courtland Group was acquired by INSCI.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the compensation for each of the last three
(3) fiscal years earned by the Chief Executive Officer and each of the most
highly compensated executive officers whose individual remuneration exceeded
$100,000 for the fiscal year ended March 31, 1996 (the "Named Executives").
<TABLE>
<CAPTION>
SUMMARY ANNUAL COMPENSATION TABLE
Annual Compensation
------------------------------------------------
Long Term
Compensation
Principal Other Options
Name Position Year Salary Bonus Compensation Granted**
- ------------------ -------------------- -------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dr. E. Ted President and Chief 1996 $157,692 $100,000 $72,983(2) 1,200,000
Prince(1) Executive Officer 1995 - - -
1994 - - -
John L. Gillis(1) Executive Vice 1996 150,447 55,000 54,539(3) 350,000
President 1995 149,154 30,000 157,659(3)
Chief Operating 1994 143,125 - 5,320(3)
Officer
Krishan Senior Vice 1996 118,461 52,454 5,538(4) 350,000
Canekeratne(1) President 1995 107,384 60,000 46,280(4)
Development 1994 87,096 25,000 180(4)
George Trigilio, Executive Vice 1996 (5) (5) 300,000
Jr.(1) President 1995
Imaging Division 1994
David Grace* Acting Chief 1996 (6) 10,000
Executive 1995 17,000 - - -
Officer 1994
John Chief Financial 1996 123,536 11,000 18,615(7) 125,000
Steinkrauss(1)* Officer 1995 88,845 - 20,961(7)
Vice President 1994 - - - -
Finance
& Administration
Gerard Dorsey* Chief Executive 1996 - - - -
Officer 1995 144,000 0 - (8) -
1994 152,436 50,000 177 (8) -
* Indicates resignation
** The Company does not have a restricted stock award program
*** Mr. Roger C. Kuhn was appointed Vice-President and Chief Financial Officer on July 29, 1996. Mr. Kuhn has
an agreement with the Company that provides for a base salary of $125,000 and a potential annual
incentive of $25,000 based on performance. Mr. Kuhn was granted 100,000 stock options upon signing his
employment agreement with the Company and a car allowance of $500 a month.
(1) The individuals listed in the table became executive officers of the Company as follows: Dr. Prince, June
1995, Mr. Gillis, August 1992, Mr. Canekeratne, November 1993, Mr. Steinkrauss, July 1994, Mr. Trigilio,
March 1996.
(2) Dr. Prince was paid $25,000 directly as a signing bonus and $25,000 indirectly as a consulting fee
through Perth Ventures. The remaining $22,983 is comprised of $4,269 living allowance, $6,098 payment for
an automobile lease, $1,560 for garage rental, $10,686 for apartment rental and $370 for an automobile
allowance.
(3) Other compensation for 1996 of $54,539 includes, imputed interest of $21,003 which represents 1995
calendar year interest relative to a $150,000 loan made to Mr. Gillis in April 1994 and $27,810 stemming
from the surrender of 9,000 stock options to pay down the loan. The remaining $5,726 is for an automobile
allowance. In 1995, Mr. Gillis was paid an automobile allowance of $5,140 and housing allowance of $900 and
the Company included $150,000 which represented the loan made to Mr. Gillis in April 1994. Amounts for
1994 represent a $5,140 automobile allowance and $180 paid by the Company for life insurance. Refer to
Related Party Transactions contained herein for additional information relative to Mr. Gillis's loan.
(4) For 1996, the $5,538 represents payment to Mr. Canekeratne for an automobile allowance. Amounts for 1995
represent a car allowance of $3,000, housing allowance of $13,280 and a relocation allowance of $30,000.
For 1994, the Company paid $180 for life insurance.
(5) Mr. Trigilio became employed by the Company at the end of its current fiscal year on March 28, 1996 as a
result of the acquisition of the Courtland Group, Inc. Mr. Trigilio has an employment agreement with the
Company providing an annual salary of $100,000 as well as incentive bonuses conditioned upon his
performance.
(6) Mr. Grace is a past Director and was CEO for an interim period. Mr. Grace was not paid a salary while
serving as Chief Executive Officer during the interim period.
(7) Amounts for 1996 represent $5,538 for an automobile allowance and $13,077 in relocation costs. For 1995,
Mr. Steinkrauss received an automobile allowance of $4,038 and a relocation allowance of $16,923.
(8) All compensation to Mr. Dorsey was paid by Information Management Technology Corporation (IMTECH), the
Company's former majority stockholder. Mr. Dorsey resigned as an officer and director of the Company and
Imtech in September 1994.
</TABLE>
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information concerning options granted to
officers and directors during the Fiscal Year ended March 31, 1996 and reflects
the potential value of such options assuming 5% and 10% annual stock
appreciation.
<TABLE>
<CAPTION>
Option Grants During 1996 Fiscal Year
- ----------------------- ------------------------------------------ ------------- ---------------------
% OF EXPIRATION POTENTIAL POTENTIAL VALUE
TOTAL EXERCISE DATE VALUE ASSUMING
NAME NUMBER GRANTS PRICE ASSUMING ANNUAL STOCK
ANNUAL STOCK APPRECIATION
APPRECIATION 10%
5%
- ----------------------- -------- --------- ---------- ------------ ------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
E. Ted Prince(1) 250,000 6% $2.00 15 Jun 01 $ 670,000 $ 886,000
(2) 950,000 22% 1.66 25 Aug 01 2,113,000 2,794,000
Richard Gerstner(3) 100,000 2% 4.38 28 Mar 01 559,000 705,000
(4) 400,000 9% 6.25 12 Jun 99 2,894,000 3,328,000
Francis Murphy(5) 400,000 9% 2.31 19 Oct 02 1,300,000 1,801,000
(6) 100,000 2% 1.44 9 Sept 01 184,000 232,000
John Gillis(7) 350,000 8% 1.66 25 Aug 05 946,000 1,507,000
Krishan Canekeratne(8) 350,000 8% 1.66 25 Aug 05 946,000 1,507,000
George Trigilio Jr.(9) 300,000 7% 4.38 28 Mar 06 2,140,000 3,408,000
Robert Oxenberg(10) --
(11) 10,000 1.66 10 Sept 05 27,000 43,000
100,000 2% 1.44 9 Sept 00 184,000 232,000
Leonard Gartner(12) 100,000 2% 1.44 9 Sept 00 184,000 232,000
(13) 40,000 1% 4.06 14 Mar 01 207,000 262,000
John Steinkrauss(14) 125,000 3% 1.66 25 Aug 00 265,000 334,000
David Grace(15) 10,000 --- 1.44 28 Sept 00 18,000 23,000
Olin Broadway(16) 10,000 --- 1.44 28 Sept 05 23,000 37,000
</TABLE>
NOTES
* In the event of a change of control in the Company by merger or any other
manner, all unvested directors options under the 1992 directors stock option
plan will vest immediately.
(1) These options were granted to Dr. Prince under his original employment
contract dated June 15, 1995. These options vested immediately and expire in six
(6) years.
(2) As a result of an August 15, 1995 amendment to his contract, 700,000 shares
were canceled and 950,000 new shares were granted. Such options were vested
immediately, however in the event that Dr. Prince resigns or is terminated, he
will only receive a pro-rata share of such options. Each month he remains
employed by INSCI an additional 26,389 shares become vested and exercisable.
(3) Granted to Mr. Gerstner upon joining the Board of Directors on March 28,
1996.
(4) Options included as part of a letter agreement with Mr. Gerstner on June 12,
1996. Options under this agreement are vested when earned. Such options are
earned upon signing new customers to reseller agreements and ensuring the annual
continuation of such agreements.
(5) Options not exceeding 400,000 were granted to Mr. Murphy on an earn-out
basis by providing consulting services through Emerging Technology Ventures Inc.
(ETVI).
(6) Mr. Murphy was granted 100,000 shares upon joining the Board in September
1995.
(7) Mr. Gillis was awarded options under a key employee direct grant program on
August 25, 1995.
(8) Mr. Canekeratne was awarded such options under a key employee direct grant
program on August 25, 1995.
(9) Mr. Trigilio was awarded such options as part of his employment agreement
with the Company and will be vested on an earn-out basis using specific
performance criteria.
(10) Options were awarded in September 1995 based on consulting services
provided by Mr. Oxenberg.
(11) Mr. Oxenberg was granted 100,000 options upon rejoining the Board in
September 1995.
(12) Mr. Gartner was granted 100,000 options upon joining the Board in September
1995
(13) Mr. Gartner was granted 40,000 options in lieu of cash compensation in
March 1996 for providing additional monthly services under an existing retainer
agreement.
(14) Mr. Steinkrauss was awarded options under a key employee direct grant
program on August 25,1995.
(15) Mr. Grace received 10,000 options upon resigning from the Board in
September 1995.
(16) Mr. Broadway was granted 10,000 options upon resigning from the Board in
September 1995.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning the exercise of
options during the fiscal year ended March 31,1996 and unexercised options held
as of the fiscal year ended March 31, 1996 with respect to each of the Named
Executives:
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARS Options/SARS
at FY-End (#) at FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($)(1) Unexercisable Unexercisable (2)
- ---- --------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C>
E. Ted Prince - - 566,668 $1,662,462
633,332 1,858,038
Richard Gerstner - - - -
500,000 21,375
Francis Murphy - - 68,537 156,521
431,463 1,072,354
John Gillis - - 102,367 300,319
233,333 684,541
Krishan Canekeratne - - 116,667 342,272
233,333 684,541
George Trigilio, Jr. - - - -
300,000 64,125
Robert Oxenberg - - 25,000 28,863
130,000 402,443
Leonard Gartner - - 17,500 9,341
- - 122,500 65,384
John Steinkrauss 31,250 $ 143,438 31,250 91,680
David Grace 26,667 $ 113,435 15,000 31,538
Olin Broadway - - 10,000 31,538
(1) Calculated by multiplying the number of shares underlying options by the difference between the
average of the closing bid and ask price of the common stock as reported by NASDAQ(SM) on the date
of exercise and the exercise price of the options.
(2) Calculated by multiplying the number of shares underlying options by the difference between the average
of the closing bid and ask price of the common stock as reported by NASDAQ(SM) on March 31, 1996 and
the exercise price of the options.
</TABLE>
REMUNERATION ON NON-MANAGEMENT DIRECTORS
Each member of the Board of Directors who is not an officer or employee of
the Company is entitled to participate in the Directors Option Plan (See
"Directors Option Plan"), and to receive reimbursement for travel and other
expenses directly related to his activities as a director. The Company does not
pay inside or outside Directors on a per meeting basis for attendance at Board
of Director meetings or related Committee meetings. However, each outside
Director may be compensated pursuant to a written agreement with the Company to
provide specific types of professional services such as financial, accounting or
tax advice covering compensation plans, acquisitions and debt/equity placements.
See Certain Relationships and Related Transactions.
With respect the Audit Committee, the Company subsequent to the end of
fiscal year 1996, has retained a financial consultant, Mr. B. Nicholas Harvey to
be a member of the Committee on a retainer basis at $1,500 per quarter plus
15,000 stock options vesting over three (3) years, 5,000 of which stock options
have been granted with the remaining 10,000 stock options vesting over the next
two (2) years. He is the only non-Director member on any of the Company's
Committees.
COMPENSATION PLANS:
EMPLOYMENT AGREEMENTS
Effective June 15, 1995, the Company entered into an employment agreement
for a period of three years with Dr. E. Ted Prince ("Dr. Prince") the Company's
Chairman of the Board of Directors and President. Dr. Prince's employment
agreement, as amended, provides for a base salary of $200,000 per annum to be
paid through the term of the agreement, annual incentive bonuses based upon
achievement of defined profitability criteria, 250,000 vested stock options to
purchase 250,000 shares of common stock at an exercise price of $2.00 per share,
and 950,000 vested stock options to purchase 950,000 shares of common stock at
an exercise price of $1.66 per share. With respect to the latter options, if the
employment of Dr. Prince is terminated for any reason during the thirty-six
month period of the employment agreement, then he must return to the Company a
pro-rata portion of the 950,000 options. The portion to be returned would be
determined based upon the number of months remaining in the agreement after his
termination date as a percent of the original term of thirty-six months. In the
event of a change of control of the Company through merger or acquisition, the
provisions with respect to the return of the stock options would be waived. Dr.
Prince achieved a $100,000 management incentive bonus during fiscal year 1996.
Mr. George Trigilio, Jr. became employed by the Company at the end of
fiscal year 1996 as a result of the acquisition of the Courtland Group, Inc. Mr.
Trigilio has an employment agreement with the Company providing an annual salary
of $100,000 as well as incentive bonuses conditioned upon his performance.
The Company has employment agreements with its other executive officers
which also includes annual incentive bonuses attainment of defined profitability
criteria and other performance related objectives. If an executive officer's
employment is terminated for any reason other than voluntary resignation or for
cause (as defined in the agreements) then a severance benefit will be paid. The
severance benefit varies from officer to officer, but is not greater in any
instance than twelve month's salary and benefits. Exclusive of Dr. Prince,
certain key members of management have been granted stock options as part of
their compensation package. Mr. John L. Gillis and Mr. Krishan Canekeratne have
341,000 and 350,000 options, respectively.
Mr. Roger C. Kuhn the Company's Chief Financial Officer and Vice-President
has an employment agreement at a base salary of $125,000 and a potential annual
incentive of $25,000 based on performance objectives. In addition, Mr. Kuhn was
granted 100,000 stock options upon signing the agreement.
In December of 1996 the Board of Directors amended the employment
agreements of Messrs. Canekeratne. Gillis and Kuhn to provide for a one-year
severance or payment of the balance of compensation under their Employment
Agreements and vesting of all stock options, whichever is less, in the event of
a change of control of the Company, and a termination of their employment
without cause.
DIRECTORS OPTION PLAN
The Company's Directors Option Plan (the "Directors Plan") was adopted by
the Board of Directors and approved by the Company's stockholders in October
1992, modified in July 1994 and amended effective September 1996. A total of
1,000,000 shares of Common Stock have been reserved for issuance under the
Directors Plan. The purpose of the Directors Plan is to make service on the
Board more attractive to present and prospective directors, since the continued
services of qualified directors are considered essential to the sustained
progress of the Company.
The Directors Plan is administered by a committee made up of two members
of the Board of Directors. The exercise price per share of any option granted
under the Directors Plan may not be less than the fair market value of such
shares on the date of grant. The Directors Plan provides for automatic option
grants of 15,000 shares to each director who is an eligible director immediately
following each annual stockholders' meeting held in each even number calendar
year. Eligible directors include all members of the Board of Directors who are
not also employees of the Company or any parent or subsidiary of the Company.
The Directors Plan also provides that the eligible directors who are elected or
appointed at any time other than at annual meetings of the Company held in even
calendar years will receive an automatic grant of an option for a proportionate
number of shares, based upon the time remaining until the annual meeting in the
next even calendar year. One-half of each grant becomes exercisable when, and
only if, the optionee continues to serve as a director until the earlier of the
next annual meeting or the first anniversary of the date of grant of the option.
The remaining shares vest on earlier of the second anniversary of the date of
grant of the option. Options expire five years from the date of grant, subject
to earlier termination in accordance with the terms of the Directors Plan. Any
vested and exercisable options may be exercised in whole or in part by payment
of the total purchase price in cash, check or promissory note or, if permitted
by the committee, by tendering Common Stock of the Company. Option grants will
be non-transferable other than by will or the laws of descent and distribution
or by a qualified domestic relations order.
All rights to exercise options terminate 90 days following the date the
optionee ceases to serve as a director of the Company for any reason other than
death, or upon expiration of the option, whichever occurs first. If an
optionee's position as a director is terminated due to the death of such
optionee, the optionee's estate has one year to exercise any vested options.
Except for termination in the event of a "Change of Control" (described below),
the termination of service as a director for any reason shall not accelerate or
otherwise affect the number of shares with regard to which an option may be
exercised. Upon the occurrence of a "Change of Control" all shares subject to
outstanding unexercised options immediately become 100% vested. A "Change of
Control" will be deemed to have occurred if a majority of the members of the
Board of Directors elected at an annual meeting are persons other than those
proposed directors nominated by management, if any, in any proxy statement
prepared by management for that meeting.
There were 45,000 stock options exercisable at March 31, 1996. At March
31, 1996 there were 95,000 stock options outstanding and 905,000 available for
grant. The Company has reserved 1,000,000 shares of common stock for future
issuance.
1992 ADVISORY COMMITTEE PLAN
The Company's 1992 Advisory Committee Plan (the "Advisory Plan" ) was
adopted by the Board of Directors and approved by the Company's stockholders in
October 1992. The Advisory Committee Plan was terminated in May 1993. A total of
200,000 shares of Common Stock were reserved for issuance under the Advisory
Committee Plan, and options to acquire a total of 30,000 shares remain
outstanding. The purpose of the Advisory Committee Plan was to assemble a group
of officers and directors of the Company and individuals with experience in the
Company's industry for the purpose of reviewing and advising the Company on
business, marketing and technical development strategies. The Company's Board of
Directors determined that the Advisory Committee was not achieving its intended
purpose and terminated both the Advisory Committee and the Advisory Committee
Plan. At the time of termination, the Advisory Committee was comprised of six
members.
The Advisory Committee Plan was administered by a committee made up of two
members of the Board of Directors. The exercise price per share of any options
granted under the Advisory Committee Plan could not be less than the fair market
value of such shares on the date of grant. The Advisory Committee Plan provided
for automatic option grants of 10,000 shares to each Advisory Committee member
immediately following the individual's appointment to the Advisory Committee.
One-half of each grant became exercisable when, and only if, the optionee
continued to serve as a member of the Advisory Committee until the first
anniversary of the date of grant the option. The remaining shares vested on the
second anniversary of the date of grant of the option. Options expire five years
from the date of grant, subject to earlier termination in accordance with the
terms of the Advisory Committee Plan. Any vested and exercisable options may be
exercised in whole or in part by payment of the full purchase price in cash or
by check or, if permitted by the committee which administered the Advisory
Committee Plan, by tendering Common Stock of the Company. Option grants are
nontransferable other than by will or the laws of descent and distribution or by
a qualified domestic relations order. In May 1993, the Board of Directors of the
Company approved a resolution vesting 5,000 options for each Advisory Committee
member as of the date of termination of the Committee. As of March 31, 1996,
options to purchase an aggregate 30,000 shares have been vested to six former
members of the Advisory Committee Plan. The options are exercisable at $18.00
per share.
THE 1997 EQUITY INCENTIVE PLAN
The 1997 Equity Incentive Plan is the successor plan to the Company's 1992
Stock Option Plan (the "Plan") which was terminated by shareholder ratification
at the Company's annual meting in September 1996. Under the 1992 Plan, 4,000,000
shares of common stock $.01 par value were authorized and reserved for issuance
in the form of incentive stock option and non-qualified stock options. Of these,
922,065 stock options had been granted as of March 31, 1996. These stock options
are currently outstanding to employees of the Company and other "key persons"
and, as such, will remain in effect according to their terms and conditions
(including vesting requirements) as provided for in the 1992 Plan and individual
stock option agreements. The remaining 3,077,935 authorized and reserved shares
of common stock are no longer subject to issuance under the 1992 Plan.
