SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S - 1/A
AMENDMENT NO. 2
TO FORM S - 4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
Interactive Technologies Corp., Inc.
(Exact name of registrant as specified in its charter)
Wyoming 98-0120805
State of Incorporation (I.R.S. Employer Identification Number)
0000883041
(Primary Standard Industrial Classification Code Number)
15400 Knoll Trail, Ste 106, Dallas, TX 75248, (972) 960-9400
(Address, including zip code, and telephone number, including area code,
of Registrant's Principal Executive Offices)
CJ Comu, Chief Executive Officer
Interactive Technologies Corp., Inc.
15400 Knoll Trail, Ste 106, Dallas, TX 75248, (972) 960-9400
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title of Proposed Proposed
Securities Amount Maximum Maximum Amount of
to be to be Offering Price Aggregate Registration
Registered Registered Per Share (1) Offering Price (1) Fee
- --------------------------------------------------------------------------------
Common Stock 5,508,016(1) $1.00 $5,508,016 $1,624.86
- --------------------------------------------------------------------------------
(1) Includes 3,008,016 shares of underlying Preferred Stock which is
convertible into Common Stock at one share of perferred stock for one share of
common stock. Also includes $9,000,000 par amount of Debentures convertible
into Common Stock at a price of $0.70 per share.
<PAGE>
CROSS REFERENCE SHEET
PART I
A. INFORMATION REQUIRED IN PROSPECTUS
ITEM 1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus................Forepart and Outside Cover Page
ITEM 2. Inside Front and Outside
Back Cover Pages of Prospectus............Inside Front and Outside Back
ITEM 3. Summary Information.............................................Summary
Risk Factors...............................................Risk Factors
Ratio of Earnings to Fixed Charges.......................Not Applicable
ITEM 4. Use of Proceeds..........................................Not Applicable
ITEM 5. Determination of Offering Price..........................Not Applicable
ITEM 6. Dillution................................................Not Applicable
ITEM 7. Selling Security Holders.......................Selling Security Holders
ITEM 8. Plan of Distribution.....................................Not Applicable
ITEM 9. Description of Securities to Be Registered...............Not Applicable
ITEM 10. Interests of Named Experts and Counsel..............Experts and Counsel
ITEM 11. Information with Respect to Registrant...................The Registrant
ITEM 12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities..........................................Not Applicable
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
ITEM 14. Indemnification of Directors and Officers
ITEM 15. Recent Sales of Unregistered Securities
ITEM 16. Exhibits and Financial Statement Schedules
ITEM 17. Undertakings
<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------
Interactive Technologies Corp., Inc.
5,508,016 Shares Common Stock
- --------------------------------------------------------------------------------
This Prospectus pertains to 5,508,016 shares owned by various
shareholders, see ("Selling Shareholders"), issued and outstanding $.01 par
value common stock of Interactive Technologies Corp., Inc. ("ITC"), a Wyoming
corporation.
See "Risk Factors" for a discussion of certain material factors which
should be considered in connection with an investment in the Securities.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
The date of this Prospectus is May ____, 1998.
<PAGE>
AVAILABLE INFORMATION
ITC is subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by ITC under the Exchange Act can be inspected and copied, at
the prescribed rates, at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N. W., Washington, D.C. 20549, and at
certain of its regional offices. The Commission maintains a web site on the
Internet at www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants, including ITC, that file
electronically.
Where any document or part thereof is incorporated by reference in this
Prospectus but not delivered herewith, ITC shall provide without charge to each
person, including any beneficial owner, to whom a Prospectus is delivered, upon
written or oral request of such person, a copy of any and all of the information
that has been incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Any such requests and inquiries may be made to
Interactive Technologies Corp., Inc., (972) 960-9400, Attn: Chief Executive
Officer.
TABLE OF CONTENTS
Page
Summary Information..................................................... 1
Risk Factors............................................................ 2
Management's Discussion and Analysis.................................... 6
Selected Pro Forma Financial Data....................................... 8
The Registrant.......................................................... 14
Management Information.................................................. 23
Voting Securities and Principal Holders Thereof......................... 26
Interests of Experts and Counsel........................................ 28
Certain Legal Matters................................................... 28
Experts................................................................. 28
Transfer Agent.......................................................... 28
Indemnification for Securities Act Liabilities......................... 28
Delaying Amendment...................................................... 28
SIGNATURES.............................................................. 30
<PAGE>
SUMMARY INFORMATION
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements appearing elsewhere, or
incorporated by reference, in this Prospectus. The Securities offered hereby
involve a high degree of risk. Investors should carefully consider the
information set forth under the heading "Risk Factors".
Principal Offices. Interactive Technologies Corp., Inc.
15400 Knoll Trail, Ste 106
Dallas, Texas 75248
Tele: (972) 960-9400
Business of ITC.
Interactive Technologies Corp., Inc. ("ITC") conducts business in two
business areas. First, through its majority owned subsidiary developing a line
of airfiltration systems for use indoors and in automobiles. Through its wholly
owned subsidiary Airsopure, Inc. ("Airsopure"), The Company began offering
franchises in April 1997. Secondly, it develops and produces interactive
television and interactive digital media programming for distribution via cable,
and by broadcast and direct satellite television. ITC's principal interactive
programming product is Rebate TVTM, a television programing product which
incorporates interactive media and computer data management which allows retail
vendors to advertise on television and which allows the consumer to receive a
cash rebate through ITC. Additionally, ITC has begun pursuing opportunities in
Interactive Video and Data Services ("IVDS"), a new communications industry,
initially licensed by the Federal Communications Commission in 1993, with the
majority of the licenses being offered in July 1994. No IVDS services are
currently being offered. (See "THE REGISTRANT-Principal Products or Services and
their Markets".)
Market Value
of Securities.
The following sets forth the market value of ITC (on an historical and
equivalent per share basis) as of February 28, 1998,the date preceding the date
of the public announcement of the proposed transaction:
ITC (1)
High Lo
Quarter ended February 28, 1998 .41 .32
Quarter ended November 30, 1997 7/16 5/16
Quarter ended August 31, 1997 7/8 7/8
Quarter ended May 31, 1997 1 15/16 1 3/8
Quarter ended February 28, 1997 1 1/2 1 1/8
Quarter ended November 30, 1996 4 1 1/4
Quarter ended August 31, 1996 5 1/4 4 1/4
Quarter ended May 31, 1996 5 4 7/8
Quarter ended March 29, 1996 4 3/4 3 7/8
Quarter ended December 29, 1995 4 2 1/2
(1) From April 30, 1996, to October 22, 1997 the ITC Common
Stock was trading on the National Association of
Securities Dealers Automated Quotation System (NASDAQ)
SmallCap Market under the Symbol "ITNL". Prior to and
since being traded on the NASDAQ exchange the ITC
Common Stock were traded in the "over-the-Counter" or
"Bulletin Board" market. Prior to the quarter ended
December 29, 1995, to the best of ITC's knowledge, no
trading occurred in the ITC Common Stock.
1
<PAGE>
SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
HISTORICAL
PROFORMA COMBINED
Book Value - Fiscal Year 5/31/97 $11,984
Book Value - Nine Months Ended
February 28, 1997 $11,206
Earnings (Loss) per Share:
Fiscal year ended 5/31/97
Primary ($ 0.21)
Fully Diluted ($ 0.09)
Nine months ended 2/28/98
Primary ($ 0.08)
Fully Diluted ($ 0.03)
(See Exhibits for explanation of principals of
consolidation, earnings per share and computation of
primary and fully diluted shares outstanding)
Voting and Affiliate
Votes. Directors, executive officers and their affiliates of ITC control
approximately 19.56% of the issued and outstanding shares of ITC's Common Stock.
RISK FACTORS
Securities of ITC, as described in this Prospectus, involve a high degree
of risk. Prospective investors should consider carefully the following risk
factors, in addition to the other information contained in this Prospectus,
before purchasing the securities of ITC. This Prospectus contains certain
statements of a forward-looking nature relating to future events or the future
financial performance of ITC operations. Prospective investors are cautioned
that such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this Prospectus,
including the matters set forth below, which could cause actual results to
differ materially from those indicated by such forward-looking statements.
ITC - Negative Cash Flow and Operating Losses
- ---------------------------------------------
ITC has had a net loss from operations from inception. ITC does not
anticipate that it will generate income from operations during its fiscal year
ended May 31, 1998.
Limited History of Operations - General
- ---------------------------------------
The likelihood of the success of the company must be considered in the
light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with the formation of a new business and
the competitive environments in which the company operate.
In light of the limited operating history of the company, their history of
significant operating losses and their expectation that they will continue to
incur significant expenses and operating losses for the foreseeable future,
there can be no assurance that either the company will be able to implement its
growth strategy, or achieve or sustain profitability.
2
<PAGE>
Losses
- ------
ITC has had a net loss from inception.
Limited History of Operations
- ------------------------------------
Rebate TV(TM). Rebate TV(TM) is a relatively new product that has not yet
become widely utilized and IVDS is a new communications industry licensed by the
FCC for the first time in 1993. There is no assurance that Rebate TV(TM) or the
proposed IVDS services will result in revenue or profit to ITC. See "THE
REGISTRANT - Principal Products or Services and Their Markets."
The company's subsidiary, AIRTECH, has conducted operations for
approximately two (2) years and had a net loss from inception. There is no
assurance that the operations of AIRTECH will result in revenue or profit.
Significant Future Capital Requirements
- ---------------------------------------
The development of the businesses of the company, and the development,
sales and delivery of their products and services require significant
expenditures, a substantial portion of which must be made before any revenues
can be realized. Certain of the expenditures, including marketing, sales and
general and administrative costs, will be expensed as incurred, while certain
other expenditures, including product design, network design and costs to obtain
legal and regulatory approval, are deferred until the applicable network or
product is installed and operational. The company will continue to incur
significant expenditures in connection with the construction, acquisition,
development and expansion of their products, services and customer base.
The company expect to fund additional capital requirements through
additional equity and debt offerings, secured credit facilities, and internally
generated funds, as appropriate. There can be no assurance, however, that either
the company will be successful in generating sufficient cash flow or in raising
sufficient capital on terms that it will consider acceptable, or at all.
Competition.
- ------------------
Other companies that have announced that they will provide programming to
the interactive television marketplace. Many of these companies will be better
capitalized than the company and will be better positioned to take to take
advantage of this emerging market. There is no assurance that the company will
secure a competitive position in such market or that its activities will result
in profit to the company.
The demand for air purification technology is rapidly growing and the
industry is becoming highly competitive. Most larger metropolitan areas have one
or more small distributors or small manufacturers, such as the company, each
with limited capital and limited products. The largest competitor in the
industry is Honeywell with its Duracraft and Envirocare subsidiaries.
Competition will increase with society's growing awareness of air quality
problems such as the sick building syndrome (where respiratory illness spreads
through out a building by the heating and air conditioning system, increasing
loss of workers productivity and the development of asthma in infants and small
children). Competition will also increase with the identification of niche
markets, such as (i) the food and beverage industry where smoking problems exist
or local regulations make certain demands, (ii) the growth of cigar bars, (iii)
the creation of lounges for smoking in airports and other public buildings,
(iii) and other smoking and non-smoking environment demands.
As competition increases, there will be many companies engaging in the air
purification industry which are more experienced, more established and
financially stronger than the company. There can be no assurance that the
company will be able to successfully compete against such companies.
3
<PAGE>
Dependence upon Key Management
- ------------------------------
The company is dependent on their present officers and key employees with
respect to their current business and growth strategy. (See "MANAGEMENT
INFORMATION - Directors and Executive Officers".) Should one or more of them
cease to be affiliated with the companies before acceptable replacements are
found, there could be a material adverse effect on the combined companies'
business and prospects, and no assurance can be given that suitable replacements
could be hired, if at all, except at substantial additional cost to the company.
As a result, each company may be subject to the effect of possible conflicts of
interest arising from the relationship of such persons in connection with the
pursuit of business opportunities. There can be no assurance that any such
conflict will be resolved in favor of the companies.
Expansion Risk
- --------------
The company expects to experience a period of rapid expansion. The
operating complexity of the companies, as well as the level of responsibility
for management personnel, are expected to increase as a result of such
expansion. The company's ability to manage such growth effectively will require
the company to continue to expand and improve its operational and financial
systems and to expand, train and manage their employee base.
Rapid Technological Changes
- ---------------------------
The telecommunications and air purification industries are subject to rapid
and significant changes in technology. While the company believes that for the
foreseeable future these changes will not materially hinder the companies
ability to acquire necessary technologies, the effect of technological changes
on the businesses of the company cannot be predicted. Thus, there can be no
assurance that technological developments will not have a material adverse
effect on the company.