The Company with shareholder approval, has reserved 3,000,000 shares for
future use under the new 1997 Equity Incentive Plan (the "1997 Plan"). These new
shares in effect replace the 3,077,935 remaining and ungranted shares associated
with the terminated 1992 Plan. The 1997 Plan is administered by the Compensation
Committee of the Board of Directors (the "Committee") consisting of two or more
non-employee directors of the Company who are not eligible to receive grants or
awards under the 1997 Plan. The plan provides for the granting of equity
incentive awards to employees in the form of incentive stock options,
non-qualified stock options, stock appreciation rights, stock appreciation
awards, restricted stock awards, deferred stock awards, and other
performance-related or non-restricted stock awards. The new plan permits the
Company to provide its employees with incentive compensation opportunities which
are highly motivational and which afford the most favorable tax and accounting
treatments to the Company. The Committee believes that the flexibility of the
incentive award vehicles provided for by the 1997 Plan will enhance the
effectiveness and cost efficiency of the Company's management incentive program
in the best interest of shareholders.
The Committee, subject to the provisions of the 1997 Plan will designate
participants, determine the terms and provisions of each award, interpret the
provisions of the plan and supervise the administration of the plan. The
Committee may, in its sole discretion, delegate certain administrative
responsibilities related to the 1997 Plan to Company employees or outside
consultants, as appropriate. The exercise price of any stock option granted
under the 1997 Plan shall not be less than the fair market value of the common
stock of the Company on the date of grant. The Committee shall determine any
service requirements and/or performance requirements pertaining to any stock
awards under the 1997 Plan.
PRINCIPAL HOLDERS
The following table sets forth information regarding the ownership of the
Company's Common Stock as of December 18, 1996, the Record Date by (1) each
beneficial owners of more than five percent of the outstanding Common Stock, (2)
each director, (3) the Chief Executive Officer and the four most highly
compensated other executive officers, and the executive officers and directors
as a group. Unless otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned. The Company
had 4,079,778 shares of Common Stock outstanding as of February 7, 1997.
NAME OF OWNER OR IDENTITY OF SHARES OF OPTIONS/ TOTAL % OF COMMON
GROUP COMMON OTHER BENEFICIAL STOCK
STOCK OWNERSHIP OUTSTANDING(1)
- ---------------------------- ------------ ------- ----------- --------------
Information Management 649,667 - 619,667(2) 16%
Technologies Corporation
130 Cedar Street
New York, New York 10006
CEDE, Depository Trust Co. 949,542 - 949,542 23%
P.O. Box 20
New York, New York 10274
Dr. E. Ted Prince, CEO 4,120 751,391 755,511 16%
2 Westborough Business Park
Westborough, Massachusetts
01581
Leonard Gartner, Director 100,000 112,500(3) 242,500 6%
140 East 56th Street
New York, New York 10022
John L. Gillis, COO - 97,527 97,527 2%
2 Westborough Business Park
Westborough, Massachusetts
01581
Krishan Canekeratne, Senior 700 116,667 117,367 3%
Vice President
2 Westborough Business Park
Westborough, Massachusetts
01581
Francis X. Murphy, Director 10,000 118,537 128,537 3%
342 Madison Avenue
New York, New York 10173
Robert H. Oxenberg, Director 5,893 55,000 60,893 1%
P.O. Box 12381
Aspen, Colorado 81612
Executive Officers and 150,713 1,251,622 1,402,335 26%
Directors as a group
- ----------
(1) Derived by taking shares beneficially owned by the individual or entity
divided by shares outstanding and shares beneficially owned by the individual or
entity. As used in this table "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition of
any security. A person is deemed as of any date to have "beneficial ownership"
of any security that such person has a right to acquire within 60 days after
such date. Any security that any person named above has the right to acquire
within 60 days is deemed to be outstanding for purposes of calculating the
ownership percentage of such person, but is not deemed to be outstanding for
purposes of calculating the ownership percentage of any other person.
(2) Information Management Technologies Corporation ("IMTECH") has granted Mr.
Gartner an option to purchase 30,000 shares of INSCI Corp. Common Stock. The
options are exercisable at $3.50 per share through August 29, 1999. IMTECH has
also agreed to transfer to Mr. Gartner 30,000 shares of common stock.
(3) Includes options to purchase 30,000 shares of INSCI Corp. Common Stock from
Information Management Technologies Corporation. The options are exercisable at
$3.50 per share through August 29, 1999. Said underlying shares are included in
the present registration. Does not include an additional 30,000 shares of common
stock which IMTECH has agreed to transfer to Mr. Gartner.
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned and/or shares of Common Stock underlying the Company's: 10%
Convertible Redeemable Preferred Stock, 10% Convertible Preferred Stock and 8%
Convertible Redeemable Preferred Stock and Warrants. The number of underlying
shares of Common Stock attributed to holders of the Company's 10% Convertible
Redeemable Preferred Stock, 10% Convertible Preferred Stock and 8% Convertible
Redeemable Preferred Stock and Warrants is based upon certain assumptions, the
actual number of underlying shares of Common Stock a selling shareholder may own
upon conversion is subject to change. The assumptions upon which the underlying
shares are based are more fully explained in the notes accompanying this table.
OWNED PRIOR TO OFFERING
<TABLE>
<CAPTION>
Common Stock
Underlying Common Stock
Number of Number of Shares of 10% Underlying
Shares of Common Restricted Convertible Shares of 10%
Stock Owned Shares of Redeemable Convertible
Name of Selling Prior to Common Preferred Preferred
Shareholder the Offering Stock(1) Stock(2) Stock Owned(3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bijan Ahmadi
Gary L. Alderman
Robert W. Allen
Anschutz Family Foundation 14,000 521
Fred Anschutz(7)
Nancy P. Anschutz 521
Phillip Anschutz Custodian for Christian Anschutz 2,604
Phillip Anschutz Custodian for Elizabeth Anschutz 1,042
Phillip Anschutz Custodian for Sarah Anschutz 1,042
Antelope Company 60,500 7,404 35,651
Ronald Arison MD Ira Dljsc as Custodian
E.H. Arnold
Gary P. Arnold
Robert E. Atkins
Luis R. Barreras MD Profit Sharing Plan
John C. & Elizabeth C. Barrott
Keith E. Becker
Robert J. & June G. Becker
John A. Bernardi 9,286
Alvin R. Bonnette f/b/o Alvin R. Bonnette Rev. Trust
Alex E. Booth, Jr.
Hugh Braly 1,510 16,636
Hugh C. Braly 3,125
Olin Broadway(8)
Willard D. Campbell Trust
Krishan Canekeratne(9)
Howard A. Caplan
Case Holding Company, Inc.
Chinh & Debra Chang
Malcom G. Chase III 37,300
O. Beirne Chisolm
Christiana Companies, Inc. Employees Savings
P/S Plan (William Donovan & Betty White Trustees)
Clayton Motor Co., Inc.
Lorelei A. Cole
Ruth Columbo(10)
Courtland Group Inc. 58,968
D.H. Blair & Company (28) 118,300
M. Jenkins Cromwell, Jr. 6,250
Lauren A. Daman 9,286
Edson DeCastro(10)
Thomas C. DeFazio
Gerald Dorsey(11)
Ronald S. Dungan 9,286
Peter Einselen 20,000
Norton A. Elder IRA 1,310 8,512
Lloyd B. Embry
Emerging Ventures Technologies, Inc.(12)
Thomas Farkas 100,000 371,430
Thomas P. Farkas 24,000 28,868 68,097
Todd M. Feldman
S. Marcus Finkle
Denis Fortin
Gerald Franz 40,000
Keith M. Ganzer
B. Kent Garlinghouse
Leonard Gartner(13) 100,000
Generation Capital Associates
Richard Gerstner(14)
John Gillis(15)
David Grace(16)
Eddie V. Gray
Neil & Verna Greenwood(7)
Thomas T. Grimmett PA DBPT
Edward P. Grindstaff
Raquel Grunwald 103,609 8,512
Gunn(10)
Louis Gurman 100,000
Salem M. Habal
Brian F. Hanley Revocable Trust
Harrison Option Fund, L.P.
Chester T. Houghton 3,005 4,212 17,024
Ernest J. Horky DDS, PA Def. Contr. Pension Plan
Greg Hunsinger
Michael P. Ilaria 9,286
Information Management Technologies Corporation (17) 649,667
INITIAL PUBLIC OFFERING(18)
Hyman Indowsky IRA R/O (Dean Witter Cust)
Intergroup Corporation 20,000
J. Michael Reisert Securities, Inc.(19) 15,000
James Jacques 3,609 8,512
John Jacques 5,000
Dean R. Johnson(20)
David A. Kadish
Robert D. Katchke
Harold A. Kayser 3,609 8,512
Albert Kern 1,042
Kinder Investments(7) 8,333
David Kohane 9,286
Ferdinand Kollar
Petro A. Kotsis
Richard A. Kraemer
Andy H. Krantz 20,000
Robert Krantz 20,000
Ron Krinick 6,010 6,625 34,048
Ronald M. Krinick and Elizabeth J. Krinick 101,800 18,572
Russ Kuhn
Lancer Partners LP 150,000
Lancer Offshore, Inc. 50,000
Lancer Partners, L.P.
Lark & Co. f/b/o Arkansas Teachers Retirement System
The Larson Family Trust
David S. Lawi
A. F. Lehmkuhl
Brian F. Leonard
Lawrence Levitt 2,353 8,512
Lawrence D. Levitt & Cinda S. Levitt
Co-Trustees Lawrence D. Levitt Living Trust 1,256
Robert F. Little TTEE Robert F. Little Inc. 2,079
R.F. Little Inc. Pension Fund 3,001 2,355 15,322
Robert F. Little
Susan R. Little
John D. Lium
James C. Lnashe(20)
Connie Loewenthal
Bruce T. Loewy
Norman Malo(21)
Vincent L. Marino
Harry Markovitz(22) 130,000
James Martin 180,000
Maureen McCluskey 1,079 11,884
J.W. McInroy
David B. McKee 9,286
McKeown & Franz Inc. Pension Plan
Richard P. McKibben Trust,
Martha McKibben Successor Trustee
Abdon J. Medina
Louis G. Miller
Gerald J. Millstein
Ray E. Moody
Bohdon Moroz
Francis X. Murphy(23) 10,000
N. Dean Nasser
Charles A. Newton
Norcross(20)
Rachel Novoseller 7,217 17,024
Nathaniel Orme
Fred Ostad
Howard Oxenberg 1,079 11,884
Robert W. Oxenberg(24) 1,726 19,012
Garry Pace 37,754
John Palazzola
Robert Paul
Robert Perfilio 4,000
Pitt & Co. f/b/o Missouri State
Employees Retirement System
Michael Pizitz 1,079 11,884
Douglas L. Polson(7)
E. Ted Prince(23) 4,120 8,511
Prudential Securities Inc. Retirement Plan Operations
C/F Norton A. Elder 2,308
Joseph F. Regan
Sue Anschutz Rodgers 7,000 3,593 16,636
Rosen(10)
Beth Ross(7)
Daniel Rusictti 5,000
Jeffrey L. & Barbara A. Sadar
Charles L. Sample 9,286
Santa Fe Financial Corp. 20,000
Sarco & Company 35,500 7,404 35,651
Peter & Irene Santulli
Charles R. Schaller
Charles T. Schiro 9,286
Jeffrey A. Schlegel
& Martha L. McKibben, JTWROS
James F. Schofield
Christopher Schreiber
Thomas L. Schroeder SEP IRA Oppenheimer & Co. Custodian
Sol B. Schwartz
Helen Scott(7)
Gary Segal
Barbara D. & Leonard J. Seigel JTE
Alvin Sherman 37,144
Shor Yoshuv 50,000
Shor Yoshuv Institute 8,424
Shor Yeshiva Institutional 8,053 34,048
Howard Smith
Phillip P. Smith
Judith F. Sook 3,905 3,312 17,024
Mary Elizabeth Strazel 2,083
Robert F. Stazel 2,500 9,137 6,810
Al Sorensen IRA Oppenheimer & Co. Custodian
Michael Supra
Garland S. Sydnor, Jr.
Steven J. Szafara
Regina & Kamal Taslimi JT
Taglich Brothers 3,462
Michael Taglich 21,069
Robert Taglich 20,469
Thomas James & Associates(20)
Thuemling Industrial Products
Morton L. Topfer
Claire Tremarche(26)
George Trigilio, Sr. 30,713
George Trigilio, Jr.(27)
Tyson Apparel Inc.
Richard A. Unverferth
James Upham 47,000
Venturetec L.P. 4,316 47,532
Boston Safe Deposit Trust Co.
FBO The Virginia Retirement System 300,000
Wallace Electric Co.
William & Elizabeth Wieck JTWROS
John I. Williams, Jr.
Xiaoman Wu
Seymour H. Zisook
------- --------- ------- --------
TOTAL 159,421 2,605,411 585,538 501,434
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of
Common Stock Number of Number
Underlying Shares Shares to be
8% Convertible to be Sold Owned after
Redeemable Pursuant Offering by
Name of Selling Preferred Stock to this Selling
Shareholder and Warrants(4) Warrants Options Prospectus(5) Shareholders(6)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bijan Ahmadi 16,735 16,735 0
Gary L. Alderman 6,275 6,275 0
Robert W. Allen 15,060 15,060 0
Anschutz Family Foundation 521 14,000
Fred Anschutz(7) 521 521 0
Nancy P. Anschutz 521 0
Phillip Anschutz Custodian for Christian Anschutz 2,604 0
Phillip Anschutz Custodian for Elizabeth Anschutz 1,042 0
Phillip Anschutz Custodian for Sarah Anschutz 1,042 0
Antelope Company 43,055 60,500
Ronald Arison MD Ira Dljsc as Custodian 16,735 16,735 0
E.H. Arnold 7,530 7,530 0
Gary P. Arnold 10,040 10,040 0
Robert E. Atkins 5,020 5,020 0
Luis R. Barreras MD Profit Sharing Plan 16,735 16,735 0
John C. & Elizabeth C. Barrott 25,100 25,100 0
Keith E. Becker 66,766 66,766 0
Robert J. & June G. Becker 17,570 17,570 0
John A. Bernardi 9,286 0
Alvin R. Bonnette f/b/o Alvin R. Bonnette Rev. Trust 16,735 16,735 0
Alex E. Booth, Jr. 6,695 6,695 0
Hugh Braly 18,146 0
Hugh C. Braly 3,125 0
Olin Broadway(8) 5,000 5,000 0
Willard D. Campbell Trust 16,735 16,735 0
Krishan Canekeratne(9) 350,000 350,000 0
Howard A. Caplan 12,550 12,550 0
Case Holding Company, Inc. 16,735 16,735 0
Chinh & Debra Chang 26,775 26,775 0
Malcom G. Chase III 37,300 0
O. Beirne Chisolm 36,815 36,815 0
Christiana Companies, Inc. Employees Savings
P/S Plan (William Donovan & Betty White Trustees) 16,315 16,315 0
Clayton Motor Co., Inc 7,530 7,530 0
Lorelei A. Cole 3,351 3,351 0
Ruth Columbo(10) 5,000 5,000 0
Courtland Group Inc. 58,968 0
D.H. Blair & Company (28) 118,300 0
M. Jenkins Cromwell, Jr. 6,250 0
Lauren A. Daman 9,286 0
Edson DeCastro(10) 5,000 5,000 0
Thomas C. DeFazio 10,040 10,040 0
Gerald Dorsey(11) 40,000 40,000 0
Ronald S. Dungan 9,286 0
Peter Einselen 20,000 0
Norton A. Elder IRA 9,822 0
Lloyd B. Embry 12,550 12,550 0
Emerging Ventures Technologies, Inc.(12) 400,000 400,000 0
Thomas Farkas 471,430 0
Thomas P. Farkas 96,965 24,000
Todd M. Feldman 7,530 7,530 0
S. Marcus Finkle 133,869 133,869 0
Denis Fortin 32,630 32,630 0
Gerald Franz 40,000 0
Keith M. Ganzer 7,530 7,530 0
B. Kent Garlinghouse 7,530 7,530 0
Leonard Gartner(13) 170,000 270,000 0
Generation Capital Associates 33,466 33,466 0
Richard Gerstner(14) 500,000 500,000 0
John Gillis(15) 335,700 335,700 0
David Grace(16) 5,000 5,000 0
Eddie V. Gray 7,530 7,530 0
Neil & Verna Greenwood(7) 521 521 0
Thomas T. Grimmett PA DBPT 10,040 10,040 0
Edward P. Grindstaff 7,530 7,530 0
Raquel Grunwald 112,121 0
Gunn(10) 5,000 5,000 0
Louis Gurman 100,000 0
Salem M. Habal 16,735 16,735 0
Brian F. Hanley Revocable Trust 16,735 16,735 0
Harrison Option Fund, L.P. 20,080 20,080 0
Chester T. Houghton 21,236 3,005
Ernest J. Horky DDS, PA Def. Contr. Pension Plan 16,735 16,735 0
Greg Hunsinger 10,040 10,040 0
Michael P. Ilaria 9,286 0
Information Management Technologies Corporation(17) 649,667 0
INITIAL PUBLIC OFFERING(18) 625,000 625,000 0
Hyman Indowsky IRA R/O (Dean Witter Cust) 6,695 6,695 0
Intergroup Corporation 20,000 0
J. Michael Reisert Securities, Inc.(19) 334,669 349,669 0
James Jacques 12,121 0
John Jacques 5,000 0
Dean R. Johnson(20) 37,500 37,500 0
David A. Kadish 5,020 5,020 0
Robert D. Katchke 7,530 7,530 0
Harold A. Kayser 12,121 0
Albert Kern 6,695 7,737 0
Kinder Investments(7) 36,667 45,000 0
David Kohane 9,286 0
Ferdinand Kollar 5,020 5,020 0
Petro A. Kotsis 5,020 5,020 0
Richard A. Kraemer 10,040 10,040 0
Andy H. Krantz 20,000 0
Robert Krantz 20,000 0
Ron Krinick 40,673 6,010
Ronald M. Krinick and Elizabeth J. Krinick 120,372 0
Russ Kuhn 16,735 16,735 0
Lancer Partners LP 150,000 0
Lancer Offshore, Inc. 175,700 225,700 0
Lancer Partners, L.P. 502,000 502,000 0
Lark & Co.