Limited Prior Trading Market; Potential Volatility
- --------------------------------------------------
There has been a limited public market for the ITC Common Stock. There has
been no public market for the ITC Preferred Stock or the ITC Debentures. The
company's subsidiary, AIRTECH's Common Stock has not been publicly traded. There
can be no assurance that an active trading market will develop for the ITC
Preferred Stock or the ITC Debentures. Nor can there be any assurance that an
active trading market for the ITC Common Stock will develop or be sustained
after the date hereof. The market price of the shares of ITC Common Stock may be
significantly affected by factors such as actual or anticipated fluctuations in
the company's operating results, new products or services or new contracts by
the company or their competitors, legislative and regulatory developments,
conditions and trends in the telecommunications industry, the air purification
industry, general market conditions and other factors. In addition, the stock
market, from time to time, has experienced significant price and volume
fluctuations that have particularly affected the market prices for the common
stock of telecommunications, high technology and other companies that have often
been unrelated to the operating performance of particular companies. These broad
market fluctuations may also adversely affect the market price of ITC's Common
Stock, the ITC Preferred Stock or the ITC Debentures.
4
<PAGE>
Shares Eligible for Future Sale; Dilution.
- ------------------------------------------
ITC has a significant number of authorized, but unissued shares, which may
be issued by the Board of Directors without shareholder approval. Sales of
substantial amounts of ITC Common Stock in the public market following
completion of the proposed transaction may have an adverse effect on the market
price of the ITC Common Stock. ITC has not agreed to, directly or indirectly,
offer, sell, grant any option to purchase or otherwise dispose (or approve any
offer, sale, grant or other disposition) of any shares of the ITC Common Stock
or other capital stock of ITC or any securities convertible into, or exercisable
or exchangeable for, any share of ITC Common Stock or other capital stock of
ITC. Unless otherwise restricted, all shares of the ITC Common Stock offered
hereby will be immediately eligible for sale in the public market.
No Dividend's
- --------------
The company has never declared or paid any cash dividends and never expects
to declare any such dividends in the foreseeable future. Payment of any future
dividends will depend upon earnings and capital requirements of the company,
their debt facilities and other factors the Board of Directors considers
appropriate. ITC intends to retain its earnings, if any, to finance the
development and expansion of its business and, therefore, does not anticipate
paying any dividends in the foreseeable future. In addition, ITC anticipates
entering into certain borrowing arrangements which will restrict its ability to
pay dividends. Upon completion of the proposed transaction, ITC intends to adopt
a policy that, for the foreseeable future, it will not take any action to
upstream the earnings of AIRTECH from that subsidiary.
Government Regulation
- ---------------------
The ability of ITC to provide IVDS services in the United States will be
subject to the rules and regulations promulgated by the FCC. At present there
are only limited rules or regulations. However, there is no assurance that there
will not be further rules and regulations forthcoming which are adverse to the
interests of ITC.
One of several significant markets for one of the company's subsidiaries
products will be Medicare recipients. To access this market the company has
sought approval from the United States Federal Drug Administration as a
manufacturer, and will be making application to have the AIRTECH 950 Air
Purification and Filtration System described herein (i) to be designated as a
Class II Medical Device, and (ii) to receive Medicare approval for a Medicare
Part B Code with the approved reimbursement as a related billing charge. There
is no assurance that such designation will be obtained.
Selling Shareholders
- --------------------
A. Frank Micone 146,300; Aaron J. McClellan 9,393; Air Care, L.L.C.
313,101; Albert Ferrento 4,175; Albert Paonessa, III 6,669; Albert R.
Paonessa,Jr 26,394; Alphatronics, Inc 250,481; Alphonso L. Bax 835; Alvin A.
Wehrman Estate 146,609; Andrew Cappuccino 2,087; Andrew R.Wenk 2,923; Anthony
Sansalone 2,087; Anthony F Aversa 8,766; Anthony J. Harwath 213,707; Anthony
Magrano 6,262; Anthony S. Soluri, Sr. 5,469; April R. Cox 9,393; Aylin Burdett
156,551; Barbara A. Darragh 72,313; Bernard Katz 43,790; Betty J. & Anthony J.
Harwarth 15,655; Betty J. Harwath 72,213; Betty R. Sprague 4,164; Bobby & Cheryl
Cox 250,481; Brandon S. McCleskey 3,131; Brenda Sprague 4,164; C H Trust 8,349;
C. Fichte 6,958; C. J. Comu 829,133; Carol Bella Fine 47,879; Carole Sprague
4,164; Catherine ElChehabi 2,087; Cem Comu 156,551; Charles B. Sprague 412,667;
Charles J. Blomme 156,644; Charles M. Reynolds 86,263; Chris Mohr 23,013;
Christopher D. Raymond 1,252; Clay & Erica Webb, C L Cox,Trustee 3,131; Clean
Air Partnership 1,240,332; Compton Family Trust 262,923; Coral Group 375,722;
Daniel Frederick 4,175; David C. Beebe 87,715; David C. Martin 72,089; David C.
Whitney 135,005; David E Scott 4,054; David Naugler 47,615; Dick Allegrati
62,621; Donald J.Bronson 3,131 Donny Hughes 1,440; Douglas Keane 31,310; Dr.
Andrew Polony 4,384; Dr. M. Craig Faucette 15,655; Dr. Todd E. Plinke 835;
5
<PAGE>
Edwards & Associates 31,310; Eric Buchwald for the Biola Trust 6,262; Eric
G.McClellan 9,393; Eugene Wachala 4,175 Frank A. Stucke 10,437; Frank Washburn
1,785; Frederick P. Caso, Jr 2,087; G. Perrine 15,655; G.O.B. 8,454; Garth
Potter 31,310; Gary A. & Roselle J. Abyad 8,349; Gerald C. Conley 12,036; Glen
M. Neubert 78,322; Glen Neubert 90,969; Glenn B. Hiwiller 2,087; Harold S.
Pelham 72,508; Harry & Helen Brogan 5,103; Heather L. Sprague 2,708; Holly N.
Sprague 2,708; Hunter Equities 109,586; INA of Niagra 2,504; Industrial
Construction Mgt 31,310; Ivan Canuteson 4,175; Jack Gellman 4,175; James
Feuerbacher 2,630; James J. Doro 4,175; James Kent Hull 12,524; Jeffrey F. Bova
6,262; John Garth Potter 125,242; John J. Connelly 8,349; John Potter 503,506;
Joseph C. Calabrese 4,175; Joseph D. Fabian 4,175; Joseph j.Altieri, IRA 8,349;
Joseph L. Skrobacz 8,349; Joseph P. Hoerner 10,437; Joseph R. Del Grosso 2,087;
Joseph Sansalone 2,087; Kennith Chennault 9,393; Kevin (Mesa Resources, Inc.)
12,524; Kim Sorrels 6,262; Kimberly A. Edmiston 417; Laszlo L. Mechtler M. D.
10,437; Lauren Davis, Bobby Cox Trustee 3,131; Lawrence Schreiber 2,087; Leonard
Palumbo 42,735; Leonard Privitera 1,252; Lorilei Mc Cleskey 40,703; Lorilyn C.
McCleskey 3,131; Louis J. Aguglia 4,175; Lucky Investment Partnership 3,131;
Lucky Partnership 12,524; M. Craig Faucette 72,445; Margurite S. Potgeter
125,240; Mark Montagna 2,087; Mary K. Halton 417; Max Archer 19,548; Max E.
Archer 97,740; Mesa Resources, Inc. 43,834; Michael J. and Patricia B. Firth
3,131; Michael J. Firth 6,971; Michael McNulty 2,087; Michael Rufrano 6,958;
Michael Yannacopolus 6,262; Nicholas A. Pelosino Jr 2,087 Nick Farhwood 9,393;
Noel Dias 10,960; Norman Schreiber 4,175; Northtown Dodge, Inc. 10,437; P. K.
Parikh 2,087; Parmanand Parikh, IRA 14,612; Patricia B. Firth IRA 3,381;
Patricia Conley PATTI 24,072; Paul Williams 15,655; Philip C. Piccola 19,547;
Pometta's Deli & Catering Co. 125,240; R. John Harris 313,101; Richard Muto
131,785; Richard W. Sprague 4,164; Robert A Hanson 197,500; Robert D. Yalowich
4,175; Robert H. Matheis, Sr. 10,437; Robert J. Mazurkiewicz 2,087; Robert M.
and Diana M. Restaino 5,218; Robin L. Burns 626; Ronald Adamo 31,310; Ronald R.
Villani 6,471; Ronald W. Woltz 6,262; Samuel C Morreale 4,175; Scaramouche
10,437; Scott Mc Cleskey 241,089; Scott Pollock 10,958; Sevim Comu 156,551;
Sherry Mueller 4,175; Staci Gordon 6,262; Stacy Elston 1,941; Stefanie Diane
Brickman 6,262; Steven D.Sprague 4,164; Steven Tasker 31,310; Susan L. Potgeter
125,240; Susan M. Potter 125,242; Sybil Ann Yates 125,240; Tarah M. Sprague
4,164; Ted Industries 171,068; Therese A. Paonessa 6,732; Thirty Seven O Nine,
L.P. 62,621; Thomas E. Clarke 2,087; Thomas J. Morello 2,192; Thorne & Thorne
31,310; Timothy G. Bax 8,349; Timothy S. Sprague 4,164; Tomysia W. Sprague 940;
Tracy S. Cox 9,393; Vicki Y. Sprague 4,164; Victor A. Muto 6,027; Vincent &
Christine Muto 4,175; Vincent Catanzaro 25,340; Vincent F. Burke, IRA 11,180;
Vincent Marchesselli 6,262; Virgil L. and Nettie L. Poland 2,087; Welch Family
Partnership 256,752; Whitley P. Sprague 4,164; William F. Fekete 2,087; William
Kortemier II 1,878; William P. Douglass 9,774
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Management's Discussion and Analysis contained herein has been
presented as if the company's had been consolidated and the merger completed on
May 31, 1997.
Results of Operations
- ---------------------
ITC's operations for the nine months year ended February 28, 1998 consisted
of primarily of 1)completion of the development and preparation phases of it's
"Liberty" project; 2) completion of Rebate TV program which is airing in the
central Florida market; 3) the move of its facilities to new offices in Dallas,
Texas. Net revenues for this period were $932,256 down from $1,648,878 from the
previous fiscal year due to the extended period which Rebate TV had been off the
air and the recognization of $200,000 of deferred income was negligable. The
company has developed and operates a computer system and communications system
to support its Rebate TV program on a national basis even though Rebate TV was
showing in one market. The operation of these systems and the development of a
national marketing program along with the subsidiaries re-assignment of
individuals from product design to operations during this period resulted in
General and Administrative Expenses of $1,332,932 and a net loss from operations
of $1,566,461 down from $1,775,591 for the previous fiscal year.
6
<PAGE>
Material Changes in Operations and Financial Condition
- ------------------------------------------------------
ITC's Rebate TV was off the air for most of the nine months reported.
Operation of Rebate TV although currently distributable and supportable on a
national basis, requires that it be rolled out on a market by market basis. ITC
faces a number of decisions as to whether to concentrate its resources on local
markets supported by smaller vendors (such as Bedroom Land and Kobe Steak
Houses) or to concentrate on multiple markets driven by regional and national
advertisers (such as Airtran Airways and Cakes Across America). Rebate TV is
currently airing in a limited Florida market until operations are completely up
and running in Dallas, Texas.
Liquidity and Capital Resources
- -------------------------------
During the nine months ended February 28, 1998, The company continued to
fund operations and expansion through revenues and private sales of equity
securities and debt. Revenues for fiscal year end 1997 were $2,073,045. In
fiscal year 1997, the company received net cash from financing activities in the
amount of $2,914,805 during that period. Although the company has commitments
for future funding, management believes that it can continue to raise additional
capital for expansion of its markets though revenue and private sources.
In addition, ITC has agreed to issue $5,000,000 in Series M Preferred Stock
(the "Series M Stock") on a private basis to accredited investors in the form of
200 units consisting of 25,000 shares of convertible preferred stock convertible
into common at the rate of one share for one share of preferred and 25,000
warrants convertible into common stock at a price of $2.00 per share. The
preference for this series is to a pro rata portion of 20% of the Gross Profits
from the sales of the AIRTECH Model 950 Air Purification and Filtration System
being developed as a Class II Medical Device for Medicare Recipients with
Respiratory Conditions. This preference is for a period of three years from the
date production begins. AIRTECH has agreed to assign a 25% interest in this
revenue stream to ITC out of which this 20% will be set aside for this
preference. The Series M Stock will be offered pursuant to Rule 506 of
Regulation D of the Securities Act of 1933. Twenty-five percent (25%) of the net
proceeds of the sale of the Series M Stock will be used for market expansion and
distribution of the Rebate TVTM programming, and seventy-five percent (75%) of
such net proceeds will be allocated for the development and distribution of the
AIRTECH Model 950. ITC does not have an underwriter for this placement.
Management expects that the sales of the Series M Stock will be completed,
although there is no assurance that either it will be completed or that the
funds will otherwise be available to fund the operations and expansion of the
combined companies.
7
<PAGE>
<TABLE>
INTERACTIVE TECHNOLOGIES CORPORATION INC.
PROFORMA COMBINED BALANCE SHEETS
<CAPTION>
Historical
--------------------------------
2/28/98 5/31/98
Unaudited Audited
Combined Combined
-------------- -------------
ASSETS
<S> <C> <C>
Current Assets $1,509,390 $1,224,181
Property and equipment net
of depreciation 308,718 316,711
Notes receivable 899,833 783,957
Intellectual properties net of
Amortization 17,686,500 18,249,165
Investment in Joint Venture (16,409)
Goodwill 1,453,620 1,329,252
Other assets 527,254 521,355
------------- ------------
Total Assets $22,368,906 $22,424,621
============= ============
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
Current Liabilities $1,593,249 1,061,704
Deferred Revenue 200,000 400,000
Long-term liabilities 369,304 596,416
Debentures 9,000,000 9,000,000
------------- ------------
Total Liabilities 11,162,553 11,058,120
Commitments and contingencies (5)
Stockholders' Equity
Paid in Capital 20,448,232 19,660,573
Retained Earning (Deficit) (9,241,879) (7,676,572)
--------------- -------------
11,206,353 11,984,001
--------------- -------------
Total Liabilities and
Stockholders' Equity $22,368,906 $23,042,121
=============== =============
</TABLE>
See notes to Pro-Forma Combined Financial Statements
8
<PAGE>
<TABLE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
PROFORMA COMBINED STATEMENTS OF INCOME
<CAPTION>
Historical
-------------------------------
2/28/98 5/31/97
Unaudited Audited
Combined Combined
------------- --------------
<S> <C> <C>
Net revenues $ 932,256 $2,073,045
Cost of Sales 447,502 1,018,804
------------- --------------
Gross income 484,754 1,054,241
General and Administrative 1,332,932 3,081,825
Amortization and Depreciation 718,283 1,033,255
Interest expense 900,000
------------ ---------------
Total Expenses 2,051,215 5,015,080
Net income (loss)
from operations (1,566,461) (3,960,839)
Gain on sale of Charleston
license 543,501
Loss from abandonment of
equipment and related
capital lease obligation (297,095)
Income taxes
----------- ---------------
Net income (loss) (1,566,461) (3,714,433)
=========== ===============
Primary (loss) per share $ (0.08) $ (0.21)
Diluted (loss) per share $ (0.03) $ (0.09)
</TABLE>
See notes to Pro-Forma Combined Financial Statements
9
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
February 28, 1998
(Unaudited)
1. Basis of Presentation
The accompanying Pro-Forma Combined balance sheet at August 31, 1997 and
related combined statement of operations for the nine months then ended have
been prepared as if the business combination had occurred on June 1, 1997 the
start of the current fiscal year of Interactive.
The purchase of the outstanding stock of Airtech by Interactive is being
reflected in these Pro-Forma Combined Financial Statements using the purchase
method for recording the transaction. The excess of cost over book value has
been reclassified to other assets of Airtech based on managements estimates and
outside valuation based on projected cash flows and revenues from the revalued
assets. No provision for amortization of these revalued assets or goodwill are
reflected in these combined financial statements.
There have been no changes in generally accepted accounting principals in
the presentation of the combined financial statements from the historical
audited financial statements included herein by reference as previously filed or
in the audited financial statements of Airtech for its fiscal year ended May 31,
1997.
Earnings per Share (EPS) is reflected as primary earning per share and
fully dilluted earnings per share set forth in the following table used for EPS
computation:
Historical
------------------------------
ITC Airtech
Weighted average number of shares 12,139,865 17,485,000
Less shares cancelled ( 3,400,000)
Add shares issued for debentures 1,144,444
Adjustment for combined presentation (17,485,000)
Common shares issued for acquired 10,500,000
-----------
Primary shares outstanding 20,384,309
Assuming conversion of convertable
preferred issued for acquired 11,858,016
Assuming conversion of convertable
Debentures issued for acquired 12,857,143
-----------
Fully diluted shares outstanding 45,099,468
Notes to Historical Financial Statements
1. Intellectual properties reflected on the balance sheet of Interactive
consist of the following:
License rights net of accumulated amortization
of $405,000 $ 270,000
Proprietary software and trademark, net of accumulated
amortization of $1,450,279 3,960,763
-----------
$4,230,763
License rights consist of ITC's Federal Communications Commission
Interactive Video and Data Services (IVDS) radio station license in the
Melbourne-Titusville-Palm Bay, Florida and the retained 10% interest in IVDS
license in the Charleston-North Charleston, South Carolina service areas
representing an additional enhancement to ITC's programming distribution. These
licenses have a duration of an initial five years, and are renewable if all
conditions of the license are met. IVDS, a two way communications system , will
allow viewer to take an active role in systems delivered through broadcast
television, cable television, wireless cable, direct broadcast satellite or
other future television delivery methods. IVDS is regulated as a personal radio
10
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
February 28, 1998
(Unaudited)
service under the rules of the FCC which has allocated spectrum in the 218-219
MHZ range for its use. IVDS systems are designed to operate with a hand-held
remote control device that controls the interactive set top[ device on the
subscriber's television set. A viewer would interact with the TV station through
a radio signal using an IVDS frequency.
Proprietary software and trademarks consist of software developed for
integration into the rebate television market and a trademark known as Rebate TV
(TM) purchased in October 1995. This proprietary software allows ITC to be a
developer and producer of television, interactive television and interactive
digital media programming. These programs can be developed in various
interactive formats for cable, broadcast and direct broadcast satellite
television as well as for Internet distribution. Rebate TV is a television
program which incorporates interactive media and computer data management
allowing retail vendors to communicate their message to consumers, the allow the
consumer to verify his or her purchase, with the consumer receiving a cash
rebate from ITC for their purchases. Retailers represent a broad spectrum of the
business community including grocer chains, furniture stores, tire service
stores, banks, restaurants, car dealers and a variety of other specialty
businesses.
2. Intellectual properties reflected on the balance of Airtech consist of
the cost incurred to date for the development of a full line of air purification
products for commercial, consumer, automobile and medical use. Several of the
products will be eligible for a US and foreign patents with patent applications
currently in process or planned .
Adjustments for Acquisition
3. Per the stock purchase agreement entered into on May 8, 1997 between
Interactive Technologies Corporation, Inc. and Airtech International Corporation
the following presents the securities and the related valuation of the purchase
of 100% of the issued and outstanding common stock of Airtech:
Value
Description of Securities Per Share Total
------------------------- ---------- -------
10,500,000 shares of Interactive
Common Stock, registered $0.32(a) $3,360,000
11,858,016 shares of Interactive
Preferred Stock, registered and
convertible into Common Stock $0.32(a) 3,794,565
$9,000,000 in Convertible
Debentures At Face 9,000,000
----------
Total value of purchase of 100% of
Airtech Common Stock $ 16,154,565
11
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
February 28, 1998
(Unaudited)
(a) The closing of bid price of Interactive common stock on February 28,
1998 was $0.32 per share. This price per share will be adjusted to the price per
share on the closing date.
The following represents the allocation of the purchase price:
Book value of Airtech common stock $ 3,086,258
Intellectual properties 12,250,000
Excess of purchase price over cost 818,307
-------------
Total Purchase Price $16,154,565
4. Interactive Technologies has the following litigation pending:
The Company is in litigation with LLB Realty, L.L.C. which has filed a
claim alleging claims under an office lease agreement in Superior Court of New
Jersey, Mercer County. The Company has asserted claims against L.L.B. Realty,
L.L.C. for failure to perform under the conditions of the agreement. Settlement
negotiations have been ongoing and the Company expects this matter to be settled
in a manner not unfavorable to the Company. .
The Company is not a party to any other pending legal proceedings except
for claims and lawsuits arising in the normal course of business. The Company
does not believe that these claims or lawsuits will have a material effect on
ITC=s financial condition or results of operations. Accordingly no provision or
accrual for potential losses are reflected in the Pro-Forma Combined Financial
Statements.
Airtech International Corporation has the following litigation pending:
Airtech International Corporation, McCleskey Sales and Service, Inc., C.J.
Comu and John Potter, plaintiffs vs Honeywell, Inc., Honeywell Environmental Air
Control, Inc. And Suzanne Haas, defendants; No. 3:96CV-1855-D, United States
District Court for the Northern District of Texas, Dallas Division.
In this case, Airtech, a subsidiary and two of its officers filed suit
against Honeywell, Inc. And a Honeywell subsidiary and an employee asserting
several causes of action. These causes of action include breach of contract
relating to termination of the Company=s Full Service Distributorship
agreements, for defamation and tortious interference with contract relating to a
merger agreement between the Company and DCX, Inc., for unfair competition
regarding claims made by Honeywell about it air purification products, for
negligent misrepresentation regarding representations made to the Company and
its subsidiary regarding the exclusivity of certain arrangements with the
defendants, and for declaratory relief and attorney=s fees. Honeywell filed a
counterclaim against the Company, McCleskey, Comu and Potter. Honeywell alleges
that the Company and McCleskey owe Honeywell money for past purchases, and that
Comu and Potter interfered with the relationship between McCleskey and
Honeywell. Honeywell seeks $71,000 in actual damages and unspecified punitive
damages and attorney's fees. The Company has denied all of the material
allegations of Honeywell=s counterclaim. The Company plans to vigorously defend
the counterclaim and believes the counterclaim to be without merit.
Honeywell,Inc., plaintiff, vs Airtech International Corporation, AirSoPure,
Inc. And Richard Allegrati, defendants: No. WMN 97-238 United States District
Court for the District of Maryland, Baltimore Division.
12
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
February 28, 1998
(Unaudited)
Honeywell filed suit against the Company, a subsidiary and an employee,
alleging violations of the Lanham Act and the Maryland Uniform Trade Secrets Act
and the common law. The suit alleges that certain Airtech and AirSoPure products
were sold in violation of the Honeywell's trademarks, and that the cover design
of certain products of Airtech/AirSoPure was wrongfully obtained. The suit seeks
an injunction and unspecified damages. Rather than incur substantial additional
attorney=s fees, the Company agreed to the entry of a preliminary injunction
regarding the sale of a very small number of modified Honeywell products,
immaterial to the Company's business. The Company denies all of the material
allegations of Honeywell's claims, is vigorously defending this case. The
Company believes Honeywell's claims to be without merit.
Accordingly no reserve or accrual has been reflected in these Combined
Pro-Forma Financial Statements for this pending litigation.
A motion for dismissal was entered into as settlement of the Honeywell
litigation in March 1998.
13
<PAGE>
THE REGISTRANT
Background.
- -----------
Interactive Technologies Corporation, Inc. ("ITC") was incorporated in the
state of Wyoming on August 8, 1991. At that time, ITC was engaged in the
business of exploiting its rights under a license granted by CST Entertainment
Imaging, Inc. ("CST"). Such license gave ITC the exclusive right to use CST's
coloring process to convert to color black-and-white film and videotape,
including black-and-white theatrical films and television programs produced for
distribution in Europe. ITC also had exclusive right to use CST's technology to
provide digital special visual effects for new film and video productions
produced for distribution primarily in the European territory. ITC ceased this
effort on October 18, 1995, when it exchanged the license in satisfaction of
certain of its debt.
On October 20, 1995, ITC entered into an agreement to acquire assets of
Syneractive, Inc. ("SI"), a Florida corporation. SI's assets included
intellectual property consisting of a television production and the trade name
Rebate TV. The assets also included license rights from the FCC to provide
Interactive Video and Data Service ("IVDS") in the Charleston-North Charleston,
South Carolina, and Melbourne-Titusville-Palm Bay, Florida metropolitan areas.
In exchange for such assets, ITC issued 5,700,000 shares of common stock to
Perry Douglas West, its current sole director and officer. In November 1996, ITC
sold a 90% interest in the Charleston-North Charleston license.