f/b/o Arkansas Teachers Retirement System 502,000 502,000 0
The Larson Family Trust 33,466 33,466 0
David S. Lawi 25,100 25,100 0
A. F. Lehmkuhl 6,275 6,275 0
Brian F. Leonard 6,275 6,275 0
Lawrence Levitt 10,865 0
Lawrence D. Levitt & Cinda S. Levitt
Co-Trustees Lawrence D. Levitt Living Trust 1,256 0
Robert F. Little TTEE Robert F. Little Inc. 2,079 0
R.F. Little Inc. Pension Fund 17,677 3,001
Robert F. Little 58,483 58,483 0
Susan R. Little 22,590 22,590 0
John D. Lium 6,695 6,695 0
James C. Lnashe(20) 37,500 37,500 0
Connie Loewenthal 12,550 12,550 0
Bruce T. Loewy 16,735 16,735 0
Norman Malo(21) 5,000 5,000 0
Vincent L. Marino 10,040 10,040 0
Harry Markovitz(22) 112,000 242,000 0
James Martin 180,000 0
Maureen McCluskey 12,963 0
J.W. McInroy 5,020 5,020 0
David B. McKee 9,286 0
McKeown & Franz Inc. Pension Plan 12,550 12,550 0
Richard P. McKibben Trust,
Martha McKibben Successor Trustee 38,486 38,486 0
Abdon J. Medina 16,735 16,735 0
Louis G. Miller 22,590 22,590 0
Gerald J. Millstein 18,406 18,406 0
Ray E. Moody 16,735 16,735 0
Bohdon Moroz 16,735 16,735 0
Francis X. Murphy(23) 100,000 110,000 0
N. Dean Nasser 16,735 16,735 0
Charles A. Newton 8,785 8,785 0
Norcross(20) 75,000 75,000 0
Rachel Novoseller 24,241 0
Nathaniel Orme 7,530 7,530 0
Fred Ostad 5,020 5,020 0
Howard Oxenberg 12,963 0
Robert Oxenberg(24) 155,000 175,738 0
Garry Pace 37,754 0
John Palazzola 10,040 10,040 0
Robert Paul 33,383 33,383 0
Robert Perfilio 4,000 0
Pitt & Co. f/b/o Missouri State
Employees Retirement System 502,000 502,000 0
Michael Pizitz 12,963 0
Douglas L. Polson(7) 521 521 0
E. Ted Prince(25) 1,200,000 1 ,212,631 0
Prudential Securities Inc. Retirement Plan Operartions
C/F Norton A. Elder 2,308 0
Joseph F. Regan 30,120 30,120 0
Sue Anschutz Rodgers 20,229 7,000
Rosen(10) 5,000 5,000 0
Beth Ross(7) 521 521 0
Daniel Rusictti 5,000 0
Jeffrey L. & Barbara A. Sadar 5,020 5,020 0
Charles L. Sample 9,286 0
Santa Fe Financial Corp. 33,466 53,466 0
Sarco & Company 43,055 35,500
Peter & Irene Santulli 3,765 3,765 0
Charles R. Schaller 16,735 16,735 0
Charles T. Schiro 9,286 0
Jeffrey A. Schlegel
& Martha L. McKibben, JTWROS 16,735 16,735 0
James F. Schofield 37,650 37,650 0
Christopher Schreiber 6,695 6,695 0
Thomas L. Schroeder SEP IRA Oppenheimer & Co. Custodian 10,040 10,040 0
Sol B. Schwartz 16,735 16,735 0
Helen Scott(7) 521 521 0
Gary Segal 16,730 16,730 0
Barbara D. & Leonard J. Seigel JTE 16,735 16,735 0
Alvin Sherman 37,144 0
Shor Yoshuv 50,000 0
Shor Yoshuv Institute 8,424 0
Shor Yeshiva Institutional 42,101 0
Howard Smith 12,694 12,694 0
Phillip P. Smith 16,735 16,735 0
Judith F. Sook 20,336 3,905
Mary Elizabeth Starzel 2,083 0
Robert F. Starzel 15,947 2,500
Al Sorensen IRA Oppenheimer & Co. Custodian 10,040 10,040 0
Michael Supra 16,735 16,735 0
Garland S. Sydnor, Jr. 15,060 15,060 0
Steven J. Szafara 6,777 6,777 0
Regina & Kamal Taslimi JT 16,735 16,735 0
Taglich Brothers 3,462 0
Michael Taglich 21,069 0
Robert Taglich 20,469 0
Thomas James & Associates(20) 37,500 37,500 0
Thuemling Industrial Products 10,040 10,040 0
Morton L. Topfer 33,469 33,469 0
Claire Tremarche(26) 30,000 30,000 0
George Trigilio, Sr. 30,713 0
George Trigilio, Jr.(27) 300,000 300,000 0
Tyson Apparel Inc. 21,418 21,418 0
Richard A. Unverferth 12,550 12,550 0
James Upham 47,000 0
Venturetec L.P. 51,848 0
Boston Safe Deposit Trust Co.
FBO The Virginia Retirement System 300,000 0
Wallace Electric Co. 33,466 33,466 0
William & Elizabeth Wieck JTWROS 10,040 10,040 0
John I. Williams, Jr. 16,735 16,735 0
Xiaoman Wu 6,695 6,695 0
Seymour H. Zisook 11,295 11,295 0
---------- ------- --------- ----------
TOTAL 3,681,365 851,772 3,697,700 11,923,220
</TABLE>
<PAGE>
NOTES TO SELLING SHAREHOLDERS
(1) Includes restricted shares of the Company's issued and outstanding Common
Stock $.01 par value ("Common Stock").
(2) Includes shares of Common Stock underlying 10% Convertible Redeemable
Preferred Stock issued in the Company's 1995 Private Placement. Additionally,
includes prospective dividends of Common Stock at 10% per annum (payable
semi-annually) through May 1, 1998 (See "Dividends"). Note that certain
subscribers to the 1995 10% Convertible Redeemable Preferred Stock Private
Placement have elected automatic conversion of their shares of Preferred Stock
into shares of Common Stock (see Conversion schedule in "Description of 10%
Convertible Redeemable Preferred Stock") while certain other subscribers have
not elected to have automatic conversions into shares of Common Stock take place
(3) Includes shares of Common Stock underlying shares of 10% Convertible
Preferred Stock issued under the Company's 1996 10% Convertible Preferred Stock
Private Placement. Assumes dividends issued in Common Stock of 10% per annum
paid on a semi-annual basis for a period of three (3) years from the date of
subscription under the Private Placement. Additionally, assumes a conversion of
10% Preferred Stock by all holders at the time of mandatory conversion (three
(3) years from acceptance of subscription under the Private Placement by the
Company) at a 30% discount based upon an assumed market price of $5.00 per share
of Common Stock.
(4) Includes shares of Common Stock underlying Units issued under the Company's
1996 Unit Private Placement. Each Unit consists of one share of 8% Preferred
Stock and one redeemable Common Stock warrant exercisable for three (3) years to
purchase one share of Common Stock at $5.00 per share. Assumes, no conversions
of Preferred stock for a period of three (3) years with cumulative dividends of
8% Preferred Stock issued at 8% per annum paid quarterly. Further, assumes that
the Company elects to pay dividends in the form of 8% Preferred Stock as opposed
to cash dividends, and that the market price of the Company's Common Stock does
not fall below $3.75 a share for a thirty (30) day period commencing September
1, 1998.
(5) Includes: restricted shares of Common Stock; shares of Common Stock
underlying 10% Convertible Redeemable Preferred Stock and dividends issued on
the 10% Convertible Redeemable Preferred Stock; shares of Common Stock
underlying 10% Convertible Preferred Stock and dividends issued on 10%
Convertible Preferred Stock; shares of Common Stock underlying Units comprised
of 8% Convertible Redeemable Preferred Stock and dividends of 8% Preferred Stock
issued on 8% Convertible Redeemable Preferred Stock and shares of Common Stock
underlying Unit Warrants; shares of Common Stock underlying warrants and shares
of Common Stock underlying stock options.
(6) Assumes the sale of all of the shares of Common Stock covered by this
Prospectus.
(7) Includes 1994 Warrants which were originally comprised of 1991 stock options
issued under the Company's 1991 Private Placement and shares of Common Stock and
warrants (the "1992 Warrants") issued in the Company's 1992 Private Placement.
(8) Includes vested stock options that have an exercise price of $1.44 per
share.
(9) Includes 350,000 stock options to purchase 350,000 shares of Common Stock
exercisable at $1.66 per share, of which 116,667 stock options are vested. Mr.
Canekeratne is the Company's Senior Vice-President of Development.
(10) Includes vested stock options exercisable at $18.00 per share.
(11) Includes 40,000 vested incentive stock options at an exercise price of
$6.00 per share. The options are exercisable through November 23, 1998. Mr.
Dorsey is a former President, Chief Executive Officer and Director of the
Company.
(12) Includes 400,000 incentive stock options exercisable at $2.31 per share, of
which 68,537 stock options are vested. Mr. Francis X. Murphy is a director of
the Company and a member of the Compensation Committee and is the principal
shareholder of Emerging Ventures Technology, Inc. Mr. Murphy also owns 10,000
shares of restricted Common Stock and 100,000 stock options exercisable at $1.44
per share, of which 33,333 have vested.
(13) Includes 40,000 stock options exercisable at $4.06 per share, and 100,000
stock options exercisable at $1.44 per share. Of the 140,000 stock options,
50,833 are vested. Mr. Gartner serves as a director of the Company, and a member
of the Audit Committee. Does not include options to purchase 30,000 shares of
Common Stock granted by Information Management Technology Corporation. Said
options are exercisable at $3.50 a share through August 29, 1999.
(14) Includes 500,000 stock options, 100,000 exercisable at $4.38 per share and
400,000 stock options exercisable at $6.25 per share, none of which have vested.
Mr. Gerstener serves as a director to the Company.
(15) Includes 335,700 options to purchase Common Stock at $1.66 per share, of
which 160,700 stock options are vested. Mr. Gillis is a former director of INSCI
and presently serves as the Company's Executive Vice President and Chief
Operating Officer.
(16) Includes 5,000 stock options exercisable at $1.13 per share. Mr. Grace
is a former officer and director of the Company.
(17) Includes 30,000 shares of Common Stock of which options to purchase at
$3.50 a share through August 29, 1999 have been granted to Mr. Leonard Gartner.
(18) Includes shares of Common Stock underlying 1,250,000 stock purchase
warrants issued under the Company's 1994 Initial Public Offering ("IPO"). Under
the IPO, each warrant is convertible into one half (1/2) a share of Common
Stock.
(19) Includes shares of Common Stock underlying 133,334 Units paid as
commissions as a placement agent under the Company's 1996 Unit Private
Placement. Each Unit is comprised of one share of 8% Preferred Stock which at
the option of the Company can receive dividends of cash or 8% Preferred Stock.
Assumes the Company elects to pay dividends in 8% Preferred Stock, which
dividends are 8% per annum payable quarterly and are cumulative. Also assumes
the exercise of 133,334 warrants (included in the Units) to purchase 133,334
shares of Common Stock at an exercise price of $5.50 per share (as opposed to
the $5.00 warrants exercise price for subscribers under the 1996 Unit Placement)
of Common Stock. The warrants are for a period of three (3) years and expiring
1999.
(20) Includes shares of Common Stock underlying warrants originally issued as
underwriter warrants in connection with the Company's 1994 IPO. The underwriter
warrants were exchanged by the Company in 1996 for new warrants. The Company, on
February 14, 1997, has conditionally agreed with Norcross & Co., as
representative of holders of 150,000 common stock purchase warrants to purchase
150,000 shares of the Company's common stock, to exchange and cancel the
warrants for the issuance of 70,000 shares of fully-paid, non-assessable common
stock with registration rights. The agreement is subject to the execution of the
final documents and the cancellation of the common stock purchase warrants. The
balance of 37,500 warrants will not be affected by the agreement.
(21) Includes 5,000 stock options exercisable at $6.00 per share.
(22) Includes 100,000 shares of restricted Common Stock; 30,000 shares of
restricted Common Stock issued as selling commission to Amerivet/Dymally
Securities, Inc. in connection with the Company's 10% Convertible Preferred
Stock Private Placement ("10% Private Placement") in 1996, subsequently
transferred to Mr. Harry Markovitz, a licensed broker. Also includes 112,000
stock options to purchase shares of Common Stock at $5.00 per share expiring
September 1999 originally issued to Amerivet/Dymally Securities, Inc. as selling
commissions for the 10% Private Placement and subsequently assigned to Mr.
Markovitz.
(23) Includes 10,000 shares of restricted Common Stock and 100,000 stock options
exercisable at $1.44 per share, none of which have vested. Mr. Francis X. Murphy
serves as a director of the Company. Mr. Murphy may also be deemed to be a
beneficial owner of shares of Common Stock owned by Emerging Ventures
Technologies, Inc.
(24) Includes 5,000 stock options exercisable at $18.00 per share, of which all
have vested; 5,000 stock options exercisable at $6.00 per share, of which all
are vested; 10,000 stock options exercisable at $7.00 per share, of which 6,667
have vested; 10,000 stock options exercisable at $1.66 per share, which have
vested; 100,000 stock options exercisable at $1.44 per share, of which 33,333
are vested; and 25,000 stock options exercisable at $1.13 per share, of which
8,333 have vested. Mr. Oxenberg serves as a director of the Company and is a
member of the Company's Compensation Committee.
(25) Includes 1,200,000 stock options to purchase 1,200,000 shares of Common
Stock exercisable at $1.66 per share, of which 566,668 are vested. Dr. Prince is
the Company's President, Chief Executive Officer and Chairman of the Board.
(26) Includes 10,000 stock options exercisable at $2.75, of which 3,333 are
vested. Also includes 20,000 stock options exercisable at $1.66 per share, of
which 6,667 are vested.
(27) Includes 300,000 incentive stock options exercisable at $4.38 per share, of
which none are vested. Mr. Trigilio is an Executive Vice President of the
Company's Imaging Division.
(28) Includes 118,300 shares of Common Stock based upon an assumed conversion of
10% Convertible Redeemable Preferred Stock. D.H. Blair owns a 3 year option to
purchase 10% Convertible Redeemable Preferred Stock. The option to purchase this
Preferred Stock has not been exercised to date.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective October 1992, the Company signed a three-year consulting
agreement with Robert Oxenberg, pursuant to which Mr. Oxenberg provided
consulting services to the Company. At the time of this consulting agreement,
Mr. Oxenberg was a director of the Company. Mr. Oxenberg resigned as a director
of the Company in November 1993. This consulting agreement was terminated in
November 1993. In February 1995, Mr. Oxenberg was granted 25,000 options at
$1.13. Mr. Oxenberg was granted a ten-year option to acquire 10,000 shares of
Common Stock at an exercise price of $7.00 per share. The option was granted
under the Company's 1992 Stock Option Plan. Mr. Oxenberg was subsequently
re-elected as a director in September 1994 and is currently a director of
IMTECH. In June 1995, the Company paid $35,000 to Mr. Oxenberg as remuneration
for his efforts on behalf of the Company to secure additional financing. In
September 1995, the Company signed an agreement with Mr. Oxenberg to assist
INSCI to approach potential investment sources. Mr. Oxenberg was paid a retainer
of 10,000 stock options at $1.66 (the underlying shares of Common Stock included
in the within registration). Additionally, success fees are paid to Mr. Oxenberg
when INSCI enters into a binding arrangement with investors. Success fees are
3.5% of funds raised and 25,000 shares of stock for each $1 million raised.
In April 1994, the Company loaned John L. Gillis, presently the Company's
Executive Vice President and Chief Operating Officer, and his wife, the amount
of $150,000 to purchase a residence in Westborough, Massachusetts. The loan
carries interest at the prime rate, and all unpaid principal plus all accrued
and unpaid interest is due ninety days (subject to extension by the Company)
following the closing of the loan. Repayment of the loan has been extended
through November 30, 1997, and in May 1996, the Company and Mr. Gillis reached
an agreement on a schedule of payments which anticipates repaying the loan
principal and interest in full during the course of the next two fiscal years.
The loan is collateralized by a pledge of Mr. Gillis' IMTECH Class A Common
Stock, IMTECH and certain INSCI stock options and 500 INSCI Units. The
collateral has a present market value materially less than the outstanding
balance of the loan. The Company established an allowance for loan loss as the
underlying collateral had minimal value. The outstanding loan balance as of
March 31, 1996 is $143,619, and is offset by an allowance for loan losses by the
same amount. During March 1996, Mr. Gillis paid down the loan through a
combination of cash payments and surrender of stock options valued at $30,665.
Interest paid by Mr. Gillis was the sum of $24,284, during the year ended March
31, 1996.
In June 1995, prior to Dr. E. Ted Prince's employment by the Company, the
Company engaged Dr. Prince as a consultant. A total of $11,538 was paid to Dr.
Prince for consulting services rendered to the Company prior to his employment.
In conjunction with Dr. Prince's employment the Company paid an additional
$25,000 to Dr. Prince and $25,000 to Perth Ventures Inc. ("Perth Ventures") for
consulting fees. In June 1995, the Company commenced an interim office sharing
arrangement on a month-to-month basis from Perth Ventures at a monthly charge of
$2,000 per month. Dr. Prince, who is President, Chief Executive Officer and
Chairman of the Board of Directors of the Company, is 100% owner in and is
President of Perth Ventures. Dr. Prince is also an investor in one $25,000 unit
of the Company's 10% convertible preferred stock.
In June 1995, the Company engaged Emerging Technology Ventures, Inc.
("ETVI") to manage its acquisition activities for a one year period. Mr. Francis
X. Murphy ("Mr. Murphy"), who is President of ETVI, became a director of the
Company in September 1995. ETVI is paid a monthly retainer of $6,000. This
agreement was subsequently amended in October 1995 to include management of the
Company's strategic alliance activities, and the agreement was extended until
October 1996. ETVI was granted an incentive stock option to acquire 400,000
shares of the Company's common stock at an exercise price of $2.31 per share
(the underlying shares of Common Stock are included in the within registration).
These options are only exercisable to the extent that transactions which are
contemplated in the amended agreement are completed in accordance with the terms
of the agreement. For completed transactions ETVI will receive a commission,
which is offset against cumulative retainer fees paid and a portion of the stock
options granted will vest immediately. As a result of the company acquiring
certain assets from the Courtland Group, Inc., ETVI received a fee of $33,750
which was offset against the retainer and had 43,537 stock options vested from
the 400,000 options described above. In addition, in connection with the
acquisition of the Image Express software from Customs Solution, Inc., ETVI had
an additional 25,000 stock options vested.
In June 1995, the Company engaged Gartner and Associates as financial
consultants to advise the Company. Mr. Leonard Gartner ("Mr. Gartner"),
principal of Gartner and Associates, became a director of the Company in
September 1995. Gartner and Associates was paid a monthly retainer of $4,500
plus expenses during fiscal year 1996. Pursuant to an April 1996 amendment to
the agreement, Gartner and Associates will be paid a monthly retainer of $6,000
plus expenses during fiscal year 1997, and will also receive a grant of 40,000
incentive stock options at an exercise price of $4.06. 10,000 of these options
vested immediately and the remainder vest at the rate of 7,500 options per
quarter during fiscal year 1997.
In September 1995, Mr. Gartner and Mr. Murphy purchased 100,000 shares and
10,000 shares, respectively, of the Company's common stock from IMTECH. These
are restricted shares with cost free registration rights and are included in the
within registration.
In September 1995, the Company entered into an agreement with Technology
Providers Ltd. ("TPL") of Sri Lanka under which TPL will provide computer
programming services for certain software products under development and for
selected customer application projects. TPL is owned by family members of Mr.
Krishan A. Canekeratne who is the Company's Senior Vice President of
Development. Mr. Canekeratne has no direct ownership interest in TPL.