ITC and Airtech International Corp.,entered into an agreement to purchase
all, but not less than 81%, of the issued and outstanding $0.0001 par value
common stock of AIRTECH pursuant to a Stock Purchase Agreement, dated as of May
8, 1997. (Such Stock Purchase Agreement, as amended and restated as of August 1,
1997, the "Stock Purchase Agreement") Pursuant to the Stock Purchase Agreement,
each holder of the AIRTECH common stock (the "AIRTECH Common Stock") which
accepts ITC's purchase offer shall receive in exchange for such AIRTECH Common
Stock: (i) his pro-rata percent of 10,500,000 shares of ITC's $.01 par value
common shares;(ii) his pro-rata share of 11,858,016 shares of ITC's Convertible
Preferred Shares (the "ITC Preferred Shares"), and his pro-rata share of
$9,000,000 aggregate principal amount of ITC's Convertible 10% Debentures (the
"ITC Debentures"). The remaining 24,715,159 shares of Common Stock being
registered hereunder will be reserved by ITC against the conversion, if any,of
the Convertible Preferred Shares and the ITC Debentures.
Principal Products or Services and Their Markets.
- -------------------------------------------------
The company's operations are generally divided into two business areas; 1)
air purification products; and 2)interactive television and interactive digital
media programming and air purification products.
1) The company has following air purification products in production:
Series 12000: The series 12000 is designed to fit into a 2 foot x 4 foot
space of a ceiling. Markets for this unit include facilities such as
restaurants and nursing with problems involving cigarette or cigar smoke,
particulates larger than .3 microns or odors. AIRTECH has sold
approximately 60 of the series 2000 units, 45 of which sales occurred in
October 1997.
Series 2000 Down Draft Table: The series 2000 was designed for the nail
manicure industry and was first introduced in January 1996. This series has
a single speed 450 CFM blower with sorbent media filter designed for
special need of this industry. AIRTECH has sold approximately 11 of the
series 2000 units, 11 of which sales occured in October 1997.
14
<PAGE>
Series 3000 Down Draft Table: The series 3000 is a modified version of the
series 2000 designed to appeal to the pathology/histology environment, the
dental lab industry and other light industrial markets. This series
utilizes a 700 CFM two speed blower using the same sorbent media filter as
that used in the series 2000. However, the minerals in the filter will be
varied to the correct absorbent for the application. The series 3000 will
use a polyester pre-filter as standard and offer up to a 95% ASHRAE 2" x 4"
pleated as an option. AIRTECH has sold approximately 4 of the series 3000
units, 4 of which sales occurred in October 1997.
The company has completed working models of the following products:
Series 14000and 16000: The series 14000 is an energy efficient commerical
air filtration unit, 14" x 14" x 30" and filter 300 cubic feet of air per
minute. Model 16000 is a ceiling mounted unit which filters 400 cubic feet
of air per minute.
Series 900: The series 900 is a small portable unit designed for the
automobile that will remove both gases and particulates. It will clean
approximately 30 cubic feet of air per minute. AIRTECH anticipates that the
cost of completing a sufficient number of working models (approximately 75
units individually made with a lazer lathe) will be approximately $100,000.
And that subsequent costs to commence production will be approximately
$400,000. Subject to receipt of financing AIRTECH anticipates commencing
production in March 1998.
Series 950: The series 950 is a portable air cleaner designed to sit on the
floor and will clean approximately 250 cubic feet of air per minute. This
series will remove both particulates and gases utilizing an air flow
pattern discharged from the top of the unit. This product will be
configured to meet the needs of the medical community. AIRTECH anticipates
that, in March 1998 it will file its application to qualify the unit for
reimbursement by Medicare. It is anticipated that AIRTECH will commence
production in the summer of 1998.
In addition to the above, the company anticipates developing the following
products:
Series 850: The series 850 will be a less expensive version of the series
950 and will be designed by retail sales.
Series 21000: The series 21000 is a ductable unit for both commercial and
light industrial applications. This unit will allow remote positioning
(i.e. on the roof) and collection of contaminants from distant zones. The
clean air discharge can be directed to zones as needed. This unit permits
creation of negative and positive pressure zones providing maximum control
of airborne contaminant movement. The air cleaning capacity will be
approximately 1800 cubic feet per minute. This unit will also be available
for the upscale residential market for both new construction and retrofit.
Series 22000: The series 22000 is a simple fugitive capture air cleaner
designed for light industrial applications for the collection of airborne
dust and particulates in smoke. The markets for this series include auto
body repair shops, small welding and machine shops, woodworking and ceramic
shops, vocational schools and college industrial arts classes. This unit
will clean 2500 cubic feet of air per minute of particulates only, it is
not suitable for gas and odor control.
Replacement Filters: The Company will manufacture its sorbent media
filters, pre-filter material will be purchase in bulk and cut to proper
sizes and the HEPA type filters will be out-sourced. The life of the
filters will vary application and the degree of contaminates however the
Company anticipates each unit sold will require an average one to two
complete filter changes per year.
15
<PAGE>
Prospective Operations/Marketing.
- ---------------------------------
General. During 1996 and 1997 the company identified niche markets having a
need for air purification technology. Change in, and Federal, state and local
regulatory enforcement of, air quality regulations has increased the size and
scope of these markets. In 1996 the City of Plano, Texas choose the Honeywell
technology represented by the company, as the exception to its smoking ban. In
1997, the company, using its technology, has worked with Fort Worth, Texas and
Grand Prairie, Texas on the smoking ordinances as well as with the counties of
Niagra and Erie New York on their smoking ordinances. The cities of Toronto and
Vancouver Canada have also contacted the company for assistance in changing
their no smoking ordinances. In each case, the companies technology will meet
the minimum standards required under these ordinances for permitting smoking in
public areas.
In 1996 the company completed installations in excess of 100 ceiling
mounted units primarily for smoking related problems using Honeywell technology.
These installations included restaurants, bingo halls, office buildings and the
conference room for the board of directors of Southwest Airlines. Since
September 1996, the company has completed installations of approximately 40 of
its series 12000 ceiling mounted units, and as of November 1, 1997 had orders or
installations in progress for approximately 35 additional units. The companies
model 12000 ceiling units has been installed in 6 restaurants being developed by
Lone Star Steakhouses in all their new restaurants in the future (Del Fresco,
Sullivan's and Longhorn restaurants) and demonstration models have been
installed in facilities operated by two large nursing home groups, a major truck
stop chain and a casino.
Property Management. The air quality problems that exist in office building
and shopping centers caused by smoking, odors caused by sewer gas backup,
methane gas, fumes from parking garages, cooking odors, odors from beauty salons
or print shops has opened the door for sales by the companies franchises to
Property Management companies. These problems are prevalent in most building
including schools, city and county building and other governmental
installations.
Down Draft Tables. Many manicurist are independent contractors renting
space in a shop and have limited capital or credit. Therefore, the company has
developed a rental program requiring a deposit and first months rent. This
recovers the cost of the table in approximately 3 months. AIRTECH applies one
half of the monthly rental to the full retail purchase price thus allowing the
manicurist to own the table in 12 to 18 months.
Multilevel Marketing
- --------------------
In April 1997, the company entered into a license agreement with Air Care,
L.L.C. giving marketing rights for Mexico and certain regions of the U.S. for
its series 900 portable automobile unit. The company is currently exploring
possible relationships with various multilevel marketing organizations with
respect to the marketing of the series 900 at such time as it enters production.
Additionally the company has entered into discussions with a durable medical
equipment network for the marketing of the series 950 Medicare unit at such time
as it enters production.
The Franchise Program
- ---------------------
The company intends to operate its franchise program through its wholly
owned subsidiary for the Airsopure, Inc. The Airsopure name was registered as a
trademark and will be the product name used by the company for its various
commercial and consumer products. A copy of the Airsopure Uniform Offering
Circular has been filed as an Exhibit to the Registration Statement of which
this Prospectus is a part, which Uniform Offering Circular is incorporated
herein by reference.
16
<PAGE>
The franchising program was first introduced at the International Franchise
Show in Washington D. C. in April 1997; and the company intends to be a regular
exhibitor at franchise shows throughout the fiscal year. As of November 1, 1997,
Airsopure has sold 3 foreign franchises and 4 domestic franchises, with several
other franchise sales pending. The company is forecasting that Airsopure will
sell approximately 100 franchises by fiscal year end May 31, 1998.
Competitive Conditions.
- -----------------------
Honeywell Environmental Air Control, Inc. is the only manufacturer with a
national distribution system for commercial air filtration systems. Since the
corporate restructure of this division in the spring of 1996 the commercial
division has been downsized. What continued presence is planned by Honeywell in
the commercial air filtration market is unknown to the company. In most
metropolitan area's there exist one or more independent manufacturer or service
companies for commercial grade air filtration systems. Most deal with
electrostatic filtration or smoke eaters a very ineffective method of
particulate removal but some offer charcoal and HEPA based systems. These
independent companies are usually small with very limited marketing servicing a
specific niche market. By the end of calender year 1997, with the air filtration
systems outlined above, the company will have the most complete line of air
filtration systems available in the U.S.
2) The company also develops and produces interactive television and
interactive digital media programming for distribution on cable, by broadcast
and direct satellite television, and over the Internet.
The company's principal interactive programming product is Rebate TV TM.
The product allows a consumer to receive a cash rebate from the company for
purchases of products advertised on the Rebate TV TM television program by
incorporating interactive media and computer data management. Rebate TV TM is
designed to utilize existing communication technologies for consumer responses.
It now uses the telephone and the Internet as return links. However, it is also
designed to easily accommodate the emerging interactive television systems as
they come into use, such as IVDS and Interactive Television (via fiber optic
cable/telephone cable etc.)
Beta Test. The company conducted a beta test of Rebate TVTM from April 15,
1996, through December, 1996 (the "Test Period"). During the Test Period, Rebate
TVTM aired 1/2 hour daily, seven days a week, on WIRB/Channel 56 in the central
Florida market. That market serves a population of approximately 2,175,000.
During the Test Period, the television program was divided into 14 one
minute retail information segments which were utilized by advertisers to provide
information about their company and a brief description of the cash rebate
offered to the consumer. The balance of the program consisted of information
segments, rebate reviews and instructional segments. Retailers represented a
broad spectrum of business including grocery chains, furniture stores, tire
service stores, retail banks, restaurants, car dealers and various specialty
businesses. The company collected point-of-sale information from the vendors who
participated during the Test Period, and processed that data along with Rebate
TVTM customer call-in data. Rebates were credited to customer accounts as they
were verified. ITC manages escrow accounts for retail vendors so that rebates
are transferred to a general customer escrow fund as they are credited.
Consumers making a purchase of items of product or in dollar amounts which
carried the rebate offered by a participating retailer (i.e. a $5 rebate on a
purchase of $50 or more, or $10 rebate on the purchase of a brake package,
etc.). By calling the company's toll free telephone number, 1-888-REBATE, the
consumer would be connected to the company's computer data base, and could then
register the Rebate TV TM number on the bottom of the receipt. At the end of the
month, the company sends a check to the Rebate TV TM customer for a total of all
rebates processed during that month. These rebates are in addition to coupons or
other promotional offers by the vendor. Rebate TV TM had approximately 4,000
subscribers by the end of the Test Period.
17
<PAGE>
Revenue Sources. The company receives revenues of two types from Rebate
TVTM. First, retail vendors will pay an initial production fee to the company
for the production of the information segment that becomes part of the
television show. Then, the retail vendors will pay the company a transaction fee
based upon verified sales. The amount of the transaction fee will vary with the
type of retailer and the frequency of purchase of its products. For instance,
the transaction fee for a automobile sale is much higher than a grocery store
because of the size and frequency of purchase.
Program Development.
- --------------------
The company's research and development efforts consumed the technical
efforts of the company from October 1995 through the airing of Rebate TVTM on
April 15, 1996, and involved two basic areas: the television programming for the
shows, and the data management and computer interface development efforts for
the interaction with the retailers and the consumers. None of this expense will
be borne directly by the retailers or the consumers, but will be recouped
through profits as the company expands its markets.
Development of Rebate TVTM basic programming by the company has been done
during the fiscal year with Century III at Universal Studios, Florida.
Established in 1976, Century III has serviced a widely diverse client base with
high production values utilizing the latest and finest in production and
post-production hardware. This includes local, regional, national and
international projects for all four broadcast television networks, national
cable networks such as Nickelodeon and HBO, major independent producers,
advertising agencies and major corporate and governmental organizations such as
Digital Equipment Corporation, Harris Corporation, General Electric, NCR, AT&T,
Kodak, Polaroid, Walt Disney World, Harcourt Brace Jovanovich, FPL Group,
Westinghouse, McDonnell Douglas, Martin Marietta, Reebok, International and
NASA. The creative director for Rebate TVTM is Michael Hamilton who has
designed, directed and produced such television series as "Magnum P.I.", "Simon
& Simon", "Wings" and "The Twilight Zone". His commercial experience includes
such clients as CadillacTM, Texaco, Coca ColaTM, Heineken, American Airlines,
Donna Karan, Elizabeth Arden, QVC, Business Technology Management and the Family
Channel.
The computer development efforts related to Rebate TVTM were done at the
company's engineering offices in Melbourne, Florida, where the hardware and
software designs and specifications were developed, tested and implemented
during Fiscal Years 95/96 and 96/97, to: (i) manage the large amounts of data
and transactions involved in collecting and verifying sales information from the
Rebate TVTM retailers; (ii) calculate the rebates, record the credits, and issue
the checks to the consumer; (iii) accommodate and record the telephone rebate
requests, and (iv) provide automated participation information to the public.
The company looks to Rebate TVTM to attract its share of the communications
industry end-user market which is estimated to be $189.3 billion by 1998.
Interactive digital media is projected to remain the fastest growing category in
the industry.
Internet Access.
- -----------------
The company's Internet home pages for use with Rebate TVTM allow viewers to
access the program's data base through the Internet. It allows them to view the
status of their accounts, enter vendor rebate claims, and later will allow
viewers to access a variety of products and services associated with Rebate TVTM
which the company expects to include. The company's home page is located at
http://www.REBATETV.com.
18
<PAGE>
Network Operations.
- -------------------
The company intends to develop and produce its own television channel and
to distribute its Rebate TVTM video programming in this format to customers. The
company's distribution plan currently provides for distribution of this
programming started in the central Florida markets to expand from there. The
company's business plan calls for Rebate TVTM to expand into additional national
markets. The company expects to hire additional employees over the next 24
months to support the operation of this programming and to continue to develop
and refine the programming as the company adds markets for these services.
Interactive Video and Data Services.
- ------------------------------------
Federal Communications Commission Interactive Video and Data Services
("IVDS") radio station licenses in the Charleston-North Charleston, South
Carolina, and Melbourne-Titusville-Palm Bay, Florida service areas represent an
additional enhancement to the company's programming distribution. These licenses
have a duration of an initial five years, and are renewable if all conditions of
the license are met. Such conditions include, among other requirements: that the
license fee be paid quarterly, that 30% of the licensed area be built out within
three years and that 50%of the licensed area be built out within five years of
the date of the granting of the license. Pending the promulgation of
regulations, the company has obtained temporary waivers of certain of the build
out requirements.
IVDS, a two way communications system, will allow viewers to take an active
role in systems delivered through broadcast television, cable television,
wireless cable, direct broadcast satellite or other future television delivery
methods. IVDS is regulated as a personal radio service under the rules of the
FCC which has allocated spectrum in the 218-219 MHZ range for its use. IVDS
systems are designed to operate with a hand-held remote control device that
controls the interactive set top device on the subscriber's television set. A
viewer would interact with the TV station through a radio signal using an IVDS
frequency.
The company has sold 90% of its ownership of the Charleston-North
Charleston license, and has reserved rights to provide programming to this
license area when it is in operation.
The company is reviewing alternative uses and equipment proposals for its
Melbourne-Titusville-Palm Bay, Florida license and expects to proceed to install
a system for the license. Although the company will run its Rebate TVTM and
other programs on its own service area systems, the programs it develops are
intended for use on various interactive delivery systems and are not specific to
Interactive Video and Data Services systems. They are marketed to all of these
various delivery systems. For broadcast of Rebate TVTM programming the company
currently uses and plans to use standard video media distribution methods such
as cable, broadcast stations, wireless cable and direct broadcast satellite.
Although the company has designed its programs to utilize an IVDS return link (a
"return link" is the method by which data is sent from the consumer or viewer
back to the originator of the program), they are also designed to accommodate
other return links such as the telephone. The company has purchased equipment
and software to provide a telephone return link as an interim return link for
its own license areas as well as other areas where it is providing programming,
to be utilized where IVDS is not available; until the installation an operation
of the IVDS equipment as a return link is completed as well as for use with non
subscribers to IVDS.
19
<PAGE>
Intellectual Content.
- ---------------------
The company has developed a plan for the accumulation and sale of
intellectual content. This content takes several forms, including completed
television and video programming, both developed and produced by the company and
by third parties; property rights to written scripts and publications for the
purpose of producing or having produced television or motion picture products;
and program ideas, concepts and designs. In addition to the Rebate TVTM
programs, the company has filed and had accepted trademark applications with the
United States Patent and Trademark Office for "Rebate TV", for "DEAL! DEALS!
DEALS!" (a direct shopping program which ITC has produced), and "Television that
pays you to shop".
The company has in addition under this plan a number of projects under
consideration and review. To date, revenue from these activities has been
limited to the Rebate TVTM television program, and to a limited showing of its
DEAL! DEALS! DEALS! program. There is associated with each of these shows and
projects a lead time or advance period necessary for development and scheduling.
In addition, the company may elect to sell outright or resell any of these
properties.
The company acquired $1,040,800 in working capital during Fiscal Year
96/97, through loans and private stock sales. The company believes that it can
meet its cash requirements during the first quarter of the Fiscal Year 97/98 but
expects to require additional funds over the next 12 months for the expansion
and addition of markets for its product and for operations. Although the company
currently has no written commitments for additional funds, it believes that it
can raise additional cash required from private sources. A $5 million offering
is presently being structured in conjunction with AIRTECH. (See "MANAGEMENT'S
DISCUSSION AND ANALYSIS - Liquidity and Capital Resources".)
The company continually accumulates data in the operation of its Rebate
TVTM, and examines this data with regard to indicated changes in its
programming. The company expects to continue research and development of its
products based upon the collection of this data.
Competitive Conditions.
- -----------------------
The company is unaware of any direct competition with Rebate TVTM. However,
there are other companies in the interactive television industry that have
announced that they will provide programming to the interactive television
marketplace. Many of these companies will be better capitalized than the company
and will be better positioned to take to take advantage of this emerging market.
There is no assurance that the company will secure a competitive position in
such market or that its activities will result in profit to the company.
FCC Licensing.
- --------------
The ability of the company to provide IVDS services in the United States is
subject to the rules and regulations, if any, promulgated by the FCC. At present
there are only limited rules or regulations. However, there is no assurance that
there will not be rules and regulations forth coming which are adverse to the
interests of the company.
Number of Persons Employed.
- ---------------------------
As of August 1, 1997, the company has 35 full-time employees.
20
<PAGE>
Description of Properties.
- --------------------------
The company has several facilities that they operate. The corporate offices
of are located in a five story glass and brick building in north Dallas, Texas.
At this facility offices the senior management, accounting staff, franchise
operations and local sales reps. The office has approximately 4000 sq.ft. and
recently renewed its lease extending for an additional three years at a rental
rate of $14.00 per sq., ft. There are approximately 15 full time employees at
this location.
The company's manufacturing facility and MSS service division is located in
an attractive warehouse facility in Garland Texas. This facility is fifteen
minutes from the administrative offices, and assumes approximately 11,000 sq.
ft. The company has extensive inventory, parts and supplies and finished product
ready for distribution. The service division has seven fully assembled service
trucks/vans. This location has a full time staff of 15 that office at that
facility. Effective rent is currently quoted at $4.50 per sq. ft., with the
balance of three years remaining on the lease at that rate.
The final facility that is represented in the companies overall operation
is the Sheet Metal and Fabricating activities, located in Sunnyvale, Texas. This
2000 square foot facility has two employees that are involved in a variety of
custom sheet metal fabrication and design. Costs to maintain this facility is an
open ended friendly lease, where the corporation pays $1000 per month.
Legal Proceedings.
- ------------------
The company is in litigation with LLB Realty, L.L.C. which has filed a
claim alleging claims under an office lease agreement in Superior Court of New
Jersey, Mercer County, Cause No. MER-L00 1535-97. ITC has asserted claims
against LLB Realty, L. L.C. for failure to perform under the conditions of the
office lease agreement. The company is not as party to any other pending legal
proceedings except for claims and lawsuits arising in the normal course of
business. ITC does not believe that these claims or lawsuits will have a
material effect on ITC's financial condition or results of operations
ITC Securities.
- ---------------
Capital Stock. ITC is authorized to issue 70 million shares of capital
stock, consisting of 50 million $0.01 par value common shares, and 20 million
$1.00 par value preferred shares. As of February 28, 1998, there were issued and
outstanding 14,880,413 shares of the ITC common stock. These shares have full
voting rights. Of the common shares outstanding, 8,409,381 were restricted, of
which 3,400,000 shares are scheduled to be cancelled
Convertible Debentures. Effective as of May 31, 1997, Exergon Capital
S.A.,Laughlin Securities Limited, Crestridge Investments, Ltd. and Jayhead
Investments Ltd. (collectively, the "Converting Debenture Holders" exercised
their $1,050,000 principal amount of ITC's Convertible Debentures (the "May 1997
Debentures") in exchange for 1,144,444, aggregate number, of ITC's Common Stock.
In connection with such conversion, the Converting Debenture Holders received
the May 31 Warrants (defined below).
May 31 Warrants. In connection with the conversion of the May 31
Debentures, the Converting Debenture Holders received warrants (the "May 31
Warrants") which are exercisable within five years from May 31, 1997, upon 30
days written notice and upon payment of the exercise price. The May 31 Warrants
may be converted, in the aggregate, into 1,144,444 shares of ITC common stock as
follows:
21
<PAGE>
Debenture Holder No. Of Shares Exercise Price
Per Share
Exergon Capital, S.A. 333,333 $0.90
Laughlin Securities Limited 250,000 $0.90
Crestridge Investments Ltd. 250,000 $0.75
Jayhead Investments Ltd. 250,000 $1.00
Shares to Consultants and Other Claimants. ITC has reserved 500,000 shares
of ITC Common Stock for issuance to consultants in lieu of other compensation,
and to other claimants.
Warrants. ITC has issued warrants to George Clark, a current employee, and
to a non-affiliate former employee in lieu of deferred compensation. Such
warrants are exercisable within five years from the date of issuance at $0.75
per share.
Market Information - Common Shares. ITC's common shares are traded on the
National Association of Securities Dealers Automated Quotation Systems
("NASDAQ") SmallCap Market under the symbol "ITNL". ITC" common shares began
trading on the NASDAQ exchange on April 30, 1996. High and low quotes for May 8,
1997, the day immediately preceding the announcement of the proposed acquisition
of the shares of AIRTECH were 1 9/16 and 1 3/8.
High and low quotes for the last quarter of ITC's fiscal year when the shares
began trading on NASDAQ were:
High Low
Fiscal Year 1998 3rd Quarter .41 .32
2nd Quarter 7/16 5/16
1st Quarter 7/8 7/8
Fiscal Year 1997 4th Quarter 1 15/16 1 3/8
3rd Quarter 1 1/2 1 1/8
2nd Quarter 4 1 1/4
1st Quarter 5 1/4 4 1/4
Fiscal Year 1996 4th Quarter 5 4 7/8
Prior to being traded on the NASDAQ exchange, the Company's common shares were
traded in the "over-the-counter" or "Bulletin Board" market. The following
quotes represent the quarterly high and low quotes available through the quarter
ending December 29, 1995. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions:
High Low
Fiscal Year 1996
Quarter Ending 3/29/96 4 3/8 3 7/8
Quarter Ending 12/29/95 4 2 1/2
Prior to the quarter ending December 29, 1995 of ITC's 1996 Fiscal Year, and
during the previous 1995 Fiscal Year, to the best of ITC's knowledge, no trading
occurred in ITC's common stock.
Other Market Information. To the best of ITC's knowledge, no trading
occurred in ITC's preferred shares or ITC's debentures.
Holders. As of February 28, 1998, there were approximately 962 record
holders of ITC's Common Stock.
Dividends. ITC has never paid any cash dividends on its Common Stock and
has no present intent to pay any cash dividends in the foreseeable future. The
declaration of cash dividends will depend on future earnings, if any, the
financial needs of ITC, and other pertinent factors. Further, the declaration of
dividends will be at the discretion of ITC's Board of Directors.