In September 1995, the Company granted to its present and former directors
the following stock options at an exercise price of $1.44 per share: one year
options to purchase 10,000 shares each were granted to Messrs. Grace and
Broadway, former directors of the Company, and options vesting over three years
to purchase 100,000 shares each to Messrs. Gartner, Murphy and Oxenberg, the
non-officer directors elected to the Board of Directors at the Annual
Shareholders Meeting in September. In March 1996, the Company granted an
incentive stock option vesting over three years to purchase 100,000 shares at an
exercise price of $4.38 to Mr. Richard Gerstner, who joined the Board of
Directors (the underlying shares of Common Stock are included in the within
registration).
All of the grants of stock and options awarded by the Company were
ratified by stockholders at the Company's annual meeting of stockholders.
PLAN OF DISTRIBUTION
The Shares covered by this Prospectus are being registered by the Company
for the respective accounts of the Selling Stockholders. The Company will pay
all expenses of registering the Shares. Although, the Company will receive
proceeds upon exercise of options or warrants by the Selling Stockholders, the
Company will not receive any of the proceeds from sales by the Selling
Stockholders. The Company understands that none of such Shares will be offered
through underwriters.
The Shares may be sold from time to time Selling Stockholders either
through one or more brokers or dealers on the NASDAQSM Small Cap Market, through
privately negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at prices otherwise negotiated. In connection therewith, the
Selling Stockholders and participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Act, and commissions or discounts or
any profit realized on the sale of Shares received by the Selling Stockholders
or any such broker or dealer may be deemed to be underwriting commissions or
discounts within the meaning of the Act. As of the date of this Prospectus, the
Company understands that the Selling Stockholders do not have any agreement,
arrangement or understanding with any brokers or dealers concerning the
distribution of their respective Shares.
DESCRIPTION OF STOCK
COMMON STOCK
The Company is authorized to issue 40,000,000 shares of Common Stock, $.01
par value, of which 4,079,778 are outstanding as of February 7, 1997. The
following summary description of the capital stock of the Company is qualified
in its entirety by reference to the Certificate of Incorporation ("Certificate
of Incorporation"), and the By-Laws (the "By-Laws"), copies of which are
enumerated as exhibits to the Registration Statement of which this Prospectus is
a part.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders and are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefore, subject to any dividend
preferences of the Company's Preferred Stock then outstanding. See "Dividend
Policy". Holders of Common Stock are not entitled to cumulative voting rights.
Therefore, the holders of a majority of the shares eligible to vote in any
election of Directors can elect all of the Directors then standing for election.
The holders of Common Stock have no pre-emptive or other subscriptive rights,
and there are no conversion rights or redemption or sinking fund provisions with
respect to Common Stock. All shares of Common Stock currently issued and
outstanding, and the Common Stock to be issued upon conversion of shares of
Preferred Stock will be, fully paid and non-assessable. No cash dividends have
been paid to holders of the Common Stock since the inception of the Company and
no dividends are anticipated to be declared or paid in the foreseeable future.
See "Dividend Policy".
WARRANTS
Each Warrant provides that each holder will be entitled to purchase one
half of a share of the Company's Common Stock at an aggregate exercise price per
share of $9.00, subject to adjustment in certain circumstances, for 48 months
from April 14, 1994, at which time the Warrants will expire. The Warrants are
redeemable in whole and not in part by the Company upon 30 days' notice at a
price of $.05 per Warrant if the closing bid price of the Company's Common stock
equals or exceeds $11.25 for any 20 consecutive trading days ending not more
than 20 days prior to the date the notice of redemption is mailed to Warrant
holders. In the event the Company gives notice of its intention to redeem the
Warrants, a holder would be forced to either exercise his Warrants within 30
days of the notice of redemption or accept the redemption price. The holders of
warrants will have exercise rights until the close of business on the date fixed
for the redemption thereof.
The Warrants issued are under a Warrant Agreement between the Company and
first Union National Bank of North Carolina as "Warrant Agent." The shares of
the Company's Common Stock underlying the Warrants, when issued upon exercise
thereof and payment of the purchase price, will be fully paid and nonassessable,
and the Company will pay any transfer tax incurred as a result of the issuance
of Common Stock to the holder upon exercise.
The Warrants contain provisions that protect holders against dilution by
adjustment of the exercise price in certain events such as stock dividends and
distributions, stock splits, recapitalization, mergers, and consolidations. The
Company will not be required to issue fractional shares upon the exercise of a
Warrant. If a fractional share of Common Stock would be issuable upon the
exercise of any Warrant, the Company will pay to the holder in lieu thereof, an
amount in cash equal to the market value of the Common Stock multiplied by such
fraction. The market value of the Common Stock shall mean (i) if the Common
Stock is traded in the over-the-counter market and not in the NASDAQ national
market system, nor on any other national securities exchange, the average of the
per share closing bid prices of the Common Stock for 30 consecutive trading days
immediately preceding the date in question, as reported by NASDAQ or an
equivalent generally accepted reporting service, or (ii) if the Common Stock is
traded on the NASDAQ national market system or a national securities exchange,
the average for 30 days consecutive trading days immediately preceding the date
in question of the daily per share closing prices of the Common Stock. The
holder of a Warrant will not possess any rights as a stockholder of the Company
until such holder exercises the Warrant.
PREFERRED STOCK
General
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock having a par value of $.01 per share, of which 3,725,708 shares are
outstanding.
The Company's Board of Directors is authorized subject to limitations
prescribed by law and the provisions of the Certificate of Incorporation to
provided for the issuance of shares of Preferred Stock in series, and by filing
a Certificate pursuant to the applicable State law of the State of Delaware, to
establish from time to time, the number of shares to be included in each such
series and affix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, the right to determine and
designate any and all of the following: (i) the number of shares constituting
that series and distinctive designation of that series; (ii) the dividend rate
of the shares of that series, whether dividends shall be cumulative, and, if so,
from which date or dates, and the relative right or priority, if any, of payment
of dividends on shares of that series; and (iii) whether that series shall have
voting rights, in addition to the voting rights provided by law, and if so, the
terms of such voting rights; and (iv) whether that series shall have conversion
privileges, and if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the Board of
Directors shall determine; and (v) whether or not the shares of that series
shall be redeemable, and if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable, in the
amount per share payable in the case of redemption, which amount may vary under
different conditions and at different redemption dates; and (vi) whether that
series shall have a sinking fund for the redemption or purchase of the shares of
that series, and, if so, the term and amount of such sinking fund; and (vii) the
rights of the shares of that series in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and the relative
rights of priority, if any, of payment of shares in that series; and (viii) any
other relative rights, preferences and limitations of that series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividend shall be paid or declared
set apart for payment on the Common Stock with respect to the same dividend.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation the assets available for distribution to holders of shares
of Preferred Stock of all series shall be insufficient to pay such holders the
full preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of Preferred Stock in
accordance with respective preferential amounts (including unpaid cumulative
dividends, if any) payable with respect thereto.
10% CONVERTIBLE REDEEMABLE PREFERRED STOCK
Holders of the 10% Convertible Redeemable Preferred Stock ("10%
Convertible Redeemable Stock") will not be entitled to vote except as otherwise
required by the Delaware General Corporation Law. The 10% Convertible Redeemable
Stock will accrue cumulative dividends at a rate equal to 10% per annum of the
issue price of $1.00 per share (the "Issue Price"), payable semi-annually out of
funds legally available therefore on April 15 and October 15 each year with
respect to dividends accrued as of March 31 and September 30 in each such year
(each a "Dividend Payment Date"). At the option of the Company, dividends may be
paid in cash or in-kind. Dividends in-kind shall be paid by delivery of any
number of shares of Common Stock determined by dividing the amount of the
aggregate dividend accrued and payable by an amount (not less than $.10) equal
to 50% of the average closing bid price of the shares of Common Stock during the
twenty trading days immediately preceding a Dividend Payment Date.
The 10% Convertible Redeemable Stock may be redeemed by the Company, in
whole or in part, at any time during the period of eighteen (18) months
immediately following the date of issue at a redemption price equal to a $1.25
per share plus payment of all accrued and unpaid dividends thereon. Each share
of 10% Convertible Redeemable Stock shall be convertible, from time to time, at
the option of the holder, to the extent of the actual percentage of shares of
10% Convertible Redeemable Stock initially required by such holder as determined
from the schedule set forth below into shares of Common Stock at a conversion
rate per share determined by dividing the Issue Price by the Conversion Price
then in effect. Dividends will accrue on and will be paid through the date of
receipt by the holders notice of conversion, subject of the right of the Company
to pay such dividends and shares of Common Stock, should the Company choose to
redeem the 10% Convertible Redeemable Stock as defined above. Alternatively, a
holder may convert accrued dividends together with the shares of 10% Convertible
Redeemable Stock to be converted. The conversion price shall be an amount equal
to the greater of (I) $.10 or (ii) 50% of the average closing bid price of the
Common Stock during the twenty trading days immediately preceding the date that
a conversion notice may first be given. A conversion notice may be given at any
time during the thirty (30) day commencing on and immediately following each
date set forth below, with respect to that percentage of the share of 10%
Convertible Stock initially required by the holders set opposite each such date.
Percentage of the Shares of the 10% Convertible
First Date (of 30 days) Redeemable Stock Initially Purchases With
on which a Holder May Respect to Which notice of Conversion May be
Give Notice of Conversion Given
- -----------------------------------------------------------------------------
November 1, 1995 5%
February 1, 1996 5%
May 1, 1996 5%
August 1, 1996 5%
November 1, 1996 5%
February 1, 1997 10%
May 1, 1997 10%
August 1, 1997 10%
November 1, 1997 10%
February 1, 1998 15%
May 1, 1998 20%
Upon any default by the Company in the payment of dividends, with sole
remedy shall be acceleration on the conversion privileges so that 100% of the
shares of the 10% Convertible Redeemable Stock then held by holders shall become
immediately convertible. In the event the Company shall seek protection from
creditors through bankruptcy, the shares of 10% Convertible Redeemable Stock
shall be convertible into the greater of (i) the number of shares of Common
Stock determined so that all holders of shares of 10% Convertible Redeemable
Stock shall receive, upon conversion, a number of shares of Common Stock which,
when added to shares of Common Stock previously issued upon conversion or as
payment for dividends, shall equal to 51% of the shares of the Company's Common
Stock issued and outstanding immediately following such conversion, or (ii) that
number of shares of Common Stock determined by multiplying the shares of 10%
Convertible Redeemable Stock owned by each holder by the quotient of the issue
price divided by the Conversion Price then in effect.
The 10% Convertible Redeemable Stock shall carry a liquidation preference
in the amount of the issue price upon the liquidation and winding up of the
Company for any reason, each holder of shares of 10% Convertible Redeemable
Stock shall receive, prior to any dissolution with respect to the Common Stock a
liquidation distribution in the amount of the number of shares of 10%
Convertible Redeemable Stock owned by such holder multiplied by the issue price,
plus the amount of all accrued but unpaid dividends paid thereon subject to the
rights and preferences of the Company's other classes of Preferred Stock.
10% CONVERTIBLE PREFERRED STOCK
Presently 1,350,000 of 10% Convertible Preferred Stock ("10% Preferred
Stock") are outstanding.
The 10% Preferred Stock may be converted at the option of the holder
during a three (3) year period. commencing from the inception of the
subscription by the Company (the "Anniversary Date"), however, the 10% Preferred
Stock may not be converted for a period of six (6) months from the Anniversary
Date, and thereafter is convertible at a 30% discount to the current market
price of the Common Stock of INSCI at the time of conversion. The Preferred
Stock will be automatically converted into shares of Common Stock by the Company
three (3) years from the Anniversary Date. The conversion price per share will
be the ten (10) prior trading day market average between the closing bid and the
closing asked price as quoted on the NASDAQ, at the time of conversion, and the
conversion price will be limited to a maximum of $8.00 per share taking into
consideration the 30% discount to market.
The 10% Preferred Stock dividends, at the option of INSCI, will be payable
at the Company's discretion either by an annual Common Stock dividend of 10% in
Common Stock payable on a semi-annual basis, or a 8% cash dividend payable on a
semi-annual basis, subject to the Company's discretion.
The Common Stock upon conversion and registration will be subject to a
sale restriction, in that a maximum of 10% of the converted shares may be sold a
month. Subsequent to conversion and registration, if the trading volume of the
Company's Common Stock on the NASDAQ exceeds 40,000 shares per day for a minimum
of thirty (30) consecutive trading days, the 10% monthly sales restriction will
no longer apply.
The holders of the 10% Preferred Stock will not be entitled to vote except
as otherwise required by the Delaware General Corporation Law.
The 10% Preferred Stock shall carry a liquidation preference in the amount
of the issued price. Upon the liquidation and winding up of the Company for any
reason, each holder of the shares of 10% Preferred Stock shall receive, prior to
any distribution in respect of the Common Stock, a liquidation distribution in
the amount of number of shares of 10% Preferred Stock owned by such holder
multiplied by the issued price, subject to and in conjunction with the rights of
the Company's other classes of Preferred Stock.
8% CONVERTIBLE REDEEMABLE PREFERRED STOCK
The Company presently has outstanding 1,333,333 shares of its 8%
Convertible Redeemable Preferred Stock ("8% Preferred Stock").
Each share of 8% Preferred Stock converts into one share of Common Stock
at the option of the holder.
Except as expressly provided by the General Corporation Business Law
("GCL") of the State of Delaware, and the Corporation's amended Certificate of
Incorporation, the 8% Preferred Stock shall have no voting rights or pre-emptive
rights.
If the Corporation shall be voluntarily or involuntarily liquidated,
dissolved or wound up, at any time when any 8% Preferred Stock shall be
outstanding, the Eligible Holders of the then outstanding 8% Preferred Stock
shall receive a preference on liquidation at least pari passu with any existing
and future issues of preferred stock that has the highest preference regarding
distributions. The preference shall be $3.75 per share of 8% Preferred Stock.
Eligible Holders of the 8% Preferred Stock shall have a preference in
distribution of the Corporation's property available for distribution to the
holders of the Corporation's Common Stock $.01 par value per share (the "Common
Stock") equal to a pro-rata amount of said distribution in proportion to the
Eligible Holder's ownership of 8% Preferred Stock, together with an amount equal
to all unpaid dividends accrued thereon, if any, to the date of payment of such
distribution, whether or not declared by the Board, provided however, that the
amalgamation of the Corporation with any Corporation or corporations, the sale
or transfer by the Corporation of all or subsequently all of its property, or
any reduction of the authorized or issued capital of the Corporation of any
class, whether now or hereafter authorized, shall be deemed to be a liquidation
of the Corporation.
Subject to the provisions hereof, all amounts to be paid as preferential
distributions to the Eligible Holders of 8% Preferred Stock shall be paid or set
apart for payment before the payment or setting apart for payment of any amount
for, or the distribution of any of the Corporation's property to the holders of
Common Stock or to the holders of any preferred stock inferior in preference to
the 8% Preferred Stock, whether now or hereafter authorized, in connection with
such liquidation, dissolution or winding up.
If the Company's Common Stock trades at or above $7.50 per share for
twenty out of thirty consecutive trading days and the Company then has an
effective registration statement under the Securities Act of 1933, as amended
("1933 Act") with respect to all shares of Common Stock underlying the 8%
Preferred Stock, the Company has the right, upon thirty days prior written
notice to all holders of record of the 8% Preferred Stock, to redeem all, but
not less than all, of the 8% Preferred Stock for cash at $3.75 per share of 8%
Preferred Stock. At any time after October 1, 1999, any shares of 8% Preferred
Stock that have not otherwise converted can be redeemed at the option of the
Company, upon thirty days prior written notice to all then holders of record of
the 8% Preferred Stock, for cash at $3.75 per share of 8% Preferred Stock. On
October 1, 2001, any outstanding 8% Preferred Stock shall automatically convert
into shares and Common Stock at the lesser of $3.75 per share or the average bid
price for the Common Stock for twenty (20) consecutive trading days ending five
(5) business days prior to October 1, 2001.
For so long as an Investor owns 8% Preferred Stock and/or Warrants, the
Investor shall have anti-dilution protection and adjustment right with respect
to : (i) any subdivision of the outstanding shares of Common Stock of the
Company into a greater number of shares of Common Stock; (ii) any declaration of
a dividend or any other distribution by the Company upon its Common Stock
payable in shares of Common Stock; (iii) any capital reorganization or
reclassification of the capital stock of the Company; or (iv) any consolidation
or merger of the Company with another entity. (See Limited Anti-Dilution
Examples herein). There will be no adjustment in the event that the Company pays
a dividend in cash to its holders of Common Stock; provided, however, that the
Company gives all holders of the 8% Preferred Stock written notice at least (30)
days prior to the record date for the cash dividend that the Company intends to
declare a cash dividend.
The 8% Preferred Stock, nor the Common Stock issuable upon the conversion
of the 8% Preferred Stock, may be offered, sold or resold unless the shares are
registered under the 1933 Act or an exemption from the registration requirements
of the 1933 Act is available.
The Common Stock underlying the 8% Preferred Stock and Warrants cannot be
sold for a period of six (6) months subsequent, and thereafter, only in
compliance with the 1933 Act and applicable state securities laws.
VALIDITY OF SHARES
The validity of the securities being offered hereby is being passed upon
Baratta & Goldstein, 597 Fifth Avenue, New York, New York 10017.
EXPERTS
The financial statements of INSCI Corp as of and for the years ended March
31, 1996 and March 31, 1995 included in this Prospectus and elsewhere in the
Registration Statement have been audited by Mahoney Cohen Rashba & Pokart, CPA,
PC, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of INSCI Corp for the year ended March 31, 1994,
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Grant Thornton LLP, independent public accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said report.
----------------------
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
and Exchange Act of 1934 (the "1934 Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission
("Commission"). Such reports and other information can be inspected and copied
at the Public Reference facilities maintained by the Commission, 450 Fifth
Street, N.W., Washington, DC 20549, as well as the Regional Offices of the
Commission at CITICORP Center 500 West Madison Street, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, New York 10048, and copies can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Reports and other
information concerning the Company can also be inspected at the offices of the
NASDAQ, 1735 "K" Street, N.W., Washington, D.C. 20006-1500, on which the
Company's Common Stock is listed.
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Act with respect to the Common
Stock to which this Prospectus relates. This Prospectus does not contain all of
the information set forth in the Registration Statement and the Exhibits
thereto. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits thereto, which may be obtained, together with other information
about the Company, from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be
obtained from the Public Reference Section of the Commission at prescribed
rates.
----------------------
DOCUMENTS INCORPORATED BY REFERENCE
There is hereby incorporated in this Prospectus by reference the Company's
Annual Report on Form 10-K for the year ended March 31, 1996, Forms 10-QSB for
the fiscal quarter ended June 30, 1996, and Form 10-QSB for the fiscal quarter
ended September 30, 1996 and the Company's current reports on Forms 8-K Reports
filed heretofore with the Securities and Exchange Commission pursuant to the
1934 Act, to which reference is hereby made.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 and 15(d) of the Exchange Act prior to the filing of a post-effective
amendment to the Registration Statement which indicates that all securities
offered by this prospectus have been sold or which deregisters all securities
then remaining unsold shall be deemed to incorporated by reference in this
prospectus and to be a part hereof from the date of filing such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for the purposes hereof to the extent that
statements contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such statement.