22
<PAGE>
Selected Financial Data. The selected financial data shown below for the
year ended May 31, 1997 and the nine month period ended February 28, 1998 have
been derived from, and is qualified by reference to, the Financial Statements of
ITC and have been audited by Turner, Stone & Company, LLC, independent public
accountants, except for the nine month period ended February 28, 1998 which are
unaudited. The data set forth below are qualified by reference to, and should be
read in conjunction with "Management's Discussion and Analysis.
Summary Financial Information
(In thousands, except per share and other portfolio data)
February 28 Year ended May 31
----------- -----------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
STATEMENT OF
OPERATIONAL DATA
Total Revenue $ 932 $1,649 $2,074 $ 198 $ 57
Net Loss (1,567) (1,776) (3,961) (2,655) ( 447)
Net Loss Per Share ( 0.08) (0.08) (0.21) (0.22) (0.05)
BALANCE SHEET DATA
Working Capital ($ 84) $ 795 (163) ($497) (1,089)
Total Assets $22,369 $23,184 $11 $5,179 $7,485
Changes In and Disagreements With Accountants. By unanimous consent of its
Board of Directors on November 10, 1995, ITC engaged the accounting firm of
Turner, Stone & Company of Dallas, Texas as independent accountants for ITC for
the fiscal year beginning June 1, 1995, and voted to excuse the accounting firm
of Lumsden & McCormick from further service to ITC after the completion of its
work on the audit for ITC for the fiscal year ending May 31, 1995. During the
previous two fiscal years ending May 31, 1995, there were no disagreements with
Lumsden & Company on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure or any reportable events.
Important Considerations Related to Forward-Looking Statements
- --------------------------------------------------------------
It should be noted that this discussion contains forward looking statements
which are subject to substantial risks and uncertainties. There are a number of
factors which could cause actual results to differ materially from those
anticipated by statements made herein. Such factors include, but are not limited
to, changes in general economic conditions, the growth rate of the market for
ITC's products and services, the timely availability and market acceptance of
these products and services, the effect of competitive products and pricing, and
the irregular pattern of revenues, as well as a number of other risk factors
which could effect the future performance of ITC.
MANAGEMENT INFORMATION
Directors and Executive Officers
- --------------------------------
The following table sets forth, as of February 28, 1998, the name, age,
position and biographical information of each executive officer and director and
the term of office of each director of ITC.
23
<PAGE>
Perry Douglas West, 50.
- ------------------------
Mr. West a Director, joined ITC in October 1995. Mr. West co-founded
American Financial Network in July of 1985. Headquartered in Dallas, Texas,
American Financial Network operated a national computerized mortgage loan
origination network. Mr. West served as Executive Vice President/Director and
General Counsel of this public company from 1985 to 1991. Mr. West has practiced
law in Florida since 1974, representing various business institutions in the
financial, computer, natural resources and general business industries and
international transactions. He was graduated with a Bachelor of Arts degree from
The Florida State University in 1968 and with a Juris Doctorate degree from The
Florida State University, College of Law in 1974.
John Potter, 53.
- ------------------------
Mr. Potter, President & Director of the company, began his business career
with Xerox Corporation. He moved into the world of finance with Wells Fargo &
Company, handling their national leasing division. Mr. Potter, was the founder
of Alpha Leasing, which grew into one of the largest leasing companies in the
Southwest. Mr. Potter co-founded Transworld Leasing Corporation, with
Mr.C.J.Comu, providing financing and marketing expertise to the medical,
computer and corporate sector, prior to the formation and launch of AIRTECH .
Prior to beginning his business career Mr. Potter was an officer in the US Army.
Mr. Potter has served as a director of ITC since 1997.
C. J. Comu, 36.
- ---------------
Mr. Comu, Chief Executive Officer & Director of the company, began his
career in the stock and commodities business as a specialist in precious metals
and currencies. Mr. Comu co-founded MBA Corporate Group, one of the largest
financial application software companies. Mr. Comu has been an entrepreneur,
financier and turnaround professional to several start ups and operating
companies during his term as President of Credit America Holdings Group, a
privately held and managed investment banking and consulting firm. Mr. Comu
co-founded Transworld Leasing with Mr. Potter, a full service leasing and
finance firm, prior to the formation of AIRTECH. It is anticipated that Mr. Comu
will become a director of ITC if the proposed transaction is completed.
Scott McCleskey, 38.
- --------------------
Mr. McCleskey, President of McCleskey Sales and Service, a wholly owned
subsidiary of AIRTECH, has over 15 years experience in the HVAC industry, along
with sales, service and repair of commercial air cleaning technology.
24
<PAGE>
Term of Office
- --------------
Each director of ITC serves for a term of one year, and thereafter until
his or her successor is elected at ITC's annual shareholder's meeting, and is
qualified, subject to removal by ITC's shareholders. Each officer serves, at the
pleasure of the Board of Directors, for a term of one year.
Executive Compensation
- ----------------------
Perry Douglas West, former Chairman and Chief Executive Officer of ITC has
no employment agreement in force as of May 31, 1997, and receives no current
compensation. Mr. West has agreed to defer compensation and compensation issues
until a future date. Mr. West received $32,000 in miscellaneous compensation
during fiscal year 1997 and $0 during fiscal year 1998.
Set forth below is a summary of the annual compensation set for fiscal year
1997-98.
Bonus
Cash Restricted
Name and Position Salary Bonus Stock
----------------- ------ ----- -----
John Potter, $250,000 none none
President
C. J. Comu, $250,000 none none
Chief Executive Officer
Transactions with and Indebtedness of Management and Others
- -----------------------------------------------------------
There were no material transactions or series of similar transactions,
since the beginning of ITC's last fiscal year, or any currently proposed
transactions, or series of similar transactions, to which ITC was or is to be a
party, in which the amount involved exceeds $60,000 and in which any director or
executive officer, or any security holder who is known to ITC to own of record
or beneficially more than 5% of any class of ITC's common stock, or any member
of the immediate family of any of the foregoing persons, has an interest.
Involvement in Certain Legal Proceedings
- ----------------------------------------
To the knowledge of management, during the past five years, no present or
former director, executive officer, person nominated to become a director or an
executive officer of ITC, promoter, or control person:
(1) filed a petition under the federal bankruptcy laws or any
state insolvency law, nor had a receiver, fiscal agent or similar officer
appointed by a court for the business or property of such person, or any
partnership in which he was a general partner at or within two years
before the time of such filing, or any corporation or business
association of which he was an executive officer at or within two years
before the time of such filing, or any corporation or business
association of which he was an executive officer at or within two years
before the time of such filing;
(2) was convicted in a criminal proceeding or named the subject of
a pending criminal proceeding (excluding traffic violation and other
minor offenses);
25
<PAGE>
(3) was the subject of any order, judgement or decree, not
subsequently reversed, suspended, or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from or otherwise
limiting, the following activities: acting as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leveraged transaction merchant associated person
of any of the foregoing, or as an investment advisor, underwriter,
broker, or dealer in securities, or as an affiliate person, director, or
employee of any investment company, or engaging in or continuing any
conduct or practice in connection with such activity; (ii) engaging in
any type of business practice; or (ii) engaging in any activity in
connection with the purchase or sale of any security or commodity or in
connection with any violation of federal or state securities laws or
federal commodities laws;
(4) was the subject of any order, judgment, or decree, not
subsequently reversed, suspended, or vacated, of any federal or state
authority barring, suspending, or otherwise limiting for more than 60
days the right of such person to engage in any activity described above
under this item, or to be associated with persons engaged in any such
activity;
(5) was found by a court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated any
federal or state securities law, and the judgment in such civil action or
finding by the Securities and Exchange Commission has not been
subsequently reversed, suspended, or vacated; or
(6) was found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated
any federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended, or vacated.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following pro forma tables set forth the number of shares of ITC Common
Stock which will be held of record or beneficially, after giving effect to the
proposed transaction, by each person who held of record, or was known by ITC to
own beneficially, more than 5% of their then issued and outstanding shares of
common stock as of the closing of the transaction. The tables also include the
name and share holdings of each proposed director and of all proposed officers
and directors as a group:
Security Ownership of Certain Beneficial Owners
As of February 28, 1998
%of
Class Beneficial Owner Amount Class
----- ---------------- ------ -----
Common Perry Douglas West 2,300,000 10.47
26
<PAGE>
Security Ownership of Management. The following table sets forth
information with respect to the share ownership of Common Stock, par value
$0.01, of ITC by its officers and directors, both individually and as a group,
who are the beneficial owner of more than 5% of ITC's Common Shares.
- --------------------------------------------------------------------------------
(1) (2) (3) (4)
Name & Address Nature of Amount and
Title of Class of Beneficial Owner1 Beneficial Ownership 2 Percent of Class
- --------------------------------------------------------------------------------
Common Perry Douglas West 2,300,000 10.47%
Winter Park, FL
Common John Potter 691,367 3.15%
Dallas, Texas
Common C.J. Comu 1,016,994 4.63%
Dallas, Texas
Common Scott McCleskey 288,054 1.31%
Dallas, Texas
Common CleanAir Partnership 1,380,466 6.28%
All Officers and
Directors as a
Group (4) 4,296,415 19.56%
NOTES:
1. Each person has sole voting and investment power with respect to the
shares indicated as owned beneficially by each person.
2. Except as other wise noted, all shares listed are owned both of record
and beneficially.
Post Closing - Post Conversion
- ------------------------------
Both the ITC Preferred Shares and the ITC Debentures are subject to
conversion at the option of itc at any time within 24 months following the date
of issuance, assuming that ITC elected to convert.
- --------------------------------------------------------------------------------
(1) (2) (3) (4)
Name & Address Nature of Amount and
Title of Class of Beneficial Owner 1 Beneficial Ownership 2 Percent of Class
- --------------------------------------------------------------------------------
Common Perry Douglas West 2,300,000 4.93%
Winter Park, FL
Common John Potter 2,318,719 4.97%
Dallas, Texas
Common C.J. Comu 3,410,719 7.31%
Dallas, Texas
Common Scott McCleskey 960,705 2.06%
Dallas, Texas
Common CleanAir Partnership 4,629,840 9.92%
Niagara Fall, NY
All Officers and
Directors as a
Group (4) 8,990,238 19.27%
27
<PAGE>
NOTES:
1. Each person has sole voting and investment power with respect to the
shares indicated as owned beneficially by each person.
2. Except as other wise noted, all shares listed are owned both of record
and beneficially.
INTERESTS OF EXPERTS AND COUNSEL
No expert named in this prospectus as having prepared or certified any part
of this prospectus, no person having prepared or certified a report or valuation
for use in connection with this prospectus, and no counsel named in this
prospectus as having rendered an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of such securities was employed for such purpose on a contingent
basis, or at the time of such preparation, certification or opinion or at any
time thereafter through the date of effectiveness of the registration statement
had, or is to receive, in connection with the offering, a substantial interest,
direct or indirect, in the registrant or any of its parents or subsidiaries, or
was an underwriter, voting trustee, director, officer, or employee.
CERTAIN LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock which
are the subject of this Prospectus will be passed upon by Perry West, Esq.,
officer, director and major shareholder of the Registrant.
EXPERTS
The consolidated financial statements and schedules of ITC, included in
this Prospectus and elsewhere in the Registration Statement have been audited by
Turner, Stone & Company, Dallas Texas, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm of experts in giving said reports.
TRANSFER AGENT
Interwest Transfer Company, P.O. Box 17136, Salt Lake City, Utah 84117,
Tele: 801-272-9294, Fax: 801-277-3147 will act as Transfer Agent for the ITC
Common Stock. ITC will act as transfer agent for the ITC Debentures and the ITC
Preferred Stock.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling ITC
pursuant to the foregoing provisions, ITC has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
DELAYING AMENDMENT
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a)
may determine.
28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
EXHIBIT NO. DESCRIPTION
23 Consent of the Accountants
ALVIN L. DAHL & ASSOCIATES, PC Filed herewith.
TURNER, STONE & COMPANY Filed herewith.
99.15 Proforma Financial Statements
for the 12 month period ended May 31, 1997 Filed herewith.
Proforma Financial Statements
for the nine months ended February 28, 1998 Filed herewith.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned hereunto duly authorized in the City of Dallas,
State of Texas, on April 24, 1998.
Interactive Technologies Corp., Inc.,
a Wyoming corporation
/s/ CJ Comu
-----------------------------------
CJ Comu
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been duly signed by the following persons in the capacities and on
the date indicated.