Any such statement so modified or superseded shall be deemed to constitute a
part hereof, except as so modified or superseded.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner to whom a copy of the Prospectus has been
delivered on written or oral request of such person, a copy of any or all of the
documents referred to above which have been or may be incorporated in this
Prospectus by reference, other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference into such documents.
Requests for such copies should be directed to the offices of the Company,
(508-870-4000) Two Westborough Business Plaza, Westborough, Massachusetts 01581,
Attn: Roger Kuhn, Chief Financial Officer.
No dealer, sales representative or other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in the Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of any offer to buy, any
securities other than the registered securities to which it relates or any offer
to, or the solicitation of, any person in any jurisdiction where such an offer
or solicitation would be unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to the date hereof.
INDEMNIFICATION
The General Corporation Law of the State of Delaware grants each
corporation organized hereunder the power to indemnify its officers and
directors against liability under certain circumstances. The Company's
Certificate of Incorporation provides that the Company shall, to the full extent
permitted by law, indemnify all directors, officers, employees and agents of the
Company. The Company's Certificate of Incorporation also contains a provision
eliminating the liability of directors of the Company to the Company or its
stockholders for monetary damages, except under certain circumstances.
The Company also has a policy insuring its directors and officers against
certain liabilities, including liabilities under the Act.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, the registrant has been informed that in the
opinion of the Commission such indemnification is against public policy as
expresses in the Act and is therefore unenforceable.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Accountants ..................................... F-1
Report of Independent Certified Public Accountants ..................... F-2
Balance Sheets as of March 31, 1996 and 1995 ........................... F-3
Statements of Operations for the Fiscal Years ended March 31, 1996, 1995
and 1994 ............................................................. F-4
Statements of Stockholder's Equity for the Fiscal Years ended March 31,
1996, 1995 and 1994 .................................................. F-5
Statements of Cash Flows for the Fiscal Years ended March 31, 1996, 1995
and 1994 ............................................................. F-6
Notes to Financial Statements .......................................... F-8
Schedule II
Valuation and Qualifying Accounts for the years ended March 31, 1996,
1995 and 1994 ........................................................ F-21
Balance Sheet (unaudited) as of December 31, 1996 ...................... F-22
Condensed Statements of Operations (unaudited) for the nine months ended
December 31, 1996 and 1995 ........................................... F-23
Statements of Cash Flows (unaudited) for the nine months ended
December 31, 1996 and 1995 ........................................... F-24
Notes to Condensed Financial Statements ................................ F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of
INSCI Corp.
We have audited the accompanying balance sheets of INSCI Corp. as of March
31, 1996 and 1995, and the related statements of operations, stockholders'
equity (deficiency), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of INSCI Corp. as of March 31,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
We have also audited Schedule II for the years ended March 31, 1996 and
1995. In our opinion, this schedule presents fairly the information required to
be set forth therein.
As discussed in Note M to the financial statements, the U.S. Securities and
Exchange Commission ("SEC") has issued an order, dated April 13, 1995, directing
a private investigation of INSCI Corp. and Information Management Technologies
Corporation. The ultimate outcome of the investigation cannot presently be
determined, and no provision for any liability or impairment of asset carrying
value that may result has been made in the financial statements.
/s/ Mahoney Cohen Rashba & Pokart, CPA, PC
MAHONEY COHEN RASHBA & POKART, CPA, PC
New York, New York
May 10, 1996, except for Notes R(2) and R(3)
as to which the dates are June 28, 1996 and
June 26, 1996, respectively
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS
INSCI CORP.
We have audited the accompanying statements of operations, stockholders'
equity (deficiency), and cash flows for the year ended March 31, 1994 of INSCI
Corp., (a Delaware corporation). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of its operations and its cash flow for
the year ended March 31, 1994, in conformity with generally accepted accounting
principles.
We have also audited Schedule II for the year ended March 31, 1994. In our
opinion, this schedule presents fairly the information required to be set forth
therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has sustained substantial
losses in recent years including a loss for the year ended March 31, 1994 of
approximately $3,000,000 and has experienced deficiency in cash flows from
operations for all periods presented in the accompanying financial statements.
In addition, the Company has a deficiency in working capital of approximately
$6,200,000 and a deficiency in stockholders' equity of approximately $4,700,000
as of March 31,1994. We have been informed by management that the Company has
continued to sustain losses and experienced deficiency in cash flows from
operations subsequent to March 31, 1994. Further, we have been informed by
management that the Company expects to continue to incur losses through the year
ended March 31, 1995. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The Company's continuation as a going
concern is dependent on the attainment of profitable operations and generating
of sufficient cash flows to support operations and to meet its obligations on a
timely basis, including meeting the covenants and restrictions of its financing
agreements. In view of these matters, recoverability of a major portion of the
recorded asset amounts at March 31, 1994, is dependent upon the attainment of
profitable operations and the ability to generate cash flows sufficient to
support future operations of the Company. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
GRANT THORNTON LLP
New York, New York
June 28, 1994
<PAGE>
<TABLE>
<CAPTION>
INSCI CORP.
BALANCE SHEETS
(in thousands, except share amounts)
ASSETS MARCH 31,
1996 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Notes B-2 and B-9) $ 436 $ 1,605
Accounts receivable, net of allowance for doubtful accounts
of $100 in 1996 and 1995 (Note B-9) 2,102 1,158
Inventory (Note B-3) 12 37
Prepaid expenses and other current assets 140 115
-------- --------
Total current assets 2,690 2,915
Property and equipment, net (Notes B-6 and D) 833 1,031
Other assets:
Capitalized software development costs, net of
accumulated amortization of $536 in 1996 and $284 in 1995 (Note B-4) 633 1,231
Purchased software, net of accumulated
amortization of $42 in 1996 and $0 in 1995 (Notes B-4 and Q) 961 75
Other 76 47
-------- --------
Total other assets 1,670 1,353
-------- --------
Total Assets $ 5,193 $ 5,299
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable- current portion (Note H) $ 48 $ -
Accounts payable 661 345
Accrued and other liabilities 1,064 736
Customer deposits (Note B-1) 257 210
Dividends payable - preferred stock (Notes K and L) - 168
Deferred maintenance revenue (Note B-1) 574 541
Capital lease obligations - current portion (Note F) 26 32
-------- --------
Total current liabilities 2,630 2,032
Long term debt:
Note payable - less current portion (Note H) 44 -
Capital lease obligations - less current portion (Note F) - 32
-------- --------
Total long term debt 44 32
8% Redeemable preferred stock, $100.00 par value: 50,000 shares
authorized; 16,343 shares issued and outstanding in 1995 (Notes K and L) - 1,634
Commitments and contingencies (Notes E,F,K,L,M,O, and Q)
Stockholders' equity (Notes B-8,G,I,J,K,L,M,N,O and P):
10% Convertible Redeemable preferred stock, $.01 par value: authorized 12 -
10,000,000 shares: 1,160,950 shares issued and outstanding in 1996
Liquidation preference of $1,161 (Notes K and L)
Common stock, $.01 par value: authorized 40,000,000 shares;
issued and outstanding 3,864,011 in 1996 and 3,640,002 in 1995 38 36
Additional paid-in capital 17,326 14,943
Accumulated deficit (14,857) (13,378)
-------- --------
Total stockholders' equity 2,519 1,601
-------- --------
Total Liabilities and Stockholders' Equity $ 5,193 $ 5,299
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
INSCI CORP.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
YEARS ENDED MARCH 31,
1996 1995 1994
------- -------- -------
Revenue
Product $ 4,983 $ 4,935 $ 6,562
Services 2,930 2,253 1,625
------- -------- -------
Total revenue 7,913 7,188 8,187
Cost of revenue
Product 1,784 1,387 *
Services 1,527 2,117 *
------- -------- -------
Total cost of revenue 3,311 3,504 4,338
------- -------- -------
Gross margin 4,602 3,684 3,849
Expenses
Sales and marketing 2,459 3,070 2,541
Product development 1,758 1,364 1,147
General and administrative 1,542 1,871 2,145
Non-recurring charges (Note C ) 325 500 -
Write-off of registration costs (Note N ) - - 330
------- -------- -------
Total expenses 6,084 6,805 6,163
------- -------- -------
Loss from operations (1,482) (3,121) (2,314)
Interest income (expense):
Interest income 70 64 20
Interest expense - third party (40) (11) (87)
Interest expense - related party - (45) (587)
------- -------- -------
30 8 (654)
------- -------- -------
Net loss (1,452) (3,113) (2,968)
Preferred stock dividend (27) (253) -
------- -------- -------
Net loss applicable to common shares $(1,479) $ (3,366) $(2,968)
======= ======== =======
Net loss per common share (Note B-8) $ (0.40) $ (1.04) $ (1.55)
======= ======== =======
Weighted average common
shares outstanding (Note B-8) 3,655 3,242 1,913
======= ======== =======
* Segregation within Cost of revenue for products and services not available
in 1994
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
<PAGE>
INSCI CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DEFICIENCY)
Years ended March 31, 1996, 1995, and 1994
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
No. of No. of Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
----------- ------ ----------- ------ --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 5,670,002 $ 57 - - $ 5,263 $ (7,044) $(1,724)
1 for 3 reverse stock split (3,780,000) (38) - - 38 - -
Net loss - - - - - (2,968) (2,968)
--------- ---- --------- --- ------- -------- -------
BALANCE, MARCH 31, 1994 1,890,002 19 - - 5,301 (10,012) (4,692)
Issuance of 1,250,000 units,
net of issuance costs of $1,591 1,250,000 12 - - 7,147 - 7,159
8% Preferred stock dividends - - - - - (253) (253)
8% Preferred stock conversion to
common stock at $5.00 per share 500,000 5 - - 2,495 - 2,500
Net loss - - - - - (3,113) (3,113)
--------- ---- --------- --- ------- -------- -------
BALANCE, MARCH 31, 1995 3,640,002 36 - - 14,943 (13,378) 1,601
Preferred stock dividends - - - - - (27) (27)
Redemption of 8% preferred stock - - - - 820 - 820
Conversion of subordinated notes
to 10% preferred stock - - 1,240,000 $12 964 - 976
10% Preferred stock conversion to
common stock 39,260 - (79,050) - - - -
Common stock issued as dividend
on 10% preferred stock 16,082 - - - - - -
Common stock issued for purchase
of assets of Courtland Group, Inc. 89,681 1 - - 255 - 256
Acquisition cost/stock options issued
at less than fair market value - - - - 138 - 138
Sale of common stock 75,054 1 - - 199 - 200
Exercise of stock options 3,932 - - - 7 - 7
Net loss - - - - - (1,452) (1,452)
--------- ---- --------- --- ------- -------- -------
BALANCE, MARCH 31, 1996 3,864,011 $ 38 1,160,950 $12 $17,326 $(14,857) $ 2,519
========= ==== ========= === ======= ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
INSCI CORP.
STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED MARCH 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($1,452) ($3,113) ($2,968)
Reconciliation of net loss to net cash used in operating activities:
Interest on note exchanged for preferred stock 40 - -
Depreciation and amortization 454 402 182
Amortization of software costs 760 218 427
Provision for doubtful accounts - (89) 194
Provision for loss on loan to officer - 150 -
Write-off of registration costs - - 330
Changes in assets and liabilities:
Accounts receivable (944) 1,487 (1,671)
Inventory 25 386 445
Prepaid expenses and other current assets (25) 52 (3)
Accounts payable 276 (958) 241
Accrued and other liabilities 317 138 287
Customer deposits 47 54 (323)
Deferred maintenance revenue (22) (205) 462
-------- -------- -------
Net cash used in operating activities (524) (1,478) (2,397)
Cash flows from investing activities:
Additions to capitalized software development costs (120) (821) (299)
Additions to purchased software costs (114) - -
Capital expenditures (245) (646) (298)
Purchase of certain assets of Courtland Group, Inc. (242) - -
Other assets (29) (88) (8)
-------- -------- -------
Net cash used in investing activities (750) (1,555) (605)
Cash flows from financing activities:
Proceeds from sale of common stock 200 8,750 -
Proceeds from exercise of stock options 7 - -
Proceeds from sale of 90-day Subordinated Notes 1,200 - -
Payment of financing costs (250) (1,084) (507)
Redemption of preferred stock and dividends (1,000) (85) -
Advances from (repayments to ) Imtech - (2,327) 3,932
Repayment of revolving credit facility - (587) (306)
Repayment of current portion of long-term debt - - (65)
Payment of capital lease obligations (52) (29) (52)
-------- -------- -------
Net cash provided by financing activities 105 4,638 3,002
-------- -------- -------
Net change in cash and cash equivalents (1,169) 1,605 -
Cash and cash equivalents at beginning of year 1,605 - -
-------- -------- -------
Cash and cash equivalents at end of year $ 436 $ 1,605 $ -
======== ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
INSCI CORP.
STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
YEARS ENDED MARCH 31,
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ - $ 56 $ 74
======== ======== ======
Income taxes $ - $ - $ -
======== ======== ======
Supplemental disclosure of financing information:
Conversion of advances from parent to preferred stock $ - $ 4,134 $ -
======== ======== ======
Accrued preferred stock dividends $ - $ 168 $ -
======== ======== ======
Conversion of note payable to preferred stock $ 1,240 $ - $ -
======== ======== ======
Supplemental information on non cash investing and financing activities:
In April 1994, Imtech and the Company exchanged $4,134,000 of intercompany indebtedness for 41,343 shares of the
Company's 8% redeemable preferred stock. (Notes J and L-2)
In December 1994, Imtech converted 25,000 shares of the Company's 8% redeemable preferred stock into 500,000 shares
of the Company's common stock. (Notes J and L-2)
During fiscal year 1995, the Company converted $2,500,000 of the 8% redeemable preferred stock to common stock.
In June 1995, the Company redeemed in full the outstanding balance of $1,634,000 of 8% redeemable preferred stock
held by Imtech and the $186,000 of preferred stock dividends payable thereon, for the sum of $1,000,000. The
difference of $820,000 was recorded as additional paid-in capital. (Notes J and L-2)
In November 1995, the Company issued 40,000 shares of its 10% preferred stock in payment of the interest due on its
90-day Subordinated Notes. (Note K)
During fiscal year 1996, the Company issued 16,082 shares of its common stock in payment of the dividend due on its
10% preferred stock. (Notes K and L-6)
In fiscal year 1996 the Company issued common stock with a value of $138,000 in connection with the acquisition of
certain assets from Courtland Group, Inc. and software from Custom Solutions, Inc.
In March 1996, the Company issued 89,681 shares of common stock and issued a note payable, at no interest, ratably
over a two year term in conjunction with its purchase of the assets of Courtland Group, Inc. (Note L-5 and R)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
INSCI CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
NOTE A - ORGANIZATION OF THE COMPANY
INSCI Corp. was incorporated in 1989. Until January 1996, the Company
was a majority-owned subsidiary of Information Management Technologies
Corporation ("Imtech"). As of March 31, 1996, Imtech owns approximately 38% of
the Company's outstanding common stock. The Company develops, markets and
supports client/server electronic printing and document management software
utilizing optical disk and CD storage technology to store, index, archive,
retrieve, and distribute computer generated documents and scanned images
including statements, reports, invoices and transaction data. The Company also
provides an extensive range of systems integration and consulting services based
upon its expertise in integrated output management, electronic printing,
print-on-demand, data storage, data warehousing and data mining.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:
1. Revenue Recognition
Revenue from the sale of INSCI's multi-user system installations which
require significant customization is recognized upon customer acceptance,
when there are no longer significant obligations to be fulfilled and when
collectibility is probable and imminent. Stand-alone version installations
do not require significant obligations after delivery of the hardware and
software. Revenue on such sales is recognized upon shipment and remaining
obligations, if any, are accrued. The Company's software license agreement
does not (i) entitle the buyer to any right of return or exchange, or (ii)
grant the customer any right to product upgrades or enhancements.
Software maintenance revenue is recognized ratably over the contract
period, generally one year. During the fourth quarter of 1994, the Company
became aware that maintenance billings of approximately $485,000 had not
been billed for maintenance and support services that had been provided to
customers in prior periods. As a result the Company retroactively billed
the customers in accordance with their maintenance contracts. The Company
has arranged with a third party provider to perform all customer support
obligations under its hardware maintenance contracts. Consequently, the
Company recognizes hardware maintenance revenue upon commencement of the
contract period.
Services revenue from consulting and systems integration is recognized
upon performance of the services where the customer contract is of a time
and material nature and there are no significant remaining obligations, and
upon acceptance of the completed project where the contract is of a fixed
price nature.
Advance payments required from customers under contractual agreements,
which have not been fulfilled, are classified as customer deposits.
2. Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with
insignificant interest rate risk and original maturities of three months or
less. They are carried at cost which approximates market value.
3. Inventory
Inventory, consisting primarily of computer hardware products purchased
from third parties, is stated at the lower of cost or market. Cost is
determined by the specific identification method.
4. Intangible Assets
A. Capitalized Software Costs
The Company capitalizes the qualifying costs of developing its software
products. Capitalization of costs requires that technological feasibility
has been established. Development costs incurred prior to the establishment
of technological feasibility are expensed as incurred. When the software is
fully documented and available for unrestricted sale, capitalization of
development costs ceases, and amortization commences based on either a
straight-line basis for a period of months (presently 24 months) or the
ratio of current gross revenues to the total current and anticipated future
gross revenues, whichever is greater. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized
software development costs require considerable judgment by management with
respect to certain external factors, including, but not limited to,
technological feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technologies.
Realization of capitalized software costs is subject to the Company's
ability to market its software products in the future and generate cash
flows sufficient to support future operations. Capitalized software costs
totaled $120,000, $821,000, and $298,000 during the years ended March 31,
1996, 1995 and 1994, respectively. Amortization of capitalized software
costs totaled $718,000, $218,000 and $427,000 during the years ended March
31, 1996, 1995 and 1994, respectively, and is included in cost of revenue
in the accompanying Statements of Operations.
B. Purchased Software
The Company capitalizes as Purchased Software the costs associated with
software products either purchased from other companies for resale or
developed by other companies under contract with the Company. The cost of
the software is presently amortized over a period of two years. The
amortization period is re-evaluated quarterly with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technologies. Purchased software costs totaled
$928,000, and $75,000 during the years ended March 31, 1996 and 1995,
respectively. Amortization of purchased software costs totaled $42,000,
during the year ended March 31, 1996, and is included in cost of revenue in
the accompanying Statements of Operations.
5. Income Taxes
The Company's results of operations were reported as part of Imtech's
consolidated group for Federal income tax purposes up to and including the
year ended March 31, 1994. Effective for fiscal 1995 and subsequent years
the Company has filed separate tax returns and income tax, if any, was
calculated on a separate company basis.
6. Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the related
assets. Property leased under capital leases is amortized over the lesser
of its useful life or the lease term. Upon retirement or sale, the cost of
the assets disposed of and the related accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss
is included in the determination of net income. The estimated useful lives
are as follows:
Furniture and fixtures................. 5-7 years
Equipment.............................. 3-5 years
Leasehold improvements................. Life of lease
7. Management Charges
Prior to INSCI's relocation to White Plains, New York in August 1993,
Imtech provided a variety of administrative services to the Company,
including accounting, personnel, data processing, employee relations and
other administrative services. In addition, the Company received the
benefit of other corporate overhead costs which principally relate to
office space, insurance coverage, telephone services, use of equipment, and
other various overhead costs related to the management of the Company.
Management charges were allocated to the Company based on factors
determined by management of the Company to be appropriate for the
particular item, including estimated time commitments of managerial
personnel, sales volume, number of employees and square footage of space
occupied. In the third quarter of fiscal 1995, effective with the Company's
move to Westborough, Massachusetts and the hiring of its own financial and
administrative staff, the charge by Imtech was discontinued. Management
charges, which are included in general and administrative expenses,
amounted to $92,000 and $156,000 for the years ended March 31, 1995 and
1994, respectively.
8. Loss Per Share
The computation of income (loss) per common and common equivalent share
has been calculated on the basis of the weighted average number of common
shares outstanding during the period. The effect on loss per share of
outstanding options and warrants is antidilutive and has not been included
in the calculation of weighted average shares outstanding.
9. Concentrations of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. The Company places its temporary cash investments in high grade
overnite investments with one financial institution. The Company has not
experienced any losses on these investments to date.
The Company has not experienced significant losses relating to
receivables. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit risks as determined
by management. Accounts receivable consists of geographically and industry
dispersed customers.
The Company maintains its cash balances in one financial institution.
These balances are insured by the Federal Deposit Insurance Corporation up
to $100,000 per institution. At March 31, 1996, the uninsured amounts held
at this financial institution were approximately $336,000.
10. Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that the cost of an
asset may be impaired, an evaluation of recoverability would be performed.
If an evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market or discounted cash flow value is
required.
11. Fair Value of Financial Instruments
Financial assets for which carrying values approximate fair value
include cash, and trade and other receivables. Financial liabilities for
which carrying values approximate fair value include trade and other
payables, accrued expenses and liabilities as well as notes payable.
The Company estimates that the carrying values approximate fair value
due to the short maturity or market rates of interest. However,
considerable judgment is required in interpreting market data to develop
estimates of fair value. Therefore, the estimates are not necessarily
indicative of the amounts which could be realized or would be paid in a
current market exchange. The effect of using different market assumptions
and/or estimation methodologies may be material to the estimated fair value
amount.
12. Use of Estimates
The preparation of financial statements require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
13. Reclassifications
The financial statements for the fiscal year ended March 31, 1994 have
been reclassified to conform with the Company's current presentation. The
primary changes have been the reclassification of development expenses from
cost of revenue to expenses, and the reclassification of selling, general
and administrative expenses into separate captions for reporting.
NOTE C - NON-RECURRING CHARGES
The Company paid $250,000 in fiscal 1996 to Marine Midland Bank
("Marine") in full settlement of all claims with respect to a dispute over a
1993 sublease of office space from Marine. In addition, in fiscal 1996, the
Company recorded a charge of $75,000 for fees paid to Bank of New York Financial
Corp. ("BNY") in April 1996 to terminate, at the Company's request, the
Company's credit facility with BNY. The Company incurred $500,000 of expenses in
fiscal 1995 in conjunction with its move from White Plains, NY to its new
headquarters in Westborough, MA. These expenses included the cost of relocating
employees and equipment, and employee severance and replacement cost.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
MARCH 31,
---------
1996 1995
---- ----
Furniture and fixtures $ 265 $ 265
Leasehold improvements 101 -
Computer and Telephone 1,313 1,159
------ -----
1,679 1,424
Less accumulated depreciation and amortization (846) (393)
------ -----
$ 833 $1,031
====== ======
Depreciation and amortization expense was $454,000, $402,000 and $182,000
for fiscal years 1996, 1995 and 1994, respectively.
NOTE E - RELATED PARTY TRANSACTIONS
(1) Effective October 1992, the Company signed a three-year consulting
agreement with Robert Oxenberg, pursuant to which Mr. Oxenberg provided
consulting services to the Company. At the time of this consulting agreement,
Mr. Oxenberg was a director of the Company. Mr. Oxenberg resigned as a director
of the Company in November 1993. This consulting agreement was terminated in
November 1993. In February 1995, Mr. Oxenberg was granted 25,000 options at
$1.13. Mr. Oxenberg was granted a ten-year option to acquire 10,000 shares of
Common Stock at an exercise price of $7.00 per share. The option was granted
under the Company's 1992 Stock Option Plan. Mr. Oxenberg was subsequently
re-elected as a director in September 1994 and is currently a director of
Imtech. In June 1995, the Company paid $35,000 to Mr. Oxenberg as remuneration
for his efforts on behalf of the Company to secure additional financing. In
September 1995, the Company signed an agreement with Mr. Oxenberg to assist
INSCI to approach potential investment sources. Mr. Oxenberg was paid a retainer
of 10,000 stock options at $1.66. Additionally, success fees are paid to Mr.
Oxenberg when INSCI enters into a binding arrangement with investors. Success
fees are 3.5% of funds raised and 25,000 shares of stock for each $1 million
raised.
(2) In April 1994, the Company loaned John L. Gillis, presently the
Company's Executive Vice President and Chief Operating Officer, and his wife,
the amount of $150,000 to purchase a residence in Westborough, Massachusetts.
The loan carries interest at the prime rate, and all unpaid principal plus all
accrued and unpaid interest is due ninety days (subject to extension by the
Company) following the closing of the loan. Repayment of the loan has been
extended through November 30, 1997, and in May 1996, the Company and Mr. Gillis
reached an agreement on a schedule of payments which anticipates repaying the
loan principal and interest in full during the course of the next two fiscal
years. The loan is collateralized by a pledge of Mr. Gillis' Imtech Class A
Common Stock, Imtech and certain INSCI stock options and 500 INSCI Units. This
collateral has a present market value materially less than the outstanding
balance of the loan. The Company established an allowance for loan loss as the
underlying collateral had minimal value. The outstanding loan balance as of
March 31, 1996 is $143,619, and is offset by an allowance for loan losses by the
same amount. During March 1996, Mr. Gillis paid down the loan through a
combination of cash payments and surrender of stock options for $30,665.
Interest paid by Mr. Gillis was $24,284.
(3) In June 1995, the Company engaged Dr. Prince as a consultant prior
to Dr. Prince's employment by the Company. A total of $11,538 was paid to Dr.
Prince for consulting services rendered to the Company prior to his employment.
In conjunction with Dr. Prince's employment the Company paid an additional
$25,000 to Dr. Prince and $25,000 to Perth Ventures for consulting fees. In June
1995, the Company commenced an interim office sharing arrangement on a
month-to-month basis from Perth Ventures at a monthly charge of $2,000 per
month. Dr. Prince, who is President, Chief Executive Officer and Chairman of the
Board of Directors of the Company, is 100% owner in and is President of Perth
Ventures. Dr. Prince is also an investor in one $25,000 unit of the Company's
10% convertible preferred stock.
(4) In June 1995, the Company engaged Emerging Technology Ventures,
Inc. ("ETVI") to manage its acquisition activities for a one year period. Mr.
Francis X. Murphy ("Mr. Murphy"), who is President of ETVI, became a director of
the Company in September 1995. ETVI is paid a monthly retainer of $6,000. This
agreement was subsequently amended in October 1995 to include management of the
Company's strategic alliance activities, and the agreement was extended until
October 1996. ETVI was granted an incentive stock option to acquire 400,000
shares of the Company's common stock at an exercise price of $2.31 per share.
These options are only exercisable to the extent that transactions which are
contemplated in the amended agreement are completed in accordance with the terms
of the agreement. For completed transactions ETVI will receive a commission,
which is offset against cumulative retainer fees paid and a portion of the stock
options granted will vest immediately. As a result of the company acquiring
certain assets from the Courtland Group, Inc., ETVI received a fee of $33,750
which was offset against the retainer and had 43,537 options vested from the
400,000 options described above. In addition, in connection with the acquisition
of the Image Express software from Customs Solution, Inc., ETVI had an
additional 25,000 options vested. The aggregate options vested were valued at
$138,000 and have been recorded as part of the acquisition cost.
(5) In June 1995, the Company engaged Gartner and Associates as
financial consultants to advise the Company. Mr. Leonard Gartner ("Mr.
Gartner"), principal of Gartner and Associates, became a director of the Company
in September 1995. Gartner and Associates was paid a monthly retainer of $4,500
plus expenses during fiscal year 1996. Pursuant to an April 1996 amendment to
the agreement, Gartner and Associates will be paid a monthly retainer of $6,000
plus expenses during fiscal year 1997, and will also receive a grant of 40,000
incentive stock options at an exercise price of $4.06. 10,000 of these options
vested immediately and the remainder vest at the rate of 7,500 options per
quarter during fiscal year 1997.
(6) In September 1995, Mr. Gartner and Mr. Murphy purchased 100,000
shares and 10,000 shares, respectively, of the Company's common stock from
Imtech. These are restricted shares with cost free registration rights.
(7) In September 1995, the Company entered into an agreement with
Technology Providers Ltd. ("TPL") of Sri Lanka under which TPL will provide
computer programming services for certain software products under development
and for selected customer application projects. TPL is owned by family members
of Mr. Krishan A. Canekeratne who is the Company's Senior Vice President of
Development. Mr. Canekeratne has no direct ownership interest in TPL. In the
opinion of management, the fees paid under this agreement are at fair market
value rates.
(8) In September 1995, the Company granted to its present and former
directors the following stock options at an exercise price of $1.44 per
share: one year options to purchase 10,000 shares each were granted to Messrs.
Grace and Broadway, former directors of the Company, and options vesting over
three years to purchase 100,000 shares each to Messrs. Gartner, Murphy and
Oxenberg, the non-officer directors elected to the Board of Directors at the
Annual Shareholders Meeting in September. In March 1996, the Company granted an
incentive stock option vesting over three years to purchase 100,000 shares at an
exercise price of $4.38 to Mr. Richard Gerstner, who joined the Board of
Directors.
NOTE F - LEASE COMMITMENTS
For financial reporting purposes, an equipment lease has been capitalized.
The related asset and obligation have been recorded at present value using the
18% rate implicit in the lease. The lease is non-cancelable and expires in
August 1996. The cost of equipment under the capital lease amounted to $123,000
at March 31, 1996 and March 31, 1995, with related accumulated depreciation of
$94,000, and $24,000, respectively.
The following is a schedule of the present value of future minimum lease
payments under the capital lease as of March 31, 1996 (in thousands):
Payments-year ended March 31, 1997........................ $ 27
Amount representing interest.............................. 1
-----
Total capital lease obligations........................... 26
Current portion of capital lease obligations.............. 26
-----
Present value of long-term obligations under capital lease $ 0
=====
The Company entered into a ten-year lease for its Massachusetts
headquarters office in October 1994. The Company also entered into a
noncancelable lease for office space for its Courtland Imaging division's office
in Maryland which expires in February 1998. As of March 31, 1996, future minimum
annual rental payments under these operating leases are as follows (in
thousands):
Year ending:
March 31, 1997...............................$ 306
March 31, 1998...............................$ 305
March 31, 1999...............................$ 263
March 31, 2000...............................$ 283
March 31, 2001...............................$ 307
Thereafter ..................................$1,149
Total rent expense, including amounts allocated from Imtech for office
space in prior fiscal years, was approximately $268,000, $343,000 and $259,000
for the years ended March 31, 1996, 1995 and 1994, respectively.
NOTE G - REVOLVING CREDIT FACILITY
In February 1994, the Company and Imtech completed a financing
arrangement with BNY Financial Corp. ("BNY") for a three-year shared credit
facility. Under the BNY facility, the Company and Imtech were entitled to borrow
up to the lesser of $4,500,000 or 85% of their respective eligible accounts
receivable and BNY provides management and collection services with respect to
such accounts receivable.
The ability of INSCI to borrow under the financing arrangement was
suspended by BNY during fiscal year 1995. In March 1996, the Company and BNY
agreed to terminate and settle all claims pursuant to the financing agreement
for the sum of $75,000.
NOTE H - NOTE PAYABLE
On March 28, 1996, the Company issued a non-interest bearing, unsecured
note for $100,000, subject to any rights of offset by the Company for one year.
This note is payable in twenty-four equal installments commencing April 27,
1996, and is part of the consideration paid for the purchase of the assets of
the Courtland Group, Inc. (see Note Q). The Company has recorded the note at its
net present value.
NOTE I - INCOME TAXES
The Company's results of operations were reported as part of Imtech's
consolidated group for Federal income tax purposes up to and including the year
ended March 31, 1994. At March 31, 1994, Imtech and the Company, on a
consolidated basis, had net operating loss ("NOL") carryforwards for Federal
income tax purposes of approximately $18,000,000 which are available to offset
future taxable income and expire at various dates through the year 2009, of
which approximately $10,000,000 is attributable to the Company. Following
completion of the Company's initial public offering, the Company is no longer
able to be included in Imtech's consolidated tax return and, therefore, the NOL
carryforward of Imtech is not available to the Company. At March 31, 1996, the
Company had available NOL carryforwards of approximately $14,500,000 resulting
from operating losses during fiscal years 1996 and 1995. The NOL carryforwards
for tax reporting purposes expire in various amounts through the year 2011. The
Company believes that an "Ownership Change" occurred in fiscal year 1996 within
the meaning of Section 382 of the IRS Code. Under an ownership change, the
Company will be permitted to utilize NOL carryforwards (available on the date of
such change) in any year thereafter to reduce its income to the extent that the
amount of such income does not exceed the product of (the "Section 382 limit")
the fair market value of the Company's outstanding equity at the time of the
ownership change and long term tax exempt rate published by the IRS.
The Company's Section 382 limits in 1997 and beyond will be
approximately $900,000 per year and accordingly, the Company will not be able to
utilize its full NOL benefits. The Company has fully reserved the tax benefits
of these operating losses because the likelihood of realization of the tax
benefits cannot be determined
NOTE J - INTERCOMPANY ADVANCES
As of March 31, 1994, the outstanding balance of the intercompany
indebtedness owed by the Company to Imtech was approximately $6,461,000. Using a
portion of the IPO proceeds in fiscal 1995 the company applied $2,327,000 to
partially repay the principal portion of such indebtedness. The remaining unpaid
balance at April 21, 1994 of $4,134,000 was converted into 41,343 shares of the
Company's preferred stock. Effective December 15, 1994, Imtech converted 25,000
shares of the Company's preferred stock into 500,000 shares of Common Stock,
leaving 16,343 shares of preferred stock outstanding. Effective June 15, 1995,
the Company redeemed in full the remaining 16,343 of outstanding preferred
stock. The Boards of Directors of the Company and Imtech each has adopted a
policy that neither company will make further advances to the other.
NOTE K - PREFERRED STOCK
In April 1995, the Board of Directors increased the number of authorized
shares of preferred stock from 5,000,000 shares to 10,000,000 shares.
A. 8% Redeemable Convertible Preferred Stock
The Company had 50,000 shares of authorized Redeemable Convertible
Preferred Stock with a par value of $100.00 per share. Under the terms of the
preferred stock, the Company was required to pay quarterly cumulative dividends
in the amount of eight percent of par value, to the extent of the Company's
available cash flow and the extent that the Company's working capital ratio
(current assets to current liabilities) had not reduced below .8 to 1 and the
Company had positive stockholders' equity. Available cash flow is defined as the
Company's net income, less a reserve for reasonably estimated capital
expenditures. Commencing June 30, 1995, to the extent that there was available
cash flow remaining after the cumulative quarterly dividends had been paid and
to the extent that the Company's working capital ratio was not reduced below .8
to 1 and the Company had positive stockholders' equity, the Company will redeem
the preferred stock over a period of six years in equal quarterly redemption. To
the extent the available cash flow was not sufficient to redeem the preferred
stock over this six-year period, then the Company will continue to redeem the
preferred stock thereafter on a quarterly basis out of available cash flow until
the preferred stock is fully redeemed. Additionally, the holders of the
preferred stock may convert the preferred stock into common stock at a
conversion rate of 14.29 shares of common stock for each share of preferred
stock. On June 15, 1995, the Company fully redeemed all outstanding shares of
the 8% Redeemable Convertible Preferred Stock. (See Note K-B)
B. 10% Convertible Preferred Stock
On June 15, 1995, the Company completed a private placement of 90-Day
Subordinated Notes (the "Notes") which were repayable in cash or in shares of
the Company's 10% Convertible Redeemable Preferred Stock ("10% Preferred
Stock"). A total of $1,200,000 of Notes were sold with net proceeds to the
Company of approximately $950,000. Utilizing the net proceeds of the offering,
the Company paid $1,000,000 to Imtech to redeem the outstanding balance of
16,343 shares of its 8% Redeemable Convertible Preferred Stock and to satisfy
approximately $186,000 of net accrued dividends.
In October 1995, the Company notified all holders of the Notes that it
was exchanging shares of the Company's 10% Convertible Preferred Stock in the
amount of one share for each $1.00 of principal and accrued interest balances
due on the Notes. Effective October 15, 1995 the Company exchanged 1,240,000
shares of the Company's 10% Preferred Stock in the amount of one share for each
$1.00 of principal and accrued interest due on the Notes for the principal of
its 90-Day Subordinated Notes and the accrued interest payable thereon. The
Convertible Preferred Stock is convertible at the option of the holders into the
Company's common stock. The holder is able to convert an amount equal to the
greater of either $.10, or 50% of the average closing bid price of the common
stock during the 20 days immediately preceding the date that the conversion
notice is given. Conversions are scheduled to occur four (4) times annually
through May 1, 1998, however, can be accelerated due to a change in control.
Dividends are payable semi-annually on April 15 and October 15 of each year
based on amounts accrued as of March 31 and September 30, respectively. Holders
have cost free piggyback registration rights until June 15, 1998. An investment
firm has an option to acquire $295,750 of 10% convertible preferred stock as
well as convert such shares based on the same price and terms as current
holders.
In accordance with the terms of the conversion, a total of 79,050
shares of preferred stock have been surrendered and converted into 39,260 shares
of the Company's common stock during the fiscal year ended March 31, 1996.
NOTE L - STOCKHOLDERS' EQUITY
(1) In November 1993, the Company effected a 1-for-3 reverse common
stock split. The Company did not change the number of authorized shares or the
par value of the stock. All information in the financial statements gives
retroactive effect to the 1-for-3 reverse common stock split.
(2) On April 21, 1994, the Company received net proceeds of
approximately $7,159,000 (before repayment of $2,327,000 of advances to Imtech
from its initial public offering ("IPO") of 1,250,000 units ("Units"). Each Unit
consists of one share of the Company's common stock and one redeemable common
stock purchase warrant. Each warrant entitles the holder thereof to purchase
one-half of one share of common stock. Two warrants may be exercised at an
aggregate exercise price of $9.00, subject to adjustment under certain
circumstances, at any time after the warrants become separately transferable,
until 48 months from the date of the offering. The warrants are redeemable by
the Company at $.05 per warrant upon 30 days notice mailed within 20 days after
the closing bid price of the common stock has equaled or exceeded $11.25 for a
period of 20 consecutive trading days. Immediately following the completion of
the offering, Imtech owned approximately 58% of the Company's outstanding common
stock and 100% of the Company's 41,343 shares of outstanding 8% Redeemable
Preferred Stock. Effective December 15, 1994, Imtech converted 25,000 shares of
the Company's 8% Redeemable Preferred Stock into 500,000 shares of the Company's
common stock. Effective June 15, 1995, the Company redeemed in full the 16,343
outstanding shares of its 8% Redeemable Preferred Stock.