/s/ CJ Comu
------------------------------------
CJ Comu
Chief Executive Officer and Director
30
<PAGE>
ALVIN L. DAHL & ASSOCIATES, PC
11615 Forest Central Drive
Suite 301
Dallas, TX 75243
(214)340-5885
Independent Auditor's Consent
Board of Directors and Stockholders
Airtech International Corporation
We consent to the use and inclusion in this Form S-4 Registration Statement
and the Prospectus, which is part of this Registration Statement, of our report
dated September 19, 1997 on our audit of the consolidated financial statements
of Airtech International Corporation at May 31, 1997 and 1996 and for the years
then ended.
We also consent to the reference of our Firm under the caption "Experts" in
the Registration Statement and Prospectus.
/s/ Alvin L. Dahl
- --------------------
ALVIN L. DAHL & Associates, PC
Certified Public Accountants
Dallas, Texas
December 5, 1997
31
<PAGE>
TURNER, STONE & COMPANY
Certified Public Accountants
12700 Park Central Dr
Suite 1610
Dallas, TX 75251
(972) 239-1660
Independent Auditors' Consent
The Board of Directors and
Stockholders of Interactive Technologies Corporation, Inc.
We consent to the incorporation by reference in this Form S-4 Registration
Statement of Interactive Technologies Corporation, Inc. of our report dated
September 11, 1997 appearing in and incorporated by reference in the Annual
Report on Form 10-KSB of Interactive Technologies Corporation, Inc. for the year
ended May 31, 1997.
We also consent to the reference of our Firm under the caption "Experts" in
such Registration Statement.
/s/ Turner, Stone & Company, L.L.P.
- ------------------------------------
Turner, Stone & Company, L.L.P.
Certified Public Accountants
Dallas, Texas
December 5, 1997
32
<TABLE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
PRO-FORMA COMBINED BALANCE SHEETS
MAY 31, 1997
<CAPTION>
Historical
----------------------------------
Acquired
Interactive
Technologies Airtech Adjustments
Corporation International For
Inc. Corporation Acquisition Combined
--------------------------------- -------------- -----------
ASSETS
-----------------
<S> <C> <C> <C> <C>
Current Assets $ 179,051 $1,045,130 $1,224,181
Property and equipment net
of depreciation 86,285 230,426 316,711
Notes receivable 783,957 783,957
Intellectial properties net of
amortization 4,911,768(2) 1,087,397(3) 12,250,000(4) 18,249,165
Goodwill 617,500 1,329,252(4) 1,329,252
Other assets 1,666 519,689 521,355
--------------- -------------- --------------- -----------
Total Assets 5,178,770 4,284,099 13,579,252 $22,424,621
=============== ============== =============== ============
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Current Liabilities $ 676,096 $ 385,608 $ 1,061,704
Deferred revenue 400,000 400,000
Long-term liabilities 548,673 47,743 596,416
9,000,000(4) 9,000,000
--------------- -------------- ------------
Total Liabilities 1,224,769 833,351 11,058,120
--------------- -------------- ------------
Commitments and contigencies (5)
Stockholders' Equity
Paid in Capital 10,970,830 4,110,491 4,579,252(4) 19,660,573
Retained Earning (Deficit) (7,016,829) (659,743) (7,676,572)
--------------- -------------- -------------
3,954,001 3,450,748 11,984,001
--------------- -------------- -------------- -------------
Total Liabilities and
Stockholders' Equity $ 5,178,770 4,284,099 13,579,252 23,042,121
=============== ============== ============== =============
</TABLE>
See notes to Pro-Forma Combined Financial Statements
33
<PAGE>
<TABLE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
PRO-FORMA COMBINED STATEMENT OF OPERATIONS
For The Year Ended May 31, 1997
<CAPTION>
Historical
-------------------------------
Acquired
----------
Interactive
Technologies Airtech Adjustments
Corporation International For
Inc. Corporation Acquisition Combined
-------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 197,781 $ 1,875,264 $ 2,073,045
Cost of Sales - 1,018,804 1,018,804
-------------- --------------- -----------
Gross income 197,781 856,460 1,054,241
General and Administrative 2,116,712 965,113 3,081,825
Interest expense
900,000(a) 900,000
Depreciation and amortization 982,642 50,613 (b) 1,033,255
-------------- --------------- -----------
Total Expenses 3,099,354 1,015,726 900,000 5,015,080
-------------- --------------- ------------- -----------
Net income from operations (2,901,573) (159,266) (900,000) (3,960,839)
Gain on sale of Charleston
license 543,501 - 543,501
Loss from abandonment of
equipment and related capital
lease obligation (297,095) (297,095)
Income taxes - - -
------------- --------------- ------------- ------------
Net Income $ (2,655,167) $ (159,266) (900,000) $(3,714,433)
============= =============== ============
Primary earnings per share $ (0.22)(1) $ (0.01)(1) $ (0.21)
Dulited earnings per share $ (0.22)(1) $ (0.01)(1) $ (0.09)
(a) Interest expense is computed as if this transaction had been completed on June 1, 1996
(b) The Company will elect to amortize and depreciate assets when placed in service,
intellectual properties will not be placed in service until 1998, and accordingly
no provision for amortization included in this Proforma Statement of Operations
See notes to Pro-Forma Combined Financial Statements
34
</TABLE>
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
May 31, 1997
1. Basis of Presentation
The accompanying Pro-Forma Combined balance sheet at May 31, 1997 and
related combined statement of operations for the year then ended have been
prepared as if the business combination had occurred on June 1, 1996 the start
of the current fiscal year of Interactive.
The purchase of the outstanding stock of Airtech by Interactive is being
reflected in these Pro-Forma Combined Financial Statements using the purchase
method for recording the transaction. The excess of cost over book value has
been reclassified to other assets of Airtech based on managements estimates and
outside valuation based on projected cash flows and revenues from the revalued
assets. No provision for amortization of these revalued assets or goodwill are
reflected in these combined financial statements.
There have been no changes in generally accepted accounting principals in
the presentation of the combined financial statements from the historical
audited financial statements included herein by reference as previously filed or
in the audited financial statements of Airtech for its fiscal year ended May 31,
1997.
Earnings per Share (EPS) is reflected as primary earning per share and
fully dilluted earnings per share set forth in the following table used for EPS
computation:
Historical
ITC Airtech
Weighted average number of shares 12,139,865 17,485,000
Less shares cancelled ( 3,400,000)
Add shares issued for debentures 1,144,444
Adjustment for combined presentation (17,485,000)
Common shares issued for acquired 8,000,000
Primary shares outstanding 17,884,309
Assuming conversion of convertable
preferred issued for acquired 8,850,000
Assuming conversion of convertable
Debentures issued for acquired 12,857,143
Fully diluted shares outstanding 39,591,452
35
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
May 31, 1997
Notes to Historical Financial Statements
1. Intellectual properties reflected on the balance sheet of Interactive
consist of the following:
License rights net of accumulated amortization
of $371,250 $ 303,750
Proprietary software and trademark, net of accumulated
amortization of $1,257,028 4,154,015
$4,457,765
License rights consist of ITC's Federal Communications Commission
Interactive Video and Data Services (IVDS) radio station license in the
Melbourne-Titusville-Palm Bay, Florida and the retained 10% interest in IVDS
license in the Charleston-North Charleston, South Carolina service areas
representing an additional enhancement to ITC=s programming distribution. These
licenses have a duration of an initial five years, and are renewable if all
conditions of the license are met. IVDS, a two way communications system , will
allow viewer to take an active role in systems delivered through broadcast
television, cable television, wireless cable, direct broadcast satellite or
other future television delivery methods. IVDS is regulated as a personal radio
service under the rules of the FCC which has allocated spectrum in the 218-219
MHZ range for its use. IVDS systems are designed to operate with a hand-held
remote control device that controls the interactive set top[ device on the
subscriber's television set. A viewer would interact with the TV station through
a radio signal using an IVDS frequency.
Proprietary software and trademarks consist of software developed for
integration into the rebate television market and a trademark known as Rebate TV
(TM) purchased in October 1995. This proprietary software allows ITC to be a
developer and producer of television, interactive television and interactive
digital media programming. These programs can be developed in various
interactive formats for cable, broadcast and direct broadcast satellite
television as well as for Internet distribution. Rebate TV is a television
program which incorporates interactive media and computer data management
allowing retail vendors to communicate their message to consumers, the allow the
consumer to verify his or her purchase, with the consumer receiving a cash
rebate from ITC for their purchases. Retailers represent a broad spectrum of the
business community including grocer chains, furniture stores, tire service
stores, banks, restaurants, car dealers and a variety of other specialty
businesses.
2. Intellectual properties reflected on the balance of Airtech consist of
the cost incurred to date for the development of a full line of air purification
products for commercial, consumer, automobile and medical use. Several of the
products will be eligible for a US and foreign patents with patent applications
currently in process or planned .
Adjustments for Acquisition
3. Per the stock purchase agreement entered into on May 8, 1997 between
Interactive Technologies Corporation, Inc. and Airtech International Corporation
the following presents the securities and the related valuation of the purchase
of 100% of the issued and outstanding common stock of Airtech:
Value
Description of Securities Per Share Total
8,000,000 shares of Interactive
Common Stock, registered $0.56(a) $ 4,480,000
8,850,000 shares of Interactive
Preferred Stock, registered and
convertible into Common Stock $0.45(b) 3,982,500
$9,000,000 in Convertible
Debentures At Face 9,000,000
Total value of purchase of 100%of Airtech
Common Stock $ 17,462,500
36
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
MAY 31, 1997
(Unaudited)
(a) The closing of bid price of Interactive common stock on May 8, 1997 was
$1.125, for valuation of a private placement type transaction of registered
shares of common stock Interactive has discounted the price per share by 50%.
(b) The Preferred Stock is convertible into one (1) share of Common Stock
after 24 months or can be called by the Company during that time, for valuation
purposes the assigned value of the common shares was reduced by 20%.
The following represents the allocation of the purchase price:
Book value of Airtech common stock $ 3,804,026
Intellectual properties 12,250,000
Excess of purchase price over cost 1,408,474
Total Purchase Price $17,462,500
4. Interactive Technologies has the following litigation pending:
The Company is a defendant in a proceeding filed in the United States
District Court for the Southern District of New York. It accepted service April
5, 1997 in an action brought by Studiolink Corporation and Steven Campus for
damages arising out of an equipment lease agreement. The Company expects to
assert counterclaims against the Plaintiffs for losses suffered as a result of
their failure to perform. Settlement discussions have been ongoing and the
Company expects this matter to be settled in a manner not unfavorable to the
Company. In addition, in related matters, the Company is in litigation with LLB
Realty, L.L.C. which has filed a claim alleging claims under an office lease
agreement in Superior Court of New Jersey, Mercer County. The Company has
asserted claims against L.L.B. Realty, L.L.C. for failure to perform under the
conditions of the agreement. Settlement negotiations have been ongoing and the
Company expects this matter to be settled in a manner not unfavorable to the
Company. .
The Company is not a party to any other pending legal proceedings except
for claims and lawsuits arising in the normal course of business. The Company
does not believe that these claims or lawsuits will have a material effect on
ITC's financial condition or results of operations. Accordingly no provision or
accrual for potential losses are reflected in the Pro-Forma Combined Financial
Statements.
Airtech International Corporation has the following litigation pending:
Airtech International Corporation, McCleskey Sales and Service, Inc., C.J.
Comu and John Potter, plaintiffs vs Honeywell, Inc., Honeywell Environmental Air
Control, Inc. And Suzanne Haas, defendants; No. 3:96CV-1855-D, United States
District Court for the Northern District of Texas, Dallas Division.
In this case, Airtech, a subsidiary and two of its officers filed suit
against Honeywell, Inc. And a Honeywell subsidiary and an employee asserting
several causes of action. These causes of action include breach of contract
relating to termination of the Company=s Full Service Distributorship
agreements, for defamation and tortious interference with contract relating to a
merger agreement between the Company and DCX, Inc., for unfair competition
regarding claims made by Honeywell about it air purification products, for
negligent misrepresentation regarding representations made to the Company and
its subsidiary regarding the exclusivity of certain arrangements with the
defendants, and for declaratory relief and attorney=s fees. Honeywell filed a
counterclaim against the Company, McCleskey, Comu and Potter. Honeywell alleges
that the Company and McCleskey owe Honeywell money for past purchases, and that
Comu and Potter interfered with the relationship between McCleskey and
Honeywell. Honeywell seeks $71,000 in actual damages and unspecified punitive
damages and attorney=s fees. The Company has denied all of the material
allegations of Honeywell=s counterclaim. The Company plans to vigorously defend
the counterclaim and believes the counterclaim to be without merit. Honeywell,
Inc., plaintiff, vs Airtech International Corporation, AirSoPure, Inc. And
Richard Allegrati, defendants: No. WMN 97-238 United States District Court for
the District of Maryland, Baltimore Division.
37
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
May 31, 1997
Honeywell filed suit against the Company, a subsidiary and an employee,
alleging violations of the Lanham Act and the Maryland Uniform Trade Secrets Act
and the common law. The suit alleges that certain Airtech and AirSoPure products
were sold in violation of the Honeywell=s trademarks, and that the cover design
of certain products of Airtech/AirSoPure was wrongfully obtained. The suit seeks
an injunction and unspecified damages. Rather than incur substantial additional
attorney=s fees, the Company agreed to the entry of a preliminary injunction
regarding the sale of a very small number of modified Honeywell products,
immaterial to the Company=s business. The Company denies all of the material
allegations of Honeywell=s claims, is vigorously defending this case. The
Company believes Honeywell=s claims to be without merit.
Accordingly no reserve or accrual has been reflected in these Combined
Pro-Forma Financial Statements for this pending litigation.
38
<TABLE>
INTERACTIVE TECHNOLOGIES CORPORATION INC.
PROFORMA COMBINED BALANCE SHEETS
February 28, 1998
(Unaudited)
<CAPTION>
Historical
--------------------------------
Acquired
Interactive
Technologies Airtech Adjustments
Corporation International For
Inc. Corporation Acquisition Combined
-------------- ------------- ------------ -----------
ASSETS
<S> <C> <C> <C> <C>
Current Assets $250,940 $1,258,450 $1,509,390
Property and equipment net
of depreciation 68,042 240,676 308,718
Notes receivable 899,833 899,833
Intellectual properties net of
Amortization 4,230,763(2) 1,205,737(3) 12,250,000(4) 17,686,500
Investment in Joint Venture 456,278 (472,687) (16,409)
Goodwill 605,313 848,307(4) 1,453,620
Other assets 2,336 524,918 527,254
------------- ------------ -------------- ------------
Total Assets $5,008,359 $4,262,240 $13,098,307 $22,368,906
============= ============ ============== ============
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C> <C> <C>
Current Liabilities $656,648 $936,601 $1,593,249
Deferred Revenue 200,000 200,000
Long-term liabilities 329,923 39,381 369,304
Debentures 9,000,000(4) 9,000,000
------------- ------------ -------------- -----------
Total Liabilities 986,571 1,175,982 11,162,553
Commitments and contingencies (5)
Stockholders' Equity
Paid in Capital 12,113,335 4,236,590 4,098,307(4) 20,448,232
Retained Earning (Deficit)
(8,091,547) (1,150,332) (9,241,879)
--------------- ------------- -------------- ------------
4,021,788 3,086,258 4,098,307 11,206,353
--------------- ------------- -------------- ------------
Total Liabilities and
Stockholders' Equity $5,008,359 $4,262,240 $13,098,307 $22,368,906
=============== ============= ============== =============
</TABLE>
See notes to Pro-Forma Combined Financial Statements
39
<PAGE>
<TABLE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
PROFORMA COMBINED STATEMENTS OF INCOME
For the Nine Months Ended February 28, 1998
(Unaudited)
<CAPTION>
Historical Adjustments
------------------------------- -------------
Acquired
--------
Interactive
Technologies Airtech Adjustments
Corporation International For
Inc. Corporation Acquisition Combined
------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Net revenues $ (1,055) $ 933,311 $ 932,256
Cost of Sales 18,629 428,873 447,502
------------- -------------- ------------
Gross income (19,684) 504,438 484,754
General and Administrative 358,341 974,591 1,332,932
Amortization and Depreciation 697,847 20,436 718,283
------------ --------------- ------------
Total Expenses 1,056,188 995,027 2,051,215
Net income (loss)
From operations (1,075,872) (490,589) (1,566,461)
Income taxes - - -
----------- --------------- -------------
Net Income (Loss) $(1,075,872) $ (490,589) $(1,566,461)
=========== =============== =============
Primary (loss) per share $ (0.07)(1) $ (0.02)(1) $ (0.08)
Diluted (loss) per share $ (0.07)(1) $ (0.02)(1) $ (0.03)
</TABLE>
See notes to Pro-Forma Combined Financial Statements
40
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
February 28, 1998
(Unaudited)
1. Basis of Presentation
The accompanying Pro-Forma Combined balance sheet at August 31, 1997 and
related combined statement of operations for the nine months then ended have
been prepared as if the business combination had occurred on June 1, 1997 the
start of the current fiscal year of Interactive.
The purchase of the outstanding stock of Airtech by Interactive is being
reflected in these Pro-Forma Combined Financial Statements using the purchase
method for recording the transaction. The excess of cost over book value has
been reclassified to other assets of Airtech based on managements estimates and
outside valuation based on projected cash flows and revenues from the revalued
assets. No provision for amortization of these revalued assets or goodwill are
reflected in these combined financial statements.
There have been no changes in generally accepted accounting principals in
the presentation of the combined financial statements from the historical
audited financial statements included herein by reference as previously filed or
in the audited financial statements of Airtech for its fiscal year ended May 31,
1997.
Earnings per Share (EPS) is reflected as primary earning per share and
fully dilluted earnings per share set forth in the following table used for EPS
computation:
Historical
------------------------------
ITC Airtech
Weighted average number of shares 12,139,865 17,485,000
Less shares cancelled ( 3,400,000)
Add shares issued for debentures 1,144,444
Adjustment for combined presentation (17,485,000)
Common shares issued for acquired 8,000,000
-----------
Primary shares outstanding 17,884,309
Assuming conversion of convertable
preferred issued for acquired 8,850,000
Additional shares because of increase
in Interactive common stock 5,508,016
Assuming conversion of convertable
Debentures issued for acquired 12,857,143
-----------
Fully diluted shares outstanding 45,099,468
Notes to Historical Financial Statements
1. Intellectual properties reflected on the balance sheet of Interactive
consist of the following:
License rights net of accumulated amortization
of $405,000 $ 270,000
Proprietary software and trademark, net of accumulated
amortization of $1,450,279 3,960,763
-----------
$4,230,763
License rights consist of ITC's Federal Communications Commission
Interactive Video and Data Services (IVDS) radio station license in the
Melbourne-Titusville-Palm Bay, Florida and the retained 10% interest in IVDS
license in the Charleston-North Charleston, South Carolina service areas
representing an additional enhancement to ITC's programming distribution. These
licenses have a duration of an initial five years, and are renewable if all
conditions of the license are met. IVDS, a two way communications system , will
allow viewer to take an active role in systems delivered through broadcast
television, cable television, wireless cable, direct broadcast satellite or
other future television delivery methods. IVDS is regulated as a personal radio
41
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
February 28, 1998
(Unaudited)
service under the rules of the FCC which has allocated spectrum in the 218-219
MHZ range for its use. IVDS systems are designed to operate with a hand-held
remote control device that controls the interactive set top[ device on the
subscriber's television set. A viewer would interact with the TV station through
a radio signal using an IVDS frequency.
Proprietary software and trademarks consist of software developed for
integration into the rebate television market and a trademark known as Rebate TV
(TM) purchased in October 1995. This proprietary software allows ITC to be a
developer and producer of television, interactive television and interactive
digital media programming. These programs can be developed in various
interactive formats for cable, broadcast and direct broadcast satellite
television as well as for Internet distribution. Rebate TV is a television
program which incorporates interactive media and computer data management
allowing retail vendors to communicate their message to consumers, the allow the
consumer to verify his or her purchase, with the consumer receiving a cash
rebate from ITC for their purchases. Retailers represent a broad spectrum of the
business community including grocer chains, furniture stores, tire service
stores, banks, restaurants, car dealers and a variety of other specialty
businesses.
2. Intellectual properties reflected on the balance of Airtech consist of
the cost incurred to date for the development of a full line of air purification
products for commercial, consumer, automobile and medical use. Several of the
products will be eligible for a US and foreign patents with patent applications
currently in process or planned .
Adjustments for Acquisition
3. Per the stock purchase agreement entered into on May 8, 1997 between
Interactive Technologies Corporation, Inc. and Airtech International Corporation
the following presents the securities and the related valuation of the purchase
of 100% of the issued and outstanding common stock of Airtech:
Value
Description of Securities Per Share Total
------------------------- ---------- -------
8,000,000 shares of Interactive
Common Stock, registered $0.32(a) $2,560,000
8,850,000 shares of Interactive
Preferred Stock, registered and
convertible into Common Stock $0.32(b) 2,832,000
$9,000,000 in Convertible
Debentures At Face 9,000,000
Additional shres due Airtech
Stockholders because if increase
in Interactive common stock
from May 31, 1997 $0.032(a) 1,762,565
----------
Total value of purchase of 100% of
Airtech Common Stock $ 16,154,565
42
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
February 28, 1998
(Unaudited)
(a) The closing of bid price of Interactive common stock on February 28,
1998 was $0.32 per share. This price per share will be adjusted to the price per
share on the closing date.
The following represents the allocation of the purchase price:
Book value of Airtech common stock $ 3,086,258
Intellectual properties 12,250,000
Excess of purchase price over cost 818,307
-------------
Total Purchase Price $16,154,565
4. Interactive Technologies has the following litigation pending:
The Company is in litigation with LLB Realty, L.L.C. which has filed a
claim alleging claims under an office lease agreement in Superior Court of New
Jersey, Mercer County. The Company has asserted claims against L.L.B. Realty,
L.L.C. for failure to perform under the conditions of the agreement. Settlement
negotiations have been ongoing and the Company expects this matter to be settled
in a manner not unfavorable to the Company. .
The Company is not a party to any other pending legal proceedings except
for claims and lawsuits arising in the normal course of business. The Company
does not believe that these claims or lawsuits will have a material effect on
ITC=s financial condition or results of operations. Accordingly no provision or
accrual for potential losses are reflected in the Pro-Forma Combined Financial
Statements.
Airtech International Corporation has the following litigation pending:
Airtech International Corporation, McCleskey Sales and Service, Inc., C.J.
Comu and John Potter, plaintiffs vs Honeywell, Inc., Honeywell Environmental Air
Control, Inc. And Suzanne Haas, defendants; No. 3:96CV-1855-D, United States
District Court for the Northern District of Texas, Dallas Division.
In this case, Airtech, a subsidiary and two of its officers filed suit
against Honeywell, Inc. And a Honeywell subsidiary and an employee asserting
several causes of action. These causes of action include breach of contract
relating to termination of the Company=s Full Service Distributorship
agreements, for defamation and tortious interference with contract relating to a
merger agreement between the Company and DCX, Inc., for unfair competition
regarding claims made by Honeywell about it air purification products, for
negligent misrepresentation regarding representations made to the Company and
its subsidiary regarding the exclusivity of certain arrangements with the
defendants, and for declaratory relief and attorney=s fees. Honeywell filed a
counterclaim against the Company, McCleskey, Comu and Potter. Honeywell alleges
that the Company and McCleskey owe Honeywell money for past purchases, and that
Comu and Potter interfered with the relationship between McCleskey and
Honeywell. Honeywell seeks $71,000 in actual damages and unspecified punitive
damages and attorney's fees. The Company has denied all of the material
allegations of Honeywell=s counterclaim. The Company plans to vigorously defend
the counterclaim and believes the counterclaim to be without merit.
Honeywell,Inc., plaintiff, vs Airtech International Corporation, AirSoPure,
Inc. And Richard Allegrati, defendants: No. WMN 97-238 United States District
Court for the District of Maryland, Baltimore Division.
43
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
February 28, 1998
(Unaudited)
Honeywell filed suit against the Company, a subsidiary and an employee,
alleging violations of the Lanham Act and the Maryland Uniform Trade Secrets Act
and the common law. The suit alleges that certain Airtech and AirSoPure products
were sold in violation of the Honeywell=s trademarks, and that the cover design
of certain products of Airtech/AirSoPure was wrongfully obtained. The suit seeks
an injunction and unspecified damages. Rather than incur substantial additional
attorney=s fees, the Company agreed to the entry of a preliminary injunction
regarding the sale of a very small number of modified Honeywell products,
immaterial to the Company's business. The Company denies all of the material
allegations of Honeywell's claims, is vigorously defending this case. The
Company believes Honeywell's claims to be without merit.
Accordingly no reserve or accrual has been reflected in these Combined
Pro-Forma Financial Statements for this pending litigation.
A motion for dismissal was entered into as settlement of the Honeywell
litigation in March 1998.
44