(3) At the September 1995 annual meeting, the shareholders approved an
increase in the number of authorized shares of common stock from 10,000,000
shares to 40,000,000 shares.
(4) In March 1996, the Company sold 75,054 shares of restricted common
stock to two investors for the sum of $200,000.
(5) In March 1996, the Company issued 89,681 shares of common stock as
part of the acquisition costs of the assets of Courtland Group, Inc.
(6) During fiscal year 1996, in accordance with the terms of its 10%
Redeemable Preferred Stock a total of 79,050 shares of 10% Redeemable Preferred
Stock were surrendered and converted into 39,260 shares of the Company's common
stock. In addition, during the fiscal year ended March 31, 1996, the Company
issued 16,082 shares of common stock in lieu of paying cash dividends on its 10%
preferred stock.
NOTE M - COMMITMENTS AND CONTINGENCIES
SEC Investigation
The Securities and Exchange Commission (the "Commission") issued an
order, dated April 13, 1995, authorizing a private investigation of Information
Management Technologies Corp. and INSCI Corp., and its officers and directors
during the period from March 1993 and continuing until April 13, 1995. The order
of investigation inquiring into whether the Company and its then former officers
and former directors as well as one current officer and two current directors
engaged in violations of Rule 10b-5 of the Securities Exchange Act of 1934 (the
"Exchange Act"); failed to file annual reports and other information as required
by the rules and regulations of the Commission in violation of Section 13(a) of
the Exchange Act and Rules 12b-20, 13a-11 and 13a-13; and failed to maintain
proper books and records in violation of Section 13(b)2 of the Exchange Act or
falsified or caused to be falsified books and records of the Companies in
violation of Sections 13(b)(2)(a), Rule 13b2-1, and Rule 13b2-2 of the Exchange
Act.
In July 1995, the Commission issued a subpoena to the Company for the
Company's records and a subpoena to an officer of the Company who testified with
respect to matters related to the engagement and subsequent resignation in
October 1994 of the Company's then independent certified public accountants,
Coopers and Lybrand LLP ("Coopers"). Following the resignation, the Company
filed a report on Form 8-K disclosing certain accounting questions brought to
the attention of Coopers by the Company relating to adjustments made in the
Company's financial statements for the quarter ended September 30, 1994. The
Company subsequently reviewed these questions and in the Company's opinion
concluded that such matters were accounted for in the proper periods. Management
believes that it has responded satisfactorily and are not aware of any further
pending issues with the Commission.
The Company is unaware of any violations with respect to annual reports or
other information disclosed by the Company during the time period stated in the
order. The Company cannot predict, however, the outcome of the Commission's
investigation and whether such investigation will result in any type of formal
enforcement action against the Company and/or any of its officers and directors
or, if so, whether any such action would have an adverse effect on the Company.
An adverse outcome may result in the payment by the Company of potential fines
or penalties, restrict the Company's ability to obtain additional required
financing, and may result in the delisting of the Company's securities from the
NASDAQ stock market. In addition, as described above, the Company is currently
under a consent order relating to a prior Commission investigation. If the
Company is found to have violated the existing Commission consent order, the
Company and/or its officers and directors may be subject to sanctions for civil
and criminal contempt and fines and/or penalties.
Registration Rights
The Company has granted to the holders of certain warrants and shares of
the Company's common stock demand and "piggyback" registration rights with
respect to the shares of common stock issued, or issuable, thereunder.
Compliance with these registration rights may involve substantial expense to the
Company.
Agreement With Underwriters
The Company granted three-year warrants to the Underwriters of its April
1994 IPO to purchase up to 125,000 Units at an exercise price of $7.70 per unit,
and had granted registration rights relating to the underlying securities. In
addition, the Company has agreed to indemnify the Underwriter against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended. In May 1996, the Underwriters surrendered these warrants and waived and
terminated any and all anti-dilution rights with respect to the number of shares
to be issued pursuant to these warrants, in exchange for new warrants, which
expire on April 15, 1998 and have no anti-dilution rights, to purchase 187,500
shares of common stock at an exercise price of $3.50 per share. The Company has
granted cost-free registration rights relating to the underlying shares of
common stock.
Employment Agreements
Effective June 15, 1995, the Company entered into an employment agreement
for a period of three years with Dr. E. Ted Prince ("Dr. Prince"), the Company's
Chairman of the Board of Directors, President and Chief Executive Officer. Dr.
Prince's employment agreement, as amended, provides for a base salary of
$200,000 per annum to be paid through the term of the agreement, annual
incentive bonuses based upon attainment of defined profitability criteria,
250,000 vested stock options to purchase 250,000 shares of common stock at an
exercise price of $2.00 per share, and 950,000 vested stock options to purchase
950,000 shares of common stock at an exercise price of $1.66 per share. With
respect to the latter options, if the employment of Dr. Prince is terminated for
any reason during the thirty-six month period of the employment agreement, then
he must return to the Company a pro-rata portion of the 950,000 options. The
portion to be returned would be determined based upon the number of months
remaining in the agreement after his termination date as a percent of the
original term of thirty-six months. In the event of a change of control of the
Company through merger or acquisition, the provisions with respect to return of
the stock options would be waived. Dr. Prince achieved a $100,000 management
incentive bonus during fiscal year 1996.
In conjunction with Dr. Prince's employment the Company paid consulting
fees of $25,000 to Dr. Prince, and $25,000 to Perth Ventures, Inc. ("Perth
Ventures"). Dr. Prince is President of and has a 100% ownership interest in
Perth Ventures. The agreement also provides for payment of relocation expenses
and a relocation loan if Mr. Prince decides to relocate to Massachusetts. Under
the terms of the agreement, Dr. Prince is permitted to continue to work as an
independent consultant for Perth Ventures. If the employment of Dr. Prince is
terminated for any reason other than voluntary resignation or termination for
cause (as defined in the agreement) at any time through June 14, 1998, he will
be paid as a severance benefit the salary and benefits due over the remaining
term of his employment contract.
The Company has employment agreements with its other executive officers
which also include annual incentive bonuses based upon attainment of defined
profitability criteria and other performance related objectives. If an executive
officer's employment is terminated for any reason other than voluntary
resignation or for cause (as defined in the agreements) then a severance benefit
will be paid. The severance benefit varies from officer to officer, but is not
greater in any instance than twelve month's salary and benefits. Exclusive of
Dr. Prince, certain key members of management have been granted stock options as
part of their compensation package. Mr. John L. Gillis and Mr. Krishan
Canekeratne have 341,000 and 350,000 options, respectively.
NOTE N - REGISTRATION COSTS
In November 1992, Imtech filed a registration statement with respect to an
initial public offering of shares of its common stock. As a result of the
restructuring of the customer support staff, completion of development of
enhancements to improve ease of installation and customer support and
negotiations to achieve a firm underwriting for the said initial public
offering, the Company delayed the completion of the offering. Costs of $330,000
incurred in connection with that registration statement were charged to expense
during the second quarter of fiscal 1994.
Completion of this offering was postponed by management to the first
quarter of the fiscal year ending March 31, 1995. Costs incurred in connection
with this registration statement totaled approximately $507,000 during the year
ended March 31, 1994. Such costs were deferred as of March 31, 1994. These costs
and other costs totaling $1,084,000, incurred subsequent to March 31, 1994 in
connection with the public offering, were deducted in April 1994 from the
proceeds received from the public offering by a charge to additional paid-in
capital.
NOTE O - STOCK OPTION PLANS
1992 Stock Option Plan
The 1992 Stock Option Plan (the "Plan") was adopted by the directors and
approved by the stockholders of the Company in October 1992, and amended
effective September 1995. The Plan is intended as an incentive to attract and
retain for the benefit of Company key employees (including officers)
substantially responsible for management and growth of the Company and to
encourage a sense of proprietorship in such persons. The Plan was amended in
September 1995 at the annual meeting to increase the number of shares authorized
under the Plan from 1,000,000 to 4,000,000 shares.
The exercise price of each option is determined by the Compensation
Committee (the "Committee"), in its discretion, at the time of grant, provided
that such exercise price shall not be lower than fair market value at the time
of grant in the case of options that are intended to constitute incentive stock
options. The aggregate fair market value (determined as of the time the option
is granted) of the common stock with respect to which incentive stock options
are exercisable for the first time by any optionee during any calendar year
shall not exceed $100,000 in the case of incentive options.
There were 395,804 stock options exercisable at March 31, 1996. At March
31, 1996 there were 922,065 stock options outstanding and 3,074,003 available
for grant. The Company has reserved 3,996,068 shares of common stock for future
issuance.
<PAGE>
1992 Directors Option Plan
The Directors Option Plan (the "Directors Plan") was adopted by the Board
of Directors and approved by the Company's stockholders in October 1992, and
amended effective September 1995. The purpose of the Directors Plan is to make
service on the Board more attractive to present and prospective directors. The
Plan was amended in September 1995 to increase the number of shares authorized
under the Plan from 100,000 to 1,000,000 shares.
The Directors Plan is administered by a committee made up of at least two
members of the Board of Directors. The exercise price per share of any option
granted under the Directors Plan shall not be less than the fair market value of
such shares on the date of grant. Eligible directors include all members of the
Board of Directors who are not also employees of the Company or any parent or
subsidiary of the Company. Options expire five years from the date of grant,
subject to earlier termination in accordance with the terms of the Directors
Plan. All rights to exercise options terminate 90 days following the date the
optionee ceases to serve as a director of the Company with certain exceptions.
There were 45,000 stock options exercisable at March 31, 1996. At March 31,
1996 there were 95,000 stock options outstanding and 905,000 available for
grant. The Company has reserved 1,000,000 shares of common stock for future
issuance.
On January 16, 1996, the Company filed with the Securities and Exchange
Commission two Form S-8 Registration Statements, registering the 4,000,000 and
the 1,000,000 common shares reserved respectively for issuance under the
Company's 1992 Stock Option Plan and the Company's 1992 Directors Option Plan.
The following is a summary of option activity under the 1992 Stock Option Plan
and the 1992 Directors Option Plan:
<TABLE>
<CAPTION>
1992 STOCK OPTION PLAN 1992 DIRECTORS OPTION PLAN
------------------------- --------------------------
Number Price Number Price
of shares per share of shares per share
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at April 1, 1993 0 - 25,000 $6.00
Granted 305,650 $6.00 10,000 7.00
--------- -------
Outstanding at March 31, 1994 305,650 6.00 35,000 6.00-7.00
Granted 0 - 50,000 1.13
Canceled [a] (60,348) 6.00 (10,000) 6.00
--------- -------
Outstanding at March 31, 1995 245,302 6.00 75,000 1.13-7.00
Granted 962,500 .94-6.00 20,000 1.44-4.38
Canceled (281,805) .94-6.00 - -
Exercised (3,932) 1.50-1.94 - -
--------- -------
Outstanding at March 31, 1996 922,065 $ .94-6.00 95,000 $1.13-7.00
========= =======
</TABLE>
Note [a] - This amount of cancellation has been adjusted downward from 79,150 as
previously reported during fiscal 1995 to 60,348 options, a reduction of 18,802
options resulting from a recomputation of the vesting formula.
1992 Advisory Committee Plan
The 1992 Advisory Committee Plan was adopted by the Board of Directors and
approved by the Company's stockholders in October 1992. In May 1993, the
Advisory Committee and the Advisory Committee Plan were terminated, and 30,000
options to purchase the Company's common stock at an exercise price of $18.00
were vested for all Advisory Committee members as of the date of termination of
the Committee.
Other Stock Options
During 1996, the Company granted stock options to new and continuing
Directors and officers of the Company. The aggregate stock options granted
during fiscal year 1996 is 3,000,000. At March 31, 1996 there were 2,991,000
options outstanding with exercise prices ranging from $1.44 to $4.38. There were
493,537 stock options exercisable at March 31, 1996. The stock options are for a
term up to five years and have vesting schedules based on different criteria
including time qualifications and performance standards. The shares underlying
the stock options are restricted and are unregistered. The Company plans to
register the underlying shares at no cost to the option holders. There were
493,537 stock options exercisable at March 31, 1996.
NOTE P - SEGMENT AND CUSTOMER INFORMATION
The Company is active in only one business segment: developing, marketing
and supporting imaging, document and data management, and archival software
products and related services. For the year ended March 31, 1996, sales made to
UNISYS and to customer leads furnished by UNISYS accounted for approximately 21%
of the Company's total sales. Amounts due from UNISYS were approximately 23% of
the accounts receivable balance at March 31, 1996. For the year ended March 31,
1995, UNISYS accounted for approximately 33% of the Company's total sales and
12% of accounts receivable balance. Revenues from sales to Imtech were
insignificant, and are accounted for at prices which approximate arm's-length
transactions.
NOTE Q: ACQUISITION
On March 28, 1996, the Company acquired certain assets from the
Courtland Group, Inc., ("Courtland") for $679,000, in cash, a note and common
stock, plus the assumption of $96,000 in liabilities. Courtland, based in
Columbia, Maryland, develops and sells advanced information retrieval, document
management and advanced imaging software products. The acquisition was accounted
for under the purchase method of accounting. Proforma unaudited results of
operations for this acquisition are presented below for the fiscal year ended
March 31, 1996.
Proforma Results of Operations (Unaudited)
INSCI (as
reported) (C) Courtland Adjustments ProForma
--------- ------------- ----------- --------
Revenue $ 7,913 $ 767 $ - $ 8,680
Cost of Revenue 3,311 407 - 3,718
------- ------ -------- --------
Gross Margin 4,602 360 - 4,962
Expenses 6,084 460 [A] 400 6,944
------- ------ -------- --------
Loss from Operations (1,482) (100) (400) (1,982)
Interest Income-net 30 - (B) (4) 26
Income Tax Benefit - 36 (36) -
------- ------ -------- --------
Net loss (1,452) (64) (440) (1,956)
Preferred Stock Dividend (27) - - (27)
------- ------ -------- --------
Net Loss Applicable to
Common Shares $(1,479) $ (64) $ (440) $ (1,983)
======= ====== ======== ========
Net Loss Per Common Stock $ (0.53)
========
Weighted Average Common
Shares Outstanding 3,745
========
A. This adjustment reflects software amortization.
B. This adjustment reflects interest expense on the note payable to George
Trigilio, Sr.
C. Courtland's activity is for the period from May 1, 1995 to March 31, 1996.
The Company paid, on closing to Courtland, the sum of $150,000 and
issued 58,968 shares of common stock. Additionally, the Company further issued
30,713 shares of its common stock and issued an interest free promissory note of
$100,000 to George Trigilio, Sr. The Company also granted cost-free registration
rights for the aggregate of 89,681 shares of common stock issued as a part of
the purchase price. The Company also assumed certain agreements and leases in
connection with the acquisition.
The Company entered into an aggregate of seven employment and/or
consulting agreements with seven former employees and/or shareholders of
Courtland, wherein the Company agreed to issue up to an aggregate of $267,221 in
shares of common stock of the Company valued at the ten-day average closing
price for the ten (10) trading days prior to the close of its 1997 fiscal year,
subject to the Company achieving a minimum of $1,500,000 in sales from the
Courtland products. The consulting agreements provide that, in the event a
minimum of $1,500,000 in sales is not achieved within a one-year period, no
shares of common stock will be issued. In the event that greater than $2,000,000
are achieved the Company will issue an additional $194,815 in shares of common
stock, valued as stated herein.
The Company further entered into an employment agreement with George
Trigilio, Jr., to employ him as an Executive Vice President of the Company with
a minimum annual salary of $100,000 as well as incentive bonuses conditioned
upon his performance. In addition, he was granted 300,000 stock options to
purchase 300,000 shares of the Company's common stock at an exercise price of
$4.38 per share, contingent upon the Company obtaining certain defined sales
goals of Courtland products. In addition, he will also be entitled to receive
$227,778 in shares of the Company's common stock, and an additional $135,186 in
shares of common stock, upon the Company attaining $2,000,000 in sales of
Courtland products. The price of a share will be determined based upon the ten
day average closing price for the ten (10) trading days prior to the close of
the Company's 1997 fiscal year.
NOTE R - SUBSEQUENT EVENTS
(1) On April 30, 1996 the Company entered into an agreement with
Norcross & Company ("Norcross") as a representative of the underwriting group
that processed the Company's initial public offering in April 1994. The
agreement provided that Norcross, as representative of the selling group, would
exchange all issued and outstanding common stock purchase warrants issued upon
completion of the Company's initial public offering, in exchange for 187,500
Warrants to purchase at 187,500 shares of the Company's Common Stock at $3.50
per share. The Warrants expire on April 15, 1998.
The Company granted piggy-back registration rights to the Warrant
Holders for the underlying shares of Common Stock to be issued pursuant to the
exercise of the Warrants.
The exchange agreement further provided that Norcross waive all
anti-dilution rights that were granted pursuant to the issuance of the original
common stock purchase warrants, in exchange for the new common stock purchase
warrants that do not contain anti-dilution provisions.
(2) The Company is at the current time negotiating with a broker-dealer
and has received a proposed agreement with respect to an offering under a
Regulation D Exemption of the Securities Act for convertible preferred stock of
a minimum of $3,000,000 and a maximum of $5,000,000. The proposed terms involve
a 30% discount to the trading market average of common stock as quoted on NASDAQ
over a ten-day period with a minimum of a six-month lock-up period for any
shares converted into common stock. The maximum conversion price per share
subject to the 30% discount is $11.50 per share.
The Company has received a check in the sum of $1,000,000 from an
investor and intends to deposit the check in an Escrow Account. The funds will
be utilized toward the minimum $3,000,000 of the proposed offering.
(3) The Company is also discussing with another brokerage firm a
proposed private offering and has received a proposed agreement with respect to
an offering of convertible preferred stock for a minimum sum of $3,000,000 at
$4.00 per unit, each unit consisting of a share of preferred stock convertible
into one share of common stock in the event the average price is $6.00 per share
for a period 20 out of 30 consecutive trading days. The unit will also contain a
warrant to purchase an additional share of common stock for a period of three
years at $5.50 per share.
The Company has not executed any definitive agreement with any of the
brokerage firms.
<PAGE>
<TABLE>
<CAPTION>
INSCI Corp.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND DEDUCTIONS END OF
DESCRIPTION OF YEAR EXPENSES DESCRIBE YEAR
- -------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended March 31, 1994......... $ 279,000 $ 194,000 $ (234,000) (a) $ 239,000
Year ended March 31, 1995......... 239,000 - (139,000) (b) 100,000
Year ended March 31, 1996......... 100,000 - - 100,000
RESERVE FOR RETURNS AND ALLOWANCES
Year ended March 31, 1994......... $ - $ - $ - $ -
Year ended March 31, 1995......... - 50,000 (c) - 50,000
Year ended March 31, 1996......... 50,000 73,120 (d) (50,000) (e) 73,120
ALLOWANCE FOR LOSS ON LOAN
Year ended March 31, 1994......... $ - $ - $ - $ -
Year ended March 31, 1995......... - 150,000 (f) - 150,000
Year ended March 31, 1996......... 150,000 - (6,381) 143,619
ACCUMULATION AMORTIZATION OF
CAPITALIZED SOFTWARE DEVELOPMENT
COST
Year ended March 31, 1994......... $ 821,000 $ 427,000 $ - $ 1,248,000
Year ended March 31, 1995......... 1,248,000 218,000 (1,182,000) (g) 284,000
Year ended March 31, 1996......... 284,000 718,000 (466,000) (g) 536,000
ACCUMULATION AMORTIZATION OF
PURCHASED SOFTWARE COSTS
Year ended March 31, 1994......... $ - $ - $ - $ -
Year ended March 31, 1995......... - - - -
Year ended March 31, 1996......... - 42,000 - $ 42,000
(a) Amounts written off.
(b) Includes $8,000 written off, $50,000 reclassified to reserve for returns and allowances and an $81,000
reversal of previous additions.
(c) Includes $50,000 reclassified from allowance for doubtful accounts.
(d) Includes $73,120 to establish reserve for possible allowances.
(e) Includes $50,000 reversal of previous additions.
(f) Includes $150,000 to reserve for probable loss on loan to officer.
(g) Reflects the removal of fully amortized capitalized software no longer in use.
</TABLE>
<PAGE>
INSCI CORP
BALANCE SHEET
(in thousands)
(unaudited)
ASSETS DECEMBER 31,
1996
------------
Current assets:
Cash and cash equivalents $ 4,776
Accounts receivable, net 3,114
Inventory 93
Prepaid expenses and other 207
-------
Total current assets 8,190
Property & equipment 1,938
Less: accumulated depreciation (1,206)
-------
Total equipment, net 732
Capitalized software development costs,
net of accumulated amortization of $960 633
Purchased software, net of accumulated amortization of $298 956
Other assets 89
-------
Total assets $10,600
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 15
Accounts payable 993
Accrued liabilities 1,198
Customer deposits 20
Unearned maintenance revenue 716
--------
Total current liabilities 2,942
Note payable 44
Stockholders' equity :
Common stock 40
Preferred stock 39
Additional paid-in capital 23,295
Accumulated deficit (15,760)
--------
Total stockholders' equity 7,614
--------
Total liabilities and stockholders' equity $ 10,600
========
See accompanying notes
<PAGE>
INSCI CORP
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
NINE MONTHS ENDED
DECEMBER 31,
1996 1995
------- -------
Revenue
Product $ 4,473 $ 3,078
Maintenance 1,435 1,296
Services 2,472 698
------- -------
Total revenue 8,380 5,072
Cost of revenue
Product 1,209 1,149
Maintenance 1,032 730
Services 1,095 479
------- -------
Total cost of revenue 3,336 2,358
------- -------
Gross margin 5,044 2,714
Expenses
Sales and marketing 2,746 1,645
Product development 1,545 1,060
General and administrative 1,496 1,202
Litigation settlement costs 250
Restructure/relocation costs - 89
------- -------
Total expenses 5,787 4,246
------- -------
Income (loss) from operations (743) (1,532)
Interest income (expense)
Interest income 70 39
Interest expense (10) -
------- -------
Interest income (expense) net 60 39
------- -------
Net income (loss) (683) (1,493)
Preferred stock dividend (220) (27)
------- -------
Net income (loss) applicable to common shares $ (903) $(1,520)
======= =======
Net income (loss) per common share $ (0.23) $ (0.42)
======= =======
Weighted average common shares outstanding 3,983 3,641
======= =======
<PAGE>
INSCI CORP
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED
DECEMBER 31
1996 1995
------- -------
Cash flows from operating activities:
Net income (loss) $ (683) $(1,493)
Reconciliation of net loss to net cash
used in operating activities:
Depreciation and amortization 360 332
Amortization of deferred software costs 680 591
Changes in assets and liabilities:
Accounts receivable (1,012) (68)
Inventory (81) (1)
Prepaid expenses and other assets (80) 21
Note payable (33) -
Accounts payable 332 23
Accrued and other liabilities 134 287
Customer deposits (237) (149)
Unearned maintenance revenue 142 (57)
------- -------
Net cash used in operating activities (478) (514)
Cash flows from investing activities:
Additions to capitalized software development costs (675) (141)
Capital expenditures (259) (112)
Other assets 3
------- -------
Net cash used in investing activities (934) (250)
Cash flows from financing activities:
Proceeds from exercise of stock options 156 -
Proceeds from sale of preferred stock 6,350 1,200
Payment of preferred stock issuance costs (728) (260)
Redemption of preferred stock and dividends (1,000)
Payment of capital lease obligations (26) (28)
------- -------
Net cash provided by (used in) financing activities 5,752 (88)
------- -------
Net change in cash and cash equivalents 4,340 (852)
Cash and cash equivalents at beginning of year 436 1,605
------- -------
Cash and cash equivalents at end of period $ 4,776 $ 753
======= =======
See accompanying notes
<PAGE>
INSCI CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The financial statements included herein have been prepared by INSCI Corp
(the "Company" or "INSCI"), without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (the "Commission"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, the
Company believes that the disclosures contained herein are adequate to make the
information presented not misleading. The financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's annual reports on Form 10-K, filed on July 1, 1996, for the fiscal
year ended March 31, 1996, and with the Company's definitive proxy statement for
its 1996 Annual Meeting of Stockholders filed with the Commission on July 29,
1996.
In the opinion of the management of the Company, the accompanying
unaudited financial statements reflect all adjustments (of a normal and
recurring nature) which are necessary to present fairly the financial position
of the Company as of December 31, 1996 and the results of operations and cash
flows for the nine months ended December 31, 1996 and 1995. Operating results
for the nine months ended December 31, 1996 are not necessarily indicative of
the results that may be expected for the year ended March 31, 1997.
The computation of income (loss) per common and common equivalent shares
has been calculated on the basis of the weighted average number of common shares
outstanding during each period. When dilutive, stock options and warrants are
included as share equivalents using the modified treasury stock method.
<PAGE>
No dealer, sales person or other individual has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in the accompany Prospectus
Supplement in connection with the offer contained in this Prospectus or the
accompanying Prospectus Supplement and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by any agent or dealer. Neither the delivery of the Prospectus and the
accompanying Prospectus Supplement, nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the dates as of which information is given in this
Prospectus and in the accompanying Prospectus Supplement. This Prospectus and
the accompanying Prospectus Supplement do not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized or which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer or
solicitation.
Table of Contents
Prospectus Summary ........................................................ 2
Risk Factors .............................................................. 5
Use of Proceeds ........................................................... 14
Dividend Policy ........................................................... 14
Capitalization Table ...................................................... 15
Selected Financial Data ................................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations ........................................................... 18
Business .................................................................. 30
Management ................................................................ 43
Principal Holders ......................................................... 54
Selling Stockholders ...................................................... 56
Certain Relationships and Related Transactions ............................ 64
Plan of Distribution....................................................... 66
Description of Stock (Common Stock) ....................................... 67
Validity of Shares ........................................................ 72
Additional Information .................................................... 72
Documents Incorporated by Reference ....................................... 73
Indemnification ........................................................... 74
Index to Consolidated Financial Statements................................. F-1
15,923,220 SHARES OF
COMMON STOCK
($.01 PAR VALUE)
{CORP. LOGO}
INSCI CORP.
----------
PROSPECTUS
----------
February , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.(1)
Registration Fee............................................. $ 25,748
Legal Fees and Disbursements................................. $ 50,000
Accounting Fees.............................................. $ 32,000
Miscellaneous................................................ $ 6,000
--------
Total............................................... $113,748
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware general Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
registrant under certain circumstances from liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933, as amended (the
"Act").
As permitted by the DGCL, the registrant's Certificate of Incorporation
(the "Charter") provides that, to the fullest extent permitted by the DGCL, no
director shall be liable to the registrant or to its stockholders of monetary
damages for breach of his fiduciary duty as a director. Delaware law does not
permit the elimination of liability (i) for any breach of the director's duty of
loyalty to the registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payment or stock redemptions
or repurchases, or (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision in the Charter is to
eliminate the rights of the registrant and its stockholders (through
stockholders' derivative suits on behalf of the registrant) to recover monetary
damages against a director for breach of fiduciary duty as a director thereof
)including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i)-(iv), inclusive, above. These
provisions will not alter the liability of directors under federal securities
laws.
The registrant's Bylaws (the "Bylaws") provide that the registrant may
indemnify any person who was or is a party of is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the registrant) by reason of the fact that he is or was director,
officer, employee or agent of the registrant or is or was serving at the request
of the registrant as a director, officer, employee or agent of any other
corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the registrant, and with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful
- --------
(1) All of the items except the Registration Fee are estimated. All of the
expenses of this offering are being borne by the Company.
Item 15. Recent Sales of Unregistered Securities
The registrant has not issued or sold securities within the past three
years pursuant to offerings that were not registered under the Securities Act of
1933, as amended (the "Securities Act"), except as follows:
The following sales were made in reliance upon the exemptions from
registration under the 1933 Act pursuant to Sections 3(b) and 4(2) thereof and
regulation D promulgated thereunder:
(i) In April of 1995, the Registrant completed a private placement
offering in which it issued $1,240,000 90-Day 10% Subordinated Notes repaid in
the form of the Registrant's 10% Convertible Redeemable Preferred Stock.
Additionally, D.H. Blair and Company received a three (3) year option to
purchase $297,500 90-Day 10% Subordinated Notes as a fee under the placement
offering. See the "Selling Shareholder Table" for a complete listing of holders
of 10% Convertible Redeemable Preferred Stock and the estimated amount of
underlying shares of the Registrant's Common Stock.
(ii) In September of 1996, the Registrant completed a private placement
offering in which it issued 1,350,000 shares of 10% Convertible Preferred Stock.
Additionally, 30,000 shares of Common Stock and 112,000 options for a period of
three (3) years from the completion of the placement were issued to
Amerivett/Dymally Securities Inc. as selling commissions. See the "Selling
Shareholder Table" for a complete listing of holders of 10% Convertible
Preferred Stock and the estimated amount of underlying shares of the
Registrant's Common Stock.
(iii) In November of 1996, the Registrant completed a private placement
offering of Units. The Registrant issued 1,333,334 Units. Additionally, the
Registrant issued 133,334 Units to J. Michael Reisert Securities Inc. See the
"Selling Shareholder Table" for a complete listing of holders of Units and the
estimated amount of underlying shares of the Registrant's Common Stock.
Item 16. Exhibits
3.1/ Certificate of Incorporation of the Company.
3.2/ Bylaws of the Company.
3.3/ Amendment to Certificate of Incorporation of the Company
Creating Preferred Stock.
4.1** Form of Warrant issued in the Company's 8% Unit Private
Placement
5.1** Opinion of Baratta & Goldstein as to legality.
10.1/ 1992 Stock Option Plan.
10.2/ 1992 Directors Option Plan.
10.3/ 1992 Advisory Committee Plan.
10.4/ Accounts Financing Agreement between the Registrant and
Congress Financial
Corporation, and related documents.
10.5/ Form of 1991 Option.
10.6/ Form of 1992 Warrants.
10.7/ Form of 1992 Convertible Subordinated Note.
10.8/ Form of 1992 Contingent Warrants.
10.9/ Form of 1993 Warrant 3/4 Version A.
10.10/ Form of 1993 Release Agreement.
10.11/ Form of Management Agreement between the Registrant and Imtech.
10.12/ Form of Tax Sharing Agreement between the Registrant and Imtech.
10.13/ Form of Indemnification Agreement with the Registrant's
Directors.
10.14/ Marketing Associate Solution Alliance Agreement between UNISYS
Corporation and Registrant.
10.16/ Data General Value Added Reseller Discount Purchase Agreement.
10.17/ Data General Optical Systems and Software Agreement.
10.18/ Distribution Agreement between Fiserv CIR, Inc. and Registrant.
10.19/ Lease Agreement relating to the Company's White Plains, New
York headquarters.
10.20/ Forms of Customer License Agreements used by the Company.
10.21/ Forms of Employee Confidentiality Agreements used by the
Company.
10.22/ Nondisclosure and Noncompetition Agreement between the
Registrant, Imtech and Mason Grigsby.
10.23/ Form of 1993 Warrant - Version B.
10.24/ Employment Agreement between the Company and John L. Gillis.
10.25/ Employment Agreement between the Company and Kris Canekeratne.
10.26/ Form of 1993 Exchange Agreement and Investor Suitability
Representations.
10.27/ Form of 1993 Conversion Agreement.
10.28/ Waivers by Congress Financial Corporation.
10.29/ Form of Investor's Warrant Agreement.
10.30/ Form of Representative's Warrant Agreement.
10.31/ License Agreement between Bull HN Information Systems, Inc.
and Registrant.
10.33/ Loan Agreement between BNY Financial Corporation and Registrant.
10.34/ Preferred Stock Subscription Agreement between the Company
and Imtech relating to Preferred Stock.
10.35/ Business Partner Agreement between International Business
Machines Corporation and Registrant.
10.36/ Waiver by BNY Financial Corporation.
10.37/ Stock Escrow Agreement between Registrant, Imtech and First
Union National Bank of North Carolina (as Escrow Agent).
10.39/ Promissory Note to the Company from John L. Gillis and Sandra
Gillis.
10.40/ Stock pledge agreement by John L. Gillis and Sandra Gillis
in favor of the Registrant.
10.41/ Amendment to Loan Agreement between BNY Financial Corporation
and Registrant.
10.42/ Lease agreement relating to the Company's Westborough, MA
headquarters.
10.43/ Employment agreement with Jack Steinkrauss.
10.44/ First amendment to employment agreement with John Gillis.
10.45/ First amendment to employment agreement with Kris Canekeratne.
10.46/ Agreement for system purchase by The Northern Trust Company.
10.47/ Preferred stock conversion agreement.
10.48/ Technology and Reseller Agreement with Elixir Technologies, Inc.
10.49/ Private Placement Term Sheet and Exhibits for offering of
90-Day 10% Subordinated Notes. Repayable in Cash or in Shares
of the Company's Proposed 10% Convertible Preferred Stock
10.50/ First Amendment to Private Placement Term Sheet and Exhibits.
10.51/ Employment agreement with Edward J. Prince.
10.52/ Release by BNY Financial Corporation of the Company's
guarantee of the obligations of Imtech under the shared credit
facility agreement.
10.53/ Employment Contract with George Trigilio, Jr.
10.54/ Certificate of Amendment to the Certificate of Incorporation.
10.55/ Amendment to Employment Contract for Dr. E. Ted Prince, CEO.
23.1* Consent of Mahoney Cohen Rashba and Pokart, CPA, PC.
23.2* Consent of Grant Thornton LLP
24.1* Power of Attorney.`
27.1* Financial Data Schedule Year Ended March 31, 1996.
27.2* Financial Data Schedule Quarter Ended December 31, 1996.
/ Previously Filed; Incorporated by Reference.
* Filed with this Registration Statement.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individual or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Not withstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect tot the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this S-1 Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Westborough,
Commonwealth of Massachusetts, on February 21, 1997.
INSCI Corp.
----------------------------------------
(Registrant)
By: /s/ Dr. E. Ted Prince
----------------------------------------
Dr. E. Ted Prince, President, Chief
Executive Officer and Director
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Dr. E. Ted Prince Chairman, President February 21, 1997
- ------------------------------ and Director
/s/ Leonard Gartner Director February 21, 1997
- ------------------------------
/s/ Richard Gerstner Director February 21, 1997
- ------------------------------
/s/ Francis X. Murphy Director February 21, 1997
- ------------------------------
/s/ Robert Oxenberg Director February 21, 1997
- ------------------------------
/s/ John Gillis Executive Vice President February 21, 1997
- ------------------------------
/s/ Roger Kuhn Vice President and Chief February 21, 1997
- ------------------------------ Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
23.1 Consent of Independent Accountants
23.2 Consent of Independent Certified Public Accountants
24.1 Power of Attorney
27.1 Financial Data Schedule
Year Ended March 31, 1996
27.2 Financial Data Schedule
Quarter Ended December 31, 1996
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
The Board of Directors
Insci Corp.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ Mahoney Cohen Rashba & Pokart, CPA, PC
--------------------------------------
Mahoney Cohen Rashba & Pokart, CPA, PC
New York, New York
February 21, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report, dated June 28, 1994, which includes an explanatory
paragraph related to substantial doubt as to the ability of INSCI Corp. to
continue as a going concern, accompanying the financial statements and schedules
of INSCI Corp. We consent to the use of the aforementioned report in this
Registration Statement and Prospectus on Form S-1, and to the use of our name as
it appears under the caption "Experts."
/s/ Grant Thornton LLP
------------------------------
GRANT THORNTON LLP
New York, New York
February 13, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
We the undersigned directors and/or officers of INSCI, Corp. (The
"Company"), hereby severally constitute and appoint Dr. E. Ted Prince, Chief
Executive Officer and President of the Company, individually, with full powers
of substitution and re-substitution, our true and lawful attorney, with full
powers to him, to sign for us, in or names and in the capacities indicated
below, the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission, and any and all amendments to said Registration Statement
(including post-effective amendments), and any registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in
connection with the registration under the Securities Act of 1933, as amended,
of equity securities of the Company, and to file or cause to be filed the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as each
of them might or could do in person, and hereby ratifying and confirming all
that said attorney, or his substitute or substitutes, shall do or cause to be
done by virtue of this Power of Attorney.
WITNESS our hands on this 14th day of February, 1997.
SIGNATURE TITLE(S)
- --------- --------
/s/ Leonard Gartner
- ------------------------------------ Director
/s/ Richard Gerstner
- ------------------------------------ Director
/s/ Francis X. Murphy
- ------------------------------------ Director
/s/ Robert Oxenberg
- ------------------------------------ Director
/s/ John Gillis
- ------------------------------------ Chief Operating Officer
/s/ Roger Kuhn
- ------------------------------------ Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL 10-K FOR INSCI'S 1996 FISCAL YEAR
</LEGEND>
<CIK> 0000878612
<NAME> m7rpwrt@
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 436
<SECURITIES> 0
<RECEIVABLES> 2202
<ALLOWANCES> 100
<INVENTORY> 12
<CURRENT-ASSETS> 2690
<PP&E> 1679
<DEPRECIATION> 846
<TOTAL-ASSETS> 5193
<CURRENT-LIABILITIES> 2630
<BONDS> 0
0
12
<COMMON> 38
<OTHER-SE> 2469
<TOTAL-LIABILITY-AND-EQUITY> 5193
<SALES> 7913
<TOTAL-REVENUES> 7913
<CGS> 3311
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6084
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (30)
<INCOME-PRETAX> (1452)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1452)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE THIRD QUARTER 10-QSB FOR INSCI'S 1997 FISCAL YEAR
</LEGEND>
<CIK> 0000878612
<NAME> m7rpwrt@
<S> <C>
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0
39
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